<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
----------------------
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-3880
TOM BROWN, INC.
(Exact name of registrant as specified in its charter)
----------------------
<TABLE>
<S> <C>
DELAWARE 95-1949781
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
or organization)
555 SEVENTEENTH STREET
SUITE 1850
DENVER, COLORADO 80202
(Address of principal executive offices) (Zip Code)
</TABLE>
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303-260-5000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.10 par Value
Convertible Preferred Stock, $.10 par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [ ] No [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates (based upon the last sale price of $16.125 per share as quoted on
the NASDAQ National Market System) on March 17, 2000 was approximately
$569,604,725.
As of March 17, 2000, there were 35,324,324 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement for the 2000 Annual
Meeting of Stockholders to be held on May 18, 2000 are incorporated by reference
into Part III.
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TOM BROWN, INC.
FORM 10-K
CONTENTS
<TABLE>
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PAGE
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<S> <C> <C>
PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 12
Item 4. Submission of Matters to a Vote of Security Holders......... 12
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 13
Item 6. Selected Financial Data..................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 20
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 49
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 49
Item 11. Executive Compensation...................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 49
Item 13. Certain Relationships and Related Transactions.............. 49
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K....................................................... 50
Signatures.................................................. 53
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Tom Brown, Inc. (the "Company") was organized in 1955 as a privately-owned
drilling company known as Scarber-Brown Drilling Company and in 1959 as Tom
Brown Drilling Company, Inc. In 1968, the Company merged into Gold Metals
Consolidated Mining Company, a publicly-traded Nevada corporation. The name of
the Company after the merger was changed to Tom Brown Drilling Company, Inc. and
to Tom Brown, Inc. in 1971. In February 1987, the Company changed its state of
incorporation from Nevada to Delaware. In 1999, the Company relocated its
headquarters and executive offices to 555 Seventeenth Street, Suite 1850, Denver
Colorado 80202 and its telephone number at that address is (303) 260-5000.
Unless the context otherwise requires, all references to the "Company" include
Tom Brown, Inc. and its subsidiaries.
The Company is engaged primarily in the domestic exploration for, and the
acquisition, development, production, marketing, and sale of, natural gas and
crude oil. The Company's activities are conducted principally in the Wind River
and Green River Basins of Wyoming, the Piceance Basin of Colorado, the Paradox
Basin of Utah and Colorado, the Val Verde Basin of west Texas, the Permian Basin
of west Texas and southeastern New Mexico, and the East Texas Basin. The Company
also, to a lesser extent, conducts exploration and development activities in
other areas of the continental United States and Canada.
The Company's industry segments are (i) the exploration for, and the
acquisition, development and production of, natural gas and crude oil, (ii) the
marketing, gathering, processing and sale of natural gas and (iii) the drilling
of gas and oil wells.
Except for its gas and oil leases with domestic governmental entities and
other third parties who enter into gas and oil leases or assignments with the
Company in the regular course of its business and options to purchase gas and
oil leases with the Eastern Shoshone and Northern Arapaho Tribes, the Company
has no material patents, licenses, franchises or concessions which it considers
significant to its gas and oil operations.
The nature of the Company's business is such that it does not maintain or
require a substantial amount of products, customer orders or inventory. The
Company's gas and oil operations are not subject to renegotiations of profits or
termination of contracts at the election of the federal government.
The Company has not been a party to any bankruptcy, receivership,
reorganization or similar proceeding, except in connection with its
participation as a joint proponent of a plan of reorganization for Presidio Oil
Company in 1996.
BUSINESS STRATEGY
The Company's business strategy is to increase shareholder value through
the discovery, acquisition and development of long-lived gas and oil reserves in
areas where the Company has industry knowledge and operations expertise. The
Company's principal investments have been in natural gas prone basins, which the
Company believes will continue to provide the opportunity to accumulate
significant long-lived gas and oil reserves at attractive prices.
The Company's year-end acreage position was approximately 3,054,000 gross
(2,031,000 net) acres (including options) located primarily in the Wind River
and Green River Basins of Wyoming, the Piceance Basin of Colorado, the Paradox
Basin of Colorado and Utah, and the Permian, Val Verde and East Texas Basins of
Texas where the Company can utilize its geological and technical expertise and
its control of operations for the further development and expansion of these
areas. Approximately 89% of the net acreage is undeveloped, giving the Company
development drilling leverage to the extent that gas prices increase.
Additionally, by staying focused in its core basins, the Company continues to
develop more effective drilling and completion techniques which can improve
overall economic efficiency.
The Company increased its reserves in 1999 over 1998 by 29%, due primarily
to an acquisition in the Paradox Basin in July, 1999 and due to continued
drilling success in its core areas. Year-end proved reserves
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were 524 billion cubic feet equivalent ("Bcfe"), compared to year-end 1998
reserves of 406 Bcfe. Since December 31, 1995, the Company has increased proved
reserves at a compounded annual growth rate of 23%, or from 188 Bcfe to 524
Bcfe.
Reserve replacement for 1999 was 340% from all sources and 123% from
additions and revisions only. Finding cost was $0.70 per Mcfe for the year from
all sources and $0.79 per Mcfe from additions and revisions. The Company's
reserve to production ratio increased to 10.6 years at year-end 1999 from 9.7
years at year-end 1998. In addition to increasing reserves, the Company also
increased its production 17% from 42.0 Bcfe in 1998 to 49.2 Bcfe in 1999.
The Company markets a portion of its operated gas production and third
party gas in the Rocky Mountains through Retex, Inc. ("Retex"), the Company's
wholly-owned marketing subsidiary.
Wildhorse Energy Partners, LLC ("Wildhorse") conducts gas gathering and
processing activities in the Rocky Mountains. Wildhorse is owned 55% by Kinder
Morgan, Inc. ("KM") and 45% by the Company.
The Company plans to continue to selectively pursue acquisitions of gas and
oil properties in its core areas of activity and, in connection therewith, the
Company from time to time will be involved in evaluations of, or discussions
with, potential acquisition candidates. The consideration for any such
acquisition might involve the payment of cash and/or the issuance of equity or
debt securities.
Notwithstanding the Company's historical ability to implement the above
strategy, there can be no assurance that the Company will be able to
successfully implement its strategy in the future.
AREAS OF ACTIVITY
The following discussion focuses on areas the Company considers to be its
core areas of operations and those that offer the Company the greatest
opportunities for further exploration and development activities.
Wind River, Green River, Paradox, and Piceance Basins
The Wind River and Green River Basins of Wyoming, the Piceance Basin of
Colorado, and the Paradox Basin of Colorado and Utah account for a major portion
of the Company's current and anticipated exploration and development activities
with approximately 78% of the Company's proved reserves at December 31, 1999.
The Company owns interests in 913 producing wells in these basins that averaged
net daily production of 82 Mmcfe for 1999. The Company has approximately
2,064,000 gross (1,622,000 net) developed and undeveloped acres in these basins,
including option acreage of approximately 939,000 gross (767,000 net)
undeveloped acres in the Wind River Basin. The Company's interest in the leases
and options to lease are subject to the Company performing certain 3-D seismic
operations and drilling certain exploratory wells.
Although the Wind River Basin experienced limited natural gas
transportation capacity in the past, pipeline expansions and conversions have
worked to correct this capacity constraint. The TransColorado pipeline (which
runs from the northern Piceance Basin to the San Juan Basin) is now in service
and has the capability to add 300 Mmcfpd in incremental capacity out of the
Rocky Mountain region. Additionally, the Enron-Burlington Lost Creek Pipeline
should be operational by the third quarter of 2000 which will also help to
alleviate Wind River Basin constraints.
Permian and Val Verde Basins
The Permian and Val Verde Basins accounted for approximately 12% of the
Company's proved reserves at December 31, 1999. The Company's share of
production from these basins averaged 32 Mmcfepd of natural gas for 1999. The
Company holds a 50% working interest in approximately 36,000 gross acres and 45
producing wells in the Val Verde Basin. The Permian Basin contains significant
oil reserves for the Company, located primarily in the Spraberry Field. The
Company owns interests in 425 wells and has approximately 32,000 net developed
and undeveloped acres in this basin.
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East Texas Basin
Together with Marathon Oil Corporation, the Company began a seven well
developmental drilling program in the Mimms Creek Field in Freestone County,
Texas with the successful drilling of a Bossier Sand well in late 1999. The
Company owns working interests ranging from 50% to 62.5% in the drilling
program. The Company has acquired approximately 16,000 net acres in the James
Lime (horizontal) Trend of the East Texas Basin, and is currently evaluating its
acreage position for potential drilling activity.
BUSINESS DEVELOPMENTS
Current Developments in the Gas and Oil Business
ACQUISITION OF THE ASSETS OF UNOCAL CORPORATION
In July 1999, the Company completed an acquisition of substantially all of
the Rocky Mountain oil and gas assets of Unocal Corporation ("Unocal") for 5.8
million shares of common stock and $5 million in cash for a total purchase price
of $68.5 million ($60.9 million after deducting normal purchase price
adjustments.)
The Unocal oil and gas assets are primarily located in the Paradox Basin of
southwestern Colorado and southeastern Utah. These assets and properties will
compliment the Company's 163,000 net undeveloped acres in the Paradox Basin.
Additionally, the discretionary cash flow provided by the Unocal assets and
properties was accretive to the Company in 1999.
Included in the acquisition is the Lisbon Plant, a modern sophisticated
cyrogenic (60 million cubic feet per day capacity) natural gas processing plant
that extracts natural gas liquids and merchantable helium; and separates carbon
dioxide, hydrogen sulfide and nitrogen from the raw gas stream. The average net
sales from the Unocal properties in 1998 was approximately 18 million cubic feet
per day of natural gas, 290 barrels of oil per day and 92,000 gallons of gas
plant liquids per day, or approximately 33 million cubic feet equivalent per day
(assuming gas plant liquids and oil converted at 6:1). The net proved reserves
of these Unocal properties were estimated to be 93.2 billion cubic feet
equivalent of gas as of the closing date of July 1, 1999. Approximately 65,000
net undeveloped acres were also acquired.
ACQUISITION OF ROCKY MOUNTAIN ASSETS
In September 1999, the Company purchased certain Rocky Mountain assets from
an undisclosed seller for approximately $7.7 million in cash. Included in the
acquisition was approximately 9.7 Bcfe of proved reserves and 34,000 net acres
in the Greater Green River Basin of Wyoming.
ACQUISITION OF THE ASSETS OF GENESIS GAS AND OIL, L.L.C.
On October 21, 1997, the Company completed the acquisition of the assets of
Genesis Gas and Oil, L.L.C ("Genesis"). The Genesis assets are located primarily
in the Piceance Basin of western Colorado and are principally operated by the
Company. The acquisition increased the Company's acreage position in the
Piceance Basin by approximately 32,000 net developed and 48,000 net undeveloped
acres. The Company's working interest doubled from 23% to 46% in 238 producing
wells and from 34% to 68% in 500 potential development locations. The purchase
price for these assets was approximately $35.5 million.
Current Developments in the Marketing, Gathering and Processing Business
In September 1999, KM became the operator of, and 55% partner in, Wildhorse
as a result of a merger with KN Energy, Inc. ("KNE"). Wildhorse was formed in
connection with the Company's 1996 acquisition of KN Production Company, the
wholly-owned oil and gas production subsidiary of KNE. Wildhorse was created to
provide services related to natural gas, natural gas liquids and other natural
gas products, including gathering, processing and storage services and field
services. The Company has owned 45% of Wildhorse since its inception. The
business and affairs of Wildhorse are managed by KM under the direction of an
operating team consisting of two representatives appointed by the Company and
two representatives appointed by KM.
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Effective September 1, 1999, Wildhorse assigned 100% of its marketing
operations to Retex, the Company's wholly-owned marketing subsidiary.
Additionally, firm transportation contracts were assigned 55% to KM and 45%
remained in Retex.
Current Developments in the Drilling Business
ACQUISITION OF ASSETS OF W. E. SAUER COMPANIES, LLC
On January 7, 1998, the Company completed the acquisition of all of the
drilling assets of W. E. Sauer Companies L.L.C. of Casper, Wyoming for
approximately $8.1 million. The assets include five drilling rigs, tubular
goods, a yard and related assets. In 1999, Sauer acquired an additional drilling
rig for approximately $1.1 million. The Company operates the assets in its
subsidiary, Sauer Drilling Company ("Sauer"), and will continue to serve the
drilling needs of operators in the central Rocky Mountain region in addition to
drilling for the Company.
MARKETS
The Company's gas production has historically been sold under
month-to-month contracts with marketing companies. During 1999, there was a
significant amount of volatility in the prices received for natural gas. Monthly
closing gas prices as measured on the New York Mercantile Exchange ("NYMEX")
varied from a high of $3.09 per million British thermal unit ("Mmbtu") in
November 1999 to a low of $1.67 per Mmbtu in March 1999. Additionally, the
Company produced approximately 65% of its gas production in the Rocky Mountain
area where the price of gas varied as compared to NYMEX prices from $.41 per
Mmbtu below NYMEX prices in August 1999 to virtually no basis differential in
January 1999.
The Company markets most of its oil production with independent third-party
resellers and refiners at market ("posted") prices. These posted prices
generally reflect the prices determined by the trading of West Texas
Intermediate ("WTI") oil futures contracts on the NYMEX, with adjustments due to
basis differential and for the quality of oil produced.
NYMEX prices for both gas and oil are influenced by seasonal demand, levels
of storage, production levels and a variety of political and economic factors
over which the Company has no control.
PRODUCTION VOLUMES, UNIT PRICES AND COSTS
The following table sets forth certain information regarding the Company's
volumes of production sold and average prices received associated with its
production and sales of natural gas, crude oil and natural gas liquids for each
of the years ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
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<S> <C> <C> <C>
Production Volumes:
Natural Gas (MMcf)........................................ 40,514 35,887 31,842
Crude Oil (MBbls)(1)...................................... 1,444 1,027 1,159
Net Average Daily Production Volumes:
Natural Gas (Mcf)......................................... 110,997 98,321 87,238
Crude Oil (Bbls)(1)....................................... 3,956 2,814 3,175
Average Sales Prices:
Natural Gas (per Mcf)..................................... $ 2.04 $ 1.85 $ 2.18
Crude Oil (per Bbl)(1).................................... $ 15.20 $ 11.37 $ 18.02
Average Production Cost (per Mcfe)(2)....................... $ .58 $ .52 $ .56
</TABLE>
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(1) Oil volumes include natural gas liquids, which were 535,000 barrels for
1999. For years prior to 1999, natural gas liquids were insignificant.
(2) Includes production costs and taxes on production. (Mcfe means one thousand
cubic feet of natural gas equivalent, calculated on the basis of six barrels
of oil and natural gas liquids to one Mcf of gas.)
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COMPETITION
The Company encounters strong competition from major oil companies and
independent operators in acquiring properties and leases for the exploration
for, and the development and production of, natural gas and crude oil.
Competition is particularly intense with respect to the acquisition of desirable
undeveloped gas and oil leases. The principal competitive factors in the
acquisition of undeveloped gas and oil leases include the availability and
quality of staff and data necessary to identify, investigate and purchase such
leases, and the financial resources necessary to acquire and develop such
leases. Many of the Company's competitors have financial resources, staffs and
facilities substantially greater than those of the Company. In addition, the
producing, processing and marketing of natural gas and crude oil is affected by
a number of factors which are beyond the control of the Company, the effect of
which cannot be accurately predicted.
The principal raw materials and resources necessary for the exploration and
development of natural gas and crude oil are leasehold prospects under which gas
and oil reserves may be discovered, drilling rigs and related equipment to drill
for and produce such reserves and knowledgeable personnel to conduct all phases
of gas and oil operations. The Company must compete for such raw materials and
resources with both major oil companies and independent operators.
Retex encounters competition from other natural gas transportation and
marketing entities in the marketing of gas. Such competition may materially
affect the volumes and margins that Retex may derive.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company on March 17, 2000 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY SINCE
- ---- --- --------------------- -----
<S> <C> <C> <C>
Donald L. Evans...................... 53 Chairman of the Board and Chief Executive 1976
Officer
James D. Lightner.................... 47 President and Director 1999
Thomas W. Dyk........................ 46 Executive Vice President and Chief 1998
Operating Officer
Peter R. Scherer..................... 43 Executive Vice President 1986
Daniel G. Blanchard.................. 39 Vice President and Chief Financial Officer 1999
Hilary G. Dussing.................... 42 Vice President -- Exploration 1999
Rodney G. Mellot..................... 42 Vice President -- Land and Business 1999
Development
Bruce R. DeBoer...................... 47 Vice President, General Counsel and 1997
Secretary
Jack F. Harper....................... 28 Vice President-Investor Relations and 1999
Treasurer
R. Kim Harris........................ 43 Vice President-Finance and Controller 1986
B. Jack Reed......................... 50 Vice President-Human Resources 1990
</TABLE>
Each executive officer is elected annually by the Company's Board of
Directors to serve at the Board's discretion.
EMPLOYEES
At December 31, 1999, the Company had 230 employees. None of the Company's
employees are represented by labor unions or covered by any collective
bargaining agreement. The Company considers its relations with its employees to
be satisfactory.
REGULATION
Regulation of Gas and Oil Production
Gas and oil operations are subject to various types of regulation by state
and federal agencies. Legislation affecting the gas and oil industry is under
constant review for amendment or expansion. Also, numerous departments and
agencies, both federal and state, are authorized by statute to issue rules and
regulations
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binding on the gas and oil industry and its individual members, some of which
carry substantial penalties for failure to comply. The regulatory burden on the
gas and oil industry increases the Company's cost of doing business and,
consequently, affects its profitability.
Gas Price Controls
Prior to January 1993, certain natural gas sold by the Company was subject
to regulation by the Federal Energy Regulatory Commission ("FERC") under the
Natural Gas Act of 1938 and the Natural Gas Policy Act of 1978 ("NGPA"). The
NGPA prescribed maximum lawful prices for natural gas sales effective December
1, 1978. Effective January 1, 1993, natural gas prices were completely
deregulated and sales of the Company's natural gas are now made at market
prices. The majority of the Company's gas sales contracts either contain
decontrolled price provisions or already provide for market prices.
In April 1992, FERC issued Order 636, a rule designed to restructure the
interstate natural gas transportation and marketing system to remove various
barriers and practices that have historically limited non-pipeline gas sellers,
including producers, from effectively competing with pipelines. The
restructuring process was implemented on a pipeline-by-pipeline basis through
negotiations in individual pipeline proceedings. Since the issuance of Order
636, FERC has issued several orders making minor modifications to Order 636.
Because the restructuring requirements that emerge from the lengthy
administrative and judicial review process may be significantly different from
those currently in effect, and because implementation of the restructuring may
vary by pipeline, it is not possible to predict what, if any, effect the
restructuring resulting from Order 636 will have on the Company.
Oil Price Controls
Sales of crude oil, condensate and gas liquids by the Company are not
regulated and are made at market prices.
State Regulation of Gas and Oil Production
States in which the Company conducts its gas and oil activities regulate
the production and sale of natural gas and crude oil, including requirements for
obtaining drilling permits, the method of developing new fields, the spacing and
operation of wells and the prevention of waste of gas and oil resources. In
addition, most states regulate the rate of production and may establish maximum
daily production allowables for wells on a market demand or conservation basis.
Environmental Regulation
The Company's activities are subject to federal and state laws and
regulations governing environmental quality and pollution control. The existence
of such regulations has a material effect on the Company's operations but the
cost of such compliance has not been material to date. However, the Company
believes that the gas and oil industry may experience increasing liabilities and
risks under the Comprehensive Environmental Response, Compensation and Liability
Act, as well as other federal, state and local environmental laws, as a result
of increased enforcement of environmental laws by various regulatory agencies.
As an "owner" or "operator" of property where hazardous materials may exist or
be present, the Company, like all others in the petroleum industry, could be
liable for fines and/or "clean-up" costs, regardless of whether the Company was
responsible for the release of any hazardous substances.
Rocno Corporation ("Rocno"), a wholly-owned subsidiary of the Company, is a
party to a trust agreement in connection with the environmental clean-up plan
for the Sheridan Superfund Site in Waller County, Texas. See Item 3, Legal
Proceedings.
Indian Lands
The Company's Muddy Ridge and Pavillion Fields are located on the Wind
River Indian Reservation. The Eastern Shoshone and Northern Arapaho Tribes
regulate certain aspects of the production and sale of
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natural gas and crude oil, and the drilling of wells and levy taxes on the
production of hydrocarbons. The Bureau of Indian Affairs and the Minerals
Management Service of the United States Department of the Interior perform
certain regulatory functions relating to operation of Indian gas and oil leases.
The Company owns interests in three leases in the Pavillion Field which were
issued pursuant to the provisions of the Act of August 21, 1916, for initial
terms of 20 years each, with a preferential right by the lessee to renew the
leases for subsequent ten-year terms. The leases were renewed for an additional
ten-year term in 1992, effective as of June 23, 1993. These leases have been
amended to provide for incremental extensions of this lease term of up to an
additional twelve years by drilling and completing additional wells on each
lease prior to June 2003.
ITEM 2. PROPERTIES
GAS AND OIL PROPERTIES
The principal properties of the Company consist of developed and
undeveloped gas and oil leases. Generally, the terms of developed gas and oil
leaseholds are continuing and such leases remain in force by virtue of, and so
long as, production from lands under lease is maintained. Undeveloped gas and
oil leaseholds are generally for a primary term, such as five or ten years,
subject to maintenance with the payment of specified minimum delay rentals or
extension by production. The Company also has options to purchase undeveloped
gas and oil leaseholds on Eastern Shoshone and Northern Arapaho Tribal lands.
Once acreage on these lands is purchased, the undeveloped leaseholds are
maintained by the drilling of wells, minimum delay rentals or production. The
leases must be renewed after twenty years and the Company has a preferential
right to negotiate with the Tribes for such renewal.
TITLE TO PROPERTIES
As is customary in the gas and oil industry, the Company makes only a
cursory review of title to undeveloped gas and oil leases at the time they are
acquired by the Company. However, before drilling commences, the Company causes
a thorough title search to be conducted, and any material defects in title are
remedied prior to the time actual drilling of a well on the lease begins. The
Company believes that it has good title to its gas and oil properties, some of
which are subject to immaterial encumbrances, easements and restrictions. The
gas and oil properties owned by the Company are also typically subject to
royalty and other similar non-cost bearing interests customary in the industry.
The Company does not believe that any of these encumbrances or burdens
materially affects the Company's ownership or use of its properties.
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ACREAGE
The following table sets forth the gross and net acres of developed and
undeveloped gas and oil leases held by the Company at December 31, 1999.
Excluded from the table are approximately 939,000 gross (767,000 net) acres in
Wyoming under gas and oil option agreements acquired from certain Indian tribes.
<TABLE>
<CAPTION>
DEVELOPED UNDEVELOPED
----------------- ---------------------
GROSS NET GROSS NET
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<S> <C> <C> <C> <C>
Colorado.................................... 108,400 85,718 435,673 379,675
Kansas...................................... 1,961 1,563 1,802 1,614
Louisiana................................... 11,994 4,060 7,753 2,073
Michigan.................................... -- -- 303 121
Mississippi................................. 756 362 4,375 470
Montana..................................... 4,678 718 175,464 37,467
Nebraska.................................... -- -- 32,895 32,146
New Mexico.................................. 15,577 3,981 2,440 2,036
North Dakota................................ 600 -- 7,119 513
Oklahoma.................................... 33,940 11,354 6,676 3,187
Texas....................................... 110,254 39,064 58,632 29,564
Utah........................................ 5,402 4,581 24,854 20,524
West Virginia............................... 3,673 1,095 157,131 81,018
Wyoming..................................... 143,954 60,875 758,521 459,908
Other....................................... 360 58 10 2
------- ------- --------- ---------
Total............................. 441,549 213,429 1,673,648 1,050,318
======= ======= ========= =========
</TABLE>
"Gross" acres refer to the number of acres in which the Company owns a
working interest. "Net" acres refer to the sum of the fractional working
interests owned by the Company in gross acres.
GAS AND OIL RESERVES
Estimates of the Company's gas and oil reserves, including future net
revenues and the present value of future net cash flows, were made by Ryder
Scott at December 31, 1999 and 1998, and by Ryder Scott and Williamson Petroleum
Consultants, Inc. at December 31, 1997, (both are independent petroleum
consultants), in accordance with guidelines established by the Securities and
Exchange Commission (the "SEC"). Estimates of gas and oil reserves and their
estimated values require numerous engineering assumptions as to the productive
capacity and production rates of existing geological formations and require the
use of certain SEC guidelines as to assumptions regarding costs to be incurred
in developing and producing reserves and prices to be realized from the sale of
future production. Accordingly, estimates of reserves and their value are
inherently imprecise and are subject to constant revision and change and should
not be construed as representing the actual quantities of future production or
cash flows to be realized from the Company's gas and oil properties or the fair
market value of such properties.
Certain additional unaudited information regarding the Company's reserves,
including the present value of future net cash flows, is set forth in Note 14 of
the Notes to Consolidated Financial Statements included herein.
The Company has no gas and oil reserves or production subject to long-term
supply or similar agreements with foreign governments or authorities.
Estimates of the Company's total proved gas and oil reserves have not been
filed with or included in reports to any federal authority or agency other than
the SEC.
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PRODUCTIVE WELLS
The following table sets forth the gross and net productive gas and oil
wells in which the Company owned an interest at December 31, 1999.
<TABLE>
<CAPTION>
PRODUCTIVE WELLS
-----------------------------
GROSS NET
----------- ---------------
GAS OIL GAS OIL
----- --- ------ ------
<S> <C> <C> <C> <C>
Colorado.............................................. 451 42 215.56 17.79
Louisiana............................................. 48 36 11.59 13.67
New Mexico............................................ 34 28 7.27 12.15
North Dakota.......................................... 6 5 2.13 3.49
Oklahoma.............................................. 127 34 30.37 9.38
Utah.................................................. 8 22 7.1 21.17
Texas................................................. 116 292 50.38 98.77
West Virginia......................................... 56 -- 18.39 --
Wyoming............................................... 488 151 172.19 42.59
Other................................................. 17 13 4.65 .74
----- --- ------ ------
Total....................................... 1,351 623 519.63 219.75
===== === ====== ======
</TABLE>
A "gross" well is a well in which the Company owns a working interest.
"Net" wells refer to the sum of the fractional working interests owned by the
Company in gross wells.
GAS AND OIL DRILLING ACTIVITY
The following table sets forth the Company's gross and net interests in
exploratory and development wells drilled during the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1999 1998 1997
------------------- ------------------- -------------------
TYPE OF WELL GROSS NET NET% GROSS NET NET% GROSS NET NET%
- ------------ ----- ---- ---- ----- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Exploratory
Gas............................. 2 .8 20 8 3.0 46 -- -- --
Oil............................. -- -- -- -- -- -- -- -- --
Dry............................. 4 3.2 80 7 4.5 54 7 3.7 100
-- ---- --- -- ---- --- -- ---- ---
6 4.0 100 15 7.5 100 7 3.7 100
Development
Gas............................. 37 16.3 99 52 31.4 78 72 27.7 89
Oil............................. 1 0.2 1 16 4.2 11 7 2.2 7
Dry............................. -- -- -- 6 4.2 11 3 1.1 4
-- ---- --- -- ---- --- -- ---- ---
38 16.5 100 74 39.8 100 82 31.0 100
Total............................. 44 20.5 89 47.3 89 34.7
== ==== == ==== == ====
</TABLE>
At December 31, 1999, 18 gross (6.1 net) development wells and 1 gross (.9
net) exploration well were in various stages of drilling and completion in Texas
and Wyoming.
OTHER PROPERTIES
The Company leases its home office facilities in Denver, Colorado. The
lease covers approximately 56,500 square feet and expires January 31, 2004. Of
this amount, the Company subleases 7,246 square feet under an agreement that
expires January 31, 2004.
The Company also leases office facilities in Midland, Texas. The lease
covers approximately 33,150 square feet for a term of five years and expires
December 31, 2003.
11
<PAGE> 12
The Company owns a 3,200 square foot office building located on a 2.94 acre
tract in Midland, Texas. The facility is used primarily for storage of pipe and
oilfield equipment.
The Company subleased approximately 41,000 square feet of leased office
space, which was obtained through the Presidio acquisition. Both the lease and
sublease expired on March 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in several routine legal proceedings incidental
to its business, which the Company believes will not have a significant effect
on its consolidated financial position, results of operations or cash flows.
In addition to routine legal proceedings incidental to the Company's
business, Rocno was a defendant in a complaint filed by the United States of
America which, among other things, alleged that Rocno and approximately 117
other companies arranged for the disposal of "hazardous materials" (within the
meaning of the Comprehensive Environmental Response, Compensation and Liability
Act) in Waller County, Texas (the "Sheridan Superfund Site"). Effective August
31, 1989, Rocno and thirty-six other defendants executed the Sheridan Site Trust
Agreement (the "Trust") for the purpose of creating a trust to perform agreed
upon remedial action at the Sheridan Superfund Site. In connection with the
establishment of the Trust, the parties to the Trust have agreed to the terms of
a Consent Decree entered December 3, 1991 in the United States District Court,
Southern District of Texas, Houston Division, Civil Action No. H-91-3529,
pursuant to which the defendants joining the Consent Decree will carry out the
clean-up plan prescribed by the Consent Decree. The estimate of the total
clean-up cost is approximately $30 million. Under terms of the Trust, each party
is allocated a percentage of costs necessary to fund the Trust for clean-up
costs. Rocno's proportionate share of the estimated clean-up costs is 0.33% or
$99,000, of which $16,000 has been paid, and the remainder was accrued in the
Company's consolidated financial statements at December 31, 1999. If the
clean-up costs exceed the projected amount, Rocno will be required to pay its
pro rata share of the excess clean-up costs.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders in the
fourth quarter of the year ended December 31, 1999.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market and
appears on the NASDAQ National Market System under the symbol "TMBR". The
following table sets forth the range of high and low closing quotations for each
quarterly period during the past two fiscal years as reported by NASDAQ National
Market System. The quotations are inter-dealer prices without retail mark-ups,
mark-downs or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
CLOSING SALE PRICE
-----------------------------
QUARTER ENDED HIGH LOW
- ------------- ----------- -----------
<S> <C> <C>
March 31, 1998.............................................. 22 3/8 15 3/4
June 30, 1998............................................... 22 3/4 14 7/8
September 30, 1998.......................................... 19 11 1/16
December 31, 1998........................................... 16 5/16 9 7/16
March 31, 1999.............................................. 14 1/16 8 1/4
June 30, 1999............................................... 15 9/16 11 15/16
September 30, 1999.......................................... 18 5/8 12 15/16
December 31, 1999........................................... 16 5/8 11 11/16
</TABLE>
On March 17, 2000 the last sale price of the Company's Common Stock, as
reported by the NASDAQ National Market System, was $16.125 per share.
The transfer agent for the Company's Common Stock is Boston EquiServe,
L.P., Canton, Massachusetts.
On December 31, 1999, the outstanding shares of the Company's Common Stock
(35,308,489 shares) were held by approximately 2,149 holders of record.
The Company has never declared or paid any cash dividends to the holders of
Common Stock and has no present intention to pay cash dividends to the holders
of Common Stock in the future. Under the terms of the Company's Credit
Agreement, the Company is prohibited from paying cash dividends to the holders
of Common Stock without the written consent of the bank lenders. Additionally,
the Company's ability to declare and pay dividends on its Common Stock is
further restricted by the rights of the holder of the Series A Preferred Stock.
In July 1999, the Company completed an acquisition of substantially all of
the Rocky Mountain oil and gas assets of Unocal Corporation for 5.8 million
shares of common stock and $5 million in cash.
On March 1, 1991, the Board of Directors adopted a Rights Plan designed to
help assure that all stockholders receive fair and equal treatment in the event
of a hostile attempt to take over the Company, and to help guard against abusive
takeover tactics. The Board of Directors declared a dividend of one preferred
share purchase right (a "Right") for each outstanding share of Common Stock. The
dividend was distributed on March 15, 1991 to the shareholders of record on that
date. Each Right entitles the registered holder to purchase, for the $20 per
share exercise price, shares of Common Stock or other securities of the Company
(or, under certain circumstances, of the acquiring person) worth twice the per
share exercise price of the Right.
The Rights will be exercisable only if a person or group acquires 20% or
more of the Company's Common Stock or announces a tender offer which would
result in ownership by a person or group of 20% or more of the Common Stock. The
date on which the above occurs is to be known as the ("Distribution Date"). The
Rights will expire on March 15, 2001, unless extended or redeemed earlier by the
Company.
At the time the Rights dividend was declared, the Board of Directors
further authorized the issuance of one Right with respect to each share of the
Company's Common Stock that shall become outstanding between March 15, 1991 and
the earlier of the Distribution Date or the expiration or redemption of the
Rights. Until the Distribution Date occurs, the certificates representing shares
of the Company's Common Stock also evidence the Rights. Following the
Distribution Date, the Rights will be evidenced by separate certificates.
13
<PAGE> 14
The provisions described above may tend to deter any potential unsolicited
tender offers or other efforts to obtain control of the Company that are not
approved by the Board of Directors and thereby deprive the stockholders of
opportunities to sell shares of the Company's Common Stock at prices higher than
the prevailing market price. On the other hand, these provisions will tend to
assure continuity of management and corporate policies and to induce any person
seeking control of the Company or a business combination with the Company to
negotiate on terms acceptable to the then elected Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial information for the
Company for each of the years shown.
The Company's historical results of operations have been materially
affected by the substantial increase in the Company's size as a result of the
Unocal Acquisition in July 1999, the Genesis Acquisition in October 1997, the
Presidio Acquisition in December 1996, and the KNPC Acquisition in January 1996.
(See Note 3 to Notes to Consolidated Financial Statements of the Company
included elsewhere herein.)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues(1).............................. $214,850 $131,330 $ 126,375 $ 65,915 $ 40,536
======== ======== ========= ========== =========
Net income (loss) attributable to common
stock.................................. 5,007 (45,233) 6,860 6,263 5,785
======== ======== ========= ========== =========
Weighted average number of common shares
outstanding
Basic.................................. 32,228 29,251 25,110 21,116 16,292
======== ======== ========= ========== =========
Diluted................................ 32,466 29,251 26,407 22,525 16,887
======== ======== ========= ========== =========
Net income (loss) per common share
Basic.................................. .16 (1.55) .27 .30 .36
======== ======== ========= ========== =========
Diluted................................ .15 (1.55) .26 .28 .34
======== ======== ========= ========== =========
Total assets............................. 536,299 441,882 450,926 406,374 164,174
======== ======== ========= ========== =========
Long-term debt, net of current
maturities............................. 81,000 55,000 23,000 119,000 --
======== ======== ========= ========== =========
Other Financial Data:
EBITDAX(2)............................. 74,438 49,348 69,716 33,173 18,183
Net cash provided by operating
activities before changes in working
capital(2).......................... 66,710 43,544 59,652 31,902 12,235
Net cash provided by operating
activities.......................... 45,746 69,240 47,600 29,114 10,127
Net cash used in investing
activities.......................... (61,889) (98,774) (86,672) (131,434) (72,200)
Net cash provided by financing
activities.......................... 25,983 25,667 25,105 117,842 47,908
</TABLE>
- ---------------
(1) Certain reclasses have been made to amounts reported in previous years to
conform to the 1999 presentation.
(2) EBITDAX reflects income before income taxes, plus interest expense,
depreciation, depletion and amortization expense, exploration costs and
impairments of leasehold costs. EBITDAX and cash flows from operating
activities before changes in working capital are not measures determined
pursuant to generally accepted accounting principles ("GAAP") and are not
intended to be used in lieu of GAAP presentations of net income or cash
flows from operating activities. EBITDAX for 1998 and 1995 exclude $51.3
million and $8.4 million, respectively, for impairment of gas and oil
properties, which were non-cash charges.
14
<PAGE> 15
The following tables set forth selected information for the Company's gas
and oil sales volumes and proved reserves for each of the years shown.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Volumes sold:
Gas (Mmcf)................................. 40,514 35,887 31,842 16,762 10,585
Oil (MBbls)(1)............................. 1,444 1,027 1,159 545 387
Proved reserves at period end:
Gas (Mmcf)................................. 445,943 372,022 347,104 359,167 163,303
Oil (MBbls)(1)............................. 13,001 5,682 7,227 12,306 4,068
</TABLE>
- ---------------
(1) Oil volumes include natural gas liquids ("NGL") for the periods shown. For
1999, there were 535,000 barrels of NGL production and 6,266,000 barrels of
NGL reserves. NGL volumes in years prior to 1999 were insignificant.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company's results of operations were favorably impacted in 1999 due to
a mid-year acquisition of properties and a cyrogenic natural gas processing
plant from Unocal and due to successful drilling results.
Revenues
During 1999, revenues from gas, oil and natural gas liquids production
increased 34% to $104.4 million, as compared to $78.1 million in 1998. Such
increase was the result of an increase in (i) average gas prices received by the
Company from $1.85 per Mcf in 1998 to $2.04 per Mcf in 1999, which increased
revenues $6.8 million, (ii) average oil and natural gas liquids prices received
from $11.37 to $15.20 which increased revenues $3.9 million, (iii) gas sales
volumes of 13% to 40.5 Bcf which increased revenues by $9.4 million due
primarily to the Unocal Acquisition and to successful drilling results, and (iv)
oil and natural gas liquids sales volumes of 41% to 1.4 million barrels, which
increased revenues by $6.2 million due primarily to the Unocal Acquisition.
During 1998, revenues from gas and oil production decreased 13% to $78.1
million as compared to $90.2 million in 1997. Such decrease in gas and oil
revenues was the result of a decrease in (i) average gas prices received by the
Company from $2.18 per Mcf to $1.85 per Mcf which decreased revenues by
approximately $10.4 million, (ii) average oil prices received from $18.02 per
barrel to $11.37 per barrel which decreased revenues by approximately $7.7
million and, (iii) oil sales volumes of 11% which decreased revenues by
approximately $1.5 million. Gas sales volumes increased 13% to 35.9 Bcf which
increased revenues by approximately $7.5 million. The increase in gas production
levels was primarily due to the Genesis acquisition and successful drilling
results primarily in the Wind River Basin of Wyoming.
15
<PAGE> 16
The following table reflects the Company's revenues, average prices
received for gas and oil, and amount of gas and oil production in each of the
years shown:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Natural gas sales.................................. $ 82,479 $ 66,392 $ 69,332
Crude oil sales(1)................................. 21,952 11,680 20,887
Marketing, gathering and processing................ 102,621 47,981 34,998
Drilling........................................... 5,645 4,561 --
Interest income and other.......................... 2,153 716 1,158
-------- -------- --------
Total revenues..................................... $214,850 $131,330 $126,375
======== ======== ========
Net income (loss) attributable to common stock....... $ 5,007 $(45,233) $ 6,860
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Natural gas production sold (Mmcf)...................... 40,514 35,887 31,842
Crude oil production (Mbbls)(1)......................... 1,444 1,027 1,159
Average natural gas sales price ($/Mcf)................. $ 2.04 $ 1.85 $ 2.18
Average crude oil sales price ($/Bbl)................... $ 15.20 $ 11.37 $ 18.02
</TABLE>
- ---------------
(1) Crude oil includes natural gas liquids ("NGL") for all years presented. For
1999, NGL volumes were 535,000 barrels and NGL sales were $6,509,000,
resulting from a mid-year property acquisition from Unocal. For years prior
to 1999, NGL volumes and sales were insignificant.
Marketing, gathering and processing revenues in 1998 and 1997 reflect the
Company's 45% share of such revenues generated by Wildhorse in those years.
Effective September 1, 1999 Wildhorse assigned 100% of its marketing operations
to Retex. As such, marketing, gathering and processing revenues in 1999 reflect
the Company's 45% share of such revenues generated by Wildhorse in 1999 along
with marketing revenues generated by Retex for the period September 1, 1999
through December 31, 1999.
The 114% increase in marketing, gathering and processing revenues in 1999
compared to 1998 is composed of a 136% increase in marketing revenues and a 30%
increase in gathering and processing revenues. The increase in marketing
revenues is due primarily to 1) additional revenues recognized as a result of
the assignment of Wildhorse's marketing operations to Retex as discussed above
and 2) an increase in the volume of gas marketed for third parties. The increase
in gathering and processing revenues is due primarily to helium sales resulting
from the Unocal Acquisition.
The 37% increase in marketing, gathering and processing revenues in 1998
compared to 1997 is composed of a 36% increase in marketing revenues and a 43%
increase in gathering and processing revenues. The increase in marketing
revenues is due primarily to 1) additional volumes of gas marketed as a result
of an increase in the Company's production and 2) marketing of additional third
party gas in 1998. The increase in gathering and processing revenues is due
primarily to Wildhorse's acquisition of Interenergy Corporation (see Note 3 to
the Consolidated Financial Statements).
In 1999 the Company sold its interest in certain properties in Colorado for
$2.0 million and recorded a gain of $1.2 million on the sale. In 1997 the
Company sold the majority of its properties located in North Dakota for $11.0
million. No gain or loss was recorded for the sale. The Company had no
significant property sales during 1998.
16
<PAGE> 17
Costs and Expenses
Expenses related to gas and oil production and production taxes increased
29% from 1998 to 1999 due primarily to the acquisition of gas and oil properties
and a cyrogenic natural gas processing plant in July 1999 from Unocal. On an
Mcfe basis, gas and oil production costs increased to $.38 in 1999 from $.35 in
1998, due to the cost of operating the plant. From 1997 to 1998, these expenses
remained virtually unchanged. In 1997, gas and oil production cost was $.37.
Taxes on gas and oil production increased 32% from 1998 to 1999 as a result
of the higher gas and oil sales but remained constant as a percentage of sales.
Production taxes in 1998 increased slightly from 1997, but as a percentage of
sales, increased from 8.2% to 9.6%. This change reflects an increase in gas
sales in the Wind River Basin beginning in 1998 where the Company experiences
higher production taxes as compared to its other areas of operations.
The Company's depletion, depreciation and amortization rates per Mcfe were
$.90, $1.06 and $.93 for years 1999, 1998 and 1997, respectively. The decrease
from 1998 to 1999 was primarily due to (i) lower finding and development costs
associated with 1999 reserve additions and (ii) the impairment of properties in
1998. The increase from 1997 to 1998 was primarily caused by the adverse effect
on reserves of oil prices at the end of 1998, and accordingly, the Company
recorded a charge in 1998 of $51.3 million for the impairment of gas and oil
properties. (See Note 2 to the Notes to Consolidated Financial Statements of the
Company.)
Cost of gas sold has increased substantially each year from 1997 to 1999
consistent with the increases in related revenues. Profit margins were $5.3
million in 1999 compared to a loss of $0.5 million in 1998 and a profit of $5.3
million in 1997. Lower transportation rates in 1999 and the addition of helium
sales in connection with the plant acquired from Unocal accounted for the
increase from 1998 to 1999. The decrease in profit margin from 1997 to 1998 was
due to lower gathering margins in 1998 and an increase in transportation costs
relative to market differentials.
Expenses associated with the Company's exploration activities were $10.0
million, $17.3 million and $13.2 million for the years 1999, 1998 and 1997,
respectively. In 1998, the Company increased its exploration program to more
fully explore the Wind River Basin of Wyoming. In 1999, the Company's
exploration expenditures decreased in comparison to 1998 due to an overall
reduction in capital spending levels for drilling and completion activity.
Impairments of leasehold costs increased to $3.6 million in 1999 from $3.2
million and $1.4 million in 1998 and 1997, respectively. The year-over-year
increases reflect amounts of leasehold expirations from year to year.
General and administrative expenses have increased from year to year as a
result of the Company's higher level of operations. On an Mcfe basis, general
and administrative expenses were $.19, $.17, and $.13 for the years 1999, 1998
and 1997, respectively reflecting added personnel each year, and in 1999, costs
incurred in the Company's decision to relocate its corporate headquarters to
Denver, Colorado. Such amount in 1999 was $2.1 million, or $.04 per Mcfe. (See
Note 2 to the Notes to Consolidated Financial Statements of the Company.)
Interest expense increased $1.3 million in 1999 to $5.6 million compared to
$4.3 million in 1998 due to increased debt levels during the year. Interest
expense was lower in 1998 by $1.6 million from 1997 due to the Company's Common
Stock offering in October, 1997 and subsequent repayment of debt.
The Company recorded income tax provisions of $4.3 million and $4.4 million
in 1999 and 1997, respectively, and income tax benefit of $27.9 million in 1998,
resulting in effective tax rates of 38.9%, 39.0% and 33.7%, respectively. At
December 31, 1999 the Company has a net operating loss carryforward of
approximately $73.2 million available to offset future taxable income. The
Company believes it will generate sufficient taxable income in 2000 to utilize
the $17.6 million net operating loss carryforward that will expire at the ended
of 2000. If the Company is unable to generate sufficient taxable income in 2000
to utilize the $17.6 million net operating loss carryforward, it will enact such
other tax planning strategies necessary to
17
<PAGE> 18
utilize such benefit (such as the advance gas sale utilized in 1998 - see Note 6
to the Notes to Consolidated Financial Statements).
The Company's net deferred tax asset was $28.6 million at December 31,
1999. A valuation allowance of approximately $2.0 million at December 31, 1999
was provided against the Company's net deferred tax assets based on management's
estimate of the recoverability of future tax benefits. The Company evaluated all
appropriate factors to determine the proper valuation allowance for
carryforwards, including any limitations concerning their use, the year the
carryforwards expire, the levels of taxable income necessary for utilization,
and tax planning strategies. In this regard, full valuation allowances were
provided for investment tax credit carryforwards and option plan compensation.
Based on its recent operating results and its expected levels of future
earnings, the Company believes it will, more likely than not, generate
sufficient taxable income and other deferred tax assets to realize the benefit
attributable to the net operating loss carryforwards for which valuation
allowances were not provided.
CAPITAL RESOURCES AND LIQUIDITY
Growth and Acquisitions
The Company continues to pursue opportunities which will add value by
increasing its reserve base and presence in significant natural gas areas, and
further developing the Company's ability to control and market the production of
natural gas. As the Company continues to evaluate potential acquisitions and
property development opportunities, it will benefit from its financing
flexibility and the leverage potential of the Company's overall capital
structure.
Capital and Exploration Expenditures
The Company's capital and exploration expenditures and sources of financing
for the years ended December 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
CAPITAL AND EXPLORATION EXPENDITURES:
ACQUISITIONS:
Genesis................................................... $ -- $ -- $ 35.5
Interenergy............................................... -- -- 10.5
Sauer Drilling Company.................................... 1.4 8.1 --
Unocal.................................................... 60.9 -- --
Other Rocky Mountain Assets............................... 8.2 -- --
Other..................................................... 2.5 -- --
Exploration costs........................................... 12.0 22.8 16.0
Development costs........................................... 33.2 49.3 33.8
Acreage..................................................... 2.5 3.3 6.1
Gas gathering and processing................................ 2.7 8.6 6.7
Other....................................................... 1.7 1.2 3.5
------ ----- ------
$125.1 $93.3 $112.1
====== ===== ======
FINANCING SOURCES:
Common stock issued......................................... $ 65.2 $ .6 $123.8
Net long term bank debt..................................... 26.0 32.0 (96.0)
Advances from gas purchasers................................ (24.3) 24.3 --
Proceeds from sale of assets................................ 2.6 1.9 12.6
Cash flow from operations before changes in working
capital................................................... 66.7 43.5 59.7
Working capital and other................................... (11.1) (9.0) 12.0
------ ----- ------
$125.1 $93.3 $112.1
====== ===== ======
</TABLE>
The Company anticipates capital expenditures of approximately $86.0 million
in 2000, $81.0 million allocated to exploration and development activity. The
timing of most of the Company's capital expenditures is discretionary and there
are no material long-term commitments associated with the Company's capital
expenditure plans. Consequently, the Company is able to adjust the level of its
capital expenditures as
18
<PAGE> 19
circumstances warrant. The level of capital expenditures by the Company will
vary in future periods depending on energy market conditions and other related
economic factors.
Historically, the Company has funded capital expenditures and working
capital requirements with both internally generated cash, borrowings and stock
transactions. Net cash flow provided by operating activities after changes in
working capital was $45.7 million for 1999 as compared to $69.2 million and
$47.6 million in 1998 and 1997, respectively. The decrease in 1999 and the
increase in 1998 was due primarily to the receipt of $24.3 million from gas
purchasers as advances in 1998. In July 1999, the Company completed an
acquisition of substantially all of the Rocky Mountain oil and gas assets of
Unocal Corporation for 5.8 million shares of common stock and $5 million in
cash.
Advance From Gas Purchasers
The Company sold 35 Mmbtu per day of gas for 1999 delivery, but was paid
$24.3 million for the gas in the fourth quarter of 1998 as described in Note 6
of the financial statements. The proceeds from the sale were used to repay bank
debt.
Bank Credit Facility
The Company's Credit Facility provides for a $100 million revolving line of
credit with a current borrowing base of $190 million. The amount of the
borrowing base may be redetermined as of December 31 and June 30 of each
calendar year at the sole discretion of the lender. A redetermination as of
December 31, 1999 has not yet been made.
At December 31, 1999, the aggregate outstanding balance under the Credit
Facility was $81 million, bearing interest at 6.9% per annum. The amount
available for borrowing under the Credit Facility at December 31, 1999 was $19
million. The Credit Facility contains certain financial covenants which require
the Company to maintain a minimum consolidated tangible net worth as well as
certain financial ratios. The Company was in compliance with all covenants
contained in the Credit Facility at December 31, 1999. Borrowings under the
Credit Facility are unsecured and bear interest, at the election of the Company,
at (i) the greater of the agent bank's prime rate or the federal funds effective
rate, plus an applicable margin or (ii) the agent bank's Eurodollar rate, plus
an applicable margin. (See Note 4 to Notes to Consolidated Financial Statements
of the Company.)
Public Offering
In October 1997, the Company sold 5,035,800 shares of its Common Stock in a
public offering. Net proceeds from the offering were approximately $121 million
which were used to repay a majority of the Company's outstanding debt and to
fund the acquisition of all of the assets of Genesis.
Markets and Prices
Wildhorse provides gathering, processing and storage to Rocky Mountain gas
and oil producers. During 1999, the Company's share of Wildhorse's investments
approximated $2.3 million for gas gathering and processing assets. The Company
(45 percent) and KM (55 percent) jointly own Wildhorse.
The Company dedicated significant amounts of its Rocky Mountain gas
production to Wildhorse for gathering, and processing.
The Company's revenues and associated cash flows are significantly impacted
by changes in gas and oil prices. All of the Company's gas and oil production is
currently market sensitive as no amounts of the Company's future gas and oil
production have been sold at contractually specified prices. During 1999, the
average prices received for gas and oil by the Company were $2.04 per Mcf and
$15.20 per barrel, respectively, as compared to $1.85 Mcf and $11.37 per barrel
in 1998 and $2.18 per Mcf and $18.02 per barrel in 1997.
19
<PAGE> 20
Year 2000
The Company previously performed a review of its internal informational
systems for year 2000 ("Y2K") automation compliance through a Company-wide
effort to address Y2K system issues. Such review included verification of Y2K
readiness of the Company's key vendors and purchasers. The Company has not
encountered any material Y2K compliance problems regarding the above. Costs
incurred to become Y2K compliant were minimal.
Forward-Looking Statements and Risk
Certain statements in this report, including statements of the future
plans, objectives, and expected performance of the Company, are forward-looking
statements that are dependent on certain events, risks and uncertainties that
may be outside the Company's control which could cause actual results to differ
materially from those anticipated. Some of these include, but are not limited
to, economic and competitive conditions, inflation rates, legislative and
regulatory changes, financial market conditions, political and economic
uncertainties, future business decisions, and other uncertainties, all of which
are difficult to predict.
There are numerous uncertainties inherent in estimating quantities of
proven oil and gas reserves and in projecting future rates of production and
timing of development expenditures. The total amount or timing of actual future
production may vary significantly from reserves and production estimates. The
drilling of exploratory wells can involve significant risks including those
related to timing, success rates and cost overruns. Lease and rig availability,
complex geology and other factors can affect these risks. Future oil and gas
prices also could affect results of operations and cash flows.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The Statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or liability
measured at its fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000 and cannot be applied
retroactively. SFAS No. 133 must be applied to derivative instruments that were
issued, acquired, or substantially modified after December 31, 1997. The Company
is evaluating SFAS No. 133 and has not yet quantified the impact adopting the
Statement will have on its financial statements. However, SFAS No. 133 could
increase volatility in earnings and other comprehensive income.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". The SOP provides
guidance with respect to accounting for the various types of costs incurred for
computer software developed or obtained for the Company's use. The Company
adopted SOP 98-1 in the first quarter of fiscal 1999 and adoption did not have a
significant effect on its consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company utilizes various financial instruments which inherently have
some degree of market risk. The primary sources of market risk include
fluctuations in commodity prices and interest rate fluctuations.
Price Fluctuations
The Company's results of operations are highly dependent upon the prices
received for oil and natural gas production. Accordingly, in order to increase
the financial flexibility and to protect the Company against commodity price
fluctuations, the Company may, from time to time in the ordinary course of
business, enter into non-speculative hedge arrangements, commodity swap
agreements, forward sale contracts, commodity futures, options and other similar
agreements relating to natural gas and crude oil.
20
<PAGE> 21
In connection with an advance payment for future natural gas deliveries,
the Company entered into three gas price swap contracts with third parties under
which the Company became a fixed price payor for 35,000 Mmbtu per day for a
twelve month period commencing January 1999 at a weighted average price of $2.02
per Mmbtu.
Interest Rate Risk
At December 31, 1999, the Company had $81 million outstanding under its
credit facility at an average interest rate of 6.9%. Borrowings under the
Company's credit facility bear interest, at the election of the Company, at (i)
the greater of the agent bank's prime rate or the federal funds effective rate,
plus an applicable margin or (ii) the agent bank's Eurodollar rate, plus an
applicable margin. As a result, the Company's annual interest cost in 1999 will
fluctuate based on short-term interest rates. Assuming no change in the amount
outstanding during 2000, the impact on interest expense of a ten percent change
in the average interest rate would be approximately $560,000. As the interest
rate is variable and is reflective of current market conditions, the carrying
value approximates the fair value.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... 28
Consolidated Balance Sheets, December 31, 1999 and 1998..... 29
Consolidated Statements of Operations, Years ended December
31, 1999, 1998 and 1997................................... 31
Consolidated Statements of Changes in Stockholders' Equity,
Years ended December 31, 1999, 1998 and 1997.............. 32
Consolidated Statements of Cash Flows, Years ended December
31, 1999, 1998 and 1997................................... 33
Notes to Consolidated Financial Statements.................. 35
</TABLE>
22
<PAGE> 23
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tom Brown, Inc.:
We have audited the accompanying consolidated balance sheets of Tom Brown,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tom Brown,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 25, 2000
23
<PAGE> 24
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 12,510 $ 2,670
Accounts receivable....................................... 53,646 32,390
Inventories............................................... 828 532
Deferred income taxes..................................... -- 8,585
Other..................................................... 1,625 260
-------- ---------
Total current assets.............................. 68,609 44,437
-------- ---------
PROPERTY AND EQUIPMENT, AT COST:
Gas and oil properties, successful efforts method of
accounting............................................. 470,461 387,336
Gas gathering and processing and other plant.............. 71,657 51,561
Other..................................................... 23,027 20,340
-------- ---------
Total property and equipment...................... 565,145 459,237
Less: Accumulated depreciation, depletion and
amortization........................................... 133,342 92,232
-------- ---------
Net property and equipment........................ 431,803 367,005
-------- ---------
OTHER ASSETS:
Deferred income taxes, net................................ 28,625 23,429
Other assets.............................................. 7,262 7,011
-------- ---------
Total other assets................................ 35,887 30,440
-------- ---------
$536,299 $ 441,882
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 39,489 $ 23,124
Accrued expenses.......................................... 9,763 4,754
Advances from gas purchasers.............................. -- 24,529
-------- ---------
Total current liabilities......................... 49,252 52,407
-------- ---------
BANK DEBT................................................... 81,000 55,000
-------- ---------
OTHER NON-CURRENT LIABILITIES............................... 3,950 2,725
-------- ---------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $.10 par value
Authorized 2,500,000 shares;
Outstanding 1,000,000 shares with a liquidation
preference of $25,000,000............................. 100 100
Common Stock, $.10 par value
Authorized 55,000,000 shares;
Outstanding 35,308,489 shares and 29,259,989 shares,
respectively.......................................... 3,531 2,926
Additional paid-in capital................................ 495,817 431,082
Accumulated deficit....................................... (97,351) (102,358)
-------- ---------
Total stockholders' equity........................ 402,097 331,750
-------- ---------
$536,299 $ 441,882
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
---------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
REVENUES:
Gas, oil and natural gas liquids sales.................. $104,431 $ 78,072 $90,219
Marketing, gathering and processing..................... 102,621 47,981 34,998
Drilling................................................ 5,645 4,561 --
Interest income and other............................... 2,153 716 1,158
-------- ----------- -------
Total revenues.................................. 214,850 131,330 126,375
-------- ----------- -------
COSTS AND EXPENSES:
Gas and oil production.................................. 18,446 14,522 14,336
Taxes on gas and oil production......................... 9,934 7,512 7,437
Cost of gas sold........................................ 97,292 48,442 29,734
Drilling operations..................................... 5,237 4,367 --
Exploration costs....................................... 10,013 17,274 13,222
Impairments of leasehold costs.......................... 3,600 3,215 1,350
General and administrative.............................. 9,503 7,139 5,152
Depreciation, depletion and amortization................ 44,215 44,575 36,230
Impairment of gas and oil properties.................... -- 51,344 --
Interest expense........................................ 5,560 4,301 5,920
-------- ----------- -------
Total costs and expenses........................ 203,800 202,691 113,381
-------- ----------- -------
Income (loss) before income taxes............... 11,050 (71,361) 12,994
Income tax benefit (provision)
Current................................................. (903) (1,611) (1,026)
Deferred................................................ (3,390) 29,489 (3,358)
-------- ----------- -------
Net income (loss)......................................... 6,757 (43,483) 8,610
Preferred stock dividends................................. (1,750) (1,750) (1,750)
-------- ----------- -------
Net income (loss) attributable to common stock............ $ 5,007 $ (45,233) $ 6,860
======== =========== =======
Weighted average number of common shares outstanding:
Basic................................................... 32,228 29,251 25,110
======== =========== =======
Diluted................................................. 32,466 29,251 26,407
======== =========== =======
Net income (loss) per common share:
Basic................................................... $ .16 $ (1.55) $ .27
======== =========== =======
Diluted................................................. $ .15 $ (1.55) $ .26
======== =========== =======
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
--------------- --------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------ ------ ------ ------ ---------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31,
1996......................... 1,000 $100 23,898 $2,390 $307,631 $ (63,985) $246,136
Stock options exercised........ -- -- 244 24 1,558 -- 1,582
Common stock issuance.......... -- -- 5,068 507 121,705 -- 122,212
Stock issuance costs........... -- -- -- -- (392) -- (392)
Net income..................... -- -- -- -- -- 8,610 8,610
Preferred stock dividends...... -- -- -- -- -- (1,750) (1,750)
----- ---- ------ ------ -------- --------- --------
BALANCE AS OF DECEMBER 31,
1997......................... 1,000 100 29,210 2,921 430,502 (57,125) 376,398
Stock options exercised........ -- -- 50 5 580 -- 585
Net loss....................... -- -- -- -- -- (43,483) (43,483)
Preferred stock dividends...... -- -- -- -- -- (1,750) (1,750)
----- ---- ------ ------ -------- --------- --------
BALANCE AS OF DECEMBER 31,
1998......................... 1,000 100 29,260 2,926 431,082 (102,358) 331,750
Stock options exercised........ -- -- 248 25 1,707 -- 1,732
Common stock issuance.......... -- -- 5,800 580 62,935 -- 63,515
Unrealized gain on marketable
securities................... -- -- -- -- 93 -- 93
Net income..................... -- -- -- -- -- 6,757 6,757
Preferred stock dividends...... -- -- -- -- -- (1,750) (1,750)
----- ---- ------ ------ -------- --------- --------
BALANCE AS OF DECEMBER 31,
1999......................... 1,000 $100 35,308 $3,531 $495,817 $ (97,351) $402,097
===== ==== ====== ====== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
TOM BROWN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 6,757 $(43,483) $ 8,610
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation, depletion and amortization................ 44,215 44,575 36,230
(Gain) loss on sales of assets.......................... (1,265) 27 (19)
Impairment of gas and oil properties.................... -- 51,344 --
Deferred tax provision (benefit)........................ 3,390 (29,408) 259
Exploration costs....................................... 10,013 17,274 13,222
Impairments of leasehold costs.......................... 3,600 3,215 1,350
-------- -------- ---------
66,710 43,544 59,652
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable........... (19,140) 8,559 (7,869)
(Increase) in inventories............................ (296) (167) (63)
(Increase) decrease in other current assets.......... (616) 11 618
Increase (decrease) in accounts payable and accrued
expenses........................................... 22,644 (4,451) (2,847)
(Increase) decrease in other assets, net............. 973 (2,785) (1,891)
Advances from gas purchasers......................... (24,529) 24,529 --
-------- -------- ---------
Net cash provided by operating activities................... $ 45,746 $ 69,240 $ 47,600
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of assets............................. $ 2,573 $ 1,870 $ 12,635
Capital and exploration expenditures...................... (63,072) (93,274) (106,805)
Changes in accounts payable and accrued expenses for
capital expenditures.................................... (1,389) (7,370) 7,498
-------- -------- ---------
Net cash used in investing activities....................... (61,888) (98,774) (86,672)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... -- -- 121,665
Borrowings of long-term bank debt......................... 26,000 106,000 27,000
Repayments of long-term bank debt......................... -- (74,000) (123,000)
Repayments of note payable, current....................... -- (5,168) --
Preferred stock dividends................................. (1,750) (1,750) (1,750)
Proceeds from exercise of stock options................... 1,732 585 1,582
Stock issuance costs...................................... -- -- (392)
-------- -------- ---------
Net cash provided by financing activities................... 25,982 25,667 25,105
-------- -------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 9,840 (3,867) (13,967)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 2,670 6,537 20,504
-------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 12,510 $ 2,670 $ 6,537
======== ======== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest.................................................. $ 4,051 $ 3,985 $ 6,027
Income taxes.............................................. -- 308 429
Supplemental schedule of noncash investing and financing
activities: (see Notes 2 and 3)
Common stock issued as consideration in connection with
Unocal Acquisition...................................... $ 63,516 $ -- $ --
Common stock received for outstanding receivable.......... 700 -- --
Debt assumed in connection with acquisition of Interenergy
Corporation............................................. -- -- 5,200
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) NATURE OF OPERATIONS
Tom Brown, Inc. and its wholly-owned subsidiaries (the "Company") is an
independent energy company engaged in the domestic exploration for, and the
acquisition, development, marketing, production and sale of, natural gas and
crude oil. The Company's industry segments are (i) the exploration for, and the
acquisition, development, production, and sale of, natural gas and crude oil,
(ii) the marketing, gathering and processing of natural gas, primarily through
Retex, Inc. ("Retex") and Wildhorse Energy Partners, L. L. C. ("Wildhorse") and
(iii) drilling gas and oil wells, primarily through Sauer Drilling Company
("Sauer"). The Company's operations are conducted in the United States and
Canada. The Company's operations are presently focused in the Wind River and
Green River Basins of Wyoming, the Piceance Basin of Colorado, the Paradox Basin
of eastern Utah and western Colorado, the Val Verde Basin of west Texas, the
Permian Basin of west Texas and southeastern New Mexico, and east Texas. The
Company also, to a lesser extent, conducts exploration and development
activities in other areas of the continental United States and Canada.
