<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 28, 1997
REGISTRATION NO. 33-
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HIGHLAND BANCORP, INC.
(Exact name of issuer as specified in its charter)
DELAWARE 6036 95-4654552
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
601 SOUTH GLENOAKS BOULEVARD
BURBANK, CALIFORNIA 91502
(818) 848-4265
(Address including zip code, and telephone number, including area code, of
registrant's principal executive offices)
STEPHEN N. RIPPE
601 SOUTH GLENOAKS BOULEVARD
BURBANK, CALIFORNIA 91502
(818) 848-4265
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH A COPY TO:
WILLIAM T. QUICKSILVER, ESQ.
MANATT, PHELPS & PHILLIPS, LLP
11355 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [X]
CALCULATION OF REGISTRATION FEE
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE
- - ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, no par
value................. 2,300,137 $31.750 $73,029,350 $22,131
</TABLE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
(1) Represents the maximum number of shares issuable upon the Reorganization
as described in the Registration Statement, based upon (i) the anticipated
maximum number of outstanding shares of Highland Federal Bank common stock
at the effective date of the Reorganization and (ii) the conversion ratio
of one share of Highland Bancorp, Inc. common stock issued for each share
of Highland Federal Bank common stock.
(2) Estimated solely for purposes of determining the registration fee and
based, in accordance with Rule 457(f)(1), upon the average of the high and
low prices per share of the common stock of the Bank as of October 21,
1997 as reported on The Nasdaq Stock Market, Inc., National Market System.
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
HIGHLAND BANCORP, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-
4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
------------------------- ------------------------------------------------
<S> <C>
1. Forepart of Registration
Statement and Outside
Front Cover Page of
Prospectus................ Facing Page of Registration Statement; Outside
Front Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside
Back Cover Pages of
Prospectus................ Available Information; Table of Contents
3. Risk Factors, Ratio of
Earnings to Fixed Charges
and Other Information..... Outside Front Cover Page of Proxy
Statement/Prospectus; Summary of Proxy
Statement/Prospectus; Proposal 1: Formation of
the Company--Business of the Company and the
Bank
4. Terms of the Transaction.. Proposal 1: Formation of the Company--Details of
the Reorganization;--Reasons for the
Reorganization;--Description of the Company
Capital Stock;--Comparison of Shareholders'
Rights;-- Accounting Treatment;-- Tax
Consequences of the Reorganization
5. Pro Forma Financial
Information............... Not Applicable
6. Material Contracts with
the Company Being
Acquired.................. Proposal 1: Formation of the Company--Details of
the Reorganization
7. Additional Information
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters........ Not Applicable
8. Interests of Named Experts
and Counsel............... Not Applicable
9. Disclosure of Commission
Position on
Indemnification for
Securities Act
Liabilities............... Proposal 1: Formation of the Company--Comparison
of Shareholders' Rights--Indemnification of
Directors and Officers
10. Information with Respect
to S-3 Registrants........ Not Applicable
11. Incorporation of Certain
Information by Reference.. Not Applicable
12. Information with Respect
to S-2 or S-3
Registrants............... Not Applicable
13. Incorporation of Certain
Information by Reference.. Not Applicable
14. Information with Respect
to Registrants Other Than
S-1 or S-3 Registrants.... Proposal 1: Formation of the Company--Business
of the Company and the Bank
15. Information with Respect
to S-3 Companies.......... Not Applicable
16. Information with Respect
to S-2 or S-3 Companies... Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-
4 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
------------------------- ------------------------------------------------
<S> <C>
17. Information with Respect to
Companies Other than S-2 or
S-3 Companies.............. Not Applicable
18. Information if Proxies,
Consents or Authorizations
are to be Solicited........ Outside Front Cover Page of Proxy
Statement/Prospectus; Voting Rights and
Solicitation of Proxies; Proposal 1: Formation
of the Company--Nonavailability of Dissenters'
Rights; Securities Ownership of Management;
Securities Ownership of Certain Beneficial
Owners; Executive Compensation
19. Information if Proxies,
Consents or Authorizations
are not to be Solicited or
in an Exchange Offer....... Not Applicable
</TABLE>
<PAGE>
HIGHLAND FEDERAL BANK, A FEDERAL SAVINGS BANK
601 SOUTH GLENOAKS BOULEVARD
BURBANK, CALIFORNIA 91502
(818) 848-4265
NOVEMBER 18, 1997
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders (the
"Special Meeting") of Highland Federal Bank, a federal savings bank (the
"Bank"), to be held at the corporate offices of the Bank at 601 South Glenoaks
Boulevard, Burbank, California 91502, on Thursday, December 11, 1997, at 10:00
a.m., local time.
As described in the accompanying materials, shareholders are being asked at
the Special Meeting to approve the formation of a holding company for the
Bank. The Board of Directors of the Bank believes that formation of a holding
company will provide greater operating flexibility than is currently available
to the Bank as a federally chartered savings bank. The Board of Directors has
unanimously approved the proposal to form a holding company and recommends
that you vote in favor of the proposal.
It is very important that you be represented at the Special Meeting
regardless of the number of shares you own or whether you are able to attend
the Special Meeting in person. Let us urge you to mark, sign and date your
proxy card today and return it in the envelope provided, even if you plan to
attend the Special Meeting. This will not prevent you from voting in person,
but will ensure that your vote is counted if you are unable to attend.
Your continued support of Highland Federal Bank is appreciated.
Sincerely,
Stephen N. Rippe
President and Chief Executive
Officer
<PAGE>
HIGHLAND FEDERAL BANK, A FEDERAL SAVINGS BANK
601 SOUTH GLENOAKS BOULEVARD
BURBANK, CALIFORNIA 91502
(818) 848-4265
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD DECEMBER 11, 1997
TO EACH SHAREHOLDER OF HIGHLAND FEDERAL BANK, A FEDERAL SAVINGS BANK:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders (the "Special
Meeting") of Highland Federal Bank, a federal savings bank (the "Bank"), will
be held at 10:00 a.m. on Thursday, December 11, 1997 at the corporate offices
of the Bank at 601 South Glenoaks Boulevard, Glendale, California 91502, for
the purpose of considering and voting upon the following matters:
(1) Proposal to Form a Holding Company for the Bank. Shareholders are being
asked to approve a proposal to reorganize the Bank into a holding
company form of organization in accordance with a Plan of
Reorganization and Agreement of Merger pursuant to which: (a) the Bank
will, subject to necessary regulatory approvals, become a wholly owned
subsidiary of a newly formed Delaware corporation, Highland Bancorp,
Inc. (the "Company"); and (b) each outstanding share of common stock of
the Bank will become, by operation of law, one share of common stock of
the Company.
(2) Other Business. Such other business as may properly come before the
Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on November 10, 1997
as the record date for the determination of shareholders entitled to receive
notice of and to vote at the Special Meeting and at any and all adjournments
thereof. Only holders of the common stock of the Bank at the close of business
on November 10, 1997 are entitled to notice of and to vote in person or by
proxy at the Special Meeting.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN
PERSON. HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND, YOU ARE URGED TO READ
THE ATTACHED PROXY STATEMENT/PROSPECTUS AND THEN COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE AS
PROMPTLY AS POSSIBLE. IF YOU RECEIVED MORE THAN ONE PROXY CARD BECAUSE YOU OWN
SHARES REGISTERED IN DIFFERENT NAMES OR AT DIFFERENT ADDRESSES, EACH PROXY
CARD SHOULD BE SEPARATELY COMPLETED AND RETURNED. IF YOU ATTEND THE SPECIAL
MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW YOUR PROXY. THE PROXY MAY
BE REVOKED AT ANY TIME PRIOR TO ITS EXERCISE.
IN ORDER TO FACILITATE THE PROVIDING OF ADEQUATE ACCOMMODATIONS, PLEASE
INDICATE ON THE PROXY WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING.
By Order of the Board of Directors
Anthony L. Frey
Executive Vice President,
Chief Financial Officer and
Corporate Secretary
Date: November 18, 1997
<PAGE>
PROXY STATEMENT OF
HIGHLAND FEDERAL BANK, A FEDERAL SAVINGS BANK
601 SOUTH GLENOAKS BOULEVARD
BURBANK, CALIFORNIA 91502
(818) 848-4265
----------------
PROSPECTUS OF HIGHLAND BANCORP, INC.
601 SOUTH GLENOAKS BOULEVARD
BURBANK, CALIFORNIA 91502
(818) 848-4265
----------------
SPECIAL MEETING OF SHAREHOLDERS
OF HIGHLAND FEDERAL BANK
TO BE HELD DECEMBER 11, 1997
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
furnished in connection with the solicitation of proxies by the Board of
Directors of Highland Federal Bank, a federally chartered savings bank (the
"Bank"), for use at the Special Meeting of Shareholders of the Bank (the
"Special Meeting") to be held on Thursday, December 11, 1997, at 10:00 a.m.,
local time, at the corporate offices of the Bank at 601 South Glenoaks
Boulevard, Glendale, California 91502, and at any and all adjournments
thereof. At the Special Meeting, shareholders of the Bank will be asked to
consider and vote upon a proposal to reorganize the Bank into a holding
company form of organization (the "Reorganization") in accordance with a Plan
of Reorganization and Agreement of Merger (the "Reorganization Agreement"), a
copy of which is attached hereto as Exhibit A. As a result of the
Reorganization, the Bank will, subject to necessary regulatory approvals,
become a wholly owned subsidiary of a newly formed Delaware corporation,
Highland Bancorp, Inc. (the "Company"), and each outstanding share of common
stock of the Bank, $1.00 par value per share (the "Bank Common Stock") will
become, by operation of law, one share of common stock of the Company, $0.01
par value per share (the "Company Common Stock").
This Proxy Statement/Prospectus also constitutes the Prospectus of the
Company under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the issuance of up to 2,300,137 shares of Company Common Stock
to shareholders of the Bank in exchange for an equal number of shares of Bank
Common Stock upon consummation of the Reorganization.
The Proxy Statement/Prospectus does not cover any resales of Company Common
Stock received by the Bank's shareholders upon completion of the
Reorganization. No person is authorized to make any use of this Proxy
Statement/Prospectus in connection with any such resale or in connection with
the offer or sale of any other securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES OFFERED HEREBY ARE NOT
SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY AND ARE SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE
LOSS OF PRINCIPAL.
----------------
The date of this Proxy Statement/Prospectus is November 18, 1997.
<PAGE>
AVAILABLE INFORMATION
The Bank is subject to the information, reporting and proxy statement
requirements of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and, in accordance therewith, files reports, proxy statements and other
information with the Office of Thrift Supervision ("OTS"). Copies of such
materials may be obtained at prescribed rates from the OTS, 1700 G Street,
N.W., Washington, D.C. 20552. The Company is currently a wholly owned
subsidiary of the Bank. As a wholly owned subsidiary, the Company has not
previously been subject to the requirements of the Exchange Act. However, upon
consummation of the Reorganization, the Company will become subject to the
same information, reporting and proxy statement requirements under the
Exchange Act as currently apply to the Bank, except that such filings will be
required to be made with the Securities and Exchange Commission (the "SEC" or
the "Commission") rather than the OTS and will be available for inspection and
copying at the Commission's public reference facilities located at: Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7 World
Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60621. Copies of such
material may be obtained at prescribed rates by writing to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. If
available, such information may also be accessed through the Commission's
electronic data gathering, analysis and retrieval system via electronic means,
including the Commission's web site on the Internet (http://www.sec.gov). The
Bank's reporting obligations under the Exchange Act will terminate when the
Company's reporting obligations begin. The Company Common Stock will be quoted
on The Nasdaq Stock Market, Inc., National Market System following the
Reorganization under the Bank's current trading symbol, "HBNK."
This Proxy Statement/Prospectus is included as part of a registration
statement on Form S-4 (together with all amendments and exhibits thereto,
including documents and information incorporated by reference, the
"Registration Statement") filed with the Commission by the Company, relating
to the registration under the Securities Act of shares of Company Common Stock
to be issued in the Reorganization. This Proxy Statement/Prospectus does not
contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the Commission, and to which reference is hereby made for
further information with respect to the Company and the Bank and the Company
Common Stock to be issued in the Reorganization. Statements contained herein
concerning any documents are not necessarily complete and, in each instance,
reference is made to the copies of such documents filed as exhibits to the
Company's Registration Statement. Each such statement is qualified in its
entirety by such reference.
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY OF PROXY STATEMENT/PROSPECTUS...................................... i
Purposes of the Special Meeting.......................................... iii
Reasons for the Reorganization........................................... iii
Description of the Reorganization........................................ iii
Tax Consequences of the Reorganization................................... iii
Comparison of Shareholders' Rights....................................... iv
Market for Company Common Stock.......................................... iv
Management of the Company................................................ iv
Regulation of the Company................................................ iv
Regulatory Approval...................................................... iv
Shareholder Vote Required for Approval................................... iv
Nonavailability of Dissenters' Rights.................................... v
SPECIAL MEETING OF SHAREHOLDERS............................................ 1
VOTING RIGHTS AND SOLICITATION OF PROXIES.................................. 1
PROPOSAL 1: FORMATION OF THE COMPANY....................................... 2
General.................................................................. 2
Reasons for the Reorganization........................................... 3
Details of the Reorganization............................................ 3
Effective Date........................................................... 4
Conditions to the Reorganization......................................... 4
Treatment of Stock Certificates.......................................... 4
Effect on Employee Benefit Plans......................................... 5
Tax Consequences of the Reorganization................................... 5
Accounting Treatment..................................................... 6
Nonavailability of Dissenters' Rights.................................... 6
Business of the Company and the Bank..................................... 6
Management of the Company................................................ 7
Supervision and Regulation............................................... 9
Description of the Company Capital Stock................................. 19
Comparison of Shareholders' Rights....................................... 20
General................................................................ 20
Authorized Capital Stock............................................... 20
Payment of Dividends................................................... 20
Board of Directors..................................................... 20
Indemnification of Directors and Officers.............................. 21
Limitation of Director Liability....................................... 23
Special Meetings of Shareholders....................................... 23
Shareholder Action Without a Meeting................................... 24
Shareholder Nominations and Proposals.................................. 24
Business Combinations.................................................. 24
Amendment of the Charter, Certificate of Incorporation and Bylaws...... 25
SECURITIES OWNERSHIP OF MANAGEMENT......................................... 26
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.......................... 27
EXECUTIVE COMPENSATION..................................................... 28
PROPOSALS OF SHAREHOLDERS.................................................. 33
FINANCIAL INFORMATION...................................................... 33
OTHER MATTERS.............................................................. 34
Exhibit A--Plan of Reorganization and Agreement of Merger.................. A-1
Exhibit B--Certificate of Incorporation of Highland Bancorp, Inc........... B-1
Exhibit C--Bylaws of Highland Bancorp, Inc................................. C-1
</TABLE>
ii
<PAGE>
SUMMARY OF PROXY STATEMENT/PROSPECTUS
SPECIAL MEETING OF SHAREHOLDERS OF HIGHLAND FEDERAL BANK
TO BE HELD DECEMBER 11, 1997
The following is a summary of certain information contained in this Proxy
Statement/Prospectus. This summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained in the
Proxy Statement/Prospectus, including the exhibits hereto, to which reference
is made for a complete statement of the matters discussed below.
PURPOSES OF THE SPECIAL
MEETING................. At the Special Meeting, shareholders will be
asked to consider and vote upon a proposal to
approve the reorganization of the Bank into a
holding company form of organization (the
"Reorganization"), such Reorganization of the
Bank to be consummated in accordance with a Plan
of Reorganization and Agreement of Merger (the
"Reorganization Agreement") pursuant to which:
(i) the Bank will become, subject to necessary
regulatory approvals, a wholly owned subsidiary
of Highland Bancorp, Inc., a newly formed
Delaware corporation (the "Company"); and (ii)
each outstanding share of common stock of the
Bank (the "Bank Common Stock") will become, by
operation of law, one share of common stock of
the Company (the "Company Common Stock").
REASONS FOR THE
REORGANIZATION........... The Reorganization will provide greater operating
flexibility and will permit expansion into a
broader range of financial services and other
business activities than are currently permitted
to the Bank as a federally chartered savings
bank. See "Proposal 1: Formation of the Company--
Reasons for the Reorganization."
DESCRIPTION OF THE
REORGANIZATION.......... The Company will become the holding company for
the Bank pursuant to the Reorganization
Agreement, as described herein. Under the
Reorganization Agreement: (i) the Company has
been organized as a wholly owned subsidiary of
the Bank; (ii) an interim federal savings bank
will be organized as a wholly owned subsidiary of
the Company ("Interim"); (iii) on the effective
date of the Reorganization, Interim will be
merged with and into the Bank, with the Bank as
the surviving institution; and (iv) upon such
merger, the outstanding shares of Bank Common
Stock will become, by operation of law, Company
Common Stock on a one share for one share basis.
The shareholders of the Bank will thus become
shareholders of the Company, which will then
register as a savings and loan holding company
under applicable laws and regulations. See
"Proposal 1: Formation of the Company--Details of
the Reorganization."
TAX CONSEQUENCES OF THE
REORGANIZATION.......... The Bank has received an opinion of counsel to
the effect that the Reorganization will qualify
for non-recognition of gain or loss so that none
of the Company, the Bank or Interim will
recognize gain or loss for federal income tax
purposes as a result of the Reorganization. Such
opinion also concludes that the shareholders of
the Bank will not recognize gain or loss upon the
exchange of their Bank Common Stock for Company
Common Stock in the Reorganization. See "Proposal
1:
iii
<PAGE>
Formation of the Company--Tax Consequences of the
Reorganization."
COMPARISON OF
SHAREHOLDERS' RIGHTS.... Certain differences will exist between the rights
of the shareholders of the Company, and those of
the shareholders of the Bank arising from
distinctions between the Bank's federal charter
and bylaws and the Company's Delaware Certificate
of Incorporation and bylaws, and from
distinctions between Office of Thrift Supervision
("OTS") regulations relating to rights of
shareholders and Delaware law. Among others,
these differences include matters which are
relevant to potential changes in control, such as
the vote required to approve business
combinations and amendments to the Certificate of
Incorporation and bylaws of the Company. The
Delaware General Corporation Law contains certain
provisions which may be deemed anti-takeover in
nature which are not currently provided for in
the Bank's federal charter. These provisions are
expected to make it more difficult to acquire and
exercise control of the Company and to remove
incumbent directors and officers. See "Proposal
1: Formation of the Company--Comparison of
Shareholders' Rights."
MARKET FOR COMPANY
COMMON STOCK............ The Company has applied to The Nasdaq Stock
Market, Inc. ("Nasdaq") for approval for listing
of the Company Common Stock on the Nasdaq
National Market System. If such approval for
listing is obtained, the Company Common Stock
will be quoted under the current trading symbol
of the Bank Common Stock, "HBNK." See "Proposal
1: Formation of the Company--Details of the
Reorganization."
MANAGEMENT OF THE
COMPANY................. Upon consummation of the Reorganization, the
Board of Directors of the Company will consist of
the persons then serving as directors of the
Bank, and the officers of the Company will be
certain executive officers of the Bank, as
indicated herein. See "Proposal 1: Formation of
the Company--Management of the Company."
REGULATION OF THE
COMPANY................. The Company will be subject to regulation by the
OTS under the Savings and Loan Holding Company
Act and, with respect to certain matters arising
under federal securities laws, by the Securities
and Exchange Commission. See "Proposal 1:
Formation of the Company--Supervision and
Regulation--Regulation of the Company."
REGULATORY APPROVAL...... Consummation of the Reorganization is conditioned
upon, among other matters, obtaining the prior
approval of the OTS. No assurance can be given as
to if, or when, such regulatory approval will be
received. See "Proposal 1: Formation of the
Company--Conditions to the Reorganization."
SHAREHOLDER VOTE
REQUIRED FOR APPROVAL... Approval of the Reorganization will require the
affirmative vote of a majority of the issued and
outstanding shares of Bank Common Stock as of the
Record Date.
iv
<PAGE>
NONAVAILABILITY OF
DISSENTERS' RIGHTS ..... Holders of Bank Common Stock will not have
appraisal or dissenters' rights in connection
with the Reorganization under applicable laws and
regulations.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF THE
REORGANIZATION.
v
<PAGE>
PROXY STATEMENT OF
HIGHLAND FEDERAL BANK, A FEDERAL SAVINGS BANK
601 SOUTH GLENOAKS BOULEVARD
BURBANK, CALIFORNIA 91502
(818) 848-4265
----------------
PROSPECTUS OF HIGHLAND BANCORP, INC.
601 SOUTH GLENOAKS BOULEVARD
BURBANK, CALIFORNIA 91502
(818) 848-4265
----------------
SPECIAL MEETING OF SHAREHOLDERS
OF HIGHLAND FEDERAL BANK
TO BE HELD DECEMBER 11, 1997
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished in connection with the solicitation of proxies by the Board of
Directors of Highland Federal Bank, a federally chartered savings bank (the
"Bank"), for use at the Special Meeting of Shareholders of the Bank (the
"Special Meeting") to be held on Thursday, December 11, 1997, at 10:00 a.m.,
local time, at the corporate offices of the Bank at 601 South Glenoaks
Boulevard, Glendale, California 91502, and at any and all adjournments
thereof. Richard J. Cross, Chairman of the Board of Directors of the Bank, and
Stephen N. Rippe, President and Chief Executive Officer, are the designated
proxy holders for the Special Meeting (the "Proxy Holders"). The Board of
Directors has fixed the close of business on November 10, 1997 as the record
date (the "Record Date") for the determination of shareholders entitled to
receive notice of and to vote at the Special Meeting and at any and all
adjournments thereof. Only persons who are holders of Bank Common Stock at the
close of business on the Record Date are entitled to notice of and to vote in
person or by proxy at the Special Meeting. All proposals set forth herein are
proposals of the Bank. A form of proxy to be voted at the Special Meeting is
being furnished to shareholders with this Proxy Statement/Prospectus. The
approximate date of mailing of this Proxy Statement/Prospectus is November 18,
1997.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The Board of Directors of the Bank (the "Board of Directors") has fixed the
close of business on November 10, 1997, as the record date (the "Record Date")
for the determination of shareholders entitled to receive notice of and to
vote at the Special Meeting. The Bank is authorized to issue 8,000,000 shares
of common stock, $1.00 par value per share (the "Bank Common Stock"). At the
Record Date, 2,300,137 shares of Bank Common Stock were issued and outstanding
and entitled to vote. Each share of Bank Common Stock entitles the record
holder to one vote on each matter presented at the Special Meeting. A majority
of the issued and outstanding shares of Bank Common Stock entitled to vote
shall constitute a quorum for the conduct of business at the Special Meeting.
Abstentions, including those shareholders who attend the Special Meeting but
abstain from voting, and those shareholders who return their proxy cards to
the Bank indicating abstention from voting, will be treated as shares present
and entitled to vote for purposes of determining the presence of a quorum. The
proposal to approve the Reorganization requires the affirmative vote of a
majority of the issued and outstanding shares of Bank Common Stock. As of
October 10, 1997, the directors and officers of the Bank and their affiliates
beneficially owned 248,309 shares, including shares which may be acquired
within 60 days upon exercise of outstanding options, or approximately 10.3% of
the issued and outstanding Bank Common Stock.
A proxy for use at the Special Meeting is enclosed. A shareholder may revoke
his or her proxy at any time before it is voted by filing with the Secretary
of the Bank, at the above address, a written notice of revocation or
1
<PAGE>
a duly executed proxy bearing a later date. In addition, the powers of the
Proxy Holders will be suspended if the person executing the proxy is present
and votes in person at the Special Meeting, or if written notice of the death
or incapacity of the maker of such proxy is received by the Secretary before
the vote is counted.
Unless revoked or suspended, all shares represented by a properly executed
proxy received in time for the Special Meeting will be voted by the Proxy
Holders in accordance with the instructions on the proxy. If no instruction is
specified on your proxy with respect to any proposal to be acted upon, the
shares represented by your executed proxy will be voted "FOR" approval of the
Reorganization. It is not anticipated that any matters will be presented at
the Special Meeting other than as set forth above and as stated in the
accompanying Notice of Special Meeting. If any other matters are duly
presented at the Special Meeting, the proxies will be voted by the Proxy
Holders in accordance with the recommendations of the Board of Directors.
If you hold your Bank Common Stock in "street name" and you fail to instruct
your broker or nominee as to how to vote your Bank Common Stock, your broker
or nominee may not, pursuant to applicable stock exchange rules, vote your
Bank Common Stock with respect to the Reorganization. Any broker or nominee
without authority to act as your proxy cannot vote on your behalf nor can any
such votes be counted for quorum purposes.
The expense of preparing, assembling, printing and mailing this Proxy
Statement and the materials used in the solicitation of proxies for the
Special Meeting will be borne by the Bank. Although it is contemplated that
proxies will be solicited principally through the use of the mail,
solicitation of proxies may be made by means of personal calls upon, or
telephonic or telegraphic communications with, shareholders or their personal
representatives by directors, officers and employees of the Bank, who will not
be specially compensated for such services. Although there is no formal
agreement to do so, the Bank may reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expenses in
forwarding the Proxy Statement to shareholders whose Bank Common Stock is held
of record by those entities.
PROPOSAL 1
Formation of the Company
GENERAL
The Board of Directors has unanimously approved, subject to the receipt of
necessary regulatory and shareholder approvals, the formation of a holding
company for the Bank, Highland Bancorp, Inc. (the "Company"), pursuant to the
Plan of Reorganization and Agreement of Merger (the "Reorganization
Agreement") described herein. A copy of the Reorganization Agreement is
attached as Exhibit A hereto, and is incorporated herein by reference. The
following discussion is qualified in its entirety by reference to the
Reorganization Agreement. Shareholders are encouraged to read the
Reorganization Agreement in its entirety.
As a result of the Reorganization, the shareholders of the Bank will become,
by operation of law, shareholders of the Company. The Bank will continue its
existing business and operations after the Reorganization under its existing
name but as a wholly owned subsidiary of the Company. The existing federal
charter (the "Charter") and bylaws (the "Bylaws") of the Bank will not be
affected by the Reorganization. The consolidated capitalization, assets,
liabilities and financial statements of the Company immediately following the
Reorganization will be the same as those of the Bank immediately prior to the
Reorganization. After the Reorganization, the deposits of the Bank will
continue to be insured by the Federal Deposit Insurance Corporation (the
"FDIC") to the maximum amount permitted by law.
The Board of Directors unanimously recommends that shareholders of the Bank
approve the Reorganization Agreement. The affirmative vote of the holders of a
majority of the issued and outstanding Bank Common Stock eligible to vote at
the Special Meeting is required to approve the Reorganization Agreement. If
the Reorganization does not receive the required shareholder vote, the Board
of Directors intends to adjourn the Special Meeting to permit further
solicitation of proxies to seek sufficient votes in favor of the proposal.
2
<PAGE>
REASONS FOR THE REORGANIZATION
The Board of Directors believes that a holding company structure will
provide greater operating flexibility than is currently available to the Bank
as a federally chartered savings bank. In addition, a holding company
structure will provide for greater flexibility in structuring any future
acquisition or merger transactions and may result in more favorable treatment
of these transactions under state and federal tax laws. Federal law and
regulations of the FDIC and the OTS limit the types of business in which the
Bank and its subsidiaries may engage, and the nature and amount of investments
that they may make. It is expected that the Company will qualify initially as
a unitary savings and loan holding company and, as such, will generally not be
restricted in the types of business activities in which it may engage. See
"Proposal 1: Formation of the Company--Supervision and Regulation--Regulation
of the Company." The establishment of the Company may permit diversification
of operations, and may provide a vehicle to pursue growth opportunities, if
and when presented, not currently available to the Bank. Among other potential
benefits, the establishment of a holding company will permit the acquisition
of other financial institutions and the acquisition and formation of companies
engaged in lines of business which, while complementary to the business of the
Bank, may help to reduce the risks inherent in an industry which is sensitive
to interest rate changes. Management believes that the acquisition and
formation of such counter-cyclical enterprises may provide a beneficial
stabilizing effect on operations and the production of revenue in the future.
In addition, the Company, unlike the Bank, may effectuate stock repurchase or
redemption programs without prior regulatory approval. To date, the Board of
Directors has not authorized management of the Bank to pursue any of the above
described activities.
The Board of Directors recognizes that some increased cost will be incurred
in the operation of a holding company. Nevertheless, for the reasons stated
above, the Board of Directors believes that the Reorganization is in the best
interests of the Bank and its shareholders.
The Board of Directors has selected Delaware as the state of incorporation
of the Company because Delaware has flexible corporate laws which are
periodically updated and revised to meet changing business needs. In addition,
the Delaware courts are generally perceived to have greater experience and
sophistication in addressing corporate law issues than their counterparts in
other jurisdictions.
DETAILS OF THE REORGANIZATION
The Reorganization will be accomplished pursuant to the Reorganization
Agreement which is attached hereto as Exhibit A.
The Bank caused the Company to be incorporated under the laws of the State
of Delaware on September 29, 1997. The Company was initially formed as a
wholly owned subsidiary of the Bank. The Bank will cause Highland Federal
Interim Savings Bank, an interim federal savings association ("Interim"), to
be organized as a wholly owned subsidiary of the Company for the sole purpose
of effecting the Reorganization. Upon the receipt of required regulatory
approvals, the Reorganization will be concluded as follows:
I. Interim will merge with and into the Bank, with the Bank as the
resulting institution (the "Merger"). The stock of Interim will be
converted to stock of the Bank, and thus the Bank will become the wholly
owned subsidiary of the Company.
A. The Bank, as the resulting institution in the Merger, will retain
all incidents of its corporate existence prior to the
Reorganization, including its Charter, Bylaws, deposits, loans and
offices.
B. The directors and officers of the Bank prior to the Merger will
remain the directors and officers of the Bank following the Merger.
II. Each share of Bank Common Stock will become a share of Company Common
Stock, and the shareholders of the Bank will become shareholders of the
Company. Each certificate evidencing shares of Bank Common Stock
immediately prior to the Reorganization shall evidence ownership of the
same number of shares of Company Common Stock after the effective date
of the Reorganization (the "Effective Date").
3
<PAGE>
III. The shares of Company Common Stock held by the Bank will be cancelled.
IV. The shares of Bank Common Stock held by the Company at the Effective
Date will remain as the only issued and outstanding shares of Bank
Common Stock after the Reorganization.
As a result of the Reorganization, the Company will become a publicly held
corporation and will succeed to the Bank's reporting obligations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Bank
will continue to carry on its business and activities as conducted immediately
prior to the Reorganization. The name "Highland Federal Bank" will continue to
be utilized by the Bank. The Company has applied to The Nasdaq Stock Market,
Inc. ("Nasdaq") for approval for listing of the Company Common Stock on the
Nasdaq National Market System ("Nasdaq-NMS"). If such approval for listing is
obtained, following the Reorganization, the Company Common Stock will be
quoted on Nasdaq-NMS under the current trading symbol of the Bank Common
Stock, "HBNK."
EFFECTIVE DATE
The Effective Date will be the date as soon as practicable after the
issuance by the OTS and any other governmental agencies of all approvals as
may be required under applicable laws, rules and regulations in order to cause
the Reorganization Agreement and the Reorganization to become effective.
CONDITIONS TO THE REORGANIZATION
The Reorganization Agreement sets forth a number of conditions which must be
met before the Reorganization will be consummated, including, among others:
(i) the approval of the Reorganization Agreement by the requisite vote of the
holders of Bank Common Stock; (ii) the receipt of an opinion of counsel,
satisfactory in form and substance to the Bank, the Company and Interim, as to
the federal tax consequences of the Reorganization; (iii) the approval of the
Reorganization by the OTS; and (iv) the receipt of all approvals from any
other governmental agencies or other third parties which may be required for
the lawful consummation of the Reorganization. No such additional governmental
or third-party approvals are currently anticipated to be required. No
assurance can be given as to if, or when, regulatory approval for the
Reorganization from the OTS will be received.
The Reorganization Agreement may be abandoned by either the Bank, the
Company or Interim at any time before the Effective Date in the event that
consummation of the Reorganization is deemed to be inadvisable, for any
reason, in the opinion of the Bank, the Company or Interim.
TREATMENT OF STOCK CERTIFICATES
After the Effective Date, the former holders of Bank Common Stock will be
entitled to exchange their stock certificates for new certificates evidencing
the same number of shares of Company Common Stock. Until so exchanged,
certificates representing shares of Bank Common Stock will be deemed, for all
purposes, to represent the same number of shares of Company Common Stock, and
the holders of certificates representing shares of Bank Common Stock will have
all of the rights of holders of Company Common Stock. As soon as practicable
after the consummation of the Reorganization, instructions with respect to the
exchange of stock certificates will be sent to all holders of record on the
Effective Date of shares of Bank Common Stock. Chase Mellon Shareholder
Services, LLC, the transfer agent and registrar for the Bank Common Stock (the
"Transfer Agent"), will act as exchange agent and will continue to act as
transfer agent and registrar for the Company Common Stock. No transfer or
other tax will be assessed if the holders of Bank Common Stock merely exchange
their stock certificates for new certificates evidencing the same number of
shares of Company Common Stock, in the same name as that in which the
certificate of Bank Common Stock surrendered in exchange therefor is
registered.
If any certificate representing shares of Company Common Stock is to be
issued in a name other than that in which the certificate of Bank Common Stock
surrendered in exchange therefor is registered, it will be a condition to the
issuance thereof that the certificate surrendered be properly endorsed and
otherwise in proper form for transfer, and that the person requesting the
transfer pay to the Transfer Agent any transfer or other tax
4
<PAGE>
required by reason of the issuance of a certificate for shares of Company
Common Stock in a name other than that of the registered holder of the
certificate surrendered, or establish to the satisfaction of the Transfer
Agent that such tax has been paid or is not payable.
Certificates for shares of Bank Common Stock should not be sent to the
Transfer Agent until the notice and transmittal form referred to above have
been received. The transmittal form must be completed as instructed and must
accompany the certificates surrendered.
EFFECT ON EMPLOYEE BENEFIT PLANS
Upon consummation of the Reorganization, the Bank's 1994 Stock Option and
Performance Share Award Plan (the "Stock Option Plan") will be assumed by the
Company. The Stock Option Plan will be amended to provide for the receipt of
Company Common Stock upon the exercise of options or payment of other awards
rather than shares of Bank Common Stock. The Company will enter into an
amended stock option agreement with each holder of an outstanding option under
the Stock Option Plan and an amended performance share award and restricted
stock agreement with each holder of restricted stock awarded under the Stock
Option Plan, providing for the receipt of shares of Company Common Stock in
lieu of Bank Common Stock. Upon execution of such amended stock option
agreements, options granted pursuant to the Stock Option Plan outstanding on
the Effective Date will entitle the holder thereof to acquire the same number
of shares of Company Common Stock, upon identical terms and conditions and for
an identical price. Shares of Company Common Stock issued in exchange for Bank
Common Stock pursuant to the amended restricted stock agreements will be
restricted stock, subject to the same terms and conditions (including but not
limited to, restrictions on transfer) as governed the original award. See
"Executive Compensation--1994 Stock Option and Performance Share Award Plan"
for a description of the Stock Option Plan.
All other employee benefit plans of the Bank, including the Highland Federal
Bank Profit Sharing Plan and Trust (the "401(k) Plan"), will be unchanged by
the Reorganization, except that any plan which refers to Bank Common Stock
will, following completion of the Reorganization, be amended to refer instead
to Company Common Stock. See "Executive Compensation--401(k) Profit Sharing
Plan and Trust" for a description of the 401(k) Plan.
TAX CONSEQUENCES OF THE REORGANIZATION
The Bank has obtained an opinion of counsel from Manatt, Phelps & Phillips,
LLP, to the effect that, for federal income tax purposes: (i) the Merger will
qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"); (ii) the
Reorganization will not be disqualified by reason of the fact that the stock
of the Company is used in the Merger, pursuant to Section 368(a)(2)(E) of the
Code; (iii) the Bank, the Company and Interim will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code; (iv) no gain
or loss will be recognized by Interim on the transfer of its assets to the
Bank solely in exchange for Bank Common Stock and the assumption of Interim's
liabilities, pursuant to Sections 361(a) and 357(a) of the Code; (v) no gain
or loss will be recognized by the Bank upon the receipt of the assets of
Interim in exchange for Bank Common Stock, pursuant to Section 1032(a) of the
Code; (vi) the basis of Interim's assets in the hands of the Bank will be the
same as the basis of such assets in the hands of Interim immediately prior to
the Merger, pursuant to Section 362(b) of the Code; (vii) no gain or loss will
be recognized by the Company upon the receipt of Bank Common Stock solely in
exchange for the stock of Interim, pursuant to Section 354(a)(1) of the Code;
(viii) no gain or loss will be recognized by the shareholders of the Bank upon
the transfer of their Bank Common Stock solely in exchange for Company Common
Stock, pursuant to Section 354(a) of the Code; (ix) the basis of Company
Common Stock to be received by the shareholders of the Bank in the transaction
will be the same as the basis of Bank Common Stock surrendered in exchange
therefor, pursuant to Section 358(a)(1) of the Code; (x) the holding period of
Company Common Stock to be received by the Bank shareholders will include the
holding period of Bank Common Stock surrendered in exchange therefor, provided
that Bank Common Stock is held as a capital asset on the date of the exchange,
pursuant to Section 1223(l) of the Code; (xi) the holding period of the assets
of Interim in the hands
5
<PAGE>
of the Bank will include the period during which such assets were held by
Interim, pursuant to Section 1223(2) of the Code; (xii) provided that the Bank
meets the requirements of Section 593(a)(2) of the Code both before and after
the Merger, no part of the bad debt reserve of the Bank will be required to be
restored to the gross income of the Bank as a result of the Merger; (xiii)
immediately prior to the Merger, the Company will be a member of the
affiliated group of which the Bank is the common parent within the meaning of
Section 1504 of the Code; (xiv) the affiliated group of which the Bank is the
common parent immediately prior to the Merger will remain in existence after
the Merger, and the Company will become the common parent of the affiliated
group; (xv) the members of the Bank affiliated group immediately before and
after the Merger (other than Interim) will not close their taxable years as a
result of the Merger and will remain on the taxable year previously employed
by the group; (xvi) no prior taxable year of the Bank or any member of the
affiliated group of which the Bank is the common parent will become a separate
return limitation year by reason of the Merger; (xvii) provided that any
nonqualified stock options to purchase Bank Common Stock and any nonqualified
stock options to purchase Company Common Stock into which they will be
converted do not have readily ascertainable fair market values (within the
meaning of Section 1.83-7 of the Treasury Regulations), such conversion of the
Bank options into the Company options will not result in income, gain, or loss
to the holders of such stock options, pursuant to Section 83(e)(3) of the
Code; (xviii) no gain or loss will be recognized by the Bank or the Company
upon the issuance of Company Common Stock to an optionee pursuant to the
optionee's exercise of a stock option issued by the Bank and converted into an
option to acquire Company Common Stock, pursuant to Section 1032 of the Code
and Section 1.83-6(d) of the Treasury Regulations; (xix) provided that any
incentive options issued by the Bank qualify as incentive stock options under
Section 422 of the Code, the Merger will qualify as a transaction to which
Section 424(a) applies; (xx) the assumption of the Stock Option Plan by the
Company will satisfy the requirements of Section 424(a) of the Code and will
not be a modification under Section 424(h) of the Code; (xxi) no income, gain
or loss will be recognized by the Bank, the Company, or the holders of
outstanding options of the Bank upon the substitution, amendment or assumption
by the Company of the Stock Option Plan and options thereunder; and (xxii) the
Merger will not result in a change of ownership of the Bank within the meaning
of Section 382(g) of the Code, and therefore Section 382 will not apply to the
Bank as a result of the Merger.
The foregoing discussion is based upon current law and is intended for
general information only. Each shareholder is urged to consult his or her own
tax advisor concerning the specific tax consequences of the Reorganization to
the shareholder, including the applicability and effect of foreign, state,
local or other tax laws and of any proposed changes in the Code.
ACCOUNTING TREATMENT
In accordance with generally accepted accounting principles, the appropriate
accounting for the Merger and the Reorganization is historical cost in a
manner similar to that utilized in pooling-of-interest accounting. In
addition, no goodwill will result from the Reorganization.
NONAVAILABILITY OF DISSENTERS' RIGHTS
Holders of Bank Common Stock will not have appraisal or dissenters' rights
in connection with the Reorganization under applicable laws and regulations.
BUSINESS OF THE COMPANY AND THE BANK
The Bank is a federally chartered and insured savings bank which was
organized in 1968 as a federal mutual savings and loan association and
converted in 1982 to a federal stock savings and loan association. In 1989,
the Bank changed its name from Highland Federal Savings and Loan Association
to its present name, Highland Federal Bank, a Federal Savings Bank.
The Bank provides financial services through seven offices located in
communities within Los Angeles County, California, including offices in the
South Bay area, the San Fernando Valley, San Gabriel Valley,
6
<PAGE>
Northern Los Angeles and Santa Monica. The Bank's lending activity focuses on
originating multi-family residential mortgage loans, commercial real estate
loans and construction loans principally in Southern California. The Bank's
lending and investment activities are funded primarily through deposits
derived from the Bank's branch network and through borrowings from the Federal
Home Loan Bank of San Francisco. At September 30, 1997, the Bank had total
consolidated assets of $516 million, total consolidated deposits of $346
million and total consolidated shareholders' equity of $40 million.
The principal executive offices of the Company and the Bank are located at
601 South Glenoaks Boulevard, Burbank, California 91502, and their telephone
number at that address is (818) 848-4265.
The Company is a business corporation organized under the laws of the State
of Delaware on September 29, 1997. The Company was organized for the purpose
of becoming the holding company of the Bank. Upon completion of the
Reorganization, the Bank will be a wholly owned subsidiary of the Company.
Each shareholder of the Bank will become a shareholder of the Company without
change in the number of shares owned or in respective ownership percentages.
Following the Reorganization, the Company will register as a savings and loan
holding company under applicable laws and regulations.
It is expected that for the near future, the primary business of the Company
will be the ongoing business of the Bank. Therefore, the competitive
conditions to be faced by the Company will be the same as those faced by the
Bank. In the future, the Company may become an operating company or acquire
other savings institutions or engage in such other activities or acquire such
other businesses as may be permitted by applicable law. There are no current
agreements or understandings with respect to any such activities or
acquisitions, and no assurance can be given that any of these activities or
acquisitions will be undertaken.
The Bank expects to provide the Company with an initial capitalization of $1
million, subject to regulatory approval. Additional financial resources may be
available to the Company in the future through issuance of debt or equity
securities and dividends from the Bank or other operating entities acquired by
the Company. There can be no assurance, however, as to the amount of
additional financial resources which will be available to the Company, and
there are substantial regulatory limitations on borrowings by the Company and
any non-insured subsidiaries, as well as on the ability of the Bank to declare
and pay dividends to the Company or otherwise provide funds to the Company.
See "Proposal 1: Formation of the Company--Supervision and Regulation."
The Company will, at all times, maintain a separate corporate existence from
the Bank.
MANAGEMENT OF THE COMPANY
Upon consummation of the Reorganization, the Board of Directors of the
Company will consist of the persons then serving as directors of the Bank, and
their respective terms of office will expire at the annual meeting of
shareholders in the years in which their respective terms of office as
directors of the Bank expire. Following the Reorganization, certain executive
officers of the Bank will also serve as the officers of the Company. The
following sets forth, as of October 10, 1997, certain information regarding
each person who will serve as a director and/or an officer of the Company upon
consummation of the Reorganization.
7
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<TABLE>
<CAPTION>
POSITION WITH YEAR TERM AS
NAME AND AGE THE COMPANY AND THE BANK PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR EXPIRES
------------ ------------------------ -------------------------------------------- ----------------
<C> <S> <C> <C>
Woodrow W. DeWitt Director Director of the Bank since 1968. Chairman 2000
(81) of the Board of DeWitt Transfer & Storage
since 1955.
Richard O. Oxford Director Director of the Bank since 1991. Member of 2000
(59) the Personnel/Compensation Committee.
President and Chief Executive Officer of
Dial Industries, Inc. (a manufacturer of
housewares) since 1978. Associate, McKinsey
& Co. (international management consulting
firm) from 1965 to 1968. In 1993, Arroyo
Seco Enterprises, a partnership of which
Mr. Oxford was General Partner, filed for
bankruptcy under Chapter 11 of the
Bankruptcy Code. This bankruptcy was
discharged in 1995.
Shirley E. Simmons Vice Chairman of the Vice Chairman of the Board of Directors of 2000
(62) Board of Directors the Bank since 1995 and a Director since
1991. Member of the Personnel/Compensation
Committee. Retired since 1991. Various
executive positions with Security Pacific
National Bank from 1958 to 1991, most
recently as Regional Vice President (1988
to 1991).
George Piercy Director Vice Chairman of the Board of Directors of 1999
(78) the Bank from 1993 to 1995 and a Director
since 1968. Chairman of the Board of
Directors from 1982 to 1993. Member of the
Personnel/Compensation Committee. President
of Highland Auto and Truck Supply
(manufacturer of military truck parts and
accessories) since 1949.
Stephen N. Rippe President, Chief President of the Bank since April 1994 and 1999
(51) Executive Officer and Executive Vice President from February to
Director April 1994. Director of the Bank since
February 1994. Chief Operating Officer of
Imperial Thrift and Loan Association from
1991 to 1994. Various executive positions
with Security Pacific National Bank from
1971 to 1989, including President of
Security Pacific Bank Nevada from 1987 to
1989 and Regional Manager for business
banking from 1984 to 1987.
Richard J. Cross Chairman of the Board of Chairman of the Board of Directors of the 1998
(67) Directors Bank since 1993; Vice Chairman of the Board
of Directors from 1992 to 1993 and a
Director since 1990. Member of the
Personnel/Compensation Committee. Managing
Partner of Cross Investment Company (an
investment and consulting company) since
1971 and Professor of Management and
Finance at Woodbury University since 1985.
Twenty-seven years' commercial banking
experience, including various executive
positions with Lloyds Bank from 1962 to
1981, most recently as Executive Vice
President.
</TABLE>
8
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<TABLE>
<CAPTION>
POSITION WITH THE YEAR TERM AS
NAME AND AGE COMPANY AND THE BANK PRINCIPAL OCCUPATION AND BUSINESS EXPERIENCE DIRECTOR EXPIRES
------------ --------------------- -------------------------------------------- ----------------
<C> <S> <C> <C>
William G. Dyess Director Director of the Bank since 1968. An 1998
(71) independent real estate appraiser since
1955.
Ben Karmelich Director President and Chief Executive Officer of 1998
(72) the Bank from its inception in 1968 through
1994; Director since 1980. Retired since
1994.
Anthony L. Frey Executive Vice Executive Vice President, Chief Financial
(44) President, Chief Officer and Secretary of the Bank since
Financial Officer and January 1997. Senior Vice President, Chief
Secretary Financial Officer and Secretary from May
1996 to January 1997. Various executive
positions with Imperial Thrift and Loan
Association from August 1994 to May 1996,
most recently as Senior Vice President and
Chief Financial Officer. Senior Vice
President and Controller of Home Fed Bank
from 1984 to 1994. Various positions with
KPMG Peat Marwick LLP from 1979 to 1984.
Mr. Frey is a Certified Public Accountant
</TABLE>
The business address and telephone number of the Company's executive
officers will be the address and telephone number of the Company and Bank: 601
South Glenoaks Boulevard, Burbank, California 91502, (818) 848-4265. It is
expected that unless and until the Company becomes actively involved in
additional businesses, no compensation will be paid to the directors and
officers of the Company in their capacities as such. However, the Company may
determine that such separate compensation is appropriate in the future.
It is the intention of the Company and the Bank to enter into a management
services agreement and a tax sharing agreement at the consummation of the
Reorganization for services that the Bank will provide to the Company and for
sharing responsibility for payment of applicable taxes. It is anticipated that
the Bank will be reimbursed by the Company for the costs of services provided
by the Bank to the Company. Other than in the performance of certain
bookkeeping and related activities that will be provided by the Bank, the
Company does not intend to employ any persons other than the executive
officers listed above. If the Company acquires other businesses, it may at
such time hire additional employees. Upon completion of the Reorganization,
key employees of the Company, who remain as key employees of the Bank, will be
eligible for the grant of benefits under the Bank's benefit plans described
herein.
SUPERVISION AND REGULATION
GENERAL
Upon completion of the Reorganization, the Company will become a savings and
loan holding company within the meaning of the Savings and Loan Holding
Company Act. As such, the Company will be registered with and subject to OTS
regulation, examination, supervision and reporting requirements.
The Bank is subject to extensive regulation, examination and supervision by
the OTS, as its chartering agency, and by the FDIC, as the insurer of its
deposits. The Bank is a member of the Federal Home Loan Bank ("FHLB") System
and its deposit accounts are insured up to applicable limits by the Savings
Association Insurance Fund ("SAIF") of the FDIC. The Bank is required to file
reports with the OTS and the FDIC concerning its activities and financial
condition, in addition to obtaining regulatory approvals prior to entering
into certain transactions such as mergers with, or acquisitions of, other
financial institutions. There are periodic examinations by the OTS and the
FDIC to test the Bank's compliance with various regulatory requirements. These
types of regulation and supervision establish a comprehensive framework of
activities in which an
9
<PAGE>
institution such as the Bank may engage, and are intended primarily for the
protection of the insurance fund and depositors. This structure also gives the
regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, or in the regulatory structure or the statutes or regulations
applicable to the Bank, whether by the OTS, the FDIC or the Congress, could
have a material adverse impact on the Bank and its operations.
Certain of the regulatory requirements applicable to the Company and the
Bank are summarized below or elsewhere herein. The descriptions of statutory
provisions and regulations applicable to savings institutions and their
holding companies set forth herein do not purport to be complete descriptions
of such statutes and regulations or their actual or potential effects on the
Company and the Bank, and are qualified in their entirety by reference to such
statutes and regulations.
REGULATION OF THE COMPANY
It is expected that the Company will qualify initially as a unitary savings
and loan holding company within the meaning of the Home Owners' Loan Act of
1933, as amended ("HOLA"). As such, the Company will be required to be
registered with the OTS and will be subject to OTS regulations, examinations,
supervision and reporting requirements. Among other things, the OTS has
enforcement authority which permits the OTS to restrict or prohibit activities
that are determined to be a serious risk to the subsidiary savings
institution.
Restrictions on Activities. There are generally no restrictions on the
activities of a unitary savings and loan holding company. However, if the
subsidiary savings institution of such a holding company fails to meet the
qualified thrift lender ("QTL") test set forth in the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ("FIRREA"), then such unitary
holding company also will become subject to the activities restrictions
applicable to multiple savings and loan holding companies and, unless the
savings institution requalifies as a QTL within one year thereafter, will have
to register as, and become subject to the restrictions applicable to, a bank
holding company. See "Proposal 1: Formation of the Company--Supervision and
Regulation--Federal Savings Institution Regulation--QTL Test."
If the Company were to acquire control of another savings institution, other
than through merger or other business combination with the Bank, the Company
would thereupon become a multiple savings and loan holding company. Except
under limited circumstances, the activities of the Company and any of its
subsidiaries (other than the Bank or other subsidiary savings institutions)
would thereafter be subject to further extensive limitations. In general, such
holding company would be limited primarily to activities permissible for bank
holding companies under the Bank Holding Company Act (the "BHC Act") and other
activities in which multiple savings and loan companies were authorized by
regulation to engage as of March 5, 1987.
Restrictions on Acquisitions. Except under limited circumstances, savings
and loan holding companies are prohibited from acquiring, without prior
approval of the OTS: (i) control of any other savings institution or savings
and loan holding company or substantially all the assets thereof; or (ii) more
than five percent (5%) of the voting shares of a savings institution or
holding company thereof which is not a subsidiary. Except with the prior
approval of the OTS, no director or officer of a savings and loan holding
company or person owning or controlling by proxy or otherwise more than
twenty-five percent (25%) of such company's stock, may acquire control of any
savings institution, other than a subsidiary savings institution, or of any
other savings and loan holding company.
The OTS may only approve acquisitions resulting in the formation of a
multiple savings and loan holding company which controls savings institutions
in more than one state if: (i) the multiple savings and loan holding company
involved controls a savings institution which operated a home or branch office
located in the state of the institution to be acquired as of March 5, 1987;
(ii) the acquiror is authorized to acquire control of the savings institution
pursuant to the emergency acquisition provisions of the Federal Deposit
Insurance Act (the "FDI Act"); or (iii) the statutes of the state in which the
institution to be acquired is located specifically authorize a
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savings association chartered by such state to be acquired by a savings
association chartered by the state where the acquiring entity is located (or
by a holding company that controls such a state-chartered savings
association).
FEDERAL SAVINGS INSTITUTION REGULATION
Business Activities. The activities of federal savings institutions are
governed by the HOLA and, in certain respects, the FDI Act, and the
regulations issued by the various federal banking agencies to implement these
statutes. These laws and regulations delineate the nature and extent of the
activities in which federal savings institutions such as the Bank may engage.
In particular, many types of lending authority for federal savings
institutions, e.g., commercial, non-residential real property loans and
consumer loans, are limited to a specified percentage of the institution's
capital or assets.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is fifteen percent (15%) of the Bank's unimpaired capital and surplus
plus an additional ten percent (10%) of unimpaired capital and surplus, if
such loan is secured by readily-marketable collateral, which is defined to
include certain financial instruments and gold bullion, although management
generally does not make loans in excess of $2.0 million. At September 30,
1997, the Bank's largest aggregate amount of loans to one borrower was $2.7
million and the second largest borrower had an aggregate balance of $2.7
million.
QTL Test. The HOLA requires savings institutions to meet a qualified thrift
lender ("QTL") test. Under the QTL test, a savings institution is required to
maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed and related securities) in at
least nine months out of each 12-month period. A savings institution that
fails the QTL test must either convert to a bank charter or operate under
certain restrictions. As of September 30, 1997, the Bank maintained 68.03% of
its portfolio assets in qualified thrift investments and, therefore, met the
QTL test. Recent legislation has expanded the extent to which education loans,
credit card loans and small business loans may be considered as "qualified
thrift investments."
Nonresidential Real Estate Loans. OTS regulations impose limitations on the
Bank's ability to make loans secured by nonresidential real estate, which
includes commercial real estate but does not include multi-family residential
real estate. Under the OTS regulations, an institution such as the Bank would
be limited to holding loans on the security of nonresidential real estate to a
maximum of 400% of total capital. In the case of the Bank, 400% of total
capital equaled $173.1 million at September 30, 1997. As of such date, the
Bank held $142.3 million in nonresidential real estate loans. The Bank may in
the future sell or participate out new or existing loans in this category in
order to maintain compliance with the limit. The OTS regulations permit
lending in excess of the prescribed limit if the OTS finds that such lending
"will not present a significant risk to the safe and sound operation of the
association and is consistent with prudent operating practices." There can be
no assurance that the OTS would make such a finding in the case of the Bank.
Limitation on Capital Distributions. OTS regulations impose limitations on
all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in regulatory capital requirements before and after a
proposed capital distribution and has not been advised by the OTS that it is
in need of more than normal supervision, could, after prior notice to, but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of: (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus
capital ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year; or (ii) 75% of its net
earnings for the previous four quarters. Any additional capital distributions
would require prior OTS approval. In the event an institution's capital fell
below its capital requirements or the
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OTS notified it that it was in need of more than normal supervision, the
institution's ability to make capital distributions could be restricted. In
addition, the OTS could prohibit a proposed capital distribution by any
institution, which would otherwise be permitted by the regulation, if the OTS
determines that such distribution would constitute an unsafe or unsound
practice.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a
specified percentage (currently 5%) of its net withdrawable deposit accounts
plus short-term borrowings. OTS regulations also require each savings
institution to maintain an average daily balance of short-term liquid assets
at a specified percentage (currently 1%) of the total of its net withdrawable
deposit accounts and borrowings payable in one year or less. Monetary
penalties may be imposed for failure to meet these liquidity requirements. The
Bank's average liquidity ratio for the month of September 1997 was 11.45%,
which exceeded the then applicable requirements.
Assessments. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general
assessment, paid on a semi-annual basis, is computed upon the savings
institution's total assets including consolidated subsidiaries, as reported in
the Bank's latest quarterly Thrift Financial Report. The assessments paid by
the Bank for the year's ended December 31, 1996 and 1995 totaled $105,000 and
$134,500, respectively.
Branching. OTS regulations permit federally chartered savings institutions
to branch nationwide under certain conditions. Generally, federal savings
institutions may establish interstate networks and geographically diversify
their loan portfolios and lines of business. The OTS authority preempts any
state law purporting to regulate branching by federal savings institutions.
Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution) is limited by
Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A limits
the aggregate amount of covered transactions with any individual affiliate to
ten percent (10%) of the capital and surplus of the savings institution and
also limits the aggregate amount of transactions with all affiliates to 20% of
the savings institution's capital and surplus. Certain transactions with
affiliates are required to be secured by collateral in an amount and of a type
described in Section 23A and the purchase of low quality assets from
affiliates is generally prohibited. Section 23B generally requires that
certain transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. Notwithstanding Sections 23A and 23B, savings institutions are
prohibited from lending to any affiliate that is engaged in activities that
are not permissible for bank holding companies under Section 4(c) of the BHC
Act. Further, no savings institution may purchase the securities of any
affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and
ten percent (10%) shareholders, as well as entities controlled by such
persons, is currently governed by Sections 22(g) and 22(h) of the FRA, and
Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk
of repayment. Regulation O also places individual and aggregate limits on the
amount of loans the Bank may make to such persons based, in part, on the
Bank's capital position, and requires certain board approval procedures be
followed. The OTS regulations, with certain minor variances, apply Regulation
O to savings institutions.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including shareholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate
in wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive
or cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can
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amount to $25,000 per day, or $1 million per day in especially egregious
cases. Under the FDI Act, the FDIC has the authority to recommend to the
Director of the OTS that enforcement action be taken with respect to a
particular savings institution. If action is not taken by the Director, the
FDIC has authority to take such action under certain circumstances. Federal
and state law also establish criminal penalties for certain violations.
Standards for Safety and Soundness. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal bank regulatory agencies have adopted final regulations and
Interagency Guidelines Establishing Standards for Safety and Soundness (the
"Guidelines") to implement these safety and soundness standards. The
Guidelines set forth the safety and soundness standards that the agencies use
to identify and address problems at insured depository institutions before
capital becomes impaired. The Guidelines address internal controls and
information systems, internal audit system, credit underwriting, loan
documentation, interest rate risk exposure, asset growth, asset quality,
earnings and compensation, fees and benefits. If the appropriate federal
banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to submit
to the agency an acceptable plan to achieve compliance with the standard, as
required by the FDI Act. The final regulation establishes deadlines for the
submission and review of such safety and soundness compliance plans.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital
standard, a 3% leverage (core capital) ratio and an 8% risk-based capital
standard. Core capital is defined as common shareholders' equity (including
retained earnings), certain noncumulative perpetual preferred stock and
related surplus, minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain purchased mortgage servicing
rights ("PMSRs") and credit card relationships. The OTS regulations also
require that, in meeting the leverage ratio, tangible and risk-based capital
standards, institutions generally must deduct investments in and loans to
subsidiaries engaged in activities not permissible for a national bank. In
addition, the OTS prompt corrective action regulation provides that a savings
institution that has a leverage capital ratio of less than 4% (3% for
institutions receiving the highest rating under the applicable regulatory
examination rating system) will be deemed to be "undercapitalized" and may be
subject to certain restrictions. See "Proposal 1: Formation of the Company--
Supervision and Regulation--Prompt Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of 8%. In determining the
amount of risk-weighted assets, all assets, including certain off-balance
sheet assets, are multiplied by a risk-weight of 0% to 100%, as assigned by
the OTS capital regulation based on the risks the OTS believes are inherent in
the type of asset. The components of core capital are equivalent to those
utilized for purposes of determining the leverage ratio. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and, within specified limits, the allowance
for loan and lease losses. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The OTS has incorporated an interest rate risk component in its regulatory
capital rule. The final interest rate risk rule also adjusts the risk-
weighting for certain mortgage derivative securities. Under the revised rule,
savings institutions with "above normal" interest rate risk exposure would be
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. An institution's interest rate risk is
measured by the decline in net portfolio value of its assets (i.e., the
difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
divided by the estimated economic value of the bank's assets, as calculated in
accordance with guidelines set forth by the OTS. An institution whose measured
interest rate risk exposure exceeds 2% must deduct an interest rate component
in calculating its total
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capital under the risk-based capital rule. The interest rate risk components
is an amount equal to one-half of the difference between an institution's
measured interest rate risk and 2%, multiplied by the estimated economic value
of the bank's assets. That dollar amount is deducted from total capital in
calculating compliance with the risk-based capital requirement. Under the
rule, there is a lag between the reporting date of an institution's financial
data and the effective date for the new capital requirement based on that
data. An institution with assets of less than $300 million and risk-based
capital ratios in excess of 12% is not subject to the interest rate risk
component, unless the OTS determines otherwise. The rule also provides that
the Director of the OTS may waive or defer a bank's interest rate risk
component on a case-by-case basis. The OTS has postponed indefinitely the date
that the component will first be deducted from an institution's total capital
to provide it with an opportunity to review the interest rate risk approaches
taken by the other federal banking agencies.
PROMPT CORRECTIVE REGULATORY ACTION
Provisions of the FDI Act enacted in 1991 require each federal banking
agency, including the OTS, to take prompt corrective action to resolve the
problems of insured depository institutions, including but not limited to
those that fall below one or more prescribed minimum capital ratios. The FDI
Act requires each federal banking agency to promulgate regulations defining
the following five categories in which an insured depository institution will
be placed, based on the level of its capital ratios: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and
critically undercapitalized.
In September 1992, the federal banking agencies, including the OTS, issued
uniform final regulations implementing the prompt corrective action provisions
of the FDI Act. Under such regulations, an insured depository institution will
be classified in one of the following categories:
. "well capitalized" if it (i) has total risk-based capital of 10% or
greater, Tier 1 risk-based capital of 6% or greater and a leverage ratio
of 5% or greater and (ii) is not subject to an order, written agreement,
capital directive or prompt corrective action directive to meet and
maintain a specific capital level for any capital measure;
. "adequately capitalized" if it has total risk-based capital of 8% or
greater, Tier 1 risk-based capital of 4% or greater and a leverage ratio
of 4% or greater (or a leverage ratio of 3% or greater if the
institution is rated composite 1 under the applicable regulatory rating
system in its most recent report of examination);
. "undercapitalized" if it has total risk-based capital that is less
than 8%, Tier 1 risk-based capital that is less than 4% or a leverage
ratio that is less than 4% (or a leverage ratio that is less than 3% if
the institution is rated composite 1 under the applicable regulatory
rating system in its most recent report of examination);
. "significantly undercapitalized" if it has total risk-based capital
that is less than 6%, Tier 1 risk-based capital that is less than 3% or
a leverage ratio that is less than 3%; and
. "critically undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2%.
An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.
The law prohibits insured depository institutions from paying management
fees to any controlling persons or, under certain limited exceptions, making
capital distributions if after such transaction the institution would be
undercapitalized. If an insured depository institution is undercapitalized, it
will be closely monitored by the
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appropriate federal banking agency, subject to asset growth restrictions and
required to obtain prior regulatory approval for acquisitions, branching and
engaging in new lines of business. Any undercapitalized depository institution
must submit an acceptable capital restoration plan to the appropriate federal
banking agency within 45 days after becoming undercapitalized. The appropriate
federal banking agency cannot accept a capital plan unless, among other
things, it determines that the plan (i) specifies the steps the institution
will take to become adequately capitalized, (ii) is based on realistic
assumptions and (iii) is likely to succeed in restoring the depository
institution's capital. In addition, each company controlling an
undercapitalized depository institution must guarantee that the institution
will comply with the capital plan until the depository institution has been
adequately capitalized on an average basis during each of four consecutive
calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the
lesser of (a) an amount equal to 5% of the depository institution's total
assets at the time the institution became undercapitalized or (b) the amount
which is necessary to bring the institution into compliance with all capital
standards applicable to such institution as of the time the institution fails
to comply with its capital restoration plan. Finally, the appropriate federal
banking agency may impose any of the additional restrictions or sanctions that
it may impose on significantly undercapitalized institutions if it determines
that such action will further the purpose of the prompt correction action
provisions.
An insured depository institution that is significantly undercapitalized or
is undercapitalized and fails to submit, or in a material respect to
implement, an acceptable capital restoration plan, is subject to additional
restrictions and sanctions. These include, among other things: (i) a forced
sale of voting shares to raise capital or, if grounds exist for appointment of
a receiver or conservator, a forced merger; (ii) restrictions on transactions
with affiliates; (iii) further limitations on interest rates paid on deposits;
(iv) further restrictions on growth or required shrinkage; (v) modification or
termination of specified activities; (vi) replacement of directors or senior
executive officers; (vii) prohibitions on the receipt of deposits from
correspondent institutions; (viii) restrictions on capital distributions by
the holding companies of such institutions; (ix) required divestiture of
subsidiaries by the institution; or (x) other restrictions as determined by
the appropriate federal banking agency. Although the appropriate federal
banking agency has discretion to determine which of the foregoing restrictions
or sanctions it will seek to impose, it is required to force a sale of voting
shares or merger, impose restrictions on affiliate transactions and impose
restrictions on rates paid on deposits unless it determines that such actions
would not further the purpose of the prompt corrective action provisions. In
addition, without the prior written approval of the appropriate federal
banking agency, a significantly undercapitalized institution may not pay any
bonus to its senior executive officers or provide compensation to any of them
at a rate that exceeds such officer's average rate of base compensation during
the 12 calendar months preceding the month in which the institution became
undercapitalized.
Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized institution generally would be prohibited from
engaging in any material transaction other than in the ordinary course of
business without prior regulatory approval and could not, with certain
exceptions, make any payment of principal or interest on its subordinated debt
beginning 60 days after becoming critically undercapitalized. Most
importantly, however, except under limited circumstances, the appropriate
federal banking agency, not later than 90 days after an insured depository
institution becomes critically undercapitalized, is required to appoint a
conservator or receiver for the institution. The board of directors of an
insured depository institution would not be liable to the institution's
shareholders or creditors for consenting in good faith to the appointment of a
receiver or conservator or to an acquisition or merger as required by the
regulator.
As of September 30, 1997, the Bank's ratio of total capital to risk-weighted
assets was 11.46%, its ratio of Tier 1 capital to risk-weighted assets was
10.21% and its ratio of Tier 1 capital to adjusted total assets was 7.46%.
Under the prompt corrective action categories discussed above, the Bank is
considered to be well capitalized as of September 30, 1997.
Insured depository institutions, such as the Bank, and their institution-
affiliated parties may be subject to potential enforcement actions for unsafe
or unsound practices in conducting their businesses or for violations of
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law, rules or regulations, including a failure to meet regulatory capital
requirements. Depending on the severity of the unsafe or unsound practice or
violation, enforcement actions may include a requirement that the Bank file a
capital restoration plan, a requirement that the Bank take additional actions
to comply with the capital restoration plan, the issuance of a cease and
desist order, the issuance of a capital directive, the imposition of civil
money penalties on the Bank and certain affiliated parties, the imposition of
such operating restrictions as the OTS deems appropriate at the time, such
other actions by the OTS as it may be authorized or required to take under
applicable statutes and regulations and, under certain circumstances, the
appointment of a conservator or receiver for the Bank. In the event of a
liquidation of the Bank, the interests of the holders of the Bank Common Stock
will be subordinate to the interests of, among others, creditors of the Bank,
including depositors. Historically, with few exceptions, equity holders of
financial institutions such as the Bank have not obtained any recovery for
their investment following the appointment of a conservator or a receiver. See
"Proposal 1: Formation of the Company--Supervision and Regulation--Federal
Savings Institution Regulation--Enforcement."
INSURANCE OF DEPOSIT ACCOUNTS
Deposits of the Bank are presently insured by the SAIF. Both the SAIF and
the Bank Insurance Fund ("BIF"), the deposit insurance fund that covers most
commercial bank deposits, are statutorily required to be capitalized to a
ratio of 1.25% of insured reserve deposits. Until recently, members of the
SAIF and BIF were paying average deposit insurance premiums of between 24 and
25 basis points. The BIF met the required reserve in 1995, whereas the SAIF
was not expected to meet or exceed the required level until 2002 at the
earliest. This situation was primarily due to greater levels of prior losses
in the thrift industry and the statutory requirement that SAIF members make
payments on bonds issued in the late 1980s by the Financing Corporation
("FICO") to recapitalize the predecessor to the SAIF.
