<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1995
REGISTRATION NO. 33-39477
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 4
to
FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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COTTER & COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 36-2099896
(State of Incorporation) (IRS Employer Identification No.)
</TABLE>
2740 North Clybourn Avenue
Chicago, Illinois 60614
(312) 975-2700
(address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Kerry J. Kirby, Vice President and Chief Financial Officer
Cotter & Company
2740 North Clybourn Avenue
Chicago, Illinois 60614
(312) 975-2700
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
<TABLE>
<S> <C>
Daniel T. Burns, Vice President and Robert N. Sodikoff, Esq.
Secretary Aronberg Goldgehn Davis & Garmisa
Cotter & Company One IBM Plaza
2740 North Clybourn Avenue Suite 3000
Chicago, Illinois 60614 Chicago, Illinois 60611
(312) 975-2700 (312) 828-9600
</TABLE>
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Post-Effective Amendment
to the Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. / /
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<PAGE> 2
COTTER & COMPANY
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CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION IN
ITEM IN FORM S-2 PROSPECTUS
------------------------------------------------- -------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Available Information; Reports to
Securities Holders; Documents
Incorporated by Reference
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Summary; The Company; Description of
Common Stock
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Outside Front Cover Page of
Prospectus and Plan of Distribution
6. Dilution......................................... Not Applicable
7. Selling Security Holders......................... Not Applicable
8. Plan of Distribution............................. Plan of Distribution
9. Description of Securities to be Registered....... Description of Common Stock
10. Interests of Named Experts and Counsel........... Not Applicable
11. Information with Respect to the Registrant....... Summary; The Company; Dividends; Se-
lected Financial Data; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Distribution
of Patronage Dividends; Description
of Common Stock; Index to
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference........................................ Documents Incorporated By Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 17, 1995
PROSPECTUS
COTTER & COMPANY
12,350 SHARES CLASS A COMMON STOCK, $100 PAR VALUE
(IN UNITS OF TEN SHARES)
THE COMMON STOCK OFFERED HEREUNDER IS OFFERED EXCLUSIVELY TO
RETAILERS OF HARDWARE AND RELATED PRODUCTS,
IN CONNECTION WITH BECOMING MEMBERS OF THE COMPANY.
(SEE "PLAN OF DISTRIBUTION" HEREIN.)
THE COMMON STOCK OFFERED HEREUNDER IS LIMITED AS TO TRANSFERABILITY
BY ITS TERMS. THE COMPANY RETAINS AN AUTOMATIC LIEN AGAINST
SUCH COMMON STOCK, AND DIVIDENDS ACCRUING THEREON,
FOR ANY INDEBTEDNESS DUE THE COMPANY.
(SEE "DESCRIPTION OF COMMON STOCK" HEREIN.)
THERE IS NO EXISTING MARKET FOR THE COMMON STOCK OFFERED HEREUNDER AND
THERE IS NO EXPECTATION THAT ANY MARKET WILL DEVELOP.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
UNIT OF 10 SHARES OF PRICE TO DISCOUNTS AND PROCEEDS TO
CLASS A COMMON STOCK PUBLIC COMMISSIONS COMPANY
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<S> <C> <C> <C>
Per Unit(1)........................ $1,000 See (2) Below $1,000(3)
Total.............................. $1,235,000 See (2) Below $1,235,000(3)
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</TABLE>
(1) The shares will be offered only in units of 10 shares and no shareholder may
purchase more than one such unit.
(2) There will be no underwriters. The subject stock will be sold directly by
the Company at par value.
(3) There is no firm commitment for the sale of the securities offered
hereunder; they will be sold from time to time by the Company. However,
assuming the sale of all securities offered hereunder, and before deduction
of approximately $50,000 for estimated expenses in connection with this
offering, the total proceeds will be as shown above.
------------------
THE DATE OF THIS PROSPECTUS IS APRIL , 1995.
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549 as well as the Regional Offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission, Washington, D.C., 20549 at prescribed rates.
REPORTS TO SECURITY HOLDERS
Each year the Company distributes to its stockholder-Members an annual
report containing consolidated financial statements reported upon by a firm of
independent auditors. The Company may, from time to time, also furnish to its
stockholder-Members interim reports, as determined by management.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1994 filed pursuant to Section 15(d) of the Exchange Act is incorporated herein
by reference. The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any and all of the documents incorporated by reference in the Registration
Statement (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into the documents that the Registration
Statement incorporates). Requests for such copies should be directed to Kerry J.
Kirby, Vice President and Chief Financial Officer, Cotter & Company, 2740 North
Clybourn Avenue, Chicago, IL 60614, (312) 975-2700.
2
<PAGE> 5
SUMMARY
This Summary is qualified in its entirety by the detailed information and
the Company's consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus and in the documents incorporated herein
by reference.
Cotter & Company (the "Company"), located at 2740 North Clybourn Avenue,
Chicago, Illinois, 60614, telephone number (312) 975-2700, is a Member-owned
wholesaler of hardware and related merchandise. It is the largest wholesaler of
hardware and related merchandise in the United States. The Company also
manufactures paint and paint applicators. For reporting purposes, the Company
operates in a single industry as a Member-owned wholesaler cooperative.
The Company's Class A Common Stock being offered hereby is offered
exclusively to retailers of hardware and related merchandise, in connection with
becoming Members of the Company. The Class A Common Stock (which is the sole
voting stock) is offered only in ten (10) share units, and no party may acquire
more than one unit; thus control of the Company is equally distributed among the
stockholder-Members. Sales of Class A Common Stock are made for cash.
Membership entitles a Member to use certain Company trademarks and trade
names, including the federally registered collective membership trademark
indicating membership in "True Value(R) Hardware Stores". Membership also
entitles the Member to receive annual patronage dividends based upon the
Member's purchases from the Company. In accordance with the Company's By-Laws
and Retail Member Agreement (the "Agreement"), the annual patronage dividend is
paid to Members out of the gross margins from operations and other patronage
source income, after deduction for expenses, reserves and provisions authorized
by the Board of Directors.
The Class A Common Stock being offered hereby is limited as to
transferability in that the Company has a ninety (90) day right of first refusal
to repurchase, at book value, a Member's stock before such stock can otherwise
be disposed of. Additionally, the Company retains an automatic lien on the Class
A Common Stock, and dividends accruing thereon, for any indebtedness due the
Company. The Company is obligated to repurchase a Member's Class A Common Stock
and the Member is obligated to sell such stock, at book value, in accordance
with the terms and conditions set forth in the Company's By-Laws upon
termination of the Agreement. The Agreement may be terminated by either the
Company or the Member upon sixty (60) days written notice. Termination by the
Company requires approval by a two-thirds vote of the Board of Directors, except
in the following circumstances where the Company has the right to immediately
terminate the Agreement: the Member becomes insolvent, commits any act of
bankruptcy, files a voluntary petition in bankruptcy, is adjudicated as
bankrupt, or commits a breach of any obligation under the Agreement, which
breach is not cured within ten (10) days after written notice to the Member by
the Company.
There is no existing market for the Class A Common Stock offered hereunder
and there is no expectation that any market will develop.
The Company intends to use the proceeds of this offering primarily for
general working capital purposes, including the purchase of merchandise for
resale to Members and the maintenance of adequate inventory levels.
3
<PAGE> 6
THE COMPANY
The Company was organized as a Delaware corporation in 1953. Upon its
organization, it succeeded to the business of Cotter & Company, an Illinois
corporation organized in 1948. The Company's principal executive offices are
located at 2740 North Clybourn Avenue, Chicago, Illinois, 60614. Its telephone
number is (312) 975-2700.
The Company is a Member-owned wholesaler of hardware and related
merchandise. It is the largest wholesaler of hardware and related merchandise in
the United States. The Company also manufactures paint and paint applicators.
The Company currently manufactures outdoor power equipment, heaters and hardware
related products. In January 1995, the Company agreed to sell certain assets of
this manufacturing division to a nationally recognized company and secured a
favorable supply agreement from the purchaser. For reporting purposes, the
Company operates in a single industry as a Member-owned wholesaler cooperative.
The Company serves approximately 6,200 True Value(R) Hardware Stores
throughout the United States. Primary concentrations of Members exist in
California (approximately 8%), New York, Illinois and Texas (approximately 6%
each), Pennsylvania (approximately 5%) and Michigan and Ohio (approximately 4%
each). Also, the Company currently serves approximately 1,000 V&S(R) Variety
Stores. The Company announced in January 1995 the sale of certain inventory of
its domestic V&S(R) Variety division to a national wholesaler who has also
agreed to supply the majority of the V&S(R) stores.
USE OF PROCEEDS
The proceeds to be received from this offering will be used by the Company
primarily for general working capital purposes, including the purchase of
merchandise for resale to Members and the maintenance of adequate inventory
levels. Until used as provided herein, the net proceeds of the sale of the Class
A Common Stock may be invested in short-term commercial paper, bank certificates
of deposit, government securities, repurchase agreements, or other similar
short-term investment.
The Company will use its best efforts to sell the Class A Common Stock
being offered hereunder and has no assurances that all such Class A Common Stock
will be sold. As a result, the Company may not receive the entire amount of
estimated proceeds from the sale of said Class A Common Stock.
PLAN OF DISTRIBUTION
The Company's Class A Common Stock being offered hereby is offered
exclusively to retailers of hardware and related merchandise, in connection with
becoming Members of the Company. Each independent retailer who applies to become
a stockholder-Member must subscribe for ten (10) shares of the Company's Class A
Common Stock, $100 par value, having a total purchase price of $1,000. All sales
of the Class A Common Stock will be made for cash.
Sales of Class A Common Stock are primarily made through the Company's
registered securities agent(s) but only after the executive officers of the
Company approve the admission of a new Member. Neither the Company's executive
officers nor its agent(s) receive any special or separate compensation or
commission in connection with the admission of new Members and concomitant sales
of Class A Common Stock. Although the Company's retail support representatives
frequently are the Company's initial contact with potential new Members, they do
not, and are not empowered to, admit new Members to the Company.
4
<PAGE> 7
DIVIDENDS
Other than the payment of patronage dividends, including the redemption of
some nonqualified written notices of allocation, the Company has not paid
dividends on its Class A Common Stock or Class B Common Stock. The Board of
Directors does not plan to pay dividends on either of said classes. See
"Distribution of Patronage Dividends" and "Description of Common Stock".
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2, DECEMBER 28, DECEMBER 29,
1994 1994 1993 1991 1990
------------ ---------- ------------ ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues............................. $2,574,445 $2,420,727 $2,356,468 $2,139,887 $2,135,120
Net margins.......................... $ 60,318 $ 57,023 $ 60,629 $ 59,425 $ 54,847
Patronage dividends.................. $ 60,421 $ 54,440 $ 60,901 $ 60,339 $ 56,269
Total assets......................... $ 868,785 $ 803,528 $ 833,372 $ 763,109 $ 709,895
Long-term debt and obligations under
capital leases..................... $ 75,756 $ 69,201 72,749 $ 13,335 $ 15,077
Promissory (subordinated) and
instalment notes payable........... $ 199,099 $ 217,996 $ 235,695 $ 235,289 $ 215,452
Redeemable Class A Common Stock...... $ 6,370 $ 6,633 $ 6,857 $ 7,077 $ 7,362
Redeemable Class B Common Stock...... $ 116,663 $ 110,773 $ 108,982 $ 104,151 $ 101,398
Book value per share of Class A
Common Stock and Class B Common
Stock(a)........................... $ 103.57 $ 103.85 $ 101.42 $ 102.50 $ 103.38
</TABLE>
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(a) The book value per share of the Company's Class A Common Stock and Class B
Common Stock is the value, determined in accordance with generally accepted
accounting principles, of such shares as shown by the respective year-end
consolidated balance sheets of the Company, included elsewhere herein as
reported on by the Company's independent auditors, after eliminating
therefrom all value for goodwill, and other intangible assets and any
retained earnings specifically appropriated by the Company's Board of
Directors.
5
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
In fiscal year 1994, the Company's revenues increased $153,718,000 from
last year. Total revenues grew to $2,574,445,000, an increase of 6.4%. The
improvement resulted from increased merchandise shipments to existing Members.
Classes of merchandise with the strongest percentage increases in fiscal
year 1994 were Lumber and Building Materials, up 11.9%; Farm and Garden
Supplies, up 8.9%; Hardware Goods, up 7.3%; Appliances and Housewares, up 7.0%;
and Variety and Related Goods, up 6.4%. The South Central region of the United
States showed the largest growth at 9.4%. Other regions showing strong growth
were the Southeast at 8.1%; the Northeast at 7.2%; and North Central at 7.1%.
Consolidated gross margins increased by $5,410,000 or 2.5% but as a
percentage of revenues decreased to 8.7% from 9.0% reflecting a change in the
Company's sales mix from warehouse to direct shipments, combined with the new
Pinpoint Pricing program and more promotionally oriented merchandising programs.
Warehouse, general and administrative expenses remained comparable with the
previous year but expressed as a percentage of revenues decreased to 5.2% from
5.5% due to the Company's continuing efforts to reduce operating costs.
Interest paid to Members decreased by $1,564,000 or 6.4% primarily due to a
lower average interest rate.
Net margins were $60,318,000 for the year ended December 31, 1994 compared
to $57,023,000 for the year ended January 1, 1994. The fiscal year 1993 net
margins include a one-time gain on the sale of properties of $5,985,000 offset
by the related income tax of $2,162,000.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
Revenues increased $64,259,000 or 2.7% compared to the previous year. The
majority of this revenue gain resulted from increased direct shipment sales to
Members. Contributing to the increased direct shipments were strong increases of
15.6% from Lumber and Building Materials and a 20.5% increase from the Company's
manufacturing division, General Power Equipment Company. Another significant
portion of the Company's revenue increase was due to Cotter Canada Hardware and
Variety Cooperative, Inc. ("Cotter Canada"). With its growth in membership and
its first full year of operations, Cotter Canada shipments to Canadian members
increased by 36.4%.
Consolidated gross margins increased $1,313,000 but as a percentage of
revenue decreased to 9.0% from 9.2% reflecting the change in sales mix from
warehouse to direct shipments.
Warehouse, general and administrative expenses increased by $9,430,000 or
7.7% due to higher manufacturing and logistic costs, increases associated with a
full year of operations at Cotter Canada and non-recurring expenses related to
the decentralization of functions previously performed at the Company's National
Headquarters.
Interest paid to Members decreased $1,258,000 or 4.9% primarily due to a
lower average interest rate.
Other interest expense increased by $156,000 or 2.1% due to a long-term
financing agreement entered into by the Company during the second quarter of
fiscal year 1992 to finance the expansion of the Company's
6
<PAGE> 9
distribution network and entry into Canada. This increase was partially offset
by a decrease in short-term borrowings and the average rate of interest compared
to the corresponding period last year.
The gain on sale of properties owned of $5,985,000 and the corresponding
increase in income tax expense of $2,193,000 resulted primarily from the
disposition of a regional distribution center in Pomona, California and real
estate located in Chicago, Illinois.
Net margins were $57,023,000 for the year ended January 1, 1994 compared to
$60,629,000 for the year ended January 2, 1993.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents in 1994 remained comparable to the previous year.
Cash flows for the year ended December 31, 1994 of $88,663,000 were provided by
operating activities through shipment of inventories to True Value(R) and V&S(R)
Members, which were purchased or manufactured by the Company. Cash flows of
$18,121,000 were used for investing activities and cash flows of $70,025,000
were used for financing activities.
At the end of fiscal year 1994, inventories increased by $48,681,000, to
support anticipated future orders of seasonal merchandise. Short-term borrowings
decreased by $13,958,000, but accounts payable increased by $79,252,000 in
support of the increased inventories for anticipated future orders of seasonal
merchandise and favorable seasonal terms obtained from vendors. Since the
favorable seasonal terms were passed on to the Company's Members, accounts and
notes receivable increased by $18,078,000.
At December 31, 1994, net working capital decreased to $221,054,000 from
$225,206,000 at January 1, 1994. The current ratio decreased to 1.47 at December
31, 1994 compared to 1.57 at January 1, 1994.
Short-term lines of credit available under informal agreements with lending
banks, cancellable by either party under specific circumstances, amounted to
$67,800,000 at December 31, 1994. Borrowings under these agreements were
$9,329,000 at December 31, 1994 compared to $23,287,000 at January 1, 1994.
The Company's capital is primarily derived from redeemable Class A Common
Stock and retained earnings, together with Promissory (Subordinated) Notes and
redeemable nonvoting Class B Common Stock issued in connection with the
Company's annual patronage dividend. Funds derived from these capital resources
are usually sufficient to satisfy long-term capital needs.
Total capital expenditures, including those made under capital leases, were
$21,427,000 in fiscal year 1994 compared to $13,382,000 in fiscal year 1993 and
$30,398,000 in fiscal year 1992. These capital expenditures were principally
related to additional equipment and technological improvements at the regional
distribution centers and National Headquarters. Funding of capital expenditures
in fiscal year 1995 is anticipated to come from operations and external sources,
if necessary.
The effects of all recent tax legislation have not had a material effect on
the Company's financial position and results of operations.
Effective January 3, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes". As permitted under the new rules, prior years' financial
statements have not been restated. The cumulative effect of this adoption did
not have a material effect on the consolidated financial statements.
Additionally, the Company has reviewed the impact of all new accounting
standards issued as of the filing date of this report, that will be adopted at a
future date, and has determined that these will not have a material impact on
the Company's results of operations or financial position.
7
<PAGE> 10
BUSINESS
The Company is a Member-owned wholesaler of hardware and related
merchandise. It is the largest wholesaler of hardware and related merchandise in
the United States. The Company also manufactures paint and paint applicators.
The Company currently manufactures outdoor power equipment, heaters and hardware
related products. In January 1995, the Company agreed to sell certain assets of
this manufacturing division to a nationally recognized company and secured a
favorable supply agreement from the purchaser. For reporting purposes, the
Company operates in a single industry as a Member-owned wholesaler cooperative.
Membership entitles a Member to use certain Company trademarks and trade
names, including the federally registered collective membership trademark
indicating membership in "True Value(R) Hardware Stores". The "True Value(R)"
collective membership mark has a present expiration date of January 2, 2003.
The Company serves approximately 6,200 True Value(R) Hardware Stores
throughout the United States. Primary concentrations of Members exist in
California (approximately 8%), New York, Illinois and Texas (approximately 6%
each), Pennsylvania (approximately 5%) and Michigan and Ohio (approximately 4%
each). Also, the Company currently serves approximately 1,000 V&S(R) Variety
Stores. The Company announced in January 1995 the sale of certain inventory of
its domestic V&S(R) Variety division to a national wholesaler who has also
agreed to supply the majority of the V&S(R) stores.
The Company's total sales of merchandise to its U.S. Members were divided
among the following general classes of merchandise:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Hardware Goods............................ 20.1% 20.0% 20.8%
Electrical and Plumbing Supplies.......... 15.8% 16.3% 16.3%
Painting and Cleaning Supplies............ 14.4% 14.9% 14.7%
Variety and Related Goods................. 13.9% 13.9% 14.2%
Lumber and Building Materials............. 12.9% 12.3% 10.8%
Farm and Garden Supplies.................. 12.5% 12.3% 11.7%
Appliances and Housewares................. 10.4% 10.3% 11.5%
</TABLE>
The Company serves its Members by purchasing products in quantity lots and
selling them to Members in smaller lots, passing along any savings to Members in
the form of lower prices and/or patronage dividends. The Company holds
conventions and meetings for its Members in order to keep them better informed
as to industry trends and the availability of new merchandise. The Company also
provides each of its Members with an illustrated price catalog showing the
products available from the Company. The Company's sales to its Members are
divided into three categories, as follows: (1) warehouse shipment sales
(approximately 46% of total sales); (2) direct shipment sales (approximately 42%
of total sales); and (3) relay sales (approximately 12% of total sales).
Warehouse shipment sales are sales of products purchased, warehoused, and resold
by the Company upon orders from the Members. Direct shipment sales are sales of
products purchased by the Company but delivered directly to Members from
manufacturers. Relay sales are sales of products purchased by the Company in
response to the requests of several Members for a product which is not normally
held in inventory and is not susceptible to direct shipment. Generally, the
Company will give notice to all Members of its intention to purchase products
for relay shipment and then purchases only so many of such products as the
Members order. When the product shipment arrives at the Company, it is not
warehoused; rather, the Company breaks up the shipment and "relays" the
appropriate quantities to the Members who placed orders.
The Company also manufactures paint and paint applicators. The principal
raw materials used by the Company are chemicals. All raw materials are purchased
from outside sources. The Company has been able
8
<PAGE> 11
to obtain adequate sources of raw materials and other items used in production
and no shortages of such materials which will materially impact operations are
currently anticipated.
The Company annually sponsors two "markets" (one in the Spring and one in
the Fall). In fiscal year 1995, these markets will be held in St. Louis,
Missouri. Members are invited to the markets and generally place substantial
orders for delivery during the period prior to the next market. During such
markets, new merchandise and seasonal merchandise for the coming season is
displayed to attending Members.
As of February 25, 1995 and February 26, 1994, the Company had a backlog of
firm orders (including relay orders) of approximately $21,000,000 and
$23,000,000, respectively. It is anticipated that the entire backlog existing at
February 25, 1995 will be filled by April 30, 1995. The Company's backlog at any
given time is made up of two principal components: (i) normal resupply orders
and (ii) market orders for future delivery. Resupply orders are orders from
Members for merchandise to keep inventories at normal levels. Generally, such
orders are filled the day following receipt, except that relay orders for future
delivery (which are in the nature of resupply orders) are not intended to be
filled for several months. Market orders for future delivery are Member orders
for new or seasonal merchandise given at the Company's two markets, for delivery
during the several months subsequent to the markets. Thus, the Company will have
a relatively high backlog at the end of each market which will diminish in
subsequent months until the next market.
The retail hardware industry is characterized by intense competition.
Independent retail hardware businesses served by the Company continue to face
intense competition from chain stores, discount stores, home centers, and
warehouse operations. Increased operating expenses for the retail stores,
including increased costs due to longer open-store hours and higher rental costs
of retail space, have cut into operating margins and brought pressures for lower
merchandise costs, to which the Company has been responsive through a retail
oriented competitive pricing strategy on high turnover, price sensitive items
(Pinpoint Pricing program). The Company competes with other Member-owned and
non-member-owned wholesalers as a source of supply and merchandising support for
independent retailers. Competitive factors considered by independent retailers
in choosing a source of supply include pricing, servicing capabilities,
promotional support and merchandise selection and quality. Increased operating
expenses and decreased margins have resulted in the withdrawal from business of
several non-member-owned wholesalers.
During fiscal year 1992, the Company acquired through a Canadian
subsidiary, a majority equity interest in Cotter Canada Hardware and Variety
Cooperative, Inc., a Canadian wholesaler of hardware, variety and related
merchandise. This cooperative serves 391 True Value(R) and V&S(R) Stores, all
located in Canada. The cooperative has approximately 330 employees and generated
less than 5% of the Company's consolidated revenue in fiscal year 1994.
The Company operates several other subsidiaries, most of which are engaged
in businesses providing additional services to the Company's Members. In the
aggregate, these subsidiaries are not significant to the Company's results of
operations.
The Company employs approximately 4,200 persons in the United States on a
full-time basis. Due to the widespread geographical distribution of the
Company's operations, employee relations are governed by the practices
prevailing in the particular area and are generally dealt with locally.
Approximately 39% of the Company's hourly-wage employees are covered by
collective bargaining agreements which are generally effective for periods of
three or four years. In general, the Company considers its relationship with its
employees to be good.
9
<PAGE> 12
DISTRIBUTION OF PATRONAGE DIVIDENDS
The Company operates on a cooperative basis with respect to business done
with or for Members. All Members are entitled to receive patronage dividend
distributions from the Company on the basis of gross margins of merchandise
and/or services purchased by each Member. In accordance with the Company's
By-Laws and Retail Member Agreement; the annual patronage dividend is paid to
Members out of the gross margins from operations and other patronage source
income, after deduction for expenses, reserves and provisions authorized by the
Board of Directors.
Patronage dividends are usually paid to Members within 60 days after the
close of the Company's fiscal year; however, the Internal Revenue Code (the
"Code") permits distribution of patronage dividends as late as the 15th day of
the ninth month after the close of the Company's fiscal year, and the Company
may elect to distribute the annual patronage dividend at a later time than usual
in accordance with the provisions of the Code.
The Company's By-Laws provide for the payment of year-end patronage
dividends, after payment of at least 20% of such patronage dividends in cash, in
qualified written notices of allocation including (i) Class B nonvoting Common
Stock based on book value thereof, to a maximum of 2% of the Member's net
purchases of merchandise from the Company for the year (except in unusual
circumstances of individual hardships, in which case the Board of Directors
reserves the right to make payments in cash), (ii) Promissory (Subordinated)
Notes, or (iii) other property. The Company may also issue nonqualified written
notices of allocation to its Members as part of its annual patronage dividend.
In determining the form of the annual patronage dividend, a Member's
required investment in Class B Common Stock of the Company had been limited by
the Board of Directors to an amount in the aggregate not exceeding an amount
(computed on the basis of par value thereof and to the nearest multiple of $100)
equal to (i) two percent (2%) of a Member's net purchases of direct shipment
sales from the Company and purchases of direct shipment sales of "Competitive
Edge Program Lumber" materials computed separately at one percent (1%), (ii)
four percent (4%) of a Member's net purchases of relay sales from the Company
and (iii) eight percent (8%) of a Member's net warehouse purchases from the
Company in the year of the highest total net purchases of the three preceding
years. In 1995, the Board of Directors adopted a plan to continue to adequately
capitalize the Company and to more equitably divide the responsibility for
capitalizing the Company among its Members. As a result, it is anticipated that
these percentages will be changed. In that each Member has equal voting power
(voting rights being limited to Class A Common Stock), acquisition of Class B
Common Stock as patronage dividends generally results in the larger-volume
Members having greater Common Stock equity in the Company but a lesser
proportionate voting power per dollar of Common Stock owned than smaller-volume
Members.
PAYMENT OF PATRONAGE DIVIDENDS IN ACCORDANCE WITH THE INTERNAL REVENUE CODE
The Code specifically provides for the taxation of cooperatives (such as
the Company) and their patrons (such as the Company's Members) so as to ensure
that the business earnings of cooperatives are currently taxable either to the
cooperatives or to the patrons.
The shares of Class B Common Stock and the Promissory (Subordinated) Notes
distributed by the Company to its Members as partial payment of the patronage
dividend are "written notices of allocation" within the meaning of that phrase
as used in the Code. In order that such written notices of allocation shall be
deducted from earnings in determining taxable income of the Company, it is
necessary that the Company pay 20% or more of the annual patronage dividend in
cash and that the Members consent to having the allocations (at their stated
dollar amount) treated as being constructively received by them and includable
in their gross income. These conditions being met, the shares of Class B Common
Stock and the Promissory (Subordinated)
10
<PAGE> 13
Notes distributed in payment of patronage dividends become "qualified written
notices of allocation" as that phrase is used in the Code. Section 1385(a) of
the Code provides, in substance, that the amount of any patronage dividend which
is paid in money or in qualified written notices of allocation shall be included
in the gross income of the patron (Member) for the taxable year in which it
receives such money or such qualified written notices of allocation.
Thus, every year each Member may receive, as part of the Member's patronage
dividend, non-cash "qualified written notices of allocation", which may include
Class B Common Stock or Promissory (Subordinated) Notes, the stated dollar
amount of which must be recognized as gross income for the taxable year in which
received. The portion of the patronage dividend paid in cash (at least 20%) may
be insufficient, depending on the tax bracket in each Member's case, to provide
funds for the payment of income taxes for which the Member will be liable as a
result of the receipt of the entire patronage dividend, including cash, Class B
Common Stock and Promissory (Subordinated) Notes.
In response to the provisions of the Code, the Company's By-Laws provide
for the treatment of the shares of Class B Common Stock, Promissory
(Subordinated) Notes and such other notices as the Board of Directors may
determine, distributed in payment of patronage dividends as "qualified written
notices of allocation." The By-Laws provide in effect:
(i) for payment of patronage dividends partly in cash, partly in
qualified written notices of allocation (including the Class B Common Stock
and Promissory (Subordinated) Notes as described above), other property or
in nonqualified written notices of allocation, and
(ii) that membership in the organization (i.e. the status of being a
Member of the Company) shall constitute consent by the Member to take the
qualified written notices of allocation or other property into account in
the Member's gross income as provided in Section 1385(a) of the Code.
Under the provisions of the Code, persons who become or became Members of
the Company or who retained their status as Members after adoption of the
By-Laws providing that membership in the organization constitutes consent, and
after receiving written notification and a copy of the By-Laws are deemed to
have consented to the tax treatment of the cash and the qualified written
notices of allocation in which the patronage dividends are paid, in accordance
with Section 1385(a) of the Code. Written notification of the adoption of the
By-Laws and its significance, and a copy of the By-Laws, were sent to each then
existing Member and have been, and will continue to be, delivered to each party
that became, or becomes a Member thereafter. Such consent is then effective
except as to patronage occurring after the distributee ceases to be a Member of
the organization or after the By-Laws of the organization cease to contain the
provision with respect to the above described consent.
Each year since 1978, the Company has paid its Members 30% of the annual
patronage dividend in cash in respect to patronage (excluding nonqualified
written notices of allocation) occurring in the preceding year. It is the
judgment of management that the payment of 30% or more of patronage dividends in
cash will not have a material adverse effect on the operations of the Company or
its ability to maintain adequate working capital for the normal requirements of
its business. However, the Company is obligated to distribute only 20% of the
annual patronage dividend (excluding nonqualified written notices of allocation)
in cash and it may distribute this lesser percentage in future years.
In order to avoid the administrative inconvenience and expense of issuing
separate certificates representing shares of Class B Common Stock and separate
Promissory (Subordinated) Notes to each Member, the Company deposits a bulk
certificate and a bulk Promissory (Subordinated) Note with Harris Trust and
Savings Bank, Chicago, Illinois for safekeeping for and on behalf of its Members
and sends a written notice to each Member of these deposits and the allocation
thereof to such Member. Each Member is, and is shown on the books of the Company
as, the registered owner of his allocation of Class B Common Stock and
Promissory (Subordinated) Notes. Upon written request to the Company, a Member
can obtain a certificate for all or any
11
<PAGE> 14
portion of his Class B Common Stock and a Note or Notes for all or any portion
of the amount allocated to his account.
MANAGEMENT
The directors and principal executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
NAME (AGE) OFFICE
-------------------------------------------------- -------------------------------------
<S> <C>
Karen M. Agnew (52)............................... Vice President
Daniel T. Burns (44).............................. Vice President and Secretary
Danny R. Burton (48).............................. Vice President
David W. Christmas (46)........................... Vice President
William M. Claypool, III (72)..................... Director
Samuel D. Costa, Jr. (53)......................... Director
Daniel A. Cotter (60)............................. President, Chief Executive Officer
and Director
Leonard C. Farr (73).............................. Director
William M. Halterman (47)......................... Director
Robert F. Johnson (51)............................ Vice President
Jerrald T. Kabelin (57)........................... Chairman of the Board and Director
Kerry J. Kirby (48)............................... Vice President, Chief Financial
Officer and Treasurer
Robert J. Ladner (48)............................. Director
Lewis W. Moore (82)............................... Director
Kenneth W. Noble (37)............................. Director
Steven J. Porter (42)............................. Executive Vice President and Chief
Operating Officer
Richard L. Schaefer (65).......................... Director
John P. Semkus (48)............................... Vice President
George V. Sheffer (42)............................ Director
Dennis A. Swanson (55)............................ Director
Robert G. Waters (74)............................. Director
John M. West, Jr. (42)............................ Director
Donald E. Yeager (52)............................. Director
</TABLE>
During the past five years, the principal occupation of each director of
the Company, other than Daniel A. Cotter, was the operation of retail hardware
stores.
DESCRIPTION OF COMMON STOCK
DIVIDEND RIGHTS. Dividends (other than patronage dividends) upon the Class
A Common Stock (which is being registered herein) and Class B Common Stock,
subject to the provisions of the Company's Certificate of Incorporation, may be
declared out of gross margins of the Company, other than gross margins from
operations with or for Members and other patronage source income, after
deduction for expenses, reserves and provisions authorized by the Board of
Directors. Dividends may be paid in cash, in property, or in shares of the
common stock, subject to the provisions of the Certificate of Incorporation (See
"Dividends").