Wildhorse, which is owned fifty-five percent (55%) by Kinder Morgan Inc.
("KM") and forty-five percent (45%) by the Company, was formed by KN Energy,
Inc. ("KNE") (KNE was subsequently acquired by KM) and the Company in January
1996. The business and affairs of Wildhorse are managed by KM under the
direction of an operating team consisting of two representatives appointed by
the Company and two representatives appointed by KM. The Company dedicated a
significant amount of its Rocky Mountain gas reserves to Wildhorse and KNE
contributed substantial gas marketing contracts. The Company also acquired a
natural gas storage facility in western Colorado that was simultaneously
transferred to Wildhorse. The principal purpose of Wildhorse is to provide
services related to natural gas, natural gas liquids and other natural gas
products, including gathering, processing and storage services. In September
1999, Wildhorse assigned 100% of its marketing operations to Retex.
Additionally, firm transportation contracts were assigned 55% to KM and 45%
remained in Retex.
Substantially all of the Company's production is sold under
market-sensitive contracts. The Company's revenue, profitability and future rate
of growth are substantially dependent upon the price of, and demand for, oil,
natural gas and natural gas liquids. Prices for natural gas, crude oil and
natural gas liquids are subject to wide fluctuation in response to relatively
minor changes in their supply and demand as well as market uncertainty and a
variety of additional factors that are beyond the control of the Company. These
factors include the level of consumer product demand, weather conditions,
domestic and foreign governmental regulations, the price and availability of
alternative fuels, political conditions in foreign countries, the foreign supply
of natural gas and oil and the price of foreign imports and overall economic
conditions. The Company is affected more by fluctuations in natural gas prices
than oil prices because a majority of its production (82 percent in 1999 on a
volumetric equivalent basis) is natural gas.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company. The Company's proportionate share of assets, liabilities, revenues
and expenses associated with certain interests in a gas and oil partnership and
the Company's 45% ownership in Wildhorse are consolidated within the
accompanying financial statements. All significant intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made to
amounts reported in previous years to conform to the 1999 presentation.
28
<PAGE> 29
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories consist of pipe and other production equipment. Inventories are
stated at the lower of cost (principally first-in, first-out) or estimated net
realizable value.
Property and Equipment
The Company accounts for its natural gas and crude oil exploration and
development activities under the successful efforts method of accounting. Under
such method, costs of productive exploratory wells, development dry holes and
productive wells and undeveloped leases are capitalized. Gas and oil lease
acquisition costs are also capitalized. Exploration costs, including personnel,
certain geological and geophysical expenses and delay rentals for gas and oil
leases, are charged to expense as incurred. Exploratory drilling costs are
initially capitalized, but charged to expense if and when the well is determined
not to have found reserves in commercial quantities.
Maintenance and repairs are charged to expense; renewals and betterments
are capitalized to the appropriate property and equipment accounts. Upon
retirement or disposition of assets, the costs and related accumulated
depreciation are removed from the accounts with the resulting gains or losses,
if any, reflected in results of operations.
Unproved properties with significant acquisition costs are assessed
quarterly on a property-by-property basis and any impairment in value is charged
to expense. Unproved properties whose acquisition costs are not individually
significant are aggregated, and the portion of such costs estimated to be
nonproductive, based on historical experience, is amortized over the average
holding period. If the unproved properties are determined to be productive, the
related costs are transferred to proved gas and oil properties.
The Company reviews its gas and oil properties for impairment whenever
events and circumstances indicate a decline in the recoverability of their
carrying value. In the fourth quarter of 1998, due to the decline in oil and
natural gas prices, the Company estimated the expected future cash flows of its
gas and oil properties and compared such future cash flows to the carrying
amount of the gas and oil properties to determine if the carrying amount was
recoverable. For certain gas and oil properties, the carrying amount exceeded
the estimated undiscounted future cash flows; thus, the Company adjusted the
carrying amount of the respective oil and gas properties to their fair value.
The factors used to determine fair value included, but were not limited to,
estimates of proved reserves, future commodity pricing, future production
estimates, anticipated capital expenditures, and a discount rate commensurate
with the Company's internal rate of return on its gas and oil properties. As a
result, the Company recognized a noncash pretax charge of $51.3 million related
to the impairment of gas and oil properties in the fourth quarter of 1998. There
were no impairments of gas and oil properties in 1999 or 1997.
The provision for depreciation, depletion and amortization of oil and gas
properties is calculated on a basin-by-basin basis using the unit-of-production
method. Included in such calculations are estimated future dismantlement,
restoration and abandonment costs, net of estimated salvage values.
Other property and equipment is recorded at cost and depreciated using the
straight-line method based on estimated useful lives.
Natural Gas Revenues
The Company utilizes the accrual method of accounting for natural gas
revenues whereby revenues are recognized as the Company's entitlement share of
gas is produced based on its working interests in the properties. The Company
records a receivable (payable) to the extent it receives less (more) than its
proportionate share of gas revenues. Using year end prices, the Company had net
gas balancing liabilities of
29
<PAGE> 30
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately $1.9 million and $1.4 million associated with approximately 1.3
billion and 1.4 billion cubic feet ("Bcf") of gas at December 31, 1999 and 1998,
respectively.
Derivative Financial Instruments
In order to increase financial flexibility and to protect the Company
against commodity price fluctuations, the Company may, from time to time in the
ordinary course of business, enter into non-speculative hedge arrangements,
commodity swap agreements, forward sale contracts, commodity futures, options
and other similar agreements relating to natural gas and crude oil.
Financial instruments designated as hedges are accounted for on the accrual
basis with gains and losses being recognized based on the type of contract and
exposure being hedged. Gains and losses on natural gas and crude oil swaps
designated as hedges of anticipated transactions, including accrued gains or
losses upon maturity or termination of the contract, are deferred and recognized
in income when the associated hedged commodities are produced. In order for
natural gas and crude oil swaps to qualify as a hedge of an anticipated
transaction, the derivative contract must identify the expected date of the
transaction, the commodity involved, and the expected quantity to be purchased
or sold among other requirements. In the event that a hedged transaction does
not occur, future gains and losses, including termination gains or losses, are
included in the income statement when incurred.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. It
also requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company has
not yet quantified the impacts of adopting SFAS 133 on its financial statements
and has not determined the timing of, or method of, adoption of SFAS 133.
However, SFAS 133 could increase volatility in earnings and other comprehensive
income.
Income Taxes
The Company provides for income taxes using the liability method under
which deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax laws or tax rates is recognized in income in the period such
changes are enacted.
Stock-Based Compensation
The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees" and related interpretations.
Reference is made to Note 8, "Benefit Plans" for a summary of the pro forma
effect of SFAS No. 123, "Accounting for Stock Based Compensation," on the
Company's results of operations for 1999, 1998 and 1997.
30
<PAGE> 31
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Such estimates and assumptions also affect the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Significant estimates with regard to these financial
statements include the estimate of proved oil and gas reserve volumes and the
related present value of estimated future net revenues to be received therefrom
(see Note 14), as well as the valuation allowance for deferred taxes (see Note
5).
Net Income Per Common Share
Basic earnings per share ("EPS") is calculated by dividing net income
attributable to common stock by the weighted average number of common shares
outstanding during the period including the weighted average impact of the
shares of common stock issued during the year from the date of issuance. Diluted
EPS calculations also give effect to all dilutive potential common shares
outstanding during the period.
The following is a reconciliation of the numerators and denominators used
in the calculation of basic and diluted EPS for the years ended December 31,
1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ----------------------------- ---------------------------
NET PER SHARE NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ --------- -------- ------ --------- ------ ------ ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net Income (loss)
Attributable to Common
Stock and Share Amounts... $5,007 32,228 $.16 $(45,233) 29,251 $(1.55) $6,860 25,110 $.27
Dilutive Securities:
Stock Options............... -- 238 -- -- -- -- -- 1,297 --
------ ------ ---- -------- ------ ------ ------ ------ ----
Diluted EPS:
Net Income (loss)
Attributable to Common
Stock and Assumed Share
Amounts................... $5,007 32,466 $.15 $(45,233) 29,251 $(1.55) $6,860 26,407 $.26
====== ====== ==== ======== ====== ====== ====== ====== ====
</TABLE>
Options to purchase 1,447,000 and 90,000 shares of common stock in 1999 and
1997, respectively, were excluded in the computation of diluted earnings per
share because the option exercise price was greater than the average market
price of the Company's common stock. Shares of common stock issuable upon
conversion of preferred stock were excluded in the computation of diluted
earnings per share in any year because their assumed conversion would be
antidilutive. All options to purchase common stock were excluded in the
computation of diluted earnings per share in 1998 because they were antidilutive
as a result of the Company's net loss in that year.
Consolidated Statements of Cash Flows
The Company considers investments with an original maturity of three months
or less when purchased to be cash equivalents. In connection with the
acquisition of Interenergy Corporation ("Interenergy") in December 1997,
Wildhorse assumed $11.5 million in debt, $5.2 million net to the Company. (See
Notes 3 and 4.) In July 1999, the Company issued 5.8 million shares of common
stock valued at $63.5 million to Unocal Corporation as partial consideration for
the acquisition of gas and oil assets (see Note 3). Additionally in June 1999
the Company received shares of stock valued at approximately $700,000 in
settlement of an outstanding receivable from a working interest owner.
31
<PAGE> 32
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Comprehensive Income
Comprehensive income represents all non-shareholder related changes in
equity of an entity during the reporting period, including net income and
charges directly to equity which are excluded from net income. The only
reconciling item between net income as reflected in the statement of operations
and comprehensive income for the year ended December 31, 1999 was an unrealized
gain on marketable securities of $93,000. There were no such reconciling items
for the years ended December 31, 1998 and 1997.
Exit Costs
In connection with the Company's decision in 1999 to relocate its corporate
headquarters to Denver, Colorado, the Company recognized costs of $2.1 million
as part of general and administrative expenses in 1999. Included in the costs
were actual severance payments made in 1999 of $1.0 million and an accrual for
$.8 million of severance and transition bonus payments to be made in 2000. An
additional accrual of $.3 million was made for future rental obligations for
years 2000 through 2003. The $1.1 million accrual is included in accrued
expenses in the December 31, 1999 consolidated balance sheet.
(3) ACQUISITIONS AND DIVESTITURES
Acquisition of Certain Unocal Rocky Mountain Assets
In July 1999, the Company completed an acquisition of substantially all of
the Rocky Mountain gas and oil assets of Unocal Corporation ("Unocal") for 5.8
million shares of common stock and $5 million in cash for a total purchase price
of $68.5 million ($60.9 million after normal purchase adjustments) ("Unocal
Acquisition"). The Unocal gas and oil assets are primarily located in the
Paradox Basin of southwestern Colorado and southeastern Utah.
The purchase price was allocated as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
-------------
<S> <C>
Gas and oil properties...................................... $37.6
Unproved properties......................................... 2.7
Gas processing plant........................................ 19.9
Oil pipeline................................................ .8
-----
$60.9
=====
</TABLE>
Included in the acquisition is the Lisbon Plant, a modern sophisticated
cyrogenic (60 million cubic feet per day capacity) natural gas processing plant
that extracts natural gas liquids and merchantable helium, and separates carbon
dioxide, hydrogen sulfide and nitrogen from the raw gas stream. The average net
production from the Unocal properties in 1998 was approximately 18 million cubic
feet per day of natural gas, 290 barrels of oil per day and 92,000 gallons of
gas plant liquids per day, or approximately 33 million cubic feet equivalent per
day (assuming gas plant liquids and oil converted at 6:1). The net proved
reserves of these Unocal properties were estimated to be 93.2 billion cubic feet
equivalent of gas as of the closing date of July 1, 1999. Approximately 65,000
net undeveloped acres were also acquired.
32
<PAGE> 33
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro Forma Information (Unaudited)
The following table presents the unaudited pro forma revenues, net income
and net income per share of the Company for the years ended December 31, 1999
and 1998, assuming that the Unocal Acquisition occurred on January 1, 1998.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
(IN THOUSANDS, EXCEPT FOR
PER SHARE AMOUNTS)
<S> <C> <C>
Revenues.................................................... $226,141 $153,832
======== ========
Net income (loss)........................................... $ 9,341 $(40,243)
======== ========
Net income (loss) attributable to common stock.............. $ 7,591 $(41,993)
======== ========
Net income (loss) per common share
Basic..................................................... $ .22 $ (1.20)
======== ========
Diluted................................................... $ .21 $ (1.20)
======== ========
</TABLE>
Acquisition of Other Rocky Mountain Assets
In September 1999, the Company purchased certain Rocky Mountain assets from
an undisclosed seller for approximately $7.7 million in cash. Included in the
acquisition was approximately 9.7 Bcfe of proved reserves and 34,000 net acres
in the Greater Green River Basin of Wyoming.
Acquisition of Assets of W. E. Sauer Companies, LLC
In January 1998, the Company completed the acquisition of the drilling
assets of W. E. Sauer Companies L.L.C. of Casper, Wyoming for approximately $8.1
million. The assets include five drilling rigs, tubular goods, a yard and
related assets. The Company operates the assets in its subsidiary, Sauer, and
serves the drilling needs of operators in the central Rocky Mountain region, in
addition to drilling for the Company.
Acquisition of Gathering and Processing Assets by Wildhorse
In December 1997, KNE, completed the acquisition of all of the assets of
Interenergy. The assets consist of gas gathering and processing facilities
located in Wyoming, Montana, North Dakota and South Dakota, as well as a
marketing division. KNE retained the marketing assets and Wildhorse acquired the
gathering and processing assets valued at $23.4 million. The Company's share of
this purchase was approximately $10.5 million. These assets consist of over 300
miles of pipeline and a processing plant.
Acquisition of the Assets of Genesis Gas and Oil, L.L.C.
In October 1997, the Company completed the acquisition of the assets of
Genesis Gas and Oil, L.L.C. ("Genesis"). The Genesis assets are located
primarily in the Piceance Basin of western Colorado and the Green River Basin of
Wyoming and are principally operated by the Company. The acquisition increased
the Company's acreage position in the Piceance Basin by approximately 32,000 net
developed and 48,000 net undeveloped acres. The Company's working interest
doubled from 23% to 46% in 238 producing wells and from 34% to 68% in 500
potential development locations. The purchase price for these assets was
approximately $35.5 million.
33
<PAGE> 34
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sale of DJ Basin Properties
In June and October 1999, the Company sold its interest in the DJ Basin of
Colorado for $2.3 million. The properties had a net book value of $1.1 million
and, accordingly, a gain of $1.2 million was recorded on the sale. Proceeds from
the sale of these properties was used to repay a portion of the Company's
outstanding indebtedness under its credit facility existing at such time.
Sale of North Dakota Properties
In May 1997, the Company sold the majority of its properties located in
North Dakota for $11.0 million. The properties had a net book value of $11.0
million and, accordingly, no gain was recorded on the sale. Proceeds from the
sale of these properties were used to repay a portion of the Company's
outstanding indebtedness under its credit facility existing at such time.
(4) DEBT
In April 1998, the Company repaid and cancelled its $125 million revolving
credit facility and entered into a new $75 million credit facility (the "Credit
Facility") that matures in April 2001. In October 1998, the Company amended the
Credit Facility by increasing the total borrowing amount to $100 million. The
borrowing base increased from $130 million to $190 million in October, 1999, as
a result of the regular June 30 review. The increase was primarily due to the
Unocal Acquisition. The amount of the borrowing base may be redetermined as of
December 31 and June 30 of each calendar year at the sole discretion of the
lender. A redetermination as of December 31, 1999 has not yet been made. As of
December 31, 1999, $19 million was available for borrowing under the Credit
Facility.
Borrowings under the Credit Facility are unsecured and bear interest, at
the election of the Company, at a rate equal to (i) the greater of the agent
bank's prime rate or the federal funds effective rate plus an applicable margin
or (ii) the agent bank's Eurodollar rate plus an applicable margin. Interest on
amounts outstanding under the Credit Facility is due on the last day of each
month in the case of loans bearing interest at the prime rate or federal funds
rate and, in the case of loans bearing interest at the Eurodollar rate, interest
payments are due on the last day of each applicable interest period of one, two,
three or six months, as selected by the Company at the time of borrowing. At
December 31, 1999, the outstanding balance was $81 million at an average
interest rate of 6.9%.
The Credit Facility contains certain financial covenants and other
restrictions including a limitation on the Company's ability to pay dividends to
other than the Company's Preferred Stockholders (see Note 7). Financial
covenants of the Credit Facility require the Company to maintain a minimum
consolidated tangible net worth of not less than $300 million. The Company is
also required to maintain a ratio of (i) earnings before interest expense, state
and federal taxes and depreciation, depletion and amortization expense to (ii)
consolidated fixed charges, as defined in the Credit Facility, of not less than
2.5:1. Additionally, the Company is required to maintain a ratio of consolidated
debt to consolidated total capitalization of less than 0.45:1.
(5) TAXES
The Company has not paid Federal income taxes due to its net operating loss
carryforward, but is required to pay alternative minimum tax ("AMT"). This tax
can be partially offset by an AMT net operating loss carryforward. A U.S.
Federal statutory rate applied to the Company's income (loss) before income
taxes
34
<PAGE> 35
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of 35% in 1999, 1998 and 1997 was used in the following reconciliation of the
Company's effective income tax benefit (provision):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax benefit (provision) at statutory
rate.................................................. $(3,868) $24,976 $(4,548)
Revisions of previous tax estimates..................... 9 2,130 1,111
Adjustment to valuation allowance....................... 622 2,980 474
Other................................................... (153) (597) (395)
------- ------- -------
(3,390) 29,489 (3,358)
AMT provisions.......................................... -- (380) (403)
State income and franchise taxes........................ (903) (1,231) (623)
------- ------- -------
Income tax expense benefit (provision).................. $(4,293) $27,878 $(4,384)
======= ======= =======
</TABLE>
The significant components, which give rise to the Company's deferred tax
assets (liabilities), are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carryforward............................. $25,607 $10,950
Gas and oil acquisition, exploration and development costs
deducted for tax purposes under (over) book............... (3,662) 6,254
Advances from gas purchasers................................ -- 8,585
AMT Credit Carryforwards.................................... 4,499 4,119
Investment tax credit carryforward.......................... 195 857
Option plan compensation.................................... 1,559 1,559
Other....................................................... 2,380 2,265
------- -------
Net deferred tax asset...................................... 30,578 34,589
Valuation allowance......................................... (1,953) (2,575)
------- -------
Recognized net deferred tax asset........................... $28,625 $32,014
======= =======
</TABLE>
Net deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current..................................................... $ -- $ 8,585
Long-term................................................... 28,625 23,429
------- -------
$28,625 $32,014
======= =======
</TABLE>
A valuation allowance of approximately $2.0 million and $2.6 million at
December 31, 1999 and 1998, respectively, has been provided against the
Company's net deferred tax assets based on management's estimate of the
recoverability of future tax benefits. The Company evaluated all appropriate
factors to determine the proper valuation allowance for carryforwards, including
any limitations concerning their use, the year the carryforward expires, the
levels of taxable income necessary for utilization and tax planning. In this
regard, full valuation allowances were provided for investment tax credit
carryforwards and option plan compensation. Based on its recent operating
results and its expected levels of future earnings, the Company
35
<PAGE> 36
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
believes it will, more likely than not, generate sufficient taxable income to
realize the benefit attributable to the net operating loss carryforward and
other deferred tax assets for which valuation allowances were not provided.
At December 31, 1999, the Company had investment tax credit carryforwards
of approximately $0.2 million and a net operating loss carryforward of
approximately $73.2 million. The Company has no current liability for Federal
income taxes because of these net operating loss and investment tax credit
carryforwards. Realization of the benefits of these carryforwards is dependent
upon the Company's ability to generate taxable earnings in future periods. In
addition, the availability of these carryforwards is subject to various
limitations. The net operating loss carryforwards expire as follows: $17.6
million in 2000, $7.8 million in 2001, $.7 million in 2002, $2.9 million in
2003, $2.3 million in 2004 and $41.9 million in 2019. The Company believes it
will generate sufficient taxable income in 2000 to utilize the benefit of the
$17.6 million net carryforward that will expire at the end of 2000, and, if not,
will enact such other tax planning strategies necessary to utilize such benefit.
Additionally, the Company has approximately $6.2 million of statutory depletion
carryforwards and $4.5 million of AMT credit carryforwards that may be carried
forward until utilized.
(6) ADVANCES FROM GAS PURCHASERS
In 1998, the Company received $24.3 million from purchasers as advance
payments for future natural gas deliveries of 35,000 MMBtu per day for a twelve
month period commencing January 1999. In connection with the advances, the
Company entered into gas price swap contracts with third parties under which the
Company became a fixed price payor for identical volumes at a weighted average
price of $2.02 per MMBtu. The net result of these transactions is that gas
delivered to the purchaser is reported as revenue at a rate that approximates
the prevailing spot price.
The advance payments were classified as advances on the balance sheet and
were reduced as gas was delivered to the purchasers under the terms of the
contracts. Gas volumes delivered to the purchaser were reported as revenue at
prices used to calculate the amount advanced, before imputed interest, minus or
plus amounts paid or received by the Company applicable to the price swap
agreements. Interest expense was recorded based on an average rate of 9.7% on
the advances.
(7) STOCKHOLDERS' EQUITY
Common Stock
The Company's Common Stock is $.10 par value per share. There were
55,000,000 authorized shares of Common Stock at December 31, 1999, of which
35,308,489 shares and 29,259,989 shares were outstanding at December 31, 1999
and 1998, respectively.
In July 1999, the Company issued 5.8 million shares of common stock to
Unocal as partial consideration in connection with the Unocal Acquisition (see
Note 3).
In October 1997, the Company sold 5,035,800 shares of Common Stock in a
public offering. The net proceeds of such offering were approximately $121.0
million and were used to repay a majority of the Company's outstanding long-term
debt and to fund the acquisition of all of the assets of Genesis Gas and Oil,
L.L.C. (see Note 3).
Rights Plan
On March 1, 1991, the Board of Directors adopted a Rights Plan designed to
help assure that all stockholders receive fair and equal treatment in the event
of a hostile attempt to take over the Company, and to help guard against abusive
takeover tactics. The Board of Directors declared a dividend of one preferred
36
<PAGE> 37
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
share purchase right (a "Right") for each outstanding share of Common Stock. The
dividend was distributed on March 15, 1991 to the shareholders of record on that
date. Each Right entitles the registered holder to purchase, for the $20 per
share exercise price, shares of Common Stock or other securities of the Company
(or, under certain circumstances, of the acquiring person) worth twice the per
share exercise price of the Right.
The Rights will be exercisable only if a person or group acquires 20% or
more of the Company's Common Stock or announces a tender offer which would
result in ownership by a person or group of 20% or more of the Common Stock. The
date on which the above occurs is to be known as the ("Distribution Date"). The
Rights will expire on March 15, 2001, unless extended or redeemed earlier by the
Company.
At the time the Rights dividend was declared, the Board of Directors
further authorized the issuance of one Right with respect to each share of the
Company's Common Stock that shall become outstanding between March 15, 1991 and
the earlier of the Distribution Date or the expiration or redemption of the
Rights. Until the Distribution Date occurs, the certificates representing shares
of the Company's Common Stock also evidence the Rights. Following the
Distribution Date, the Rights will be evidenced by separate certificates.
The provisions described above may tend to deter any potential unsolicited
tender offers or other efforts to obtain control of the Company that are not
approved by the Board of Directors and thereby deprive the stockholders of
opportunities to sell shares of the Company's Common Stock at prices higher than
the prevailing market price. On the other hand, these provisions will tend to
assure continuity of management and corporate policies and to induce any person
seeking control of the Company or a business combination with the Company to
negotiate on terms acceptable to the then elected Board of Directors.
Preferred Stock
In January 1996, in connection with the KNPC Acquisition the Company issued
1,000,000 shares of its $1.75 Convertible Preferred Stock, Series A (the
"Preferred Stock") to the seller. There are 2,500,000 shares of Preferred Stock
authorized.
The holder of the Preferred Stock is entitled to receive cumulative
dividends at the annual rate of $1.75 per share, payable in cash quarterly on
the fifteenth day of March, June, September and December in each year. If full
cumulative dividends on the Preferred Stock have not been declared and paid or
set apart for payment, the Company may not declare or pay or set apart for
payment any dividends or make any other distributions on, or make any payment on
account of the purchase, redemption or retirement of, the Company's Common
Stock, or any other stock of the Company ranking junior to the Preferred Stock
as to payment of dividends or distribution of assets on liquidation, dissolution
or winding up of the Company (other than, in the case of dividends or
distributions, dividends or distributions paid in shares of Common Stock or such
other junior ranking stock).
The Company has the option, at any time beginning on or after March 15,
2001, to redeem all or any part of the outstanding shares of Preferred Stock at
the redemption price of $25.00 per share, plus an amount equal to all accrued
and unpaid dividends on such shares of Preferred Stock to the date of
redemption.
Upon the occurrence of a change of control of the Company, the holder of
the Preferred Stock has the right to cause the Preferred Stock to be redeemed by
the Company, in whole or in part, at the redemption price of $25.50 per share,
plus all accrued and unpaid dividends. Generally, for purposes of the Preferred
Stock, a change of control is any situation in which a majority of the Board of
Directors of the Company changes within a period of twelve months or a new
person or group of persons gains control of the Company, within the meaning of
rules of the Securities and Exchange Commission.
Each share of the Preferred Stock is convertible at the option of the
holder thereof, at any time and from time to time prior to the redemption of
such share, into fully paid and nonassessable shares of Common Stock
37
<PAGE> 38
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the Company at the initial conversion rate of 1.666 shares of Common Stock
for each share of Preferred Stock, subject to customary adjustments.
The Preferred Stock is exchangeable, in whole or in part, at the option of
the Company on any dividend payment date at any time on or after March 15, 1999,
and prior to March 15, 2001, for shares of Common Stock at the exchange rate of
1.666 shares of Common Stock for each share of Preferred Stock; provided that
(i) on or prior to the date of exchange, the Company shall have declared and
paid or set apart for payment to the holders of Preferred Stock all accumulated
and unpaid dividends to the date of exchange, and (ii) the current market price
of the Common Stock is above $18.375 (the "Threshold Price"). The exchange rate
is subject to adjustment in the same manner and under the same circumstances as
the conversion rate is subject to adjustment, and the Threshold Price is also
subject to adjustment in the same manner and under the same circumstances.
Upon the dissolution, liquidation or winding up of the Company, whether
voluntary or involuntary, the holders of the Preferred Stock are entitled to
receive out of the assets of the Company available for distribution to
stockholders, the amount of $25.00 per share plus an amount equal to all
dividends on such shares (whether or not earned or declared) accrued and unpaid
thereon to the date of final distribution, before any payment or distribution
may be made on the Common Stock or on any class of stock ranking junior to the
Preferred Stock with respect to distributions upon dissolution, liquidation or
winding up.
If at any time dividends payable on the Preferred Stock are in arrears and
unpaid in an amount equal to or exceeding the amount of dividends payable
thereon for four quarterly dividend periods, the total number of Directors on
the Company's Board of Directors will be limited to a maximum of nine and the
holders of the outstanding Preferred Stock will have the exclusive right, voting
separately as a class without regard to series, to designate a special class of
two Directors of the Company (the "Special Directors") at the next annual or
special meeting of stockholders of the Company irrespective of whether such
meeting otherwise would involve the election of directors, and the membership of
the Board of Directors of the Company shall be increased by the number of the
Special Directors so designated. Such right of the holders of Preferred Stock to
designate Special Directors continues until all dividends accumulated and
payable on the Preferred Stock have been paid in full, at which time such right
to designate Special Directors terminates, subject to re-vesting in the event of
a subsequent dividend payment arrearage.
In exercising the right to designate Special Directors or when otherwise
granted voting rights by operation of law, each share of Preferred Stock shall
be entitled to one vote, except as described below.
The holders of the Preferred Stock are entitled to vote on all matters upon
which holders of the Company's Common Stock have the right to vote. In such
voting, each share of Preferred Stock is entitled to a number of votes per share
equivalent to the number of shares of Common Stock issuable upon conversion of
the Preferred Stock and shall vote together with the holders of the outstanding
shares of the Company's Common Stock as if a part of that class.
(8) BENEFIT PLANS
1989 Plan
The Company's 1989 Stock Option Plan expired in December 1999. Options to
purchase 163,000 shares of the Company's common stock, which would have expired
in December 1999, were exercised in 1999 at an average price of $4.76. As of
December 31, 1999, options to purchase 1,550,000 shares of the Company's common
stock were outstanding under the 1989 Plan.
38
<PAGE> 39
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1993 Plan
In February 1993, the Board of Directors adopted the Company's 1993 Stock
Option Plan (the "1993 Plan"). The 1993 Plan provides for issuance of options to
certain employees and directors to purchase shares of Common Stock. In November
1999, the aggregate number of shares of Common Stock that may be issued under
the 1993 Plan was increased from 2,700,000 shares to 3,200,000 shares. The
exercise price, vesting and duration of the options may vary and will be
determined at the time of issuance.
1999 Plan
The 1999 Long Term Incentive Plan (the "1999 Plan") was adopted by the
Board of Directors on February 17, 1999, and approved by the shareholders on May
20, 1999. The 1999 Plan provides for the grant of stock options, restricted
stock awards, performance awards and incentive awards. There were no grants made
in 1999 under the 1999 Plan. The aggregate number of shares of common stock,
which may be issued under the 1999 Plan, may not exceed 2,000,000 shares. The
maximum value of any performance award granted to any one individual during any
calendar year may not exceed $500,000. The exercise price, vesting and duration
of any grants may vary and will be determined at the time of issuance.
A summary of the status of the plans described above, as of the dates
indicated, and the changes during the years then ended, is presented in the
table and narrative below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------
1999 1998 1997
--------------- --------------- ---------------
WTD. WTD. WTD.
SHARES AVG. SHARES AVG. SHARES AVG.
UNDER EXER. UNDER EXER. UNDER EXER.
OPTION PRICE OPTION PRICE OPTION PRICE
------ ------ ------ ------ ------ ------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year.............. 3,402 $13.22 2,173 $12.84 2,110 $11.06
Granted..................................... 1,178 13.91 2,127 16.04 307 19.12
Exercised................................... (248) 6.98 (50) 11.80 (244) 5.54
Cancellations............................... (193) 13.56 (848) 19.43 -- --
----- ----- -----
Outstanding, end of year.................... 4,139 13.77 3,402 13.22 2,173 12.84
===== ===== =====
Exercisable, end of year.................... 2,226 13.10 1,919 11.64 1,501 10.77
===== ===== =====
Available for grant, end of year............ 2,392 945 741
===== ===== =====
</TABLE>
The weighted average fair value of options granted during the years ended
December 31, 1999, 1998, and 1997 was $9.72, $9.01, and $10.35, respectively.
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ------------------------
NO. OF SHS. WTD. AVG. NO. OF SHS.
UNDER REMAINING WTD. AVG. UNDER WTD. AVG.
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- --------------- ----------- ----------- --------- ------------ ---------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$ 3.81 to 13.00........................ 918 5.24 $ 9.36 774 $ 8.83
$13.32 to 15.25........................ 1,608 6.87 14.28 666 15.00
$15.69 to 18.38........................ 1,613 8.08 15.76 786 15.68
----- -----
4,139 6.98 13.77 2,226 13.10
===== =====
</TABLE>
39
<PAGE> 40
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for its stock-based compensation using the intrinsic
value method prescribed by APB Opinion No. 25 and related interpretations, under
which no compensation cost has been recognized for the stock option plans.
Alternatively, if compensation costs for these plans had been determined in
accordance with SFAS No. 123, the Company's net income (loss) and net income
(loss) per common share would approximate the following pro forma amounts:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ -------- ------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Income (loss)
As Reported............................................... $5,007 $(45,233) $6,860
Pro Forma................................................. 451 (48,645) 4,708
Basic Net Income (loss) per Common Share:
As Reported............................................... $ .16 $ (1.55) $ 0.27
Pro Forma................................................. $ .01 $ (1.66) $ 0.19
Diluted Net Income (loss) per Common Share:
As Reported............................................... $ .15 $ (1.55) $ 0.26
Pro Forma................................................. $ .01 $ (1.66) $ 0.18
</TABLE>
The fair value of each option is estimated as of the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997, respectively: (i) risk-free
interest rates of 6.20, 5.54, and 6.20 percent; (ii) expected lives of 7.0, 7.3
and 7.3 years, (iii) expected volatility of 47.6, 44.3, and 40.9 percent , and
(iv) no dividend yields. The pro forma amounts shown above may not be
representative of future results because the SFAS No. 123 method of accounting
has not been applied to options granted prior to January 1, 1995.
Profit Sharing, ESOP and KSOP Plans
Effective April 1, 1985, the Company adopted a profit sharing plan (the
"Profit Sharing Plan") for the benefit of all employees. Under the Profit
Sharing Plan, the Company could contribute to a trust either stock or cash in
such amounts as the Company deemed advisable.
Effective April 1, 1986, the Company adopted an employee stock ownership
plan (the "ESOP") for the benefit of all employees. Under the ESOP, the Company
could contribute cash or the Company's Common Stock to a trust in such amounts
as the Company deemed advisable.
Effective April 1, 1990, the Profit Sharing Plan was amended to provide for
voluntary employee contributions under Section 401(k) of the Internal Revenue
Code of 1986, as amended. The Profit Sharing Plan was further amended to provide
employees with the ability to give direct investment instructions to the Profit
Sharing Trustee for amounts held for their benefit.
Effective January 1, 1996 the Company adopted the KSOP which is a merger of
the ESOP and the Profit Sharing Plan which contains 401(k) profit sharing plan
and employer stock ownership plan provisions for the benefit of those persons
who qualify as participants. The Company has, at its discretion, a policy to
match employee contributions to the plan. As of December 31, 1999, the Company's
policy was to match two-thirds of the employee contribution up to a total match
of four percent of the employee's salary. The match for the years ended December
31, 1999, 1998 and 1997, was approximately $422,000, $329,000 and $266,000,
respectively. The Company contributed an additional $100,000 to the KSOP for
1997.
40
<PAGE> 41
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of financial instruments. The carrying values of trade receivables and trade
payables approximated market value. The carrying amounts of cash and cash
equivalents approximated fair value due to the short maturity of these
instruments. The carrying value of debt approximated fair value because the
interest rate is variable and is reflective of current market conditions.
As discussed in Note 6, as of December 31, 1998, in connection with advance
payments for future natural gas deliveries, the Company had three gas price swap
contracts outstanding whereby the Company became a fixed price payor for a total
of 35,000 Mmbtu per day at a weighted average price of $2.02. The swap contracts
were completely settled as of December 31, 1999.
(10) RELATED PARTIES AND SIGNIFICANT CUSTOMERS
Related Parties
Certain of the Company's officers and directors participate (either
individually or indirectly through various entities) with the Company and other
unrelated investors in the drilling, development and operation of gas and oil
properties. Related party transactions are non-interest bearing and are settled
in the normal course of business with terms which, in management's opinion, are
similar to those with other joint owners.
The Company has engaged from time to time two law firms, one of whose
partner serves as a director and one of whose partner serves as an officer. The
amounts paid to each of these firms for the years ended December 31, 1999, 1998
and 1997, were approximately $97,000 and $91,000; $100,000 and $35,000; and
$189,000 and $110,000, respectively. The Company also paid approximately
$38,000, $35,000 and $32,000 during the years ended December 31, 1999, 1998 and
1997, respectively, to a consulting firm that has a partner who serves as a
director of the Company.
The Company participates in exploration activity with a partnership, one of
whose partner is a director of the Company. During the years ended December 31,
1999, 1998, and 1997, the Company billed $579,000, $508,000 and $960,000,
respectively, to such partnership for their share of certain leasehold and
drilling costs.
In addition, certain officers and directors of the Company are directors of
a former subsidiary. The Company and the former subsidiary have made available
to each other certain personnel, office services and records with each party
being reimbursed for costs and expenses incurred in connection therewith. During
the years ended December 31, 1999, 1998 and 1997, the Company charged the former
subsidiary approximately $67,000, $86,000 and $80,000, respectively, for such
services. The former subsidiary performs drilling services on certain wells
operated by the Company and charged approximately $1,860,000, $1,643,000, and
$11,000 for such services during the years ended December 31, 1999, 1998 and
1997, respectively.
In management's opinion, the above described transactions and services were
provided on the same terms as could be obtained from non-related sources.
Significant Customers
Gas and oil sales to Conoco, Inc. accounted for 12%, 24% and 28% of gas and
oil sales and marketing, gathering and processing revenues for the years ended
December 31, 1999, 1998 and 1997, respectively. Because there are numerous other
parties available to purchase the Company's production, the Company believes the
loss of this purchaser would not materially affect its ability to sell natural
gas or crude oil.
41
<PAGE> 42
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Concentration of Credit Risk
The Company's revenues are derived principally from uncollateralized sales
to customers in the gas and oil industry. The concentration of credit risk in a
single industry affects the Company's overall exposure to credit risk because
customers may be similarly affected by changes in economic and other conditions.
The Company has not experienced significant credit losses on such receivables.
(11) SEGMENT INFORMATION
The Company operates in three reportable segments: (i) gas and oil
exploration and development, (ii) marketing, gathering and processing and (iii)
drilling. The long-term financial performance of each of the reportable segments
is affected by similar economic conditions.
The Company's gas and oil exploration and development segment operates
primarily in the Wind River and Green River Basins of Wyoming, the Piceance
Basin of Colorado, the Paradox Basin of Utah and Colorado, the Val Verde of west
Texas, the Permian Basin of west Texas and southwestern New Mexico, and east
Texas. The marketing, gathering and processing activities of the Company are
conducted through Retex and Wildhorse, primarily in the Rocky Mountain region.
The drilling segment operates under the name of Sauer Drilling Company and
serves the drilling needs of operators in the central Rocky Mountain region in
addition to drilling for the Company.
The accounting policies of the segments are the same as those described in
Note 2 of Notes to Consolidated Financial Statements. The Company evaluates
performance based on profit or loss from operations before income taxes,
accounting changes, nonrecurring items and interest income and expense.
The Company accounts for intersegment sales transfers as if the sales or
transfers were to third parties, that is, at current prices.
The following tables present information related to the Company's
reportable segments:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------
GAS & OIL MARKETING,
EXPLORATION GATHERING
& & TOTAL
DEVELOPMENT PROCESSING DRILLING SEGMENTS
----------- ---------- -------- --------
<S> <C> <C> <C> <C>
Revenues from external purchasers.................. $ 85,138 $116,687 $5,643 $207,468
Intersegment revenues.............................. 21,365 -- 4,348 25,713
Depreciation, depletion and amortization........... 40,532 3,107 1,324 44,963
Segment profit..................................... 15,976 1,026 149 17,151
Assets............................................. 467,561 90,262 9,333 567,156
Capital and exploration expenditures............... 120,146 4,080 1,416 125,642
</TABLE>
42
<PAGE> 43
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------
GAS & OIL MARKETING,
EXPLORATION GATHERING
& & TOTAL
DEVELOPMENT PROCESSING DRILLING SEGMENTS
----------- ---------- -------- --------
<S> <C> <C> <C> <C>
Revenues from external purchasers.................. $ 63,262 $ 55,037 $4,558 $122,857
Intersegment revenues.............................. 15,406 -- 5,117 20,523
Depreciation, depletion and amortization........... 42,399 1,846 1,008 45,253
Impairment of gas and oil properties............... 51,344 -- -- 51,344
Segment profit (loss).............................. (62,989) (3,808) 283 (66,514)
Assets............................................. 360,347 74,785 9,094 444,226
Capital and exploration expenditures............... 75,447 8,630 9,197 93,274
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
GAS & OIL MARKETING,
EXPLORATION GATHERING
& & TOTAL
DEVELOPMENT PROCESSING DRILLING SEGMENTS
----------- ---------- -------- --------
<S> <C> <C> <C> <C>
Revenues from external purchasers................... $ 76,172 $ 41,853 -- $118,025
Intersegment revenues............................... 15,182 -- -- 15,182
Depreciation, depletion and amortization............ 35,229 1,001 -- 36,230
Segment profit...................................... 15,623 3,291 -- 18,914
Assets.............................................. 394,762 57,628 -- 452,390
Capital and exploration expenditures................ 94,902 17,213 -- 112,115
</TABLE>
The following tables reconcile segment information to consolidated totals:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues
Revenue from external purchasers.......................... $207,468 $122,857 $118,025
Intersegment revenues..................................... 25,713 20,523 15,182
Intercompany eliminations................................. (18,331) (12,050) (6,832)
-------- -------- --------
Total consolidated revenues....................... $214,850 $131,330 $126,375
======== ======== ========
Profit or (loss)
Total reportable segment profit/loss...................... $ 17,151 $(66,514) $ 18,914
Interest expense.......................................... (5,560) (4,301) (5,920)
Eliminations and other.................................... (541) (546) --
-------- -------- --------
Income (loss) before income taxes......................... $ 11,050 $(71,361) $ 12,994
======== ======== ========
Depreciation, depletion and amortization
Total reportable segment depreciation, depletion and
amortization........................................... $ 44,963 $ 45,253 $ 36,230
Eliminations and other.................................... (748) (678) --
-------- -------- --------
$ 44,215 $ 44,575 $ 36,230
======== ======== ========
Assets
Total reportable segment assets........................... $567,156 $444,226 $452,390
Eliminations and other.................................... (30,857) (2,344) (1,464)
-------- -------- --------
$536,299 $441,882 $450,926
======== ======== ========
</TABLE>
43
<PAGE> 44
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(12) COMMITMENTS AND CONTINGENCIES
The Company's operations are subject to numerous Federal and state
government regulations that may give rise to claims against the Company. In
addition, the Company is a defendant in various lawsuits generally incidental to
its business. The Company does not believe that the ultimate resolution of such
litigation will have a material adverse effect on the Company's financial
position, results of operations or cash flows.
Lease Commitments
At December 31, 1999, the Company had long-term leases covering certain of
its facilities and equipment. The minimum rental commitments under
non-cancelable operating leases with lease terms in excess of one year are as
follows:
<TABLE>
<CAPTION>
YEARS ENDING COMMITMENT
DECEMBER 31, AMOUNT
------------ --------------
(IN THOUSANDS)
<S> <C>
2000.................................................... $1,233
2001.................................................... 1,220
2002.................................................... 1,192
2003.................................................... 1,080
2004.................................................... 71
Thereafter.............................................. --
------
$4,796
======
</TABLE>
Total rental expense incurred for the years ended December 31, 1999, 1998
and 1997, was approximately $1,139,000, $1,043,000, and $741,000, respectively,
all of which represented minimum rentals under non-cancelable operating leases.
Firm Transportation Commitments
As of December 31, 1999, Wildhorse had entered into several contracts for
firm transportation on interstate pipelines. On January 23, 1998, the owner of
one interstate pipeline filed for an interim rate increase on a regulated
pipeline effective August 1, 1998 to increase the rate from approximately $.45
per Mcf to $.76 per Mcf. Wildhorse began paying the higher rate of $.76 per Mcf
in August 1998. In August 1999 Wildhorse learned that it was likely that the
rate increase would be limited to $.62 per Mcf. As such, Wildhorse recorded a
receivable of approximately $2.3 million (approximately $1.0 million net to the
Company) representing estimated recoupment of overpayments made at the higher
rate of $.76 per Mcf. In September 1999 the rate on this pipeline was further
reduced to $.47.
On September 1, 1999, the Company took assignment of firm transportation
commitments within Wildhorse based upon its 45% interest in Wildhorse.
44
<PAGE> 45
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Based upon current rates, the Company's obligation for such firm
transportation on that pipeline and others for the next five years and
thereafter is as follows:
<TABLE>
<CAPTION>
YEARS ENDING COMMITMENT
DECEMBER 31, AMOUNT
------------ --------------
(IN THOUSANDS)
<S> <C>
2000.................................................... $ 3,997
2001.................................................... 3,997
2002.................................................... 3,257
2003.................................................... 2,641
2004.................................................... 2,208
Thereafter.............................................. 2,438
-------
$18,538
=======
</TABLE>
Environmental Matters
Rocno Corporation, a wholly-owned subsidiary of the Company, is a party to
a trust agreement in connection with the environmental clean-up plan for the
Sheridan Superfund Site in Waller County, Texas. Rocno's share of the estimated
cleanup costs was accrued in the consolidated financial statements at December
31, 1999. Based on the amount of remediation costs estimated for this site and
the Company's de minimis contribution, if any, the Company believes that the
outcome of this proceeding will not have a material adverse effect on its
financial position or results of operations.
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Revenues................................... $31,513 $36,398 $57,121 $ 89,818 $214,850
Gross profit(1)............................ 12,394 15,022 23,854 30,110 $ 81,380
Net income (loss) attributable to common
stock.................................... (2,971) (996) 3,161 5,813 $ 5,007
Net income (loss) per common share(2)
Basic.................................... (.10) (.03) .09 .17 $ .16
Diluted.................................. (.10) (.03) .09 .16 $ .15
Year ended December 31, 1998
Revenues................................... $31,960 $32,644 $31,395 $ 35,331 $131,330
Gross profit(1)............................ 14,631 15,952 12,425 12,569 $ 55,577
Net loss attributable to common stock...... (2,032) (2,201) (5,222) (35,778) $(45,233)
Net loss per common share(2)
Basic.................................... (.07) (.08) (.18) (1.22) $ (1.55)
Diluted.................................. (.07) (.08) (.18) (1.22) $ (1.55)
</TABLE>
- ---------------
(1) Gross Profit is computed as the excess of gas and oil and marketing,
gathering and processing revenues over operating expenses. Operating
expenses are those associated directly with gas and oil and marketing,
gathering and processing revenues and include lease operations, gas and oil
related taxes and cost of gas sold.
(2) The sum of the individual quarterly net income (loss) per share may not
agree with year-to-date net income (loss) per share as each period's
computation is based on the weighted average number of common shares
outstanding during the period.
45
<PAGE> 46
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(14) SUPPLEMENTAL INFORMATION RELATED TO GAS AND OIL ACTIVITIES (UNAUDITED)
The following tables set forth certain historical costs and operating
information related to the Company's gas and oil producing activities:
Capitalized Costs and Costs Incurred
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1999 1998 1997
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Capitalized costs
Proved gas and oil properties...................... $ 427,676 $344,766 $ 456,093
Unproved gas and oil properties.................... 42,785 42,570 44,468
--------- -------- ---------
Total gas and oil properties....................... 470,461 387,336 500,561
Less: Accumulated depreciation, depletion and
amortization.................................. (116,403) (78,161) (151,544)
--------- -------- ---------
Net capitalized costs.............................. $ 354,058 $309,175 $ 349,017
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1999 1998 1997
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Costs incurred
Proved property acquisition costs(1)................... $ 65,753 $ -- $35,540
Unproved property acquisition costs.................... 6,945 3,283 6,128
Exploration costs...................................... 12,016 22,844 16,036
Development costs...................................... 33,232 49,262 33,731
-------- ------- -------
Total........................................ $117,946 $75,389 $91,435
======== ======= =======
</TABLE>
- ---------------
(1) For 1999 proved property acquisition costs includes $19.9 million for a gas
processing plant in connection with the Unocal Acquisition (see Note 3).
Gas and Oil Reserve Information (Unaudited)
The following summarizes the policies used by the Company in preparing the
accompanying gas and oil reserve disclosures, Standardized Measure of Discounted
Future Net Cash Flows Relating to Proved Gas and Oil Reserves and reconciliation
of such standardized measure between years.
Estimates of proved and proved developed reserves at December 31, 1999,
1998 and 1997, were principally prepared by independent petroleum consultants.
Proved reserves are estimated quantities of natural gas and crude oil which
geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Proved developed reserves are proved reserves that can be
recovered through existing wells with existing equipment and operating methods.
All of the Company's gas and oil reserves are located in the United States.
The standardized measure of discounted future net cash flows from
production of proved reserves was developed as follows:
1. Estimates are made of quantities of proved reserves and the future
periods during which they are expected to be produced based on year end
economic conditions.
2. The estimated future cash flows from proved reserves were
determined based on year-end prices, except in those instances where fixed
and determinable price escalations are included in existing contracts.
46
<PAGE> 47
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. The future cash flows are reduced by estimated production costs and
costs to develop and produce the proved reserves, all based on year end
economic conditions and by the estimated effect of future income taxes
based on the then-enacted tax law, the Company's tax basis in its proved
gas and oil properties and the effect of net operating loss, investment tax
credit and other carryforwards.
The standardized measure of discounted future net cash flows does not
purport to present, nor should it be interpreted to present, the fair value of
the Company's gas and oil reserves. An estimate of fair value would also take
into account, among other things, the recovery of reserves not presently
classified as proved, anticipated future changes in prices and costs and a
discount factor more representative of the time value of money and the risks
inherent in reserve estimates.
Quantities of Gas and Oil Reserves (Unaudited)
The following table presents estimates of the Company's net proved and
proved developed natural gas and oil reserves (including natural gas liquids).
<TABLE>
<CAPTION>
RESERVE QUANTITIES
------------------
GAS OIL(1)
(MMCF) (MBLS)
-------- -------
<S> <C> <C>
Proved reserves:
Estimated reserves at December 31, 1996..................... 359,167 12,306
Revisions of previous estimates........................... (41,299) (2,763)
Purchase of minerals in place............................. 23,341 268
Extensions and discoveries................................ 38,487 189
Sales of minerals in place................................ (750) (1,614)
Production................................................ (31,842) (1,159)
------- ------
Estimated reserves at December 31, 1997..................... 347,104 7,227
Revisions of previous estimates........................... (7,021) (1,211)
Extensions and discoveries................................ 67,921 711
Sales of minerals in place................................ (95) (18)
Production................................................ (35,887) (1,027)
------- ------
Estimated reserves at December 31, 1998..................... 372,022 5,682
Revisions of previous estimates........................... (8,571) 1,505
Purchases of minerals in place............................ 65,982 6,989
Extensions and discoveries................................ 58,032 292
Sales of minerals in place................................ (1,018) (22)
Production................................................ (40,514) (1,445)
------- ------
Estimated reserves at December 31, 1999..................... 445,933 13,001
======= ======
Proved developed reserves:
December 31, 1996......................................... 257,241 8,994
December 31, 1997......................................... 258,756 5,749
December 31, 1998......................................... 263,747 4,029
December 31, 1999......................................... 333,858 11,398
</TABLE>
- ---------------
(1) Oil volumes include natural gas liquids which are insignificant for all
years shown except 1999. For 1999, purchases of minerals in place and
production include 6.0 million and 0.5 million barrels of natural gas
liquids. Proved developed reserves at December 31, 1999 include 6.0 million
barrels of natural gas liquids related to the 1999 Unocal Acquisition.
47
<PAGE> 48
TOM BROWN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Gas and Oil Reserves (Unaudited)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1999 1998 1997
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Future cash flows......................................... $1,107,515 $ 764,974 $ 805,645
Future production costs................................... (320,397) (217,632) (225,488)
Future development costs.................................. (85,712) (74,371) (50,839)
---------- --------- ---------
Future net cash flows before tax.......................... 701,406 472,971 529,318
Future income taxes....................................... (119,950) (71,960) (77,277)
---------- --------- ---------
Future net cash flows after tax........................... 581,456 401,011 452,041
Annual discount at 10%.................................... (247,897) (179,294) (186,867)
---------- --------- ---------
Standardized measure of discounted future net cash
flows................................................... $ 333,559 $ 221,717 $ 265,174
========== ========= =========
Discounted future net cash flows before income taxes...... $ 393,423 $ 254,020 $ 300,814
========== ========= =========
</TABLE>
Natural gas and oil prices have increased since December 31, 1999.
Accordingly, the discounted future net cash flows shown above could be different
if the standardized measure were calculated using current prices.
Changes in Standardized Measure of Discounted Future Net Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Gas and oil sales, net of production costs.................. $(76,052) $(56,032) $ (68,446)
Net changes in anticipated prices and production cost....... 32,745 (36,581) (267,369)
Extensions and discoveries, less related costs.............. 31,796 33,651 28,816
Changes in estimated future development costs............... 21,246 (2,652) 21,347
Previously estimated development costs incurred............. 1,435 8,690 315
Net change in income taxes.................................. (27,561) 3,336 106,893
Purchase of minerals in place............................... 98,419 -- 16,059
Sales of minerals in place.................................. (1,207) (151) (11,534)
Accretion of discount....................................... 25,402 30,081 60,875
Revision of quantity estimates.............................. 369 (10,716) (49,263)
Changes in production rates and other....................... 5,250 (13,083) (38,732)
-------- -------- ---------
Change in Standardized Measure.............................. $111,842 $(43,457) $(201,039)
======== ======== =========
</TABLE>
48
<PAGE> 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information regarding Directors of the Company will be included in
the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than 120 days after the end of the Company's
fiscal year covered by this Form 10-K and such information is incorporated by
reference to the Company's definitive proxy statement. Information concerning
the Executive Officers of the Company appears under Item I of this Annual Report
on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Certain information regarding compensation of executive officers of the
Company will be included in the Company's definitive proxy statement to be filed
with the Securities and Exchange Commission not later than 120 days after the
end of the Company's fiscal year covered by this Form 10-K and such information
is incorporated by reference to the Company's definitive proxy statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain information regarding security ownership of certain beneficial
owners and management will be included in the Company's definitive proxy
statement to be filed with the Securities and Exchange Commission not later than
120 days after the end of the Company's fiscal year covered by this Form 10-K
and such information is incorporated by reference to the Company's definitive
proxy statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain information regarding transactions with management and other
related parties will be included in the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the Company's fiscal year covered by this Form 10-K and such
information is incorporated by reference to the Company's definitive proxy
statement.
49
<PAGE> 50
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(1) See Index to Consolidated Financial Statements under Item 8 of this Annual
Report on Form 10-K.
(2) None
(3) Exhibits:
<TABLE>
<C> <S>
2.1 -- Purchase and Sale Agreement, dated June 8, 1999, between
Union Oil Company of California and the Registrant
(Incorporated by reference to Exhibit 10.1 in the
Registrant's Form 8-K Report dated July 19, 1999 and
filed with the Securities and Exchange Commission on July
19, 1999)
3.1 -- Certificate of Incorporation, as amended, of the
Registrant (Incorporated by reference to Exhibit No. 4 in
the Registrant's Form 10-Q Report for the quarterly
period ended June 30, 1996, and filed with the Securities
and Exchange Commission on August 15, 1996)
3.2* -- Certificate of Amendment, dated May 25, 1999, to
Certificate of Incorporation of Registrant
3.3 -- Bylaws of the Registrant (Incorporated by reference to
Exhibit No. 3.2 in the Registrant's Form 8-B Registration
Statement dated July 15, 1987, and filed with the
Securities and Exchange Commission on July 17, 1987)
4.1 -- Rights Agreement dated as of March 5, 1991, between the
Registrant and The First National Bank of Boston,
successor in interest to American Stock Transfer & Trust
Company (Incorporated by reference to Exhibit No. 4(a) in
the Registrant's Form 8-K Report dated March 12, 1991,
and filed with the Securities and Exchange Commission on
March 15, 1991)
10.1 -- Limited Liability Company Agreement, dated January 31,
1996, of Wildhorse Energy Partners, LLC, between the
Registrant and KN Energy, Inc. (Incorporated by reference
to Exhibit No. 10.2 in the Registrant's Form 8-K Report
dated January 31, 1996, and filed with the Securities and
Exchange Commission on February 15, 1996)
10.2 -- Registration Rights Agreement, dated January 31, 1996,
between the Registrant and KN Energy, Inc. (Incorporated
by reference to Exhibit No. 10.4 in the Registrant's Form
8-K Report dated January 31, 1996, and filed with the
Securities and Exchange Commission on February 15, 1996)
10.3 -- Stock Ownership and Registration Rights Agreement dated
June 29, 1999 between Union Oil Company of California and
the Registrant (Incorporated by reference to Exhibit 10.2
in the Registrant's Form 8-K Report dated July 19, 1999,
and filed with the Securities and Exchange Commission on
July 19, 1999)
10.4 -- Credit Agreement, dated as of April 17, 1998, among the
Registrant, The Chase Manhattan Bank and the other
lenders parties thereto (Incorporated by reference to
Exhibit 10.1 in the Registrant's Form 10-Q for the
quarterly period ended March 31, 1998, and filed with the
Securities and Exchange Commission on May 14, 1998)
10.5 -- First Amendment, dated October 19, 1998, to the Credit
Agreement, dated April 17, 1998 (Incorporated by
reference to Exhibit 10.1 in the Registrant's Form 10-Q
Report for the quarterly period ended September 30, 1998,
and filed with the Securities and Exchange Commission on
November 13, 1998)
</TABLE>
50
<PAGE> 51
<TABLE>
<S> <C>
10.6 -- Second Amendment and Waiver, dated March 15, 1999, to the Credit Agreement, dated April
17, 1998 (Incorporated by reference to Exhibit 10.7 in the Registrant's Form 10-K
Report for the fiscal year ended December 31, 1998, and filed with the Securities and
Exchange Commission on March 19, 1999)
10.7 -- Third Amendment dated June 25, 1999 to the Credit Agreement dated April 17, 1998
(Incorporated by reference to Exhibit 10.1 in the Registrant's Form 10-Q Report for the
quarterly period ended June 30, 1999, and filed with the Securities and Exchange
Commission on August 13, 1999)
10.8 -- Purchase and Sale Agreement between Genesis Gas and Oil, L.L.C. and TBI Production
Company, dated October 1, 1997. (Incorporated by reference to Exhibit 10.6 in the
Registrants' Form 10-K Report for the fiscal year ended December 31, 1998, and filed
with the Securities and Exchange Commission on March 19, 1999)
Executive Compensation Plans and Arrangements (Exhibits 10.9 through 10.15):
10.9 -- 1989 Stock Option Plan (Incorporated by reference to Exhibit 10.17 in the Registrant's
Form S-1 Registration Statement dated February 14, 1990, and filed with the Securities
and Exchange Commission on February 13, 1990)
10.10 -- Amended and Restated 1993 Stock Option Plan (Incorporated by reference to Exhibit 10.4
in the Registrant's Form 10-Q Report for the quarterly period ended June 30, 1999, and
filed with the Securities and Exchange Commission on August 13, 1999)
10.11* -- 1999 Long Term Incentive Plan effective as of February 17, 1999.