In view of the early satisfaction by the BIF of the target 1.25% ratio, the
FDIC ultimately adopted a new assessment rate schedule of between 0 and 27
basis points, under which 92% of BIF members paid an annual premium of only
$2,000. With respect to SAIF member institutions, the FDIC adopted a final
rule retaining the previously existing assessment rate schedule applicable to
SAIF member institutions of 23 to 31 basis points. As long as the premium
differential continued, it could have had adverse consequences for SAIF
members, including reduced earnings and an impaired ability to raise funds in
the capital markets. In addition, SAIF members, such as the Bank, could have
been placed at a substantial competitive disadvantage to BIF members with
respect to pricing of loans and deposits and the ability to achieve lower
operating costs.
On September 30, 1996, the President signed into law the Deposit Insurance
Funds Act of 1996 (the "Funds Act") which, among other things, imposed a
special one-time assessment on SAIF-member institutions, including the Bank,
to recapitalize the SAIF. As required by the Funds Act, the FDIC imposed a
special assessment of 65.7 basis points on SAIF assessable deposits held as of
March 31, 1995, payable November 27, 1996 (the "SAIF Special Assessment"). The
SAIF Special Assessment was recognized by the Bank as an expense in the
quarter ended September 30, 1996 and is generally tax deductible. The SAIF
Special Assessment recorded by the Bank amounted to $2.5 million on a pre-tax
basis and $1.7 million on an after-tax basis.
The Funds Act also spreads the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits
will be assessed for FICO payment of 1.3 basis points, while SAIF deposits
will pay 6.48 basis points. Full pro rata sharing of the FICO payments between
BIF and SAIF members will occur on the earlier of January 1, 2000 or the date
the BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF
will be merged on January 1, 1999, provided no savings associations remain as
of that time.
As a result of the Funds Act, the FDIC recently voted to effectively lower
SAIF assessments to between 0 and 27 basis points as of January 1, 1997, a
range comparable with that of BIF members. However, SAIF members will continue
to make the FICO payments described above. The FDIC also lowered the SAIF
assessment schedule for the fourth quarter of 1996 to between 18 and 27 basis
points. Management cannot
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predict the level of FDIC insurance assessments on an on-going basis, whether
the savings association charter will be eliminated or whether the BIF and SAIF
will eventually be merged.
The Bank's assessment rate for the third quarter of 1997 was 9.3 basis
points and the premium paid for this period was $81,000. A significant
increase in SAIF insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is
in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule order or condition imposed by the FDIC or the
OTS. Management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
THRIFT RECHARTERING LEGISLATION
The Funds Act provides that the BIF and SAIF will merge on January 1, 1999,
if there are no savings associations, as defined in the Funds Act, in
existence on that date. Pursuant to that legislation, the Department of
Treasury in May 1997 recommended in a report to Congress that the separate
charters for thrifts and banks be abolished. Various proposals to eliminate
the federal thrift charter, create a uniform financial institutions charter,
conform holding company regulation and abolish the OTS have been introduced in
Congress. The House Committee on Banking and Financial Services has considered
and reported H.R. 10, the Financial Services Competition Act of 1997 ("H.R.
10"), including Title III, the "Thrift Charter Transition Act of 1997" ("Title
III"). Title III would require federal savings associations to convert to
national banks or some type of state charter within two years of enactment or
they would automatically become national banks. On the earlier of January 1,
2000, or two years after the date of enactment, the BIF and SAIF would merge.
Two years after enactment, the HOLA would be repealed and the OTS would be
abolished. Within nine months of enactment, the Secretary of the Treasury
would be required to adopt a plan for the combination of the OTS and the
Office of the Comptroller of the Currency into a single agency. Converted
federal thrifts generally would be permitted to continue to engage in any
activity, including the holding of any asset, lawfully conducted on the date
prior to enactment. A federal savings association converted to a national bank
would be allowed to retain all branches established or proposed in a pending
application as of enactment and establish new branches in any state in which
it has a branch. Otherwise it would be allowed to establish new branches only
under national bank rules. In addition, beginning two years after enactment,
national banks would be authorized to exercise all powers formerly authorized
for federal savings associations.
Under H.R. 10, holding companies for converted savings associations
generally would become subject to the same regulation as holding companies
that control commercial banks, with a grandfather provision for former unitary
savings and loan holding companies. Such grandfathered companies would be
permitted to maintain and establish affiliations with any type of company and
to acquire additional depository institutions, as long as any acquired
depository institution is merged into its converted savings association and
such institution continues to comply with both the QTL test and certain asset
and investment limitations to which it was subject as a federal savings
association. Such a converted holding company would be subject to the same
capital requirements (if any) applicable under OTS regulation if it were a
savings and loan holding company on June 19, 1997, and for three years would
be subject to substantially similar regulation, reporting and examination as
implemented by the OTS as of January 1, 1997.
Title III provides for the continuation of adjustable rate mortgage indices
used by converted savings associations, including cost-of-funds indices, if
calculation of the index could not be made by the terms of the governing
instrument as a result of changes made by H.R. 10. H.R. 10 also makes
significant changes in the operation of the FHLB System, including the types
of stock that may be issued by FHLBs to members and borrowers and FHLB
capitalization, management, investments and lending. Effective January 1,
1999, the FHLB Act would be amended to permit federal savings associations to
be voluntary members and stockholders of an FHLB.
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The Company is unable to predict whether H.R. 10 or any other such
legislation will be enacted, what the provisions of any such final legislation
may be, or the extent to which the legislation would restrict, disrupt or
otherwise have a material effect on its operations.
FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the Federal Home Loan Bank System consisting of 12
regional Federal Home Loan Banks, which each provide a central credit
facility, primarily for member institutions. The Bank, as a member of the
FHLB, is required to acquire and hold shares of capital stock in the FHLB in
an amount at least equal to 1% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 5% of its advances (borrowings) from the FHLB, whichever is greater.
The Bank was in compliance with this requirement with an investment in FHLB
stock at September 30, 1997 of $6.2 million. FHLB advances must be secured by
specified types of collateral and all long-term advances may only be obtained
for the purpose of providing funds for residential housing finance.
The regional Federal Home Loan Banks are required to provided funds for the
resolution of insolvent thrifts and contribute funds for affordable housing
programs. These requirements could reduce the amount of dividends that these
institutions pay to their members and could also result in higher rates of
interest on FHLB advances. For the years ended December 31, 1996, 1995 and
1994, dividends from the FHLB to the Bank amounted to approximately $177,000,
$170,000 and $84,000, respectively. If dividends were reduced, or interest on
future FHLB advances increased, the Bank's income would likely also be
reduced. Further, there can be no assurance that the impact of recent or
future legislation on the FHLBs will not also cause a decrease in the value of
the FHLB stock held by the Bank.
FEDERAL RESERVE SYSTEM
Regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") require savings institutions to maintain non-
interest-earning reserves against their transaction accounts (primarily NOW
and regular checking accounts). The Federal Reserve Board regulations
generally require that reserves be maintained against aggregate transaction
accounts as follows: for accounts aggregating $54.0 million or less (subject
to adjustment by the Federal Reserve Board) the reserve requirement is 3%; and
for accounts greater than $54.0 million, the reserve requirement is $1.6
million plus 10% (subject to adjustment by the Federal Reserve Board between
8% and 14%) against that portion of total transaction accounts in excess of
$54.0 million. The first $4.2 million of otherwise reservable balances
(subject to adjustments by the Federal Reserve Board) are exempted from the
reserve requirements. The Bank is in compliance with the foregoing
requirements. Because required reserves must be maintained in the form of
either vault cash, a noninterest-bearing account at a Federal Reserve Bank or
a pass-through account as defined by the Federal Reserve Board, the effect of
this reserve requirement is to reduce the Bank's interest-earning assets. FHLB
System members are also authorized to borrow from the Federal Reserve
"discount window," but Federal Reserve Board regulations require institutions
to exhaust all FHLB sources before borrowing from a Federal Reserve Bank.
COMMUNITY REINVESTMENT ACT DEVELOPMENTS
The Bank is subject to certain fair lending requirements and reporting
obligations involving home mortgage lending operations and Community
Reinvestment Act ("CRA") activities. The CRA generally requires the federal
banking agencies to evaluate the record of financial institutions in meeting
the credit needs of their local communities, including low and moderate income
neighborhoods. In addition to substantial penalties and corrective measures
that may be required for a violation of certain fair lending laws, the federal
banking agencies may take compliance with such laws and CRA into account when
regulating and supervising other activities. On May 4, 1995, the federal bank
regulatory agencies, including the OTS, issued final regulations which changed
the manner in which they measure an institution's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institution's actual lending, service and
investment performance rather than the extent to which the institution
conducts needs assessments, documents community outreach or complies with
other procedural requirements.
18
<PAGE>
In addition, under the final regulations, an institution's size and business
strategy will determine the type of CRA examination that it will receive.
Large, retail-oriented institutions will be examined using a performance-based
lending, investment and service test. Small institutions will be examined
using a streamlined approach. Wholesale and limited purpose institutions will
be examined under a community development test. All institutions have the
option of being evaluated under a strategic plan formulated with community
input and pre-approved by the applicable bank regulatory agency.
DESCRIPTION OF THE COMPANY CAPITAL STOCK
GENERAL
The Certificate of Incorporation of the Company authorizes the issuance of
9,000,000 shares of capital stock consisting of 8,000,000 shares of Company
Common Stock and 1,000,000 shares of preferred stock, $0.01 par value per
share (the "Company Preferred Stock"). Prior to consummation of the
Reorganization, there will be 10,000 shares of Company Common Stock, $0.01 par
value per share, issued and outstanding, all of which will be owned by the
Bank. After the Reorganization is consummated, shares of Company Common Stock
held by the Bank will be cancelled. Company Common Stock, like Bank Common
Stock, will represent nonwithdrawable capital, will not be of an insurable
type and will not be insured by the FDIC.
In the future, the authorized and unissued and unreserved shares of Company
Common Stock and the authorized and unissued shares of Company Preferred Stock
will be available for general corporate purposes, including but not limited
to, possible issuance as stock dividends or stock splits, in future mergers or
acquisitions, pursuant to stock compensation plans of the Company or in future
private placements or public offerings. The Company has no present plans for
the issuance of additional authorized shares of its capital stock, other than
pursuant to the Stock Option Plan. Except as otherwise may be required to
approve a merger or other transaction in which additional authorized shares of
Company Common Stock or authorized shares of Company Preferred Stock would be
issued, no shareholder approval will be required for the issuance of such
shares.
COMMON STOCK
Until such time as voting preferred stock is issued, if ever, the holders of
shares of Company Common Stock will possess all rights, including exclusive
voting rights, pertaining to the capital stock of the Company. Each share of
Company Common Stock will entitle the holder thereof to one vote on all
matters upon which shareholders have the right to vote. Shareholders of the
Company will be entitled to cumulate their votes for the election of
directors. The holders of Company Common Stock will be entitled to dividends
when, as and if declared by the Company's Board of Directors, out of funds
legally available therefor.
Holders of shares of Company Common Stock will not be entitled to preemptive
rights with respect to any shares of Company Common Stock or Company Preferred
Stock which may be issued. Company Common Stock will not be subject to call or
redemption and, upon receipt by the Company of the full purchase price
therefor, each share of Company Common Stock will be fully paid and
nonassessable.
In the unlikely event of liquidation or dissolution of the Company, the
holders of Company Common Stock will be entitled to receive, after payment or
provision for payment of all debts and liabilities of the Company, all assets
of the Company available for distribution, in cash or in kind. If Company
Preferred Stock should be issued, the holders thereof may have a priority over
the holders of Company Common Stock in the event of a liquidation or
dissolution.
PREFERRED STOCK
No Company Preferred Stock is being issued in connection with the
Reorganization. The Board of Directors of the Company is authorized to issue
Company Preferred Stock in series and to fix and state voting powers,
designations, preferences or other special rights of the shares of each such
series of preferred stock and the
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<PAGE>
qualifications, limitations and restrictions thereof. Company Preferred Stock
may rank prior to Company Common Stock as to dividend rights, liquidation
preferences, or both, may have full or limited voting rights, and may be
convertible into Company Common Stock. The holders of any class or series of
Company Preferred Stock also may have the right to vote separately as a class
or series under the terms of the class or series as hereafter fixed by the
Board of Directors of the Company or as otherwise required under Delaware law.
COMPARISON OF SHAREHOLDERS' RIGHTS
GENERAL
As a result of the Reorganization, holders of Bank Common Stock will become
shareholders of the Company, a Delaware corporation. There are certain
differences in shareholder rights arising from distinctions between the Bank's
federal Charter and Bylaws and the Company's Delaware Certificate of
Incorporation and Bylaws, and from distinctions between OTS regulations
relating to rights of shareholders and Delaware law.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of shareholders, but rather summarizes the
more significant differences and certain important similarities. The
discussion herein is qualified in its entirety by reference to the Certificate
of Incorporation and Bylaws of the Company, which are attached hereto as
Exhibits B and C, respectively.
AUTHORIZED CAPITAL STOCK
The Bank's authorized capital stock consists of 8,000,000 shares of Bank
Common Stock, $1.00 stated value per share, and 1,000,000 shares of preferred
stock, with such par or stated value as may be determined by the Board of
Directors of the Bank. The Certificate of Incorporation of the Company
provides for the issuance of 8,000,000 shares of Company Common Stock, $0.01
par value per share, and 1,000,000 shares of Company Preferred Stock, $0.01
par value per share.
PAYMENT OF DIVIDENDS
The ability of the Bank to pay dividends on its capital stock is restricted
by OTS regulations and by tax considerations relating to savings institutions.
The Company will not be subject to these restrictions on its ability to pay
dividends and will be limited only by certain restrictions imposed by Delaware
law. Under Delaware law, a Delaware corporation is generally authorized to pay
dividends out of its surplus, which is defined to mean its net assets less its
capital and, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. However,
after the Reorganization, the Company's principal source of revenue will
initially consist of dividends, if any, from the Bank, and the existing
restrictions on the Bank's ability to pay dividends will continue in effect.
Moreover, current OTS regulations will require the Bank to provide the OTS
thirty (30) days' advance notice of any proposed declaration of a dividend to
the Company, and the OTS has the authority under its supervisory powers to
prohibit the payment of dividends to the Company.
To the extent that dividends by the Bank to the Company exceed the Bank's
accumulated earnings and profits as computed for federal income tax purposes,
such distributions may be treated for tax purposes as being made out of the
Bank's bad debt reserve and thereby give rise to taxable income. This result
also applies with respect to dividends by the Bank to its existing
shareholders. The Bank does not have any intention to pay dividends to its
existing shareholders or to the Company after consummation of the
Reorganization in amounts that would involve recapture of its bad debt
reserves.
BOARD OF DIRECTORS
The Bank's Bylaws and the Company's Certificate of Incorporation and Bylaws
require the Board of Directors to be divided into three classes as nearly
equal in number as possible and that the members of each class shall be
elected for a term of three years and until their successors are elected and
qualified, with one class being elected annually. Pursuant to the Bank's
Bylaws, Bank shareholders are currently permitted to cumulate their votes in
an election of directors. The Company's Bylaws also provide for cumulative
voting in the election of directors.
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<PAGE>
Under the Bank's Bylaws, vacancies occurring in its Board of Directors,
including newly created directorships resulting from an increase in the number
of directors, may be filled by the affirmative vote of a majority of the
remaining directors, though less than a quorum, until the election of
directors at the next meeting of shareholders. Under the Company's Bylaws,
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification or removal from office may be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum, or by the sole remaining director or by the shareholders at the next
election of directors if the directors fail to act. Vacancies resulting from
newly created directorships must be filled by the affirmative vote of a
majority of the directors then in office. Pursuant to the Company's Bylaws,
directors elected to fill vacancies on the board are elected for a term which
expires at the annual meeting of shareholders at which the term of the class
to which such director has been elected expires.
Pursuant to OTS regulations, a director of the Bank may be removed only for
cause by the affirmative vote, taken at a meeting of shareholders called
expressly for that purpose, of the holders of a majority of the shares then
entitled to vote at an election of directors. If less than the entire board is
to be removed, no one director of the Bank may be removed if the votes cast
against removal would be sufficient to elect a director of the Bank if then
cumulatively voted at an election of the class of directors of which such
director is a part. Under OTS regulations, removal of a director of the Bank
for cause may include removal for reasons of personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties or willful violation of
any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order. Under the Company's Bylaws, cause
for removal exists only if a director has been convicted of a felony by a
court of competent jurisdiction or has been adjudged by such court to be
liable for gross negligence or misconduct in the performance of such
director's duty to the Company, and such adjudication is no longer subject to
direct appeal. The Company's Bylaws and Certificate of Incorporation provide
that a director may be removed from office only for cause by the affirmative
vote of the holders of a majority of the outstanding shares of stock entitled
to vote at an election of directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under current OTS regulations, the Bank is required to indemnify its
directors, officers and employees for any costs incurred in connection with
any litigation involving any such person's activities as a director, officer
or employee if such person obtains a final judgment on the merits in his or
her favor. In addition, indemnification is permitted in the case of a
settlement, a final judgment against such person or final judgment other than
on the merits, if a majority of disinterested directors determines that the
person was acting in good faith within the scope of his or her employment as
he or she could reasonably have perceived it under the circumstances and for a
purpose he or she could reasonably have believed under the circumstances was
in the best interests of the Bank or its shareholders. The Bank is also
permitted to pay ongoing expenses incurred by a director, officer or employee
if a majority of disinterested directors concludes that the person may
ultimately be entitled to indemnification. Before making any indemnification
payment, the Bank is required to notify the District Director of the OTS of
its intention and such payment cannot be made if the District Director objects
thereto.
The Bank currently has an indemnification agreement (the "Indemnification
Agreement" or the "Indemnification Agreements") with each of its directors and
certain executive officers, which provides that the Bank will indemnify the
indemnified party (the "Indemnitee") against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement (where the settlement
is approved in advance by the Bank) actually and reasonably incurred in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was a director, officer, employee or agent of
the Bank or any subsidiary or by reason of the fact that the Indemnitee is or
was serving at the request of the Bank as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The Indemnitee is only entitled to such indemnification if a
majority of disinterested directors of the Bank determines that the Indemnitee
was acting in good faith and in a manner the Indemnitee reasonably believed to
be in the best interests of the Bank and, in the case of any criminal
proceeding, with no reasonable
21
<PAGE>
cause to believe that his or her conduct was unlawful. The Indemnification
Agreements require the Bank to indemnity the Indemnitee to the fullest extent
permitted by applicable law.
Notwithstanding anything to the contrary contained therein, the
Indemnification Agreements provide that the Bank will not be required to
indemnify an Indemnitee: (i) where the Indemnitee has been adjudged liable to
the Bank for breach of duty to the Bank and its shareholders, unless the court
in which the action is pending determines that the Indemnitee is fairly and
reasonably entitled to indemnification; (ii) for any acts or omissions or
transactions from which a director may not be relieved of liability under the
federal Charter of the Bank; (iii) with respect to a proceeding initiated by
the Indemnitee, and not by way of defense, unless brought to establish or
enforce a right to indemnification under the Indemnification Agreement or
under applicable law; (iv) with respect to a proceeding initiated by the
Indemnitee to enforce or interpret the Indemnification Agreement if a court of
competent jurisdiction determines that the material assertions made by the
Indemnitee in such proceeding were not made in good faith or were frivolous;
(v) for expenses or liabilities which have been paid to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability
insurance maintained by the Bank; or (vi) for disgorgement of profits arising
from the purchase or sale by Indemnitee of securities in violation of Section
16(b) of the Exchange Act. In connection with the Reorganization, the Company
intends to enter into a similar indemnification agreement with each of its
directors and executive officers.
The Company's Bylaws provide that each person who was or is made a party or
is threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
he or she, or a person of whom he or she is the legal representative, is or
was a director or officer of the Company, is or was serving at the request of
the Company as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise (including service with
respect to employee benefit plans), or was a director or officer of a foreign
or domestic corporation which was a predecessor of the Company or of another
enterprise at the request of such predecessor corporation, whether the basis
of such proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as a director or officer shall
be indemnified and held harmless by the Company to the fullest extent
authorized by Delaware law against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by such
person in connection therewith. This indemnification continues as to a person
who has ceased to be a director or officer and inures to the benefit of his or
her heirs, executors and administrators. The Company is required to indemnify
any such person seeking indemnification in connection with a proceeding
initiated by such person only if such proceeding was authorized by the Board
of Directors of the Company. The right to indemnification conferred in the
Company's Bylaws is a contract right and includes the right to be paid by the
Company expenses incurred in defending any such proceeding in advance of its
final disposition provided the Company has received an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it
shall ultimately be determined that such director or officer is not entitled
to be indemnified under the Bylaws or otherwise. Pursuant to its Bylaws, the
Company may provide, by action of the Board of Directors, indemnification to
its employees and agents to the same extent that it indemnifies directors and
officers. The Company's Bylaws create a right to indemnification for each
indemnifiable party whether or not the proceeding to which the indemnification
relates arose in whole or in part prior to adoption of the Bylaws (or the
adoption of the comparable provisions of the Bank's Bylaws).
The rights of indemnification provided in the Company's Bylaws are not
exclusive of any other rights which may be available under Delaware law, any
insurance or other agreement, by vote of shareholders or disinterested
directors or otherwise. In addition, the Company's Bylaws authorize the
Company to maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company, whether or not the
Company would have the power to provide indemnification to such person under
Delaware law. The Bank currently maintains a standard policy of directors' and
officers' liability insurance. The indemnification provisions of the Company's
Bylaws may, in some instances, cover acts of directors and officers that may
not be covered by insurance.
The indemnification provisions of the Company's Bylaws may reduce the
likelihood of shareholder derivative litigation against directors and may
deter shareholders or management from bringing a lawsuit against
22
<PAGE>
directors for breach of their duty of care, including a suit relating to an
attempt to change control of the Company, even though such an action, if
successful, might otherwise have benefited the Company and its shareholders.
Because the indemnification provisions reduce the financial risk of serving as
a director of the Company, the Board of Directors may be deemed to have a
personal interest in including these provisions in the Bylaws, at the
potential expense of the shareholders.
Notwithstanding the above, these provisions have been included in the
Company's Bylaws in recognition of the need to provide such protection to
directors and officers of the Company so as to attract and retain the best
personnel available. Although in the past the Bank has been able to recruit
and retain qualified individuals to serve in these capacities, the Board of
Directors of the Company recognizes the complexities and pressures placed on
directors of publicly held corporations, and especially companies involved in
the complex and rapidly-changing financial services industry. Therefore, the
Board of Directors of the Company believes that the time, efforts and talents
of officers and directors of the Company should be directed to managing the
Company's business, rather than being forced to act defensively out of concern
over the potential for costly personal litigation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to provisions of the Company's Bylaws or any indemnification
agreements that may be entered into with the Company's directors and officers,
the Company has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
At the present time, other than where the Bank and its directors, officers,
employees or agents have been named as defendants in legal actions arising in
the ordinary course of business, none of which, in the opinion of the Bank's
management, is material, the Bank and the Company are not aware of any pending
or threatened litigation against the Bank or the Company for which
indemnification may be sought, and there has been no recent litigation
involving directors, officers, employees or agents of the Bank that would have
been affected by any of the indemnity provisions discussed above.
LIMITATION OF DIRECTOR LIABILITY
The Company's Certificate of Incorporation provides for the elimination,
except in certain limited circumstances, of the liability of the Company's
directors for monetary damages for breach of fiduciary duty to the Company and
its shareholders. Under the Company's Certificate of Incorporation, a director
of the Company shall not be personally liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Company or its shareholders; (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (iii)
for unlawful payment of dividends or unlawful stock purchase or redemption; or
(iv) for any transaction from which the director derived an improper personal
benefit. OTS regulations do not permit federally chartered savings banks to
adopt charter provisions which limit in any respect the monetary liability of
directors, thus the Bank's Charter contains no such provisions.
SPECIAL MEETINGS OF SHAREHOLDERS
Pursuant to the Bank's Bylaws, special meetings of shareholders may be
called at any time by the Chairman of the Board, the Chief Executive Officer,
the President, or a majority of the Board of Directors and shall be called by
the Chairman of the Board, the President, or the Secretary upon the written
request of the holders of not less than one-tenth of the outstanding capital
stock of the Bank entitled to vote at such meeting. Under the Company's
Certificate of Incorporation and Bylaws, a special meeting of shareholders may
be called at any time, and for any purpose, by a majority of the Board of
Directors, the Chairman or Vice Chairman of the Board, the Chief Executive
Officer, the President or the Secretary, but may not be called by any other
person or persons.
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<PAGE>
SHAREHOLDER ACTION WITHOUT A MEETING
The Bylaws of the Bank provide that shareholders may take action without a
meeting by unanimous written consent. The Certificate of Incorporation and
Bylaws of the Company provide that any action required or permitted to be
taken at any annual or special meeting of shareholders must be taken at a
meeting unless the action requiring or permitting shareholder approval is
authorized by a majority of the Board of Directors, in which case such action
may be approved by the written consent of shareholders having not less than
the minimum voting power that would be necessary to take such action at a
meeting.
SHAREHOLDER NOMINATIONS AND PROPOSALS
The Bank's Bylaws provide that shareholder nominations for director and
proposals of new business must be stated in writing and filed with the
Secretary of the Bank not less than five (5) days prior to the annual meeting
of shareholders. The Company's Bylaws provide that shareholder proposals of
new business must be stated in writing and filed with the Secretary of the
Company not less than 120 calendar days in advance of the date of the
Company's proxy statement released to shareholders in connection with the
previous year's annual meeting of shareholders, except that, if no annual
meeting was held in the previous year or the date of the annual meeting has
been changed by more than thirty (30) calendar days from the date contemplated
at the time of the previous year's proxy statement, notice by the shareholder
will be timely filed if filed no later than the close of business on the 10th
day following the day on which notice of the date of the annual meeting was
mailed. The Company's Bylaws further provide that shareholder nominations for
director must be filed with the Secretary not less than twenty (20) days prior
to the meeting; provided, however, that in the event that less than thirty
(30) days' notice of the date of the meeting is given to shareholders, then
shareholder nominations must be received not later than the close of business
on the 10th day following the day on which notice of the date of the meeting
was mailed.
The Company's Bylaws require that a shareholder's notice contain certain
information in order to be considered. The Company's Bylaws require that a
shareholder's notice relating to a proposal of new business set forth: (i) a
brief description of the proposal; (ii) the name and address of the
shareholder making the proposal; (iii) the class and number of shares of the
Company which are owned of record by such shareholder; and (iv) a description
of any material interest of such shareholder in the proposal. A notice
relating to a shareholder's nomination for director must set forth: (i) the
name, age, business address and residence address of the nominee; (ii) the
principal occupation or employment of the nominee; (iii) such person's written
consent to serve as a director, if elected; (iv) the name and address of the
nominating shareholder; and (v) the class and number of shares of the Company
which are owned of record by such shareholder.
The procedures set forth in the Company's Bylaws regarding shareholder
proposals and nominations will provide the Company's Board of Directors with
the information necessary to adequately and fairly evaluate such proposals, as
well as providing the Board the time necessary to consider and evaluate such
information in advance of the applicable meeting. The proposed procedures may
also make it easier for the incumbent directors to defeat a shareholder
proposal or nomination, even when certain shareholders view such proposal or
nomination as in the best interests of the Company or the shareholders.
Furthermore, the Company may determine, pursuant to its Bylaws, that a
properly noticed shareholder proposal is ineligible for presentation at a
meeting of shareholders if the proposal, among other things: (i) would require
the Company to take an action in violation of law or that would result in a
breach of contract; (ii) relates to the conduct of the ordinary business of
the Company; (iii) is substantially duplicative of, or counter to, another
proposal that is to be considered at the meeting; or (iv) relates to an action
designed to result in a benefit to the proposing shareholder not shared with
shareholders of the Company at large.
BUSINESS COMBINATIONS
The Company has elected to be governed by (S)203 of the Delaware General
Corporation Law, which provides that a Delaware corporation, such as the
Company, is prohibited from engaging in certain transactions, including
certain mergers and consolidations, sales of assets and issuances of stock (a
"Business Combination")
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<PAGE>
with a shareholder who has acquired fifteen percent (15%) or more of the
issued and outstanding stock of the corporation (an "Interested Shareholder")
for three (3) years from the time that such shareholder became an Interested
Shareholder. Section 203 is intended, in part, to provide Delaware
corporations electing to be governed by its provisions with some protection
from a hostile takeover. The prohibitions of (S) 203 do not apply if: (i) the
board of directors of the corporation approved the transaction which resulted
in the Interested Shareholder becoming an Interested Shareholder, or approved
the proposed Business Combination prior to the time that such shareholder
became an Interested Shareholder; (ii) upon consummation of the transaction
that resulted in such shareholder becoming an Interested Shareholder, the
Interested Shareholder owned at least 85% of the corporation's issued and
outstanding stock (excluding shares held by directors who are also officers
and certain shares held under employee stock plans); or (ii) the Business
Combination is approved by the corporation's board of directors and two-thirds
of the shares of issued and outstanding stock of the corporation (excluding
shares held by the Interested Shareholder).
The anti-takeover provisions contained in (S)203 of the Delaware General
Corporation Law and described above could have the effect of discouraging an
acquisition of the Company, and could, accordingly, under certain
circumstances, discourage transactions which might otherwise have a favorable
effect on the price of Company Common Stock. These provisions also may have
the effect of discouraging a future takeover attempt in which shareholders
might receive a premium for their shares over then current market prices. As a
result, shareholders who may desire to participate in such a transaction may
not have an opportunity to do so. At the present time, the Board of Directors
of the Company and the Bank are not aware of any effort that might be made to
acquire control of the Bank or the Company.
The Bank's Articles of Incorporation do not currently contain any provisions
similar to those provided for in (S) 203 of the Delaware General Corporation
Law.
AMENDMENT OF THE CHARTER, CERTIFICATE OF INCORPORATION AND BYLAWS
Generally, amendments to the Bank's Charter are first proposed by the Board
of Directors, then preliminarily approved by the OTS and thereafter approved
by the holders of a majority of the outstanding shares. Amendments to the
Company's Certificate of Incorporation or Bylaws will not require OTS
approval. Amendments to the Company's Certificate of Incorporation must be
approved by the Board of Directors and by the holders of a majority of the
outstanding shares entitled to vote, unless the amendment pertains to Articles
Sixth or Seventh (Directors and Authority of the Board), Eighth (Amendment of
Bylaws), Ninth (Term of Directors), Twelfth (Shareholder Action Without a
Meeting) or Fifteenth (Amendments), in which case the affirmative vote of the
holders of not less than two-thirds of the outstanding shares entitled to vote
is required for approval of the amendment.
The Bylaws of the Bank may be amended by a two-thirds vote of the Board of
Directors or by a majority vote of the outstanding shares. The Bylaws of the
Company may be amended by a majority of the Board of Directors or by the
affirmative vote of a majority of the outstanding shares of stock of the
Company entitled to vote thereon.
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<PAGE>
SECURITIES OWNERSHIP OF MANAGEMENT
The following table sets forth as of October 10, 1997 the beneficial
ownership of Bank Common Stock by each director and executive officer and by
all directors and executive officers of the Bank as a group. Except as noted,
all such shares are beneficially owned solely by such individual or jointly
with such individual's spouse.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER AMOUNT BENEFICIALLY OWNED PERCENT OF CLASS(1)
- - ------------------------ ------------------------- -------------------
<S> <C> <C>
Richard J. Cross................ 15,000(2)(3) *
Woodrow W. DeWitt............... 47,220(2) 2.1%
William G. Dyess................ 16,000(2)(4) *
Anthony L. Frey................. 14,750(5) *
Ellen B. Geiger................. 17,317(6) *
Ben Karmelich................... 5,302(2) *
Richard O. Oxford............... 14,525(2) *
George Piercy................... 45,720(2) 2.0%
Stephen N. Rippe................ 44,167(7) 1.9%
Shirley E. Simmons.............. 8,508(2) *
Garry P. Warren................. 19,800(8) *
All directors and executive
officers as a group (11
persons)....................... 248,309(9) 10.3%
</TABLE>
- - --------
* Less than 1%.
(1) Shares which the person (or group) has the right to acquire within 60 days
after the Record Date are deemed to be outstanding in calculating the
percentage ownership of the person (or group) but are not deemed to be
outstanding as to any other person (or group).
(2) Includes 5,000 shares which may be acquired within 60 days upon exercise
of outstanding options.
(3) Does not include 3,000 shares owned by Mr. Cross's wife as to which Mr.
Cross disclaims beneficial ownership.
(4) Does not include 1,600 shares owned by Mr. Dyess's wife as to which Mr.
Dyess disclaims beneficial ownership.
(5) Includes 12,000 shares which may be acquired within 60 days upon exercise
of outstanding options.
(6) Includes 12,650 shares which may be acquired within 60 days upon exercise
of outstanding options.
(7) Includes 29,000 shares which may be acquired within 60 days upon exercise
of outstanding options.
(8) Includes 15,550 shares which may be acquired within 60 days upon exercise
of outstanding options.
(9) Includes a total of 104,200 shares which may be acquired within 60 days
upon exercise of outstanding options.
26
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Management knows of no person who, as of October 10, 1997, beneficially
owned in excess of five percent (5%) of the outstanding Bank Common Stock,
except for the shareholders identified in the following table:
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER AMOUNT BENEFICIALLY OWNED PERCENT OF CLASS
- - ------------------------ ------------------------- ----------------
<S> <C> <C>
Wellington Management Company,
LLP(1)............................ 321,433 14.0%
75 State Street
Boston, Massachusetts 02109
John Hancock Advisors, Inc.(2)..... 194,667 8.5%
101 Huntington Avenue
Boston, Massachusetts 02199
Tidal Insurance Limited(3)......... 145,833 6.3%
11901 Olive Boulevard
St. Louis, Missouri 63141
Deltec International S.A.(4)....... 575,034 1/4 25.0%
c/o Deltec Asset Management Corpo-
ration
535 Madison Avenue
New York, New York 10022
</TABLE>
- - --------
(1) Based on a Schedule 13G filed by Wellington Management Company, LLP on
February 14, 1997.
(2) Based on a Schedule 13G filed by John Hancock Advisors, Inc. on February
13, 1997.
(3) Based on a Schedule 13D field by Tidal Insurance Limited on November 27,
1996. Tidal Insurance Limited is an affiliate of First Banks, Inc., a
registered bank holding company. The voting stock of First Banks, Inc. is
owned by various trusts which were created by and are administered for the
benefit of Mr. James F. Dierberg and members of his immediate family.
Accordingly, Mr. Dierberg controls management and the policies of First
Banks, Inc. and the election of its directors.
(4) Based on a Schedule 13D filed by Deltec International S.A. on July 7,
1997.
CHANGE IN CONTROL
On June 27, 1997, Deltec International S.A. ("Deltec") acquired 481,834 1/4
shares of Bank Common Stock, of which 53,000 shares were purchased from
discretionary brokerage or investment advisory clients of Deltec and 428,834
1/4 shares were purchased in the open market. Deltec used general corporate
funds in the amount of $14,108,239.87 to purchase said shares. Prior to June
27, 1997, Deltec was the holder of 93,200 shares of Bank Common Stock. As a
result of its acquisition of additional shares on June 27, Deltec is now
holder of twenty five percent (25%) of the Bank Common Stock issued and
outstanding.
27
<PAGE>
EXECUTIVE COMPENSATION
Set forth below is certain information concerning the compensation paid
during 1996 by the Bank to Stephen N. Rippe, who will serve as President and
Chief Executive Officer of the Company, and Anthony L. Frey, who will serve as
Executive Vice President, Chief Financial Officer and Secretary of the
Company.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL LONG-TERM ALL OTHER
POSITIONS ANNUAL COMPENSATION COMPENSATION COMPENSATION
------------------ ------------------------ ------------ ------------
YEAR SALARY BONUS OPTIONS(1)
---- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Stephen N. Rippe............ 1996 $181,539 $50,000 10,000 $7,748(2)
President and 1995 170,000 50,000 20,000 3,531(3)
Chief Executive Officer 1994 165,664 -- 10,000 --
Anthony L. Frey............. 1996 $ 88,805(4) -- 20,000 $2,657(5)
Executive Vice President,
Chief
Financial Officer and
Secretary
</TABLE>
- - --------
(1) Consists of the number of shares of stock underlying stock options granted
during the periods indicated plus, for Mr. Rippe, the number of stock
options repriced during 1995.
(2) Consists of a $1,369 imputed life insurance payment, $1,879 in personal
use of a Bank automobile and a $4,500 contribution to the Highland Federal
Bank Profit Sharing Plan, which was amended and restated into the 401(k)
Profit Sharing Plan effective January 1, 1995. See "401(k) Profit Sharing
Plan and Trust" below.
(3) Consists of the amount of contributions to the 401(k) Plan.
(4) Mr. Frey was first employed by the Bank in May 1996. Mr. Frey's annual
salary at December 31, 1996 was $130,000 per year.
(5) Consists of a $298 imputed life insurance payment and $2,359 in personal
use of a Bank automobile.
OPTION GRANTS DURING FISCAL YEAR ENDED DECEMBER 31, 1996
The following table sets forth certain information concerning options
granted by the Bank during 1996 to each person who will serve as an executive
officer of the Company following the Reorganization.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANT OPTION TERM
-------------------------------------------- -----------------------------
NUMBER OF PERCENT OF
SHARES OF TOTAL OPTIONS
STOCK GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE EXPIRATION
NAME OPTIONS FISCAL YEAR PRICE DATE 5% 10%
---- ---------- ------------- -------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Stephen N. Rippe........ 10,000 21.7% $16.38 06/13/06 $ 102,900 $ 260,900
Anthony L. Frey......... 20,000 43.5% 16.38 06/13/06 205,800 521,800
</TABLE>
28
<PAGE>
The following table sets forth the number and value of options to purchase
Bank Common Stock held at December 31, 1996, by each person who will serve as
an executive officer of the Company following the Reorganization. No stock
options granted to such persons were exercised during 1996.
FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END AT YEAR-END(1)
--------------------------- ---------------------------
NAME EXERCISABLE / UNEXERCISABLE EXERCISABLE / UNEXERCISABLE
---- --------------------------- ---------------------------
<S> <C> <C>
Stephen N. Rippe........ 12,000 / 18,000 $ 54,000 / $22,250
Anthony L. Frey......... 5,000 / 15,000 3,125 / 9,375
</TABLE>
- - --------
(1) The fair market value of the Bank's common stock at the close of trading
on December 31, 1996 was $17.00 per share.
401(K) PROFIT SHARING PLAN AND TRUST
The Bank previously maintained the Highland Federal Bank Profit Sharing Plan
(the "Profit Sharing Plan") for the benefit of its eligible employees and
their beneficiaries, originally effective January 1, 1982. Effective January
1, 1995, the Bank's Board of Directors approved the amendment and restatement
of the Profit Sharing Plan into the 401(k) Profit Sharing Plan (the "401(k)
Plan"). The 401(k) Plan is a profit sharing plan with a 401(k) feature. The
purpose of the 401(k) Plan is to encourage participants to adopt a regular
savings program to defer part of their pretax compensation to provide
additional security for their retirement. The Bank, through its Board of
Directors, appoints one or more administrators to administer the 401(k) Plan.
The Internal Revenue Service has determined that the 401(k) Plan is a
qualified plan within the meaning of Section 401(a) of the Code.
All employees of the Bank who are at least 21 years of age and who have
completed at least one (1) year of service with the Bank are eligible to
participate in the 401(k) Plan. Under the terms of the 401(k) Plan,
participants can contribute to the 401(k) Plan by way of payroll deductions,
from 2% up to 15% of their pretax compensation annually, subject to certain
legal limitations. The 401(k) Plan provides that the Board of Directors will
determine on an annual basis whether to make a discretionary matching
contribution and/or discretionary employer contribution on behalf of eligible
participants. Any matching contributions made to the 401(k) Plan will be
allocated among the accounts of all eligible participants based on the amount
of each participant's contribution to the 401(k) Plan and compensation for the
period for which the matching contribution is made. During 1996, the Bank
contributed $69,000 to the 401(k) Plan.
Current tax law limits the amount of deductible contributions to 15% of the
total amount of compensation paid during the plan year to 401(k) Plan
participants, which limit applies to 401(k) contributions by 401(k) Plan
participants, matching contributions by the Bank and any discretionary
employer contributions and forfeitures allocated to the accounts of
participants under the 401(k) Plan. A participant is always 100% vested in his
or her own 401(k) contribution, but only becomes 100% vested in discretionary
matching contributions and employer contributions upon attainment of the
normal retirement age of 65 or upon a participant's total and permanent
disability while employed by the Bank, the death of a participant or the
termination or complete discontinuance of contributions to the 401(k) Plan by
the Bank. If a participant terminates employment with the Bank for any other
reason, then the interest he or she has in discretionary matching
contributions and employer contributions will depend on the participant's
years of service with the Bank. A participant vests 20% for each year of
service, beginning on his or her date of hire.
1994 STOCK OPTION AND PERFORMANCE SHARE AWARD PLAN
Stock Options for Key Employees
The Bank's 1994 Stock Option and Performance Share Award Plan, which is
administered by the Personnel/Compensation Committee of the Board of Directors
(the "Committee"), provides for (i) the grant of
29
<PAGE>
stock options ("Options") and performance share awards ("Awards") to such key
employees as are designated by the Committee, and (ii) the automatic grant of
stock options to non-employee directors ("Directors' Options"). The Stock
Option Plan provides for the grant of Options that qualify as "incentive stock
options" ("ISOs") under the Code and Options that do not so qualify, which are
referred to as "nonqualified stock options" ("NQSOs").
The aggregate number of shares of Bank Common Stock available for issuance
pursuant to the exercise of Options or the grant of Awards is currently
300,000, subject to such adjustment as may be necessary to reflect changes in
the number or kind of shares of stock or other securities of the Bank. The
purchase price of the shares issued pursuant to each Option must be paid in
cash, or if the Committee so determines and if at the time the Bank's Charter
and the rules of the OTS so provide, (i) by surrender of Bank Common Stock
held by the employee or a combination of cash and shares, or (ii) by a
promissory note or a combination of cash and a promissory note. Each Option is
exercisable on such date or dates and during such periods as is determined by
the Committee at the time of grant, provided that no ISO will be exercisable
after the expiration of 10 years after the grant date.
Upon termination of employment with the Bank, an employee optionee (or such
employee's personal representative) will have a limited period of time within
which to exercise Options held on the date of termination, after which time
such Options will expire. If employment terminates by reason of death, all
Options held by the participant on the date of death will become immediately
vested and exercisable. If employment terminates for any other reason, all
Options not vested will be forfeited by the employee unless the Committee
otherwise decides. If termination of employment is by reason of death or
permanent and total disability, all exercisable Options must be exercised
within 12 months after termination, after which time they will expire. If
termination is by reason of disability that is not permanent and total, any
outstanding and exercisable NQSOs must be exercised within 12 months after
termination, and outstanding and exercisable ISOs must be exercised within
three months after termination. If termination is by reason other than death
or disability, such period will end three months after termination for all
exercisable Options. In all cases, however, such period will end no later that
the fixed expiration date of outstanding Options.
In the event that the Bank enters into an agreement to dispose of all or
substantially all of its assets or if the Bank's stockholders dispose or agree
to become obligated to dispose of 50% or more of the outstanding shares of
Bank Common Stock (an "Acceleration Event"), then each outstanding Option will
be exercisable during the 30 days immediately preceding such Acceleration
Event; provided, however, that no Acceleration Event will be deemed to occur
in the event that (i) the terms of the agreements pursuant to which such
transaction is occurring require as a condition to the consummation thereof
that each Option will either be assumed by a successor corporation or be
replaced with a comparable option to purchase shares of capital stock of a
successor corporation, and (ii) the transaction is approved by a majority of
the directors who have been in office for more than 12 months prior to the
scheduled consummation of the transaction. Upon consummation of the
Acceleration Event, all outstanding Options, whether or not so accelerated,
will terminate and cease to be exercisable, unless assumed by the successor
corporation.
Stock Options for Non-Employee Directors
Messrs. Karmelich, DeWitt, Oxford, Cross, Dyess and Piercy and Ms. Simmons
are the current non-employee Directors of the Bank ("Non-Employee Directors").
Each Director who was a Non-Employee Director as of April 27, 1994 was granted
Directors' Options under the Stock Option Plan (all NQSOs) to purchase 2,500
shares of Common Stock at a price of $16.00 per share. On the day following
Mr. Karmelich's retirement as an employee of the Bank (April 28, 1994), Mr.
Karmelich also received Directors' Options to purchase 2,500 shares at $16.00
per share. Each person who is newly elected to the Board of Directors after
the adoption of the Stock Option Plan and who is not an employee of the Bank
at the time of such election will also receive Directors' Options to purchase
2,500 shares at a price equal to the fair market value of the Common Stock on
the date of such election, subject to the maximum amount of aggregate options
issuable to all participants under the Stock Option Plan. On March 31 of each
year commencing on March 31, 1997, each Non-Employee Director who has
30
<PAGE>
not received Directors' Options during the preceding three years will be
granted additional Directors' Options to purchase 2,500 shares at a price
equal to the fair market value of the Common Stock on that date, subject also
to the maximum amount of aggregate options issuable under the Stock Option
Plan. In the event that insufficient shares are available for issuance, the
number of options issued will be reduced proportionately.
Each Directors' Option has a term of five years from the date granted, is
not exercisable within six months after the date of grant and is exercisable
only if, on the date of exercise, such director has been a Non-Employee
Director for at least three years. However, in the event of the termination of
a Non-Employee Director by reason of death, if such individual has not yet
fulfilled this three-year service requirement on the date of death, all
Directors' Options granted to such Non-Employee Director will nevertheless
become immediately exercisable and remain exercisable until the first
anniversary of the date of death. Each Directors' Option is exercisable in the
manner applicable to Options granted to key employees, and unvested Directors'
Options will become exercisable upon the occurrence of an Acceleration Event.
Performance Share Awards
The Committee has the discretion to award to such key employees as it may
designate the right to receive shares of Bank Common Stock ("Performance
Shares") in an amount and upon such terms and conditions to be determined by
the Committee, which shares will not to be issued unless and until the Bank
meets certain performance criteria to be established by the Committee at or
prior to the grant of each such Award.
Each Award is required to be confirmed by a written agreement executed by
the Bank and the key employee. If, or to the extent that, applicable
performance criteria have been satisfied, certificates evidencing the
Performance Shares will be delivered to the employee. Subject to such
exceptions as may be determined by the Committee either at the time of the
Award or at any time thereafter, if an employee's continuous employment with
the Bank or any of its affiliates terminates for any reason, all outstanding
Awards to such employee will be forfeited. If an Acceleration Event occurs
during the term of an Award, all Performance Shares subject to such Award will
be issued, unless (i) the terms of the agreements pursuant to which such
transaction is occurring require as a condition to its consummation that each
Award will either be assumed by a successor corporation or be replaced with a
comparable award of shares of capital stock of the successor corporation, and
(ii) the transaction is approved by a majority of the directors who have been
in office for more than 12 months prior to the scheduled consummation of the
transaction.
Other Provisions
The Stock Option Plan and all grants of Options and Awards under the Stock
Option Plan are subject to such rules, regulations, orders and policies
(collectively, "Directives") of the OTS as may be promulgated from time to
time. In the event that the Committee or the Board of Directors determines
that a Directive requires that the terms of any outstanding Option or Award be
modified, the Committee or the Board of Directors has the right to modify the
terms of any outstanding Option or Award without the consent of the affected
participants and irrespective of whether such modification is consistent with
the terms of the Stock Option Plan or adverse to such participants.
The Stock Option Plan may be amended from time to time by the Board of
Directors in accordance with the requirements set forth in the Stock Option
Plan and subject to the limitations imposed by law. However, the Stock Option
Plan may not be amended to increase the aggregate number of shares of Bank
Common Stock issuable pursuant to the Stock Option Plan or increase in any
material manner the benefits to Non-Employee Directors without the approval of
the holders of a majority of the issued and outstanding shares of Bank Common
Stock. The Board of Directors may at any time terminate the Stock Option Plan,
but such termination will not adversely affect any rights or obligations with
respect to any Options or Awards previously granted under the Stock Option
Plan.
31
<PAGE>
Federal Income Tax Consequences
The rules governing the tax treatment of options and stock acquired upon the
exercise of options are quite technical. Therefore, the description of tax
consequences set forth below is necessarily general in nature and does not
purport to be complete. Moreover, statutory provisions are subject to change,
as are their interpretations, and their application may vary in individual
circumstances. Finally, the tax consequences under applicable state and local
income tax laws may not be the same as under the federal income tax laws.
ISOs granted pursuant to the Stock Option Plan are intended to qualify as
ISOs within the meaning of Section 422A of the Code. If the Participant makes
no disposition of the shares acquired pursuant to exercise of an ISO within
one year after the transfer of shares to such Participant and within two years
from grant of the option, such Participant will realize no taxable income as a
result of the grant or exercise of such option; any gain or loss that is
subsequently realized may be treated as long-term capital gain or loss, as the
case may be. Under these circumstances, the Bank will not be entitled to a
deduction for federal income tax purposes with respect to either the issuance
of such ISOs or the transfer of shares upon their exercise. Under current law,
long-term capital gain is generally subject to the same rate of tax as
ordinary income.
If shares subject to ISOs are disposed of prior to the expiration of the
above time periods, the Participant will recognize ordinary income in the year
in which the disqualifying disposition occurs, the amount of which will
generally be the lesser of (i) the excess of the market value of the shares on
the date of exercise over the option price, or (ii) the gain recognized on
such disposition. Such amount will ordinarily be deductible by the Bank for
federal income tax purposes in the same year, provided that the Bank satisfies
certain federal income tax withholding requirements. In addition, the excess,
if any, of the amount realized on a disqualifying disposition over the market
value of the shares on the date of exercise will be treated as capital gain.
A Participant who acquires shares by exercise of a NQSO generally realizes
as taxable ordinary income, at the time of exercise, the difference between
the exercise price and the fair market value of the shares on the date of
exercise. Unless an election under Section 83(b) of the Code is timely filed,
however, a Participant who is subject to suit under Section 16(b) of the
Exchange Act with respect to sales of shares acquired upon the exercise of a
NQSO recognizes as taxable ordinary income, at the time he is no longer
subject to such suit, the difference between the exercise price and the fair
market value of the shares at such time. Such amount will ordinarily be
deductible by the Bank in the same year, provided that the Bank satisfies
certain federal income tax withholding requirements.
Assumption of the Stock Option Plan
Upon consummation of the Reorganization, the Stock Option Plan will be
assumed by the Company. See "Proposal 1: Formation of the Company--Effect on
Employee Benefit Plans."
EXECUTIVE OFFICER CHANGE OF CONTROL AGREEMENTS
In 1995, the Bank entered into a Change of Control Employment Agreement with
Steven N. Rippe, and in May 1996, the Bank entered into a Change of Control
Employment Agreement with Anthony L. Frey. Such agreements provide that if a
change of control of the Bank (defined to include a merger, consolidation or
asset transfer where the Bank is not the surviving entity and the acquisition
by a person or group of more than 50% of the outstanding shares of the Bank)
occurs during the employment of the individual and the individual's position
is subsequently eliminated or materially altered or the individual resigns his
employment for good reason (defined to include a reduction in salary levels or
benefits, material diminution in title or responsibilities or a job relocation
of more than 50 miles), the individual will be entitled to a lump sum payment
equal to his salary for a specified period. In the case of Mr. Rippe, such
period is two and one-half years, and in the case of Mr. Frey, such period is
one and one-half years.
32
<PAGE>
COMPENSATION OF DIRECTORS
During 1996, each director of the Bank, other than directors who were also
employees of the Bank, was paid directors' fees of $1,600 per month through
August 1996 and $2,000 per month thereafter. Mr. Cross (Chairman of the Board)
receives additional fees of $417 per month as compensation for that position.
Ms. Simmons (Chairman of the Audit Committee) receives additional fees of $208
per month as compensation for that position. Pursuant to this arrangement, the
Bank paid $213,241 in aggregate compensation to directors during 1996. Each
director who has reached the age of 72 and has served as a director for at
least 18 years or was a director on August 19, 1985, or who becomes unable to
continue to serve as a director for reasons of ill health, may be designated a
"director emeritus" by the Board of Directors. Each director emeritus would be
entitled to continue to receive a monthly fee equal to the fee he or she
received immediately prior to becoming a director emeritus and the
continuation of certain benefits. The Bank does not presently have any
directors emeritus.
Prior to July 1992, each of Messrs. DeWitt, Dyess and Piercy had retirement
agreements with the Bank that provided for certain retirement benefits in the
event of the retirement or death of such director, payable in annual
installments over 15 years. Such benefits would have been not less than $6,400
annually in the event of retirement or death occurring after June 19, 1992 and
not more than $9,600 annually in the event of retirement or death occurring
after June 19, 1996. Effective July 1992, each of such directors elected to
receive, commencing in 1992 and in lieu of such retirement benefits, 15 annual
payments of $6,400.
Upon Mr. Karmelich's retirement as President of the Bank on April 27, 1994,
Mr. Karmelich became entitled, pursuant to a retirement agreement with the
Bank, to annual retirement benefits of $92,040 annually beginning on July 1,
1996 and, beginning on October 1, 1997, an additional $38,040 annually and an
additional $8,620 annually beginning on January 2, 1999. Such benefits will be
funded by a whole life insurance policy on the life of Mr. Karmelich owned by
a trust, of which Mr. Karmelich is a beneficiary. The amount of the premiums
paid by the Bank on such policy in 1996 was $80,187.
PROPOSALS OF SHAREHOLDERS
It is presently anticipated that the first Annual Meeting of Shareholders of
the Company will be held in April 1998. Shareholders desiring to exercise
their rights under the proxy rules of the SEC to submit shareholder proposals
are advised that their proposals must be received by the Company no later than
December 2, 1997 in order to be considered for inclusion in the Company's
proxy statement relating to that meeting. Shareholders desiring to submit
proposals pursuant to said proxy rules should submit their proposals to the
Corporate Secretary, Highland Bancorp, Inc., 601 South Glenoaks Boulevard,
Suite 200, Burbank, California 91502.
FINANCIAL INFORMATION
No financial statements have been included in this Proxy
Statement/Prospectus. It is the position of the Board of Directors of the
Company and the Bank that financial statements would not be material or
relevant in order for the shareholders to make an informed judgment to approve
the Reorganization Agreement for the reason that the consolidated financial
statements of the Company immediately following the Reorganization will be
substantially identical to the financial statements of the Bank immediately
prior to the Reorganization.
The Bank's Annual Report on Form 10-K for the year ended December 31, 1996,
containing audited financial statements, management's discussion and analysis
of such financial statements and the report thereon of the Bank's independent
accountants, Grant Thornton LLP, accompanies this Proxy Statement/Prospectus.
The Bank will provide (without charge) to any shareholder solicited hereby a
copy of its Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997 filed with the Office of Thrift
Supervision upon the written or oral request of such shareholder. Requests
should be directed to
33
<PAGE>
the Bank's Corporate Secretary, Highland Federal Bank, 601 South Glenoaks
Boulevard, Suite 200, Burbank, California 91502, (818) 848-4265.
OTHER MATTERS
Management of the Bank does not know of any other matters to be presented
for action by the shareholders at the Special Meeting. If, however, any other
matters not now known are properly brought before the meeting, the Proxy
Holders will vote the proxies in accordance with the recommendations of the
Board of Directors.
November 18, 1997
HIGHLAND FEDERAL BANK
34
<PAGE>
Exhibit A
PLAN OF REORGANIZATION AND AGREEMENT OF MERGER
This Plan of Reorganization and Agreement of Merger (the "Agreement"), dated
as of the day of , 1997, is entered into by and among Highland Federal
Bank, a federally chartered savings bank (the "Bank"), Highland Bancorp, Inc.,
a Delaware corporation (the "Company"), and Highland Federal Interim Savings
Bank, an interim federal savings bank formed pursuant to the rules and
regulations of the Office of Thrift Supervision (the "OTS") for the sole
purpose of consummating the reorganization provided for herein ("Interim").
RECITALS
A. WHEREAS, it is the desire of the parties to this Agreement to adopt a
plan of reorganization providing for the formation of a holding company for
the Bank (the "Reorganization");
B. WHEREAS, the Board of Directors of the Bank has determined that it is in
the best interests of the Bank and its shareholders for the Reorganization to
be consummated in accordance with the terms of this Agreement; and
C. WHEREAS, the Reorganization is to be accomplished through the following
steps: (i) the Company, a Delaware corporation, has been organized as a wholly
owned subsidiary of the Bank; (ii) Interim has been organized as an interim
federal savings bank and a wholly owned subsidiary of the Company; and (iii)
on the Effective Date (as defined in Article Seven below), Interim will be
merged with and into the Bank (the "Merger"), with the Bank as the resulting
institution (the "Resulting Institution"). On the Effective Date, and as a
result of the Merger: (i) all of the issued and outstanding shares of common
stock of Interim, no par value per share (the "Interim Common Stock") shall be
converted, by operation of law, into an equal number of issued and outstanding
shares of the common stock of the Bank, $1.00 par value per share (the "Bank
Common Stock"); (ii) all of the issued and outstanding shares of Bank Common
Stock shall be converted, by operation of law, into an equal number of issued
and outstanding shares of the common stock of the Company, $0.01 par value per
share (the "Company Common Stock"); and (iii) all of the issued and
outstanding Company Common Stock held by the Bank will be cancelled.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the adequacy and receipt of which consideration is hereby
acknowledged, the parties hereto agree and covenant as follows:
ARTICLE ONE
Merger of Interim into the Bank
1.1 The Merger. Upon the Effective Date (as defined in Article Seven below),
Interim shall merge with and into the Bank pursuant to the terms of this
Agreement, and the separate existence of Interim shall cease. All assets and
property (real, personal and mixed, tangible and intangible, choses in action,
rights and credits) then owned by the Bank or Interim or which would inure to
either of them, shall immediately by operation of law and without any
conveyance, transfer or further action, remain or become the property of the
Resulting Institution, which shall have, hold and enjoy such property as did
the Bank and Interim immediately prior to the Effective Date. The Resulting
Institution shall be deemed to be a continuation of the entity of both the
Bank and Interim, and all of the rights and obligations of the Bank and
Interim shall remain unimpaired. The Resulting Institution, upon the Effective
Date, shall succeed to all those rights and obligations and the duties and
liabilities connected therewith.
1.2 Continued Existence of the Bank. Following the Merger, the existence of
the Bank shall continue unaffected and unimpaired by the Merger, and the Bank,
as the Resulting Institution, shall possess all the rights,
A-1
<PAGE>
privileges, immunities and powers, and shall remain subject to all the duties
and liabilities, of a bank organized under the laws of the United States. The
locations of the home and branch offices of the Bank, as the Resulting
Institution, shall continue to be as they were immediately prior to the
Effective Date, as set forth in Schedule 1 to this Agreement. In addition, the
Resulting Institution may operate other offices at such additional locations
as may be approved by the OTS. The federal charter and bylaws of the Bank as
in effect immediately prior to the Effective Date shall be the charter and
bylaws of the Resulting Institution, and shall not be changed in any manner
whatsoever by the Merger. The Bank shall continue to operate under its present
name "Highland Federal Bank, a Federal Savings Bank."
1.3 Continued Business of the Bank. From and after the Effective Date, and
subject to actions of the Board of Directors of the Bank, the business of the
Bank as presently conducted will continue to be conducted by the Resulting
Institution. After the Effective Date, the Bank will continue to issue savings
accounts on the same basis as immediately prior to the Effective Date. All
deposit accounts of the Bank shall become, as of the Effective Date, deposits
in the Resulting Institution without change in their respective terms,
interest rates, maturities, minimum required balances or withdrawal values.
After the Effective Date, the Resulting Institution will continue to issue
deposit accounts on the same basis as immediately prior to the Effective Date.
1.4 Directors and Officers of the Company and the Bank. The Merger shall
involve no change in the directors of the Bank, whose names are set forth in
Schedule 2 to this Agreement. Those persons who, as of the Effective Date, are
directors of the Bank shall also be the directors of the Company. Each such
director shall serve for the term which expires at the annual meeting of
shareholders in the year set forth opposite his or her respective name on
Schedule 2 hereof and until his or her successor is duly elected and
qualified. The Merger shall involve no change in the officers of the Bank. As
determined by the Board of Directors of the Company, certain executive
officers of the Bank shall also be the officers of the Company.
ARTICLE TWO
Conversion of Shares
2.1 Conversion of Bank Common Stock.
(i) Conversion. On the Effective Date, each issued and outstanding share of
Bank Common Stock shall be converted, by operation of law, into one share of
Company Common Stock;
(ii) The Exchange. On the Effective Date, each holder of an outstanding
certificate or certificates which, prior to the Effective Date, represented
shares of Bank Common Stock may surrender the same to Chase Mellon Shareholder
Services, Inc., exchange agent for the Bank (the "Exchange Agent"), and such
shareholder shall be entitled upon surrender of such certificate or
certificates to receive, in exchange therefor, a certificate representing the
number of shares of Company Common Stock into which the shares of Bank Common
Stock represented by the certificate or certificates so surrendered shall have
been converted. From and after the Effective Date, until so surrendered, each
outstanding certificate which, prior to the Effective Date, represented Bank
Common Stock, shall be deemed for all purposes (including the payment of
dividends) to evidence ownership of Company Common Stock;
(iii) Satisfaction of All Rights. The shares of Company Common Stock into
which shares of Bank Common Stock shall have been converted in accordance with
the terms of this Agreement shall be deemed to have been issued in full
satisfaction of all rights pertaining to such converted shares of Bank Common
Stock; and
(iv) Sole Rights. On the Effective Date, the holders of certificates
formerly representing Bank Common Stock issued and outstanding on the
Effective Date shall cease to have any rights with respect to such Bank Common
Stock, and their sole rights on and following the Effective Date shall be with
respect to the Company Common Stock into which their shares of Bank Common
Stock shall have been converted as a result of the Merger.
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2.2 Cancellation of Company Common Stock Owned by the Bank. On the Effective
Date, all previously issued and outstanding shares of Company Common Stock,
all of which shares shall have been owned by the Bank, shall be cancelled and
shall cease to be deemed authorized, issued or outstanding for any purpose.
2.3 Conversion of Interim Common Stock. On the Effective Date, all of the
issued and outstanding shares of Interim Common Stock owned by the Company, as
the sole shareholder of Interim immediately prior to the Merger, shall be
converted, by operation of law, into an equal number of issued and outstanding
shares of Bank Common Stock and shall not be further converted into shares of
Company Common Stock, so that from and after the Effective Date, all of the
issued and outstanding shares of Bank Common Stock shall be owned and held by
the Company.
2.4 Stock Option Plan and Restricted Stock. On the Effective Date, the
Bank's 1994 Stock Option and Performance Share Award Plan (the "Stock Option
Plan") shall be assumed by the Company and shall become the Stock Option Plan
of the Company. The Stock Option Plan shall be amended to provide for the
issuance of shares of Company Common Stock, rather than shares of Bank Common
Stock, upon exercise of options or payment of other awards under the plan. The
Company shall enter into (i) an amended stock option agreement (collectively,
the "Amended Option Agreements") with each holder of an outstanding option
under the Stock Option Plan and (ii) an amended performance share award and
restricted stock agreement (collectively, the "Amended Restricted Stock
Agreements") with each holder of restricted stock awarded pursuant to the
plan. The Amended Option Agreements shall provide for the agreement of the
holder of each outstanding option granted pursuant to the Stock Option Plan to
accept Company Common Stock in lieu of Bank Common Stock upon the exercise of
such option. The Amended Restricted Stock Agreements shall provide for the
agreement of each holder of restricted stock awarded pursuant to the Stock
Option Plan to exchange the shares of Bank Common Stock received pursuant to
such grant for shares of Company Common Stock. Upon execution of the Amended
Option Agreements, each unexercised option granted under the Stock Option Plan
shall become an unexercised option to purchase the same number of shares
(adjusted thereafter where appropriate pursuant to the anti-dilution
provisions of the Stock Option Plan, if any) of Company Common Stock on the
same terms and conditions (including, but not limited to, the same option
exercise price). Shares of Company Common Stock issued in exchange for Bank
Common Stock pursuant to the Amended Restricted Stock Agreements will be
restricted stock, subject to the same terms and conditions (including, but not
limited to, restrictions on transfer) as governed the original award.
2.5 Other Employment Agreements and Benefit Plans. On the Effective Date,
and except as otherwise provided in Section 2.4 above, all rights to purchase,
sell or receive Bank Common Stock and all rights to elect to make payment in
Bank Common Stock under any agreement between the Bank and any director,
officer or employee thereof or under any plan or program of the Bank shall
automatically, by operation of law, be converted into and shall become an
identical right to purchase, sell or receive Company Common Stock and an
identical right to make payment in Company Common Stock under such agreement
between the Bank and any director, officer or employee thereof or under such
plan or program of the Bank.
2.6 Reservation and Issuance of Stock. On the Effective Date, the Board of
Directors of the Company shall be deemed to have reserved, or authorized the
issuance of, as the case may be, an amount of shares of Company Common Stock,
and such shares shall automatically be so reserved or so authorized, as the
case may be, in respect of the agreements, plans and programs referred to in
the foregoing Sections 2.4 and 2.5 equal to the amount of shares of Bank
Common Stock that the Bank had reserved or authorized for issuance, as the
case may be, in respect of such agreements, plans and programs immediately
prior to the Effective Date.
ARTICLE THREE
Representations and Warranties
3.1 Representations and Warranties of the Bank. The Bank represents and
warrants as follows:
(a) Corporate Standing of the Bank. The Bank is a federal stock savings bank
duly organized, validly existing and in good standing under the laws of the
United States; it has the corporate power to own its
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property and to carry on its business as presently conducted; and it is
qualified to transact business as a foreign corporation and is in good
standing in the jurisdictions in which its principal properties are located.
(b) Authorized Stock of the Bank. As of the date hereof, the Bank is
authorized to issue 8,000,000 shares of Bank Common Stock, of which 2,300,137
shares are issued and outstanding, and 1,000,000 shares of preferred stock, of
which no shares are issued and outstanding.
(c) Subsidiaries. The Bank presently has no subsidiaries other than HFS
Corporation and HI-FED Insurance Agency (the "Subsidiaries"). HFS Corporation
is a corporation duly organized, validly existing and in good standing under
the laws of the State of California and has all corporate power and
certificates of authority, licenses, permits and other documentation required
to own its properties and carry on its business as it is now being conducted.
HI-FED Insurance Agency is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and has all
corporate power and certificates of authority, licenses, permits and other
documentation required to own its properties and carry on its business as it
is now being conducted. All of the authorized common stock of the Subsidiaries
which is issued and outstanding is owned by the Bank free and clear of any
material encumbrances.
(d) Legal Proceedings of the Bank. The Bank is not a party to, nor has it
been threatened with, any litigation or governmental proceedings which, if
adversely decided, would have a material adverse effect upon the transactions
contemplated hereby or upon the financial condition, capital or business of
the Bank, or which would create a material liability of the Bank.
3.2 Representations and Warranties of the Company. The Company represents
and warrants as follows:
(a) Corporate Standing of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware; it has the corporate power to own its property and to carry on
its business as now conducted; and it is qualified to transact business as a
foreign corporation and is in good standing in the jurisdictions in which its
principal properties are located.
(b) Authorized Stock of the Company. As of the date hereof, the Company is
authorized to issue 8,000,000 shares of Company Common Stock, of which 10,000
shares are issued and outstanding and are owned by the Bank, and 1,000,000
shares of preferred stock, of which no shares are issued or outstanding.
(c) Legal Proceedings of the Company. The Company is not a party to, nor has
it been threatened with, any litigation or governmental proceedings which, if
adversely decided, would have a material adverse effect upon the transactions
contemplated hereby or upon the financial condition, capital or business of
the Company, or which would create a material liability of the Company.
3.3 Representations and Warranties of Interim. Interim represents and
warrants as follows:
(a) Corporate Standing of Interim. Interim is a federal interim savings bank
duly organized, validly existing and in good standing under the laws of the
United States; it has the corporate power to own its property and to carry on
its business as now conducted; and it is qualified to transact business as a
foreign corporation and is in good standing in the jurisdictions in which its
principal properties are located.
(b) Authorized Stock of Interim. As of the date hereof, Interim is
authorized to issue 10,000 shares of Interim Common Stock, of which 10,000
shares are issued and outstanding and are owned by the Company.
(c) Legal Proceedings of Interim. Interim is not a party to, nor has it been
threatened with, any litigation or governmental proceedings which, if
adversely decided, would have a material adverse effect upon the transactions
contemplated hereby or upon the financial condition, capital or business of
Interim, or which would create a material liability of Interim.
