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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended February 1, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 1-1594
CROWLEY, MILNER AND COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-0454910
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2301 West Lafayette Boulevard, Detroit, Michigan 48216
(Address of principal executive offices with zip code)
Registrant's telephone number, including area code: (313) 962-2400
Securities registered pursuant to Section 12(b) of the Act: Common Stock
(Title of each class)
Name of each Exchange on which registered: American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark whether the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K: [ ]
As of April 9, 1997, there were 1,511,054 shares of the registrant's Common
Stock outstanding and the aggregate market value of such Common Stock held by
non-affiliates (based on the closing price on the American Stock Exchange on
such date) was $4,890,635.
Portions of the registrant's Proxy Statement for its 1997 Annual Meeting of
Shareholders to be held May 22, 1997, to the extent expressly so stated herein,
are incorporated by reference into Part III of this Report.
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TABLE OF CONTENTS
PART I PAGE
Item 1 Business...................................................... 3
General....................................................... 3
Marketing and Merchandising................................... 4
Store Design, Expansion and Remodeling........................ 5
Information Systems........................................... 6
Credit Policy................................................. 6
Leased Departments............................................ 7
Competition................................................... 7
Employees..................................................... 7
Item 2 Properties.................................................... 8
Corporate Headquarters and Crowley's Distribution Center...... 8
Steinbach Distribution Center................................. 9
Retail Department Stores...................................... 9
Item 3 Legal Proceedings ............................................ 10
Item 4 Submission of Matters to a Vote of Security Holders........... 10
PART II
Item 5 Market for the Registrant's Common Stock and Related Matters.. 11
Item 6 Selected Financial Data....................................... 12
Item 7 Management's Discussion and Analysis of Results
of Operations and Financial Condition......................... 13
Results of Operations......................................... 13
Financial Condition........................................... 16
Item 8 Financial Statements and Supplementary Data................... 17
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........................ 17
PART III
Item 10 Directors and Executive Officers of the Registrant............ 18
Item 11 Executive Compensation........................................ 18
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................... 18
Item 13 Certain Relationships and Related Transactions................ 18
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K................................................... 19
Report of Independent Auditors............................................. 22
Consolidated Balance Sheets at February 1, 1997 and February 3, 1996....... 23
Consolidated Statements of Operations for the fiscal years ended February 1,
1997, February 3, 1996, and January 28, 1995........................... 24
Consolidated Statements of Shareholders' Equity for the fiscal years ended
February 1, 1997, February 3, 1996, and January 28, 1995............... 25
Consolidated Statements of Cash Flows for the fiscal years ended February 1,
1997, February 3, 1996, and January 28, 1995........................... 26
Notes to Consolidated Financial Statements................................. 27
Financial Statement Schedules: Schedule II -- Valuation and Qualifying
Accounts............................................................... 38
Signatures................................................................. 39
The Company wishes to caution readers not to place undue reliance on any
forward-looking statements, which speak only as of the date of this Report,
and to advise readers that various factors, including national and regional
economic conditions and competitive factors, could affect the Company's
financial performance and could cause the Company's actual results for future
periods to differ materially from those anticipated or projected. The
Company does not undertake, and specifically disclaims any obligation, to
update any forward-looking statements to reflect occurrences or unanticipated
events or circumstances after the date of this Report.
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PART I
ITEM 1. BUSINESS
GENERAL
Crowley, Milner and Company, a Michigan corporation, ("Crowley's") is
engaged in the operation of nine retail specialty department stores in the
Detroit-metropolitan and suburban Flint, Michigan areas. Crowley's has
operated continuously for over 90 years since it was founded in 1914.
Crowley's also owns Steinbach Stores, Inc. ("Steinbach"), an Ohio corporation,
which operates 14 retail specialty department stores in the states of
Connecticut, New York, New Hampshire, New Jersey and Vermont. Both Crowley's
and Steinbach (collectively referred to as the "Company") are quality fashion
department stores selling moderate-priced lines in women's, men's and
children's apparel, accessories and decorative home furnishings. In addition
to its own merchandise, the Company offers shoes, fine jewelry, millinery, furs
and maternity goods, as well as beauty salon services, through leased
departments operated by independent lessees. The Company uses a 52-53 week
fiscal year, with its fiscal year ending on the Saturday closest to January 31
for financial reporting purposes, a practice typical in the retail industry.
Effective September 1, 1996, Crowley's acquired all of the issued and
outstanding stock of Steinbach, in exchange for 514,800 shares, representing
approximately 35% of the issued and outstanding shares, of newly-issued common
stock of Crowley's. This transaction was accounted for as a purchase.
Crowley's had been operating Steinbach since January 1, 1996, under an Interim
Operating Agreement, and incurred a cumulative loss of approximately $120,000
during the period from January 1 to September 1, 1996, as a result of such
operations. See Item 7, "Management's Discussion and Analysis of Results of
Operations and Financial Condition".
To achieve greater economies of scale, the Company has centralized
many of the corporate operations of both the Crowley's and Steinbach stores at
its headquarters located in Detroit, Michigan, including the buying,
advertising and sales promotion, data processing and accounting functions.
Receiving, marking, and distribution for Crowley's and Steinbach are performed
through two separate distribution facilities, a Company-owned and operated
facility located in Detroit, Michigan, for the nine Crowley's stores, and a
contracted distribution operation located in Eatontown, New Jersey, for the 14
Steinbach stores.
The Company has recently enlarged the Crowley's store located in the
New Center area north of downtown Detroit, Michigan, by approximately 12,000
square feet (25% of its previous size), is negotiating to expand the Steinbach
store in Brick, New Jersey by approximately 11,000 square feet (also 25% of its
previous size) and is finalizing arrangements to open a new Steinbach store in
Cortlandt, New York (Westchester County) which will have approximately 42,000
square feet of selling area. In December 1996 the Company closed a Steinbach
store located in North Utica, New York, and in March 1997 the Company closed a
Crowley's store located in Birmingham, Michigan. In both cases, the closure
resulted from the landlord's decision to find new commercial uses for the
property. Both of these stores had been only marginally profitable in good
years and had generally incurred operating losses after taking into
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account allocated overhead expenses of the Company.
MARKETING AND MERCHANDISING
Marketing Strategy. The Company's merchandising strategy is directed
at offering and promoting nationally-advertised brand name merchandise
recognized for style and value, together with private-label merchandise
purchased through Frederick Atkins, Inc., a national association of major
retailers that provides its members with group purchasing opportunities. The
Company's stores offer an extensive selection of fashion apparel, cosmetics and
accessories, home furnishings, luggage and other merchandise in a broad range
of styles, sizes and colors for all members of the family.