10.12 -- Tom Brown, Inc. KSOP Plan (Incorporated by reference to Exhibit 10.19 in the
Registrant's Form 10-K Report for the fiscal year ended December 31, 1996, and filed
with the Securities and Exchange Commission on March 27, 1997)
10.13* -- Tom Brown, Inc. 401(k) Retirement Plan effective as of January 1, 2000.
10.14* -- Sauer Drilling Company Adoption Agreement and Prototype 401(k) Retirement Plan
effective as of January 1, 1999.
10.15 -- Second Amendment and Restated Employment Agreement dated January 1, 1997, between the
Registrant and Donald L. Evans (Incorporated by reference to Exhibit 10.15 in the
Registrant's Form 10-K Report for the fiscal year ended December 31, 1996, and filed
with the Securities and Exchange Commission on March 27, 1997)
10.16 -- First Amendment to Employment Agreement dated as of July 1, 1998, between the
Registrant and Donald L. Evans (Incorporated by reference to Exhibit 10.3 in the
Registrant's Form 10-Q Report for the quarterly period ended June 30, 1998, and filed
with the Securities and Exchange Commission on August 10, 1998)
10.17 -- Employment Agreement dated May 3, 1999 between the Registrant and James D. Lightner
(Incorporated by reference to Exhibit 10.3 in the Registrant's Form 8-K Report dated
July 19, 1999, and filed with the Securities and Exchange Commission on July 19, 1999)
10.18 -- Severance Agreement dated as of July 1, 1998, together with a schedule identifying
officers of the Registrant who are parties thereto and the multiple of earnings payable
to each officer upon termination resulting from certain change in control events.
(Incorporated by reference to Exhibit 10.1 in the Registrant's Form 10-Q Report for the
quarterly period ended June 30, 1998, and filed with the Securities and Exchange
Commission on August 12, 1998)
</TABLE>
51
<PAGE> 52
<TABLE>
<CAPTION>
<C> <S>
10.19* -- Amended Schedule to Severance Agreement filed as Exhibit No. 10.1 to the
Registrant's Form 10-Q Report for the quarterly period ended June 30, 1998, and
filed with the Securities and Exchange Commission on August 12, 1998 identifying
officers and executives of the Registrant who are parties thereto and the multiple of
earnings payable to each officer or executive upon termination resulting from certain
change in control events
10.20 -- The Registrant's Severance Plan dated as of July 1, 1998 (Incorporated by
reference to Exhibit 10.2 in the Registrant's Form 10-Q Report for the quarterly
period ended June 30, 1998, and filed with the Securities and Exchange Commission
on August 12, 1998)
21.1* -- Subsidiaries of the Registrant
23.1* -- Consent of Arthur Andersen LLP
23.2* -- Consent of Williamson Petroleum Consultants, Inc.
23.3* -- Consent of Ryder Scott Company
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
(4) Reports on Form 8-K:
None
52
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TOM BROWN, INC.
By /s/ DONALD L. EVANS
-----------------------------------
Donald L. Evans
Chairman of the Board of Directors
and Chief Executive Officer
Date: March 17, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD L. EVANS Chairman of the Board and Chief March 17, 2000
- ----------------------------------------------------- Executive Officer
Donald L. Evans
/s/ JAMES D. LIGHTNER President and Director March 17, 2000
- -----------------------------------------------------
James D. Lightner
/s/ DANIEL G. BLANCHARD Vice President and Chief Financial March 17, 2000
- ----------------------------------------------------- Officer
Daniel G. Blanchard
/s/ R. KIM HARRIS Vice President -- Finance and March 17, 2000
- ----------------------------------------------------- Controller
R. Kim Harris
/s/ THOMAS C. BROWN Director March 17, 2000
- -----------------------------------------------------
Thomas C. Brown
/s/ DAVID M. CARMICHAEL Director March 17, 2000
- -----------------------------------------------------
David M. Carmichael
/s/ HENRY GROPPE Director March 17, 2000
- -----------------------------------------------------
Henry Groppe
/s/ EDWARD W. LEBARON, JR. Director March 17, 2000
- -----------------------------------------------------
Edward W. LeBaron, Jr.
/s/ JAMES B. WALLACE Director March 17, 2000
- -----------------------------------------------------
James B. Wallace
/s/ ROBERT H. WHILDEN, JR. Director March 17, 2000
- -----------------------------------------------------
Robert H. Whilden, Jr.
</TABLE>
53
<PAGE> 54
TOM BROWN, INC.
EXHIBITS
TO
ANNUAL REPORT ON FORM 10-K
FOR THE PERIOD ENDED
DECEMBER 31, 1999
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 -- Purchase and Sale Agreement, dated June 8, 1999, between
Union Oil Company of California and the Registrant
(Incorporated by reference to Exhibit 10.1 in the
Registrant's Form 8-K Report dated July 19, 1999 and
filed with the Securities and Exchange Commission on July
19, 1999)
3.1 -- Certificate of Incorporation, as amended, of the
Registrant (Incorporated by reference to Exhibit No. 4 in
the Registrant's Form 10-Q Report for the quarterly
period ended June 30, 1996, and filed with the Securities
and Exchange Commission on August 15, 1996)
3.2* -- Certificate of Amendment, dated May 25, 1999, to
Certificate of Incorporation of Registrant
3.3 -- Bylaws of the Registrant (Incorporated by reference to
Exhibit No. 3.2 in the Registrant's Form 8-B Registration
Statement dated July 15, 1987, and filed with the
Securities and Exchange Commission on July 17, 1987)
4.1 -- Rights Agreement dated as of March 5, 1991, between the
Registrant and The First National Bank of Boston,
successor in interest to American Stock Transfer & Trust
Company (Incorporated by reference to Exhibit No. 4(a) in
the Registrant's Form 8-K Report dated March 12, 1991,
and filed with the Securities and Exchange Commission on
March 15, 1991)
10.1 -- Limited Liability Company Agreement, dated January 31,
1996, of Wildhorse Energy Partners, LLC, between the
Registrant and KN Energy, Inc. (Incorporated by reference
to Exhibit No. 10.2 in the Registrant's Form 8-K Report
dated January 31, 1996, and filed with the Securities and
Exchange Commission on February 15, 1996)
10.2 -- Registration Rights Agreement, dated January 31, 1996,
between the Registrant and KN Energy, Inc. (Incorporated
by reference to Exhibit No. 10.4 in the Registrant's Form
8-K Report dated January 31, 1996, and filed with the
Securities and Exchange Commission on February 15, 1996)
10.3 -- Stock Ownership and Registration Rights Agreement dated
June 29, 1999 between Union Oil Company of California and
the Registrant (Incorporated by reference to Exhibit 10.2
in the Registrant's Form 8-K Report dated July 19, 1999,
and filed with the Securities and Exchange Commission on
July 19, 1999)
10.4 -- Credit Agreement, dated as of April 17, 1998, among the
Registrant, The Chase Manhattan Bank and the other
lenders parties thereto (Incorporated by reference to
Exhibit 10.1 in the Registrant's Form 10-Q for the
quarterly period ended March 31, 1998, and filed with the
Securities and Exchange Commission on May 14, 1998)
10.5 -- First Amendment, dated October 19, 1998, to the Credit
Agreement, dated April 17, 1998 (Incorporated by
reference to Exhibit 10.1 in the Registrant's Form 10-Q
Report for the quarterly period ended September 30, 1998,
and filed with the Securities and Exchange Commission on
November 13, 1998)
10.6 -- Second Amendment and Waiver, dated March 15, 1999, to the
Credit Agreement, dated April 17, 1998 (Incorporated by
reference to Exhibit 10.7 in the Registrant's Form 10-K
Report for the fiscal year ended December 31, 1998, and
filed with the Securities and Exchange Commission on
March 19, 1999)
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.7 -- Third Amendment dated June 25, 1999 to the Credit
Agreement dated April 17, 1998 (Incorporated by reference
to Exhibit 10.1 in the Registrant's Form 10-Q Report for
the quarterly period ended June 30, 1999, and filed with
the Securities and Exchange Commission on August 13,
1999)
10.8 -- Purchase and Sale Agreement between Genesis Gas and Oil,
L.L.C. and TBI Production Company, dated October 1, 1997.
(Incorporated by reference to Exhibit 10.6 in the
Registrants' Form 10-K Report for the fiscal year ended
December 31, 1998, and filed with the Securities and
Exchange Commission on March 19, 1999)
Executive Compensation Plans and Arrangements (Exhibits 10.9
through 10.15):
10.9 -- 1989 Stock Option Plan (Incorporated by reference to
Exhibit 10.17 in the Registrant's Form S-1 Registration
Statement dated February 14, 1990, and filed with the
Securities and Exchange Commission on February 13, 1990)
10.10 -- Amended and Restated 1993 Stock Option Plan (Incorporated
by reference to Exhibit 10.4 in the Registrant's Form
10-Q Report for the quarterly period ended June 30, 1999,
and filed with the Securities and Exchange Commission on
August 13, 1999)
10.11* -- 1999 Long Term Incentive Plan effective as of February
17, 1999.
10.12 -- Tom Brown, Inc. KSOP Plan (Incorporated by reference to
Exhibit 10.19 in the Registrant's Form 10-K Report for
the fiscal year ended December 31, 1996, and filed with
the Securities and Exchange Commission on March 27, 1997)
10.13* -- Tom Brown, Inc. 401(k) Retirement Plan effective as of
January 1, 2000.
10.14* -- Sauer Drilling Company Adoption Agreement and Prototype
401(k) Retirement Plan effective as of January 1, 1999.
10.15 -- Second Amendment and Restated Employment Agreement dated
January 1, 1997, between the Registrant and Donald L.
Evans (Incorporated by reference to Exhibit 10.15 in the
Registrant's Form 10-K Report for the fiscal year ended
December 31, 1996, and filed with the Securities and
Exchange Commission on March 27, 1997)
10.16 -- First Amendment to Employment Agreement dated as of July
1, 1998, between the Registrant and Donald L. Evans
(Incorporated by reference to Exhibit 10.3 in the
Registrant's Form 10-Q Report for the quarterly period
ended June 30, 1998, and filed with the Securities and
Exchange Commission on August 10, 1998)
10.17 -- Employment Agreement dated May 3, 1999 between the
Registrant and James D. Lightner (Incorporated by
reference to Exhibit 10.3 in the Registrant's Form 8-K
Report dated July 19, 1999, and filed with the Securities
and Exchange Commission on July 19, 1999)
10.18 -- Severance Agreement dated as of July 1, 1998, together
with a schedule identifying officers of the Registrant
who are parties thereto and the multiple of earnings
payable to each officer upon termination resulting from
certain change in control events. (Incorporated by
reference to Exhibit 10.1 in the Registrant's Form 10-Q
Report for the quarterly period ended June 30, 1998, and
filed with the Securities and Exchange Commission on
August 12, 1998)
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.19* -- Amended Schedule to Severance Agreement filed as Exhibit
No. 10.1 to the Registrant's Form 10-Q Report for the
quarterly period ended June 30, 1998, and filed with the
Securities and Exchange Commission on August 12, 1998
identifying officers and executives of the Registrant who
are parties thereto and the multiple of earnings payable
to each officer or executive upon termination resulting
from certain change in control events
10.20 -- The Registrant's Severance Plan dated as of July 1, 1998
(Incorporated by reference to Exhibit 10.2 in the
Registrant's Form 10-Q Report for the quarterly period
ended June 30, 1998, and filed with the Securities and
Exchange Commission on August 12, 1998)
21.1* -- Subsidiaries of the Registrant
23.1* -- Consent of Arthur Andersen LLP
23.2* -- Consent of Williamson Petroleum Consultants, Inc.
23.3* -- Consent of Ryder Scott Company
27.1* -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
TOM BROWN, INC.
Tom Brown, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), does hereby
certify as follows:
Pursuant to the provisions of the Delaware General Corporation Law, the
Board of Directors and the stockholders of the Corporation adopted an amendment
to the Certificate of Incorporation of the Corporation, which is set forth in
the following resolution in accordance with Section 242 of the Delaware General
Corporation Law, the purpose of which amendment is to increase the number of
authorized shares of Common Stock:
"RESOLVED, That the Certificate of Incorporation of the Corporation be
amended by changing the first sentence of Article Fourth thereof, so
that as amended, the first sentence of Article Fourth shall read as
follows:
FOURTH: The total number of shares of all classes that the
Corporation shall have authority to issue is 57,500,000, of
which 2,500,000 shares shall be Preferred Stock, par value
$.10 per share, and 55,000,000 shares shall be Common Stock,
$.10 par value per share.
Except as specifically amended hereby, all other provisions of Article
Fourth shall remain in full force and effect.
IN WITNESS WHEREOF, Tom Brown, Inc. has caused this Certificate of
Amendment to be signed by Donald L. Evans, its Chairman of the Board of
Directors, and attested by Bruce R. DeBoer, its Secretary, this 25th day of May,
1999.
TOM BROWN, INC.
By: /s/ Donald L. Evans
-------------------------------
Donald L. Evans, Chairman of
the Board of Directors
ATTESTED:
/s/ Bruce R. DeBoer
- --------------------------
Bruce R. DeBoer, Secretary
<PAGE> 1
EXHIBIT 10.11
TOM BROWN, INC.
1999 LONG TERM INCENTIVE PLAN
I. PURPOSE
The purpose of the TOM BROWN, INC. 1999 LONG TERM INCENTIVE PLAN (the
"Plan") is to provide a means through which TOM BROWN, INC., a Delaware
corporation (the "Company"), and its subsidiaries may attract able persons to
serve as directors, consultants, or advisors or to enter the employ of the
Company and its affiliates and to provide a means whereby those individuals upon
whom the responsibilities of the successful administration and management of the
Company and its affiliates rest, and whose present and potential contributions
to the welfare of the Company and its affiliates are of importance, can acquire
and maintain stock ownership, thereby strengthening their concern for the
welfare of the Company and its affiliates. A further purpose of the Plan is to
provide such individuals with additional incentive and reward opportunities
designed to enhance the profitable growth of the Company and its affiliates.
Accordingly, the Plan provides for granting Incentive Stock Options, options
that do not constitute Incentive Stock Options, Restricted Stock Awards,
Performance Awards, and Incentive Awards, or any combination of the foregoing,
as is best suited to the circumstances of the particular Employee, consultant,
advisor, or director as provided herein.
II. DEFINITIONS
The following definitions shall be applicable throughout the Plan
unless specifically modified by any paragraph:
(a) "AFFILIATE" means any corporation, partnership, limited liability
company or partnership, association, trust or other organization which, directly
or indirectly, controls, is controlled by, or is under common control with, the
Company. For purposes of the preceding sentence, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any entity or organization, shall mean the
possession, directly or indirectly, of the power (i) to vote more than 50% of
the securities having ordinary voting power for the election of directors of the
controlled entity or organization, or (ii) to direct or cause the direction of
the management and policies of the controlled entity or organization, whether
through the ownership of voting securities or by contract or otherwise.
(b) "AWARD" means, individually or collectively, any Option, Restricted
Stock Award, Performance Award or Incentive Award.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CODE" means the Internal Revenue Code of 1986, as amended.
Reference in the Plan to any section of the Code shall be deemed to include any
amendments or successor provisions to such section and any regulations under
such section.
<PAGE> 2
(e) "COMMITTEE" means a committee of the Board that is selected by the
Board as provided in Paragraph IV(a).
(f) "COMMON STOCK" means the common stock, par value $0.10 per share,
of the Company, or any security into which such Common Stock may be changed by
reason of any transaction or event of the type described in Paragraph XI.
(g) "COMPANY" means Tom Brown, Inc., a Delaware corporation.
(h) "CONSULTANT" means any person who is not an Employee and who is
providing advisory or consulting services to the Company or any Affiliate.
(i) "DIRECTOR" means an individual elected to the Board by the
stockholders of the Company or by the Board under applicable corporate law who
is serving on the Board on the date the Plan is adopted by the Board or is
elected to the Board after such date.
(j) "EMPLOYEE" means any person (including a Director) in an employment
relationship with the Company or any Affiliate.
(k) "FAIR MARKET VALUE" means, as of any specified date, the mean of
the high and low sales prices of the Common Stock reported on the stock exchange
composite tape on that date, or, if no prices are reported on that date, on the
last preceding date on which such prices of the Common Stock are so reported. In
the event Common Stock is not publicly traded at the time a determination of its
value is required to be made hereunder, the determination of its fair market
value shall be made by the Committee in such manner as it deems appropriate.
(l) "HOLDER" means an Employee, Consultant, or Director who has been
granted an Award.
(m) "IMMEDIATE FAMILY" means, with respect to a Holder, the Holder's
spouse, children, or grandchildren (including adopted and stepchildren and
grandchildren).
(n) "INCENTIVE AWARD" means an Award granted under Paragraph X of the
Plan.
(o) "INCENTIVE AWARD AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Incentive Award.
(p) "INCENTIVE STOCK OPTION" means an incentive stock option within the
meaning of section 422 of the Code.
(q) "1934 ACT" means the Securities Exchange Act of 1934, as amended.
(r) "OPTION" means an Award granted under Paragraph VII of the Plan and
includes both Incentive Stock Options to purchase Common Stock and Options that
do not constitute Incentive Stock Options to purchase Common Stock.
(s) "OPTION AGREEMENT" means a written agreement between the Company
and a Holder with respect to an Option.
2
<PAGE> 3
(t) "PERFORMANCE AWARD" means an Award granted under Paragraph IX of
the Plan.
(u) "PERFORMANCE AWARD AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Performance Award.
(v) "PLAN" means the Tom Brown, Inc. 1999 Long Term Incentive Plan, as
amended from time to time.
(w) "RESTRICTED STOCK AGREEMENT" means a written agreement between the
Company and a Holder with respect to a Restricted Stock Award.
(x) "RESTRICTED STOCK AWARD" means an Award granted under Paragraph
VIII of the Plan.
(y) "RULE 16B-3" means SEC Rule 16b-3 promulgated under the 1934 Act,
as such may be amended from time to time, and any successor rule, regulation or
statute fulfilling the same or a similar function.
(z) "STOCK APPRECIATION RIGHT" shall have the meaning assigned to such
term in Paragraph VII(d) of the Plan.
III. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective upon the date of its adoption by the
Board, provided the Plan is approved by the stockholders of the Company within
twelve months thereafter. Notwithstanding any provision in the Plan, no Option
shall be exercisable and no Award shall vest or become satisfiable prior to such
stockholder approval. No further Awards may be granted under the Plan after ten
years from the date the Plan is adopted by the Board. The Plan shall remain in
effect (at least for the purpose of governing outstanding Awards) until all
Option Awards granted under the Plan have been exercised or expired, all
Restricted Stock Awards granted under the Plan have vested or been forfeited,
and all Performance Awards and Incentive Awards have been satisfied or have
terminated.
IV. ADMINISTRATION
(a) COMPOSITION OF COMMITTEE. The Plan shall be administered by a
committee of, and appointed by, the Board, and such committee shall be comprised
solely of two or more outside Directors (within the meaning of the term "outside
directors" as used in section 162(m) of the Code and applicable interpretive
authority thereunder and within the meaning of "Non-Employee Director" as
defined in Rule 16b-3).
(b) POWERS. Subject to the express provisions of the Plan, the
Committee shall have authority, in its sole discretion, to determine which
Employees, Consultants, or Directors shall receive an Award, the time or times
when such Award shall be made, whether an Incentive Stock Option or nonqualified
Option shall be granted, and the number of shares to be subject to each Option
or Restricted Stock Award, the number of shares subject to or the value of each
Performance Award, and the value of each Incentive Award. In making such
determinations, the Committee shall take into account the nature of the services
rendered by the respective Employees, Consultants, or
3
<PAGE> 4
Directors, their present and potential contribution to the Company's success and
such other factors as the Committee in its sole discretion shall deem relevant.
(c) ADDITIONAL POWERS. The Committee shall have such additional powers
as are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, this shall include the power to construe the
Plan and the respective agreements executed hereunder, to prescribe rules and
regulations relating to the Plan, and to determine the terms, restrictions and
provisions of the agreement relating to each Award, including such terms,
restrictions and provisions as shall be requisite in the judgment of the
Committee to cause designated Options to qualify as Incentive Stock Options, and
to make all other determinations necessary or advisable for administering the
Plan. The Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any agreement relating to an Award in the
manner and to the extent it shall deem expedient to carry it into effect. The
determinations of the Committee on the matters referred to in this Paragraph IV
shall be conclusive.
V. SHARES SUBJECT TO THE PLAN; GRANT OF OPTIONS;
GRANT OF RESTRICTED STOCK AWARDS
(a) SHARES SUBJECT TO THE PLAN AND AWARD LIMITS. Subject to adjustment
in the same manner as provided in Paragraph XI with respect to shares of Common
Stock subject to Options then outstanding, the aggregate number of shares of
Common Stock that may be issued under the Plan shall not exceed 2,000,000
shares. Shares shall be deemed to have been issued under the Plan only to the
extent actually issued and delivered pursuant to an Award. To the extent that an
Award lapses, the rights of its Holder terminate, an Award is paid in cash or an
Award is settled in a manner such that all or some of the shares of Common Stock
covered by the Award are not issued to the Holder, any shares of Common Stock
subject to such Award shall again be available for the grant of an Award under
the Plan. Notwithstanding any provision in the Plan to the contrary, the maximum
number of shares of Common Stock that may be subject to Awards granted to any
one individual during the term of the Plan may not exceed 2,000,000 shares of
Common Stock (subject to adjustment in the same manner as provided in Paragraph
XI with respect to shares of Common Stock subject to Options then outstanding)
and the maximum value of any Performance Award granted to any one individual
during any calendar year may not exceed $500,000. The limitations set forth in
the preceding sentence shall be applied in a manner which will permit
compensation generated under the Plan to constitute "performance-based"
compensation for purposes of section 162(m) of the Code, including, without
limitation, counting against such maximum number of shares, to the extent
required under section 162(m) of the Code and applicable interpretive authority
thereunder, any shares subject to Options that are canceled or repriced.
(b) GRANT OF AWARDS. The Committee may from time to time grant Awards
to one or more Employees, Consultants, or Directors determined by it to be
eligible for participation in the Plan in accordance with the terms of the Plan.
(c) STOCK OFFERED. Subject to the limitations set forth in Paragraph
V(a), the stock to be offered pursuant to the grant of an Award may be
authorized but unissued Common Stock or Common Stock previously issued and
outstanding and reacquired by the Company. Any of such shares which remain
unissued and which are not subject to outstanding Awards at the termination of
the Plan shall cease to be subject to the Plan but, until termination
4
<PAGE> 5
of the Plan, the Company shall at all times make available a sufficient number
of shares to meet the requirements of the Plan.
VI. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
Employees, Consultants, or Directors. An Award may be granted on more than one
occasion to the same person, and, subject to the limitations set forth in the
Plan, such Award may include an Incentive Stock Option, an Option that is not an
Incentive Stock Option, a Restricted Stock Award, a Performance Award, an
Incentive Award, or any combination thereof.
VII. STOCK OPTIONS
(a) OPTION PERIOD. The term of each Option shall be as specified by the
Committee at the date of grant.
(b) LIMITATIONS ON EXERCISE OF OPTION. An Option shall be exercisable
in whole or in such installments and at such times as determined by the
Committee.
(c) SPECIAL LIMITATIONS ON INCENTIVE STOCK OPTIONS. An Incentive Stock
Option may be granted only to an individual who is employed by the Company or
any parent or subsidiary corporation (as defined in section 424 of the Code) at
the time the Option is granted. To the extent that the aggregate Fair Market
Value (determined at the time the respective Incentive Stock Option is granted)
of Common Stock with respect to which Incentive Stock Options granted after 1986
are exercisable for the first time by an individual during any calendar year
under all incentive stock option plans of the Company and its parent and
subsidiary corporations exceeds $100,000, such Incentive Stock Options shall be
treated as Options which do not constitute Incentive Stock Options. The
Committee shall determine, in accordance with applicable provisions of the Code,
Treasury Regulations and other administrative pronouncements, which of a
Holder's Incentive Stock Options will not constitute Incentive Stock Options
because of such limitation and shall notify the Holder of such determination as
soon as practicable after such determination. No Incentive Stock Option shall be
granted to an individual if, at the time the Option is granted, such individual
owns stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company or of its parent or subsidiary corporation,
within the meaning of section 422(b)(6) of the Code, unless (i) at the time such
Option is granted the option price is at least 110% of the Fair Market Value of
the Common Stock subject to the Option and (ii) such Option by its terms is not
exercisable after the expiration of five years from the date of grant. An
Incentive Stock Option shall not be transferable otherwise than by will or the
laws of descent and distribution, and shall be exercisable during the Holder's
lifetime only by such Holder or the Holder's guardian or legal representative.
(d) OPTION AGREEMENT. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code. Each Option Agreement shall specify the effect of
termination of (i) employment, (ii) the consulting or advisory relationship, or
(iii) membership on the Board, as applicable, on the exercisability of the
Option. An Option Agreement
5
<PAGE> 6
may provide for the payment of the option price, in whole or in part, by the
delivery of a number of shares of Common Stock (plus cash if necessary) having a
Fair Market Value equal to such option price. Moreover, an Option Agreement may
provide for a "cashless exercise" of the Option by establishing procedures
satisfactory to the Committee with respect thereto. Further, an Option Agreement
may provide for the surrender of the right to purchase shares under the Option
in return for a payment in cash or shares of Common Stock or a combination of
cash and shares of Common Stock equal in value to the excess of the Fair Market
Value of the shares with respect to which the right to purchase is surrendered
over the option price therefor ("Stock Appreciation Rights"), on such terms and
conditions as the Committee in its sole discretion may prescribe. In the case of
any such Stock Appreciation Right that is granted in connection with an
Incentive Stock Option, such right shall be exercisable only when the Fair
Market Value of the Common Stock exceeds the price specified therefor in the
Option or the portion thereof to be surrendered. Finally, the Committee
(concurrently with the grant of an Option or subsequent to such grant) may, in
its sole discretion, provide in an Option Agreement respecting an Option that,
if the Holder pays the Option exercise price in shares of Common Stock, upon the
date of such payment a new option shall be granted under this Plan or under
another available plan and the number of shares of Common Stock subject to such
new option shall be equal to the number of shares of Common Stock tendered in
payment (plus the number of any shares of Common Stock respecting the exercised
Option retained (not in excess of the minimum required) to satisfy any tax
withholding obligations); provided that such new option shall not be exercisable
in any event after the original term of the exercised Option. The terms and
conditions of the respective Option Agreements need not be identical.
(e) OPTION PRICE AND PAYMENT. The price at which a share of Common
Stock may be purchased upon exercise of an Option shall be determined by the
Committee but, subject to adjustment as provided in Paragraph XI shall not be
less than the Fair Market Value of a share of Common Stock on the date such
Option is granted. The Option or portion thereof may be exercised by delivery of
an irrevocable notice of exercise to the Company, as specified by the Committee.
The purchase price of the Option or portion thereof shall be paid in full in the
manner prescribed by the Committee. Separate stock certificates shall be issued
by the Company for those shares acquired pursuant to the exercise of an
Incentive Stock Option and for those shares acquired pursuant to the exercise of
any Option that does not constitute an Incentive Stock Option.
(f) STOCKHOLDER RIGHTS AND PRIVILEGES. The Holder shall be entitled to
all the privileges and rights of a stockholder only with respect to such shares
of Common Stock as have been purchased under the Option and for which
certificates of stock have been registered in the Holder's name.
(g) OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY
OTHER CORPORATIONS. Options and Stock Appreciation Rights may be granted under
the Plan from time to time in substitution for stock options held by individuals
employed by corporations who become Employees as a result of a merger or
consolidation or other business combination of the employing corporation with
the Company or any subsidiary.
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VIII. RESTRICTED STOCK AWARDS
(a) FORFEITURE RESTRICTIONS TO BE ESTABLISHED BY THE COMMITTEE. Shares
of Common Stock that are the subject of a Restricted Stock Award shall be
subject to restrictions on disposition by the Holder and an obligation of the
Holder to forfeit and surrender the shares to the Company under certain
circumstances (the "Forfeiture Restrictions"). The Forfeiture Restrictions shall
be determined by the Committee in its sole discretion, and the Committee may
provide that the Forfeiture Restrictions shall lapse upon (i) the attainment of
one or more performance measures established by the Committee that are based on
(1) the price of a share of Common Stock, (2) the Company's earnings per share,
(3) the Company's market share, (4) the market share of a business unit of the
Company designated by the Committee, (5) the Company's sales, (6) the sales of a
business unit of the Company designated by the Committee, (7) the net income
(before or after taxes) of the Company or any business unit of the Company
designated by the Committee, (8) the cash flow return on investment of the
Company or any business unit of the Company designated by the Committee, (9) the
earnings before or after interest, taxes, depreciation, and/or amortization of
the Company or any business unit of the Company designated by the Committee,
(10) the economic value added, or (11) the return on stockholders' equity
achieved by the Company, (ii) the Holder's continued employment with the Company
for a specified period of time, (iii) the occurrence of any event or the
satisfaction of any other condition specified by the Committee in its sole
discretion, or (iv) a combination of any of the foregoing. The performance
measures may be subject to adjustment for specified significant extraordinary
items or events, and may be absolute, relative to one or more other companies,
or relative to one or more indexes, and may be contingent upon future
performance of the Company or any subsidiary, division, or department thereof by
or in which the Holder is employed during the performance period. Each
Restricted Stock Award may have different Forfeiture Restrictions, in the sole
discretion of the Committee.
(b) OTHER TERMS AND CONDITIONS. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. The Holder shall have the
right to receive dividends with respect to Common Stock subject to a Restricted
Stock Award, to vote Common Stock subject thereto and to enjoy all other
stockholder rights, except that (i) the Holder shall not be entitled to delivery
of the stock certificate until the Forfeiture Restrictions have expired, (ii)
the Company shall retain custody of the stock until the Forfeiture Restrictions
have expired, (iii) the Holder may not sell, transfer, pledge, exchange,
hypothecate or otherwise dispose of the stock until the Forfeiture Restrictions
have expired, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Agreement shall cause a forfeiture of
the Restricted Stock Award. At the time of such Award, the Committee may, in its
sole discretion, prescribe additional terms, conditions or restrictions relating
to Restricted Stock Awards, including, but not limited to, rules pertaining to
the termination of employment or service as a Consultant or Director (by
retirement, disability, death or otherwise) of a Holder prior to expiration of
the Forfeitures Restrictions. Such additional terms, conditions or restrictions
shall be set forth in a Restricted Stock Agreement made in conjunction with the
Award.
(c) PAYMENT FOR RESTRICTED STOCK. The Committee shall determine the
amount and form of any payment for Common Stock received pursuant to a
Restricted Stock Award, provided that in the absence of such a determination, a
Holder shall not be required to make any payment for Common Stock received
pursuant to a Restricted Stock Award, except to the extent otherwise required by
law.
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(d) COMMITTEE'S DISCRETION TO ACCELERATE VESTING OF RESTRICTED STOCK
AWARDS. The Committee may, in its discretion and as of a date determined by the
Committee, fully vest any or all Common Stock awarded to a Holder pursuant to a
Restricted Stock Award and, upon such vesting, all restrictions applicable to
such Restricted Stock Award shall terminate as of such date. Any action by the
Committee pursuant to this Subparagraph may vary among individual Holders and
may vary among the Restricted Stock Awards held by any individual Holder.
Notwithstanding the preceding provisions of this Subparagraph, the Committee may
not take any action described in this Subparagraph with respect to a Restricted
Stock Award that has been granted to a "covered Employee" (within the meaning of
Treasury Regulation section 1.162-27(c)(2)) if such Award has been designed to
meet the exception for performance-based compensation under section 162(m) of
the Code.
(e) RESTRICTED STOCK AGREEMENTS. At the time any Award is made under
this Paragraph VIII, the Company and the Holder shall enter into a Restricted
Stock Agreement setting forth each of the matters contemplated hereby and such
other matters as the Committee may determine to be appropriate. The terms and
provisions of the respective Restricted Stock Agreements need not be identical.
IX. PERFORMANCE AWARDS
(a) PERFORMANCE PERIOD. The Committee shall establish, with respect to
and at the time of each Performance Award, the number of shares of Common Stock
subject to, or the maximum value of, the Performance Award and the performance
period over which the performance applicable to the Performance Award shall be
measured.
(b) PERFORMANCE MEASURES. A Performance Award shall be awarded to a
Holder contingent upon future performance of the Company or any subsidiary,
division, or department thereof by or in which such Holder is employed during
the performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance period;
provided such measures may be made subject to adjustment for specified
significant extraordinary items or events. The performance measures may be
absolute, relative to one or more other companies, or relative to one or more
indexes. The performance measures established by the Committee may be based upon
(i) the price of a share of Common Stock, (ii) the Company's earnings per share,
(iii) the Company's market share, (iv) the market share of a business unit of
the Company designated by the Committee, (v) the Company's sales, (vi) the sales
of a business unit of the Company designated by the Committee, (vii) the net
income (before or after taxes) of the Company or any business unit of the
Company designated by the Committee, (viii) the cash flow return on investment
of the Company or any business unit of the Company designated by the Committee,
(ix) the earnings before or after interest, taxes, depreciation, and/or
amortization of the Company or any business unit of the Company designated by
the Committee, (x) the economic value added, (xi) the return on stockholders'
equity achieved by the Company, or (xii) a combination of any of the foregoing.
The Committee, in its sole discretion, may provide for an adjustable Performance
Award value based upon the level of achievement of performance measures.
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(c) AWARDS CRITERIA. In determining the value of Performance Awards,
the Committee shall take into account a Holder's responsibility level,
performance, potential, other Awards, and such other considerations as it deems
appropriate. The Committee, in its sole discretion, may provide for a reduction
in the value of a Holder's Performance Award during the performance period.
(d) PAYMENT. Following the end of the performance period, the Holder of
a Performance Award shall be entitled to receive payment of an amount not
exceeding the number of shares of Common Stock subject to or the maximum value
of the Performance Award, based on the achievement of the performance measures
for such performance period, as determined by the Committee. Payment of a
Performance Award may be made in cash, Common Stock, or a combination thereof,
as determined by the Committee. Payment shall be made in a lump sum or in
installments as prescribed by the Committee. If a Performance Award covering
shares of Common Stock is to be paid in cash, such payment shall be based on the
Fair Market Value of the Common Stock on the payment date.
(e) TERMINATION OF AWARD. A Performance Award shall terminate if the
Holder does not remain continuously in the employ or in service as a Consultant
or Director of the Company at all times during the applicable performance
period, except as may be determined by the Committee.
(f) PERFORMANCE AWARD AGREEMENTS. At the time any Award is made under
this Paragraph IX, the Company and the Holder shall enter into a Performance
Award Agreement setting forth each of the matters contemplated hereby, and such
additional matters as the Committee may determine to be appropriate. The terms
and provisions of the respective Performance Award Agreements need not be
identical.
X. INCENTIVE AWARDS
(a) INCENTIVE AWARDS. Incentive Awards are rights to receive shares of
Common Stock (or the Fair Market Value thereof), or rights to receive an amount
equal to any appreciation or increase in the Fair Market Value of Common Stock
over a specified period of time, which vest over a period of time as established
by the Committee, without satisfaction of any performance criteria or
objectives. The Committee may, in its discretion, require payment or other
conditions of the Holder respecting any Incentive Award.
(b) AWARD PERIOD. The Committee shall establish, with respect to and at
the time of each Incentive Award, a period over which the Award shall vest with
respect to the Holder.
(c) AWARDS CRITERIA. In determining the value of Incentive Awards, the
Committee shall take into account a Holder's responsibility level, performance,
potential, other Awards, and such other considerations as it deems appropriate.
(d) PAYMENT. Following the end of the vesting period for an Incentive
Award (or at such other time as the applicable Incentive Award Agreement may
provide), the Holder of an Incentive Award shall be entitled to receive payment
of an amount, not exceeding the maximum value of the Incentive Award, based on
the then vested value of the Award. Payment of an Incentive Award may
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<PAGE> 10
be made in cash, Common Stock, or a combination thereof as determined by the
Committee. Payment shall be made in a lump sum or in installments as prescribed
by the Committee. Any payment to be made in cash shall be based on the Fair
Market Value of the Common Stock on the payment date. Cash dividend equivalents
may be paid during or after the vesting period with respect to an Incentive
Award, as determined by the Committee.
(e) TERMINATION OF AWARD. An Incentive Award shall terminate if the
Holder does not remain continuously in the employ or in service as a Consultant
or Director of the Company at all times during the applicable vesting period,
except as may be otherwise determined by the Committee.
(f) INCENTIVE AWARD AGREEMENTS. At the time any Award is made under
this Paragraph X, the Company and the Holder shall enter into an Incentive Award
Agreement setting forth each of the matters contemplated hereby, and such
additional matters as the Committee may determine to be appropriate. The terms
and provisions of the respective Incentive Award Agreements need not be
identical
XI. RECAPITALIZATION OR REORGANIZATION
(a) NO EFFECT ON RIGHT OR POWER. The existence of the Plan and the
Awards granted hereunder shall not affect in any way the right or power of the
Board or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's or any
subsidiary's capital structure or its business, any merger or consolidation of
the Company or any subsidiary, any issue of debt or equity securities ahead of
or affecting Common Stock or the rights thereof, the dissolution or liquidation
of the Company or any subsidiary or any sale, lease, exchange or other
disposition of all or any part of its assets or business or any other corporate
act or proceeding.
(b) SUBDIVISION OR CONSOLIDATION OF SHARES; STOCK DIVIDENDS. The shares
with respect to which Awards may be granted are shares of Common Stock as
presently constituted, but if, and whenever, prior to the expiration of an Award
theretofore granted, the Company shall effect a subdivision or consolidation of
shares of Common Stock or the payment of a stock dividend on Common Stock
without receipt of consideration by the Company, the number of shares of Common
Stock with respect to which such Award may thereafter be exercised or satisfied,
as applicable (i) in the event of an increase in the number of outstanding
shares shall be proportionately increased, and the purchase price per share
shall be proportionately reduced, and (ii) in the event of a reduction in the
number of outstanding shares shall be proportionately reduced, and the purchase
price per share shall be proportionately increased. Any factional share
resulting from such adjustment shall be rounded down to the next whole share.
(c) RECAPITALIZATIONS AND CORPORATE CHANGES. If the Company
recapitalizes, reclassifies its capital stock, or otherwise changes its capital
structure (a "recapitalization"), the number and class of shares of Common Stock
covered by an Award theretofore granted shall be adjusted so that such Award
shall thereafter cover the number and class of shares of stock and securities to
which the Holder would have been entitled pursuant to the terms of the
recapitalization
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if, immediately prior to the recapitalization, the Holder had been the holder of
record of the number of shares of Common Stock then covered by such Award. If
(i) the Company shall not be the surviving entity in any merger or consolidation
(or survives only as a subsidiary of an entity), (ii) the Company sells, leases
or exchanges or agrees to sell, lease or exchange all or substantially all of
its assets to any other person or entity, (iii) the Company is to be dissolved
and liquidated, (iv) any person or entity, including a "group" as contemplated
by Section 13(d)(3) of the 1934 Act, acquires or gains ownership or control
(including, without limitation, power to vote) of more than 50% of the
outstanding shares of the Company's voting stock (based upon voting power), or
(v) as a result of or in connection with a contested election of Directors, the
persons who were Directors of the Company before such election shall cease to
constitute a majority of the Board (each such event is referred to herein as a
"Corporate Change"), no later than (x) ten days after the approval by the
stockholders of the Company of such merger, consolidation, reorganization, sale,
lease or exchange of assets or dissolution or such election of Directors or (y)
thirty days after a Corporate Change of the type described in clause (iv), the
Committee, acting in its sole discretion without the consent or approval of any
Holder, shall effect one or more of the following alternatives, which
alternatives may vary among individual Holders and which may vary among Options
held by any individual Holder: (1) accelerate the time at which Options then
outstanding may be exercised so that such Options may be exercised in full for a
limited period of time on or before a specified date (before or after such
Corporate Change) fixed by the Committee, after which specified date all
unexercised Options and all rights of Holders thereunder shall terminate, (2)
require the mandatory surrender to the Company by selected Holders of some or
all of the outstanding Options held by such Holders (irrespective of whether
such Options are then exercisable under the provisions of the Plan) as of a
date, before or after such Corporate Change, specified by the Committee, in
which event the Committee shall thereupon cancel such Options and the Company
shall pay (or cause to be paid) to each Holder an amount of cash per share equal
to the excess, if any, of the amount calculated in Subparagraph (d) below (the
"Change of Control Value") of the shares subject to such Option over the
exercise price(s) under such Options for such shares, (3) make such adjustments
to Options then outstanding as the Committee deems appropriate to reflect such
Corporate Change (provided, however, that the Committee may determine in its
sole discretion that no adjustment is necessary to Options then outstanding), or
(4) provide that the number and class of shares of Common Stock covered by an
Option theretofore granted shall be adjusted so that such Option shall
thereafter cover the number and class of shares of stock or other securities or
property (including, without limitation, cash) to which the Holder would have
been entitled pursuant to the terms of the agreement of merger, consolidation or
sale of assets and dissolution if, immediately prior to such merger,
consolidation or sale of assets and dissolution, the Holder had been the holder
of record of the number of shares of Common Stock then covered by such Option.
(d) CHANGE OF CONTROL VALUE. For the purposes of clause (2) in
Subparagraph (c) above, the "Change of Control Value" shall equal the amount
determined in clause (i), (ii) or (iii), whichever is applicable, as follows:
(i) the per share price offered to stockholders of the Company in any such
merger, consolidation, sale of assets or dissolution transaction, (ii) the price
per share offered to stockholders of the Company in any tender offer or exchange
offer whereby a Corporate Change takes place, or (iii) if such Corporate Change
occurs other than pursuant to a tender or exchange offer, the Fair Market Value
per share of the shares into which such Options being surrendered are
exercisable, as determined by the Committee as of the date determined by the
Committee to be the date of cancellation and surrender of such Options. In the
event that the consideration offered to
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stockholders of the Company in any transaction described in this Subparagraph
(d) or Subparagraph (c) above consists of anything other than cash, the
Committee shall determine the fair cash equivalent of the portion of the
consideration offered which is other than cash.
(e) OTHER CHANGES IN THE COMMON STOCK. In the event of changes in the
outstanding Common Stock by reason of recapitalizations, reorganizations,
mergers, consolidations, combinations, split-ups, split-offs, spin-offs,
exchanges or other relevant changes in capitalization or distributions to the
holders of Common Stock occurring after the date of the grant of any Award and
not otherwise provided for by this Paragraph XI, such Award and any agreement
evidencing such Award shall be subject to adjustment by the Committee at its
sole discretion as to the number and price of shares of Common Stock or other
consideration subject to such Award. In the event of any such change in the
outstanding Common Stock or distribution to the holders of Common Stock, the
aggregate number of shares available under the Plan and the maximum number of
shares that may be subject to Awards granted to any one individual may be
appropriately adjusted by the Committee, whose determination shall be
conclusive.
(f) STOCKHOLDER ACTION. Any adjustment provided for in the above
Subparagraphs shall be subject to any required stockholder action.
(g) NO ADJUSTMENTS UNLESS OTHERWISE PROVIDED. Except as hereinbefore
expressly provided, the issuance by the Company of shares of stock of any class
or securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor, or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, and in any case whether or not
for fair value, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of shares of Common Stock subject to Awards
theretofore granted or the purchase price per share, if applicable.
XII AMENDMENT AND TERMINATION OF THE PLAN
Subject to the last sentence of Paragraph III, the Board in its
discretion may terminate the Plan at any time. The Board shall have the right to
alter or amend the Plan or any part thereof from time to time; provided that no
change in any Award theretofore granted may be made which would impair the
rights of the Holder without the consent of the Holder, and provided, further,
that the Board may not, without approval of the stockholders, amend the Plan to
(a) increase the maximum aggregate number of shares that may be issued under the
Plan or (b) change the class of individuals eligible to receive Awards under the
Plan.
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XIII MISCELLANEOUS
(a) NO RIGHT TO AN AWARD. Neither the adoption of the Plan nor any
action of the Board or of the Committee shall be deemed to give an Employee,
Consultant, or Director any right to be granted an Option, a right to a
Restricted Stock Award, a right to a Performance Award or a right to an
Incentive Award, or any other rights hereunder except as may be evidenced by an
Award agreement duly executed on behalf of the Company, and then only to the
extent and on the terms and conditions expressly set forth therein. The Plan
shall be unfunded. The Company shall not be required to establish any special or
separate fund or to make any other segregation of funds or assets to assure the
performance of its obligations under any Award.
(b) NO EMPLOYMENT/MEMBERSHIP RIGHTS CONFERRED. Nothing contained in the
Plan shall (i) confer upon any Employee or Consultant any right with respect to
continuation of employment or of a consulting or advisory relationship with the
Company or any subsidiary or (ii) interfere in any way with the right of the
Company or any subsidiary to terminate his or her employment or consulting or
advisory relationship at any time. Nothing contained in the Plan shall confer
upon any Director any right with respect to continuation of membership on the
Board.
(c) OTHER LAWS; WITHHOLDING. The Company shall not be obligated to
issue any Common Stock pursuant to any Award granted under the Plan at any time
when the shares covered by such Award have not been registered under the
Securities Act of 1933, as amended, and such other state and federal laws, rules
and regulations as the Company or the Committee deems applicable and, in the
opinion of legal counsel for the Company, there is no exemption from the
registration requirements of such laws, rules and regulations available for the
issuance and sale of such shares. No fractional shares of Common Stock shall be
delivered, nor shall any cash in lieu of fractional shares be paid. The Company
shall have the right to deduct in connection with all Awards any taxes required
by law to be withheld and to require any payments required to enable it to
satisfy its withholding obligations.
(d) NO RESTRICTION ON CORPORATE ACTION. Nothing contained in the Plan
shall be construed to prevent the Company or any subsidiary from taking any
corporate action which is deemed by the Company or such subsidiary to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No Employee,
Consultant, Director, beneficiary or other person shall have any claim against
the Company or any subsidiary as a result of any such action.
(e) RESTRICTIONS ON TRANSFER. An Award (other than an Incentive Stock
Option, which shall be subject to the transfer restrictions set forth in
Paragraph VII(c)) shall not be transferable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a qualified domestic
relations order as defined by the Code or Title I of the Employee Retirement
Income Security Act of 1974, as amended, or the rules thereunder, (iii) with
respect to Option Awards other than Incentive Stock Options, if such transfer is
permitted in the sole discretion of the Committee, by transfer by a Holder to a
member of the Holder's Immediate Family, to a trust solely for the benefit of
the Holder and the Holder's Immediate Family, or to a partnership or limited
liability company whose only partners or shareholders are the Holder and members
of the Holder's Immediate Family, with the consent of the Committee, or (iv)
with the consent of the Committee.
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(f) SECTION 162(m). It is intended that the Plan comply fully with and
meet all the requirements of section 162(m) of the Code so that Options and
Performance Awards granted hereunder and, if determined by the Committee,
Restricted Stock Awards shall constitute "performance-based" compensation within
the meaning of such section. If any provision of the Plan would disqualify the
Plan or would not otherwise permit the Plan to comply with section 162(m) as so
intended, such provision shall be construed or deemed amended to conform to the
requirements or provisions of section 162(m); provided that no such construction
or amendment shall have an adverse effect on the economic value to a Holder of
any Award previously granted hereunder.
(g) GOVERNING LAW. THE PLAN SHALL BE CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF DELAWARE.
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EXHIBIT 10.13
TOM BROWN, INC. 401(k) RETIREMENT PLAN
The TOM BROWN, INC. 401(k) Retirement Plan ("this Plan") is adopted as of
January 1, 2000, by TOM BROWN, INC., a corporation.
TOM BROWN, INC. provides its employees a means to accumulate voluntary savings
for their retirement years; and
This Plan is adopted to provide:
1. Name of Plan; Effective Date.
This Plan is known as the TOM BROWN, INC. 401(k) Retirement Plan. This Plan is
effective as of January 1, 2000 and is a restatement of the TOM BROWN, INC. KSOP
effective January 1, 1996.
2. Definitions.
In this Plan:
2.1 "Anniversary Date" is the last day of a Plan Year.
2.2 "Code" is the Internal Revenue Code of 1986, as amended, and its
Regulations.
2.3 "Committee" is the Committee in Section 14.
2.4 "Company" is TOM BROWN, INC.. Any corporation a member of a
controlled group of corporations with TOM BROWN, INC. or an affiliate
may also sponsor this Plan if such corporation is designated by TOM
BROWN, INC. as a sponsoring employer and such corporation agrees to this
Plan.
2.5 "Compensation" is all of each Participant's W-2 earnings, but
excluding taxable fringe benefits (such as car allowances and moving
expenses). Compensation includes only that Compensation actually paid to
the Participant during the Plan Year.
Notwithstanding the above, Compensation includes any amount contributed
by TOM BROWN, INC. to a salary reduction agreement not includible in the
gross income of the Employee by Code Section 125, Code Section 401(k),
Code Section 402(e)(3), Code Section 402(h) or Code Section 403(b).
The annual Compensation of each Participant does not exceed $150,000, as
adjusted for increases in the cost of living in Code Section
401(a)(17)(B). The cost-of-living adjustment in effect for a calendar
year applies to any period, not exceeding 12 months, for which
compensation is determined (determination period) beginning in such
calendar year. If a determination period is less than 12 months,
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TOM BROWN, INC. 401(k) Retirement Plan Page 1 of 41
<PAGE> 2
the annual compensation limit is multiplied by a fraction, the numerator
of which is the number of months in the determination period, and the
denominator of which is 12.
2.6 "Computation Period" is the 12-consecutive month period beginning
with the Employee's Employment Beginning Date (or, if applicable, his
Re-Employment Beginning Date) and the succeeding 12-consecutive month
periods beginning on the anniversaries of that beginning date.
2.7 "Disability" is a Participant's physical or mental condition from
bodily injury, disease or mental disorder that renders him incapable of
continuing any gainful occupation and constitutes total disability by a
medically determinable physical or mental impairment expected to result
in death or to be of long, continued and indefinite duration. A licensed
physician chosen by the Committee determines a Participant's disability.
2.8 "Employee" is any person employed by TOM BROWN, INC. or a sponsoring
employer. Employee also includes any Leased Employee deemed to be an
Employee by Code Section 414(n) or Code Section 414(o) but only to the
extent necessary to meet the requirements of Code Section 414(n)(3).
"Employee" excludes:
A. Individuals hired on a temporary basis and not expected to
complete at least 1,000 Hours of Service during the applicable
Computation Period;
B. Individuals whose employment is governed by a collective
bargaining agreement between TOM BROWN, INC. and employee
representatives by which retirement benefits were the subject of
good faith bargaining; and
C. Non-resident aliens who receive no earned income (in Code
Section 911(d)(2)) from TOM BROWN, INC. constituting income from
sources within the United States (in Code Section 861(a)(3)).
2.9 "Employment Beginning Date" is the date the Employee first performs
an Hour of Service for TOM BROWN, INC.. "Re-Employment Beginning Date"
is the date an Employee who was previously employed by the Employer but
whose employment terminated from a One-Year Break in Service first
completes an Hour of Service for TOM BROWN, INC. after the last
applicable Computation Period he incurred a One-Year Break in Service.
2.10 "Fund" or "Funds" is the investment fund or funds established and
maintained by the Trustee for this Plan by subsection 8.1.
2.11 "Highly Compensated Employee" is any Employee who (A) was a 5%
owner (in Code Section 416(I)(1)) of TOM BROWN, INC. at any time during
the current or the preceding Plan Year, or (B) for the preceding Plan
Year,
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TOM BROWN, INC. 401(k) Retirement Plan Page 2 of 41
<PAGE> 3
A. had Compensation in excess of $80,000 (as adjusted by the
Secretary by Code Section 415(d), with a base period of the
calendar quarter ending September 30, 1996), and
B. if TOM BROWN, INC. elects, was in the top-paid group of
Employees for such preceding year. An Employee is in the top-paid
group of Employees for any year if such Employee is in the group
of the top 20% of the Employees when ranked on the basis of
Compensation paid during such year.
A former employee is treated as a highly compensated employee if:
(A) such Employee was a highly compensated employee when such
Employee separated from Service, or (B) such Employee was a
highly compensated employee at any time after age 55.
The determination of who is a highly compensated employee,
including the determinations of the number and identity of
Employees in the top-paid group, is made by Code Section 414(q).
For this subsection, the term "Compensation" means compensation
in Code Section 415(c)(3).
2.12 "Hour of Service" is each hour an Employee is directly or
indirectly paid, or entitled to payment, by TOM BROWN, INC. for the
performance of duties (credited for the computation period in which the
duties were performed), each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by TOM BROWN, INC.
(credited for the computation period to which the award or agreement
pertains), and each hour for which an Employee is directly or indirectly
paid, or entitled to payment, by TOM BROWN, INC. for reasons (such as
vacation, sickness, disability, holidays, paid layoff and similar paid
periods of nonworking time) other than the performance of duties
(credited for the computation period in which such period of nonworking
time first occurs). For an Employee who is absent from work for any
period for -
A. the pregnancy of the Employee;
B. the birth of a child of the Employee;
C. for the placement of a child with the Employee for the
adoption of such child by such Employee, or
D. for the caring for such child for a period beginning
immediately following such birth or placement,
solely to determine whether a One-Year Break in Service occurs,
such Employee is credited with the Hours of Service which
otherwise is credited to such Employee but for such absence.
If the Plan Administrator is unable to determine the Hours of
Service for such
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TOM BROWN, INC. 401(k) Retirement Plan Page 3 of 41
<PAGE> 4
an absence, the Employee is credited with 8 Hours of Service for
each normal workday of such absence.
No credit for Hours of Service are granted for an absence
described in this subsection if the Employee does not timely
provide information required by the Plan Administrator to
reasonably establish whether the Employee was absent from work
for a reason in this subsection and to establish the number of
days for which there was such an absence.
Hours of Service credited by this subsection are credited only in
the Plan Year in which the absence from work begins (if the
Employee is prevented from incurring a One-Year Break in Service
in such year solely because the Employee is credited with Hours
of Service by this subsection), or in any other case, in the
immediately following Plan Year.
No more than 501 Hours of Service are credited to an Employee for
any single continuous period the Employee performs no duties. In
addition, the rules in Labor Reg ss. 2530.200b-2(b) and Labor Reg
ss. 2530.200b-2(c) apply to determine Hours of Service.
An Hour of Service for any member of a controlled group of
corporations or any member of an affiliated service group (Code
Section 414(b), Code Section 414(m) or Code Section 414(o)) of
which TOM BROWN, INC. is a member, or for an unincorporated trade
or business in common control with TOM BROWN, INC. (in Code
Section 414(c)) or any other entity required to be aggregated
with TOM BROWN, INC. by Code Section 414(o) are credited as an
Hour of Service with TOM BROWN, INC..
2.13 "Income" is the income allocable to "excess contributions" or
"excess aggregate contributions" in subsection 7.2 below, for the Plan
Year in which such excess contribution is made. The amount of income
attributable to such excess contributions is determined by the Committee
in a reasonable and consistent manner. Income does not include income
allocable to excess contributions for the Plan Year the excess
contribution is returned to the Participant.
2.14 "Non-Highly Compensated Employee" is an Employee who is not a
Highly Compensated Employee.
2.15 "Normal Retirement Age" is age 65.
2.16 "One-Year Break in Service" is a Computation Period in which the
Employee completes 500 or less Hours of Service.
2.17 "Participating Employee" and "Participant" is any Employee of Tom
Brown, Inc. eligible to participate in TOM BROWN, INC. contributions.
"Beneficiary" is a person who becomes eligible to participate and for
whom an account is maintained by the Trustee, but who ceases to be an
Employee of TOM BROWN, INC., or a person entitled to benefits in this
Plan as beneficiary of a deceased Participating
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TOM BROWN, INC. 401(k) Retirement Plan Page 4 of 41
<PAGE> 5
Employee or as beneficiary of a deceased Beneficiary.
2.18 "this Plan" is the TOM BROWN, INC. 401(k) Retirement Plan, as
amended.
2.19 "Plan Year" is the calendar year.
2.20 "Pooled Investment Account" is an account established by an
administrative services agreement between TOM BROWN, INC. and Trustee.
2.21 "Qualified Non-Elective Contribution" is TOM BROWN, INC.'S
contributions made by subsection 7.2. Such contributions are a Salary
Reduction Contribution and are used to satisfy the "Actual Deferral
Percentage" tests. In addition, TOM BROWN, INC.'S contributions made for
subsection 7.2 used to satisfy the "Actual Contribution Percentage"
tests are Qualified Non-Elective Contributions and subject to subsection
5.1A. and Section 6.
2.22 "Service" is employment with TOM BROWN, INC. including leaves of
absence authorized by TOM BROWN, INC. (such as a temporary absence
authorized by TOM BROWN, INC. for vacation, sickness, injury,
disability, layoff, or jury duty) and service in the armed forces of the
United States, beginning while he is an Employee, if he returns to the
employment of TOM BROWN, INC. at the end of such authorized absence, or
within the applicable period specified in the Military Selective Service
Act of 1967, and its amendments, after release from such service with
the armed forces.
In calculating the number of a Participant's Vesting Years of Service
and length of participation in this Plan, such period of absence or
service with the armed forces subsequent to becoming a Participant, are
counted. However, no Contributions are made during such periods of
absence or service with the armed forces. TOM BROWN, INC.'S leave of
absence policy is applied in a uniform and non-discriminatory manner for
all Participants in similar circumstances.
Any period of Service as a sole proprietor or partner of a predecessor
business organization prior to becoming an Employee is taken into
consideration as Service for this Plan.
2.23 "Trust" is the TOM BROWN, INC. 401(k) Retirement Plan Trust entered
into between TOM BROWN, INC. and the Trustee.
2.24 "Trustee" is the Trustee or Trustees appointed from time to time by
TOM BROWN, INC. to accept contributions, administer the assets of the
Trust, and otherwise to act by this Plan and the Trust.
2.25 "Valuation Date" is any day that the New York Stock Exchange is
open for business or any other date chosen by the Committee.
2.26 "Vesting Year of Service" is the completion of at least 1,000 Hours
of Service
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TOM BROWN, INC. 401(k) Retirement Plan Page 5 of 41
<PAGE> 6
during the applicable Computation Period.
An individual's entire Service is counted in computing his Vesting Years
of Service even if the individual is not in a class of employees
qualifying such individual as an "Employee" in subsection 2.9.
To determine a Participant's vested interest at his resumption of
Service after a One-Year Break in Service, a Vesting Year of Service is
determined the same as a Vesting Year of Service for Participants with
no prior Service, except the applicable Computation Period for measuring
his Vesting Years of Service following such break begins on the
Participant's Re-Employment Beginning Date instead of on his Employment
Beginning Date.
2.27 Number; Gender. Where necessary or appropriate, the singular
includes the plural, the plural includes the singular, the masculine
includes the feminine and neuter, the feminine includes the masculine
and neuter, and the neuter includes the masculine and feminine.
3. Purpose.
This Plan is created to enable eligible TOM BROWN, INC. Employees to defer a
portion of their compensation until retirement and to potentially share in any
TOM BROWN, INC. discretionary contributions. Except by Section 26. below, no
part of the principal or income of this Plan is paid to or reinvested in TOM
BROWN, INC., or used for any purpose other than the exclusive benefit of such
Employees and their Beneficiaries.
All discretionary acts taken by TOM BROWN, INC., Plan Administrator or Committee
are uniform in their nature and application to all persons similarly situated,
and no discretionary acts are taken which are discriminatory by the Code or the
Employee Retirement Income Security Act of 1974, for employees' profit-sharing
trusts, as amended.
4. Plan Entry Requirements.
Each Employee of TOM BROWN, INC. shall enter the Plan and become a Participant
immediately upon employment. An Employee who meets the entry requirements may
elect not to participate in this Plan by giving TOM BROWN, INC. written notice
of his or her election not to be included as a Participant. Such election
remains in effect until the Employee gives TOM BROWN, INC. written notice of his
or her election to become a Participant.