VOTING RIGHTS. The Class A Common Stock, which is the sole voting stock, is
offered only in ten (10) share units, and no party may acquire more than one
unit; thus control of the Company is equally distributed
12
<PAGE> 15
among all stockholder-Members. The holders of Class A Common Stock have the
exclusive voting power upon all questions submitted to shareholders, being
entitled to one vote per share, with the right of "cumulative voting" in the
election of directors. Pursuant to the Certificate of Incorporation and By-Laws
of the Company, the Board of Directors consists of directors who are elected for
staggered three-year terms.
LIQUIDATION RIGHTS. Upon dissolution, liquidation or winding up of the
Company, voluntary or involuntary, the assets are to be divided among and
distributed ratably to the holders of shares of Class A Common Stock and Class B
Common Stock pro rata in accordance with their holdings and without preference
as between the classes.
PREEMPTIVE RIGHTS. Each shareholder has the right to purchase, and must
purchase when he becomes a shareholder-Member, ten (10) shares of Class A Common
Stock. No shares of Class A Common Stock shall be issued or sold except in such
units and under such circumstances as will assure that every holder of Class A
Common Stock shall own an identical number of said shares. No shares of Class B
Common Stock shall be issued or sold except to parties who are, at the time of
issuance, a holder of shares of Class A Common Stock.
REDEMPTION PROVISIONS. The Retail Member Agreement (the "Agreement") may be
terminated by either the Company or the Member on sixty (60) days' written
notice. Termination by the Company requires approval by a two-thirds vote of the
Board of Directors, except in the following circumstances where the Company has
the right to immediately terminate the Agreement: the Member becomes insolvent,
commits any act of bankruptcy, files a voluntary petition in bankruptcy, is
adjudicated as bankrupt, or commits a breach of any obligation under the
Agreement, which breach is not cured within ten (10) days after written notice
to the Member by the Company. In the event the Agreement is terminated, the
Company undertakes to purchase and the Member is required to sell all of his
Class A Common Stock and Class B Common Stock at a price equal to the book value
thereof. Payment for the Class A Common Stock will be in cash. Payment for the
Class B Common Stock will be a note payable in five equal annual installments
which bears interest at the same rate per annum as the Promissory (Subordinated)
Notes most recently issued as part of the Company's annual patronage dividend.
SHAREHOLDERS. As of February 25, 1995, there were 6,297 shareholders of
Class A Common Stock and 6,244 shareholders of Class B Common Stock.
OTHER RESTRICTIONS AND RIGHTS. (a) There are no conversion rights, sinking
fund provisions, or liability to further calls or assessment by the Company in
regard to the Class A Common Stock.
(b) The Company is given an automatic lien to secure the payment of any
indebtedness due the Company from any shareholder of record upon the Class A
Common Stock and Class B Common Stock shares of such shareholder and upon any
declared and unpaid dividends thereon.
(c) There is no existing market for the Class A Common Stock being offered.
Whenever any shareholder may desire to dispose in any manner, by sale, gift or
otherwise, of all or any part of his shares of either class of common stock, and
whenever any shareholder dies or suffers any other event giving rise to
voluntary or involuntary transfer, by operation of law or otherwise, of all or
part of his said shares, the Company is given the option, exercisable within
ninety (90) days following the date upon which it receives written notice from
the shareholder, his heirs, executors, personal representatives or other party
in interest, as the case may be, of the intended disposition or of the death of
the shareholder or other event giving rise to voluntary or involuntary transfer
of the shares, to repurchase all shares referred to in the notice. The option
price in the case of either class of Common Stock is the book value thereof as
of the date of the most recently audited consolidated financial statements of
the Company. Any disposition or attempted disposition or transfer, voluntary or
involuntary, of Common Stock of the Company is null and void and confers no
rights upon the transferee unless and until the Company has been given the
required notice and has failed to exercise its option to
13
<PAGE> 16
purchase within the specified time. The above restrictions do not apply, in the
case of a pledge by a shareholder of any of his shares in a bona fide
transaction as security for a debt, until the pledge or lienholder forecloses
the pledge or lien. The above restrictions do not apply at all in the case of a
Class B Common Stock disposition to a person who prior thereto is the owner of
shares of Class A Common Stock of the Company.
LEGAL MATTERS
The legality of the issuance of the Class A Common Stock offered hereby
will be passed upon for the Company by Messrs. Aronberg Goldgehn Davis &
Garmisa, Suite 3000, One IBM Plaza, Chicago, Illinois 60611.
14
<PAGE> 17
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COVERED
BY REPORT OF INDEPENDENT AUDITORS
<TABLE>
<CAPTION>
PAGE(S)
-----
<S> <C>
Report of Independent Auditors....................................................... 16
Consolidated Balance Sheet at December 31, 1994 and January 1, 1994.................. 17-18
Consolidated Statement of Operations for each of the three years in the period ended
December 31, 1994.................................................................. 19
Consolidated Statement of Cash Flows for each of the three years in the period ended
December 31, 1994.................................................................. 20
Consolidated Statement of Capital Stock and Retained Earnings for each of the three
years in the period ended December 31, 1994........................................ 21
Notes to Consolidated Financial Statements........................................... 22-30
</TABLE>
15
<PAGE> 18
REPORT OF INDEPENDENT AUDITORS
To the Members and the Board of Directors
Cotter & Company
We have audited the accompanying consolidated balance sheets of Cotter &
Company as of December 31, 1994 and January 1, 1994, and the related
consolidated statements of operations, cash flows and capital stock and retained
earnings for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cotter &
Company at December 31, 1994 and January 1, 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 13, 1995
16
<PAGE> 19
COTTER & COMPANY
------------------
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------ ----------
(000'S OMITTED)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 1,831 $ 1,314
Accounts and notes receivable................................... 294,663 276,585
Inventories..................................................... 384,747 336,066
Prepaid expenses................................................ 7,861 6,969
-------- ---------
Total current assets............................... 689,102 620,934
Properties owned, less accumulated depreciation................... 164,261 164,319
Properties under capital leases, less accumulated amortization.... 4,691 6,769
Other assets...................................................... 10,731 11,506
-------- ---------
Total assets....................................... $868,785 $ 803,528
======== =========
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE> 20
COTTER & COMPANY
------------------
CONSOLIDATED BALANCE SHEET
LIABILITIES AND CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------ ----------
(000'S OMITTED)
<S> <C> <C>
Current liabilities:
Accounts payable................................................ $334,468 $ 255,216
Accrued expenses................................................ 45,304 38,926
Short-term borrowings........................................... 9,329 23,287
Current maturities of notes, long-term debt and lease
obligations.................................................. 60,564 61,685
Patronage dividend payable in cash.............................. 18,383 16,614
---------- ----------
Total current liabilities.......................... 468,048 395,728
Long-term debt.................................................... 72,163 63,977
Obligations under capital leases.................................. 3,593 5,224
Capitalization:
Promissory (subordinated) and instalment notes.................. 199,099 217,996
Redeemable Class A common stock and partially paid subscriptions
(Authorized 100,000 shares; issued and fully paid 63,350 and
65,880 shares)............................................... 6,370 6,633
Redeemable Class B nonvoting common stock and paid-in capital
(Authorized 2,000,000 shares; issued and fully paid 1,047,756
and 1,019,640 shares; issuable as partial payment of
patronage dividends, 104,275 and 75,780 shares).............. 116,663 110,773
Retained earnings............................................... 3,764 3,867
---------- ----------
325,896 339,269
Foreign currency translation adjustment......................... (915) (670)
---------- ----------
Total capitalization............................... 324,981 338,599
---------- ----------
Total liabilities and capitalization............... $868,785 $ 803,528
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE> 21
COTTER & COMPANY
------------------
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Revenues........................................... $2,574,445 $2,420,727 $2,356,468
---------- ---------- ----------
Cost and expenses:
Cost of revenues................................. 2,351,114 2,202,806 2,139,860
Warehouse, general and administrative............ 132,759 132,674 123,244
Interest paid to Members......................... 22,894 24,458 25,716
Other interest expense........................... 7,493 7,429 7,273
Gain on sale of properties owned................. (692) (5,985) --
Other income, net................................ (604) (260) (643)
Income tax expense............................... 1,163 2,582 389
---------- ---------- ----------
2,514,127 2,363,704 2,295,839
---------- ---------- ----------
Net margins........................................ $ 60,318 $ 57,023 $ 60,629
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE> 22
COTTER & COMPANY
------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Operating activities:
Net margins......................................... $ 60,318 $ 57,023 $ 60,629
Adjustments to reconcile net margins to cash and
cash equivalents from operating activities:
Depreciation and amortization.................... 21,613 21,566 21,869
Provision for losses on accounts and notes
receivable..................................... 4,233 4,057 4,447
Changes in operating assets and liabilities:
Accounts and notes receivable.................... (33,112) (38,605) (29,798)
Inventories...................................... (49,145) 183 (11,819)
Accounts payable................................. 79,957 (45,070) 23,770
Accrued expenses................................. 6,022 (1,143) (6,221)
Other adjustments, net........................... (1,223) (2,679) (3,035)
---------- ---------- ----------
Net cash and cash equivalents provided
by (used for) operating activities... 88,663 (4,668) 59,842
---------- ---------- ----------
Investing activities:
Additions to properties owned....................... (21,427) (13,382) (17,871)
Proceeds from sale of properties owned.............. 2,174 13,999 682
Changes in other assets............................. 1,132 (3,850) (2,076)
---------- ---------- ----------
Net cash and cash equivalents (used
for) investing activities............ (18,121) (3,233) (19,265)
---------- ---------- ----------
Financing activities:
Payment of annual patronage dividend................ (16,614) (18,570) (18,423)
Payment of notes, long-term debt and lease
obligations...................................... (39,632) (32,730) (18,776)
Proceeds from long-term borrowings.................. -- -- 54,124
Increase (decrease) in short-term borrowings........ (13,851) 23,059 (20,975)
Purchase of Class A common stock.................... (216) (470) (337)
Proceeds from sale of Class A common stock.......... 288 323 352
---------- ---------- ----------
Net cash and cash equivalents (used
for) financing activities............ (70,025) (28,388) (4,035)
---------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents......................................... 517 (36,289) 36,542
---------- ---------- ----------
Cash and cash equivalents at beginning of year........ 1,314 37,603 1,061
---------- ---------- ----------
Cash and cash equivalents at end of year.............. $ 1,831 $ 1,314 $ 37,603
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE> 23
COTTER & COMPANY
------------------
CONSOLIDATED STATEMENT OF CAPITAL STOCK AND RETAINED EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK, $100 PAR VALUE
------------------------------------
CLASS B FOREIGN
CLASS A ------------ CURRENCY
-------------------- ISSUED AND RETAINED TRANSLATION
ISSUED SUBSCRIBED TO BE ISSUED EARNINGS ADJUSTMENT
------ ---------- ------------ -------- -----------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C>
Balances at December 28, 1991.............. $7,016 $ 61 $104,151 $ 1,556 $ --
Net margins.............................. 60,629
Foreign currency translation
adjustment............................ (932)
Patronage dividend....................... 10,029 (60,901)
Stock issued for paid-up subscriptions... 357 (357)
Stock subscriptions...................... 345
Stock purchased and retired.............. (565) (5,198)
------ -------- --------- -------- --------
Balances at January 2, 1993................ 6,808 49 108,982 1,284 (932)
Net margins.............................. 57,023
Foreign currency translation
adjustment............................ 262
Patronage dividend....................... 7,686 (54,440)
Stock issued for paid-up subscriptions... 312 (312)
Stock subscriptions...................... 308
Stock purchased and retired.............. (532) (5,895)
------ -------- --------- -------- --------
Balances at January 1, 1994................ 6,588 45 110,773 3,867 (670)
Net margins.............................. 60,318
Foreign currency translation
adjustment............................ (245)
Patronage dividend....................... 10,829 (60,421)
Stock issued for paid-up subscriptions... 275 (275)
Stock subscriptions...................... 265
Stock purchased and retired.............. (528) (4,939)
------ -------- --------- -------- --------
Balances at December 31, 1994.............. $6,335 $ 35 $116,663 $ 3,764 $(915)
====== ======== ========= ======== ========
</TABLE>
- ---------------
Subscribed Class A common stock amounts are net of unpaid amounts of $1,000
at December 31, 1994, $14,000 at January 1, 1994 and $27,000 at January 2, 1993
and December 28, 1991 (for 360, 590, 760 and 880 shares subscribed,
respectively).
See Notes to Consolidated Financial Statements.
21
<PAGE> 24
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Cotter & Company (the Company) is a Member-owned wholesaler of hardware and
related merchandise. The Company also manufactures paint and paint applicators.
The Company's goods and services are sold predominantly within the United
States, primarily to retailers of hardware and related lines, each of whom has
purchased ten shares of the Company's Class A common stock upon becoming a
Member. The Company operates in a single industry as a Member-owned wholesaler
cooperative. In accordance with the Company's By-laws, the annual patronage
dividend is paid to Members out of gross margins from operations and other
patronage source income, after deduction for expenses and provisions authorized
by the Board of Directors. The significant accounting policies of the Company
are summarized below.
Consolidation. The consolidated financial statements include the accounts
of the Company and all wholly-owned subsidiaries. The consolidated financial
statements also include the accounts of Cotter Canada Hardware and Variety
Cooperative, Inc., a Canadian Member-owned wholesaler of hardware, variety and
related merchandise, in which the Company has a majority equity interest.
Capitalization. The Company's capital (Capitalization) is derived from
redeemable Class A voting common stock and retained earnings, together with
promissory (subordinated) notes and redeemable Class B nonvoting common stock
issued in connection with the Company's annual patronage dividend. The By-laws
provide for partially meeting the Company's capital requirements by payment of
the year-end patronage dividend, of which at least twenty percent must be paid
in cash, and the balance in five-year promissory (subordinated) notes (from
fiscal year 1985 through fiscal year 1993, the promissory (subordinated) notes
were for a term of seven years) and redeemable $100 par value Class B common
stock.
Membership may be terminated without cause by either the Company or the
Member upon sixty days' written notice. In the event membership is terminated,
the Company undertakes to purchase, and the Member is required to sell to the
Company, all of the Member's Class A common stock and Class B common stock at
book value. Payment for the Class A common stock will be in cash. Payment for
the Class B common stock will be a note payable in five equal annual instalments
bearing interest at the same rate per annum as the promissory (subordinated)
notes most recently issued as part of the Company's patronage dividend.
Cash equivalents. The Company classifies its temporary investments in
highly liquid debt instruments, with an original maturity of three months or
less, as cash equivalents.
Inventories. Inventories are stated at the lower of cost, determined on the
"first-in, first-out" basis, or market.
Properties. Properties are recorded at cost. Depreciation and amortization
are computed by using the straight-line method over the following estimated
useful lives: buildings and improvements--10 to 40 years; machinery and
warehouse, office and computer equipment--5 to 10 years; transportation
equipment--3 to 7 years; and leasehold improvements--the life of the lease
without regard to options for renewal.
Income Taxes. The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," effective January 3,
1993. Under this standard, the liability method is used whereby deferred income
taxes are recognized for the tax consequences of temporary differences by
applying
22
<PAGE> 25
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
enacted statutory rates applicable to future years to differences between the
financial statement carrying amounts and the tax basis of existing assets and
liabilities adjusting for the impact of tax credit carryforwards.
Retirement plans. The Company sponsors two noncontributory defined benefit
retirement plans covering substantially all of its employees. Company
contributions to union-sponsored defined contribution plans are based on
collectively bargained rates times hours worked. The Company's policy is to fund
annually all tax-qualified plans to the extent deductible for income tax
purposes.
Reporting year. The Company's reporting year-end is the Saturday closest to
December 31.
NOTE 2--INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JANUARY 1, 1994
----------------- ---------------
(000'S OMITTED)
<S> <C> <C>
Manufacturing inventories:
Raw materials........................... $ 12,986 $ 14,795
Work-in-process and finished goods...... 60,094 54,992
------------- -----------
73,080 69,787
Merchandise inventories................... 311,667 266,279
------------- -----------
$ 384,747 $ 336,066
============= ===========
</TABLE>
NOTE 3--PROPERTIES
Properties owned or leased under capital leases consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JANUARY 1, 1994
-------------------- --------------------
OWNED LEASED OWNED LEASED
-------- ------- -------- -------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Buildings and improvements.................... $168,311 $ -- $166,055 $ --
Machinery and warehouse equipment............. 79,953 -- 76,330 --
Office and computer equipment................. 62,868 -- 55,191 --
Transportation equipment...................... 22,757 14,556 18,778 15,337
-------- ------- -------- -------
333,889 14,556 316,354 15,337
Less accumulated depreciation and
amortization................................ 181,920 9,865 164,731 8,568
-------- ------- -------- -------
151,969 4,691 151,623 6,769
Land.......................................... 12,292 -- 12,696 --
-------- ------- -------- -------
$164,261 $ 4,691 $164,319 $ 6,769
======== ======= ======== =======
</TABLE>
23
<PAGE> 26
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT AND BORROWING ARRANGEMENTS
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JANUARY 1, 1994
----------------- ---------------
(000'S OMITTED)
<S> <C> <C>
Senior note at 8.60%........................ $50,000 $50,000
Term loans:
Canadian prime (8.00% and 5.50%,
respectively).......................... 3,565 3,777
United States prime plus .5% (9.00%) and
fixed (7.75%), respectively............ 6,200 6,200
Redeemable (subordinated) term notes:
7.00%..................................... 4,346 --
7.37%..................................... 1,512 --
7.61%..................................... 3,540 --
Industrial Revenue Bonds:
5.28% and 5.94%, respectively............. 4,000 4,000
8.25%..................................... -- 1,150
------------ -----------
73,163 65,127
Less amounts due within one year............ 1,000 1,150
------------ -----------
$72,163 $63,977
============= ===========
</TABLE>
Principal payments for the 8.60% senior note are due in incrementally
increasing amounts starting in 1995 through maturity in 2007. Under the senior
note agreement, the Company is required to meet certain financial ratios and
covenants.
The two term loans are due in 1997 and 1999, respectively.
The redeemable (subordinated) term notes were issued in exchange for
promissory (subordinated) notes maturing on December 31, 1994 that were held by
promissory note holders, who do not own the Company's Class A Common Stock. The
notes are due in 1996, 1997 and 1998.
On October 1, 1997, and every three-year period thereafter, the interest
rate on the 5.28% industrial revenue bonds will be adjusted based on a bond
index. These bonds may be redeemed at face value at either the option of the
Company or the bondholders at each interest reset date through maturity in 2003.
Total maturities of long-term debt for fiscal years 1995, 1996, 1997, 1998,
1999 and thereafter are $1,000,000, $6,346,000, $8,077,000, $7,540,000,
$10,200,000 and $40,000,000, respectively.
In addition, the Company has various short-term lines of credit available
under informal agreements with lending banks, cancelable by either party under
specific circumstances, which amount to $67,800,000 at December 31, 1994.
Borrowings under these agreements were $9,329,000 at December 31, 1994. The
Company pays commitment fees for these lines. The weighted average interest rate
on short-term borrowings was 6.63% at December 31, 1994 and 3.48% at January 1,
1994.
24
<PAGE> 27
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--CAPITAL LEASES AND OTHER LEASE COMMITMENTS
The Company rents buildings and warehouse, office, computer and
transportation equipment under operating and capital leases.
The following is a schedule of future minimum lease payments under capital
and operating leases, together with the present value of the net minimum lease
payments, as of December 31, 1994:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(000'S OMITTED)
<S> <C> <C>
Fiscal years
1995................................................. $ 1,887 $ 6,356
1996................................................. 1,538 4,812
1997................................................. 1,039 2,892
1998................................................. 751 1,830
1999................................................. 416 1,351
Thereafter........................................... -- 4,400
------- -------
Net minimum lease payments............................. 5,631 $21,641
=======
Less amount representing interest...................... 298
-------
Present value of net minimum lease payments............ 5,333
Less amounts due within one year....................... 1,740
-------
$ 3,593
======
</TABLE>
Capitalized leases expire at various dates and generally provide for
purchase options but not renewals. Purchase options provide for purchase prices
at either fair market value or a stated value which is related to the lessor's
book value at expiration of the lease term.
Rent expense under operating leases was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Minimum rent..................................... $8,487 $8,174 $7,253
Contingent rent.................................. 611 575 616
---------- -------- --------
$9,098 $8,749 $7,869
========== ======== ========
</TABLE>
25
<PAGE> 28
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--CAPITALIZATION
Promissory (subordinated) and instalment notes consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------ ----------
(000'S OMITTED)
<S> <C> <C>
Promissory (subordinated) notes--
Due currently............................................ $ 39 $ 51
Due on December 31, 1994--8.50%.......................... -- 26,173
Due on December 31, 1994--9.50%.......................... -- 30,321
Due on December 31, 1995--7.50%.......................... 20,744 21,324
Due on December 31, 1995--10.00%......................... 35,355 36,257
Due on December 31, 1996--9.50%.......................... 28,436 28,930
Due on December 31, 1996--6.00%.......................... 24,888 27,187
Due on December 31, 1997--10.00%......................... 17,579 18,138
Due on December 31, 1997--7.87%.......................... 16,793 --
Due on December 31, 1998--8.00%.......................... 28,512 29,266
Due on December 31, 1999--8.00%.......................... 27,030 27,827
Due on December 31, 1999--8.20% (to be issued)........... 27,909 --
Due on December 31, 2000--6.50% (issued 1994)............ 25,628 26,752
Instalment notes at interest rates of 6.50% to 10.00%
with maturities through 1998............................. 4,010 4,062
---------- ----------
256,923 276,288
Less amounts due within one year........................... 57,824 58,292
---------- ----------
$199,099 $ 217,996
========== ==========
</TABLE>
The promissory (subordinated) notes are issued principally in payment of
the annual patronage dividend. Promissory notes are subordinated to indebtedness
to banking institutions, trade creditors and other indebtedness of the Company
as specified by its Board of Directors. Promissory (subordinated) notes to be
issued relate to the patronage dividend which is distributed after the end of
the year. Prior experience indicates that the maturities of a significant
portion of the promissory (subordinated) notes due within one year are extended,
for a three year period, at interest rates substantially equivalent to
competitive market rates of comparable instruments. The Company anticipates that
this practice will continue.
Total maturities of promissory (subordinated) and instalment notes for
fiscal years 1995, 1996, 1997, 1998, 1999 and thereafter are $57,824,000,
$54,463,000, $35,197,000, $28,872,000, $54,939,000 and $25,628,000,
respectively.
NOTE 7--FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to the uncertainty of the ultimate maturities of the promissory
(subordinated) notes, management believes it is impracticable to estimate their
fair value. The carrying amounts of the Company's other financial
26
<PAGE> 29
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
instruments approximate fair value. Fair value was estimated using discounted
cash flow analyses, based on the Company's incremental borrowing rate for
similar borrowings.
NOTE 8--INCOME TAXES
Effective January 3, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes" (See Note 1). As permitted under the new rules, prior years'
financial statements have not been restated.
The cumulative effect of adopting SFAS No. 109 as of January 3, 1993 was
not material to the consolidated financial statements of the Company.
At December 31, 1994, the Company has alternative minimum tax credit
carryforwards of approximately $1,200,000 which do not expire. The carryforwards
are available to offset future federal tax liabilities.
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1994 resulted primarily from alternative minimum tax credit
carryforwards and temporary differences between income tax and financial
reporting for depreciation, vacation pay and contributions to fund retirement
plans.
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
--------------------------- ----------
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Current:
Federal........................................ $ 486 $ 343 $ 551
State.......................................... 462 22 152
Foreign........................................ 278 237 122
--------- -------- --------
Total current.................................. 1,226 602 825
--------- -------- --------
Deferred:
Federal........................................ (147) 1,582 (497)
State.......................................... (26) 317 (14)
Foreign........................................ 110 81 75
--------- -------- --------
Total deferred................................. (63) 1,980 (436)
--------- -------- --------
$1,163 $2,582 $ 389
========= ======== ========
</TABLE>
The Company operates as a nonexempt cooperative and is allowed a deduction
in determining its taxable income for amounts paid as patronage dividend based
on margins from business done with or for Members.
27
<PAGE> 30
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The reconciliation of income tax expense to income tax computed at the U.S.
federal statutory tax rate of 35% in fiscal year 1994 and 1993 and 34% in fiscal
year 1992 is as follows:
<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
-------------------------- ----------
FOR THE YEARS ENDED
----------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
<S> <C> <C> <C>
(000'S OMITTED)
Tax at U.S. statutory rate.................... $ 21,518 $ 20,862 $ 20,746
Effects of:
Patronage dividend.......................... (21,147) (19,054) (20,706)
State income taxes, net of federal tax
benefit.................................. 283 220 91
Other, net.................................. 509 554 258
-------- --------- ---------
$ 1,163 $ 2,582 $ 389
======== ========= =========
</TABLE>
NOTE 9--CASH FLOW
The Company's noncash financing and investing activities in fiscal year
1992 include acquisitions of transportation and warehouse equipment by entering
into capital leases. In fiscal year 1992, ownership of a distribution center
previously under capital lease was transferred to the Company. Also in fiscal
year 1992, a wholly-owned subsidiary of the Company acquired certain assets, in
part, by assuming debt. These transactions aggregate $12,527,000. In addition,
the annual patronage dividend and promissory (subordinated) note renewals
relating to noncash operating and financing activities are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Patronage dividend payable in cash...................... $ 18,383 $ 16,614 $ 18,570
Promissory (subordinated) notes......................... 23,213 20,852 22,711
Class B nonvoting common stock.......................... 5,900 2,086 4,934
Instalment notes........................................ 3,058 2,939 2,485
Member indebtedness..................................... 9,867 11,949 12,201
-------- -------- --------
$ 60,421 $ 54,440 $ 60,901
======== ======== ========
Note renewals........................................... $ 26,191 $ 27,187 $ 22,686
======== ======== ========
</TABLE>
Cash paid for interest during fiscal years 1994, 1993 and 1992 totalled
$30,583,000, $32,056,000 and $31,638,000, respectively. Cash paid for income
taxes during fiscal years 1994, 1993 and 1992 totalled $1,709,000, $1,387,000
and $1,771,000, respectively.
28
<PAGE> 31
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--RETIREMENT PLANS
The components of net pension cost for the Company administered pension
plans consisted of:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Income:
Actual return (loss) on plan assets................... $ (1,543) $ 7,486 $ 2,856
Amortization of excess plan assets.................... 920 920 920
-------- -------- --------
(623) 8,406 3,776
-------- -------- --------
Expenses:
Service cost-benefits earned during year.............. 4,765 4,556 3,633
Interest on projected benefit obligation.............. 6,736 6,266 5,738
Deferral of excess (deficiency) of actual over
estimated return on plan assets.................... (8,815) 1,042 (3,060)
-------- -------- --------
2,686 11,864 6,311
-------- -------- --------
Net pension cost........................................ $ 3,309 $ 3,458 $ 2,535
======== ======== ========
</TABLE>
The discount rate and the rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 8.5% and 4.5%, respectively, in fiscal year 1994; 7.5% and 4.5%,
respectively, in fiscal year 1993; and 9.0% and 6.0%, respectively, in fiscal
year 1992. These changes in actuarial assumptions did not have a material impact
on net pension cost for fiscal year 1994 and the Company does not anticipate
that these changes will have a material impact on net pension cost in future
years. In fiscal years 1994, 1993 and 1992, the expected long-term rate of
return on assets was 9.5%.
Plan assets are composed primarily of corporate equity and debt securities.
Benefits are based on years of service and the employee's compensation during
the last ten years of employment, offset by a percentage of
29
<PAGE> 32
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Social Security retirement benefits. Trusteed net assets and actuarially
computed benefit obligations for the Company administered pension plans are
presented below:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------ ----------
(000'S OMITTED)
<S> <C> <C>
Assets:
Total plan assets at fair value................................... $ 80,046 $ 81,726
======== ========
Obligations:
Accumulated benefit obligations:
Vested......................................................... $ 53,055 $ 55,605
Non-vested..................................................... 7,683 8,704
Effect of projected compensation increases........................ 19,924 24,110
-------- --------
Total projected benefit obligations............................... 80,662 88,419
-------- --------
Net excess assets (liabilities):
Unrecognized:
Unamortized excess assets at original date..................... 8,643 9,563
Net actuarial gain (loss)...................................... 565 (5,773)
Prior service costs............................................ (5,313) (6,170)
Recognized accrued pension cost................................... (4,511) (4,313)
-------- --------
Total net excess assets (liabilities)............................. (616) (6,693)
-------- --------
Total obligations and net excess assets (liabilities)............... $ 80,046 $ 81,726
======== ========
</TABLE>
The Company also participates in union-sponsored defined contribution
plans. Pension costs related to these plans were $757,000, $702,000 and $556,000
for fiscal years 1994, 1993 and 1992, respectively.
NOTE 11--SUBSEQUENT EVENTS
On January 13, 1995, the Company announced the sale of certain inventory of
its V&S(R) Variety division to a national wholesaler who has also agreed to
supply the majority of the V&S(R) stores. Also, on January 31, 1995, the Company
agreed to sell certain assets of its outdoor power equipment manufacturing
division to a nationally recognized company and secured a favorable supply
agreement for such equipment. These transactions should not have a material
impact on the Company's results of operations or financial position.
30
<PAGE> 33
- ------------------------------------------------------
- ------------------------------------------------------
THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE
REGISTRATION STATEMENT, AND THE EXHIBITS AND SCHEDULES RELATING THERETO, WHICH
THE COMPANY HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON,
D. C. UNDER THE SECURITIES ACT OF 1933 AND TO WHICH REFERENCE IS HEREBY MADE FOR
FURTHER INFORMATION WITH RESPECT TO THE COMPANY AND THE SECURITIES OFFERED
HEREBY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
- ---------------------------------------- ---
<S> <C>
Available Information................... 2
Reports to Security Holders............. 2
Documents Incorporated by Reference..... 2
Summary................................. 3
The Company............................. 4
Use of Proceeds......................... 4
Plan of Distribution.................... 4
Dividends............................... 5
Selected Financial Data................. 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 6
Business................................ 8
Distribution of Patronage Dividends..... 10
Management.............................. 12
Description of Common Stock............. 12
Legal Matters........................... 14
Index to Consolidated Financial
Statements Covered by Report of
Independent Auditors.................. 15
</TABLE>
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
COTTER & COMPANY
12,350 SHARES
CLASS A COMMON STOCK
$100 PAR VALUE
(IN UNITS OF 10 SHARES)
------------------
PROSPECTUS
------------------
DATED APRIL , 1995
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the actual or estimated expenses in connection with the
issuance and distribution of the Common Stock being registered:
<TABLE>
<S> <C>
Registration Fee.................................................... $ --
Printing of Registration Statement and Prospectus................... 16,000
Accounting Fees and Expenses........................................ 9,000
Legal Fees.......................................................... 10,000
Fees and Expenses for Qualifying Securities under "Blue Sky" Laws of
Various States.................................................... 15,000
-------
Total............................................................... $50,000
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's certificate of incorporation, as amended, provides that the
Company shall indemnify, in accordance with and to the full extent permitted by
the Delaware General Corporation Law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, an action by or in the right of the Company), by
reason of the fact that such person is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another Company, partnership, joint
venture, trust or other enterprise, against any liability or expense actually
and reasonably incurred by such person in respect thereof. Such indemnification
is not exclusive of any other right of such director, officer, or employee to
indemnification provided by law or otherwise.
Additionally, pursuant to Section 145(a)-(g) of the Delaware Corporation
Law which empowers a corporation to indemnify its directors, officers, employees
and agents, the Board of Directors of the Company on July 23, 1973 adopted a
By-Law (Article XII, Indemnification of Directors, Officers and
Employees--Exhibit 3-A to the Company's Form 10-K Annual Report for the year
ended January 1, 1994 and incorporated herein by reference) providing for such
indemnification. The following is a summary of the most significant provisions
of said By-Law:
As against third parties, the Company shall indemnify any director,
officer, employee or agent for any expenses (including attorneys' fees,
judgments, fines and amounts paid in settlement) actually and reasonably
incurred in defending any threatened, pending or completed suit or proceeding,
whether civil, criminal, administrative or investigative brought against such
person by reason of the fact that he was or is a director, officer, employee or
agent, if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the Company, and with respect to
any criminal action or proceeding if he had no reasonable cause to believe his
conduct unlawful.