Nationally-advertised brand names emphasized by the Company include Liz
Clairborne, Coach, Levi Strauss, London Fog, Alfred Dunner, Haggar, Bugle Boy,
Lee, Calvin Klein, Estee Lauder, Lancome, and Clinique. The Company's overall
merchandising strategy includes the development of monthly, seasonal and annual
merchandising plans for each store and each department within its stores.
Management monitors sales, gross margin performance and inventory levels
against the operating plan on a daily basis. The Company strives to maintain
flexibility in its overall merchandising plan in order to respond quickly to
changing consumer preferences, seasonal factors such as weather conditions and
other selling opportunities. Management continually seeks to improve its
merchandise mix to increase overall margins and inventory turnover and reduce
the need for markdowns and promotional sales. Both the Crowley's and Steinbach
stores carry substantially the same merchandise, but in different mixes
according to individual market demands. The mix of merchandise in a particular
store may also vary depending on the size of the store. Management believes
that well-stocked stores and frequent promotional sales contribute
significantly to sales volume. The Company does not maintain a clearance
center, choosing rather to liquidate slow-moving merchandise through its
existing stores.
The percentage contribution to sales by major class of merchandise for
the last three fiscal years for the Crowley's stores was as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------
February 1, February 3, January 28,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Women's apparel and accessories . . . . . . . . . 46.8% 47.3% 49.0%
Men's apparel and accessories . . . . . . . . . . 19.5% 19.3% 19.4%
Children's apparel . . . . . . . . . . . . . . . 8.9% 9.3% 9.4%
Cosmetics . . . . . . . . . . . . . . . . . . . . 4.5% 4.1% 3.0%
Shoes, jewelry, furs and other
leased departments . . . . . . . . . . . . . . 11.5% 11.4% 11.7%
Housewares and luggage . . . . . . . . . . . . . 8.8% 8.6% 7.5%
------ ------ ------
Totals . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
Sales Promotion. The Company primarily uses newspaper, radio and
direct mail advertising, as well as in-store events to stimulate the interests
of customers. Its promotional strategy includes seasonal promotions directed
at selected items and frequent store-wide sales events to highlight brand-name
merchandise and promotional pricing. The Company receives reimbursement for
certain of its promotional activities from certain of its vendors. During the
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past three years, the Company has increased its advertising budget for direct
mail advertising as a result of more efficient use of its information database
of customers and customer preferences. The Company's stores experience
seasonal sales and earnings patterns typical of the retail industry. Peak
sales occur during the Christmas holiday season (Thanksgiving to January 1),
the Spring season (generally Easter through Father's Day) and the Fall season
(generally from the middle of August to the middle of October).
Purchasing. The Company purchases merchandise from dozens of
suppliers, no one of which accounted for as much as 5% of the Company's net
purchases in the fiscal year ended February 1, 1997 ("Fiscal 1996"). The
Company employs 25 buyers. In order to provide purchasing efficiencies and
consistency of product selection throughout all Company stores, all but two of
the Company's buyers are located at Company headquarters in Detroit, Michigan.
Given the special demands of the merchandise, the Company's dress buyer and the
Steinbach cosmetic buyer are located in New York. In Fiscal 1996, the Company
purchased between 15% to 20% of its merchandise from Frederick Atkins.
Excluding Frederick Atkins, the ten largest suppliers of merchandise during
Fiscal 1996 were Liz Claiborne, Alfred Dunner, Haggar, Sag Harbor, Jockey, Lee,
Levi Strauss, Hanes, Coach, and Estee Lauder, and purchases from these
suppliers, as a group, accounted for approximately 30% of net purchases during
the year. Management believes that alternative sources of supply are available
for each category of merchandise it purchases, and that its relationships with
suppliers are generally very good.
Merchandise Distribution. The Company's point-of-sale, in-store
technology captures daily information about sales and in-store inventory
levels, which provides management and buyers with data to analyze trends on a
daily basis, to identify fast and slow-selling merchandise, and to respond to
customer preferences when making buying and markdown decisions. Merchandise is
shipped to the Company's 23 stores in two ways: either directly from certain
vendors, in pre-packaged, pre-priced condition, or through one of the Company's
two regional distribution centers. At the distribution centers, merchandise is
sorted, inspected for quality, recorded into inventory, priced with a UPC
bar-coded label (if not already priced by the manufacturer) and loaded on truck
for delivery to stores. Each distribution center has highly automated
conveyor, racking and sorting equipment and computerized inventory controls
systems. The Company generally does not warehouse apparel merchandise, but
distributes it to stores promptly.
STORE DESIGN, EXPANSION AND REMODELING
The Company's goal is to achieve continued growth in sales and margins
by maintaining and improving market share in its existing markets and by
expanding into markets populated by the type of customers attracted to the
Company's merchandise. Management believes that the Company's existing
distribution facilities are capable of administering a retail organization of
substantially greater sales volume, and to this end the Company is continually
exploring ways of expanding its number of retail locations and per store sales
volume. The Crowley's stores are generally located in secondary regional malls
surrounding the metropolitan Detroit area, with one store in the near-downtown
area and one in a regional mall in Flint, Michigan, about 50 miles northwest of
Detroit. The Steinbach stores are located in suburban areas and in smaller
out-state communities and in many instances are the largest or best-known
retail apparel operation within the local market area. During Fiscal 1996, the
Company began to implement
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the expansion of two existing stores by approximately 25% in size each, and was
forced to close two marginally profitable stores due to action by the
respective landlord for each store. The Company is presently negotiating to
lease a Steinbach store in Cortlandt, New York, and expects to occupy this
space in time for the Fall 1997 selling season.
As the consolidation of retail apparel stores continues, the Company
is frequently presented with opportunities to consider store acquisition from
other retailers in the New England, Midwest and Midsouth regions of the
country. Balanced against the Company's limited capital resources at present,
it is nonetheless management's intention to expand through store acquisition
where the opportunity is believed to be favorable.
INFORMATION SYSTEMS
All of the Company's major information systems are computerized,
including its merchandise, inventory, payroll, and financial reporting systems.
Every store processes each sales transaction through point-of-sale (POS)
terminals that connect on-line with the Company's mainframe computer located at
its corporate offices located in Detroit, Michigan. This system provides
detailed reports on a real-time basis of current sales, gross margin and
inventory levels by store, department, vendor, class, style, color and size.