An Employee who meet the eligibility requirements but who has incurs a One-Year
Break in Service is eligible to re-enter this Plan on the first day of the
calendar month after his return. If an Employee who is not a member of an
eligible class of employees becomes a member of an eligible class, such employee
participates immediately if such Employee satisfies the minimum age requirement
and would have otherwise previously become a Participant.
If a temporary employee who was not expected to complete 1,000 Hours of Service
in a
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TOM BROWN, INC. 401(k) Retirement Plan Page 6 of 41
<PAGE> 7
Computation Period actually completes 1,000 Hours of Service during an
applicable Computation Period, he is deemed an Employee in an eligible class as
of the first day of the applicable Computation Period in which he first
completes 1,000 Hours of Service (or, if later, his attainment of age 18). If
the eligibility of any person to participate in the Plan is disputed, the
decision of the Committee for such eligibility is controlling. To enable the
Committee to make such determination, all information available to TOM BROWN,
INC. required by the Committee shall be made available to the Committee.
5. Contributions.
Subject to subsections 5.3 and 5.4 below, contributions to this Plan are made as
follows:
5.1 Salary Reduction Contributions. Each Participant may elect to enter
into a salary reduction agreement with TOM BROWN, INC. to accept a
reduction in salary from TOM BROWN, INC. (such reduction not to be less
than 2% nor greater than 15% of the Participant's Compensation for any
Plan Year).
For such agreement, TOM BROWN, INC. makes a salary reduction
contribution to the Participant's Salary Reduction Contribution Account
for the Participant for such Plan Year in an amount equal to the total
amount by which the Participant's Compensation from TOM BROWN, INC. is
reduced during the Plan Year by the salary reduction agreement. TOM
BROWN, INC. Contributions for a given Plan Year for salary reduction
agreements are deposited with the Trustee within a reasonable amount of
time, not more than 90 days after the date such funds are withheld from
the Participant's salary.
Salary reduction contributions are governed by the following:
A. Amounts credited to a Participant's Salary Reduction
Account are 100% vested and nonforfeitable at all times.
B. Amounts credited to a Participant's Salary Reduction
Account are considered a contribution made by TOM BROWN, INC. for
subsections 8.8, 8.9 and 19.2.
C. A salary reduction agreement may provide for a reduction
in salary by means of reducing the Participant's payroll on a
periodic basis or the agreement may provide for lump sum
reductions for any compensation payments in such amounts that do
not cause the limitations of Section 7. and subsections 8.8, or
8.9 to be exceeded.
D. A salary reduction agreement for reductions to a
Participant's periodic payroll may be cancelled at any time by a
Participant by giving TOM BROWN, INC. a written notice,
specifying the effective date of the cancellation. A Participant
may change the rate of his salary reduction at such times, and
with such frequency, as determined by the Committee.
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TOM BROWN, INC. 401(k) Retirement Plan Page 7 of 41
<PAGE> 8
E. TOM BROWN, INC. may refrain from making contributions to
this Plan, for the salary reduction agreement entered into by the
Participant, if TOM BROWN, INC. determines that such action is
necessary to insure that the Participant's annual additions for
any Plan Year do not exceed the limitations of subsections 8.8 or
8.9, or to insure that the Actual Deferral Percentage Test in
Section 7. is met for such Plan Year. TOM BROWN, INC. may pay to
the Participant the amount that otherwise would have been paid
prior to the Participant's election to reduce his salary, rather
than as a contribution made for a salary reduction agreement.
F. The maximum salary reduction is $7,000 (or such higher
amount in Code Section 402(g)) by all plans maintained by TOM
BROWN, INC. for any Employee's taxable year.
5.2 Matching Company Contributions. During the Plan Year, TOM BROWN,
INC. contributes on behalf of each Participant who enters into a salary
reduction agreement, any discretionary "periodic" TOM BROWN, INC.
Matching Contribution is announced by the TOM BROWN, INC. Board.
The periodic TOM BROWN, INC. Matching Contribution, if any, is
determined by TOM BROWN, INC. and announced to all Participants. The
resolution sets forth the amount of the periodic TOM BROWN, INC.
Matching Contribution expressed as a percentage of the amount of each
Participant's Salary Reduction Contribution. Further, the resolution may
limit the amount of a Participant's Salary Reduction Contribution
eligible for a periodic TOM BROWN, INC. Matching Contribution, by
limiting the Salary Reduction Contribution expressed as a fixed dollar
amount or as a percentage of the Participant's Compensation. The
periodic TOM BROWN, INC. Matching Contribution is deposited for each
deposit of Salary Reduction Contributions at the end of each quarter.
In addition, TOM BROWN, INC. may contribute to the Plan on behalf of
each Participant who is eligible to share in "year-end" TOM BROWN, INC.
Matching Contributions, a discretionary year-end TOM BROWN, INC.
Matching Contribution. The TOM BROWN, INC. Matching Contribution is
expressed as a fixed dollar amount or as a percentage of the amount of
each Participant's Salary Reduction Contribution. Further, the
resolution may limit the amount of a Participant's Salary Reduction
Contribution eligible for the year-end TOM BROWN, INC. Matching
Contribution, by limiting the Salary Reduction Contribution expressed as
a fixed dollar amount or as a percentage of the Participant's
Compensation.
5.3 Discretionary TOM BROWN, INC. Contributions. By the time for filing
its federal income tax return (including extensions thereof) for its
current taxable year and for each succeeding taxable year, TOM BROWN,
INC. may contribute to this Plan, as its contribution for the Plan Year
ending within or co-terminous with such taxable year of TOM BROWN, INC.,
to be held in trust, administered and distributed by the terms of this
Plan, an amount or amounts TOM BROWN, INC., in its sole discretion
determines. TOM BROWN, INC. may contribute such amount or amounts at any
time;
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TOM BROWN, INC. 401(k) Retirement Plan Page 8 of 41
<PAGE> 9
and it may make such contribution in 2 or more installments.
TOM BROWN, INC. determines and communicates to the Trustee for each Plan
Year either (i) the amount in dollars to be contributed for such year,
or (ii) a formula by which such amount may be determined. These
contributions are totally in TOM BROWN, INC.'s discretion as to amount,
timing and form, and they need not be limited to TOM BROWN, INC.'s
profits. Nothing in this Plan entitles any Trustee, Participating
Employee or Beneficiary to inquire into or demand the right to inspect
TOM BROWN, INC.'s books or records.
5.4 Rollover Contributions. An Employee, whether or not he would
otherwise be a Participant in the Plan, may contribute a "Rollover
Contribution" to this Plan by delivery of such contribution to the
Trustee if such Employee submits a written certification that such
contribution qualifies as a Rollover Contribution.
For this subsection 5.3 or 5.4, for an amount to qualify for
contribution by an Employee as a Rollover Contribution, it must:
A. represent a distribution to such Employee from a plan
qualified by Code Section 401, and not paid to him:
(1) as a required minimum distribution by Code Section
401(a)(9), or
(2) as one of a series of substantially equal periodic
payments made on the life expectancy of the Employee (or
joint life expectancy of the Employee and a designated
beneficiary) or over a specified period of 10 years or
more; or
B. represent the balance to his credit of a conduit
Individual Retirement Account or similar account or annuity,
unless such balance is derived in any part from a previous
rollover of a partial qualified plan contribution; and (in either
the case of compliance with subparagraph A. above or this
subparagraph B.); and
C. be contributed to this Plan within 60 days following
distribution of such amount to the Employee.
An amount does not qualify as a Rollover Contribution if it
includes any amount which the Employee contributed to a Code
Section 401 plan.
A Rollover Contribution is considered as a part of the account of
the contributing Employee in this Plan, is fully vested and
nonforfeitable, and is accounted for separately from TOM BROWN,
INC. contributions.
A Participant may also arrange for the direct transfer of his
benefit from a Code Section 401 plan to this Plan. For accounting
and record keeping, transfer contributions are identical to
Rollover Contributions.
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TOM BROWN, INC. 401(k) Retirement Plan Page 9 of 41
<PAGE> 10
Contributions, benefits and service credit for qualified military
service are provided by Code Section 414(u).
60 Withdrawals.
6.1 Age 59-1/2. A Participant age 59-1/2 may withdraw all or any portion
of his Salary Reduction Contribution Account and/or his Rollover Account
by notifying the Committee of his election to make such a withdrawal.
Further, a Participant age 59-1/2 and satisfying the requirements for
full 100% vesting may withdraw all or any portion of his
Matching TOM BROWN, INC. Contribution Account and/or his] TOM BROWN,
INC. Discretionary Contribution Account by notifying the Committee of
his election to make such a withdrawal. Distribution may be made to the
electing Participant, but only if the spousal consent in subsection 10.6
is satisfied.
6.2 Hardship. If a Participant not more than age 59-1/2 has a serious
financial hardship, such Participant may withdraw a portion of his
Salary Reduction Contribution Account and/or Rollover Account. Hardship
distributions are made from the Salary Reduction Contribution Account,
if available, and then from the Rollover Account. Whether a serious
financial hardship exists is based on all relevant facts and
circumstances. A need is not disqualified because it was reasonably
foreseeable or voluntarily incurred. Withdrawal by this subsection 6.2
is authorized only if the distribution is for:
A. Medical expenses in Code Section 213(d) incurred by the
Participant, his spouse, or any of his dependents (in Code
Section 152);
B. The purchase (excluding mortgage payments) of a principal
residence for the Participant;
C. Payment of tuition and related educational fees for the
next 12 months of post-secondary education for the Participant,
his spouse, children, or dependents; or
D. The need to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of the
Participant's principal residence.
6.3 Conditions for Hardship Distribution. No distribution is made by
subsection 6.2 unless the Committee, based upon the Participant's
representation and other facts known to the Committee, determines that
the following conditions are satisfied:
A. The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant; and
B. The Participant has obtained all distributions, other than
hardship
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TOM BROWN, INC. 401(k) Retirement Plan Page 10 of 41
<PAGE> 11
distributions, and all nontaxable loans currently available by
TOM BROWN, INC. maintained plans.
6.4 Available Other Resources. No distribution is made by subsection 6.2
unless the Committee determines, based upon all relevant facts and
circumstances, that the amount to be distributed is not in excess of the
amount required to relieve the financial need and that such need cannot
be satisfied from other resources reasonably available to the
Participant. The Participant's resources are deemed to include those
assets of his spouse and minor children that are reasonably available to
the Participant. A distribution may be treated as necessary to satisfy a
financial need if the Committee relies on the Participant's
representation that the need cannot be relieved:
A. Through reimbursement or compensation by insurance or
otherwise;
B. By reasonable liquidation of the Participant's assets, to
the extent such liquidation would not itself cause an immediate
and heavy financial need;
C. By stopping of Salary Reduction Contributions and
voluntary Employee contributions, if available, to this Plan; or
D. By other distributions or loans from this Plan, if
available, or any other qualified retirement plan, or by
borrowing from commercial sources on reasonable commercial terms.
Any Participant who elects a hardship distribution by subsection
6.2 may not enter into a salary reduction agreement for any
Compensation received during the one-year period beginning with
the date of such hardship distribution.
70 Special Nondiscrimination Testing.
7.1 Actual Deferral Percentage Tests. For each Plan Year the Plan shall
satisfy one of the following tests:
A. The "Actual Deferral Percentage" for the Highly
Compensated Employee group is not more than the "Actual Deferral
Percentage" of the Non-Highly Compensated Employee group
multiplied by 1.25, or
B. The excess of the "Actual Deferral Percentage" for the
Highly Compensated Employee group over the "Actual Deferral
Percentage" for the Non-Highly Compensated Employee group is not
more than two percentage points. Additionally, the "Actual
Deferral Percentage" for the Highly Compensated Employee group
does not exceed the "Actual Deferral Percentage" for the
Non-Highly Compensated Employee group multiplied by 2. Code
Section 401(k)(3) and Reg ss. 1.401(k)-1(b) are incorporated
herein by reference.
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TOM BROWN, INC. 401(k) Retirement Plan Page 11 of 41
<PAGE> 12
"Actual Deferral Percentage" means, for the Highly Compensated
Employee group and Non-Highly Compensated Employee group for a
Plan Year, the average of the ratios, calculated separately for
each Participant in such group, of the amount of Salary Reduction
Contributions allocated to each Participant's Salary Reduction
Contribution Account for such Plan Year to such Participant's
Compensation for such Plan Year.
In performing the nondiscrimination testing, the Actual Deferral
Percentage for the Highly Compensated Employee group is
determined for the current Plan Year, and the Actual Deferral
Percentage for the Non-Highly Compensated Employee group is
determined for the current Plan Year. For the first Plan Year (if
this Plan is not a successor plan), the amount taken into account
as the Actual Deferral Percentage for the Non-Highly Compensated
Employee group for the current Plan Year is 3% or, at TOM BROWN,
INC.'S election, the Actual Deferral Percentage for the first
Plan Year. The actual deferral ratio for each Participant and the
"Actual Deferral Percentage" for each group are calculated to the
nearest one-hundredth of one percent.
A Highly Compensated Employee and a Non-Highly Compensated
Employee include any Employee eligible to make a Salary Reduction
Contribution, whether or not such deferral election is made or
suspended.
For this subsection and Code Section 401(a)(4), Code Section
410(b) and Code Section 401(k), if two or more plans which
include cash or deferred arrangements are considered one plan for
Code Section 410(a)(4) or Code Section 410(b) (other than Code
Section 410(b)(2)(A)(ii)), the cash or deferred arrangements
included in such plans are treated as one arrangement. In
addition, two or more cash or deferred arrangements may be
considered as a single arrangement to determine whether or not
such arrangements are treated as one arrangement and as one plan
for this subsection and Code Section 401(a)(4), Code Section
410(b) and Code Section 401(k). Plans may be aggregated by this
subsection only if they have the same plan year.
An employee stock ownership plan in Code Section 4975(e)(7) may
not be combined with this Plan to determine whether the employee
stock ownership plan or this Plan satisfies this subsection, Code
Section 401(a)(4), Code Section 410(b) and Code Section 401(k).
If a Highly Compensated Employee is a Participant in two or more
cash or deferred arrangements of TOM BROWN, INC., all such cash
or deferred arrangements are treated as one cash or deferred
arrangement to determine the actual deferral ratio for such
Highly Compensated Employee. However, if the cash or deferred
arrangements have different Plan Years, this paragraph is applied
by treating all cash or deferred arrangements ending with or
within the same calendar year as a single arrangement.
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TOM BROWN, INC. 401(k) Retirement Plan Page 12 of 41
<PAGE> 13
7.2 Actual Contribution Percentage Tests. For each Plan Year, this Plan
shall satisfy one of the following tests:
A. The "Actual Contribution Percentage" for the Highly
Compensated Employee group is not more than the "Actual
Contribution Percentage" of the Non-Highly Compensated Employee
group multiplied by 1.25, or
B. The excess of the "Actual Contribution Percentage" for the
Highly Compensated Employee group over the "Actual Contribution
Percentage" for the Non-Highly Compensated Employee group is not
more than two percentage points. Additionally, the "Actual
Contribution Percentage" for the Highly Compensated Employee
group does not exceed the "Actual Contribution Percentage" for
the Non-Highly Compensated Employee group multiplied by 2.
However, to prevent the multiple use of the alternative method
(2) described in this subsection and Code Section 401(m)(9)(A),
any Highly Compensated Employee eligible to make Salary Reduction
Contributions or to receive Matching TOM BROWN, INC.
Contributions by this Plan has his actual contribution ratio
reduced by Reg Section 1.401(m)-2. Code Section 401(m) and Reg
Section 1.401(m)-1(b) and Reg Section 1.401(m)-2 are incorporated
here by reference.
"Actual Contribution Percentage" for a Plan Year is, for the
Highly Compensated Employee group and the Non-Highly Compensated
Employee group, the same as Actual Deferral Percentage in
subsection 7.1, but substituting "Matching TOM BROWN, INC.
Contributions" for "Salary Reduction Contributions."
In performing the nondiscrimination testing required by this
subsecton 7.2, the Actual Contribution Percentage for the Highly
Compensated Employee group is determined for the current Plan
Year, and the Actual contribution Percentage for the Non-Highly
Compensated Employee group is determined for the current Plan
Year. For the first Plan Year (if this Plan is not a successor
plan), the amount taken into account as the Actual Contribution
Percentage for the Non-Highly Compensated Employee group for the
prior Plan Year is 3% or, at the Employer's election, the Actual
Contribution Percentage for that first Plan Year.
To determine the "Actual Contribution Percentage" and the amount
of Excess Aggregate Contributions pursuant to subsection 7.2,
only TOM BROWN, INC.
Matching Contributions contributed to this Plan prior to the end
of the succeeding Plan Year are considered.
C. Adjustment to Actual Deferral Percentage Tests. If the
initial allocations of the Salary Reduction Contributions do not
satisfy one of the
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TOM BROWN, INC. 401(k) Retirement Plan Page 13 of 41
<PAGE> 14
tests set forth in subsection 7.1, TOM BROWN, INC. shall correct
for Excess Contributions (i.e., Salary Reduction Contributions in
excess of the limits established by the tests set forth in
subsection 7.1) by either or a combination of the options forth
below:
(3) On or before the 15th day of the 3rd month after
the end of each Plan Year, the Highly Compensated Employee
with the highest Salary Reduction Contributions for that
Plan Year shall have his portion of Excess Contributions
distributed to him until one of the tests set forth in
subsection 7.1 is satisfied, or until his Salary Reduction
Contributions for that Plan Year equal the Salary
Reduction Contributions for that Plan Year of the Highly
Compensated Employee having the second highest Salary
Reduction Contributions for that Plan Year. This process
continues until all Excess Contributions are distributed.
For each Highly Compensated Employee, the amount of Excess
Contributions is equal to the Salary Reduction
Contributions for such Highly Compensated Employee
(determined prior to the application of this paragraph)
minus the amount determined by multiplying the Highly
Compensated Employee's actual deferral ratio (determined
after application of this paragraph) by his Compensation.
However, to determine the amount of Excess Contributions
to be distributed for an affected Highly Compensated
Employee, such amount is reduced by any Salary Reduction
Contributions previously distributed to such affected
Highly Compensated Employee for his taxable year ending
with or within such Plan Year.
If the distribution of Excess Contributions is made, the
test provided in Code Section 401(k)(3) is deemed to be
met regardless of whether the test provided in subsection
7.1, if recalculated after distribution of the Excess
Contributions, satisfies Code Section 401(k)(3). For Code
Section 401(m)(9), if a corrective distribution of Excess
Contributions is made, or a recharacterization occurs, the
Actual Deferral Percentage for Highly Compensated
Employees is deemed to be the largest amount permitted by
Code Section 401(k)(3).
For the distribution of Excess Contributions as described
above, such distribution:
(a) may be postponed but not later than the close
of the succeeding Plan Year;
(b) is adjusted for Income; and
(c) is designated by TOM BROWN, INC. as a
distribution of Excess Contributions (and Income).
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TOM BROWN, INC. 401(k) Retirement Plan Page 14 of 41
<PAGE> 15
D. Within 12 months after the end of the Plan Year, TOM
BROWN, INC. shall make a special Qualified Non-Elective
Contribution for participating Non-Highly Compensated Employees
sufficient to satisfy one of the tests in subsection 7.1. Such
contribution shall be allocated to the Participant's Salary
Reduction Contribution Account of each Non-Highly Compensated
Employee in the same proportion that each participating
Non-Highly Compensated Employee's Compensation for the year bears
to the total Compensation of all participating Non-Highly
Compensated Employees.
E. Safe Harbor Nondiscrimination Rules. Notwithstanding
subsection 7.1, for Plan Years beginning after 1998, the test in
Code Section 401(k)(3) is met if this Plan meets both the Notice
Requirement and the Contribution Requirements. The Notice
Requirement is met if each Employee eligible to participate in
this Plan is, within a reasonable period before any Plan Year,
given written notice of the Employee's rights and obligations by
this Plan. The notice must be sufficiently accurate and
comprehensive to apprise the Employee of such rights and
obligations, and be written in a manner to be understood by the
average Employee eligible to participate.
The Contribution Requirements are met if (i) the Matching
Contribution Requirement is met, or (ii) TOM BROWN, INC. is
required to make a nonelective contribution of at least 3% of an
Employee's Compensation to a defined compensation plan on behalf
of each Non-Highly Compensated Employee who is eligible to
participate in this Plan whether or not such Employee makes a
Salary Reduction Contribution. The Matching Contribution
Requirement is met if TOM BROWN, INC. makes Matching
Contributions for each Non-Highly Compensated Employee equal to
100% of the Salary Reduction Contribution of the Employee to the
extent such Salary Reduction Contributions does not exceed 3% of
the Employee's Compensation, and 50% of the Salary Reduction
Contribution to the extent that such Salary Reduction
Contribution exceeds 3% of Compensation, but does not exceed 5%
of Compensation. The rate of Matching Contributions for Highly
Compensated Employees cannot be greater than the rate of Matching
Contributions for Non-Highly Compensated Employees at any rate of
Salary Reduction Contributions. If the rate of Matching
Contribution is not equal to the percentage required by the
Matching Contribution Requirement, this Plan will nevertheless
meet the Matching Contribution Requirement if the rate of
Matching Contributions does not increase as an Employee's rate of
Salary Reduction Contributions increases, and the aggregate
amount of Matching Contributions at such rate is equal to or
greater than the aggregate amount of Matching Contributions which
would be made if Matching Contributions were made on the basis of
the percentages specified above.
F. Adjustment to Actual Contribution Percentage Tests. If the
"Actual Contribution Percentage" for the Highly Compensated
Employee group exceeds the "Actual Contribution Percentage" for
the Non-Highly Compensated Employee group by subsection 7.2, the
Administrator (on or before the 15th day of the 3rd month
following the end of the Plan Year, but
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TOM BROWN, INC. 401(k) Retirement Plan Page 15 of 41
<PAGE> 16
not later than the close of the following Plan Year) directs the
Trustee to distribute to the Highly Compensated Employee with the
highest Matching TOM BROWN, INC. Contributions for that Plan
Year, his portion of Excess Aggregate Contributions (i.e.,
Matching TOM BROWN, INC. Contributions in excess of the limits
established by the tests in subsection 7.2) and Income allocable
to such contributions or, if forfeitable, forfeit such non-Vested
Excess Aggregate Contributions attributable to Matching TOM
BROWN, INC. Contributions (and Income allocable to such
Forfeitures) until his Matching TOM BROWN, INC. Contributions for
that Plan Year equal the Matching TOM BROWN, INC. Contributions
for that Plan Year of the Highly Compensated Employee having the
second highest Matching TOM BROWN, INC. Contributions for that
Plan Year. This process continues until all Excess Aggregate
Contributions are distributed.
Any distribution and/or Forfeiture of less than the entire amount
of Excess Aggregate Contributions (and Income) is treated as a
pro rata distribution and/or Forfeiture of Excess Aggregate
Contributions and Income. Distribution of Excess Aggregate
Contributions are designated by TOM BROWN, INC. as a distribution
of Excess Aggregate Contributions (and Income). Forfeitures of
Excess Aggregate Contributions are treated by subsection 9.4.
However, no such Forfeiture may be allocated to a Highly
Compensated Employee whose contributions are reduced by this
subparagraph.
Excess Aggregate Contributions are treated as TOM BROWN, INC.
contributions for Code Section 404 and Code Section 415 even if
distributed from this Plan.
For each Highly Compensated Employee, the amount of Excess
Aggregate Contributions is equal to the Matching TOM BROWN, INC.
Contributions made by subsection 5.2 (determined prior to the
application of this paragraph) minus the amount determined by
multiplying the Highly Compensated Employee's actual contribution
ratio (determined after application of this paragraph) by his
Gross Compensation. The actual contribution ratio is rounded to
the nearest one-hundredth of one percent. The amount of Excess
Contribution for any Highly Compensated Employee shall not exceed
the amount of Matching TOM BROWN, INC. Contributions made by
subsection 5.2 for such Highly Compensated Employee for such Plan
Year.
If the distribution of Excess Aggregate Contributions is made,
the test in Code Section 401(m)(2) is deemed to be met regardless
of whether the test in subsection 7.2, if recalculated after
distribution of the Excess Aggregate Contributions, would satisfy
Code Section 401(m)(2). For Code Section 401(m)(9), if a
corrective distribution of Excess Aggregate Contributions is
made, the Actual Contribution Percentage for Highly Compensated
Employees is deemed to be the largest amount permitted by Code
Section 401(m)(2).
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TOM BROWN, INC. 401(k) Retirement Plan Page 16 of 41
<PAGE> 17
G. Safe Harbor Nondiscrimination Rules. This subparagraph
applies for Plan years beginning after 1998.
(4) Salary Reduction Contribution Safe Harbor.
Notwithstanding subsection 7.1, the test in Code Section
401(k)(3) is met if the Plan meets both the Notice
Requirement and the Contribution Requirements.
The Notice Requirement is met if each Employee eligible to
participate in the Plan is, within a reasonable period
before any Plan Year, given written notice of the
Employee's rights and obligations in this Plan. The notice
must be sufficiently accurate and comprehensive to apprise
the Employee of such rights and obligations, and be
written in a manner calculated to be understood by the
average Employee eligible to participate.
The Contribution Requirements are met if (i) the Matching
Contribution Requirement is met or (ii) TOM BROWN, INC. is
required to make a nonelective contribution of at least 3%
of an Employee's Compensation to a defined compensation
plan for each Non-Highly Compensated Employee eligible to
participate in this Plan whether or not such Employee
makes a Salary Reduction Contribution. The Matching
Contribution Requirement is met if TOM BROWN, INC. makes
Matching Contributions for each Non-Highly Compensated
Employee in an amount equal to 100% of the Salary
Reduction Contribution of the Employee to the extent such
Salary Reduction Contributions do not exceed 3% of the
Employee's Compensation, and 50% of the Salary Reduction
Contribution to the extent that such Salary Reduction
Contribution exceeds 3% of Compensation, but does not
exceed 5% of Compensation. The rate of Matching
Contributions for Highly Compensated Employees cannot be
greater than the rate of Matching Contributions for
Non-Highly Compensated Employees at any rate of Salary
Reduction Contributions. If the rate of Matching
Contribution is not equal to the percentage required by
the Matching Contribution Requirement, this Plan will
nevertheless meet the Matching Contribution Requirement if
the rate of Matching Contributions does not increase as an
Employee's rate of Salary Reduction Contributions
increases, and the aggregate amount of Matching
Contributions at such rate is equal to or greater than the
aggregate amount of Matching Contributions which would be
made if Matching Contributions were made on the basis of
such percentages.
(5) Matching TOM BROWN, INC. Contribution Safe Harbor.
Notwithstanding the terms of subsection 7.2, the test in
Code Section 401(m)(2) is met if this Plan meets the
Notice Requirement and the Contribution Requirements
described in subparagraph (1) above, and the Special
Limitation on Matching Contributions.
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TOM BROWN, INC. 401(k) Retirement Plan Page 17 of 41
<PAGE> 18
The Special Limitation on Matching Contributions is met if
(i) Matching Contributions for any Employee may not be
made for an Employee's Salary Reduction Contributions in
excess of 6% of the Employee's Compensation, (ii) the rate
of Employer Matching Contributions does not increase as
the rate of an Employee's Salary Reduction Contributions
increases, and (iii) the Matching Contribution for any
Highly Compensated Employee at any rate of Employee
contribution or rate of Salary Reduction Contribution is
not greater than that for a Non-Highly Compensated
Employee.
8. Selection of Investments; Employee Accounts and Allocation of Benefits.
8.3 Establishment of Investment Funds. For each Plan Year, the Committee
may designate and describe 1 or more investment funds available for the
allocation of Participants' accounts. Subject to Section 13., the
Trustee has the responsibility to decide the allocation of contributions
made to the available Funds. TOM BROWN, INC. may delegate this
responsibility to each Participant in a consistent and nondiscriminatory
manner. If TOM BROWN, INC. so delegates the investment responsibility to
Participants, each Participating Employee has the opportunity to
designate how his account is allocated among the available Funds, by
subsection 8.2.
8.4 Selections. The designation by a Participant of the allocation of
his account among the available investment funds may be made from time
to time, with such frequency and by such procedures as established by
the Committee and applied in a uniform nondiscriminatory manner. Any
such procedure is communicated to the Participants and designed to
permit the Participants to exercise control over the assets in their
respective accounts in Code Section 404(c) of the Employee Retirement
Income Security Act. If and to the extent that a Participant does not
designate an allocation of his account by this subsection 8.2, the
Committee selects a Fund or Funds to which such amount is allocated.
Otherwise, the Committee instructs the Trustee to allocate and invest
the assets of the Trust by the Participant's selections.
If and to the extent that the account of a Participant or Beneficiary is
directed by this subsection 8.2, no person who is otherwise a fiduciary
is liable to the directing Participant or Beneficiary for any particular
loss, for failure to diversify assets, or otherwise in such directed
investment. No investment is directed by a Participant or Beneficiary,
nor made by the Trustee even if so directed, which directly or
indirectly inures to the benefit of TOM BROWN, INC. or which constitutes
a prohibited transaction.
8.5 Separate Records. The Trustee maintains a separate account in the
name of each Participating Employee and each Beneficiary having a share
in the Trust. Separate records are kept of:
A. the portion of each Participating Employee's share or
account from
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TOM BROWN, INC. 401(k) Retirement Plan Page 18 of 41
<PAGE> 19
TOM BROWN, INC. contributions for a salary reduction agreement
(such amounts to be recorded in a "Salary Reduction Contribution
Account");
B. the portion of each Participating Employee's share or account
from Matching TOM BROWN, INC. Contributions intended to
supplement amounts contributed by a salary reduction agreement
(such amount to be recorded in a "Matching TOM BROWN, INC.
Contribution Account");
C. the portion of each Participating Employee's share or
account from TOM BROWN, INC.'s Discretionary Contributions (such
amounts to be recorded in a "TOM BROWN, INC. Discretionary
Contribution Account").
D. the portion of each Participating Employee's share or
account from the Participating Employee's Rollover Contribution
(such amount to be recorded in a "Rollover Contribution
Account").
References to the "share" or "account" of a Participating Employee, the
word "share" or "account" where the context so permits, are deemed to
refer severally to the Salary Reduction Contribution Account,
TOM BROWN, INC. Discretionary Contribution Account, and the Rollover
Contribution Account, each such account being adjusted for income and
expense credited or charged as hereinafter described.
8.6 Allocation of Income and Expenses. As of each Valuation Date, all
income of this Plan for the period since the preceding Valuation Date is
credited to, and all losses and expenses of this Plan for such period
are charged to, the various Accounts maintained by the Trustee for the
Participating Employees and Beneficiaries. Such credits and charges are
made in proportion to the value of the respective Participating Employee
and Beneficiary Accounts as of the preceding Valuation Date (after
recording all credits and charges otherwise made based on Account
balances as of the preceding Valuation Date). Further, the Trustee may
adjust in a nondiscriminatory and consistent manner the credits and
charges otherwise made based on Account balances as of the preceding
Valuation Date to take into account inter-Fund transfers, periodic
contributions for Participants, repayments of Participant loans or
borrowing by Participants, Rollover contributions, or any other
transactions occurring since the preceding Valuation Date.
Any loan extended by the Trustee to a Participant pursuant to Section 11
is deemed, for allocation of income, as an earmarked investment made for
such Participant's benefit. All interest or other earnings attributable
to such loan is allocated and credited exclusively to the account of the
Participant to whom such loan was made.
8.7 Revaluation of Assets. As of each Valuation Date, the Trustee
revalues the various Accounts maintained by the Trustee for the
Participating Employees and Beneficiaries, so that such Employee and
Beneficiary Accounts reflect any increase
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TOM BROWN, INC. 401(k) Retirement Plan Page 19 of 41
<PAGE> 20
or decrease in fair market value of the assets of the Trust as of such
date. Any such increase or decrease in market value is apportioned in
the same manner that income, expenses, and losses are to be apportioned
by the provisions of this Section 8.
8.8 Unit Accounting. Notwithstanding the accounting procedures described
in subsections 8.4 and 8.5, the Committee may, for administrative
purposes, instruct the Trustee to establish unit values for one or more
Funds (or any portion thereof) and maintain the accounts setting forth
each Participant's interest in such Fund (or any portion thereof) in
terms of such units, all by such rules and procedures as the Committee
deems to be fair, equitable and administratively practicable. Any Pooled
Investment Service Agreement so designed and adopted, is incorporated by
reference. If unit accounting is established for any Fund (or any
portion thereof) the value of a Participant's interest in such Fund at
any time is an amount equal to the then value of a unit in such Fund (or
any portion thereof) multiplied by the number of units then credited to
the Participant.
8.9 Allocation of Contributions. There is credited to the Salary
Reduction Contribution Account of each Participant, from TOM BROWN,
INC.'S current contribution, an amount equal to the amount set forth in
the salary reduction agreement in effect with such Participant.
At the end of each quarter, there is credited to the Matching TOM BROWN,
INC. Contribution Account of each Participant who makes Salary Reduction
Contributions, an amount equal to the periodic TOM BROWN, INC. Matching
Contribution.
As of the Anniversary Date ending each Plan Year for which Tom Brown,
Inc. makes a year-end TOM BROWN, INC. Matching Contribution, there is
credited to the Matching TOM BROWN, INC. Contribution Account of each
Participant who entered into a salary reduction agreement for such year.
As of the Anniversary Date ending each Plan Year for which TOM BROWN,
INC. makes a Discretionary contribution, there is credited to the Tom
Brown, Inc. Discretionary Account of each Participating Employee, an
amount which bears the same ratio to the total of TOM BROWN, INC.'s
Profit-Sharing Contribution as such Employee's Compensation for such
year bears to the aggregate of the Compensation of all Participating
Employees for such year.
For a Participating Employee entitled to have credited to his account a
portion of a TOM BROWN, INC. Discretionary contribution for such year
but whose employment is terminated after the close of such year and
before such contribution is made to this Plan and such credit effected,
such credit is effected as though such Employee's employment does not
terminate.
In addition, from time to time there is credited to the Rollover
Contribution Account of each Employee the amounts contributed by him to
this Plan which is a Rollover
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TOM BROWN, INC. 401(k) Retirement Plan Page 20 of 41
<PAGE> 21
Contribution.
8.10 Limitation on Annual Additions. If the Participant does not
participate in, and has never participated in another qualified plan
maintained by TOM BROWN, INC. that has an annual addition as defined in
subparagraph 8.10A., the amount of annual additions credited to the
Participant's account for any limitation year does not exceed the lesser
of the maximum permissible amount or any other limitation contained in
this Plan. If the TOM BROWN, INC. contribution that would otherwise be
contributed or allocated to the Participant's account causes the annual
additions for the limitation year to exceed the maximum permissible
amount, the amount contributed or allocated is reduced so that the
annual additions for the limitation year equal the maximum permissible
amount.
Prior to determining the Participant's actual Compensation for the
limitation year, TOM BROWN, INC. may determine the maximum permissible
amount for a Participant on a reasonable estimate of the Participant's
Compensation for the limitation year, uniformly determined for all
Participants similarly situated. As soon as administratively feasible
after the end of the limitation year, the maximum permissible amount for
the limitation year is determined on the basis of the Participant's
actual Compensation for the limitation year. If as a result of
forfeitures or as a result of exceeding the maximum permissible amount
there is an excess amount, the excess will be disposed of as follows:
A. Any contributions by a salary reduction agreement, to the
extent they reduce the excess amount, are returned to the
Participant;
B. If after the application of subparagraph A. an excess
amount still exists, and the Participant is a Participant in this
Plan at the end of the limitation year, the excess amount in the
Participant's account is used to reduce TOM BROWN, INC.
contributions (including any allocation of forfeitures) for such
Participant in the next limitation year, and each succeeding
limitation year if necessary;
C. If after the application of subparagraph A. an excess
amount still exists, and the Participant is not a Participant in
this Plan at the end of a limitation year, the excess amount is
held unallocated in a suspense account. The suspense account is
applied to reduce TOM BROWN, INC. contributions for all remaining
Participants in the next limitation year, and each succeeding
limitation year if necessary; and
D. If a suspense account is in existence at any time during a
limitation year by this subsection, it does not participate in
the allocation of this Plan's investment gains and losses. If a
suspense account is in existence at any time during a particular
limitation year, all amounts in the suspense account are
allocated and reallocated to Participants' accounts before any
TOM BROWN, INC. or Employee contributions are made to this Plan
for that limitation year. Excess amounts are not distributed to
Participants or former
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TOM BROWN, INC. 401(k) Retirement Plan Page 21 of 41
<PAGE> 22
Participants.
8.11 Combination With Other Plans. This subsection applies if, in
addition to this Plan, the Participant is a Participant in another
qualified defined contribution plan maintained by TOM BROWN, INC., a
welfare benefit fund (in Code Section 419(e)) maintained by TOM BROWN,
INC., or an individual medical account (in Code Section 415(1)(2)),
maintained by TOM BROWN, INC., which provides an annual addition in
subsection 8.10F., during any limitation year.
The annual additions credited to a Participant's account by this Plan
for any such limitation year do not exceed the maximum permissible
amount reduced by the annual additions credited to a Participant's
account by the other plans and welfare benefit funds for the same
limitation year. If the annual additions for the Participant in other
defined contribution plans and welfare benefit funds maintained by TOM
BROWN, INC. are less than the maximum permissible amount and TOM BROWN,
INC. contribution that would otherwise be contributed or allocated to
the Participant's account by this Plan causes the annual additions for
the limitation year to exceed this limitation, the amount contributed or
allocated is reduced so that the annual additions by all such plans and
funds for the limitation year equal the maximum permissible amount. If
the annual additions for the Participant by such other defined
contribution plans and welfare benefit funds in the aggregate are equal
to or greater than the maximum permissible amount, no amount is
contributed or allocated to the Participant's account by this Plan for
the limitation year.
Prior to determining the Participant's actual compensation for the
limitation year, TOM BROWN, INC. may determine the maximum permissible
amount for a Participant as described in subsection 8.8. As soon as is
administratively feasible after the end of the limitation year, the
maximum permissible amount for the limitation year is determined on the
basis of the Participant's actual Compensation for the limitation year.
If forfeitures, or the excess over the maximum permissible amount, cause
a Participant's annual additions in this Plan and such other plans cause
an excess amount for a limitation year, the excess amount is deemed to
consist of the annual additions last allocated, except annual additions
attributable to a welfare benefit fund or individual medical account are
deemed allocated first regardless of the actual allocation date. If an
excess amount is allocated to a Participant on an allocation date of
this Plan which coincides with an allocation date of another plan, the
excess amount attributed to this Plan is the product of:
A. the total excess amount allocated as of such date, times
B. the ratio of (i) the annual additions allocated to the
Participant for the limitation year as of such date by this Plan
to (ii) the total annual additions allocated to the Participant
for the limitation year as of such date by this and all the other
qualified defined contribution plans.
Any excess amount attributed to this Plan is disposed by
subsection 8.8.
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TOM BROWN, INC. 401(k) Retirement Plan Page 22 of 41
<PAGE> 23
For limitation years beginning before 2000, if TOM BROWN, INC.
maintains, or at any time maintained, a qualified defined benefit
plan covering any Participant in this Plan, the sum of the
Participant's defined benefit plan fraction and defined
contribution plan fraction shall not exceed 1.0 in any limitation
year. The annual additions credited to the Participant's account
by this Plan for any limitation year are reduced or limited by
the Trustee in a uniform and nondiscriminatory manner to effect
the foregoing limitation.
8.12 Code Section 415 Definitions.
A. Annual additions are the sum of the following amounts
credited to a Participant's account for the limitation year:
(6) Employer contributions,
(7) Employee contributions, and
(8) forfeitures.
Any excess amount applied by subsections 8.8 or 8.9 in the
limitation year to reduce TOM BROWN, INC. contributions are
considered annual additions for such limitation year.
B. Compensation. A Participant's wages, salaries, and fees
for professional services and other amounts received for personal
services actually rendered in the employment with TOM BROWN, INC.
(including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips and bonuses),
and including any elective deferral (in Code Section 402(g)(3)),
and any amount contributed or deferred by TOM BROWN, INC. at the
election of the Employee and not includible in the gross income
of the Employee by Code Section 125 or Code Section 457, but
excluding the following:
(9) Any distributions from a plan of deferred
compensation;
(10) Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property) held
by the Employee either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture;
(11) Amounts realized from the sale, exchange or other
disposition of stock acquired by a qualified stock option;
and
(12) Other amounts which received special tax benefits, or
contributions made by TOM BROWN, INC. (whether or not by a
salary reduction agreement) towards the purchase of an
annuity described in Code Section 403(b) (whether or not
the amounts are actually excludible from the gross income
of the Employee).
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TOM BROWN, INC. 401(k) Retirement Plan Page 23 of 41
<PAGE> 24
For applying the limitations of this Section, Compensation for a
limitation year is the Compensation actually paid or includible
in gross income during such limitation year.
Notwithstanding the preceding sentence, Compensation for a
Participant in a defined contribution plan who is Disabled is the
Compensation such Participant would have received for the
limitation year if the Participant had been paid at the rate of
Compensation paid immediately before becoming Disabled; such
imputed Compensation for the Disabled Participant may be taken
into account only if the Participant is not a Highly Compensated
Employee and contributions made on behalf of such Participant are
nonforfeitable when made.
C. Defined benefit fraction is a fraction, the numerator of
which is the sum of the Participant's projected annual benefits
by all the defined benefit plans (whether or not terminated)
maintained by TOM BROWN, INC., and the denominator of which is
the lesser of 125% of the dollar limitation determined for the
limitation year by Code Section 415(b) and Code Section 415(d) or
140% of the highest average compensation, including any
adjustments by Code Section 415(b).
D. Defined contribution dollar limitation is $30,000.
E. Defined contribution fraction is a fraction, the numerator
of which is the sum of the annual additions to the Participant's
account by all the defined contribution plans (whether or not
terminated) maintained by TOM BROWN, INC. 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 TOM BROWN, INC., and the annual
additions attributable to all welfare benefit funds (in Code
Section 419(e)), and individual medical accounts (in Code Section
415(1)(2)), maintained by TOM BROWN, INC.), and the denominator
of which is the sum of the maximum aggregate amounts for the
current and all prior limitation Years of Service with TOM BROWN,
INC. (regardless of whether a defined contribution plan was
maintained by TOM BROWN, INC.). The maximum aggregate amount in
any limitation year is the lesser of 125% of the dollar
limitation in Code Section 415(b) and Code Section 415(d) in
effect by Code Section 415(c)(1)(A) or 35% of the Participant's
Compensation for such year.
F. Employer. Subparagraphs 8.8, 8.9 and 8.10 apply to TOM
BROWN, INC., and all members of a controlled group of
corporations (in Code Section 414(b) as modified by Code Section
415(h)), all commonly controlled trades or businesses (in Code
Section 414(c) as modified by Code Section 415(h)) or affiliated
service groups (in Code Section 414(m)) of which TOM BROWN, INC.
is a part, and any other entity required to be aggregated with
TOM
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TOM BROWN, INC. 401(k) Retirement Plan Page 24 of 41
<PAGE> 25
BROWN, INC. by Code Section 414(o).
G. Excess amount is the excess of the Participant's annual
additions for the limitation year over the maximum permissible
amount.
H. Highest average compensation is the average compensation
for the 3 consecutive Years of Service with TOM BROWN, INC. that
produces the highest average.
I. Limitation year is a calendar year, or the 12-consecutive
month period elected by TOM BROWN, INC..
J. Maximum permissible amount. The maximum annual addition
that may be contributed or allocated to a Participant's account
by this Plan for any limitation year shall not exceed the lesser
of:
(13 the defined contribution dollar limitation, or
(14 25% of the Participant's Compensation for the
limitation year.
The Compensation limitation referred to in (2) does not apply to
any contribution for medical benefits (in Code Section 401(h) or
Code Section 419A(f)(2)) otherwise treated as an annual addition
by Code Section 415(l)(1) or Code Section 419A(d)(2).
If a short limitation year is created by an amendment changing
the limitation year to a different 12-consecutive month period,
the maximum permissible amount does not exceed the defined
contribution dollar limitation multiplied by the following
fraction:
Number of months in the short limitation year
---------------------------------------------
12
K. Projected Annual Benefit is the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if
such benefit is expressed in a form other than a straight life
annuity) or qualified joint and survivor annuity to which the
Participant is entitled by this Plan assuming:
(1 the Participant continues employment until Normal
Retirement Age by the Plan (or current age, if later), and
(2 the Participant's Compensation for the current
limitation year and all other relevant factors used to
determine benefits by the Plan remains constant for all
future limitation years.
9. Retirement and Severance.
9.1 Normal Retirement, Etc. When a Participant reaches the Normal
Retirement
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TOM BROWN, INC. 401(k) Retirement Plan Page 25 of 41
<PAGE> 26
Age of 65, such Participant's account is fully vested and
nonforfeitable. If the employment of a Participating Employee terminates
at any time from the death or Disability of such Participating Employee,
such Participant's account is fully vested and nonforfeitable from and
after the date of termination of employment. Payment of benefits by this
Plan to or on behalf of such Participant is made by Section 10.
9.2 Vested Benefits; Termination of Employment. The portion of a
Participating Employee's share in this Plan allocated to the Salary
Reduction Contribution Account and the Rollover Contribution Account is
at all times fully and immediately vested in such Employee. This
portion, together with the vested portion of TOM BROWN, INC.
Discretionary Contribution Account, determined by the schedule set forth
below, depending upon such Participant's Vesting Years of Service
completed to the date of termination of employment is paid to or on
behalf of such Participant as provided by this Plan.
The vesting schedule applicable to a Participant's TOM BROWN, INC.
Discretionary Contribution Account shall be as follows:
Vested
Vesting Years of Service Percentage
Less than 2 years 20%
2 or more, but less than 3 40%
3 or more, but less than 4 60%
4 or more, but less than 5 80%
5 years or more 100%
Any amount not vested by the foregoing vesting schedule constitutes a
Forfeiture as of the date of termination of employment, and applied by
subsection 9.4.
For a terminated Participating Employee who incurs 5 consecutive
One-Year Breaks in Service, Vesting Years of Service after such break
are not taken into account to determine the vested percentage of his
account accrued prior to such 5 consecutive One-Year Breaks in Service.
For a Participating Employee whose interest in this Plan is distributed
on termination of participation and is not repaid by subsection 9.3
below, any Service after the distribution date does not increase the
amount of the Participant's non-forfeitable benefit in this Plan as
computed at the time of distribution. Separate accounts for the
pre-break and post-break portions of such person's interest in this Plan
are maintained, if and to the extent necessary to properly reflect this
subsection.
9.3 Restoration of Vesting Service and Forfeited Amounts. Any amount
forfeited by subsection 9.2 is restored to the credit of a former
Participant who previously terminated employment by:
A. A former Participant resumes employment with TOM BROWN,
INC. and becomes eligible to re-enter the Plan by subsection 9.2
before having
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TOM BROWN, INC. 401(k) Retirement Plan Page 26 of 41
<PAGE> 27
received a distribution from this Plan; or
B. A former Participant who received a distribution from this
Plan resumes employment with TOM BROWN, INC. and becomes eligible
to re-enter this Plan by subsection 9.2 before incurring 5
consecutive One-Year Breaks in Service, and repays to this Plan
the full amount of the distribution previously received
(unadjusted by any later gains or losses). Such repayment must be
made before the Anniversary Date ending the Plan Year within
which the Participant incurs a 5th consecutive One-Year Break in
Service.
If a restoration of previously forfeited amounts occurs because of the
circumstance in subparagraph A., the prior amount of forfeiture is
restored with adjustment for any subsequent gains or losses, as
determined by the Committee. If a restoration of previously forfeited
amounts occurs because of the circumstance described in subparagraph B.,
the prior amount of forfeiture is restored without adjustment for any
subsequent gains or losses. If a Participant terminates employment with
TOM BROWN, INC. at a time when his vested account balance is zero, he is
deemed to receive a distribution of his vested account balance and
treated as a former Participant in subparagraph B. On re-entry into this
Plan, such a Participant has his previously forfeited amount restored
without adjustment for any subsequent gains or losses.
Funds needed in any Plan Year to reinstate the amount previously
forfeited by a re-employed Participant are provided first by Forfeitures
occurring during that Plan Year, and second, if necessary, by TOM BROWN,
INC. by a separate Plan contribution.
If a previously forfeited amount is later restored by this subsection,
upon a subsequent termination of employment, the Participant's vested
interest is determined by the foregoing vesting schedule as if no
previous separation from service occurs.
9.4 Treatment of Forfeitures. The nonvested portion of a Participant's
account by the Plan is a Forfeiture. Any such Forfeiture for a TOM
BROWN, INC. Discretionary Contribution Account is reallocated to the
accounts of those persons who, on the Anniversary Date ending the Plan
Year during which the Forfeiture occurs are eligible to participate in
TOM BROWN, INC. Discretionary contributions for such Plan Year, and is
allocated as TOM BROWN, INC. Discretionary contributions to this Plan
are allocated by subsection 8.7.
Any such Forfeiture of a Participant's Matching TOM BROWN, INC.
Contribution Account is used to reduce the Company's Matching TOM BROWN,
INC. Contributions to this Plan, and are not used to increase the
benefits of the Participants and Beneficiaries.
10. Distribution of Benefits.
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TOM BROWN, INC. 401(k) Retirement Plan Page 27 of 41
<PAGE> 28
10.1 Normal Form of Payment. The normal form of distribution of benefits
by this Plan to an unmarried Participant who retires or whose employment
with TOM BROWN, INC. is otherwise terminated is a single life annuity.
The normal form of distribution of benefits by this Plan to a married
Participant who retires or whose employment with TOM BROWN, INC. is
otherwise terminated, is a qualified Joint and Survivor Annuity. The
Qualified Joint and Survivor Annuity consists of an immediate annuity
for the life of the Participating Employee, with a survivor annuity for
the life of his or her spouse which is equal to 50% of the amount of the
annuity payable during the joint lives of the Participating Employee and
the spouse, and which is the actuarial equivalent of a single annuity
for the life of the Participating Employee. Payment of the normal form
of benefit begins as of the first day of the month after the
Participant's attainment of Normal Retirement Age, unless subsection
10.5 applies, when case distribution is immediate in the form of a cash
lump sum. Notwithstanding the foregoing, the Participant may elect to
have such annuity distributed as soon as administratively feasible after
termination of employment, if the Participant and the Participant's
spouse consent to the distribution. If there is an effective waiver of
the Qualified Joint and Survivor Annuity form of payment, by subsection
10.6, the amount payable to the Participating Employee (or his or her
Beneficiary) is paid by subsection 10.2.
10.2 Alternative Form of Payment. If there is an effective waiver of the
normal form of payment of benefits by subsection 10.1, a Participant's
benefit is paid in a cash lump sum or any annuity form of payment
available to Participants by subsection 10.2. A Participant who
terminates employment after attaining Normal Retirement Age receives or
begins to receive his benefit within 60 days after the Anniversary Date
after his termination of employment. A Participant who terminates
employment prior to his attaining Normal Retirement Age has the option
to receive, at his or her election, a distribution of his or her entire
benefit to begin as soon as administratively feasible after the
Participant's termination of employment with TOM BROWN, INC..
10.3 Other Rules for Beginning and Duration of Benefits. The entire
interest in this Plan of any Participating Employee must be, or begin to
be, distributed before the required beginning date. For a Participant
who is not a 5% owner, the required beginning date is the April 1 of the
calendar year following the later of (i) the calendar year the
Participant attains age 70-1/2, or (ii) the calendar year the
Participant retires.
The required beginning date for a Participant who is a 5% owner (in Code
Section 416(i)) is April 1 of the calendar year following the calendar
year the Participant attains age 70-1/2.
Benefits are distributed over a period not to exceed the life of the
Participant, the life of the Participant and his designated Beneficiary,
the life expectancy of the Participating Employee, or the joint life
expectancy of the Participating Employee and his designated Beneficiary.
If the Participant's entire interest is to be distributed
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TOM BROWN, INC. 401(k) Retirement Plan Page 28 of 41
<PAGE> 29
in a form other than a lump sum, the amount to be distributed each year
must be at least equal in amount to the quotient obtained by dividing
the Participant's entire interest by the lesser of (i) the applicable
life expectancy (ii) if the Participant's spouse is not the designated
Beneficiary, the applicable divisor from the table set forth in Q&A-4 of
Prop Reg ss. 1.401(a)(9)-2. For this computation, the life expectancy of
the Participant may be recalculated no more frequently than annually,
but the life expectancy of a nonspouse Beneficiary may not be
recalculated. Payments shall not be delayed in violation of Code Section
401(a)(14).
10.4 Death Benefits; Beneficiary Designation; Distribution of Death
Benefits. If a Participant dies, his accrued benefit is paid in full as
soon as practicable to his surviving spouse, as his Beneficiary.
Distribution is made as an immediate single life annuity unless the
surviving spouse otherwise elects to receive payment in the form of a
single cash lump sum. Notwithstanding the foregoing, however, a
Participant may designate a Beneficiary other than the Participant's
spouse if (1) the spouse has waived his or her right to be the
Participant's Beneficiary by this subsection 10.4; or (2) the
Participant has no spouse; or (3) the spouse cannot be located.
The designation of a Beneficiary, other than a spouse, is made on a form
satisfactory to TOM BROWN, INC.. A Participant may at any time revoke
his designation of a Beneficiary or change his Beneficiary by filing
written notice of such revocation or change with TOM BROWN, INC..
However, the Participant's spouse must again consent in writing to any
such change or revocation. Any consent by the Participant's spouse to
waive any rights to the death benefit must be in writing, must
acknowledge the effect of such waiver, and be witnessed by a Plan
representative or a notary public. If no valid designation of
Beneficiary exists at the Participant's death, and the Participant has
no surviving spouse, the death benefit is payable to his estate.
If payments are made to a non-spouse Beneficiary, because of a
Participant's death (or the death of a Participant's spouse), the entire
interest of the Participant is distributed to such Beneficiary within 5
years after such death.
10.5 Small Distributions. Notwithstanding the normal form of payment of
benefits as a Qualified Joint and Survivor Annuity, and the distribution
of death benefits as a single life annuity to the Participating
Employee's surviving spouse, the Trustee makes distribution of the
present value of such annuity (or other benefit available by the Plan)
in cash if the value of such annuity or other benefit does not exceed,
nor has ever exceeded, $5,000.
10.6 Waiver of Form of Benefit; Notification. A Participant may, during
the Applicable Election Period, (i) elect to waive the Qualified Joint
and Survivor Annuity form of benefit, and (ii) elect an alternate
Beneficiary. A Participant may revoke any such election any number of
times within the Applicable Election Period. Such elections do not take
effect unless (i) the spouse of the Participant consents in writing to
such election, and the spouse's consent acknowledges the effect of such
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TOM BROWN, INC. 401(k) Retirement Plan Page 29 of 41
<PAGE> 30
election and is witnessed by a Plan representative or a notary public,
or (ii) it is established to the satisfaction of a Plan representative
that such consent may not be obtained because there is no spouse,
because the spouse cannot be located, or because of such other
circumstances as are prescribed by regulations of the Secretary of
Treasury. Any consent by a spouse (or establishment that the consent of
a spouse may not be obtained) is effective only for such spouse and is
limited to a specific alternate Beneficiary (or a form of benefits)
unless such consent expressly permits designations by the Participant
without any requirement of further consent by the spouse. Without such a
provision, any new waiver or change of Beneficiary requires a new
spousal consent. For this subsection, the term "Applicable Election
Period" is the 90-day period ending on the Annuity Starting Date.
This Plan provides to each Participating Employee a written explanation
of the following:
A. the terms and conditions of the Qualified Joint and
Survivor Annuity;
B. the Participant's right to make, and the effect of, an
election to waive the Qualified Joint and Survivor Annuity form
of benefit;
C. the rights of the Participant's spouse for such election;
and
D. the right to make, and the effect of, a revocation of such
election.
The written explanation of the Qualified Joint and Survivor Annuity is
provided no less than 30 days and no more than 90 days prior to the
Annuity Starting Date. However, the written explanation may be provided
after the Annuity Starting Date. The 90-day applicable election period
to waive the Qualified Joint and Survivor Annuity does not end before
the 30th day after the date such explanation is provided. The Secretary
of the Treasury may, by regulations, limit the period of time by which
the Annuity Starting Date precedes the provision of the written
explanation other than by providing that the Annuity Starting Date may
not be earlier than termination of employment.
A Participant may elect (with any applicable spousal consent) to waive
any requirement that the written explanation be provided at least 30
days before the Annuity Starting Date (or to waive the 30-day
requirement by the above paragraph) if the distribution begins more than
7 days after such explanation is provided.
10.7 Segregated Accounts. Amounts credited to the accounts of
Participants whose employment has terminated or Beneficiaries not paid
out may be held with other assets of this Plan or may be held separately
from the assets held for the benefit of other Participating Employees.
If so segregated, the Trustee invests such segregated accounts in
savings accounts, certificates of deposit, Treasury bills, bonds, or
similar interest-bearing investments, as instructed by the Committee,
regardless of the investment policy adopted for the balance of the Trust
assets. In so doing, the Committee shall not discriminate in favor of
one or some retired Employees or Beneficiaries as against one or some
other retired Employees or
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TOM BROWN, INC. 401(k) Retirement Plan Page 30 of 41
<PAGE> 31
Beneficiaries. Each such payee is credited or charged with appropriate
adjustments for earnings, losses, and revaluations of the segregated
amount being held for his benefit; all such adjustments are made as of
each Anniversary Date as adjustments to other assets of this Plan.
Nothing in this subsection, however, entitles such payee to share in any
TOM BROWN, INC. contributions to this Plan he would not otherwise be
entitled to share by this Plan.
10.8 Location of Participant or Beneficiary Unknown. If all, or any
portion, of the distribution payable to a Participant or his Beneficiary
at the expiration of 5 years after it is payable, remains unpaid solely
for the inability of the Committee, after sending a registered letter,
return receipt requested, to the last known address, and after further
diligent effort, to ascertain the whereabouts of such Participant or his
Beneficiary, the amount so distributable is reallocated in the same
manner as Forfeitures are allocated by subsection 9.4. If a Participant
or Beneficiary is located subsequent to his benefit being reallocated,
such benefit is restored.
10.9 Special Distribution Rules Applicable to Qualified Domestic
Relations Order. If all, or any portion of the amounts credited to the
accounts of a Participant are required to be paid to an alternate payee
by any Qualified Domestic Relations Order ("QDRO"), as that term is
defined in Section 12, the Committee instructs the Trustee to distribute
to such designated alternate payee all amounts required by the QDRO
whether or not the Participant is entitled to a distribution of his
account by virtue of termination of employment or attainment of
retirement age. The alternate payee of the QDRO has the option to
receive, at his or her election, the entire amount required by the QDRO
in the form of a cash lump sum as soon as administratively feasible
after the Committee's receipt and verification of the QDRO.
10.10 Direct Rollovers. A distributee may elect, at the time and in the
manner prescribed by the Committee, to have any portion of an eligible
rollover distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
For this subsection 10.10:
A. Eligible rollover distribution is any distribution of all
or any portion of the balance to the credit of the distributee,
except 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 10 years or more;
any distribution required by Code Section 401(a)(9); and the
portion of any distribution not includible in gross income
(without the exclusion of net unrealized appreciation with
respect to employer securities).
B. Eligible retirement plan is an individual retirement
account in Code Section 408(a), an individual retirement annuity
in Code Section 408(b), an annuity plan in Code Section 403(a),
or a qualified trust in Code Section
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TOM BROWN, INC. 401(k) Retirement Plan Page 31 of 41
<PAGE> 32
401(a), that accepts the distributee's eligible rollover
distribution. However, for an eligible rollover distribution to
the surviving spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
C. 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 by a qualified domestic relations
order, in Code Section 414(p) are distributees for the interest
of the spouse or former spouse.
D. Direct rollover is a payment by this Plan to the eligible
retirement plan specified by the distributee.
11. Loans to Participating Employees.
The Committee, in its discretion, may authorize a loan to a Participant who is a
party in interest, within ERISA ss. 3(14), upon receipt of a written request
from the Participant. The total amount of any such loan (when added to the
outstanding balance of all other loans to the Participant by the Plan or any
other qualified plan of the Employer) cannot exceed the lesser of $50,000 or 50%
of the value of the Participant's vested Account Balance. The $50,000 limitation
is reduced by the excess, if any, of the highest outstanding balance of loans
from the Plan during the one-year period ending on the day before such loan is
made over the outstanding balance of loans from the Plan on the date that such
loan is made.
A Participant can have only one outstanding loan and payments must be made by
payroll deduction.