In any action or suit by or in the right of the Company, the Company shall
indemnify any director, officer, employee or agent who is or was a party or
threatened to be made a party to such threatened, pending or completed action or
suit, for expenses (including attorney's fees and amounts paid in settlement)
reasonably and actually incurred in connection with the defense or settlement of
such suit or action, if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the Company,
except that no indemnification shall be made if such person has been adjudged to
be liable for negligence or misconduct in the performance of his duty to the
Company unless and only to the extent that the
S-1
<PAGE> 35
Court of Chancery of Delaware or the court where the suit was brought finds that
in view of all the circumstances of the case, such person is entitled to
indemnification.
Any indemnification, unless ordered by a court, shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification is proper in the circumstances because the party to be
indemnified has met the applicable standard of conduct. Such determination shall
be made by the Board of Directors by a majority vote of a quorum, consisting of
directors who were not parties of such action, suit or proceeding, or if such a
quorum is not obtainable, or even if obtainable, if a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or by
the stockholders.
Additionally, the shareholders of the Company have approved an amendment to
the Certificate of Incorporation to eliminate personal liability of directors to
the Company or its shareholders for monetary damages for breach of fiduciary
duty of care. The amendment provides that a director of the Company shall not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the Delaware General Corporation
Law as the same exists or may hereafter be amended.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 is concerned, see Item 17 "Undertakings" below.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- -------------------------------------------------------------------------------
<S> <C>
4-A Article Fourth of the Certificate of Incorporation of the Company, setting
forth the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions of the Class A Common Stock and
Class B Common Stock of the Company. Article Twelfth of the Certificate of
Incorporation of the Company, setting forth certain limitations on the rights
of shareholders to bring an action against directors for breach of the duty of
care. Incorporated by reference--Exhibit 3-A to the Company's Form 10-K Annual
Report for the year ended January 1, 1994.
4-B Articles VI, VII, VIII, IX and XI of the By-Laws of the Company relating to:
certain qualifications, limitations and restrictions on the Common Stock of the
Company; the Member agreement between the Company and its shareholders; the
payment of patronage dividends; dividends; qualifying shares; and valuation of
Class B Common Stock of the Company issued as part of the annual patronage
dividend. Incorporated by reference--Exhibit 3-B to the Company's Form 10-K
Annual Report for the year ended January 1, 1994.
4-C Specimen certificate of Class A Common Stock. Incorporated by
reference--Exhibit 4-A to Registration Statement on Form S-2 (No. 2-82836).
4-D Specimen certificate of Class B Common Stock. Incorporated by
reference--Exhibit 4-B to Registration Statement on Form S-2 (No. 2-82836).
4-E Promissory (Subordinated) Note form effective for the year-ending December 31,
1986 and thereafter. Incorporated by reference--Exhibit 4-H to Registration
Statement on Form S-2 (No. 33-20960).
4-F Instalment Note form. Incorporated by reference--Exhibit 4-F to Registration
Statement on Form S-2 (No. 2-82836).
</TABLE>
S-2
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- -------------
<S> <C>
4-G Copy of Note Agreement with Prudential Insurance Company of America dated April
13, 1992 securing 8.60% Senior Notes in the principal sum of $50,000,000 with a
maturity date of April 1, 2007. Incorporated by reference--Exhibit 4-J to
Post-Effective Amendment No. 2 to Registration Statement on Form S-2 (No.
33-39477).
5 Opinion of Messrs. Aronberg Goldgehn Davis & Garmisa.
10-A Form of "Retail Member Agreement with Cotter & Company" between the Company and
its Members that offer primarily hardware and related items. Incorporated by
reference--Exhibit 10-C to Post-Effective Amendment No. 2 to Registration
Statement on Form S-2 (No. 33-39477).
10-B Current form of "Subscription to Shares of Cotter & Company". Incorporated by
reference--Exhibit 10-H to Registration Statement on Form S-2 (No. 2-82836).
10-C Cotter & Company Pension Plan (As Amended and Restated June 20, 1994 Effective
As Of January 1, 1989).
10-D Cotter & Company Employees' Savings and Compensation Deferral Plan (As Amended
and Restated Effective April 1, 1994).
10-E Supplemental Retirement Plan between Cotter & Company and selected executives
of the Company dated December 30, 1988. Incorporated by reference--Exhibit 10-V
to Post-Effective Amendment No. 1 to Registration Statement on Form S-2 (No.
33-20960).
10-F Amendment dated November 1, 1991 to Supplemental Retirement Plan between Cotter
& Company and selected executives of the Company. Incorporated by
reference--Exhibit 10-Q to Post-Effective Amendment No. 1 to Registration
Statement on Form S-2 (No. 33-39477).
10-G Amendment dated December 15, 1994 to Supplemental Retirement Plan between
Cotter & Company and selected executives of the Company.
10-H Annual Incentive Compensation Program and Long-Term Incentive Compensation
Program between Cotter & Company and selected executives of the Company.
Incorporated by reference--filed as Exhibits A and B to Exhibit 10-N to
Registration Statement on Form S-2 (No. 33-39477).
10-I Cotter & Company Long-Term Incentive Compensation Program for Executive
Management (Amended) dated November 7, 1994.
10-J Employment Agreement between Cotter & Company and Daniel A. Cotter dated
October 15, 1984. Incorporated by reference--Exhibit 10-N to Post-Effective
Amendment No. 2 to Registration Statement on Form S-2 (No. 2-82836).
10-K Amendment No. 1 to Employment Agreement between Cotter & Company and Daniel A.
Cotter dated October 15, 1984 effective January 1, 1991. Incorporated by refer-
ence--Exhibit 10-N to Registration Statement on Form S-2 (No. 33-39477).
23-A Consent of Aronberg Goldgehn Davis & Garmisa is included in Exhibit 5 to this
Registration Statement.
23-B Consent of Independent Auditors (included on page S-6).
27 Financial Data Schedule.
</TABLE>
S-3
<PAGE> 37
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions described in Item 15, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
S-4
<PAGE> 38
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT TO
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF ILLINOIS, ON THE 16TH DAY OF
MARCH 1995.
COTTER & COMPANY
By: /s/ DANIEL A. COTTER
Daniel A. Cotter
President, Chief Executive Officer and
Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<S> <C> <C>
/s/ DANIEL A. COTTER President, Chief Executive March 16, 1995
- --------------------------------------------- Officer and Director
Daniel A. Cotter
/s/ STEVEN J. PORTER Executive Vice President March 16, 1995
- --------------------------------------------- and Chief Operating Officer
Steven J. Porter
/s/ KERRY J. KIRBY Vice President, Treasurer and March 16, 1995
- --------------------------------------------- Chief Financial Officer
Kerry J. Kirby
/s/ JERRALD T. KABELIN Chairman of the Board March 16, 1995
- --------------------------------------------- and Director
Jerrald T. Kabelin
/s/ WILLIAM M. CLAYPOOL, III Director March 16, 1995
- ---------------------------------------------
William M. Claypool, III
/s/ SAMUEL D. COSTA, JR. Director March 16, 1995
- ---------------------------------------------
Samuel D. Costa, Jr.
/s/ LEONARD C. FARR Director March 16, 1995
- ---------------------------------------------
Leonard C. Farr
/s/ WILLIAM M. HALTERMAN Director March 16, 1995
- ---------------------------------------------
William M. Halterman
/s/ ROBERT J. LADNER Director March 16, 1995
- ---------------------------------------------
Robert J. Ladner
/s/ LEWIS W. MOORE Director March 16, 1995
- ---------------------------------------------
Lewis W. Moore
/s/ JEREMIAH J. O'CONNOR Director March 16, 1995
- ---------------------------------------------
Jeremiah J. O'Connor
/s/ RICHARD L. SCHAEFER Director March 16, 1995
- ---------------------------------------------
Richard L. Schaefer
/s/ GEORGE V. SHEFFER Director March 16, 1995
- ---------------------------------------------
George V. Sheffer
/s/ ROBERT G. WATERS Director March 16, 1995
- ---------------------------------------------
Robert G. Waters
/s/ JOHN M. WEST, JR. Director March 16, 1995
- ---------------------------------------------
John M. West, Jr.
/s/ DONALD E. YEAGER Director March 16, 1995
- ---------------------------------------------
Donald E. Yeager
</TABLE>
S-5
<PAGE> 39
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 13, 1995, in
Post-Effective Amendment No. 4 to the Registration Statement (Form S-2 No.
33-39477) and related Prospectus of Cotter & Company for the registration of
12,350 shares of its Class A Common Stock. We also consent to the incorporation
by reference therein our report with respect to the consolidated financial
statements of Cotter & Company for each of the three years in the period ended
December 31, 1994 included in the Annual Report (Form 10-K) of Cotter & Company
for the year ended December 31, 1994, filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Chicago, Illinois
March 15, 1995
S-6
<PAGE> 40
INDEX TO EXHIBITS FILED
TO POST-EFFECTIVE AMENDMENT NO. 4 TO
REGISTRATION STATEMENT ON
FORM S-2 OF COTTER & COMPANY
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- ---------
<S> <C>
5 Opinion of Messrs. Aronberg Goldgehn Davis & Garmisa.
10-C Cotter & Company Pension Plan (As Amended and Restated June 20, 1994
Effective As of January 1, 1989).
10-D Cotter & Company Employees' Savings and Compensation Deferral Plan (As
Amended and Restated Effective April 1, 1994).
10-G Amendment dated December 15, 1994 to Supplemental Retirement Plan between
Cotter & Company and selected executives of the Company.
10-I Cotter & Company Long-Term Incentive Compensation Program for Executive
Management (Amended) dated November 7, 1994.
23-B Consent of Independent Auditors (included on page S-6).
27 Financial Data Schedule
</TABLE>
Exhibits incorporated by reference are listed on Pages S-2 and S-3 of
Post-Effective Amendment No. 4 to Registration Statement on Form S-2 of Cotter &
Company.
S-7
<PAGE> 1
EXHIBIT 5
ARONBERG GOLDGEHN DAVIS & GARMISA
ATTORNEYS & COUNSELORS
ONE IBM PLAZA - SUITE 3000
CHICAGO, ILLINOIS 60611
TELEPHONE (312) 828-9600
FACSIMILE (312) 828-9635
March 16, 1995
Cotter & Company
2740 North Clybourn Avenue
Chicago, Illinois 60614
Gentlemen:
We refer to the Post Effective Amendment No. 4 to Registration Statement on
Form S-2 (No. 33-39477) being filed by Cotter & Company, a Delaware corporation
(hereinafter referred to as the "Company"), with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, pertaining to the
registration of 12,350 shares of Class A Common Stock, $100 par value.
The Class A Common Stock shall be issued and sold directly by the Company in
10 share units at the par value thereof, for an aggregate purchase price of
$1,000 per unit. Sales shall be made to retailers of hardware and related
merchandise, in connection with becoming members of the Company.
Upon the basis of our examination, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware.
2. The Company has an authorized capital consisting of 100,000
shares of Class A Common Stock, $100 par value and 2,000,000
shares of Class B Common Stock, $100 par value. As of
February 25, 1995, there were 62,970 Class A Common shares
issued and outstanding and 1,147,815 Class B Common shares
issued and outstanding. All of said shares were legally
issued, fully paid and non-assessable as of said date.
3. The proposed offering of 12,350 shares of Class A Common
Stock, $100 par value, of the Company has been duly authorized
and when sold as contemplated will be legally issued and fully
paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and the related Prospectus as counsel for the Company
who have passed upon the legalities of the securities registered thereunder.
Sincerely,
ARONBERG GOLDGEHN DAVIS & GARMISA
By: /s/ ROBERT N. SODIKOFF
---------------------
Robert N. Sodikoff
<PAGE> 1
EXHIBIT 10(c)
COTTER & COMPANY
PENSION PLAN
(As Amended and Restated Effective As Of January 1, 1989)
McDermott, Will & Emery
Chicago, Illinois
<PAGE> 2
C E R T I F I C A T E
I, Kerry J. Kirby, Secretary of COTTER & COMPANY, hereby certify that
the attached is a full, true and complete copy of the COTTER & COMPANY PENSION
PLAN, as in effect on the date hereof.
Dated this 20th day of June, 1994
/s/ KERRY J. KIRBY
-------------------------------
Secretary as Aforesaid
(Corporate Seal)
<PAGE> 3
COTTER & COMPANY
PENSION PLAN
(As Amended and Restated Effective As Of January 1, 1989)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I 1
ESTABLISHMENT OF THE PLAN 1
Purpose 1
Superseded Plans 1
ARTICLE II 2
DEFINITIONS 2
ARTICLE III 12
PARTICIPATION 12
Eligibility -- Employees Who Were Participants on December 31, 1988 12
Eligibility -- Employees Who Were Not Participants on December 31, 1988 12
Reemployment of Participants 12
ARTICLE IV 13
ELIGIBILITY FOR RETIREMENT AND AMOUNT OF PENSIONS 13
Normal Retirement Date and Minimum Vesting Requirements 13
Accrual of Benefits 13
Termination or Retirement Prior to January 1, 1989 14
Normal Retirement Pension 14
Early Retirement Pension 15
Optional Early Retirement Pension 17
Disability Retirement Pension 19
Deferred Vested Retirement Pension 21
Optional Deferred Vested Retirement Pension 23
Survivor Benefit 24
Special Section 401(a)(17) Limits 25
ARTICLE V 27
PAYMENT OF RETIREMENT PENSIONS 27
Payment in the Form of Joint and Survivor Annuity 27
Election to Waive Joint and Survivor Annuity 27
Optional Forms of Payment 29
Designation of Beneficiary 29
Small Benefits Provision 30
One-Year Marriage Requirement 31
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Method of Payment of Retirement Pensions 32
Minority, Disability, or Incompetency 33
Reemployment 33
Maximum Annual Benefit 35
Combined Limitation 38
Limitation on Termination Distributions 40
Other Distribution Restrictions 41
Written Explanation Regarding Rollovers 42
Distribution to Alternate Payees 43
ARTICLE VI 44
FUNDING 44
Employer Contributions 44
Qualification of Plan 44
Recovery of Contributions 44
Forfeitures 45
ARTICLE VII 46
THE COMMITTEE 46
Membership 46
Committee's General Powers, Rights and Duties 46
Manner of Action 47
Interested Committee Member 48
Resignation or Removal of Committee Members 48
Committee Expenses 49
Information Required by Committee 49
Uniform Rules 49
Review of Benefit Determinations 50
Committee's Decision Final 50
ARTICLE VIII 51
TRUST FUND AND TRUSTEE 51
Trust Fund 51
Trust Fund Applicable Only to Payment of Benefits 51
Trustee Capacity 51
Resignation and Removal of Trustee 52
Taxes, Expenses and Compensation of Trustee 52
ARTICLE IX 54
TOP-HEAVY RESTRICTIONS 54
General 54
Definitions 54
Top-Heavy Determination 57
Vesting 57
Minimum Accrual 58
Limitation on Compensation 58
Limitation on Benefits 59
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE X 60
AMENDMENT AND TERMINATION OF THE PLAN 60
Amendment 60
Termination 60
Allocation of Assets upon Termination 61
Merger and Consolidation 63
ARTICLE XI 64
GENERAL PROVISIONS 64
Employment with Related Companies 64
Litigation by Participants 64
Absence of Guaranty 65
Leased Employees 65
Non-Assignability 66
No Enlargement of Employment Rights 66
Applicable Law 67
Uniform Administration 67
Text to Control 67
SUPPLEMENT A 1
MERGER OF NORTHERN WHOLESALE HARDWARE CO. RETIREMENT PLAN WITH AND INTO COTTER & COMPANY
PENSION PLAN 1
SUPPLEMENT B 1
ACTUARIAL ASSUMPTIONS 1
</TABLE>
<PAGE> 6
COTTER & COMPANY
PENSION PLAN
(As Amended and Restated Effective As Of January 1, 1989)
ARTICLE I
ESTABLISHMENT OF THE PLAN
Section 1.1. Purpose. This Plan was established effective
as of January 1, 1958, for the purpose of providing retirement income
("pension" or "pension benefits") and certain other benefits to those employees
of Cotter & Company, a Delaware corporation, who become eligible to participate
in this Plan. The retirement income payable under this Plan is intended to
supplement the benefits which may be afforded to the Participants under the
Federal Social Security Act and similar legislation.
Section 1.2. Superseded Plans. The provisions of this Plan,
as adopted with an effective date of January 1, 1958, were amended and restated
from time to time. This Plan, as now amended and restated in the form of this
instrument, has been adopted effective as of January 1, 1989 and is hereinafter
sometimes referred to as the "Plan" or "this Plan." The Plan is intended to be
a continuation in an amended and restated form of the Plan as it existed on
December 31, 1988, and, as set forth in this instrument, supersedes the Plan in
effect as of that date as to all persons who retire or otherwise separate from
service on or after January 1, 1989.
<PAGE> 7
ARTICLE II
DEFINITIONS
The terms defined in this ARTICLE II (except as in this Plan otherwise
expressly provided or unless the context otherwise requires) shall, for all
purposes of this Plan, have the respective meanings specified in this ARTICLE
II.
1. "Actuarial Equivalent" means an amount of equal value when
computed on the basis of the actuarial assumptions set forth in Supplement B of
the plan. Application of such assumptions to the computation of benefits under
the Plan shall be made uniformly and consistently with respect to all
Participants in similar circumstances.
2. "Administrator" for purposes of the Employee Retirement Income
Security Act of 1974 as from time to time amended, means the Committee.
3. The term "Age" means the number of anniversaries of his birth
which a person has attained.
4. "Annuity Starting Date" means the first day of the first
period for which an amount of a retirement pension, payable under the Plan, is
received as an annuity (whether by reason of retirement or by reason of
disability).
5. "Average Compensation" means the average of the Compensation
of an Employee during the five consecutive calendar years within the ten
calendar years immediately preceding the date of such Employee's termination of
employment which
-2-
<PAGE> 8
yield the highest average. For purposes of computing an Employee's Average
Compensation, if the date of such Employee's termination of employment shall
occur within (rather than at the end of) a Plan Year (a "terminal Plan Year"),
such terminal Plan Year shall be included as one of the aforementioned ten
calendar years, and the Employee shall be deemed to have received Compensation
during such terminal Plan Year equal to the annual rate of his Compensation
during the terminal Plan Year.
6. "Committee" means those individuals appointed by Cotter &
Company to be the Administrator of the Plan.
7. A participant's "Compensation" for any Plan Year means the
total cash compensation (including commissions, bonuses (other than sign-on
bonuses), overtime pay, sick pay, vacation pay and holiday pay) paid to him by
an Employer during that Plan Year for personal services rendered to an Employer
as an Employee, plus any elective 401(k) income deferral contributions made by
the Employee pursuant to the Cotter & Company Employees' Savings and
Compensation Deferral Plan for that Plan Year, but excluding severance pay,
moving or relocation allowances or bonuses, tuition reimbursements, auto or
travel expense allowances or bonuses, or any other extraordinary remuneration.
During the period of any Leave of Absence, an Employee shall be deemed to
receive Compensation at the annual rate of Compensation actually received by
him during such period, or, if no compensation is paid, the annual rate of
-3-
<PAGE> 9
Compensation immediately prior to the commencement of such Leave of Absence.
For each Plan Year beginning on or after January 1, 1989, the Compensation
taken into account for all purposes of the Plan shall not exceed $200,000 per
Year, or such other amount as permitted pursuant to Section 401(a)(17) of the
Internal Revenue Code for such Plan Year. For each Plan Year beginning on or
after January 1, 1994, the Compensation taken into account for all purposes of
the Plan (subject to Section 4.11 of the Plan) shall not exceed $150,000 per
Year, or such other amount as permitted pursuant to Section 401(a)(17) of the
Internal Revenue Code for such Plan Year.
8. The term "Covered Compensation" means an amount, automatically
adjusted each Plan Year, equal to one-twelfth of the average of the Social
Security Taxable Wage Base for the 35-year period ending in the year in which
an Employee will attain Social Security retirement age (as defined in Section
415(b)(8) of the Internal Revenue Code). In determining Covered Compensation
for a particular Plan Year, the Social Security Taxable Wage Base for any
subsequent Plan Year will be deemed to be the same as the Social Security
Taxable Wage Base as in effect at the beginning of the Plan Year for which such
determination is being made. The term "Integration Level" means the lesser of
(i) one-third of the Social Security Taxable Wage Base for the Plan Year or
(ii) the Covered Compensation for a Participant who reaches Social Security
retirement age for the calendar year in which the Plan Year begins. In
-4-
<PAGE> 10
the case of a calendar year in which no individual could attain the Social
Security retirement age, then the Covered Compensation shall be the Covered
Compensation of an individual attaining Social Security retirement age in the
preceding calendar year.
9. The term "Disability Insurance Plan" shall mean any plan from
time to time in force which provides for the payment of income benefits to
Employees of an Employer by reason of disability resulting from accident or
sickness.
10. "Employee" means a person in the employ of an Employer and who
is not:
(A) in a job classification covered by a collective
bargaining agreement to which one of the following listed unions, or
its successors, is a party: Local No. 135, Miscellaneous
Warehousemen's Union, International Brotherhood of Teamsters; Local
No. 598, General Warehousemen's Union, International Brotherhood of
Teamsters; Local No. 206 Warehousemen's Union, International
Brotherhood of Teamsters; Local No. 223, Drivers and Clerical
Employees Union, International Brotherhood of Teamsters; Local No.
541, Building, Material, Excavating, Heavy Haulers, Drivers, Helpers
and Warehouse Union; or
(B) a truck driver covered by a collective bargaining
agreement with Local No. 541, Building, Material, Excavating, Heavy
Haulers, Drivers, Helpers and Warehouse Union; or
(C) a participant, or eligible to become a participant,
in any other retirement or pension plan (except the Cotter & Company
Employees' Savings and Compensation Deferral Plan) intended to qualify
under Section 401(a) of the Internal Revenue Code and which is
established by an Employer or to which an Employer makes any
contribution.
-5-
<PAGE> 11
A "Highly Compensated Employee" means an Employee who meets the definition of a
highly compensated employee as defined under Section 414(q) of the Internal
Revenue Code and the regulations thereunder.
11. "Employer" means Cotter & Company, a Delaware corporation
("Cotter"), Galaxy Travel Agency, Inc., an Illinois corporation, and any
subsidiary or affiliated corporation of Cotter that adopts this Plan by
resolution of its Board of Directors with the consent of Cotter.
12. "Employment Continuity" means the period commencing with the
date on which an Employee first performs an hour of service for an Employer and
ending on the first day of the twelve month period in which he incurs a
One-Year Break in Service; provided, however, that if an Employee leaves the
employ of an Employer other than pursuant to a Leave of Absence and does not
return until after a One-Year Break in Service, his Employment Continuity upon
return to employment by an Employer shall be determined on the basis of the
date on which the Employee first performs an hour of service subsequent to his
return to the employ of an Employer. A former employee who terminates
employment and is reemployed by an Employer before incurring a One-Year Break
in Service will not be deemed to have terminated employment with an Employer.
An "Employment Year" means 365 days of Employment Continuity under this
paragraph.
13. The term "Hour of Service" means:
-6-
<PAGE> 12
(A) each hour for which an Employee is directly or
indirectly paid, or entitled to payment, by an Employer for the
performance of the duties of his employment, which hours of service
shall be credited to the Employee during the Employment Year or Plan
Year in which the duties are performed; and
(B) each hour up to a maximum of 501 hours for which an
Employee is directly or indirectly paid or entitled to payment by an
Employer for reasons other than the performance of the duties of his
employment (such as vacation, sickness or disability), which hours of
service shall be credited to the Employee during the Employment Year
or Plan Year in which payment is made or amounts payable to the
Employee become due; and
(C) each hour for which back pay, irrespective of
mitigation of damage, has been either awarded or agreed to by an
Employer, which hours of service shall be credited to the Employee for
the Employment Year or Plan Year to which the award or agreement
pertains rather than the period in which the award, agreement or
payment was made.
Hours of Service will be computed under the Plan in accordance with the
provisions of Section 2530.200b-2(b) and 2530.200b-2(c) of the U.S. Department
of Labor regulations promulgated pursuant to the Employee Retirement Income
Security Act of 1974. For purposes of this definition only, the term
"Employee" shall be deemed to include any person who is in the employ of the
Employer so that Employees may be credited under the Plan with hours of service
for participation purposes for periods of employment during which they are not
"Employees" as that term is defined in paragraph 10 of this Article II.
14. "Leave of Absence" means a temporary absence from active service
with an Employer which may, in the discretion of
-7-
<PAGE> 13
the Employer, be granted to an Employee because of temporary incapacity or
other good cause. If an Employee on a Leave of Absence does not return to
employment with the Employer within the period authorized by the Employer, the
Employee's employment shall be deemed to have terminated as of the first day
following the period of the Leave of Absence. A Participant shall
automatically be entitled to a Leave of Absence during any period of time for
which he is eligible to receive a benefit under a Disability Insurance Plan (as
that term is defined in paragraph 9 of this ARTICLE II). An Employee shall
automatically be entitled to a Leave of Absence during any period of time he is
in the Armed Forces of the United States provided that he returns to employment
within the period within which his right to reemployment is protected by the
Selective Service Act or any similar law applicable to him.
15. "Named Fiduciary" for purposes of the Employee Retirement Income
Security Act of 1974 as from time to time amended, means the Committee
appointed pursuant to the provisions of Article VII.
16. "One-Year Break in Service" for an Employee means a twelve month
period commencing on the date of an Employee's termination of employment and on
each anniversary thereof during which such Employee is not employed (i.e., does
not complete an hour of service) with an Employer. In the case of a Maternity
or Paternity Leave of Absence (as defined below), the twelve month periods
beginning on the first day of such
-8-
<PAGE> 14
absence and on the first anniversary of such absence shall not constitute
One-Year Breaks in Service. For purposes of this paragraph 16, "Maternity or
Paternity Leave of Absence" means an absence from work by reason of the
Employee's pregnancy, birth of the Employee's child, placement of a child with
the Employee in connection with the adoption of such child, or an absence for
the purpose of caring for such child for a period immediately following such
birth or placement.
17. "Participant" means an Employee who has become a Participant in
the Plan in the manner provided in ARTICLE III. A former Employee entitled to
receive a Pension under the Plan continues to be a "Participant" until the date
of his death.
18. "Plan" means the Plan as herein set forth and as it may from time
to time be amended.
19. "Plan Year" means the twelve consecutive month period ending
December 31.
20. "Qualified Joint and Survivor Annuity" means:
(A) in the case of a 50% Qualified Joint and Survivor
Annuity, an annuity for the life of the Participant with a survivor
annuity for the life of his spouse which is one-half of the amount of
the annuity payable during the joint lives of the Participant and his
spouse, and which is the Actuarial Equivalent of a single annuity for
the life of the Participant in the amount specified by the relevant
provision of ARTICLE IV; and
(B) in the case of a 100% Qualified Joint and Survivor
Annuity, an annuity for the life of the Participant with a survivor
annuity for the life of his spouse which is equal to the amount of the
annuity payable during the joint lives of the Participant and
-9-
<PAGE> 15
his spouse, and which is the Actuarial Equivalent of a single annuity
for the life of the Participant in the amount specified by the
relevant provision of ARTICLE IV.
21. The term "Retirement" when applied to a Participant means the
termination of the Participant's employment under circumstances which entitle
him to receive a retirement pension under this Plan.
22. The term "Retirement Pension" in whatever form such retirement
pension may be paid shall mean the benefit payable to a Participant or his
beneficiary under this Plan as a consequence of the retirement of the
Participant.
23. "Social Security Taxable Wage Base" means the contribution and
benefit base determined under Section 230 of the Social Security Act, as
amended, as at the beginning of the calendar year for which a determination of
such base amount is made for purposes of a retirement or termination occurring
during such calendar year.
24. "Trust" means the trust by means of which the Plan is funded
as described in Article VIII hereof.
25. A "Vested Interest" means an interest to which an Employee has
a nonforfeitable right.
26. A Participant shall be credited with a "Year of Service" (or
fraction thereof) for each Plan Year (or fraction thereof) during his period of
Employment Continuity; provided, however, that:
-10-
<PAGE> 16
(A) A Participant in the Plan as of December 31, 1988
shall be credited with Years of Service earned before December 31,
1988 in accordance with the provisions of the Plan then in effect;
(B) If a former Participant with no Vested interest in
the Plan again becomes a Participant in this Plan, his Years of
Service (including any fractional Years calculated in days of
Employment Continuity) prior to any One-Year Break in Service shall be
taken into account only if the number of consecutive One-Year Breaks
in Service is less than the greater of: (i) five, or (ii) the
aggregate number of prior Years of Service, and then only if the
former Participant has completed a Year of Service after such Break;
(C) Years of Service prior to a One-Year Break in Service
shall not be taken into account unless the Participant completes one
Year of Service after such Break; and
(D) A Participant who incurs a One-Year Break in Service
will be credited with a partial Year of Service during the Plan Year
he terminates employment for purposes of Article IV at the rate of
one-three-hundred-sixty-fifth of a Year for each complete day of
Employment Continuity.
-11-
<PAGE> 17
ARTICLE III
PARTICIPATION
Section 3.1. Eligibility -- Employees Who Were Participants on
December 31, 1988. All Employees who were Participants in the Plan immediately
prior to January 1, 1989, shall automatically be Participants in this Plan.
Section 3.2. Eligibility -- Employees Who Were Not Participants on
December 31, 1988. Each Employee not covered under Section 3.1 shall become a
Participant in this Plan on the date the Employee has satisfied the following
requirements:
(A) The Employee attains age 21; and
(B) The Employee first completes an Employment Year.
Section 3.3. Reemployment of Participants. In the case of a
Participant who is reemployed after a One-Year Break in Service without credit
for any Years of Service completed prior to the Employee's break in service,
his participation in the Plan shall be deemed to have terminated at the
beginning of the break in service, and he shall again become a Participant on
the date he completes an Employment Year with the Employer following the date
of his reemployment; provided, however, that in the case of an Employee who is
credited with Years of Service with respect to employment prior to his One-Year
Break in Service in accordance with the provisions of paragraph 26 of ARTICLE
II, such an Employee shall become a Participant on the date of his
reemployment.
-12-
<PAGE> 18
ARTICLE IV
ELIGIBILITY FOR RETIREMENT
AND AMOUNT OF PENSIONS
Section 4.1. Normal Retirement Date and Minimum Vesting Requirements.
(A) The Normal Retirement Date for a Participant shall be the date on which he
attains age 65. A Participant may continue in employment after his Normal
Retirement Date. The Participant's right to his normal retirement benefit
shall become fully vested and nonforfeitable at his Normal Retirement Date.
(B) In the event that a Participant's employment is terminated for
any reason prior to reaching his Normal Retirement Date, the Participant shall
not be entitled to any pension benefit under this Plan unless he has completed
five Years of Service; but a Participant who has at least five Years of service
is fully vested with respect to his accrued benefit under the Plan.
Section 4.2. Accrual of Benefits. The pension to which a Participant
is entitled under this ARTICLE IV shall be computed on the basis of his number
of Years of Service and his Average Compensation; provided, however, that a
Participant shall not accrue benefits under this Plan with respect to any
period of employment while a Participant, or eligible to become a Participant,
in any plan described in subparagraph 10(C) of Article I.
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Section 4.3. Termination or Retirement Prior to January 1, 1989. Any
pension benefit which a Participant who terminated his employment or retired
prior to January 1, 1989, may be entitled to receive shall be governed by the
provisions of the Plan as in effect on the date of his termination of
employment or retirement. Any Participant who terminated employment or retired
prior to January 1, 1989 and who is reemployed on or after January 1, 1989,
shall have his benefits calculated in accordance with the Plan as in effect on
the date of his subsequent retirement or termination of employment but the
amount of any retirement benefit or termination benefit payable at such later
date shall be actuarially reduced by the amount of any retirement or
termination benefits paid previously under the Plan.
Section 4.4. Normal Retirement Pension.
(A) Any participant whose employment has terminated:
(1) on or after January 1, 1989; and
(2) on or after having reached his Normal Retirement Date;
shall be entitled to receive a retirement pension which is hereinafter called
the "Normal Retirement Pension."