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ARTICLE FOUR
Covenants
4.1 Restrictions on Certain Activities. The Bank, the Company and Interim
agree that, without the prior written consent of the others, each will not,
prior to the Effective Date (except as contemplated by this Agreement):
(a) Amend its Certificate of Incorporation, Charter or Bylaws, or merge into
or consolidate with any other corporation, or change in any manner the rights
of its outstanding capital stock or the character of its principal business;
(b) Issue or sell, or issue options or rights to subscribe to, or enter into
any contracts or commitments to issue or sell, any shares of its capital
stock, or subdivide or in any way reclassify any shares of its capital stock,
other than pursuant to the Stock Option Plan;
(c) Acquire or agree to acquire any shares of its capital stock;
(d) Make or contract for any substantial acquisition of assets except in the
ordinary course of business; or
(e) Sell, dispose of or encumber any property or assets, or engage in any
activity or transaction, except for transactions in the ordinary course of
business or permitted by this Article Four.
ARTICLE FIVE
Conditions
5.1 Conditions to Performance by the Company and Interim. The obligations of
the Company and Interim to effect the Reorganization hereunder shall be
subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Bank herein contained shall be true on and as of the Effective Date with
the same effect as though made as of such date, except for any variations
permitted by this Agreement. The Bank shall have performed all covenants and
obligations and complied with all conditions required by this Agreement to be
performed or complied with by it prior to the Effective Date and the Bank
shall have delivered to the Company a certificate, dated the Effective Date,
and signed by its President to the foregoing effect.
(b) Authorization of Directors. The execution and delivery of this Agreement
shall have been duly authorized and approved by the Board of Directors of the
Bank.
(c) Approval of Shareholders. The holders of a majority of the issued and
outstanding shares of the Bank Common Stock shall, at a meeting of the
shareholders of the Bank duly called for the purpose, inter alia, of
considering and acting upon this Agreement, have voted in favor of the
adoption and approval of this Agreement.
(d) Registration of Shares of Company Common Stock. The shares of Company
Common Stock to be issued to the holders of Bank Common Stock pursuant to this
Agreement: (i) shall have been registered or qualified for such issuance under
the Securities Act of 1933, as amended (the "Securities Act"); or (ii) shall
have been determined by counsel for the Company to be exempt from registration
under the Securities Act; and (iii) shall have been registered or qualified
for issuance under all applicable state securities laws; or (iv) shall have
been determined by counsel for the Company to be exempt from registration or
qualification under such state securities laws.
(e) Government Approval. Any and all approvals from the OTS, the Securities
and Exchange Commission (the "SEC"), and any and all additional necessary or
appropriate governmental agencies required for the lawful consummation of the
Reorganization and the issuance and delivery of Company Common Stock as
contemplated by this Agreement shall have been obtained.
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(f) Legal Opinion. The tax opinion specified in paragraph (e) of Section
5.2, in form and substance satisfactory to the Company and Interim, shall have
been received.
(g) Consents of Third Parties. The Bank shall have obtained all such
consents, permissions and approvals from third parties, including governmental
bodies or agencies, as required by Section 5.1(e) above, as may be required to
permit it to perform this Agreement in accordance with its terms, except for
such consents with regard to agreements and arrangements which are not, in the
aggregate, material to the Bank.
5.2 Conditions to Performance by the Bank. The obligation of the Bank to
effect the Reorganization hereunder shall be subject to the following
conditions:
(a) Representations and Warranties. The representations and warranties of
the Company and Interim herein contained shall be true on and as of the
Effective Date with the same effect as though made as of such date, except for
any variations permitted by this Agreement. The Company and Interim shall have
performed all covenants and obligations and complied with all conditions
required by this Agreement to be performed or complied with by each of them
prior to the Effective Date, and the Company and Interim shall have delivered
to the Bank certificates, dated the Effective Date, and signed by their
respective Presidents to the foregoing effect.
(b) Other Conditions. The conditions specified in paragraphs (c), (d) and
(e) of Section 5.1 shall have been fulfilled.
(c) Authorization of Directors. The execution and delivery of this Agreement
shall have been duly authorized and approved by the Board of Directors of each
of the Company and Interim.
(d) Approval of Shareholders. The Company as the sole shareholder of Interim
and the Bank as sole shareholder of the Company shall have duly approved of
the adoption of this Agreement.
(e) Federal Tax Ruling or Opinion. The Bank shall have received from its tax
counsel an opinion in form and substance satisfactory to the Bank that, for
federal income tax purposes:
(1) The Merger will qualify as a reorganization within the meaning of
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"). The Reorganization will not be disqualified by reason of the fact
that the stock of the Company is used in the Merger, pursuant to Section
368(a)(2)(E) of the Code. The Bank, the Company and Interim will each be "a
party to a reorganization" within the meaning of Section 368(b) of the
Code.
(2) No gain or loss will be recognized by Interim on the transfer of its
assets to the Bank solely in exchange for Bank Common Stock and the
assumption of Interim's liabilities, pursuant to Sections 361(a) and 357(a)
of the Code.
(3) No gain or loss will be recognized by the Bank upon receipt of the
assets of Interim in exchange for Bank Common Stock, pursuant to Section
1032(a) of the Code.
(4) The basis of Interim's assets in the hands of the Bank will be the
same as the basis of such assets in the hands of Interim immediately prior
to the Merger, pursuant to Section 362(b) of the Code.
(5) No gain or loss will be recognized by the Company upon the receipt of
Bank Common Stock solely in exchange for the stock of Interim, pursuant to
Section 354(a)(1) of the Code.
(6) No gain or loss will be recognized by the shareholders of the Bank
upon the transfer of their Bank Common Stock solely in exchange for Company
Common Stock, pursuant to Section 354(a) of the Code.
(7) The basis of the Company Common Stock to be received by shareholders
of the Bank will be the same as the basis of the Bank Common Stock
surrendered in exchange therefor, pursuant to Section 358(a)(1) of the
Code.
(8) The holding period of the Company Common Stock to be received by
shareholders of the Bank will include the holding period of the Bank Common
Stock surrendered in exchange therefor,
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provided that the Bank Common Stock is held as a capital asset on the date
of the exchange, pursuant to Section 1223(1) of the Code.
(9) The holding period of the assets of Interim in the hands of the Bank
will include the period during which such assets were held by Interim,
pursuant to Section 1223(2) of the Code.
(10) Provided that the Bank meets the requirements of Section 593(a)(2)
of the Code both before and after the Reorganization, no part of the bad
debt reserve of the Bank will be required to be restored to the gross
income of the Bank as a result of the Reorganization.
(11) Immediately prior to the Reorganization, the Company will be a
member of the affiliated group of which the Bank is the common parent
within the meaning of Section 1504 of the Code.
(12) The affiliated group of which the Bank is the common parent
immediately prior to the Reorganization will remain in existence after the
Reorganization, and the Company will become the common parent of the
affiliated group.
(13) The members of the Bank affiliated group immediately before and
after the Reorganization (other than Interim) will not close their taxable
years as a result of the Reorganization and will remain on the taxable year
previously employed by the group.
(14) No prior taxable year of the Bank or any member of the affiliated
group of which the Bank is the common parent will become a separate return
limitation year by reason of the Reorganization.
(15) Provided that any nonqualified stock options to purchase the Common
Stock of the Bank and any nonqualified stock options to purchase Company
Common Stock into which they will be converted do not have readily
ascertainable fair market values (within the meaning of Section 1.83-7 of
the Treasury Regulations), such conversion of Bank options into Company
options will not result in income, gain, or loss to the holders of such
stock options, pursuant to Section 83(e)(3) of the Code.
(16) No gain or loss will be recognized by the Bank or the Company upon
the issuance of the Company Common Stock to an optionee pursuant to the
optionee's exercise of a stock option issued by the Bank and converted into
an option to acquire Company Common Stock, pursuant to Section 1032 of the
Code and Section 1.83-6(d) of the Treasury Regulations.
(17) Provided that any incentive options issued by the Bank qualify as
incentive stock options under Section 422 of the Code, the Reorganization
will qualify as a transaction to which Section 424(a) applies. The
assumption of the Stock Option Plan by the Company will satisfy the
requirements of Section 424(a) of the Code and will not be a modification
under Section 424(h) of the Code. Accordingly, no income, gain or loss will
be recognized by the Bank, the Company, or the holders of outstanding
options of the Bank upon the substitution, amendment, or assumption by the
Company of the Stock Option Plan and options thereunder.
(18) The Merger will not result in a change of ownership of the Bank
within the meaning of Section 382(g) of the Code, and therefore Section 382
will not apply to the Bank as a result of the Merger.
(f) Consents of Third Parties. The Company and Interim shall have obtained
all such consents, permissions and approvals from third parties, including
governmental bodies or agencies, as may be required to permit them to perform
this Agreement in accordance with its terms, except for such consents with
regard to agreements and arrangements which are not, in the aggregate,
material to the Company or Interim.
ARTICLE SIX
Termination
6.1 Termination. This Agreement may be terminated: (i) at the election of
the Company and Interim, if any one or more of the conditions to the
obligations of either herein shall not have been fulfilled and shall have
become incapable of fulfillment; or (ii) at the election of the Bank if any
one or more of the conditions to its
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obligations herein shall not have been fulfilled and shall have become
incapable of fulfillment. This Agreement may also be terminated at any time
prior to the Effective Date by mutual consent of the respective Boards of
Directors of the parties hereto.
6.2 No Further Liability. In the event of the termination of this Agreement
pursuant to any of the foregoing provisions, each party shall pay all costs
and expenses incurred by it in connection with this Agreement and the
transactions contemplated hereby, and no party shall have any further
liability or obligation of any nature to any other party.
ARTICLE SEVEN
Effective Date of the Reorganization
Upon satisfaction of each of the conditions set forth in Article Five
(unless waived in accordance with this Agreement), and in the absence of any
facts which would give any party hereto a right to terminate this Agreement
(unless such right has been waived), the parties hereto shall execute and
cause to be filed such certificates or other documents with federal or state
regulatory agencies as may be required under applicable laws, rules or
regulations in order to cause the Reorganization provided for in this
Agreement to become effective. The effective date of the Reorganization (the
"Effective Date") shall be the date as soon as practicable after all of such
filings are completed and all required approvals from federal or state
regulatory agencies have been obtained.
ARTICLE EIGHT
Miscellaneous
8.1 Waiver, Amendment, etc. Any of the terms or conditions of this Agreement
which may legally be waived may be waived at any time by any party hereto
which is, or the shareholders of which are, entitled to the benefit thereof,
by action taken or authorized by the Board of Directors of such party. Any of
the terms or conditions of this Agreement which may legally be amended or
modified may be amended or modified in whole or in part at any time by an
agreement in writing, executed in the same manner as this Agreement after
authorization to do so by the Boards of Directors of the parties hereto;
provided, however, that no such waiver, amendment or modification shall have a
material adverse effect on the benefits intended under this Agreement to the
shareholders of the Bank. Any such amendment or modification made subsequent
to the approval of this Agreement by the shareholders of the Bank shall
require the prior approval of the OTS if, in the opinion of counsel for the
Bank, such approval is necessary or appropriate.
8.2 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed given if and when delivered
personally or mailed by certified or registered mail, postage prepaid,
addressed as follows:
If to the Bank:
Stephen N. Rippe
President and Chief Executive Officer
Highland Federal Bank
601 South Glenoaks Boulevard, Suite 200
Burbank, California 91502
If to the Company:
Stephen N. Rippe
President and Chief Executive Officer
Highland Bancorp, Inc.
601 South Glenoaks Boulevard, Suite 200
Burbank, California 91502
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If to Interim:
Stephen N. Rippe
President and Chief Executive Officer
Highland Federal Interim Savings Bank
601 South Glenoaks Boulevard, Suite 200
Burbank, California 91502
8.3 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts
together shall constitute one and the same instrument.
8.4 Governing Law. This Agreement is made pursuant to, and shall be
construed under and be governed by the laws of the United States and the rules
and regulations promulgated thereunder, including without limitation, the
rules and regulations of the OTS.
8.5 Agreement. This Agreement sets forth all the terms, conditions,
agreements, understandings and provisions of the Bank, the Company and Interim
with respect to the Reorganization.
IN WITNESS WHEREOF, each of the parties hereto have caused this Plan of
Reorganization and Agreement of Merger to be signed on its behalf by an
officer thereunto duly authorized, all as of the date first set forth above.
HIGHLAND FEDERAL BANK
By: _________________________________
Stephen N. Rippe
President and Chief Executive
Officer
HIGHLAND BANCORP, INC.
By: _________________________________
Stephen N. Rippe
President and Chief Executive
Officer
HIGHLAND FEDERAL INTERIM SAVINGS
BANK
By: _________________________________
Stephen N. Rippe
President and Chief Executive
Officer
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SCHEDULE 1
Plan of Reorganization and Agreement of Merger
The following is a list of the offices of Highland Federal Bank:
Corporate Office/Burbank
601 South Glenoaks Boulevard
Burbank, CA 91502
Atwater
3355 Glendale Boulevard
Los Angeles, CA 90039
Highland Park
6301 North Figueroa Street
Los Angeles, CA 90042
Palos Verdes
20 Miraleste Plaza
Palos Verdes, CA 90274
San Gabriel
835 East Las Tunas Drive
San Gabriel, CA 91776
Santa Monica
1101 Montana Avenue
Santa Monica, CA 90403
Torrance
25345 Crenshaw Boulevard
Torrance, CA 90505
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SCHEDULE 2
Plan of Reorganization and Agreement of Merger
The following sets forth certain information concerning the directors of
Highland Federal Bank and Highland Bancorp, Inc. upon consummation of the
Reorganization.
<TABLE>
<CAPTION>
DIRECTOR YEAR TERM
DIRECTOR SINCE EXPIRES
-------- -------- ---------
<S> <C> <C>
Woodrow W. DeWitt..................................... 1968 2000
986 Bayside Cove West,
Newport Beach, California 92660
Richard O. Oxford..................................... 1991 2000
2248 N. New Hampshire
Los Angeles, California 90027
Shirley E. Simmons.................................... 1991 2000
5340 Pine Glen Road
La Crescenta, California 91214
George Piercy......................................... 1968 1999
1146 Shenandoah Road
San Marino, California 91108
Stephen N. Rippe...................................... 1994 1999
4224 Saddlecrest Lane
Westlake Village, California 91361
Richard J. Cross...................................... 1990 1998
1430 Greenbriar Road
Glendale, California 91207
William G. Dyess...................................... 1968 1998
3226 Dora Verdugo
Glendale, California 91208
Ben Karmelich......................................... 1980 1998
20 Diamonte Lane
Rancho Palos Verdes, California 90274
</TABLE>
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Exhibit B
CERTIFICATE OF INCORPORATION
HIGHLAND BANCORP, INC.
a Delaware corporation
FIRST: Name: The name of the corporation is Highland Bancorp, Inc. (the
"Corporation").
SECOND: Registered Office and Registered Agent. The address of the
registered office of the Corporation in the State of Delaware is 15 East North
Street, in the City of Dover, County of Kent, 19901. The name of its
registered agent at such address is AmeriSearch Corporate Services, Inc.
THIRD: Nature of Business. The purpose of the Corporation is to engage in
any lawful act or activity for which corporations may now or hereafter be
organized under the Delaware General Corporation Law.
FOURTH: Capital Stock. The total number of shares of all classes of capital
stock which the Corporation shall have authority to issue is 9,000,000,
consisting of 8,000,000 shares of common stock, $0.01 par value per share (the
"Common Stock"), and 1,000,000 shares of preferred stock, $0.01 par value per
share (the "Preferred Stock").
A description of the different classes and series (if any) of the
Corporation's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of
and series (if any) of stock are as follows:
A. Common Stock. Except as provided in this Article Fourth (or in any
resolution or resolutions adopted by the Board of Directors pursuant hereto),
the exclusive voting power shall be vested in the Common Stock, the holders
thereof being entitled to one vote for each share of such Common Stock
standing in the holder's name on the books of the Corporation. Subject to any
rights and preferences of any class or series of stock having preference over
the Common Stock with respect to dividends or upon liquidation, holders of
Common Stock shall be entitled to such dividends as may be declared by the
Board of Directors out of funds lawfully available therefor, which funds shall
include, without limitation, the Corporation's capital surplus. Upon any
liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, holders of Common Stock shall be entitled to
receive pro rata the remaining assets of the Corporation after the holders of
any class or series of stock having preference over the Common Stock have been
paid in full any sums to which they may be entitled. Holders of Common Stock
shall not be entitled to preemptive rights with respect to any shares of
Common Stock, Preferred Stock or any other securities, debt or otherwise,
issued by the Corporation.
B. Preferred Stock. The Board of Directors is hereby expressly authorized,
by resolution or resolutions to provide, out of the unissued shares of
Preferred Stock, for series of Preferred Stock. Before any shares of any such
series are issued, the Board of Directors shall fix, and hereby is expressly
empowered to fix, by resolution or resolutions, the following provisions of
the shares thereof:
(i) the designations of such series, the number of shares to constitute
such series and the stated value thereof if different from the par value
thereof;
(ii) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of
such voting rights, which may be general or limited;
(iii) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions
and dates upon which such dividends shall bear to the dividends payable on
any shares of stock of any other class or any other series of this class;
(iv) whether the shares of such series shall be subject to redemption by
the Corporation, and, if so, the times, prices and other conditions of such
redemption;
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(v) the amount or amounts payable upon shares of such series upon, and
the rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the
assets, of the Corporation;
(vi) whether the shares of such series shall be subject to the operation
of a retirement or sinking fund and, if so, the extent to and manner in
which any such retirement or sinking fund shall be applied to the purchase
or redemption of the shares of such series for retirement or other
corporate purposes and the terms and provisions relative to the operation
thereof;
(vii) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
this class or any other securities, and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange;
(viii) the limitations and restrictions, if any, to be effective while
any shares of such series are outstanding upon the payment of dividends or
the making of other distributions on, and upon the purchase, redemption or
other acquisition by the Corporation of, the Common Stock or shares of
stock of any other class or any other series of this class;
(ix) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of this
class or of any other class; and
(x) any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and
restrictions thereof.
The powers, preferences and relative, participating, optional and other
special rights, of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of
such series, except that shares of any one series issued at different times
may differ as to the dates from which dividends thereon shall accrue and/or be
cumulative.
FIFTH: The name and mailing address of the incorporator are as follows:
Highland Federal Bank, a Federal Savings Bank
601 South Glenoaks Boulevard
Burbank, California 91502
SIXTH: Directors. The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors. Except as otherwise
fixed pursuant to the provisions of Article Fourth hereof relating to the
rights of the holders of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation to elect additional
directors, the number of directors shall be determined as stated in the
Corporation's Bylaws, as may be amended from time to time.
SEVENTH: Authority of the Board. In furtherance and not in limitation of the
powers conferred by statute, the Board of Directors is expressly authorized:
(a) to adopt, repeal, rescind, alter or amend in any respect the Bylaws,
and to confer in the Bylaws powers and authorities upon the directors of
the Corporation in addition to the powers and authorities expressly
conferred upon them by statute;
(b) from time to time to set apart out of any funds or assets of the
Corporation available for dividends an amount or amounts to be reserved as
working capital or for any other lawful purpose and to abolish any reserve
so created and to determine whether any, and, if any, what part, of the
surplus of the Corporation or its net profits applicable to dividends shall
be declared in dividends and paid to its shareholders, and all rights of
the holders of stock of the Corporation in respect of dividends shall be
subject to the power of the Board of Directors so to do;
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(c) subject to the laws of the State of Delaware, from time to time to
sell, lease or otherwise dispose of any part or parts of the properties of
the Corporation and to cease to conduct the business connected therewith or
again to resume the same, as it may deem best; and
(d) in addition to the powers and authorities hereinbefore and by the
laws of the State of Delaware conferred upon the Board of Directors, to
execute all such powers and to do all acts and things as may be exercised
or done by the Corporation; subject, nevertheless, to the express
provisions of said laws, of the Certificate of Incorporation of the
Corporation and its Bylaws.
EIGHTH: Amendment of Bylaws. Notwithstanding Article Seventh hereof, and
except as otherwise may be provided by the terms of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation, the Bylaws may be adopted, repealed, rescinded, altered or
amended by the affirmative vote of the holders of a majority of the
outstanding shares of stock of the Corporation entitled to vote thereon.
NINTH: Term of Directors. Except as otherwise provided by the terms of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, each director shall serve until his or her
successor is elected and qualified or until his or her earlier death,
resignation, retirement, disqualification or removal from office in the manner
provided for in Article Eleventh hereof, and no decrease in the authorized
number of directors shall shorten the term of any incumbent director. The
Board of Directors shall be divided into three classes as nearly equal in
number as possible, with one class to be elected annually. The terms of office
of the initial directors shall be as follows: the directors first appointed to
Class III of the Board of Directors shall serve for a term ending upon the
election of directors at the annual meeting of shareholders next following the
end of the calendar year 1997; the directors first appointed to Class I of the
Board of Directors shall serve for a term ending upon the election of
directors at the annual meeting of shareholders next following the end of the
calendar year 1998; and the directors first appointed to Class II of the Board
of Directors shall serve for a term ending upon the election of directors at
the annual meeting of shareholders next following the end of the calendar year
1999. At each annual meeting of shareholders, directors elected to succeed
those whose terms are expiring shall be elected for a term of office to expire
at the third succeeding annual meeting of shareholders and when their
respective successors are elected and qualified. Shareholders of the
Corporation shall be entitled to cumulate their votes for election of
directors in the manner provided for in (S) 214 of the Delaware General
Corporation Law.
The names of those persons appointed hereby to serve in each class of the
initial Board of Directors are as follows. The business address for each of
the initial directors of the Corporation is 601 South Glenoaks Boulevard,
Burbank, California 91502.
<TABLE>
<CAPTION>
CLASS III CLASS I CLASS II
--------- ------- --------
<S> <C> <C>
Richard J. Cross George Piercy Woodrow W. DeWitt
William G. Dyess Stephen N. Rippe Richard O. Oxford
Ben Karmelich Shirley E. Simmons
</TABLE>
TENTH: Board Vacancies. Except as otherwise provided by the terms of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, any vacancies on the Board of Directors
resulting from death, resignation, retirement, disqualification or removal
from office shall be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the
Board of Directors, or by the sole remaining director, or, in the event of the
failure of the directors or the sole remaining director so to act, by the
shareholders at the next election of directors. Newly created directorships
resulting from any increase in the number of directors shall be filled by the
affirmative vote of a majority of the directors then in office. Any director
elected in accordance with this Article Tenth shall hold office for a term
expiring at the annual meeting of shareholders at which the term of the class
to which such director has been elected expires and until such director's
successor shall have been elected and qualified or until such director's
death, resignation or removal, whichever first occurs.
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ELEVENTH: Removal of Directors. Except as otherwise provided by the terms of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, at an annual meeting of shareholders or at a
special meeting of shareholders called expressly for that purpose, a director
may be removed only for cause by a vote of the holders of a majority of the
outstanding shares of stock of the Corporation then entitled to vote in an
election of directors. Cause for removal shall be deemed to exist only if the
director whose removal is proposed has been convicted of a felony by a court
of competent jurisdiction or has been adjudged by a court of competent
jurisdiction to be liable for gross negligence or misconduct in the
performance of such director's duty to the Corporation and such adjudication
is no longer subject to direct appeal.
TWELFTH: Shareholder Action Without a Meeting. Except as may be otherwise
provided by the terms of any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation, any action required or
permitted to be taken by the shareholders of the Corporation must be effected
at a duly called annual or special meeting of shareholders, unless such action
requiring or permitting shareholder approval is authorized by a majority of
the Board of Directors, in which case such action may be approved by the
written consent of shareholders having not less than the minimum voting power
that would be necessary to authorize or take such action at a meeting of
shareholders, provided all other requirements of applicable law and the
Certificate of Incorporation have been satisfied.
THIRTEENTH: Special Meetings of Shareholders. Subject to the terms of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, special meetings of the shareholders of the
Corporation may be called for any purpose or purposes at any time by a
majority of the Board of Directors, by the Chairman or Vice Chairman of the
Board, the Chief Executive Officer, the President or the Secretary of the
Corporation. Special meetings may not be called by any other person or
persons. A special meeting shall be held at such date and time as is requested
by the person or persons calling the meeting, within the limits fixed by law.
FOURTEENTH: Indemnification. A director of the Corporation shall not be
personally liable to the corporation or its shareholders for monetary damages
for breach of fiduciary duty as a director, except for liability: (i) for any
breach of the director's duty of loyalty to the Corporation or its
shareholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) under Section 174
of the Delaware General Corporation Law, as the same exists or as hereafter
may be amended; or (iv) for any transaction from which such director derived
an improper personal benefit. If the Delaware General Corporation Law
hereafter is amended to authorize the further elimination or limitation of the
liability of directors, then the liability of a director of the Corporation,
in addition to the limitation on liability provided for herein, shall be
limited to the fullest extent permitted by the Delaware General Corporation
Law as so amended. No amendment to or repeal of this Article Fourteenth shall
apply to or have an effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of
such director occurring prior to such amendment or repeal.
FIFTEENTH: Amendments. The Corporation reserves the right to adopt, repeal,
rescind, alter or amend in any respect any provision contained in this
Certificate of Incorporation in the manner now or hereafter prescribed by
applicable law, and all rights conferred on shareholders herein are granted
subject to this reservation. Notwithstanding the foregoing, or the terms of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation (and notwithstanding the fact that a lesser
percentage may be specified by law, this Certificate of Incorporation, or the
terms of any class or series of stock having a preference over the Common
Stock), the provisions set forth in this Article Fifteenth and in Articles
Sixth, Seventh, Eighth, Ninth and Twelfth hereof may not be repealed,
rescinded, altered or amended in any respect, and no other provision or
provisions may be adopted which impair(s) in any respect the operation or
effect of any such provision, except by the affirmative vote of the holders of
not less than two- thirds of the outstanding shares of stock of the
Corporation entitled to vote thereon.
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I, THE UNDERSIGNED, for purposes of forming a corporation under the laws of
the state of Delaware, do make, file and record this Certificate, and do
certify that the facts herein stated are true, and I have accordingly hereunto
set my hand this 18th day of September, 1997.
Highland Federal Bank, a Federal
Savings Bank
/s/ Stephen N. Rippe
By: _________________________________
Stephen N. Rippe
President and Chief Executive
Officer
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<PAGE>
Exhibit C
BYLAWS
HIGHLAND BANCORP, INC.
a Delaware corporation
ARTICLE I
Offices
Section 1.1 Registered Office. Highland Bancorp, Inc. (the "Corporation"),
shall at all times maintain a registered office in the State of Delaware,
which, except as otherwise determined by the Board of Directors of the
Corporation (the "Board of Directors"), shall be in the City of Dover, County
of Kent.
Section 1.2 Other Offices. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors may, from time to time, determine or as
the business of the Corporation may require.
ARTICLE II
Shareholders
Seciton 2.1 Annual Meetings. An annual meeting of shareholders shall be held
for the election of directors at such date, time and place, either within or
without the State of Delaware, as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 2.2 Special Meetings. Subject to the rights of the holders of any
class or series of stock having a preference over the Corporation's Common
Stock (the "Common Stock") as to dividends or upon liquidation, special
meetings of shareholders may be called for any purpose or purposes at any time
by a majority of the Board of Directors, by the Chairman or Vice Chairman of
the Board, the Chief Executive Officer, the President or the Secretary of the
Corporation. Special meetings may not be called by any other person or
persons. Each special meeting shall be held at such date and time as is
requested by the person or persons calling the meeting, within the limits
fixed by law.
Section 2.3 Notice of Meetings. Notice stating the place, day and hour of
the meeting of shareholders and the purpose or purposes for which the meeting
is called shall be given by delivering personally or by mailing a written or
printed notice of the same, at the direction of the Chairman of the Board, the
President, Secretary or the Directors calling the meeting, not less than ten
(10) nor more than sixty (60) days prior to the date of the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed given when deposited in the United States mail, postage
prepaid, addressed to the shareholder at his or her address as it appears on
the records of the Corporation. When any shareholders' meeting, either annual
or special, is adjourned for thirty (30) days or more, or if a new record date
is fixed for an adjourned meeting of shareholders, notice of the adjourned
meeting shall be given as in the case of an original meeting. It shall not be
necessary to give notice of the time and place of any meeting adjourned for
less than thirty (30) days or of the business to be transacted thereat, other
than an announcement at the meeting at which such adjournment is taken.
Section 2.4 Adjournments. Except as may be otherwise provided by the terms
of any class or series of stock having a preference over the Common Stock as
to dividends or upon liquidation, any meeting of shareholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place and, except as provided by Section 2.3 of these Bylaws, notice need not
be given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which such adjournment is taken. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting.
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Section 2.5 Quorum. At each meeting of shareholders, except where otherwise
provided by law, the Certificate of Incorporation, the terms of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation, or these Bylaws, the holders of a majority of the
outstanding shares of each class of stock entitled to vote at the meeting,
present in person or represented by proxy, shall constitute a quorum. For
purposes of the foregoing, two or more classes or series of stock shall be
considered a single class if the holders thereof are entitled to vote together
as a single class at the meeting. In the absence of a quorum, the shareholders
so present or represented at the meeting may by majority vote, adjourn the
meeting from time to time in the manner provided by Section 2.4 of these
Bylaws until a quorum shall attend. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally called. The
shareholders present at a duly organized meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 2.6 Voting by the Corporation. Shares of its own capital stock
belonging on the record date for the meeting to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; provided, however, that the foregoing shall not limit the right of
the Corporation to vote stock, including but not limited to its own stock,
held by it in a fiduciary capacity.
Section 2.7 Conduct of Meetings. Meetings of the shareholders shall be
conducted in accordance with Delaware law unless otherwise prescribed by these
Bylaws. The Chairman of the Board, or in the absence of the Chairman of the
Board, the highest ranking officer of the Corporation who is present, or such
other person as the Board of Directors shall have designated, shall call to
order any meeting of the shareholders and shall act as chairman of the
meeting. The Secretary of the Corporation, if present at the meeting, shall be
the secretary of the meeting. In the absence of the Secretary of the
Corporation, the secretary of the meeting shall be such person as the chairman
of the meeting shall appoint. The chairman of any meeting of the shareholders,
unless otherwise prescribed by law or regulation or unless the Chairman of the
Board has otherwise determined, shall determine the order of business and the
procedure at the meeting.
Section 2.8 Voting of Shares. Unless otherwise provided in the Certificate
of Incorporation or the terms of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, each
shareholder, on each matter submitted to a vote at a meeting of shareholders,
shall have one vote for each share of stock registered in his or her name on
the books of the Corporation. If the Certificate of Incorporation provides for
more or less than one vote for any share on any matter, every reference in
these Bylaws to a majority or other proportion of stock shall refer to such
majority or other proportion of the votes of such stock. At all meetings of
shareholders for the election of directors or otherwise, all elections and
questions shall, unless otherwise provided by law or by the Certificate of
Incorporation, be decided by the vote of the holders of a majority of the
outstanding shares of all classes of stock entitled to vote thereon present in
person or represented by proxy at the meeting.
Directors are to be elected by a plurality of votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.
If, at any meeting of shareholders, due to a vacancy or vacancies or
otherwise, directors of more than one class of the Board of Directors are to
be elected, each class of directors to be elected at the meeting shall be
elected in a separate election by a plurality vote. Shareholders shall be
entitled to cumulate their votes for the election of directors in the manner
provided for in (S) 214 of the Delaware General Corporation law.
Section 2.9 Proxies. A shareholder may vote the shares owned of record
either in person or by proxy executed in writing (which shall include writings
sent by telex, telegraph, cable or facsimile transmission) by the shareholder
himself or his duly authorized attorney-in-fact. No such proxy shall be voted
or acted upon after three (3) years from its date, unless the proxy provides
for a longer period. A duly executed proxy shall be irrevocable if it states
that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in
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law to support an irrevocable power. A shareholder may revoke any proxy which
is not irrevocable by attending the meeting and voting in person or by filing
an instrument in writing revoking the proxy or another duly executed proxy
bearing a later date with the Secretary of the Corporation.
Section 2.10 Fixing of Record Date. For the purpose of determining the
shareholders entitled to notice of or to vote at any meeting of shareholders
or at any adjournment thereof, or to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date for any such determination of shareholders, which shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors, and which shall not be more than sixty (60)
nor less than ten (10) days before the date of such meeting of shareholders,
nor in the case of a record date fixed for determination of shareholders
entitled to consent to corporate action in writing without a meeting, more
than ten (10) days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors, nor more than sixty (60) days prior
to any other action. If no record date is fixed: (i) the record date for
determining shareholders entitled to notice of or to vote at the meeting of
shareholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held; (ii)
the record date for determining shareholders entitled to consent to corporate
action in writing without a meeting (to the extent such action by the
shareholders is permitted by these Bylaws) when no prior action by the Board
of Directors is necessary, shall be the day on which the first such written
consent is given; and (iii) the record date for determining shareholders for
any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
shareholders of record entitled to notice of or to vote at a meeting of
shareholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned
meeting.
Section 2.11 List of Shareholders Entitled to Vote. The Secretary of the
Corporation, or such other officer or agent of the Corporation having charge
of the stock transfer books for shares of the capital stock of the
Corporation, shall prepare and make, at least ten (10) days before every
meeting of shareholders, a complete list of the shareholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of
each shareholder and the number of shares registered in the name of each
shareholder. Such list shall be open to the examination of any shareholder for
any purpose germane to the meeting during ordinary business hours for a period
of at least ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept open at the time and
place of the meeting during the whole time thereof and may be inspected by any
shareholder who is present. The original stock transfer books of the
Corporation shall constitute the only evidence as to the shareholders entitled
to examine such list or the stock transfer books, or to vote in person or by
proxy at the meeting.
Section 2.12 Inspectors of Election. In advance of any meeting of
shareholders, the Board of Directors may appoint any persons other than
nominees for office to act as inspectors of election at the meeting or any
adjournment thereof. If no inspectors of election are appointed, the chairman
of the meeting may, and on the request of any shareholder or his proxy shall,
appoint inspectors of election at the meeting. The number of inspectors shall
be either one (1) or three (3). If inspectors are appointed at a meeting on
the request of one or more shareholders or proxies, the holders of a majority
of shares present in person or represented by proxy at the meeting shall
determine whether one (1) or three (3) inspectors are to be appointed. If any
person appointed as inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment by the Board of Directors before the
meeting, or by the chairman of the meeting at the meeting.
The duties of the inspectors of election shall include: (i) determining the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, and the authenticity,
validity, and effect of proxies; (ii) receiving votes, ballots, or consents;
(iii) hearing and determining all
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challenges and questions in any way arising in connection with the right to
vote; (iv) counting and tabulating all votes or consents; (v) determining the
election results; and (vi) such other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
Section 2.13 Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Corporation to the contrary, at any meeting of the
shareholders of the Corporation any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such stock and present in person or by proxy at such meeting,
but no votes shall be cast for such stock if a majority cannot agree.
Section 2.14 Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by an officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such
provision, as the Board of Directors of such corporation may determine. Shares
held by an administrator, executor, guardian or conservator may be voted by
him or her, either in person or by proxy, without a transfer of such shares
into his or her name. Shares standing in the name of a trustee may be voted by
him or her, either in person or by proxy, but no trustee shall be entitled to
vote shares held by him or her without a transfer of such shares into his or
her name. Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted
by such receiver without the transfer thereof into his or her name if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed. A shareholder whose
shares are pledged shall be entitled to vote such shares until the shares have
been transferred into the name of the pledgee, and thereafter the pledgee
shall be entitled to vote the shares so transferred.
Section 2.15 Shareholder Proposals. At any annual meeting of shareholders,
only such business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before the meeting: (i) by, or at the
direction of, a majority of the Board of Directors; (ii) by the Chairman of
the Board; or (iii) by any shareholder of the Corporation who complies with
the notice procedures set forth in this Section 2.15. For a proposal to be
properly brought before the meeting by a shareholder, the shareholder must
have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to or
received at the principal executive offices of the Corporation not less than
120 calendar days in advance of the date of the Corporation's proxy statement
released to shareholders in connection with the previous year's annual meeting
of shareholders, except that if no annual meeting was held in the previous
year or if the date of the annual meeting has been changed by more than thirty
(30) calendar days from the date contemplated at the time of the previous
year's proxy statement, notice by the shareholder to be timely must be so
received no later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting: (i) a brief
description of the proposal to be made; (ii) the name and address of the
shareholder making such proposal; (iii) a representation that the shareholder
is a holder of record of stock of the Corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to move
such proposal; (iv) the class and number of shares of the Corporation which
are owned of record by such shareholder; and (v) a description of any material
interest (other than proportionately, as a shareholder) of such shareholder in
such proposal. Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted at an annual meeting except in accordance with the
procedures set forth in this Section 2.15.
Any such proposal may be deemed out of order and need not be discussed,
considered, acted or voted upon or laid over for action at any meeting of
shareholders if the Chairman of the Board (or such other officer of the
Corporation presiding at such meeting of shareholders) determines that such
proposal was not delivered in compliance with these Bylaws or that such
proposal deals or relates to: (i) any action or matter that, if taken or
effectuated by the Corporation, would be in violation of, or contrary to, any
applicable law or regulation or would result in a breach or violation by the
Corporation of any contractual obligation; (ii) any action or matter that is
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impossible or beyond the Corporation's power to take or effectuate; (iii) any
action or matter that is not a proper subject for action by the shareholders
of the Corporation; (iv) any action or matter involving or relating to the
conduct of the ordinary business of the Corporation; (v) any action or matter
that is substantially duplicative of, or counter to, any business or proposal
that is to be considered at such meeting of shareholders; (vi) any action or
matter that has been rendered moot; or (vii) the redress of a personal claim
or grievance against the Corporation or any other person or entity, or any
action or matter that is designed to result in a benefit to the shareholder or
to further a personal interest, which benefit or interest is not shared with
shareholders of the Corporation at large.
SECTION 2.16 Shareholder Action Without a Meeting. Except as may be
otherwise provided by the terms of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, any
action required or permitted to be taken by the shareholders of the
Corporation must be effected at a duly called annual or special meeting of
shareholders, unless such action requiring or permitting shareholder approval
is authorized by a majority of the Board of Directors, in which case such
action may be approved by the written consent of shareholders having not less
than the minimum voting power that would be necessary to authorize or take
such action at a meeting of shareholders, provided all other requirements of
applicable law and the Certificate of Incorporation have been satisfied.
ARTICLE III
Board of Directors
SECTION 3.1 Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors, except as may be
otherwise required by law or in the Certificate of Incorporation.
SECTION 3.2 Number of Directors. Except as may be provided by the terms of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, the number of directors of the Corporation
shall be fixed from time to time by resolution of the Board of Directors, but
shall not be less than seven (7) nor more than fifteen (15), divided into
three classes as nearly equal in number as possible. If the number of
directors is changed by the Board of Directors, then any newly created
directorships or any decrease in directorships shall be apportioned among the
classes as to make all classes as nearly equal as possible; provided, however,
that no decrease in the number of directors shall shorten the term of any
incumbent director. The first Board of Directors and subsequent Boards of
Directors shall consist of nine (9) directors until changed as herein
provided.
SECTION 3.3 Election and Term of Office. Except as otherwise provided by the
terms of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, each director shall serve for a
term ending on the third annual meeting following the annual meeting of the
shareholders at which such director was elected and until his or her successor
is elected and qualified or until his or her earlier death, resignation,
retirement, disqualification or removal from office in the manner provided for
in Section 3.14 of these Bylaws; provided, however, that the directors first
appointed to Class III of the Board of Directors shall serve for a term ending
upon the election of directors at the annual meeting of shareholders next
following the end of the calendar year 1997; the directors first appointed to
Class I of the Board of Directors shall serve for a term ending upon the
election of directors at the annual meeting of shareholders next following the
end of the calendar year 1998; and the directors first appointed to Class II
of the Board of Directors shall serve for a term ending upon the election of
directors at the annual meeting of shareholders next following the end of the
calendar year 1999.
SECTION 3.4 Election of Chairman and Vice Chairman of the Board. At the
organizational meeting of the Board of Directors immediately following the
annual meeting of shareholders, the directors shall elect a Chairman of the
Board and a Vice Chairman of the Board from among the directors then in
office. Such
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Chairman of the Board and Vice Chairman of the Board shall hold office until
the corresponding meeting of the Board of Directors in the next year and until
their successors shall have been elected or until their earlier death,
resignation or removal. Any vacancy in such office may be filled for the
unexpired portion of the term in the same manner by the Board of Directors at
any regular or special meeting.
SECTION 3.5 Vacancies and Additional Directorships. Except as may be
otherwise provided by the terms of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation, any
vacancies on the Board of Directors resulting from death, resignation or
removal shall be filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors, or by the sole remaining director, or, in the event of the failure
of the directors or the sole director so to act, by the shareholders at the
next election of directors. Newly created directorships resulting from any
increase in the number of directors shall be filled by the affirmative vote of
a majority of the directors then in office. Any director elected in accordance
with this Section 3.5 shall hold office for a term expiring at the annual
meeting of shareholders at which the term of the class to which such director
has been elected expires and until such director's successor shall have been
elected and qualified or until such director's death, resignation or removal,
whichever first occurs.
SECTION 3.6 Regular Meetings. Regular meetings of the Board of Directors may
be held at such places within or without the State of Delaware and at such
times as the Board of Directors may from time to time determine and, if so
determined, notice thereof need not be given.
SECTION 3.7 Special Meetings. Special meetings of the Board of Directors may
be held at any time or place within or without the State of Delaware whenever
called by the Chairman of the Board, the Vice Chairman of the Board, the Chief
Executive Officer, the President, or by a majority of directors then in
office. Reasonable notice thereof shall be given by the person or persons
calling the meeting.
SECTION 3.8 Telephonic Meetings Permitted. Members of the Board of
Directors, or any committee thereof, as the case may be, may participate in a
meeting of the Board of Directors or such committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a
meeting pursuant to this Section 3.8 shall constitute presence in person at
such meeting.
SECTION 3.9 Quorum; Vote Required for Action. At all meetings of the Board
of Directors a majority of the entire Board of Directors shall constitute a
quorum for purposes of the transaction of business. The vote of a majority of
the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors unless the Certificate of Incorporation or these
Bylaws shall require the vote of a greater number. In case at any meeting of
the Board of Directors a quorum shall not be present, the members of the Board
of Directors present may adjourn the meeting from time to time until a quorum
shall attend.
SECTION 3.10 Registering Dissent. A director who is present at a meeting of
the Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless his or her dissent shall be
entered in the minutes of the meeting, or unless he or she shall file his or
her written dissent to such action with the person acting as the secretary of
the meeting before the adjournment thereof, or shall forward such dissent by
registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
SECTION 3.11 Conduct of Meetings. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, or in his or her absence by the
Vice Chairman, or in his or her absence by the President, or in their absence
by a chairman chosen at the meeting. The Secretary shall act as secretary of
the meeting, but in his or her absence the chairman of the meeting may appoint
any person to act as secretary of the meeting.
SECTION 3.12 Action by Directors Without a Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these Bylaws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
any committee thereof, may be taken without a meeting if all members of the
Board of Directors or
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such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee thereof.
Section 3.13 Compensation of Directors. The Board of Directors shall have
the authority to fix the compensation of directors.
Section 3.14 Removal. Except as otherwise provided by the terms of any class
or series of stock having a preference over the Common Stock as to dividends
or upon liquidation, at an annual meeting of shareholders or at a special
meeting of shareholders called expressly for that purpose, a director may be
removed only for cause by a vote of the holders of a majority of the
outstanding shares of stock of the Corporation then entitled to vote in an
election of directors. Cause for removal shall be deemed to exist only if the
director whose removal is proposed has been convicted of a felony by a court
of competent jurisdiction or has been adjudged by a court of competent
jurisdiction to be liable for gross negligence or misconduct in the
performance of such director's duty to the Corporation and such adjudication
is no longer subject to direct appeal.
Section 3.15 Resignation. Any director may resign at any time by sending a
written notice of such resignation to the Corporation addressed to the Board
of Directors, the Chairman of the Board, the Chief Executive Officer, the
President or the Secretary. Unless otherwise specified therein, such
resignation shall take effect upon receipt thereof.
Section 3.16 Nominations. Only persons who are nominated in accordance with
the procedures set forth in this Section 3.16 shall be eligible for election
as directors. The Board of Directors shall act as a nominating committee for
selecting management's nominees for election as directors. Except in the case
of a nominee substituted as a result of the death or other incapacity of a
management nominee, the nominating committee shall deliver written nominations
to the Secretary of the Corporation at least twenty (20) days prior to the
date of the annual meeting. Provided such committee makes such nominations, no
nominations for directors except those made by the nominating committee shall
be voted upon at the annual meeting unless other nominations by shareholders
are made in accordance with the following. Nominations for directors may be
made by any shareholder of the Corporation entitled to vote for the election
of directors at that meeting pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or received at the principal executive offices of the Corporation
not less than twenty (20) days prior to the meeting; provided, however, that
in the event that less than thirty (30) days' notice of the date of the
meeting is given to shareholders, notice by the shareholder to be timely must
be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the meeting was mailed.
Such shareholder's notice shall set forth: (i) as to each person whom the
shareholder proposes to nominate for election or reelection as a director: (a)
the name, age, business address and residence address of such person; (b) the
principal occupation or employment of such person; and (c) such person's
written consent to serving as a director, if elected; and (ii) as to the
shareholder giving the notice: (a) the name and address of such shareholder;
and (b) the class and number of shares of the Corporation which are owned of
record by such shareholder. At the request of the Board of Directors any
person nominated by the Board of Directors for election as a director shall
furnish to the Secretary of the Corporation the information required to be set
forth in a shareholders' notice of nomination which pertains to the nominee
together with the required written consents. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. If the nominating committee shall fail
or refuse to act at least twenty (20) days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
ARTICLE IV
Committees
Section 4.1 Committees. The Board of Directors may by resolution passed by a
majority of the Board of Directors, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board of Directors may designate one or more directors as alternate members of
any
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committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they, constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in
place of any such absent or disqualified member. Any such committee, to the
extent provided for in the resolution of the Board of Directors designating
such committee, shall have and may exercise all the powers and authority of
the Board of Directors in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to
all papers which may require it; provided, however, that no such committee
shall have power or authority to: (i) amend the Certificate of Incorporation;
(ii) adopt an agreement of merger or consolidation; (iii) recommend to the
shareholders the sale, lease or exchange of all, or substantially all, of the
Corporation's property, and assets; (iv) recommend to the shareholders a
dissolution of the Corporation or a revocation of dissolution; (v) remove or
indemnify directors; or (vi) amend these Bylaws; provided, further, that
unless the resolution of the Board of Directors designating such committee
expressly so provides, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
Section 4.2 Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board of Directors may adopt, amend
and repeal rules for the conduct of its business, and in the absence of a
provision by the Board of Directors or a provision in the rules of such
committee to the contrary, a majority of the entire authorized number of
members of such committee shall constitute a quorum for the transaction of
business, the vote of a majority of the members present at a meeting at the
time of such vote if a quorum is then present shall be the act of such
committee, and in other respects each committee shall conduct its business in
the same manner as the Board of Directors conducts its business pursuant to
Article II of these Bylaws.
ARTICLE V
Officers
Section 5.1 Officers; Election. As soon as practicable after the annual
meeting of shareholders in each year, the Board of Directors shall elect a
President, a Chief Executive Officer and a Secretary, and it may, if it so
determines, designate the Chairman of the Board as an officer. The Board of
Directors may also elect one or more Executive Vice Presidents, one or more
Vice Presidents, one or more Assistant Secretaries, a Treasurer, one or more
Assistant Treasurers and such other officers as the business of the
Corporation may require, and may give any of them such further designations or
alternate titles as it considers desirable. Any number of offices may be held
by the same person.
Section 5.2 Term of Office; Resignation; Removal; Vacancies. Except as
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until the first meeting of the Board
of Directors after the annual meeting of shareholders next succeeding this
election, and until his successor is elected and qualified or until his
earlier death, resignation or removal. Any officer may resign at any time upon
written notice to the Board of Directors, the Chairman or Vice Chairman of the
Board, the Chief Executive Officer, the President or the Secretary of the
Corporation. Such resignation shall take effect at the time specified therein,
and unless otherwise specified therein, no acceptance of such resignation
shall be necessary, to make it effective. The Board of Directors may remove
any officer with or without cause at any time. Any such removal, other than
for cause, shall be without prejudice to the contractual rights of such
officer, if any, with the Corporation, but the election of an officer by the
Board of Directors shall not of itself create contractual rights. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled for the unexpired portion of the term by the Board of
Directors at any regular or special meeting.
Section 5.3 Powers and Duties. The officers of the Corporation shall have
such powers and duties in the management of the Corporation as shall be stated
in these Bylaws or in a resolution of the Board of Directors which is not
inconsistent with these Bylaws and, to the extent not so stated, as generally
pertain to their
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respective offices, subject to the control of the Board of Directors. The
Secretary shall have the duty to record the proceedings of the meetings of
shareholders, the Board of Directors and any committees in a book to be kept
for that purpose and shall have custody of the corporate seal of the
Corporation with the authority to affix such seal to any instrument requiring
it. The Board of Directors may require any officer, agent or employee to give
security for the faithful performance of his duties.
ARTICLE VI
Indemnification of Directors, Officers,
Employees and Other Corporate Agents
Section 6.1 Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is the legal representative, is or was a
director or officer of the Corporation, is or was serving at the request of
the Corporation as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, or was a director or officer of a foreign
or domestic corporation which was a predecessor of the Corporation or of
another enterprise at the request of such predecessor corporation, whether the
basis of such proceeding is alleged action in an official capacity as a
director or officer or in any other capacity while serving as a director or
officer shall be indemnified and held harmless by the Corporation to the
fullest extent authorized by the Delaware General Corporation Law, as the same
exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered
by such person in connection therewith and such indemnification shall continue
as to a person who has ceased to be a director or officer and shall inure to
the benefit of his or her heirs, executors and administrators; provided,
however, that, except as provided in Section 6.3 of this Article VI, the
Corporation shall indemnify such person seeking indemnification in connection
with a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Section 6.1 shall
be a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that any such expenses shall only be paid upon
receipt by the Corporation of an undertaking by or on behalf of such director
or officer to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified
under this Section or otherwise. The Corporation may by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors
and officers. This Article VI shall create a right of indemnification for each
such indemnifiable party whether or not the proceeding to which the
indemnification relates arose in whole or in part prior to adoption of this
Article VI (or the adoption of the comparable provisions of the Bylaws of the
Corporation's predecessor corporation).
Section 6.2 Determination of Eligibility. Any indemnification under this
Article VI (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification
of the director or officer is proper in the circumstances because such person
has met the applicable standard of conduct set forth in the Delaware General
Corporation Law. Such determination shall be made: (i) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum; or (ii) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion; or
(iii) by a majority vote of the shareholders.
Section 6.3 Right of Claimant to Bring Suit. If a claim under Section 6.1 of
this Article VI is not paid in full by the Corporation within thirty (30) days
after a written claim has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim
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and, if successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation
to indemnify the claimant for the amount claimed, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or
its shareholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in the Delaware General Corporation Law nor an actual determination by
the Corporation (including its Board of Directors, independent legal counsel,
or its shareholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
Section 6.4 Nonexclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this Article VI shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, provision of these Bylaws,
agreement or contract, vote of shareholders or of the disinterested members of
the Board of Directors of the Corporation or otherwise.
Section 6.5 Insurance. The Corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
ARTICLE VII
Stock
Section 7.1 Certificates. Certificates representing shares of the capital
stock of the Corporation shall be issued in numerical order, and each
shareholder shall be entitled to a certificate signed by the President or a
Vice President, and the Secretary or the Treasurer. The signatures of such
officers may be facsimiles if the certificate is manually signed on behalf of
a transfer agent, or registered by a registrar, other than the Corporation
itself or an employee of the Corporation. If an officer who has signed or
whose facsimile signature has been placed upon such certificate ceases to be
an officer before the certificate is issued, it may be issued by the
Corporation with the same effect as if the person were an officer on the date
of issue. Each certificate of stock shall state: (i) that the Corporation is
organized under the laws of the State of Delaware; (ii) the name of the person
to whom issued; (iii) the number and class of shares and the designation of
the series, if any, which such certificate represents; and (iv) the par value
of each share represented by such certificate, or a statement that such shares
are without par value.
Section 7.2 Transfers. Transfers of stock shall be made only upon the stock
transfer books of the Corporation, kept at the registered office of the
Corporation or at its principal place of business, or at the office of its
transfer agent or registrar, and before a new certificate is issued the old
certificate shall be surrendered for cancellation. The Board of Directors may,
by resolution, open a share register in any state of the United States, and
may employ an agent or agents to keep such register, and to record transfers
of shares therein.
Shares of stock shall be transferred by delivery of the certificates
therefor, accompanied either by an assignment in writing on the back of the
certificate or an assignment separate from the certificate, or by a written
power of attorney to sell, assign and transfer the same, signed by the holder
of said certificate. No shares of stock shall be transferred on the books of
the Corporation until the outstanding certificates therefor have been
surrendered to the Corporation.
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Section 7.3 Registered Owner. Registered shareholders shall be treated by
the Corporation as the holders in fact of the stock standing in their
respective names and the Corporation shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any other
person, whether or not it shall have express or other notice thereof, except
as provided in this Section 7.3 or as required by the laws of the State of
Delaware. The Board of Directors may adopt by resolution a procedure whereby a
shareholder of the Corporation may certify in writing to the Corporation that
all or a portion of the shares registered in the name of such shareholder are
held for the account of a specified person or persons. The resolution shall
set forth: (i) the classification of shareholder who may certify; (ii) the
purpose or purposes for which the certification may be made; (iii) the form of
certification and information to be contained therein; (iv) if the
certification is with respect to a record date or closing of the stock
transfer books, the date within which the certification must be received by
the Corporation; and (v) such other provisions with respect to the procedure
as are deemed necessary or desirable. Upon receipt by the Corporation of a
certification complying with the above requirements, the persons specified in
the certification shall be deemed, for the purpose or purposes set forth in
the certification, to be the holders of record of the number of shares
specified in place of the shareholders making the certification.
Section 7.4 Mutilated, Lost or Destroyed Certificates. In case of any
mutilation, loss or destruction of any certificate of stock, another may be
issued in its place upon receipt of proof of such mutilation, loss or
destruction. The Board of Directors may impose conditions on such issuance and
may require the giving of a bond or indemnity to the Corporation in such sum
as they might determine or establish such other procedures as they deem
necessary.
Section 7.5 Fractional Shares or Scrip. The Corporation may: (i) issue
fractions of a share which shall entitle the holder to exercise voting rights,
to receive dividends thereon, and to participate in any of the assets of the
Corporation in the event of liquidation; (ii) arrange for the disposition of
fractional interests by those entitled thereto; (iii) pay in cash the fair
value of fractions of a share as of the time when those entitled to receive
such shares are determined; or (iv) issue scrip in registered or bearer form
which shall entitle the holder to receive a certificate for a full share upon
the surrender of such scrip aggregating a full share.
Section 7.6 Shares of Another Corporation. Shares owned by the Corporation
in another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the Board of Directors may determine or, in the absence of
such determination, by the President of the Corporation.
ARTICLE VIII
Miscellaneous
Section 8.1 Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 8.2 Seal. The Corporation may have a corporate seal which shall have
the name of the Corporation inscribed thereon and shall be in such form as may
be approved from time to time by the Board of Directors. The corporate seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
Section 8.3 Waiver of Notice of Meetings of Shareholders, Directors and
Committees. Whenever notice is required to be given by law or under any
provision of the Certificate of Incorporation or these Bylaws, a written
waiver thereof, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of
such meeting, except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special
meeting of the shareholders, directors, or members of a committee of directors
need be specified in any written waiver of notice unless so required by
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the Certificate of Incorporation or these Bylaws. Unless either proper notice
of a meeting of the Board of Directors, or any committee thereof, has been
given, where required by law, by the Certificate of Incorporation or by these
Bylaws, or else the persons entitled thereto have waived such notice (either
in writing or by attendance as set forth above), any business transacted at
such meeting shall be null and void.
Section 8.4 Interested Directors; Quorum. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors
or officers, or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if: (i) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed
or are known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or transaction by
the affirmative vote of a majority of the disinterested directors, even though
the disinterested directors be less than a quorum; or (ii) the material facts
as to his relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or (iii) the contract or transaction is fair as to the
Corporation as of the time it is authorized, approved or ratified by the Board
of Directors, a committee thereof or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting
of the Board of Directors or of a committee which authorizes the contract or
transaction.
Seciton 8.5 Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, punch cards,
magnetic tape, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 8.6 Amendment of Bylaws. Except as may be otherwise provided by the
terms of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, these Bylaws may be amended or
repealed, and new Bylaws adopted, by a majority of the Board of Directors or
by the affirmative vote of the holders of a majority of the outstanding shares
of stock of the Corporation entitled to vote thereon.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH THE REORGANIZATION AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OF, OR SOLICITATION OF ANY OFFER TO ACQUIRE THE COMMON STOCK OF HIGHLAND
BANCORP, INC. IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS
NOR THE DISTRIBUTION OF COMMON STOCK OF HIGHLAND BANCORP, INC. MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF HIGHLAND FEDERAL BANK OR HIGHLAND BANCORP, INC. SINCE
THE DATE THEREOF.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Available Information...................................................... i
Summary of Proxy Statement/Prospectus...................................... iii
Special Meeting of Shareholders............................................ 1
Voting Rights and Solicitation of Proxies.................................. 1
Proposal 1: Formation of the Company....................................... 2
Securities and Ownership of Management..................................... 26
Securities Ownership of Certain Beneficial Owners.......................... 27
Executive Compensation..................................................... 28
Proposals of Shareholders.................................................. 33
Financial Information...................................................... 33
Other Matters.............................................................. 34
Exhibit A--Plan of Reorganization and Agreement of Merger.................. A-1
Exhibit B--Certificate of Incorporation of Highland Bancorp, Inc .......... B-1
Exhibit C--Bylaws of Highland Bancorp, Inc................................. C-1
</TABLE>
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
HIGHLAND FEDERAL BANK
HIGHLAND BANCORP, INC.
----------------
PROXY STATEMENT/
PROSPECTUS
----------------
NOVEMBER 18, 1997
- - -------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Bylaws provide that each person who was or is made a party or
is threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
he or she, or a person of whom he or she is the legal representative, is or
was a director or officer of the Company, is or was serving at the request of
the Company as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise (including service with
respect to employee benefit plans), or was a director or officer of a foreign
or domestic corporation which was a predecessor of the Company or of any other
enterprise at the request of such predecessor corporation, whether the basis
of such proceeding is alleged action in an official capacity as a director or
officer or in any other capacity while serving as a director or officer shall
be indemnified and held harmless by the Company to the fullest extent
authorized by the Delaware General Corporation Law (the "DGCL"), as such law
may hereafter be amended, but only to the extent that such amendment permits
broader indemnification rights than were permitted to the Company prior to
such amendment, against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to
be in settlement) reasonably incurred or suffered by such person in connection
therewith. This indemnification continues as to a person who has ceased to be
a director or officer and inures to the benefit of his or her heirs, executors
and administrators. The Company is required to indemnify any such person
seeking indemnification in connection with a proceeding initiated by such
person only if such proceeding was authorized by the Board of Directors of the
Company. The right to indemnification conferred in the Company's Bylaws is a
contract right and includes the right to be paid by the Company expenses
incurred in defending any such proceeding in advance of its final disposition
provided the Company has received an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately
be determined that such director or officer is entitled to be indemnified
under the Bylaws or otherwise. Pursuant to its Bylaws, the Company may
provide, by action of the Board of Directors, indemnification to its employees
and agents to the same extent that it indemnifies directors and officers. The
Company's Bylaws create a right to indemnification for each indemnifiable
party whether or not the proceeding to which the indemnification relates arose
in whole or in part prior to adoption of the Bylaws (or the adoption of the
comparable provisions of the Bank's Bylaws).
The Bank currently has an indemnification agreement (the "Indemnification
Agreement" or the "Indemnification Agreements") with each of its directors and
certain officers, which provides that the Bank will indemnify the indemnified
party (the "Indemnitee") against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (where the settlement is
approved in advance by the Bank) actually and reasonably incurred in
connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative to which
the Indemnitee is a party or is threatened to be made a party by reason of the
fact that the Indemnitee is or was a director, officer, employee or agent of
the Bank or any subsidiary or by reason of the fact that the Indemnitee is or
was serving at the request of the Bank as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise. The Indemnitee is only entitled to such indemnification if a
majority of disinterested directors of the Bank determines that the Indemnitee
was acting in good faith and in a manner the Indemnitee reasonably believed to
be in the best interests of the Bank and, in the case of any criminal
proceeding, with no reasonable cause to believe that his or her conduct was
unlawful. The Indemnification Agreements require the Bank to indemnity the
Indemnitee to the fullest extent permitted by applicable law.
Notwithstanding anything to the contrary contained therein, the
Indemnification Agreements provide that the Bank will not be required to
indemnify an Indemnitee: (i) where the Indemnitee has been adjudged liable to
the Bank for breach of duty to the Bank and its shareholders, unless the court
in which the action is pending determines that the Indemnitee is fairly and
reasonably entitled to indemnification; (ii) for any acts or omissions or
transactions from which a director may not be relieved of liability under the
federal Charter of the Bank;
II-1
<PAGE>
(iii) with respect to a proceeding initiated by the Indemnitee, and not by way
of defense, unless brought to establish or enforce a right to indemnification
under the Indemnification Agreement or under applicable law; (iv) with respect
to a proceeding initiated by the Indemnitee to enforce or interpret the
Indemnification Agreement if a court of competent jurisdiction determines that
the material assertions made by the Indemnitee in such proceeding were not
made in good faith or were frivolous; (v) for expenses or liabilities which
have been paid to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Bank; or (vi)
for disgorgement of profits arising from the purchase or sale by Indemnitee of
securities in violation of Section 16(b) of the Exchange Act. In connection
with the Reorganization, the Company intends to enter into a similar
indemnification agreement with each of its directors and executive officers.
The rights of indemnification provided in the Company's Bylaws are not
exclusive of any other rights which may be available under Delaware law, any
insurance or other agreement, by vote of shareholders or disinterested
directors or otherwise. In addition, the Company's Bylaws authorize the
Company to maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Company, whether or not the
Company would have the power to provide indemnification to such person under
Delaware law.
Under Delaware law, the Company's officers and directors have a fiduciary
duty of good faith, fairness and loyalty in handling the Company's affairs.
The Company's Certificate of Incorporation relieves the Company's directors
from monetary damages to the Company and its shareholders for a breach of the
director's fiduciary duty as a director. This provision does not relieve the
Company's directors from monetary damages to the Company or its shareholders:
(i) for a breach of the duty of loyalty; (ii) for failure to act in good
faith; (iii) for intentional misconduct or knowing violation of law; (iv) for
willful or negligent violations of certain provisions of the DGCL imposing
certain requirements with respect to stock repurchases, redemptions and
dividends; or (v) for any transactions from which the director derived an
improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Plan of Reorganization and Agreement of Merger, attached as Exhibit A
to the Proxy Statement/Prospectus included in Part I, is incorporated
herein by reference.
3.1 Certificate of Incorporation of Highland Bancorp, Inc., attached as
Exhibit B to the Proxy Statement/Prospectus included in Part I, is
incorporated herein by reference.
3.2 Bylaws of Highland Bancorp, Inc., attached as Exhibit C to the Proxy
Statement/Prospectus included in Part I, is incorporated herein by
reference.
4.1 Form of Stock Certificate
5.1 Opinion of Manatt, Phelps & Phillips, LLP, regarding the legality of
Highland Bancorp, Inc., common stock
8.1 Tax Opinion of Manatt, Phelps & Phillips, LLP
10.1 Highland Federal Bank 1994 Stock Option and Performance Share Award
Plan, including forms of Stock Option Agreement and Performance Share
Award and Restricted Stock Agreement
10.2 Highland Federal Bank Profit Sharing Plan and Trust
23.1 Consents of Manatt, Phelps & Phillips, LLP (included in Exhibits 5.1
and 8.1)
24.1 Power of Attorney (included in Part II hereof, page S-1)
99.1 Form of Proxy
</TABLE>
(b) Financial Statement Schedules.
Not required.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, 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.
(3) To remove from registration by means of a post-effective amendment
any of the Highland Bancorp, Inc. common stock being registered which are
not issued in the Reorganization.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the Registrant's annual report pursuant to Section
13(a) or Section 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.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the Registration Statement through the date of
responding to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
(7) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
underwriters, in addition to the information called for by the other items
of the applicable form.
(8) That every prospectus: (i) that is filed pursuant to paragraph (7)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes o determining any liability
under the Securities Act, 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in Item 20, or otherwise
(other than by insurance), 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 Securities Act and is, therefore,
II-3
<PAGE>
unenforceable. In the event that a claim for indemnification against such
liabilities (other than under insurance policies and 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 of whether such indemnification by the Registrant is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BURBANK,
STATE OF CALIFORNIA ON THE 28TH DAY OF OCTOBER, 1997.
HIGHLAND BANCORP, INC.
/s/ Stephen N. Rippe
By: _________________________________
Stephen N. Rippe, President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED. EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY MAKES, CONSTITUTES AND APPOINTS STEPHEN N. RIPPE, HIS TRUE AND
LAWFUL ATTORNEY, WITH FULL POWER TO SIGN FOR SUCH PERSON AND IN SUCH PERSON'S
NAME AND CAPACITY INDICATED BELOW, AND WITH FULL POWER OF SUBSTITUTION ANY AND
ALL AMENDMENTS TO THIS REGISTRATION STATEMENT, HEREBY RATIFYING AND CONFIRMING
SUCH PERSON'S SIGNATURE AS IT MAY BE SIGNED BY SAID ATTORNEY TO ANY AND ALL
AMENDMENTS.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Richard J. Cross Chairman of the October 28, 1997
- - ------------------------------------- Board and Director
RICHARD J. CROSS
/s/ Woodrow DeWitt Director October 28, 1997
- - -------------------------------------
WOODROW DEWITT
/s/ William G. Dyess Director October 28, 1997
- - -------------------------------------
WILLIAM G. DYESS
/s/ Anthony L. Frey Executive Vice October 28, 1997
- - ------------------------------------- President, Chief
ANTHONY L. FREY Financial Officer
and Secretary
/s/ Ben Karmelich Director October 28, 1997
- - -------------------------------------
BEN KARMELICH
/s/ Richard O. Oxford Director October 28, 1997
- - -------------------------------------
RICHARD O. OXFORD
S-1
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ George Piercy Director October 28, 1997
- - -------------------------------------
GEORGE PIERCY
/s/ Stephen N. Rippe President, Chief October 28, 1997
- - ------------------------------------- Executive Officer
STEPHEN N. RIPPE and Director
/s/ Shirley E. Simmons Vice Chairman of the October 28, 1997
- - ------------------------------------- Board and Director
SHIRLEY E. SIMMONS
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
2.1 Plan of Reorganization and Agreement of Merger, attached as Exhibit A
to the Proxy Statement/Prospectus included in Part I, is incorporated
herein by reference.
3.1 Certificate of Incorporation of Highland Bancorp, Inc., attached as
Exhibit B to the Proxy Statement/Prospectus included in Part I, is
incorporated herein by reference.
3.2 Bylaws of Highland Bancorp, Inc., attached as Exhibit C to the Proxy
Statement/Prospectus included in Part I, is incorporated herein by
reference.
4.1 Form of Stock Certificate
5.1 Opinion of Manatt, Phelps & Phillips, LLP, regarding the legality of
Highland Bancorp, Inc., common stock
8.1 Tax Opinion of Manatt, Phelps & Phillips, LLP
10.1 Highland Federal Bank 1994 Stock Option and Performance Share Award
Plan, including forms of Stock Option Agreement and Performance Share
Award and Restricted Stock Agreement
10.2 Highland Federal Bank Profit Sharing Plan and Trust
23.1 Consents of Manatt, Phelps & Phillips, LLP (included in Exhibits 5.1
and 8.1)
24.1 Power of Attorney (included in Part II hereof, page S-1)
99.1 Form of Proxy
</TABLE>
<PAGE>
EXHIBIT 4.1
- - ------------------- ----------------
Certificate No. Shares
- - ------------------- ----------------
CUSIP
--------------
[LOGO APPEARS HERE]
HIGHLAND BANCORP, INC.