A request by a Participant for a loan is made in writing to the Committee and
specifies the amount of the loan, and the account(s) of the Participant from
which the loan is to be made. The terms and conditions on which the Committee
approves loans by this Plan are applied on a reasonably equivalent basis for all
Participants. If a Participant's request for a loan is approved by the
Committee, the Committee arranges for the distribution of the specified amount
in a single sum payment of cash to the Participant.
Loans are made on such terms and subject to such limitations as the Committee
prescribes, provided any such loan is evidenced by a written promissory note,
bears a reasonable rate of interest on the unpaid principal, is adequately
secured, and will be repaid by the Participant over a period not to exceed 5
years, unless the loan is for the purpose of acquiring a dwelling unit used or
to be used within a reasonable time as the principal residence of the
Participant. The interest rate charged on a loan must be at least equivalent to
the prevailing interest rate charged by persons in the business of lending money
for loans which would be made by similar circumstances. Loan repayments are
suspended while a Participant is performing service in the Uniformed Services by
Code Section 414(i)(4).
Any loan to a Participant is secured by the pledge of 50% of the Participant's
right, title, and interest in his Account. The pledge will be evidenced by the
execution of a promissory
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TOM BROWN, INC. 401(k) Retirement Plan Page 32 of 41
<PAGE> 33
note by the Participant.
The Committee has the sole responsibility to ensure that a Participant timely
makes all scheduled loan repayments. Repayment is paid to the Trust, and is to
be accompanied by written instructions from the Committee identifying the
Participant on whose behalf the loan repayment is being made. Each loan is
amortized on a substantially level basis, with payments at least quarterly over
the term of the loan. A loan may be prepaid without penalty at any time.
If the Participant's employment with TOM BROWN, INC. terminates or there is a
default by a Participant on a loan repayment, all remaining principal payments
on the loan are immediately due and payable. The Committee is authorized (to the
extent permitted by law) to take any and all actions necessary and appropriate
to enforce collection of an unpaid loan. However, on a default, foreclosure on
the note and attachment of security does not occur until a distributable event
occurs by this Plan. A default is deemed to have occurred if any loan payment is
not made within 90 days of when the payment is due by the Participant.
On a Participant's retirement or death or on a Participant's termination of
employment or earlier distribution, the unpaid balance of any loan, including
any unpaid interest, is deducted from any payment or distribution from this Plan
to which the Participant or his designated Beneficiary are entitled and the
vested interest in the account is correspondingly reduced.
The Committee issues written loan guidelines, which forms part of this Plan,
describing the procedures and conditions for making loans, and may revise the
guidelines at any time, and for any reason.
A Participant must obtain the consent of his or her spouse, if any, to use of
the account balance as security for the loan. Spousal consent shall be obtained
no earlier than the beginning of the 90-day period that ends on the date on
which the loan is to be so secured. The consent must be in writing, must
acknowledge the effect of the loan, and must be witnessed by a plan
representative or notary public. Such consent is binding for the consenting
spouse or any subsequent spouse for that loan. A new consent is required if the
account balance is used for renegotiation, extension, renewal, or other revision
of the loan.
12. Spendthrift Clause.
The rights of a Participant or Beneficiary to receive payments or benefits from
this Plan are not subject to alienation or assignment, and are not subject to
anticipation, encumbrance or claims of creditors. Notwithstanding the foregoing,
this Plan shall pay benefits by the terms of any Qualified Domestic Relations
Order, if such Order (i) does not require this Plan to provide any type or form
of benefits, or any option not otherwise provided, (ii) does not require this
Plan to provide increased benefits, and (iii) does not require the payment of
benefits to an alternate payee required to be paid to another alternate payee by
another order previously determined to be a Qualified Domestic Relations Order.
A "Domestic Relations Order" is any judgment, decree or order (including
approval of a property
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TOM BROWN, INC. 401(k) Retirement Plan Page 33 of 41
<PAGE> 34
settlement agreement) which relates to the provision of child support, alimony
payments, or marital property rights to a spouse, former spouse, child, or other
dependent of a Participant and is made pursuant to a state domestic relations
law. "Qualified Domestic Relations Order" is a Domestic Relations Order which
creates or recognizes the existence of an alternate payee's right to, or assigns
to an alternate payee the right to, receive all or a portion of the benefits
payable with respect to a Participant by this Plan and which clearly specifies
(i) the name and the last known mailing address of the Participant and each
alternate payee covered by the Order, (ii) the amount or percentage of the
Participant's benefits to be paid by this Plan to each such alternate payee, or
the manner in which such amount or percentage is to be determined, (iii) the
number of payments or period to which such Order applies, and (iv) each plan to
which such Order applies. A distribution by the estate of a deceased Participant
or Beneficiary to an heir or legatee of a right to receive payments is not
deemed an alienation, assignment or anticipation for this Section 12.
13. Administration of Plan Trust.
The Committee and TOM BROWN, INC. administer this Plan for the benefit of all
Participating Employees and Beneficiaries, without discrimination in favor of
one or some Participating Employees or Beneficiaries as against one or some
other Participating Employees or Beneficiaries.
Whenever action is required by TOM BROWN, INC. or the Committee, it may be taken
by any individual designated as agent for the purpose. TOM BROWN, INC. or the
Committee notify the Trustee of any change of agent.
14. Administrative Committee.
The Committee is a body appointed by TOM BROWN, INC. and, subject to the terms
of this Plan, has general supervision of the administration of this Plan.
The members of the Committee elect from their number a chairman and appoint a
secretary who need not be a member of the Committee. They may appoint any person
or persons to have such duties in connection with administration of this Plan as
the Committee may from time to time provide. The Committee may appoint from
their number such subcommittees with such powers as the Committee determines,
and may authorize one or more of their number, any person or persons having
duties for administration of this Plan or any agent to execute or deliver any
instrument or make any payment on their behalf, except a request for funds from
or a direction for, the payment or application of funds by the Insurance Company
shall be signed by at least one member of the Committee. The Committee may
retain such legal counsel and accountants, who may or may not be in the employ
of TOM BROWN, INC., actuaries, and such clerical services as it may require in
carrying out this Plan.
The Committee holds meetings upon such notice, at such time or times, and at
such place or places as it may determine. A majority of the members of the
Committee at the time in office constitutes a quorum for the transaction of
business at all meetings. All resolutions or other actions taken by the
Committee are by a vote of a majority of the members, if they act without a
meeting.
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TOM BROWN, INC. 401(k) Retirement Plan Page 34 of 41
<PAGE> 35
The Committee may from time to time establish rules for the administration of
this Plan. Except as otherwise herein expressly provided, the Committee has the
exclusive right to interpret this Plan and to decide any matters arising
hereunder in the administration and operation of this Plan. It shall endeavor to
act by general rules so as not to discriminate in favor of any person.
The members of the Committee are free from all liability, joint or several, for
their acts as members of such Committee, except to the extent that they may have
been guilty of misconduct, or except to the extent otherwise required by the
Employee Retirement Income Security Act of 1974.
The members of the Committee serve without compensation for their services. All
reasonable and necessary costs, expenses and liabilities incurred by the
Committee in the supervision of the administration of this Plan and the Group
contract shall be paid by TOM BROWN, INC. separate and apart from the
Contributions to this Plan.
The Committee and its individual members are indemnified by TOM BROWN, INC. and
not from this Plan against any and all liabilities arising by reason of any act
or failure to act made in good faith pursuant to this Plan, including expenses
reasonably incurred in the defense of any claim.
15. Allocation of Responsibilities.
15.1 Administrative Responsibilities. The Committee is the Named
Fiduciary which has the authority to control and manage the operation
and administration of the Plan. TOM BROWN, INC. shall make such rules,
regulations, interpretations, and shall take such other actions to
administer the Plan as TOM BROWN, INC. may deem appropriate. In
administering the Plan, TOM BROWN, INC. acts in a nondiscriminatory
manner for Plan Participants and Beneficiaries, and at all times
discharges its duties for this Plan by applicable fiduciary standards.
15.2 Management of Plan Assets. TOM BROWN, INC. is the Named Fiduciary
for control and management of this Plan's assets only to the extent that
it (i) appoints one or more Trustees to hold the assets of the Plan in
trust, (ii) appoints one or more Investment Managers for any Plan assets
and enters into an investment management agreement with each Investment
Manager it appoints, and (iii) exercises its authority to direct the
sale, investment or reinvestment of Plan assets. TOM BROWN, INC. is
responsible for diversifying the investments of this Plan only if it
directs investments, and the Trustee and the Investment Managers, if
any, are responsible for diversifying the specific investments in
accounts by their management.
15.3 Trustee and Investment Managers. The Trustee has the exclusive
authority and discretion to control and manage the assets of this Plan,
and is the Named Fiduciary for such control and management, except to
the extent that TOM BROWN,
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TOM BROWN, INC. 401(k) Retirement Plan Page 35 of 41
<PAGE> 36
INC. exercises its authority to direct investment of this Plan's assets,
or the authority to manage such assets is allocated by TOM BROWN, INC.
to one or more Investment Managers. Each Investment Manager appointed by
TOM BROWN, INC. has the authority to manage, including the power to
acquire and dispose of, such assets of this Plan assigned to it by TOM
BROWN, INC..
15.4 Delegation of Fiduciary Responsibilities. Except as otherwise
expressly stated herein, TOM BROWN, INC. does not allocate or delegate
to any other person any of its duties and responsibilities. The duties
and responsibilities of TOM BROWN, INC. are carried out by TOM BROWN,
INC.'S Directors and officers, acting on behalf of and in the name of
TOM BROWN, INC. in their capacities as such, and not as individual
fiduciaries. TOM BROWN, INC. is specifically prohibited from designating
any Director or officer of TOM BROWN, INC. as a fiduciary and from
allocating or delegating to any such person any of the fiduciary
responsibilities of TOM BROWN, INC..
16. Amendments.
TOM BROWN, INC. reserves the right by action of its Board of Directors to amend
this Plan at any time without the consent of the Trustee, but no such amendment
shall cause or permit any portion of the principal or income of the Trust to
revert to or become the property of or be used for the benefit of TOM BROWN,
INC.. Any amendment necessary to bring this Trust into conformity with
government laws or regulations in order to qualify this Plan and Trust for tax
exemption may be made retroactively. No amendment to this Plan may be made which
results in a cutback of vested rights or rights to accrued benefits by Code
Section 411(a)(10)(A) or Code Section 411(d)(6). If the vesting schedule, if
any, in this Plan is amended, each Participant with at least 3 Years of Service
may elect to have his accrued benefit determined by the vesting schedule in
effect prior to the amendment.
17. Termination of Contributions.
TOM BROWN, INC. establishes this Plan intending and expecting to make its
contributions. If TOM BROWN, INC. decides it is impossible or inadvisable to
continue to make its contributions, TOM BROWN, INC. has the right to terminate
its contributions.
If there is a complete termination of contributions by TOM BROWN, INC., with or
without formal action by TOM BROWN, INC., this Plan remains in force until
terminated. Any provision requiring forfeiture of a Participating Employee's
share (the shares of each Participating Employee become fully vested in such
Participant, regardless of the length of his employment or his participation, on
such termination of contributions); and all of the assets in this Plan on the
date specified in such resolutions shall be held, administered by the Committee
and distributed by the Trustee as provided herein.
18. Merger or Consolidation of Plan, Transfer of Plan Assets.
If this Plan is merged or consolidated with, or its assets and liabilities
transferred to any other plan, each Participant and Beneficiary in this Plan is
entitled, after the merger,
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TOM BROWN, INC. 401(k) Retirement Plan Page 36 of 41
<PAGE> 37
consolidation or transfer, to a benefit equal to or greater than the benefit to
which he would have been entitled by this Plan, immediately prior to such
merger, consolidation or transfer, as if the Plan had terminated at such time.
19. Top-Heavy Provisions.
19.1 Determination of Top-Heavy Status. As of each determination date,
the Committee computes the aggregate amounts allocated to the accounts
of all "key employees" of TOM BROWN, INC..
The term "key employee" is any Employee, former Employee, or beneficiary
thereof who, at any time during the Plan Year or any of the 4 preceding
Plan Years, is or was (i) an officer of TOM BROWN, INC. with an annual
Compensation greater than 50% of the dollar limitation then in effect in
Code Section 415(b)(1)(A), (ii) 1 of the 10 Employees having an annual
Compensation greater than the dollar limitation then in effect in Code
Section 415(c)(1)(A) and owning (or considered as owning in Code Section
318) the largest interests in TOM BROWN, INC., (iii) a 5% owner of TOM
BROWN, INC. or (iv) a 1% owner of TOM BROWN, INC. with annual
Compensation from TOM BROWN, INC. in excess of $150,000. To determine
percentage ownership in the foregoing sentence, Code Section
416(i)(1)(B) applies and Code Sections 414(b), 414(c), and Sec. 414(m)
do not apply.
If the aggregate amount allocated to the accounts of all key employees
exceeds 60% of the aggregate amount allocated to the accounts of all
Participants, this Plan is deemed to be top-heavy for the Plan Year next
following such Anniversary Date (and for the initial Plan Year, for the
Plan Year ending with such Anniversary Date). To determine the aggregate
amounts allocated to the accounts of Participants, there is added any
amount of TOM BROWN, INC. contributions required for the Plan Year
ending on the determination date (unless this Plan is not subject to the
minimum funding in Code Section 412). The present value of accrued
benefits is determined by the interest and mortality rates specified in
the defined benefit plan. The account balances attributable to a
Participant who has not performed any services for TOM BROWN, INC. at
any time during the five-year period ending on any determination date
are disregarded. To make the above determination, (i) all other
qualified plans of TOM BROWN, INC. in which a key employee is a
participant, (ii) all other plans which enable this Plan or plans
described in (i) above to meet the requirements of Code Section
401(a)(4) or Code Section 410, and (iii) all other qualified plans which
may have been terminated but which were maintained by the Employer
within the five-year period ending on the determination date. There
shall also be considered any distributions made to any Participant
within a five-year period ending on the determination date.
At the option of the Committee, any other qualified plans maintained by
TOM BROWN, INC. may be included in the group of plans to determine the
top-heavy status of this Plan, if the group of plans continues to meet
the requirements of Code Section 401(a)(4) and Code Section 410 with
such plans as are added at the option of TOM BROWN, INC. being taken
into account. If any plans of TOM BROWN, INC. are
================================================================================
TOM BROWN, INC. 401(k) Retirement Plan Page 37 of 41
<PAGE> 38
aggregated with this Plan as described in the preceding sentence, this
Plan is deemed to be top-heavy only if the aggregate present value of
accrued benefits of key employees in the aggregated group of plans
exceeds 60% of the aggregate present value of accrued benefits of all
employees in the aggregated group of plans. To determine present value
of accrued benefits, the rules of Code Section 416(g) apply. Accrued
benefits are determined by the method used for accrual purposes for all
plans of TOM BROWN, INC., or if there is no such method, by the slowest
accrual rate permitted by Code Section 411(b)(1)(C). The determination
date is the last day of the preceding Plan Year. However, for the first
Plan Year the determination date is the last day of that year.
To determine whether or not an Employee is a key employee,
"Compensation" is compensation in Code Section 415(c)(3), but including
Salary Reduction Contributions to this Plan.
19.2 Minimum Allocations. For each Plan Year that this Plan is
top-heavy, there shall be allocated to the account of each Participant
who is not a key employee and who is employed by TOM BROWN, INC. on the
last day of the Plan Year, irrespective of whether he has completed
1,000 Hours of Service with TOM BROWN, INC. during the Plan Year, an
amount not less than 3% of each such Participant's W-2 Compensation
(without taking into account Social Security and similar contributions
and benefits). If the TOM BROWN, INC. contribution for any Plan Year
(including Salary Reduction Contributions) is less than 3% of the W-2
Compensation of the key employee for whom such contribution percentage
is the highest, the amount allocable to each nonkey employee shall be
such lesser percentage. If TOM BROWN, INC. maintains both a defined
contribution plan and a defined benefit plan with a nonkey employee who
participates, or could participate in both plans, there is allocated to
the account of each Participant who otherwise would be entitled to
receive a minimum allocation as described above an amount not less than
5% of such Participant's W-2 Compensation (but without taking into
account Social Security and similar contributions and benefits). For
this subsection, all defined contribution plans of TOM BROWN, INC. are
aggregated to satisfy the percentage rules if the aggregate contribution
made to all defined contribution plans equals 5% of any nonkey
Participant's W-2 Compensation.
19.3 Effect on Code Section 415 Limitations. If TOM BROWN, INC.
maintains both a defined contribution plan and a defined benefit plan
with a Participant who participates, or could participate, in both
plans, for computing the defined contribution fraction and defined
benefit fraction described in subparagraph 8.J. hereunder, the dollar
limitation of Code Section 415(b)(1)(A) and Code Section 415(c)(1)(A)
are multiplied by 1.0 in lieu of 1.25, unless:
A. the defined contribution plan allocates to the account of
each Participant who is not a key employee not less than 7-1/2%
of each such Participant's W-2 Compensation (without taking into
account Social Security and similar contributions and benefits);
and
================================================================================
TOM BROWN, INC. 401(k) Retirement Plan Page 38 of 41
<PAGE> 39
B. the plan would not be top-heavy if 90% were substituted
for 60% in subparagraph A. above.
20. Expenses of Administration.
The Trustee's compensation is fixed by agreement with TOM BROWN, INC.; however,
no person compensated as an Employee of TOM BROWN, INC. shall be compensated as
Trustee. TOM BROWN, INC. intends to pay, in addition to the contributions
provided for, any expenses of administering the Trust, including the Trustee's
compensation, if any, except that any investment counsel fees incurred by the
Trust, and any expenses directly related to particular transactions involving
purchases or sales of property by the Trust or the production or collection of
income, such as transfer taxes, brokers' commissions, etc., are paid by the
Trustee from the assets of the Trust.
21. Rights of Participants.
Participating in this Plan and Trust does not give any Participant any right to
be retained in the service of TOM BROWN, INC. or any right or claim to any
benefits unless such benefits accrue by this Plan.
22. Claims Procedure.
Claims for benefits by this Plan may be filed with the Committee on forms
supplied by it. Written notice of the disposition of a claim is furnished to the
claimant within 90 days after the application is filed. If the claim is denied,
the reasons for the denial are specifically set forth in the notice in language
calculated to be understood by the claimant, pertinent provisions of the Plan
are cited, and, where appropriate, an explanation as to how the claimant can
perfect the claim is provided. In addition, the claimant is furnished an
explanation of this Plan's claims review procedure, as described below.
Any Employee or Beneficiary denied a benefit is entitled to request the
Committee to give further consideration to his claim by filing with the
Committee (on a form which may be obtained from the Committee) a request for a
hearing. Such request, together with a written statement of the reasons why the
claimant believes his claim should be allowed, shall be filed with the Committee
no later than 60 days after receipt of the written notification furnished by the
Committee for the claim. The Committee shall conduct a hearing within the next
60 days, at which the claimant may be represented by an attorney or any other
representative of his choosing and at which the claimant has an opportunity to
submit written and oral evidence and arguments in support of his claim. At the
hearing (or prior thereto upon 5 business days written notice to the Committee)
the claimant or his representative has an opportunity to review all documents in
the possession of the Committee pertinent to the claim at issue and its
disallowance.
Either the claimant or the Committee may have a court reporter attend the
hearing and record the proceedings. A complete written transcript of the
proceedings shall be furnished to both parties by the court reporter. The full
expense of any such court reporter and such transcripts are borne by the party
causing the court reporter to attend the hearing.
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TOM BROWN, INC. 401(k) Retirement Plan Page 39 of 41
<PAGE> 40
A final decision as to the allowance of the claim shall be made by the Committee
within 60 days of receipt of the appeal (unless there is an extension of 60 days
due to special circumstances, if the delay and the special circumstances
occasioning it are communicated to the claimant within the 60 day period). Such
communication shall be written in a manner calculated to be understood by the
claimant and shall include specific reasons for the decision and specific
references to the pertinent Plan provisions.
23. Construction.
This Plan shall be construed so as to qualify as a tax-free employees'
profit-sharing plan, contributions to which by TOM BROWN, INC. are deductible
from its taxable income.
24. Defense of Plan.
TOM BROWN, INC. has the right to defend the position of this Plan as a qualified
profit-sharing plan, in Code Section 401(a).
25. Governing Law.
This Plan is executed and delivered in the State of Texas and is to be construed
and regulated by the laws of the State of Texas.
26. Mistaken Contributions, Etc.
The assets of this Plan shall not inure to the benefit of TOM BROWN, INC., and
shall be held for the exclusive purposes of providing benefits to Participants
and Beneficiaries and defraying reasonable expenses of administering the Plan.
Notwithstanding the foregoing sentence:
A. If a contribution is made by TOM BROWN, INC. by a mistake
of fact, such contribution may be returned, at the discretion of
TOM BROWN, INC., within 1 year after payment of such
contribution.
B. All contributions to this Plan are conditioned on initial
qualification of this Plan by Code Section 401. If this Plan does
not so qualify for any Plan Year for which a contribution is
made, such contribution may be returned, at the discretion of TOM
BROWN, INC., within 1 year after the date of denial of initial
qualification of this Plan if the application for qualification
is made by the time prescribed by law for filing the Employer's
tax return for the taxable year this Plan is adopted, or such
later date as the Secretary of the Treasury may prescribe.
C. All contributions to this Plan are conditioned upon their
deductibility, for Federal income tax purposes, by Code Section
404. If and to the extent that such deduction is disallowed, TOM
BROWN, INC.'S contribution (to the extent disallowed) may be
returned, at the discretion of TOM BROWN, INC.,
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TOM BROWN, INC. 401(k) Retirement Plan Page 40 of 41
<PAGE> 41
within 1 year after the disallowance of the deduction.
Earnings on such TOM BROWN, INC. contributions are not returned to TOM
BROWN, INC., but losses on such contributions reduce the amount to be
returned. Notwithstanding the foregoing, if this Plan does not initially
qualify by Code Section 401, the entire assets of this Plan may be
returned to TOM BROWN, INC..
27. Plan Administrator; Legal Agent.
The Committee serves as the Plan Administrator and is the legal agent for
service of process on this Plan, to be served at the following address:
TOM BROWN, INC. 401(k) Retirement Plan Committee
c/o TOM BROWN, INC.
508 West Wall, Suite 500
Midland, Texas 79702
This Plan is executed by TOM BROWN, INC. on February , 2000, effective as of
January 1, 2000.
TOM BROWN, INC.
By: ____________________________
B. JACK REED, Vice-President
Human Relations
================================================================================
TOM BROWN, INC. 401(k) Retirement Plan Page 41 of 41
<PAGE> 1
EXHIBIT 10.14
INWEST PENSION MANAGEMENT, INC.
REGIONAL PROTOTYPE
DEFINED CONTRIBUTION PLAN
BASIC PLAN DOCUMENT #02
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. PARTICIPATION....................................................3
1.1 Participation...................................................3
1.2 Years of Service and Break in Service - Participation...........3
1.3 Participation Effective Date....................................4
DEFINITIONS..............................................................5
1.4 Service.........................................................5
1.5 Employee........................................................6
1.6 "Collective Bargaining Agreement................................7
1.7 Employer........................................................7
1.8 "This Plan".....................................................7
SECTION 2. CONTRIBUTIONS....................................................8
2.1 Contributions to this Plan......................................8
2.2 Profit-Sharing and Profit-Sharing 401(k) - Non-Integrated
Contribution Allocation.........................................8
2.3 Permitted disparity.............................................8
2.4 Allocation Limitations.........................................11
2.5 Employee Contributions.........................................14
2.6 Vesting........................................................15
2.7 Top Heavy Allocation...........................................18
2.8 Elective Deferrals.............................................20
2.9 Excess Elective Deferrals......................................20
2.10 Distribution of Excess Elective Deferrals......................20
2.11 Actual Deferral Percentage Test................................20
2.12 Distribution of Excess Contributions...........................22
2.13 Recharacterization.............................................23
2.14 Matching Contributions.........................................23
2.15 Limitations on Employee Contributions and Matching
Contributions..................................................24
2.16 Distribution of Excess Aggregate Contributions.................27
2.17 Qualified Non-Elective Contributions...........................27
2.18 Forfeitures of Excess Aggregate Contributions..................28
2.19 Nonforfeitability and Vesting..................................28
DEFINITIONS.............................................................28
2.20 Compensation...................................................28
2.21 Maximum Annual Additions.......................................33
2.22 Top-Heavy......................................................35
2.23 Elective Deferrals.............................................39
2.24 Contribution Percentage........................................40
</TABLE>
<PAGE> 2
<TABLE>
<S> <C>
SECTION 3. BENEFITS........................................................41
3.1 Benefiting.....................................................41
3.2 Joint and survivor annuity and preretirement survivor
annuity........................................................42
3.3 Restrictions on immediate distributions........................46
3.4 When benefits begin............................................48
3.5 Early retirement benefit.......................................48
3.6 Nontransferability of annuities................................48
3.7 Conflicts with annuity contracts...............................48
3.8 Timing and modes of distribution...............................48
3.9 Direct Rollovers...............................................53
3.10 Life insurance.................................................53
3.11 Loans to Participants..........................................54
3.12 Distribution Requirements......................................56
3.13 Hardship Distribution..........................................57
3.14 Reinstatement of benefit.......................................58
DEFINITIONS.............................................................58
3.15 Joint and Survivor and Pre-retirement Survivor Annuities.......58
3.16 Minimum Distribution...........................................61
3.17 Rollovers......................................................64
SECTION 4. OTHER...........................................................65
4.1 Annual valuation of assets; allocation of trust net earnings
and losses.....................................................65
4.2 Treatment of insurance dividends or credits....................65
4.3 Directed investments...........................................65
4.4 Participating Employer.........................................66
4.5 Amendment by Employer..........................................66
4.6 Plan merger - maintenance of benefits..........................66
4.7 Inalienability of benefits.....................................66
4.8 Exclusive benefit..............................................66
4.9 Failure to qualify.............................................67
4.10 Disqualification of plan.......................................67
4.11 Administrator..................................................67
4.12 Allocation of Responsibility Among Fiduciaries.................70
4.13 Management of Trust............................................71
4.14 Accounting; Distributions......................................73
4.15 Replacement/Removal of Trustee.................................74
4.16 Miscellaneous..................................................75
4.17 Trustee, Named Fiduciary.......................................76
</TABLE>
2
<PAGE> 3
INWEST PENSION MANAGEMENT, INC.
REGIONAL PROTOTYPE
DEFINED CONTRIBUTION PLAN
BASIC PLAN DOCUMENT #02
An EMPLOYER who executes an ADOPTION AGREEMENT, subject to approval by the
TRUSTEE and InWest Pension Management, Inc., creates THIS PLAN for its
EMPLOYEES.
Defined terms are ITALICIZED; definitions are in the ADOPTION AGREEMENT and at
the end of each SECTION.
"Section" and "subsection" refer to the Sections and subsections in THIS PLAN.
THIS PLAN is effective on the EFFECTIVE DATE selected in the ADOPTION AGREEMENT
and is applied on a uniform and consistent basis.
The purpose of THIS PLAN is to provide benefits of a qualified retirement plan
in CODE SECTION 401(a).
SECTION 1. PARTICIPATION
===============================================================================
1.1 PARTICIPATION
An EMPLOYEE who meets the eligibility, minimum age and SERVICE requirements
selected in the ADOPTION AGREEMENT participates in THIS PLAN.
1.2 YEARS OF SERVICE AND BREAK IN SERVICE - PARTICIPATION
To determine YEARS OF SERVICE (see 1.4(c)) and BREAKS IN SERVICE (see 1.4 (d))
for eligibility, the initial eligibility computation period is the
12-consecutive month period beginning on the date the EMPLOYEE first performs an
HOUR OF SERVICE (employment beginning date).
Succeeding 12-consecutive month periods begin with the first PLAN YEAR which
begins on or prior to the first anniversary of the EMPLOYEE'S employment
beginning date regardless of whether the Employee is credited with 1,000 HOURS
OF SERVICE during the initial eligibility computation period.
YEARS OF SERVICE and BREAKS IN SERVICE are measured by the PLAN YEAR.
All YEARS OF SERVICE are counted toward eligibility except the following:
3
<PAGE> 4
(a) If the EMPLOYER elects in the Adoption Agreement, an EMPLOYEE
who has a 1-year BREAK IN SERVICE before satisfying THIS
PLAN'S requirement for eligibility, SERVICE before such break
will not be taken into account, otherwise, for a PARTICIPANT
who does not have any nonforfeitable right to his ACCOUNT
balance derived from EMPLOYER CONTRIBUTIONS, YEARS OF SERVICE
before a period of consecutive 1-year BREAKS IN SERVICE will
not be taken into account in computing eligibility SERVICE if
the number of consecutive 1-year BREAKS IN SERVICE in such
period equals or exceeds the greater of 5 or the aggregate
number of YEARS OF SERVICE. Such aggregate number of YEARS OF
SERVICE will not include any YEARS OF SERVICE disregarded by
the preceding sentence from prior BREAKS IN SERVICE.
(b) A PARTICIPANT whose YEARS OF SERVICE are disregarded by the
preceding paragraph is treated as a new EMPLOYEE for
eligibility purposes. A PARTICIPANT'S YEARS OF SERVICE not
disregarded by the preceding paragraph continues to
participate in THIS PLAN, or, if terminated, participates
immediately upon reemployment.
ELIGIBILITY BREAK IN SERVICE - 1-YEAR HOLDOUT
For any PARTICIPANT who has a 1-year BREAK IN SERVICE, years of eligibility
SERVICE before such break will not be taken into account until the EMPLOYEE
completes a YEAR OF SERVICE after returning to employment.
Such YEAR OF SERVICE is measured by the 12-consecutive month period beginning on
an EMPLOYEE'S reemployment beginning date and, if necessary, subsequent
12-consecutive month periods beginning on anniversaries of the reemployment
beginning date.
Such YEAR OF SERVICE is measured by the 12-consecutive month period beginning on
an EMPLOYEE'S reemployment beginning date and, if necessary, PLAN YEARS
beginning with the PLAN YEAR which includes the first anniversary of the
reemployment beginning date. The reemployment beginning date is the first day on
which the EMPLOYEE is credited with an HOUR OF SERVICE for the performance of
duties after the first eligibility computation period in which the EMPLOYEE
incurs a 1-year BREAK IN SERVICE.
If a PARTICIPANT completes a YEAR OF SERVICE by this provision, his/her
participation is reinstated as of the reemployment beginning date.
1.3 PARTICIPATION EFFECTIVE DATE
If a PARTICIPANT who is not a member of an eligible class of EMPLOYEES and
becomes ineligible to participate but has not incurred a BREAK IN SERVICE, such
EMPLOYEE participates immediately upon returning to an eligible class of
EMPLOYEES. If such PARTICIPANT incurs a BREAK IN SERVICE, eligibility is
determined by the BREAK IN SERVICE rules.
4
<PAGE> 5
If an EMPLOYEE who is not a member of an eligible class of EMPLOYEES becomes a
member of an eligible class, such EMPLOYEE participates immediately if such
EMPLOYEE satisfies the minimum age and SERVICE requirements and would otherwise
previously be a PARTICIPANT.
DEFINITIONS
The following are definitions for this SECTION and THIS PLAN.
1.4 SERVICE
(a) "SERVICE" is employment with the EMPLOYER.
(b) "HOUR OF SERVICE" is:
(1) Each hour for which an EMPLOYEE is paid, or entitled
to payment, for the performance of duties for the
EMPLOYER. These hours are credited to the EMPLOYEE
for the computation period in which the duties are
performed; and
(2) Each hour for which an EMPLOYEE is paid, or entitled
to payment, by the EMPLOYER for a period of time
during which no duties are performed (irrespective of
whether the employment relationship has terminated)
due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military
duty or leave of absence. No more than 501 HOURS OF
SERVICE will be credited under this paragraph for any
single continuous period (whether or not such period
occurs in a single computation period). Hours in this
paragraph will be calculated and credited by Section
2530.200b-2 of the DOL REGULATIONS; and
(3) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to
by the EMPLOYER. The same HOURS OF SERVICE are not
credited both by paragraph (1) or paragraph (2), as
the case may be, and by this paragraph (3). These
hours are credited to the EMPLOYEE for the
computation period or periods to which the award or
agreement pertains rather than the computation period
in which the award, agreement or payment is made.
HOURS OF SERVICE are credited for employment with other members of an affiliated
service group (in CODE SECTION 414(m)), a controlled group of corporations (in
CODE SECTION 414(b)), or a group of trades or businesses under common control
(in CODE SECTION 414(c)) of which the EMPLOYER is a member, and any other entity
required to be aggregated with the EMPLOYER by CODE SECTION 414(o).
HOURS OF SERVICE are also credited for any individual considered an EMPLOYEE by
CODE SECTION 414(n) or 414(o).
5
<PAGE> 6
Solely to determine whether a BREAK IN SERVICE, for participation and vesting
purposes has occurred in a computation period, an individual who is absent from
work for maternity or paternity reasons receives credit for the HOURS OF SERVICE
which would otherwise be credited to such individual but for such absence, or in
any case in which such hours cannot be determined, 8 HOURS OF SERVICE per day of
such absence. For this paragraph, an absence from work for maternity or
paternity reasons means an absence (i) for the pregnancy of the individual, (ii)
for a birth of a child of the individual, (iii) for the placement of a child
with the individual in the adoption of such child by such individual, or (iv)
for caring for such child for a period beginning immediately following such
birth or placement. The HOURS OF SERVICE credited by this paragraph are credited
(v) in the computation period in which the absence begins if the crediting is
necessary to prevent a BREAK IN SERVICE in that period or (vi) in all other
cases, in the following computation period.
(c) "YEAR OF SERVICE" is a PLAN YEAR after the initial eligibility
period (computation period) during which the EMPLOYEE
completes at least 1,000 HOURS OF SERVICE.
(d) "BREAK IN SERVICE" is a PLAN YEAR (computation period) during
which the PARTICIPANT completes less than 501 HOURS OF
SERVICE.
(e) Predecessor Employer Service.
If the EMPLOYER maintains the plan of a predecessor employer,
SERVICE with such employer will be treated as SERVICE for the
EMPLOYER.
1.5 EMPLOYEE
(a) "EMPLOYEE" is any employee of the EMPLOYER or of any other
employer required to be aggregated with the EMPLOYER by CODE
SECTIONS 414(b), (c), (m) or (o).
EMPLOYEE also includes any LEASED EMPLOYEE deemed to be an
employee of any employer in the previous paragraph by CODE
SECTIONS 414(n) or (o).
(b) "LEASED EMPLOYEE" is any person (other than an employee of the
recipient) who by an agreement between the recipient and any
other person ("leasing organization") has performed services
for the recipient (or for the recipient and related persons
determined by CODE SECTION 414(n)(6)) on a substantially full
time basis for a period of at least 1 year, and such services
are performed under primary direction or control by the
recipient. Contributions or benefits provided a LEASED
EMPLOYEE by the leasing organization which are attributable to
services performed for the recipient employer are treated as
provided by the recipient employer.
A LEASED EMPLOYEE is not considered an employee of the
recipient if: (i) such employee is covered by a money purchase
pension plan providing: (1) a
6
<PAGE> 7
nonintegrated employer contribution rate of at least 10% of
compensation, as defined in CODE SECTION 415(c)(3), but
including amounts contributed by a salary reduction agreement
which are excludable from the employee's gross income by CODE
SECTIONS 125, 402(e)(3), 402(h)(1)(B) or 403(b), (2) immediate
participation, and (3) full and immediate vesting; and (ii)
LEASED EMPLOYEES do not constitute more than 20% of the
recipient's nonhighly compensated work force.
1.6 "COLLECTIVE BARGAINING AGREEMENT" is an agreement which the Secretary
of Labor finds to be a Collective Bargaining Agreement between EMPLOYEE
representatives and 1 or more Employers, if there is evidence that
retirement benefits were the subject of good faith bargaining and if
less than 2% of the EMPLOYEES of the EMPLOYER who are covered by such
agreement are professionals in REGULATIONS 1.410(b)-9.
"NON-RESIDENT ALIEN" is an EMPLOYEE who is a non-resident alien
(within the meaning of CODE SECTION 7701(b)(1)(B)) and who receives no
earned income (within the meaning of CODE SECTION 911(d)(2)) from the
EMPLOYER which constitutes income from sources within the United States
(within the meaning of CODE SECTION 861(a)(3)).
1.7 EMPLOYER
(a) "EMPLOYER" is the employer in the Adoption Agreement that
adopts THIS PLAN.
(b) "AFFILIATED EMPLOYER" is any corporation which is a member of
a controlled group of corporations (by CODE SECTION 414(b))
including the EMPLOYER; any trade or business (whether or not
incorporated) under common control (by CODE SECTION 414(c))
with the EMPLOYER; any organization (whether or not
incorporated) which is a member of an affiliated service group
(by CODE SECTION 414(m)) including the EMPLOYER; and any other
entity required to be aggregated with the EMPLOYER by CODE
SECTION 414(o) REGULATIONS.
(c) "PARTICIPATING EMPLOYER" is a Participating Employer in
subsection 4.4.
1.8 "THIS PLAN"
(a) is this instrument and the ADOPTION AGREEMENT.
(b) "ADOPTION AGREEMENT" is the separate instrument the EMPLOYER
executes, accepted by the TRUSTEE and InWest Pension
Management, Inc., which contains the EMPLOYER'S elections.
7
<PAGE> 8
SECTION 2. CONTRIBUTIONS
================================================================================
2.1 CONTRIBUTIONS TO THIS PLAN
CONTRIBUTIONS to THIS PLAN are as the EMPLOYER elects in the ADOPTION AGREEMENT.
EMPLOYER CONTRIBUTIONS are EMPLOYEE ELECTIVE DEFERRALS, QUALIFIED NON-ELECTIVE
CONTRIBUTIONS, QUALIFIED MATCHING CONTRIBUTIONS, MATCHING CONTRIBUTIONS, and
NON-ELECTIVE EMPLOYER CONTRIBUTIONS; all other CONTRIBUTIONS are EMPLOYEE
CONTRIBUTIONS.
A PARTICIPANT'S accrued benefit derived from EMPLOYEE ELECTIVE DEFERRALS,
QUALIFIED NON-ELECTIVE CONTRIBUTIONS, EMPLOYEE CONTRIBUTIONS and QUALIFIED
MATCHING CONTRIBUTIONS is nonforfeitable. Separate accounts for EMPLOYEE
ELECTIVE DEFERRALS, QUALIFIED NON-ELECTIVE CONTRIBUTIONS, EMPLOYEE
CONTRIBUTIONS, MATCHING CONTRIBUTIONS, NON-ELECTIVE EMPLOYER CONTRIBUTIONS and
QUALIFIED MATCHING CONTRIBUTIONS are maintained for each PARTICIPANT. Each
ACCOUNT is credited with the applicable CONTRIBUTIONS and earnings thereon.
2.2 PROFIT-SHARING AND PROFIT-SHARING 401(K) - NON-INTEGRATED CONTRIBUTION
ALLOCATION
Unless otherwise elected by the EMPLOYER in the ADOPTION AGREEMENT, EMPLOYER
PROFIT-SHARING CONTRIBUTIONS and EMPLOYER NON-ELECTIVE CONTRIBUTIONS are
allocated to each PARTICIPANT who either completes more than 500 HOURS OF
SERVICE during the PLAN YEAR or who is employed on the last day of the PLAN YEAR
in the ratio that such PARTICIPANT'S COMPENSATION bears to all PARTICIPANTS'
total COMPENSATION for the PLAN YEAR.
2.3 PERMITTED DISPARITY
FOR PROFIT-SHARING AND PROFIT-SHARING 401(K) PLANS:
Subject to the overall permitted disparity limits, EMPLOYER PROFIT-SHARING
CONTRIBUTIONS, EMPLOYER NON-ELECTIVE CONTRIBUTIONS and FORFEITURES for the PLAN
YEAR, unless otherwise elected by the EMPLOYER in the ADOPTION AGREEMENT, are
allocated to each PARTICIPANT'S ACCOUNT who either completes more than 500 HOURS
OF SERVICE during the PLAN YEAR or who is employed on the last day of the PLAN
YEAR as follows:
(a) For Profit-Sharing Plans:
(1) CONTRIBUTIONS and FORFEITURES are allocated to each
PARTICIPANT'S Account in the ratio that each
PARTICIPANT'S total COMPENSATION bears to all
PARTICIPANTS' total COMPENSATION, but not in excess
of 3% of each PARTICIPANT'S total COMPENSATION.
8
<PAGE> 9
(2) Any CONTRIBUTIONS and FORFEITURES remaining after the
allocation in (a)(1) are allocated to each
PARTICIPANT'S ACCOUNT in the ratio that each
PARTICIPANT'S COMPENSATION for the PLAN YEAR in
excess of the INTEGRATION LEVEL bears to the excess
COMPENSATION of all PARTICIPANTS, but not in excess
of 3% of each PARTICIPANT'S COMPENSATION in excess of
the INTEGRATION LEVEL. For this (a)(2), any
PARTICIPANT who has exceeded the cumulative permitted
disparity limit described below, such PARTICIPANT'S
total COMPENSATION for the PLAN YEAR will be taken
into account.
(3) Any CONTRIBUTIONS and FORFEITURES remaining after the
allocation in (a)(2) are allocated to each
PARTICIPANT'S ACCOUNT in the ratio that the sum of
each PARTICIPANT'S total COMPENSATION and
COMPENSATION in excess of the INTEGRATION LEVEL bears
to the sum of all PARTICIPANTS' total COMPENSATION
and COMPENSATION in excess of the INTEGRATION LEVEL,
but not in excess of the MAXIMUM PROFIT-SHARING
DISPARITY RATE. For this (a)(3), for any PARTICIPANT
who has exceeded the cumulative permitted disparity
limit described below, 2 times such PARTICIPANT'S
total COMPENSATION for the PLAN YEAR is taken into
account.
(4) Any remaining EMPLOYER CONTRIBUTIONS or FORFEITURES
are allocated to each PARTICIPANT'S ACCOUNT in the
ratio that each PARTICIPANT'S total COMPENSATION for
the PLAN YEAR bears to all PARTICIPANTS' total
COMPENSATION for that year.
(b) For Money Purchase Plans:
CONTRIBUTIONS and FORFEITURES are allocated to each
PARTICIPANT'S ACCOUNT in the percentage of the PARTICIPANT'S
COMPENSATION elected by the EMPLOYER in the ADOPTION
AGREEMENT, up to the INTEGRATION LEVEL plus a Base Percentage
specified in the ADOPTION AGREEMENT (not to exceed the Base
Percentage by more than the lesser of (i) the Base Percentage,
or (ii) the maximum disparity rate of such PARTICIPANT'S
COMPENSATION in excess of the INTEGRATION LEVEL.
"BASE PERCENTAGE" means the percentage of compensation
contributed by the Employer for compensation not in excess of
the INTEGRATION LEVEL.
FOR MONEY PURCHASE PLANS:
Subject to the overall permitted disparity limits, the EMPLOYER contributes for
each PARTICIPANT who either completes more than 500 HOURS OF SERVICE during the
PLAN YEAR or who is employed on the last day of the PLAN YEAR an amount equal to
the Base Percentage, (not less than 3%) of each PARTICIPANT'S COMPENSATION for
the PLAN YEAR, up to the INTEGRATION LEVEL plus the Excess Percentage, (not less
than 3%) and not to exceed (i) the Base Percentage or (ii) the money purchase
9
<PAGE> 10
maximum disparity rate of such PARTICIPANT'S COMPENSATION in excess of the
INTEGRATION LEVEL. However, for any PARTICIPANT who exceeds the cumulative
permitted disparity limit, the EMPLOYER contributes for each PARTICIPANT who
either completes more than 500 HOURS OF SERVICE during the PLAN YEAR or is
employed on the last day of the PLAN YEAR an amount equal to the excess
contribution percentage multiplied by the PARTICIPANT'S total COMPENSATION.
OVERALL PERMITTED DISPARITY LIMIT
ANNUAL OVERALL PERMITTED DISPARITY LIMIT:
Notwithstanding the preceding paragraph(s), for any PLAN YEAR THIS PLAN benefits
any PARTICIPANT who benefits under another qualified plan or simplified employee
pension, as defined in CODE Section 408(k), maintained by the EMPLOYER that
provides for permitted disparity (or imputes disparity), the EMPLOYER
contributes for each PARTICIPANT who either completes more than 500 HOURS OF
SERVICE during the PLAN YEAR or who is employed on the last day of the PLAN YEAR
an amount equal to the excess contribution percentage multiplied by the
PARTICIPANT'S total COMPENSATION.
CUMULATIVE PERMITTED DISPARITY LIMIT:
Effective for PLAN YEARS beginning on or after January 1, 1995, the cumulative
permitted disparity limit for a PARTICIPANT is 35 total cumulative permitted
disparity years. Total cumulative permitted years is the number of years
credited to the PARTICIPANT for allocation or accrual purposes by THIS PLAN, any
other qualified plan or simplified employee pension plan (whether or not
terminated) ever maintained by the EMPLOYER. To determine the PARTICIPANT'S
cumulative permitted disparity limit, all years ending in the same calendar year
are treated as the same year. If the PARTICIPANT does not benefit by a defined
benefit or target benefit plan for any year beginning on or after January 1,
1994, the PARTICIPANT has no cumulative disparity limit.
The INTEGRATION LEVEL is the TAXABLE WAGE BASE (TWB) or such lesser amount
elected by the EMPLOYER in the ADOPTION AGREEMENT . The TAXABLE WAGE BASE is the
contribution and benefit base in effect in Section 230 of the Social Security
Act at the beginning of the PLAN YEAR.
COMPENSATION is compensation as defined in 2.20.
The MAXIMUM DISPARITY RATE is equal to the lesser of:
(a) A Base Percentage of 2.7% for Profit-Sharing Plans or 5.7% for
Money Purchase Plans
(b) the applicable percentage determined by the following table:
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<PAGE> 11
If the INTEGRATION LEVEL ("TWB" means TAXABLE WAGE BASE) -
<TABLE>
<CAPTION>
the applicable percentage is:
------------------------------------------------------------
for Top-Heavy for NonTop-Heavy for Money
is more than but not more than.Profit-Sharing Plans Profit-Sharing Plans Purchase Plans
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$0 X* 2.7% 5.7% 5.7%
X* of TWB 80% of TWB 1.3% 4.3% 4.3%
80% of TWB Y** 2.4% 5.4% 5.4%
</TABLE>
* X equals the greater of $10,000 or 20% of the TWB.
** Y equals an amount more than 80% of the TWB but less than 100 % of the TWB.
If the INTEGRATION LEVEL used is equal to the TAXABLE WAGE BASE, the
applicable percentage is 2.7% for Profit-Sharing Plans and 5.7% for
Money Purchase Plans.
2.4 ALLOCATION LIMITATIONS
(a) If the PARTICIPANT does not participate in, and never
participated in (i) another qualified plan, or (ii) a welfare
benefit fund (in CODE SECTION 419(e)), or (iii) an individual
medical account (in CODE SECTION 415(1)(2)), or (iv) a
simplified employee pension (in CODE SECTION 408(k)), which
provides an ANNUAL ADDITION, the amount of ANNUAL ADDITIONS
which may be credited to the PARTICIPANT'S ACCOUNT for any
LIMITATION YEAR does not exceed the lesser of the MAXIMUM
PERMISSIBLE AMOUNT or any other limitation in THIS PLAN. If
the EMPLOYER CONTRIBUTION that would otherwise be contributed
or allocated to the PARTICIPANT'S ACCOUNT causes the ANNUAL
ADDITIONS for the LIMITATION YEAR to exceed the MAXIMUM
PERMISSIBLE AMOUNT, the amount contributed or allocated is
reduced so that the ANNUAL ADDITIONS for the LIMITATION YEAR
equal the MAXIMUM PERMISSIBLE AMOUNT.
(b) Prior to determining the PARTICIPANT'S actual COMPENSATION for
the LIMITATION YEAR, the EMPLOYER may determine the MAXIMUM
PERMISSIBLE AMOUNT for a PARTICIPANT on a reasonable estimate
of the PARTICIPANT'S COMPENSATION for the LIMITATION YEAR,
uniformly determined for all PARTICIPANTS similarly situated.
(c) As soon as is administratively feasible after the end of the
LIMITATION YEAR, the MAXIMUM PERMISSIBLE AMOUNT for the
LIMITATION YEAR is determined on the basis of the
PARTICIPANT'S actual COMPENSATION for the LIMITATION YEAR.
(d) If by subsection 2.4(c) or as a result of the allocation of
FORFEITURES, there is an EXCESS AMOUNT, such excess is
disposed of as follows:
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<PAGE> 12
(1) Any NONDEDUCTIBLE VOLUNTARY EMPLOYEE CONTRIBUTIONS,
(plus attributable earnings), to the extent they
would reduce the EXCESS AMOUNT, is returned to the
PARTICIPANT;
(2) If after the application of (1) an EXCESS AMOUNT
still exists, any ELECTIVE DEFERRALS (plus
attributable earnings), to the extent they would
reduce the excess amount, is distributed to the
PARTICIPANT.
(3) If after the application of (2) an EXCESS AMOUNT
still exists, and the PARTICIPANT is covered by THIS
PLAN at the end of the LIMITATION YEAR, the EXCESS
AMOUNT in the PARTICIPANT'S ACCOUNT is used to reduce
EMPLOYER CONTRIBUTIONS (including any allocation of
FORFEITURES) for such PARTICIPANT in the next
LIMITATION YEAR, and each succeeding LIMITATION YEAR
if necessary.
(4) If after the application of (2) an EXCESS AMOUNT
still exists and the PARTICIPANT is not covered by
THIS PLAN at the end of a LIMITATION YEAR, the EXCESS
AMOUNT is held unallocated in a suspense account
consisting of Plan assets. The suspense account is
applied to reduce future EMPLOYER CONTRIBUTIONS for
all remaining PARTICIPANTS in the next LIMITATION
YEAR, and each succeeding LIMITATION YEAR if
necessary.
(5) If a suspense account is in existence at any time
during a LIMITATION YEAR by (4), it does not
participate in the allocation of investment gains and
losses. If a suspense account is in existence at any
time during a particular LIMITATION YEAR, all amounts
in the suspense account are allocated and reallocated
to PARTICIPANTS' ACCOUNTS before any EMPLOYER or any
EMPLOYEE CONTRIBUTIONS are made to THIS PLAN for that
LIMITATION YEAR. EXCESS AMOUNTS cannot be distributed
to PARTICIPANTS or former PARTICIPANTS.
(e) This Section applies if, in addition to THIS PLAN, the
PARTICIPANT is covered by (i) another qualified master or
prototype defined contribution plan, (ii) a welfare benefit
fund, (iii) an individual medical account, or (iv) a
simplified employee pension maintained by the EMPLOYER, that
provides an ANNUAL ADDITION, during any LIMITATION YEAR.
The ANNUAL ADDITIONS which are credited to a PARTICIPANT'S
ACCOUNT by THIS PLAN for any such LIMITATION YEAR cannot
exceed the MAXIMUM PERMISSIBLE AMOUNT reduced by the ANNUAL
ADDITIONS credited to a PARTICIPANT'S ACCOUNT in such other
qualified master and prototype defined contribution plans,
welfare benefit funds, individual medical accounts, and
simplified employee pensions for the same LIMITATION YEAR.
12
<PAGE> 13
If the ANNUAL ADDITIONS for the PARTICIPANT in such other
qualified master and prototype defined contribution plans,
welfare benefit funds, individual medical accounts, and
simplified employee pensions maintained by the EMPLOYER are
less than the MAXIMUM PERMISSIBLE AMOUNT and the EMPLOYER
CONTRIBUTION otherwise contributed or allocated to the
PARTICIPANT'S ACCOUNT in THIS PLAN causes the ANNUAL ADDITIONS
for the LIMITATION YEAR to exceed this limitation, the amount
contributed or allocated is reduced so that the ANNUAL
ADDITIONS by all such plans and funds for the LIMITATION YEAR
equal the MAXIMUM PERMISSIBLE AMOUNT.
If the ANNUAL ADDITIONS for the PARTICIPANT in such other
qualified master and prototype defined contribution plans,
welfare benefit funds, individual medical accounts, and
simplified employee pensions in the aggregate are equal to or
greater than the MAXIMUM PERMISSIBLE AMOUNT, no amount is
contributed or allocated to the PARTICIPANT'S ACCOUNT for the
LIMITATION YEAR.
(f) Prior to determining the PARTICIPANT'S actual COMPENSATION for
the LIMITATION YEAR, the EMPLOYER may determine the MAXIMUM
PERMISSIBLE AMOUNT for a PARTICIPANT in the manner described
in (b).
(g) As soon as is administratively feasible after the end of the
LIMITATION YEAR, the MAXIMUM PERMISSIBLE AMOUNT for the
LIMITATION YEAR is determined on the basis of the
PARTICIPANT'S actual COMPENSATION for the LIMITATION YEAR.
(h) If, by (g) or as a result of the allocation of FORFEITURES, a
PARTICIPANT'S ANNUAL ADDITIONS in THIS PLAN and such other
plans results in an EXCESS AMOUNT for a LIMITATION YEAR, the
EXCESS AMOUNT is deemed to consist of the ANNUAL ADDITIONS
last allocated, except that ANNUAL ADDITIONS attributable to a
simplified employee pension is deemed to have been allocated
first, followed by ANNUAL ADDITIONS to a welfare benefit fund
or individual medical account, regardless of the actual
allocation date.
(i) If an EXCESS AMOUNT is allocated to a PARTICIPANT on an
allocation date which coincides with an allocation date of
another plan, the EXCESS AMOUNT attributed to THIS PLAN is the
product of
(1) the total EXCESS AMOUNT allocated as of such date,
times
(2) the ratio of (i) the ANNUAL ADDITIONS allocated to
the PARTICIPANT for the LIMITATION YEAR as of such
date by THIS PLAN to (ii) the total ANNUAL ADDITIONS
allocated to the PARTICIPANT for the LIMITATION YEAR
as of such date in this and all the other qualified
MASTER OR PROTOTYPE DEFINED CONTRIBUTION PLANS.
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<PAGE> 14
(j) Any EXCESS AMOUNT attributed to THIS PLAN is disposed of as
described in (d).
(k) If the PARTICIPANT is covered by another qualified defined
contribution plan maintained by the EMPLOYER which is not a
MASTER OR PROTOTYPE DEFINED CONTRIBUTION PLAN, ANNUAL
ADDITIONS which are credited to the PARTICIPANT'S ACCOUNT by
THIS PLAN for any LIMITATION YEAR are limited by (e) through
(j) as though the other plan were a MASTER OR PROTOTYPE PLAN
unless the EMPLOYER provides other limitations in ADOPTION
AGREEMENT Section 2.
(l) If the EMPLOYER maintains, or at any time maintained, a
qualified defined benefit plan (other than paired plan #P-1)
covering any PARTICIPANT, the sum of the PARTICIPANT'S DEFINED
BENEFIT PLAN FRACTION and DEFINED CONTRIBUTION PLAN FRACTION
do not exceed 1.0 in any LIMITATION YEAR. The ANNUAL ADDITIONS
which may be credited to the PARTICIPANT'S ACCOUNT by THIS
PLAN for any LIMITATION YEAR are limited by ADOPTION AGREEMENT
Section 2.
2.5 EMPLOYEE CONTRIBUTIONS
(a) Nondeductible Employee Contributions and Matching
Contributions.
THIS PLAN does not accept NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
for PLAN YEARS beginning after the PLAN YEAR in which THIS
PLAN is adopted by the EMPLOYER. NONDEDUCTIBLE EMPLOYEE
CONTRIBUTIONS for PLAN YEARS beginning after December 31,
1986, together with any MATCHING CONTRIBUTIONS, are limited so
as to meet the nondiscrimination test of CODE SECTION 401(m).
NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS, including transfers from
other qualified plans, and earnings thereon are nonforfeitable
at all times.
(b) Deductible voluntary employee contributions.
The ADMINISTRATOR will not accept DEDUCTIBLE EMPLOYEE
CONTRIBUTIONS made for a taxable year beginning after December
31, 1986. Such contributions made prior to that date are
maintained in a separate ACCOUNT which will be nonforfeitable
at all times. The ACCOUNT shares in the gains and losses in
THIS PLAN as described in 2.6(f). No part of the DEDUCTIBLE
VOLUNTARY CONTRIBUTION ACCOUNT is used to purchase life
insurance. Subject to subsection 3.2, JOINT AND SURVIVOR
ANNUITY requirements (if applicable), a PARTICIPANT may
withdraw any part of his/her DEDUCTIBLE VOLUNTARY CONTRIBUTION
ACCOUNT by making a written application to the ADMINISTRATOR.
No FORFEITURES occur solely as a result of an EMPLOYEE'S
withdrawal of EMPLOYEE CONTRIBUTIONS.
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<PAGE> 15
2.6 VESTING
A PARTICIPANT'S ACCOUNT BALANCE from EMPLOYER CONTRIBUTIONS which are not
otherwise vested shall vest as elected by the EMPLOYER in the ADOPTION
AGREEMENT.
(a) Before BREAK IN SERVICE
If an EMPLOYEE terminates SERVICE, and the value of the
EMPLOYEE'S VESTED ACCOUNT BALANCE is not greater than $5,000
(plan years beginning after August 5, 1997) or $3,500 (plan
years beginning before August 6, 1997), the EMPLOYEE will
receive a distribution of the value of the entire vested
portion of such ACCOUNT BALANCE, and the nonvested portion is
treated as a FORFEITURE. For this Section, if the value of an
EMPLOYEE'S vested ACCOUNT BALANCE is zero, the EMPLOYEE is
deemed to receive a distribution of such vested ACCOUNT
BALANCE. A PARTICIPANT'S vested ACCOUNT BALANCE does not
include accumulated DEDUCTIBLE EMPLOYEE CONTRIBUTIONS in CODE
SECTION 72(o)(5)(B) for PLAN YEARS beginning prior to January
1, 1989.
If an EMPLOYEE terminates SERVICE, and elects, by the
requirements of subsection 3.3, to receive the value of the
EMPLOYEE'S vested ACCOUNT BALANCE, the nonvested portion is
treated as a FORFEITURE. If the EMPLOYEE elects to have
distributed less than the entire vested portion of the ACCOUNT
BALANCE derived from EMPLOYER CONTRIBUTIONS, the part of the
nonvested portion that is treated as a FORFEITURE is the total
nonvested portion multiplied by a fraction, the numerator of
which is the amount of the distribution attributable to
EMPLOYER CONTRIBUTIONS and the denominator of which is the
total value of the vested ACCOUNT BALANCE derived from
EMPLOYER CONTRIBUTIONS.
If an EMPLOYEE receives or is deemed to receive a distribution
by this Section and the EMPLOYEE resumes SERVICE, the
EMPLOYEE'S ACCOUNT BALANCE derived from EMPLOYER CONTRIBUTIONS
is restored to the amount on the date of distribution if the
EMPLOYEE repays to THIS PLAN the full amount of the
distribution attributable to EMPLOYER CONTRIBUTIONS before the
earlier of (i) 5 years after the first date on which the
PARTICIPANT is reemployed by the EMPLOYER or (ii) the date the
PARTICIPANT incurs 5 consecutive 1-year BREAKS IN SERVICE
following the date of the distribution. If an EMPLOYEE is
deemed to receive a distribution by this Section and the
EMPLOYEE resumes SERVICE before the PARTICIPANT incurs 5
consecutive 1-year BREAKS IN SERVICE, on such EMPLOYEE'S
reemployment, the EMPLOYEE'S ACCOUNT BALANCE is restored to
the amount on the date of such deemed distribution.
If a distribution is made at a time when the PARTICIPANT has a
nonforfeitable right to less than 100% of the ACCOUNT BALANCE
derived from EMPLOYER Contributions and the PARTICIPANT may
increase the nonforfeitable percentage in the account:
15
<PAGE> 16
(1) A separate ACCOUNT is established for the
PARTICIPANT'S interest in THIS PLAN as of the time of
the distribution and
(2) At any relevant time the PARTICIPANT'S nonforfeitable
portion of the separate ACCOUNT is equal to an amount
("X") determined by the formula:
X equals P(AB plus (R multiplied by D)) minus (R
multiplied by D)
To apply the formula: P is the nonforfeitable percentage at
the relevant time, AB is the ACCOUNT BALANCE at the relevant
time, D is the amount of the distribution, and R is the ratio
of the ACCOUNT BALANCE at the relevant time to the ACCOUNT
BALANCE after distribution.
(b) Vesting Computation Period
To compute an EMPLOYEE'S nonforfeitable right to his/her
ACCOUNT BALANCE derived from EMPLOYER CONTRIBUTIONS, YEARS OF
SERVICE and BREAKS IN SERVICE are measured by the PLAN YEAR.
(c) Normal Retirement Age.