The Company continues its efforts to enhance a variety of programs
with its vendors, including an automated replenishment inventory system for
certain basic merchandise and an electronic data interchange ("EDI") system
providing for on-line purchase order and charge-back entry. Such systems have
automated certain merchandise purchasing processes.
Management expects to realize benefits in selling and general and
administrative costs as a result of refining the information systems which
currently are in place, and implementing new information systems. The Company
continually upgrades its information systems to improve operations and support
future growth. Currently, the Company is evaluating all of its information
systems in order to address the issues which may be created by the "Year 2000"
programming problem, a challenge currently faced by many users of computerized
information systems.
CREDIT POLICY
Both Crowley's and Steinbach issue their own proprietary credit card,
which management believes enhances the Company's ability to generate sales and
retain customer loyalty. The Crowley's credit card is financed with Beneficial
National Bank USA ("Beneficial"), and the Steinbach credit card is financed
with Alliance Data Systems ("Alliance"), the successor to National City Bank.
As is typical with third-party credit card administered programs, both
Beneficial and Alliance assume the credit risk inherent in this type of
financing program in exchange for a discount charged to the Company. Credit
authorization decisions are made by Beneficial and Alliance in accordance with
their standard credit policies.
Crowley's and Steinbach had 6,864 and 69,678 active credit accounts as
of February 1, 1997. Sales of merchandise made using the Crowley's and
Steinbach credit cards were approximately 3.4% and 26.8% of net sales,
respectively, during Fiscal 1996. A new credit card
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solicitation program has been established at Crowley's to parallel the charge
activity at the Steinbach stores. The typical credit program offered by both
Beneficial and Alliance to the Company's customers requires a minimum monthly
payment of the outstanding balance. Finance charges are currently assessed on
unpaid balances of both the Crowley's and Steinbach cards at the rate of Prime
+ 13.15%. A late charge fee on delinquent accounts for Crowley's and Steinbach
is currently assessed at a rate of $15. The Company is presently evaluating
enhancements to both the Beneficial and Alliance programs in fiscal 1997.
In addition, sales under third party credit card programs (VISA,
MasterCard, Discover and American Express) for Crowley's and Steinbach were
62.8% and 37.5% of net sales, respectively, during Fiscal 1996. These credit
card programs enable the Company to capture data about its customers and their
buying preferences and habits, which enhances the Company's ability to
implement a more effective advertising and promotional strategy.
LEASED DEPARTMENTS
The Company offers shoes, fine jewelry, millinery, furs and maternity
goods, as well as beauty salon services, through leased departments. The
independent operators supply their own merchandise, sales personnel and
advertising and pay the Company a percentage of gross sales as rent.
Management believes that while the cost of sales attributable to leased
department sales is generally higher than other departments, the relative
contribution of leased department sales to earnings is comparable to that of
the Company's other departments inasmuch as the lessee assumes substantially
all operating expenses of the department. This allows the Company to reduce
its level of selling, advertising, and other general and administrative
expenses associated with leased department sales. For Crowley's, leased
department sales as a percent of total sales were 11.5%, 11.4%, and 11.7% in
Fiscal 1996, 1995 and 1994, respectively. Gross margin applicable to the
leased departments was 13.7%, 13.5%, and 13.7% in Fiscal 1996, 1995, and 1994,
respectively. For Steinbach, leased department sales as a percentage of sales
were 5.6% for the period from September 1, 1996, through February 1, 1997.
Gross margin applicable to the leased departments was 15.0% for this period.
Comparable sales and gross margin information for previous periods is not
available.
COMPETITION
The retail department store and specialty apparel businesses are
highly competitive. Given this, and the trend towards consolidation of
competitors within the retail industry, the competition facing the Company is
intense and is expected to remain so. Both Crowley's and Steinbach compete
with a multitude of retail department stores in their market areas, including
branches of regional and local companies which are substantially larger in size
as well as smaller department stores. Several national retailers have opened
stores in the Crowley's store market area within the last few years. In
addition, competition from specialty stores and boutiques, as well as off-price
merchandisers, is an important factor. Similar merchandise is generally
available to competitors at approximately the same cost. The principal methods
of competition are price, service, and quality of merchandise. The Company is
unable to estimate the number of competitors or its competitive position. In
addition, the ongoing impact of the new competition on the Company's sales and
earnings cannot be quantified at this time.
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EMPLOYEES
General. At February 1, 1997, the Company employed approximately 800
full-time and 1,200 part-time persons. The Company's sales in its fourth
quarter traditionally have been materially greater than sales in the other
three quarters due to seasonal buying patterns of consumers. As a result, the
number of employees increased during the fourth quarter to a maximum of
approximately 2,400 persons. An average of 1,900 employees were employed during
the remaining three fiscal quarters of the year.
To attract and retain qualified employees, the Company offers a 20%
discount on most merchandise purchases, participation in a 401(k) Retirement
Savings Plan to which the Company may make an annual contribution (the Company
made a 25% match of employees' contributions during Fiscal 1996). In addition,
vacation, sick and holiday pay benefits as well as contributory health care,
accident, death, disability and dental plans are made available to the employee
and eligible beneficiaries. The Company also has a performance-based incentive
pay program for certain of its officers and key employees and sponsors a stock
option plan that provides for the grant of stock options and restricted stock
to certain officers and key employees of the Company.
ITEM 2. PROPERTIES
Crowley's currently operates one central corporate office and
distribution center, and nine department stores. Steinbach currently operates
14 department stores. Set forth below are brief descriptions of these
properties.
CORPORATE HEADQUARTERS AND CROWLEY'S DISTRIBUTION CENTER
The Company's corporate headquarters and Crowley's distribution center
are located in a single building at 2301 West Lafayette Boulevard, Detroit,
Michigan, which is being acquired under a lease-purchase agreement with The
Economic Development Corporation of the City of Detroit. The Company's
headquarters occupy approximately 42,000 square feet of this facility, and
within these offices are located the executive officers of the Company, its
buying, treasury, accounting, personnel/human resources, accounts payable and
management information systems operations. Crowley's distribution facility was
designed and equipped to meet Crowley's long-term merchandise distribution
needs, and enhances Crowley's ability to quickly respond to changing customer
preferences. Crowley's receives most of its merchandise at its 55,000 square
foot facility which is strategically located to service economically Crowley's
existing store locations in the Detroit and Flint metropolitan areas.
Currently, merchandise arriving at the distribution center is inspected,
recorded by computer into inventory and tagged with a bar-coded price label.
The Company generally does not warehouse apparel merchandise, but distributes
the merchandise to stores promptly. Frequent distribution during the week
enables the Company to respond quickly to fashion and market trends and ensure
merchandise displays and store stockrooms are well stocked.