COMMON STOCK, $0.01 PAR VALUE PER SHARE
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
This certifies that
is the record owner of _____________ fully paid and non-assessable shares of
Common Stock, $0.01 Par Value Per Share, of Highland Bancorp, Inc. (the
"Corporation"), transferable on the books of the Corporation by the holder
hereof in person or by duly authorized attorney upon the surrender of this
Certificate properly endorsed. This Certificate is not valid unless
countersigned and registered by the Transfer Agent and Registrar of the
Corporation.
IN WITNESS WHEREOF the Corporation has caused this Certificate to be
endorsed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Corporation.
Dated:
- - ----------------------------- ---------------------------------
Anthony L. Frey, Secretary Stephen N. Rippe, President
[Corporate Seal]
Countersigned and registered:
CHASE MELLON SHAREHOLDER SERVICES, LLC Transfer Agent
and Registrar
By
----------------------------
Authorized Signature
<PAGE>
Highland Bancorp, Inc.
The following abbreviations, when used in the inscription on the face of this
certificate shall be construed as though they were written out in full according
to applicable law or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
UNIF GIFT MIN ACT_____________ Custodian ___________
(Cust) (Minor)
under Uniform Gifts to Minors Act
_____________
(State)
Additional abbreviations may be used though not in the above list.
FOR VALUE RECEIVED ________________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
- - ----------------------------------------
- - --------------------------------------------------------------------------------
PLEASE INSERT SOCIAL SECURITY NO. OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- - --------------------------------------------------------------------------------
_______________________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY IRREVOCABLY CONSTITUTE AND
APPOINT ______________________________________________________________________
ATTORNEY TO TRANSFER THE SAID SHARES ON THE SHARE REGISTRAR OF THE WITHIN
CORPORATION, WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED:_________________ 19__
----------------------------------
----------------------------------
NOTICE: THE SIGNATURE TO THIS
ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:
- - -----------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCK-
BROKERS, SAVINGS AND LOAN ASSOCIATIONS, AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT
TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS, LLP APPEARS HERE]
October 27, 1997
File No: 11228-039
The Board of Directors
Highland Bancorp, Inc.
601 South Glenoaks Boulevard
Burbank, California 91502
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement
to be filed on form S-4 (the "Registration Statement") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, to register
2,300,137 shares of the common stock, $0.01 par value per share (the "Common
Stock"), of Highland Bancorp, Inc., a Delaware corporation (the "Company"),
proposed to be issued to holders of the common stock of Highland Federal Bank, a
federally chartered savings bank (the "Bank"), in connection with the
reorganization of the Bank into a holding company form of organization (the
"Reorganization"), as described in the Registration Statement.
As counsel to the Company, we have reviewed such documents, records
and matters of law as we have deemed necessary for purposes of this opinion. In
our examination of certain corporate records of the Company, we have assumed and
have not verified; (i) the genuineness of all signatures; (ii) the authenticity
of all documents submitted to us as originals; (iii) the conformity with the
originals of all documents supplied to us as copies; and (iv) the accuracy and
completeness of such corporate records, and any other documents, certificates
and statements of fact, in each case given or made available to us by the
Company.
We have obtained from officers of the Company such advice as we
considered necessary in rendering this opinion and, insofar as our opinion is
based on matters of fact upon which conclusions of law are expressed, we have
relied upon such advice.
Based upon the foregoing, we are of the opinion that:
1. The Company is duly incorporated, validly existing and in good
standing under the laws of the State of Delaware.
2. The Common Stock has been duly authorized, and will be validly
issued, fully paid and nonassessable when issued and delivered pursuant to the
terms of that certain Plan of Reorganization and Agreement of Merger to be
entered into by and among the Company, the Bank and Highland Federal Interim
Savings Bank, a federal interim savings bank formed for the sole purpose of
effecting the Reorganization.
<PAGE>
October 27, 1997
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Manatt, Phelps & Phillips, LLP
----------------------------------
MANATT, PHELPS & PHILLIPS, LLP
<PAGE>
EXHIBIT 8.1
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS, LLP APPEARS HERE]
October 24, 1997
File No: 11228-032
Board of Directors
Highland Federal Bank
601 South Glenoaks Boulevard
Burbank, California 91502
Board of Directors
Highland Bancorp, Inc.
601 Glenoaks Boulevard
Burbank, California 91502
Board of Directors
Highland Federal Interim Savings Bank
601 Glenoaks Boulevard
Burbank, California 91502
RE: CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF A HOLDING
COMPANY FORMATION
----------------------------------------------------
Ladies and Gentlemen:
In accordance with your request, we provide the following analysis and
opinions relating to certain federal income tax consequences of the proposed
transaction whereby Highland Federal Bank, a Federal Savings Bank ("Bank"), will
become a wholly-owned subsidiary of Highland Bancorp, Inc., a Delaware
corporation ("Company), through a merger of Highland Federal Interim Savings
Bank, an interim federal savings bank ("Interim"), with and into Bank (the
"Reorganization").
In the Reorganization, Company (which is a first tier wholly-owned
subsidiary of Bank) will become the sole holder of all of the common stock of
Bank. To accomplish this Reorganization, Bank has formed Company as its wholly-
owned subsidiary and Company has formed Interim as its wholly-owned subsidiary.
Interim will merge with and into Bank, with Bank being the resulting
institution. Pursuant to such merger, all of the issued and outstanding stock
of Company held by Bank will be canceled, all of the issued and outstanding
shares of common stock of Bank will be automatically converted by operation of
law, on a one-for-one basis, into an equal number of issued and outstanding
shares of Company common stock, and all of the issued and outstanding shares of
common stock of Interim shall automatically, by
<PAGE>
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS, LLP]
Boards of Directors
October 24, 1997
Page 2
operation of law, be converted into and shall become, on a one-for-one basis,
fully paid and nonassessable shares of common stock of Bank.
On the Effective Date of the Reorganization, the Bank's 1994 Stock
Option and Performance Share Award Plan (the "Stock Option Plan") shall be
assumed by the Company and shall become the Stock Option Plan of the Company.
The Stock Option Plan shall be amended to provide for the issuance of shares of
Company common stock, rather than shares of Bank common stock, upon exercise of
options or payment of other awards under the Stock Option Plan. The Company
shall enter into (i) an amended stock option agreement with each holder of an
outstanding option under the Stock Option Plan and (ii) an amended restricted
stock agreement with each holder of unvested performance shares granted under
the Stock Option Plan. Upon execution of such agreements, each unexercised
option and each unvested performance share granted under the Stock Option Plan
shall become an unexercised option or grant to purchase or receive under the
Stock Option Plan the same numbers of shares (adjusted thereafter pursuant to
the terms of the Stock Option Plan) of Company common stock in lieu of shares of
Bank common stock on the same terms and conditions as under the Stock Option
Plan (including, but not limited to, the same option exercise price).
Our analysis and the opinions set forth herein are based upon facts
set forth in that certain Plan of Reorganization and Agreement of Merger (the
"Agreement") to be entered into by and among the Company, the Bank and Interim.
Our analysis and opinions assume that, when the Reorganization is consummated,
the Reorganization will conform in all material respects with the provisions in
the Agreement. Our opinions are also based on the facts set forth in an
Application H-(e) 1-S that is being filed with the Office of Thrift Supervision
("OTS") and a Form S-4 that is being filed with the Securities and Exchange
Commission ("SEC") contemporaneously herewith and on certain written
representations to us from Bank, Company and Interim in a letter of even date
herewith. The terms herein have the same meanings as the terms used in such
documents. The facts contained in the above-referenced documents are
incorporated herein by reference as the operative facts underlying the tax
opinions set forth herein. One of our key assumptions for purposes of this
letter is that the facts set forth in those documents are accurate on the date
of this analysis and will remain accurate to the date of the closing of the
Reorganization, and are otherwise true, complete, and correct. Any change or
inaccuracy in such facts may adversely affect our opinions.
Our opinions are based upon the Internal Revenue Code of 1986, as
amended (the "Code"), as of the date hereof and currently applicable Treasury
Regulations promulgated under the Code (including proposed Treasury
Regulations), published administrative positions of the Internal Revenue Service
in revenue rulings and revenue procedures, and judicial decisions. Such legal
authorities are all subject to change, either prospectively or retroactively.
No
<PAGE>
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS, LLP]
Boards of Directors
October 24, 1997
Page 3
assurance can be provided as to the effect of any such change upon our
opinions. We undertake no duty to update this opinion letter in the future.
The opinions set forth herein have no binding effect on the Internal
Revenue Service or the courts. No assurance can be given that, if contested, a
court would agree with the opinions set forth herein. The opinions set forth
herein represent rather our best legal judgment as to the likely outcome of the
issues addressed herein if such issues were litigated.
In the case of a transaction as complex as the Reorganization, many
federal, state and local income and other tax consequences arise. We have been
asked only to address the issues specifically set forth below. No opinion is
expressed regarding any other issues.
This letter is being issued solely for your benefit and for the
benefit of the Bank shareholders as of the date of the Reorganization. It may
not be relied upon by any other person without our prior written consent.
However, we do consent to the filing of this letter with the OTS and the SEC in
connection with the Reorganization and reference to this letter in such
regulatory filings and in the proxy materials included with the Form S-4.
Our opinions regarding the Reorganization are as follows:
(1) The Reorganization will qualify as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code. The
Reorganization will not be disqualified by reason of the
fact that the stock of Company is used in the
Reorganization, pursuant to Section 368(a)(2)(E) of the
Code. Bank, Company and Interim will each be "a party to a
reorganization" within the meaning of Section 368(b) of the
Code.
(2) No gain or loss will be recognized by Interim on the
transfer of its assets to Bank solely in exchange for the
common stock of Bank and the assumption of Interim's
liabilities, pursuant to Sections 361(a) and 357(a) of the
Code.
(3) No gain or loss will be recognized by Bank upon the receipt
of the assets of Interim in exchange for Bank common stock,
pursuant to Section 1032(a) of the Code.
<PAGE>
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS, LLP]
Boards of Directors
October 24, 1997
Page 4
(4) The basis of Interim's assets in the hands of Bank will be
the same as the basis of such assets in the hands of Interim
immediately prior to the Reorganization, pursuant to Section
362(b) of the Code.
(5) No gain or loss will be recognized by Company upon the
receipt of Bank common stock solely in exchange for the
stock of Interim, pursuant to Section 354(a)(1) of the Code.
(6) No gain or loss will be recognized by the shareholders of
Bank upon the transfer of their common stock of Bank solely
in exchange for Company stock, pursuant to Section 354(a) of
the Code.
(7) The basis of the Company stock to be received by the
shareholders of Bank in the Reorganization will be the same
as the basis of the Bank common stock surrendered in
exchange therefor, pursuant to Section 358(a)(1) of the
Code.
(8) The holding period of Company stock to be received by the
Bank shareholders will include the holding period of the
Bank common stock surrendered in exchange therefor, provided
that the Bank common stock is held as a capital asset on the
date of the exchange, pursuant to Section 1223(1) of the
Code.
(9) The holding period of the assets of Interim in the hands of
Bank will include the period during which such assets were
held by Interim, pursuant to Section 1223(2) of the Code.
(10) Provided that Bank meets the requirements of Section
593(a)(2) of the Code both before and after the
Reorganization, no part of the bad debt reserve of Bank will
be required to be restored to the gross income of Bank as a
result of the Reorganization.
(11) Immediately prior to the Reorganization, Company will be a
member of the affiliated group of which Bank is the common
parent within the meaning of Section 1504 of the Code.
<PAGE>
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS, LLP]
Boards of Directors
October 24, 1997
Page 5
(12) The affiliated group of which Bank is the common parent
immediately prior to the Reorganization will remain in
existence after the Reorganization, and Company will become
the common parent of the affiliated group.
(13) The members of the Bank affiliated group immediately before
and after the Reorganization (other than Interim) will not
close their taxable years as a result of the Reorganization
and will remain on the taxable year previously employed by
the group.
(14) No prior taxable year of Bank or any member of the
affiliated group of which Bank is the common parent will
become a separate return limitation year by reason of the
Reorganization.
(15) Provided that any nonqualified stock options to purchase the
common stock of Bank and any nonqualified stock options to
purchase the Company stock into which they will be converted
do not have readily ascertainable fair market values (within
the meaning of Section 1.83-7 of the Treasury Regulations),
such conversion of the Bank options into Company options
will not result in income, gain, or loss to the holders of
such stock options, pursuant to Section 83(e)(3) of the
Code.
(16) No gain or loss will be recognized by Bank or Company upon
the issuance of Company stock to an optionee pursuant to the
optionee's exercise of a stock option issued by Bank and
converted into an option to acquire Company stock, pursuant
to Section 1032 of the Code and Section 1.83-6(d) of the
Treasury Regulations.
(17) Provided that any incentive options issued by Bank qualify
as incentive stock options under Section 422 of the Code,
the Reorganization will qualify as a transaction to which
Section 424(a) applies. The assumption of the Stock Option
Plan by Company will satisfy the requirements of Section
424(a) of the Code and will not be a modification under
Section 424(h) of the Code. Accordingly, no income, gain or
loss will be recognized by Bank, Company, or the holders of
outstanding options of Bank
<PAGE>
[LETTERHEAD OF MANATT, PHELPS & PHILLIPS, LLP]
Boards of Directors
October 24, 1997
Page 6
upon the substitution, amendment, or assumption by Company
of the Stock Option Plan and options thereunder.
(18) The Reorganization will not result in a change of ownership
of Bank within the meaning of Section 382(g) of the Code,
and therefore Section 382 will not apply to Bank as a result
of the Reorganization.
Very truly yours,
/s/ Manatt, Phelps & Phillips, LLP
----------------------------------
MANATT, PHELPS & PHILLIPS, LLP
<PAGE>
EXHIBIT 10.1
HIGHLAND FEDERAL BANK
1994 STOCK OPTION AND PERFORMANCE SHARE AWARD PLAN
I. ESTABLISHMENT AND ADMINISTRATION
1. Purpose.
The purpose of this 1994 Stock Option and Performance Share Award
Plan (this "Plan") are to provide long-term incentives and rewards to key
employees and directors of Highland Federal Bank, a Federal Savings Bank (the
"Bank"), to assist the Bank in attracting and retaining directors and key
employees on a basis competitive with industry practices, to align the interests
of key employees and directors with those of the Bank's stockholders, and to
provide additional compensation to directors and key employees.
2. Effective Date.
This Plan shall be effective as of the date of its adoption by the
Board of Directors of the Bank (the "Adoption Date"), subject to the approval of
this Plan by the holders of a majority of the issued and outstanding shares of
common stock, stated value $1.00, of the Bank (the "Common Stock") at the Bank's
1994 Annual Meeting of Stockholders (the "Approval Date"). Grants of "Options"
and "Awards" (as hereinafter defined) may be made under this Plan on and after
the Adoption Date, but all rights of the participants shall be subject to such
stockholder approval of this Plan. In the event such stockholder approval is not
obtained, all Options and Awards under this Plan shall be null and void ab
--
initio.
- - ------
3. Administration of this Plan.
3.1 This Plan shall be administered by the Personnel/Compensation
Committee of the Board of Directors of the Bank, or such other committee of the
Board of Directors as shall be designated by the Board of Directors (the
"Committee"). Each member of the Committee shall be a "disinterested person," as
such term is defined in Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934 (the "1934 Act") and that
was effective on May 1, 1991 ("New Rule 16b-3"), and no member of the Committee
shall be eligible to participate in this Plan or in any other plan of the Bank
if such participation would cause such member to cease to be a disinterested
person.
3.2 The Committee shall have full power and authority in its discretion,
subject to and not inconsistent with the express provisions of this Plan, to
take any and all actions required or permitted to be taken under this Plan. Such
full power and authority shall include, without limitation, the selection of
participants to whom Options or Awards shall be granted; the determination of
the number of shares of Common Stock purchasable upon the exercise of each
Option granted to each participant and the amount payable by the participant
upon the exercise thereof (the "Exercise Price"); the determination of
<PAGE>
the number of shares subject to each Award; the terms and conditions of each
grant of Options and Awards, including without limitation establishing the
objectives and conditions, if any, for the earning or vesting of Options and
Awards; the right to interpret and construe each provision of this Plan and of
all agreements and instruments reflecting the terms and conditions of all grants
hereunder (the "Agreements"); the making of all required or appropriate
determinations under this Plan and the Agreements; and the adoption, amendment
and recision of such rules and regulations relating to this Plan as the
Committee shall determine in its discretion (the"Rules"); in each case subject
to the express provisions of this Plan.
3.3 The interpretation or construction by the Committee of this Plan,
any Agreement or any Rule and all determinations by the Committee shall in each
case be final, binding and conclusive with respect to all interested parties,
unless otherwise determined by the Board of Directors. No member of the
Committee shall be personally liable for any action, failure to act,
determination, interpretation or construction made in good faith.
3.4 The Committee shall determine the "fair market value" of the Common
Stock from time to time in accordance with such procedures for the determination
thereof as the Committee shall determine.
4. Participants.
Except as provided in Section III hereof, participants in this Plan
shall be key employees of the Bank or its subsidiaries selected by the
Committee. Key employees may include officers of the Bank who are also directors
of the Bank, but except as provided in Section III hereof, may not include
directors who are not also employees of the Bank or its subsidiaries. Nothing
set forth in this Plan or in any Agreement shall confer upon any employee or
officer any right to continue in the employ of the Bank or its subsidiaries or
as an officer of the Bank, nor limit in any manner the right of the Bank to
terminate such employment or office for any reason whatsoever, with or without
good cause. No employee or other person shall have any right to be granted an
Option or an Award.
5. Shares of Stock Subject to this Plan.
The shares available for issuance under this Plan pursuant to the
exercise of "ISO's," "NQSO's" and "Directors' Options" or pursuant to "Awards"
(as each such term is hereinafter defined) shall consist of 100,000 shares of
Common Stock in the aggregate, subject to adjustment as provided in Section 19.
Such number of shares shall be set aside out of the authorized but unissued
shares of Common Stock not reserved for any other purpose. Should an Option
expire any reason without being exercised, or be cancelled in whole or in part,
or should an Award to a participant be forfeited or terminated for any reason,
the shares of Common Stock subject to such Option or Award shall again be
available for issuance under this Plan.
II. STOCK OPTIONS FOR KEY EMPLOYEES
6. Grant of Options.
The Committee may from time to time, in its sole discretion, award to
such key employees as it designates options to purchase shares of the Common
Stock (the "Options"). In connection therewith, the Committee shall have full
and final authority in its discretion (i) in the case of each
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<PAGE>
Option, to determine whether the Option shall be an incentive stock option (an
"ISO") pursuant to Section 422 of the Internal Revenue Code of 1986 (the "IRC"),
as such section may from time to time be amended or supplemented, or an Option
that does not qualify under such Section 422 (an "NQSO"), (ii) to determine the
time or times at which Options will be awarded, (iii) to determine the number of
shares that may be purchased upon the exercise of each Option, (iv) to determine
the exercise (i.e. purchase) price for the shares purchasable upon the exercise
of each Option, which price shall not be less than the minimum specified in
Section 7.1, (v) to determine the time or times when each Option shall become
exercisable and the duration of the exercise period, and (vi) to prescribe the
form or forms of the Agreements reflecting the terms and conditions of each
Option.
7. Exercise Price and Consideration.
7.1 The Exercise Price shall be determined by the Committee at the
time of each grant of Options, and shall not be less than 100% of the fair
market value of the Common Stock on the date on which the Option is granted.
7.2 The Exercise Price shall be paid in cash or, if the Committee so
permits at the time of grant or at any time thereafter and if then permitted by
the Bank's Charter and the rules of the Office of Thrift Supervision (the
"OTS"), by (i) the surrender, at the fair market value on the date on which the
Option is exercised, of shares of the Common Stock, or (ii) any combination of
cash and such shares. Notwithstanding the foregoing, if then permitted by the
Bank's Charter and the rules of the OTS, the Exercise Price may also be paid by
delivery to the Bank of (I) cash in the amount that is not less than the
aggregate par value of the shares being purchased, and (II) a binding, joint and
several obligation of the participant and a financial institution or broker
approved by the Bank to pay the balance of the Exercise Price on such terms as
may be specified from time to time by the Committee; provided, however, that a
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participant may pay the Exercise Price pursuant to this sentence if and only if
either (x) the Option being exercised is an NQSO, or (y) the Option being
exercised is an ISO and the Bank is satisfied that the participant understands
that the effect of such arrangement will be to cause a "disqualifying
disposition" of the participant's shares and a loss to the participant of the
favorable tax treatment of such ISO provided by the IRC.
8. Manner of Exercise.
Unless and to the extent otherwise provided in the applicable
Agreement, and subject to the limitations set forth in this Plan, each Option
may be exercised from time to time in whole or in part by the participant
delivering to the Bank at its main office (to the attention of the Chief
Financial Officer) written notice of the number of shares with respect to which
the Option is being exercised accompanied by full payment to the Bank of the
Exercise Price of the shares being purchased; provided, however, that in the
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event the consideration is other than cash, such written notice shall include
the participant's election to pay some or all of the Exercise Price as otherwise
permitted by Section 7.2, in which case the participant shall have a reasonable
time (as determined by the Committee) to arrange for the delivery to the Bank of
the balance of the Exercise Price or the agreement that will reflect the terms
of such payment.
9. Duration and Period for Exercise of Options.
9.1 Each Option shall be exercisable on such dates and during such
period as shall be determined by the Committee at the time of grant, provided
that (i) no ISO shall be exercisable after the expiration of 10 years after the
grant date, and (ii) with respect to each grant of Options to a participant
3
<PAGE>
that is required to file reports pursuant to Section 16(a) of the 1934 Act, no
Option shall be exercisable prior to six months after the earlier of (I) the
date it is granted, and (II) the Approval Date. Subject to the foregoing, the
Committee shall specify at the time each Option is granted, and shall set forth
in the corresponding agreement the time or times at which, and in what
proportions, the Option may be exercised.
9.2 Upon the termination of the employment by the Bank or its
subsidiaries of a participant, such participant's rights to exercise an Option
then held shall be as follows, subject to the authority of the Committee to
extend the exercisability of an Option in its sole discretion (with the consent
of the participant or the participant's legal representative in the case of an
ISO):
(a) Death or Permanent and Total Disability. If the
---------------------------------------
employment is terminated by reason of the death or "permanent and total
disability" (as defined in Section 22(e)(3) of the IRC) of the participant,
each Option held by the participant on the date of termination shall expire
on the earlier of (i) the date that is 12 months after the date of
termination of employment, or (ii) the fixed expiration date of such
Option.
(b) Other Disability. If the employment is terminated by
----------------
reason of the disability of the participant that is not permanent and total
disability (as defined in Section 22(e)(3) of the IRC), each Option held by
the participant on the date of termination shall expire the earlier of (i)
the date that is three months after the date of termination of employment
for each Option that is an ISO, or the date that is 12 months after the
date of termination of employment for each Option that is an NQSO, or (ii)
the fixed expiration date of such Option.
(c) Other Termination. If the employment is terminated by
-----------------
any reason other than death or disability, each Option held by the
participant on the date of termination shall expire on the earlier of (i)
the date that is three months after the date of termination of employment,
or (ii) the fixed expiration date of such Option.
9.3 If the employment of a participant is terminated by reason of the
death of the participant, all Options held by such participant shall become
immediately vested, notwithstanding any conditions to the vesting of such
Options set forth herein or in the Agreement reflecting such Options. If the
employment of a participant is terminated by any reason other than the death of
the participant, all Options not vested as of the time of termination shall be
forfeited, subject to the authority of the Committee to authorize for such
participant either or both (i) the immediate vesting of such portion of such
Options as it may determine, notwithstanding any conditions to the vesting of
such Options set forth herein or in the Agreement reflecting such Options, and
(ii) that some or all of such Options not be so forfeited.
9.4 The Options of a participant who dies shall be exercisable by a
legatee or legatees of such Options under the participant's last will, or by
such participant's executor, personal representative or distributees. However,
in the event of a participant's death after the date of termination of
employment that occurs for another reason, such deceased's particpant's Options
shall expire in accordance with their terms as if such participant were still
living.
9.5 The Committee shall have the authority to determine the reason for
and date of termination of employment of each participant (including but not
limited to determining whether a termination is by reason of disability or
retirement), which determination shall be final, binding and conclusive on all
interested parties.
4
<PAGE>
10. Limitation on Grant of ISO's.
10.1 The aggregate fair market (determined as of the time the Option is
granted) of the shares of Common Stock for which ISO's may first be exercisable
by an participant during any calendar year shall not exceed $100,000.
10.2 No ISO may be granted under this Plan after the 10th anniversary of
the Adoption Date.
10.3 No ISO may be granted to any employee who owns stock possessing more
than 10% of the total combined voting power of all classes of stock of the Bank.
11. Acceleration of Options.
In the event that the Bank enters into one or more agreements to
dispose of all or substantially all of its assets or the Bank's stockholders
dispose of or become obligated to dispose of 50% or more of the outstanding
shares of Common Stock, other than to the Bank or a subsidiary of the Bank, in
either case by means of a tender offer, sale, merger, reorganization or
liquidation, in one or a series of related transactions (an "Acceleration
Event"), then each outstanding Option shall become exercisable during the 30
days immediately prior to the scheduled consummation of the Acceleration Event
with respect to the full number of shares for which such option has been
granted: provided, however, that no Acceleration Event shall be deemed to occur
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for purposes of this section in the event that (i) the terms of the agreements
pursuant to which such transaction is occurring require as a condition to the
consummation thereof that each Option shall either be assumed by a successor
corporation or parent thereof or be replaced with a comparable option to
purchase shares of capital stock of a successor corporation or parent thereof,
and (ii) the transaction is approved by a majority of the directors who have
been in office for more than 12 months prior to the scheduled consummation of
the transaction. Any exercise of Options during such 30-day period shall be
conditioned upon the consummation of the Acceleration Event and shall be
effective only concurrently with the consummation of the Acceleration Event, and
in the event the Acceleration Event is not consummated all exercises of Options
made pursuant to this section shall be of no further force or effect; unless,
with respect to any such Option, such Option was otherwise exercisable in
accordance with its terms without regard to this section and the participant
exercising such Option indicates in writing that such exercise is not
conditioned on the consummation of the Acceleration Event. Upon consummation of
the Acceleration Event, all outstanding Options, whether or not accelerated
pursuant to this section, shall expire and cease to be exercisable, unless
assumed by the successor corporation or a parent thereof.
12. Cancellation and Repricing of Options.
12.1 The Committee shall have the authority to effect, at any time and
from time to time, with the consent of the affected participant, the
cancellation of any or all outstanding Options and the grant in substitution
therefor of new Options under this Plan (subject to the limitations hereof)
providing for the purchase of the same or a different number of shares of Common
Stock at an Exercise Price not less than 100% of the fair market value of the
Common Stock on the new grant date. The Agreement reflecting the terms of the
new Options may, in the discretion of the Committee, include the same terms and
conditions as the Agreement reflecting the terms of the old Options including,
without limitation, the same vesting schedule.
12.2 The Committee may, in its discretion, amend the terms of any
Agreement, with the consent of the affected participant, to provide that the
Exercise Price of the shares remaining subject to the
5
<PAGE>
original Option shall be reestablished at a price not less than 100% of the fair
market value of the Common Stock on the effective date of such amendment.
III. GRANT OF STOCK OPTIONS TO NON-EMPLOYEE DIRECTORS
13. Grant of Directors' Options.
13.1 The Bank hereby grants, on the terms and subject to the conditions
set forth in this Section III, the number of NQSO's set forth below to each
"Non-Employee Director." Each person who, as of a particular date, is a director
of the Bank but either (i) at the time of his or her initial election as a
director was not (or is not) an employee of the Bank or (ii) on the date of any
grant of options pursuant to this Section 13 is not an employee of the Bank,
shall be deemed a "Non-Employee Director." Such NQSO's are referred to herein as
"Directors' Options."
13.2 Directors' Options shall be deemed granted to the following
Non-Employee Directors at the following times:
(a) On the Adoption Date, but subject to the approval of
this Plan by the stockholders of the Bank as provided for in Section 2, a
Directors' Option to purchase 2,500 shares of Common Stock to each person
who is a Non-Employee Director as of the Adoption Date.
(b) On the day following the date the current President
retires as an employee of the Bank, a Directors' Option to purchase 2,500
shares of Common Stock to the current President.
(c) On March 31, of each year, a Directors' Option to
purchase 2,500 shares of Common Stock to each Non-Employee Director who has
not received a Directors' Option pursuant to this Section III during the
three years preceding such date. Thus, the first Directors' Options granted
pursuant to this paragraph shall be granted on March 31, 1997, and shall be
granted to each director then in office who last received a Directors'
Option prior to March 31, 1994.
13.3 Each Directors' Option granted to a director shall be an "Option"
as defined in this Plan, including without limitation for the purpose of
applying Sections 5, 7.2, 11 and 19.1 (but not for the purpose of applying
Sections 9 or 12).
14. Terms and Conditions of Directors' Options.
Each Directors' Option granted to a director pursuant to this
Section III shall:
(a) Have a term of five years from the date granted.
(b) Not be exercisable prior to six months after the date
of grant (which, for the Directors' Options granted pursuant to Section
13.2(a), shall be deemed the Approval Date).
(c) Have an Exercise Price equal to 100% of the fair market
value of the Common Stock on the date of grant.
6
<PAGE>
(d) Except as provided in Section 14(e) below, be exercisable if
and only if, on the date of exercise, such director has been a Non-Employee
Director for at least three years; thus (i) the Directors' Option granted
to a Non-Employee Director pursuant to Section 13.2(b) shall not be
exercisable until the third anniversary of his termination as an employee
of the Bank, and (ii) in the event of the termination of such director's
status as a director prior to such third anniversary, all Directors'
Options granted to such director shall expire upon such termination.
Subject to such requirement, such Directors' Option shall not be affected
by such director's termination as a director, and shall remain exercisable
on the terms set forth herein for the balance of the term of such
Directors' Option.
(e) Notwithstanding Section 14(d), in the event of the
termination of a Non-Employee Director by reason of death, and if on the
date of death he or she has not been a Non-Employee Director for three
years, all Directors' Options granted to such Non-Employee Director shall
become immediately exercisable and shall remain exercisable until first
anniversary of the date of his or her death, at which time all unexercised
Directors' Options shall expire.
(f) Be exercisable for the consideration and in the manner
provided in Section 7.2 and 8.
15. Effect of Insufficient Available Shares.
Each Non-Employee Director's right to the Directors' Option granted
pursuant to this Section III shall be subject to three being, at the time of
each grant thereof, shares of Common Stock remaining available for issuance
under this Plan in accordance with Section 4. In the event that as of the date
on which a grant is made to one or more Non-Employee Directors insufficient
shares of Common Stock are then available for issuance under this Plan to
provide 2,500 shares to each such Non_Employee Director, the number of shares
subject to each such grant of Directors' Options shall be reduced
proportionately.
IV. PERFORMANCE SHARE AWARDS
16. Grant of Performance Shares Awards.
16.1 The Committee may from time to time, in its sole discretion, award
to such key employees as it designates the right to receive shares of Common
Stock ("Performance Shares") that are not to be issued by the Bank or delivered
to the participant unless and until certain performance criteria have been
attained by the Bank (an "Award").
16.2 In connection therewith, the Committee shall have full and final
authority in its discretion in the case of each Award to determine the time or
times at which Awards will be granted, the number of Performance Shares subject
to each Award, the performance criteria to be established under which receipt of
the Performance Shares will be conditioned, the duration of the periods over
which such performance will be measured and the other terms and conditions of
each Award, and to prescribe the form or forms of the Agreements reflecting the
terms and conditions of each Award. The terms and conditions of Awards need
not be the same for each participant. Performance Shares previously granted
pursuant to Awards but which are forfeited or terminated shall be available for
future Options or Awards.
7
<PAGE>
16.3 In addition to such criteria as the Committee shall establish for
the issuance of Performance Shares, each issuance of Performance Shares shall be
further conditioned on the determination of the Committee or the Board of
Directors that fair value of the services rendered by the participant
between the date the Award to such participant is granted and the date the
Performance Shares are issuable exceeds all other compensation paid to such
participant for such period by an amount not less than the fair market value of
the Performance Shares on the date they are issuable. The Committee or the Board
shall make each such determination promptly and in good faith, and such
determination shall be conclusive.
17. Terms and Conditions of Awards.
All Awards shall be subject to the following terms and conditions:
(a) Each Award shall be confirmed by, and subject to the terms
of, an Agreement executed by the Bank and the participant.
(b) If, or to the extent that, applicable performance criteria
have been satisfied, certificates evidencing the Performance Shares shall
be delivered to the participant.
(c) Subject to such exceptions as may be determined by the
Committee either at the time of the Award or at any time thereafter, if a
participant's continuous employment with the Bank or any of its affiliates
shall terminate for any reason, all outstanding Awards to such participant
shall thereupon be forfeited.
18. Acceleration of Issuance of Performance Shares.
All Performance Shares subject to an outstanding Award shall be
issued by the Bank to the participants at such time as any Acceleration Event is
consummated: provided, however, that no Acceleration Event shall be deemed to
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occur for the purposes of this section in the event that (i) the terms of the
agreements pursuant to which such transaction is occurring require as a
condition to the consummation thereof that each Award shall either be assumed by
a successor corporation or parent thereof or be replaced with a comparable award
of shares of capital stock of the successor corporation or parent thereof, and
(ii) the transaction is approved by a majority of the directors who have been in
office for more than 12 months prior to the scheduled consummation of the
transaction.
V. GENERAL PROVISIONS
19. Adjustments and Changes in the Common Stock.
19.1 In the event that the shares of Common Stock as presently
constituted shall be changed into or exchanged for a different number or kind of
shares of stock or other securities of the Bank, or if the number of such shares
of Common Stock shall be increased through the payment of a stock dividend, then
unless such change results in the termination of all outstanding Options or
Awards pursuant to the provisions of Sections 11 or 18, there shall be
substituted for or added to each share of Common Stock theretofore appropriated
or thereafter subject or which may become subject to an Option or an Award, the
number and kind of shares of stock or other securities into which each
outstanding share of Common Stock shall be so changed, or for which each share
shall be exchanged, or to which each such share shall
<PAGE>
be entitled, as the case may be. Each Agreement shall be deemed amended
appropriately as to price and other terms as may be necessary in the
determination of the Committee to reflect the foregoing events. In the event
there shall be any other change in the number or kind of the outstanding Common
Stock, or of any stock or securities into which such shares have been changed,
or for which it shall have been exchanged, then if the Committee shall, in its
sole discretion, determine that such change requires an adjustment in the terms
of any Option or Award granted or that may be granted, such adjustment shall be
made in accordance with such determination and each Agreement reflecting such
terms shall be deemed amended. Fractional shares resulting from any adjustment
in Options or Awards pursuant to this section shall be rounded down to the
nearest whole number of shares.
19.2 Notwithstanding the foregoing, any and all adjustments in the terms
of ISO's shall comply in all respects with applicable sections of the IRC and
the regulations thereunder.
19.3 Notice of any adjustment in the terms of Options or Awards shall be
given by the Bank to each holder of an Option or Award that has been so
adjusted. However, such adjustment shall be effective and binding for all
purposes whether or not such notice is given or received.
20. Application of New Rule 16b-3.
This Plan shall be governed by New Rule 16b-3.
21. No Rights as Stockholder.
No participant shall have the rights as a holder of Common Stock
with respect to Options or Awards unless and until certificates for shares of
such stock are issued to the participant or the participant's legal
representative.
22. Withholding Taxes.
The Bank shall have the right to withhold from the participant, at
the time of the issuance by the Bank of any shares, any federal, state or other
taxes required by law to be withheld with respect to such issuance or to require
(though withholding from the participant's salary or otherwise) the payment by
the participant of any such taxes.
23. Non-Transferability.
No Option or Award may be in any way transferred, assigned, pledged
or hypothecated by the participant to which it was granted or awarded, other
than by will or the laws of descent and distribution, and Option may be
exercised during the participant's lifetime only by the participant or the
participant's legal representative; provided, however, that the Committee may
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upon request consent to transfers of NQSO's or Awards as it may determine in its
sole discretion, if such transfer is pursuant to a "qualified domestic relations
order" as defined by the IRC, and subject to such conditions as the Committee
may require
9
<PAGE>
24. Amendments and Termination.
24.1 This Plan and all grants of Options and Awards are subject to such
rules, regulations orders and policies (collectively, "Directives") of the OTS
as may be promulgated from time to time. In the event that the Committee or the
Board of Directors determines at any time or from time to time that a Directive
requires that the terms of any outstanding Option or Award be modified, the
Committee or the Board of Directors shall have the right and power to amend any
outstanding Agreement, or otherwise modify the terms of any outstanding Option
or Award, without the consent of the affected participant(s) and irrespective of
whether such modification is (i) consistent with the terms and this Plan, or
(ii) adverse to such participant(s).
24.2 In addition to such amendments as are provided for in Section 12,
with the consent of the affected participant the Committee may amend any
outstanding Agreement in a manner not inconsistent with this Plan.
24.3 Unless the holders of at least a majority of the issued outstanding
shares of Common Stock shall have approved thereof, no amendment of this Plan
shall be effective which would (i) increase the maximum number of shares of
Common Stock referred to in Section 5, or (ii) increase in any material manner
the benefits to Non-Employee Directors set forth in Section III of this Plan.
For the purposes of this section, any (I) cancellation and reissuance, or (ii)
repricing of any Options granted at a new Exercise Price as provided in Section
12 shall not constitute an amendment of this Plan. Subject to such limitations
and other limitations as may be imposed by applicable law, this Plan may be
amended from time to time by the Board of Directors.
24.4 The provisions of Article III hereof may not be amended more than
once every six months, other than to comport with changes in the IRC, the
Employee Retirement Income Security Act, or the rules thereunder.
24.5 The Board of Directors may at any time terminate or from time to
time amend this Plan in whole or in part, but no such action shall adversely
affect any rights or obligations with respect to any Options or Awards
theretofore granted under this Plan.
25. Governing Law.
The validity and construction of this Plan and the Agreements shall
be governed by the laws of the State of California, except to the extent that
the federal law of the United States and the rules and regulations adopted
thereunder are mandatorily applicable thereto.
10
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into as of
the ______ day of ____________, by and between HIGHLAND FEDERAL BANK, A FEDERAL
SAVINGS BANK (the "Company"), and ____________ ("Grantee").
1. Grant of Option
---------------
1.1 Number of Option Shares and Exercised Price. The Company
-------------------------------------------
desiring to provide Grantee an opportunity to purchase shares of the Company's
common stock, stated value $1.00 per share ("Common Stock"), and to provide
Grantee with an added incentive to remain an employee and an officer if the
Company, has awarded to Grantee, by resolution of the Personnel/Compensation
Committee of the Board of Directors of the Company (the "Committee") and
pursuant to the authority delegated to the Committee pursuant to the company's
1994 Stock Option and Performance Share Award Plan (the "Plan"), and Grantee
hereby accepts, an option to purchase _______ shares of common Stock (the
"Option Shares") at a price of $________ per share (the "Option"). The Option is
intended to be "an incentive stock option" as defined in Section 422A of the
Internal Revenue Code of 1986, as amended.
1.2 The Plan. The Option and this Option Agreement shall be
--------
governed by, and be subject to the terms and conditions of, the Plan, the
provisions of which are hereby incorporated into this Agreement.
1.3 Term. Grantee shall be entitled to purchase Option shares,
----
in whole or in part, at any time and from time to time, for a period (the
"Term") commencing on the day the Option vests in accordance with Section 1.4
hereof and ending at ____________ Los Angeles time on _____________ and, to the
extent not exercised during the Term, the Option shall then expire; provided,
--------
however, that upon the termination of Grantee's employment by the company during
- - -------
Term, for any reason, the unexercised portion if the Option shall expire in
accordance with the terms of the Plan.
1.4 Vesting Schedule. Subject to the provisions of Section 11 of
----------------
the Plan upon the occurrence of an "Acceleration Event," the Option shall vest
as follows: The Option shall vest immediately as to the entire _____________
Option Shares.
11. Non-Transferability. The Option may not be transferred,
-------------------
assigned, pledged, hypothecated or otherwise disposed if in any way, whether by
operation of law or otherwise, except in accordance with the terms of the Plan.
<PAGE>
3. Mechanics of Exercise. The Option may be exercised by Grantee by
---------------------
giving written notice of exercise to the Company specifying the number of Option
Shares to be purchased, and otherwise as provided in the Plan or as then
permitted by the Committee.
4. Employment Obligation. Nothing in this Agreement shall be
---------------------
construed to confer upon Grantee any right to continued employment by the
Company or to restrict in any way the right of the Company to terminate
Grantee's employment or to modify the terms or conditions thereof.
5. Notices. Any notice to be given to the Company shall be addressed
-------
to the Company at its principal office, and any notice to be given to the
Grantee shall be addressed to him at such address as Grantee may hereafter
designate in writing to the Company and, if no such address is designated, the
address of the Grantee then maintained by the Company.
IN WITNESS WHEREOF, the parties have entered into this Agreement as
of the day and year first written above.
HIGHLAND FEDERAL BANK
A FEDERAL SAVINGS BANK
- - ------------------------- By: ----------------------------
STEPHEN N. RIPPE
President and Chief Executive Officer
<PAGE>
HIGHLAND FEDERAL BANK, F.S.B.
PERFORMANCE SHARE AWARD AND
RESTRICTED STOCK AGREEMENT
This Performance Share Award and Restricted Stock Agreement
("Agreement") is entered into the 16th day of April by and between Highland
Federal Bank, a Federal Savings Bank ("Highland"), and Stephen N. Rippe, an
individual (the "Participant").
WHEREAS, the Participant is an employee of Highland;
WHEREAS, Highland's 1994 Stock Option and Performance Share Award Plan
(the "Plan") provides for the award to designated participants in the Plan by
the committee of the Board of Directors of Highland administering the Plan (the
"Committee") of the right to receive shares ("Performance Shares") of common
stock, stated value $1.00 per share, of Highland ("Common Stock") that are not
to be issued by Highland or delivered to a participant unless and until certain
performance criteria have been attained by Highland and the Committee further
determines that the fair value of the services rendered by a participant between
the date of the award and the date the Performance Shares are issuable exceeds
all other compensation paid to such participant for such period by an amount not
less than the fair market value of the Performance Shares on the date they are
issuable;
WHEREAS, in 1996 the Committee approved a Performance Share grant
schedule ("Schedule") which established an award ("Award"), effective as of
January 1, 1996, to the Participant of the right to receive Performance Shares
based on the attainment of specified levels of total shareholder return on the
Common Stock of Highland for the period from January 1, 1996 to December 31,
1996 (the "Total Shareholder Return"), and subject to final determination of the
Committee, in its sole discretion, that the Total Shareholder Return was not
substantially due to general economic conditions or industry factors (the
"Committee Final Determination");
WHEREAS, pursuant to the Award and the Total Shareholder Return of
40%, the Participant is entitled to receive 5,000 Performance Shares, subject to
the Committee Final Determination and the terms and conditions set forth
herein; and
WHEREAS, on April 16, 1997 the Committee made the Committee Final
Determination and also determined that the fair value of the services rendered
by the Participant between January 1, 1996 and April 16, 1997 exceeds all other
compensation paid to the Participant for such period by an amount not less than
the fair market values of the 5,000 Performance Shares on April 16, 1997.
1
<PAGE>
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual covenants and agreements contained herein, the parties hereto mutually
agree as follow;
1. Grant of Award: Certain Terms and Conditions. Pursuant to the
--------------------------------------------
Award, Highland issues to the Participant and the Participant hereby accepts,
5,000 Performance Shares, subject to all of the terms and conditions set forth
in this Agreement, including the restrictions imposed pursuant to Section 2
hereof; provided however, that on April 16, 1997, such restrictions shall
terminate with respect to _____ Performance Shares issued hereby, and on January
1, 1998, such restrictions shall terminate with respect to _____ Performance
Shares issued hereby, and on January 1, 1999, such restrictions shall terminate
with respect to ______ Performance Shares issued hereby (the termination of such
restrictions with respect to any Performance Share, for any reason, shall be
referred to herein as the "vesting" of such share).
2. Restrictions. Until a Performance Share vests, it may not be
sold, assigned, conveyed, gifted, pledged, hypothecated, or otherwise
transferred in any manner by the Participant, other than by will or the laws of
descent and distribution; provided, however, that the Committee may upon
-------- -------
request consent to a transfer of Performance Shares as it may determine in its
sole discretion, if such transfer is pursuant to a "qualified domestic
relations order" as defined by the Internal Revenue Code of 1986, as amended,
and subject to such conditions as the Committee may require.
3. Acceleration of Vesting.
-----------------------
(a) Notwithstanding anything to the contrary contained in this
Agreement, upon the consummation of an Acceleration Event (as hereinafter
defined), all of the then unvested Performance Shares shall vest upon the date
of such event and shall be issued to the Participant at such time, provided,
however, that no Acceleration Event shall be deemed to occur for the purposes of
accelerated vesting of the Performance Shares in the event that (i) the terms of
the agreement or agreements pursuant to which such transaction is occurring
require as a condition to the consummation thereof that each award of
Performance Shares shall either be assumed by a successor corporation or parent
thereof or be replaced with a comparable award of shares of capital stock of the
successor corporation or parent thereof, and (ii) the transaction is approved by
a majority of the directors who have been in office for more than 12 months
prior to the scheduled consummation of the transaction.
(b) An "Acceleration Event" shall mean an event whereby Highland
enters into one or more agreements to dispose of all or substantially all of its
assets or Highland's stockholders dispose of or become obligated to dispose of
50% or more of the outstanding shares of common stock of Highland, other than to
Highland or a subsidiary of Highland, in either case by means of a tender offer,
sale, merger, reorganization or liquidation, in one or a series of related
transactions.
4. Forfeit of Performance shares. Notwithstanding anything to the
-----------------------------
contrary contained in this Agreement, if the Participant's continuous employment
with Highland or any of
2
<PAGE>
its subsidiaries terminates for any reason, or for no reason, then, unless the
Committee shall determine otherwise, each then unvested Performance Share
(together with any cash, property or securities comprising all or any part of
such Performance Share as provided in Section 7 hereof) shall be forfeited to
Highland by the Participant.
5. Payment of Withholding Taxes. If Highland becomes obligated to
----------------------------
withhold an amount on account of any federal, state or local tax imposed as a
result of the issuance of Performance Shares to the Participant pursuant to this
Agreement or the termination of the restrictions imposed upon the Performance
Shares hereunder, including, without limitation, any federal, state or other
income tax, or any F.I.C.A., state disability insurance tax or other employment
tax (the date upon which Highland becomes so obligated shall be referred to
herein as the "Withholding Date"), then the Participant shall pay such amount
(the "Withholding Liability") to Highland on the Withholding Date in cash or by
check payable to Highland, or by the withholding of the Withholding Liability
from the Participant's salary.
6. Escrow.
------
(a) Until a Performance Share vests, (i) the record address of the
holder of record of such Performance Share shall be c/o the Chief Financial
Officer of Highland at the address of Highland's principal executive office,
(ii) the stock certificate representing such Performance Share (together with
any cash, property or securities comprising all or any part of such Performance
Share as provided in Section 7 hereof) shall be held in escrow in the custody of
the Chief Financial Officer of Highland, duly endorsed in blank or accompanied
by a duly executed stock power, and (iii) such stock certificate shall contain
the following legend:
"The transfer and registration of transfer of the securities
represented by this certificate are subject to certain restrictions
as provided in a Performance Share Award and Restricted Stock
Agreement dated April 16, 1997 by and between Highland Federal Bank,
F.S.B., and [name of the Participant to be inserted]."
(b) From and after the date upon which a Performance Share vests, the
holder of record of such Performance Share shall be entitled (provided that the
Participant shall have paid any Withholding Liability to Highland pursuant to
Section 5 hereof) to receive the stock certificate representing such Performance
Share (together with any cash, property or securities comprising all or any part
of such Performance Share as provided in Section 7 hereof), which stock
certificate shall not contain the legend set forth in subsection (a) above.
7. Voting; Dividends; Certain Corporate Transactions. The holder of
-------------------------------------------------
record of any Performance Share shall be entitled to exercise all voting rights
with respect to such share and to receive all regular cash dividends paid with
respect thereto. In the event that the outstanding securities of any class then
comprising the Performance Shares are increased, decreased or exchanged for or
converted into cash, property or a different number or kind of
3
<PAGE>
securities, or cash, property or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular cash dividend) or other distribution, stock split, reverse stock split
or the like, then, unless the Committee shall determine otherwise, the term
"Performance Shares" shall, from and after the date of such event, include such
cash, property or securities so distributed in respect of the Performance
Shares, or into or for which the Performance Shares are so increased, decreased,
exchanged or converted.
8. Plan. The Performance Shares are being issued pursuant to the Plan,
----
and are subject to all the terms and conditions of the Plan, as the same may be
amended from time to time; provided, however, that no such amendment shall
-------- -------
deprive the Participant, without his or her consent, of any of the Participant's
rights under this Agreement. The interpretation and construction by the
Committee of the Plan, this Agreement and such rules and regulations as may be
adopted by the Committee for the purpose of administering the Plan shall be
final and binding upon the Participant.
9. Employment Rights. No provisions of this Agreement shall (i) confer
-----------------
upon the Participant any right to continue in the employ of Highland or any of
its subsidiaries, (ii) affect the right of Highland or any of its subsidiaries
to terminate the employment of the Participant, with or without cause, or (iii)
confer upon the Participant any right to participate in any employee welfare or
benefit plan or other program of Highland or any of its subsidiaries. The
Participant hereby acknowledges and agrees that Highland or any of its
subsidiaries may terminate the employment of Participant at any time and for any
reason, or for no reason, unless Participant and Highland or such subsidiary are
parties to a written employment agreement that expressly provides otherwise.
10. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the laws of the State of California without
reference to choice or conflict of law principles, except to the extent that the
federal law of the United States and the rules and regulations thereunder are
mandatorily applicable hereto.
11. Amendments. The Plan and this Agreement are subject to such rules,
----------
regulations, orders and policies (collectively, "Directives") of the Office of
Thrift Supervision as may be promulgated from time to time. In the event that
the Committee or the Board of Directors determines at any time or from time to
time that a Directive requires that the terms of the award of Performance Shares
granted hereby be modified, the Committee or the Board of Directors shall have
the right and power to amend the Agreement, or otherwise modify the terms of the
award of Performance Shares granted hereby, without the consent of the
Participant and irrespective of whether such modification is (i) consistent with
the terms of the Plan, or (ii) adverse to the Participant. In addition, with
the consent of the Participant, the Committee may amend this Agreement in a
manner not inconsistent with the Plan.
4
<PAGE>
IN WITNESS WHEREOF, Highland and the Participant have duly executed this
Agreement as of the day and year first above written.
HIGHLAND FEDERAL BANK, A
FEDERAL SAVINGS BANK
By:
-------------------------
Name:
Title:
PARTICIPANT
----------------------------
Signature
----------------------------
Printed Name
----------------------------
Street Address
----------------------------
City, State and Zip Code
----------------------------
Social Security Number
5
<PAGE>
EXHIBIT 10.2
HIGHLAND FEDERAL BANK 401(k) PROFIT SHARING PLAN
AS AMENDED AND RESTATED JANUARY 1, 1995
SECTION 1. INTRODUCTION AND CONSTRUCTION
1.1 Introduction. This Smith Barney Shearson Prototype Defined Contribution Plan
is established and maintained as a prototype plan by the Prototype Sponsor for
its customers and the customers of its subsidiaries and affiliates. This Plan
shall be adopted as a prototype plan only with the consent of the Prototype
Sponsor or one of its subsidiaries or affiliates as set forth in the related
Adoption Agreements and shall be maintained as a prototype plan only in
accordance with the terms and conditions set forth in this Plan.
1.2 Controlling Laws. To the extent such laws are not preempted by federal law,
this Plan and the related Adoption Agreement and Trust Agreement shall be
construed and interpreted under the laws of the state specified in the Adoption
Agreement; provided, if Smith Barney Shearson Trust Company has been appointed
as Trustee, the Trust Agreement shall be governed by and construed in accordance
with the laws of the State of [Delaware].
1.3 Construction. The headings and subheadings in this Plan have been inserted
for convenience of reference only and are to be ignored in the construction of
its provisions. Wherever appropriate, the masculine shall be read as the
feminine, the plural as the singular, and the singular as the plural. References
in this Plan to a section (S) shall be to a section in this Plan unless
otherwise indicated. References in this Plan to a section of the Code, ERISA or
any other federal law shall also refer to the regulations issued under such
section. Unless an alternative option is specified in the Adoption Agreement,
the option identified as the "Standard Option" will control.
The Employer intends that this Plan and the related Trust Agreement and Adoption
Agreement which are part of this Plan satisfy the requirements for tax exempt
status under Code (S)401(a), Code (S)501(a) and related Code sections and that
the provisions of this Plan, the Trust Agreement and the Adoption Agreement be
construed and interpreted in accordance with the requirements of the Code and
the regulations under the Code.
Further, except as expressly stated otherwise no provision of this Plan or the
related Trust Agreement or Adoption Agreement is intended to nor shall grant any
rights to Participants or Beneficiaries or any interest in the Fund and to those
minimum rights or interests required to be provided under ERISA and the Code and
the regulations under ERISA and the Code.
Nothing in this Plan or the related Trust Agreement or Adoption Agreement shall
be construed to prohibit the adoption or the maintenance of this Plan or the
Trust Agreement as an individually designed plan or as a trust agreement which
is part of an individually designed plan, but in such event, the Employer may
not rely on the opinion letter issued to the Prototype Sponsor and the Prototype
Sponsor shall have absolutely no responsibility for such individually designed
plan.
Finally, in the event of any conflict between the terms of this Plan and me
terms of the Trust Agreement or the Adoption Agreement, the terms of this Plan
shall control.
1.4 TRA 86 Amendments. If this Plan is adopted as an amendment to a Pre-Existing
Plan in order to satisfy the requirements of TRA 86, the retroactive effective
date of any provision required under TRA 86 is intended solely to comply with
the Code and is not intended to grant any substantive rights under ERISA to the
extent that such provision is different from the Pre-Existing Plan as in effect
between the applicable effective date of TRA 86 and the effective date in the
final regulations ("transition years").
1.5 Holding of Qualifying Employer Securities. The Employer previously
maintained a qualified retirement plan entitled the "Highland Federal Bank
Profit Sharing" plan (the "Profit Sharing Plan") originally effective January 1,
1982. The Profit Sharing plan invested a portion of plan assets in common stock
of the Employer which constitutes qualifying employer securities within the
meaning of Section 407(d)(5) c-f ERISA ("Employer Stock").
Effective as of January 1, 1995, the Employer amended and restated the Profit
Sharing Plan into the current Plan and transferred all assets of the Profit
Sharing Plan into the current Plan including
1
<PAGE>
shares of Employer Stock previously held under the Profit Sharing Plan. The Plan
permits Participants to hold Employer Stock previously held under the Profit
Sharing Plan in excess of ten percent (10%) of the total assets of the Plan.
Participants also have the right to dispose of their shares of investment in
Employer Stock. Participants, however, do not have the right to invest any
portion of their plan benefits in additional shares of Employer Stock. Upon a
disposition of Employer Stock by a Participant, such Participant will be
required to invest the proceeds from the sale in one or more of the investment
funds provided under the Plan. The Plan is therefore intended to permit the
continued holding of Employer Stock in excess of ten percent (10%) of total Plan
assets until such time as Participants dispose of such stock from reinvestment
in other investment funds provided under the Plan.
SECTION 2. DEFINITIONS
The capitalized terms in this Plan and the related Adoption Agreement and TRUST
Agreement shall have the meanings shown opposite those terms in this section 2
and section 3 for purposes of this Plan.
2.1 Account - means the bookkeeping account maintained under this Plan to show
as of any Valuation Date a Participant's interest in the Fund attributable to
the contributions made by or on behalf of such Participant and the Fund Earnings
on such contributions, and an Account shall cease to exist when exhausted
through forfeiture or distributions made in accordance in this Plan.
2.2 Active Participant - means for purposes of eligibility to receive an
allocation of the Employer Contribution or Forfeitures for each Plan Year, each
Participant who is an Eligible Employee at any time during the Plan Year and who
satisfies the following conditions:
2.2(a) Standard Option.
2.2(a)(1) Standardized Plans. If this Plan is adopted as a standardized Plan,
such Participant (i) is employed as an Eligible Employee (or on an authorized
leave of absence as an Eligible Employee) on the last day of such Plan Year,
(ii) terminated employment as an Eligible Employee during such Plan Year on or
after Normal Retirement Age or Early Retirement Age or by reason of death or
Disability, or (iii) such Participant is not employed on the last day of such
Plan Year but completed more than 500 Hours of Service during such Plan Year (or
the equivalent period described in (S)2.2(d) if the "Elapsed Time" method is
specified in the Adoption Agreement). Notwithstanding the foregoing, if the
"Hours of Service" method is specified in the Adoption Agreement for a Plan Year
beginning before me Final Compliance Date, (S)2.2(a)(1)(iii) shall not apply and
a Participant who satisfies the requirements of (S)2.2(a)(f)(i) shall not be
eligible to receive an allocation of the Employer Contribution or Forfeitures
for such Plan Year unless such Participant also is credited with at least 1,000
Hours of Service in such Plan Year.
2.2(a)(2) Nonstandardized Plans. If this Plan is adopted as a nonstandardized
Plan, such Participant (i) is employed as an Eligible Employee (or on an
authorized leave of absence as an Eligible Employee) on the last day of such
Plan Year and, if me "Hours of Service" method is specified in me Adoption
Agreement, is credited with at least 1,000 Hours of Service in such Plan Year,
or (ii) terminated employment as an Eligible Employee during such Plan Year on
or after Normal Retirement Age or Early Retirement Age or by reason of death or
Disability.
2.2(b) Alternative. Such Participant satisfies the alternative conditions
specified in the Adoption Agreement.
2.2(c) Minimum Coverage Requirement. If this Plan is adopted as a
nonstandardized Plan and fails to satisfy me minimum coverage and participation
requirements of Code (S)401(a)(26) and (S)410(b) for any Plan Year beginning on
and after the Final Compliance Date as a result of me application of the minimum
hours or last day employment requirements in this (S)2.2, such minimum
participation and coverage requirements shall be retroactively amended by
executing a new Adoption Agreement within the applicable retroactive correction
period in the regulations or, if no such amendment is made, shall be satisfied
as follows:
2.2(c)(1) If the Plan utilizes both the minimum hours and last day
<PAGE>
employment requirements:
(i) Step 1 - Each Participant who completes at least 1,000 Hours of Service
without regard to whether such participant is employed on the last day of the
Plan Year shall be deemed to be an Active Participant for such Plan Year.
(ii) Step 2 - If the minimum participation and coverage requirements are not
satisfied after the application of Step 1, then each Participant who completes
more than 500 Hours of Service and who is employed on the last day of the Plan
Year shall be deemed to be an Active participant for such Plan Year.
(iii) Step 3 - If the minimum participation and coverage requirements are not
satisfied after the application of Step 1 and Step 2, then each Participant who
is not employed on the last day of the Plan Year but who completed more than 500
Hours of Service in such Plan Year also shall be deemed to be an Active
Participant.
(iv) Step 4 - If the minimum Participation and coverage requirements are not
satisfied after the application of Steps 1 through 3, then each Participant who
satisfies the last day of employment requirement also shall be deemed to be an
Active Participant without regard to the number of Hours of Service actually
completed by such Participant during such Plan Year.
---------
2.2(c)(2) If the Plan utilizes only the last day employment requirement, each
Participant who is not employed on the last day of the Plan Year but who
completes more than 500 Hours of Service in such Plan Year (or the equivalent
period described in (S)2.2(d) if the "Elapsed Time" method is specified in the
Adoption Agreement) also shall be deemed to be an Active Participant.
2.3 Code means the Internal Revenue code, as amended
2.3 Compensation means the total compensation which is actually paid (in cash or
other benefits) by the Employer or any Participating Affiliate to such Employee
for such period and which is reportable to the Internal Revenue Service on Form
W-2 as wages within the meaning of code Section 3401 (a) and all other payments
of compensation to such Employee from the Employer or Participating Affiliate
(in the course of its trade or business) for which a written statement is
required to be furnished to the Employee under Code Section 6041(d), Code
Section 6051(a)(3) and Code Section 6052.
2.4 Leased Employees. All compensation paid by a leasing organization to a
Leased Employee for personal services rendered to the Employer or a
Participating Affiliate for such period shall be treated as compensation to the
extent required under Code Section 414(n).
2.10 Compensation Limitation - no more than $150,000 (as adjusted in accordance
with Code Section 401(a)(17) shall be taken into account under the Plan for any
determination period. The annual Compensation limit under this Section for any
determination period shall be adjusted in accordance with Code Section
401(a)(17) for the calendar year in which such determination period begins.
If the determination period is less than 12 months as a result of a short Plan
Year, the annual Compensation limit under this Section shall equal the annual
limit for such determination period multiplied.
2A
<PAGE>
by a fraction, the numerator of which is the number of full months in such
period and the denominator of which is 12.
For purposes of the Compensation limit, the family aggregation rules of Code
(S)414(q)(6) shall be applied by aggregating only the Participant's spouse and
lineal descendants who have not reached age 19 before the end of such
determination period. If the limit is exceeded for any determination period as a
result of the application of the family aggregation rule, the limit shall be
prorated among the individuals affected by this limit in proportion to each such
individual's Compensation for such determination period as determined under this
(S)2.10 before the application of this (S)2.10(e). However, if this Plan is
adopted as an integrated plan, the preceding sentence shall not apply for
purposes of determining the portion of Compensation which does not exceed the
integration Level.
2.10(f) Salary Reductions. Any amount which is contributed by the Employer of
any participating Affiliate pursuant to a salary reduction agreement which is
not currently includable in an Employee's gross income under Code (S)125,
(S)402(e)(3), (S)420(h) or (S)403(b)
2.10(f)(1) Standard Option - shall be included in an Employee's
Compensation , or
2.10(f)(2) Alternative - if so specified in the Adoption Agreement, shall
not be included in an Employee's Compensation.
2.10(g) Special Rules.
2.10(g)(1) If so specified in the Adoption Agreement, an Employee's
Compensation shall not include Compensation which is paid to the Employee
for periods ending before the Entry Date on which the Employee becomes a
Participant.
2.10(g)(2) If this Plan is adopted as an amendment and restatement of a
Pre-Existing Plan, this definition shall be effective for Plan Years
beginning on or after January 1, 1989 unless a later effective date is
specified in the Adoption Agreement; provided, the $200,000 limitation of
(S)2.10(e) shall not be effective later than the first day of the first
Plan Year beginning on or after January 1, 1989 and any such later
effective date specified in the Adoption Agreement for the other provisions
of this (s)2.10 shall not be later than the Final Compliance Date.
2.10(g)(3) If so specified in the Adoption Agreement for a nonstandardized
Plan, a Participant's Compensation in excess of the dollar amount or
percentage specified in the Adoption Agreement shall not be taken into
account for purposes of determining the amount or allocation of any
contributions made by or on behalf of such Participant under this Plan.
2.10(g)(4) If so specified in the Adoption Agreement for a nonstandardized
Plan, the Compensation of a Participant who is a Highly Compensated
Employee shall not include the specific types of Compensation specified in
the Adoption Agreement.
2.11 Covered Compensation - means for each Participant for each Plan Year
beginning on or after January 1, 1989, the average (without indexing) of the
Taxable Wage Bases in effect under the Social Security Act for each calendar
year during the 35-year period ending with the last day of the calendar year in
which the Participant attains (or will attain) Social Security Retirement Age,
determined by assuming that the Taxable Wage Base for all future years shall be
the same as the Taxable Wage Base in effect as of the beginning of such Plan
Year.
A Participant's Covered Compensation for a Plan Year beginning before the
35-year period ending with the last day of the calendar year in which the
participant attains Social Security Retirement Age is the Taxable Wage Base in
effect as of the beginning of the Plan Year. A Participant's Covered
Compensation for a Plan Year beginning after such 35-year period is the
Participant's Covered Compensation for the Plan Year during which the 35-year
period ends.
However, a Participant's Covered Compensation shall automatically be adjusted
each Plan Year and any increase in a Participant's Covered Compensation shall
not result in a decrease in the Participant's accrued benefit which would be
impermissible under Code (S)411(b)(1)(G) or (S)411(d)(6).
For purposes of this (S)2.11, Social Security Retirement Age means (a) age 65
in the case of a Participant who was born before January 1, 1938, (b) age 66 for
a Participant who was born after December 31, 1937, but before January 1, 1955.
and (c) age 67 for a Participant who was born after December 31, 1954.
2.12 Disability or Disabled - means an individual's inability to engage in any
substantially gainful activity at the individual's customary level of
compensation or competence and responsibility as an Employee due to any
medically determinable physical or mental impairment or impairments which may be
expected to result in death or to last for a continuous period of at least
12 months as determined by a qualified physician or other medical practitioner
selected by the Plan Administrator for this purpose in accordance with uniform
and nondiscriminatory standards.
2.13 Early Retirement Age - means
2.13(a) Standard Option - the Normal Retirement Age or
2.13(b) Alternative - the alternative Early Retirement Age specified in the
Adoption Agreement.
2.14 Earned Income - means for any Self-Employed Individual for any period the
net earnings from self-employment (as defined in Code (S)1402(a)) for such
period from the Employer or any Participating Affiliate for which the personal
services of such Employee are a material income-producing factor, where such net
earnings are (a) determined without regard to items not included in gross income
for purposes of Chapter 1 of the Code and the deductions properly attributable
to such items (b) determined with regard to the deduction allowed to the
Self-Employed Individual under Code (S)164(f) for taxable years beginning after
December 31, 1989, and (c) reduced by the contributions made on behalf of such
Employee to any qualified plan (as described in Code (S)401(a)) maintained by
the Employer or any Participating Affiliate to the extent such contributions are
deductible under Code (S)404.
2.15 Effective Date - means the effective date of the Employer's adoption or
amendment of this Plan as specified in the Adoption Agreement. However, if this
Plan is adopted as an amendment and restatement of a Pre-Existing Plan, certain
provisions of this Plan may be effective retroactive to Plan Years beginning
before such Effective Date or may be effective at a date later than such
Effective Date as specified in this Plan document or in the Adoption Agreement.
2.16 Election Form - means the form or forms provided by or acceptable to the
Plan Administrator for making the elections and designations called for under
this Plan and no such form shall become effective unless properly completed and
timely delivered to the Plan Administrator in accordance with the terms of this
Plan and such rules as the Plan Administrator shall adopt from time to time.
2.17 Elective Deferral - means the nonforfeitable contribution made to the Fund
by the Employer or a Participating Affiliate on a Participant's behalf under
(S)5.3(f).
2.18 Elective Deferral Account - means the subaccount established as part of a
Participant's Account to record the Participant's Elective Deferrals and the
Fund Earnings attributable to such contributions.
2.19 Eligible Employee - means
2.19(a) Standard Option - each Employee of the Employer or a Participating
Affiliate other than
2.19(a)(1) an Employee who is included in a unit of employees
covered by a collective bargaining agreement between the Employer and
employee representatives which agreement does not provide for
participation in this Plan if retirement benefits under this Plan
were the subject of good faith bargaining; provided, however, that
(i) the term "employee representatives" shall not include an
organization more than half of whose members are employees who
are owners, officers or executive of the Employer, and
(ii) an Employee shall not be treated as covered under a
collective bargaining agreement if more than 2% of the
Employees covered under such agreement are "professionals" (as
defined in (S)1.410(b)-9(g) of the Federal Income Tax
Regulations); and
2.19(a)(2) an Employee who is a nonresident alien (within the meaning
of Code (S)7701(b)(1)(B) and who receives no earned income (within
the meaning of Code (S)911(d)(2)) from the Employer or any
Participating Affiliate which constitutes income from sources within
the United States (within the meaning or Code (S)861(a)(3)).
3
<PAGE>
2.19(b) Alternative - If this Plan is adopted as a nonstandardized Plan,
the Employer may specify in the Adoption Agreement a category of Employees
who shall not be treated as Eligible Employees under this Plan. However,
the Plan must satisfy on a continuing basis the nondiscrimination rules
under Code (S)401(a)(4), the coverage rules under Code (S)410(b), and the
minimum participation rules under Code (S)401(a)(26).
2.20 Employee - means each person who is treated as an employee of the Employer
or an Affiliate which is required to be aggregated with the Employer under Code
(S)414(b), (S)414(c), (S)414(m) or (S)414(o) including (a) a common-law employee
(whether full-time, part-time, regular, temporary or otherwise), (b) a
Self-Employed Individual, (c) an Owner-Employee, (d) a Leased Employee and (e)
each person who is deemed to be an employee under Code (S)414(o).