Notwithstanding the vesting schedule elected by the EMPLOYER
in ADOPTION Agreement Section 2, an EMPLOYEE'S right to his or
her ACCOUNT BALANCE is nonforfeitable on his or her NORMAL
RETIREMENT AGE.
(d) One Year Hold-out.
If a PARTICIPANT incurs a 1-year BREAK IN SERVICE, YEARS OF
SERVICE before such break are not taken into account until the
PARTICIPANT completes a YEAR OF Service after such break in
SERVICE.
(e) Rule of parity.
For a PARTICIPANT with 5 or more consecutive 1-year BREAKS IN
SERVICE, the PARTICIPANT'S pre-break SERVICE counts in vesting
of the EMPLOYER-derived accrued benefit only if either:
(1) such PARTICIPANT has any nonforfeitable interest in
the accrued benefit attributable to EMPLOYER
CONTRIBUTIONS at separation from SERVICE or
(2) on returning to SERVICE the number of consecutive
1-year BREAKS IN SERVICE is less than the number of
YEARS OF SERVICE.
16
<PAGE> 17
f) Pre-break and Post-break Account
For a PARTICIPANT with 5 consecutive 1-year BREAKS IN SERVICE,
all YEARS OF SERVICE after such BREAKS IN SERVICE are
disregarded for vesting the Employer-derived ACCOUNT BALANCE
that accrues before such breaks, but both pre-break and
post-break SERVICE count for vesting the EMPLOYER-derived
ACCOUNT BALANCE that accrues after such breaks. Both ACCOUNTS
will share in the earnings and losses of the TRUST.
For a PARTICIPANT without 5 consecutive 1-year BREAKS IN
SERVICE, both the pre-break and post-break SERVICE count in
vesting both the pre-break and post-break EMPLOYER-derived
ACCOUNT BALANCE.
For a PARTICIPANT with 5 or more consecutive 1-year BREAKS IN
SERVICE all SERVICE after such BREAKS IN SERVICE are
disregarded for vesting the EMPLOYER-derived ACCOUNT BALANCE
that accrued before such BREAKS IN SERVICE. Such PARTICIPANT'S
pre-break SERVICE count in vesting the post-break
EMPLOYER-derived ACCOUNT Balance only if either:
(1) such PARTICIPANT has any nonforfeitable interest in
the ACCOUNT BALANCE attributable to EMPLOYER
CONTRIBUTIONS at the time of separation from SERVICE
or --
(2) upon returning to SERVICE the number of consecutive
1-year BREAKS IN SERVICE is less than the number of
YEARS OF SERVICE.
(g) Vesting Schedule Amendment
If THIS PLAN'S vesting schedule is amended or THIS PLAN is
amended in any way that directly or indirectly affects the
computation of the PARTICIPANT'S nonforfeitable percentage or
if THIS PLAN is deemed amended by an automatic change to or
from a TOP-HEAVY vesting schedule, each PARTICIPANT with at
least 3 YEARS OF SERVICE may elect, within a reasonable period
after the adoption of the amendment or change, to have the
nonforfeitable percentage computed by THIS PLAN without such
amendment or change. For PARTICIPANTS without at least 1 HOUR
OF SERVICE in any PLAN YEAR beginning after December 31, 1988,
the preceding sentence is applied by substituting "5 YEARS OF
SERVICE" for "3 YEARS OF SERVICE" where such language appears.
The period during which the election may be made shall begin
with the date the amendment is adopted or deemed to be made
and ends on the latest of:
(1) 60 days after the amendment is adopted;
(2) 60 days after the amendment becomes effective; or
17
<PAGE> 18
(3) 60 days after the PARTICIPANT is issued written
notice of the amendment by the EMPLOYER or
ADMINISTRATOR.
No amendment is effective if it decreases a PARTICIPANT'S
ACCRUED BENEFIT. Notwithstanding the preceding sentence, a
PARTICIPANT'S ACCOUNT BALANCE may be reduced as permitted by
CODE SECTION 412(c)(8). For this paragraph, a plan amendment
which decreases a PARTICIPANT'S ACCOUNT BALANCE or eliminates
an optional form of benefit, as to benefits attributable to
SERVICE before the amendment, is treated as reducing an
ACCRUED BENEFIT. Furthermore, if the vesting schedule of a
plan is amended, for an EMPLOYEE who is a PARTICIPANT as of
the later of the date such amendment is adopted or the date it
becomes effective, the nonforfeitable percentage (determined
as of such date) of such EMPLOYEE'S EMPLOYER-derived ACCRUED
BENEFIT is not less than the percentage computed by THIS PLAN
without such amendment.
If THIS PLAN is or becomes TOP-HEAVY in any PLAN YEAR
beginning after December 31, 1983, the provisions of 2.7(d)
supersede any conflicting provisions in THIS PLAN or the
ADOPTION AGREEMENT.
(h) Plan Termination.
On THIS PLAN'S termination or partial termination, the ACCOUNT
BALANCE of each affected PARTICIPANT is nonforfeitable.
(i) Contribution Discontinuance.
On THIS PLAN'S complete discontinuance of CONTRIBUTIONS, the
ACCOUNT BALANCE of each affected PARTICIPANT is
nonforfeitable.
2.7 TOP HEAVY ALLOCATION
(a) No Employer defined benefit plan.
The EMPLOYER shall not maintain THIS PLAN at any time when the
EMPLOYER maintains a defined benefit plan.
(b) Minimum allocation.
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<PAGE> 19
(1) When THIS PLAN is TOP-HEAVY and except as otherwise
provided in (2) below, the EMPLOYER CONTRIBUTIONS and
FORFEITURES allocated to any PARTICIPANT who is not a
KEY EMPLOYEE are not less than the lesser of 3% of
such PARTICIPANT'S COMPENSATION or if the EMPLOYER
has no defined benefit plan which designates THIS
PLAN to satisfy CODE SECTION 401, the largest
percentage of EMPLOYER CONTRIBUTIONS and FORFEITURES,
as a percentage of KEY EMPLOYEE'S COMPENSATION, as
limited by CODE SECTION 401(a)(17), allocated to any
KEY EMPLOYEE for that year. The minimum allocation is
determined without any Social Security contribution.
The minimum allocation is made even though, under
other plan provisions, the PARTICIPANT is not
otherwise entitled to receive an allocation, or
receives a lesser allocation for the year because the
PARTICIPANT does not (i) complete 500 HOURS OF
SERVICE (or any equivalent provided in THIS PLAN),
(ii) make MANDATORY EMPLOYEE CONTRIBUTIONS to THIS
PLAN or (iii) have a certain amount of Compensation
less than a stated amount.
(2) The provision in (1) does not apply to any
PARTICIPANT to the extent the PARTICIPANT is covered
by any other plan or plans of the EMPLOYER and the
EMPLOYER provides in ADOPTION AGREEMENT that the
minimum allocation or benefit requirement applicable
to TOP-HEAVY plans is met in the other plan or plans.
(c) Nonforfeitability of minimum allocation.
The minimum allocation required (to the extent required to be
nonforfeitable in CODE SECTION 416(b)) is not forfeited by
CODE SECTION 411(a)(3)(B) or 411(a)(3)(D).
(d) Minimum vesting schedules.
For any PLAN YEAR in which THIS PLAN is TOP-HEAVY, 1 of the
minimum vesting schedules as elected by the EMPLOYER in the
ADOPTION AGREEMENT automatically applies to THIS PLAN. The
minimum vesting schedule applies to all benefits in CODE
SECTION 411(a)(7) except those attributable to EMPLOYEE
CONTRIBUTIONS, including benefits accrued before the effective
date of CODE SECTION 416 and benefits accrued before THIS PLAN
became TOP-HEAVY. No decrease in a PARTICIPANT'S
nonforfeitable percentage occurs if THIS PLAN'S status as
TOP-HEAVY changes for any PLAN YEAR. However, this paragraph
does not apply to the ACCOUNT BALANCES of any EMPLOYEE who
does not have an HOUR OF SERVICE after THIS PLAN initially
becomes TOP-HEAVY and such EMPLOYEE'S ACCOUNT BALANCE
attributable to EMPLOYER CONTRIBUTIONS and FORFEITURES are
determined without this paragraph.
(e) The EMPLOYER may elect in the ADOPTION AGREEMENT how paired
plans will satisfy the Code Section 416 minimum benefit.
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<PAGE> 20
(f) For this subsection, COMPENSATION has the meaning in
subsection 2.20(g).
2.8 ELECTIVE DEFERRALS
A PARTICIPANT may elect to have his/her COMPENSATION reduced as elected by the
EMPLOYER in the ADOPTION AGREEMENT.
2.9 EXCESS ELECTIVE DEFERRALS
No PARTICIPANT is permitted to have ELECTIVE DEFERRALS made to THIS PLAN, or any
other qualified plan maintained by the EMPLOYER, during any taxable year, in
excess of the dollar limitation in CODE SECTION 402(g) in effect at the
beginning of such taxable year.
2.10 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
A PARTICIPANT may assign to THIS PLAN any EXCESS ELECTIVE DEFERRALS made during
the PARTICIPANT'S taxable year by notifying the ADMINISTRATOR on or before the
date specified in the ADOPTION AGREEMENT of the amount of the EXCESS ELECTIVE
DEFERRALS to be assigned to THIS PLAN. A Participant is deemed to notify the
ADMINISTRATOR of any EXCESS ELECTIVE DEFERRALS from taking into account only
those ELECTIVE DEFERRALS made to THIS PLAN and any other plans of the EMPLOYER.
Notwithstanding any other provision, EXCESS ELECTIVE DEFERRALS, plus any income
and minus any loss allocable thereto, are distributed no later than April 15 to
the PARTICIPANT to whose ACCOUNT EXCESS ELECTIVE DEFERRALS are assigned for the
preceding year and who claims EXCESS ELECTIVE DEFERRALS for such taxable year.
EXCESS ELECTIVE DEFERRALS are adjusted for any income or loss up to the date of
distribution. The income or loss allocable to EXCESS ELECTIVE DEFERRALS is the
sum of: (i) income or loss allocable to the PARTICIPANT'S ELECTIVE DEFERRAL
ACCOUNT for the taxable year multiplied by a fraction, the numerator of which is
such PARTICIPANT'S EXCESS ELECTIVE DEFERRALS for the year and the denominator is
the PARTICIPANT'S ACCOUNT BALANCE attributable to ELECTIVE DEFERRALS without any
income or loss occurring during such taxable year and (ii) 10% of the amount
determined by (i) multiplied by the number of whole calendar months between the
end of the PARTICIPANT'S taxable year and the date of distribution, counting the
month of distribution if distribution occurs after the 15th of such month.
2.11 ACTUAL DEFERRAL PERCENTAGE TEST
PRIOR YEAR TESTING
(a) The ACTUAL DEFERRAL PERCENTAGE ("ADP") for a PLAN YEAR for
PARTICIPANTS who are HIGHLY COMPENSATED EMPLOYEES for each
PLAN YEAR and the prior year's ADP for PARTICIPANTS who were
NON-HIGHLY COMPENSATED EMPLOYEES for the prior PLAN YEAR
satisfies 1 of the following (the "ADP TEST"):
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<PAGE> 21
(1) The ADP for a PLAN YEAR for PARTICIPANTS who are
HIGHLY COMPENSATED EMPLOYEES for the PLAN YEAR does
not exceed the prior year's ADP for PARTICIPANTS who
were NON-HIGHLY COMPENSATED EMPLOYEES for the prior
PLAN YEAR multiplied by 1.25; or
(2) The ADP for a PLAN YEAR for PARTICIPANTS who are
HIGHLY COMPENSATED EMPLOYEES for the PLAN YEAR does
not exceed the prior year's ADP for PARTICIPANTS who
were NON-HIGHLY COMPENSATED EMPLOYEES for the prior
PLAN YEAR multiplied by 2.0, provided the ADP for
PARTICIPANTS who are HIGHLY COMPENSATED EMPLOYEES
does not exceed the ADP for PARTICIPANTS who were
NON-HIGHLY COMPENSATED EMPLOYEES in the prior PLAN
YEAR by more than 2 percentage points.
For the first PLAN YEAR, THIS PLAN permits any
PARTICIPANT to make ELECTIVE DEFERRALS and this is
not a successor plan, for the foregoing tests, the
prior year's NON-HIGHLY COMPENSATED EMPLOYEES' ADP
shall be 3% unless the EMPLOYER has elected to use
the PLAN YEAR'S ADP for these PARTICIPANTS.
CURRENT YEAR TESTING
If elected by the EMPLOYER, the ADP TESTS in (1) and (2), above, will
be applied by comparing the current PLAN YEAR'S ADP for PARTICIPANTS
who are HIGHLY COMPENSATED Employees with the current PLAN YEAR'S ADP
for PARTICIPANTS who are NON-HIGHLY COMPENSATED EMPLOYEES. Once made,
this election can only be undone if THIS PLAN meets the requirements
for changing to prior year testing set forth in Notice 98-1 (or
superseding guidance).
(b) A PARTICIPANT is a HIGHLY COMPENSATED EMPLOYEE for a
particular PLAN YEAR if he or she meets the definition of a
HIGHLY COMPENSATED EMPLOYEE in effect for that PLAN YEAR.
Similarly, a PARTICIPANT is a NON-HIGHLY COMPENSATED EMPLOYEE
for a particular PLAN YEAR if he or she does not meet the
definition of a HIGHLY COMPENSATED EMPLOYEE in effect for that
PLAN YEAR.
(c) The ADP for any PARTICIPANT who is a HIGHLY COMPENSATED
EMPLOYEE for the PLAN YEAR and who is eligible to have
ELECTIVE DEFERRALS (and QUALIFIED NON-ELECTIVE CONTRIBUTIONS
or QUALIFIED MATCHING CONTRIBUTIONS, or both, if treated as
ELECTIVE DEFERRALS for the ADP test) allocated to his or her
accounts under 2 or more arrangements described in CODE
SECTION 401(k), maintained by the EMPLOYER are determined as
if such ELECTIVE DEFERRALS (and, if applicable, such QUALIFIED
NON-ELECTIVE CONTRIBUTIONS or QUALIFIED MATCHING
CONTRIBUTIONS, or both) were made by 1 arrangement. If a
HIGHLY COMPENSATED EMPLOYEE participates in 2 or more cash
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or deferred arrangements having different PLAN YEARS, all cash
or deferred arrangements ending with or within the same
calendar year are treated as 1 arrangement. Notwithstanding
the foregoing, certain plans are treated as separate if
mandatorily disaggregated by CODE SECTION 401(k) REGULATIONS.
(d) If THIS PLAN satisfies the requirements of CODE SECTIONS
401(k), 401(a)(4), or 410(b) only if aggregated with 1 or more
other plans, or if 1 or more other plans satisfy the
requirements of such CODE SECTIONS only if aggregated with
THIS PLAN, this subsection applies by determining the ADP of
EMPLOYEES as if all such plans were 1 plan. Any adjustments to
the NON-HIGHLY COMPENSATED EMPLOYEE ADP for the prior year
will be according to Notice 98-1 and any superseding guidance,
unless the EMPLOYER has elected in the ADOPTION AGREEMENT to
use the current year testing method. Plans may be aggregated
in order to satisfy CODE SECTION 401(k) only if they have the
same PLAN YEAR and use the same ADP testing method.
(e) To determine the ADP TEST, EMPLOYEE ELECTIVE DEFERRALS,
QUALIFIED NON-ELECTIVE CONTRIBUTIONS and QUALIFIED MATCHING
CONTRIBUTIONS are made before the end of the 12-month period
immediately following the PLAN YEAR to which such
contributions relate.
(f) The EMPLOYER maintains records sufficient to demonstrate
satisfaction of the ADP TEST and the amount of QUALIFIED
NON-ELECTIVE CONTRIBUTIONS or QUALIFIED MATCHING
CONTRIBUTIONS, or both, used in such test.
2.12 DISTRIBUTION OF EXCESS CONTRIBUTIONS
Notwithstanding any other provision, EXCESS CONTRIBUTIONS, plus any income and
minus any loss allocable thereto, are distributed no later than the last day of
each PLAN YEAR to the PARTICIPANTS to whose ACCOUNTS such EXCESS CONTRIBUTIONS
were allocated for the preceding PLAN YEAR. EXCESS CONTRIBUTIONS are allocated
to the HIGHLY COMPENSATED EMPLOYEES with the largest amounts of EMPLOYER
CONTRIBUTIONS taken into account in calculating the ADP TEST for the year in
which the excess arose, beginning with the HIGHLY COMPENSATED EMPLOYEE with the
largest amount of such EMPLOYER CONTRIBUTIONS and continuing in descending order
until all the EXCESS CONTRIBUTIONS have been allocated. For the preceding
sentence, the "largest amount" is determined after distribution of any EXCESS
CONTRIBUTIONS.
If such excess amounts are distributed more than 2 " months after the last day
of the PLAN YEAR in which such excess amounts arose, a 10% excise tax is imposed
on the EMPLOYER as to such amounts.
EXCESS CONTRIBUTIONS (including the amounts recharacterized) are treated as
ANNUAL ADDITIONS to THIS PLAN.
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EXCESS CONTRIBUTIONS are adjusted for any income or loss up to the date of
distribution. The income or loss allocable to EXCESS CONTRIBUTIONS allocated to
each PARTICIPANT is the sum of: (i) income or loss allocable to the
PARTICIPANT'S ELECTIVE DEFERRAL ACCOUNT (and, if applicable, the QUALIFIED
NON-ELECTIVE CONTRIBUTION ACCOUNT or the QUALIFIED MATCHING CONTRIBUTIONS
ACCOUNT or both) for the PLAN YEAR multiplied by a fraction, the numerator of
which is such PARTICIPANT'S EXCESS CONTRIBUTIONS for the year and the
denominator is the PARTICIPANT'S ACCOUNT BALANCE attributable to ELECTIVE
DEFERRALS (and QUALIFIED NON-ELECTIVE CONTRIBUTIONS or QUALIFIED MATCHING
CONTRIBUTIONS, or both, if any of such contributions are included in the ADP
TEST) without regard to any income or loss occurring during such PLAN YEAR; and
(ii) 10% of the amount determined in (i) multiplied by the number of whole
calendar months between the end of the PLAN YEAR and the date of distribution,
counting the month of distribution if distribution occurs after the 15th of such
month.
EXCESS CONTRIBUTIONS are distributed from the PARTICIPANT'S ELECTIVE DEFERRAL
ACCOUNT, and QUALIFIED MATCHING CONTRIBUTION ACCOUNT (if applicable) in
proportion to the PARTICIPANT'S ELECTIVE DEFERRALS and QUALIFIED MATCHING
CONTRIBUTIONS (to the extent used in the ADP test) for the PLAN YEAR. EXCESS
CONTRIBUTIONS are distributed from the PARTICIPANT'S QUALIFIED NON-ELECTIVE
CONTRIBUTION ACCOUNT only to the extent that such EXCESS CONTRIBUTIONS exceed
the balance in the PARTICIPANT'S ELECTIVE DEFERRAL ACCOUNT and QUALIFIED
MATCHING CONTRIBUTION ACCOUNT.
2.13 RECHARACTERIZATION
A PARTICIPANT may recharacterize his or her EXCESS CONTRIBUTIONS as an amount
distributed to the PARTICIPANT and then contributed by the PARTICIPANT to THIS
PLAN. Recharacterized amounts remain nonforfeitable.
Amounts may not be recharacterized by a HIGHLY COMPENSATED EMPLOYEE to the
extent that such amount, in combination with other EMPLOYEE CONTRIBUTIONS made
by that EMPLOYEE, exceed any stated limit in THIS PLAN for EMPLOYEE
CONTRIBUTIONS.
Recharacterization must occur no later than 2 " months after the last day of the
PLAN YEAR in which such EXCESS CONTRIBUTIONS arose and is deemed to occur no
earlier than the date the last HIGHLY COMPENSATED EMPLOYEE is informed in
writing of the amount recharacterized and the consequences thereof.
Recharacterized amounts are taxable to the PARTICIPANT for the PARTICIPANT'S tax
year in which the PARTICIPANT would have received them in cash.
2.14 MATCHING CONTRIBUTIONS
If the EMPLOYER elects in the ADOPTION AGREEMENT, the EMPLOYER makes MATCHING
CONTRIBUTIONS to THIS PLAN.
(a) Forfeitures and Vesting of MATCHING CONTRIBUTIONS
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MATCHING CONTRIBUTIONS are vested by ADOPTION AGREEMENT
Section 2. MATCHING CONTRIBUTIONS are fully vested at NORMAL
RETIREMENT AGE, on complete or partial termination, or on
complete discontinuance of EMPLOYER CONTRIBUTIONS.
FORFEITURES of MATCHING CONTRIBUTIONS, other than EXCESS
AGGREGATE CONTRIBUTIONS, are made by Section 2.
(b) QUALIFIED MATCHING CONTRIBUTIONS
If elected by the EMPLOYER in the ADOPTION AGREEMENT, the
EMPLOYER makes QUALIFIED MATCHING CONTRIBUTIONS to THIS PLAN.
2.15 LIMITATIONS ON EMPLOYEE CONTRIBUTIONS AND MATCHING CONTRIBUTIONS
PRIOR YEAR TESTING
(a) The AVERAGE CONTRIBUTION PERCENTAGE ("ACP") for a PLAN YEAR
for PARTICIPANTS who are HIGHLY COMPENSATED EMPLOYEES for each
PLAN YEAR and the prior year's ACP for PARTICIPANTS who were
NON-HIGHLY COMPENSATED EMPLOYEES for the same PLAN YEAR
satisfy 1 of the following tests ("ACP TEST"):
(1) The ACP for a PLAN YEAR for PARTICIPANTS who are
HIGHLY COMPENSATED EMPLOYEES for the PLAN YEAR do not
exceed the prior year's ACP for PARTICIPANTS who were
NON-HIGHLY COMPENSATED EMPLOYEES for the prior PLAN
YEAR multiplied by 1.25; or
(2) The ACP for a PLAN YEAR for PARTICIPANTS who are
HIGHLY COMPENSATED EMPLOYEES for the PLAN YEAR do not
exceed the prior year's ACP for PARTICIPANTS who were
NON-HIGHLY COMPENSATED EMPLOYEES for the prior PLAN
YEAR multiplied by 2, provided that the ACP for
PARTICIPANTS who are HIGHLY COMPENSATED EMPLOYEES
does not exceed the ACP for Participants who were
NON-HIGHLY COMPENSATED EMPLOYEES in the prior PLAN
YEAR by more than 2 percentage points.
For the first PLAN YEAR THIS PLAN permits any PARTICIPANT to
make EMPLOYEE CONTRIBUTIONS, provides for MATCHING
CONTRIBUTIONS or both, and this is not a successor plan, for
purposes of the foregoing tests, the prior year's NON-HIGHLY
COMPENSATED EMPLOYEES' ACP shall be 3% unless the EMPLOYER has
elected to use the PLAN YEAR'S ACP for these PARTICIPANTS.
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CURRENT YEAR TESTING
If elected by the EMPLOYER, the ACP Tests in (1) and (2), above, will
be applied by comparing the current year's ACP for PARTICIPANTS who are
HIGHLY COMPENSATED EMPLOYEES for each PLAN YEAR with the current PLAN
YEAR'S ACP for PARTICIPANTS who are NON-HIGHLY COMPENSATED EMPLOYEES.
Once made, this election can only be undone if THIS PLAN meets the
requirements for changing to prior year testing set forth in Notice
98-1 (or superseding guidance).
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SPECIAL RULES:
(c) If 1 or more HIGHLY COMPENSATED EMPLOYEES participate in both
a CODA and a plan subject to the ACP TEST maintained by the
EMPLOYER and the sum of the ADP and ACP of those HIGHLY
COMPENSATED EMPLOYEES subject to either or both tests exceeds
the AGGREGATE LIMIT, the ACP of those HIGHLY COMPENSATED
EMPLOYEES who also participate in a CODA will be reduced in
the manner described in subsection 2.17 so that such limit is
not exceeded.
The amount by which each HIGHLY COMPENSATED EMPLOYEE'S
CONTRIBUTION PERCENTAGE AMOUNTS is reduced is treated as an
EXCESS AGGREGATE CONTRIBUTION. The ADP and ACP of the HIGHLY
COMPENSATED EMPLOYEES are determined after any corrections
required to meet the ADP and ACP Tests and are deemed to be
the maximum permitted by such tests for the PLAN YEAR.
Multiple use does not occur if either the ADP or ACP of the
HIGHLY COMPENSATED EMPLOYEES does not exceed 1.25 multiplied
by the ADP and ACP of the NON-HIGHLY COMPENSATED EMPLOYEES.
(d) The CONTRIBUTION PERCENTAGE for any PARTICIPANT who is a
HIGHLY COMPENSATED EMPLOYEE and who is eligible to have
CONTRIBUTION PERCENTAGE AMOUNTS allocated to his or her
account under 2 or more plans described in CODE SECTION
401(a), or arrangements described in CODE SECTION 401(k)
maintained by the EMPLOYER, are determined as if the total of
such CONTRIBUTION PERCENTAGE AMOUNTS was made to each plan. If
a HIGHLY COMPENSATED EMPLOYEE participates in 2 or more cash
or deferred arrangements that have different plan years, all
cash or deferred arrangements ending with or within the same
calendar year are treated as 1 arrangement. Notwithstanding
the foregoing, certain plans are treated as separate if
mandatorily disaggregated by CODE SECTION 401(m) REGULATIONS.
(e) If THIS PLAN satisfies CODE SECTIONS 401(m), 401(a)(4) or
410(b) only if aggregated with 1 or more other plans, or if 1
or more other plans satisfy such CODE SECTIONS only if
aggregated with THIS PLAN, this Section is applied by
determining the CONTRIBUTION PERCENTAGE of EMPLOYEES as if all
such plans were 1 plan. Any adjustments to the NON-HIGHLY
COMPENSATED EMPLOYEE ACP for the prior year will be according
to Notice 98-1 and any superseding guidance, unless the
EMPLOYER has elected to use the current year testing method.
Plans may be aggregated to satisfy CODE SECTION 401(m) only if
they have the same PLAN YEAR and use the same ACP testing
method.
(f) To determine the CONTRIBUTION PERCENTAGE test, EMPLOYEE
CONTRIBUTIONS are considered to have been made in the PLAN
YEAR in which contributed to the TRUST. MATCHING CONTRIBUTIONS
and QUALIFIED NON-ELECTIVE CONTRIBUTIONS are considered made
for a PLAN YEAR if made no later than the end of the 12-month
period beginning on the day after the close of the PLAN YEAR.
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(g) The EMPLOYER maintains records sufficient to demonstrate
satisfaction of the ACP TEST and the amount of QUALIFIED
NON-ELECTIVE CONTRIBUTIONS or QUALIFIED MATCHING
CONTRIBUTIONS, or both, used in such test.
2.16 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
Notwithstanding any other provision, EXCESS AGGREGATE CONTRIBUTIONS, plus any
income and minus any loss allocable thereto, are forfeited, if forfeitable, or
if not forfeitable, distributed no later than the last day of each PLAN YEAR to
PARTICIPANTS to whose ACCOUNTS such EXCESS AGGREGATE CONTRIBUTIONS were
allocated for the preceding PLAN YEAR.
EXCESS AGGREGATE CONTRIBUTIONS are allocated to the HIGHLY COMPENSATED EMPLOYEES
with the largest contribution percentage amounts taken into account in
calculating the ACP TEST for the year in which the excess arose, beginning with
the HIGHLY COMPENSATED EMPLOYEE with the largest amount of such contribution
percentage amounts and continuing in descending order until all the EXCESS
AGGREGATE CONTRIBUTIONS have been allocated. For the preceding sentence, the
"largest amount" is determined after distribution of any EXCESS AGGREGATE
CONTRIBUTIONS.
If such EXCESS AGGREGATE CONTRIBUTIONS are distributed more than 2 " months
after the last day of the PLAN YEAR in which such excess amounts arose, a 10%
excise tax is imposed on the EMPLOYER as to those amounts. EXCESS AGGREGATE
CONTRIBUTIONS are treated as ANNUAL ADDITIONS to THIS PLAN.
EXCESS AGGREGATE CONTRIBUTIONS are adjusted for any income or loss up to the
date of distribution. The income or loss allocable to EXCESS AGGREGATE
CONTRIBUTIONS allocated to each PARTICIPANT is the sum of: (i) income or loss
allocable to the PARTICIPANT'S EMPLOYEE CONTRIBUTION ACCOUNT, MATCHING
CONTRIBUTION ACCOUNT, QUALIFIED MATCHING CONTRIBUTION ACCOUNT (if any, and if
all amounts therein are not used in the ADP test) and, if applicable, QUALIFIED
NON-ELECTIVE CONTRIBUTION ACCOUNT and ELECTIVE DEFERRAL ACCOUNT for the PLAN
YEAR multiplied by a fraction, the numerator of which is such PARTICIPANT'S
EXCESS AGGREGATE CONTRIBUTIONS for the year and the denominator is the
PARTICIPANT'S ACCOUNT BALANCE(S) attributable to CONTRIBUTION PERCENTAGE AMOUNTS
without regard to any income or loss occurring during such PLAN YEAR; and (ii)
10% of the amount determined in (i) multiplied by the number of whole calendar
months between the end of the PLAN YEAR and the date of distribution, counting
the month of distribution if distribution occurs after the 15th of such month.
2.17 QUALIFIED NON-ELECTIVE CONTRIBUTIONS
The EMPLOYER may make QUALIFIED NON-ELECTIVE CONTRIBUTIONS to THIS PLAN as
elected in the ADOPTION AGREEMENT.
In addition, if the Employer has elected to use the current year testing method,
in lieu of distributing EXCESS CONTRIBUTIONS in subsection 2.12, or EXCESS
AGGREGATE CONTRIBUTIONS as provided in
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subsection 2.16, and to the extent elected by the EMPLOYER in the ADOPTION
AGREEMENT, the EMPLOYER may make QUALIFIED NON-ELECTIVE CONTRIBUTIONS for
NON-HIGHLY COMPENSATED EMPLOYEES sufficient to satisfy either the AVERAGE
DEFERRAL PERCENTAGE test or the ACTUAL CONTRIBUTION PERCENTAGE test, or both,
pursuant to REGULATIONS.
2.18 FORFEITURES OF EXCESS AGGREGATE CONTRIBUTIONS
FORFEITURES of EXCESS AGGREGATE CONTRIBUTIONS may either be reallocated to the
ACCOUNTS of NON-HIGHLY COMPENSATED EMPLOYEES or applied to reduce EMPLOYER
CONTRIBUTIONS, as elected in ADOPTION AGREEMENT Section 2.
EXCESS AGGREGATE CONTRIBUTIONS are forfeited, if forfeitable, or distributed on
a pro-rata basis from the PARTICIPANT'S EMPLOYEE CONTRIBUTION ACCOUNT, MATCHING
CONTRIBUTION ACCOUNT, and QUALIFIED MATCHING CONTRIBUTION ACCOUNT (and, if
applicable, the PARTICIPANT'S QUALIFIED NON-ELECTIVE CONTRIBUTION ACCOUNT or
ELECTIVE DEFERRAL ACCOUNT, or both).
2.19 NONFORFEITABILITY AND VESTING
The PARTICIPANT'S ACCRUED BENEFIT derived from ELECTIVE DEFERRALS, QUALIFIED
NON-ELECTIVE CONTRIBUTIONS, EMPLOYEE NONDEDUCTIBLE CONTRIBUTIONS, and QUALIFIED
MATCHING CONTRIBUTIONS is nonforfeitable. Separate ACCOUNTS for ELECTIVE
DEFERRALS, QUALIFIED NON-ELECTIVE CONTRIBUTIONS, EMPLOYEE NONDEDUCTIBLE
CONTRIBUTIONS, MATCHING CONTRIBUTIONS, and QUALIFIED MATCHING CONTRIBUTIONS are
maintained for each PARTICIPANT. Each ACCOUNT is credited with the applicable
contributions and earnings thereon.
DEFINITIONS
2.20 COMPENSATION
(a) "COMPENSATION" is compensation as that term is defined in this
subsection 2.20(a). For any SELF-EMPLOYED INDIVIDUAL in THIS
PLAN, COMPENSATION is EARNED INCOME. COMPENSATION includes
only that compensation which is actually paid to the
PARTICIPANT during the determination period. Except as
provided elsewhere in THIS PLAN, the determination period is
the period elected by the EMPLOYER in the ADOPTION AGREEMENT.
If the EMPLOYER makes no election, the determination period is
the PLAN YEAR.
Notwithstanding the above, if elected by the EMPLOYER in the
ADOPTION AGREEMENT, COMPENSATION includes any amount
contributed by the EMPLOYER by a salary reduction agreement
and not includible in the gross income of the EMPLOYEE in CODE
SECTIONS 125, 402(e)(3), 402(h)(1)(B) or 403(b).
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In addition, the EMPLOYER may elect in the ADOPTION AGREEMENT
for COMPENSATION and 414(s) COMPENSATION to not include gross
income from CODE SECTIONS 125, 402(e)(3), 402(h)(1)(B), 403(b)
or 457(b).
For PLAN YEARS beginning on or after January 1, 1989, and
before January 1, 1994, The annual COMPENSATION of each
PARTICIPANT to determine all benefits in THIS PLAN for any
PLAN YEAR does not exceed $200,000, adjusted at the same time
and in the same manner as in CODE SECTION 415(d), except that
the dollar increase in effect on January 1 of any calendar
year is effective for PLAN YEARS beginning in such calendar
year and the first adjustment to the $200,000 limitation is
effective on January 1, 1990.
For PLAN YEARS beginning on or after January 1, 1994, the
annual COMPENSATION of each PARTICIPANT to determine all
benefits in THIS PLAN for any PLAN YEAR does not exceed
$150,000, as adjusted for increases in the cost-of-living by
CODE SECTION 401(a)(17)(B). The cost-of-living adjustment in
effect for a calendar year applies to any determination period
beginning in such calendar year.
If a determination period consists of fewer than 12 months the
annual COMPENSATION limit is an amount equal to the otherwise
applicable annual COMPENSATION limit multiplied by a fraction,
the numerator of which is the number of months in the short
determination period, and the denominator of which is 12.
If COMPENSATION for any prior determination period is taken
into account to determine a PARTICIPANT'S allocations for the
current PLAN YEAR, the COMPENSATION for such prior
determination period is subject to the applicable annual
COMPENSATION limit in effect for that prior period. For this
purpose, in determining allocations in PLAN YEARS beginning on
or after January 1, 1989, the annual COMPENSATION limit in
effect for determination periods beginning before that date is
$200,000.
(b) "EARNED INCOME" is the net earnings from self-employment in
the trade or business for which THIS PLAN is established, for
which personal services of the individual are a material
income-producing factor. Net earnings are determined without
items not included in gross income and the deductions
allocable to such items. Net earnings are reduced by
CONTRIBUTIONS by the EMPLOYER to a qualified plan to the
extent deductible by CODE SECTION 404.
Net earnings are determined with the deduction allowed to the
taxpayer by CODE SECTION 164(f) for taxable years beginning
after December 31, 1989.
(c) "PLAN YEAR" is the 12-consecutive month period elected by the
EMPLOYER in the ADOPTION AGREEMENT.
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(d) "DISABILITY" means inability to engage in any substantial
gainful activity because of any medically determinable
physical or mental impairment that can be expected to result
in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months. The permanence
and degree of such impairment are to be supported by medical
evidence.
If elected by the EMPLOYER in the ADOPTION AGREEMENT,
nonforfeitable contributions are made to THIS PLAN on behalf
of each disabled PARTICIPANT (who is not a HIGHLY COMPENSATED
EMPLOYEE within the meaning of subsection 2.22(i)).
(e) "OWNER-EMPLOYEE" is an individual who is a sole proprietor, or
who is a partner owning more than 10% of either the capital or
profits interest of the partnership.
(f) "SELF-EMPLOYED INDIVIDUAL" is an individual who has earned
income for the taxable year from the trade or business for
which THIS PLAN is established; also, an individual who would
have had earned income but for the fact that the trade or
business had no net profits for the taxable year.
(g) "COMPENSATION" is 1 of the following as elected by the
EMPLOYER in the ADOPTION AGREEMENT:
(1) Information required to be reported by CODE SECTIONS
6041, 6051, and 6052 (Wages, tips and other
compensation as reported on Form W-2). COMPENSATION
is defined as wages in CODE SECTION 3401(a) and all
other payments of COMPENSATION to an EMPLOYEE by the
EMPLOYER (in the course of the EMPLOYER'S trade or
business) for which the EMPLOYER is required to
furnish the employee a written statement by CODE
SECTIONS 6041(d), 6051(a)(3), and 6052. COMPENSATION
is determined without any rules in CODE SECTION
3401(a) that limit the remuneration included in wages
based on the nature or location of the employment or
the services performed (such as the exception for
agricultural labor in CODE SECTION 3401(a)(2)).
(2) Section 3401(a) wages. COMPENSATION is defined as
wages by CODE SECTION 3401(a) for income tax
withholding at the source but determined without any
rules that limit the remuneration included in wages
based on the nature or location of the employment or
the services performed (such as the exception for
agricultural labor in CODE SECTION 3401(a)(2)).
(3) 415 safe-harbor compensation. COMPENSATION is defined
as wages, salaries, and fees for professional
services and other amounts received (without regard
to whether or not an amount is paid in cash) for
personal services actually rendered in the course of
employment with the EMPLOYER maintaining THIS PLAN to
the extent that the amounts are includable in gross
income (including, but not limited to, commissions
paid salesmen, compensation for services on the basis
of a percentage of profits, commissions on insurance
premiums,
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tips, bonuses, fringe benefits, and reimbursements or
other expense allowances in a nonaccountable plan (as
described in REGULATIONS 1.62-2(c)), and excluding
the following:
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(A) EMPLOYER contributions to a plan of deferred
compensation not includible in the
EMPLOYEE'S gross income for the taxable year
in which contributed, or EMPLOYER
CONTRIBUTIONS by a simplified employee
pension plan, or any distributions from a
plan of deferred compensation;
(B) Amounts realized from the exercise of a
non-qualified stock option, or when
restricted stock (or property) held by the
EMPLOYEE either becomes freely transferable
or is no longer subject to a substantial
risk of forfeiture;
(C) Amounts realized from the sale, exchange or
other disposition of stock acquired by a
qualified stock option; and
(D) other amounts which received special tax
benefits, or contributions made by the
EMPLOYER (whether or not under a salary
reduction agreement) towards the purchase of
an annuity contract in CODE SECTION 403(b)
(whether or not the contributions are
actually excludable from the gross income of
the EMPLOYEE).
For any SELF-EMPLOYED INDIVIDUAL, "Compensation" is EARNED
INCOME.
(1) For limitation years beginning after December 31,
1991, applying the limitations of this article,
COMPENSATION for a LIMITATION YEAR is the
COMPENSATION actually paid or made available in gross
income during such LIMITATION YEAR.
(2) Notwithstanding the preceding sentence, COMPENSATION
for a PARTICIPANT in a defined contribution plan who
is permanently and totally disabled (in CODE SECTION
22(e)(3)) is the COMPENSATION such PARTICIPANT would
have received for the LIMITATION YEAR if the
PARTICIPANT had been paid at the rate of COMPENSATION
paid immediately before becoming permanently and
totally disabled; for limitation years beginning
before January 1, 1997, but not for limitation years
beginning after December 31, 1996, such imputed
COMPENSATION for the disabled PARTICIPANT may be
taken into account only if the PARTICIPANT is not a
HIGHLY COMPENSATED EMPLOYEE (in subsection 2.22(i))
and contributions made on behalf of such PARTICIPANT
are nonforfeitable when made.
For limitation years beginning after December 31,
1997, to apply the limitations of this Section,
COMPENSATION paid or made available during such
limitation year shall include any elective deferral
(in CODE SECTION
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402(g)(3)), and any amount contributed or deferred by
the EMPLOYER at the election of the EMPLOYEE and not
includible in the gross income of the EMPLOYEE by
CODE SECTION 125 or 457.
(h) "ACCOUNT" is the separate account maintained for each
EMPLOYEE.
Separate accounts for ELECTIVE DEFERRALS, QUALIFIED
NON-ELECTIVE CONTRIBUTIONS, QUALIFIED MATCHING CONTRIBUTIONS,
MATCHING CONTRIBUTIONS, NON-ELECTIVE EMPLOYER CONTRIBUTIONS,
NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS and EMPLOYEE ROLLOVER
CONTRIBUTIONS are maintained for each PARTICIPANT. Each
ACCOUNT is credited with the applicable contributions, net
earnings and losses, and distributions.
2.21 MAXIMUM ANNUAL ADDITIONS
(a) "ANNUAL ADDITION" is the sum of the following amounts credited
to a PARTICIPANT'S ACCOUNT for the LIMITATION YEAR:
(1) EMPLOYER CONTRIBUTIONS which include EMPLOYEE
ELECTIVE DEFERRALS, QUALIFIED NON-ELECTIVE
CONTRIBUTIONS, QUALIFIED MATCHING CONTRIBUTIONS,
MATCHING CONTRIBUTIONS, and NON-ELECTIVE EMPLOYER
CONTRIBUTIONS;
(2) EMPLOYEE NONDEDUCTIBLE CONTRIBUTIONS;
(3) FORFEITURES;
(4) amounts allocated, after March 31, 1984, to an
individual medical account, in CODE SECTION
415(1)(2), which is part of a pension or annuity plan
maintained by the EMPLOYER are treated as ANNUAL
ADDITIONS to a defined contribution plan. Also
amounts from contributions paid or accrued after
December 31, 1985, in taxable years ending after such
date, attributable to post-retirement medical
benefits, allocated to the separate account of a KEY
EMPLOYEE, in CODE SECTION 419A(d)(3) of the Code,
under a welfare benefit fund, in CODE SECTION 419(e),
maintained by the EMPLOYER are treated as ANNUAL
ADDITIONS to a defined contribution plan; and
(5) allocations by a simplified employee pension. For
this purpose, any EXCESS AMOUNT applied by
subsections 2.4(d) or 2.4(j) in the LIMITATION YEAR
to reduce EMPLOYER CONTRIBUTIONS are considered
ANNUAL ADDITIONS for such LIMITATION YEAR.
(b) "DEFINED CONTRIBUTION DOLLAR LIMITATION" is the limit in CODE
SECTION 415(c) as adjusted by CODE SECTION 415(d) as in effect
for the LIMITATION YEAR.
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(c) EMPLOYER includes all members of a controlled group of
corporations (in CODE SECTION 414(b) as modified by CODE
SECTION 415(h)), all commonly controlled trades or businesses
(in CODE SECTION 414(c) as modified by CODE SECTION 415(h)) or
affiliated service groups (in CODE SECTION 414(m)) of which
the EMPLOYER is a part, and any other entity required to be
aggregated with the EMPLOYER in CODE SECTION 414(o) and its
REGULATIONS.
(d) "EXCESS AMOUNT" is the excess of the PARTICIPANT'S ANNUAL
ADDITIONS for the LIMITATION YEAR over the MAXIMUM PERMISSIBLE
AMOUNT.
(e) "HIGHEST AVERAGE COMPENSATION" is a PARTICIPANT'S average
COMPENSATION for the 3 consecutive YEARS OF SERVICE with the
EMPLOYER that produces the highest average.
(f) "LIMITATION YEAR" is a calendar year, or the 12-consecutive
month period the EMPLOYER elects in ADOPTION AGREEMENT Section
2. 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.
"MASTER OR PROTOTYPE PLAN" is a plan the form of which is the
subject of a favorable opinion letter from the Internal
Revenue Service.
(g) "MAXIMUM PERMISSIBLE AMOUNT" is the maximum ANNUAL ADDITION
that may be contributed or allocated to a PARTICIPANT'S
ACCOUNT in THIS PLAN for any LIMITATION YEAR which shall not
exceed the lesser of:
(1) the DEFINED CONTRIBUTION DOLLAR LIMITATION or
(2) 25% of the PARTICIPANT'S COMPENSATION for the
LIMITATION YEAR.
The compensation limitation referred to in 2.20(a) does not
apply to any contribution for medical benefits (in CODE
SECTION 401(h) or 419A(f)(2)) which is otherwise treated as an
ANNUAL ADDITION in CODE SECTION 415(1)(1) or 419A(d)(2).
If a short LIMITATION YEAR is created because of an amendment
changing the LIMITATION YEAR to a different 12-consecutive
month period, the MAXIMUM
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PERMISSIBLE AMOUNT does not exceed the DEFINED CONTRIBUTION
DOLLAR LIMITATION multiplied by the following fraction:
NUMBER OF MONTHS IN THE SHORT LIMITATION YEAR DIVIDED BY 12
"PROJECTED ANNUAL BENEFIT" is the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity
if such benefit is expressed in a form other than a straight
life annuity or QUALIFIED JOINT AND SURVIVOR ANNUITY) to which
the PARTICIPANT would be entitled by THIS PLAN assuming:
(1) the PARTICIPANT continues employment until NORMAL
RETIREMENT AGE in THIS PLAN (or current age, if
later), and
(2) the PARTICIPANT'S COMPENSATION for the current
LIMITATION YEAR and all other relevant factors used
to determine benefits under THIS PLAN remain constant
for all future LIMITATION YEARS.
2.22 TOP-HEAVY
(a) "KEY EMPLOYEE" is any EMPLOYEE or former EMPLOYEE (and the
BENEFICIARIES of such EMPLOYEE) who at any time during the
determination period was an officer of the EMPLOYER if such
individual's ANNUAL COMPENSATION exceeds 50% of the dollar
limitation in CODE SECTION 415(b)(1)(A), an owner (or
considered an owner under CODE SECTION 318) of 1 of the 10
largest interests in the EMPLOYER if such individual's
compensation exceeds 100% of the dollar limitation under CODE
Section 415(c)(1)(A), a 5% OWNER of the EMPLOYER, or a 1%
OWNER of the EMPLOYER who has an ANNUAL COMPENSATION of more
than $150,000.
"NON-KEY EMPLOYEE" is an EMPLOYEE who is not a KEY EMPLOYEE.
"ANNUAL COMPENSATION" is compensation as defined in ADOPTION
AGREEMENT Section 2, but including amounts contributed by the
EMPLOYER by a salary reduction agreement which are excludable
from the EMPLOYEE'S gross income in CODE SECTION 125,
402(e)(3), 402(h)(1)(B) or 403(b).
The "Determination Period" is the PLAN YEAR containing the
determination date and the 4 preceding PLAN YEARS.
To determine who is a KEY EMPLOYEE is made by CODE SECTION 416(i)(1)
and its REGULATIONS.
(b) "Top-Heavy Plan" is any PLAN YEAR beginning after December 31,
1983, THIS PLAN if any of the following conditions exists:
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(1) If the TOP-HEAVY RATIO for THIS PLAN exceeds 60% and
THIS PLAN is not part of any REQUIRED AGGREGATION
GROUP or PERMISSIVE AGGREGATION GROUP of plans.
(2) If THIS PLAN is a part of a REQUIRED AGGREGATION
GROUP of plans but not part of a PERMISSIVE
AGGREGATION GROUP and the TOP-HEAVY RATIO for the
group of plans exceeds 60%.
(3) If THIS PLAN is a part of a REQUIRED AGGREGATION
GROUP and part of a PERMISSIVE AGGREGATION GROUP of
plans and the TOP-HEAVY RATIO for the PERMISSIVE
AGGREGATION GROUP exceeds 60%.
(c) "TOP-HEAVY RATIO" is
(1) If the EMPLOYER maintains 1 or more defined
contribution plans (including any Simplified Employee
Pension Plan) and the EMPLOYER has not maintained any
defined benefit plan which during the 5-year period
ending on the DETERMINATION DATE(S) has or has had
accrued benefits, the TOP-HEAVY RATIO for THIS PLAN
alone or for the REQUIRED OR PERMISSIVE AGGREGATION
GROUP as appropriate is a fraction, the numerator of
which is the sum of the ACCOUNT BALANCES of all KEY
EMPLOYEES as of the DETERMINATION DATE(S) (including
any part of any ACCOUNT BALANCE distributed in the
5-year period ending on the DETERMINATION DATE(S)),
and the denominator of which is the sum of all
ACCOUNT BALANCES (including any part of any account
balance distributed in the 5-year period ending on
the DETERMINATION DATE(S)), both computed by CODE
SECTION 416 and its REGULATIONS. Both the numerator
and denominator of the TOP-HEAVY RATIO are increased
to reflect any contribution not actually made as of
the DETERMINATION DATE, but which is required to be
taken into account on that date by CODE SECTION 416
and its REGULATIONS.
(2) If the EMPLOYER maintains 1 or more defined
contribution plans (including any Simplified Employee
Pension Plan) and the EMPLOYER maintains or has
maintained 1 or more defined benefit plans which
during the 5-year period ending on the DETERMINATION
DATE(S) has or has had any accrued benefits, the
TOP-HEAVY RATIO for any REQUIRED OR PERMISSIVE
AGGREGATION GROUP as appropriate is a fraction, the
numerator of which is the sum of ACCOUNT BALANCES in
the aggregated defined contribution plan or plans for
all KEY EMPLOYEES, determined by (1) above, and
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the present value of accrued benefits under the
aggregated defined benefit plan or plans for all KEY
EMPLOYEES as of the DETERMINATION DATE(S), and the
denominator of which is the sum of the ACCOUNT
BALANCES under the aggregated defined contribution
plan or plans for all PARTICIPANTS, determined by (1)
above, and the present value of accrued benefits in
the defined benefit plan or plans for all
PARTICIPANTS as of the DETERMINATION DATE(S), all
determined by CODE SECTION 416 and its REGULATIONS.
The accrued benefits under a defined benefit plan in
both the numerator and denominator of the TOP-HEAVY
RATIO are increased for any distribution of an
accrued benefit made in the 5-year period ending on
the DETERMINATION DATE.
(3) For (1) and (2) above the value of ACCOUNT BALANCES
and the PRESENT Value of accrued benefits are
determined as of the most recent VALUATION DATE that
falls within or ends with the 12-month period ending
on the DETERMINATION DATE, except as provided in CODE
SECTION 416 and its REGULATIONS for the first and
second PLAN YEARS of a defined benefit plan.
The ACCOUNT BALANCES and accrued benefits of a
PARTICIPANT (i) who is not a KEY EMPLOYEE but who was
a KEY EMPLOYEE in a prior year, or (ii) who has not
been credited with at least 1 HOUR OF SERVICE with
any EMPLOYER maintaining THIS PLAN at any time during
the 5-year period ending on the DETERMINATION DATE is
disregarded. The calculation of the TOP-HEAVY RATIO,
and the extent to which distributions, rollovers, and
transfers are taken into account are made in
accordance with CODE Section 416 and its REGULATIONS.
DEDUCTIBLE EMPLOYEE CONTRIBUTIONS are not be taken
into account to compute the TOP-HEAVY RATIO. When
aggregating plans the value of ACCOUNT BALANCES and
accrued benefits are calculated with reference to the
DETERMINATION DATES within the same calendar year.
The accrued benefit of a PARTICIPANT other than a KEY
EMPLOYEE is determined by (i) the method, if any,
that uniformly applies for accrual purposes in all
defined benefit plans maintained by the EMPLOYER or
(ii) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual
rate permitted under the fractional rule of CODE
SECTION 411(b)(1)(C).
(4) The EMPLOYER shall not maintain THIS PLAN at any time
when the TOP-HEAVY RATIO exceeds 90%.
(d) "PERMISSIVE AGGREGATION GROUP" is the required aggregation
group of plans plus any other plan or plans of the EMPLOYER
which, when considered as a group with the required
aggregation group, continues to satisfy CODE SECTIONS
401(a)(4) and 410.
(e) "REQUIRED AGGREGATION GROUP" is (i) each qualified plan of the
EMPLOYER in which at least 1 KEY EMPLOYEE participates or
participated at any time during the determination period
(regardless of whether the plan has terminated), and (ii) any
other qualified plan of the EMPLOYER which enables a plan
described in (i) to satisfy
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CODE SECTIONS 401(a)(4) or 410.
(f) "DETERMINATION DATE" is, for any plan year subsequent to the
first plan year, the last day of the preceding plan year. For
the first plan year of the plan, it is the last day of that
year.
(g) "VALUATION DATE" is the date the EMPLOYER elects in the
ADOPTION AGREEMENT as of which ACCOUNT BALANCES or accrued
benefits are valued for calculating the TOP-HEAVY RATIO.
(h) "PRESENT VALUE" is based only on the interest and mortality
rates specified in the ADOPTION AGREEMENT.
(i) Effective for years beginning after December 31, 1996, "HIGHLY
COMPENSATED EMPLOYEE" is any employee who:
- was a 5% OWNER at any time during the year
or the preceding year, or
- for the preceding year had compensation from
the EMPLOYER in excess of $80,000 and, if
the EMPLOYER so elects, was in the top-paid
group for the preceding year. The $80,000
amount is adjusted at the same time and in
the same manner as in CODE SECTION 415(d),
except that the base period is the calendar
quarter ending September 30, 1996.
The applicable year for which a determination is being made is
called a "DETERMINATION YEAR" and the preceding 12-month
period is called a "LOOK-BACK YEAR".
A highly compensated former employee is based on the rules
applicable to determining HIGHLY COMPENSATED EMPLOYEE status
as in effect for that DETERMINATION YEAR, according to Temp.
Regs. 1.414(q)-1T, A-4 and Notice 97-45.
To determine whether an EMPLOYEE is a HIGHLY COMPENSATED
EMPLOYEE for years beginning in 1997, the amendments to
Section 414(q) stated above are treated as having been in
effect for years beginning in 1996.
For this subsection, COMPENSATION has the meaning in
subsection 2.20(g), including amounts contributed by the
Employer pursuant to salary reduction agreements which are
excludable from the Employee"s gross income in Code Section
125, 402(e)(3), 402 (h)(1)(b) or 403(b).
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2.23 ELECTIVE DEFERRALS
(a) "EMPLOYEE ELECTIVE DEFERRAL" is any EMPLOYER CONTRIBUTION to
THIS PLAN at the election of the PARTICIPANT after December
31, 1996, in lieu of cash compensation, and includes
contributions made pursuant to a salary reduction agreement or
other deferral mechanism. As to any taxable year, a
PARTICIPANT'S ELECTIVE DEFERRAL is the sum of all EMPLOYER
CONTRIBUTIONS made for such PARTICIPANT by an election to
defer by any qualified CODA in CODE SECTION 401(k), any salary
reduction simplified employee pension cash or deferred
arrangement in CODE SECTION 408(k)(6), any eligible deferred
compensation plan in CODE SECTION 457, any plan in CODE
SECTION 501(c)(18), and any EMPLOYER CONTRIBUTIONS made for a
PARTICIPANT for the purchase of an annuity contract in CODE
SECTION 403(b) by a salary reduction agreement. ELECTIVE
DEFERRALS do not include any deferrals properly distributed as
EXCESS ANNUAL ADDITIONS.
(b) "EXCESS ELECTIVE DEFERRALS" are those Elective Deferrals
includible in a PARTICIPANT'S gross income in CODE SECTION
402(g) to the extent such Participant's ELECTIVE DEFERRALS for
a taxable year exceed the dollar limitation in such CODE
SECTION. EXCESS ELECTIVE DEFERRALS are treated as ANNUAL
ADDITIONS in THIS PLAN, unless such amounts are distributed no
later than the first April 15 following the close of the
PARTICIPANT'S taxable year.
(c) "ACTUAL DEFERRAL PERCENTAGE" is, for a specified group of
PARTICIPANTS for a PLAN YEAR, the average of the ratios
(calculated separately for each PARTICIPANT in such group) of
(i) the amount of EMPLOYER CONTRIBUTIONS actually paid to the
TRUST for such PARTICIPANT for the PLAN YEAR to (ii) the
PARTICIPANT'S COMPENSATION for such PLAN YEAR. EMPLOYER
CONTRIBUTIONS for any PARTICIPANT include: (i) any ELECTIVE
DEFERRALS made from the PARTICIPANT'S deferral election
(including EXCESS ELECTIVE DEFERRALS of HIGHLY COMPENSATED
EMPLOYEES), but excluding (a) EXCESS ELECTIVE DEFERRALS of
NON-HIGHLY COMPENSATED EMPLOYEES that arise solely from
ELECTIVE DEFERRALS made to the plan or plans of the EMPLOYER
and (b) ELECTIVE DEFERRALS taken into account in the
Contribution Percentage test (if the ADP test is satisfied
both with and without exclusion of these ELECTIVE DEFERRALS);
and (ii), at the election of the EMPLOYER, QUALIFIED
NON-ELECTIVE CONTRIBUTIONS and QUALIFIED MATCHING
CONTRIBUTIONS. To compute AVERAGE DEFERRAL PERCENTAGES, an
EMPLOYEE who would be a PARTICIPANT but for the failure to
make ELECTIVE DEFERRALS are treated as a PARTICIPANT on whose
behalf no ELECTIVE DEFERRALS are made.
(d) "EXCESS CONTRIBUTION" is, as to any PLAN YEAR, the excess of:
(1) The aggregate amount of EMPLOYER CONTRIBUTIONS
actually used in computing the ADP of HIGHLY
COMPENSATED EMPLOYEES for such PLAN YEAR, over
(2) The maximum amount of such contributions permitted by
the ADP test (determined by reducing contributions
made for HIGHLY COMPENSATED EMPLOYEES in order of the
ADPs, beginning with the highest of such
percentages).
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(e) "QUALIFIED MATCHING CONTRIBUTION" is MATCHING CONTRIBUTION
subject to the distribution and nonforfeitability requirements
in CODE SECTION 401(k) when made.
(f) "AGGREGATE LIMIT" is the sum of (i) 125% of the greater of the
ADP of the NON-HIGHLY COMPENSATED EMPLOYEES for the prior PLAN
YEAR or the ACP of NON-HIGHLY COMPENSATED EMPLOYEES in the
plan subject to CODE SECTION 401(m) for the PLAN YEAR
beginning with or within the prior PLAN YEAR of the CODA and
(ii) the lesser of 200% or 2 plus the lesser of such ADP or
ACP. "Lesser" is substituted for "greater" in "(i)", above,
and "greater" is substituted for "lesser" after "2 plus the"
in "(ii)" if it results in a larger AGGREGATE LIMIT. If the
EMPLOYER has elected to use the current year testing method,
then, in calculating the AGGREGATE LIMIT for a particular PLAN
YEAR, the NON-HIGHLY COMPENSATED EMPLOYEES' ADP and ACP for
that PLAN YEAR, instead of for the prior PLAN YEAR is used.
(g) "ELIGIBLE PARTICIPANT" is any EMPLOYEE who is eligible to make
an EMPLOYEE NONDEDUCTIBLE CONTRIBUTION, or an ELECTIVE
DEFERRAL (if the EMPLOYER takes such contributions into
account in the calculation of the CONTRIBUTION PERCENTAGE), or
to receive a MATCHING CONTRIBUTION (including FORFEITURES) or
a QUALIFIED MATCHING CONTRIBUTION. If an EMPLOYEE CONTRIBUTION
is required as a condition of participation in THIS PLAN, any
EMPLOYEE who would be a PARTICIPANT in THIS PLAN if such
EMPLOYEE made such a contribution is treated as an ELIGIBLE
PARTICIPANT on behalf of whom no EMPLOYEE CONTRIBUTIONS are
made.
2.24 CONTRIBUTION PERCENTAGE
(a) "AVERAGE CONTRIBUTION PERCENTAGE" is the average of the
CONTRIBUTION PERCENTAGES of the Eligible PARTICIPANTS in a
group.
(b) "CONTRIBUTION PERCENTAGE" is the ratio (expressed as a
percentage) of the PARTICIPANT'S CONTRIBUTION PERCENTAGE
AMOUNTS to the PARTICIPANT'S COMPENSATION for the PLAN YEAR
(whether or not the EMPLOYEE was a PARTICIPANT for the entire
PLAN YEAR).
(c) "CONTRIBUTION PERCENTAGE AMOUNT" is the sum of the EMPLOYEE
Contributions, MATCHING CONTRIBUTIONS, and QUALIFIED MATCHING
CONTRIBUTIONS (to the extent not taken into account for the
ADP test) to THIS PLAN for the PARTICIPANT for the PLAN YEAR.
Such CONTRIBUTION PERCENTAGE AMOUNTS do not include MATCHING
CONTRIBUTIONS that are forfeited either to correct EXCESS
AGGREGATE CONTRIBUTIONS or because the contributions to which
they relate are EXCESS DEFERRALS, EXCESS CONTRIBUTIONS, or
EXCESS AGGREGATE CONTRIBUTIONS. If so elected in the ADOPTION
AGREEMENT the EMPLOYER may include QUALIFIED NON-ELECTIVE
CONTRIBUTIONS in the CONTRIBUTION PERCENTAGE AMOUNTS. The
EMPLOYER also may elect to use ELECTIVE
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DEFERRALS in the CONTRIBUTION PERCENTAGE AMOUNTS as long as
the ADP test is met before the ELECTIVE DEFERRALS are used in
the ACP test and continues to be met following the exclusion
of those ELECTIVE DEFERRALS used to meet the ACP test.