Effective at the end of April 1995, the Company's sublease of
approximately 70,000 square feet of this facility and a portion of the adjacent
parking area to Greyhound Lines, Inc.
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expired. The Company currently is attempting to sell or lease this entire
facility. See Note D of the Notes to Consolidated Financial Statements.
STEINBACH DISTRIBUTION CENTER
The Steinbach distribution facility is leased from a third party by a
Contractor who is engaged in the business of operating warehousing and
distribution centers. Steinbach and the Contractor have entered into an
operating agreement which provides that the Contractor will process the
warehousing and distribution services of the Steinbach stores. The Contractor
is compensated for these services on a per piece basis. Management believes
that the retention of a contractor to provide warehousing and distribution
services for the Steinbach operations compares favorably to the alternative of
the Company operating a separate distribution center. The operating agreement
extends through January 1998.
Steinbach receives most of its merchandise at this 100,000 square foot
facility. Currently, merchandise arriving at the distribution center is
inspected, recorded by computer into inventory and tagged with a bar-coded
price label. The Company generally does not warehouse apparel merchandise, but
distributes the merchandise to stores promptly. Frequent distribution during
the week enables the Company to respond quickly to fashion and market trends
and ensure merchandise displays and store stockrooms are well stocked.
RETAIL DEPARTMENT STORES
The table below sets forth information about the 23 retail department
stores currently operated by the Company. All store locations are leased
except for the Crowley's store located at Tel-Twelve Mall in Southfield,
Michigan, which was acquired with the proceeds of tax-exempt bonds issued by
The Economic Development Corporation of the City of Southfield in 1985.
Management believes that these properties, as well as its furniture, fixtures
and furnishings, and machinery and equipment, are well maintained, suitable and
adequate for their intended uses, and in general are fully utilized.
<TABLE>
<CAPTION>
Expiration Option
Approximate Owned or of Current Available
Store Location Square Footage Leased Lease Term Through
- -------------- -------------- ----------- ---------- -------
<S> <C> <C> <C> <C>
Crowley Division:
Dearborn, Michigan (Westborn) . . . . . . 106,000 Leased February 2004 --
Roseville, Michigan (Macomb Mall) . . . . 127,000 Leased November 2001 --
Livonia, Michigan (Livonia Mall) . . . . . 127,000 Leased January 2000 --
Detroit, Michigan (New Center) . . . . . . 57,256 Leased August 2006 2026
Farmington Hills, Michigan . . . . . . . . 81,900 Leased August 1998 --
Sterling Heights, Michigan
(Lakeside Mall) . . . . . . . . . . . 115,300 Leased February 2006 2026
Warren, Michigan (Universal Mall) . . . . 102,400 Leased September 2000 2020
Southfield, Michigan (Tel-Twelve Mall) . . 57,000 Owned *
Southfield, Michigan (Tel-Twelve Mall) . . 12,665 Leased October 2015 2035
Burton, Michigan (Courtland Center) . . . 61,000 Leased August 2001 2011
</TABLE>
- -------------
*The land for this store is leased until February 2016.
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<TABLE>
<S> <C> <C> <C> <C>
Steinbach Division:
Plattsburgh, New York
(Champlain Center Mall) . . . . . . . 52,825 Leased July 2012 2037
Watertown, New York
(Salmon Run Mall) . . . . . . . . . . 52,825 Leased November 2011 2021
New Hartford, New York . . . . . . . . . . 49,650 Leased March 2011 --
Glen Falls, New York . . . . . . . . . . . 34,755 Leased March 2003 --
Clifton Park, New York
(Clifton Country Mall) . . . . . . . . 54,175 Leased December 2010 2020
Newburgh, New York (Newburgh Mall) . . . . 24,820 Leased January 2000 2010
Tarrytown, New York . . . . . . . . . . . 13,725 Leased January 2001 2006
Fairfield, Connecticut . . . . . . . . . . 71,460 Leased January 2002 2012
Hamden, Connecticut . . . . . . . . . . . 58,850 Leased January 2002 2012
Waterford, Connecticut
(Waterford Shopping Center) . . . . . 36,075 Leased March 2005 2015
Red Bank, New Jersey . . . . . . . . . . . 33,330 Leased January 1998 2003
Brick, New Jersey (Brick Plaza) . . . . . 43,000 Leased July 1999 2009
Concord, New Hampshire
(Steeplegate Mall) . . . . . . . . . 51,245 Leased December 2014 --
Burlington, Vermont (Universal Mall) . . . 60,000 Leased September 1998 2018
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in various routine legal
proceedings and claims incidental to the normal conduct of its business, which
are not material to the financial condition or results of operations of the
Company, either individually or in the aggregate.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The principal market on which the Company's common stock is traded is
the American Stock Exchange, where the stock trades under the symbol COM. As
of April 9, 1997, there were 148 record holders of the Company's Common Stock
according to the records maintained by the Company's stock transfer agent. The
following table sets forth, for the periods indicated, the range of high and
low sales prices on such Exchange for each quarter in the two fiscal years
ended February 1, 1997:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended February 1, 1997:
First Quarter . . . . . . . . . . . $ 6.00 $ 4.375
Second Quarter . . . . . . . . . . . 7.25 5.00
Third Quarter . . . . . . . . . . . 11.75 6.875
Fourth Quarter . . . . . . . . . . . 11.75 6.00
Fiscal Year Ended February 3, 1996:
First Quarter . . . . . . . . . . . $ 4.75 $ 3.50
Second Quarter . . . . . . . . . . . 5.00 3.875
Third Quarter . . . . . . . . . . . 4.75 3.00
Fourth Quarter . . . . . . . . . . . 6.00 4.00
</TABLE>
During the two fiscal years ended February 1, 1997, the Company has
not paid or declared cash dividends in respect of its Common Stock. Under the
terms of the Company's three-year line of credit, the Company's ability to pay
dividends on its Common Stock is restricted. See Item 7, "Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
Note D of the Notes to Financial Statements for a description of this line of
credit. The Company's ability to pay cash dividends in the future will depend
upon its future earnings, results of operations, capital requirements and
financial condition, its ability to obtain modification of its debt covenants
and such other factors as the Company's Board of Directors deems relevant.