2.21 Employee Account - means the subaccount established as part of a
Participant's Account to record (1) the Participant's Employee Contributions
under this Plan, (2) the Participant's nondeductible employee contributions, if
any, under a Pre-Existing Plan or a plan which is merged into this Plan under
(S)14.5, and (3) the Fund Earnings attributable to such contributions. If a
separate account was not maintained for contributions under other plans as
described in clause (2) above, the account balance attributable to such
contributions shall be the Participant's total account balance under such other
plans multiplied by a fraction, the numerator of which is the total amount of
the Participant's nondeductible employee contributions (less withdrawals) and
the denominator of which is the sum of the numerator and the total contributions
made by the Employer on behalf of the Participant (less withdrawals). For
purposes of calculating such fraction, contributed amounts used to provide
ancillary benefits shall be treated as contributions and only amounts actually
distributed to the Participant (but not amounts which reflect the cost of any
death benefits) shall be treated as withdrawals.
2.22 Employee Contribution - means any contribution made by or on behalf of a
Participant to the Fund under (S)5.3(g) that is includable in the Participant's
gross income for the year in which made.
2.23 Employer - means the sole proprietorship, partnership or corporation
identified as the Employer in the Adoption Agreement and any successor in
interest to such organization.
2.24 Employer Account - means the subaccount established as part of a
Participant's Account to record the Participant's share of the Employer
Contributions and Forfeitures and the Fund Earnings attributable to such
amounts.
2.25 Employer Contribution - means the contributions made by the Employer and by
any Participating Affiliate to the Fund under (S)5.1, (S)5.2, (S)5.3(e), or
(S)5.4.
2.26 Entry Date - means
2.26(a) Standard Option - the first day of each Plan Year and the first day
of the 7th month in each Plan Year or
2.26(b) Alternative - the alternative Entry Date specified in the Adoption
Agreement.
2.27 ERISA - means the Employee Retirement Income Security Act of 1974, as
amended.
2.28 Family Members - means for any year, with respect to a Highly Compensated
Employee who is a 5% owner or who is in the group consisting of the 10 Highly
Compensated Employees paid the greatest Compensation during such year, (a) such
individual's spouse, (b) such individual's lineal ascendants and lineal
descendants and (c) the spouses of such lineal ascendants or descendants as
determined under Code (S)414(q)(6).
2.29 Final Compliance Date - means the first day of the first Plan Year
beginning after December 31, 1993 or such other applicable effective date of the
final nondiscrimination and other TRA 86 regulations.
2.30 Forfeiture - means the portion of an Account of a Participant which is
deducted from such Account in accordance with the terms of this Plan.
2.31 401(k) Plan - means this Plan as adopted by entering into the Standardized
401(k) Plan Adoption Agreement or the Nonstandardized 401(k) Plan Adoption
Agreement.
2.32 Fund - means the trust fund created in accordance with this Plan and the
Trust Agreement which is a part of this Plan.
2.33 Fund Earnings - means for each period ending on a Valuation Date the
investment gains and losses (whether realized or unrealized), income and
expenses (other than expenses allocable directly to a specified Account) of the
Fund for such period as determined based on the fair market value of the assets
of the Fund on such Valuation Date.
2.34 Highly Compensated Employee - means a highly compensated employee within
the meaning of Code (S)414(q) (as described in (S)7.4(a)(5)).
2.35 Integration Level - means the amount of Compensation specified in the
Adoption Agreement at or below which the rate of contributions or benefits
(expressed as a percentage of such Compensation) provided under the Plan is less
than the rate of contributions or benefits (expressed as a percentage of such
Compensation) provided under the Plan with respect to Compensation above such
amount. The Integration Level for any Plan Year shall not exceed the Taxable
Wage Base in effect at the beginning of such Plan Year.
2.36 Leased Employee - means for each Plan Year beginning on or after January 1,
1987 each person who is not a common-law employee of the Employer or an
Affiliate, but who, pursuant to an agreement between the Employer or an
Affiliate ("recipient") and any other person ("leasing organization"), has
performed services for the recipient or the recipient and a related person (as
determined in accordance with Code (S)414(n)(6)) on a substantially full-time
basis for a period of at least one year, which services are of a type
historically performed by employees in the business field of the recipient or
related person for whom such services are being performed. However, subject to
the rules set forth in the regulations under Code (S)414(n), such person shall
not be treated as a Leased Employee if (a) the total number of such persons does
not constitute more than 20% of the total nonhighly compensated work force of
the recipient and (b) such person is covered by a money purchase pension plan
which is maintained by the leasing organization and which provides for (1) a
nonintegrated employer contribution rate of at least 10% of compensation (as
defined in Code (S)415(c)(3) but including amounts contributed pursuant to a
salary reduction agreement which are excludable from the individual's gross
income under Code (S)125, (S)402(e)(3), (S)402(h) or (S)403(b)), (2) immediate
participation and (3) full and immediate vesting.
2.37 Matching Account - means the subaccount established as part of a
Participant's Account to record the Matching Contributions made on the
Participant's behalf under this Plan and the Fund Earnings attributable to such
contributions.
2.38 Matching Contribution - means the contribution made by the Employer and by
any Participating Affiliate to the Fund under (S)5.3(b) by reason of a
Participant's Elective Deferrals or Employee Contributions.
2.39 Maximum Disparity Rate - means
2.39(a) Standard Option - if the Integration Level is equal to the Taxable
Wage Base, the greater of 5.7% or the portion of the tax rate under Code
(S)3111(a) which is attributable to old-age insurance as in effect on the
first day of such Plan Year, and
2.39(b) Alternative - if the Integration Level is less than the Taxable
Wage Base, the applicable percentage determined in accordance with the
following table, where
X= the greater of $10,000 or 20% of the Taxable Wage Base
TWB= the Taxable Wage Base
<TABLE>
<CAPTION>
If the Integration Level
is More Than But Not More Than Applicable Percentage
<S> <C> <C>
$0 X 5.7%
X 80% of TWB 4.3%
80% of TWB 100% of TWB 5.4%
</TABLE>
or, if the portion of the tax rate under Code (S)3111(a) which is
attributable to old-age insurance as in effect on the first day of such
Plan Year is greater than 5.7%, the applicable percentage in the table
above shall be such portion of the tax rate, proportionately reduced in the
same manner as the 5.7% amount in the table above.
2.40 Money Purchase Pension Plan - means this Plan as adopted by entering into
the Standardized Money Purchase Pension Plan Adoption Agreement or the
Nonstandardized Money Purchase Pension Plan Adoption Agreement.
2.41 Net Profits -
2.41(a) Standard Option. The term "Net Profits" means
4
<PAGE>
2.41(a)(1) for an Employer or Participating Affiliate other than a non-
profit entity, the current or accumulated earnings for the taxable year
for which the Employer contribution is made as determined before federal
and state taxes and contributions to this Plan or any other qualified
plan, or
2.41(a)(2) for an Employer or Participating Affiliate which is a non-
profit entity, the current or accumulated excess of receipts over
disbursements for the fiscal year for which the Employer contribution is
made.
2.41(b) Alternative. The Employer may specify in an alternative definition
of Net Profits in the Adoption Agreement.
2.42 Nonhighly Compensated Employee - means each Employee who is neither a
Highly Compensated Employee nor a Family Member.
2.43 Normal Retirement Age -
2.43(a) General. The term "Normal Retirement Age" means
2.43(a)(1) Standard Option - age 65 or
2.43(a)(2) Alternative - the alternative Normal Retirement Age specified
in the Adoption Agreement.
2.43(b) Special Rules.
2.43(b)(1) Mandatory Retirement Age. If, consistent with applicable age
discrimination law, the Employer enforces a mandatory retirement age,
the Normal Retirement Age shall be the earlier of (1) the date the
Participant reaches such mandatory retirement age or (2) the date the
Participant reaches age 65 or, if an alternative is specified in the
Adoption Agreement, the date the Participant reaches Normal Retirement
Age as specified in the Adoption Agreement.
2.43(b)(2) Transitional Rule. If
(i) the normal retirement age under the terms of the Pre-Existing
Plan as in effect for Plan Years beginning before January 1, 1988
was determined with reference to an anniversary of the date on which
a Participant commenced participation in such plan ("participation
commencement date"),
(ii) such anniversary was later than the 5th anniversary of the
participation commencement date,
(iii) the Normal Retirement Age specified in the Adoption Agreement
is determined with reference to an anniversary of the participation
commencement date, and
(iv) this transitional rule is specified in the Adoption Agreement,
then the anniversary for any Participant whose participation
commencement date occurred in a Plan Year beginning before January 1,
1988 shall be the earlier of (A) the anniversary under the terms of the
Pre-Existing Plan, or (B) the 5th anniversary of the first day of the
first Plan Year beginning after December 31, 1987.
2.44 Owner-Employee - means each Self-Employed Individual who is (a) a sole
proprietor of the Employer or a Participating Affiliate or (b) a partner owning
more than 10% of either the capital or profits interest of the Employer or a
Participating Affiliate.
2.45 Paired Plans - means (a) a combination of two or more standardized defined
contribution Plans under this Smith Barney Shearson Prototype Defined
Contribution Plan (Plan Document #05) or (b) a combination of one or more such
standardized defined contribution Plans with a standardized defined benefit plan
under the Smith Barney Shearson Prototype Defined Benefit Plan (Plan Document
#06). However, such Plans shall be treated as Paired Plans only if (1) such
Paired Plans have the same Plan Year, and (2) no more than one such plan is
integrated with social security.
2.46 Participant - means (a) an Eligible Employee who has satisfied the
Participation Requirement specified in the Adoption Agreement and has become a
Participant in accordance with (S)4, and (b) any individual for whom an Account
continues to exist under the Plan.
2.47 Participating Affiliate - means (a) if this Plan is a standardized Plan,
each Affiliate of the Employer or (b) if this Plan is a nonstandardized Plan,
each Affiliate which participates in this Plan, as set forth in (S)14.1(c) of
the Plan; provided, an Affiliate automatically shall cease to be a Participating
Affiliate if, and at the time, it ceases to be an Affiliate as set forth in
(S)14.5(a).
2.48 Participation Requirement - means
2.48(a) Standard Option - attainment of age 21 and completion of a waiting
period equal to one Year of Service or
2.48(b) Alternative - the alternative minimum age and waiting period
requirement specified in the Adoption Agreement.
2.49 Plan - means this Smith Barney Shearson Prototype Defined Contribution
Plan, as adopted by the Employer in the form of a Profit Sharing Plan, a 401(k)
Plan, a Money Purchase Pension Plan or a Target Benefit Pension Plan, and as
amended from time to time in accordance with (S014.2.
2.50 Plan Administrator - means
2.50(a) Standard Option - the Employer or
2.50(b) Alternative - the person or persons designated in writing by the
Employer as the Plan Administrator for this Plan.
2.51 Plan Year - means the 12 consecutive month period or the 52/53 week period
which ends on the date specified in the Adoption Agreement; provided, however,
if this Plan is adopted as a new Plan, the first Plan Year shall be the period
beginning on the Effective Date and ending on the date specified in Adoption
Agreement.
2.52 Pre-Existing Plan - means the Employer's prior defined contribution plan
and the related trust agreement or other funding arrangement which is described
in the Adoption Agreement and which is amended and restated in the form of this
Plan.
2.53 Profit Sharing Plan - means this Plan as adopted by entering into the
Standardized Profit Sharing Plan Adoption Agreement or the Nonstandardized
Profit Sharing Plan Adoption Agreement.
2.54 Prototype Sponsor - means Smith Barney, Harris Upham & Co., Incorporated
and any successor to such corporation.
2.55 Qualified Matching Contribution - means the contribution made by the
Employer and by any Participating Affiliate to the Fund under (S)5.3(c) by
reason of a Participant's Elective Deferrals or Employee Contributions.
2.56 Qualified Matching Account - means the subaccount established as part of a
Participant's Account to record the Qualified Matching Contributions made on the
Participant's behalf under this Plan and the Fund Earnings attributable to such
contributions.
2.57 Qualified Nonelective Contribution - means the contribution (other than
Matching Contributions, Qualified Matching Contributions and Employer
Contributions) made by the Employer and by any Participating Affiliate to the
Fund under (S)5.3(d).
2.58 Qualified Nonelective Account - means the subaccount established as part of
a Participant's Account to record the Qualified Nonelective Contributions made
on the Participant's behalf under this Plan and the Fund Earnings attributable
to such contributions.
2.59 Rollover Account - means the subaccount established as part of a
Participant's Account to record the Participant's Rollover Contributions and the
Fund Earnings attributable to such contributions.
2.60 Rollover Contribution - means (a) a contribution of an amount, or more than
one amount, which satisfies the applicable rollover requirements under Code
(S)402 or Code (S)408 made by a Participant to the Fund under (S)5.5 and (b)
effective January 1, 1993, an eligible rollover distribution which is directly
transferred to the Fund on or after such date pursuant to a Participant's
election under Code (S)401(a)(31).
2.61 Self-Employed Individual - means an individual who is self-employed and who
receives Earned Income from the Employer or a Participating Affiliate or who
would have received such Earned Income but for the fact that the Employer or the
Participating Affiliate did not have Net Profits.
2.62 Spouse - means the person who is lawfully married to the Participant on the
date the Participant's Account becomes payable under this Plan or, if a
Participant dies before such date, the person who was lawfully married to such
Participant on the Participant's date of death. However, a former spouse shall
be treated as the Spouse and a current spouse shall not be treated as the Spouse
to the extent provided under a qualified domestic relations order as described
in Code (S)414(p).
2.63 Target Benefit Pension Plan - means this Plan as adopted by entering into
the Standardized Target Benefit Pension Plan Adoption Agreement or the
Nonstandardized Target Benefit Pension Plan Adoption Agreement.
5
<PAGE>
2.64 Taxable Wage Base - means for any Plan Year the contribution and benefit
base in effect under (S)230 of the Social Security Act at the beginning of such
Plan Year.
2.65 TRA 86 - means the Tax Reform Act of 1986 ("Act") and any other legislation
and related regulations, notices or other guidance for which amendments are
required to be made at the same time as amendments for such Act.
2.66 Trust Agreement - means the trust agreement between the Employer and the
Trustee which is established as part of this Plan and which is set forth in the
attached Smith Barney Shearson Prototype Defined Contribution Plan Trust
Agreement or, if so specified in the Adoption Agreement for a 401(k) Plan, the
Smith Barney Shearson Prototype Defined Contribution Plan Alternative Trust
Agreement for 401(k) Plans.
2.67 Trustee - means the person or persons specified in the Adoption Agreement
who serve as the trustee for the Fund under the Trust Agreement and any
successor to such person or persons.
2.68 Valuation Date - means (a) the last day of each Plan Year and (b) each
other date, if any, agreed upon in advance by the Employer and the Trustee,
provided the selection of such other date does not result in discrimination in
favor of Highly Compensated Employees which would be prohibited under Code
(S)401 (a).
SECTION 3. SERVICE DEFINITIONS AND RULES
The definitions and rules in this (S)3 shall apply for purposes of measuring an
Employee's service (a) for participation purposes - to determine when the
Employee has satisfied the Participation Requirement and (b) for vesting
purposes - to determine the nonforfeitable interest in his or her Account.
3.1 Hour of Service Method (Standard Option). The definitions and rules in this
(S)3.1 shall apply unless the "Elapsed Time" method of crediting service is
specified in the Adoption Agreement.
3.1(a) Break in Service.
3.1(a)(1) General. The term "Break in Service" means each Computation
Period during which an Employee fails to complete more than 500 Hours
of Service.
3.1(a)(2) Maternity/Paternity Rule. Solely for purposes of determining
whether an Employee has a Break in Service, an Employee who is absent
from work for "maternity or paternity reasons" and who timely furnishes
proof of the reason for such absence (in accordance with such
nondiscriminatory rules as may be established by the Plan Administrator
and communicated to Employees) shall be credited with each Hour of
Service for which the Employee would otherwise have been credited but
for such absence, or if such Hours of Service cannot be determined,
with 8 Hours of Service for each day of such absence. However, the
total number of Hours of Service so credited to such Employee shall not
exceed 501 Hours of Service. The Hours of Service so credited shall be
credited to the Computation Period in which such absence begins if such
credit is necessary to prevent a Break in Service in such Computation
Period or, if such credit is unnecessary in the immediately following
Computation Period. For purposes of this special maternity/paternity
rule, an absence for "maturity or paternity reasons" means an absence
(i) by reason of the pregnancy of the Employee, (ii) by reason of the
birth of a child of the Employee, (iii) by reason of the placement of a
child with the Employee in connection with the adoption of such child
be such Employee, or (iv) for purposes of caring for such child for a
period beginning immediately following such birth or placement.
3.1(b) Computation Period.
3.1(b)(1) General. The term "Computation Period" for purposes of
determining Years of Service and Breaks in Service means the applicable
period described is this (S)3.1(b).
3.1(b)(2) Vesting. The relevant Computation Period for measuring Years
of Service and Breaks in Service for vesting purposes shall be
(i) Standard Option - the Plan Year or
(ii) Alternative - if so specified in the Adoption Agreement,
(A) the 12 consecutive month period which begins on the date the
Employee first performs an Hour of Service ("hire date") and ends
on the date immediately preceding the first anniversary of such
hire date and (B) each 12 consecutive month period thereafter
beginning on each anniversary of such hire date and ending on the
date immediately preceding the next anniversary of such date.
3.1(b)(3) Participation. The initial Computation Period for measuring
Years of Service and Breaks in Service for participation purposes shall
be the 12 consecutive month period which begins on the fist day an
Employee first performs an Hour of Service as an Employee ("hire date")
and ends on the date immediately preceding the first anniversary of
such date. Each subsequent Computation Period shall be
(i) Standard Option - each Plan Year, beginning with the Plan Year
which begins before the first anniversary of the Employee's hire
date (regardless of whether the Employee is credited with 1,000
Hours of Service in the Employee's initial Computation Period). An
Employee shall be credited with two Years of Service for
participation purposes if the Employee completes 1,000 or more
Hours of Service in both the initial Computation Period and the
first Plan Year which begins within such initial Computation
Period, or
(ii) Alternative - if so specified in the Adoption Agreement, the
12 consecutive month period which begins on each anniversary of an
Employee's hire date and ends on the date immediately preceding the
next anniversary of the Employee's hire date.
For participation purposes, and Employee shall be credited with a Year
of Service
(A) Standard Option - on the last day of the Computation Period in
which the Employee is credited with at least 1,000 Hours of Service
(or such lesser number of hours specified in the Adoption
Agreement) or
(B) Alternative - on the first date on which the Employee is
credited with at least 1,000 Hours of Service (or such lesser
number of hours specified in the Adoption Agreement) provided the
Employee completes such specified number of Hours of Service in one
Computation Period.
Notwithstanding the foregoing, if the Participation Requirement
includes a partial Year of Service, no minimum number of Hours of
Service shall be required for such partial year and an Employee shall
be credited with such partial Year of Service on the date on which such
partial period of service is completed.
3.1(b)(4) Change in Computation Period. If an amendment results in a
change in the Computation Period, the first Computation Period
established under such amendment shall begin before the last day of the
preceding Computation Period and each Employee to whom both such
Computation Periods apply and who completes 1,000 or more Hours of
Service in both such Computation Periods shall be credited with one
Year of Service for each such Computation Period.
3.1(c) Hour of Service
3.1(c)(1) General. The term "Hour of Service" means
(i) each hour for which an Employee is paid, or entitled to payment,
by the Employer or an Affiliate for the performance of duties as an
Employee, which hours shall be credited to the Employee for the
relevant Computation Period in which such duties are performed:
(ii) each hour for which an Employee is paid, or entitled to payment,
by the Employer or an Affiliate on account of a period of time during
which no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty or
leave of absence; provided (A) no more than 501 hours shall be credited
under this clause (ii) for any single continuous period during which no
duties are performed (whether or not such period covers more than one
relevant Computation Period) and (B) hours under this clause (ii) shall
be calculated and credited pursuant to (S)2530.200b-1 of the Department
of Labor Relations which are incorporated as part of this Plan by this
reference; and
(iii) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer
<PAGE>
or an Affiliate; provided (A) no credit shall be given for an hour
described in this clause (iii) if credit also is given for such
hour under clause (i) or clause (ii), and (B) an hour described in
this clause (iii) shall be credited to the Employee for the
relevant Computation Period or Computation Periods to which the
award or agreement pertains rather than to the Computation Period
in which the award, agreement or payment is made.
3.1(c)(2) Determination. The Employer shall determine an Employee's
Hours of Service
(i) Standard Option - by actually counting hours and maintaining
records which reflect the actual hours worked, or
(ii) Alternative - if so specified in the Adoption Agreement, by
crediting each such Employee with
(A) 10 Hours of Service for each day,
(B) 45 Hours of Service for each week,
(C) 95 Hours of Service for each semi-monthly payroll
period, or
(D) 190 Hours of Service for each month
during which the Employee otherwise would be credited with at least
one Hour of Service.
3.1(d) Year of Service. The term "Year of Service" means each Computation
Period during which an Employee completes at least
3.1(d)(1) Standard Option - 1,000 Hours of Service or
3.1(d)(2) Alternative - such lesser number of Hours of Service
specified in the Adoption Agreement.
Notwithstanding the foregoing, if the Participation Requirement includes a
partial Year of Service, no minimum number of Hours of Service shall be
required for such partial year.
3.1(e) Change in Service Calculation Method. If an amendment changes the
method of crediting service from the "Elapsed Time" method to the "Hours of
Service" method, each Employee who was credited with service under the
"Elapsed Time" method shall be credited with service
3.1(e)(1) for the Employee's employment before the Computation Period
in which such amendment is adopted, as determined on the basis that
one Year of Service credited to the Employee under the "Elapsed Time"
method for such employment shall equal one Year of Service under this
(S)3.1,
3.1(e)(2) for the Employee's employment during the Computation Period
in which such amendment is adopted, for a number of Hours of Service
determined by uniformly applying one of the equivalencies set forth in
(S)3.1(c)(2)(ii) to any fractional part of a year credited to the
Employee under the "Elapsed Time" method as of the effective date of
the amendment, and
3.1(e)(3) for the Employee's employment on and after the effective
date of the amendment, as determined under the rules in this (S)3.1.
3.2 Elapsed Time Method (Alternative). If the "Elapsed Time" method of
crediting service is specified in the Adoption Agreement, the definitions and
rules in this (S)3.2 shall apply in lieu of the definitions and rules in (S)3.1.
3.2(a) Break in Service.
3.2(a)(1) General. The term "Break in Service" means a Period of
Severance of at least 12 consecutive months.
3.2(a)(2) Maternity/Paternity Rule. If an Employee is absent from
service for "maternity or paternity reasons" and the Employee timely
furnishes proof of the reason for such absence (in accordance with
such nondiscriminatory rules as may be established by the Plan
Administrator and communicated to Employees), the 12 consecutive month
period beginning on the first anniversary of the first date of such
absence shall not constitute a Break in Service. Such 12 consecutive
month period shall be neither a Period of Severance nor a period of
Service. For purposes of this special maternity/paternity rule, an
absence for "maternity or paternity reasons" means an absence (i) by
reason of the pregnancy of the Employee, (ii) by reason of the birth
of a child of the Employee, (iii) by reason of the placement of a
child with the Employee in connection with the adoption of such child
by the Employee, or (iv) for purposes of caring for such child for a
period beginning immediately following such birth or placement.
3.2(b) Hour of Service. The term "Hour of Service" means each hour for
which an Employee is paid, or entitled to payment, by the Employer or an
Affiliate for the performance of duties as an Employee during any period of
employment.
3.2(c) Period of Severance. The term "Period of Severance" means a
continuous period of time during which an Employee is not employed by the
Employer or an Affiliate beginning on the date the Employee retires, quits
or is discharged, or if earlier, the 12 month anniversary of the date on
which the Employee was otherwise first absent from service.
3.2(d) Period of Service.
3.2(d)(1) General. For participation purposes and for vesting
purposes, the term "Period of Service" means an Employee's employment
completed as an Employee of the Employer and any Affiliate beginning
on such Employee's first day of employment or reemployment and ending
on the date a Break in Service begins. An Employee's first day of
employment or reemployment shall be the first day the Employee
performs an Hour of Service. A Period of Service also shall include
any Period of Severance of less than 12 consecutive months.
3.2(d)(2) Aggregation. An Employee's employment completed in all
Periods of Service shall be aggregated (to the extent that such
service is not disregarded under (S)3.7 or (S)3.8) and the number of
days in each Period of Service in excess of a whole year of employment
(or, if there is no whole year of employment in any such period, the
number of days in such period) shall be aggregated into additional
whole years of employment on the assumption that 365 days equals one
whole year of employment.
3.2(e) Year of Service. The term "Year of Service" means each 12
consecutive month period of employment completed in any Period of Service
beginning on the date an Employee first completes an Hour of Service ("hire
date") and ending on the date immediately preceding the anniversary of such
hire date. Subsequent Years of Service shall begin on each anniversary of
the Employee's hire date and end on the date immediately preceding the next
anniversary of such hire date.
3.2(f) Change in Service Calculation Method. If an amendment changes the
method of crediting service from the "Hour of Service" method to the
"Elapsed Time" method, each Employee who had any service credit under the
"Hour of Service" method shall be credited with service
3.2(f)(1) for the Employee's employment before the Computation Period
in which such amendment is adopted, as determined on the basis that
one Year of Service credited to the Employee under the "Hour of
Service" method for such employment shall equal one Year of Service
under this (S)3.2,
3.2(f)(2) for the Employee's employment during the Computation Period
in which such amendment is adopted, as determined under the rules in
this (S)3.2 or, if greater, as determined for such period under the
"Hour of Service" method as converted to Years of Service under the
assumption that 365 days equals one Year of Service, and
3.2(f)(3) for the Employee's employment after the last day of the
Computation Period in which such amendment is adopted, as determined
under the rules in this (S)3.2.
3.3 Service Before Effective Date. For participation purposes all periods of
employment with the Employer or an Affiliate completed before the Employer
adopted this Plan or a predecessor plan ("pre-effective date employment") shall
be included (to the extent such service is not disregarded under (S)3.7). For
vesting purposes all periods of pre-effective date employment shall be included
unless such service is disregarded under (S)3.7 or (S)3.8. Notwithstanding the
foregoing, service credit for vesting purposes automatically shall be granted
for pre-effective date employment to the extent required by Code (S)411(a) for
periods during which the Employer or an Affiliate maintained a predecessor plan.
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3.4 Service with Predecessor Employer. All periods of employment with a
predecessor employer or employers shall be included in calculating an
Employee's service to the extent required by Code (S)414(a) if the Employer
or an Affiliate maintains a plan of such predecessor employer. However, if
the Employer or an Affiliate does not maintain a plan of such predecessor
employer, periods of employment with such predecessor employer shall be
included in calculating an Employee's service.
3.4(a) Standard Option - only to the extent required under regulations
under Code (S)414(a) or
3.4(b) Alternative - only if so specified in the Adoption Agreement.
3.5 Leased Employees. A Leased Employee shall be credited with service as an
Employee of the Employer or an Affiliate in accordance with Code (S)414(n)
or (S)414(o).
3.6 Service Affiliates. An Employee shall be credited with all service with
any Affiliate and any other entity which is required to be aggregated with
the Employer under Code (S)414(o).
3.7 Special Break in Service Rules.
3.7(a) Standard Option. Except as provided in (S)3.7(c), an Employee who
has a Break in Service shall be credited after such Break in Service for
both participation and vesting purposes with all Years of Service completed
before such Break in Service.
3.7(b) Alternative. In addition to the exceptions in (S)3.7(c) and (S)8.2,
the Employer may specify in the Adoption Agreement that certain service
completed before a Break in Service may be disregarded under one or more of
the rules set forth in this (S)3.7(b).
3.7(b)(1) One Year Hold-Out Rule. If the "One Year Hold-Out Rule" is
specified in the Adoption Agreement for a nonstandardized Plan, an
Employee who has a Break in service (two Breaks in Service if the
Alternative Maternity/Paternity Rule applies) shall not be credited
after such Break in Service for participation purposes or vesting
purposes with any Year of Service completed before such Break in
Service until the Employee completes a Year of Service after such
Break in Service.
In applying this rule for participation purposes, such Year of
Service shall be measured by the Computation Period which begins on
an Employee's "reemployment commencement date" and, if necessary,
subsequent Computation Periods beginning
(i) with the Plan Year wich includes the first anniversary of
the "reemployement commencement date" if the standard
Computation Period in (S)3.1(b)(3)(i) is specified in the
Adoption Agreement, or
(ii) on anniversaries of the "reemployment commencement date" if
the alternative Computation Period in (S)3.1(b)(3)(ii) is
specified in the Adoption Agreement.
The "reemployment commencement date" shall be the first day on which
the Employee is credited with an Hour of Service for the performance
of duties after the Computation Period in which the Employee incurs a
Break in Service. If an Employee who was a participant before his or
her Break in Service completes a Year of Service in accordance with
this provision, such Employee's participation shall be reinstated as
of his or her reemployment commencement date.
3.7(b)(2) Pre-Participation Rule. If the "Pre-Participation Rule" is
specified in the Adoption Agreement, an Employee who has a Break in
Service (two Breaks in Service if the Alternative
Maternity/Paternity Rule applies) before the Employee satisfies the
Participation Requirement shall not be credited for participation
purposes with any Year of Service completed before such Break in
Service. However, this rule shall only apply if the Participation
Requirement for the Plan requires more than one Year of Service and
the vesting schedule specified in the Adoption Agreement provides for
full and immediate vesting.
3.7(b)(3) Rule of Parity. If the "Rule of Parity" is specified in the
Adoption Agreement, the following rules shall apply:
(i) General. If an Employee does not have any nonforfeitable
interest in the portion of the Employee's Account which is
attributable to Employer contributions, the Employee's Years of
Service before a period of consecutive Breaks in Service shall not be
taken into account in computing service for participation or vesting
purposes if the number of consecutive Breaks in Service in such
period equals or exceeds the greater of 5 (6 if the Alternative
Maternity/Paternity Rule applies) or the aggregate number of Years of
Service completed before such Breaks in Service ("pre-break
service"). Such pre-break service shall not include pre-break
service disregarded under the preceding sentence by reason of prior
Breaks in Service.
(ii) Participation. If an Employee's Years of Service are
disregarded under this rule of parity, the Employee shall be treated
as a new Employee for participation purposes. If the Employee's Years
of Service are not disregarded under this rule, the Employee shall
continue to participate in the Plan, or, if the Employee separated
from service, shall participate immediately upon the Employee's
reemployment.
(iii) Vesting. If a Participant's Years of Service are disregarded
under this rule of parity, the Participant's pre-break Years of
Service shall be disregarded for purposes of determining the
Participant's nonforfeitable interest in the Participant's post-break
Employer Account. If a Participant's pre-break Years of Service are
not disregarded under this rule of parity, the Participant's pre-
break Years of Service shall be counted for purposes of determining
the Paticipant's nonforfeitable interest in the Participant's post-
break Employer Account.
3.7(b)(4) Alternative Maternity/Paternity Rule. If the "Alternative
Maternity/Paternity Rule" is specified in the Adoption Agreement, the
special Maternity/Paternity Rule rule set forth in (S)3.1(a)(2) shall not
apply and the minimum period of consecutive Breaks in Service required to
disregard any service or to deprive any Employee of any right under this
Plan shall be increased by one as specified in the parentheticals in this
(S)3.7 and in (S)8.2.
3.7(c) Vesting on Reemployment After Break in Service. If a Participant has
5 or more consecutive Breaks in Service (6 or more consecutive Breaks in
Service if the Alternative Maternity/Paternity Rule applies), all Years of
service completed after such Breaks in Service shall be disregarded for
purposes of determining the Participant's nonforfeitable interest in the
Participant's Employer Account and Matching Account that accrued before such
Breaks in Service. Accordingly, as set forth in (S)8.2, the Employer shall
not be required to restore a Forfeiture upon such reemployment. Unless the
Adoption Agreement specifies the Rule of Parity, both the Participant's pre-
break service and post-break service shall count for purposes of determining
the nonforfeitable interest in the Participant's post-break Employer Account
and Matching Account. If the Adoption Agreement specifies the Rule of Parity
and the Participant's pre-break Years of Service are disregarded under that
rule, then the Participant's pre-break Years of Service shall not count for
purposes of determining the nonforfeitable interest in the Participant's
post-break Employer Account and Matching Account. As provided in (S)8.2,
separate accounts shall be maintained for the Participant's pre-break and
post-break Employer Account and Matching Account and such accounts shall
share in Fund Earnings.
If a Participant does not have 5 consecutive Breaks in Service (6 or more
consecutive Breaks in Service if the Alternative Maternity/Paternity Rule
applies), both the Participant's pre-break and post-break Years of Service
shall count in determining the nonforfeitable interest in both the pre-break
and post-break Employer Account and Matching Account balance. However,
unless the Adoption Agreement specifies the "Alternative to the Buy Back
Rule" (as described in (S)8.2(b)), a Participant's pre-break Employer
Account and Matching Account balance shall be zero unless the Participant
repays any distribution as provided in (S)8.2(a).
3.8 Service Exclusions for Vesting Purposes.
3.8(a) Standard Option - An Employee shall be credited with all Years of
Service for vesting purposes (to the extent such service is not disregarded
under (S)3.7 and (S)8.2).
3.8(b) Alternative - The Employer may specify in the Adoption Agreement
which is expressly excluded for vesting purposes.
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SECTION 4. PARTICIPATION
4.1 General Rule. Each Eligible Employee shall become a Participant in this Plan
on the Entry Date which coincides with or immediately follows the date on which
the Eligible Employee satisfies the Participation Requirement (provided he or
she is an Eligible on such Entry Date).
4.2 Special Rules.
4.2(a) Pre-Existing Plan. Any Employee who was a participant in the Pre-
Existing Plan on the date immediately preceding the Effective Date or who
would have become a participant in the Pre-Existing Plan on the Effective
Date shall become a Participant under this Plan on such Effective Date.
However, no contributions shall be made by or on behalf of such participants
unless the Participant is otherwise entitled to a contribution under (S)5.
4.2(b) Reemployment Before Satisfying Participation Requirement. If an
Employee separates from service prior to satisfying the Participation
Requirement and is thereafter reemployed, all employment completed by such
Employee prior to such separation shall be aggregated with such Employee's
employment completed after reemployment for purposes of satisfying the
Participation Requirement unless such prior employment is excluded under the
rules set forth in (S)3.
4.2(c) Reemployment After Satisfying Participation Requirement. If an
Employee satisfies the Participation Requirement before he or she separates
from service and the Employee thereafter is reemployed, the Employee shall
become a Participant on the later of (1) the first day he or she completes
an Hour of Service as an Eligible Employee upon reemployment or (2) the
first Entry Date following the date on which he or she satisfies the
Participation Requirement. However, any such Employee whose prior service is
disregarded under (S)3 shall be treated as a new Employee for participation
purposes.
4.2(d) Status Change. If the status of an Eligible Employee for whom no
Account is maintained changes to that of an Employee (other than an Eligible
Employee) and such person's status thereafter changes back to that of an
Eligible Employee, such person shall become a Participant on the later of
(1) the date the status changes back to that of an Eligible Employee or (2)
the first Entry Date which coincides with or immediately follows the date on
which he or she satisfies the Participation Requirement.
4.3 Participant Information. Each Participant shall file with the Plan
Administrator such personal information and data as the Plan Administrator deems
necessary for the orderly administration of this Plan.
4.4 No Employment Rights. This Plan is not a contract of employment and
participation in this Plan shall not give any Employee or former Employee the
right to be retained in the employ of the Employer or any Affiliate or, upon
termination of such employment, to have any interest or right in the Fund other
than as expressly provided in this Plan.
SECTION 5. CONTRIBUTIONS
5.1 Profit Sharing Plan. If this Plan is adopted as a Profit Sharing Plan, the
Employer Contribution made by the Employer and each Participating Affiliate for
each Plan Year shall equal such amount, if any, as the Board determines in its
discretion that the Employer and each Participating Affiliate shall contribute
for such year. Employer Contributions under this (S)5.1 shall be made.
5.1(a) Standard Option - from Net Profits or
5.1(b) Alternative - if so specified in the Adoption Agreement, without
regard to Net Profits. Notwithstanding any such election, the Employer
intends that this Plan shall be a "profit-sharing plan" for purposes of the
Code and ERISA.
5.2 Money Purchase Pension Plan. If this Plan is adopted as a Money Purchase
Pension Plan, the Employer Contribution made by the Employer and each
Participating Affiliate for each Plan Year shall be an amount equal to the sum
of the contribution for each Active Participant as determined under the formula
specified in the Adoption Agreement. The Forfeitures for each Plan Year shall be
5.2(a) Standard Option - applied to reduce the Employer Contribution for
such Plan Year or
5.2(b) Alternative - if so specified in the Adoption Agreement, allocated
to the Employer Account of each Active Participant in accordance with
(S)6.3(b). Notwithstanding any such election, the Employer intends that
this Plan shall be a "money purchase pension plan" for purposes of the Code
and ERISA.
5.3 401(k) Plan.
5.3(a) General. If this Plan is adopted as a 401(k) Plan, the contributions
made by the Employer and each Participating Affiliate shall be determined
in accordance with the elections made by the Employer in the Adoption
Agreement and the rules set forth in this (S)5.3. Contributions made under
this (S)5.3 other than Elective Deferrals and Employee Contributions shall
be made
5.3(a)(1) Standard Option - from Net Profits or
5.3(a)(2) Alternative - if so specified in the Adoption Agreement,
without regard to Net Profits.
Elective Deferrals and Employee Contributions shall be made without regard
to Net Profits. Notwithstanding any such election, the Employer intends
that this Plan shall be a "profit-sharing plan" for purposes of the Code
and ERISA.
5.3(b) Matching Contributions. If the Employer specifies in the Adoption
Agreement that Matching Contributions shall be made to the Plan, the
Employer and each Participating Affiliate shall make a Matching
Contribution for each eligible Participant based on the Employee
Contributions and Elective Deferrals made by or on behalf of such eligible
Participant in such amount and as of each Allocation Date as specified in
the Adoption Agreement. Notwithstanding the foregoing,
5.3(b)(1) for Plan Years beginning on or after the Final Compliance
Date, no Matching Contribution shall be made on account of a
Participant's Elective Deferrals or Employee Contributions which are
Excess Elective Deferrals under (S)7.3, Excess Contributions under
(S)7.4 or Excess Aggregate Contributions under (S)7.5, and
5.3(b)(2) for Plan Years beginning on or after the Final Compliance
Date, no Matching Contribution shall be made on account of such excess
amounts unless specified in the formula for Matching Contributions set
forth in the Adoption Agreement.
5.3(c) Qualified Matching Contributions. If the Employer specifies in the
Adoption Agreement that Qualified Matching Contributions shall be made to the
Plan, the Employer and each Participating Affiliate shall make a Qualified
Matching Contribution for each eligible Participant based on the Employee
Contributions and Elective Deferrals made by or on behalf of such eligible
Participant in such amount and as of each Allocation Date as specified in the
Adoption Agreement. Qualified Matching Contributions shall be subject to the
following special rules:
5.3(c)(1) the Participant may not elect to receive such contributions in
cash until distributed from the Plan;
5.3(c)(2) such contributions shall be completely nonforfeitable when
made;
5.3(c)(3) such contributions shall be subject to the same distribution
and withdrawal restrictions applicable to Elective Deferrals set forth
in (S)9.2(b);
5.3(c)(4) for Plan Years beginning on and after the Final Compliance
Date, no Qualified Matching Contribution shall be made on account of a
Participant's Elective Deferrals or Employee Contributions which are
Excess Elective Deferrals under (S)7.3. Excess Contributions under
(S)7.4 or Excess Aggregate Contributions under (S)7.5; and
5.3(c)(5) for Plan Years beginning before the Final Compliance Date, no
Qualified Matching Contribution shall be made on account of such excess
amounts unless specified in the formula for Qualified Matching
Contributions set forth in the Adoption Agreement.
5.3(d) Qualified Nonelective Contribution. If the Employer specifies in the
Adoption Agreement that Qualified Nonelective Contributions shall be made to the
Plan, the Employer and each Participating Affiliate shall make Qualified
Nonelective Contributions for each eligible Participant in such amount and as of
each Allocation Date specified in the Adoption Agreement.
In addition, in lieu of distributing Excess Contributions as provided in
(S)7.4(d) or Excess Aggregate Contributions as provided in (S)7.5(d), the
Employer and each Participating Affiliate may contribute on behalf of each
Participant who is a Nonhighly Compensated
9
<PAGE>
Employee on the last day of each Plan Year such amount, if any, as the
Employer and each Participating Affiliate determine in their discretion to
contribute for such Plan Year to satisfy the ADP limit of (S)7.4(b) or the
ACP limit of (S)7.5(b), or both, pursuant to the regulations under Code
(S)401(k) and Code (S)401(m).
Qualified Nonelective Contributions shall be subject to the following
special rules:
5.3(d)(1) the Participant may not elect to receive such contributions
in cash until distributed from the Plan;
5.3(d)(2) such contributions shall be completely nonforfeitable when
made; and
5.3(d)(3) such contributions shall be subject to the same distribution
and withdrawal restrictions applicable to Elective Deferrals set forth
in (S)9.2(b).
5.3(e) Discretionary Employer Contribution. If the Employer specifies in
the Adoption Agreement that discretionary Employer Contributions shall be
made, the Employer Contribution made by the Employer and each Participating
Affiliate for each Plan Year shall equal such amount, if any, as the Board
determines in its discretion that the Employer and each Participating
Affiliate shall contribute for such year.
5.3(f) Elective Deferrals. If the Employer specifies in the Adoption
Agreement that Elective Deferrals may be made, each Participant who is an
Eligible Employee may elect pursuant to a cash or deferred election that
the Employer and each Participating Affiliate make Elective Deferrals to
the Plan on the Participant's behalf in lieu of cash compensation for
each pay period ending on any date on or after he or she becomes a
Participant and on which he or she is an Eligible Employee in such amounts
as specified in the Adoption Agreement. All Elective Deferrals shall be
made exclusively through payroll withholding and shall be transferred by
the Employer or Participating Affiliate to the Trustee as soon as
practicable after the date such Elective Deferrals are withheld.
5.3(g) Employee Contributions. If the Employer specifies in the Adoption
Agreement that Employee Contributions may be made, each Participant who is
an Eligible Employee may elect to make Employee Contributions to the Plan
for each pay period ending on any date on or after he or she becomes a
Participant and on which he or she is an Eligible Employee in such amounts
as specified in the Adoption Agreement. All Employee Contributions shall be
made exclusively through payroll withholding and shall be transferred by
the Employer or Participating Affiliate to the Trustee as soon as
practicable after the date such Employee Contributions are withheld.
5.3(h) Election Rules and Limitations.
5.3(h)(1) General. The Plan Administrator from time to time shall
establish and shall communicate in writing to Participants who are
Eligible Employees such reasonable nondiscriminatory deadlines, rules
and procedures for making the elections described in this (S)5.3 as the
Plan Administrator deems appropriate under the circumstances for the
proper administration of this Plan. A Participant's election shall be
made on an Election Form and no election shall be effective unless such
Election Form is properly completed and timely filed in accordance with
such established deadlines, rules and procedures. The Plan
Administrator shall have the right at any time unilaterally to reduce
the amount of percentage of Elective Deferrals or Employee
Contributions elected under this (S)5.3 if the Plan Administrator
determines that such reduction is necessary to satisfy the limitations
under (S)7 of the Plan.
5.3(h)(2) Commencement of Election. A Participant's initial election to
make Elective Deferrals or Employee Contributions under this (S)5.3 for
any period of employment may be effective as early as the Entry Date on
which he or she becomes a Participant in the Plan. If a Participant
does not make a proper election to make Elective Deferrals or Employee
Contributions as of such Entry Date, the Participant may thereafter
make an election.
(i) Standard Option - effective on any date or
(ii) Alternative - effective only as of the dates specified in the
Adoption Agreement.
A Participant's election shall remain in effect until revised or
terminated in accordance with this (S)5.3(h).
5.3(h)(3) Revisions of Election. An election, once effective, can
thereafter be revised by a Participant
(i) Standard Option - effective on any date or
(ii) Alternative - effective only as of the dates specified in the
Adoption Agreement.
5.3(h)(4) Termination of Election. A Participant shall have the right
to completely terminate an election under this (S)5.3 at any time, and
any such termination shall become effective as of the first day of the
first pay period following the date he or she timely files a properly
completed Election From terminating such election. Any Participant
whose status as an Eligible Employee terminates shall be deemed to have
completely terminated his or her election, if any, under this (S)5.3 as
of the date the Participant's status as such so terminates.
5.3(h)(5) Resumption after Termination. A Participant whose election
terminates may thereafter elect to resume contributions under this
(S)5.3.
(i) Standard Option - effective as of any date, or
(ii) Alternative - effective only as of the dates specified in the
Adoption Agreement.
5.3(h)(6) Effective Dates of Elections. A Participant's initial,
revised or resumed election shall be effective only if he or she is an
Eligible Employee on the effective date of such elections set forth in
this (S)5.3(h). Elective Deferrals and Employee Contributions made
pursuant to a Participant's elections shall be withheld form
Compensation which otherwise would be paid on or after the effective
date of such election and while he or she is and Eligible Employee.
Under no circumstances shall a Participant's Elective Deferral election
apply to defer Compensation which has been paid to the Participant or
which he or she is currently eligible to receive (in cash or otherwise)
at his or her discretion.
5.3(i) Application of Forfeitures. The Forfeitures attributable to Matching
Contributions and Employer Contributions shall be
5.3(i)(1) Standard Option - applied to reduce the Matching
Contributions, Qualified Matching Contributions and Qualified
Nonelective Contributions, if any, in accordance with
(S)6.3(c)(2)(ii)(A) or
5.3(i)(2) Alternative - if so specified in the Adoption Agreement,
(i) allocated to the Employer Account or Matching Account, as
applicable, of each Active Participant in accordance with
(S)6.3(c)(2)(ii)(B)(i), or
(ii) for a nonstandardized Plan, allocated in accordance with the
formula specified in the Adoption Agreement.
5.4 Target Benefit Pension Plan.
5.4(a) General. If this Plan is adopted as a Target Benefit Pension Plan,
the Employer Contribution made by the Employer and each Participating
Affiliate for each Plan Year shall be an amount equal to the sum of the
contributions required to fund each Active Participant's "Target Benefit"
specified in the Adoption Agreement. The Forfeitures for each Plan Year
shall be applied to reduce the Employer Contribution for such Plan Year.
Such contribution shall be determined as of the last day of such Plan Year
under the individual level premium funding method, using the interest rate
and mortality table specified in the Adoption Agreement, the Participant's
age on his or her last birthday and the assumption of a constant rate of
future Compensation, in accordance with the following:
5.4(a)(1) Step 1. If the Participant has not reached the Plan's Normal
Retirement Age, calculate the present value of the "Target Benefit"
specified in the Adoption Agreement by multiplying the "Target Benefit" by
the product of (1) the applicable factor from Table I(a) or (b), whichever
is appropriate, in Exhibit A to the Adoption Agreement and (2) the
applicable factor from Table III(a) or (b), whichever is appropriate, in
Exhibit A to the Adoption Agreement. If the Participant is at or beyond
the Plan's Normal Retirement Age, calculate the present value of the
"Target Benefit" specified in the Adoption Agreement by multiplying the
"Target Benefit" by the applicable factor form Table IV(a) or (b),
whichever is appropriate, in Exhibit A to the Adoption Agreement.
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<PAGE>
5.4(a)(2) Step 2. Calculate the excess, if any, of the amount determined in Step
1 over the theoretical reserve.
5.4(a)(3) Step 3. Amortize the result in Stem 2 by multiplying it by the
applicable factor from Table II in Exhibit A to the Adoption Agreement. For the
Plan Year in which the Participant attains Normal Retirement Age and for
subsequent Plan Years, the applicable factor is 1.0.
5.4(b) Theoretical Reserve. For purposes of this (S)5.4, the theoretical reserve
is determined as follows:
5.4(b)(1) A Participant's theoretical reserve as of the last day of the
first Plan Year in which the Participant participates in the Plan, and as of the
last day of the first Plan Year after any Plan Year in which the Plan either did
not satisfy the safe harbor in (S)1.40(a)(4)-8(b)(3) of the Federal Income Tax
Regulations or was not a Prior Safe Harbor Plan, is zero. In all other cases,
in the first Plan Year in which this theoretical reserve provision is adopted or
made effective, if later, as specified in the Adoption Agreement ("year 1"),
the initial theoretical reserve is determined as follows:
(i) Calculate as of the last day of the Plan Year immediately
preceding year 1 the present value of the "Target Benefit", using the
actuarial assumptions, the provisions of the Plan, and the
Participant's Average Annual Compensation as of such date; provided,
however, for a Participant who is beyond Normal Retirement Age in year
1, the straight life annuity factor used for such determination shall
be the factor applicable for such Normal Retirement Age.
(ii) Calculate as of the last day of the Plan Year immediately
preceding year 1 the present value of future Employer Contributions,
i.e., the contributions due each Plan Year using the actuarial
assumptions, the provisions of the Plan (disregarding those provisions
of the Plan providing for the limitations of Code (S)415
or the minimum contributions under Code (S)416), and the
Participant's Average Annual Compensation as of such date, beginning
with year 1 through the end of the Plan Year in which the Participant
attains Normal Retirement Age.
(iii) Subtract the amount determined in clause (ii) from the amount
determined in clause (i).
5.4(b)(2) Accumulate the initial theoretical reserve in (S)5.4(b)(1) and
the Employer Contribution (as limited by Code (S)415, but without regard
to any required minimum contributions under Code (S)416) for each Plan Year
beginning in year 1 up through the last day of the current Plan Year
(excluding contributions, if any, made for the current Plan Year) using the
Plan's interest assumption in effect for each such year. In any Plan Year
following the Plan Year in which the Participant attains Normal Retirement
Age, the accumulation is calculated assuming an interest rate of 0%.
5.4(b)(3) The calculation in this (S)5.4(b) shall be made as of the last
day of each Plan Year, on the basis of the Participants age on his or her
last birthday and the interest rate in effect on the last day of the prior
Plan Year.
5.4(c) Past Service Credits. If the Plan is adopted as a standardized Plan, upon
initial adoption of the Plan or upon a Plan amendment which is effective on or
after the Final Compliance Date, no more than 5 years of credit shall be granted
for service completed before the effective date of such adoption or amendment,
and any such past service credit shall be granted on a uniform basis to all
Participants in the Plan on such effective date.
5.4(d) TRA 86 Amendment. A Participant's Account balance shall not be reduced as
a result of an amendment to this Plan or a Pre-Existing Plan to satisfy the
requirements of TRA 86. To the extent that contributions actually made on a
Participant's behalf for Plan Years beginning after December 31, 1988 exceed the
contributions that would have been required under the formula as effective for
such years as a result of the amendment of this Plan or a Pre-Existing Plan to
satisfy TRA 86, such excess shall be applied to offset contributions required to
such Participant's Account for Plan Years beginning after the date such TRA 86
amendment is adopted or, if later, the date such TRA 86 amendment is effective
consistent with ERISA (S)204(h).
5.4(e) Special Definitions and Rules. The special definitions and rules in this
(S)5.4(e) shall apply for purposes of determining the Employer contributions
under a Target Benefit Pension Plan.
5.4(e)(1) Cumulative Disparity Limit. For a Plan with a Unit Benefit
Formula, a Participant's Cumulative Disparity Limit is equal to 35 minus
(1) the number of the Participant's Years of Participation under this Plan
during which this Plan did not satisfy the safe harbor for target benefit
plans in (S)1.401(a)(4)-8(b)(3) of the Federal Income Tax Regulations or
was not a Prior Safe Harbor Plan, and (2) the number of years during which
the Participant participated in one or more qualified plans or simplified
employee pension plans ever maintained by the Employer (other than years
counted in clause (1) or counted toward a Participant's total Years of
Projected Participation). The Cumulative Disparity Limit shall be
determined taking into account only those Years of Participation in this
Plan beginning after December 31, 1988 when this Plan had an integrated
benefit formula and those years of participation in such other qualified
plans and simplified employee pension plans beginning after December 31,
1988 during which the Participant actually received an allocation under an
integrated defined contribution plan (other than a target benefit pension
plan), during which the Participant was eligible to receive a benefit under
an integrated defined benefit pension plan or an integrated target benefit
pension plan), or during which the Participant received an allocation or
accrued a benefit under a plan which imputed permitted disparity pursuant
to (S)1.401(a)-7 of the Federal Income Tax Regulations.
5.4(e)(2) Cumulative Disparity Reduction. For a Plan with a Fixed Benefit
Formula, the Excess Benefit Percentage will further be reduced as set forth in
this (S)5.4(e) for a Participant with more than 35 "cumulative disparity years."
A Participant's "cumulative disparity years." consist of the sum of (1) the
Participant's total Years of Projected Participation, (2) the Participant's
Years of Participation during which this Plan did not satisfy the safe harbor
for target benefit plans in regulations (S)1.401(a)(4)-8(b)(3) of the Federal
Income Tax Regulations or was not a Prior Safe Harbor Plan, and (3) the number
of years during which the Participant participated in one or more qualified
plans or simplified employees pension plans ever maintained by the Employer
(other than years in clause (1) or (2) above); provided that the cumulative
disparity years shall be determined taking into account only those Years of
Participation in this Plan beginning after December 31, 1988 when this Plan had
an integrated benefit formula and those years of participation in such other
qualified plans and simplified employee pension plans beginning after December
31, 1988 during which the Participant actually received an allocation under an
integrated defined contribution plan (other than a target benefit pension plan),
during which the Participant was eligible to receive a benefit under an
integrated defined benefit pension plan (or an integrated target benefit
pension plan), or during which the Participant received an allocation or accrued
a benefit under a plan which imputed permitted disparity pursuant to
(S)1.401(a)-7 of the Federal Income Tax Regulations.
If this Cumulative Disparity Reduction applies, the Excess Benefit Percentage
will be reduced as follows:
(A) Subtract the Participant's Base Benefit Percentage from the
Participant's Excess Benefit Percentage (after modification as required
in the Adoption Agreement for less than 35 Years of Projected
participation).
(B) Multiply the results determined in (A) by a fraction (not less than 0),
the numerator of which is 35 minus the sum of the years in clauses (2)
and (3) of this (S)5.4(e)(2), and the denominator of which is 35.
(C) The Participant's Excess Benefit Percentage is equal to the sum of the
result in (B) and the Participant's Base Benefit Percentage, as
otherwise modified in the Adoption Agreement.
5.4(e)(3) Current Stated Benefit. Each Participant's Current Stated Benefit will
be the product of (1) the amount derived from
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the formula specified in the Adoption Agreement, and (2) a fraction, the
numerator of which is the Participant's number of Years of Participation
from the latest Fresh-Start Date (if any) through and including the later
of the year in which the Participant attains Normal Retirement Age or the
current Plan Year, and the denominator of which is the Participant's
total Years of Projected Participation. If this Plan has not had a Fresh-
Start Date, such fraction will equal 1.0 for all Participants. In any
event, for those Participants who first participated in the Plan after
the latest Fresh-Start Date, such fraction will equal 1.0. For purposes
of determining the numerator of the fraction described in clause (2),
only those current and prior years during which a Participant was
eligible to receive a contribution under the Plan will be taken into
account.
5.4(e)(4) Fresh-Start Date. Fresh-Start Date means the last day of a Plan
Year preceding a Plan Year for which provisions that would affect the amount
of the Current Stated Benefit are amended. If applicable, the latest Fresh-
Start Date of the Plan shall be designated in the Adoption Agreement.
5.4(e)(5) Frozen Accrued Stated Benefit. A Participant's Frozen Accrued
Stated Benefit is determined as of the Plan's latest Fresh-Start Date as if
the Participant terminated employment with the Employer as of that date,
without regard to any amendment made to the Plan after that date except as
permitted under regulations.
A Participant's Frozen Accrued Stated Benefit is equal to the amount of the
Current Stated Benefit in effect on the latest Fresh-Start Date that a
Participant has accrued as of that date, assuming that such Current Stated
Benefit accrues ratably from the year in which the Participant first
participated in this Plan (or, if later, the immediately preceding Fresh-
Start Date under this Plan) through and including the Plan Year in which the
Participant attains Normal Retirement Age.
The amount of the Current Stated Benefit in effect on the latest Fresh-Start
Date that a Participant is assumed to have ratably accrued is determined by
multiplying the Plan's Current Stated Benefit in effect on that date by a
fraction, the numerator of which is the number of Years of Participation from
the later of the Participant's first Year of Participation in this Plan or
the immediately preceding Fresh-Start Date (if any) through and including the
year that contains the latest Fresh-Start Date, and the denominator of which
is the number of Years of Participation from the later of the Participant's
first Year of Participation in this Plan or the immediately preceding Fresh-
Start Date (if any) through and including the later of the year in which the
Participant attains Normal Retirement Age or the current Plan Year. For
purposes of this paragraph, only those Years of Participation during which a
Participant was eligible to receive a contribution under the Plan will be
taken into account.
If this Plan has had a preceding Fresh-Start Date, each Participant's Frozen
Accrued Stated Benefit as of the latest Fresh-Start Date will equal the sum
of the amount of the Current Stated Benefit in effect on the latest Fresh-
Start Date that a Participant is assumed to have ratably accrued as of that
date under the preceding paragraph, and the Frozen Accrued Stated Benefit
determined as of the preceding Fresh-Start Date(s).
If (1) the Current Stated Benefit formula in effect on the latest Fresh-Start
Date was not expressed as a straight life annuity for all Participants,
and/or (2) the Normal Retirement Age for any Participant on the latest Fresh-
Start Date was greater than the Normal Retirement Age for that Participant
under the Current Stated Benefit formula in effect after the latest Fresh-
Start Date, the Frozen Accrued Stated Benefit will be converted to an
actuarially equivalent straight life annuity commencing at the Participant's
Normal Retirement Age under the Current Stated Benefit formula in effect
after the latest Fresh-Start Date, using the actuarial assumptions in effect
under the Current Stated Benefit formula in effect on the latest Fresh-Start
Date.
Notwithstanding the above, if in the immediately preceding Plan Year this Plan
did not satisfy the safe harbor for target benefit plans in
(S)1.401(a)(4)-8(b)(3) of the Federal Income Tax Regulations or was not a Prior
Safe Harbor Plan, the Frozen Accrued Stated Benefit for any Participant in the
Plan, determined for the next Plan Year during which (S)1.401(a)(4)-8(b)(3) of
the Federal Income Tax Regulations is satisfied until the year following the
next Fresh-Start Date, if any, will be zero.
5.4(e)(6) Maximum Excess Allowance. The Maximum Excess Allowance is equal to
the lesser of the Base Benefit Percentage or
(1) for a Plan with a Unit Benefit Formula, the Applicable Factor
determined from Table A or Table B in Exhibit B to the Adoption
Agreement, and
(2) for a Plan with a Fixed Benefit Formula, 35 times the Applicable
Factor determined from Table A or Table B in Exhibit B to the Adoption
Agreement.
5.4(e)(7) Overall Permitted Disparity Limit. If for any Plan Year this Plan
benefits any Participant who also benefits under another qualified plan or
simplified employee pension plan maintained by the Employer that provides for
permitted disparity (or imputes permitted disparity), the Current Stated Benefit
for all Participants under this Plan will be equal to the Excess Benefit
Percentage set forth in the Adoption Agreement multiplied times
(1) for a Plan with a Unit Benefit Formula, the Participant's total
Average Annual Compensation times the Participant's total Years of
Projected Participation under the Plan up to the maximum total Years of
Projected Participation specified in the Adoption Agreement, and
(2) for a Plan with a Fixed Benefit Formula, the Participant's total
Average Annual Compensation (prorated for years less than 35).
If this paragraph is applicable, this Plan will have a Fresh-Start Date on
the last day of the Plan Year preceding the Plan Year in which this paragraph
is first applicable. In addition, if in any subsequent Plan Year this Plan no
longer benefits any Participant who also benefits under another plan of the
Employer, this Plan will have a Fresh-Start Date on the last day of the Plan
Year preceding the Plan Year in which this paragraph is no longer applicable.
5.4(e)(8) Prior Safe Harbor Plan. Prior Safe Harbor Plan means a Plan adopted
and in effect on September 19, 1991, that satisfied the applicable
nondiscrimination requirements for target benefit plans on that date and in
all prior periods (taking into account no amendments to the Plan after
September 19, 1991, other than amendments necessary to satisfy
Code (S)401(1)).
5.4(e)(9) Year of Participation - means each Year of Service (as determined
in the same manner as a Year of Service for vesting purposes) completed after
the Participant first becomes a Participant in this Plan or the Pre-Existing
Plan.
5.4(e)(10) Years of Projected Participation. For purposes of determining a
Participant's Current Stated Benefit, a Participant's total Years of
Projected Participation under the Plan is the sum of the Participant's total
number of Years of Participation under this Plan for the years this Plan
consecutively satisfies the safe harbor for target benefit plans in
(S)1.401(a)(4)-8(b)(3) of the Federal Income Tax Regulations or was a Prior
Safe Harbor Plan, if applicable, projected through the later of the end of
the Plan Year in which the Participant attains Normal Retirement Age or the
end of the current Plan Year. For purposes of determining a Participant's
total Years of Projected Participation, only those current and prior years
during which a Participant was eligible to receive a contribution under the
Plan will be taken into account.
5.5 Rollover Contributions.
5.5(a) Standard Option - An Eligible Employee may contribute on his or her
own behalf (or elect a direct transfer of) a Rollover Contribution to the
Fund, provided (1) such contribution shall be made (or transferred) in cash
or in a form which is acceptable to the Trustee, (2) such contribution shall
be made in accordance with such rules as the Plan Administrator and the
Trustee deem appropriate under the circumstances, and (3) if so specified in
the Adoption Agreement, no Rollover Contribution may be made prior to the
Entry Date on which the Eligible Employee becomes a Participant in this Plan.
5.5(b) Alternative - The Employer may specify in the Adoption Agreement that
no Rollover Contributions may be made.
5.6 No Employee or Matching Contributions. Unless this Plan is adopted as a
401(k) Plan which permits Employee Contributions, no nondeductible employee
contributions or matching contributions (as defined in Code (S)401(m)) shall be
made to this Plan after the Plan Year in which this Plan is adopted by the
Employer. Any nondeductible employee contributions matching contributions made
under a Pre-Existing Plan or under this Plan (in accordance with the preceding
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sentence) for Plan Years beginning after December 31, 1986 shall be subject to
the nondiscrimination limitations under Code (S)401(m) as set forth in (S)7.5.
5.7 No Deductible Voluntary Employee Contributions. No voluntary deductible
employee contributions shall be made to this Plan for a taxable year beginning
after December 31, 1986. Any voluntary deductible employee contributions made
under a Pre-Existing Plan prior to such date shall be maintained in a separate
account under this Plan. Such account shall be nonforfeitable at all times and
shall share in the Fund Earnings in the same manner as described in (S)6.2. No
part of such account shall be used to purchase life insurance. Subject to
(S)10, Joint and Survivor Annuity Requirements (if applicable), a Participant
may withdraw any part of the Participant's voluntary deductible employee
contribution account by making a written application to the Plan Administrator.
5.8 General Rules Applicable to all Contributions.
5.8(a) Limitations on Contributions. The contributions made under this (S)5
and the allocation of those contributions under (S)6 shall be subject to
the limitations set forth in the Adoption Agreement, this (S)5 and (S)7
5.8(b) Code (S)415. The contributions for any Plan Year shall not (based
on the Employer's understanding of the facts at the time the contribution
is made) exceed the total amount allocable for such year among the Accounts
of all Participants in light of the restrictions in Code (S)415 as set
forth in (S)7.2. If a suspense account as described in (S)7.2(b) is in
existence at any time during a particular Limitation Year (1) no Employer
Contribution shall be made for such Limitation Year if (based on the
Employer's understanding of the facts at the time the contribution is made)
the allocation of the amount in such suspense account would be precluded by
Code (S)415 for such Limitation Year and (2) if this Plan is adopted as a
Money Purchase Pension Plan or a Target Benefit Pension Plan, the Employer
Contribution required under this (S)5 shall be reduced by the amount in
such suspense account.
5.8(c) Code (S)416. If this Plan is a Top-Heavy Plan (as defined in (S)12)
for any Plan Year, the minimum allocation required under Code (S)416 shall
be made in accordance with (S)12.
5.8(d) Leased Employees. Contributions or benefits which are provided by a
leasing organization on behalf of a Participant who is a Leased Employee
and which are attributable to services performed by such Participant for
the Employer or a Participating Affiliate shall be credited against the
contribution, if any, due to be allocated to such Participant under this
Plan in accordance with Code (S)414(n).
5.8(e) Owner-Employees.
5.8(e)(1) General. If this Plan provides contributions or benefits for
one or more Owner-Employees who control the Employer or a Participating
Affiliate, then
(i) if such Owner-Employee, or Owner-Employees, also control one or
more other trades or businesses,
(A) this Plan and the plans established for such other trades
or businesses shall, when viewed as a single plan, satisfy the
applicable requirements of Code (S)401(a) and Code (S)401(d)
for the employees of the Employer of the Participating
Affiliate and such other trades or businesses, and
(B) the employees of such other trades or businesses shall be
included in a plan which satisfies the applicable requirements
of Code (S)401(a) and Code (S)401(d) and which provides
contributions and benefits which are at least as favorable as
those provided under this Plan for such Owner-Employees, or
(ii) if such Owner-Employee is covered as an owner-employee (within
the meaning of Code (S)401(c)(3)) under the plans of two or more
other trades or businesses which such Owner-Employee does not
control, then the contributions or benefits provided under this Plan
must be at least as favorable as those provided for such Owner-
Employee under the most favorable plan of such other trade or
business.
5.8(e)(2) Control. For purposes of this (S)5.8(e), an Owner-Employee, or
two or more such Owner-Employees, or two or more such Owner-Employees,
shall be considered to control a trade or business if such Owner-Employee,
or such Owner-Employees together.
(i) own the entire interest in an unincorporated trade or business,
or
(ii) in the case of a partnership, own more than 50% of either the
capital interest or the profits interest in such partnership. Such
Owner-Employee, or such Owner-Employees, shall be treated as owning
any interest in a partnership which is owned, directly or indirectly,
by a partnership which is controlled by such Owner-Employee, or such
Owner-Employees, within the meaning of clause (ii).
SECTION 6. ALLOCATIONS TO ACCOUNTS
6.1 Establishment and Maintenance of Accounts. An Account shall be established
and maintained for each Participant under the Plan and the Plan Administrator
shall establish reasonable and nondiscretionary procedures under which (a) any
Forfeitures, insurance premium payments, loans, withdrawals, distributions and
other charges properly allocable to such Account shall be debited from such
Account and (b) any insurance contract dividends, insurance contract surrender
proceeds, loan repayments and other amounts properly allocable to such account
(other than amounts described in (S)6.2 and (S)6.3) shall be credited to such
Account.
6.2 Allocation of Fund Earnings.
6.2(a) General. As of each Valuation Date the fair market value of the Fund
and the Fund Earnings for the period which ends on such Valuation Date
shall be determined. Such Fund Earnings shall be allocated (and posted)
among all Accounts in the proportion that the balance in each such Account
(determined in accordance with (S)6.2(b)) bears to the total balance in all
such Accounts in order that each Account shall proportionately benefit from
any earnings or appreciation in the value of the Fund assets in which such
Account is invested or proportionately suffer any losses or depreciation in
the value of the Fund assets in which such Account is invested. Subject to
(S)13, each Participant shall have a ratable interest in all assets of the
Fund.
6.2(b) Allocation Procedures. The Plan Administrator shall establish
nondiscretionary allocation procedures for purposes of the allocation of
Fund Earnings under (S)6.2(a), which procedures shall be set forth in
writing with the records of this Plan. If so specified in such procedures,
the balance in each Account shall be determined after adjusting for all or
a portion of the contributions and other amounts credited to or debited
from such Account since the preceding Valuation Date. Further, if so
provided in such allocation procedures, Fund Earnings shall not be
allocated to any Forfeiture or to the balance in any suspense account
described in (S)7.2(b).
6.3 Allocation of Contributions and Forfeitures. Subject to the limitations in
(S)7, the Forfeitures (and any amount deemed to be a Forfeiture under the terms
of this Plan) and the contributions shall be allocated (and posted) in
accordance with the following rules:
6.3(a) Profit Sharing Plan.
6.3(a)(1) Nonintegrated. If this Plan is adopted as a Profit Sharing Plan
and the nonintegrated allocation formula is specified in the Adoption
Agreement, the Forfeitures and the Employer Contribution for each Plan Year
shall be allocated (and posted) as of the last day of such Plan Year to the
Employer Account of each Active Participant in the same ratio that each
Active Participant's Compensation for such Plan Year bears to the total
Compensation of all Active Participants for such Plan Year.