(d) "EMPLOYEE NONDEDUCTIBLE CONTRIBUTION" is any contribution to
THIS PLAN by or on behalf of a PARTICIPANT included in the
PARTICIPANT'S gross income in the year in which made and that
is maintained in a separate ACCOUNT to which earnings and
losses are allocated.
(e) "MATCHING CONTRIBUTION" is an EMPLOYER CONTRIBUTION to this or
any other defined contribution plan for a PARTICIPANT for an
EMPLOYEE NONDEDUCTIBLE CONTRIBUTION made by such PARTICIPANT,
or for a PARTICIPANT'S ELECTIVE DEFERRAL, in a plan maintained
by the EMPLOYER.
(f) "EXCESS AGGREGATE CONTRIBUTION" is, as to any PLAN YEAR, the
excess of:
(1) The aggregate CONTRIBUTION PERCENTAGE AMOUNTS in
computing the numerator of the CONTRIBUTION
PERCENTAGE actually made on behalf of HIGHLY
COMPENSATED EMPLOYEES for such PLAN YEAR, over
(2) The maximum CONTRIBUTION PERCENTAGE AMOUNTS permitted
by the ACP test (determined by reducing contributions
for HIGHLY COMPENSATED EMPLOYEES in order of their
CONTRIBUTION PERCENTAGES beginning with the highest
of such percentages).
Such determination is made after first determining
EXCESS ELECTIVE DEFERRALS by subsection 2.23(b) and
then determining EXCESS Contributions by subsection
2.23(d).
(g) "QUALIFIED NON-ELECTIVE CONTRIBUTION" is a contribution (other
than a MATCHING CONTRIBUTION or QUALIFIED MATCHING
CONTRIBUTION) made by the EMPLOYER and allocated to a
PARTICIPANT'S ACCOUNT that the PARTICIPANT may not elect to
receive in cash until distributed from THIS PLAN; that are
nonforfeitable when made; and that are distributable only with
the distribution provisions applicable to ELECTIVE DEFERRALS
and QUALIFIED MATCHING CONTRIBUTIONS (but not as a hardship
distribution).
SECTION 3. BENEFITS
================================================================================
3.1 BENEFITING
A PARTICIPANT is treated as benefiting in THIS PLAN for any PLAN YEAR during
which the PARTICIPANT receives or is deemed to receive an allocation by
REGULATION 1.410(b)-3(a).
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3.2 JOINT AND SURVIVOR ANNUITY AND PRERETIREMENT SURVIVOR ANNUITY
(a) This Section applies to any PARTICIPANT who is credited with
at least 1 HOUR OF SERVICE with the EMPLOYER on or after
August 23, 1984, and such other PARTICIPANTS as provided in
subparagraph (f) below.
(b) Qualified Joint and Survivor Annuity.
If the EMPLOYER elects in the ADOPTION AGREEMENT to provide
benefits which satisfy this subsection 3.2 and unless an
optional form of benefit is selected by a QUALIFIED ELECTION
within the 90-day period ending on the ANNUITY STARTING DATE,
a married PARTICIPANT'S VESTED ACCOUNT BALANCE is paid in the
form of a QUALIFIED JOINT AND SURVIVOR ANNUITY and an
unmarried PARTICIPANT'S VESTED ACCOUNT BALANCE is paid in the
form of a LIFE ANNUITY. The PARTICIPANT may elect to have such
annuity distributed on attainment of the EARLIEST RETIREMENT
AGE in THIS PLAN.
(c) Qualified Preretirement Survivor Annuity.
Unless an optional form of benefit is selected within the
ELECTION Period by a QUALIFIED ELECTION, if a PARTICIPANT dies
before the ANNUITY STARTING DATE the PARTICIPANT'S VESTED
ACCOUNT BALANCE is applied to provide an annuity for the life
of the SURVIVING SPOUSE. The SURVIVING SPOUSE may elect to
have such annuity distributed within a reasonable period after
the PARTICIPANT'S death.
(d) Notice Requirements.
(1) For a QUALIFIED JOINT AND SURVIVOR ANNUITY, the
ADMINISTRATOR, no less than 30 days and no more than
90 days prior to the ANNUITY STARTING DATE, provides
each PARTICIPANT a written explanation of: (i) the
terms and conditions of a QUALIFIED JOINT AND
SURVIVOR ANNUITY; (ii) the PARTICIPANT'S right to
make and the effect of an election to waive the
QUALIFIED JOINT AND SURVIVOR ANNUITY form of benefit;
(iii) the rights of a PARTICIPANT'S SPOUSE; and (iv)
the right to make, and the effect of, a revocation of
a previous election to waive the QUALIFIED JOINT AND
SURVIVOR ANNUITY.
The ANNUITY STARTING DATE for a distribution in a
form other than a QUALIFIED JOINT AND SURVIVOR
ANNUITY may be less than 30 days after receipt of the
written explanation described in the preceding
paragraph if: (a) the PARTICIPANT has been provided
with information that clearly indicates that the
PARTICIPANT has at least 30 days to consider whether
to waive the QUALIFIED JOINT AND SURVIVOR ANNUITY and
elect (with spousal consent) to a form of
distribution other than a QUALIFIED JOINT AND
SURVIVOR ANNUITY; (b) the PARTICIPANT is permitted to
revoke any affirmative distribution election at
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least until the ANNUITY STARTING DATE or, if later,
at any time prior to the expiration of the 7-day
period that begins the day after the explanation of
the QUALIFIED JOINT AND SURVIVOR ANNUITY is provided
to the PARTICIPANT; and (c) the ANNUITY STARTING DATE
is a date after the date that the written explanation
was provided to the PARTICIPANT.
(2) For a QUALIFIED PRERETIREMENT SURVIVOR ANNUITY, the
ADMINISTRATOR provides each PARTICIPANT within the
applicable period for such PARTICIPANT a written
explanation of the QUALIFIED PRERETIREMENT SURVIVOR
ANNUITY in such terms and in such manner as would be
comparable to the explanation provided for meeting
the requirements of paragraph (1) above for a
QUALIFIED JOINT AND SURVIVOR ANNUITY.
The applicable period for this subparagraph is
whichever of the following periods ends last: (i) the
period beginning with the first day of the PLAN YEAR
in which the PARTICIPANT attains age 32 and ending
with the close of the PLAN YEAR preceding the PLAN
YEAR in which the PARTICIPANT attains age 35; (ii) a
reasonable period ending after the individual becomes
a PARTICIPANT; (iii) a reasonable period ending after
paragraph (3) below ceases to apply to the
PARTICIPANT; (iv) a reasonable period ending after
this Section first applies to the PARTICIPANT.
Notwithstanding the foregoing, notice is provided
within a reasonable period ending after separation
from SERVICE for a PARTICIPANT who separates from
SERVICE before attaining age 35.
To apply the preceding paragraph, a reasonable period
ending after the enumerated events described in (ii),
(iii) and (iv) is the end of the 2-year period
beginning 1 year prior to the date the applicable
event occurs, and ending 1 year after that date. For
a PARTICIPANT who separates from SERVICE before the
PLAN YEAR in which he or she attains age 35, notice
is provided within the 2-year period beginning 1 year
prior to separation and ending 1 year after
separation. If such a PARTICIPANT thereafter returns
to employment with the EMPLOYER, the applicable
period for such PARTICIPANT is redetermined.
(3) Notwithstanding the other requirements of paragraph
(1) above, the respective notices prescribed by this
Section need not be given to a PARTICIPANT if (i)
THIS PLAN "fully subsidizes" the costs of a QUALIFIED
JOINT AND SURVIVOR ANNUITY or QUALIFIED PRERETIREMENT
SURVIVOR ANNUITY, and (ii) THIS PLAN does not allow
the PARTICIPANT to waive the QUALIFIED JOINT AND
SURVIVOR ANNUITY or QUALIFIED PRERETIREMENT SURVIVOR
ANNUITY and does not allow a married PARTICIPANT to
designate a nonspouse beneficiary. THIS PLAN fully
subsidizes the costs of a benefit if no increase in
cost, or decrease in benefits, to the PARTICIPANT
results from the PARTICIPANT'S failure to elect
another benefit.
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(e) Safe harbor rules.
(1) This Section applies to a PARTICIPANT in a
profit-sharing plan, and to any distribution, made on
or after the first day of the first PLAN YEAR
beginning after December 31, 1988, from or by a
separate account attributable solely to accumulated
DEDUCTIBLE EMPLOYEE CONTRIBUTIONS, in CODE SECTION
72(o)(5)(B), and maintained on behalf of a
PARTICIPANT in a money purchase pension plan,
(including a target benefit plan) if the following
conditions are satisfied: (i) the PARTICIPANT does
not or cannot elect payments in the form of a life
annuity and (ii) on the PARTICIPANT'S death, the
PARTICIPANT'S VESTED ACCOUNT BALANCE is paid to the
PARTICIPANT'S SURVIVING SPOUSE, but if there is no
SURVIVING SPOUSE, or if the SURVIVING SPOUSE has
consented in a manner conforming to a QUALIFIED
ELECTION, to the PARTICIPANT'S designated
BENEFICIARY. The SURVIVING SPOUSE may elect to have
distribution of the VESTED ACCOUNT BALANCE begin
within the 90-day period following the date of the
PARTICIPANT'S death. The ACCOUNT BALANCE is adjusted
for gains or losses occurring after the Participant's
death by the provisions of THIS PLAN governing the
adjustment of ACCOUNT BALANCES for other types of
distributions. This Section is not operative for a
PARTICIPANT in a profit-sharing plan if the plan is a
direct or indirect transferee of a defined benefit
plan, money purchase plan, a target benefit plan,
stock bonus, or profit-sharing plan which is subject
to the survivor annuity requirements of CODE SECTION
401(a)(11) and 417. If this paragraph (e) is
operative, the provisions of this subsection, other
than paragraph (f), are inoperative.
(2) The PARTICIPANT may waive the spousal death benefit
described in this subsection at any time; however, no
such waiver is effective unless it satisfies the
conditions of subsection 3.15(e) (other than the
notification requirement referred to therein) that
would apply to the PARTICIPANT'S waiver of the
QUALIFIED PRERETIREMENT SURVIVOR ANNUITY.
(3) For this Section, "VESTED ACCOUNT BALANCE" is, for a
money purchase pension plan or a target benefit plan,
the PARTICIPANT'S separate ACCOUNT BALANCE
attributable solely to accumulated DEDUCTIBLE
EMPLOYEE CONTRIBUTIONS in CODE SECTION 72(o)(5)(B).
For a profit-sharing plan, VESTED ACCOUNT BALANCE has
the same meaning as in subsection 3.15.
(f) Transitional Rules.
(1) Any living PARTICIPANT not receiving benefits on
August 23, 1984, who would otherwise not receive the
benefits prescribed by the previous subsections is
given the opportunity to elect to have the prior
subsections apply if such
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PARTICIPANT is credited with at least 1 HOUR OF
SERVICE in THIS PLAN or a predecessor plan in a PLAN
YEAR beginning on or after January 1, 1976, and such
PARTICIPANT had at least 10 years of vesting SERVICE
when he or she separated from SERVICE.
(2) Any living PARTICIPANT not receiving benefits on
August 23, 1984, who was credited with at least 1
HOUR OF SERVICE in 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, is given the opportunity to
have his or her benefits paid by subsection 3.15.
(3) The respective opportunities to elect (as described
in subsections 3.2(f)(1) and 3.2(f)(2) H are afforded
to the appropriate PARTICIPANTS during the period
beginning on August 23, 1984, and ending on the date
benefits would otherwise begin to PARTICIPANTS.
(4) Any PARTICIPANT who elects by subsection 3.2(f)(2)
and any PARTICIPANT who does not elect by subsection
3.2(f)(1) or who meets the requirements of subsection
3.2(f)(1) except that such PARTICIPANT does not have
at least 10 years of vesting SERVICE when he or she
separates from SERVICE, has his or her benefits
distributed by all of the following requirements if
benefits would have been payable in the form of a
LIFE ANNUITY:
(A) Automatic joint and survivor annuity. If
benefits in the form of a LIFE ANNUITY
become payable to a married PARTICIPANT who:
(i) begins to receive payments under
THIS 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 by THIS PLAN
and thereafter dies before
beginning to receive such benefits;
such benefits are received from
THIS PLAN in the form of a
QUALIFIED JOINT AND SURVIVOR
ANNUITY, unless the PARTICIPANT
elects otherwise during the
election period. The ELECTION
PERIOD begins at least 6 months
before the PARTICIPANT attains
QUALIFIED EARLY RETIREMENT AGE and
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ends not more than 90 days before
benefits begin. Any election
hereunder is in writing and may be
changed by the PARTICIPANT at any
time.
(B) Election of early survivor annuity. A
PARTICIPANT employed after attaining
QUALIFIED EARLY RETIREMENT AGE is given the
opportunity to elect, during the ELECTION
PERIOD, to have a survivor annuity payable
on death. If the PARTICIPANT elects the
survivor annuity, payments of such annuity
are not less than the payments which would
have been made to the SPOUSE by the
QUALIFIED JOINT AND SURVIVOR ANNUITY if the
PARTICIPANT had retired on the day before
his or her death. Any election by this
provision is in writing and may be changed
by the PARTICIPANT at any time. 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 terminates
employment.
(C) For this subsection 3.2(f):
QUALIFIED EARLY RETIREMENT AGE is the latest
of:
(i) the earliest date, in THIS 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.
3.3 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS.
(a) If the value of a PARTICIPANT'S VESTED ACCOUNT BALANCE from
EMPLOYER and EMPLOYEE CONTRIBUTIONS exceeds (or at the time of
any prior distribution (i) in PLAN YEARS beginning before
August 6, 1997, exceeded $3,500, or (ii) in PLAN Years
beginning after August 5, 1997, exceeded) $5,000, and the
ACCOUNT BALANCE is immediately distributable, the PARTICIPANT
and the PARTICIPANT'S SPOUSE (or where either the PARTICIPANT
or the SPOUSE has died, the survivor) has to consent to any
distribution of such ACCOUNT BALANCE.
The consent of the PARTICIPANT and the PARTICIPANT'S SPOUSE
has to be in writing within the 90-day period ending on the
ANNUITY STARTING DATE. The ANNUITY STARTING DATE is the first
day of the first period for which an amount is paid as an
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<PAGE> 47
annuity or any other form.
The ADMINISTRATOR notifies the PARTICIPANT and the
PARTICIPANT'S SPOUSE of the right to defer any distribution
until the PARTICIPANT'S ACCOUNT balance is no longer
immediately distributable. Such notification includes a
general description of the material features, and an
explanation of the relative values of, the optional forms of
benefit in THIS PLAN in a manner that satisfies the notice
requirements of CODE SECTION 417(a)(3), and is provided no
less than 30 days and no more than 90 days prior to the
ANNUITY STARTING DATE. However, distribution may begin less
than 30 days after the notice described in the preceding
sentence is given, if the distribution is one to which CODE
SECTIONS 401(a)(11) and 417 do not apply, the ADMINISTRATOR
clearly informs the Participant that the PARTICIPANT has a
right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution
option), and the PARTICIPANT, after receiving the notice,
affirmatively elects a distribution.
Notwithstanding the foregoing, only the PARTICIPANT need
consent to the beginning of a distribution in the form of a
QUALIFIED JOINT AND SURVIVOR ANNUITY while the ACCOUNT balance
is immediately distributable. (Furthermore, if payment in the
form of a QUALIFIED JOINT AND SURVIVOR ANNUITY is not required
for the Participant by subsection 3.2, only the PARTICIPANT
need consent to the distribution of an ACCOUNT balance that is
immediately distributable).
Neither the consent of the PARTICIPANT nor the PARTICIPANT'S
SPOUSE is required to the extent that a distribution is
required to satisfy CODE SECTION 401(a)(9) or 415. In
addition, on termination of THIS PLAN if THIS PLAN does not
offer an annuity option (purchased from a commercial provider)
and if the EMPLOYER or any entity within the same controlled
group as the EMPLOYER does not maintain another defined
contribution plan (other than an employee stock ownership plan
in CODE SECTION 4975(e)(7)), the PARTICIPANT'S ACCOUNT BALANCE
is, without the PARTICIPANT'S consent, distributed to the
PARTICIPANT. However, if any entity within the same controlled
group as the EMPLOYER maintains another defined contribution
plan (other than an employee stock ownership plan in CODE
SECTION 4975(e)(7)) the PARTICIPANT'S ACCOUNT balance is
transferred, without the PARTICIPANT'S consent, to the other
plan if the PARTICIPANT does not consent to an immediate
distribution.
An ACCOUNT BALANCE is immediately distributable if any part of
the ACCOUNT Balance could be distributed to the PARTICIPANT
(or SURVIVING SPOUSE) before the PARTICIPANT attains or would
have attained if not deceased) the later of NORMAL RETIREMENT
AGE or age 62.
(b) To determine the applicability of the foregoing consent
requirements for distributions made before the first day of
the first PLAN YEAR beginning after December 31, 1988, the
PARTICIPANT'S VESTED ACCOUNT BALANCE does not include amounts
attributable to
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<PAGE> 48
accumulated DEDUCTIBLE EMPLOYEE CONTRIBUTIONS in CODE SECTION
72(o)(5)(B).
3.4 WHEN BENEFITS BEGIN.
Unless the PARTICIPANT elects otherwise, distribution of benefits begin no later
than the 60th day after the latest of the close of the PLAN YEAR in which:
(a) the PARTICIPANT attains age 65 (or NORMAL RETIREMENT AGE, if
earlier);
(b) occurs the 10th anniversary of the year in which the
PARTICIPANT began participation in THIS PLAN; or,
(c) the PARTICIPANT separates from SERVICE with the EMPLOYER.
Notwithstanding the foregoing, the failure of a PARTICIPANT and SPOUSE to
consent to a distribution while a benefit is immediately distributable, in
subsection 3.3, is deemed an election to defer beginning of payment of any
benefit sufficient to satisfy this Section.
3.5 EARLY RETIREMENT BENEFIT.
If a PARTICIPANT separates from SERVICE before satisfying the age requirement
for early retirement, but has satisfied the SERVICE requirement, the PARTICIPANT
is entitled to elect an early retirement benefit upon satisfaction of such age
requirement.
3.6 NONTRANSFERABILITY OF ANNUITIES.
Any annuity contract distributed by THIS PLAN is nontransferable.
3.7 CONFLICTS WITH ANNUITY CONTRACTS.
The terms of any annuity contract purchased and distributed by THIS PLAN to a
PARTICIPANT or Spouse comply with the requirements of THIS PLAN.
3.8 TIMING AND MODES OF DISTRIBUTION.
(a) General Rules.
Subject to subsection 3.2, Joint and Survivor Annuity
Requirements, the requirements of this Section apply to any
distribution of a PARTICIPANT'S interest and take precedence
over any inconsistent provisions of THIS PLAN. Unless
otherwise specified, the provisions of this Section apply to
calendar years beginning after December 31, 1984.
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<PAGE> 49
All distributions required by this Section are determined and
made in accordance with the proposed CODE SECTION 401(a)(9)
REGULATIONS, including the minimum distribution incidental
benefit requirement of Proposed REGULATIONS 1.401(a)(9)-2.
(b) Required Beginning Date.
The entire interest of a PARTICIPANT are distributed or begin
to be distributed no later than the PARTICIPANT'S REQUIRED
BEGINNING DATE.
(c) Limits on Distribution Periods.
As of the first distribution calendar year, distributions, if
not made in a single-sum, may only be made over 1 of the
following periods (or a combination thereof):
(1) the life of the PARTICIPANT,
(2) the life of the PARTICIPANT and a designated
BENEFICIARY,
(3) a period certain not extending beyond the life
expectancy of the PARTICIPANT, or
(4) a period certain not extending beyond the joint and
last survivor expectancy of the PARTICIPANT and a
designated BENEFICIARY.
(d) 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
apply on or after the REQUIRED BEGINNING DATE:
(1) Individual account.
(A) 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, is at least equal the
quotient obtained by dividing the
PARTICIPANT'S BENEFIT by the APPLICABLE LIFE
EXPECTANCY.
(B) For calendar years beginning before January
1, 1989, if the PARTICIPANT'S SPOUSE is not
the designated BENEFICIARY, the method
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<PAGE> 50
of distribution selected assures that at
least 50% of the present value of the amount
available for distribution is paid within
the life expectancy of the PARTICIPANT.
(C) For calendar years beginning after December
31, 1988, the amount to be distributed each
year, beginning with distributions for the
first distribution calendar year is not less
than the quotient obtained by dividing the
PARTICIPANT'S BENEFIT by the lesser of (i)
the APPLICABLE LIFE EXPECTANCY or (ii) if
the PARTICIPANT'S SPOUSE is not the
designated BENEFICIARY, the applicable
divisor determined from the table set forth
in Q&A-4 of Proposed REGULATIONS
1.401(a)(9)-2. Distributions after the death
of the PARTICIPANT are distributed using the
applicable life expectancy in subsection
3.8(a) above as the relevant divisor without
Proposed REGULATIONS 1.401(a)(9)-2.
(D) The minimum distribution required for the
PARTICIPANT'S first distribution calendar
year are made on or before the PARTICIPANT'S
REQUIRED BEGINNING DATE. The minimum
distribution for other calendar years,
including the minimum distribution for the
distribution calendar year in which the
EMPLOYEE'S REQUIRED BEGINNING DATE occurs,
are made on or before December 31 of that
distribution calendar year.
(2) Other forms.
If the PARTICIPANT'S BENEFIT is distributed in the
form of an annuity purchased from an insurance
company, distributions thereunder are made in
accordance with the requirements of CODE SECTION
401(a)(9) and its Proposed REGULATIONS.
(e) Death Distribution Provisions.
(1) Distribution beginning before death.
If the PARTICIPANT dies after distribution of his or
her interest begins, the remaining portion of such
interest continues to be distributed at least as
rapidly as under the method of distribution being
used prior to the PARTICIPANT'S death.
(2) Distribution beginning after death.
If the PARTICIPANT dies before distribution of his or
her interest begins, distribution of the
PARTICIPANT'S entire interest is completed by
December 31 of the calendar year containing the 5th
anniversary of the PARTICIPANT'S death except to the
extent that an election is made to receive
distributions by (A) or (B) below:
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<PAGE> 51
(A) If any portion of the PARTICIPANT'S interest
is payable to a designated BENEFICIARY,
distributions may be made over the life or
over a period certain not greater than the
life expectancy of the designated
BENEFICIARY beginning on or before December
31 of the calendar year immediately
following the calendar year in which the
PARTICIPANT died;
(B) If the designated BENEFICIARY is the
PARTICIPANT'S SURVIVING SPOUSE, the date
distributions are to begin by (A) above are
not earlier than the later of (i) December
31 of the calendar year immediately
following the calendar year in which the
PARTICIPANT died and (ii) December 31 of the
calendar year in which the PARTICIPANT would
have attained age 70".
If the PARTICIPANT does not make an election
by this subsection 3.8 by the time of his or
her death, the PARTICIPANT'S designated
BENEFICIARY elects the method of
distribution no later than the earlier of
(i) December 31 of the calendar year in
which distributions would be required to
begin under this subsection, or (ii)
December 31 of the calendar year which
contains the 5th 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 is completed
by December 31 of the calendar year
containing the 5th anniversary of the
PARTICIPANT'S death.
(3) For this subsection 3.8, if the SURVIVING SPOUSE dies
after the PARTICIPANT, but before payments to such
SPOUSE begin, subsection 3.8, with the exception of
paragraph (B), is applied as if the SURVIVING SPOUSE
were the PARTICIPANT.
(4) For this subsection 3.8, distribution of a
Participant's interest is considered to begin on the
PARTICIPANT'S REQUIRED BEGINNING DATE (or, if
subsection 3.8(d)(3) above is applicable, the date
distribution is required to begin to the SURVIVING
SPOUSE in subsection 3.8(d)(2)). If distribution in
the form of an annuity irrevocably begins to the
PARTICIPANT before the REQUIRED BEGINNING DATE, the
date distribution is considered to begin is the date
distribution actually begins.
(f) Transitional Rule
(1) Notwithstanding the other requirements of this
Section and subject to the requirements of subsection
3.2, Joint and Survivor Annuity Requirements,
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distribution for any EMPLOYEE, including a 5% OR MORE
OWNER, are made by all of the following requirements
(regardless of when such distribution begins):
(A) The distribution by THIS PLAN is one which
would not have disqualified THIS PLAN by
CODE SECTION 401(a)(9) as in effect prior to
amendment by the Deficit Reduction Act of
1984.
(B) The distribution is by a method of
distribution designated by the EMPLOYEE
whose interest in THIS PLAN is being
distributed or, if the EMPLOYEE is deceased,
by a BENEFICIARY of such EMPLOYEE.
(C) Such designation was in writing, was signed
by the EMPLOYEE or the BENEFICIARY, and was
made before January 1, 1984.
(D) The EMPLOYEE had accrued a benefit in THIS
PLAN as of December 31, 1983.
(E) The method of distribution designated by the
EMPLOYEE or the BENEFICIARY specifies the
time at which distribution begins, the
period over which distributions are made,
and, in the case of any distribution upon
the EMPLOYEE'S death, the Beneficiaries of
the EMPLOYEE listed in order of priority.
(2) A distribution upon death is not covered by this
transitional rule unless the information in the
designation contains the required information
described above as to the distributions to be made at
the EMPLOYEE'S death.
(3) For any distribution which begins before January 1,
1984, but continues after December 31, 1983, the
EMPLOYEE, or the BENEFICIARY, to whom such
distribution is being made, is presumed to have
designated the method of distribution for which the
distribution is made if the method of distribution is
specified in writing and the distribution satisfies
the requirements in subsections 3.8(f)(1)(A) and (E).
(4) If a designation is revoked, any subsequent
distribution has to satisfy the requirements of CODE
SECTION 401(a)(9) and its Proposed REGULATIONS. If a
designation is revoked subsequent to the date
distributions are required to begin, THIS PLAN has to
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
Proposed REGULATIONS 401(a)(9), but for the Section
242(b)(2) election.
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For calendar years beginning after December 31, 1988,
such distributions has to meet the minimum
distribution incidental benefit requirements in
Proposed REGULATIONS 1.401(a)(9)-2. Any changes in
the designation are considered a revocation of the
designation. However, the mere substitution or
addition of another BENEFICIARY (one not named in the
designation) by the designation is not considered to
be a revocation of the designation, as long as such
substitution or addition does not alter the period
over which distributions are to be made by the
designation, directly or indirectly (for example, by
altering the relevant measuring life). When 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 apply.
(g) Optional forms of benefit may be elected by the EMPLOYER in
the ADOPTION Agreement.
3.9 DIRECT ROLLOVERS.
This subsection applies to distributions made on or after January 1, 1993.
Notwithstanding any provision of THIS PLAN to the contrary that would otherwise
limit a DISTRIBUTEE'S election in this part, a DISTRIBUTEE may elect, at the
time and in the manner prescribed by the ADMINISTRATOR, to have any portion of
an ELIGIBLE ROLLOVER DISTRIBUTION equal to at least $500 be paid directly to an
ELIGIBLE RETIREMENT PLAN specified by the DISTRIBUTEE in a DIRECT ROLLOVER.
3.10 LIFE INSURANCE
If the EMPLOYER elects in the ADOPTION AGREEMENT, THIS PLAN may purchase
insurance on the life of PARTICIPANTS.
INCIDENTAL DEATH BENEFITS FOR PLANS OTHER THAN MONEY PURCHASE PENSION PLANS AND
TARGET BENEFIT PLANS:
(a) Ordinary life - For these incidental insurance provisions,
ordinary life insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing premiums. If
such contracts are purchased, (i) less than 50% of the
aggregate EMPLOYER CONTRIBUTIONS accumulated in the
PARTICIPANT'S ACCOUNT for at least 2 years (measured from the
ALLOCATION DATE of CONTRIBUTION) or (ii) up to 100% of the
aggregate EMPLOYER CONTRIBUTIONS (other than EMPLOYEE ELECTIVE
DEFERRALS) accumulated in the PARTICIPANT'S ACCOUNT for at
least 2 years (measured from the ALLOCATION DATE of
CONTRIBUTION) are used to pay premiums attributable to them.
(b) Term and universal life - No more than 25% of the aggregate
EMPLOYER Contributions allocated to any PARTICIPANT is used to
pay the premiums on term life insurance contracts, universal
life insurance contracts, and all other life insurance
contracts which are not ordinary life.
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<PAGE> 54
(c) Combination - The sum of 50% of the ordinary life insurance
premiums and all other life insurance premiums cannot exceed
25% of the aggregate EMPLOYER CONTRIBUTIONS allocated to any
PARTICIPANT.
(d) Direct Rollovers - 100% of DIRECT ROLLOVERS may be used to pay
premiums for life insurance.
INCIDENTAL DEATH BENEFITS FOR MONEY PURCHASE PENSION PLANS AND TARGET BENEFIT
PLANS:
No more than 25% of the aggregate EMPLOYER CONTRIBUTIONS allocated to any
PARTICIPANT may be used to pay life insurance premiums.
DISTRIBUTION OF INSURANCE CONTRACTS:
Subject to subsection 3.2, Joint and Survivor Annuity Requirements, the
contracts on a Participant's life are converted to cash or an annuity or
distributed to the PARTICIPANT at the beginning of benefits.
CONFLICT WITH INSURANCE CONTRACTS:
The TRUSTEE applies for and is the owner of any insurance contract purchased by
THIS PLAN. The insurance contract(s) have to provide that proceeds are payable
to the TRUSTEE; however, the Trustee is required to pay over all proceeds of the
contract(s) to the PARTICIPANT'S DESIGNATED BENEFICIARY by the distribution
provisions of THIS PLAN. A PARTICIPANT'S SPOUSE is the DESIGNATED BENEFICIARY of
the proceeds in all circumstances unless a QUALIFIED ELECTION is made by
subsection 3.15(e), Joint and Survivor Annuity Requirements, if applicable.
Under no circumstances shall the TRUST retain any part of the proceeds. On any
conflict between the terms of THIS PLAN and the terms of any insurance contract
purchased by THIS PLAN, THIS PLAN'S provisions shall control.
TRANSACTIONS WITH LIFE INSURANCE POLICIES:
Incidental life insurance and annuity contracts may be transferred -
(a) to THIS PLAN as permitted by Department of Labor PTE 77-7, as
amended by PTE 92-5; and
(b) from THIS PLAN as permitted by Department of Labor PTE 77-8,
as amended by PTE 92-6.
3.11 LOANS TO PARTICIPANTS.
If the EMPLOYER elects in the ADOPTION AGREEMENT to permit PARTICIPANT loans,
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(a) Loans shall be made available to all PARTICIPANTS and
BENEFICIARIES on a reasonably equivalent basis.
(b) Loans shall not be made available to HIGHLY COMPENSATED
EMPLOYEES in an amount greater than the amount made available
to other EMPLOYEES.
(c) Loans must be adequately secured and bear a reasonable
interest rate.
(d) No PARTICIPANT loan shall exceed 50% of the PRESENT VALUE of
the PARTICIPANT'S VESTED ACCRUED BENEFIT as of THIS PLAN'S
most recent VALUATION DATE.
(e) A PARTICIPANT must obtain the consent of his or her SPOUSE, if
any, to use of the ACCOUNT BALANCE as security for the loan.
SPOUSAL consent shall be obtained no earlier than the
beginning of the 90-day period that ends on the date on which
the loan is to be so secured. The consent must be in writing,
must acknowledge the effect of the loan, and must be witnessed
by a PLAN REPRESENTATIVE or NOTARY PUBLIC. Such consent shall
thereafter be binding as to the consenting SPOUSE or any
subsequent SPOUSE as to that loan. A new consent shall be
required if the ACCOUNT BALANCE is used for renegotiation,
extension, renewal, or other revision of the loan.
(f) On default, foreclosure on the note and attachment of security
will not occur until a distributable event occurs in THIS
PLAN.
(g) No loans will be made to any SHAREHOLDER-EMPLOYEE or
OWNER-EMPLOYEE. For this requirement, a SHAREHOLDER-EMPLOYEE
means an EMPLOYEE or officer of an electing small business
(Subchapter S) corporation who owns (or is considered as
owning in CODE SECTION 318(a)(1)), on any day during the
taxable year of such corporation, more than 5% of the
outstanding stock of the corporation.
If a valid SPOUSAL consent has been obtained in accordance
with (e) above, notwithstanding any other provision of THIS
PLAN, the portion of the PARTICIPANT'S VESTED ACCOUNT BALANCE
used as a security interest held by THIS Plan for a loan
outstanding to the PARTICIPANT shall be taken into account to
determine 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 the
preceding sentence) is payable to the SURVIVING SPOUSE, the
ACCOUNT BALANCE shall be adjusted by first reducing the vested
ACCOUNT BALANCE by the amount of the security used as
repayment of the loan, and then determining the benefit
payable to the SURVIVING SPOUSE.
No loan to any PARTICIPANT or BENEFICIARY can be made to the
extent that such loan when added to the outstanding balance of
all other loans to the PARTICIPANT or BENEFICIARY would exceed
the lesser of (a) $50,000 reduced by the excess (if any) of
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the highest outstanding balance of loans during the 1 year
period ending on the day before the loan is made, over the
outstanding balance of loans from THIS PLAN on the date the
loan is made, or (b) 50% of the PRESENT Value of the
nonforfeitable accrued benefit of the PARTICIPANT.
For the above limitation, all loans from all plans of the
EMPLOYER and other members of a group of EMPLOYERS described
in CODE SECTIONS 414(b), 414(c), and 414(m) are aggregated.
Furthermore, any loan shall by its terms require that
repayment (principal and interest) be amortized in level
payments, not less frequently than quarterly, over a period
not extending beyond 5 years from the date of the loan, unless
such loan is used to acquire a dwelling unit which within a
reasonable time (determined at the time the loan is made) will
be used as the principal residence of the PARTICIPANT. An
assignment or pledge of any portion of the PARTICIPANT'S
interest in THIS PLAN and a loan, pledge, or assignment as to
any insurance contract purchased under THIS PLAN, will be
treated as a loan in this paragraph. The loan amortization
period may not extend past the NORMAL RETIREMENT AGE stated in
the ADOPTION AGREEMENT.
3.12 DISTRIBUTION REQUIREMENTS
ELECTIVE DEFERRALS, QUALIFIED NON-ELECTIVE CONTRIBUTIONS, and QUALIFIED MATCHING
CONTRIBUTIONS, and income allocable to each are not distributable to a
PARTICIPANT or his or her BENEFICIARY, by such PARTICIPANT'S or BENEFICIARY'S
election, earlier than upon separation from SERVICE, death, or disability.
Such amounts may also be distributed upon:
(a) Termination of THIS PLAN without the establishment of another
defined contribution plan other than an employee stock
ownership plan (in CODE SECTION 4975(e)(7), a simplified
employee pension plan in CODE SECTION 408(k) or a simple IRA
plan (defined in CODE SECTION 408(p)).
(b) The disposition by a corporation to an unrelated corporation
of substantially all of the assets (within the meaning of CODE
SECTION 409(d)(2)) used in a trade or business of such
corporation if such corporation continues to maintain THIS
PLAN after the disposition, but only as to EMPLOYEES who
continue employment with the corporation acquiring such
assets.
(c) The disposition by a corporation to an unrelated entity of
such corporation's interest in a subsidiary (within the
meaning of CODE SECTION 409(d)(3)) if such corporation
continues to maintain THIS PLAN, but only as to EMPLOYEES who
continue employment with such subsidiary.
(d) The attainment of age 59 " in the case of a profit-sharing
plan.
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(e) The hardship of the PARTICIPANT as described in subsection
3.13.
(f) All distributions that may be made by 1 or more of the
foregoing distributable events are subject to the SPOUSAL and
PARTICIPANT consent requirements (if applicable) contained in
CODE SECTIONS 411(a)(11) and 417. In addition, distributions
after March 31, 1988, that are triggered by any of (a), (b) or
(c), above, must be made in a lump sum.
3.13 HARDSHIP DISTRIBUTION
If the EMPLOYER elects in the ADOPTION AGREEMENT, THIS PLAN may provide hardship
distributions.
(a) Distribution of ELECTIVE DEFERRALS (and any earnings credited
to a PARTICIPANT'S ACCOUNT as of the later of December 31,
1988, and the end of the last PLAN YEAR ending before July 1,
1989) may be made to a PARTICIPANT for hardship. For this
subsection, hardship is defined as an immediate and heavy
financial need of the EMPLOYEE where such EMPLOYEE lacks other
available resources. Hardship distributions are subject to the
SPOUSAL consent requirements contained in CODE SECTIONS
401(a)(11) and 417.
Special Rules:
(b) The following are the only financial needs considered
immediate and heavy: expenses incurred or necessary for
medical care, in CODE SECTION 213(d), of the EMPLOYEE, the
EMPLOYEE'S SPOUSE, children, or dependents; the purchase
(excluding mortgage payments) of a principal residence for the
EMPLOYEE; payment of tuition and related educational fees for
the next 12 months of post-secondary education for the
EMPLOYEE, the EMPLOYEE'S SPOUSE, children or dependents; or
the need to prevent the eviction of the EMPLOYEE from, or a
foreclosure on the mortgage of, the EMPLOYEE'S principal
residence.
(c) A distribution will be considered as necessary to satisfy an
immediate and heavy financial need of the EMPLOYEE only if:
(1) The EMPLOYEE has obtained all distributions, other
than hardship distributions, and all nontaxable loans
under all plans maintained by the EMPLOYER;
(2) All plans maintained by the EMPLOYER provide that the
EMPLOYEE'S ELECTIVE DEFERRALS (and EMPLOYEE
CONTRIBUTIONS) will be suspended for 12 months after
the receipt of the hardship distribution;
(3) The distribution is not in excess of the amount of an
immediate and heavy financial need (including amounts
necessary to pay any federal, state or local income
taxes or penalties reasonably anticipated to result
from the distribution); and
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(4) All plans maintained by the EMPLOYER provide that the
EMPLOYEE may not make ELECTIVE DEFERRALS for the
EMPLOYEE'S taxable year immediately following the
taxable year of the hardship distribution in excess
of the applicable limit under CODE SECTION 402(g) for
such taxable year less the amount of such EMPLOYEE'S
ELECTIVE DEFERRALS for the taxable year of the
hardship distribution.
3.14 REINSTATEMENT OF BENEFIT.
If a benefit is forfeited because the PARTICIPANT or BENEFICIARY cannot be
found, such benefit will be reinstated if a claim is made by the PARTICIPANT or
BENEFICIARY.
DEFINITIONS
The following are definitions for this SECTION and THIS PLAN:
3.15 JOINT AND SURVIVOR AND PRE-RETIREMENT SURVIVOR ANNUITIES.
(a) "NORMAL RETIREMENT AGE" is the age selected in the ADOPTION
AGREEMENT. If the EMPLOYER enforces a mandatory retirement
age, the NORMAL RETIREMENT AGE is the lesser of that mandatory
age or the age specified in the ADOPTION AGREEMENT.
(b) "ELECTION PERIOD" is the period which begins on the first day
of the PLAN YEAR in which the PARTICIPANT attains age 35 and
ends on the date of the PARTICIPANT'S death. If a PARTICIPANT
separates from SERVICE prior to the first day of the PLAN YEAR
in which age 35 is attained, as to the ACCOUNT BALANCE as of
the date of separation, the ELECTION PERIOD shall begin on the
date of separation.
(c) Pre-age 35 waiver: A PARTICIPANT who will not yet attain age
35 as of the end of any 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 attains age 35. Such 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 subsection
3.2(d)(1). QUALIFIED PRERETIREMENT SURVIVOR ANNUITY coverage
will be automatically reinstated as of the first day of the
PLAN YEAR in which the PARTICIPANT attains age 35. Any new
waiver on or after such date shall be subject to the full
requirements of this subsection.
(d) "EARLIEST RETIREMENT AGE" is the earliest date on which, by
THIS PLAN, the PARTICIPANT can elect to receive retirement
benefits.
"EARLY RETIREMENT AGE" is the age selected by the EMPLOYER in
the ADOPTION AGREEMENT.
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(e) "QUALIFIED ELECTION" is a waiver of a QUALIFIED JOINT AND
SURVIVOR ANNUITY or a QUALIFIED PRERETIREMENT SURVIVOR
ANNUITY. Any waiver of a QUALIFIED JOINT AND SURVIVOR ANNUITY
or a QUALIFIED PRERETIREMENT SURVIVOR ANNUITY shall not be
effective unless: (i) the PARTICIPANT'S SPOUSE consents in
writing to the election; (ii) the election designates a
specific BENEFICIARY, including any class of BENEFICIARIES or
any contingent BENEFICIARIES, which may not be changed without
SPOUSAL consent (or the SPOUSE expressly permits designations
by the PARTICIPANT without any further SPOUSAL consent); (iii)
the SPOUSE'S consent acknowledges the effect of the election;
and (d) the SPOUSE'S consent is witnessed by a PLAN
REPRESENTATIVE or NOTARY PUBLIC. Additionally, a PARTICIPANT'S
waiver of the QUALIFIED JOINT AND SURVIVOR ANNUITY shall not
be effective unless the election designates a form of benefit
payment which may not be changed without SPOUSAL consent (or
the SPOUSE expressly permits designations by the PARTICIPANT
without any further SPOUSAL consent). If it is established to
the satisfaction of a PLAN REPRESENTATIVE that there is no
SPOUSE or that the SPOUSE cannot be located, a waiver will be
deemed a QUALIFIED ELECTION.
Any consent by a SPOUSE obtained by this provision (or
establishment that the consent of a SPOUSE may not be
obtained) shall be effective only as to such Spouse. A consent
that permits designations by the PARTICIPANT without any
requirement of further consent by such SPOUSE must acknowledge
that the SPOUSE has the right to limit consent to a specific
BENEFICIARY, and a specific form of benefit where applicable,
and that the SPOUSE voluntarily elects to relinquish either or
both of such rights. A revocation of a prior waiver may be
made by a PARTICIPANT without the consent of the SPOUSE at any
time before the beginning of benefits. The number of
revocations shall not be limited. No consent obtained under
this provision shall be valid unless the PARTICIPANT has
received notice as provided in subsection 3.2(d).
(f) "QUALIFIED JOINT AND SURVIVOR ANNUITY" is an immediate annuity
for the life of the PARTICIPANT with a survivor annuity for
the life of the SPOUSE which is not less than 50% and not more
than 100% of the amount of the annuity which is payable during
the joint lives of the PARTICIPANT and the SPOUSE and which is
the amount of benefit which can be purchased with the
PARTICIPANT'S VESTED ACCOUNT BALANCE. The percentage of the
survivor annuity in THIS PLAN shall be 50% (unless a different
percentage is elected by the EMPLOYER in the ADOPTION
AGREEMENT).
(g) "SPOUSE (SURVIVING SPOUSE)" is the PARTICIPANT'S SPOUSE or
SURVIVING SPOUSE, provided that a former SPOUSE will be
treated as the SPOUSE or SURVIVING SPOUSE and a current SPOUSE
will not be treated as the SPOUSE or SURVIVING SPOUSE to the
extent provided by a QUALIFIED DOMESTIC RELATIONS ORDER in
CODE SECTION 414(p).
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(h) "ANNUITY STARTING DATE" is the first day of the first period
for which an amount is paid as an annuity or any other form.
(i) "VESTED ACCOUNT BALANCE" is the aggregate value of the
PARTICIPANT'S VESTED ACCOUNT BALANCES derived from EMPLOYER
and EMPLOYEE CONTRIBUTIONS (including ROLLOVERS), whether
vested before or upon death, including the proceeds of
insurance contracts, if any, on the PARTICIPANT'S life. This
Section shall apply to a PARTICIPANT who is vested in amounts
attributable to EMPLOYER CONTRIBUTIONS, EMPLOYEE CONTRIBUTIONS
(or both) at the time of death or distribution.
(j) Any PARTICIPANT who has elected by subsection 3.2(f)(4) and
any PARTICIPANT who does not elect by subsection 3.2(f)(4) or
who meets the requirements of subsection 3.2(f)(4) 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 by all of the following
requirements if benefits would have been payable in the form
of a LIFE ANNUITY:
(1) Automatic joint and survivor annuity.
If benefits in the form of a LIFE ANNUITY become
payable to a married PARTICIPANT who:
(A) begins to receive payments by THIS PLAN on
or after NORMAL RETIREMENT AGE; or
(B) dies on or after NORMAL RETIREMENT AGE while
still working for the EMPLOYER; or
(C) begins to receive payments on or after the
QUALIFIED EARLY RETIREMENT AGE; or
(D) 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 h benefits by THIS PLAN and thereafter
dies before beginning to receive such
benefits; such benefits shall be paid from
THIS PLAN in the form of a QUALIFIED JOINT
AND SURVIVOR ANNUITY, unless the PARTICIPANT
elects otherwise during the ELECTION PERIOD.
The ELECTION PERIOD must begin at least 6
months before the PARTICIPANT attains
QUALIFIED EARLY RETIREMENT AGE and end not
more than 90 days before the beginning of
benefit payments. Any election shall will be
in writing and may be changed by the
PARTICIPANT at any time.
(2) Election of early survivor annuity.
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A PARTICIPANT who is employed after attaining the
QUALIFIED EARLY RETIREMENT AGE will be given the
opportunity to elect, during the ELECTION PERIOD, to
have a survivor annuity payable on death. If the
PARTICIPANT elects the survivor annuity, payments of
such annuity must not be less than the payments which
would have been made to the SPOUSE by the QUALIFIED
JOINT AND SURVIVOR ANNUITY if the PARTICIPANT had
retired on the day before his or her death. Any
election in this Section shall be in writing and may
be changed by the PARTICIPANT at any time. 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 terminates employment.
(3) For subsection 3.2:
(A) "QUALIFIED EARLY RETIREMENT AGE" is the
latest of:
(i) the earliest date, under THIS 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.
(B) "QUALIFIED JOINT AND SURVIVOR ANNUITY" is an
annuity for the life of the PARTICIPANT with
an survivor annuity for the life of the
SPOUSE as described in subsection 3.15(f).
(k) "APPLICABLE LIFE EXPECTANCY" is the life expectancy (or joint
and last survivor expectancy) calculated using the attained
age of the PARTICIPANT (or DESIGNATED BENEFICIARY) as of the
PARTICIPANT'S (or DESIGNATED BENEFICIARY'S) birthday in the
applicable calendar year reduced by 1 for each calendar year
which has elapsed since the date life expectancy was first
calculated. If life expectancy is being recalculated, the
applicable life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall be the first
distribution calendar year, and if life expectancy is being
recalculated such succeeding calendar year.
(l) "STRAIGHT LIFE ANNUITY" is an annuity payable in equal
installments for the life of the PARTICIPANT that terminates
on the PARTICIPANT'S death.
3.16 MINIMUM DISTRIBUTION.
(a) "DESIGNATED BENEFICIARY" is the individual who is designated
as the beneficiary in THIS PLAN in CODE SECTION 401(a)(9) and
its Proposed REGULATIONS.
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(b) "DISTRIBUTION CALENDAR YEAR" is a calendar year for which a
minimum distribution is required. For distributions beginning
before the PARTICIPANT'S death, the first DISTRIBUTION
CALENDAR YEAR is the calendar year immediately preceding the
calendar year which contains the PARTICIPANT'S REQUIRED
BEGINNING DATE. For distributions beginning after the
PARTICIPANT'S death, the first DISTRIBUTION CALENDAR YEAR is
the calendar year in which distributions are required to begin
by subsection 3.8.
(c) "LIFE EXPECTANCY" is the life expectancy and joint and last
survivor expectancy computed by use of the expected return
multiples in Tables V and VI of Regulations 1.72-9.
Unless otherwise elected by the PARTICIPANT (or SPOUSE, for
distributions described in subsection 3.2(b)) 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.
(d) "PARTICIPANT'S BENEFIT" is
(1) The ACCOUNT BALANCE as of the last valuation date in
the calendar year immediately preceding the
DISTRIBUTION CALENDAR YEAR (valuation calendar year)
increased by the amount of any contributions or
FORFEITURES allocated to the ACCOUNT BALANCE as of
dates in the valuation calendar year after the
VALUATION DATE and decreased by distributions made in
the valuation calendar year after the VALUATION DATE.
(2) Exception for the second DISTRIBUTION CALENDAR YEAR.
For paragraph (1) above, 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.
(e) As elected by the EMPLOYER in the ADOPTION AGREEMENT,
"REQUIRED BEGINNING DATE" is
(1) The REQUIRED BEGINNING DATE of a PARTICIPANT is the
first day of April of the calendar year following the
calendar year in which the Participant attains age
70 1/2.
(2) The REQUIRED BEGINNING DATE of a PARTICIPANT is the
first day of April of the calendar year following the
calendar year in which the Participant attains age
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70 1/2, except that benefit distributions to a
PARTICIPANT (other than a 5% OWNER) for benefits
accrued after the later of the adoption or effective
date of the amendment to THIS PLAN must begin by the
later of the April 1 of the calendar year following
the calendar year in which the PARTICIPANT attains
age 70 1/2 or retires.
(3) The REQUIRED BEGINNING DATE of a PARTICIPANT is the
later of the April 1 of the calendar year following
the calendar year in which the Participant attains
age 70 1/2 or retires except that benefit
distributions to a 5% OWNER must begin by the April 1
of the calendar year following the calendar year in
which the PARTICIPANT attains age 70 1/2.
(A) Any PARTICIPANT attaining age 70
1/2 after 1995 may elect by April 1
of the calendar year following the
year in which the PARTICIPANT
attained age 70 1/2 (or by December
31, 1997 for a PARTICIPANT
attaining age 70 1/2 in 1996) to
defer distributions until the
calendar year following the
calendar year in which the
PARTICIPANT retires. If no such
election is made, the PARTICIPANT
will begin receiving distributions
by the April 1 of the calendar year
following the year in which the
PARTICIPANT attained age 70 1/2 (or
by December 31, 1997 for a
PARTICIPANT attaining age 70 1/2 in
1996).
(B) Any PARTICIPANT attaining age 70
1/2 before 1997 may elect to stop
distributions and begin
distribution by the April 1 of the
calendar year following the year in
which the PARTICIPANT retires.
There is either (as elected in the
ADOPTION AGREEMENT)
(i) a new ANNUITY STARTING
DATE when distributions
begin, or
(ii) no new ANNUITY STARTING
DATE when distributions
begin.
(C) The preretirement age 70 1/2
distribution option is only
eliminated for EMPLOYEES who reach
age 70 1/2 in or after a calendar
year that begins after the later of
December 31, 1998, or the adoption
date of the amendment. The
preretirement age 70 1/2
distribution option is an optional
form of benefit for benefits
payable in a particular
distribution form (including any
modifications that may be elected
after benefit begins) begun at a
time during the period that begins
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on or after January 1 of the
calendar year in which an EMPLOYEE
attains age 70 1/2 and ends April 1
of the immediately following
calendar year.
5% OWNER. A PARTICIPANT treated as a 5% OWNER for this
subsection is a 5% OWNER in CODE SECTION 416 at any time
during the PLAN YEAR ending with or within the calendar year
in which such 5% OWNER attains age 70 1/2 .
Once distributions begin to a 5% OWNER in this subsection,
they must continue to be distributed, even if the PARTICIPANT
ceases to be a 5% OWNER in a subsequent year.
3.17 ROLLOVERS.
(a) "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 1 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 10 years or more; any
distribution to the extent such distribution is required under
CODE SECTION 401(a)(9); the portion of any other
distribution(s) that is not includible in gross income
(without the exclusion for net unrealized appreciation as to
employer securities); any other distribution(s) that is
reasonably expected to total less than $500 during a year; and
(for distributions made after December 31, 1998) a hardship
distribution in subsection 3.13.
(b) "ELIGIBLE RETIREMENT PLAN" is an individual retirement account
in CODE SECTION 408(a), an individual retirement annuity in
CODE SECTION 408(b), an annuity plan in CODE SECTION 403(a),
or a qualified plan in CODE SECTION 401(a), that accepts the
DISTRIBUTEE'S ELIGIBLE ROLLOVER DISTRIBUTION. However, for an
ELIGIBLE ROLLOVER DISTRIBUTION to the SURVIVING SPOUSE, an
ELIGIBLE RETIREMENT PLAN is an individual retirement account
or individual retirement annuity.
(c) "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, in CODE SECTION 414(p), are DISTRIBUTEES as
to the interest of the SPOUSE or former SPOUSE.
(d) "DIRECT ROLLOVER" is (i) a payment by THIS PLAN to the
ELIGIBLE RETIREMENT PLAN specified by the DISTRIBUTEE or (ii)
a payment to THIS PLAN of an ELIGIBLE ROLLOVER DISTRIBUTION.
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SECTION 4. OTHER
================================================================================
4.1 ANNUAL VALUATION OF ASSETS; ALLOCATION OF TRUST NET EARNINGS AND
LOSSES.
The assets of THIS PLAN will be valued as of the ALLOCATION DATE selected by the
EMPLOYER in the ADOPTION AGREEMENT. On the ALLOCATION DATE, the net earnings and
losses of THIS PLAN will be allocated as selected by the EMPLOYER in the
ADOPTION AGREEMENT.
4.2 TREATMENT OF INSURANCE DIVIDENDS OR CREDITS.
Any dividends or credits earned on insurance contracts will be allocated to the
PARTICIPANT'S ACCOUNT for whose benefit the contract is held, and any premiums
on an insurance contract will be charged to the PARTICIPANT'S ACCOUNT for whose
benefit the contract is held.
4.3 DIRECTED INVESTMENTS.
If elected by the EMPLOYER in the ADOPTION AGREEMENT, each PARTICIPANT will
direct THIS PLAN as to the type of investment (which may only be as traded in a
regularly maintained market) to be purchased with the PARTICIPANT'S ACCOUNT,
otherwise, each EMPLOYEE will have a ratable interest in all assets in THIS
PLAN. Directed Investments will be credited or charged with their separate net
earnings and losses.
THIS PLAN and the TRUST are intended to constitute a plan described in Section
404(c) of the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended, and the regulations issued thereunder. As such, and if selected by the
EMPLOYER in the ADOPTION AGREEMENT, THIS PLAN and the TRUST shall provide the
opportunity for each PARTICIPANT and BENEFICIARY to exercise control over some
or all of the assets in his PARTICIPANT'S ACCOUNT and to choose from a broad
range of investment alternatives as made available by the TRUSTEE, the manner in
which some or all of such assets are invested.
Each PARTICIPANT and BENEFICIARY is authorized and empowered, in his sole
discretion, to give directions to the TRUSTEE, pursuant to the procedure
established by the ADMINISTRATOR and in such form as the TRUSTEE may require,
concerning the investment of such PARTICIPANT'S or BENEFICIARY'S PARTICIPANT
ACCOUNT. The TRUSTEE shall comply as promptly as practicable with directions
given by the PARTICIPANT or BENEFICIARY. The TRUSTEE may refuse to comply with
any direction if the Trustee, in his sole and absolute discretion, deems such
direction improper by virtue of applicable law.
The TRUSTEE and other fiduciaries of THIS PLAN and the TRUST are not liable for
any loss, nor for any breach, resulting from a PARTICIPANT'S or BENEFICIARY'S
direction of the investment of any part of his PARTICIPANT'S ACCOUNT.
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4.4 PARTICIPATING EMPLOYER
A PARTICIPATING EMPLOYER is any employer that has requested its employees be
included as PARTICIPANTS in THIS PLAN and participation has been approved on
such terms, conditions and requirements as determined by the EMPLOYER, the
TRUSTEE, the ADMINISTRATOR, and InWest Pension Management, Inc.
4.5 AMENDMENT BY EMPLOYER.
The EMPLOYER may (1) change the choice of options in the ADOPTION AGREEMENT, (2)
add overriding language in the ADOPTION AGREEMENT when such language is
necessary to satisfy CODE SECTION 415 or 416 because of the required aggregation
of multiple plans, and (3) add certain model amendments published by the
Internal Revenue Service which do not change THIS PLAN to an individually
designed plan. An EMPLOYER that amends THIS PLAN for any other reason, including
a waiver of the minimum funding requirement under CODE SECTION 412(d), will no
longer participate in the InWest Pension Management, Inc. Regional Prototype
Plan and will be considered to have an individually designed plan.
4.6 PLAN MERGER - MAINTENANCE OF BENEFITS.
On a merger or consolidation with, or transfer of assets or liabilities of THIS
PLAN to any other plan, each PARTICIPANT will receive a benefit immediately
after such merger, etc. (if THIS PLAN terminated) which is at least equal to the
benefit the PARTICIPANT was entitled to immediately before such merger, etc. (if
THIS PLAN had terminated).
4.7 INALIENABILITY OF BENEFITS.
No benefit or interest in THIS PLAN will be subject to assignment or alienation,
either voluntarily or involuntarily. The preceding sentence shall also apply to
the creation, assignment, or recognition of a right to any benefit payable as to
a PARTICIPANT by a domestic relations order, unless such order is determined to
be a QUALIFIED DOMESTIC RELATIONS ORDER in CODE SECTION 414(p) or any domestic
relations order entered before January 1, 1985.
4.8 EXCLUSIVE BENEFIT.
The principal or income of the TRUST may not be diverted to or used for other
than the exclusive benefit of the PARTICIPANTS or their BENEFICIARIES.
Any EMPLOYER CONTRIBUTION made by a mistake of fact must be returned to the
EMPLOYER within 1 year of the contribution.
If the deduction of an EMPLOYER CONTRIBUTION is disallowed by CODE SECTION 404,
such contribution (to the extent disallowed) must be returned to the EMPLOYER
within 1 year of the disallowance of the deduction.
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If the Commissioner of Internal Revenue determines that THIS PLAN is not
initially qualified, any CONTRIBUTION incident to the initial qualification must
be returned to the EMPLOYER within 1 year after the date initial qualification
is denied, but only if the application for the qualification is made by the time
prescribed by law for filing the EMPLOYER'S federal income tax return for the
taxable year in which THIS PLAN is adopted, or such later date as the Secretary
of the Treasury may prescribe.
No contract is purchased in this Plan unless the insurer provides that: (1) no
value of contracts providing benefits in this Plan or credits determined by the
insurer (on account of dividends, earnings, or other experience rating credits,
or surrender or cancellation credits) for such contract may be paid or returned
to the employer or diverted to or used for other than the exclusive benefit of
the Participants or their Beneficiaries. However, any Employer contribution made
by a mistake of fact must be returned to the Employer within 1 year of the
contribution.
If this Plan is funded by individual contracts that provide a Participant's
benefit, such individual contracts shall constitute the Participant's Account
Balance. If this Plan is funded by group contracts, by the group annuity or
group insurance contract, premiums or other consideration received by the
insurance company must be allocated to Participants' accounts in this Plan.
4.9 FAILURE TO QUALIFY.
If the EMPLOYER'S adoption of THIS PLAN fails to attain or retain qualification,
such plan will no longer participate in the InWest Pension Management, Inc.
Regional Prototype Defined Contribution Plan and will be considered an
individually designed plan.
4.10 DISQUALIFICATION OF PLAN.
If the EMPLOYER'S adoption of THIS PLAN fails to attain or retain qualification,
the funds of such plan will be removed from the TRUST as soon as
administratively feasible.
4.11 ADMINISTRATOR
(a) Appointment of ADMINISTRATOR.
THIS PLAN shall be administered by the ADMINISTRATOR
consisting of those persons who shall be appointed by and
serve at the pleasure of the EMPLOYER. All usual and
reasonable expenses of the ADMINISTRATOR may be paid in whole
or in part by the EMPLOYER, and any expenses not paid by the
EMPLOYER shall be paid by the TRUSTEE out of the principal or
income of the Fund. Any members of the ADMINISTRATOR who are
EMPLOYEES shall not receive COMPENSATION for their services
for the ADMINISTRATOR.
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(b) Claims Procedure.
The ADMINISTRATOR shall make all determinations as to claims
for benefits. The ADMINISTRATOR shall give adequate written
notice, delivered or mailed, to each Claimant; if such claims
are denied, such notice shall state:
(1) Specific reasons for the denial and
(2) A description of the procedure necessary for appeal
by the Claimant.
(c) Records and Reports.
The ADMINISTRATOR shall exercise such authority and
responsibility as it deems appropriate in order to comply with
the ACT and REGULATIONS issued thereunder for records of a
PARTICIPANT'S SERVICE, benefits and the percentage of such
benefits which are nonforfeitable under THIS PLAN,
notifications to PARTICIPANTS, annual registration with the
Internal Revenue Service, annual reports to the Department of
Labor, and any other reports required by law.