(B) The Normal Retirement Pension shall commence on the first day of
the month next following the date on which the Participant's employment
terminates, shall be calculated in the form of a single annuity for the life of
the Participant, and shall be in an amount (per month) which is equal to the
sum of:
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(1) the accrued benefit, if any, determined under the
Plan as at December 31, 1988 under the terms and conditions of the
Plan as then in effect multiplied by a fraction (not less than one),
the numerator of which is the Participant's Average Compensation as at
his retirement and the denominator of which is the Participant's
Average Compensation as at December 31, 1988, where the Participant's
Average Compensation in both numerator and denominator includes
compensation specified under Section 401(a)(17) of the Internal
Revenue Code as it was effective at each respective point in time,
plus
(2) the sum of (i) 1.05 percent of the Participant's
Average Compensation not exceeding the Integration Level for such year
and (ii) 1.50 percent of the Participant's Average Compensation in
excess of the Integration Level for such year, multiplied by his Years
of Service after December 31, 1988; provided that the Years of Service
counted in this Section 4.4(B)(2) shall not exceed 30 years less the
number of Years of Service credited to the benefit described in
Section 4.4(B)(1).
(C) The Normal Retirement Pension to which a Participant is
entitled shall be paid in the form, and subject to the conditions, provided in
ARTICLE V hereof.
Section 4.5. Early Retirement Pension.
(A) Any Participant whose employment has terminated:
(1) on or after January 1, 1989, but not as a result of
disability for which the Participant is eligible to receive a benefit
under a Disability Insurance Plan, and not as a result of total and
permanent disability (as defined in Section 4.7(C) hereof); and
(2) after he has attained age 55 or completed 30 or more
Years of Service but prior to his Normal Retirement Date; and
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<PAGE> 21
(3) after completing five or more Years of service;
shall be entitled to receive a retirement pension which is hereinafter called
the "Early Retirement Pension."
(B) The Early Retirement Pension shall, except as provided in Section
4.6, commence at the Participant's Normal Retirement Date, shall be calculated
in the form of a single annuity for the life of the Participant, and shall be
in an amount (per month) which is equal to the sum of:
(1) the accrued benefit, if any, determined under the
Plan as at December 31, 1988 under the terms and conditions of the
Plan as then in effect multiplied by a fraction (not greater than
one), the numerator of which is the Participant's Average Compensation
as at his retirement and the denominator of which is the Participant's
Average Compensation as at December 31, 1988, where the Participant's
Average Compensation in both numerator and denominator includes
compensation specified under Section 401(a)(17) of the Code as it was
effective at each respective point in time, plus
(2) the sum of (i) 1.05 percent of the Participant's
Average Compensation not exceeding the Integration Level for such year
and (ii) 1.50 percent of the Participant's Average Compensation in
excess of the Integration Level for such year, multiplied by his Years
of Service after December 31, 1988; provided that the Years of Service
counted in this Section 4.5(B)(2) shall not exceed thirty years less
the number of Years of Service credited to the benefit described in
Section 4.5(B)(1).
(C) The Early Retirement Pension to which a Participant is entitled
shall be paid in the form, and subject to the conditions, provided in ARTICLE V
hereof.
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Section 4.6. Optional Early Retirement Pension.
(A) A Participant entitled to receive a Pension as provided in the
preceding Section 4.5 may elect in lieu thereof to receive a reduced retirement
pension which is hereinafter called the "Optional Early Retirement Pension,"
commencing as early as the first day of the month next following the date of
termination of his employment.
(1) Participants Retiring With Less Than 30 Years of Service:
(a) Participants Who Retire Prior to January 1,
1994:
For Participants who retire before January 1, 1994, with less
than thirty Years of Service, the amount of the Optional Early
Retirement Pension shall be the same as the Early Retirement
Pension which he would have been entitled to receive under
Section 4.5, but reduced by three-tenths of one percent for
each month by which the Annuity Starting Date precedes the end
of the month in which he would attain age 62.
(b) Participants Who Retire On Or After January
1, 1994:
For Participants who retire on or after January 1, 1994, with
less than thirty Years of Service, the amount of the Optional
Early Retirement Pension shall be the same as the Early
Retirement Pension which he would have been entitled to
receive under Section 4.5, but reduced by three-tenths of one
percent for each of the first 60 months, and further reduced
by five-tenths of one percent for each additional month (in
excess of 60 months), by which the Annuity Starting Date
precedes the end of the month in which the Participant attains
age 62. However, for a Participant who retires subject to
this Section 4.6(A)(1)(b), in no event shall the benefit be
less than the December 31, 1993 benefit he would have been
entitled to under Section 4.6(A)(1)(a), as if he had retired
prior to January 1, 1994.
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(2) Participants Retiring With Thirty or More Years of
Service:
(a) Participants Retiring Prior to January 1,
1994:
Notwithstanding the foregoing provisions of this Section 4.6,
a Participant entitled to receive a Pension as provided in the
preceding Section 4.5 whose employment terminates prior to
January 1, 1994, but after the Participant has completed 30 or
more Years of Service shall be entitled to receive an Optional
Early Retirement Pension calculated as the sum of the
following:
(i) The amount determined under Section
4.5(B)(1), plus
(ii) The amount determined under Section
4.5(B)(2), reduced by three-tenths of one
percent for each month (not exceeding 84
months) by which the Annuity Starting Date
precedes the end of the month in which the
Participant attains age 62; and, if such
Annuity Starting Date commences prior to age
55, multiplied by the factor specified in
Supplement B applicable to the age (and
months) on which such Annuity Starting Date
commences prior to age 55.
(b) Participants Retiring On or After January 1,
1994:
Notwithstanding the foregoing provisions of this Section 4.6,
a Participant entitled to receive a Pension as provided in the
preceding Section 4.5 whose employment terminates after
January 1, 1994, and after the Participant has completed 30 or
more Years of Service shall be entitled to receive an Optional
Early Retirement Pension calculated as the sum of the
following:
(i) The amount determined under Section
4.5(B)(1), plus
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(ii) The amount determined under Section
4.5(B)(2), reduced by three-tenths of one
percent for the first 60 months, and further
reduced by five-tenths of one percent for
each additional month (up to a maximum of 84
total months), by which the Annuity Starting
Date precedes the end of the month in which
the Participant attains age 62; and, if such
Annuity Starting Date commences prior to age
55, multiplied by the factor specified in
Supplement B applicable to the age (and
months) on which such Annuity Starting Date
commences prior to age 55.
(B) The Optional Early Retirement Pension to which a Participant is
entitled shall be paid in the form, and subject to the conditions, provided in
ARTICLE V hereof.
Section 4.7. Disability Retirement Pension.
(A) Any Participant who:
(1) terminates employment on or after January 1, 1989, as
a result of total and permanent disability after completing five or
more Years of Service; and
(2) is not eligible to receive a benefit under a
Disability Insurance Plan (as defined in Section 1.9);
shall be entitled to receive a retirement pension which is hereinafter called
the "Disability Retirement Pension" if his period of total and permanent
disability extends for six months or more.
(B) The Disability Retirement Pension shall commence on the first day
of the month next following the date the
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<PAGE> 25
Participant has been totally and permanently disabled for six months. The
amount of the Disability Retirement Pension shall be the same as the Optional
Early Retirement Pension to which such Participant would have been entitled
under the provisions of Section 4.6 had he qualified for such optional Early
Retirement Pension. The Disability Retirement Pension to which a Participant
is entitled shall be paid in the form, and subject to the conditions, provided
in ARTICLE V hereof.
(C) A Participant shall be deemed to be "totally and permanently
disabled" if and when it is determined by the Committee that he suffers from a
mental or physical condition which prevents him from engaging in any occupation
or employment for which he is reasonably qualified by training, education and
experience.
(D) The determination of total and permanent disability shall be made
by the Committee on the basis of a medical examination by a physician or
physicians designated by the Committee.
(E) No Participant shall be deemed to be totally and permanently
disabled for purposes of this Plan if his physical or mental condition is the
result of:
(1) intentional self-inflicted injury or attempted
suicide;
(2) injury suffered while engaged in a felonious or
criminal act or enterprise; or
(3) service in the Armed Forces of the United States
which entitles him to a veteran's disability pension.
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<PAGE> 26
(F) Payment of a Disability Retirement Pension shall terminate on the
first day of the month next following the date on which the Participant ceases
to be totally and permanently disabled, but only if such date occurs prior to
the Participant's 65th birthday. A Participant shall be deemed to be no longer
totally and permanently disabled if and when it is determined by the Committee
that:
(1) he is able to perform work which is both substantial
and gainful and within his capability, realistically judged by his
education, training and experience; or
(2) he has actually engaged in such work for a period of
three months or longer, except for such work as the Committee
determines to be solely for purposes of treatment or rehabilitation;
or
(3) he has been offered reemployment by the Employer in
such work and has refused such offer; or
(4) he has refused to undergo a medical examination
requested by the Committee (provided that the Committee shall not
require a medical examination more than twice in any calendar year).
(G) A Participant who reaches his Normal Retirement Date while on
a Leave of Absence for any period during which he is eligible to receive a
benefit under a Disability Insurance Plan shall be entitled to receive a Normal
Retirement Pension in accordance with the provisions of Section 4.4 hereof.
Section 4.8. Deferred Vested Retirement Pension.
(A) Any Participant whose employment has terminated:
(1) on or after January 1, 1989;
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(2) prior to his Normal Retirement Date; and
(3) after completing five or more Years of Service;
and who is not then entitled to receive any other retirement pension under this
Plan, shall be entitled, upon making written application therefor in accordance
with the provisions of Section 4.8(D), to a retirement pension which is
hereinafter called the "Deferred Vested Retirement Pension."
(B) The Deferred Vested Retirement Pension shall commence on the
first day of the month coincident with or next following the Participant's
Normal Retirement Date. The amount (per month) of the Deferred Vested
Retirement Pension calculated in the form of a single annuity for the life of
the Participant, shall be equal to the sum of:
(1) the accrued benefit, if any, determined under the
Plan as at December 31, 1988 under the terms and conditions of the
Plan as then in effect multiplied by a fraction (not less than one),
the numerator of which is the Participant's Average Compensation as at
his retirement and the denominator of which is the Participant's
Average Compensation as at December 31, 1988, where the Participant's
Average Compensation in both numerator and denominator includes
compensation specified under Section 401(a)(17) of the Code as it was
in effect at each respective point in time, plus
(2) the sum of (i) 1.05 percent of the Participant's
Average Compensation not exceeding the Integration Level for such year
and (ii) 1.50 percent of the Participant's Average Compensation in
excess of the Integration Level for such year, multiplied by his Years
of Service after December 31, 1988; provided that the Years of Service
counted in
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this Section 4.8(B)(2) shall not exceed thirty years less the number
of Years of Service credited to the benefit described in Section
4.8(B)(1).
(C) The Deferred Vested Retirement Pension to which a Participant
is entitled shall be paid in the form, and subject to the conditions, provided
in ARTICLE V hereof.
(D) Application for a Deferred Vested Retirement Pension shall be
made in writing on such forms as the Committee shall prescribe from time to
time and must be filed with the Committee not earlier than ninety days prior to
the date on which the Participant attains age 65.
Section 4.9. Optional Deferred Vested Retirement Pension.
(A) A Participant entitled to receive a Pension as provided in the
preceding Section 4.8 may elect in lieu thereof to receive a reduced retirement
pension which is hereinafter called the "Optional Deferred Vested Retirement
Pension," commencing as early as the first day of the month next following the
date on which he attains age 55, or any month thereafter. The amount of the
Optional Deferred Vested Retirement Pension shall be the same as the Deferred
Vested Retirement Pension which he would have been entitled to receive under
Section 4.8, but reduced by three-tenths of one percent for each of the first
60 months and by six-tenths of one percent for each additional month by which
the Annuity Starting Date precedes his Normal Retirement Date.
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(B) Application for an Optional Deferred Vested Retirement Pension
shall be made in writing on such forms as the Committee shall prescribe from
time to time and must be filed with the Committee not earlier than ninety days
prior to the Annuity Starting Date.
(C) The Optional Deferred Vested Retirement Pension to which a
Participant is entitled shall be paid in the form, and subject to the
condition, provided in ARTICLE V hereof.
Section 4.10. Survivor Benefit.
(A) In the case of a vested Participant who dies before his
Annuity Starting Date and who has a surviving spouse, a Survivor Benefit shall
be provided to the surviving spouse, in accordance with the following
provisions. The Survivor Benefit shall be the amount which would be payable as
the survivor portion of a 50% Qualified Joint and Survivor Annuity (or the
actuarial equivalent thereof) if:
(i) in the case of a Participant who dies on or after
attaining age 55, such Participant had retired with an immediate 50%
Qualified Joint and Survivor Annuity on the date before the
Participant's date of death, or
(ii) in the case of a Participant who dies before
attaining age 55, such Participant had:
(a) separated from service on the day of his
death,
(b) survived to age 55,
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(c) retired with an immediate 50% Qualified Joint
and Survivor Annuity at age 55, and
(d) died on the day after the day on which said
Participant attained age 55.
(B) The Survivor Benefit shall be paid beginning no earlier than the
month in which the Participant would have attained age 55.
(C) The Survivor Benefit shall be subject to the one-year marriage
requirement described in Section 5.6 of ARTICLE V hereof.
(D) The term "vested Participant" means any Participant who has a
nonforfeitable right to any portion of his accrued benefits derived from
Employer contributions.
Section 4.11. Special Section 401(a)(17) Limits. Notwithstanding
any other provisions of the Plan, the accrued benefit calculated under Sections
4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 of the Plan for each "Section 401(a)(17)
Employee" (as defined below) under this Plan will be the sum of:
(1) the Employee's accrued benefit as of December 31, 1993,
frozen in accordance with Section 1.401(a)(4)-13 of the Income Tax
Regulations, multiplied by a fraction (not less than one), the
numerator of which is the Participant's Average Compensation as at his
retirement and the denominator of which is the Participant's Average
Compensation as at December 31, 1993, where the Participant's Average
Compensation in both numerator and denominator includes compensation
as specified under Section 401(a)(17) of the Code as it was effective
at each respective point in time, and
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(2) the Employee's accrued benefit determined under the
benefit formula applicable for the Plan Year beginning January 1,
1994, as applied to the Employee's Years of Service credited to the
Employee for Plan Years beginning on or after January 1, 1994, for
purposes of benefit accruals.
A "Section 401(a)(17) Employee" means an Employee whose current accrued benefit
as of a date on or after January 1, 1994, is based on compensation for a year
beginning prior to January 1, 1994, that exceeded $150,000.
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<PAGE> 32
ARTICLE V
PAYMENT OF RETIREMENT PENSIONS
Section 5.1. Payment in the Form of Joint and Survivor Annuity.
Subject to the provisions of Sections 5.2 and 5.6, if a Participant has a
spouse at the time such Participant becomes entitled under the Plan to receive
a Normal Retirement Pension, Early Retirement Pension, Optional Early
Retirement Pension, Disability Retirement Pension, Deferred Vested Retirement
Pension or Optional Deferred Vested Retirement Pension, such pension benefit
shall, from the Annuity Starting Date, be paid in the form of a 50% Qualified
Joint and Survivor Annuity, which is the Actuarial Equivalent of the value of a
single annuity for the life of the Participant. The Participant may elect,
without having to comply with the provisions of Section 5.2 below, to receive
his pension benefit in the form of a 100% Qualified Joint and Survivor Annuity,
which is the Actuarial Equivalent of the value of a single annuity for the life
of the Participant. A Participant who has no spouse and who is entitled to
receive a pension under the Plan shall have it paid to him in the form of a
single annuity for the life of the Participant, unless he otherwise elects an
optional form in writing pursuant to Sections 5.2 and 5.3 below.
Section 5.2. Election to Waive Joint and Survivor Annuity.
(A) A Participant shall have the right, by written notice in
accordance with the procedures outlined in this
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<PAGE> 33
Section, to waive the 50% Qualified Joint and Survivor Annuity and receive his
pension benefit as a single annuity for the life of the Participant or in an
optional form indicated in Section 5.3 below. Any election to waive the 50%
Qualified Joint and Survivor Annuity must be made by the Participant in writing
during the election period (described in (B) below) and be consented to by the
Participant's spouse. Such spouse's consent must be in writing and must
acknowledge the effect of such election and be witnessed by a Plan
representative or a notary public. Such consent shall not be required if it is
established to the satisfaction of the Committee that the required consent
cannot be obtained because there is no spouse, the spouse cannot be located, or
because of other circumstances that may be prescribed by Treasury regulations.
The Participant may revoke this election in writing without the consent of the
spouse at any time during the election period. Any new election must comply
with the requirements of this paragraph. A former spouse's waiver shall not be
binding on a new spouse.
(B) The election period to waive the joint and survivor annuity shall
be the 90-day period ending on the Annuity Starting Date.
(C) With regard to the election, the Committee shall provide the
Participant within a reasonable period of time before the Annuity Starting Date
(and consistent with Treasury regulations), a written explanation in
nontechnical terms of:
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(1) the terms and conditions of the 50% Qualified Joint and
Survivor Annuity, and
(2) the Participant's right to make an election to waive the
50% Qualified Joint and Survivor Annuity, and
(3) the right of the Participant's spouse to consent to any
election to waive the 50% Qualified Joint and Survivor Annuity, and
(4) the right of the Participant to revoke such election, and
the effect of such revocation.
Section 5.3. Optional Forms of Payment. In the event a Participant
duly elects pursuant to Section 5.2 above to waive the 50% Qualified Joint and
Survivor-Annuity, or if such Participant is not married, the Participant shall
have the right to elect an amount which is the Actuarial Equivalent of the
value of a single annuity for the life of the Participant in the amount
specified by the relevant provisions of ARTICLE IV, in the following method:
A monthly pension payable in equal installments for the life of the
Participant; provided, however, that in the event the Participant dies
within the ten-year period following his Annuity Starting Date,
monthly payments equal to those payable during the life of the
Participant shall be made to the Beneficiary or spouse of the deceased
Participant designated to receive such payments for the remainder of
said ten-year period.
Section 5.4. Designation of Beneficiary.
(A) Any Beneficiary of a Participant's pension benefits payable under
the terms of this Plan shall be the
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Participant's spouse; provided, however, that the Participant may designate a
Beneficiary other than his spouse for any benefits payable on account of the
death of a Participant if: (i) the spouse has waived the right to be the
Participant's Beneficiary in accordance with the waiver procedure outlined in
Section 5.2(A) above, (ii) the Participant has no spouse, or (iii) the spouse
cannot be located.
(B) Such designation shall be made in the form prescribed by and
delivered to the Committee. The Participant shall have the right to change or
revoke any such designation from time to time by filing a new designation or
notice of revocation with the Committee; provided, however, that if the
Participant is a married person, the Participant's spouse shall be required to
consent to any designation (or the consent of the spouse expressly permits
designations by the Participant without any requirement of further consent by
the spouse) which designates a Beneficiary other than the spouse.
(C) The term, "Beneficiary," or "Beneficiaries," as used in this Plan
refers to the person or persons to whom the deceased Participant's interest
becomes distributable, as provided in the Plan.
Section 5.5. Small Benefits Provision.
(A) If the present value of a Participant's Retirement Pension,
Deferred Vested Retirement Pension or Survivor Annuity, as the case may be,
does not exceed $3,500, the
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Participant may request a lump sum distribution of such Retirement Pension or
Deferred Vested Retirement Pension and his surviving spouse may request a lump
sum distribution of such Survivor Annuity. However, no such lump sum
distribution may be made after the Annuity Starting Date, unless the
Participant and his spouse (or his surviving spouse) consent in writing to such
distribution. Payment of any lump sum shall be in full satisfaction of all
rights of the Participant or his Beneficiary under the Plan.
(B) Notwithstanding any contrary provision of this ARTICLE V, for
purposes of determining the present value of a Participant's vested accrued
benefits when benefits are payable as a lump sum, the interest rate assumption
used for calculating the lump sum amount shall not exceed the interest rate or
rates in use by the Pension Benefit Guaranty Corporation as of the first day of
the Plan Year in which a distribution occurs for purposes of determining the
present value of the Participant's benefits under the Plan if the Plan had
terminated on that date (as described in Supplement B to the Plan).
Section 5.6. One-Year Marriage Requirement.
(A) Notwithstanding any contrary provision hereof, the Plan shall not
provide a 50% Qualified Joint and Survivor Annuity, a 100% Qualified Joint and
survivor Annuity, or a Survivor Benefit unless the Participant and his spouse
have
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been married throughout the one (1) year period ending on the earlier of:
(1) the Participant's Annuity Starting Date, or
(2) the date of the Participant's death.
(B) For purposes of Section (A) above, if:
(1) a Participant marries within one (1) year before his Annuity
Starting Date, and
(2) the Participant and his spouse in such marriage have been
married for at least a one (1) year period ending on or before the
date of the Participant's death,
then the Participant and his spouse shall be treated as having been married
throughout the one (1) year period ending on the Participant's Annuity Starting
Date.
(C) For purposes of this Plan, the term "spouse" shall in general
mean the individual to whom the Participant is married as of the relevant date
in question, or the individual designated as the Participant's spouse in a
"qualified domestic relations order," as defined in Section 11.5 of ARTICLE XI.
Section 5.7. Method of Payment of Retirement Pensions. Retirement
payments shall be paid monthly and, in the case of a single life annuity (as
distinguished from a joint and survivor), the last payment shall be made as of
the first day of the month in which the death of the Participant occurs. In
the case of a joint and survivor annuity, the last payment shall be made as of
the first day of the month in which the
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<PAGE> 38
death of the Participant or his spouse (whichever is the later to die) occurs.
Section 5.8. Minority, Disability, or Incompetency.
If any amount becomes payable under this Plan to a minor or to a person under
legal disability or to a person not adjudicated incompetent but who, by reason
of illness or mental or physical disability, is in the opinion of the Committee
unable properly to manage his affairs, then such amount shall be paid by the
Trustee in such of the following ways as the Committee may deem best:
(A) To the legally appointed guardian or conservator of
such minor or other person;
(B) To some relative or friend of such minor or other
person; without responsibility of the Committee or the Trustee to see
to the application of such payments.
Section 5.9. Reemployment.
(A) If a Participant either continues in employment after his
Normal Retirement Date or is reemployed by the Employer after his Normal
Retirement Date, the Participant's status as an Employee shall be deemed to
have terminated for the purposes of qualifying for a Normal Retirement pension
with respect to any calendar month including or following his Normal Retirement
Date during which the Participant receives payment from the Employer for any
hours of service performed on fewer than eight (8) or more days (or separate
work shifts) in such month.
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(B) Subject to the provisions of Paragraph (A) of this Section
5.9, if a Participant receiving a retirement pension shall be reemployed by the
Employer for any period of time, his retirement pension shall be suspended
beginning with the first payment due on or after the date of such reemployment;
provided, however, that the amount of a Participant's Normal Retirement Pension
which shall be suspended in accordance with this subsection (B) shall not
exceed a Participant's "suspendible amount." The retirement pension payable
upon subsequent retirement to such reemployed Participant shall be determined
in accordance with the provisions of the Plan (but not less than the retirement
pension to which he was entitled immediately prior to his reemployment) as in
effect at that date, reduced by the actuarial equivalent of the retirement
pension payments previously received by him before his Normal Retirement Date.
Notwithstanding the foregoing, any Normal Retirement Pension to which a
reemployed Participant shall subsequently become entitled shall not be reduced
in accordance with the foregoing sentence. A Participant's "suspendible
amount" is an amount per month equal to the monthly pension payment.
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Section 5.10. Maximum Annual Benefit.
(A) Notwithstanding any other provisions of the Plan, in no event
shall a Participant with at least ten (10) years of participation hereunder
whose benefits begin at the Participant's Social Security Retirement Age
receive an Annual Retirement Benefit exceeding the lesser of:
(i) 100% of the Participant's Average Annual Compensation; or
(ii) Ninety Thousand Dollars ($90,000).
(B) A Participant's "Social Security Retirement Age" shall mean
the age used as the retirement age for the Participant under Section 216(1) of
the Social Security Act, except that such section shall be applied without
regard to the age increase factor, and as if the early retirement age under
Section 216(1)(2) of such Act were sixty-two (62). "Annual Retirement Benefit"
shall mean a benefit payable annually in the form of a straight life annuity
(with no ancillary benefits), excluding any benefits attributable to Employee
contributions or rollover Contributions, or the assets transferred from a
qualified plan that was not maintained by the Corporation. Where a
Participant's retirement benefit is payable in another form, or if the
Employees contribute to the Plan or make rollover contributions (as defined in
Sections 402(a)(5), 403(a)(4), 408(d)(3) and 409(b)(3)(C) of the Internal
Revenue Code), then the limitations described in subparagraph (A) above shall
be adjusted in accordance with regulations prescribed by
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the Secretary of the Treasury pursuant to Section 415(b)(2)(B) of the Code.
For purposes of this paragraph, any ancillary benefits which are not directly
related to retirement income benefits shall not be taken into account; and that
portion of any joint and survivor annuity which constitutes a qualified joint
and survivor annuity (as defined in Section 401(a)(11)(G)(iii) of the Code)
shall not be taken into account.
(C) Notwithstanding the foregoing limitations (except as otherwise
provided by subsection (D)(vi) hereof), if the Participant herein has not at
any time participated in a defined contribution plan maintained by the
Employer, there shall be no limitation on the annual benefit of a Participant
herein if the total annual retirement benefits payable to the Participant by
all defined benefit plans of the Employer do not exceed ten thousand ($10,000)
dollars.
(D) All the limitations of this Section 5.11 shall be subject to
the following adjustments where applicable:
(i) The Ninety Thousand Dollar ($90,000) limitation
stated above shall be increased to the maximum amount permitted under
regulations promulgated by the Secretary of the Treasury pursuant to
Section 415(d) of the Internal Revenue Code. Any adjustments will be
effective as of January 1 of the calendar year and will be applicable
to the limitation year coincident with or ending within that calendar
year.
(ii) Where a Participant's benefits commence before the
Participant's Social Security Retirement Age, the Ninety Thousand
Dollar ($90,000) limitation, as adjusted
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under the provisions of (i) above, shall be further adjusted to the
actuarial equivalent of an annual benefit of $90,000 beginning at the
Social Security Retirement Age. The adjustment provided for in the
preceding sentence shall be made in such manner as the Secretary of
the Treasury may prescribe that is consistent with the reduction for
old age insurance benefits commencing before the Social Security
Retirement Age under the Social Security Act.
(iii) Where a Participant begins to receive his benefits
after the Participant's Social Security Retirement Age, the Ninety
Thousand Dollar ($90,000) limitation, as adjusted under the provisions
of (i) above, shall be increased to the actuarial equivalent of an
annual benefit of $90,000 beginning at the Social Security Retirement
Age.
(iv) Where benefits are to be adjusted pursuant to
paragraphs (ii) and (iii) above, the adjustment shall be computed
using an interest rate of not less than the greater of:
(a) five percent (5%), or
(b) the rate of interest used in determining
Actuarial Equivalence (as described in paragraph B-1 of
Supplement B).
(v) Where a Participant retires with less than ten (10)
years of participation hereunder, the Ninety Thousand Dollar ($90,000)
limitation, as adjusted under the provisions of (i) above, shall be
reduced by a fraction the numerator of which is the Participant's
number of years (or parts thereof) of participation in the Plan, and
the denominator of which is ten (10). In no event, however, shall
this limitation be reduced to an amount less than one-tenth (1/10) of
the applicable limitation determined without regard to this subsection
(D)(v).
(vi) Where a Participant retires with less than ten (10)
Years of Service, the
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limitations described in Section 415(b)(1)(B) and 415(b)(4) of the
Internal Revenue Code shall be adjusted by multiplying such amounts by
a fraction, the numerator of which is the Participant's number of
Years of Service (or part thereof), and the denominator of which is
ten (10). In no event, however, shall this limitation be reduced to
an amount less than one-tenth (1/10) of the applicable limitation
determined without regard to this subsection (D)(vi).
Section 5.11. Combined Limitation.
(A) Notwithstanding any other provision of this Plan, and as
required by the Code, if any Participant is, or was, covered under a defined
benefit plan and a defined contribution plan maintained by the Employer, the
sum of the Participant's defined benefit plan fraction and defined contribution
plan fraction may not exceed 1.0 in any Plan Year.
(B) The defined benefit plan fraction is a fraction, the numerator
of which is the sum of the Participant's projected annual benefits under all
defined benefit plans (whether or not terminated) maintained by the Employer
and the denominator of which is the lesser of (i) 1.25 times the dollar
limitation of Section 415(b)(1)(A) of the Code in effect for the Plan Year or
(ii) 1.4 times the Participant's average compensation for the three (3)
consecutive years that produces the highest average. "Projected annual
benefit" means the annual benefit to which the Participant would be entitled
under the terms of the Plan, if the Participant continued employment until
normal retirement age (or actual age, if later) and the Participant's
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Compensation for the Plan Year and all other relevant factors used to determine
such benefit remained constant until normal retirement age (or actual age, if
later).
(C) The defined contribution plan fraction is a fraction, the
numerator of which is the sum of the annual additions to the Participant's
account under all defined contribution plans maintained by the Employer
(whether or not terminated) for the current and all prior Plan Years, and the
denominator of which is the sum of the lesser of the following amounts
determined for such year and for each prior year of service with the Employer:
(i) 1.25 times the dollar limitation in effect under Section 415(c)(1)(A) of
the Code for such year, or (ii) 1.4 times the amount which may be taken into
account under Section 415(c)(1)(B) of the Code.
(D) If the sum of the defined benefit plan fraction and the
defined contribution plan fraction shall exceed 1.0 in any Plan Year for any
Participant in this Plan, the Employer shall adjust the numerator of the
defined contribution plan fraction as set forth in the Cotter & Company
Employees' Savings and Compensation Deferral Plan so that the sum of both
fractions shall not exceed 1.0. In the event the adjustment of the defined
contribution fraction shall be insufficient to reduce the sum of both fractions
to 1.0 or less, then the rate of benefit accrual under the Plan will be reduced
as necessary to do so.
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Section 5.12. Limitation on Termination Distributions. In the event
the Plan is terminated, the benefit of any highly compensated Participant (or
former Participant) as defined in Section 414(q) of the Code shall be limited
to a benefit which is nondiscriminatory under Section 401(a)(4) of the Code.
Notwithstanding any provisions of the Plan to the contrary, the annual benefit
payable to any highly compensated Participant (or former Participant) who is in
the top 25 highly compensated Employees (or former Employees) as defined in
Section 414(q) of the Code with the greatest Compensation for the current or
any prior Plan Year will be limited to the amount that would be paid as a life
annuity that is actuarially equivalent to the accrued benefit and any other
benefits which such individual is entitled to receive under the Plan and any
payments that are considered a Social Security supplement; provided that, the
foregoing limitations shall not apply to such highly compensated Employee (or
former Employee) if (i) after payment of all the benefits payable to such
Participant (or former Participant) under the Plan, the value of plan assets
equals or exceeds 110 percent of the value of current liabilities (as defined
in Section 412(1)(7) of the Code and modified by Section
1.401(a)(4)-5(b)(3)(iv) of the Income Tax Regulations) determined as of the
same date, (ii) the value of the benefits payable to such Participant (or
former Participant) is less than one (1) percent of the value of current
liabilities before the date of distribution or (iii) the value
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of the benefits payable to such Participant (or former Participant) is
determined under Section 5.5 of the Plan.
Section 5.13. Other Distribution Restrictions. Notwithstanding any
contrary provisions of this Plan:
(A) The entire interest in the Plan of any Participant
shall be distributed to him over a period not extending beyond the
life expectancy of such Participant, or the life expectancies of such
Participant and a designated beneficiary, commencing not later than
April 1 of the calendar year following the taxable year in which the
Participant attains age 70-1/2.
(B) If a Participant dies before distribution of his
interest in the Plan has commenced, any benefits payable to a
Beneficiary on account of the Participant's death shall be distributed
within five years after his death unless: (i) any portion of the
Participant's interest is payable to (or for the benefit of) a
designated beneficiary, (ii) such portion is distributed over a period
not extending beyond the life expectancy of the beneficiary, and (iii)
such distribution begins not later than one (1) year after the date of
the Participant's death or such later date as may be prescribed by
regulation. If the designated beneficiary referred to in clause
(B)(i) above is the surviving spouse of the Participant, the date such
distribution must commence shall be no later than the date on which
the Participant would have attained age 70-1/2.
(C) If a Participant dies after distribution of his
interest in the Plan has commenced, but before his entire interest has
been distributed to him, the remaining portion of his interest shall
be distributed to his designated beneficiary at least as rapidly as
the method of distribution used for the Participant.