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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain consolidated historical
financial data of the Company for each of the years in the five-year period
February 1, 1997. All information is presented in accordance with generally
accepted accounting principles. This information should be read in conjunction
with the audited consolidated financial statements of the Company appearing
elsewhere herein, and the report thereon of Ernst & Young LLP, independent
auditors for the Company.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
FEBRUARY FEBRUARY 3, JANUARY 28, JANUARY 29, JANUARY 30,
1, 1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(RESTATED) (RESTATED) (RESTATED) (RESTATED)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIO)
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net sales including leased departments $153,003 $105,863 $109,927 $106,935 $106,349
Cost of merchandise and services sold 100,688 71,540 74,519 71,553 70,453
Operating expenses (includes
restructuring charge of $1,900,000
for 1993) 48,868 33,446 33,784 34,389 39,391
Interest expense 2,562 1,805 1,615 1,366 1,394
Earnings (loss) before income taxes 2,082 (1,560) 286 (102) (4,737)
Federal income tax expense 270 280 (250) (210) (270)
Net earnings (loss) 1,812 (1,840) 536 108 (4,467)
Dividends paid -- -- -- -- --
Capital expenditures 2,402 504 527 57 626
Depreciation and amortization 1,356 1,317 1,671 2,128 2,626
Cash provided by (used in) operations (6,750) (1,758) 1,654 (4,933) 3,560
PER SHARE:
Net earnings (loss) $1.46 $ (1.87) $0.44 $0.09 $ (4.39)
Dividends paid -- -- -- -- --
Shareholders' equity 11.71 13.61 15.53 15.34 15.34
Market price -- high 11.75 6.00 11.88 12.13 8.75
Market price -- low 4.37 3.00 3.75 3.07 4.50
FINANCIAL POSITION:
Working capital $12,930 $9,456 $11,974 $11,515 $6,677
Ratio of current assets to current 1.32x 1.56x 1.90x 1.75x 1.38x
liabilities
Inventories $46.556 $21,251 $21,824 $21,474 $17,838
Properties -- net 12,619 9,759 10,572 11,715 13,896
Total assets 70,688 40,900 40,938 43,278 41,746
Long-term debt (including capital
lease obligations) 11,058 9,076 9,766 10,442 7,013
Shareholders' equity 17,646 13,148 16,275 15,617 15,619
Shareholders' return on equity 10.3% -- 3.3% 0.7% --
</TABLE>
- ----------
Note: All per share calculations for years prior to fiscal 1994 have been
adjusted to reflect the 2-for-1 stock split which occurred May 25,
1994.
12
<PAGE> 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table sets forth operating data from the Company's Consolidated
Statements of Operations stated as a percentage of net sales for the fiscal
years indicated.
<TABLE>
<CAPTION>
Fiscal Year Ended
----------------------------------------------------------------
February 1, February 3, January 28,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0%
Cost of merchandise and services sold . . . . . . . 65.8 67.6 67.8
Gross Margin . . . . . . . . . . . . . . . . . . . . 34.2 32.4 32.2
Operating expense. . . . . . . . . . . . . . . . . . 31.9 31.6 30.7
Interest expense . . . . . . . . . . . . . . . . . . . 1.7 1.7 1.5
Other income (expense) net . . . . . . . . . . . . . . 0.8 (0.6) 0.3
Earnings (loss) before income taxes . . . . . . . . . 1.4 (1.5) 0.3
Net earnings (loss) . . . . . . . . . . . . . . . . . 1.2 (1.5) 0.5
</TABLE>
Fiscal 1996 compared with Fiscal 1995
The Company reported net income of $1.8 million for Fiscal 1996 ($1.46
per share), compared with a restated net loss of $1.8 million for the fiscal
year ended February 3, 1996 ("Fiscal 1995") ($1.87 per share) and restated net
income of $0.5 million for the fiscal year ended January 28, 1995 ("Fiscal
1994") ($0.44 per share). Earnings for Fiscal 1995 were restated as a result
of a change from the last-in, first-out ("LIFO") inventory method to the
first-in, first-out ("FIFO") inventory method -- see Note A, Change in Method
of Accounting for Inventories, in Notes to Consolidated Financial Statements.
The Company's Fiscal 1996 earnings performance was the best in the past ten
years. Crowley's same store sales of $106.7 million in Fiscal 1996 exceeded
Fiscal 1995 sales of $105.9 million. Consolidated sales, which include sales
from the Steinbach Stores since their acquisition by Crowley's at September 1,
1996, exceeded $153 million. For the year, sales from the Steinbach Stores
exceeded $87 million. Assuming the sales from the Steinbach Stores had been
consolidated for the entire year, total sales for the Company would have
exceeded $194 million.
Crowley's gross profit percentage, exclusive of the operation of the
Steinbach Stores, increased to 33.1% in Fiscal 1996 compared to 32.4% last
year. For the five months from September 1, 1996 through February 1, 1997,
Steinbach's gross profit percentage was 36.8%. Consolidating Steinbach's
operating results for the five months beginning September 1 improved the
Company's gross profit percentage further to 34.2% for Fiscal 1996. Impacting
the gross profit percentage were the following: positive adjustment for the
provision for merchandise and gift certificate redemptions of $250,000 (third
quarter); positive adjustment for the provision for merchandise returns of
$225,000 (third quarter); negative adjustment related to a provision for loss
related to the closing of the Crowley's Birmingham store of $450,000 (fourth
quarter); negative adjustment related to the provision for certain additional
costs related
13
<PAGE> 14
to the Steinbach inventory of $300,000 (fourth quarter); and lower of cost or
market ("LOCOM") inventory adjustments of $200,000 (fourth quarter).
Notwithstanding the significant negative adjustments which the Company booked
to its cost of merchandise, the Company's gross profit percentage improved from
34.2% in 1996 compared to 32.4% in Fiscal 1995. Management attributes the
improvement in the gross profit percentage to year-long efforts to control
inventory shrinkage, with a particular focus in revising and implementing loss
prevention techniques and procedures.
On a consolidated basis, the Company's Fiscal 1996 selling, general,
and administrative expenses were 31.9% of sales. The negligible increase from
31.6% to 31.9% from last year is attributed to expenses incurred in absorbing
the Steinbach operations. The continuing decrease in these expenses as a
percentage of sales is attributed to management's continued and diligent
efforts in managing these costs. Exclusive of the operation of the Steinbach
stores, Crowley's Fiscal 1996 selling, general, and administrative expenses,
expressed as a percentage of sales, increased slightly to 32.0% from 31.6%.
Pursuant to the provisions of the Interim Operating Agreement (see Note B,
Steinbach Stores Acquisition, in Notes to Consolidated Financial Statements)
Crowley's operated the Steinbach stores from February 4, 1996, through August
31, 1996, and did not allocate any corporate overhead to the Steinbach stores
during this period. Assuming corporate overhead expenses had been allocated,
Crowley's Fiscal 1996 selling, general, and administrative expenses would be
30.3% of sales. For the five months from September 1, 1996, through February
1, 1997, Steinbach's selling, general, and administrative expenses, expressed
as a percentage of sales, were 32.9% of sales.