(d) Other ADMINISTRATOR Powers and Duties.
The ADMINISTRATOR shall have the power to:
(1) Construe and interpret THIS PLAN, decide all
questions of eligibility and determine the amount,
manner and time of payment of any benefits hereunder;
(2) Prescribe procedures to be followed by PARTICIPANTS
or BENEFICIARIES filing applications for benefits;
(3) Prepare and distribute, in such manner as the
ADMINISTRATOR determines to be appropriate,
information explaining THIS PLAN;
(4) Receive from the EMPLOYER and from PARTICIPANTS such
information as shall be necessary for the proper
administration of THIS PLAN;
(5) Furnish the EMPLOYER, upon request, such annual
reports for the administration of THIS PLAN as are
reasonable and appropriate;
(6) Receive, review and keep on file (as it deems
convenient or appropriate), reports of the financial
condition, and of the receipts and disbursements, of
the Fund from the TRUSTEE and any valuations of THIS
PLAN;
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(7) Appoint or employ individuals to assist in the
administration of THIS PLAN and any other agents it
deems advisable, including legal and actuarial
counsel.
(8) Establish and carry out a funding policy consistent
with the purposes of THIS PLAN and the requirements
of applicable law, as they may be appropriate from
time to time, and, as a part of such funding policy,
direct the TRUSTEE to exercise its investment
discretion so as to provide sufficient assets in an
amount determined under the funding policy then in
effect necessary to meet the liquidity requirements
for administration of THIS PLAN and payment of
benefits.
(9) Exercise all rights, except payment receipts, in
qualified employer securities in the Fund.
The ADMINISTRATOR shall have no power to add to, subtract or
modify any of the terms of THIS PLAN, or to change or add any
benefits provided by THIS PLAN, or to waive or fail to apply
any requirements of eligibility for a benefit under THIS PLAN.
(e) Rules and Decisions.
The ADMINISTRATOR may adopt such rules as it deems necessary,
desirable or appropriate. All rules and decisions of the
ADMINISTRATOR shall be applied in a nondiscriminatory,
consistent, and uniform manner as to all PARTICIPANTS in
similar circumstances. When making a determination or
calculation, the ADMINISTRATOR shall be entitled to rely upon
information furnished by a PARTICIPANT or BENEFICIARY,
EMPLOYER, the legal counsel of the EMPLOYER, or the TRUSTEE,
or any other official of THIS PLAN.
(f) ADMINISTRATOR Procedures.
The ADMINISTRATOR may act at a meeting or in writing without a
meeting. The ADMINISTRATOR shall elect one of its members as
chairman, appoint a secretary, who may or may not be a
ADMINISTRATOR member, and advise the TRUSTEE of such actions
in writing. The secretary shall keep a record of all meetings
and forward all necessary communications to the EMPLOYER, the
TRUSTEE, or any other official of THIS PLAN. The ADMINISTRATOR
may adopt such bylaws and REGULATIONS as it deems desirable
for the conduct of its affairs. All decisions of the
ADMINISTRATOR shall be made by the vote of the majority,
except actions in writing taken without a meeting which shall
be unanimous. A dissenting ADMINISTRATOR member who, within a
reasonable time after he has knowledge of any action or
failure to act by the majority, registers his dissent in
writing delivered to the other ADMINISTRATOR members, the
EMPLOYER and the TRUSTEE shall not be responsible for any such
act or failure to act. No ADMINISTRATOR member shall vote on
any matter that directly and personally concerns him.
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<PAGE> 70
(g) Authorization of Benefit Payments.
The ADMINISTRATOR shall issue directions to the TRUSTEE
concerning all benefits which are to be paid from the Fund
pursuant to the provisions of THIS PLAN and warrant that all
such directions are in accordance with THIS PLAN.
(h) Application and Forms for Benefits.
The ADMINISTRATOR may require a PARTICIPANT to complete and
file with the ADMINISTRATOR an application for a benefit and
all other forms approved by the ADMINISTRATOR, and to furnish
all information requested by the ADMINISTRATOR. The
ADMINISTRATOR may rely upon all such information so furnished
it. This subsection is not a condition to payment of benefits.
(i) Facility of Payment.
When, in the ADMINISTRATOR'S opinion, a person entitled to
receive any payment of a benefit or installment thereof
hereunder is under a legal disability or is incapacitated in
any way as to be unable to manage his financial affairs, the
ADMINISTRATOR may direct the TRUSTEE to make such payments to
such person or to his legal representative or to a relative or
friend of such person for his benefit, or the ADMINISTRATOR
may direct the TRUSTEE to apply the payment for the benefit of
such person in such manner as the ADMINISTRATOR considers
advisable.
Any payment of a benefit or installment thereof under this
subsection shall be a complete discharge of any liability for
the making of such payment under the provisions of THIS PLAN.
4.12 ALLOCATION OF RESPONSIBILITY AMONG FIDUCIARIES
Each named Fiduciary has only those specific powers, duties, responsibilities
and obligations as are specifically given it by THIS PLAN.
The EMPLOYER has the sole responsibility for making EMPLOYER CONTRIBUTIONS and
has the sole authority to appoint and remove the TRUSTEE and the ADMINISTRATOR
and to amend or terminate, in whole or part, THIS PLAN.
The ADMINISTRATOR has the sole responsibility for the administration of THIS
PLAN.
The TRUSTEE has the sole responsibility for administration and management of the
Fund.
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<PAGE> 71
Each named Fiduciary warrants that any directions given, information furnished,
or action taken by it shall be according to the terms of THIS PLAN. Furthermore,
each named Fiduciary may rely upon any such direction, information or action of
another named Fiduciary as being proper under THIS Plan and is not required
under THIS PLAN to inquire into the propriety of such direction, information or
action. It is intended that each named Fiduciary be responsible for the proper
exercise of its own powers, duties, responsibilities and obligations in THIS
PLAN and not be responsible for any act or failure to act of another named
Fiduciary. No named Fiduciary guarantees the Fund in any manner against
investment loss or depreciation in asset value.
4.13 MANAGEMENT OF TRUST
(a) Receipt and Title to Assets.
The TRUSTEE receives any Contributions paid and delivered to
it in cash or in kind as it deems acceptable. The EMPLOYER
timely and appropriately makes Contributions to the TRUSTEE.
The TRUSTEE is not responsible for the calculation or
collection of any Contribution but is responsible only for
property it receives for THIS PLAN. The TRUSTEE shall take and
keep title to assets delivered to it under THIS PLAN.
(b) Principal; Income.
The Fund is held, managed and administered by the TRUSTEE by
the terms of this Declaration of Trust without distinction
between principal and income.
(c) Powers.
The TRUSTEE has the power to:
(1) Sell, lease, exchange, mortgage, pledge, or assign
all or part of the trust property and to do all the
TRUSTEE thinks necessary or desirable to administer
such property;
(2) Retain property even if it is underproductive;
(3) Invest and reinvest the trust property in any real or
personal property, including but not limited to
interests in trusts, common trust funds, stocks,
bonds, notes, certificates of deposit, and other
securities, regardless of class, whether full or
undivided interests, whether secured or unsecured,
and whether the obligation of individuals,
corporations, trusts or governments, either within or
outside of the state whose laws are chosen by the
EMPLOYER to govern THIS PLAN;
(4) Pay to or for the use and benefit of any PARTICIPANT
(or, if he is deceased, his BENEFICIARY), the proper
proportion of the PARTICIPANT'S ACCOUNT then held by
the TRUSTEE; distribute the Fund in cash or
investments or both, in full or
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<PAGE> 72
undivided interest, or convert the trust property
into money or other property and distribute such
converted forms or in any other manner in which
property may be distributed by the TRUSTEE;
(5) Invest up to 10% of the fair market value of the Fund
in qualifying employer securities and/or qualifying
employer real property (as defined in the ACT);
(6) Maintain a bond that:
(A) Protects against losses by acts of fraud or
dishonesty of plan fiduciaries and fund
managers, directly or through conivance with
others;
(B) Is in an amount of (i) not less than $1,000
or 10% of the amount of funds handled,
whichever is greater, and (ii) not greater
than $500,000 for each plan covered, unless
otherwise specifically required by the
Department of Labor;
(C) Is with a corporate surety acceptable for
federal bonding purposes by 31 U.S.C.S.
Sections 9304-9308;
(D) Is not with a party in interest;
(E) Has a discovery period of no less than 1
year after termination or cancellation; and
(F) Otherwise satisfies ERISA bonding
requirements as they may be amended from
time to time.
(7) Purchase or sell, at its current market price, any
asset of the Fund to any other trust or estate of
which it is trustee or personal representative.
(8) Buy, sell, or retain and vote by proxy or in person
any stock or securities, and rights and options
thereto, including, but not limited to, its own stock
and securities.
(9) Act with all of the powers conferred upon a TRUSTEE
by the laws chosen by the EMPLOYER to govern THIS
PLAN, as amended; provided, such powers are not
prohibited specifically by this instrument.
(10) Employ, pay for from the Fund and rely on agents and
advisors.
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<PAGE> 73
4.14 ACCOUNTING; DISTRIBUTIONS
(a) Duties.
The TRUSTEE performs the duties required of it in THIS PLAN,
especially in Section 3.
(b) Records.
The TRUSTEE maintains accurate and detailed accounts, books,
and records of all investments, receipts, disbursements and
other transactions hereunder, which are available at
reasonable times for inspection and audit by the EMPLOYER, and
by such person or persons as the EMPLOYER designates.
(c) Reporting.
The TRUSTEE furnishes to the EMPLOYER a statement of the fair
market value of the Fund and of PARTICIPANTS' ACCOUNTS as of
the end of each PLAN YEAR, including any CONTRIBUTIONS for
such PLAN YEAR, as required by the ACT and CODE. Such
statements are mailed within 90 days following the end of such
PLAN YEAR. In making such statements, the TRUSTEE may rely on
any information about any Insurance Contract furnished to the
TRUSTEE. The TRUSTEE values all assets at their fair market
value as the TRUSTEE in its discretion prescribes but
according to a method consistently followed and uniformly
applied. The EMPLOYER may approve such statements either by
written notice of approval delivered to the TRUSTEE or by
failure to express objection to such statements in writing
delivered to the TRUSTEE within 90 days from the date the
statements were mailed to the EMPLOYER.
When written approval of the statements is received or there
is passage of such period of time without written objection
having been delivered to the TRUSTEE, such statements are
deemed approved, and the TRUSTEE is released and discharged as
to all such items, matters and things set forth in such
statements as if such statements had been jurisdiction in an
action or proceeding in which the TRUSTEE, the EMPLOYER and
all persons having, or which may have, any interest in the
Fund or in THIS PLAN were parties. If the TRUSTEE and the
EMPLOYER cannot agree on any act or transaction reported in
the statements, the TRUSTEE has the right to have its account
settled by judicial proceedings, in which only the TRUSTEE and
the EMPLOYER are necessary parties.
(d) Distributions.
TRUSTEE makes distributions from the Fund to PARTICIPANTS or
their BENEFICIARIES with the terms of THIS PLAN as the
ADMINISTRATOR directs in writing. The TRUSTEE is fully
protected in acting upon any written directions from the
ADMINISTRATOR for
73
<PAGE> 74
benefit payments and has no duty or responsibility (apart from
maintenance of accounts) to see to the application of any such
payments, to determine the rights or interests of any person
in the TRUST or THIS PLAN, or to ascertain whether the
ADMINISTRATOR'S directions comply with THIS PLAN; and the
TRUSTEE is not required to pay any sum of money or other
benefits to any person except upon the delivery to the TRUSTEE
of a receipt in a form satisfactory to the TRUSTEE, together
with such evidence of the right of such person to receive such
money or other benefits and such authentication or guarantee
of the signature on such receipt as the TRUSTEE may require.
4.15 REPLACEMENT/REMOVAL OF TRUSTEE
(a) Resignation of TRUSTEE.
The TRUSTEE may resign at any time upon giving 60 days prior
written notice thereof to the EMPLOYER. The EMPLOYER may
remove any TRUSTEE at any time upon giving 60 days prior
written notice thereof to such TRUSTEE. The EMPLOYER fills any
vacancy in the office of TRUSTEE by written instrument
appointing a successor TRUSTEE to be effective as of any date
specified in such instrument and upon acceptance thereof by
such successor TRUSTEE endorsed thereon.
(b) Successor TRUSTEE.
Each successor TRUSTEE succeeds to the title of the Fund
vested in its predecessor without the signing or filing of any
further instrument, but any resigning or removed TRUSTEE must
execute all documents and do all acts necessary to vest such
title in any successor TRUSTEE, and must promptly turn over to
the successor TRUSTEE, copies of all such records pertaining
to the Fund and to the PARTICIPANTS in THIS PLAN.
(c) Rights, Powers and Duties of Successor TRUSTEE.
Each successor TRUSTEE has all the rights, powers and duties
conferred upon its predecessor. No successor TRUSTEE is
personally liable for any act or failure to act of any
predecessor TRUSTEE, and, with the approval of the EMPLOYER, a
successor TRUSTEE may accept the statements rendered and the
property delivered to it by the predecessor TRUSTEE as full
and complete discharge to the predecessor TRUSTEE without
incurring any liability or responsibility for so doing.
(d) Payment of TRUSTEE'S Expenses.
The TRUSTEE may, without the direction or approval of the
PARTICIPANTS or the EMPLOYER, reserve from the Fund assets as
are necessary for payment of any expenses and compensation
then or thereafter due to the TRUSTEE and any sums then
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<PAGE> 75
or thereafter chargeable against the Fund for which the
TRUSTEE may be liable, but if the amount so reserved by the
TRUSTEE is not sufficient, the TRUSTEE is entitled to
reimbursement for any deficiency from the EMPLOYER.
4.16 MISCELLANEOUS
(a) Taxes.
Any and all taxes levied or assessed upon any part of the
TRUST are paid by the EMPLOYER, and, until paid, constitute a
charge upon the TRUST. To the extent possible, taxes upon
benefits are allocated to the PARTICIPANT'S ACCOUNT from which
they are paid.
(b) Particular Expenses.
Expenses related to a particular PARTICIPANT'S ACCOUNT in the
TRUST, including amounts billed to the EMPLOYER, may be
charged by the TRUSTEE against such account as if it were a
separate trust.
(c) Compensation of TRUSTEE.
The TRUSTEE is entitled to receive as compensation the
customary charges for similar trusts under its regularly
adopted schedule of compensation in effect at such time as the
services are rendered. The TRUSTEE shall be entitled to
receive additional compensation for valuation of the Fund at
any time other than the VALUATION DATE.
(d) Spendthrift Provision.
The interest of each PARTICIPANT and BENEFICIARY in the Fund
is held subject to a spendthrift trust unless such interest is
subject to a qualified domestic relations order as defined in
CODE SECTION 414(p).
(e) Separability.
If any provision of THIS PLAN is held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining
provisions continue to be fully effective.
(f) Participant Direction of Investment.
A PARTICIPANT, if selected by the EMPLOYER in the ADOPTION
AGREEMENT, has the right to direct the TRUSTEE in the
investment or re-investment of the assets comprising the
PARTICIPANT'S ACCOUNT. To effect participation direction of
investment, the TRUSTEE and the PARTICIPANT execute the
Participant Direction Investment Form prescribed by
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<PAGE> 76
the ADMINISTRATOR before the TRUSTEE follows any PARTICIPANT
direction in the investment or re-investment of any part of
the PARTICIPANT'S ACCOUNT. The TRUSTEE is not liable for any
loss, resulting from a PARTICIPANT'S direction of the
investment or re-investment of any part of the PARTICIPANT'S
ACCOUNT.
(g) No person is obligated to see to the application of money or
property paid or delivered to the TRUSTEE.
4.17 TRUSTEE, NAMED FIDUCIARY
The TRUSTEE as a named Fiduciary is only responsible for the management and
control of the TRUST.
By execution of THIS PLAN the TRUSTEE accepts the TRUST created in THIS PLAN and
agrees to perform the obligations imposed on it by THIS PLAN.
76
<PAGE> 77
ADOPTION AGREEMENT FOR
INWEST PENSION MANAGEMENT, INC.
NON-STANDARDIZED 401(K) PROFIT SHARING
PLAN AND TRUST
The undersigned Employer adopts the InWest Pension Management, Inc.
Non-Standardized 401(k) Profit Sharing Plan and Trust for those Employees who
shall qualify as Participants hereunder, to be known as the
A1 Sauer Drilling Company 401(k) Plan
----------------------------------
(Enter Plan Name)
It shall be effective as of the date specified below. The Employer hereby
selects the following Plan specifications:
CAUTION: The failure to properly fill out this Adoption Agreement may result in
disqualification of the Plan.
EMPLOYER INFORMATION
B1 Name of Employer Sauer Drilling Company
-------------------------------------
-------------------------------------
B2 Address 5710 West Yellowstone
----------------------------------------------
Casper, WY 82604-1924
----------------------- ------- ------------
City State Zip
Telephone (307) 472-7020
--------------------------------------------
B3 Employer Identification Number 83-0320012
-----------
B4 Date Business Commenced
------------------
B5 TYPE OF ENTITY
a. ( ) S Corporation
b. ( ) Professional Service Corporation
c. (X) Corporation
d. ( ) Sole Proprietorship
e. ( ) Partnership
f. ( ) Other
AND, is the Employer a member of...
g. a controlled group? ( ) Yes (X) No
h. an affiliated service group? ( ) Yes (X) No
Copyright 1999-R InWest Pension Management, Inc.
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<PAGE> 78
B6 NAME(S) OF TRUSTEE(S)
a. Bruce De Boer
--------------------------------------------------------------------
--------------------------------------------------------------------
--------------------------------------------------------------------
d. Kim Harris
--------------------------------------------------------------------
e. Jack Reed
--------------------------------------------------------------------
B7 TRUSTEES' ADDRESS
a. ( ) Use Employer Address
b. (X) 508 W. Wall, Ste. 500
------------------------------------------------------------
Street
Midland, Texas 79701
---------- ------------- -------
City State Zip
B8 LOCATION OF EMPLOYER'S PRINCIPAL OFFICE:
a. (X) State b. ( ) Commonwealth of c. Texas and this Plan
and Trust shall be governed under the same.
B9 EMPLOYER FISCAL YEAR means the 12 consecutive month period:
Commencing on a. January 1 (e.g., January 1st) and
-------------
month day
ending on b. December 31.
--------------
month day
2
<PAGE> 79
PLAN INFORMATION
C1 EFFECTIVE DATE
This Adoption Agreement of the InWest Pension Management, Inc.
Non-Standardized 401(k) Profit Sharing Plan and Trust shall:
a. (X) establish a new Plan and Trust effective as of January 1,
1999 (hereinafter called the "Effective Date").
b. ( ) constitute an amendment and restatement in its entirety of a
previously established qualified Plan and Trust of the
Employer which was effective ____ (hereinafter called the
"Effective Date"). Except as specifically provided in the
Plan, the effective date of this amendment and restatement is
____ (For TRA '86 amendments, enter the first day of the
first Plan Year beginning in 1989).
C2 PLAN YEAR means the 12 consecutive month period:
Commencing on a. January 1 (e.g., January 1st) and ending on
b. December 31.
IS THERE A SHORT PLAN YEAR?
c. (X) No
d. ( ) Yes, beginning ____
and ending __________________________.
C3 ANNIVERSARY DATE of Plan (Annual Valuation Date)
a. December 31
-------------
month day
C4 PLAN NUMBER assigned by the Employer (select one)
a. (X) 001 b. ( ) 002 c. ( ) 003 d. ( ) Other _______
3
<PAGE> 80
C5 NAME OF PLAN ADMINISTRATOR (Document provides for the Employer to
appoint an Administrator. If none is named, the Employer will become
the Administrator.)
a. (X) Employer (Use Employer Address)
b. ( ) Name _____________________________________
Address ( ) Use Employer Address
-----------------------------------
,
----------------- ------- --------
City State Zip
Telephone
--------------------------------
Administrator's I.D. Number
--------------
C6 PLAN'S AGENT FOR SERVICE OF LEGAL PROCESS
a. (X) Employer (Use Employer Address)
b. ( ) Name
-------------------------------------
Address
-----------------------------------
-----------------------------------
4
<PAGE> 81
ELIGIBILITY, VESTING AND RETIREMENT AGE
D1 ELIGIBLE EMPLOYEES (Plan Section 1.15) shall mean:
a. ( ) all Employees who have satisfied the eligibility
requirements.
b. (X) all Employees who have satisfied the eligibility requirements
except those checked below:
1. ( ) Employees paid by commissions only.
2. ( ) Employees hourly paid.
3. ( ) Employees paid by salary.
4. (X) Employees whose employment is governed by a
collective bargaining agreement between the Employer
and "employee representatives" under which retirement
benefits were the subject of good faith bargaining.
For this purpose, the term "employee representatives"
does not include any organization more than half of
whose members are employees who are owners, officers,
or executives of the Employer.
5. ( ) Highly Compensated Employees.
6. (X) Employees who are non-resident aliens who
received no earned income (within the meaning of Code
Section 911(d)(2)) from the Employer which
constitutes income from sources within the United
States (within the meaning of Code Section
861(a)(3)).
7. ( ) Other
NOTE: For purposes of this section, the term Employee shall
include all Employees of this Employer and any leased
employees deemed to be Employees under Code Section 414(n)
or 414(o).
D2 EMPLOYEES OF AFFILIATED EMPLOYERS (Plan Section 1.16)
Employees of Affiliated Employers:
a. (X) will not or N/A
b. ( ) will
be treated as Employees of the Employer adopting the Plan.
NOTE: If D2b is elected, each Affiliated Employer should execute this
Adoption Agreement as a Participating Employer.
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<PAGE> 82
D3 HOURS OF SERVICE (Plan Section 1.31) will be determined on the basis of
the method selected below. Only one method may be selected. The method
selected will be applied to all Employees covered under the Plan.
a. (X) On the basis of actual hours for which an Employee is paid or
entitled to payment.
b. ( ) On the basis of days worked. An Employee will be credited
with ten (10) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of
Service during the day.
c. ( ) On the basis of weeks worked. An Employee will be credited
forty-five (45) Hours of Service if under the Plan such
Employee would be credited with at least one (1) Hour of
Service during the week.
d. ( ) On the basis of semi-monthly payroll periods. An Employee
will be credited ninety-five (95) Hours of Service if under
the Plan such Employee would be credited with at least one
(1) Hour of Service during the semi-monthly payroll period.
e. ( ) On the basis of months worked. An Employee will be credited
one hundred ninety (190) Hours of Service if under the Plan
such Employee would be credited with at least one (1) Hour of
Service during the month.
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<PAGE> 83
D4 CONDITIONS OF ELIGIBILITY (Plan Section 3.1)
(Check either a OR b and c, and if applicable, d)
Any Eligible Employee will be eligible to participate in the Plan if
such Eligible Employee has satisfied the service and age requirements,
if any, specified below:
a. ( ) NO AGE OR SERVICE REQUIRED.
b. (X) SERVICE REQUIREMENT. (may not exceed 1 year)
1. ( ) None
2. ( ) 1/2 Year of Service
3. ( ) 1 Year of Service
4. (X) Other 6 Months of Service
NOTE: If the Year(s) of Service selected is or includes a
fractional year, an Employee will not be required to
complete any specified number of Hours of Service to receive
credit for such fractional year. If expressed in Months of
Service, an Employee will not be required to complete any
specified number of Hours of Service in a particular month.
c. (X) AGE REQUIREMENT (may not exceed 21)
1. ( ) N/A - No Age Requirement.
2. ( ) 20 1/2
3. (X) 21
4. ( ) Other
d. ( ) FOR NEW PLANS ONLY - Regardless of any of the above age or
service requirements, any Eligible Employee who was employed
on the Effective Date of the Plan shall be eligible to
participate hereunder and shall enter the Plan as of such
date.
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<PAGE> 84
D5 EFFECTIVE DATE OF PARTICIPATION (Plan Section 3.2) An Eligible Employee
shall become a Participant as of:
a. ( ) the first day of the Plan Year in which he met the
requirements.
b. ( ) the first day of the Plan Year in which he met the
requirements, if he met the requirements in the first 6
months of the Plan Year, or as of the first day of the next
succeeding Plan Year if he met the requirements in the last 6
months of the Plan Year.
c. ( ) the earlier of the first day of the seventh month or the
first day of the Plan Year coinciding with or next following
the date on which he met the requirements.
d. ( ) the first day of the Plan Year next following the date on
which he met the requirements. (Eligibility must be 1/2 Year
of Service or less or 1 1/2 Years of Service or less if 100%
immediate vesting is selected and age 20 1/2 or less.)
e. (X) the first day of the quarter coinciding with or next
following the date on which he met the requirements.
f. ( ) Other: _____________________, provided that an Employee who
has satisfied the maximum age and service requirements that
are permissible in Section D4 above and who is otherwise
entitled to participate, shall commence participation no
later than the earlier of (a) 6 months after such
requirements are satisfied, or (b) the first day of the first
Plan Year after such requirements are satisfied, unless the
Employee separates from service before such participation
date.
8
<PAGE> 85
D6 VESTING OF PARTICIPANT'S INTEREST (Plan Section 6.4(b))
The vesting schedule, based on number of Years of Service, shall be as
follows:
<TABLE>
<S> <C> <C>
a. ( ) 100% upon entering Plan. (Required if eligibility requirement is greater than one (1) Year of
Service.)
b. ( ) 0-2 years 0% c. ( ) 0-4 years 0%
3 year 100% 5 years 100%
d. ( ) 0-1 year 0% e. ( ) 1 year 25%
2 years 20% 2 years 50%
3 years 40% 3 years 75%
4 years 60% 4 years 100%
5 years 80%
6 years 100%
f. (X) 1 year 20% g. ( ) 0-2 years 0%
2 years 40% 3 years 20%
3 years 60% 4 years 40%
4 years 80% 5 years 60%
5 years 100% 6 years 80%
7 years 100%
h. ( ) Other - Must be at least as liberal as either c. or g. above.
</TABLE>
Years of Service Percentage
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
D7 FOR AMENDED PLANS (Plan Section 6.4(f)) If the vesting schedule has
been amended to a less favorable schedule, enter the pre-amended
schedule below:
a. ( ) Vesting schedule has not been amended or amended schedule is
more favorable in all years.
b. ( ) Years of Service Percentage
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
---------------- ----------
9
<PAGE> 86
D8 TOP HEAVY VESTING (Plan Section 6.4(c)) If this Plan becomes a Top
Heavy Plan, the following vesting schedule, based on number of Years of
Service, for such Plan Year and each succeeding Plan Year, whether or
not the Plan is a Top Heavy Plan, shall apply and shall be treated as a
Plan amendment pursuant to this Plan. Once effective, this schedule
shall also apply to any contributions made prior to the effective date
of Code Section 416 and/or before the Plan became a Top Heavy Plan.
a. (X) N/A (D6a, b, d, e or f was selected)
b. ( ) 0-1 year 0% c. ( ) 0-2 years 0%
2 years 20% 3 years 100%
3 years 40%
4 years 60%
5 years 80%
6 years 100%
NOTE: This section does not apply to the Account balances of any
Participant who does not have an Hour of Service after the
Plan has initially become top heavy. Such Participant's
Account balance attributable to Employer contributions and
Forfeitures will be determined without regard to this
section.
D9 VESTING (Plan Section 6.4(h)) In determining Years of Service for
vesting purposes, Years of Service attributable to the following shall
be EXCLUDED:
a. ( ) Service prior to the Effective Date of the Plan or a
predecessor plan.
b. (X) N/A.
c. (X) Service prior to the time an Employee attained age 18.
d. ( ) N/A.
D10 PLAN SHALL RECOGNIZE SERVICE WITH PREDECESSOR EMPLOYER
a. (X) No.
b. ( ) Yes: Years of Service with ____ shall be recognized for the
purpose of this Plan.
NOTE: If the predecessor Employer maintained this qualified Plan,
then Years of Service with such predecessor Employer shall
be recognized pursuant to Section 1.74 and b. must be
marked.
D11 NORMAL RETIREMENT AGE ("NRA") (Plan Section 1.42) means:
a. (X) the date a Participant attains his 65 birthday.
(not to exceed 65th)
b. ( ) the later of the date a Participant attains his __ birthday
(not to exceed 65th) or the c. ____ (not to exceed 5th)
anniversary of the first day of the Plan Year in which
participation in the Plan commenced.
10
<PAGE> 87
D12 NORMAL RETIREMENT DATE (Plan Section 1.43) shall commence:
a. ( ) as of the Participant's "NRA."
OR (must select b. or c. AND 1. or 2.)
b. (X) as of the first day of the month...
c. ( ) as of the Anniversary Date...
1. (X) coinciding with or next following the Participant's
"NRA."
2. ( ) nearest the Participant's "NRA."
D13 EARLY RETIREMENT DATE (Plan Section 1.12) means the:
a. (X) No Early Retirement provision provided.
b. ( ) date on which a Participant...
c. ( ) first day of the month coinciding with or next following the
date on which a Participant...
d. ( ) Anniversary Date coinciding with or next following the date
on which a Participant...
AND, if b., c. or d. was selected...
1. ( ) attains his ____ birthday and has
2. ( ) completed at least ____ Years of Service.
11
<PAGE> 88
CONTRIBUTIONS, ALLOCATIONS AND DISTRIBUTIONS
E1 a. COMPENSATION (Plan Section 1.9) with respect to any Participant
means:
1. ( ) "415 Compensation."
2. (X) Compensation reportable as wages on Form W-2.
b. COMPENSATION shall be
1. (X) actually paid (must be selected if Plan is
integrated)
2. ( ) accrued
c. HOWEVER, FOR NON-INTEGRATED PLANS, Compensation shall exclude
(select all that apply):
1. (X) N/A. No exclusions
2. ( ) overtime
3. ( ) bonuses
4. ( ) commissions
5. ( ) other ____
d. FOR PURPOSES OF THIS SECTION E1, Compensation shall be based on:
1. (X) the Plan Year.
2. ( ) the Fiscal Year coinciding with or ending within the
Plan Year.
3. ( ) the Calendar Year coinciding with or ending within
the Plan Year.
NOTE: The Limitation Year shall be the same as the year on which
Compensation is based.
e. HOWEVER, for an Employee's first year of participation,
Compensation shall be recognized as of:
1. ( ) the first day of the Plan Year.
2. (X) the date the Participant entered the Plan.
f. IN ADDITION, COMPENSATION and "414(s) Compensation"
1. (X) shall 2. ( ) shall not include compensation which is not
currently includible in the Participant's gross income by reason
of the application of Code Sections 125, 402(a)(8), 402(h)(1)(B)
or 403(b).
12
<PAGE> 89
E2 SALARY REDUCTION ARRANGEMENT - ELECTIVE CONTRIBUTION
(Plan Section 11.2) Each Employee may elect to have his Compensation
reduced by:
a. ( ) ____%
b. ( ) up to ____%
c. ( ) from ____% to ____%
d. (X) up to the maximum percentage allowable not to exceed the
limits of Code Sections 401(k), 404 and 415.
AND...
e. (X) A Participant may elect to commence salary reductions as
of the first day of the Plan Year Quarter coinciding with or
next following date eligibility requirements were met (ENTER
AT LEAST ONE DATE OR PERIOD). A Participant may modify the
amount of salary reductions as of the first day of each Plan
Year Quarter (ENTER AT LEAST ONE DATE OR PERIOD).
AND...
Shall cash bonuses paid within 2 1/2 months after the end of the
Plan Year be subject to the salary reduction election?
f. ( ) Yes
g. (X) No
13
<PAGE> 90
E3 FORMULA FOR DETERMINING EMPLOYER'S MATCHING CONTRIBUTION
(Plan Section 11.1(b))
a. ( ) N/A. There shall be no matching contributions.
b. ( ) The Employer shall make matching contributions equal to
____% (e.g. 50%) of the Participant's salary reductions.
c. (X) The Employer may make matching contributions equal to a
discretionary percentage, to be determined by the Employer,
of the Participant's salary reductions.
d. ( ) The Employer shall make matching contributions equal to the
sum of ____% of the portion of the Participant's salary
reduction which does not exceed ____% of the Participant's
Compensation plus ____% of the portion of the Participant's
salary reduction which exceeds ____% of the Participant's
Compensation, but does not exceed ____% of the Participant's
Compensation.
e. ( ) The Employer shall make matching contributions equal to the
percentage determined under the following schedule:
Participant's Total Matching Percentage
Years of Service
--------- --------
--------- --------
--------- --------
14
<PAGE> 91
FOR PLANS WITH MATCHING CONTRIBUTIONS
f. (X) Matching contributions g. ( ) shall h. (X) shall not be
used in satisfying the deferral percentage tests. (If used,
full vesting and restrictions on withdrawals will apply and
the match will be deemed to be an Elective Contribution).
i. (X) Shall a Year of Service be required in order to share in the
matching contribution?
With respect to Plan Years beginning after 1989...
1. ( ) Yes (Could cause Plan to violate minimum
participation and coverage requirements under
Code Sections 401(a)(26) and 410)
2. (X) No
With respect to Plan Years beginning before 1990...
1. (X) N/A, new Plan, or same as years beginning after
1989
2. ( ) Yes
3. ( ) No
j. ( ) In determining matching contributions, only salary
reductions up to ____% of a Participant's Compensation will
be matched. k. (X) N/A
l. ( ) The matching contribution made on behalf of a Participant
for any Plan Year shall not exceed $____. m. (X) N/A
n. (X) Matching contributions shall be made on behalf of
1. (X) all Participants.
2. ( ) only Non-Highly Compensated Employees.
15
<PAGE> 92
E4 WILL A DISCRETIONARY EMPLOYER CONTRIBUTION BE PROVIDED (OTHER THAN A
DISCRETIONARY MATCHING OR QUALIFIED NON-ELECTIVE CONTRIBUTION) (Plan
Section 11.1(c))?
a. ( ) No.
b. ( ) Yes, the Employer may make a discretionary contribution out
of its current or accumulated Net Profit.
c. (X) Yes, the Employer may make a discretionary contribution
which is not limited to its current or accumulated Net
Profit.
IF YES (b. or c. is selected above), the Employer's discretionary
contribution shall be allocated as follows:
d. (X) FOR A NON-INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be
allocated in the same ratio as each Participant's Compensation bears to
the total of such Compensation of all Participants.
e. ( ) FOR AN INTEGRATED PLAN
The Employer discretionary contribution for the Plan Year shall be
allocated in accordance with Plan Section 4.3(b)(2) based on a
Participant's Compensation in excess of:
f. ( ) The Taxable Wage Base.
g. ( ) The greater of $10,000 or 20% of the Taxable Wage
Base.
h. ( ) ____% of the Taxable Wage Base. (See Note below)
i. ( ) $____. (see Note below)
NOTE: The integration percentage of 5.7% shall be reduced to:
1. 4.3% if h. or i. above is more than 20% and less than
or equal to 80% of the Taxable Wage Base.
2. 5.4% if h. or i. above is less than 100% and more
than 80% of the Taxable Wage Base.
E5 QUALIFIED NON-ELECTIVE CONTRIBUTIONS (Plan Section 11.1(d))
a. ( ) N/A. There shall be no Qualified Non-Elective Contributions
except as provided in Sections 11.5(b) and 11.7(h).
b. ( ) The Employer shall make a Qualified Non-Elective
Contribution equal to ____% of the total Compensation of all
Participants eligible to share in the allocations.
c. (X) The Employer may make a Qualified Non-Elective Contribution
in an amount to be determined by the Employer.
16
<PAGE> 93
E6 FORFEITURES (Plan Section 4.3(e))
a. Forfeitures of contributions other than matching contributions
shall be...
1. ( ) added to the Employer's contribution under the Plan.
2. (X) allocated to all Participants eligible to share
in the allocations in the same proportion that each
Participant's Compensation for the year bears to the
Compensation of all Participants for such year.
b. Forfeitures of matching contributions shall be...
1. ( ) N/A. No matching contributions or match is fully
vested.
2. (X) used to reduce the Employer's matching contribution.
3. ( ) allocated to all Participants eligible to share in
the allocations in proportion to
each such Participant's Compensation for the year.
4. ( ) allocated to all Non-Highly Compensated Employee's
eligible to share in the allocations in proportion to
each such Participant's Compensation for the year.
E7 ALLOCATIONS TO ACTIVE PARTICIPANTS (Plan Section 4.3) With respect to
Plan Years beginning after 1989, a Participant...
a. ( ) shall (Plan may become discriminatory)
b. (X) shall not
be required to complete a Year of Service in order to share in any
Non-Elective Contributions (other than matching contributions) or
Qualified Non-Elective Contributions. For Plan Years beginning before
1990, the Plan provides that a Participant must complete a Year of
Service to share in the allocations.
17
<PAGE> 94
E8 ALLOCATIONS TO TERMINATED PARTICIPANTS (Plan Section 4.3(k))
Any Participant who terminated employment during the Plan Year (i.e.
not actively employed on the last day of the Plan Year) for reasons
other than death, Total and Permanent Disability or retirement:
a. With respect to Employer Non-Elective Contributions (other than
matching), Qualified Non-Elective Contributions, and Forfeitures:
1. For Plan Years beginning after 1989,
i. ( ) N/A, Plan does not provide for such
contributions.
ii. ( ) shall share in the allocations provided such
Participant completed more than
500 Hours of Service.
iii. ( ) shall share in such allocations provided such
Participant completed a Year of Service.
iv. (X) shall not share in such allocations,
regardless of Hours of Service.
2. For Plan Years beginning before 1990,
i. (X) N/A, new Plan, or same as for Plan Years
beginning after 1989.
ii. ( ) shall share in such allocations provided such
Participant completed a Year of Service.
iii. ( ) shall not share in such allocations,
regardless of Hours of Service.
NOTE: If a.1.iii or iv is selected, the Plan could violate minimum
participation and coverage requirements under Code Sections
401(a)(26) and 410.
18
<PAGE> 95
b. With respect to the allocation of Employer Matching Contributions,
a Participant:
1. For Plan Years beginning after 1989,
i. ( ) N/A, Plan does not provide for matching
contributions.
ii. (X) shall share in the allocations, regardless of
Hours of Service.
iii. ( ) shall share in the allocations provided such
Participant completed more than
500 Hours of Service.
iv. ( ) shall share in such allocations provided such
Participant completed a Year of
Service.
v. ( ) shall not share in such allocations,
regardless of Hours of Service.
2. For Plan Years beginning before 1990,
i. (X) N/A, new Plan, or same as years beginning
after 1989.
ii. ( ) shall share in the allocations, regardless of
Hours of Service.
iii. ( ) shall share in such allocations provided such
Participant completed a Year of Service.
iv. ( ) shall not share in such allocations,
regardless of Hours of Service.
NOTE: If b.1.iv or v is selected, the Plan could violate minimum
participation and coverage requirements under Code Section
401(a)(26) and 410.
E9 ALLOCATIONS OF EARNINGS (Plan Section 4.3(c))
Allocations of earnings with respect to amounts contributed to the Plan
after the previous Anniversary Date or other valuation date shall be
determined...
a. ( ) by using a weighted average.
b. (X) by treating one-half of all such contributions as being
a part of the Participant's nonsegregated account balance as
of the previous Anniversary Date or valuation date.
c. ( ) by using the method specified in Section 4.3(c).
d. ( ) other
19
<PAGE> 96
E10 LIMITATIONS ON ALLOCATIONS (Plan Section 4.4)
a. If any Participant is or was covered under another qualified
defined contribution plan maintained by the Employer, or if the
Employer maintains a welfare benefit fund, as defined in Code
Section 419(e), or an individual medical account, as defined in
Code Section 415(l)(2), under which amounts are treated as Annual
Additions with respect to any Participant in this Plan:
1. (X) N/A.
2. ( ) The provisions of Section 4.4(b) of the Plan will
apply.
3. ( ) Provide the method under which the Plans will limit
total Annual Additions to the Maximum Permissible
Amount, and will properly reduce any Excess Amounts,
in a manner that precludes Employer discretion.
b. If any Participant is or ever has been a Participant in a defined
benefit plan maintained by the Employer:
1. (X) N/A.
2. ( ) In any Limitation Year, the Annual Additions credited
to the Participant under this Plan may not cause the
sum of the Defined Benefit Plan Fraction and the
Defined Contribution Fraction to exceed 1.0. If the
Employer's contribution that would otherwise be made
on the Participant's behalf during the limitation
year would cause the 1.0 limitation to be exceeded,
the rate of contribution under this Plan will be
reduced so that the sum of the fractions equals 1.0.
If the 1.0 limitation is exceeded because of an
Excess Amount, such Excess Amount will be reduced in
accordance with Section 4.4(a)(4) of the Plan.
3. ( ) Provide the method under which the Plans involved
will satisfy the 1.0 limitation in a manner that
precludes Employer discretion.
E11 DISTRIBUTIONS UPON DEATH (Plan Section 6.6(h))
Distributions upon the death of a Participant prior to receiving any
benefits shall...
a. (X) be made pursuant to the election of the Participant or
beneficiary.
b. ( ) begin within 1 year of death for a designated beneficiary
and be payable over the life (or over a period not exceeding
the life expectancy) of such beneficiary, except that if the
beneficiary is the Participant's spouse, begin within the
time the Participant would have attained age 70 1/2.
c. ( ) be made within 5 years of death for all beneficiaries.
d. ( ) other ____
20
<PAGE> 97
E12 LIFE EXPECTANCIES (Plan Section 6.5(f)) for minimum distributions
required pursuant to Code Section 401(a)(9) shall...
a. (X) be recalculated at the Participant's election.
b. ( ) be recalculated.
c. ( ) not be recalculated.
E13 CONDITIONS FOR DISTRIBUTIONS UPON TERMINATION
Distributions upon termination of employment pursuant to Section 6.4(a)
of the Plan shall not be made unless the following conditions have been
satisfied:
a. ( ) N/A. Immediate distributions may be made at Participant's
election.
b. ( ) The Participant has incurred ____ 1-Year Break(s) in
Service.
c. ( ) The Participant has reached his or her Early or Normal
Retirement Age.
d. (X) Distributions may be made at the Participant's election on
or after the Anniversary Date following termination of
employment.
e. ( ) Other ____
E14 FORM OF DISTRIBUTIONS (Plan Sections 6.5 and 6.6)
Distributions under the Plan may be made...
a. 1. (X) in lump sums.
2. ( ) in lump sums or installments.
b. AND, pursuant to Plan Section 6.13,
1. (X) no annuities are allowed (avoids Joint and Survivor
rules).
2. ( ) annuities are allowed (Plan Section 6.13 shall not
apply).
NOTE: b.1. above may not be elected if this is an amendment to a
plan which permitted annuities as a form of distribution or
if this Plan has accepted a plan to plan transfer of assets
from a plan which permitted annuities as a form of
distribution.
c. AND, may be made in...
1. ( ) cash only (except for insurance or annuity
contracts).
2. (X) cash or property.
21
<PAGE> 98
TOP HEAVY REQUIREMENTS
F1 TOP HEAVY DUPLICATIONS (Plan Section 4.3(i)): When a Non-Key Employee
is a Participant in this Plan and a Defined Benefit Plan maintained by
the Employer, indicate which method shall be utilized to avoid
duplication of top heavy minimum benefits.
a. (X) The Employer does not maintain a Defined Benefit Plan.
b. ( ) A minimum, non-integrated contribution of 5% of each Non-Key
Employee's total Compensation shall be provided in this
Plan, as specified in Section 4.3(i). (The Defined Benefit
and Defined Contribution Fractions will be computed using
100% if this choice is selected.)
c. ( ) A minimum, non-integrated contribution of 7 1/2% of each
Non-Key Employee's total Compensation shall be provided in
this Plan, as specified in Section 4.3(i). (If this choice
is selected, the Defined Benefit and Defined Contribution
Fractions will be computed using 125% for all Plan Years in
which the Plan is Top Heavy, but not Super Top Heavy.)
d. ( ) Specify the method under which the Plans will provide top
heavy minimum benefits for Non-Key Employees that will
preclude Employer discretion and avoid inadvertent
omissions, including any adjustments required under Code
Section 415(e).
F2 PRESENT VALUE OF ACCRUED BENEFIT (Plan Section 2.2) for Top Heavy
purposes where the Employer maintains a Defined Benefit Plan in
addition to this Plan, shall be based on...
a. (X) N/A. The Employer does not maintain a defined benefit plan.
b. ( ) Interest Rate:
Mortality Table:
F3 TOP HEAVY DUPLICATIONS: Employer maintaining two (2) or more Defined
Contribution Plans.
a. (X) N/A.
b. ( ) A minimum, non-integrated contribution of 3% of each Non-Key
Employee's total Compensation shall be provided in the Money
Purchase Plan (or other plan subject to Code Section 412),
where the Employer maintains two (2) or more non-paired
Defined Contribution Plans.
c. ( ) Specify the method under which the Plans will provide top
heavy minimum benefits for Non-Key Employees that will
preclude Employer discretion and avoid inadvertent
omissions, including any adjustments required under Code
Section 415(e).
22
<PAGE> 99
MISCELLANEOUS
G1 LOANS TO PARTICIPANTS (Plan Section 7.4)
a. ( ) Yes, loans may be made up to $50,000 or 1/2 Vested interest.
b. (X) No, loans may not be made.
If YES, (check all that apply)...
c. ( ) loans shall be treated as a Directed Investment.
d. ( ) loans shall only be made for hardship or financial
necessity.
e. ( ) the minimum loan shall be $1,000.
f. ( ) $10,000 de minimis loans may be made regardless of Vested
interest. (If selected, Plan may need security in addition
to Vested interest.)
NOTE: Department of Labor Regulations require the adoption of a
SEPARATE written loan program setting forth the requirements
outlined in Plan Section 7.4.
G2 DIRECTED INVESTMENT ACCOUNTS (Plan Section 4.8) are permitted for the
interest in any one or more accounts.
a. (X) Yes, regardless of the Participant's Vested interest in the
Plan.
b. ( ) Yes, but only with respect to the Participant's Vested
interest in the Plan.
c. ( ) Yes, but only with respect to those accounts which are 100%
Vested.
d. ( ) No directed investments are permitted.
G3 TRANSFERS FROM QUALIFIED PLANS (Plan Section 4.6)
a. (X) Yes, transfers from qualified plans (and rollovers) will be
allowed.
b. ( ) No, transfers from qualified plans (and rollovers) will not
be allowed.
AND, transfers shall be permitted...
c. (X) from any Employee, even if not a Participant.
d. ( ) from Participants only.
G4 EMPLOYEES' VOLUNTARY CONTRIBUTIONS (Plan Section 4.7)
a. ( ) Yes, Voluntary Contributions are allowed subject to the
limits of Section 4.9.
b. (X) No, Voluntary Contributions will not be allowed.
NOTE: TRA '86 subjects voluntary contributions to strict
discrimination rules.
23
<PAGE> 100
G5 HARDSHIP DISTRIBUTIONS (Plan Sections 6.11 and 11.8)
a. ( ) Yes, from any accounts which are 100% Vested.
b. ( ) Yes, from Participant's Elective Account only.
c. ( ) Yes, but limited to the Participant's Account only.
d. (X) No.
NOTE: Distributions from a Participant's Elective Account are
limited to the portion of such account attributable to such
Participant's Deferred Compensation and earnings
attributable thereto up to December 31, 1988. Also hardship
distributions are not permitted from a Participant's
Qualified Non-Elective Account.
G6 PRE-RETIREMENT DISTRIBUTION (Plan Section 6.10)
a. ( ) If a Participant has reached the age of ____, distributions
may be made, at the Participant's election, from any
accounts which are 100% Vested without requiring the
Participant to terminate employment.
b. (X) No pre-retirement distribution may be made.
NOTE: Distributions from a Participant's Elective Account and
Qualified Non-Elective Account are not permitted prior to
age 59 1/2.
G7 LIFE INSURANCE (Plan Section 7.2(d)) may be purchased with Plan
contributions.
a. (X) No life insurance may be purchased.
b. ( ) Yes, at the option of the Administrator.
c. ( ) Yes, at the option of the Participant.
AND, the purchase of initial or additional life insurance shall be
subject to the following limitations: (select all that apply)
d. ( ) N/A, no limitations.
e. ( ) each initial Contract shall have a minimum face amount of
$____.
f. ( ) each additional Contract shall have a minimum face amount of
$____.
g. ( ) the Participant has completed ____ Years of Service.
h. ( ) the Participant has completed ____ Years of Service while a
Participant in the Plan.
i. ( ) the Participant is under age ____ on the Contract issue
date.
j. ( ) the maximum amount of all Contracts on behalf of a
Participant shall not exceed $____.
k. ( ) the maximum face amount of life insurance shall be $____.
24
<PAGE> 101
The adopting Employer may not rely on an opinion letter issued by the National
Office of the Internal Revenue Service as evidence that the plan is qualified
under Code Section 401. In order to obtain reliance with respect to plan
qualification, the Employer must apply to the appropriate Key District Office
for a determination letter.
This Adoption Agreement may be used only in conjunction with basic Plan document
01. This Adoption Agreement and the basic Plan document shall together be known
as InWest Pension Management, Inc. Non-Standardized 401(k) Profit Sharing Plan
and Trust 01-001.
The adoption of this Plan, its qualification by the IRS, and the related tax
consequences are the responsibility of the Employer and its independent tax and
legal advisors.
InWest Pension Management, Inc. will notify the Employer of any amendments made
to the Plan or of the discontinuance or abandonment of the Plan provided this
Plan has been acknowledged by InWest Pension Management, Inc. or its authorized
representative. Furthermore, in order to be eligible to receive such
notification, we agree to notify InWest Pension Management, Inc. of any change
in address.
25
<PAGE> 102
IN WITNESS WHEREOF, the Employer and Trustee hereby cause this Plan to be
executed on June 15, 1999. Furthermore, this Plan may not be used unless
acknowledged by InWest Pension Management, Inc. or its authorized
representative.
EMPLOYER:
Sauer Drilling Company
By: /s/ T.W. DYK
---------------------------
T.W. Dyk, President
KIM HARRIS
- ------------------------------
TRUSTEE
JACK REED
- ------------------------------
TRUSTEE
BRUCE R. DEBOER
- ------------------------------
TRUSTEE
PARTICIPATING EMPLOYER:
N/A .
- ------------------------------
(enter name)
By:
---------------------------
26
<PAGE> 103
This Plan may not be used, and shall not be deemed to be a Regional Prototype
Plan, unless an authorized representative of InWest Pension Management, Inc. has
acknowledged the use of the Plan. Such acknowledgment is for administerial
purposes only. It acknowledges that the Employer is using the Plan but does not
represent that this Plan, including the choices selected on the Adoption
Agreement, has been reviewed by a representative of the sponsor or constitutes a
qualified retirement plan.
InWest Pension Management, Inc.
By:
-----------------------
27
<PAGE> 104
TOM BROWN, INC. 401(k) RETIREMENT PLAN
<PAGE> 105
TOM BROWN, INC. 401(k) RETIREMENT PLAN
Table of Contents
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C> <C>
1. Name of Plan; Effective Date.............................................................................1
2. Definitions..............................................................................................1
2.1 "Anniversary Date"..............................................................................1
2.2 "Code"..........................................................................................1
2.3 "Committee".....................................................................................1
2.4 "Company".......................................................................................1
2.5 "Compensation"..................................................................................1
2.6 "Computation Period"............................................................................2
2.7 "Disability"....................................................................................2
2.8 "Employee"......................................................................................2
2.9 "Employment Beginning Date".....................................................................2
2.10 "Fund" or "Funds"...............................................................................2
2.11 "Highly Compensated Employee"...................................................................2
2.12 "Hour of Service"...............................................................................3
2.13 "Income"........................................................................................4
2.14 "Non-Highly Compensated Employee"...............................................................4
2.15 "Normal Retirement Age".........................................................................4
2.16 "One-Year Break in Service".....................................................................4
2.17 "Participating Employee" and "Participant"......................................................5
2.18 "this Plan".....................................................................................5
2.19 "Plan Year".....................................................................................5
2.20 "Pooled Investment Account".....................................................................5
2.21 "Qualified Non-Elective Contribution"...........................................................5
2.22 "Service".......................................................................................5
2.23 "Trust".........................................................................................5
2.24 "Trustee".......................................................................................5
2.25 "Valuation Date"................................................................................6
2.26 "Vesting Year of Service".......................................................................6
3. Purpose..................................................................................................6
4. Plan Entry Requirements..................................................................................6
5. Contributions............................................................................................7
5.1 Salary Reduction Contributions..................................................................7
5.2 Matching Company Contributions..................................................................8
5.3 Discretionary TOM BROWN, INC. Contributions.....................................................9
5.4 Rollover Contributions..........................................................................9
</TABLE>
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TOM BROWN, INC. 401(k) Retirement Plan - Table of Contents Page iii of iv
<PAGE> 106
<TABLE>
<S> <C> <C>
6. Withdrawals.............................................................................................10
6.1 Age 59-1/2.....................................................................................10
6.2 Hardship.......................................................................................10
6.3 Conditions for Hardship Distribution...........................................................11
6.4 Available Other Resources......................................................................11
7.1 Actual Deferral Percentage Tests...............................................................11
7.2 Actual Contribution Percentage Tests...........................................................13
A. The "Actual Contribution Percentage"..................................................13
B. The excess of the "Actual Contribution Percentage"....................................13
C. Adjustment to Actual Deferral Percentage Tests........................................14
E. Safe Harbor Nondiscrimination Rules...................................................15
F. Adjustment to Actual Contribution Percentage Tests....................................16
G. Safe Harbor Nondiscrimination Rules...................................................17
(1) Salary Reduction Contribution Safe Harbor....................................17
(2) Matching TOM BROWN, INC. Contribution Safe Harbor............................18
8. Selection of Investments; Employee Accounts and Allocation of Benefits..................................18
8.1 Establishment of Investment Funds..............................................................18
8.2 Selections.....................................................................................19
8.3 Separate Records...............................................................................19
8.4 Allocation of Income and Expenses..............................................................20
8.5 Revaluation of Assets..........................................................................20
8.6 Unit Accounting................................................................................20
8.7 Allocation of Contributions....................................................................21
8.8 Limitation on Annual Additions.................................................................21
8.9 Combination With Other Plans...................................................................22
8.10 Code Section 415 Definitions...................................................................23
A. Annual additions......................................................................23
B. Compensation..........................................................................24
C. Defined benefit fraction..............................................................25
D. Defined contribution dollar limitation................................................25
E. Defined contribution fraction.........................................................25
F. Employer..............................................................................25
G. Excess amount.........................................................................25
H. Highest average compensation..........................................................25
I. Limitation year.......................................................................25
J. Maximum permissible amount............................................................26
K. Projected Annual Benefit..............................................................26
9. Retirement and Severance................................................................................26
9.1 Normal Retirement, Etc.........................................................................26
9.2 Vested Benefits; Termination of Employment.....................................................26
9.3 Restoration of Vesting Service and Forfeited Amounts...........................................27
9.4 Treatment of Forfeitures.......................................................................28
10. Distribution of Benefits................................................................................28
</TABLE>
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TOM BROWN, INC. 401(k) Retirement Plan - Table of Contents Page iv of iv
<PAGE> 107
<TABLE>
<S> <C> <C>
10.1 Normal Form of Payment.........................................................................28
10.2 Alternative Form of Payment....................................................................29
10.3 Other Rules for Beginning and Duration of Benefits.............................................29
10.4 Death Benefits; Beneficiary Designation; Distribution of Death Benefits........................30
10.5 Small Distributions............................................................................30
10.6 Waiver of Form of Benefit; Notification........................................................30
10.7 Segregated Accounts............................................................................31
10.8 Location of Participant or Beneficiary Unknown.................................................32
10.9 Special Distribution Rules Applicable to Qualified Domestic Relations Order 32
10.10 Direct Rollovers...............................................................................32
A. Eligible rollover distribution........................................................32
B. Eligible retirement plan..............................................................32
C. Distributee...........................................................................33
D. Direct rollover.......................................................................33
11. Loans to Participating Employees........................................................................33
12. Spendthrift Clause......................................................................................34
13. Administration of Plan Trust............................................................................35
14. Administrative Committee................................................................................35
15. Allocation of Responsibilities..........................................................................36
15.1 Administrative Responsibilities................................................................36
15.2 Management of Plan Assets......................................................................36
15.3 Trustee and Investment Managers................................................................37
15.4 Delegation of Fiduciary Responsibilities.......................................................37
16. Amendments..............................................................................................37
17. Termination of Contributions............................................................................37
18. Merger or Consolidation of Plan, Transfer of Plan Assets................................................38
19. Top-Heavy Provisions....................................................................................38
19.1 Determination of Top-Heavy Status..............................................................38
19.2 Minimum Allocations............................................................................39
19.3 Effect on Code Section 415 Limitations.........................................................40
20. Expenses of Administration..............................................................................40
21. Rights of Participants..................................................................................40
22. Claims Procedure........................................................................................40
</TABLE>
================================================================================
TOM BROWN, INC. 401(k) Retirement Plan - Table of Contents Page v of iv
<PAGE> 108
<TABLE>
<S> <C> <C>
23. Construction............................................................................................41
24. Defense of Plan.........................................................................................41
25. Governing Law...........................................................................................41
26. Mistaken Contributions, Etc.............................................................................41
27. Plan Administrator; Legal Agent.........................................................................42
</TABLE>
================================================================================
TOM BROWN, INC. 401(k) Retirement Plan - Table of Contents Page vi of iv
<PAGE> 1
EXHIBIT 10.19
SEVERANCE AGREEMENTS
<TABLE>
<CAPTION>
OFFICER OR EXECUTIVE MULTIPLE
-------------------- --------
<S> <C>
Donald L. Evans 2.5
James D. Lightner 2.5
Thomas W. Dyk 2
Peter R. Scherer 2
Bruce R. DeBoer 2
Daniel G. Blanchard 2
Jack F. Harper 2
R. Kim Harris 2
B. Jack Reed 2
Clifford C. Drescher 2
Hilary G. Dussing 2
Rodney G. Mellott 2
</TABLE>
<PAGE> 1
EXHIBIT 21.1
TOM BROWN, INC.
Subsidiaries of Registrant
December 31, 1999
<TABLE>
<CAPTION>
Jurisdiction of Percent
Name of Subsidiary Incorporation/Organization of Ownership
- ------------------ -------------------------- ------------
<S> <C> <C>
Retex, Inc. Wyoming 100%
Rocno Corporation Texas 100%
Wildhorse Energy Partners, L.L.C. Delaware 45%
Sauer Drilling Company Delaware 100%
TBI West Virginia, Inc. Delaware 100%
TBI Pipeline Company Delaware 100%
TBI Resources, Ltd. Canadian 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Tom Brown, Inc.'s
previously filed Registration Statements on Form S-8 Nos. 33-42991, 33-44225,
33-60191, 33-60842, 33-13157, 33-30069, 33-42011, 333-56577, 333-69353,
333-31426, 333-89031 and 333-89033.
ARTHUR ANDERSEN LLP
Houston, Texas
March xx, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Tom Brown, Inc.'s
previously filed Registration Statements on Form S-8 Nos. 33-42991, 33-44225,
33-60191, 33-60842, 33-13157, 33-30069, 33-42011, 333-56577, 333-69353,
333-31426, 333-89031, and 333-89033.
WILLIAMSON PETROLEUM CONSULTANTS, INC.
March xx, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
As independent petroleum engineers, we hereby consent to the incorporation
by reference of our report included in this Form 10-K, into Tom Brown, Inc.'s
previously filed Registration Statements on Form S-8 Nos. 33-42991, 33-44225,
33-60191, 33-60842, 33-13157, 33-30069, 33-42011, 333-56577, 333-69353,
333-31426, 333-89031 and 333-89033.
RYDER SCOTT COMPANY
March xx, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 12,510
<SECURITIES> 0
<RECEIVABLES> 53,646
<ALLOWANCES> 0
<INVENTORY> 828
<CURRENT-ASSETS> 68,609
<PP&E> 565,145
<DEPRECIATION> 133,342
<TOTAL-ASSETS> 536,299
<CURRENT-LIABILITIES> 49,252
<BONDS> 81,000
0
100
<COMMON> 3,531
<OTHER-SE> 398,466
<TOTAL-LIABILITY-AND-EQUITY> 536,299
<SALES> 104,431
<TOTAL-REVENUES> 214,850
<CGS> 125,672
<TOTAL-COSTS> 203,800
<OTHER-EXPENSES> 9,503
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,560
<INCOME-PRETAX> 11,050
<INCOME-TAX> (4,293)
<INCOME-CONTINUING> 5,007
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,007
<EPS-BASIC> .16
<EPS-DILUTED> .15
</TABLE>