(D) Notwithstanding any contrary provisions of this Plan,
the foregoing provisions
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of subparagraphs (A) through (B) of this Section 5.13 shall apply to
any distribution hereunder, and all distributions hereunder shall be
made in accordance with the regulations under Section 401(a)(9) of the
Internal Revenue Code, including Section 1.401(a)(9)-2. Any
distribution required under the "incidental death benefit
requirements" of Section 401(a) of the Internal Revenue Code shall be
treated as a distribution required by the foregoing provisions of
subparagraphs (A) through (B) of this Section 5.13. Life expectancy
and joint and last survivor expectancy shall be computed using the
return multiples of Treasury Regulation Section 1.72-9.
Section 5.14. Written Explanation Regarding Rollovers. In the event a
Participant, beneficiary or spouse is entitled to receive a lump sum
distribution under Section 5.5, the Committee shall provide to the recipient a
written explanation of the provisions under which such distribution will not be
subject to tax if transferred to an eligible retirement plan within 60 days
after the date on which the recipient received the distribution, and, if
applicable, the provisions regarding capital gains treatment and ten-year
income averaging for lump sum distributions. For purposes of this section, the
term "eligible retirement plan" shall have the same meaning as ascribed to that
term by Section 402(c)(8)(B) of the Internal Revenue Code. If payment of a
Participant's benefits constitutes an eligible rollover distribution under
Section 402(c)(4) of the Internal Revenue Code, then the Participant may elect
to have such distribution paid directly to an eligible retirement plan. Each
election by a Participant under this Section 5.14
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shall be made at such time and in such manner as the Committee shall determine,
and shall be effective only in accordance with such rules as shall be
established from time to time by the Committee.
Section 5.15. Distribution to Alternate Payees. The Committee may
direct that benefits be distributed to an alternate payee on the earliest date
specified in a qualified domestic relations order (as defined in Section 11.5),
without regard to whether such distribution is made or commences prior to the
Participant's earliest retirement age (as defined in Section 414(p)(4)(B) of
the Internal Revenue Code) or the earliest date that the Participant could
commence receiving benefits under the Plan.
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ARTICLE VI
FUNDING
Section 6.1. Employer Contributions. It is the intention of this
Plan that the Employer shall make contributions during each year to the Trust
in such amounts, computed at the rate of interest and on the basis of the
mortality and other tables then in use by the Committee, as an enrolled actuary
selected by the Committee shall determine to be necessary to provide the
benefits specified in the Plan under the funding method then in effect, which
contributions shall not be less than the minimum contributions required by the
Employee Retirement Income Security Act of 1974. Contributions by Participants
are neither required nor permitted.
Section 6.2. Qualification of Plan. All contributions made by an
Employer shall be deemed to be conditioned on qualification of the Plan under
Section 401 of the Internal Revenue Code of 1986 (the "Code") and upon the
deductibility of the contributions under Section 404 of the Code.
Section 6.3. Recovery of Contributions. Except as otherwise provided
in this ARTICLE VI, the assets of the Plan shall never inure to the benefit of
any Employer and shall be held for the exclusive purpose of providing benefits
under the Plan and defraying reasonable expenses of the Plan. Notwithstanding
the foregoing:
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(A) If a contribution under the Plan is conditioned on
initial qualification of the Plan under Section 401(a) of the Code,
and the Plan receives an adverse determination with respect to its
initial qualification, the Trustee shall, upon written request of the
Employer, return to the Employer the amount of such contribution
(increased by earnings attributable thereto and reduced by losses
attributable thereto) within one calendar year after the date that
qualification of the Plan is denied, provided that the application for
the determination is made by the time prescribed by law for filing the
Employer's return for the taxable year in which the Plan is adopted,
or such later date as the Secretary of the Treasury may prescribe;
(B) Any contribution which is disallowed as a deduction
under Section 404 of the Code, shall upon written request of the
Employer be returned to the Employer within one year after the date
the deduction is disallowed;
(C) If a contribution or any portion thereof is made by
the Employer by a mistake of fact, the Trustee shall, upon written
request of the Employer, return the contribution or such portion to
the Employer within one year after the date of payment to the Trustee;
and
(D) Earnings attributable to amounts to be returned to
the Company pursuant to subsection (B) or (C) above shall not be
returned, and losses attributable to amounts to be returned pursuant
to subsection (B) or (C) shall reduce the amount to be so returned.
Section 6.4. Forfeitures. Any forfeitures of benefits or benefits
which are suspended under Plan shall be used to reduce the cost of the Plan
rather than to increase benefits thereunder.
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ARTICLE VII
THE COMMITTEE
Section 7.1. Membership. A Committee consisting of three or more
persons (who may but need not be employees of the employers) shall be appointed
by Cotter. The Secretary of Cotter shall certify to the trustee under the
Trust from time to time the appointment to (and termination of) office of each
member of the Committee and the person who is selected as secretary of the
Committee.
Section 7.2. Committee's General Powers, Rights and Duties. Except
as otherwise specifically provided and in addition to the powers, rights and
duties specifically given to the Committee elsewhere in the Plan and the Trust
agreement, the Committee shall have the following discretionary powers, rights
and duties:
(A) To select a secretary, if it believes it advisable,
who may but need not be a Committee member.
(B) To determine all questions arising under the Plan,
including the power to determine the rights or eligibility of
Employees or Participants and any other persons to benefits under the
Plan, and the amount of their benefits under the Plan, and to remedy
ambiguities, inconsistencies or omissions.
(C) To adopt such rules or procedures and regulations as
in its opinion may be necessary for the proper and efficient
administration of the Plan and as are consistent with the Plan and
Trust agreement.
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(D) To enforce the Plan in accordance with the terms of
the Plan and the Trust agreement and the rules and regulations adopted
by the Committee.
(E) To direct the trustee as respects payments or
distributions from the Trust fund in accordance with the provisions of
the Plan.
(F) To furnish the Employers with such information as may
be required by them for tax or other purposes in connection with the
Plan.
(G) To employ agents, attorneys, accountants or other
persons (who also may be employed by the Employers) and to allocate or
delegate to them such powers, rights and duties as the Committee may
consider necessary or advisable to properly carry out administration
of the Plan, provided that such allocation or delegation and the
acceptance thereof by such agents, attorneys, accountants or other
persons, shall be in writing.
Section 7.3. Manner of Action. During a period in which two or more
Committee members are acting, the following provisions apply where the context
admits:
(A) A Committee member by writing may delegate any or all
of his rights, powers, duties and discretions to any other member,
with the consent of the latter.
(B) The Committee members may act by meeting or by
writing signed without meeting, and may sign any document by signing
one document or concurrent documents.
(C) An action or a decision of a majority of the members
of the Committee as to a matter shall be as effective as if taken or
made by all members of the Committee.
(D) If, because of the number qualified to act, there is
an even division of opinion among the Committee members as to a
matter, a
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disinterested party selected by the Committee shall decide the matter
and his decision shall control.
(E) Except as otherwise provided by law, no member of the
Committee shall be liable or responsible for an act or omission of the
other Committee members in which the former has not concurred.
(F) The certificate of the secretary of the Committee or
of a majority of the Committee members that the Committee has taken or
authorized any action shall be conclusive in favor of any person
relying on the certificate.
Section 7.4. Interested Committee Member. If a member of the
Committee is also a Participant in the Plan, he may not decide or determine any
matter or question concerning distributions of any kind to be made to him or
the nature or mode of settlement of his benefits unless such decision or
determination could be made by him under the Plan if he were not serving on the
Committee.
Section 7.5. Resignation or Removal of Committee Members. A member
of the Committee may be removed by Cotter at any time by 10 days' prior written
notice to him and the other members of the Committee. A member of the
Committee may resign at any time by giving 10 days' prior written notice to
Cotter and the other members of the Committee. Cotter may fill any vacancy in
the membership of the Committee; provided, however, that if a vacancy reduces
the membership of the Committee to less than three, such vacancy shall be
filled as soon as
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practicable. Cotter shall give prompt written notice thereof to the other
members of the Committee. Until any such vacancy is filled, the remaining
members may exercise all of the powers, rights and duties conferred on the
Committee.
Section 7.6. Committee Expenses. All costs, charges and expenses
reasonably incurred by the Committee will be paid by the employers in such
proportions Cotter may direct. No compensation will be paid to a Committee
member as such.
Section 7.7. Information Required by Committee. Each person entitled
to benefits under the Plan shall furnish the Committee with such documents,
evidence, data or information as the Committee considers necessary or desirable
for the purpose of administering the Plan. The employers shall furnish the
Committee with such data and information as the Committee may deem necessary or
desirable in order to administer the Plan. The records of the Employers as to
an Employee's or Participant's period of employment, termination of employment
and the reason therefor, leave of absence, reemployment, and compensation will
be conclusive on all persons unless determined to the Committee's satisfaction
to be incorrect.
Section 7.8. Uniform Rules. The Committee shall administer the Plan
on a reasonable and nondiscriminatory basis and shall apply uniform rules to
all persons similarly situated.
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Section 7.9. Review of Benefit Determinations. The Committee will
provide notice in writing to any Participant or beneficiary whose claim for
benefits under the Plan is denied and the Committee shall afford such
Participant or beneficiary a full and fair review of its decision if so
requested.
Section 7.10. Committee's Decision Final. Subject to applicable law,
any interpretation of the provisions of the Plan and any decisions on any
matter within the discretion of the Committee made in good faith shall be
binding on all persons. A misstatement or other mistake of fact shall be
corrected when it becomes known and the Committee shall make such adjustment on
account thereof as it considers equitable and practicable.
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ARTICLE VIII
TRUST FUND AND TRUSTEE
Section 8.1. Trust Fund. The Employers have heretofore established a
fund, herein referred to as the "trust fund" or the "Pension Fund," which
comprises all of the assets of the Plan and into which future contributions to
finance this Plan shall be made. The Pension Fund shall be used to pay
benefits as provided in this Plan pursuant to authorization by the Committee;
and such benefits shall be payable only from the Pension Fund.
Section 8.2. Trust Fund Applicable Only to Payment of Benefits. The
trust fund will be used and applied only in accordance with the provisions of
the Plan and the Trust Agreement entered into by the Employers and the Trustee
to provide the benefits thereof, and no part of the corpus or income of the
trust fund will be used for, or diverted to, purposes other than for the
exclusive benefit of Participants under the Plan and other persons thereunder
entitled to benefits except to the extent provided in Sections 6.3 and 10.3 or
to pay reasonable expenses in the administration of the Plan.
Section 8.3. Trustee Capacity. The Trustee of the Pension Fund may
be a bank, trust company or other corporation possessing trust powers under
applicable state and Federal law, or one or more individuals or any combination
thereof. When
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there are two or more Trustees, they are authorized to allocate specific
responsibilities, obligations or duties among themselves by their written
agreement. An executed copy of such written agreement is to be delivered to
and retained by the Committee. In the event of more than one Trustee, any
action shall be taken at the direction of a majority of such Trustees.
Section 8.4. Resignation and Removal of Trustee. Any Trustee may
resign at any time by delivering to the Board of Directors of Cotter (the
"Board of Directors") a written notice of resignation, which notice may be
waived by the Board of Directors, to take effect at a date specified therein,
which shall not be less than thirty (30) days after the delivery thereof. The
Trustee may be removed by the Board of Directors with or without cause, by
tendering to the Trustee a written notice of removal to take effect at a date
specified therein. Upon such removal or resignation of a Trustee, the Board of
Directors shall either appoint a successor Trustee who shall have the same
powers and duties as those conferred upon the resigning or discharged Trustee,
or, if more than one Trustee is acting, determine that a successor shall not be
appointed and the number of Trustees shall be reduced by one.
Section 8.5. Taxes, Expenses and Compensation of Trustee. The
Trustee shall deduct from and charge against the Trust any taxes paid by it
which may be imposed upon the Trust, or the income thereof, or which the
Trustee is required to pay
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with respect to the interest of any Participant or Beneficiary therein. The
Employers may pay the Trustee's reasonable expenses in administering the Plan
and a reasonable compensation for its services as Trustee hereunder, at a rate
to be agreed upon from time to time; provided, however, that no full-time
Employee shall receive any compensation for acting as Trustee hereunder.
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ARTICLE IX
TOP-HEAVY RESTRICTIONS
Section 9.1. General. For any Plan Year with respect to which the
Plan is a "top-heavy plan," and for all subsequent Plan Years, the provisions
of this ARTICLE IX shall apply notwithstanding any contrary provisions of the
Plan.
Section 9.2. Definitions.
(A) For purposes of this ARTICLE IX, the Plan will be a "top-heavy
plan" with respect to any Plan Year if the aggregate of the present value of
accrued benefits of "key employees" under the Plan exceeds sixty percent (60%)
of the aggregate of the present value of accrued benefits of all employees
under the Plan as of the relevant "determination date." The actuarial
assumptions specified in Paragraph 1 of ARTICLE II of the Plan shall be applied
to all benefits provided by the Plan in order to determine the present value of
accrued benefits under the Plan.
(B) "Affiliated Company" means (i) a member of a controlled group
of corporations of which the Employer is a member, or (ii) an unincorporated
trade or business which is under common control with the Employer, or (iii) a
member of an affiliated service group of which the Employer is a member, as
defined in Section 414(b), 414(c), and 414(m) of the Code, respectively. For
purposes hereof, a "controlled group of corporations" shall mean a controlled
group of corporations as
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defined in Section 1563(a) of the Code, determined without reference to Section
1563(a)(4) and (e)(3)(C) of the Code, except that, with respect to the maximum
limitations on Plan benefits set forth in Article IV of the Plan, the phrase
"more than fifty (50%) percent" shall be substituted for the phrase "eighty
(80%) percent" wherever such phrase appears in Section 1563(a)(1) of the Code.
(C) "Key employee," for purposes of this ARTICLE IX, shall have
the same meaning as ascribed to that term by Section 416(i) of the Code and the
regulations promulgated pursuant thereto. Generally, this term shall include
any employee or former employee (and his beneficiaries) who, at any time during
the Plan Year or any of the preceding four (4) Plan Years, is:
(1) an officer of the Employer having Section 415
Compensation greater than 50 percent of the dollar limitation in
effect under Code Section 415(b)(1)(A) for the calendar year in which
the Plan Year ends (including only the greater of three or ten percent
of the total Employees of the Employer but not exceeding 50);
(2) one of the ten employees who owns (or is considered
as owning within the meaning of Code Section 318) both more than a 1/2
percent interest and the largest interests in the Employer and who has
Section 415 Compensation in excess of the limitation in effect under
Section 415(c)(1)(A) of the Code for the calendar year in which the
Plan Year ends;
(3) a "five percent owner" of the Employer; or
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(4) a "one percent owner" of the Employer having Section
415 Compensation of more than $150,000.
(D) For purposes of this Section 9.2: (1) "five percent owner"
means any person who owns (or is considered as owning within the meaning of
Code Section 318) more than five percent (5%) of the outstanding stock of the
Employer or stock possessing more than five percent (5%) of the total combined
voting power of all stock of the Employer; (2) "one percent owner" means any
person who owns (or is considered as owning within the meaning of Code Section
318) more than one percent (1%) of the outstanding stock of the Employer or
stock possessing more than one percent (1%) of the total combined voting power
of all stock of the Employer; and (3) "Section 415 Compensation" means annual
compensation as defined by Treasury Regulation Section 1.415-2(d).
(E) The term "determination date" means, with respect to any Plan
Year, the last day of the preceding Plan Year.
(F) "Required Aggregation Group" means each plan of the Employer
or an Affiliated Company in which a key employee is a Participant, and each
such plan of the Employer or an Affiliated Company which enables any plan of
the Employer or an Affiliated Company in which a key employee is a Participant
to meet the nondiscrimination and participation requirements of Sections
401(a)(4) and 410 of the Code, respectively.
(G) "Permissive Aggregation Group" means all plans of an Employer
or an Affiliated Company included in the Required
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Aggregation Group and any other plan or plans, of an Employer or an Affiliated
Company, designated by the Employer as a part of the group but only if such
plans, when considered as a group, would continue to satisfy the
nondiscrimination and participation requirements of Sections 401(a)(4) and 410
of the Code, respectively.
Section 9.3. Top-Heavy Determination.
(A) The determination of whether the Plan is a top-heavy plan with
respect to any Plan Year, and the computation of the top-heavy ratio, shall be
made in accordance with the provisions of Section 416(g) of the Code and the
regulations promulgated pursuant thereto. All qualified plans that are, along
with this Plan, members of either a Required Aggregation Group or a Permissive
Aggregation Group shall be aggregated with the Plan in testing whether the Plan
is top-heavy.
(B) The present value of an employee's accrued benefit as of any
determination date shall be determined as if the employee terminated service as
of the valuation date used for computing plan costs for minimum funding
purposes which is the most recent valuation date within a twelve-month period
ending on the determination date in question.
Section 9.4. Vesting. Commencing with the first Plan Year with
respect to which the Plan is a top-heavy plan, a Participant's accrued benefit
shall vest at the rate not less than the rate specified in the following
schedule:
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<TABLE>
<CAPTION>
If His Completed Years of The Vested Percentage of His
Service in the Plan Are Accrued Benefit Shall Be
------------------------- ----------------------------
<S> <C>
Less than 2 years 00%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 or more years 100%
</TABLE>
Section 9.5. Minimum Accrual. Commencing with the first Plan Year
with respect to which the Plan is a top-heavy plan, Participants shall accrue
benefits which shall not be less than the "Minimum Accrual." The Minimum
Accrual, expressed as a single life annuity commencing at the Participant's
Normal Retirement Date, is the product of the Participant's average
compensation for the five consecutive years when the Participant had the
highest aggregate compensation from the Employer and the lesser of (A) two
percent (2%) for each Year of Service completed when the Plan is a top-heavy
plan, or (B) twenty percent (20%). All benefits accrued under the Plan,
whether or not attributable to years for which the Plan is a top-heavy plan,
shall be used to satisfy the minimum accrual required by this Section 9.5.
Section 9.6. Limitation on Compensation. Commencing with the first
Plan Year with respect to which the Plan is a top-heavy plan, the annual
Compensation of a Participant taken into account for purposes of the benefit
provisions of ARTICLE III hereof shall not in any Plan Year exceed the
limitation
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prescribed by Section 416(d) of the Code ($200,000), as such limitation shall
be adjusted annually by regulation.
Section 9.7. Limitation on Benefits. Commencing with the first Plan
Year with respect to which the Plan is a top-heavy plan, Section 5.12 of
ARTICLE V shall be read by substituting the number "1.00" for the number "1.25"
whenever it appears therein; provided, however, that such substitution shall
not reduce any benefit accrued under the Plan prior to the Plan Year in which
this provision becomes applicable.
Notwithstanding the foregoing, the above paragraph shall not apply in
any Plan Year in which the Plan is not "super top-heavy" and in which non-key
employees receive an "extra minimum benefit." For purposes of this Section:
(1) the Plan will be "super top-heavy" with respect to any Plan Year if the
aggregate of the present value of accrued benefits of key employees under the
Plan exceeds ninety percent (90%) of the aggregate of the present value of
accrued benefits of all Employees under the plan as of the relevant
determination date; and (2) the "extra minimum benefit" is one percentage point
so that Section 9.5 hereof will be read by substituting "three percent (3%)"
for "two percent (2%)" and "thirty percent (30%)" for "twenty percent (20%)"
whenever they appear therein.
-59-
<PAGE> 65
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
Section 10.1. Amendment. Cotter, by action of its Board of Directors,
shall have the right at any time to amend the Plan in any respect, except that
no such amendment shall have the effect of reducing any accrued benefit (as
defined in Section 411(d)(6) of the Internal Revenue Code) earned prior thereto
or, except as otherwise provided in Section 6.3, make it possible for any
portion of the assets of the Plan to be diverted to purposes other than for the
exclusive benefit of Participants or their beneficiaries at any time prior to
the satisfaction of all liabilities under the Plan with respect to such
Participants and their beneficiaries.
Section 10.2. Termination. This Plan is adopted in the expectation
that it will be continued indefinitely but the continuance of this Plan and the
payment of any contribution hereunder is not assumed as a contractual
obligation. Cotter, as authorized by its Board of Directors, reserves the
right to terminate this Plan at any time. In the event of a termination or
partial termination of this Plan, the rights of all affected Participants to
the benefits accrued to the date of such termination or partial termination, to
the extent funded as of such date, shall become immediately and fully vested.
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<PAGE> 66
Section 10.3. Allocation of Assets upon Termination. After a notice
by the Committee to the Pension Benefit Guaranty Corporation that the Plan is
to be terminated has been made in accordance with Section 4041 of ERISA without
receiving a notice of noncompliance pursuant to the provisions of that Section,
or said corporation has notified the Committee that the Plan should be
terminated and has applied for and been granted a decree by the United States
District Court for the Northern District of Illinois, Eastern Division,
adjudicating that the Plan must be terminated, the Committee, or trustee
appointed by said court pursuant to said corporation's application, shall
allocate the assets of the Plan in accordance with Section 4044 of ERISA for
the purposes set forth below and in the order set forth below, to the extent
the assets are available to provide benefits to Participants and beneficiaries.
The Committee or trustee shall make the allocation referred to above
as follows:
FIRST, equally among the following two subcategories:
(i) benefits to Participants who began receiving benefits at
least three years prior to termination (at the lowest pay level in
that period and at the lowest benefit level under the Plan during the
five years prior to termination) and
(ii) benefits which would have been received for at least
three years prior to termination had the Participant then retired (and
had his benefits commenced then, at the lowest benefit level under the
Plan during the five years prior to termination).
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<PAGE> 67
SECOND, to all other benefits (if any) of individuals under the Plan
guaranteed under the termination insurance provisions of ERISA.
THIRD, to all other nonforfeitable benefits under the Plan.
FOURTH, to all other benefits under the Plan.
The term "benefits" in this Section 10.3 shall be deemed to include
Survivor Benefits payable under the provisions of Section 4.10.
If the assets available for allocation under the first and second
priority category are insufficient to satisfy in full the benefits of all
individuals, the assets shall be allocated pro rata among such individuals on
the basis of the present value (as of the termination date) of their respective
benefits.
Any residual assets of the Plan remaining after distribution in
accordance with this Section as aforesaid shall be distributed to the Employer
provided:
(A) all liabilities of the Plan to Participants and their
beneficiaries have been satisfied; and
(B) the distribution does not contravene any provisions of
law.
The certification of the Committee as to the persons to be provided
for in any group, the amounts allocated and any other material facts shall be
conclusive and binding upon the Trustee, the Employers and all persons
interested in the Trust.
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<PAGE> 68
Section 10.4. Merger and Consolidation. If this Plan is merged or
consolidated with, or its liabilities transferred to any other retirement plan,
a Participant hereunder shall (if the Plan then terminates) receive a benefit
immediately after the merger, consolidation, or transfer which is at least
equal to the benefit he would have been entitled to receive immediately before
the merger, consolidation, or transfer (if the Plan had then terminated).
-63-
<PAGE> 69
ARTICLE XI
GENERAL PROVISIONS
Section 11.1. Employment with Related Companies. A period of any
Employee's employment with a controlled group member which is not an Employer
will be considered a period of employment for purposes of determining
Employment Years and Years of Service but no employee of a controlled group
member shall be eligible to participate in the Plan unless such controlled
group member becomes an Employer under the Plan and no period of such
Employee's employment with such controlled group member shall be included in
Years of Service for purposes of calculating the amount of a Participant's
benefits under the Plan. A "controlled group member" means any corporation or
other trade or business which is under common control with an Employer within
the meaning of Sections 414(b), 414(c) and 414(m) of the Code.
Section 11.2. Litigation by Participants. If a legal action begun
against the Employers, the Committee or the Trustee by or on behalf of any
person results adversely to that person or if a legal action arises because of
conflicting claims to a Participant's or other person's benefits, the cost to
the Trustee, the Employer or the Committee of defending the action will be
charged to the extent permitted by law to the sums, if any, which were involved
in the action or were payable to the person concerned.
-64-
<PAGE> 70
Section 11.3. Absence of Guaranty. Neither the Committee nor the
Employer in any way guarantees the trust fund from loss or depreciation. The
liability of the Trustee or the Committee to make any payment under the Plan
will be limited to the assets held by the Trustee which are available for that
purpose.
Section 11.4. Leased Employees. A leased employee (as defined below)
shall not be eligible to participate in the Plan. A leased employee means any
person who is not an employee of an employer but who has provided services to
an Employer of the type which have historically (within the business field of
the Employers) been provided by Employees on a substantially full-time basis
for a period of at least one year pursuant to an agreement between an Employer
and a leasing organization. The period during which a leased employee performs
services for an Employer shall be taken into account for purposes of
determining Employment Years under paragraph 12 of Article II and for purposes
of determining Years of Service under paragraph 25 of Article II of the Plan
unless (i) such leased employee is a participant in a money purchase pension
plan maintained by the leasing organization which provides a nonintegrated
employer contribution rate of at least ten percent (10%) of compensation,
immediate participation for all employees and full and immediate vesting and
(ii) leased employees do not constitute more than twenty percent (20%) of
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<PAGE> 71
the employer's nonhighly compensated work force. No such period of employment
shall be included in Years of Service for purposes of calculating the amount of
a Participant's benefits under the Plan.
Section 11.5. Non-Assignability. Pension benefits may not be assigned
or hypothecated, and to the extent permitted by law no such income shall be
subject to legal process or attachment for the payment of any claim against any
person entitled to receive the same; provided, however, that this Section 11.5
shall not apply to a "qualified domestic relations order" as defined in Section
414(p) of the Internal Revenue Code of 1954, and those other domestic relation
orders permitted to be so treated by the Committee under the provisions of the
Retirement Equity Act of 1984. The Committee shall establish a written
procedure to determine the qualified status of domestic relations orders and to
administer distributions under such qualified order. Furthermore, to the
extent provided in a "qualified domestic relations order," a former spouse of a
Participant shall be treated as the spouse or surviving spouse for all purposes
under the Plan.
Section 11.6. No Enlargement of Employment Rights. An Employer's
rights to discipline or discharge Employees shall not be affected by any of the
provisions of the Plan.
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<PAGE> 72
Section 11.7. Applicable Law. This Plan shall be construed and
enforced in accordance with the laws of the State of Illinois and all
provisions of the Plan shall be administered in accordance with the laws of
said state, to the extent such state laws are not preempted by the Employee
Retirement Income Security Act of 1974, as amended.
Section 11.8. Uniform Administration. Whenever, in the administration
of the Plan, any action by the Board of Directors of Cotter & Company, the
Committee, or any Employer is required with respect to eligibility or
classification of Employees, contributions or benefits or any other matters
under this Plan, such action shall be uniform in nature as applied to all
persons similarly situated and no such action shall be taken which will
discriminate in favor of Employees who are officers, shareholders, persons
whose principal duties consist in supervising the work of other Employees, or
highly compensated Employees.
Section 11.9. Text to Control. The headings of ARTICLES and Sections
hereof are included solely for convenience of reference and if there by any
conflict between such headings and the text of this Plan, the text shall
control.
IN WITNESS WHEREOF, Cotter & Company has caused the foregoing Plan to
be executed and its corporate seal to be
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<PAGE> 73
affixed and attested this 20th day of June, 1994.
COTTER & COMPANY
By: /s/ DANIEL A. COTTER
-------------------------
President
ATTEST:
/s/ KERRY J. KIRBY
- ---------------------------
Secretary
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<PAGE> 74
SUPPLEMENT A
MERGER OF NORTHERN WHOLESALE HARDWARE CO. RETIREMENT PLAN
WITH AND INTO COTTER & COMPANY PENSION PLAN
A-1. Merger. Effective as of January 1, 1990, the Northern
Wholesale Hardware Co. Retirement Plan ("Northern Plan") was
amended, continued and merged with the Plan.
A-2. Participation. On January 1, 1990, each former participant in
the Northern Plan (a "Northern Participant") became a
Participant in the Plan and will have benefits determined and
paid in accordance with this Plan.
A-3. Preservation of Accrued Benefit. Notwithstanding any
provisions of the Plan to the contrary, in no event shall a
Northern Participant's accrued benefit under the Plan as in
effect on January 1, 1990 be less than the accrued benefit
earned by such Northern Participant under the Northern Plan as
at December 31, 1989.
A-4. Years of Service. Each Northern Participant will be credited
with the Years of Service before January 1, 1990 which such
Northern Participant had earned under the Northern Plan as in
effect on December 31, 1989 for participation, vesting and
accrued benefit purposes.
A-5. Records. The Committee shall maintain such records as it deems
necessary and desirable to demonstrate the amount of each
Northern Participant's benefits and Years of Service under
paragraphs A-3 and A-4 above pursuant to IRS regulations.
A-6. Effective Date. The effective date of this Supplement A is
January 1, 1990.
A-1
<PAGE> 75
SUPPLEMENT B
ACTUARIAL ASSUMPTIONS
B-1. Lump Sum Distributions:
For purposes of determining "Actuarial Equivalent" lump sum
distributions under the Plan (as described in Sections 5.5 and
5.10), the following actuarial assumptions are used:
a. Rate of Interest: The rates in use by the Pension
Benefit Guarantee Corporation as of the first day of
the Plan Year in which a distribution occurs.
b. Mortality: The mortality table in use by the Pension
Benefit Guarantee Corporation for healthy males,
deferred to age 65, set back one year.
B-2. Type of Annuity:
For purposes of determining "Actuarial Equivalent" benefits
under the Plan, the following factors shall be used in
determining benefits which are actuarially equivalent to the
normal single annuity for the life of the Participant form of
benefit provided under the Plan:
a. 50 Percent Qualified Joint and Survivor Annuity.
Ninety percent, plus (or minus) four-tenths of one
percent for each full year that the Participant is
younger (or older) than the Participant's spouse.
b. 100 Percent Qualified Joint and Survivor Annuity.
Eighty-one percent, plus (or minus) seven-tenths of
one percent for each full year that the Participant
is younger (or older) than the Participant's spouse.
c. Life and 10 Year Certain Annuity. Ninety-Four
percent.
B-3. Early Retirement Benefits:
For purposes of determining Early Retirement Benefits payable
before age 55 under Section 4.6 of the Plan,
B-1
<PAGE> 76
the attached factors shall apply to the reduced benefit payable
at age 55:
B-2
<PAGE> 77
REDUCTION FACTORS TO APPLY TO AGE 55 BENEFITS FOR RETIREMENT BENEFITS BEGINNING
BEFORE AGE 55
<TABLE>
<CAPTION>
MONTHS
AGE 0 1 2 3 4 5 6 7 8
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
40 0.2507 0.2526 0.2545 0.2564 0.2583 0.2601 0.2620 0.2639 0.2658
41 0.2733 0.2754 0.2774 0.2795 0.2816 0.2836 0.2857 0.2878 0.2898
42 0.2981 0.3004 0.3027 0.3049 0.3072 0.3095 0.3117 0.3140 0.3163
43 0.3254 0.3279 0.3304 0.3329 0.3354 0.3379 0.3404 0.3429 0.3454
44 0.3554 0.3581 0.3609 0.3637 0.3664 0.3692 0.3719 0.3747 0.3774
45 0.3885 0.3915 0.3946 0.3976 0.4006 0.4037 0.4067 0.4096 0.4128
46 0.4250 0.4284 0.4317 0.4351 0.4384 0.4418 0.4452 0.4485 0.4519
47 0.4653 0.4691 0.4728 0.4765 0.4802 0.4840 0.4877 0.4914 0.4951
48 0.5100 0.5141 0.5183 0.5224 0.5265 0.5306 0.5348 0.5389 0.5430
49 0.5595 0.5641 0.5687 0.5733 0.5778 0.5824 0.5870 0.5916 0.5962
50 0.6145 0.6196 0.6247 0.6298 0.6349 0.6400 0.6451 0.6501 0.6552
51 0.6756 0.6813 0.6870 0.6926 0.6983 0.7040 0.7097 0.7153 0.7210
52 0.7437 0.7501 0.7564 0.7627 0.7691 0.7754 0.7817 0.7881 0.7944
53 0.8197 0.8268 0.8339 0.8410 0.8481 0.8552 0.8622 0.8693 0.8764
54 0.9047 0.9127 0.9206 0.9286 0.9365 0.9444 0.9524 0.9603 0.9682
55 1.0000
MONTHS
AGE 9 10 11
<S> <C> <C> <C>
40 0.2677 0.2695 0.2714
41 0.2919 0.2940 0.2960
42 0.3186 0.3208 0.3231
43 0.3479 0.3504 0.3529
44 0.3802 0.3830 0.3857
45 0.4159 0.4189 0.4219
46 0.4553 0.4586 0.4620
47 0.4988 0.5026 0.5063
48 0.5471 0.5513 0.5554
49 0.6008 0.6053 0.6099
50 0.6603 0.6654 0.6705
51 0.7267 0.7324 0.7380
52 0.8007 0.8071 0.8134
53 0.8835 0.8906 0.8977
54 0.9762 0.9641 0.9921
55
</TABLE>
Interest Rate -- 8.0%
Mortality Table -- UP - 1984
B-3
<PAGE> 1
EXHIBIT 10(d)
COTTER & COMPANY EMPLOYEES'
SAVINGS AND COMPENSATION DEFERRAL PLAN
(As Amended and Restated Effective April 1, 1994)
McDermott, Will & Emery
Chicago, Illinois
<PAGE> 2
C E R T I F I C A T E
I, Kerry J. Kirby, Secretary of COTTER & COMPANY, hereby certify that
the attached is a full, true and complete copy of the COTTER & COMPANY
EMPLOYEES' SAVINGS AND COMPENSATION DEFERRAL PLAN, as in effect on the date
hereof.