6.3(a)(2) Integrated. If this Plan is adopted as a Profit Sharing Plan and
the integrated allocation formula is specified in the Adoption Agreement,
the Forfeitures and the Employer Contribution shall be allocated (and
posted) as of the last day of each Plan Year to the Employer account of
each Active Participant in accordance with the following:
(i) Step One - First, the lesser of (A) the sum of the Employer
Contribution and Forfeitures for such Plan Year or (B) the Integration
Amount for such Plan Year shall be allocated to the Employer Account of
each Active Participant in the same ratio that the sum of the total
Compensation and Excess Compensation of each Active Participant for
such Plan Year bears to the sum of the total Compensation and Excess
Compensation of all Active Participants for such Plan Year.
(ii) Step Two - Second, the remaining Employer Contribution and the
Forfeitures, if any, for such Plan Year shall be allocated
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to the Employer Account of each Active Participant (whether or not he or
she had Excess Compensation) in the same ratio that each Active
Participant's total compensation for such Plan Year bears to the total
Compensation of all Active Participants for such Plan Year.
(iii) Special Definitions - For purpose of this (S)6.3(a)(2),
(A) "Integration Amount" means the product of (1) the total
Compensation and the total Excess Compensation of all Active
Participants and (2) the Integration Percentage specified in the
Adoption Agreement, but in no event shall the integration Percentage
exceed the Maximum Disparity Rate for any Plan Year beginning after
December 31, 1988.
(B) "Excess Compensation" means the amount, if any, of a
Participant's Compensation for such Plan year which exceeds the
Integration Level for such Plan Year.
(iv) Top-Heavy. If this Plan is a Top-Heavy Plan for any Plan Year, the
allocation formula in (S)12.3(h)(1) shall apply in lieu of the formula in
this (S)6.3(a)(2) for such Plan Year.
6.3(b) Money Purchase Pension Plan. If this Plan is adopted as a Money Purchase
Pension Plan, the Forfeitures and the Employer Contribution actually made under
(S)5.2 (as adjusted, if applicable, in accordance with (S)12.3(h)(2) for a
Top-Heavy Plan) shall be allocated (and posted) as of the last day of each Plan
Year to the Employer Account of each Active Participant in accordance with the
formula specified in the Adoption Agreement. If Forfeitures are applied to
reduce the Employer Contribution and the Forfeitures available under (S)8.2(e)
for any Plan Year exceed the contribution specified in the Adoption Agreement
for such Plan Year, such excess shall be held in a separate account and shall be
applied in full as a Forfeiture to offset such contributions in the future until
such account is exhausted under this (S)6.3(b). If Forfeitures are to be
allocated to Active Participants, such Forfeitures shall be allocated (and
posted) to the Employer Account of each Active Participant in the same ratio
that such Active Participant's Compensation for such Plan Year bears to the
total Compensation of all such Active Participants for such Plan Year.
6.3(c) 401(k) Plan. If this Plan is adopted as a 401(k) Plan, Forfeitures and
contributions made under (S)5.3 shall be allocated (and posted) in accordance
with the following:
6.3(c)(1) Elective Deferrals and Employee Contributions. Elective Deferrals
made on a Participant's behalf for the period ending on each Valuation Date
shall be credited to the Participant's Elective Deferral Account as of such
Valuation Date and the Employee Contributions made by a Participant for
such period shall be credited to the Participant's Employee Account as of
such Valuation Date.
6.3(c)(2) Matching Contributions and Qualified Matching Contributions.
(i) Allocation. Matching Contributions and Qualified Matching
Contributions made on a Participant's behalf shall be credited to the
Participant's Matching Account and Qualified Matching Account,
respectively
(A) Standard Option - as of the last day of each plan Year or
(B) Alternative - only as of each Allocation Date specified in
the Adoption Agreement.
(ii) Forfeitures. Forfeitures attributable to Matching Accounts shall
be allocated or applied in accordance with the following rules;
provided, no Forfeitures attributable to Excess Aggregate
Contributions under (S)7.5(d) shall be allocated to the Account of
any Highly Compensated Employee:
(A) Forfeitures to Reduce Matching Contribution (Standard
Option). Forfeitures attributable to Matching Accounts shall be
applied to reduce the Matching Contributions for the applicable
Allocation Date (as specified in (S)8.2 and the Adoption
Agreement). If the Forfeitures exceed the Matching Contribution
specified in the Adoption Agreement for any Allocation Date,
such excess shall be held in a separate account and shall be
applied in full as a Forfeiture to offset Matching
Contributions as of the next Allocation Date (and succeeding
Valuation Dates) until such account is exhausted under this
(S)6.3(c)(2).
(B) Forfeitures to be Allocated (Alternative). If so specified
in the Adoption Agreement, Forfeitures attributable to Matching
Accounts shall be allocated (and posted)
(i) as of the last day of such Plan Year to the Matching
Account of each Active Participant in the same ratio that
such Active Participant's Compensation for such Plan year
bears to the total Compensation of all such Active
Participants for such Plan Year, or
(ii) in accordance with the formula specified in the
Adoption Agreement for a nonstandardized Plan.
6.3(c)(3) Qualified Nonelective Contributions. Qualified Nonelective
Contributions made on behalf of a Participant shall be credited to the
Participant's Qualified Nonelective Account
(i) Standard Option - as of the last day of each Plan Year or
(ii) Alternative - only as of each Allocation Date specified in the
Adoption Agreement.
6.3(c)(4) Discretionary Employer Contribution.
(i) Allocation. As of the last day of each Plan Year, the Employer
Contribution, if any, for such Plan Year shall be allocated (and posted) to
the Employer Account of each Active Participant
(A) Standard Option - in the nonintegrated method described in
(S)6.3(a)(1)
(B) Alternative - if so specified in the Adoption Agreement, in the
integrated method described in (S)6.3(a)(2).
(ii) Forfeitures. Forfeitures attributable to Employer Accounts shall be
allocated or applied in accordance with the following:
(A) Standard Option. Forfeitures attributable to Employer Accounts
shall be allocated (and posted) as of the last day of each Plan Year
to the Employer Account of each Active Participant in the same
manner as the Employer Contribution under (S)6.3(c)(4)(i).
(B) Alternative. If so specified in the Adoption Agreement,
Forfeitures attributable to Employer Accounts shall be
(I) applied to reduce Matching Contributions, Qualified
Matching Contributions and Qualified Nonelective
Contributions for the applicable Allocation Date (as
specified in (S)8.2 and the Adoption Agreement) and
succeeding Allocation Dates, if necessary, or
(II) allocated (and posted) in accordance with the formula
specified in the Adoption Agreement for a nonstandardized
Plan.
6.3(d) Target Benefit Pension Plan. If this Plan is adopted as a Target Benefit
Pension Plan, the Forfeitures and the Employer Contribution actually made under
(S)5.4 for each Plan Year shall be allocated (and posted) as of the last day of
each Plan Year to the Employer Account of each Active Participant as specified
in the Adoption Agreement. The Forfeitures for each Plan Year shall be applied
to reduce the Employer Contribution for such Plan Year. If Forfeitures for any
Plan Year exceed the Employer Contributions determined under (S)5.4 for such
Plan Year, such excess shall be held in a separate account and shall be applied
in full to offset Employer Contributions in the future until such account is
exhausted under this (S)6.3(d).
6.3(e) Top Heavy Minimum Allocation. If this Plan is a Top-Heavy Plan (as
defined in (S)12), the minimum allocation required to be made under this Plan
under (S)12.3, if any, shall be allocated (and posted) as of the last day of the
Plan Year (1) to the Employer Account of each Participant who is not an Active
Participant but for whom a minimum allocation is required under (S)12.3 and (2)
to each Active Participant for whom a minimum allocation is required to be made
in
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this Plan under (S)12.3 to the extent such minimum allocation is not
otherwise satisfied by the allocation under this (S)6.3. If this Plan is
adopted as a Profit Sharing Plan, the minimum allocation may be made by
reallocating the Employer Contribution and Forfeitures allocated under
(S)6.3(a) in a manner which satisfies this (S)6.3(e) or by contributing an
additional amount which will be allocated in accordance with this (S)6.3(e).
If this Plan is adopted as a Money Purchase Pension Plan, a Target Benefit
Pension Plan or a 401(k) Plan, an additional Employer Contribution shall be
made to satisfy this (S)6.3(e).
6.3(f) Rollover Contributions. Rollover Contributions made by a Participant
during the period ending on each Valuation Date shall be credited to the
Participant's Rollover Contribution Account as of such Valuation Date.
6.4 Allocation Report. The Plan Administrator shall maintain records of the
allocations and adjustments made to Accounts under this (S)6 and shall at least
annually prepare and forward to each such Participant and Beneficiary a
statement which shows the new balance in such person's Account.
6.5 Allocation Corrections. If an error or omission is discovered in any
Account, then as of the first Valuation Date in the Plan Year in which the error
or omission is discovered, the Plan Administrator shall make (and post) an
adjustment to such Account as the Plan Administrator deems necessary to remedy
in an equitable manner such error or omission.
SECTION 7. STATUTORY LIMITATIONS ON ALLOCATIONS
7.1 Effective Date. Except as otherwise expressly provided, this (S)7 shall be
effective retroactive to Plan Years beginning on or after January 1, 1987.
7.2 Limitations on Annual Additions Under Code (S)415.
7.2(a) Special Definitions. For purposes of this (S)7.2, the terms defined in
this (S)7.2(a) shall have the meanings shown opposite such terms.
7.2(a)(1) Annual Additions - means for each Participant for any
Limitation Year
(i) the sum of the employer contributions, forfeitures, and
nondeductible employee contributions creditable (without regard to
the application of this (S)7.2) to the Participant's account under
this Plan or under any other defined contribution plan (including a
Master or Prototype Plan and any defined benefit plan which provides
for employee contributions) maintained by the Employer for such
Limitation Year; and for this purpose, any Excess Amount allocated
under (S)7.2(b), any Excess Elective Deferrals under (S)7.3 (unless
such excess is distributed by the deadline set forth in (S)7.3(d)),
any Excess Contributions under (S)7.4 and any Excess Aggregate
Contributions under (S)7.5 shall be considered Annual Additions for
such Limitation Year;
(ii) amounts allocated on behalf of such Participant after March 31,
1984 to an individual medical account (as defined in Code
(S)415(1)(2)) which is part of a pension or annuity plan maintained
by the Employer; and
(iii) amounts derived from contributions paid or accrued after
December 31, 1985 in taxable years ending after such date which are
attributable to post-retirement medical benefits allocated to the
separate account of a key employee (as defined in Code (S)419A(d)(3))
under a welfare benefit fund (as described in Code (S)419(e))
maintained by the Employer; and
(iv) allocations under a simplified employee pension (as defined in
Code (S)408(k).
7.2(a)(2) Compensation - means for a Self-Employed Individual, such
individual's Earned Income, and for each other Employee
(i) Standard Option - compensation reportable on Form W-2 as
defined in (S)2.10(a)(1), or
(ii) Alternative - if so specified in the Adoption Agreement,
(A) compensation subject to withholding as defined in
(S)2.10(a)(2)(i), or
(B) the Employee's wages, salaries, fees for professional
services and other amounts received (without regard to whether
or not an amount is paid in cash) for personal services
actually rendered in the course of employment with the Employer
maintaining the Plan to the extent that the amounts are
includable in gross income during the Limitation Year
(including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips, bonuses,
fringe benefits and reimbursements or other expense allowances
under a nonaccountable plan as described in (S)1.62-2(c) of the
Federal Income Tax Regulations). Compensation shall not include
the following:
(I) Employer contributions to a plan of deferred
compensation which are not includable in the Participant's
gross income for the taxable year in which contributed, or
Employer contributions under any simplified employee
pension plan, or any distributions from a plan of deferred
compensation;
(II) amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held
by the Participant either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture;
(III) amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
(IV) other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an
annuity contract described in Code (S)403(b) (whether or
not the contributions are actually excludable from the
gross income of the Participant).
For purposes of applying the limitations of this (S)7.2, an Employee's
Compensation for Limitation Years beginning on and after the Final
Compliance Date shall not include any Compensation which is accrued for
such Limitation Year.
However, for purposes of applying the limitations of this (S)7.2 to a
Participant in a defined contribution plan who is permanently and totally
disabled (as defined in Code (S)22(e)(3)), the term "Compensation" shall
mean the compensation such Participant would have received for the
Limitation Year if the Participant had been paid at the Participant's
rate of Compensation (as defined in this (S)7.2(a)(2)) paid immediately
before becoming permanently and totally disabled, and, further, such
imputed compensation for the disabled Participant may be taken into
account only if the Participant is not a Highly Compensated Employee and
contributions made on behalf of such Participant are nonforfeitable when
made.
7.2(a)(3) Defined Benefit Fraction - means a fraction, (i) the numerator
of which shall be the sum of the Participant's Projected Annual Benefits
under all defined benefit plans (whether or not terminated) maintained by
the Employer, and (ii) the denominator of which shall be the lesser of
(A) 125% of the dollar limitation determined for the Limitation Year
under Code (S)415(b) and (S)415(d) or (B) 140% of the Participant's
Highest Average Compensation, including any adjustments under Code
(S)415(b). However, if the Participant was a participant as of the first
day of the first Limitation Year beginning after December 31, 1986 in one
or more defined benefit plans maintained by the Employer which were in
existence on May 6, 1986 and which individually and in the aggregate
satisfied the requirements of Code (S)415 for all Limitation Years
beginning before January 1, 1987, the denominator of such fraction shall
be not less than 125% of the sum of the annual benefits under such plans
which the Participant had accrued as of the end of the last Limitation
Year beginning before January 1, 1987 disregarding any changes in the
terms and conditions in the plan after May 5, 1986. Notwithstanding the
foregoing, "100%" shall be substituted for "125%" in any Limitation Year
for which this
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Plan is a Top-Heavy Plan (as defined in (S)12) unless otherwise specified in
the Adoption Agreement.
7.2(a)(4) Defined Contribution Dollar Limitation - means for each Limitation
Year the greater of (i) $30,000 or (ii) one-fourth of the defined benefit
dollar limitation under Code (S)415(b)(1) as in effect for such Limitation
Year.
7.2(a)(5) Defined Contribution Fraction - means a fraction, (i) the
numerator of which shall (subject to the adjustment rules set forth below)
be the sum of the Annual Additions credited to the Participant's accounts
under all defined contribution plans (whether or not terminated) maintained
by the Employer for the current and all prior Limitation Years (including
the Annual Additions attributable to the Participant's nondeductible
employee contributions to all defined benefit plans, whether or not
terminated) maintained by the Employer and the annual Additions
attributable to all welfare benefit funds (as described in Code (S)419(e)
and all individual medical accounts (as described in Code (S)415(1)(2))
maintained by the Employer and (ii) the denominator of which shall be the
sum of the Maximum Aggregate Amounts for the current and all prior
Limitation Years of service with the Employer (without regard to whether a
defined contribution plan was maintained by the Employer). The numerator of
such fraction shall be adjusted if the Participant was a participant as of
the first day of the first Limitation Year beginning after December 31, 1986
in one or more defined contribution plans maintained by the Employer which
were in existence on May 6, 1986 and the sum of this fraction and the
Defined Benefit Fraction would otherwise exceed 1.0 under the terms of this
Plan. The adjustment shall be made by taking an amount equal to the product
of (A) the excess of the sum of the fractions over 1.0, times (B) the
denominator of this fraction, and be permanently subtracting such product
from the numerator of this fraction. The adjustment shall be calculated
using the fractions as they would be computed as of the end of the last
Limitation Year beginning before January 1, 1987 and disregarding any
changes in the terms and conditions of the Plan made after May 5, 1986 but
using the Code (S)415 limitation applicable to the first Limitation Year
beginning on or after January 1, 1987. The Annual Addition for any
Limitation Year beginning before January 1, 1987 shall not be recomputed to
treat all employee contributions as an Annual Addition.
7.2(a)(6) Employer - means the Employer that adopts this Plan and all
members of a controlled group of corporations (as defined in Code (S)414(b)
as modified by Code (S)415(h)), all commonly controlled trades or businesses
(as defined in Code (S)414(c) as modified by Code (S)415(h)) or affiliated
service groups (as defined in Code (S)414(m)) of which the adopting Employer
is a part and any other entity required to the aggregated with the Employer
pursuant to the regulations under Code (S)414(o).
7.2(a)(7) Excess Amount - means the excess of a Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
7.2(a)(8) Highest Average Compensation - means the Participant's average
Compensation for the three consecutive Plan Years of employment with the
Employer (without regard to whether such Plan Years were before the
Effective Date) that produces the highest average.
7.2(a)(9) Limitation Year - means
(i) Standard Option - the Plan Year or
(ii) Alternative - the alternative 12 consecutive month period
specified in the Adoption Agreement.
All qualified plans maintained by the Employer must use the same Limitation
Year. If the Limitation Year is amended to a different 12 consecutive month
period, the new Limitation Year must begin on a date within the Limitation
Year in which the amendment is made.
7.2(a)(10) Master or Prototype Plan - means a plan the form of which is the
subject of a favorable opinion letter from the Internal Revenue Service.
7.2(a)(11) Maximum Aggregate Amount - means for any Limitation Year the
lesser of (i) 125% of the dollar limitation determined under Code
(S)415(c)(1)(A) or (ii) 35% of the Participant's Compensation for such year.
Notwithstanding the foregoing. "100%" shall be substituted for 125% in any
Limitation year for which this Plan is a Top-Heavy Plan (as defined in
(S)12) unless otherwise specified in the Adoption Agreement.
7.2(a)(12) Maximum Permissible Amount - means the lesser of (i) the Defined
Contribution Dollar Limitation or (ii) 25% of a Participant's Compensation
for the Limitation Year; provided,
(A) the compensation limitation referred to in clause (ii) shall not
apply to any contribution for medical benefits (within the meaning of
Code (S)401(h) or (S)419A(f)(2)) which is otherwise treated as an Annual
Addition under Code (S)415(l)(l) or (S)419(A)(d)(2); and
(B) if a short Limitation Year is created because of an amendment
changing the Limitation Year to a different 12 consecutive month period,
the Maximum Permissible Amount shall not exceed the Defined Contribution
Dollar Limitation multiplied by a fraction, the numerator of which shall
be the number of months in the short Limitation Year and the denominator
of which shall be 12.
7.2(a)(13) Projected Annual Benefit - means the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if such benefit
is expressed in a form other than a straight life annuity or qualified joint
and survivor annuity) to which a Participant would be entitled under the
terms of a defined benefit plan assuming:
(i) the Participant will continue employment until normal retirement
age under the plan (or current age, if later), and
(ii) the Participant's Compensation for the current Limitation Year and
all other relevant factors used to determine benefits under the plan
will remain constant for all future Limitation Years.
7.2(b) Limitation If No Other Plans. If a Participant does not participate in,
and has never participated in, another qualified plan maintained by the Employer
or a welfare benefit fund (as described in Code (S)419(e)) or individual medical
account (as described in Code (S)415(l)(2)) maintained by the Employer which
provides an Annual Addition as defined in (S)7.2(a)(l) or a simplified employee
pension (as defined in Code (S)408(k)) maintained by the Employer, the amount of
Annual Additions which actually may be credited to the Account of any
Participant for any Limitation Year shall not exceed the lesser of the Maximum
Permissible Amount or any other limitation set forth in this Plan. If the
Employer Contribution that would otherwise be credited to the Participant's
Account would cause the Annual Additions for the Limitation Year to exceed the
Maximum Permissible Amount, such amount shall be reduced so that the annual
Additions actually credited for the Limitation Year shall equal the Maximum
Permissible Amount. If pursuant to (S)7.2(f) or as a result of the allocation
of Forfeitures a Participant's Annual Additions under this Plan would result in
an Excess Amount, such Excess Amount shall be disposed of as follows:
7.2(b)(1) Profit Sharing Plan. If this Plan is adopted as a Profit Sharing
Plan,
(i) Such Excess Amount shall be deemed a Forfeiture which shall be
allocated and reallocated as provided in (S)6.3(a) subject to the
restrictions of this (S)7.2 among the Employer Accounts of the remaining
Active Participants until such amount has been allocated in its
entirety; and
(ii) if the restrictions in the (s)7.2 apply before such amount has
been reallocated in its entirety, as the final allocation step such
unallocable Excess Amount shall be transferred to a suspense account.
7.2(b)(2) Money Purchase Pension Plan or Target Benefit Pension Plan. If
this Plan is adopted as a Money Purchase Pension Plan or Target Benefit
Pension Plan,
(i) Standard Option - such Excess Amount shall be held unallocated in
a suspense account which shall be applied to offset future Employer
Contributions for Active Participants in the next Limitation Year (and
in each succeeding Limitation Year if necessary).
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(ii) Alternative - if so specified in the Adoption Agreement.
(A) for any Participant who is an Active Participant at the end
of the Limitation Year, such Excess Amount shall be held
unallocated in a suspense account which shall be applied to
offset the Employer Contribution for such Active Participant in
the next Limitation Year (and in each succeeding Limitation
Year if necessary); and
(B) for any Participant who is not an Active Participant at the
end of such Limitation Year, such Excess Amount shall be held
unallocated in a suspense account which shall be applied to
offset future Employer Contributions for all remaining Active
Participants in the next Limitation Year (and in each
succeeding Limitation Year if necessary).
7.2(b)(3) 401(k) Plan. If this Plan is adopted as a 401(k) Plan, any
Elective Deferrals and Employee Contributions made by the Participant
during the Limitation Year (and, to the extent required under regulations,
gains attributable to such Employee Contributions) shall be refunded to the
extent such refund would reduce the Excess Amount and, if an Excess Amount
still exists after such refund.
(i) any such Excess Amount which is attributable to discretionary
Employer contributions shall be disposed of in the same manner as an
Excess Amount under a Profit Sharing Plan as described in
(S)7.2(b)(1), and
(ii) any such Excess Amount which is attributable to a Matching
Contribution, Qualified Nonelective Contribution or Qualified
Matching contribution shall be held unallocated in a suspense account
which shall be used to offset future Matching Contributions,
Qualified Nonelective Contributions or Qualified Matching
Contributions in the next Limitation Year (and in each succeeding
Limitation Year if necessary).
7.2(b)(4) Suspense Account. A suspense account established pursuant to this
(S)7.2(b) shall not be subject to any allocation of Fund Earnings under
(S)6.2, and the balance of such account shall be returned to the Employer
in the event this Plan is terminated prior to the date such account has
been allocated in its entirety as a Forfeiture. In no event shall Excess
Amounts be distributed to Participants or former Participants.
7.2(c) Limitation If Other Defined Contribution Master or Prototype Plan. This
(s)7.2(c) applies if, in addition to this Plan, a Participant is covered under
another defined contribution Master or Prototype Plan maintained by the Employer
or a welfare benefit fund (as described in Code (S)419(e)) or an individual
medical account (as described in Code (S)415(i)(2)) maintained by the Employer
which provides for an Annual Addition as defined in (S)7.2(a)(1) or a simplified
employee pension (as defined in Code (S)408(k)) maintained by the Employer
during any Limitation Year. The Annual Additions which may be credited to a
Participant's Account under this Plan for any such Limitation Year shall not
exceed the Maximum Permissible Amount reduced by the Annual Additions credited
to a Participant's account under such other defined contribution Master or
Prototype Plan and welfare benefit funds for the same Limitation Year.
7.2(c)(1) If for any Limitation Year (1) the Employer also maintains
another defined contribution Paired Plan, (2) the Employer does not
maintain any other defined contribution Master or Prototype Plan (other
than such Paired Plan) and (3) a Participant's Annual Additions under such
Paired Plans would result in an Excess Amount for such Limitation Year, the
allocation adjustment required to satisfy the limitations of Code (S)415
shall be made under such Plans in the following order:
(i) Standard Option - first, under the Profit Sharing Plan, if any:
second under the Money Purchase Pension Plan, if any; third under the
Target Benefit Pension Plan, if any; and finally, under the 401(k)
Plan, if any; or
(ii) Alternative - in the alternative order specified in the Adoption
Agreement.
7.2(c)(2) If the Annual Additions with respect to any Participant under
such other defined contribution Master or Prototype Plan (other than a
defined contribution Paired Plan) and welfare benefit funds maintained by
the Employer are less than the Maximum Permissible Amount and the Employer
Contribution that would otherwise be contributed or allocated to the
Participant's Account under this Plan would cause the Annual Additions for
the Limitation Year to exceed this limitation, the amount contributed or
allocated shall be reduced so that the Annual Additions under all such
plans and funds for the Limitation Year shall equal the Maximum Permissible
Amount.
7.2(c)(3) If the Annual Additions with respect to the Participant under
such other defined contribution Master and Prototype Plan (other than a
defined contribution Paired Plan) and welfare benefit funds in the
aggregate are equal to or greater than the Maximum Permissible Amount, no
amount shall be credited to the Participant's Account under this Plan for
the Limitation Year.
7.2(c)(4) If pursuant to (S)7.2(f) or as a result of the allocation of
Forfeitures a Participant's Annual Additions under this Plan and such other
defined contribution Master or Prototype Plan (other than a Paired Plan)
and welfare benefit funds would result in an Excess Amount for any
Limitation Year,
(i) the Excess Amount shall be deemed to consist of the Annual
Additions last allocated and the Annual Additions attributable to a
welfare benefit fund or an individual medical account shall be deemed
to have been allocated prior to all other Annual Additions, and
(ii) if an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date
of such other Master or Prototype Plan, then the Excess Amount
attributed to this Plan shall be the product of
(A) the total Excess Amount allocated as of such date, times
(B) a fraction, the numerator of which shall be the Annual
Additions allocated to the Participant for the Limitation Year as
of such date under this Plan and the denominator of which is the
total Annual Additions allocated to the Participant for the
Limitation Year as of such date under this and all such other
defined contribution Master or Prototype Plans.
7.2(c)(5) Any Excess Amount attributed to this Plan will be disposed of in
the manner described in (S)7.2(b).
7.2(d) Limitation If Other Defined Contribution Plan. If any Participant is
covered under another qualified defined contribution plan maintained by the
Employer which is not a Master or Prototype Plan, the Annual Additions which may
be credited to the participant's Account under this Plan for any Limitation Year
shall be limited
7.2(d)(1) Standard Option - as specified in (S)7.2(c) as though the other
plan was a Master or Prototype Plan or
7.2(d)(2) Alternative - under the alternative method specified in the
Adoption Agreement for limiting the Annual Additions under this Plan.
7.2(e) Limitation If Other Defined Benefit Plan. If the Employer maintains, or
at any time maintained a qualified defined benefit plan (other than a defined
benefit Paired Plan) covering any Participant in this Plan, the sum of the
Participant's Defined Benefit Fraction and Defined Contribution Fraction shall
not exceed 1.0 in any Limitation Year. The Annual Additions which may be
credited to any Participant's Account under this Plan for any Limitation Year
shall be limited as specified in the Adoption Agreement. If the Employer
maintains a defined benefit Paired Plan, any adjustments to satisfy the
requirements of Code (S)415(e) shall be made only under such defined benefit
Paired Plan.
7.2(f) Compensation for Determination of Maximum Permissible Amount. Prior to
determining a Participant's actual Compensation for the Limitation Year, the
Employer may determine the Maximum Permissible Amount for a Participant on the
basis of a reasonable estimation of the Participant's Compensation for the
Limitation Year, and, if applicable, a reasonable estimation of the amount of
elective deferrals (within the meaning of Code (S)402(g)(3)) that the
Participant may make for the Limitation Year, uniformly determined for all
similarly situated Participants. As soon as is administratively feasible after
the end of the Limitation Year, the Maximum Permissible Amount for the
Limitation year shall be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
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7.3 Individual Limitation on Elective Deferrals Under Code (S)402(g).
7.3(a) General. A Participant's Elective Deferrals under this Plan and all
other qualified plans, contracts and arrangements maintained by the
Employer or an Affiliate during any taxable year of the Participant shall
not exceed the dollar limitation under Code (S)402(g) in effect at the
beginning of such taxable year.
7.3(b) Elective Deferrals. For purposes of the dollar limitation under Code
(S)402(g) and this (S)7.3, the term "Elective Deferrals" shall include all
employer contributions made on behalf of a Participant pursuant to an
election to defer under any qualified cash or deferred arrangement as
described in Code (S)401(k), any simplified employee pension cash or
deferred arrangement as described in Code (S)402(h)(1)(B), any plan
described under Code (S)501(c)(18), and any salary reduction agreement for
the purchase of an annuity contract under Code (S)403(b). However, the term
shall not include Elective Deferrals which are properly distributed to the
Participant from this Plan under (S)7.2 or such other plans or arrangements
to correct for excess annual additions.
7.3(c) Excess Elective Deferrals. For purposes of this (S)7.3, the term
"Excess Elective Deferrals" means for each Participant the Elective
Deferrals that are includable in gross income under Code (S)402(g) to the
extent the Participant's Elective Deferrals for a taxable year exceed the
dollar limitations under Code (S)402(g) for such taxable year.
7.3(d) Distribution of Excess Elective Deferrals. Notwithstanding any other
provision of this Plan restricting the timing of distributions, Excess
Elective Deferrals, plus any income and minus any loss allocable thereto,
shall be distributed no later than April 15 of any calendar year to
Participants (1) whose Excess Elective Deferrals for the preceding taxable
year were assigned to this Plan and (2) who claim (or are deemed to have
claimed) such allocable Excess Elective Deferrals for such taxable year in
accordance with the claims procedure set forth in (S)7.3(f).
7.3(e) Determination of Income or Loss. A corrective distribution of Excess
Elective Deferrals under this (S)7.3 shall include the income or loss
allocable to such Excess Elective Deferrals for the Participant's taxable
year in which such excess occurred and, if so specified in the Adoption
Agreement, for the period between the end of such taxable year and the date
of distribution ("gap period"). The income or loss for such taxable year
and gap period, if applicable, shall be determined in accordance with the
regulations under Code (S)402(g). In lieu of using the safe harbor method
or the alternative method in the regulations for allocating such income or
loss, the Plan Administrator may use any reasonable method for computing
such income or loss, provided that such method does not violate Code
(S)401(a)(4), is used consistently for all Participants and for all
corrective distributions under the Plan for the Plan Year, and is used by
the Plan for allocating Income or loss to Participant's Accounts.
7.3(f) Claims Procedure.
7.3(f)(1) General. A Participant may assign to this Plan any Excess
Elective Deferral made during a taxable year by filing a claim with the
Plan Administrator on or before
(i) Standard Option - March 1 or
(ii) Alternative - the alternative date for filing such claims
specified in the Adoption Agreement
Unless otherwise provided in administrative procedures established by
the Plan Administrator, such claim shall be in writing, shall specify
the dollar amount of the Participant's Excess Elective Deferrals
assigned to this Plan for such taxable year, and shall be accompanied
by the Participant's written statement that such amounts, if not
distributed to such Participant, will exceed the limit imposed on the
Participant by Code (S)402(g) for the taxable year in which the
deferral occurred.
7.3(f)(2) Deemed Claim. A Participant automatically shall be deemed to
have filed a claim under this (S)7.3(f) to the extent that such Excess
Elective Deferrals occurred solely as a result of Elective Deferrals
under this Plan and any other plans of the Employer and the Affiliates,
unless the Employer specifies in the Adoption Agreement that such
Excess Elective Deferrals shall be distributed from one or more of
such other plans.
7.4 Limitations on Elective Deferrals for Highly Compensated Employees
under Code (S)401(k).
7.4(a) Special Definitions. For purposes of this (S)7.4 the terms
defined in this (S)7.4(a) shall have the meanings shown opposite such
terms.
7.4(a)(1) Actual Deferral Percentage - means for each Plan Year
each Participant who is an Eligible Employee at any time during
such Plan Year the ratio (expressed as a percentage and determined
in accordance with (S)7.4(c)) of Employer Contributions made on
behalf of such Participant for such Plan Year to such Participant's
Compensation for such Plan Year. The Actual Deferral Percentage of
a Participant who is an Eligible Employee, but does not make an
Elective Deferral and does not receive an allocation of a Qualified
Nonelective Contribution or a Qualified matching Contribution,
shall be Zero.
7.4(a)(2) ADP (or Average Actual Deferral Percentage) - means for
each Plan Year separately for the group of Participants who are
Highly Compensated Employees during such Plan Year and for the
group of Participants who are Nonhighly Compensated Employees
during such Plan Year, the average (expressed as a percentage) of
the Actual Deferral Percentages of the Participants in each group
who are Eligible Employees at any time during such Plan Year.
7.4(a)(3) Employer Contributions - means for purposes of
determining a Participant's Actual Deferral Percentage for each
Plan Year, the sum of (i) the Elective Deferrals made pursuant to
the Participant's deferral election, including Excess Elective
Deferrals (as defined in (S)7.3(c)) of Highly Compensated
Employees, but excluding Excess Elective Deferrals of Nonhighly
Compensated Employees that arise solely from Elective Deferrals
made under this Plan or any other plans of the Employer and
Affiliates, and excluding Elective Deferrals that are taken into
account in the ACP test described in (S)7.5(b) (provided the ADP
test is satisfied both with and without exclusion of such Elective
Deferrals), and (ii) at the election of the Employer, Qualified
Nonelective Contributions and Qualified Matching Contributions.
7.4(a)(4) Excess Contributions - means for each Plan Year for each
Highly Compensated Employee the excess of the aggregate amount of
Employer Contributions actually taken into account in computing the
Average Deferral Percentage of such Highly Compensated Employee for
such Plan Year over the maximum amount of such contributions
permitted for such Plan Year under the ADP limit as set forth in
(S)7.4(b) (determined by reducing Elective Deferrals, Qualified
Nonelective Contributions and Qualified Matching Contributions
made on behalf of Highly Compensated Employees in order of their
Actual Deferral Percentages, beginning with the highest of such
percentages).
7.4(a)(5) Highly Compensated Employee - means any Employee who is
either a "highly compensated active employee" or a "highly
compensated former employee" as described below.
(i) A "highly compensated active employee" means any Employee
who performs services for the Employer or any Affiliate during
the "determination year" and who, during the "look-back year":
(A) received compensation from the Employer or any Affiliate in
excess of $75,000 (as adjusted pursuant to Code (S)415(d)); (B)
received compensation from the Employer or any Affiliate in
excess of $50,000 (as adjusted pursuant to Code (S)415(d)) and
was a member of the "top-paid group" for such year; or (C) was
an officer of the Employer or any Affiliate and received
compensation during such year that is greater than 50% of the
dollar limitation in effect under Code (S)415(b)(1)(A). The
term "highly compensated employee" shall also include: (I) an
Employee who is both described in the preceding sentence if the
term "determination year" is substituted for the term "look-
back year" and is one of the 100 Employees who received the
most compensation from the Employer or any Affiliate during the
determination year; and (II) an Employee who is a 5% owner at
any time during the look-back year or determination year. If no
officer has satisfied the compensation requirement of clause
(C) above during either a determination year or look-back year,
the highest paid officer for each such year shall be treated as
a Highly Compensated Employee.
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(ii) A "highly compensated former employee" means any Employee who
separated (or was deemed to have separated) from service prior to the
determination year, performs no services for the Employer or any
Affiliate during the determination year, and was a highly compensated
active employee for either the separation year or any determination
year ending on or after the Employee's 55th birthday.
(iii) For purposes of this definition, the "determination year"shall
mean the Plan Year and the "look-back year" shall mean the 12-month
period immediately preceding the determination year.
(iv) If an Employee is, during a determination year or look-back
year, a Family Member of either a 5% owner who is an active or former
Employee or a Highly Compensated Employee who is one of the 10 most
Highly Compensated Employees ranked on the basis of compensation paid
by the Employer during such year (" top-ten Highly Compensated
Employee"), then the Family Member and the 5% owner or top-ten Highly
Compensated Employee shall be treated as a single Employee receiving
compensation and Plan contributions or benefits equal to the sum of
such compensation and contributions or benefits of the Family Member
and the 5% owner or top-ten Highly Compensated Employee.
(v) The determination of who is a Highly Compensated Employee,
including the determination of the number and identity of Employees
in the top-paid group, the top 100 Employees, the number of Employees
treated as officers and the compensation that is considered, shall be
made in accordance with Code (S)414(q) including any available
operational transition rules and any elections provided in the
regulations under Code (S)414(q) and specified in the Adoption
Agreement.
7.4(b) ADP Limit. The ADP for Highly Compensated Employee for any Plan Year
shall not exceed
7.4(b)(1) the ADP for Nonhighly Compensated Employees for such Plan Year
Multiplied by 1.25, or
7.4(b)(2) The ADP for Nonhighly Compensated Employees for such Plan Year
multiplied by 2,provided that the ADP Highly Compensated Employees does not
exceed the ADP for Nonhighly Compensated Employees by more than 2
percentage points.
7.4(c) Special Rules.
7.4(c)(1) Other Plans. The Actual Deferral Percentage for any participant
who is a Highly Compensated Employee for the Plan Year and who is eligible
to participate in more than one cash or deferred arrangement maintained by
the Employer or an Affiliate shall be determined by treating all such
arrangements as a single arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred arrangements that have
different plan years, all such arrangements ending with or within the same
calendar year shall be treated as a single arrangement. Notwithstanding the
foregoing, plans which are mandatorily disaggregated under regulations
under Code (S)401(k)shall be treated as separate.
7.4(c)(2) Aggregation. In the event that this Plan satisfies the
requirements of Code (S)410 only if aggregated with on or more other plans,
or if one or more other plans satisfy the requirements of such Code section
only if aggregated with this Plan, then this (S)7.4 shall be applied by
determining the Actual Deferral Percentages and ADP as if all such plans
were a single plan. For Plan Years beginning on and after the Final
Compliance Date, such plans may be aggregated only if they have the same
plan years and are not madatorily disaggregated under regulations under
Code (S)401(k).
7.4(c)(3) Family Members. For purposes of determining the Actual Deferral
Percentage of a Participant who is 5% owner or one of the 10 most highly
paid Highly Compensated Employees and who is an Eligible Employee at any
time during the Plan Year, the Employer Contributions and Compensation of
such Participant shall include the Employer Contributions and Compensation
of his or her Family Members, and such Family Members shall be disregarded
as separate Participants in determining the ADP both for Nonhighly
Compensated Employees and for Highly Compensated Employees.
7.4(c)(4) Timing. For purposes of determining the Actual Deferral
Percentages for any Plan Year, Elective Deferrals, Qualified Nonelective
Contributions and Qualified Matching Contributions shall be considered made
for such Plan Year only if such contributions are allocated as of a date
within such Plan Year and are actually paid to the Fund by the last day of
the 12 month period immediately following such Plan Year.
7.4(c)(5) Records. The Plan Administrator shall maintain records which are
sufficient to demonstrate that the Plan complied with the ADP limits,
including the extent to which Qualified Nonelective Contributions and
Qualified Matching Contributions are taken into account to satisfy such ADP
limits.
7.4(c)(6) Other Requirements. The determination and treatment of the
Elective Deferrals and Actual Deferral Percentage of any Participant shall
satisfy such other requirements as may be prescribed by the Secretary of
the Treasury.
7.4(d) Distribution of Excess Contributions.
7.4(d)(1) General. Notwithstanding any other provision of this Plan
restricting the timing of distributions, Excess Contributions for any Plan
Year, plus any income and minus any loss allocable thereto, shall be
distributed no later than the last day of the immediately following Plan
Year to Participants on whose behalf such Excess Contributions were made.
If such Excess Contributions are distributed more than 2 1\2 months after
the last day of the Plan Year in which such excess occurred, a 10% excise
tax shall be imposed under Code (S)4979 on the Employer with respect to
such excess. Such distributions shall be made to such Participants on the
basis of the respective portions of the Excess Contributions attributable
to such Participant. Excess Contributions shall be allocated to
Participants who are subject to the Family Member aggregation rules under
Code (S)414(q)(6) in the manner prescribed by the regulations under Code
(S)401(k).
7.4(d)(2) Determination of Income or Loss. A corrective distribution of
Excess of Excess Contributions under this (S)7.4 shall include the income
or loss allocable to such Excess Contributions for the Plan Year in which
such excess occurred and, if so specified in the Adoption Agreement, for
the period between the end of such Plan Year and the date of distribution
("gap period"). The income or loss for such Plan Year and gap period, if
applicable, shall be determined in accordance with the regulations under
Code (S)401(k). In lieu of using the safe harbor method or the alternative
method in the regulations for allocating such income or loss, the Plan
Administrator may use any reasonable method for computing such income or
loss, provided that such method does not violate Code (S)401(a)(4), is used
consistently for all Participants and for all corrective distributions
under the Plan for the Plan Year, and is used by the Plan for allocating
income or loss to Participant's Accounts.
7.4(d)(3) Order for Determining Excess Contributions. Excess Contributions
shall be determined after first determining Excess Elective Deferrals under
(S)7.3.The Excess Contributions which would otherwise be distributed to the
Participant shall be reduced, in accordance with regulations, by the Excess
Elective Deferrals distributed to the Participant under (S)7.3.
7.4(d)(4) Accounting for Excess Contributions. Excess Contributions shall
be distributed proportionately from the Participant's Elective Deferral
Account and Qualified Matching Account in the same ratio that such
Participant's Elective Deferrals and Qualified Matching Contributions for
the Plan Year in which such Excess Contributions were made bears to the sum
of the Participant's Elective Deferrals and Qualified Matching
Contributions for such Plan Year. Excess Contributions shall be distributed
from the Participant's Qualified Nonelective Account only to the extent
that such Excess Contributions exceed the balance in the Participants
Elective Deferral Account and Qualified Matching Account. Notwithstanding
the foregoing,Excess Nontributions may be distributed from the applicable
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subaccounts in accordance with procedures established by the Plan
Administrator provided such procedures do not result in
discrimination in favor of Highly Compensated Employees which would
be prohibited under Code (S)401(a)(4).
7.4(e) Recharacterization. If the Employer specifies in the Adoption
Agreement that Excess Contributions may be recharacterized, a Participant
may elect to treat Excess Contributions as an amount distributed to the
Participant and then contributed as an Employee Contribution to the Plan.
Any such Excess Contribution which is so recharacterized as an Employee
Contribution shall remain nonforfeitable and shall thereafter be subject to
the same distribution restrictions applicable to Elective Deferrals under
(S)9.2(b). Excess Contributions shall not be recharacterized by a
Participant to the extent that such amounts, in combination with other
Employee Contributions, would exceed any limits on Employee Contributions
set forth in the Plan or in the Adoption Agreement.
Any such recharacterization must occur no later than 2 1/2 months after the
end or the Plan Year in which such Excess Contribution occurred and shall
be deemed to occur no earlier than the date on which the last Highly
Compensated Employee is informed in writing of the amount recharacterized
and the consequences of such recharacterization. Any Excess Contributions
which are so recharacterized shall be taxable to the Participant for the
taxable year in which the Participant would have received such amount in
cash but for the deferral election.
7.5 Limitations on Employee Contributions and Matching Contributions under Code
(S)401(m).
7.5(a) Special Definitions. For purposes of this (S)7.5 the terms defined
in this (S)7.5(a) shall have the meanings shown opposite such terms.
7.5(a)(1) Aggregate Limit - means the sum of
(i) 125% of the greater (or lesser, if it would result in a
larger Aggregate Limit) of
(A) the ADP for Nonhighly Compensated Employees under the
plan subject to Code (S)401(k) for the plan year or
(B) the ACP for Nonhighly Compensated Employees under the
plan subject to Code (S)401(m) for the plan year
beginning with or within the plan year of the plan which
is subject to Code (S)401(k) and
(ii) the lesser of
(A) 200% of such ADP or ACP or
(B) two plus the lesser (or greater, if it would result
in a larger Aggregate Limit) of such ADP or ACP.
7.5(a)(2) ACP (or Average Contribution Percentage) - means for each
Plan Year separately for the group of participants who are Highly
Compensated Employees during such Plan year and for the group of
Participants who are Nonhighly Compensated Employees during such Plan
Year, the average (expressed as a percentage) of the Contribution
Percentages of the Participants in each such group who are Eligible
Employees at any time during such Plan Year.
7.5(a)(3) contribution Percentage - means for each Plan Year for each
participant who is an Eligible Employee at any time during such Plan
Year, the ratio (expressed as a percentage and determined in
accordance with (S)7.5(c)) of such Participant's Contribution
Percentage Amount for such Plan Year to such Participant's
Compensation for such Plan Year. The Contribution Percentage of a
Participant who is eligible to, but does not, make Employee
contributions or Elective Deferrals and who, as a result of such
failure to make such contributions, does not receive an allocation of
a Matching Contribution or Qualified Matching Contribution shall be
zero.
7.5(a)(4) Contribution Percentage Amount - means for each Plan Year
for each Participant who is an Eligible Employee at any time during
such Plan Year the sum of
(i) the Employee Contributions, Matching Contributions and
Qualified Matching Contributions (to the extent not taken into
account for purposes of the ADP test described in (S)7.4) made
on behalf of such Participant for such Plan Year, other than
Matching Contributions which are forfeited either to correct
Excess Aggregate Contributions or because the contributions to
which they relate are Excess Elective Deferrals, Excess
Contributions or Excess Aggregate Contributions,
(ii) the Forfeitures allocated to such Participant's Account
for such Plan Year which are attributable to Matching
Contributions and Excess Aggregate Contributions,
(iii) at the election of the Employer, the Qualified
Nonelective Contributions made on behalf of such Participant
for such Plan Year (to the extent not taken into account for
purposes of the ADP test described in (S)7.4), and
(iv) at the election of the Employer, Elective Deferrals
(provided the ADP limit described in (S)7.4 is met both
including and excluding the Elective Deferrals that are used to
meet the ACP limit).
7.5(a)(5) Employee Contribution - means for purposes of determining a
Participant's Contribution Percentage Amount any contributions made
by the participant which are included in gross income for the taxable
year in which made and which are maintained in a separate account to
which earnings and losses are allocated.
7.5(a)(6) Excess Aggregate Contribution - means for each Plan Year
for each Highly Compensated Employee the excess of the aggregate
Contribution Percentage Amounts actually taken into account in
computing the ACP of such Highly Compensated Employee for such Plan
Year over the maximum Contribution Percentage Amounts permitted for
such Plan Year under the ACP limit as set forth in (S)7.5(b)
(determined by reducing contributions and Forfeiture on behalf of
Highly Compensated Employees in order of their Contribution
Percentages, beginning with the highest of such percentages).
7.5(a)(7) Matching Contribution- means for purposes of determining a
Participant's Contribution Percentage Amount any Employer
contribution made to this Plan or any other defined contribution plan
on account of an Employee Contribution or Elective Deferral made by
or on behalf of the Participant under a plan maintained by the
Employer.
7.5(b) ACP Limit. The ACP for Participants who are Highly Compensated
Employees for any Plan Year shall not exceed
7.5(b)(1) the ACP for Participants who are Nonhighly Compensated
Employees for such Plan Year multiplied by 1.25, or
7.5(b)(2) the ACP for Participants who are Nonhighly Compensated
Employees for such Plan Year multiplied by 2, provided that the ACP
for Participants who are Highly Compensated Employees does not exceed
the ACP for Participants who are Nonhighly Compensated Employees by
more than 2 percentage points.
7.5(c) Special Rules.
7.5(c)(1) Multiple Use. For Plan Years beginning after the Final
Compliance Date, if
(i) one or more Highly Compensated Employees participates
both in a plan with a qualified cash or deferred arrangement
which is subject to the ADP limitations under Code (S)401(k) as
described in (S)7.4 and in a plan which is subject to the ACP
limitations under Code (S)401(m) as described in this (S)7.5,
(ii) the sum of the ADP of the eligible Highly Compensated
Employees in the plan subject to Code (S)401(k) and the ACP of
the eligible Highly Compensated Employees in the plan subject
to Code (S)401(m) exceeds the Aggregate Limit, and
(iii) both the ADP and the ACP of the eligible Highly
Compensated Employees in such plans exceed 125% of the ADP or
ACP respectively of the eligible Nonhighly Compensated
Employees in such plans.
then the Contribution Percentages of the Highly Compensated Employees
who participate in both such plans shall be reduced (beginning with
the highest of such percentages) so that the Aggregate Limit for such
plans is not exceeded. Any such reduction shall be treated as an
Excess Aggregate Contribution. The determination of the limitations
under this special rule shall
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be made after any corrections required to meet the ADP limits and the ACP
limits and in accordance with the regulations under Code (S)401(m).
7.5(c)(2) Other Plans. The Contribution Percentage for any Participant
who is a Highly Compensated Employee for the Plan Year and who is
eligible to participate in more than one plan maintained by the Employer
or an Affiliate to which "employee contributions" (within the meaning of
Code (S)401(m) or "matching contributions" (as described in Code
(S)401(m)(4) are made shall be determined by treating all such plans as
one plan. If a Highly Compensated Employee participates in two or more
such plans that have different plan years, all such plans ending with or
within the same calendar year shall be treated as a single plan.
Notwithstanding the foregoing, plans which are mandatorily disaggregated
under regulations under Code (S)401(m) shall be treated as separate.
7.5(c)(3) Aggregation. In the event that this Plan satisfies the
requirements of Code (S)410(b) only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements of such
Code sections only if aggregated with this Plan, then this (S)7.5 shall
be applied by determining the Contribution Percentages and ACP as if all
such plans were a single plan. For Plan Years beginning on and after the
Final Compliance Date, such plans may be aggregated only if they have the
same plan years and they are not mandatorily disaggregated under
regulations under Code (S)401(m).
7.5(c)(4) Family Members. For purposes of determining the Contribution
Percentage of a Participant who is a 5% owner or one of the 10 most
highly paid Highly Compensated Employees, the Contribution Percentage
Amounts and Compensation of such Participant shall include the
Contribution Percentage Amounts and Compensation of his or her Family
Members, and such Family Members shall be disregarded as separate
Participants in determining the ACP both for Participants who are
Nonhighly Compensated Employees and for Participants who are Highly
Compensated Employees.
7.5(c)(5) Timing. For purposes of determining the ACP for any Plan Year,
Employee Contribution shall be considered made in the Plan Year in which
they are actually contributed to the Fund and Matching Contributions
(and, if applicable, Qualified Matching Contributions and Qualified
Nonelective Contributions) shall be considered made for such Plan Year
only if such contributions are allocated as of a date within such Plan
Year and are actually paid to the Fund by the last day of the 12-month
period immediately following such Plan Year.
7.5(c)(6) Records. The Plan Administrator shall maintain records which
are sufficient to demonstrate that the Plan complied with the ACP limits,
including the extent to which Elective Deferrals, Qualified Nonelective
Contributions and Qualified Matching Contributions are taken into account
to satisfy such ACP limits.
7.5(c)(7) Other Requirements. The determination and treatment of the
Contribution Percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the Treasury.
7.5(d) Distribution of Excess Aggregate Contribution.
7.5(d)(1) General. Notwithstanding any other provisions of this Plan
restricting the timing of distributions, Excess Aggregate Contributions
for any Plan Year, plus any income and minus any loss allocable thereto,
shall be forfeited (if otherwise forfeitable under the Plan) or
distributed (if not forfeitable) from the Accounts of Participants on
whose behalf such Excess Aggregate Contributions were made no later than
the last day of the immediately following Plan Year. If such Excess
Aggregate Contributions are distributed more than 2 1/2 months after the
last day of the Plan Year in which such excess occurred, a 10% excise tax
shall be imposed under Code (S)4979 on the Employer with respect to such
excess. Excess Aggregate Contributions shall be allocated to Participants
who are subject to the Family Member aggregation rules under Code
(S)414(q)(6) in the manner prescribed by the regulations under Code
(S)401(m).
7.5(d)(2) Determination of Income or Loss. A corrective distribution of
Excess Aggregate Contributions under this (S)7.5 shall include the income
or loss allocable to such Excess Aggregate Contributions for the Plan
Year in which such excess occurred and, if so specified in the Adoption
Agreement, for the period between the end of such Plan Year and the date
of distribution ("gap period"). The income or loss for such Plan Year and
gap period, if applicable, shall be determined in accordance with the
regulations under Code (S)401(m). In lieu of using the safe harbor method
or the alternative method in the regulations for allocating such income
or loss, the Plan Administrator may use any reasonable method for
computing such income or loss, provided that such method does not violate
Code (S)401(a)(4), is used consistently for all Participants and for all
corrective distributions under the Plan for the Plan Year, and is used by
the Plan for allocating income or loss to Participant's Accounts.
7.5(d)(3) Order for Determining Excess Aggregate Contributions. Excess
Aggregate Contributions shall be determined after first determining
Excess Elective Deferrals under (S)7.3 and then determining Excess
Contributions under (s)7.4.
7.5(d)(4) Accounting for Excess Aggregate Contributions. Excess Aggregate
Contributions shall be forfeited (if otherwise forfeitable) or
distributed (if not forfeitable) to the Highly Compensated Employee from
the Participant's Employee Account, Matching Account, Qualified Matching
Account, Qualified Nonelective Account and Elective Deferral Account in
the same ratio that the contributions made on the Participant's behalf
to such account (to the extent such contributions are used in the ACP
test) for the Plan Year in which such Excess Aggregate Contributions were
made bears to the total of all such contributions. Notwithstanding the
foregoing, Excess Aggregate Contributions may be distributed from the
applicable subaccounts in accordance with procedures established by the
Plan Administrator provided such procedures do not result in
discrimination in favor of Highly Compensated Employees which would be
prohibited under Code (S)401(a)(4).
7.5(d)(5) Allocation of Forfeitures. Amounts forfeited by Highly
Compensated Employees under this (S)7.5 shall be allocated or applied in
accordance with (S)6.3(c)(2); provided, no Forfeitures arising under this
(S)7.5 shall be allocated to the Account of any Highly Compensated
Employee.
SECTION 8. VESTING AND FORFEITURES
8.1 Determination of Nonforfeitable Percentage.
8.1(a) Fully Vested Accounts. Each Rollover Account, Employee Account,
Elective Deferral Account, Qualified Matching Account and Qualified
Nonelective Account shall be completely nonforfeitable at all times.
8.1(b) Death, Disability and Retirement. The Employer Account and Matching
Account of each Participant who reaches Early Retirement Age or Normal
Retirement Age while an Employee shall become completely nonforfeitable on
such date. The Employer Account and Matching Account of each Participant who
dies while an Employee or who becomes Disabled while an Employee
8.1(b)(1) Standard Option - shall become completely nonforfeitable on
such date.
8.2(b)(2) Alternative - if so specified in the Adoption Agreement, shall
be determined in accordance with the vesting schedule under (S)8.1(c).
8.1(c) Other Separation Form Service. Subject to (S)12.4, the nonforfeitable
percentage of the Employer Account and Matching Account of a Participant
other than a Participant described in (S)8.1(b) shall be based on the
Participant's Years of Service and on the following vesting schedule.
8.1(c)(1) Standard Option - the full and immediate vesting schedule.
8.1(c)(2) Alternative - the alternative vesting schedule specified in the
Adoption Agreement;
provided, however, if the Participant Requirement (or the requirement to
receive an allocation of Employer contributions under a 401(k) Plan)
consists of a minimum period of service which exceeds one year, the full and
immediate vesting schedule shall
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automatically apply notwithstanding any election to the contrary in the
Adoption Agreement.
8.1(d) Employee Contribution Withdrawals. No Forfeiture shall occur solely
as a result of a Participant's withdrawal of Employee Contributions.
8.2 Forfeiture and Special Reemployment Rules.
8.2(a) Buy Back Rule (Standard Option).
8.2(a)(1) Forfeiture. The forfeitable portion, if any, of the Employer
Account and Matching Account of a Participant who separates from
service shall become a Forfeiture on the earlier of
(i) the date as of which the Participant receives (or is deemed to
receive under (S)8.2(c)) a distribution of the Participant's entire
nonforfeitable Account balance derived from Employer
Contributions, or
(ii) the date he or she has 5 consecutive Breaks in Service (6
consecutive Breaks in Service if the Alternative
Maternity/Paternity Rule applies).
If a Participant elects to have distributed less than the entire
nonforfeitable balance of the Participant's Employer Account and
Matching Account, the part of such accounts that shall be treated as a
Forfeiture if the total forfeitable portion of such Accounts multiplied
by a fraction, the numerator of which is the amount of distribution
from the Participant's Employer Account or Matching Account and the
denominator of which shall be the total nonforfeitable balance of the
Participant's Employer Account or Matching Account at the time of the
distribution.
Any such Forfeiture shall be allocated or applied in accordance with
(S)6 on the Valuation Date specified in (S)8.2(e).
8.2(a)(2) Reemployment. If a Participant receives a distribution and
resumes employment covered under this Plan before the Participant has 5
consecutive Breaks in Service (6 consecutive Breaks in Service if the
Alternative Maternity/Paternity Rule applies), the Employer shall
restore to the Participant's Employer Account and Matching Account an
amount equal to the dollar amount of the Forfeitures from such accounts
if the Participant repays to the Plan an amount equal to the dollar
amount of the distributions from the Participant's Employer Account and
Matching Account in accordance with this (S)8.2(a). Such repayment must
be made before the earlier of (a) 5 years after the first date on which
the Participant is subsequently reemployed by the Employer or a
Participating Affiliate or (b) the date the Participant incurs 5
consecutive Breaks in Service (6 consecutive Breaks in Service if the
Alternative Maternity/Paternity Rule applies) following the date of the
distribution.
if a Participant whose nonforfeitable Account balance is zero is deemed
to receive a distribution under (S)8.2(c) and he or she resumes
employment covered under this Plan before he or she has 5 consecutive
Breaks in Service (6 consecutive Breaks in Service if the Alternative
Maternity/Paternity Rule applies), the forfeitable portion of the
Participant's Employer Account and Matching Account shall automatically
be restored by the Employer upon the Participant's reemployment.
Any amount restored by the Employer under (S)8.2(a) shall be restored
upon repayment from the sources specified in (S)8.2(d). Such restored
or repaid amount shall not be treated as an Annual Addition under
(S)7.2 and shall be credited to the Participant's Employer Account and
Matching Account in the same proportion as the distribution was made
from such accounts.
8.2(b) Automatic Restoration (Alternative). This (S)8.2(b) shall apply if
the Employer specifies the use of the "Alternative to the Buy Back Rule" in
the Adoption Agreement.
8.2(b)(1) Forfeiture. The forfeitable portion, if any, of the Employer
Account and Matching Account of a Participant who separates from
service shall become a Forfeiture on the earlier of
(i) the date as of which payment of the nonforfeitable percentage
of the Participant's Account derived from Employer contributions
begins or is deemed to begin under (S)8.2(c) or
(ii) the date he or she has 5 consecutive Breaks in Service (6
consecutive Breaks in Service if the Alternative
Maternity/Paternity Rule applies)
and such Forfeiture shall be allocated or applied in accordance with
(S)6 on the allocation date specified in (S)8.2(e) unless he or she is
reemployed on or before such allocation date.
8.2(b)(2) Reemployment. If a Participant is reemployed before the
Participant incurs 5 consecutive Breaks in Service (6 Consecutive
Breaks in Service if the Alternative Maternity/Paternity Rule applies)
but after the date of a Forfeiture under (S)8.2(b)(1), the Employer
shall restore to such Participant as of the last day of the Plan Year
in which he or she is reemployed an amount equal to the dollar amount
of such Forfeiture.
Any amount restored by the Employer under this (S)(S)8.2(b) shall be
restored from the sources specified in (S)8.2(d). Such restored amount
shall not be treated as an Annual Addition under (S)7.2 for such Plan
Year. The restored amount, together with any remaining balance of the
nonforfeitable portion of the Employer Account and Matching Account
attributable to the Participant's service prior to reemployment, shall
be maintained thereafter as separate special subaccounts of the
Participant's Employer Account and Matching Account (until such time as
it becomes completely nonforfeitable or again becomes a Forfeiture),
and the dollar amount of the Participant's nonforfeitable percentage in
each such special subaccount thereafter shall be determined in
accordance with Formula A unless Formula B is specified in the Adoption
Agreement:
(i) Formula A (Standard Option): X = P (AB + D) - D
(ii) Formula B (Alternative): X = P (AB + (R x D)) - (R x D)
For purposes of these formulas:
X = The current dollar amount, if any, of the nonforfeitable
percentage in the Participant's special subaccount;
P = The Participant's current nonforfeitable percentage as
determined under (S)8.1;
AB = Such dollar amount, if any, as evidenced by the last balance
posted to the Participant's special subaccount;
D = The dollar amount previously paid to the Participant under (S)9
from the Participant's original Employer Account or Matching
Account, as applicable; and
R = The ratio of AB to the dollar amount, if any, posted to the
Participant's Employer Account or Matching Account, as applicable,
immediately after the distribution.
8.2(c) Deemed Distribution. If the nonforfeitable portion of a
Participant's Account balance derived from Employer and Employee
contributions is zero, the Participant shall be deemed to have received a
distribution of the nonforfeitable portion of the Participant's Account
upon the Participant's separation from service.
A Participant's nonforfeitable Account balance derived from Employee
contributions shall not include accumulated deductible employee
contributions within the meaning of Code (S)7.2(o)(5)(B) for Plan Years
beginning prior to January 1, 1989.
8.2(d) Restoration Sources. Any amount restored under this (S)8.2 shall be
restored from the following sources in the following order: first, from
Forfeitures occurring in the Plan Year in which such amounts are restored,
if any; second, from Employer Contributions for such Plan Year, if any;
third from Fund Earnings for such Plan Year; and finally, from additional
Employer Contributions. However, at the election of the Employer, such
amounts shall be restored entirely from additional Employer Contributions.
8.2(e) Date Forfeitures Applied or Allocated. Any amounts which become a
Forfeiture under this (S)8.2 shall be allocated or applied as of the
allocation date specified in (S)6 which coincides with or immediately
follows the date such Forfeiture occurs, except that the Employer may
specify in the Adoption Agreement that Forfeitures which are applied to
reduce Employer Contributions, Matching Contributions, Qualified Matching
Contributions or Qualified Nonelective Contributions shall be so applied as
of the allocation
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date for such contributions which immediately follows the last day of the
Plan Year in which such Forfeiture occurs.
8.2(f) In-service Distributions. The provisions of their (S)8.2(f) shall
apply if the Plan permits in-service distribution under (S)9.2.
If a distribution is made at a time when a Participant has nonforfeitable
right to less than 100% of his or her Employer Account or Matching Account
and the Participant may increase the nonforfeitable percentage in such
Account.
8.2(f)(1) A separate special subaccount of the Participant's Employer
Account and Matching Account shall be established to record the
Participant's interest in such accounts as of the time of the
distribution; and
8.2(f)(2) At any relevant time the Participant's nonforfeitable portion
of each such special subaccount shall be determined in accordance with
the formula specified in (S)8.2(b).
SECTION 9. ACCOUNT DISTRIBUTION - GENERAL RULES
9.1 After Separation From Service. Subject to the rules in this (S)9, (S)10,
Benefit Payment Forms - Joint and Survivor Annuity Requirements, and (S)11,
Minimum Distribution Requirements, the nonforfeitable portion of each
Participant's Account (as determined in accordance with (S)8) shall not be
payable to such Participant before he or she separates from service with the
Employer and all Affiliates.
9.1(a) Timing. A Participant who has separated from service with the
Employer and all Affiliates.
9.1(a)(1) Standard Option - may request a distribution of the
nonforfeitable portion of his or her Account as soon as practicable
after such separation from service.
9.1(a)(2) Alternative - if so specified in the Adoption Agreement, may
not request a distribution of the nonforfeitable portion of his or her
Account until Normal Retirement Age, Early Retirement Age or
Disability, whichever is earlier.
9.1(b) Reemployment. Except as required in (S)11, no payment shall be made
under this (S)9.1 if the Participant who separates from service is
reemployed as an Employee before payment is made. If a Participant is
reemployed as an Employee after payment of the nonforfeitable portion of
the Participant's Account has begun but before the entire balance
attributable to such nonforfeitable portion has been paid (or applied to
purchase an annuity), payments to the Participant from such balance shall
be terminated on the date he or she is so reemployed and no further
payments shall be made to the Participant until he or she is subsequently
entitled to such payments in accordance with the terms of this Plan.
9.1(c) $3500 Cashout. The nonforfeitable portion of a Participant's Account
shall be distributed in a single sum to such Participant (or to the
Participant's Beneficiary in the event of the Participant's death) as soon
as administratively practicable following the Participant's separation from
service with the Employer and all Affiliates for any reason if the
nonforfeitable portion of such Account is (and at the time of any prior
distribution was) $3500 or less. Any such distributions made on or after
January 1, 1993 shall be made in accordance with any applicable rules
regarding the period for providing notices under Code (S)402(f) and for
making direct rollover elections under Code (S)401(a)(31).
9.1(d) Claim. Except as provided in this (S)9 and (S)11, no payment shall
be made until a written claim for such payment is filed with the Plan
Administrator on an Election Form. The Plan Administrator shall process
each such claim in accordance with the claims procedure described in the
summary plan description for this Plan. If no such claim is submitted and
the Participant does not defer payment pursuant to (S)9.1(e), payment may
be made as soon as the benefit is not immediately distributable (within the
meaning of (S)9.3) and shall in any event, begin no later than 60 days
following the end of the Plan Year in which
9.1(d)(1) the Participant separates from service as an Employee,
9.1(d)(2) the Participant reaches age 65 or Normal Retirement Age, if
earlier, or
9.1(d)(3) occurs the 10th anniversary of the year in which the
Participant commenced participation in the Plan, whichever occurs last.
9.1(e) Election to Defer Payment. If a Participant has separated from the
service with Employer and all Affiliates and the nonforfeitable portion of
the Participant's Account is (or at the time of any prior distribution was)
more than $3500, the Participant may defer distribution of that
nonforfeitable portion, but in no event beyond
9.1(e)(1) Standard Option - the Participant's Required Beginning Date
(as defined in (S)11).
9.1(e)(2) Alternative - if so specified in the Adoption Agreement the
later of the Participant's Normal Retirement Age or age 62.
The failure of a Participant and his or her Spouse, if applicable, to
consent to a distribution or make a written request to deter payment while
a benefit is immediately distributable (within the meaning of (S)9.3 shall
be deemed to be an election to defer commencement of payment of any benefit
under (S)9 until the benefit is no longer immediately distributable or, if
(S)9.1(e)(1) applies, until the Required Beginning Date.
Nothing in this (S)9.1(e) shall prevent the Plan Administrator from paying in
the normal form a benefit which is not immediately distributable without regard
to whether the Participant and his or her Spouse consent to such distribution,
unless the Participant has requested a deferral pursuant to (S)9.1(e)(2).
9.1(f) Early Retirement Age. If the Early Retirement Age includes both an
age and service requirement, any Participant who separates from service
before satisfying such age requirement, may request a distribution of
the nonforfeitable portion of his or her Account upon satisfaction of such
age requirement.
9.1(g) Death. In the event of the Participant's death, the nonforfeitable
portion of the Participant's Account shall be payable to the Participant's
Beneficiary as soon as administratively practicable after the Participant's
death.
9.2 Before Separation From Service. Subject to the rules in this (S)9, (S)10,
Joint and Survivor Annuity Requirements, and (S)11, Minimum Distribution
Requirements, the nonforfeitable portion of a Participant's Account may be paid
to the Participant before he or she separates from service with the Employer and
all Affiliates if so specified in the Adoption Agreement or by the Board in
accordance with (S)9.2(b)(2) or (S)9.2(e).
9.2(a) Money Purchase Pension Plan or Target Benefit Pension Plan. If this
Plan is adopted as a Money Purchase Pension Plan or a Target Benefit
Pension Plan,
9.2(a)(1) Standard Option - except as provided in (S)9.2(d) or (e), no
distributions shall be made before a Participant separates from service
with the Employer and all Affiliates, or
9.2(a)(2) Alternative - if so specified in the Adoption Agreement, a
Participant may request a distribution of all or a portion of the
nonforfeitable portion of the Participant's Account on or after he or
she reaches Normal Retirement Age without regard to whether he or she
has separated from service.
9.2(b) 401(k) Plan.
9.2(b)(1) Distribution Restrictions. If this Plan is adopted as a
401(k) Plan, then, except as provided in this (S)9.2(b), a
Participant's Elective Deferral Account, Qualified Nonelective Account
and Qualified Matching Account shall not be distributable to the
Participant or the Participant's Beneficiary earlier than upon the
Participant's separation from service with the Employer and all
Affiliates, death, or Disability.
9.2(b)(2) Termination of Plan or Disposition of Assets or Subsidiary.