Exclusive of the operation of the Steinbach stores, interest expense
declined slightly to 1.68% from 1.70%, as a percentage of sales. This
improvement was generally attributable to the reduction in the nominal interest
rate charged on the Company's revolving loan. The reduced interest rate (prime
plus .25% versus prime plus 1%) was effective as of September 5, 1996 (see Note
D, Financing Arrangements in Notes to Consolidated Financial Statements). On a
consolidated basis, the Company's interest expense remained at 1.70% of sales
when comparing Fiscal 1996 interest expense to the interest expense in Fiscal
1995. Notwithstanding the favorable interest rate reduction experienced during
Fiscal 1996, as a result of vendor prepayments and deposits that the Company
made during the first two quarters of Fiscal 1996, interest as a percent of
sales matched last year's performance. See Note A, Change in Method of
Accounting for Inventories, in Notes to Consolidated Financial Statements, for
details related to the vendor prepayments. In the third and fourth quarter of
1996, the Company experienced a dramatic decrease in requested prepayments from
vendors.
As is more fully detailed in Note B, Steinbach Stores Acquisition, in
Notes to Consolidated Financial Statements, Crowley's acquired all of the stock
of Steinbach Stores, Inc., an Ohio corporation ("Steinbach") effective as of
August 31, 1996 (the "Acquisition"). From December 31, 1995, until the
consummation of the Acquisition, Crowley's operated the 15 department stores to
be acquired as part of the Acquisition (the "Acquired Stores"), with all of the
revenues and all of the costs and expenses related thereto accruing for the
account of Crowley's. In this regard, other income in Fiscal 1996 includes
$0.8 million generated from operating these Steinbach stores from February 4,
1996, through August 31, 1996. Last year, other expense was charged $957,000
for operating the Steinbach stores, and for costs associated with the
Acquisition.
14
<PAGE> 15
Fiscal 1995 compared with Fiscal 1994
Net sales for Fiscal 1995 declined 3.7% to $105,863,000 from the
$109,927,000 recorded in Fiscal 1994. The sales decrease was primarily
attributable to the general sluggishness of the retail sales economy in 1995,
particularly in women's apparel. Comparable store sales also decreased 3.7%
during Fiscal 1995.
On a restated basis, gross margins as a percentage of sales in Fiscal
1995 were 32.4%, compared to 32.2% in Fiscal 1994. Gross margin dollars were
also lower in Fiscal 1995 due to lower sales levels. Despite the highly
competitive promotional retail sales environment, the Company managed to
slightly decrease its markdowns as a percent of sales. Gross margins represent
income derived from sales of the Company's owned inventory, as well as
commissions earned on sales by its licensed departments. Licensed departments
income represented 4.9% of total gross margin dollars for both Fiscal 1995 and
Fiscal 1994.
Operating expenses declined $338,000, or 1.0%, in Fiscal 1995 from the
Fiscal 1994 levels. The sales decrease in Fiscal 1995 caused operating
expenses, as a percent of sales, to increase to 31.6% in Fiscal 1995 from 30.7%
in Fiscal 1994. Depreciation charges, rental equipment and property tax costs
were the primary expenses that declined during Fiscal 1995. Limited capital
expenditures and numerous fixed assets becoming fully depreciated in recent
years account for the $353,000, or 21.2%, lower depreciation charges. The
Company's mainframe computer became owned property at the expiration of the
lease in February 1995, accounting for the majority of the $220,000, or 50.5%
decrease in rental equipment costs. Refunds from property tax appeals were the
main contributor to a $238,000, or 23.2%, reduction in property taxes during
Fiscal 1995.
Increased borrowings on the Company's short term line of credit during
Fiscal 1995 contributed to a $189,000, or 11.7%, increase in interest expense
charges when compared to Fiscal 1994. The higher borrowings were used to fund
the loss incurred by the Company in Fiscal 1995 and to purchase the common
stock and option of a major shareholder.
During Fiscal 1995, the Company also recorded a charge of $957,000
related to the integration of the Steinbach stores into the Crowley's
organization. The charge includes a $727,000 loss on the operation of
Steinbach during January 1996 and $230,000 of travel, moving, and other
personnel related costs incurred in establishing the organization both on the
east coast and in Detroit to accommodate the Steinbach acquisition. Included
in the January Steinbach loss is a $700,000 reserve for needed price reductions
to clear existing inventory assumed by the Company when it began operating the
stores on December 31, 1995. For a more detailed discussion of the Steinbach
Stores acquisition, see Note B in Notes to Consolidated Financial Statements.
A restated net loss of $1.8 million ($1.87 per share) was recorded in
Fiscal 1995 compared with restated net earnings of $0.5 million ($0.44 per
share) in Fiscal 1994. The Fiscal 1995 loss included the above mentioned
$957,000 of integration costs related to the Steinbach acquisition.
15
<PAGE> 16
FINANCIAL CONDITION
At February 1, 1997, the Company's working capital was $12.9 million
with a current ratio of 1.32:1, compared with a restated working capital and
current ratio of $9.5 million and 1.56:1, respectively, at February 3, 1996.
The $3.4 million increase in the Company's working capital is generally
attributed to Crowley's change in its method of valuing inventories from the
LIFO to the FIFO method. The decline in the current ratio is attributed to
higher than expected year-end inventory levels and the related short-term
borrowings associated with those inventory levels.
As has been the case historically, the Company's primary sources of
liquidity are cash provided by operating activities and borrowings under the
Company's short-term line of credit. In connection with the Steinbach
acquisition, the Company increased the borrowing capacity on its short-term
line of credit to $24 million from $12 million. For a more detailed discussion
of the change in terms with the Company's line of credit, see Note D in Notes
to Consolidated Financial Statements. Cash used in operating activities in
Fiscal 1996 was $6.7 million compared with cash used (restated) of $1.8 million
in Fiscal 1995 and cash provided (restated) of $1.7 million in 1994.
The significant change in cash used in operating activities in Fiscal
1996 generally was attributable to cash required to fund the expenses and
increased inventories associated with acquisition of the Steinbach stores.
Notwithstanding the fact that the acquisition was effected by an exchange of
stock, pursuant to the terms of the Interim Operating Agreement, Crowley's was
required to fund the inventory purchases which were completed during the course
of the Agreement. In addition, the initial merchandise stocking of the
Steinbach stores utilized a significant outlay of capital by the Company.