Dated this 20th day of June, 1994
/s/ KERRY J. KIRBY
-----------------------------
Secretary as Aforesaid
(Corporate Seal)
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1 1
Introduction 1
Purpose 1
Effective Date, Plan Year 1
Employers 2
Plan Administration 2
Trustee, Trust Agreement, Trust Fund 2
Examination of Plan Documents 2
Notices 3
Gender and Number 3
SECTION 2 4
Eligibility and Participation 4
Eligibility 4
Continuity of Employment 5
Leave of Absence 7
Reemployed Former Participant 8
SECTION 3 9
Income Deferral Contributions 9
Income Deferral Contributions 9
Compensation and Adjusted Compensation 10
Limitations on Income Deferrals for Highly Compensated 11
Highly Compensated Participants 14
SECTION 4 16
Participant Contributions 16
SECTION 5 17
Employer Contributions 17
Matching Employer Contributions 17
Limitations on Employer Contributions 17
Limitations on Matching Employer Contributions 18
Verification of Employer Contributions 21
No Interest in Employers 21
SECTION 6 23
Period of Participation 23
Termination Date 23
Restricted Participation 24
SECTION 7 26
Accounting 26
Separate Accounts 26
Accounting Dates 27
</TABLE>
-i-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Employer Contributions Considered Made on Last Day of Plan Year 27
Adjustment of Participants' Accounts 28
Allocation of Matching Employer Contributions and Forfeitures 29
Statement of Accounts 29
Contribution Limitations 30
Investment Funds 32
Transition Rules 35
SECTION 8 36
Payment of Account Balances 36
Retirement, Disability or Death 36
Resignation or Dismissal 36
Forfeitures 37
Manner of Distribution 38
Commencement of Distributions 40
Designation of Beneficiary 41
Missing Participants or Beneficiaries 42
Facility of Payment 44
Direct Transfer of Eligible Rollover Distributions 44
Distribution to Alternate Payees 45
SECTION 9 46
Loans and Withdrawals 46
Loans to Participants 46
Withdrawal of Participant Contributions 48
Withdrawal of Income Deferral Contributions 48
Withdrawals After Age 59-1/2 50
SECTION 10 51
Prior Plan Accounts 51
SECTION 11 52
The Committee 52
Membership 52
Committee's General Powers, Rights and Duties 52
Manner of Action 53
Interested Committee Member 54
Resignation or Removal of Committee Members 54
Committee Expenses 55
Information Required by Committee 55
Uniform Rules 55
Review of Benefit Determinations 55
Committee's Decision Final 56
</TABLE>
-ii-
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 12 57
General Provisions 57
Additional Employers 57
Action by Employers 57
Waiver of Notice 57
Controlling Law 57
Employment Rights 57
Litigation by Participants 58
Interests Not Transferable 58
Absence of Guaranty 58
Evidence 59
Leased Employees 59
SECTION 13 60
Amendment and Termination 60
Amendment 60
Termination 60
Reorganizations 61
Vesting and Distribution on Termination 61
Notice of Amendment or Termination 62
Plan Merger, Consolidation, Etc 62
SECTION 14 63
Top-Heavy Rules 63
Purpose and Effect 63
Top-Heavy Plan 63
Key Employee 64
Aggregated Plans 65
Minimum Contributions 65
Minimum Vesting 66
No Duplication of Benefits 66
Adjustment of Combined Benefit Limitations 67
SUPPLEMENT A 1
</TABLE>
-iii-
<PAGE> 6
COTTER & COMPANY EMPLOYEES'
SAVINGS AND COMPENSATION DEFERRAL PLAN
(As Amended and Restated Effective April 1, 1994)
SECTION 1
Introduction
1.1. Purpose. COTTER & COMPANY EMPLOYEES' SAVINGS AND
COMPENSATION DEFERRAL PLAN (the "plan") is maintained by COTTER & COMPANY (the
"company") for eligible employees of the company and the eligible employees of
any other United States subsidiary of the company which adopts the plan, with
the consent of the company. The purpose of the plan is to provide for the
accumulation of funds from both employer and elective income deferral
contributions in order to provide retirement income to participants when they
retire from the employ of the employers, thereby providing for their future
financial security. The plan is designed as a qualified profit sharing plan
under the provisions of Sections 401(a) and 401(k) of the Internal Revenue Code
of 1986, as amended (the "Code").
1.2. Effective Date, Plan Year. The plan was originally
established effective January 1, 1976, and was last amended and restated
effective January 1, 1989. The "effective date" of the plan as set forth below
is April 1, 1994. A "plan year" means each calendar year.
-1-
<PAGE> 7
1.3. Employers. The company and any United States subsidiary
of the company which adopts the plan and trust with the consent of the company
are sometimes referred to hereinafter collectively as the "employers" and
individually as an "employer."
1.4. Plan Administration. The plan will be administered by a
committee (the "committee") appointed by the company, as described in Section
11. Participants will be notified of the identity of the committee members and
of any change in the membership of such committee.
1.5. Trustee, Trust Agreement, Trust Fund. Funds contributed
by the employers and participants under the plan will be held and invested in a
trust fund, until distributed, by a trustee (the "trustee") appointed by the
company. The trustee will act under a trust agreement between the employers
and the trustee. Participants will be notified of the identity of the trustee,
and of any change in trustee.
1.6. Examination of Plan Documents. Copies of the plan and
trust agreement, and any amendments thereto, will be made available at the
principal office of each employer where they may be examined by any participant
or beneficiary entitled to receive benefits under the plan. The provisions of
and benefits under the plan are subject to the terms and provisions of the
trust agreement.
-2-
<PAGE> 8
1.7. Notices. Any notice or document required to be given to
or filed with the committee shall be considered as given or filed if delivered
or mailed by registered mail, postage prepaid, addressed as follows:
Retirement Committee
Cotter & Company
2740 North Clybourn Avenue
Chicago, Illinois 60614
Attention: Mr. D. T. Burns
1.8. Gender and Number. Words in the masculine gender shall
include the feminine and neuter genders and, where the context admits, the
plural shall include the singular, and the singular shall include the plural.
-3-
<PAGE> 9
SECTION 2
Eligibility and Participation
2.1. Eligibility. Subject to the conditions and limitations
of the plan, each employee of an employer who was an active participant in the
plan immediately prior to the effective date will continue to participate in
this plan on and after the effective date. Each other employee of an employer
will become eligible to participate in the plan on the date he meets both of
the following requirements:
(a) He is a member of a group of employees to whom the
plan has been and continues to be extended by his
employer, either unilaterally or through collective
bargaining as described in Supplement A of the plan.
(b) He has completed one year of continuous employment
(as defined in subsection 2.2).
Each employee will be notified of the date on which he is eligible to become a
participant in the plan and will be furnished with a summary plan description
in accordance with governmental rules and regulations. An employee who would
be eligible to participate in the plan except for the requirements of
subparagraph 2.1(a) will be eligible to become a participant on the date he
satisfies the conditions for participation under such subparagraph and will be
eligible to make income deferral contributions (as defined in subsection 3.1)
on the first payment date (i.e., a date on which regular salary or compensation
payments are made to employees of an employer) coincident with or next
following the date he satisfies such conditions.
-4-
<PAGE> 10
2.2. Continuity of Employment. In determining an employee's
or participant's continuity of employment, the following rules shall apply:
(a) An employee's or participant's continuous employment
will be computed in terms of full and fractional
years of continuous employment, with fractional years
computed in completed days of employment, commencing
on the date an employee is first employed by an
employer (i.e., the date he first completes an hour
of service) or, if he has incurred a one-year break
in employment (as defined in subparagraph (g) below),
the date of his reemployment (i.e., the date he first
completes an hour of service upon reemployment).
(b) A leave of absence (as defined in subsection 2.3)
will not interrupt continuity of employment for
purposes of the plan.
(c) A period of concurrent employment with two or more
employers will be considered as employment with one
employer during that period and, to the extent
provided by the company in a written agreement, an
employee's employment with any predecessor to an
employer will be considered as employment with that
employer.
(d) The termination of any employee's employment with one
employer will not interrupt the continuity of his
employment or participation if, concurrently with or
immediately after such termination, he is employed by
one or more other employers.
(e) If a former employee of the employers is reemployed
by an employer before he has incurred a one-year
break in employment (as defined in subparagraph (g)
below), his employment with the employers will not be
deemed to have terminated.
(f) A period of employment with a controlled group member
which is not an employer will be considered a period
of employment with an employer for purposes of
determining
-5-
<PAGE> 11
years and days of continuous employment. A
"controlled group member" means any corporation or
other trade or business which is under common control
with an employer within the meaning of Sections
414(b), 414(c) and 414(m) of the Code.
(g) In determining continuous employment for an employee
or participant who incurs a one-year break in
employment and is reemployed by an employer or
controlled group member, continuous employment (both
before and after such one-year break in employment)
will be taken into account for plan purposes upon his
reemployment, except as follows:
If a former employee of the employers who is
not vested with respect to any portion of his
deferral account or employer account is
reemployed by an employer or controlled group
member after he has incurred five consecutive
one-year breaks in employment, his period of
continuous employment with the employers or
controlled group members prior to such five
consecutive one-year breaks in employment
shall be disregarded for purposes of
determining the vested portion of his
employer contribution upon his reemployment
if the consecutive number of his one-year
breaks in service equal or exceed his years
of continuous employment. In no event shall
a period of continuous employment after an
employee has incurred five consecutive
one-year breaks in employment be taken into
account in determining the vested portion of
his employer account attributable to
employment prior to such five-year break in
service.
A "one-year break in employment" will be deemed to
have occurred for each 12-month period commencing on
the date of an employee's termination of employment,
and on each anniversary thereof, during which such
employee is not employed by an employer or controlled
group member. In the case of a maternity or
paternity absence (as defined
-6-
<PAGE> 12
below), the 12-month period beginning on the first
day of such absence and the first anniversary thereof
shall not constitute one-year breaks in service. A
"maternity or paternity absence" means an employee's
absence from work because of the pregnancy of the
employee or birth of a child of the employee, the
placement of a child with the employee in connection
with adoption, or for purposes of caring for the
child immediately following such birth or placement.
An "hour of service" means each hour for which an employee is directly or
indirectly paid, or entitled to payment, by an employer for the performance of
duties, determined in accordance with Department of Labor Reg. Sec.
2530.200b-2. A "year of continuous employment" means 365 days of continuous
employment under this subsection.
2.3. Leave of Absence. A leave of absence will not interrupt
continuity of employment or participation in the plan. A "leave of absence"
for plan purposes means a leave of absence required by law or granted by an
employer on account of service in military or governmental branches described
in any applicable statute granting reemployment rights to employees who entered
such branches, or any other military or governmental branch designated by the
employers, and also means any other absence from active employment with an
employer under conditions which are not treated by the employer as a
termination of employment including, but not limited to, vacations, holidays,
maternity, illness, incapacity or jury duty. Leaves of absence will be
governed by rules uniformly applied to all
-7-
<PAGE> 13
employees similarly situated. If an employee or participant does not return to
work with an employer or controlled group member on or before termination of a
leave of absence, he will be considered to have resigned on the date his last
leave ended unless his employment actually terminated prior to the expiration
of such leave.
2.4. Reemployed Former Participant. If a former participant
in the plan who has completed the requirements of subparagraph 2.1(b) is
reemployed by an employer after incurring a one-year break in employment, he
will again become a participant in the plan on the date he meets the
requirements of subparagraphs 2.1(a) and (b) and will be eligible to make
income deferral contributions under subsection 3.1 on the first payment date
coincident with or next following the date he again becomes a participant, or
as soon as administratively feasible thereafter.
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SECTION 3
Income Deferral Contributions
3.1. Income Deferral Contributions. Subject to the
limitations of the plan, by writing filed with the committee, a participant may
defer payment of a percentage (in increments of one percent) of his
compensation ("income deferral contributions"), not exceeding ten percent (10%)
thereof, by electing to have such percentage withheld from his compensation and
contributed to the plan on his behalf by his employer. No participant may
elect to make income deferral contributions for any calendar year in excess of
$9,240 (or such other amount as determined for the applicable year pursuant to
Section 402(g)(5) of the Code). If income deferral contributions in excess of
the amount specified in the preceding sentence are contributed on behalf of any
participant for any calendar year, such "excess deferrals" shall be distributed
to that participant in accordance with subsection 3.3. The amounts withheld
from a participant's compensation pursuant to the participant's election shall
be contributed to the plan by the participant's employer and credited to his
deferral account as soon as practicable after being withheld but, in any event,
not later than 30 days following the end of the pay period for which such
contributions are made. A participant may elect to change the rate of his
deferrals by filing a new election in accordance with procedures determined by
the committee. A participant may
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<PAGE> 15
elect to suspend contributions at any time during a plan year. Any participant
who suspends making contributions may again resume making contributions on the
next payment date in accordance with procedures established by the committee.
Each election under this subsection shall be made at such time and in
accordance with such rules as the committee shall determine, pursuant to one of
the following methods: (i) in writing, by filing a written election form
specified by the committee, (ii) by telephone (to the extent permitted by law),
through a telephone system designated by the committee for this purpose, or
(iii) by any other method (to the extent permitted by law) designated by the
committee for this purpose.
3.2. Compensation and Adjusted Compensation. A participant's
"compensation" for any plan year means the total cash compensation (including
commissions, bonuses (other than sign-on bonuses), overtime pay, sick pay,
vacation pay and holiday pay) paid to him by the employers during that plan
year for services rendered to the employers as an employee and the amount of
any income deferral contributions made for such year under subsection 3.1., but
excluding severance pay, moving or relocation allowances or bonuses, tuition
reimbursements, auto or travel expense allowances or bonuses, any other
extraordinary remuneration paid during the period such participant is an active
participant making contributions to the plan, and, effective January 1, 1994,
excluding compensation in excess of
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$150,000 (or such other amount as permitted in regulations issued by the
Secretary of the Treasury pursuant to Section 401(a)(17) of the Code).
3.3. Limitations on Income Deferrals for Highly Compensated.
In no event shall the actual deferral percentage (as defined below) of the
highly compensated participants (as defined in subsection 3.4) for any plan
year exceed the greater of:
(a) the actual deferral percentage of all other
participants for such plan year multiplied by 1.25; or
(b) the actual deferral percentage of all other
participants for such plan year multiplied by 2.00;
provided that the actual deferral percentage of the
highly compensated participants does not exceed that
of all other participants by more than 2 percentage
points.
The "actual deferral percentage" of a group of participants for a plan year
means the average of the ratios (determined separately for each participant in
such group) of A to B where A equals the income deferral contributions credited
to each such participant's deferral account for each plan year and B equals the
participant's "compensation" for such plan year. For purposes of this
subsection, the term "compensation" shall mean compensation as defined in
Section 415(c)(3) of the Code, including income deferral contributions and
elective contributions made pursuant to Section 125 of the Code. The committee
shall determine from time to time based on the income deferral
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<PAGE> 17
elections then on file with the committee whether the foregoing limitations
will be satisfied and, to the extent necessary to insure compliance with such
limitation, shall reduce, on an individual-by-individual basis, for each highly
compensated participant who is exceeding such deferral percentage the
applicable percentage of income deferral contributions to be withheld for such
highly compensated participant beginning with the highly compensated
participant with the highest deferral percentage first and then reducing the
applicable percentage for each subsequent highly compensated participant until
such excess contributions are eliminated. In addition, if at any time a
portion of the income deferrals withheld from a highly compensated
participant's compensation cannot be credited to his deferral account because
the limitations described above would be applicable, such amounts will not be
considered contributions under subsection 3.1 and the amount of such excess
contributions (and any income allocable to such contributions) will be
distributed to such highly compensated participant no later than two and
one-half (2-1/2) months after the close of the plan year for which such excess
contribution was made. Similarly, if a portion of the income deferrals
withheld from a participant's compensation cannot be credited to his deferral
account because the limitation described in subsection 3.1 would be applicable,
such excess deferrals will not be considered contributions under subsection 3.1
and the amount of such excess deferrals (and any income allocable to
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such deferrals) will be distributed to such participant no later than two and
one-half (2-1/2) months after the close of the plan year for which such excess
deferrals were made. For purposes of determining the amount of any income for
a plan year attributable to any excess deferrals or any excess contributions by
a highly compensated participant to be returned to such participant, such
amount may be determined either (a) under any reasonable and nondiscriminatory
method used by the plan for allocating income to participants accounts, or (b)
under the following formula:
(i) first, the value of his deferral account as of the
beginning of the plan year and as of the last day of
the plan year shall be determined.
(ii) next, the gain or loss on such deferral account shall
be determined after first reducing the difference
between the balance of the account as at the end of
the year and the balance as at the beginning of the
year by income deferral contributions made for such
year.
(iii) finally, the amount calculated under paragraph (ii)
shall be multiplied by a fraction the numerator of
which is the excess income deferral contributions
made by the participant for such year and the
denominator of which is such participant's deferral
account as of the last day of such year, reduced by
the amount of any gain for such year and increased by
the amount of any loss for such year.
The actual deferral percentage of a highly compensated participant to whom the
family attribution rules described in subsection 3.4 apply shall be the actual
deferral ratio obtained by
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<PAGE> 19
aggregating the income deferral contributions and compensation of all family
members who are participants. Any excess income deferral contributions
attributable to family members will be allocated to each such family member in
the ratio of such family member's contribution to the total contribution by all
family members. For purposes of this subsection, certain former employees (as
determined under Section 414(q)(9) of the Code) shall be treated as employees
for purposes of determining highly compensated participants.
3.4. Highly Compensated Participants. For purposes of
subsections 3.3 and 5.3 of the plan, a "highly compensated participant" means
any participant who, during the current or immediately preceding plan year:
(a) was a 5 percent owner of an employer or controlled
group member;
(b) received annual compensation from an employer and/or
controlled group member of more than $99,000 (or such
other amount as determined under Section 414(q)(1)
for a plan year);
(c) received annual compensation from an employer and/or
controlled group member of more than $66,000 (or such
other amount as determined under Section 414(q)(1)
for a plan year) and was in the top-paid 20% of the
employees (excluding those employees excludable under
Section 414(q)(8) of the Code); or
(d) was an officer of an employer and/or control led
group member receiving annual compensation greater
than 50% of the limitation in effect under Section
415(b)(1)(A) of the Internal Revenue Code; provided,
that for purposes of this subparagraph (d),
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<PAGE> 20
no more than 50 employees (excluding those employees
excludable under Section 414(q)(8) of the Code) of
the employer (or if lesser, the greater of 3
employees or 10 percent of such employees) shall be
treated as officers.
A participant who is not a highly compensated participant under (b), (c) or (d)
above for the immediately preceding year will not be considered a highly
compensated participant for the current plan year under (b), (c) or (d) unless
such participant is included within the group of the 100 highest paid employees
of the employer and controlled group members for such current year. If any
participant is a family member of a highly compensated participant who is
either a 5 percent owner or one of the ten most highly compensated participants
with respect to any plan year, that participant shall not be treated as a
separate participant for purposes of this subsection and such individual's
compensation will be treated as if paid to such highly compensated participant;
provided that, a "family member" of a highly compensated participant means such
participant's spouse, lineal ascendants or descendants and the spouses of such
lineal ascendants or descendants. For purposes of this subsection,
"compensation" shall be defined as provided in subsection 3.3 of the plan.
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<PAGE> 21
SECTION 4
Participant Contributions
Effective as of July 1, 1992, no further participant
contributions (after-tax contributions made by participants) were permitted to
be made under the plan. Participant contributions made prior to July 1, 1992,
were subject to the limitations described in subsections 5.3 and 7.7 of the
plan, and were aggregated with matching employer contributions for purposes of
calculating those limitations, substituting the phrase "matching employer
contributions and participant contributions" for the phrase "matching employer
contributions" where appropriate.
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<PAGE> 22
SECTION 5
Employer Contributions
5.1. Matching Employer Contributions. Subject to the
limitations of the plan, for any plan year each employer may contribute to the
trustee as the "matching employer contribution" such amount as the employer may
determine and direct. Such contribution may, but need not, be made for a
participant in an amount equal to seventy-five percent (75%) of the first six
percent (6%) of income deferral contributions made on behalf of the participant
under subsection 3.1 for such period, reduced by any forfeitures to be credited
to such participant's employer account for the last payroll period as provided
under subsection 7.5. Each employer's total matching employer contribution
under the plan for any plan year shall be due on the last day of that plan year
and, if not paid by the end of that year, shall be payable to the trustee as
soon as practicable thereafter, without interest, but no later than the time
prescribed by law for filing the employer's federal income tax return for such
year, including extensions thereof. Matching employer contributions may, but
need not, be contributed to the trustee by an employer on a monthly basis.
5.2. Limitations on Employer Contributions. Each employer's
contributions for or during a plan year under subsection 5.1 shall be made from
net income (i.e., its net profits before any federal and state taxes on income)
for that
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<PAGE> 23
plan year, or its accumulated profits (i.e., its net profits after any federal
and state taxes on income which have been accumulated and retained in the
business), or both, as determined under generally accepted accounting
principles and practices. Each employer's contributions for a plan year are
conditioned on their deductibility under Section 404 of the Code in that year,
shall comply with the contribution limitations set forth in subsection 7.7 and
the allocation limitations contained in subsections 3.3 and 5.3, and, unless an
employer specifies otherwise, shall not exceed an amount equal to the maximum
amount deductible on account thereof by the employer for its fiscal year for
purposes of federal taxes on income.
5.3 Limitations on Matching Employer Contributions. In no
event shall the contribution percentage (as defined below) of the highly
compensated participants (as defined in subsection 3.4) for any plan year
exceed the greater of:
(a) the contribution percentage of all other participants
for such plan year multiplied by 1.25; or
(b) the contribution percentage of all other participants
for such plan year multiplied by 2.00; provided that
the contribution percentage of the highly compensated
participants does not exceed that of all other
participants by more than 2 percentage points.
The "contribution percentage" of a group of participants for a plan year means
the average of the ratios (determined sepa-
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<PAGE> 24
rately for each participant in such group) of A to B where A equals the
matching employer contributions under subsection 5.1, if any, credited to such
participant's accounts for such plan year and B equals the participant's
compensation (as defined in subsection 3.3) for such plan year. The committee
shall determine from time to time based on such participant's matching employer
contributions whether the foregoing limitations will be satisfied and, to the
extent necessary to ensure compliance with such limitation, shall reduce, on an
individual-by-individual basis, for each highly compensated participant who is
exceeding such contribution percentage, the matching employer contributions to
be contributed for such highly compensated participants, beginning with the
highly compensated participant with the highest matching employer contributions
first and then reducing the applicable percentage for each subsequent highly
compensated participant until such contribution percentage satisfies the
foregoing test. Effective January 1, 1987, if, because of the foregoing
limitations, a portion of the matching employer contributions made on behalf of
a highly compensated participant may not be credited to his account for a plan
year, such portion and the income thereon (the "excess aggregate
contributions"), shall not be considered vested in accordance with subsection
8.2 and shall be treated as a forfeiture in accordance with the provisions of
subsection 8.3. The determination of any excess aggregate contributions under
this subsection shall be made after determining any
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<PAGE> 25
excess income deferral contributions under subsection 3.3. Income on such
excess aggregate contributions shall be calculated in the same manner as
provided in subsection 3.3 except that such calculations shall be made using
the participant's employer account balance, matching employer contributions
made on his behalf, and the excess aggregate contributions made for such plan
year. In the event that both the actual deferral percentage and the
contribution percentage do not satisfy the requirements of subparagraphs 3.3(a)
and 5.3(a) above, the following additional limitation shall apply to employer
matching contributions of highly compensated participants under the plan:
After the appropriate tests under subparagraphs 3.3(a) or (b) above and
subparagraphs 5.3(a) or (b) have been made and any excess income deferral
contributions have been returned to the participant and any excess employer
matching contributions have been forfeited or distributed to the participant,
the "Aggregate Limit" test will be applied. The "Aggregate Limit" means the
greater of:
(1) the sum of:
(i) 125 percent of the greater of the actual deferral
percentage or the contribution percentage for
participants who are not highly compensated
participants; and
(ii) the lesser of
(A) the actual deferral percentage or the
contribution percentage, whichever is smaller, for
participants who are not highly compensated
participants plus two (2) percentage points or
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<PAGE> 26
(B) 200 percent of the actual deferral percentage or
contribution percentage, whichever is smaller, for
participants who are not highly compensated
participants; or
(2) the sum of:
(i) 125 percent of the lesser of the actual deferral
percentage or the contribution percentage for
participants who are not highly compensated
participants; and
(ii) the lesser of
(A) the actual deferral percentage or the
contribution percentage, whichever is
greater, for participants who are not highly
compensated participants plus two (2)
percentage points, or
(B) 200 percent of the actual deferral percentage
or contribution percentage, whichever is
greater, for participants who are not highly
compensated participants.
If the sum of the actual deferral percentage and the contribution percentage
for the highly compensated participants exceeds the Aggregate Limit, employer
matching contributions will be further reduced until the Aggregate Limit test
is satisfied.
5.4. Verification of Employer Contributions. A certificate
of an independent certified public accountant selected by the employer shall be
conclusive on all persons as to the amount of an employer's contributions under
the plan for any plan year.
5.5. No Interest in Employers. The employers shall have no
right, title or interest in the trust fund, nor will
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<PAGE> 27
any part of the trust fund at any time revert or be repaid to an employer,
unless:
(a) the Internal Revenue Service determines that the plan
does not meet the requirements of Section 401(a) of
the Internal Revenue Code of 1986, in which event
contributions made to the plan by such employer
conditioned upon such qualification shall be returned
to the employer within one year after the date notice
of such determination is issued to the employer; or
(b) a contribution is made by such employer by mistake of
fact and such contribution is returned to the
employer within one year after payment to the
trustee; or
(c) a contribution is disallowed as an expense for
federal income tax purposes and such contribution (to
the extent disallowed) is returned to the employer
within one year after the disallowance of the
deduction.
The amount of any contribution that may be returned to an employer pursuant to
subparagraph (b) or (c) above shall be reduced by any portion thereof
previously distributed from the trust fund and by any losses of the trust fund
allocable thereto and in no event may the return of such contribution cause any
participant's account balances to be less than the amount of such balances had
the contribution not been made under the plan.
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<PAGE> 28
SECTION 6
Period of Participation
6.1. Termination Date. A participant's "termination date"
will be the date on which his employment with the employers is terminated
because of the first to occur of the following:
(a) Normal or Late Retirement. The date of the
participant's retirement on or after attaining age 65
years (his "normal retirement age"). A participant's
right to all account balances shall be nonforfeitable
on and after his normal retirement age.
(b) Early Retirement. The date of the participant's
retirement on or after attaining age 55 years but
before attaining age 65 years if the participant has
completed three years of continuous employment.
(c) Disability. The date the participant terminates
employment with all of the employers at any age
because of disability (physical or mental). A
participant will be considered disabled for purposes
of this subparagraph if, on account of a disability,
he is entitled to receive disability benefits under
the Social Security Act or is entitled to receive
disability benefits under the Cotter & Company Long
Term Disability Plan. A participant will be
considered to have terminated employment with all of
the employers for purposes of this subparagraph if he
is no longer on the payroll of (and performing
services for) any of the employers.
(d) Death. The date of the participant's death.
(e) Resignation or Dismissal. The date the participant
resigns or is dismissed from the employ of all of the
employers before attaining early or normal retirement
and
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<PAGE> 29
for a reason other than disability or death.
If a participant is transferred from employment with an employer to employment
with a controlled group member which is not an employer, his termination date
will not be considered to have occurred until his employment with all employers
and controlled group members has terminated but his participation in the plan
will be restricted as provided in subsection 6.2.
6.2. Restricted Participation. If (i) payment of all of a
participant's account balances is not made prior to the accounting date next
following his termination date, or (ii) a participant transfers to a controlled
group member which is not an employer, or (iii) a participant transfers to a
group or class of employees who are not eligible to participate in the plan
pursuant to the requirements of subparagraph 2.1(a), the participant or his
beneficiary will be treated as a participant for all purposes of the plan,
except as follows:
(a) The participant may not make income deferral
contributions and will not share in employer matching
contributions and forfeitures (as defined in
subsection 8.3) under Section 5 after his termination
date, or during any period described in (i), (ii) or
(iii) above, except as provided in subsection 7.5.
(b) The beneficiary of a deceased participant cannot
designate a beneficiary under subsection 8.6.
If such participant subsequently again satisfies the requirements for
participation in the plan, he will become an active
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<PAGE> 30
participant in the plan on the date he satisfies the requirements of
subparagraphs 2.1(a) and (b) and will be eligible to make income deferral
contributions on that date, or as soon as administratively feasible after that
date.
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SECTION 7
Accounting
7.1. Separate Accounts. The committee will maintain the
following accounts in the name of each participant:
(a) Deferral Account. If a participant elects to make
income deferral contributions under subsection 3.1 of
the plan, this account will reflect such
contributions and the income, losses, appreciation
and depreciation attributable thereto.
(b) Savings Account. This account will reflect
participant contributions made prior to July 1, 1992,
and the income, losses, appreciation and depreciation
attributable thereto. Such account will consist of
two sub-accounts--one to reflect contributions made
prior to January 1, 1987 (and the income, losses,
appreciation and depreciation thereon) and the other
to reflect contributions made after December 31, 1986
and before July 1, 1992 (and the income, losses,
appreciation and depreciation thereon).
(c) Employer Account. If a participant has elected to
make income deferral contributions under the plan,
this account will reflect the matching employer
contributions made on behalf of the participant under
subsection 5.1 of the plan and certain forfeitures
arising under the plan, and the income, losses,
appreciation and depreciation attributable thereto.
Such account will consist of two sub-accounts--one to
reflect matching employer contributions made prior to
July 1, 1992 and certain forfeitures arising under
the plan, and the income, losses, appreciation and
depreciation attributable thereto (known as the
"Employer Account 1"), and the other to reflect
matching employer contributions made on or after July
1, 1992 and certain forfeitures arising under the
plan, and the income, losses, appreciation and
deprecia-
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<PAGE> 32
tion attributable thereto (known as the "Employer
Account 2").
(d) Rollover Account. If a participant has elected to
roll over or transfer amounts from another qualified
plan as provided in Section 10, this account will
reflect such amounts and the income, losses,
appreciation and depreciation attributable thereto.
The committee also may maintain such other accounts (including accounts
reflecting amounts invested in any particular investment fund) in the names of
participants or otherwise as it considers advisable. Unless the context
indicates otherwise, references in the plan to a participant's "accounts" means
all accounts maintained in his name under the plan.
7.2. Accounting Dates. A "regular accounting date" is the
last day of each month, and any other date designated by the committee in its
discretion. A "special accounting date" is any date designated as such by the
committee and a special accounting date occurring under subsection 13.4. The
term "accounting date" includes both a regular accounting date and a special
accounting date.
7.3. Employer Contributions Considered Made on Last Day of
Plan Year. For purposes of this Section 7, each employer's contributions for
any plan year under subsection 5.1 will be considered to have been made on the
last day of that year, regardless of when paid to the trustee.