Notwithstanding (S)9.2(b)(1) and subject to the Participant and spousal
consent rules in (S)9.3 and (S)10, the Employer may, by action of its
Board, make lump sum distributions (within the meaning of Code
(S)401(k)(10)(B)(ii)) of a Participant's Account, including the
Participant's Elective Deferral Account, Qualified Nonelective Account
and Qualified Matching Account in accordance with Code (S)401(k) by
reason of
(i) the termination of the Plan without the establishment of
another defined contribution plan (other than an employee stock
ownership plan as defined in Code (S)4975(e) or Code (S)409 or a
simplified employee pension as defined in Code (S) 408(k));
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(ii) the disposition by the Employer or a Participating Affiliate to
an unrelated entity of substantially all of the assets (within the
meaning of Code (S)409(d)(2) used by the Employer or such
Participating Affiliate in a trade or business of the Employer or a
Participating Affiliate, if the transferor continues to maintain this
Plan after such disposition, but such distributions shall be made
only with respect to a Participant who continues employment with the
entity acquiring such assets; or
(iii) the disposition by the Employer or a Participating Affiliate
which is a corporation to an unrelated entity of interest in a
subsidiary (within the meaning of Code (S)409(d)(3)), if the
transferor continues to maintain this Plan after such disposition,
but such distributions shall be made only with respect to a
Participant who continues employment with such former subsidiary.
9.2(b)(3) Hardship Distribution.
(i) General. If the Employer specifies in the Adoption Agreement
that hardship distributions shall be permitted, a Participant may
request a hardship distribution before he or she separates from
service from the Participant's Elective Deferral Account, (and, if
applicable, from the nonforfeitable portion of the other subaccounts
of such Account specified in the Adoption Agreement). The Plan
Administrator shall grant such request if, and to the extent that,
the Plan Administrator determines that such distribution is
"necessary" to satisfy an "immediate and heavy financial need" of the
Participant as determined in accordance with this (S)9.2(b)(3). Any
such request shall be made in writing, shall set forth in detail the
nature of such hardship and the amount of the distribution needed as
a result of such hardship, and shall include adequate documentation
of the type of financial need and the amount of the need. If the Plan
Administrator grants such request, such application shall be
processed and such distribution shall be made in a single sum as soon
as administratively practicable.
(ii) Safe Harbor Test for Financial Need. An "immediate and heavy
financial need" shall mean one or more of the following, as specified
in the Adoption Agreement,
(A) expenses for medical care described in Code (S)213(d)
incurred by the Participant or the Participant's spouse or
dependents (as defined in Code (S)152) and amounts necessary
for such individuals to obtain such care,
(B) the purchase of (but not the mortgage payments for) a
principal residence of the Participant,
(C) the payment of tuition and related educational fees for the
next 12 months of post-secondary education for the Participant
or the Participant's spouse, children or dependents (as defined
in Code (S)152),
(D) the prevention of the eviction of the Participant from the
Participant's principal residence or the foreclosure on the
mortgage of the Participant's principal residence, or
(E) such other events as the Internal Revenue Service deems to
constitute an "immediate and heavy financial need" under Code
(S)401(k).
(iii) Safe Harbor Test for Distribution Necessary to Satisfy Need. A
distribution shall be deemed to be "necessary" to satisfy an
immediate and heavy financial need only if all of the following
requirements are satisfied:
(A) the distribution is not in excess of the amount of such
need, including any amounts necessary to pay any federal,
state or local income taxes or penalties reasonably
anticipated to result from such withdrawal;
(B) the Participant has obtained all distributions (other than
hardship distributions) and all nontaxable loans currently
available under this Plan and all other plans maintained by the
Employer or an Affiliate;
(C) the Participant's Elective Deferrals and Employee
Contributions under this Plan and elective deferrals and
employee contributions under all other plans maintained by the
Employer or an Affiliate shall be suspended for the 12-month
period following the date of receipt of such hardship
distribution; and
(D) the Participant's Elective Deferrals under this Plan and
elective deferrals under all other plans maintained by the
Employer or an Affiliate for the Participant's taxable year
immediately following the taxable year in which such hardship
distribution was made shall not exceed the applicable dollar
limitation under Code (S)402(g) for such following taxable year
less the amount of the Participant's Elective Deferrals under
this Plan and elective deferrals under all such other plans for
the taxable year in which such hardship distribution was made.
(iv) Account Limitations. For Plan Years beginning after December
31, 1988, no hardship distribution shall be made under this
(S)9.2(b)(3) to a Participant from
(A) the Participant's Qualified Nonelective Account,
(B) the Participant's Qualified Matching Account, or
(C) the Fund Earnings allocated to the Participant's Elective
Deferral Account
except to the extent of amounts credited to such Accounts as of the
end of the last Plan Year ending before July 1, 1989.
9.2(b)(4) Distributions on or after Age 59-1/2. If the Employer specifies
in the Adoption Agreement that distributions shall be permitted on or after
age 59-1/2, a Participant may request a distribution of all or a portion of
the nonforfeitable portion of the subaccounts of the Participant's Account
specified in the Adoption Agreement at any time on or after he or she
reaches age 59-1/2. Any such request shall be made in writing on an
Election Form and such distribution shall be made in a single sum as soon
as practicable in accordance with such reasonable nondiscretionary
procedures as the Plan Administrator deems appropriate under the
circumstances for the proper administration of the Plan.
9.2(b)(5) Employer Account and Matching Account. If so specified in the
Adoption Agreement, a Participant may request in accordance with reasonable
and nondiscriminatory procedures a distribution of all or a portion of the
nonforfeitable portion of the Participant's Employer Account and Matching
Account after a fixed number of years, the attainment of a stated age or
upon the occurrence of some prior event as specified in the Adoption
Agreement.
9.2(c) Profit Sharing Plan. If this Plan is adopted as a Profit Sharing Plan,
then, if so specified in the Adoption Agreement, a Participant may request in
accordance with reasonable and nondiscriminatory procedures a distribution of
all or a portion of the nonforfeitable portion of the Participant's Account
after a fixed number of years, the attainment of a stated age or upon the
occurrence of some prior event as specified in the Adoption Agreement.
9.2(d) Withdrawals from Employee Account.
9.2(d)(1) Standard Option. A Participant may request a withdrawal of all
or a portion of the Participant's Employee Account at any time. Any such
request shall be made in writing on an Election Form and such withdrawal
shall be made in a single sum as soon as administratively practicable in
accordance with such reasonable nondiscretionary procedures as the Plan
Administrator deems appropriate under the circumstances for the proper
administration of this Plan.
9.2(d)(2) Alternative. The Employer may specify in the Adoption Agreement
that withdrawals from Employee Accounts shall not be permitted before the
nonforfeitable portion of a Participant's Account otherwise becomes
distributable under the (S)9 or under (S)11 or may specify other rules and
conditions under which such withdrawals may be made.
Notwithstanding the foregoing, any portion of a Participant's Employee Account
which is attributable to recharacterized Excess Contributions under (S)7.4(e)
may only be withdrawn in accordance with the rules set forth in (S)9.2(b)
applicable to an Elective Deferral Account.
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<PAGE>
9.2(e) Plan Termination. If this Plan is terminated under (S)14.6 and if
the Board so specifies in its written action effecting such termination,
distribution of the nonforfeitable portion of each Account shall be made as
soon as administratively practical after the Plan is terminated subject to
the rules in (S)9.2(b) and to Code (S)411.
9.3 Consent.
9.3(a) General. If the nonforfeitable portion of a Participant's Account
exceeds (or at the time of any prior distribution exceeded) $3500, and such
Account is "immediately distributable", the Participant and the
Participant's Spouse, if any, (or where the Participant has died, the
surviving Spouse, if any) must consent to any distribution from such
Account. The consent of the Participant and the Participant's Spouse shall
be obtained in writing within the 90 day period ending on the Annuity
Starting Date (as defined in (S)10.1). The Plan Administrator shall notify
the Participant and the Participant's Spouse of the right to defer any
distribution until the Participant's Account is no longer "immediately
distributable". Such notification shall include a general description of
the material features, and an explanation of the relative values of, the
optional forms of benefit available under the Plan in a manner that would
satisfy the notice requirements of Code (S)417(a)(3) and shall be provided
no less than 30 days and no more than 90 days prior to the Annuity Starting
Date.
9.3(b) Exceptions. Notwithstanding the foregoing, only the Participant
need consent to the commencement of a distribution in the form of a
Qualified Joint and Survivor Annuity while the Participant's Account is
immediately distributable. Furthermore, if payment in the form of a
Qualified Joint and Survivor Annuity is not required with respect to the
Participant pursuant to (S)10, only the Participant need consent to the
distribution from an Account that is immediately distributable. The consent
of the Participant and the Participant's Spouse shall not be required to
the extent that a distribution is required to satisfy Code (S)401(a)(9),
(S)401(k), (S)401(m), (S)402(g) or (S)415. In addition, upon termination of
this Plan if the Plan is not required to offer an annuity option (purchased
from a commercial provider), the nonforfeitable portion of the
Participant's Account shall, without the Participant's consent, be
distributed to the Participant unless the Employer or an Affiliate
maintains another defined contribution plan (other than as employee stock
ownership plan as defined in Code (S)4975(e)(7)), in which event, the
Account of a Participant who does not consent to an immediate distribution
shall be transferred to such other plan.
9.3(c) Immediately Distributable. An Account is "immediately
distributable" if any part of the Account could be distributed to the
Participant (or the surviving Spouse) before the Participant reaches (or
would have reached if not deceased) the later of Normal Retirement Age or
age 62.
9.3(d) Accumulated Deductible Employee Contributions. For purposes of
determining the applicability of the consent requirements under this (S)9.3
to distributions made before the first day of the first Plan Year beginning
after December 31, 1988, the nonforfeitable portion of the Participant's
Account shall not include amounts attributable to accumulated deductible
employee contributions within the meaning of Code (S)72(0)(5)(B).
9.4 Form of Distribution. All distributions (including distributions before
separation from service under (S)9.2 but excluding corrective distributions
under (S)7 shall be made in the form specified in (S)10.
9.5 Minimum Distributions. The Plan shall satisfy the minimum distribution
requirements of Code (S)401(a)(9) as set forth in (S)11.
9.6 Missing Person. In the event that an Account becomes payable under this
Plan pursuant to (S)9.1(c), (S)9.1(d) or (S)9.1(e) and the Plan Administrator is
unable to locate the Participant or his or her Beneficiary after sending written
notice to the last known mailing address and to the United States Social
Security Administration, such Participant or Beneficiary shall be presumed dead
and such Account shall become a Forfeiture on the third anniversary of the date
such Account first became payable under this Plan. However, the amount of such
Forfeiture shall be paid to such missing Participant or Beneficiary in the event
that such person files a claim for such benefit while this Plan remains in
effect and demonstrates to the satisfaction of the Plan Administrator that such
person in fact is such missing Participant or Beneficiary.
9.7 No Estoppel of Plan. No person is entitled to any benefit under this Plan
except and to the extent expressly provided under this Plan. The fact that
payments have been made from this plan in connection with any claim for benefits
under this Plan does not (1) establish the validity of the claim, (2) provide
any right to have such benefits continue for any period of time, or (3) prevent
this Plan from recovering the benefits paid to the extent that the Plan
Administrator determines that there was no right to payment of the benefits
under this Plan. Thus, if a benefit is paid under this Plan and it is
thereafter determined by the Plan Administrator that such benefit should not
have been paid (whether or not attributable to an error by the Participant, the
Plan Administrator, the Employer or any other person), then the Plan
Administrator may take such action as the Plan Administrator deems necessary or
appropriate to remedy such situation, including without limitation by (1)
deducting the amount of any overpayment theretofore made to or on behalf of such
Participant from any succeeding payments to or on behalf of such Participant
under this Plan or from any amounts due or owing to such Participant by the
Employer or any Affiliate or under any other plan, program or arrangement
benefiting the employees or former employees of the of the Employer or any
Affiliate, or (2) otherwise recovering such overpayment from whoever has
benefited from it.
If the Plan Administrator determines that an underpayment of benefits has been
made, the Plan Administrator shall take such action as it deems necessary or
appropriate to remedy such situation. However, in no event shall interest be
paid on the amount of any underpayment other than the investment gains (or
losses) credited to the Participant's Account pending payment.
9.8 Administration. All distributions shall be made in accordance with such
uniform and nondiscriminatory administrative and operational procedures for
Account distributions as the Plan Administrator deems appropriate under the
circumstances for the proper administration of the Plan.
SECTION 10. BENEFIT PAYMENT FORMS - JOINT AND SURVIVOR ANNUITY REQUIREMENTS
10.1 Application and Special Definitions. This (S)10 shall apply to a
Participant who is vested at the time of death or the time of a distribution
from the Participant's Account in any portion of the Participant's Account,
whether such portion is attributable to Employer contributions, Employee
contributions, or both. For purposes of this (S)10, the terms defined in this
(S)10.1 shall have the meanings shown opposite such terms.
10.1(a) Annuity Starting Date - means the first day of the first period for
which an amount is paid as an annuity or any other form.
10.1(b) Earliest Retirement Age - means
10.1(b)(1) if distributions are permitted only upon separation from
service, the earliest age at which the Participant could separate from
service and receive a distribution;
10.1(b)(2) if distributions are permitted before separation from
service, the earliest age at which such distribution could me made; or
10.1(b)(3) if clauses (1) and (2) do not apply, the Early Retirement
Age.
10.1(c) Election Period - means
10.1(c)(1) for a Qualified Preretirement Survivor Annuity, the period
which begins on the earlier of (i) the first day of the Plan Year in
which the Participant attains age 35 or (ii) the date such Participant
separates from service and ends on the of the date Participant's death
and
10.1(c)(2) for a Qualified Joint and Survivor Annuity or a Life
Annuity, the 90 day period ending on the Annuity Starting Date.
Notwithstanding the foregoing, a Participant who has not yet reached age
35 (and who will not reach age 35 as of the end of the current Plan Year)
may make a special Qualified Election to waive the Qualified Preretirement
Survivor Annuity for the period beginning on the date of such election and
ending on the first day of the Plan Year in which the Participant will
reach age 35. Such shall election shall not be valid unless the Participant
receives a written explanation of the Qualified Preretirement Survivor
Annuity in such terms as are comparable to the explanation required under
(S)10.4. Qualified Preretirement Survivor Annuity coverage shall be
automatically reinstated as of the first day of the Plan Year in which the
Participant reaches age 35. Any new waiver on or after such date shall be
subject to the full requirements of this (S)10.
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10.1(d) Life Annuity - means a nontransferable immediate annuity payable
for the life of the Participant, which is the amount of benefit which can
be purchased with such Participant's Vested Account Balance as of the
Annuity Starting Date.
10.1(e) Qualified Election - means a Participant's election to waive the
Qualified Joint and Survivor Annuity or the Qualified Preretirement
Survivor Annuity which election shall not be effective unless (1) the
election designates a specific Beneficiary (including any class of
Beneficiaries or any contingent Beneficiaries) and, for an election to
waive Qualified Joint and Survivor Annuity, the particular form of benefit
payment, which designations cannot be changed without the Spouses consent
(or the Spouse expressly permits designations by the Participant without
any further spousal consent); (2) such Participant's Spouse consents in
writing to such election on an Election Form; (3) such consent acknowledges
the effect of such election; and (4) such consent is witnessed by a notary
public; provided,
(i) if the Participant establishes to the satisfaction of a Plan
representative that such written consent may not be obtained because
there is no Spouse or the Spouse cannot be located or because of such
other circumstances as may be described in the regulations under Code
(S)417, a Participant's election shall be deemed to be a Qualified
Election;
(ii) a Spouses written consent under this (S)10.1(e) shall be
irrevocable as to such Spouse and shall be binding only as against
such Spouse;
(iii) no consent shall be valid unless the Participant received notice
as provided in (S)10.4;
(iv) a consent that permits designations by the Participant without
any further spousal consent must acknowledge that the Spouse has the
right to limit consent to a specific Beneficiary, and, if applicable,
a specific form of benefit payment, and that the Spouse voluntarily
elects to relinquish either or both of such rights; and
(v) a Participant may revoke (without the consent of his or her
Spouse) an election to waive the Qualified Joint and Survivor Annuity
or the Qualified Preretirement Survivor Annuity on an Election Form at
any time prior to the date as of which the Participant's Account
becomes payable under (S)9.
10.1(f) Qualified Joint and Survivor Annuity - means a nontransferable
immediate annuity payable for the life of the Participant which is the
amount of benefit which can be purchased with the Participant's Vested
Account Balance on the Annuity Starting Date with a survivor annuity
payable for the life of the Participant's surviving Spouse which is
10.1(f)(1) Standard Option - 50% or
10.1(f)(2) Alternative -such greater percentage (not to exceed 100%)
specified in the Adoption Agreement
of the amount of the annuity which is payable during the joint lives of the
Participant and such Spouse.
10.1(g) Qualified Preretirement Survivor Annuity - means a nontransferable
annuity payable for the life of the surviving Spouse, which is the amount
of benefit which can be purchased with
10.1(g)(1) Standard Option - 100% of the Participant's Vested Account
balance as of the Annuity Starting Date or
10.1(g)(2) Alternative - such lesser percentage (not less than 50%)
specified in the Adoption Agreement of such Participant's Vested
Account Balance (determined by allocating the portion of such balance
which is attributable to employee contributions proportionately to
such annuity and to the remainder of such balance).
10.1(h) Vested Account Balance - means the nonforfeitable portion of a
Participant's Account derived from Employer Contributions and Employee
contributions (including Rollover Contributions), whether vested before or
upon death, including the proceeds of insurance contracts, if any, on the
Participant's Life and reduced, if applicable, for outstanding loans in
accordance with (S)13.3(d)(1)(iv).
10.2 Distribution to Participant. Unless a Participant waives the Qualified
Joint and Survivor Annuity and elects an optional method of distribution (as
described in (S)10.6) on an Election Form pursuant to a Qualified Election
within the Election Period, any distribution of such Participant's Vested
Account Balance shall be paid In the form of (a) a Qualified Joint and Survivor
Annuity for each such married Participant and his or her Spouse or (b) a Life
Annuity for each such unmarried Participant. A Participant may elect that such
annuity be distributed upon attainment of the Earliest Retirement Age.
10.3 Distribution to Surviving Spouse. Unless a Participant waives the Qualified
Preretirement Survivor Annuity and elects an optional method of distribution (as
described in (S)10.6) on an Election Form pursuant to a Qualified Election
within the Election Period, such Participant's Vested Account Balance shall, in
the event of the Participant's death before the Participants Annuity Starting
Date, be applied to purchase a Qualified Preretirement Survivor Annuity for the
surviving Spouse. If the Qualified Preretirement Survivor Annuity is less than
100%. the remaining portion of the Participant's Vested Account Balance shall be
a able to the Participant's beneficiary under (S)9. The surviving Spouse may
elect that such Qualified Preretirement Survivor Annuity be distributed to such
Spouse within a reasonable period following the death of the Participant.
Notwithstanding the foregoing, a surviving Spouse entitled to a Qualified
Preretirement Survivor Annuity may elect in writing after the Participant's
death to have the Participant's Vested Account Balance distributed in an
optional form of benefit in accordance with (S)10.6.
10.4 Notice Requirements.
10.4 a) Qualified Joint and Survivor Annuity and Life Annuity. The Plan
Administrator shall no less than 30 days and no more than 90 days before
the Annuity Starting Date provide each Participant with a written
explanation of the Qualified Joint and Survivor Annuity and the Life
Annuity, which explanation shall describe
10.4(a)(1) the terms and conditions of such annuity;
10.4(a)(2) the Participants right to make a Qualified Election to
waive such annuity and the effect of such election;
10.4(a)(3) the rights of the Participant's Spouse, if any;
10.4(a)(4) the right to revoke such election and the effect of such a
revocation; and
10.4(a)(5) the relative values of the various optional forms of
benefits under the Plan.
10.4(b) Qualified Preretirement Survivor Annuity. The Plan Administrator
shall provide to each Participant within the "applicable period" for such
Participant a written explanation of the Qualified Preretirement Survivor
Annuity which includes the type of information described in (S)10.4(a). The
"applicable period" for a Participant is
1O.4(b)(1) the period beginning on the first day of the Plan Year in
which such Participant attains age 32 and ending with the close of the
Plan Year preceding the Plan Year in which the Participant attains age
35,
10.4(b)(2) a reasonable period ending after he or she becomes a
Participant, or
10.4(b)(3) a reasonable period ending after this (S)10 applies to
such Participant,
whichever period ends last. However, if a Participant separates from
service before he or she reaches age 35, such notice shall be provided
within the two year period beginning one year before the Participant's
separation from service and ending one year after such separation and if
such Participant is subsequently reemployed, the applicable period for such
Participant shall be redetermined under (S)10.4(b)(1) through
(S)10.4(b)(3). For purposes of (S)10.4(b)(2) and 10.4(b)(3), a "reasonable
period" is the two year period which begins one year prior to the
occurrence of the event and ends one year after the occurrence of the
event.
10.5 Safe Harbor Rules.
10.5(a) Application. If so specified in the Adoption Agreement, the
provisions in this (S)10.5 shall apply in lieu of (S)10.1 through (S)10.4
to (1) a Participant in a Profit Sharing Plan or a 401(k) Plan, and (2) to
any distribution made on or after the first day of the first Plan Year
beginning after December 31, 1988 from or under a separate account
attributable solely to accumulated deductible employee contributions (as
defined in Code (S)72(o)(5)(B)) and maintained on behalf of a Participant
in a Money Purchase Pension Plan or Target Benefit Pension Plan Provided
that the conditions specified in (S)10.5(b) are satisfied.
10.5(b) Conditions. In order to fit within this safe harbor (1) the
Participant does not or cannot elect payments in the form of a Life
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Annuity with respect to the Participant's Vested Account Balance; (2) on
the death of a Participant, the Participant's Vested Account Balance shall
be paid to the Participant's surviving Spouse, or if there is no surviving
Spouse or if the surviving Spouse has consented in a manner conforming to a
Qualified Election, to the Participant's Beneficiary; and (3) with respect
to a Participant in a Profit Sharing Plan or a 401(k) Plan, the Plan is not
a direct or indirect transferee of a defined benefit plan, money purchase
pension plan, target benefit pension plan, stock bonus plan, or profit-
sharing plan which is subject to the survivor annuity requirements of Code
(S)401(a)(11) and Code (S)417 ("Transferee Plan"), or the Plan maintains
separate bookkeeping accounts for such Participant's Transferee Plan
benefits and all other benefits of the Participant under the Plan and
gains, losses, withdrawals, contributions, forfeitures, and other credits
or charges are allocated on a reasonable and consistent basis between the
Transferee Plan benefits (which are subject to the survivor annuity
requirements in (S)10.1 through (S)10.4) and the other Plan benefits (which
are subject to the safe harbor rule in this (S)10.5).
10.5(c) Surviving Spouse. The surviving Spouse may elect to have
distribution of the Vested Account Balance commerce within the 90 day
period following the date of the Participant's death. The Vested Account
Balance shall be adjusted for Fund Earnings occurring after the
Participant's death in accordance with (S)6.2 in the same manner that
Accounts are adjusted for other types of distributions.
10.5(d) Wavier of Spousal Benefit. The Participants may waive the spousal
death benefit described in this (S)10.5 at any time; provided, no such
waiver shall be effective unless it satisfies the conditions described in
(S)10.1(e) (other than the notification requirement referred to in such
section) that would apply to the Participant's Qualified Election to waive
the Qualified Preretirement Survivor Annuity.
10.5(e) Vested Account Balance. For purposes of this (S)10.5, Vested
Account Balance shall mean, (1) in the case of a Money Purchase Pension
Plan or Target Benefit Pension Plan, the Participant's separate account
balance attributable solely to accumulated deductible employee
contributions within the meaning of Code (S)72(o)(5)(B) and (2) in the case
of a Profit Sharing Plan or 401(k) Plan, the Participant's Vested Account
Balance as defined in (S)10.1(h), excluding the portion of such Vested
Account Balance which is attributable to Transferee Plan benefits described
in (S)10.5(b).
10.6 Optional Forms.
10.6(a) General. If a Participant properly and timely waives the Qualified
Joint and Survivor Annuity as described in (S)10.2 or to the extent the
safe harbor rules of (S)10.5 apply to a distribution, such distribution
shall be made in the form specified in this (S)10.6 as selected by the
Participant (or his or her Beneficiary in the event of the Participant's
death).
10.6(b) Before Separation From Service. Any distribution made pursuant to
(S)9.2 shall, subject to (S)10.2, be made in a single sum.
10.6(c) After Separation From Service.
10.6(c)(1) Standard Option. The optional benefit from available to any
Participant after separation from service with the Employer and all
Affiliates or to his or her Beneficiary in the event of the
Participant's death shall be a single sum.
10.6(c)(2) Alternative, if specified in the Adoption Agreement, the
following optional benefit forms shall be available to any Participant
(or to his or her Beneficiary in the event of the Participant's death):
(i) Single Sum - by payment in a single sum.
(ii) Installments - by payment in annual installments (or more
frequent installments) over a specified period in accordance with
the minimum distribution rules in (S)11.
(iii) Annuity - in the form of an annuity contract under which the
amount of benefits shall be that which can be provided by applying
the nonfortfeitable portion of such Participant's Account to the
applicable settlement option or annuity purchase rate under such
contract; or
(iv) Other Forms - under one of the optional forms of
distribution, if any, under the Pre-Existing Plan or a plan
described in (S)14.5 which are required to be preserved under Code
(S)411(d)(6). Such optional forms shall be described in the
Adoption Agreement and, unless otherwise specified in the Adoption
Agreement, such other forms shall apply to the Participant's entire
Account balance. Notwithstanding the foregoing, if the Plan
Administrator separately accounts for benefits under a Pre-Existing
Plan or a plan described under (S)14.5 or, if applicable, under
(S)10.5, the optional forms may be limited to such separate
accounts.
10.6(d) No Method Selected. If the safe harbor rules of (S)10.5 apply to a
distribution, but the Participant or the Participant's Spouse or
Beneficiary fails to specify the method of distribution, then any
distribution made to such Participant, Spouse or Beneficiary shall be made
in a single sum.
10.6(e) Single Sum. A distribution made on account of a Participant's death
or separation from service with the Employer and all Affiliates which is
made in more than one payment shall be deemed to be a single sum
distribution for purposes of this Plan if the additional payment or
payments are necessary to reflect allocations completed following the
Participant's death or separation from service.
10.6(f) In Kind Distributions. A distribution shall be made in kind only to
the extent provided in the Adoption Agreement and only to the extent an "in
kind" distribution is permissible under ERISA.
10.7 Annuity Contracts. Any annuity contract distributed by the Plan to a
Participant or a Beneficiary shall be nontransferable and the terms of such
contract shall comply with the applicable requirements of this Plan and the
Code.
10.8 Transitional Rules.
10.8(a) Any living Participant not receiving benefits on August 23, 1984,
who would otherwise not receive the benefits prescribed by the previous
sections of this (S)10 must be given the opportunity to elect to have such
sections apply (1) if such Participant is credited with at least one Hour
of Service under this Plan or a predecessor plan in a Plan Year beginning
on or after January 1, 1976, and (2) such Participant had at least 10 years
of vesting service when he or she separated from service.
10.8(b) Any living Participant not receiving benefits on August 23, 1984,
who was credited with at least one Hour of Service under this Plan or a
predecessor plan on or after September 2, 1974, and who is not otherwise
credited with any service in a Plan Year beginning on or after January 1,
1976, must be given the opportunity to have his or her benefits paid in
accordance with (S)10.8(d).
10.8(c) The respective opportunities to elect (as described in (S)10.8(a)
and (b) above) must be afforded to the appropriate Participants during the
period commencing on August 23, 1984, and ending on the date benefits would
otherwise commence to such Participants.
10.8(d) Any Participant who has elected pursuant to (S)10.8(b) and any
Participant who does not elect under (S)10.8(a) or who meets the
requirements of (S)10.8(a) except that such Participant does not have at
least 10 years of vesting service when he or she separates from service,
shall have his or her benefits distributed in accordance with all of the
following requirements if benefits would have been payable in the form of a
life annuity:
10.8(d)(1) If benefits in the form of a life annuity become payable to
a married Participant who ??????
(i) begins to receive payments under the Plan on or after Normal
Retirement Age; or
(ii) dies on or after Normal Retirement Age while still working
for the Employer; or
(iii) begins to receive payments on or after the "qualified early
retirement age"; or
(iv) separates from service on or after attaining Normal
Retirement Age (or the "qualified early retirement age") and after
satisfying the eligibility requirements for the payment of benefits
under the Plan and thereafter dies before beginning to receive such
benefits;
then such benefits shall be received under this Plan in the form of a
Qualified Joint and Survivor Annuity, unless the Participant has
elected otherwise during the election period. The election period must
begin at least 6 months before the Participant
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attains "qualified early retirement age" and end not more than 90 days
before the commencement of benefits. Any such election shall be in
writing and may be changed by the Participant at any time.
10.8(d)(2) A Participant who is employed after attaining the
qualified early retirement age shall be given the opportunity to
elect, during the election period, to have a survivor annuity payable
on death. The election period begins on the later of (i) the 90th day
before the Participant attains the "qualified early retirement age",
or (ii) the date on which participation begins, and ends on the date
the Participant separates from service. Any such election shall be in
writing and may be changed by the Participant at any time. If the
Participant elects the survivor annuity payments under such annuity
must not be less than the payments which would have been made to the
Spouse under the Qualified Joint and Survivor Annuity if the
Participant had retired on the day before the Participant's death.
10.8(d)(3) For purposes of this (S)10.8(d), "qualified early
retirement age" means the latest of:
(i) the earliest date under the Plan on which the Participant
may elect to receive retirement benefits,
(ii) the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age, or
(iii) the date the Participant begins participation.
10.9 Direct Rollovers.
10.9(a) General This (S)10.9 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
(S)10, a Distributee may elect, at the time and in the manner prescribed
by the Plan Administrator, to have any portion of an Eligible Rollover
Distribution paid directly by the Plan to an Eligible Retirement Plan
specified by the Distributee in a direct rollover in accordance with Code
(S)401(a)(31).
10.9(b) Definitions.
10.9(b)(1) Eligible Rollover Distribution. An Eligible Rollover
Distribution is any distribution of all or any portion of the balance
to the credit of the Distributee, except that an Eligible Rollover
Distribution does not include: any distribution that is one of a
series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
Distributee or the joint lives (or joint life expectancies) of the
Distributee and the Distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent
such distribution is required under Code (S)401(a)(9); and the
portion of any distribution that is not includable in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
10.9(b)(2) Eligible Retirement Plan. An Eligible Retirement Plan is an
individual retirement account described in Code (S)408(a), an
individual retirement annuity described in Code (S)408(b), an annuity
plan described in Code (S)403(a), or a qualified trust described in
Code (S)401(a), that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover
Distribution to the surviving spouse, an Eligible Retirement Plan is
an individual retirement account or individual retirement annuity.
10.9(b)(3) Distributee. A Distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations order,
as defined in Code (S)414(p), are Distributees with regard to the
interest of the spouse or former spouse.
SECTION 11. MINIMUM DISTRIBUTION REQUIREMENTS
11.1 General. Subject to (S)10, Benefit Payment Forms - Joint and Survivor
Annuity Requirements, the requirements of this (S)11 shall apply to any
distribution of a Participant's Account and shall take precedence over any
inconsistent provisions of this Plan. Unless otherwise specified, the provisions
of this (S)11 shall apply to calendar years beginning after December 31, 1984.
All distributions required under this (S)11 shall be determined and made in
accordance with the proposed regulations under Code (S)401(a)(9), including the
minimum distribution incidental benefit requirement of (S)1.401(a)(9)-2 of the
proposed regulations.
11.2 Special Definitions.
11.2(a) Applicable Calendar Year - means the first Distribution Calendar
Year, and if life expectancy is being recalculated, each succeeding
calendar year.
11.2(b) Applicable Life Expectancy - means the life expectancy (or joint
and last survivor expectancy) calculated using the attained age of the
Participant (or Designate Beneficiary) as of the Participant's (or
Designated Beneficiary's) birthday in the Applicable Calendar Year reduced
by one for each calendar year which has elapsed since the date life
expectancy was first calculated. If life expectancy is being recalculated,
the Applicable Life Expectancy shall be the life expectancy as so
recalculated.
11.2(c) Designated Beneficiary - means the individual who is designated as
the Beneficiary under this Plan in accordance with Code (S)401(a)(9) and
the regulations under such Code section.
11.2(d) Distribution Calendar Year - means a calendar year for which a
minimum distribution is required. For distributions beginning before the
Participant's death, the first Distribution Calendar Year shall be the
calendar year immediately preceding the calendar year which contains the
Participant's Required Beginning Date. For distributions beginning after
the Participant's death, the first Distribution Calendar Year shall be the
calendar year in which distributions are required to begin pursuant to
(S)11.6.
11.2(e) Life Expectancy - means the life expectancy (or joint and last
survivor expectancy) as computed by use of the expected return multiples in
Tables V and VI of (S)1.72-9 of the Federal Income Tax Regulations. Unless
otherwise elected by the Participant (or Spouse, in the case of
distributions described in (S)11.6(b)(2)) by the time distributions are
required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the Participant (or Spouse) and shall
apply to all subsequent years. The life expectancy of a nonspouse
Beneficiary may not be recalculated.
11.2(f) Participant's Benefit - means the nonforfeitable portion of a
Participant's Account determined as of the last Valuation Date in the
calendar year immediately preceding the Distribution Calendar Year
("valuation calendar year") increased by the amount of any contributions or
forfeitures allocated to the Account as of dates in the valuation calendar
year after such Valuation Date and decreased by distributions made in the
valuation calendar year after such Valuation Date. If any portion of the
minimum distribution for the first Distribution Calendar Year is made in
the second Distribution Calendar Year on or before the Required Beginning
Date, the amount of the minimum distribution made in the second
Distribution Calendar Year shall be treated as if it had been made in the
immediately preceding Distribution Calendar Year.
11.2(g) Required Beginning Date.
11.2(g)(1) General Rule. The Required Beginning Date of a Participant
who reaches age 70 1/2 after December 31, 1987 is the first day of
April of the calendar year following the calendar year in which the
Participant reaches age 70 1/2.
11.2(g)(2) Age 7O 1/2 Before 1988. The Required Beginning Date of a
Participant who reaches age 70 1/2 before January 1, 1988 shall be,
(i) for a Participant who is not a 5% owner, the first day of
April of the calendar year following the calendar year in which
occurs the later of retirement or reaching age 70 1/2; or
(ii) for a Participant who is a 5% owner during any year
beginning after December 31, 1979, the first day of April
following the later of:
(A) the calendar year in which the Participant reaches age
70 1/2, or
(B)the earlier of the calendar year with or within which
ends the Plan Year in which the Participant becomes a 5%
owner, or the calendar year in which the Participant
retires.
11.2(g)(3) Age 70 1/2 During 1988. The Required Beginning Date of a
Participant who is not a 5% owner, who reaches age 70 1/2 during 1988
and who has not retired before January 1, 1989 shall be April 1,1990.
The Required Beginning Date of a
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Participant who is a 5% owner or who retired before January 1, 1989
and who reaches age 70 1/2 during 1988 shall be determined in
accordance with (S)11.2(g)(1).
11.2(g)(4) 5% Owner. A Participant shall be treated as a 5% owner for
purposes of this (S)11.2(g) if such Participant is a 5% owner as
defined in Code (S)416(i) (determined in accordance with Code (S)416
but without regard to whether the Plan is top-heavy) at any time
during the Plan Year ending with or within the calendar year in which
such individual attains age 66 1/2 or any subsequent Plan Year. Once
distributions have begun to a 5% owner under this (S)11, they must
continue to de distributed, even if the Participant ceases to be a 5%
owner in a subsequent year.
11.3 Required Beginning Date. The entire nonforfeitable interest of a
Participant must be distributed or begin to be distributed no later than the
Participant's Required Beginning Date. Such distribution shall be made
11.3(a) in the form of a Qualified Joint and Survivor Annuity as described
in (S)10.2, or
11.3(b) if the Qualified Joint and Survivor Annuity is properly waived or
to the extent the safe harbor rules in (S)10.5 apply, in the optional
benefit form in (S)10.6 selected by the Participant.
Notwithstanding the foregoing, even if installment distributions are not
otherwise available as an optional benefit form, a Participant who has not
separated from service with the Employer and all Affiliates as of the Required
Beginning Date (or as of the end of any Distribution Calendar Year thereafter)
may elect to receive the minimum distribution amount for each such Distribution
Calendar Year as described in (S)11.5.
11.4 Limits on Distribution Periods. As of the first Distribution Calendar Year,
distributions (if not made in a single sum) may only be made over one of the
following periods (or a combination thereof):
11.4(a) the life of the Participant,
11.4(b) the life of the Participant and a Designated Beneficiary,
11.4(c) a period certain not extending beyond the life expectancy of the
Participant, or
11.4(d) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a Designated Beneficiary.
11.5 Determination of Amount to be Distributed Each Year. If the Participant's
interest is to be distributed in other than a single sum, the following minimum
distribution rules shall apply on or after the Required Beginning Date:
11.5(a) Individual Account.
11.5(a)(1) General. If a Participant's Benefit is to be distributed
over (i) a period not extending beyond the life expectancy of the
Participant or the joint life and last survivor expectancy of the
Participant and the Participant's Designated Beneficiary or (ii) a
period not extending beyond the life expectancy of the Designated
Beneficiary, the amount required to be distributed for each calendar
year, beginning with distributions for the first Distribution
Calendar Year, must at least equal the quotient obtained by dividing
the Participant's Benefit by the Applicable Life Expectancy.
11.5(a)(2) Incidental Death Benefit Rules.
(i) For calendar years beginning before January 1, 1989, if the
Participant's Spouse is not the Designated Beneficiary, the
method of distribution selected must assure that at least 50%
of the present value of the amount available for distribution
is paid within the life expectancy of the Participant.
(ii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year beginning with distributions
for the first Distribution Calendar Year, shall not be less
than the quotient obtained by dividing the Participant's
Benefit by the lesser of (A) the Applicable Life Expectancy or
(B) if the Participant's Spouse is not the Designated
Beneficiary, the applicable divisor determined from the table
set forth in Q&A-4 of (S)1.401(a)(9)-2 of the proposed
regulations. Distributions after the death of the Participant
shall be distributed using the Applicable Life Expectancy in
(S)11.5(a)(1) as the relevant divisor without regard to
(S)1.401(a)(9)-2 of the proposed regulations.
11.5(a)(3) Timing. The minimum distribution required for the
Participant's first Distribution Calendar Year must be made on or
before the Participant's Required Beginning Date. The minimum
distribution for subsequent Distribution Calendar Years, including
the minimum distribution for the Distribution Calendar Year in which
the Participant's Required Beginning Date occurs, must be made on or
before December 31 of that Distribution Calendar Year.
11.5(b) Annuity Contracts. If the Participant's Benefit is distributed in
the form of an annuity purchased from an insurance company, distributions
under such annuity shall be made in accordance with the requirements of
Code (S)401(a)(9).
11.6 Death Distribution Provisions.
11.6(a) Distribution Beginning Before Death. If the Participant dies after
distribution of his or her nonforfeitable interest has begun, the remaining
portion of such nonforfeitable interest shall continue to be distributed at
least as rapidly as under the method of distribution being used prior to
the Participant's death.
11.6(b) Distribution Beginning After Death. If the Participant dies before
distribution of his or her nonforfeitable interest begins, distribution of
the Participant's entire nonforfeitable interest shall be completed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death except to the extent that an election is made to
receive distributions in accordance with (1) or (2) below:
11.6(b)(1) If any portion of the Participant's nonforfeitable
interest is payable to a Designated Beneficiary, distributions may be
made over the life or over a period certain not greater than the life
expectancy of the Designated Beneficiary and shall commence on or
before December 31 of the calendar year immediately following the
calendar year in which the Participant died;
11.6(b)(2) If the Designated Beneficiary is the Participant's
surviving Spouse, distributions may be made over the period described
in clause (1) above but the required commencement date may be
deferred until the later of (i) December 31 of the calendar year
immediately following the calendar year in which the Participant died
or (ii) December 31 of the calendar year in which the Participant
would have reached age 70 1/2.
If the Participant has not made an election pursuant to this (S)11.6(b) by
the time of the Participant's death, the Participant's Designated
Beneficiary must elect the method of distribution no later than the earlier
of (A) December 31 of the calendar year in which distributions would be
required to begin under this (S)11.6, or (B) December 31 of the calendar
year which contains the fifth anniversary of the date of death of the
Participant. If the Participant has no Designated Beneficiary, or if the
Designated Beneficiary does not elect a method of distribution,
distribution of the Participant's entire interest must be completed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death.
11.6(c) Special Rules.
11.6(c)(1) For purposes of (S)11.6(b), if the surviving Spouse dies
after the Participant, but before payments to such Spouse begin, the
provisions of (S)11.6(b), with exception of (S)11.6(b)(2), shall be
applied as if the surviving Spouse were the Participant.
11.6(c)(2) For purposes of this (S)11.6, any amount paid to a child
of the Participant shall be treated as if it had been paid to the
surviving Spouse if the amount becomes payable to the surviving
Spouse when the child reaches the age of majority.
11.6(c)(3) For the purposes of the (S)11.6, distribution of a
Participant's interest shall be considered to begin on the
Participant's Required Beginning Date (or if (S)11.6(c)(1) above is
applicable, the date distribution is required to begin to the
surviving Spouse pursuant to (S)11.6(b)). If distribution in the form
of an annuity irrevocably commences to the Participant before the
Required Beginning Date, the date distribution is considered to begin
shall be the date distribution actually commences.
11.7 Special Pre-TEFRA Distribution Election.
11.7(a) General Rule. Subject to (S)10, Benefit Payment Forms-Joint and
Survivor Annuity Requirements, the nonforfeitable percentage of the Account
of any Participant (including a "5% owner" as described in (S)11.2(g)(4))
who has in effect a Special
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Pre-TEFRA Distribution Election (as described in (S)11.7(b)) shall be paid
only to the Participant, or in the case of the Participant's death, only to
his or her beneficiary in accordance with the method of distribution
specified in such election without regard to the distribution rules set
forth in (S)11.1 through (S)11.6.
11.7(b) Special Pre-TEFRA Distribution Election. For purposes of this
(S)11.7, a Special Pre-TEFRA Distribution Election means a designation in
writing, signed by the Participant or his or her beneficiary, made before
January 1, 1984 by a Participant in this Plan or a Participant in a Pre-
Existing Plan who had accrued a benefit under such plan as of December 31,
1983 which designation specifies.
11.7(b)(1) a distribution method which was permissible under Code
(S)401(a)(9) as in effect prior to amendment by the Deficit Reduction Act
of 1984,
11.7(b)(2) the time at which such distribution will commence,
11.7(b)(3) the period over which such distribution will be made, and
11.7(b)(4) if such designation is to be effective for a beneficiary, the
beneficiaries of the Participant in order of priority.
A distribution to be made upon the death of a Participant shall not be
covered under this (S)11.7(b) unless the information in the designation with
respect to such distribution satisfies the requirements of this (S)11.7(b).
11.7(c) Current Distribution. Any distribution which began before January 1,
1984 and continues after such date shall be deemed to be made pursuant to a
Special Pre-TEFRA Distribution Election if the method of distribution was
set forth in writing and such method satisfies the requirements of
(S)11.7(b)(1) through (4).
11.7(d) Revocation. A Participant who made a Special Pre-TEFRA Distribution
Election shall have the right to revoke such election by completing and
filing a distribution Election Form under (S)9. Furthermore, any change
(other than the mere substitution or addition of a beneficiary not
originally designated in such election which does not directly or indirectly
alter the period over which distributions are to be made) to a Special Pre-
TEFRA Distribution Election shall be deemed to be a revocation of such
election. Upon revocation, any subsequent distribution shall be made in
accordance with Code(S)401(a)(9). If a designation is revoked subsequent to
the date distributions are required to begin, the Plan must distribute by
the end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would have been
required to have been distributed to satisfy Code (S)401(a)(9), but for the
Special Pre-TEFRA Distribution Election. For calendar years beginning after
December 31, 1988, such distributions must meet the minimum distribution
incidental benefit requirements in (S)1.401(a)(9)-2 of the proposed
regulations. If an amount is transferred or rolled over from one plan to
another plan, the rules in Q&A J-2 and Q&A J-3 of (S)1.401(a)(9)-1 of the
proposed regulations shall apply.
SECTION 12. TOP-HEAVY PLAN RULES
12.1 Application. The rules set forth in this (S)12 shall supersede any
provisions of this Plan or the Adoption Agreement which are inconsistent with
these rules as of the first day of the first Plan Year beginning after December
31, 1983 during which the Plan is or becomes a Top-Heavy Plan and such rules
shall continue to supersede such provisions for so long as the Plan is a
Top-Heavy Plan unless the Code permits such rules to cease earlier or requires
them to remain in effect for a longer period.
12.2 Special Definitions. For purposes of this (S)12, the terms defined in this
(S)12.2 shall have the meanings shown opposite such terms.
12.2(a) Determination Date - means
12.2(a)(1) for the first Plan Year of a Plan which is adopted as a new
Plan under the Adoption Agreement, the last day of such Plan Year, and
12.2(a)(2) for any subsequent Plan Year, the last day of the immediately
preceding Plan Year, and
12.2(a)(3) for any plan year of each other qualified plan maintained by
the Employer or an Affiliate which is part of a Permissive Aggregation
Group or a Required Aggregation Group, the date determined under this
(S)12.2(a) as if the term "Plan Year" means the plan year for each such
qualified plan.
12.2(b) Key Employee - means any Employee or former Employee (and the
Beneficiaries of such Employee) (as determined in accordance with Code
(S)416(i)(1) who at any time during the Plan Year or any of the 4 immediately
preceding Plan Years was
12.2(b)(1) an officer of the Employer or an Affiliate whose compensation
for such Plan Year exceeds 50% of the dollar limitation under Code
(S)415(b)(1)(A),
12.2(b)(2) an owner (or considered to be an owner within the meaning of
Code (S)318) of one of the 10 largest interests in the Employer or an
Affiliate whose compensation for such Plan Year exceeds the 100% of the
dollar limitation under Code (S)415(c)(1)(A); provided that the value of
such Employee's ownership interest is more than one-half of one percent,
12.2(b)(3) a 5% owner of the Employer or an Affiliate, or
12.2(b)(4) a 1% owner of the Employer or an Affiliate whose compensation
for such Plan Year exceeds $150,000.
For purposes of this (S)12.2(b), an Employee's compensation means compensation
within the meaning of Code (S)415(c)(3) (as defined in (S)7.2(a)(2)) but
including amounts contributed by the Employer or an Affiliate pursuant to a
salary reduction agreement which are excluded from gross income under Code
(S)125, (S)402(e)(3), (S)402(h) or (S)403(b).
12.2(c) Permissive Aggregation Group - means a Required Aggregation Group and
any other qualified plan or plans (as described in Code (S)401(a)) maintained by
the Employer or an Affiliate which, when considered with the Required
Aggregation Group, would continue to satisfy the requirements of
Code (S)401(a)(4) and Code (S)410.
12.2(d) Required Aggregation Group - means (1) each qualified plan (as described
in Code (S)401(a)) maintained by the Employer or an Affiliate in which at least
one Key Employee participates or participated at any time during the 5 year
period ending on the Determination Date (without regard to whether such plan has
terminated) and (2) any other qualified plan maintained by the Employer or an
Affiliate which enables any such plan to satisfy the requirements of Code
(S)401(a)(4) or Code (S)410.
12.2(e) Top-Heavy Plan - means this Plan if, for any Plan Year beginning after
December 31, 1983, either
12.2(e)(1) this Plan is not part of a Required Aggregation Group or a
Permissive Aggregation Group and the Top-Heavy Ratio for this Plan exceeds
60%;
12.2(e)(2) this Plan is part of a Required Aggregation Group but not part of
a Permissive Aggregation Group and the Top-Heavy Ratio for the Required
Aggregation Group exceeds 60%; or
12.2(e)(3) this Plan is part of a Required Aggregation Group and part of a
Permissive Aggregation Group and the Top-Heavy Ratio for the Permissive
Aggregation Group exceeds 60%.
12.2(f) Top-Heavy Ratio.
12.2(f)(1) If the Employer or an Affiliate maintains one or more defined
contribution plans (including any simplified employee pension plan) and the
Employer or an Affiliate has never maintained a defined benefit plan under
which benefits have been accrued for a Participant in this Plan during the 5
year period ending on the Determination Date, "Top-Heavy Ratio" means for
this Plan alone or for the Required Aggregation Group or Permissive
Aggregation Group, as appropriate, a fraction, the numerator of
which shall be the sum of the account balances of all Key Employees as of
the Determination Date under this and all other such defined contribution
plans and the denominator of which shall be the sum of the account balances
of all employees as of the Determination Date under this and all other such
defined contribution plans.
12.2(f)(2) If the Employer or an Affiliate maintains one or more defined
contribution plans (including any simplified employee pension plan) and the
Employer or an Affiliate maintains or has ever maintained one or more
defined benefit plans under which benefits have been accrued for a
Participant in this Plan during the 5 year period ending on the
Determination Date, "Top-Heavy Ratio" means for the Required Aggregation
Group or the Permissive Aggregation Group, as appropriate, a fraction, the
numerator of which shall be the sum of the account balances for all Key
Employees as of the Determination Date under this and
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all other such defined contribution plans and the sum of the present
value of the accrued benefits for all Key Employees as of the
Determination Date under all defined benefit plans maintained by the
Employer or an Affiliate and the denominator of which shall be the
sum of the account balances for all employees as of the Determination
Date under this and all other such defined contribution plans and the
sum of the present value of the accrued benefits for all employees as
of the Determination Date under all defined benefit plans maintained
by the Employer or an Affiliate.
12.2(f)(3) The following rules shall apply for purposes of
calculating the Top-Heavy Ratio:
(i) The value of any account balance and the present value of
any accrued benefit shall be determined as of the most recent
Top-Heavy Valuation Date that falls within, or ends with, the
12 month period ending on the Determination Date (or, if plans
are aggregated, the Determination Dates that fall within the
same calendar year), except as provided under the regulations
under Code (S)416 for the first and second years of a defined
benefit plan;
(ii) The value of any account balance and the present value of
any accrued benefit shall include the value of any
distributions made during the 5 year period ending on such
Determination Date and any contributions due but as yet unpaid
as of the Determination Date which are required to be taken
into account on that date under Code (S)416;
(iii) The present value of an accrued benefit under a defined
benefit plan shall be determined in accordance with the
interest rate and mortality assumptions specified in the
Adoption Agreement or, if this Plan and such defined benefit
plan are Paired Plans, as specified in the Adoption Agreement
for such defined benefit Paired Plan;
(iv) The account balance or accrued benefit of a Participant
who is not a Key Employee for the current Plan Year but who was
a key Employee in a prior Plan Year or who has not performed an
Hour of Service for the Employer or any Affiliate at any time
during the 5 year period ending on the Determination Date shall
be disregarded;
(v) Deductible employee contributions shall be disregarded;
(vi) The calculation of the Top-Heavy Ratio and the extent to
which contributions, distributions, rollover, and transfers
are taken into account shall be determined in accordance with
Code (S)416; and
(vii) If the Employer maintains more than one defined benefit
plan, the accrued benefit of a Participant other than a Key
Employee shall be determined under the method, if any, that
uniformly applies for accrual purposes under all such defined
benefit plans maintained by the Employer or an Affiliate, or if
there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the
fractional rule of Code (S)411(b)(1)(C).
12.2(g) Top-Heavy Valuation Date - means for this Plan, the last day of
each Plan Year and for each other qualified plan maintained by the Employer
or an Affiliate.
12.2(g)(1) Standard Option - the most recent valuation date for such
plan or,
12.2(g)(2) Alternative - the valuation date specified in the
Adoption Agreement.
12.3 Minimum Allocation.
12.3(a) General. Except as otherwise provided in this (S)12.3 for any
Plan Year in which this Plan is a Top-Heavy Plan, the "minimum allocation"
for each Participant who is not a Key Employee means an allocation of
Employer Contributions and Forfeitures made in accordance with (S)12.3(d)
which shall not be less than the lesser of
12.3(a)(1) 3% of such Participant's Compensation for such Plan Year
or
12.3(a)(2) if the Employer or an Affiliate has no defined benefit
plan which uses this Plan to satisfy the requirements of Code
(S)401(a)(4) or Code (S)410, the largest percentage of the Employer
Contributions and Forfeitures allocated on behalf of any Key Employee
(expressed as a percentage of the first $200,000 of Compensation) for
such Plan Year.
12.3(b) Defined Benefit Paired Plan. If this Plan is adopted in
combination with a defined benefit Paired Plan, the Employer and the
Participating Affiliates shall make a contribution under this Plan (or, if
this Plan is adopted in combination with another defined contribution
Paired Plan, under any combination of defined contribution Paired Plans)
for each Participant who is an Eligible Employee at any time during such
Plan Year who is also a Participant in the defined benefit Paired Plan
equal to at least 5% (or such greater percentage as is specified in the
adoption agreement for the defined benefit Paired Plan) of Compensation for
such Plan Year unless the Employer elects under such defined benefit Paired
Plan to provide the minimum benefit accrual under such defined benefit
Paired Plan.
If this (S)12.3(b) applies and the Employer has not elected to provide the
minimum benefit accrual under the defined benefit Paired Plan, the minimum
allocation required under this (S)12.3(b) for Plan Years beginning on and
after the Final Compliance Date shall, subject to the ordering rules in
(S)12.3(c), be made under this Plan without regard to whether the
Participant also benefits under the defined benefit Paired Plan. Further,
if this Plan and the defined benefit Paired Plan do not benefit the same
participants for such Plan Year, the minimum allocation described in
(S)12.3(a) shall, subject to the ordering rules in (S)12.3(c), be made
under this Plan for each Participant described in (S)12.3(d)(1) and the
minimum benefit accrual shall be made for each participant in the defined
Benefit Paired Plan in accordance with the terms of such Paired Plan.
12.3(c) Defined Contribution Paired Plan. If this Plan is adopted in
combination with one or more defined contribution Paired Plans, the minimum
allocation required under this (S)12.3, if any, shall be made under such
Paired Plans in the following order.
12.3(c)(1) Standard Option - First, under the Money Purchase Pension
Plan, if any; second, under the Target Benefit Pension Plan, if any;
third, under the Profit Sharing Plan; if any; and finally, under the
401(k) Plan, if any.
12.3(c)(2) Alternative - in the order specified in the Adoption
Agreement.
12.3(d) Participants Entitled to Allocation. The minimum allocation
required for any Plan year under this (S)12.3.
12.3(d)(1) shall be made for each Participant who is not a Key
Employee and who is employed as an Eligible Employee (or on an
authorized leave of absence as an Eligible Employee) on the last day
of such Plan year, without regard to the number of Hours of Service
actually completed by such Participant in such Plan Year; and
12.3(d)(2) shall not apply to any Participant (i) who is covered
under any other plan or plans maintained by the Employer or an
Affiliate and the Employer has specified in the Adoption Agreement
that the minimum allocation or the minimum benefit required under
Code (S)416 for any Plan year for which this Plan is a Top-Heavy Plan
shall be made under such other plan or plans or (ii) to the extent
such Participant receives such minimum benefit under this Plan or any
other plans maintained by the Employer or an Affiliate.
Notwithstanding (S)12.3(d)(2), if this Plan is adopted as a nonstandardized
Plan that intends to satisfy the safe harbor in the Code (S)401(a)(4)
regulations, the minimum allocation required under (S)12.3 for Plan Years
beginning on and after the Final Compliance Date must be made for each
Participant described in (S)12.3(d)(1) without regard to whether the
Participant also benefits under another plan, but only to the extent that
such minimum allocation is not otherwise received under this Plan.
12.3(e) Nonforfeitability. The minimum allocation required under this
(S)12.3 (to the extent required to be nonforfeitable under Code (S)416(b))
shall not be forfeited under Code (S)411(a)(3)(B) or Code (S)411(a)(3)(D).
12.3(f) Compensation. For purposes of computing the minimum allocation
under this (S)12.3 the term "Compensation" shall mean Compensation within
the meaning of Code (S)415(c)(3) as described in (S)7.2(a)(2).
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12.3(g) Multiple Plans. If the Employer or an Affiliate also maintains
another plan, the Employer shall specify in the Adoption Agreement how the
minimum allocation, if any, required under Code (S)416 will be satisfied
and, if the Employer or an Affiliate maintains or has maintained a defined
benefit plan, the method of satisfying Code (S)416(h).
12.3(h) Integrated Plans.
12.3(h)(1) Profit Sharing Plan. If this Plan is adopted as an
integrated Profit Sharing Plan, the following allocation formula
shall apply in lieu of the formula in (S)6.3(a)(2) for each Plan Year
in which such Plan is a Top-Heavy Plan.
The Forfeitures and the Employer Contribution shall be allocated (and
posted) as of the last day of such Plan Year to the Employer Account
of each Active Participant and each other Participant for whom a
minimum allocation is required to be made under this (S)12.3 in
accordance with the following:
Step One - First, the lesser of (A) the sum of the Employer
Contribution and Forfeitures for such Plan Year or (B) the
product of the Top-Heavy Percentage and the total Compensation
of all such Participants shall be allocated in the same ratio
that each such Participant's total Compensation for such Plan
Year bears to the total Compensation of all such Participants
for such Plan Year.
Step Two - Second, the lesser of (A) the remaining Employer
Contribution and Forfeitures for such Plan Year or (B) the
product of the Top-Heavy Percentage (or the Maximum Disparity
Rate, if less) and the total Excess Compensation of all such
Participants shall be allocated in the same ratio that each
such Participant's Excess Compensation for such Plan Year bears
to the total Excess Compensation of such Participants for such
Plan Year.
Step Three - Third, the lesser of (A) the remaining Employer
Contribution and Forfeitures for such Plan Year of (B) the
Integration Amount shall be allocated in the same ratio that
the sum of the total Compensation and Excess Compensation of
each such Participant for such Plan Year bears to the sum of
the total Compensation and Excess Compensation of all such
Participants for such Plan Year.
Step Four - Finally, the remaining Employer Contribution and
Forfeitures for such Plan Year shall be allocated in the same
ratio that each such Participant's total Compensation for such
Plan Year bears to the total Compensation of all such
Participants for such Plan Year.
12.3(h)(2) Money Purchase Pension Plan. If this Plan is adopted as
an integrated Money Purchase Pension Plan, (i) the "Base Contribution
Percentage" specified in the Adoption Agreement, if less than the
Top-Heavy Percentage, shall be increased to equal the Top-Heavy
Percentage and (ii) the Employer Contribution required under (S)5.2
(as adjusted in (i) above) shall be made for each Active Participant
and each other Participant for whom an allocation is required to be
made under this (S)12.3.
12.3(h)(3) Special Definitions. For purposes of this (S)12.3(h),
(i) "Excess Compensation" means the amount, if any, of a
Participant's Compensation for such Plan Year which exceeds the
Integration Level for such Plan Year.
(ii) "Integration Amount" means the product of (1) the total
Compensation and the total Excess Compensation of all such
Participants and (2) the excess, if any, of the Integration
Percentage specified in the Adoption Agreement over the Top-
Heavy Percentage.
(iii) "Top-Heavy Percentage" means 3% or such greater
percentage required under this (S)12.3 or specified in the
Adoption Agreement.
12.4 Vesting Schedule. For any Plan Year in which this Plan is a Top-Heavy
Plan, the Top-Heavy vesting schedule specified in the Adoption Agreement
automatically shall apply to all benefits under the Plan within the meaning of
Code (S)411(a)(7) (other than benefits which are attributable to Employee
Contributions or Rollover Contributions or other contributions which are
nonforfeitable when made), including benefits accrued before the effective date
of Code (S)416 and before this Plan became a Top-Heavy Plan, unless the regular
vesting schedule is at least as favorable as such Top-Heavy vesting schedule.
However, the provisions of this (S)12.4 shall not apply to the Account balance
of any Participant who does not complete an Hour of Service after the Plan first
becomes a Top-Heavy Plan and such Participant's Account balance attributable to
Employer contributions and Forfeitures shall be determined without regard to
this (S)12.4. Further, no change in the vesting schedule as a result of a change
in this Plan's status to a Top-Heavy Plan or to a plan which is not a Top-Heavy
Plan shall deprive a Participant of the nonforfeitable percentage of the
Participant's Account balance accrued to the date of the change, and any such
change to the vesting schedule shall be subject to the provisions of (S)14.3(c).
12.5 401(k)Plan. Notwithstanding any contrary provision, the following rules
shall apply if this Plan adopted as a 401(k) Plan:
12.5(a) Qualified Nonelective Contributions shall be treated as Employer
contributions for purposes of satisfying the minimum allocation under
(S)12.3.
12.5(b) Matching Contributions allocated to the Account of a Key Employee
shall be treated as Employer contributions for purposes of determining the
amount of the minimum allocation required under (S)12.3. The Plan may use
Matching Contributions allocated on behalf of a non-Key Employee to satisfy
the minimum allocation under (S)12.3. The Plan may use Matching
Contributions allocated on behalf of a non-Key Employee to satisfy the
minimum allocation under (S)12.3; provided, however, that for Plan Years
beginning on and after the Final Compliance Date, such contributions
shall not be treated as Matching Contributions for purposes of satisfying
the limitations of (S)7.4 and (S)7.5 but shall instead be subject to the
general nondiscrimination rules of Code (S)401(a)(4).
12.5(c) Elective Deferrals allocated to the Account of a Key Employee
shall be treated as Employer contributions for purposes of determining the
amount of the minimum allocation required under (S)12.3. However, for Plan
Years beginning on and after the Final Compliance Date, Elective Deferrals
allocated on behalf of non-Key Employees shall not be treated as Employer
contributions for purposes of satisfying the minimum allocation required
under (S)12.3.
SECTION 13. INSURANCE, INDIVIDUALLY DIRECTED INVESTMENTS AND PARTICIPANT LOANS
13.1 Insurance Contracts.
13.1(a) Elections and Existing Life Insurance Contracts.
13.1(a)(1) Standard Option. No Participant shall have the right to
elect to have the Trustee purchase an insurance contract on his or
her life for his or her Account under this Plan; however, any life
insurance contract purchased under the terms of a Pre-Existing Plan,
which is acceptable to the Trustee, shall continue to be held by the
Trustee for the benefit of the Participant subject to the conditions
of this (S)13.1.
13.1(a)(2) Alternative. If so specified in the Adoption Agreement
each Participant who is an Eligible Employee may elect (subject to
this (S)13.1) to have the Trustee purchase an insurance contract on
his or her life for his or her Account under the Plan by completing
and filing an Election Form with the Plan Administrator.
13.1(b) Premiums. The aggregate annual premiums on any life insurance
contracts held for a Participant's Account under this Plan shall be subject
to the following limitations:
13.1(b)(1) Ordinary Life. If the life insurance contracts are
ordinary whole life insurance contracts which are contracts with both
nondecreasing death benefits and nonincreasing premiums, such
premiums shall be less than one-half of the aggregate Employer
Contributions plus Forfeitures credited to the Participant's Employer
Account and Matching Account.
13.1(b)(2) Term and Universal Life. If the life insurance contracts
are term life insurance contracts, universal life insurance contracts
and any other life insurance contracts (other than whole life), then
such premiums shall not exceed one-fourth of the aggregate Employer
Contributions plus Forfeitures credited to the Participant's Employer
Account and Matching Account.
13.1(b)(3) Combination. If the life insurance contracts either
combine features of ordinary whole life and other life insurance or
consist of ordinary whole life and other life insurance contracts,
the sum of one-half of the ordinary whole life premiums plus all
other life insurance premiums shall not exceed one-fourth of the
aggregate Employer Contributions plus
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Forfeitures credited to the Participant's Employer Account and Matching
Account.
13.1(c) Owner and Beneficiary. The Trustee shall apply for and be the owner
of each life insurance contract held under this Plan and also shall be
named as the beneficiary of each such life insurance contract. In the event
of the Participant's death prior to the date as of which the Participant's
Account becomes payable under the Plan, the Trustee, as beneficiary, shall
pay the entire proceeds of such life insurance contracts to the
Participant's Account which shall then be distributed to the surviving
Spouse or, if applicable, to the Participant's Beneficiary in accordance
with (S)10. Under no circumstances shall the Fund retain any part of the
proceeds of any life insurance contracts. In the event of a conflict
between the terms of the Plan and the Terms of any life insurance contracts
held under this Plan, the Plan provisions shall control.
13.1(d) Allocations. Any dividends or credits earned on a life insurance
contract held under this Plan shall be allocated to the Account of the
Participant for whom the contract was purchased and may be applied to pay
the annual premium on such life insurance contract. The amount of the
annual premium on each such insurance contract shall be charged against the
Account of the insured Participant. The value of any such insurance
contract shall be deemed to be zero for the purposes of allocating the
Employer Contribution, Forfeitures or the Fund Earnings for any Year as
provided in (S)6.
13.1(e) Distribution to Participant. Subject to (S)10, Joint and Survivor
Annuity Requirements, the life insurance contracts held as part of a
Participant's Account shall be distributed in kind to the Participant upon
retirement or other termination of employment as an Employee for reasons
other than death (1) if such Account is completely nonforfeitable or (2) if
the cash surrender value of such contracts is equal to or less than the
nonforfeitable portion of the Participant's Account. If neither one of
these conditions is satisfied and the Participant does not elect to
purchase the life insurance contracts under (S)13.1(f), the Trustee shall
surrender such contracts, add the proceeds to the Participant's Account in
accordance with (S)10.
13.1(f) Termination of Insurance Election. A Participant may direct the
Trustee to stop making premium payments on a life insurance contract held
as part of the Participant's Account and to surrender such contract or to
sell such contract to the Participant by completing and filing an Election
Form with Administrator. If the Participant purchases the contract, he or
she shall prepare and deliver to the Trustee all papers needed to properly
effect that purchase and shall pay to the Trustee an amount equal to the
cash surrender value of the of the contract at the time of the purchase.
The amount paid either by the Participant for the purchase or by the
insurance company in connection with the surrender of a contract shall be
credited to the Participant's Account as of the date payment is made to the
Trustee. A Participant automatically shall be deemed to have directed the
Trustee to stop premium payments and to surrender a life insurance contract
immediately before a premium due date if the premium due on that date would
exceed the premium payment limits in (S)13.1(b).
13.2 Individually Directed Investments.
13.2(a) General.
13.2(a)(1) Standard Option. No Participant or a Beneficiary may direct
the investment of such individual's Account.
13.2(a)(2) Alternative. If so specified in the Adoption Agreement, a
Participant or a Beneficiary may elect how such individual's Account
shall be invested between the investment alternatives available under
the Plan from time to time. The Plan Administrator shall furnish to
each Participant and Beneficiary sufficient information to make
informed decisions with regard to investment alternatives and, if this
Plan is intended to satisfy ERISA (S)404(c), information which
satisfies the requirements of the regulations under ERISA (S)404(c). An
individual's investment direction shall apply
(i) Standard Option - to be individual's entire Account or
(ii) Alternative - only to the portion of the individual's Account
specified in the Adoption Agreement.
13.2(b) Election Rules. The Plan Administrator from time to time shall
establish and shall communicate in writing to such individuals such
reasonable restrictions and procedures for making individual investment
elections as the Plan Administrator deems appropriate under the
circumstances for the proper administration of this Plan. Such restrictions
and procedures shall be applied on a uniform and nondiscriminatory basis to
all similarly situated individuals and, if this Plan is intended to satisfy
ERISA (S)404(c), shall be in accordance with the regulations under ERISA
(S)404(c).
13.2(c) No Election. The Account of an individual for whom no investment
election is in effect under this (S)13.2, either because such individual
failed to make a proper election or terminated an election under this
(S)13.2, shall be invested as designated by the Plan Administrator.
13.3 Participant Loans. This (S)13.3 shall apply only if the Employer specifies
in the Adoption Agreement that loans shall be permitted. However, if loans are
not permitted in the Adoption Agreement, any outstanding loans made under the
terms of the Pre-Existing Plan shall be subject to this (S)13.3.
13.3(a) Administration and Procedures. The Plan Administrator shall
establish objective nondiscriminatory written procedures for the
administration of the loan program under this (S)13.3 (which written
procedures, together with any written amendments to such procedures, hereby
are expressly incorporated by reference as a part of this Plan), including,
but not limited to,
13.3(a)(1) the class of Participants and Beneficiaries who are eligible
for a loan;
13.3(a)(2) the identity of the person or position authorized to
administer the loan program;
13.3(a)(3) the procedures for applying for a loan;
13.3(a)(4) the basis on which loans will be approved or denied;
13.3(a)(5) the limitations, if any, on the types and amounts of loans
offered;
13.3(a)(6) the procedures for determining a reasonable rate of
interest;
13.3(a)(7) the types of collateral which may be used as security for a
loan; and
13.3(a)(8) the events constituting default and the stages that will be
taken to preserve Plan assets in the event of such default.