The change in cash used in investment activities also reflected the
impact of the Steinbach acquisition. In addition, capital expenditures
amounted to $653,000 and $504,000 in Fiscal 1996 and 1995, respectively. The
Fiscal 1996 capital expenditures included store fixturing and additional
computer equipment.
Cash provided by financing activities totaled $8.8 million in Fiscal
1996 compared to $2.7 million in Fiscal 1995. With the acquisition of the
Steinbach stores, the Company's borrowing needs increased in order to fund the
Steinbach store's merchandising requirements. As a result, borrowings
outstanding under the Company's short-term line of credit increased
significantly from Fiscal 1995 to Fiscal 1996.
When negotiated, the $24 million borrowing base was adequate to
satisfy the Company's working capital and capital expenditure needs of both
organizations. However, inasmuch as the Company is planning to open new stores
and expand the capacity of two stores in 1997, the Company's liquidity needs
will change. The Company currently has requested an increase to its borrowing
capacity from its current lender from $24 million to $32 million. The Company
believes that a $32 million facility will meet all of the current funding needs
and satisfy the needs for expansion and renovation of its current stores.
Capital expenditures for both organizations, exclusive of the acquisition of
new stores, are planned at
16
<PAGE> 17
$1,500,000 for Fiscal 1997. These capital expenditures include store leasehold
improvements, store fixturing, and computer and office equipment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and its
subsidiary, together with the report thereon of Ernst & Young LLP, included in
this report under this Item are listed under Item 14 of this report, and can be
found beginning on page 22. Schedule II, Valuation and Qualifying Accounts,
is included with this report on page 38, immediately following the financial
statements. No other supplementary financial statement schedules are required
to be filed with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
17
<PAGE> 18
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is included in the Proxy
Statement under the captions "Election of Directors", "Executive Officers" and
"Section 16(a) Beneficial Ownership and Reporting Compliance" and is hereby
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is included in the Proxy
Statement under the captions "Executive Compensation", "Employment Contracts,
Termination of Employment, and Change-in-Control Arrangement", "Compensation
Committee Interlocks and Insider Participation", "Compensation Committee Report
on Executive Compensation" and "Stock Performance Graph" and is hereby
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is included in the Proxy
Statement under the captions "Election of Directors" and "Principal
Shareholders" and is hereby incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is included in the Proxy
Statement under the captions "Certain Transactions" and "Indebtedness of
Management" and is hereby incorporated herein by reference.
18
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements and financial statement schedules
are filed with this report:
1. Financial Statements
Page
Number
------
Report of Independent Auditors . . . . . . . . . . . . 22
Consolidated Balance Sheets at February 1, 1997 and
February 3, 1996 . . . . . . . . . . . . . . 23
Consolidated Statements of Operations for the fiscal
years ended February 1, 1997, February 3, 1996,
and January 28, 1995 . . . . . . . . . . . . 24
Consolidated Statements of Shareholders' Equity for the
fiscal years ended February 1, 1997, February 3,
1996, and January 28, 1995 . . . . . . . . . 25
Consolidated Statements of Cash Flows for the fiscal
years ended February 1, 1997, February 3,
1996, and January 28, 1995 . . . . . . . . . 26
Notes to Consolidated Financial Statements . . . . . . 27
2. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts. . . 38
(b) Reports on Form 8-K.
No Current Reports on Form 8-K were filed during the fiscal quarter
ended February 1, 1997.
(c) The Exhibits required to be filed as part of this Form 10-K are the
following:
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Reorganization, dated November 17, 1995,
as amended by Amendment No. 1 thereto dated December 29, 1995,
Amendment No. 2 thereto dated May 14, 1996 and Amendment No. 3
thereto dated July 26, 1996, between the Registrant and the
shareholders of Steinbach Stores, Inc. (previously filed as an
exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended October 28, 1995; Amendment No. 1 previously
filed as Exhibit No. 10.12 to the Registrant's Annual Report
on Form 10-K for the year ended February 3, 1996; Amendment
No. 2 previously filed as Exhibit No. 10.14 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended May 4, 1996; Amendment No. 3 thereto previously filed
as Exhibit No. 10.12 to the Registrant's current report on
Form 8-K filed on September 16, 1996, each of which is
incorporated herein by reference)
19
<PAGE> 20
3.1 Restated Articles of Incorporation, as amended to date
(previously filed as Exhibit 3.1 to the Registrant's Form 10-Q
Quarterly Report for the quarter ended October 29, 1994, and
incorporated herein by reference)
3.2 Bylaws, as amended to date (previously filed as Exhibit 3.2 to
the Registrant's Form 10-K/A Annual Report for the year ended
February 3, 1996, and incorporated herein by reference)
.
10.1* Amended and Restated Supplemental Executive Retirement Plan,
effective December 1, 1992 (previously filed as Exhibit 10(a)
to the Registrant's Form 10-K Annual Report for the year ended
January 30, 1993, and incorporated hereby by reference)
10.2* Employment Agreement with Dennis P. Callahan, dated November
2, 1992 (previously filed as Exhibit 10(c) to the Registrant's
Form 10-K Annual Report for the year ended January 30, 1993,
and incorporated herein by reference)
10.5 The Economic Development Corporation of the City of Detroit
Lease Purchase Agreement, dated December 1, 1979, as amended
to date (previously filed as an exhibit to the Registrant's
Form 10-K Annual Report for the year ended January 31, 1981
and incorporated herein by reference; Amendment No. 1
previously filed as Exhibit 10(f) to the Registrant's Form
10-K Annual Report for the year ended January 29, 1994, and
incorporated herein by reference)
10.6 Loan Agreement between The Economic Development Corporation of
the City of Southfield and the Registrant, dated January 15,
1985 (previously filed as an exhibit to the Registrant's Form
10-K Annual Report for the year ended January 29, 1985, and
incorporated herein by reference)
10.7* Crowley, Milner & Company Profit Sharing Plan dated February
1, 1984, as amended to date (previously filed as an exhibit
to the Registrant's Form 10-K Annual Report and Form 10-K/A
Amendment 1 for the year ended January 30, 1993; Amendment
No. 1 previously filed as Exhibit No. 10.7 to the Registrant's
Form 10-K Annual Report for the year ended February 3, 1996,
and incorporated herein by reference)
10.8* Savings and Profit Sharing Retirement Plan of Steinbach
Stores, Inc. and Participating Afffiliated Companies, as
amended and restated effective as of February 11, 1995 (filed
herewith)
10.9* Crowley, Milner and Company 1992 Incentive Stock Plan,
effective as of March 25, 1992 (previously filed as Exhibit
10(k) to the Registrant's Form 10-K Annual Report for the year
ended January 30, 1993, and incorporated herein by reference;
Amendment No. 1 previously filed as Exhibit 10.8 to the
Registrant's Form 10-K Annual Report for the year ended
February 3, 1996, and incorporated herein by reference;
Amendment No. 2 previously filed as Exhibit No. 10.8 to the
Registrant's Form 10-Q Quarterly Report for the quarter ended
August 3, 1996,
20
<PAGE> 21
and incorporated herein by reference)
10.10* Crowley, Milner and Company 1995 Non-Employee Director Stock
Option Plan effective as of March 22, 1995 (previously filed
as Exhibit No. 10.9 to the Registrant's Form 10-K Annual
Report for the year ended February 3, 1996, and incorporated
herein by reference)
10.11 Amended and Restated Loan and Security Agreement, dated
September 5, 1996, among Congress Financial Corporation
(Central), Crowley, Milner and Company and Steinbach Stores,
Inc. (previously filed as Exhibit 10.10 to the Registrant's
Current Report on Form 8-K, filed September 16, 1996)
10.12 Restricted Stock Agreement, dated August 24, 1994, as amended,
between Dennis P. Callahan and the Registrant (previously
filed as an exhibit to the Registrant's Form 10-Q Quarterly
Report for the quarter ended October 29, 1994, and
incorporated herein by reference; amendment previously filed
as Exhibit 10.13 to the Registrant's Form 10-K Annual Report
for the year ended January 28, 1995, and incorporated herein
by reference)
10.13 Interim Operating Agreement, dated December 29, 1995, as
amended, among Crowley, Milner and Company, Steinbach Stores,
Inc. and the several shareholders of Steinbach Stores, Inc.