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7.4. Adjustment of Participants' Accounts. As of each
accounting date, the committee shall adjust the participants' accounts in the
investment funds as follows: charge (or credit) to the proper accounts all
withdrawals, distributions, loans or transfers made since the last preceding
accounting date that have not been charged (or credited) previously, credit
each participant's account with its pro rata share of any increase, or charge
the account with its pro rata share of any decrease, in the value of the
"adjusted net worth," as defined below, of the investment fund as of that date
that has not been credited or charged previously, credit participants' income
deferral contributions, if any, that are to be credited to the proper accounts
as of that date in accordance with subsection 3.1 that have not been credited
previously, and credit matching employer contributions and forfeitures, if any,
that are to be credited as of that date in accordance with subsection 7.5 that
have not been credited previously. The "adjusted net worth" of an investment
fund as at any accounting date means the then net worth of that fund (that is,
the fair market value of the fund, less its liabilities other than liabilities
to persons entitled to benefits under the plan) as reported to or determined by
the trustee, less an amount equal to the sum of the portions of the income
deferral contributions and matching employer contributions paid to the trustee
which are invested in that fund and which have not been credited to the
accounts of participants as of a prior
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<PAGE> 34
accounting date. Each participant's accounts will reflect the amounts invested
in each investment fund or funds established under the plan.
7.5. Allocation of Matching Employer Contributions and
Forfeitures. Subject to subsection 7.7, each employer's matching employer
contribution under subsection 5.1 of the plan will be allocated and credited to
the employer accounts of participants in accordance with subsection 5.1.
Contributions made in accordance with subsection 5.1 during the plan year to
which they relate shall be allocated and credited to participants' accounts as
soon as practicable after the end of the month in which such contributions are
made, but not later than the time for filing the employer's federal income tax
return for such year (including extensions thereof). Contributions made in
accordance with subsection 5.1 that are made after the plan year to which they
relate shall be allocated and credited to participants' accounts no later than
the time for filing the employer's federal income tax return for such year
(including extensions thereof). Forfeitures which are used to reduce an
employer's matching contribution will be allocated and credited to the employer
accounts of participants as of the end of the plan year to which they relate.
7.6. Statement of Accounts. Each participant will be
furnished with a statement reflecting the condition of his accounts in the
trust fund as of the last day of each plan year
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<PAGE> 35
or more frequently, if so provided by the committee. No participant, except
one authorized by the committee, shall have the right to inspect the records
reflecting the accounts of any other participant.
7.7. Contribution Limitations. Notwithstanding any
provisions in the plan to the contrary, for plan years beginning January 1,
1987, the following limitations shall apply to each participant in the plan:
(a) If such participant is not an active participant in
any other defined contribution or defined benefit
plan (as defined in Section 415(k) of the Internal
Revenue Code of 1986) maintained by an employer or a
controlled group member which is not an employer, the
maximum "annual additions" (as defined below) to such
participant's accounts for any plan year shall not
exceed the lesser of $30,000 (or, if greater, 1/4 of
the dollar limitation in effect under Section
415(b)(1)(A) of the Code for the calendar year which
begins with or within that plan year) or 25 percent
of the participant's compensation for the plan year.
A participant's "annual additions" shall mean the sum
of (i) employer contributions to be allocated and
credited to his employer account for the year, (ii)
any forfeitures to be allocated and credited to his
employer account for the year, (iii) any income
deferral contributions credited to his deferral
account for the year, and (iv) participant
contributions credited to his savings account for
such year (subject to Section 4). For purposes of
this subsection, "compensation" means compensation as
defined for purposes of Section 415 of the Internal
Revenue Code.
(b) If such participant is an active participant in any
other defined contribution plan maintained by an
employer or a controlled group member which is not an
employer, the
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<PAGE> 36
maximum "annual additions" provided in subparagraph
(a) above shall apply to this plan and all such other
defined contribution plans as if all such plans were
one plan.
(c) If such participant is an active participant in any
other defined benefit plan maintained by an employer
or a controlled group member which is not an
employer, the limitation provided in subparagraph (a)
or (b) above, whichever is applicable, shall apply,
and, in addition, the following additional limitation
shall be applicable. If such participant's "defined
contribution fraction" (as described below) when
added to his "defined benefit fraction," determined
under such other defined benefit plan as of the end
of each plan year, exceeds 1.0 as calculated under
Section 415(e) of the Code, the annual additions
under this plan, the annual additions under such
other defined contribution plan, or the annual
benefit expected to be paid under the defined benefit
plan shall be adjusted, in the sole discretion of the
plan administrators under the plans, so that the
defined contribution fraction when added to the
defined benefit fraction will not exceed 1.0. A
participant's defined contribution fraction as of the
end of any plan year shall consist of a numerator
which is the sum of the annual additions to such
participant's accounts for all years, computed under
subparagraph (a) or (b) above, whichever is
applicable, and the denominator of which is the sum
of the adjusted limitations for each year of such
participant's service with the employers or
controlled group members. For purposes of this
subparagraph the "adjusted limitation" for a year
shall mean the lesser of: (i) $30,000 (or, if
greater, 1/4 of the dollar limitation in effect under
Section 415(b)(1)(A) of the Code for the calendar
year which begins with or within that plan year)
multiplied by 125 percent and, (ii) 25 percent of
such participant's compensation for such year
multiplied by 140 percent.
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<PAGE> 37
If, as a result of the limitations provided above, any contributions cannot be
credited to a participant's deferral account, the committee, after consulting
with the participant, may in its sole discretion:
(a) Reduce any future income deferral contributions to be
made by the participant for such plan year.
(b) Return to the participant any income deferral
contributions which, because of the limitations
contained in this subsection, cannot be credited to
his accounts for the year, along with any interest or
earnings allocable thereto.
Any employer matching contributions which cannot be credited to a participant's
accounts because of the foregoing limitations will be used to reduce employer
matching contributions for the next plan year (and succeeding plan years in
order of time).
7.8. Investment Funds. The trust fund shall consist of such
investment fund(s) as the committee shall determine from time to time. Pending
investment, reinvestment or distribution as provided in the plan, the trustee
may temporarily retain the assets of any one or more of the investment funds in
cash, commercial paper, short-term obligations or undivided interests or
participations in common or collective short-term investment funds. Any
investment fund may be partially or totally invested in any common or
commingled trust fund, in any group annuity, deposit administration or separate
account contract issued by a legal reserve life insurance company which is
invested generally in property of the kind specified for the
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investment fund, in mutual funds, or in any other property so specified by the
committee. The committee, in its discretion, may direct the trustee to
establish investment funds or terminate investment funds as it shall from time
to time consider appropriate and in the best interest of participants. The
funds established hereunder may be referred to collectively as the "investment
funds" and individually as an "investment fund." Investment funds will be
described in materials provided under the summary plan description for this
plan or in investment materials supplementing the summary plan description.
Each participant may elect to have a percentage (in increments of 1%) or all of
his income deferral contributions and matching employer contributions invested
in one or more investment funds determined by the committee from time to time.
A participant may change a percentage designation made by him with respect to
the investment of his accounts and such change of designation will apply to any
amounts credited to such accounts on and after the date that such change is
implemented by the trustee. If no new election is in effect with respect to a
participant, such participant's income deferral contributions and matching
employer contributions will be invested according to the most recent election
made by such participant. Notwithstanding the foregoing, for the period
beginning July 2, 1992 and ending December 31, 1993, each election was
effective on the January 1 or July 1 (after all adjustments as of the next
preceding accounting date were made) immediately following
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the date such election was filed. Subject to any restrictions on the transfer
from or to a particular investment fund which may be established by the
committee, each participant may elect to transfer amounts credited to his
account under one investment fund to his account under any other investment
fund, in increments of 1% of such participant's account balances. Such
transfers (the number and freqency of which shall be established from time to
time by the committee) will occur as of any accounting date or as soon as
practicable thereafter provided that the participant makes his transfer
election according to procedures established by the committee for this purpose.
Subject to such rules and restrictions as the committee may establish, any
election described in this subsection shall be made pursuant to one of the
following methods as determined by the committee in its sole discretion: (i)
in writing, by filing a written election form specified by the committee, (ii)
by telephone (to the extent permitted by law), through a telephone system
designated by the committee for this purpose, or (iii) by any other method (to
the extent permitted by law) designated by the committee. If the committee in
its discretion determines that elections under this subsection shall be made in
a manner other than in writing, any participant who makes an election pursuant
to such method shall receive written confirmation of such election; further,
any such election and confirmation will be the equivalent of a writing for all
purposes.
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7.9. Transition Rules. Notwithstanding any plan provisions
to the contrary, the following transition rules shall apply with respect to
plan investments and accounting:
(a) The subaccounts of any participant invested in the
Equity Fund and the Balanced Fund offered under the
plan immediately prior to April 1, 1994 (and commonly
referred to as the Twentieth Century Fund and the
Strong Total Return Fund) will be transferred
effective as of such date to the Fidelity Magellan
Fund, and the subaccounts of any participant invested
in the Interest Income Fund will be maintained in
such fund, but such fund will be merged with and
renamed the Fidelity Managed Income Portfolio
(Blended with Existing GICs).
(b) The accounting provisions of the plan in effect prior
to April 1, 1994, including procedures for
participant investment elections and any other plan
provisions affected thereby, shall continue to apply
for any reasonable period of time after January 1,
1994 as the committee may consider necessary and
desirable for transition purposes until the committee
fully implements the provisions of the plan as of
April 1, 1994.
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SECTION 8
Payment of Account Balances
8.1. Retirement, Disability or Death. If a participant's
employment with all of the employers and controlled group members is terminated
because of retirement or disability under subparagraph 6.1(a), (b) or (c), or
if a participant dies while in the employ of an employer, the balances in all
of his accounts as at the accounting date coincident with or next following his
termination date (after all adjustments required under the plan as of that date
have been made) shall be nonforfeitable and shall be distributable to him or,
in the event of his death, to his beneficiary, under subsection 8.4.
8.2. Resignation or Dismissal. If a participant resigns or
is dismissed from the employ of all of the employers before retirement or
disability under subparagraph 6.1(a), (b) or (c), the balances in his deferral
account and savings account as at the accounting date coincident with or next
following his termination date (after all adjustments required under the plan
as of that date have been made) shall be nonforfeitable and shall be
distributable to him under subsection 8.4. The balance in his employer account
as at the accounting date coincident with or next following his termination
date (after all adjustments required under the plan as of that date have been
made) shall be reduced to an amount computed in accordance with the following
schedule:
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(a) All matching employer contributions made prior to
July 1, 1992 and allocated to Employer Account 1 are
100% vested.
(b) All matching employer contributions made on or after
July 1, 1992 and allocated to Employer Account 2 are
vested in accordance with the following schedule:
<TABLE>
<CAPTION>
Years of continuous
employment under Vested Percentage of
subsection 2.2 employer account
------------------- --------------------
<S> <C>
Less than 1 0%
1 to 2 20%
2 to 3 40%
3 to 4 60%
4 to 5 80%
5 or more 100%
</TABLE>
The resulting balance in his employer account shall be distributable to the
participant under subsection 8.4.
8.3. Forfeitures. As of the accounting date coincident with
the end of the plan year in which distribution of a participant's benefits
occurs (or in which the participant incurs five consecutive one-year breaks in
service, if earlier), the amount by which the participant's employer account is
reduced under subsection 8.2 shall be treated as a "forfeiture." Prior to that
date, all of a participant's accounts shall be subject to adjustment under
subsection 7.1. A forfeiture will be used to reduce the employer's
contribution otherwise required under subsection 5.1 and shall be credited to
the employer accounts of other participants in accordance with that subsection.
If a participant has received a distribution of his benefits and is reemployed
by an employer or
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controlled group member before he incurs five consecutive one-year breaks in
employment, any forfeiture attributable to such participant shall be recredited
to such participant's employer account on the accounting date coincident with
or next following the date of such participant's reemployment if such
participant repays to the trustee within five years of his date of reemployment
the total amount of his distribution from his employer account.
8.4. Manner of Distribution. After each participant's
termination date, and subject to the conditions set forth below and in
subsections 8.5 and 8.9, distribution of the net credit balance in the
participant's accounts will be made to or for the benefit of the participant
or, in the case of his death, to or for the benefit of his beneficiary, in the
following method:
(a) By payment in a lump sum; or
(b) In the case of a participant (or beneficiary) with an
account balance on January 1, 1989, by payment in a
series of quarterly installments over a period of
fifteen years (or, if less, the life expectancy of
the participant and his designated beneficiary;
provided that, if such beneficiary is not the
participant's spouse and is more than ten years
younger than the participant, the installments shall
be paid over a period not exceeding the joint life
expectancy of the participant and a beneficiary ten
years younger than the participant).
The participant may elect the method of distributing his benefits to him. The
life expectancy of a participant, his spouse
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or his designated beneficiary shall be determined by use of the expected return
multiples contained in the regulations issued under Section 72 of the Internal
Revenue Code. Life expectancies shall not be recalculated. If a participant
dies after his required commencement date (as defined in subsection 8.5), the
remaining portion of his benefits will be distributed over a period not
exceeding the period over which payments were being made to the participant.
If a participant dies before his required commencement date, his benefits will
be distributed over a period not exceeding the greatest of:
(i) Five years from the death of the participant;
(ii) In the case of payments to a designated beneficiary
other than the participant's spouse, the life
expectancy of such beneficiary, provided payments
begin within one year of the participant's death; or
(iii) In the case of payments to the participant's spouse,
the life expectancy of such spouse, provided payments
begin by the date the participant would have attained
age 70-1/2.
Any participant who elected by filing a written designation with the committee
prior to January 1, 1984 to have distribution of his account balances made in
accordance with the terms and provisions of the plan as in effect immediately
before January 1, 1984 will have distributions made in accordance with such
election. All distributions under the plan shall comply with the requirements
of Section 401(a)(9) of the Code and the regulations thereunder.
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8.5. Commencement of Distributions. Except as provided in
the following sentence, payment of a participant's benefits will be made (or
installment payments will commence) within a reasonable time after his
termination date, but not later than 60 days after (a) the end of the plan year
in which his termination date occurs, or (b) such later date on which the
amount of the payment can be ascertained by the committee. For purposes of
this subsection, if the value of a participant's nonforfeitable account balance
is zero, the participant shall be deemed to have received a distribution of
such nonforfeitable account balance. Notwithstanding the foregoing, no
distribution will be made to a participant without the participant's written
consent prior to the participant's normal retirement date (as defined in
subparagraph 6.1(a)) if the nonforfeitable balance in his accounts at his
termination date (after any required adjustments) exceeds or ever has exceeded
$3,500. If a participant does not consent to a distribution at the time of his
termination of employment, his benefits shall continue to be held under the
plan until his normal retirement date. Distribution of a participant's
benefits shall be made by April 1 of the calendar year next following the
calendar year in which the participant attains age 70-1/2 (his "required
beginning date") unless such participant's election under subsection 8.4 prior
to January 1, 1984 is in effect.
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8.6. Designation of Beneficiary. Each participant from time
to time, by signing a form furnished by the committee, may designate any person
or persons (who may be designated concurrently, contingently or successively)
to whom his benefits are to be paid if he dies before he receives all of his
benefits. A beneficiary designation form will be effective only when the form
is filed with the committee while the participant is alive and will cancel all
beneficiary designation forms previously filed with the committee.
Notwithstanding the foregoing, if a participant is legally married at his
death, his spouse will be the sole beneficiary for any benefits payable under
the plan upon the participant's death unless such spouse consents to another
designated beneficiary (or the consent of the spouse expressly permits any
designations or changed designations by the participant without any requirement
of further consent by the spouse). Such a consent will be effective only if it
acknowledges the specific beneficiary and the effect of the beneficiary
designation and is witnessed by a plan representative or a notary public. If a
participant designates someone other than (or in addition to) his spouse as his
primary beneficiary, and his spouse does not (or cannot) consent and is living
at his death, the participant's beneficiary designation shall be ineffective,
and his benefits shall be distributed to his spouse. If a deceased participant
failed to designate a beneficiary as provided above, or if the designated
beneficiary dies before the participant or before com-
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<PAGE> 47
plete payment of the participant's benefits, the committee, in its discretion,
may direct the trustee to pay the participant's benefits as follows:
(a) To or for the benefit of any one or more of his
relatives by blood, adoption or marriage and in such
proportions as the committee determines; or
(b) To the legal representative or representatives of the
estate of the last to die of the participant and his
designated beneficiary.
The term "designated beneficiary" as used in the plan means the person or
persons (including a trustee or other legal representative acting in a
fiduciary capacity) designated by a participant as his beneficiary in the last
effective beneficiary designation form filed with the committee under this
subsection and to whom a deceased participant's benefits are payable under the
plan. The term "beneficiary" as used in the plan means the natural or legal
person or persons to whom a deceased participant's benefits are payable under
this subsection. The term "spouse" as used in this subsection means the spouse
to whom the participant was married at the earlier of the date of his death or
the date payment of his benefits commenced, and who is living at the date of
the participant's death.
8.7. Missing Participants or Beneficiaries. Each participant
and each designated beneficiary must file with the committee from time to time
in writing his post office address and each change of post office address. Any
communication,
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statement or notice addressed to a participant or beneficiary at his last post
office address filed with the committee, or if no address is filed with the
committee then, in the case of a participant, at his last post office address
as shown on the employer's records, will be binding on the participant and his
beneficiary for all purposes of the plan. Neither the employers nor the
committee will be required to search for or locate a participant or
beneficiary. If the committee notifies a participant or beneficiary that he is
entitled to a payment and also notifies him of the provisions of this
subsection, and the participant or beneficiary fails to claim his benefits or
make his whereabouts known to the committee within three years after the
notification, the benefits of the participant or beneficiary will be disposed
of, to the extent permitted by applicable law, as follows:
(a) If the whereabouts of the participant then is unknown
to the committee but the whereabouts of the
participant's spouse then is known to the committee,
payment will be made to the spouse;
(b) If the whereabouts of the participant and his spouse,
if any, then is unknown to the committee but the
whereabouts of the participant's designated
beneficiary then is known to the committee, payment
will be made to the designated beneficiary;
(c) If the whereabouts of the participant, his spouse and
the participant's designated beneficiary then is
unknown to the committee but the whereabouts of one
or more relatives by blood, adoption or marriage of
the participant is known to the committee, the
committee may direct the trustee to pay the
participant's benefits
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to one or more of such relatives and in such
proportions as the committee decides; or
(d) If the whereabouts of such relatives and the
participant's designated beneficiary then is unknown
to the committee, the benefits of such participant or
beneficiary will be disposed of in an equitable
manner permitted by law under rules adopted by the
committee.
8.8. Facility of Payment. When a person entitled to benefits
under the plan is under legal disability, or in the committee's opinion, is in
any way incapacitated so as to be unable to manage his financial affairs, the
committee may direct the trustee to pay the benefits to such person's legal
representative, or to a relative or friend of such person for such person's
benefits, or the committee may direct the application of such benefits for the
benefit of such person. Any payment made in accordance with the preceding
sentence shall be a full and complete discharge of any liability for such
payment under the plan.
8.9. Direct Transfer of Eligible Rollover Distributions.
Effective as of January 1, 1993, if payment of benefits to an "eligible
distributee" (i.e., a participant, a participant's surviving spouse, or the
spouse or former spouse of the participant who is an alternate payee under a
qualified domestic relations order (as defined in Section 414(p) of the
Internal Revenue Code)) constitutes an eligible rollover distribution under
Section 402(c)(4) of the Internal Revenue Code,
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then the eligible distributee may elect to have such distribution paid directly
to an eligible retirement plan described in Section 402(c)(8)(B) of the
Internal Revenue Code (except that, in the case of an eligible rollover
distribution to a participant's surviving spouse, the definition of an
"eligible retirement plan" is limited to an individual retirement account or
individual retirement annuity). Each election by an eligible distributee under
this subsection 8.9 shall be made at such time and in such manner as the
committee shall determine, and shall be effective only in accordance with such
rules as shall be established from time to time by the committee.
8.10. Distribution to Alternate Payees. The committee may
direct the trustee to distribute benefits to an alternate payee on the earliest
date specified in a qualified domestic relations order, without regard to
whether such distribution is made or commences prior to the participant's
earliest retirement age (as defined in Section 414(p)(4)(B) of the Internal
Revenue Code) or the earliest date that the participant could commence
receiving benefits under the plan.
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SECTION 9
Loans and Withdrawals
9.1 Loans to Participants. While it is the primary purpose
of the plan to accumulate funds for participants when they retire, it is
recognized that under some circumstances it is in the best interests of
participants to permit loans to be made to them. Accordingly, the trustee,
pursuant to such rules as the committee may from time to time establish and
upon application by a participant supported by such evidence as the committee
may request, may make a loan to a participant subject to the following:
(a) Subject to the provisions of this subsection, each
participant may borrow from his accounts by notifying
the trustee according to such procedures as the
committee may determine from time to time. Effective
October 19, 1989, the minimum amount which can be
borrowed for any loan will be $1,000. Each
participant must agree to have such loan repaid
through payroll deduction in equal semi-monthly or
weekly installments, as established by the committee.
The committee may charge a loan processing fee in
such amount as the committee determines. Except for
special rules in effect for participants in the plan
prior to July 1, 1990, if a participant has a loan
outstanding, such participant may borrow additional
amounts from the plan only if the prior loan is
repaid in full. Partial prepayment of principal will
not be permitted, but after the first three months of
a loan period the entire unpaid balance of a loan and
the accrued interest thereon may be repaid.
(b) The principal amount of any loan made to a
participant, when added to the outstanding
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balance of all other loans made to the participant
from all qualified plans maintained by the employers,
shall not exceed the lesser of: (i) $50,000, reduced
by the excess, if any, of the highest outstanding
balance during the one-year period ending immediately
preceding the date of the loan over the outstanding
balance on the date of the loan; or (ii) 50 percent
of the amount to which the participant would be
entitled under all such plans if he were to terminate
his employment with the employers on the date the
loan is made.
(c) Each loan must be evidenced by a written note in a
form approved by the committee, shall bear interest
at a reasonable rate specified by the committee,
shall provide for repayment of principal and interest
by regular payroll deduction (but, in any event, not
less frequently than quarterly) and shall be secured
by the participant's account balances.
(d) Each loan shall specify a repayment period which
shall not be more than 60 months for general purposes
and not more than 180 months for loans used to
acquire any dwelling unit which within a reasonable
time is to be used (determined at the time the loan
is made) as the principal residence of the
participant. Amounts borrowed by the participant
will be charged to the accounts of the participant in
the following order: first, his deferral account,
next, his employer account, next, his rollover
account, and finally, his savings account. Amounts
charged to each participant's account shall be
charged to the investment fund subaccounts on a pro
rata basis. Amounts repaid by the participant will
be recredited to the participant's accounts in the
following order: first, his savings account, next,
his rollover account, next, his employer account, and
finally, his deferral account. Amounts recredited to
each participant's account shall be credited to the
investment fund subaccounts in the same proportion as
the amounts allocated
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to each investment fund subaccount of the participant
on the date the loan amounts are recredited.
(e) If, on a participant's termination date, any loan or
portion of a loan made to him under the plan,
together with the accrued interest thereon, remains
unpaid, the entire amount of the unpaid loan and
accrued interest shall be due and payable by the
participant; provided that, if such amount is not
repaid, an amount equal to such loan or any part
thereof, together with the accrued interest thereon,
shall be charged to the participant's accounts after
all other adjustments required under the plan, but
before any distribution pursuant to subsection 8.4.
(f) Any loan made under the plan on or before December
31, 1986 shall be governed by the terms and
conditions of the plan as in effect on the date of
such loan. This subparagraph shall not apply to any
loans renegotiated, extended, revised or renewed
after December 31, 1986.
9.2. Withdrawal of Participant Contributions. A participant
may elect to withdraw any portion of his savings account, but not less than the
lesser of (i) $500.00 or (ii) his entire savings account balance. Each
election by a participant under this subsection shall be made at such time and
in such manner as the committee shall determine.
9.3. Withdrawal of Income Deferral Contributions. With the
consent of the committee, a participant may elect to withdraw any income
deferral contributions made by such participant necessary because of a
"hardship" (as defined below) causing an immediate and heavy financial need on
the partici-
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<PAGE> 54
pant. For purposes of this subsection a hardship shall include:
(a) Medical expenses incurred (or not yet incurred but
necessary to obtain such medical care) by the
participant, the participant's spouse or the
participant's dependents (as defined in Section 152
of the Internal Revenue Code) which are not
reimbursed by insurance;
(b) Purchase of a principal residence for the
participant, excluding mortgage payments;
(c) Payment of tuition and related educational fees for
the next twelve months of post-secondary education
for the participant or the participant's spouse,
children or dependents; or
(d) The need to prevent the eviction of the participant
from his principal residence or foreclosure under the
mortgage on the participant's principal residence.
A withdrawal will be considered necessary to satisfy an immediate and heavy
financial need only if (i) the distribution does not exceed the amount
necessary for the immediate and heavy financial need of the participant (which
amount may include amounts necessary to pay any federal, state or local income
taxes or penalties reasonably anticipated to result from the withdrawal); (ii)
the participant has received all other available distributions and loans under
this plan or any other qualified retirement plan maintained by the employers;
(iii) the participant may not make income deferral contributions to the plan
for the twelve-month period after receipt of the hardship distribution; and
(iv) the participant may not make income deferral contributions for the
calendar year
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following the calendar year in which such hardship withdrawal is made in excess
of the maximum permissible income deferral contributions which can be made for
such year reduced by the amount of income deferral contributions withdrawn by
the participant in the prior calendar year. Each such election shall be in
writing, shall be filed with the committee at such time and in such manner as
the committee shall determine and shall be effective in accordance with such
rules as the committee may establish from time to time.
9.4. Withdrawals After Age 59-1/2. A participant who has
attained age 59-1/2 may elect to withdraw any portion or all of his account
balances while continuing to be employed by the employers. Each election by a
participant under this subsection shall be made at such time and in such manner
as the committee shall determine.
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SECTION 10
Prior Plan Accounts
Subject to such rules and requirements as the committee may
establish, a participant may direct the trustee to receive a rollover amount
(as described in Section 402(a)(5) or Section 408(d)(3) of the Code) or the
direct transfer of an eligible rollover distribution (as described in Section
402(c)(4) of the Code) attributable to such participant's participation in any
other qualified pension or profit sharing plan under Section 401(a) of the
Code. Any such rollover amount or direct transfer of an eligible rollover
distribution shall be credited to a separate account in the participant's name
and will be subject to all provisions of the plan affecting participants'
accounts, except that no income deferral contributions, employer contributions
or forfeitures will be credited to such account.
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SECTION 11
The Committee
11.1. Membership. A committee consisting of three or more
persons (who may but need not be employees of the employers) shall be appointed
by the company.
11.2. Committee's General Powers, Rights and Duties.
Except as otherwise specifically provided and in addition to the powers, rights
and duties specifically given to the committee elsewhere in the plan and the
trust agreement, the committee shall have the following discretionary powers,
rights and duties:
(a) To select a secretary, if it believes it advisable,
who may but need not be a committee member.
(b) To determine all questions arising under the plan,
including the power to construe disputed, doubtful or
uncertain terms, to determine the rights or
eligibility of employees or participants and any
other persons to benefits under the plan, and the
amount of their benefits under the plan, to interpret
and apply the plan provisions, and to remedy
ambiguities, inconsistencies or omissions.
(c) To adopt such rules or procedures and regulations as
in its opinion may be necessary for the proper and
efficient administration of the plan and as are
consistent with the plan and trust agreement.
(d) To enforce the plan in accordance with the terms of
the plan and the trust agreement and the rules and
regulations adopted by the committee.
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(e) To direct the trustee as respects payments or
distributions from the trust fund in accordance with
the provisions of the plan.
(f) To furnish the employers with such information as may
be required by them for tax or other purposes in
connection with the plan.
(g) To employ agents, attorneys, accountants or other
persons (who also may be employed by the employers)
and to allocate or delegate to them such powers,
rights and duties as the committee may consider
necessary or advisable to properly carry out
administration of the plan, provided that such
allocation or delegation and the acceptance thereof
by such agents, attorneys, accountants or other
persons, shall be in writing.
11.3. Manner of Action. During a period in which two or more
committee members are acting, the following provisions apply where the context
admits:
(a) A committee member by writing may delegate any or all
of his rights, powers, duties and discretions to any
other member, with the consent of the latter.
(b) The committee members may act by meeting or by
writing signed without meeting, and may sign any
document by signing one document or concurrent
documents.
(c) An action or a decision of a majority of the members
of the committee as to a matter shall be as effective
as if taken or made by all members of the committee.
(d) If, because of the number qualified to act, there is
an even division of opinion among the committee
members as to a matter, a disinterested party
selected by the committee shall decide the matter and
his decision shall control.
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<PAGE> 59
(e) Except as otherwise provided by law, no member of the
committee shall be liable or responsible for an act
or omission of the other committee members in which
the former has not concurred.
(f) The certificate of the secretary of the committee or
of a majority of the committee members that the
committee has taken or authorized any action shall be
conclusive in favor of any person relying on the
certificate.
11.4. Interested Committee Member. If a member of the
committee is also a participant in the plan, he may not decide or determine any
matter or question concerning distributions of any kind to be made to him or
the nature or mode of settlement of his benefits unless such decision or
determination could be made by him under the plan if he were not serving on the
committee.
11.5. Resignation or Removal of Committee Members. A member
of the committee may be removed by the company at any time by 10 days' prior
written notice to him and the other members of the committee. A member of the
committee may resign at any time by giving 10 days' prior written notice to the
company and the other members of the committee. The company may fill any
vacancy in the membership of the committee; provided, however, that if a
vacancy reduces the membership of the committee to less than three, such
vacancy shall be filled as soon as practicable. The company shall give prompt
written notice thereof to the other members of the committee. Until any such
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vacancy is filled, the remaining members may exercise all of the powers, rights
and duties conferred on the committee.
11.6. Committee Expenses. All costs, charges and expenses
reasonably incurred by the committee will be paid by the employers in such
proportions as the company may direct. No compensation will be paid to a
committee member as such.
11.7. Information Required by Committee. Each person
entitled to benefits under the plan shall furnish the committee with such
documents, evidence, data or information as the committee considers necessary
or desirable for the purpose of administering the plan. The employers shall
furnish the committee with such data and information as the committee may deem
necessary or desirable in order to administer the plan. The records of the
employers as to an employee's or participant's period of employment,
termination of employment and the reason therefor, leave of absence,
reemployment, compensation and adjusted compensation will be conclusive on all
persons unless determined to the committee's satisfaction to be incorrect.
11.8. Uniform Rules. The committee shall administer the plan
on a reasonable and nondiscriminatory basis and shall apply uniform rules to
all persons similarly situated.
11.9. Review of Benefit Determinations. The committee will
provide notice in writing to any participant or
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beneficiary whose claim for benefits under the plan is denied and the committee
shall afford such participant or beneficiary a full and fair review of its
decision if so requested.
11.10. Committee's Decision Final. Subject to applicable
law, any interpretation of the provisions of the plan and any decisions on any
matter within the discretion of the committee made in good faith shall be
binding on all persons. A misstatement or other mistake of fact shall be
corrected when it becomes known and the committee shall make such adjustment on
account thereof as it considers equitable and practicable.
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SECTION 12
General Provisions
12.1. Additional Employers. Any United States subsidiary of
the company may adopt the plan and become a party to the trust agreement by:
(a) Filing with the company, the committee and the
trustee a written instrument to that effect; and
(b) Filing with the committee and the trustee a certified
copy of a resolution of the company's Board of
Directors consenting to such action.
12.2. Action by Employers. Any action required or permitted
to be taken by an employer under the plan shall be by resolution of its Board
of Directors, by resolution of a duly authorized committee of its Board of
Directors, or by a person or persons authorized by resolution of its Board of
Directors or such committee.
12.3. Waiver of Notice. Any notice required under the plan
may be waived by the person entitled to such notice.
12.4. Controlling Law. Except to the extent superseded by
laws of the United States, the laws of Illinois shall be controlling in all
matters relating to the plan.
12.5. Employment Rights. The plan does not constitute a
contract of employment, and participation in the plan will not give any
employee the right to be retained in the
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<PAGE> 63
employ of an employer, nor any right or claim to any benefit under the plan,
unless such right or claim has specifically accrued under the terms of the
plan.
12.6. Litigation by Participants. If a legal action begun
against the trustee, an employer or the committee or any member thereof by or
on behalf of any person results adversely to that person, or if a legal action
arises because of conflicting claims to a participant's or other person's
benefits, the cost to the trustee, the employers or the committee or any member
thereof of defending the action will be charged to the extent permitted by law
to the sums, if any, which were involved in the action or were payable to the
person concerned.