13.3(b) No Loans to Certain Owners and Family Members. No loan shall be
made under this Plan to a Participant or Beneficiary who is
13.3(b)(1) an Owner-Employee;
13.3(b)(2) an employee or officer of an Employer or an Affiliate which
is an electing small business corporation within the meaning of Code
(S)1361 ("S Corporation") who owns (or is considered to own within the
meaning of Code (S)318(a)(1)) on any day during any taxable year of
such corporation for which it is an S Corporation more than 5% of the
outstanding stock of such corporation, or
13.3(b)(3) a member of the family (as defined in Code (S)267(c)(4)) of
a Participant or Beneficiary described in clause (1) or (2).
13.3(c) General Conditions. If loans are made available after October 18,
1989 to any Participant of Beneficiary who is a "party in interest" (as
defined in ERISA (S)3(14)) with respect to the Plan, then loans shall be
made available to all Participants and Beneficiaries who are parties in
interest with respect to the Plan. All loans which are made under this Plan
shall comply with the following requirements under Code (S)4975(d)(1) and
ERISA (S)408(b)(1);
13.3(c)(1) such loans shall be made available to Participants and
Beneficiaries who are eligible for a loan on a reasonably equivalent
basis;
13.3(c)(2) such loans shall not be made available to Highly Compensated
Employees in an amount greater than the amount made available to other
Employees;
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13.3(c)(3) such loans shall be made in accordance with specific provisions
regarding such loans set forth in the Plan and the written procedures
described in (S)13.3(a);
13.3(c)(4) such loans shall bear a reasonable rate of interest; and
13.3(c)(5) such loans shall be adequately secured.
13.3(d) Other Conditions. All loans made under this Plan shall be subject to the
following conditions:
13.3(d)(1) If the loan is secured by any portion of the Participant's
Account and (S)10.5 does not apply to any portion of the Participant's
Account, the Participant's Spouse, if any, must consent in writing to the
granting of such security interest or to any increase in the amount of
security no earlier than the beginning of the 90 day period before such
loan is made; provided
(i) such consent must be in writing before a notary public and must
acknowledge the effect of such loan;
(ii) such consent shall be irrevocable and shall be binding against
the person, if any, identified as the Participant's Spouse at the time
of such consent and any individual who may subsequently become the
Participant's Spouse;
(iii) a new consent shall be required in the event of any
renegotiation, extension, renewal, or other revision of such a loan;
and
(iv) if a valid spousal consent has been obtained, then,
notwithstanding any other provision of this Plan, the portion of the
Participant's vested Account balance used as a security interest held
by the Plan by reason of a loan outstanding to the Participant shall be
taken into account for purposes of determining (and may reduce) the
amount of the Account balance payable at the time of death or
distribution, but only if the reduction is used as repayment of the
loan. If less than 100% of the Participant's vested Account balance
(determined without regard to the preceding sentence) is payable to the
surviving Spouse, then the vested Account balance shall be adjusted by
first reducing the vested Account balance by the amount of the security
used as repayment of the loan, and then determining the benefit payable
to the surviving Spouse.
13.3(d)(2) The loan shall provide for the repayment of principal and
interest in substantially level installments with payments not less
frequently than quarterly over a period of 5 years or less unless such loan
is classified as a "home loan" (as described in Code (S)72(p));
13.3(d)(3) If the loan is secured by any portion of the Participant's
Account, such Account balance shall not be reduced as a result of a default
until a distributable event occurs under the Plan; and
13.3(d)(4) The Participant or Beneficiary shall agree to such other terms
and conditions as are required under the written procedure described in
(S)13.3(a).
13.3(e) Crediting of Loan Payments.
13.3(e)(1) Account Asset (Standard Option). The loan to a Participant whose
loan request is granted under this (S)13.3 shall be made from, and shall be
an asset of, the Participant's Account and all principal and interest
payments on such loan shall be credited exclusively to the Participant's
Account.
13.3(e)(2) Fund Asset (Alternative). If the Employer specifies in the
Adoption Agreement that loans shall be treated as an asset of the Fund or,
if any loan which was made under a Pre-Existing Plan was treated as an
asset of the Fund, such loans shall be treated under this Plan as a general
Fund investment and an asset of the Fund, and all principal and interest
payments on such loan shall be credited exclusively to the Fund as a
general Fund investment.
13.3(f) Limitations on Amounts. The principal amount of any loan (when added to
the outstanding principal balance of any outstanding loans made under this Plan
or under any other plan which is tax exempt under Code (S)401 and which is
maintained by the Employer or an Affiliate) to the Participant shall not exceed
the lesser of (1) and (2) below:
13.3(f)(1) Dollar Limit - $50,000 reduced by the excess, if any, of
(i) the highest outstanding principal balance of previous loans to
the Participant from the Plan (and any other plan maintained by the
Employer or an Affiliate) during the one year period ending immediately
before the date such current loan is made, over
(ii) the current outstanding principal balance of such previous loans
on the date such current loan is made, or
13.3(f)(2) Account Limit -
(i) Standard Option - 50% of the nonforfeitable interest in the
Participant's Account at the time the loan is made or
(ii) Alternate - if so specified in the Adoption Agreement, the
greater of $10,000 or the amount specified in (S)13.3(f)(2)(i), but in
no event more than the nonforfeitable interest in the Participant's
Account.
An assignment or pledge of any portion of the Participant's interest in the
Plan and a loan, pledge or assignment with respect to any insurance
contract purchased under the Plan shall be treated as a loan for purposes
of the limitations in this (S)13.3(f).
13.3(g) Failure to Repay. If (1) the terms of the loan provide that it
shall become due and payable in full if the Participant's or Beneficiary's
obligation to repay the loan has been discharged through a bankruptcy or
any other legal process or action which did not actually result in payment
in full and (2) such loan is not actually repaid in full, such loan shall
be cancelled on the Fund's books and records and the amount otherwise
distributable to such Participant or Beneficiary under this Plan shall be
reduced by the principal amount of the loan plus accrued but unpaid
interest due as determined without regard to whether the loan had been
discharged through a bankruptcy or any other legal process or action which
did not actually result in payment in full. The Plan Administrator shall
have the power to direct the Trustee to take such action as the Plan
Administrator deems necessary or appropriate to stop the payment of an
Account to or on behalf of a Participant who fails to repay a loan (without
regard to whether the obligation to repay such loan had been discharged
through a bankruptcy or any other legal process or action) until the
Participant's Account has been reduced by the principal plus accrued but
unpaid interest due (without regard to such discharge) on such loan or to
distribute the note which evidences such loan in full satisfaction of that
portion of such Account which is represented by the value of such note.
Notwithstanding the foregoing, in the event of default, foreclosure on the
note and execution of the Plan's security interest in the Account shall not
occur until a distributed event occurs under this Plan and interest shall
continue to accrue only to the extent permissible under applicable law.
13.3(h) Distributions. In the event the Participant's Account becomes
distributables before the loan is repaid in full, then the vested Account
balance shall be adjusted by first reducing the vested Account balance by
the amount of the security interest in the Account and then determining the
benefit payable. Nothing shall preclude the Trustee from cancelling the
Plan's security interest in the Account and distributing the note in lieu
of any other Plan assets in full satisfaction of that portion of the
Participant's Account represented by the value of the outstanding balance
of the loan or the amount which would have been outstanding but for a
discharge in bankruptcy or through any other legal process.
SECTION 14. ADOPTION, AMENDMENT, WITHDRAWAL AND CONVERSION, MERGER, ASSET
TRANSFERS AND TERMINATION
14.1 Adoption.
14.1(a) General. Subject to the terms and conditions of this Plan, the
Trust Agreement and the Adoption Agreement, any sole proprietorship, partnership
or corporation may adopt this Plan by completing and executing the Adoption
Agreement. The Plan as adopted by the Employer shall be effective for all
purposes (other than as a "prototype plan") as of the Effective Date. However,
the status of the Plan as a "prototype plan" shall be conditioned upon
acceptance of the Adoption Agreement by the Prototype Sponsor and, upon such
acceptance, such status as a "prototype plan" shall
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be effective retroactive to the Effective Date except as provided in
(S)14.4.
14.1(b) Pre-Existing Plan. If this Plan is adopted as an amendment and
restatement of a Pre-Existing Plan, (1) the Trust Agreement shall be
substituted for the trust or other funding arrangement under the Pre-
Existing Plan, (2) the assets held under such trust or other funding
arrangement shall become assets of the Fund, (3) an Account shall be
established for each person who is a participant or beneficiary in the Pre-
Existing Plan, and (4) the dollar value assigned to such participant's or
beneficiary's Pre-Existing Plan account or accounts shall be credited to
such person's Account under this Plan (or to one or more subaccounts under
such Account). All optional forms of benefit available under the Pre-
Existing Plan which must be preserved under Code (S)411(d)(6) shall be
available to the Participant under this Plan. Further, such optional forms
shall be described in the Adoption Agreement and shall apply to the
Participant's entire Account balance. Notwithstanding the foregoing, if the
Employer so specifies in the Adoption Agreement and separately accounts
for the benefits attributable to the Pre-Existing Plan as described in
(S)14.5(c) or, if applicable, (S)10.5, the optional forms which must be
preserved may be limited to such separate accounts.
14.1(c) Participating Affiliates. If this Plan is adopted as a standardized
Plan, each Affiliate shall automatically become a Participating Affiliate
effective as of the later of the Effective Date or the date such entity
first becomes an Affiliate. If this Plan is adopted as a nonstandardized
Plan, an Affiliate of the Employer may adopt the Employer's Plan effective
as of the date on or after the Effective Date. An Affiliate's execution of
the Adoption Agreement (or a separate signature page to the Adoption
Agreement) shall evidence the Participating Affiliate's adoption of the
Plan and the effective date of such adoption. In adopting this Plan, each
Participating Affiliate is deemed to have authorized the Employer to effect
all actions under this Plan on its behalf, including but not limited to the
powers reserved to the Employer under this (S)14 and the power to enter
into such agreements with the Trustee or others as may be necessary or
appropriate under the Plan.
14.2 Amendment.
14.2(a) Prototype Sponsor. Subject to the restrictions of (S)14.3, the
Prototype Sponsor shall have the right at any time and from time to time to
amend this Plan in any respect whatsoever in writing. To the extent
required under the procedures and rules in effect for master and prototype
plans at the time of any such amendment, notice of such amendment shall be
given to the Employer by the Prototype Sponsor as soon as practicable under
the circumstances.
14.2(b) Employer. Subject to the restrictions of (S)14.3, the Employer
shall have no right to amend this Plan except (1) by entering into a new
Adoption Agreement with the Prototype Sponsor, (2) by adding such language
to the Adoption Agreement as is necessary to allow the Plan to continue to
satisfy the requirements of Code (S)415 or Code (S)416 because of the
required aggregation of multiple plans, (3) by adopting certain model
amendments published by the Internal Revenue Service which specifically
provide that such adoption would not cause the Plan to be treated as an
Individually designed plan, or (4) by withdrawing this Plan as a prototype
and converting it into an individually designed plan as provided in
(S)14.4.
14.3 Certain Amendment Restrictions.
14.3(a) General. No amendment to the Plan shall be made which would (1)
deprive a Participant of the nonforfeitable percentage of his or her
Account balance accrued to the later of the effective date of the amendment
or the date the amendment is adopted, or (2) decrease a Participant's
Account balance or eliminate an optional form of benefit except to the
extent permissible under Code (S)412(c)(8), (S)401(a)(6) and (S)411(d)(6)
and the regulations under those sections.
14.3(b) Change in Service Calculation Method. If an amendment changes the
method of calculating service, each Employee who had any service credit
under such prior method shall be credited with any service for any
computation period during which such amendment was effective in accordance
with the rules in (S)3.
14.3(c) Change in Vesting Schedule. If an amendment directly or indirectly
affects the computation of a Participant's nonforfeitable percentage of his
or her Account or if the Plan's vesting schedule changes as a result of a
change in the Plan's status as a Top-Heavy Plan (as described in (S)12.4),
each Participant with at least 3 years of service with Employer or an
Affiliate may elect, within a reasonable period after the adoption of the
amendment, to have the nonforfeitable percentage of his or her Account
computed under this Plan without regard to such amendment. In the case of a
Participant who does not have at least one Hour of Service in any Plan Year
beginning after December 31, 1988, the preceding sentence shall be applied
by substituting 5 years of service for 3 years of service. The period
during which the election may be made shall commence with the date the
amendment is adopted and shall end on the later of
14.3(c)(1) 60 days after the amendment is adopted;
14.3(c)(2) 60 days after the amendment becomes effective; or
14.3(c)(3) 60 days after the Participant is issued written notice of
the amendment by the Plan Administrator.
Furthermore, if an amendment changes the Plan's vesting schedule, the
nonforfeitable percentage (determined as of the later of the date the
amendment is adopted or the date it becomes effective) of the employer-
derived Account balance of each Employee who is a Participant as of such
date shall not be less than the percentage computed under the Plan without
regard to such amendment.
14.4 Withdrawal as a Prototype and Conversion to individually Designed Plan.
14.4(a) Voluntary Conversion. The Employer may voluntarily withdraw this
Plan as a "prototype plan" and convert it to an individually designed plan
by written notice filed with the Trustee and the Prototype Sponsor. For
purposes of this (S)14.4, such withdrawal shall be effective with respect
to the Employer's plan and the Trustee as of the effective date of such
withdrawal, but such withdrawal shall not relieve the Employer of any
responsibilities or liabilities to the Prototype Sponsor until 60 days
after the date the Prototype Sponsor receives written notice of such
withdrawal unless the Prototype Sponsor agrees in writing to an earlier
effective date for such withdrawal.
14.4(b) Involuntary Conversion. The Employer shall be deemed to have
withdrawn this Plan as a "prototype plan" and converted it to an
individually designed plan effective as of the earlier of the date
14.4(b)(1) the Internal Revenue Service or a court determines that this
Plan fails to meet the requirements of Code (S)401;
14.4(b)(2) the Trustee ceases to maintain a brokerage account for the
Plan with the Prototype Sponsor or with an approved subsidiary of the
Prototype Sponsor;
14.4(b)(3) the Prototype Sponsor notifies the Employer in writing that
the Prototype Sponsor for reasons sufficient to the Prototype Sponsor
has terminated its sponsorship of its prototype plan program or of this
Plan for the Employer; or
14.4(b)(4) the Employer amends any provision of this Plan or the
Adoption Agreement (other than in accordance with (S)14.2(b)(1) through
(3)) including an amendment because of a waiver of the minimum funding
requirement under Code (S)412(d).
14.4(c) Effect of Withdrawal and Conversion. If this Plan is withdrawn as a
prototype and converted to an individually designed Plan under this (S)
14.4, the Employer as of the effective date of such withdrawal shall
assume the right and responsibility to amend the Plan under (S)14.2(a) and
thereafter only the Employer shall make amendments to this Plan; provided,
(1) no such amendment shall affect the Trustee's rights or duties under
this Plan without the Trustee's prior written consent and (2) any such
amendment shall be subject to the restrictions of (S)14.3.
14.5 Merger, Consolidation or Asset Transfers.
14.5(a) General. In the case of any Plan merger or consolidation with, or
transfer of assets or liabilities to or from, any other employee benefit
plan, each person for whom an Account then is maintained shall be entitled
to receive a benefit from such plan, if it is then terminated, which is
equal to or greater than the benefit such person would have been entitled
to receive immediately before such merger, consolidation or transfer, if
this Plan then had been terminated.
14.5(b) Authorization. The Plan Administrator may authorize the Trustee to
accept a transfer of assets from or transfer Fund assets to the trustee,
custodian or insurance company of any other plan which satisfies the
requirements of Code (S)401(a) in connection with a merger or consolidation
with, or other transfer of assets and
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liabilities to or from any such plan, provided that the transfer will not
affect the qualification of this Plan under Code (S)401(a) and the assets
to be transferred are acceptable to the Trustee.
14.5(c) Separate Account. The Plan Administrator may establish separate
bookkeeping accounts for any assets transferred to the Trustee under this
(S)14.5 and shall establish such separate bookkeeping accounts if required
under this Plan. If separate accounts are maintained with respect to
transferred assets, no contributions or Forfeitures under this Plan shall
be credited to such separate accounts, but such accounts shall share in the
Fund Earnings on the same basis as each other Account under (S)6.2. Any
individual for whom an Account is established under this (S)14.5 shall
become a Participant in this Plan as of the effective of the merger,
consolidation or asset transfer; however, no contributions shall be made by
or on behalf of such individual under this Plan unless such individual is
otherwise entitled to such contributions under the terms of this Plan.
14.5(d) Code(S)411(d)(6) Protected Benefits. All optional forms of benefit
available under the transferor plan which must be preserved under
Code(S)411(d)(6) shall be available to the Participant under this Plan
unless such transfer meets the requirement of Code (S)414(I) and the
Participant has made an elective transfer which satisfies the requirements
set forth in Q&A-3(b) of (S)1.411(d)-4 of the Federal Income Tax
Regulations. Further, such optional forms shall be described in the
Adoption Agreement and, generally, shall apply to the Participant's entire
Account balance. Notwithstanding the foregoing, if the Employer so
specifies in the Adoption Agreement and separately accounts for such
transferred assets, the optional forms which must be preserved may be
limited to such separate account.
14.6 Termination.
14.6(a) Right to Terminate. The Employer may terminate or partially
terminate this Plan or discontinue contributions to this Plan at any time
by written action of the Board filed with the Trustee and the Prototype
Sponsor. The Employer reserves the right to terminate the participation in
this Plan by any Participating Affiliate at any time by written action.
Furthermore, a Participating Affiliate's participation in this Plan
automatically shall terminate if (and at such time as) its status as an
Affiliate terminates for any reason whatsoever (other than through a merger
or consolidation into another Participating Affiliate). However, a
Participating Affiliate's termination of participation in this Plan shall
not be deemed to be a termination or partial termination of the Plan except
to the extent required under the Code. Upon complete termination of this
Plan, any unallocated amounts (other than amounts in a Code (S)415 suspense
account described in (S)7.2(b) shall be allocated in accordance with the
Plan terms but, if the Plan terms do not address the allocation of such
amounts, they shall be allocated in a nondiscriminatory manner prior to
distribution of Plan assets.
14.6(b) Full Vesting Upon Termination. If this Plan is terminated or
partially terminated under this (S)14.6 or if there is a complete
discontinuance of contributions under this Plan, the Account of each
affected Employee of the Employer or an Affiliate shall become
nonforfeitable on the effective date of such termination or partial
termination or complete discontinuance of contributions, as the case may
be. In the event of a complete termination of this Plan or a complete
discontinuance of contributions, each other Account (except to the extent
otherwise nonforfeitable under the terms of this Plan) shall become a
Forfeiture and shall be allocated as such under (S)6.3 as of the effective
date of such complete termination or complete discontinuance as if such
date was the last day of a Plan Year.
SECTION 15. ADMINISTRATION
15.1 Named Fiduciaries. The Plan Administrator and the Employer (if the Plan
Administrator is not the Employer) shall be the Named Fiduciaries responsible to
the extent of their powers and responsibilities assigned in the Plan for the
control, management and administration of the Plan. The Plan Administrator, the
Employer and the Trustee (other than Smith Barney Shearson Trust Company) shall
be the Named Fiduciaries responsible to the extent of their respective powers
and responsibilities assigned to them in the Trust Agreement for the
safekeeping, control, management, investment and administration of the assets of
the Fund. Any power or responsibility for the control, management or
administration of the Plan or the Fund which is not expressly assigned to a
Named Fiduciary under the Plan or the Trust Agreement, or with respect to which
the proper assignment is in doubt, shall be deemed to have been assigned to the
Employer as a Named Fiduciary. One Named Fiduciary shall have no responsibility
to inquire into the acts and omissions of another Named Fiduciary in the
exercise of powers or the discharge of responsibility assigned to such other
Named Fiduciary under the Plan or the Trust Agreement. Any person may serve in
more than one fiduciary capacity under the Plan or the Trust Agreement and a
fiduciary may be a Participant provided such individual otherwise satisfies the
requirement of (S)4.
A Named Fiduciary, by written instrument filed by the Plan Administrator with
the records of the Plan, may designate a person who is not a Named Fiduciary to
carry out any of its responsibilities under the Plan or Trust Agreement, other
than the responsibilities of the Trustee for the safekeeping, control,
management, investment and administration of the assets of the Fund, except to
the extent the Trustee's responsibility for investment decisions is delegated to
the Employer, the Plan Administrator, or an investment manager.
15.2 Administrative Powers and Duties. Except to the extent expressly reserved
under the Plan or the Trust Agreement to the Employer, the Board, or the
Trustee, the Plan Administrator shall have the exclusive responsibility and
complete discretionary authority to control the operation, management and
administration of the Plan, with all powers necessary to enable it properly to
carry out such responsibilities, including (but not limited to) the power to
construe the Plan, the related Adoption Agreement, and the Trust Agreement, to
determine eligibility for benefits and to resolve all interpretative, equitable
or other questions that arise under the Plan or the Trust Agreement. The
decisions of the Plan Administrator on all matters within the scope of its
authority shall be final and binding. To the extent a discretionary power or
responsibility under the Plan or Trust Agreement is expressly assigned to a
person other than the Plan Administrator, such person shall have complete
discretionary authority to carry out such power or responsibility and such
person's decisions on all matters within the scope of such person's authority
shall be final and binding.
15.3 Agent for Service of Process. The agent for service of process for this
Plan shall be the person who is identified as the agent for service of process
in the summary plan description for this Plan. Neither the Prototype Sponsor nor
any of its affiliates shall be the agent for service of process for the Plan.
15.4 Reporting and Disclosure. All records regarding the operation, management
and administration of this Plan shall be maintained by the Plan Administrator.
The Plan Administrator shall satisfy any federal or state requirement to report
and disclose any information regarding this Plan to any federal or state
department or agency, or to any Participant or Beneficiary.
SECTION 16. MISCELLANEOUS
16.1 Spendthrift Clause and Qualified Domestic Relations Orders. Except to the
extent permitted by law, no Account, benefit, payment or distribution under this
Plan or Trust Agreement shall be subject to attachment, garnishment, levy,
execution or any claim or legal process of any creditor of a Participant or
Beneficiary, and no Participant or Beneficiary shall have any right to alienate,
commute, anticipate, or assign all or any part of such individual's Account,
benefit, payment or distribution under this Plan or Trust Agreement. The
proceeding sentence also shall apply to the creation, alienation, assignment, or
recognition of a right to any benefit payable with respect to a Participant
pursuant to a domestic relations order unless such order is determined to be a
qualified domestic relations order ("QDRO") within the meaning of Code (S)414(p)
and such order is entered on or after January 1, 1985. The Plan Administrator
shall establish uniform and nondiscriminatory procedures regarding the
determination of whether a domestic relations order constitutes a QDRO, the
timing of distributions made pursuant to a QDRO and the treatment of any
separate account established under this Plan pursuant to a QDRO. Unless
otherwise expressly specified in such procedures, (1) the Plan Administrator
shall treat a domestic relations order entered before January 1, 1985 as a QDRO
in accordance with Code (S)414(p) and (2) a distribution may be made to an
alternate payee pursuant to a QDRO prior to the earliest date that a
distribution could be made to a Participant under the terms of this Plan and
prior to a Participant's "earliest retirement age" under Code (S)414(p). The
determinations and the distributions made by, or at the direction of, the Plan
Administrator under this (S)16.1 shall be final and binding on the Participant
and on all other persons interested in such order.
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16.2 Benefits Supported Only by Trust Fund. Any person having any claim for
any benefit under this Plan shall look solely to the assets of the Fund for the
satisfaction of the claim. In no event shall the Prototype Sponsor, the
Trustee, the Plan Administrator, the Employer or a Participating Affiliate or
any of their employees, officers, directors or their agents be liable in their
individual capacities to any person whomsoever for the payment of any benefits
under this Plan.
16.3 Discrimination. The Plan Administrator shall administer the Plan in a
manner which it deems equitable under the circumstances for all similarly
situated Employees, Participants, Spouses and Beneficiaries; provided, the Plan
Administrator shall not permit discrimination in favor of Highly Compensated
Employees of the Employer or any Participating Affiliate which would be
prohibited under Code (S)401(a).
16.4 Claims. Any payment to a Participant or Beneficiary or to the legal
representative or heirs-at-law of any such person made in accordance with the
provisions of this Plan shall to the extent of such payment be in full
satisfaction of all claims under this Plan against the Trustee, Plan
Administrator, a Named Fiduciary, the Employer and any Participating Affiliate,
any of whom may require such person, such person's legal representative of
heirs-at-law, as a condition precedent to such payment, to execute a receipt and
release in such form as shall be determined by the Trustee, Plan Administrator,
a Named Fiduciary, the Employer or a Participating Affiliate, as the case may
be.
16.5 Nonreversion. Except as provided in (S)7.2(b) and in this (S)16.5,
neither the Employer nor any Participating Affiliate shall have any present or
prospective right, claim, or interest in the Fund or in any Employer
contribution made to the Trustee.
To the extent permitted by the Code and ERISA, the Employer contributions
described in this (S)16.5, less any losses on such contributions, shall be
returned by the Trustee to the Employer or to any Participating Affiliate upon
the written direction of the Plan Administrator in the event that:
16.5(a) an Employer contribution is made by a mistake of fact, provided
such return is effected within one year after the payment of such
contribution;
16.5(b) a final judicial or Internal Revenue Service determination is made
that this Plan fails to satisfy the requirements of Code (S)401 with
respect to its initial qualification (provided, if the Employer is not
entitled to rely on the Prototype Sponsor's opinion letter, the application
for the initial qualification of the Plan is made on or before the date
prescribed by law for filing the Employer's return for the taxable year in
which the Plan is adopted, or such later date as the Secretary of the
Treasury may prescribe). In which event Employer contributions made before
such judicial or administrative determination (whichever last occurs) plus
any earnings and minus any losses shall be returned within one year after
such determination, all such contributions being hereby conditioned upon
this Plan satisfying all applicable requirements under Code (S)401 from and
after its adoption; or
16.5(c) a deduction for an Employer contribution is disallowed under Code
(S)404, in which event such contribution shall be returned within one year
after such disallowance, all such contributions being hereby conditioned
upon being deductible under Code (S)404.
16.6 Exclusive Benefit. The corpus or income of the Fund shall not be diverted
to or used for any purpose other than the exclusive benefit of Participants or
Beneficiaries.
16.7 Expenses. Any expenses of the Fund which are properly allocable to an
individual's Account (including, but not limited to, expenses related to an
individual's investment directions, annuity contract purchases and other
transactional fees for processing distributions) may be charged directly against
such individual's Account if so provided in the administrative procedures
established by the Plan Administrator.
16.8 Section 16 of Securities Exchange Act of 1934. If this Plan is invested
in employer securities and this Plan permits employees of the Employer who are
subject to the reporting requirements of (S)16 of the Securities Act of 1934, as
amended ("Act") to receive awards, then notwithstanding any other provision of
this Plan, the provisions of this Plan that set forth the formula or formulas
that determine the amount, price or timing of awards to such persons and any
other provisions of this Plan of the type referred to in (S)16b-3(c)(2)(ii) of
the Act shall not be amended more than once every six months, other than to
comport with changes in the Code, ERISA, or the rules thereunder. Further, to
the extent required, the employees described in the preceding sentence shall be
subject to such withdrawal, investment and other restrictions necessary to
satisfy Rule 16b-3 under the Act. This (S)16.8 is intended to comply with Rule
16b-3 under the Act and shall be effective only to the extent required by such
rule and shall be interpreted and administered in accordance with such rule.
16.9 Arbitration. Any claims or controversies with the Prototype Sponsor
related to this Plan are subject to arbitration in accordance with the
arbitration provisions of the Smith Barney Shearson Qualified Retirement Plan
and IRA Client Agreement or any successor to such agreement, which provisions
hereby are expressly incorporated herein by reference.
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Part II
Smith Barney Shearson
Prototype Defined Contribution
Trust Agreement
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PART II. SMITH BARNEY SHEARSON
PROTOTYPE DEFINED CONTRIBUTION PLAN TRUST AGREEMENT
SECTION 1. INTRODUCTION AND CONSTRUCTION
1.1 Introduction. This Trust Agreement is a part of the Smith Barney Shearson
Prototype Defined Contribution Plan and is entered into between the Employer and
the Trustee effective as of the date the Adoption Agreement is executed by the
Employer and the Trustee. If the Plan is adopted as an amendment and
restatement of a Pre-Existing Plan, this Trust Agreement shall amend and restate
the trust agreement or other funding arrangement for the Pre-Existing Plan.
1.2 Definitions. The terms in this Trust Agreement which begin with a capital
letter shall have the meanings set forth in (S)2 of the Plan. For purposes of
this Trust Agreement, "SBSTC" shall mean Smith Barney Shearson Trust Company and
any successor in interest to Smith Barney Shearson Trust Company.
1.3 Controlling Laws. To the extent such laws are not preempted by federal
law, this Trust Agreement shall be construed and interpreted under the laws of
the state specified in the Adoption Agreement; provided, if SBSTC has been
appointed as Trustee, this Trust Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
1.4 Construction. The headings and subheadings in this Trust Agreement have
been inserted for convenience of reference only and are to be ignored in the
construction of its provisions. Wherever appropriate, the masculine shall be
read as the feminine, the plural as the singular, and the singular as the
plural. References in this Trust Agreement to a section (S) shall be to a
section in this Trust Agreement unless otherwise indicated. References in this
Trust Agreement to a section of the Code, ERISA or any other federal law shall
also refer to the regulations issued under such section.
The Employer intends that the Plan and this Trust Agreement and the related
Adoption Agreement which are part of the Plan satisfy the requirements for tax
exempt status under Code (S)401(a). Code (S)501(a) and related Code sections
and that the provisions of this Trust Agreement, the Plan and the related
Adoption Agreement be construed and interpreted in accordance with the
requirements of the Code and the regulations under the Code.
Further, except as expressly stated otherwise, no provision of the Plan or this
Trust Agreement or the related Adoption Agreement is intended to nor shall grant
any rights to Participants or Beneficiaries or any interest in the Fund in
addition to those minimum rights or interest required to be provided under ERISA
and the Code and the regulations under ERISA and the Code.
Nothing in the Plan or this Trust Agreement or the related Adoption Agreement
shall be construed to prohibit the adoption of the maintenance of the Plan and
Trust Agreement as an individually designed plan and trust agreement or the
adoption of this Trust Agreement in connection with an individually designed
plan, but in such event, the Employer may not rely on the opinion letter issued
to the Prototype Sponsor and the Prototype Sponsor shall have absolutely no
responsibility for such individually designed plan and trust agreement.
Finally, in the event of any conflict between the terms of the Plan and the
terms of this Trust Agreement or the Adoption Agreement, the terms of the Plan
shall control.
SECTION 2. GENERAL
All the Trustee's rights, power, authorities, duties and responsibilities of any
kind or description whatsoever respecting the Fund shall be solely and
exclusively as expressly stated in the Plan and in this Trust Agreement. Except
to the extent the Employer or Plan Administrator also is the Trustee for the
Plan, the Trustee shall have no responsibility whatsoever with respect to the
maintenance, operation and administration of the Plan. No right, power,
authority, duty or responsibility of any kind or description whatsoever
respecting the Fund or the maintenance, operation or administration of the Plan
shall be attributed to the Trustee on account of any ambiguity or inference
which might be interpreted by any person to exist in the terms of the Plan or
this Trust Agreement. Finally, if SBSTC is Trustee, any discretionary powers,
duties or responsibilities assigned to the Trustee in this Trust Agreement shall
be exercised or performed by SBSTC only upon the direction of the Plan
Administrator, the Employer or an Investment Manager, and SBSTC shall exercise
no discretion with respect to the investment or management of the Fund except to
the extent that Fund assets are invested in a common or collective group trust
maintained by SBSTC or an affiliate of SBSTC.
SECTION 3. CONTRIBUTIONS AND TRUST FUND
The Employer and the Trustee shall establish reasonable procedures for making
and accepting contributions to the Fund and any asset transfers pursuant to (S)9
of this Trust Agreement. The Trustee shall accept any contributions the
Trustee reasonably believes are paid to it in accordance with such procedures,
except that the Trustee may refuse to accept any non-cash contributions or
assets which either are not acceptable to the Trustee or in acceptance of which
the Trustee reasonably believes would constitute a prohibited transaction under
ERISA or the Code. If this Trust Agreement is an amendment and restatement of a
trust agreement or other funding arrangement for a Pre-Existing Plan, the assets
held under such pre-existing trust agreement or other funding arrangement shall
(to the extent acceptable to the Trustee and permissible under the prohibited
transaction rules of ERISA and the Code) be transferred to the Trustee pursuant
to reasonable transfer procedures established by the Trustee, the Employer and
any predecessor trustee, custodian or insurance carrier and shall become assets
of the Fund. The Trustee shall have no responsibility with respect to such
transferred assets except to receive such assets and to hold and administer the
same thereafter in accordance with this Trust Agreement. The Trustee shall not
be responsible for any act or omission of a predecessor trustee or any other
person with respect to assets that are transferred to the Trustee when the Fund
is a continuation of a trust fund or other funding arrangement under a Pre-
Existing Plan and shall not be required to make any claim or demand against any
of such persons unless the Employer requests in writing that the Trustee make
such claim or demand. The Fund shall consist of all such contributions and
assets together with the income or gains on such contributions and assets, less
any payments, distributions, transfers, assessments, and losses from or on such
contributions and assets. The Fund shall be managed and controlled by the
Trustee pursuant to the terms of this Trust Agreement without distinction
between principal and income and without liability for the payment of any
interest on such assets. The Trustee shall not be responsible for the amount or
the collection of any contributions to the Fund or for the determination of the
amount or frequency of any contribution required by the Plan, ERISA or the Code
and such responsibilities shall be borne solely by the Employer and the
Participating Affiliates. Further, the Trustee, for investment purposes, may
combine into one fund the Funds created under each Plan maintained by the
Employer and Participation Affiliates and (unless otherwise specified) all
references to the Fund in this Trust Agreement shall be references to the
combined Funds; provided that (a) the Trustee shall maintain separate books and
records of the assets, contributions, distributions and income or losses
allocable to each such Fund and (b) no part of one Fund shall be used to pay the
expenses, benefits or liabilities attributable to any other Fund.
SECTION 4. MANAGEMENT OF TRUST FUND
4.1 Plan Administrator. With respect to the Fund, the Plan Administrator shall
have those duties and responsibilities specified in this Trust Agreement and,
additionally, shall have the duty to advise the Trustee and any other person of
such facts and issue such directions as may be required to enable the Trustee
and such other person to execute their duties and responsibilities under this
Agreement.
4.2 Trustee. The Trustee shall have the sole and exclusive power (except as
otherwise provided in this Trust Agreement) in the management and control of the
Fund to do all things and execute such instruments as may be deemed necessary or
proper, including the powers described in this section, all of which may be
exercised without order of or report to any court. To the extent the exercise of
any such power would require the exercise of discretion by SBSTC as the Trustee
(other than the management and control of any assets invested in any common or
collective trust maintained by SBSTC or its affiliates), SBSTC as Trustee shall
exercise such power only in accordance with the specific direction of the Plan
Administrator, the Employer or an Investment Manager.
4.2(a) To sell, exchange, or otherwise dispose of any property at any time
held or acquired by the Fund, at public or private sale, for cash or on
terms, without advertisement, including the right to lease for any term
notwithstanding the period of the Trust Agreement;
4.2(b) To vote in person or by proxy any corporate stock or other security
and to agree to or take, or refrain from taking, any other
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action necessary or appropriate for a shareholder or owner in regard to any
reorganization, merger, consolidation, liquidation, bankruptcy or other
procedure or proceeding affecting any stock, bond, note or other property;
4.2(c) To compromise, settle or adjust any claim or demand by or against the
Fund and to agree to any rescission or modification of any contract or
agreement affecting the Fund;
4.2(d) To borrow money, and to secure the same by mortgaging, pledging, or
conveying the property of the Fund;
4.2(e) To deposit any stock, bond or other security in any depository or
other similar institution and to register any stock, bond or other security
in the name of a nominee or in street name provided such securities are held
on behalf of the Fund by a bank or trust company, subject to supervision by
the United States or a State, a broker or dealer registered under the
Securities Exchange Act of 1934 ("Act") or a "clearing agency" as defined in
the Act, or their nominees, without the addition of words indicating that
such security is held in a fiduciary capacity, but accurate records shall be
maintained showing that such security is a Fund asset and the Trustee shall
be responsible for the acts of such nominee;
4.2(f) To hold cash in such amounts as may be in its opinion reasonable for
the proper operation of the Fund;
4.2(g) To invest any and all monies in such stocks, bonds, securities,
investment company or trust shares or mutual funds, including mutual funds
which invest in commodities, mortgages, notes, choses in action, real estate,
improvements thereon, and other property as the Trustee may deem appropriate,
including "employer securities" (whether or not such securities are
"qualifying employer securities") or "employer real property" (whether or not
such property is "qualifying employer real property"), as such terms are
defined for purposes of ERISA (S)407, except in the extent prohibited under
ERISA or the Code;
4.2(h) To grant, sell, purchase, or exercise any option of any kind or
description whatsoever to purchase or sell any security or other property
which is a permissible investment under this (S)4(b), provided the Trustee in
no event shall grant or sell any option under which any person can require
the Fund to sell any security or other property which the Fund at the time of
such grant or sale does not hold in an amount sufficient to cover such option
and any other outstanding option granted or sold by the Trustee, and the
Trustee in no event shall dispose of any such security or other property
covering any such option until such option is exercised or otherwise expires;
4.2(i) To invest all, or any part, of the assets of the Fund in any common,
collective or group trust fund maintained under Code (S)584 or Revenue Ruling
81-100, 1981-1 C.B. 326 exclusively for the investment of the assets of tax
exempt pension and profit sharing plans, the provisions of which upon such
investment shall automatically be adopted and made a part of this Trust
Agreement for the period such investment is made in such common, collective
or group trust fund; provided, if SBSTC is the Trustee,
4.2(i)(1) the Trustee shall, upon receipt of written investment directions,
invest some or all of the Fund in one or more collective trust funds
(including, without limitation, any collective trust fund maintained by the
Trustee or by any affiliate of the Trustee) that are exempt from taxation
under Code (S)501(a);
4.2(i)(2) any such investment shall be subject to all the provisions of the
declaration of trust creating such collective trust fund which is adopted
in its entirety as an integral part of the Plan and of this Trust
Agreement;
4.2(i)(3) the Employer, Plan Administrator or Investment Manager shall not
have any right to vote or otherwise in any manner control the operation and
management of any such collective trust fund, the operation of any party to
any such collective trust fund, or any beneficiary of any such collective
trust fund;
4.2(i)(4) the Trustee (or its affiliate) is authorized to utilize
investment advice received from investment advisers for any collective
trust fund maintained by the Trustee (or its affiliate) including, without
limitation, such advice received from (SLH Capital Management and SLH Asset
Management, each of which is a division of) an affiliate of the Trustee,
and to utilize the brokerage services of the Prototype Sponsor, an
affiliate of the Trustee; and
4.2(i)(5) the Employer, Plan Administrator or Investment Manager, as
applicable, shall determine, prior to any direction by either of them to
invest the Fund in any such collective trust fund, that the services
provided to the Plan through the collective trust fund including, without
limitation, any investment advisory services provided to the Trustee (or
its affiliate) by (SLH Capital Management or SLH Asset Management) and
brokerage services provided by the Prototype Sponsor are (A) necessary to
the operation of the Plan, (B) furnished under a declaration of trust which
is reasonable and (C) furnished for reasonable compensation;
4.2(j) To purchase, hold, sell, surrender or distribute any investment
contract, life insurance contract or annuity contract as directed by a
Participant or the Plan Administrator in accordance with the Plan;
4.2(k) To make a participant loan as directed by the Plan Administrator; and
4.2(l) To make such other investments as the Trustee in its discretion shall
deem best or if SBSTC is the Trustee or if the Trustee is subject to
direction of another person, as directed by someone other than the Trustee,
without regard to any law now or hereafter in force (other than ERISA)
limiting the investments of trustees or other fiduciaries.
The Trustee shall not be required to make any inventory or appraisal or report
to any court, nor to secure any order of court for the exercise of any power
contained in this Trust Agreement, and shall not be required to give bond
(except as required by ERISA).
Notwithstanding the foregoing, if SBSTC is the Trustee, SBSTC shall invest all
assets of the Fund which are to be invested on an interim basis pending
reinvestment, distribution or other disbursement either (1) in depository
accounts bearing a reasonable rate of interest which are maintained by SBSTC or
by an affiliate of SBSTC or (2) in commingled short-term investment funds which
are maintained by SBSTC or by any affiliate of SBSTC, in which event the
provisions of (S)4(b)(9) of this Trust Agreement shall apply.
Except as agreed to in writing by the Trustee and the Employer, the Trustee
shall not be liable and shall be indemnified and held harmless by the Employer
for any liability, loss, damage, expense, assessment or other cost of any kind
or description whatsoever, which the Trustee incurs as a result of or arising
out of (1) any action taken at the direction of the Employer, the Plan
Administrator or an Investment Manager, (2) any failure to act if, under the
terms of this Trust Agreement, action can be taken only after receipt from the
Employer, the Plan Administrator or an Investment Manager of specific
directions, (3) any action or failure to act based on advice of legal counsel to
the Employer or the Plan Administrator, or (4) any failure to act pending the
receipt of direction from the Employer, the Plan Administrator or an Investment
Manager, when the Trustee has made a written request for such direction,
provided such action or failure to act is not attributable to fraud, misconduct,
negligence or error by the Trustee. Further, if SBSTC is the Trustee, SBSTC may
from time to time request the advice of counsel on any legal matter, including
the interpretation of the Plan and this Trust Agreement, and shall be
indemnified and held harmless for any and all liability, loss, damage, expense,
assessment or other cost of any kind or description resulting from or on account
of its services as Trustee under the Plan, including, but not limited to, any
co-fiduciary liability under ERISA (S)405 and any liability, damage, expense,
assessment or other cost arising out of its actions in accordance with advice of
counsel. Except as agreed to in writing by the Trustee and the Employer, the
provisions of this paragraph shall survive the term of this Trust Agreement and
may not be amended by any person or entity other than the Prototype Sponsor or
terminated except with the consent of the Trustee.
4.3 Investment Manager. The Plan Administrator as a Named Fiduciary at any time
may appoint in writing a person, or more than one person, including, subject to
(S)4(i) of this Trust Agreement, the Prototype Sponsor or any of its affiliates,
who either (1) is registered as an investment adviser under the Investment
Advisers Act of 1940 ("Act"), (2) is a bank, as defined in the Act, or (3) is an
insurance company which, within the meaning of ERISA (S)3(38), is qualified to
manage, acquire and dispose of the assets of an employee benefit plan under the
laws of more than one state, as an investment manager pursuant to ERISA (S)3(38)
("Investment Manager") for all of the Fund or for a specified portion of
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the Fund allocated by the Plan Administrator to such Investment Manager's
management account ("Management Account").
The Plan Administrator shall notify the Trustee of such appointment and of the
date such appointment becomes effective, and such Investment Manager shall have
the sole responsibility and duty and the sole power, without prior consultation
with the Board, the Employer, the Plan Administrator, the Trustee, or any other
person, to manage and direct or effect the acquisition and disposition of the
assets of the Fund allocated to such Management Account from the date the
appointment as Investment Manager becomes effective. The Plan Administrator as a
Named Fiduciary also may terminate the appointment of any person as an
Investment Manager and may cause assets of the Fund to be added to or deleted
from any Management Account.
The Investment Manager may exercise his or her power through procedures as
agreed upon with the Trustee which satisfy the requirements of the securities
laws and the rules of the New York Stock Exchange (and any other exchange on
which securities are traded for such manager's Management Account), and the
Trustee shall not be liable in any respect to any person, and shall be
indemnified and held harmless by the Employer, for acting in accordance with
such procedures. Pending receipt of directions from the Investment Manager, any
cash received by the Trustee from time to time for such manager's Management
Account may be retained in the Fund in cash. If an Investment Manager ceases to
have investment responsibility for the Management Account, the Plan
Administrator or the Employer, as authorized in accordance with (S)4(d) of this
Trust Agreement, shall manage such assets in accordance with (S)4(d) or shall
appoint another Investment Manager to manage such assets.
4.4 Plan Administrator or Employer Investment Directions. The Board at any time
may authorize in writing the Plan Administrator or the Employer as a Named
Fiduciary to manage and direct the investment of all or any specified portion of
the assets of the Fund as determined by the Board, and the Board at any time may
modify or terminate such authorization in writing. If SBSTC is appointed as
Trustee, the Employer shall automatically be deemed to be so authorized to
manage and direct the investment of the entire Fund; provided, the Employer may
specify in the Adoption Agreement that such direction shall be made by the Plan
Administrator. In the event the Plan Administrator or the Employer is authorized
to manage and direct the Investment of Fund assets under this (S)4(d), the
provisions of (S)4(c) of this Trust Agreement shall apply in all respects as if
the Plan Administrator or the Employer, as applicable, was an Investment Manager
and the portion of the assets subject to such management and direction was a
Management Account.
4.5 Participant Investment Directions. If the Plan permits a Participant or a
Beneficiary to direct the investment of such individual's Account, the Plan
Administrator shall direct the Trustee to establish the investment alternatives
designated by the Plan Administrator and to accept directions to invest all or
any specified portion of the Participant's Account among such alternatives. The
Plan Administrator in consultation with the Trustee shall establish such
reasonable rules for effecting the investment elections as the Plan
Administrator deems necessary or appropriate and such rules shall be applied on
a uniform and nondiscriminatory basis to all similarly situated individuals.
Except as required under ERISA, neither the Plan Administrator, the Employer nor
the Trustee shall be responsible for any investment decisions made by a
Participant or a Beneficiary. If a Participant or Beneficiary fails to direct
the investment of the Account, then the Employer or Plan Administrator (as
authorized in accordance with (S)4(d) of this Trust Agreement) shall assume the
investment responsibility for such Account.
4.6 Custodian. The Trustee (including SBSTC) at any time and from time to time
may appoint one, or more than one, person, including subject to (S)4(i) of this
Trust Agreement, the Prototype Sponsor or any of its affiliates, to perform such
custodial safekeeping, record keeping, securities execution and other
nondiscretionary functions of the Trustee as the Trustee deems appropriate, and
any person who is appointed to perform a custodial safekeeping function may (in
connection with the performance of that function) hold Fund securities in a
street name, provided that the Trustee shall remain the beneficial owner of all
assets held by such person and such person in no event shall be granted any
discretionary authority in the capacity as a custodian to manage and direct the
acquisition and disposition of Fund assets.
4.7 Multiple Trustees. More than one person can serve at the same time as the
Trustee, including any combination of individuals and banks or similar
institutions, and in the event that more than one person does serve at the same
time as Trustee under the Plan and this Trust Agreement, the references to
"Trustee" in the Plan and this Trust Agreement wherever applicable shall be
deemed to be to "Trustees" and such Trustees may allocate among themselves by
unanimous written consent (signed by all Trustees) such specific Trustee duties,
responsibilities and functions in the management of the Fund and otherwise under
the Plan and this Trust Agreement as the Trustees deem appropriate under the
circumstances. The Trustees in all unallocated duties, responsibilities and
functions shall act by majority vote at a meeting at which a majority of the
Trustees are present or by unanimous written consent (signed by all Trustees) in
lieu of a meeting. Any person shall be entitled to rely conclusively upon any
written action signed by all Trustees or by any one or more Trustees to whom the
power to take such action has been allocated by unanimous written consent signed
by all Trustees. Finally, the provisions of (S)8 of this Trust Agreement shall
apply to the resignation or removal of any one of the Trustees, provided that
(1) all notices required in such (S)8 also shall be given to any remaining
Trustees, (2) the Employer only shall be required to appoint successor Trustees,
(2) the Employer only shall be required to appoint successor Trustees upon the
resignation or removal of all Trustees then serving, and (3) the Employer or the
remaining Trustees may demand and receive an accounting upon the resignation or
removal of one or more of the Trustees. Notwithstanding the foregoing, if SBSTC
is not the sole Trustee under the Plan, SBSTC shall serve in a nondiscretionary,
custodial capacity only subject to the directions of the Employer or the Plan
Administrator and SBSTC shall have no duties with respect to assets held by any
other person including, without limitation, any other Trustee for the Fund.
Further, the Employer hereby agrees that SBSTC shall not serve as, and shall not
be deemed to be, a co-trustee under any circumstances.
4.8 Communications. The Employer, the Plan Administrator and each Investment
Manager shall establish with the Trustee such oral, written or electronic
communication procedures (or any combination of such communication procedures)
or such other procedures as such persons and the Trustee deem reasonable and
prudent under the circumstances for the orderly administration of the Fund. The
Trustee and each other person shall be entitled to rely conclusively upon any
and all communication from the Employer, the Plan Administrator and each
Investment Manager reasonably believed to be communicated in accordance with
such established procedures.
If the Trustee receives a direction which in the Trustee's determination is
incomplete, was not communicated in accordance with established procedures or
otherwise cannot reasonably be executed, the Trustee shall promptly inform the
person responsible for such direction and shall take no further action pending
receipt of proper directions from such person.
4.9 Prototype Sponsor. Nothing in the Plan or this Trust Agreement shall prevent
the Prototype Sponsor or any of its affiliates from engaging in any transaction
with the Plan or the Fund, provided that such transaction does not (in the
opinion of the Prototype Sponsor) constitute a "prohibited transaction" under
ERISA (S)406 or Code (S)4975, and the Employer shall provide such written
documentation as the Prototype Sponsor deems necessary or appropriate to
determine that any such transaction would not be a "prohibited transaction."
To the extent that ERISA or a prohibited transaction exemption requires action
by an individual independent of the Plan Sponsor and its affiliates or their
employers, officers and directors, then the Employer, the Plan Administrator, an
Investment Manager, a Participant or a Beneficiary shall have full power and
authority to take action on behalf of the Fund as necessary to satisfy ERISA or
such exemption provided such person otherwise is authorized to act under this
Trust Agreement.
4.10 Voting of Proxies. Except as provided in this (S)4(j), the person with the
responsibility to manage and invest all or a portion of the Fund shall have the
exclusive authority and responsibility for voting proxies with respect to
investments held for such portion of the Fund and the Trustee shall be obligated
to vote such proxies only in accordance with the directions of such person and
shall be precluded from voting such proxies except in accordance with such
directions.
However, the plan Administrator, as a Named Fiduciary, may reserve to itself the
right to vote proxies with respect to any investments which are otherwise
subject to the management and control of an Investment Manager and, in such
event, the Investment manager shall be precluded from voting such proxies.
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SECTION 5. BENEFIT PAYMENTS
No disbursement from the Fund shall be made by the Trustee for purposes of the
payment of any Plan benefit except on the written direction of the Plan
Administrator, and the Trustee shall have no duty or obligation whatsoever to
inquire as to the accuracy of such direction or its propriety in light of the
provisions of the Plan, ERISA or the Code. Upon written direction (which may be
a continuing direction) from the Plan Administrator as to the name of any person
to whom payment is to be made from the Fund and when such payment is to be made
and the amount and manner of such payment, and consistent with the income tax
withholding requirements, the Trustee shall draw checks, purchase annuity
contracts or distribute other assets from the Fund in the name of the person
designated by the Employer and deliver such checks, contracts or other assets in
such manner and in such amounts and at such times as the Plan Administrator
shall direct or, if appropriate, the Trustee shall make an electronic transfer
to the account of such person designated by the Plan Administrator in such
amounts and at such times as the Plan Administrator shall direct.
If SBSTC is the Trustee, all payments to be paid by means of a check from the
Trustee shall be paid from a non-interest bearing checking account to be
maintained with an affiliate of the Trustee. Prior to executing this Trust
Agreement, the Employer shall determine that such checking account services are
(1) necessary to the operation of the Plan, (2) furnished under an arrangement
which is reasonable and (3) furnished for reasonable compensation.
In the event the Trustee shall deem it necessary to withhold any distribution
pending compliance with legal requirements with respect to probate of wills,
appointment of personal representatives, payment or provision for estate or
inheritance taxes, or for death duties or otherwise, the Trustee shall notify
the Plan Administrator and shall thereafter take no action pending receipt of
the Plan Administrator's instructions to distribute and an agreement from the
Plan Administrator, in form satisfactory to the Trustee, protecting it from any
liability arising out of noncompliance with such requirements.
The Plan Administrator may in its discretion direct, and the Trustee shall make
payment on such direction, that Plan payments be made (1) directly to an
incompetent or disabled person, whether because of minority or mental or
physical disability, (2) to the guardian or to the person haying custody of such
person if a court of competent jurisdiction has appointed such guardian or
custodian, or (3) to any person designated or authorized under any state statute
to receive such payments on behalf of such incompetent or disabled person
without further liability either on the part of the Employer, the Plan
Administrator or the Trustee for the amount of such payment to the person on
whose account such payment is made.
In the case of a termination, partial termination, a complete discontinuance of
contributions or the termination of participation by a Participating Affiliate
as described in (S)14.5 of the Plan, the Plan Administrator shall direct the
Trustee precisely as to what action to take and the Trustee (subject to the
terms of this Trust Agreement and the Plan and to such terms and conditions, if
any, as agreed upon between the Plan Administrator and the Trustee) shall follow
such directions.
The Plan Administrator shall determine anticipated liquidity requirements to
meet projected benefit payments for each Plan Year and, if any adjustment from
the practices and policies agreed upon between the Plan Administrator and the
Trustee at the adoption of this Trust Agreement is deemed appropriate, notice of
such adjustment shall be communicated by the Plan Administrator in writing as
soon as practicable to the Trustee. The Trustee shall be under no duty to make
any such adjustment prior to receiving such notice.
SECTION 6. VALUATION AND ACCOUNTING BY TRUSTEE
The Trustee as of each Valuation Date shall determine the fair market value of
the assets of the Fund (or, if more than one Fund is combined for investment
purposes, of each such Fund) based upon such reasonable accounting principles,
practices and procedures as the Trustee shall adopt and consistently apply for
this purpose, which determination shall be final and binding. At such times as
agreed upon between the Trustee and the Plan Administrator, the Trustee shall
file with the Plan Administrator a written report setting forth such fair market
value and all investments, receipts and disbursements and other transactions of
the Fund since the date of the last such report.
Upon the expiration of 90 days from the filing of the Trustee's report and
except as provided under ERISA, the Trustee shall be forever relieved and
discharged from any liability or accountability to anyone with respect to the
propriety of its actions or the transactions shown by such report except with
respect to those acts or transactions to which the Plan Administrator or the
Employer shall, within such 90 day period, have filed with the Trustee its
written disapproval, and neither the Plan Administrator nor the Employer nor any
other person shall have the right to demand or be entitled to any further or
different accounting by the Trustee.
SECTION 7. EXPENSES
All reasonable and proper expenses of the Plan and the Fund (within the meaning
of ERISA (S)403(c)(1) and (S)404(a)(1(A)), including any taxes which may be
levied or assessed against the Trustee on account of the Fund and the Trustee's
compensation as agreed upon from time to time by the Employer and the Trustee,
shall be paid from the Fund unless (a) the payment of such expense would
constitute a "prohibited transaction" within the meaning of ERISA (S)406 or Code
(S)4975 or (b) the Employer pays such expenses. Any such expenses of the Fund
which are properly allocable to an individual's Account (including, but not
limited to, expenses related to an individual's investment directions, annuity
contract purchases and other transactional fees for processing distributions)
may be charged directly against such individual's Account if so provided in
administrative procedures established by the Plan Administrator. No payments
shall be made to a Trustee who also receives full-time pay from the Employer or
from a Participating Affiliate except for his or her benefits, if any, from the
Plan and the reimbursement of his or her reasonable and proper expenses as a
Trustee which are not reimbursed by any other person.
SECTION 8. RESIGNATION OR REMOVAL OF TRUSTEE
The Trustee may resign at any time by delivering its written resignation to the
Employer. The Employer shall within 60 days after receipt of such resignation
appoint a successor trustee in writing (acceptable for this purpose to the
Employer and the successor trustee) delivered to the Trustee and to such
successor trustee. The Employer may remove the Trustee at any time and appoint
a successor trustee or trustees upon 60 days written notice to the Trustee
unless the Trustee agrees to a shorter notice period. In either event, on the
appointment of such successor, the Trustee shall promptly turn over to such
successor all assets held by the Trustee and shall make a final accounting to
the Plan Administrator and the Employer. The successor trustee shall have no
responsibility except to receive such money and property from the Trustee and to
hold and administer the same thereafter in accordance with this Trust Agreement
and shall not be responsible for any act or omission of the Trustee, and shall
not be required to make any claim or demand against the Trustee unless the Plan
Administrator or the Employer shall in writing request the successor trustee to
make a claim or demand against the Trustee. Any such successor trustee shall
have and may exercise all the rights, powers, and duties of the Trustee as fully
and to the same extent as if it had originally been named Trustee herein.
SECTION 9. MERGERS, CONSOLIDATIONS AND ASSET TRANSFERS
The Trustee upon written direction of the Plan Administrator shall transfer and
deliver Fund assets to or accept the transfer to the Fund of assets acceptable
to it from any trustee, custodian or insurance carrier maintaining any
investment medium of a pension or profit sharing plan which is tax exempt under
Code (S)401(a) into which the Plan (or any portion thereof) shall be merged or
consolidated.
In the case of any Plan merger or consolidation with, or transfer of assets or
liabilities to or from, any other employee benefit plan, each person for whom an
Account then is maintained shall be entitled to receive a benefit from such
plan, if it is then terminated, which is equal to or greater than the benefit
such person would have been entitled to receive immediately before such merger,
consolidation or transfer, if the Plan then had been terminated. The Trustee in
connection with either of the above described transfers shall have no liability
or responsibility (1) to determine whether such transfer shall be in conformity
with the provisions of the Plan, any other plan, ERISA or the Code or (2) to
determine the effect of such transfer upon any Accounts. Any direction of the
Plan Administrator respecting any of the foregoing shall constitute a
certification that the transfer so directed is in conformity with the provisions
of the Plan or any other plan, this Trust Agreement, ERISA and the Code, and the
Trustee shall act in accordance with such direction.
42
<PAGE>
SECTION 10. SINGLE TRUST - SEPARATE FUNDS
The assets of the Fund (or, if more than one Fund is combined for investment
purposes, of each such Fund) shall be held, administered, invested and managed
by the Trustee (except to the extent investment responsibility is allocated to
another person under the terms of this Trust Agreement) consistent with the
terms of this Trust Agreement in all respects as a single trust even though
portions of such assets may be attributable to different employers or may be
allocable to the payment of benefits for different employee groups. The Plan
Administrator shall be responsible to maintain and determine the appropriate
portion of the Fund held in respect of any such group of employees in the event
that such maintenance or determination shall become necessary. The determination
by the Plan Administrator of the portion of the Fund held in respect of any such
employee group shall be final and conclusive upon all persons.
SECTION 11. NAMED FIDUCIARIES AND ADMINISTRATION
The Plan Administrator and the Employer (if the Plan Administrator is not the
Employer) shall be the Named Fiduciaries responsible to the extent of their
powers and responsibilities assigned in the Plan for the control, management and
administration of the Plan. The Plan Administrator, the Employer and the Trustee
(other than SBSTC) shall be the Named Fiduciaries responsible to the extent of
their respective powers and responsibilities assigned to them in the Trust
Agreement for the safekeeping, control, management, investment and
administration of the assets of the Fund. Any power or responsibility for the
control, management or administration of the Plan or the Fund which is not
expressly assigned to a Named Fiduciary under the Plan or the Trust Agreement,
or with respect to which the proper assignment is in doubt, shall be deemed to
have been assigned to the Employer as a Named Fiduciary. One Named Fiduciary
shall have no responsibility to inquire into the acts and omission of another
Named Fiduciary in the exercise of powers or the discharge of responsibilities
assigned to such other Named Fiduciary under the Plan or the Trust Agreement.
Any person may serve in more than one fiduciary capacity under the Plan or the
Trust Agreement and a fiduciary may be a Participant provided such individual
otherwise satisfies the requirements of (S)4.
A Named Fiduciary, by written instrument filed by the Plan Administrator with
the records of the Plan, may designate a person who is not a Named Fiduciary to
carry out any of its responsibilities under the Plan or Trust Agreement, other
than the responsibilities of the Trustee for the safekeeping, control,
management, investment and administration of the assets of the Fund, except to
the extent the Trustee's responsibility for investment decisions is delegated to
the Employer, the Plan Administrator, or an Investment Manager.
Except to the extent expressly reserved under the Plan or the Trust Agreement to
the Employer, the Board, or the Trustee, the Plan Administrator shall have the
exclusive responsibility and complete discretionary authority to control the
operation, management and administration of the Plan, with all powers necessary
to enable it properly to carry out such responsibilities, including (but not
limited to) the power to construe the Plan, the related Adoption Agreement, and
the Trust Agreement, to determine eligibility for benefits and to resolve all
interpretative, equitable or other questions that arise under the Plan or the
Trust Agreement. The decisions of the Plan Administrator on all matters within
the scope of its authority shall be final and binding. To the extent a
discretionary power or responsibility under the Plan or Trust Agreement is
expressly assigned to a person other than the Plan Administrator, such person
shall have a complete discretionary authority to carry out such power or
responsibility and such person's decisions on all matters within the scope of
such person's authority shall be final and binding.
SECTION 12. MISCELLANEOUS
12.1 Spendthrift Clause and Qualified Domestic Relations Orders. Except to the
extent permitted by law, no Account, benefit, payment or distribution under the
Plan or this Trust Agreement shall be subject to attachment, garnishment, levy,
execution, or any claim or legal process of any creditor of a Participant or
Beneficiary, and no Participation or Beneficiary shall have any right to
alienate, commute, anticipate, or assign all or any part of such individual's
Account, benefit, payment or distribution under the Plan or this Trust
Agreement. The preceding sentence also shall apply to the creation, alienation,
assignment, or recognition of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order unless such order is
determined to be a qualified domestic relations order ("QDRO") within the
meaning of Code (S)414(p) and such order is entered on or after January 1, 1985.
Notwithstanding the foregoing, the Plan Administrator may treat a domestic
relations order entered before January 1, 1985 as a QDRO in accordance with Code
(S)414(p) and (S)16.1 of the Plan.
12.2 Benefits Supported Only by Trust Fund. Any person having any claim for any
benefit under the Plan shall look solely to the assets of the Fund for the
satisfaction of that claim. In no event will the Prototype Sponsor, the Trustee,
the Plan Administrator, the Employer or a Participating Affiliate or any of
their employees, officer, directors or their agents be liable in their
individual capacities to any person whomsoever for the payment of any benefits
under the Plan.
12.3 Claims. Any payment to a Participant or Beneficiary, or to the legal
representative or heir-at-law of any such person made in accordance with the
provisions of the Plan shall to the extent of such payment be in full
satisfaction of all claims, under the Plan against the Trustee, Plan
Administrator, a Named Fiduciary, the Employer and any Participating Affiliate,
any of whom may require such person, such person's legal representative or
heirs-at-law, as a condition precedent to such payment, to execute a receipt and
release in such form as shall be determined by the Trustee, Plan Administrator,
a Named Fiduciary, the Employer or a Participating Affiliate, as the case may
be.
12.4 Nonreversion. Except as provided in (S)7.2(b) of the Plan and in this
(S)12(d), neither the Employer nor any Participating Affiliate shall have any
present or prospective right, claim, or interest in the Fund or in any Employer
contribution made to the Trustee.
To the extent permitted by the Code and ERISA, the Employer contributions
described in this (S)12(d), less any losses on such contributions, shall be
returned by the Trustee to the Employer or to any Participating Affiliate upon
the written direction of the Plan Administrator in the event that:
12.4(a) an Employer contribution is made by a mistake of fact, provided
such return is effected within one year after the payment of such
contribution;
12.4(b) a final judicial or Internal Revenue Service determination is made
that the Plan fails to satisfy the requirements of Code (S)401 with respect
to its initial qualification (provided, if the Employer is not entitled to
rely on the Prototype Sponsor's opinion letter, the application for the
initial qualification of the Plan is made by the time prescribed by law for
filing the Employer's return for the taxable year in which the Plan is
adopted, or such later date as the Secretary of the Treasury may
prescribe), in which event all Employer contributions made before such
judicial or administrative determination (whichever last occurs) plus any
earnings and minus any losses shall be returned within one year after such
determination, all such contributions being hereby conditioned upon the
Plan satisfying all applicable requirements under Code (S)401 from and
after its adoption; or
12.4(c) a deduction for an Employer contribution is disallowed under Code
(S)404, in which event such contribution shall be returned within one year
after such disallowance, all such contributions being hereby conditioned
upon being deductible under Code (S)404.
The Trustee shall have no obligation or responsibility whatsoever to determine
whether the return of any such Employer contributions is permitted by the Code
or ERISA and shall (to the extent permissible under law) be indemnified and held
harmless by the Employer for acting in accordance with written directions given
by the Plan Administrator pursuant to this (S)12(d).
12.5 Exclusive Benefit. The corpus or income of the Fund shall not be diverted
to or used for any purpose other than the exclusive benefit of Participants or
Beneficiaries.
43
<PAGE>
REVOCABLE PROXY REVOCABLE PROXY
HIGHLAND FEDERAL BANK, A FEDERAL SAVINGS BANK
SPECIAL MEETING OF SHAREHOLDERS TO BE HELD DECEMBER 11, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned stockholder of Highland Federal Bank, a Federal Savings Bank
(the "Bank") hereby appoints Richard J. Cross and Stephen N. Rippe (the "Proxy
Holders") and each of them, with full power of substitution, proxies of the
undersigned with authorization to represent and vote all shares of common
stock, $1.00 par value per share, of the Bank held of record by the under-
signed, as directed below and in their discretion on all other matters which
may properly come before the Special Meeting of Shareholders to be held on
Thursday, December 11, 1997, and at any adjournment or adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO APPROVE THE
FORMATION OF A HOLDING COMPANY FOR THE BANK. THIS PROXY WILL BE VOTED AS
DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR"
APPROVAL OF THE FORMATION OF A HOLDING COMPANY FOR THE BANK. IF ANY OTHER
BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS PROXY SHALL BE VOTED BY THE
PROXY HOLDERS IN ACCORDANCE WITH THE RECOMMENDATIONS OF A MAJORITY OF THE
BOARD OF DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING.
The undersigned hereby ratifies and confirms all that said Proxy Holders, or
either of them, or their substitutes, shall lawfully do or cause to be done by
virtue hereof, and hereby revokes any and all proxies heretofore given by the
undersigned to vote at the Special Meeting. The undersigned hereby acknowl-
edges receipt of the Notice of Special Meeting and the Proxy
Statement/Prospectus accompanying said Notice.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE. PLEASE COMPLETE AS PROMPTLY AS
POSSIBLE, AND DATE, SIGN AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE.
(See reverse side)
<PAGE>
Please mark
[X] your votes
as shown
1. APPROVAL OF PROPOSAL TO FORM A HOLDING COMPANY FOR THE BANK. Approval of
the proposal to reorganize the Bank into a holding company form of organiza-
tion in accordance with the Plan of Reorganization and Agreement of Merger,
pursuant to which: (a) the Bank will, subject to necessary regulatory approv-
als, become a wholly owned subsidiary of a newly formed Delaware corporation,
Highland Bancorp, Inc. (the "Company"); and (b) each outstanding share of com-
mon stock of the Bank will become, by operation of law, one share of common
stock of the Company. FOR AGAINST ABSTAIN
[_] [_] [_]
2. OTHER BUSINESS. In their discretion, the proxy holders are authorized to
transact such other business as may properly come before the Special Meeting
and any adjournment or adjournments thereof. FOR AGAINST ABSTAIN
[_] [_] [_]
- - -------------------------------------------------------------------------------
(Number of Shares)
I (We) do [_] do not [_] expect to attend the Special Meeting.
Date: ___________________________________________________________________, 1997
- - -------------------------------------------------------------------------------
(Name of Shareholder Printed)
- - -------------------------------------------------------------------------------
(Signature of Shareholder)
- - -------------------------------------------------------------------------------
(Name of Shareholder Printed)
- - -------------------------------------------------------------------------------
(Signature of Shareholder)
(Please date this Proxy and sign your name as it appears on your stock
certificates. Executors, administrators, trustees, etc., should give their
full titles. All joint owners should sign.)
- - --------------------------------------------------------------------------------
. FOLD AND DETACH HERE .