12.7. Interests Not Transferable. The interests of persons
entitled to benefits under the plan are not subject to their debts or other
obligations and, except as may be required by the tax withholding provisions of
the Internal Revenue Code or any state's income tax act, may not be voluntarily
or involuntarily sold, transferred, alienated, assigned or encumbered, except
as otherwise provided in Section 401(a)(13) of the Code.
12.8. Absence of Guaranty. Neither the committee nor the
employers in any way guarantee the trust fund from loss or depreciation. The
liability of the trustee or the committee to make any payment under the plan
will be limited to the
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assets held by the trustee which are available for that purpose.
12.9. Evidence. Evidence required of anyone under the plan
may be by certificate, affidavit, document or other information which the
person acting on it considers pertinent and reliable, and signed, made or
presented by the proper party or parties.
12.10. Leased Employees. A leased employee (as defined
below) shall not be eligible to participate in the plan. A leased employee
means any person who is not an employee of an employer but who has provided
services to an employer of the type which have historically (within the
business field of the employers) been provided by employees on a substantially
full-time basis for a period of at least one year pursuant to an agreement
between an employer and a leasing organization. The period during which a
leased employee performs services for an employer shall be taken into account
for purposes of subsection 2.2 of the plan unless (i) such leased employee is a
participant in a money purchase pension plan maintained by the leasing
organization which provides a nonintegrated employer contribution rate of at
least ten percent (10%) of compensation, immediate participation for all
employees and full and immediate vesting and (ii) leased employees do not
constitute more than twenty percent (20%) of the employer's nonhighly
compensated work force.
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<PAGE> 65
SECTION 13
Amendment and Termination
13.1. Amendment. While the employers expect and intend to
continue the plan, the company reserves the right to amend the plan from time
to time, except as follows:
(a) The duties and liabilities of the committee cannot be
changed substantially without its consent;
(b) No amendment shall reduce the accrued benefit (as
defined in Section 411(d)(6) of the Code) the
participant would be entitled to receive if he had
resigned from the employ of all the employers on the
date of the amendment; and
(c) Except as provided in subsection 5.5, under no
condition shall an amendment result in the return or
repayment to any employer of any part of the trust
fund or the income from it or result in the
distribution of the trust fund for the benefit of
anyone other than persons entitled to benefits under
the plan.
13.2. Termination. The plan will terminate as to all
employers (i) on any date specified by the company if thirty days' advance
written notice of the termination is given to the committee, the trustee and
the other employers or (ii) on the date that contributions by all employers are
completely discontinued under the plan. A partial termination of the plan may
occur as to an individual employer or as to a group or class of employees on
any date so specified by the company or as required by law.
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<PAGE> 66
13.3. Reorganizations. No plan termination will occur solely
as a result of the judicially declared bankruptcy or insolvency of an employer,
or the dissolution, merger, consolidation or reorganization of an employer, or
the sale by that employer of all or substantially all of its assets, or the
termination or complete discontinuance of contributions by any one employer.
However, arrangements may be made with the consent of the company whereby the
plan will be continued by any successor to that employer or any purchaser of
all or substantially all of its assets, in which case the successor or
purchaser will be substituted for that employer under the plan and the trust
agreement; provided that, if an employer is merged, dissolved, or in any other
way organized into, or consolidated with, any other employer, the plan as
applied to the former employer will automatically continue in effect without a
termination thereof.
13.4. Vesting and Distribution on Termination. On
termination or partial termination of the plan, the date of termination will be
a "special accounting date" and, after all adjustments then required have been
made, each affected participant's benefits will be nonforfeitable. If, on
termination of the plan, the participant remains an employee of an employer,
the amount of his benefits shall be retained in the trust fund until his
termination of employment with all of the employers and then shall be paid to
him in accordance with the
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provisions of subsection 8.4. In the event that the participant's employment
with all of the employers is terminated coincident with the termination of the
plan, his benefits shall be paid to him in a lump sum, subject to the
provisions of subsection 8.4.
13.5. Notice of Amendment or Termination. Participants will
be notified of an amendment or termination of the plan within a reasonable
time.
13.6. Plan Merger, Consolidation, Etc. In the case of any
merger or consolidation of this plan with, or the transfer of assets or
liabilities of this plan to, any other plan, each participant's benefits if
such plan terminated immediately after such merger, consolidation or transfer
shall be equal to or greater than the benefits he would have been entitled to
receive if this plan had terminated immediately before the merger,
consolidation or transfer.
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<PAGE> 68
SECTION 14
Top-Heavy Rules
14.1. Purpose and Effect. The purpose of this Section is to
comply with the requirements of Section 416 of the Code. The provisions of
this Section shall be effective for each plan year in which the plan is a
"top-heavy plan" within the meaning of Section 416(g) of the Code.
14.2. Top-Heavy Plan. In general, the plan will be top-heavy
plan for any plan year if, as of the last day of the preceding plan year (the
"determination date"), the sum of the amounts in (a), (b) and (c) below for key
employees (defined below and in Section 416(i)(1) of the Code) exceeds 60
percent of the sum of such amounts for all employees who are covered by a
defined contribution plan or defined benefit plan which is aggregated in
accordance with subsection 14.4 below:
(a) The aggregate account balances of participants under
this plan.
(b) The aggregate account balances of participants under
any other defined contribution plan included in
subsection 14.4.
(c) The present value of cumulative accrued benefits of
participants calculated under any defined benefit
plan included in subsection 14.4.
In determining the account balances of participants under this plan (i) such
participant's account balances shall be increased by the aggregate
distributions, if any, made with respect to
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<PAGE> 69
the participant during the 5-year period ending on the determination date
(including distributions under a terminated plan which, if it had not been
terminated, would have been included in subsection 14.4), (ii) the account
balances of a participant who was previously a key employee, but who is no
longer a key employee, shall be disregarded, (iii) the accounts of a
beneficiary of a participant shall be considered accounts of the participant
and (iv) the account balances of a participant who has not performed any
services for an employer during the 5-year period ending on the determination
date shall be disregarded.
14.3. Key Employee. In general, a "key employee" is an
employee who, at any time during the plan year ending on the determination date
or during any of the four preceding plan years, is:
(a) an officer of an employer or a controlled group
member whose compensation (as defined in Section
414(q)(7) of the Code) exceeds fifty percent (50%) of
the dollar limitation specified in Section
415(b)(1)(A) of the Code for a plan year (including
only the greater of three or ten percent of the total
employees of the employer and controlled group
members but not exceeding 50);
(b) one of the ten employees owning the largest interests
in an employer and all other controlled group members
whose compensation (as defined in Section 414(q)(7)
of the Code) exceeds the dollar limitation specified
in Section 415(c)(1)(A) of the Code;
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<PAGE> 70
(c) a 5 percent owner of an employer or controlled group
member; or
(d) a 1 percent owner of an employer or controlled group
member receiving annual compensation from the
employer and all other controlled group members of
more than $150,000.
A "key employee" for purposes of any other plan included in subsection 14.4
means a key employee as determined in accordance with such plan.
14.4. Aggregated Plans. Each other defined contribution plan
and defined benefit plan maintained by an employer or controlled group member
which covers a "key employee" as a participant or which is maintained by such
employer or controlled group member in order for a plan covering a key employee
to be qualified shall be aggregated in determining whether this plan is
top-heavy. In addition, any other defined contribution or defined benefit plan
of an employer or controlled group member may be included if all such plans
which are included when aggregated will not discriminate in favor of officers,
shareholders or highly compensated employees.
14.5. Minimum Contributions. For any plan year in which the
plan is a top-heavy plan, the employer contribution and forfeitures, if any,
credited to each participant who is not a key employee shall not be less than
three percent (3%) of such participant's compensation (within the meaning of
Section 415 of the Internal Revenue Code) for that year. In no event,
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<PAGE> 71
however, shall the employer contribution and forfeitures credited in any year
to a participant who is not a key employee (expressed as a percentage of such
participant's compensation) exceed the maximum employer contribution and
forfeitures credited in that year to a key employee (expressed as a percentage
of such key employee's compensation up to $200,000 or such greater amount as
may be determined by the Commissioner of Internal Revenue for that plan year).
Income deferral contributions and employer matching contributions made on
behalf of non-key employees shall not be taken into account for purposes of
determining the minimum employer contribution requirements of this subsection.
14.7. Minimum Vesting. In any plan year in which the plan is
a top-heavy plan, a participant's vested percentage in his employer account
shall not be less than the percentage determined under the following table:
<TABLE>
<CAPTION>
Years of Continuous
Employment Vested Percentage
------------------- -----------------
<S> <C>
Less than 2 0
2 20%
3 40
4 60
5 100
</TABLE>
14.8. No Duplication of Benefits. If a participant is covered by
another plan maintained by an employer or controlled group member, appropriate
modification may be made in the plan in accordance with regulations issued by
the Internal
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<PAGE> 72
Revenue Service to prevent inappropriate duplication of minimum contributions
or benefits under Section 416 of the Code.
14.9. Adjustment of Combined Benefit Limitations. For any plan
year in which the plan is a top-heavy plan, the determination of the defined
contribution plan fraction and defined benefit plan fraction under subparagraph
7.7(c) of the plan shall be adjusted in accordance with the provisions of
Section 416(h) of the Code.
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<PAGE> 73
SUPPLEMENT A
Participating Groups
<TABLE>
<CAPTION>
Non-Union Non-Union Non-Union Non-Union
Location Salaried Office Warehouse Drivers Mechanics
-------- -------- ------ --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Allentown Yes Yes Yes N/A N/A
Atlanta Yes No No N/A N/A
Baltimore Brush Yes Yes Yes N/A N/A
Cary Insurance Yes Yes N/A N/A N/A
Chicago Yes Yes N/A N/A N/A
Cleveland Yes No No N/A N/A
Corsicana Yes Yes Yes Yes N/A
Denver Yes Yes Yes Yes Yes
General Paint/ Yes Yes Yes N/A N/A
Blackhawk
General Paint/Cary Yes Yes Yes N/A N/A
General Power Yes Yes Yes N/A N/A
Harvard Consolidation Yes Yes Yes N/A N/A
Harvard Distribution Yes No No N/A N/A
Harvard Garage Yes Yes N/A N/A Yes
Henderson Yes Yes Yes Yes Yes
Indianapolis Yes Yes Yes N/A N/A
Kingman Yes Yes Yes Yes N/A
Kansas City Yes No No N/A N/A
Manchester Yes No No N/A N/A
Mankato Yes Yes Yes Yes N/A
Ocala Yes Yes Yes N/A N/A
Portland Yes Yes Yes N/A N/A
Woodland Yes Yes Yes Yes N/A
</TABLE>
A-1
<PAGE> 1
EXHIBIT 10-G
SUPPLEMENTAL RETIREMENT PLAN
AMENDED DECEMBER 15, 1994
SECTION 1. ESTABLISHMENT AND PURPOSE
1.1 ESTABLISHMENT OF THE PLAN. Cotter & Company (the "Company") has
heretofore established an unfunded supplemental retirement plan, which is known
as the "COTTER & COMPANY SUPPLEMENTAL RETIREMENT PLAN" (the "Plan"). This
Amendment restates and changes certain provisions of the Plan.
1.2 PURPOSE. The purpose of this Plan is to supplement the benefits from
the Company's Qualified Retirement Plan for selected executives of the Company
and its subsidiaries.
SECTION 2. DEFINITIONS
2.1 DEFINITIONS. Whenever used in this Plan, it is intended that the
following terms have the meanings set forth below:
(A) "ACTUARIAL EQUIVALENT" means the term as defined in the
Qualified Retirement Plan.
(B) "ADMINISTRATOR" means an individual or committee appointed by
the Chief Executive Officer and so identified to Participants.
(C) "COMPANY" means Cotter & Company, a Delaware corporation.
(D) "BOARD" means the Board of Directors of the Company.
(E) "CHIEF EXECUTIVE OFFICER" means the Chief Executive Officer of
the Company.
(F) "FINAL AVERAGE MONTHLY COMPENSATION" means the highest monthly
average of the sum of Participant's base salary, and any bonus
earned (including any reduction therein related to a
Participant-elected deferral of such base salary, or bonus, to
a later payment date, but excluding the payment of any such
deferred base salary or bonus in the year received) for five
(5) consecutive calendar years in the ten (10) calendar years
of continuous employment immediately preceding the date on
which occurs the earliest of the Participant's retirement,
total and permanent disability, or death.
(G) "NORMAL RETIREMENT DATE" means the date on which a Participant
has both attained age 62 and completed at least ten (10) Years
of Service.
<PAGE> 2
(H) "OFFICER" means an employee holding one or more of the
following positions: President, Vice President, Treasurer, or
Secretary.
(I) "PARTICIPANT" means an Officer or a management employee of the
Company or any subsidiary thereof who has been nominated by
the Chief Executive Officer and approved for participation in
the Plan, as provided in Section 3.1 hereof.
(J) "PRIMARY SOCIAL SECURITY BENEFIT" means the estimated monthly
primary old-age Social Security insurance benefit determined
as a straight life annuity, to which the Participant is or
would be entitled at his Normal Retirement Date or at his
retirement if later, based on the provisions of the Social
Security Act in effect on the date of retirement, before any
offsets for earned income. For purposes of estimating the
Primary Social Security Benefit, it shall be assumed that the
Participant has no wages covered by Social Security after
retirement or disability.
(K) "PRIOR EMPLOYMENT (AND FULL-TIME MILITARY SERVICE) RETIREMENT
BENEFITS" means any retirement benefits from previous
employers of the Participant (including previous full-time
U.S. Military Service) funded by other than the Participant's
contributions which the Participant has received or will be
eligible to receive at any future time. Any such benefits
shall be reported to the Administrator in a form satisfactory
to the Administrator. The amount of such benefits shall be
determined on an actuarially equivalent basis as a life only
annuity, payable monthly, commencing at the date of
retirement.
(L) "QUALIFIED RETIREMENT PLAN" means any retirement plan which is
maintained by the Company and/or any subsidiary thereof and
which is a qualified plan under Section 401(a) of the Internal
Revenue Code, excluding the Cotter & Company Employee Savings
and Compensation Deferral Plan. The amount of the benefits
payable from such Qualified Retirement Plan (including without
limitation, any lump sum distribution of such benefits) shall
be determined on an actuarially equivalent basis as a life
only annuity, payable monthly, commencing at the date of
retirement.
For purposes of subsection 4.4, the Company's long-term
disability plan also will be considered to be a Qualified
Retirement Plan.
(M) "SERVICE" shall have the same meaning in this Plan as "Years
of Service" in the Qualified Retirement Plan under which the
Participant is covered.
<PAGE> 3
(N) "SURVIVING SPOUSE" means the spouse to whom a deceased
Participant has been lawfully married: (1) for a period of at
least one year ending on the date of the Participant's death;
or, (2) where such death occurs after benefit payments have
commenced under the Plan, as of the commencement date of those
payments to the Participant.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
any masculine term used herein shall include the feminine, and the singular
shall include the plural.
SECTION 3. PARTICIPATION
3.1 SELECTION OF PARTICIPANTS. The Chief Executive Officer, in his
discretion, shall select persons to be Participants in the Plan from among
those Officers and management employees of the Company and its subsidiaries who
are Participants in a Qualified Retirement Plan.
SECTION 4. RETIREMENT BENEFITS
4.1 NORMAL RETIREMENT BENEFIT.
(A) ELIGIBILITY. A Participant shall be eligible to receive a
normal retirement benefit under the provisions of this Plan
upon termination of Service on or after his Normal Retirement
Date.
(B) AMOUNT. An amount which is equal to three (3) percent of the
Participant's Final Average Monthly Compensation, for each
Year of Service up to and including twenty (20) years; reduced
by: the sum of the monthly amounts that the Participant is
eligible to receive from the Qualified Retirement Plan and
from his Prior Employment (and Full-Time Military Service)
Retirement Benefits and the monthly amount of Primary Social
Security Benefit to which the Participant is entitled, whether
or not received.
For purposes of computing the "monthly amounts" referenced
above, the Participant's various benefits shall be determined
on the basis of a Participant's life only. If the participant
is legally married, this benefit, also determined on the basis
of the participant's life only, shall be converted on an
actuarially equivalent basis into monthly amounts payable in
the form of a fifty (50) percent Joint and Survivor Annuity
for the joint lives of the Participant and the Participant's
spouse, commencing at the date of retirement. Similar
actuarially equivalent conversions will be made if the
Participant elects an alternative form of benefit payment
provided under Section 6 hereof.
<PAGE> 4
(C) COMMENCEMENT AND DURATION. Payment of monthly normal
retirement benefits provided under this Plan shall commence as
of the first day of the calendar month beginning on or after
the date the Participant's Service terminates pursuant to this
Subsection 4.1 and shall continue to be paid as of the first
day of each month for the remainder of the Participant's life,
and if such amount is to be paid in the form of a Joint and
Survivor Annuity under Subsection 4.1(b), fifty (50) percent
of such Participant's reduced monthly amount shall be payable
to such Participant's Surviving Spouse for the remainder of
such Spouse's life.
4.2 EARLY RETIREMENT BENEFITS.
(A) ELIGIBILITY. A Participant shall be eligible to receive an
early retirement benefit under the provisions of this Plan
upon termination of his Service prior to his Normal Retirement
Date but on or after his attaining age fifty-five (55) and
completing at least ten (10) Years of Service.
(B) AMOUNT. Upon termination of the Participant's Service,
pursuant to (A) above, the Participant shall be entitled to
receive a monthly early retirement benefit. Such benefit
shall be computed in the same manner as a normal retirement
benefit under Subsection 4.1(B), based on the Participant's
Final Average Monthly Compensation and Years of Service as of
the date his Service terminates and reduced by three-tenths of
one percent for the first 60 months and further reduced by
five-tenths of one percent for each additional month (up to a
maximum of 24 months) by which the date benefit payments
commence prior to his Normal Retirement Date. In no event
will the benefit payable under this subsection be less than
the benefit determined under this subsection as of December
31, 1993 under the terms of the Plan as then in effect."
(C) COMMENCEMENT AND DURATION. Payment of monthly early
retirement benefits provided under this Plan shall commence as
of the first day of the calendar month beginning on or after
the date the Participant's Service terminates pursuant to this
Subsection 4.2 and shall continue to be paid as of the first
day of each month for the remainder of the Participant's life,
and if such amount is to be paid in the form of a Joint and
Survivor Annuity under Subsection 4.2(b), fifty (50) percent
of such Participant's reduced monthly amount shall be payable
to such Participant's Surviving Spouse for the remainder of
such Spouse's life.
<PAGE> 5
4.3 DISABILITY RETIREMENT BENEFIT.
(A) ELIGIBILITY. A Participant shall be eligible to receive a
disability retirement benefit under the provisions of this
Plan if a total and permanent physical or mental incapacity
deprives the Participant of the ability to perform his duties
as an executive of the Company, provided the Participant has
completed at least fifteen (15) Years of Service.
Determination of a disability shall be at the Chief Executive
Officer's sole discretion, based on a review of medical
documents and evaluations which he deems appropriate.
(B) AMOUNT. Upon termination of the Participant's Service
pursuant to (A) above, the Participant shall be entitled to
receive a monthly disability retirement benefit. Such benefit
shall be computed in the same manner as a normal retirement
benefit under Subsection 4.1(B), but reduced by the sum of the
benefits payable under the Company's long-term disability
plan and the benefits payable under subsection 4.4 below.
(C) COMMENCEMENT AND DURATION. Payment of monthly disability
retirement benefits provided under this Plan shall commence as
of the first date of the Participant's eligibility to receive
benefits as determined in 4.3(a) and shall continue to be paid
as of the first day of each month for the remainder of the
Participant's life, unless earlier terminated due to the
Participant's failure to continue to be eligible for benefits
under the terms of this Plan.
4.4 DISABILITY INCOME BENEFIT.
(A) ELIGIBILITY. A Participant shall be eligible to receive a
disability income benefit under the provisions of this Plan if
the Participant is eligible to receive monthly long-term
disability benefits under the Company's long-term disability
plan.
(B) AMOUNT. The Participant shall be entitled to receive a
monthly disability income benefit equal to fifty (50) percent
of the Participant's Base Compensation, reduced by the sum of
the amount of the monthly disability income benefit payable
under the Company's long-term disability plan and the amount
of any offsets to such disability income benefit amounts
provided under the long-term disability plan. "Base
Compensation" means base compensation as defined in the
Company's long-term disability plan, as amended from time to
time, except that for purposes of this Plan, such base
compensation shall not be subject to any earnings limitation
contained in such long-term disability plan.
<PAGE> 6
(C) COMMENCEMENT AND DURATION. Payment of monthly disability
income benefits under this Plan shall commence as of the first
date of the Participant's eligibility to receive benefits as
determined in 4.4(a) and shall continue to be paid as of the
first day of each month thereafter unless and until long-term
disability benefits are discontinued under the terms of the
Company's long-term disability plan.
4.5 FORFEITURE OF BENEFITS BECAUSE OF COMPETITION. Notwithstanding any
provisions in this Section to the contrary, any Plan retirement
benefits which are otherwise due or payable to a Participant under
this Section 4 will be forfeited and discontinued if such Participant
upon or after retirement enters into, or becomes associated with, any
business, as a shareholder, employee, director, pro-prietor,
consultant, partner or joint venturer, which is in direct competition
with the business of the Company and its subsidiaries, unless such
relationship is disclosed to, and approved by, the Chief Executive
Officer of the Company.
SECTION 5. DEATH BENEFIT
5.1 PAYMENTS TO SURVIVING SPOUSE.
(A) ELIGIBILITY. A Surviving Spouse shall be eligible to receive
a monthly death benefit under the provisions of this Plan,
upon the death, prior to the commencement of payments of
benefits, of a Participant eligible to receive a retirement
benefit under any of Subsections 4.1, 4.2, or 4.3 hereof.
(B) AMOUNT. The monthly death benefit payable to an eligible
Surviving Spouse shall be equal to fifty (50) percent of the
Participant's benefit under the fifty (50) percent Joint and
Survivor Annuity which the deceased Participant would have
been eligible to receive if he had a termination of Service by
normal, early or disability retirement the day prior to his
death. In the event a Participant who has not attained age
fifty-five (55) dies while in active employment, the Surviving
Spouse's death benefit shall be determined by assuming the
Participant would have been eligible for an early retirement
benefit under Subsection 4.2 if he had a termination of
Service on the day immediately prior to his death, regardless
of his age.
(C) COMMENCEMENT AND DURATION. Payment of monthly death benefits
provided under this Plan shall commence as of the first day of
the calendar month beginning no earlier than the month in
which the Participant would have attained age fifty-five (55)
and shall continue to be paid monthly thereafter as of the
first day of each month for the remainder of the Surviving
Spouse's life.
<PAGE> 7
SECTION 6. OPTIONAL PAYMENT METHOD
6.1 MARRIED PARTICIPANT'S PAYMENT FORM ELECTION. A married Participant
who is eligible to receive any retirement benefits provided under Section 4
hereof may, prior to terminating Service, elect to have those benefits paid in
the alternative form of a joint and survivor annuity which will continue
monthly payments for life to his spouse equal to one hundred (100) percent of
the actuarially reduced monthly amount paid to him during his lifetime. A
married Participant's benefit may, pursuant to election, revert to the form of
a benefit based on the Participant's life only, provided that the Participant's
spouse consents to such election. The benefits payable to the Participant and
his spouse under these alternative forms shall be actuarially equivalent to the
value of the benefits that would have otherwise been payable to him under
Section 4 hereof. A Participant's election under this Section 6 must be filed
in writing with the Administrator at least thirty (30) days prior to the date
his monthly benefit payments are to commence under Section 4.
SECTION 7. FINANCING OF BENEFITS
7.1 CONTRACTUAL OBLIGATION. Subject to the provisions of Section 8.4
hereof, it is intended that the Company is under a contractual obligation to
make the payments under this Plan while it is in effect. No benefits under
this Plan shall be financed through a trust fund or insurance contracts or
otherwise. Benefits shall be paid out of the general funds of the Company.
7.2 UNSECURED GENERAL CREDITOR. Neither the Participant nor the
Surviving Spouse shall have any interest whatsoever in any specific asset of
the Company and its subsidiaries on account of any benefits provided under this
Plan. The Participant's (or Surviving Spouse's) right to receive benefit
payments under this Plan shall be no greater than the right of any unsecured
general creditor of the Company and its subsidiaries.
SECTION 8. MUTUAL AGREEMENTS
8.1 NO VESTING. There shall be no vesting of any amount under this Plan
and no obligations shall be owing or payable by the Company and its
subsidiaries under this Plan, except as provided in Section 4 and 5, or Section
6 hereof, as applicable.
8.2 NO GUARANTEE. Nothing herein shall be construed as conferring upon
the Participant any greater rights to employment by the Company and its
subsidiaries than he would otherwise have.
8.3 LIABILITY. Neither the Company and any subsidiary thereof nor any
shareholder, director, Officer or other employee of the Company or any other
person shall be liable for any act or failure to act under the Plan, except for
gross negligence or fraud.
<PAGE> 8
8.4 AMENDMENT OR TERMINATION OF THE PLAN. The Company, by action of the
Management Development and Compensation Committee, with the approval of the
Board, reserves the right to amend, modify, terminate, or discontinue the Plan
at any time; and such action shall be final, binding, and conclusive as to all
parties, including any Participant, any Surviving Spouse thereof and all other
Company or subsidiary employees and persons; provided, however, that any such
Board action to terminate or discontinue the Plan or to change the monthly
payment amount or the time and manner of payment thereof as then provided in
the Plan shall not be effective and operative with respect to any participant
or Surviving Spouse who has already commenced receipt of benefit payments under
Sections 4, 5, or 6 hereof, as applicable, on the date of such Board action or
with respect to any spouse to whom benefits under Section 6 hereof, as
applicable, would be payable due to the subsequent death of any such
Participant then receiving benefit payments.
8.5 ASSIGNMENT OF RIGHTS. In no event shall the Company make any payment
under this Plan to any assignee or creditor of the Participant or his Surviving
Spouse. Prior to the time of a payment hereunder, the Participant or Surviving
Spouse shall have no rights by way of anticipation or otherwise to assign or
otherwise dispose of any interest under this Plan.
8.6 APPLICABLE LAW. This Plan is intended to constitute a plan which is
unfunded and is maintained by the Company primarily for the purpose of
providing deferred compensation for a select group of management or highly
compensated employees and that except to the extent that ERISA applies to such
plan, the laws of Illinois will apply. The plan shall be binding upon and
inure to the benefit of the Participant and the Company and any successor
company of the Company by way of merger, reorganization, acquisition, or sale
by the Company of substantially all of its assets.
8.7 WITHHOLDING OF TAXES. The Company may withhold from any monthly
retirement benefit such sum as the Company may reasonably estimate is necessary
to cover any taxes for which the Company may be liable and which may be
assessed with regard to such monthly retirement benefit payment. Upon
discharge or settlement of such tax liability, the Company shall distribute the
balance of any monthly retirement benefit withheld, if any, to the Participant
from whom the amount was withheld. If such Participant is deceased such amount
shall be distributed to the beneficiary of the Participant from who it was
withheld.
8.8 OVERPAYMENT. If any monthly retirement payment shall be determined
by the Company to have been excessive or improper and the Participant or his
Surviving Spouse shall fail, upon Company request, to make repayment to the
Company of such overpayment, the Company shall deduct the amount of such
overpayment from future monthly retirement payments.
<PAGE> 9
8.9 FACILITY OF PAYMENT. Whenever a Participant or a Surviving Spouse
entitled to a monthly retirement benefit hereunder shall be determined to be
under a legal disability or otherwise incapacitated in any way as so to be
unable to manage his financial affairs, the following shall apply: The Company
may direct that all or any portion of the monthly retirement payments to be
made to such Participant or Surviving Spouse shall be made to such person's
spouse, legal guardian or any other person, in any manner that the Company
considers advisable. The decision of the Company shall, in each case, be final
and binding upon all persons, and any payment made pursuant to this provision
shall operate as a complete discharge of the obligations of the Company under
the Plan.
8.10 ACTION CONCLUSIVE. Any action or decision on eligibility for and
payment of Plan benefits made by the Chief Executive Officer or the
Administrator, pursuant to the provisions of this Plan will be final, binding
and conclusive on the Participant, his or her spouse, or his or her
beneficiary.
/s/ JOHN F. MOYNIHAN /s/ DANIEL T. BURNS
- -------------------- -------------------
Signature Signature
Assistant Secretary Vice President, General Counsel
- -------------------- -------------------------------
Title Title
December 30, 1994 December 30, 1994
- -------------------- -------------------
Date Date
<PAGE> 1
EXHIBIT 10-I
COTTER & COMPANY
LONG-TERM INCENTIVE COMPENSATION PROGRAM
FOR EXECUTIVE MANAGEMENT (AMENDED)
1. PURPOSE:
To attract, motivate, and retain Officers with the talents and
commitment essential to the long-term success of the Company.
2. EMPLOYEES ELIGIBLE FOR THIS COMPENSATION PROGRAM:
Certain Officers and other selected employees of the Company who are in
a position to contribute substantially to the long-term success of the
Company (Participants).
The following officers of the Company shall participate:
(a) President and Chief Executive Officer (CEO);
(b) Vice Presidents;
Additional Participants may be recommended by the President and shall
become Participants upon approval by the Board of Directors.
3. LONG-TERM INCENTIVE COMPENSATION:
(a) The Management Development and Compensation Committee (Committee) of
the Board of Directors and CEO shall determine the performance
measure, or measures, to be used in earning payments (Incentive
Compensation) for all Participants in this Program. If more than one
performance measure is used, each measure shall be allocated a
percentage which together shall total one hundred percent. Each
complete period under this Program shall be three calendar years
(Program Period).
(b) The Committee and the CEO shall determine threshold, target, and
maximum performance levels for each performance measure, for each
Participant. Incentive Compensation shall be paid to each
Participant for the performance levels achieved for each measure.
(c) The Committee shall have the authority to adjust the performance
measure(s) as necessary to reflect the impact of extraordinary
occurrences which were not anticipated when the performance
measure(s) were determined by the Committee and the CEO.
(d) Incentive Compensation shall be paid during the first calendar
quarter of the next succeeding calendar year after the financial
results for a Program Period have been determined.
4. ELIGIBILITY FOR PAYMENT OF INCENTIVE COMPENSATION:
(a) Participants will be eligible to receive a payment for all or part of
a Program Period if the Participant: (i) was employed by the Company
at the beginning of the Program Period, and is employed, including on
an approved leave of absence, on the last day of such Program Period,
or on the day the present Program is terminated or amended; (ii)
becomes permanently disabled during such Program Period; (iii)
retires during such Program Period after attaining age 55 and
completing 10 years of employment with the Company, or after
attaining age 65; (iv) dies during a Program Period; or (v)
terminates employment with the Company after the completion of two
calendar years in any Program Period for any reason other than
voluntary resignation or the theft of cash or property from the
Company.
<PAGE> 2
If a Participant was not employed by the Company for the entire
Program Period and the performance measure has been achieved for the
part worked, then the amount of Incentive Compensation to be paid to
the Participant (or the Participant's designated beneficiary or
estate) under this Section 4 shall be the amount which is the
Participant's annual salary at that time, exclusive of any other
incentive plans, multiplied by the percentage that is the number of
complete calendar years actually worked in the Program Period divided
by three years, multiplied by the Participant's applicable
performance level percentages for the completed calendar year(s).
5. ADMINISTRATION OF PROGRAM:
(a) The Committee and CEO shall be responsible for the administration
of this Program, and shall:
(i) determine all conditions of eligibility, performance
measures and levels, and payments of Incentive Compensation
for each Program Period.
(ii) submit to the Board of Directors, for information and
review, a report of the Incentive Compensation to be paid in
accordance with the provisions of this Program.
(iii) amend, modify, suspend or terminate this Program, at any
time it deems such action to be in the best interests of the
Company.
(b) The judgment of the CEO and Committee in making any determination
hereunder, shall be conclusive and binding upon all Participants,
other employees of the Company, and their heirs, executors, personal
representatives and assigns.
6. EMPLOYMENT STATUS:
This Program shall not be a guarantee of present or future employment, the
nature, character or duties of any job, or the present salary, of any
Participant.
/s/ DANIEL A. COTTER / 11/7/94 /s/ JERRALD T. KABELIN / 11/7/94
- ------------------------------------ --------------------------------
Daniel A. Cotter Date Jerrald T. Kabelin Date
President and Chief Executive Officer Chairman of the Board
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-02-1994
<PERIOD-END> DEC-31-1994
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0
0
<OTHER-SE> 201,948
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