(previously filed as Exhibit 10.13 to the Registrant's Annual
Report on Form 10-K for the year ended February 3, 1996 and
incorporated herein by reference; Amendment No. 1 thereto
previously filed as Exhibit No. 10.13 to the Registrant's
Current Report on Form 8-K filed on September 16, 1996, and
incorporated herein by reference).
11 Computation of Per Share Earnings (filed herewith)
23 Consent of Ernst & Young LLP (filed herewith)
27 Financial Data Schedule (EDGAR filing only)(filed herewith)
- --------------
* Management contract or compensatory plan or arrangement.
21
<PAGE> 22
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Crowley, Milner and Company
We have audited the accompanying consolidated balance sheet of
Crowley, Milner and Company and subsidiary as of February 1, 1997 and February
3, 1996 and the related consolidated statements of operations, shareholders'
equity, and cash flows for each of the three fiscal years in the period ended
February 1, 1997. Our audit also included the financial statement schedule
listed in the index at Item 14(a). These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Crowley, Milner and Company and subsidiary at February 1,
1997 and February 3, 1996 and the consolidated results of its operations and
its cash flows for each of the three fiscal years in the period ended February
1, 1997 in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects, the information set forth therein.
In 1996, the Company changed its method of accounting for inventories,
as discussed in Note A to the consolidated financial statements.
/S/ ERNST & YOUNG LLP
Ernst & Young LLP
Detroit, Michigan
April 3, 1997
22
<PAGE> 23
BALANCE SHEET
CROWLEY MILNER AND COMPANY
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
---- ----
<S> <C> <C>
Assets--
Current Assets:
Cash and cash equivalents (Cash equivalents of $176,728
for 1996 and $241,047 for 1995) . . . . . . . . . . . . . . $ 215,316 $ 540,613
Accounts receivable, less allowances ($66,258 for 1996 and
$61,558 for 1995) . . . . . . . . . . . . . . . . . . . . . 2,813,759 2,014,918
Inventories at the lower of first-in, first-out cost or
market (Note A) . . . . . . . . . . . . . . . . . . . . . . 46,555,769 21,250,958
Deferred property taxes . . . . . . . . . . . . . . . . . . . 1,396,848 1,497,678
Other current accounts . . . . . . . . . . . . . . . . . . . . 1,950,510 1,070,276
----------- -----------
Total Current Assets . . . . . . . . . . . . . . . . . . . 52,932,202 26,374,443
----------- -----------
Other Assets
Deposits under EDC financing arrangements -- Note D . . . . . 634,308 634,308
Deferred tax asset -- Note F . . . . . . . . . . . . . . . . . 1,580,000 1,580,000
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . 2,922,660 2,551,698
----------- -----------
5,136,968 4,766,006
----------- -----------
Properties -- Notes D and E
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 315,000 315,000
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . 13,274,001 10,206,055
Leasehold improvements . . . . . . . . . . . . . . . . . . . . 6,757,605 6,008,455
Furniture, fixtures and equipment . . . . . . . . . . . . . . 7,359,066 7,065,000
----------- -----------
27,705,672 23,594,510
Less allowances for depreciation and amortization . . . . . . (15,086,513) (13,835,918)
----------- -----------
12,619,159 9,758,592
----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . $70,688,329 $40,899,041
=========== ===========
Liabilities and Shareholders' Equity--
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $17,587,798 $ 5,279,188
Notes payable short term . . . . . . . . . . . . . . . . . . 18,092,794 8,499,392
Compensation and amounts withheld therefrom . . . . . . . . 1,424,667 597,556
Property taxes . . . . . . . . . . . . . . . . . . . . . . . 1,353,131 1,391,173
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . 34,972 34,495
Other taxes . . . . . . . . . . . . . . . . . . . . . . . . 670,062 406,025
Current maturities of long-term debt . . . . . . . . . . . . 575,000 525,000
Current maturities of capital lease obligations . . . . . . 263,869 185,402
----------- -----------
Total Current Liabilities . . . . . . . . . . . . . . . . 40,002,293 16,918,231
Long-Term Liabilities
Long-term debt -- Note D . . . . . . . . . . . . . . . . . . 4,750,000 5,325,000
Capital lease obligations -- Note E . . . . . . . . . . . . 6,307,565 3,750,868
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,982,053 1,757,278
----------- -----------
13,039,618 10,833,46
Shareholders' Equity--
Common stock, (authorized 4,000,000 shares, outstanding
1,507,387 shares for 1996, outstanding 966,069 shares
for 1995) . . . . . . . . . . . . . . . . . . . . . . . 1,507,387 969,069
Other capital . . . . . . . . . . . . . . . . . . . . . . . 3,283,560 1,178,621
Retained earnings . . . . . . . . . . . . . . . . . . . . . 12,855,471 11,002,974
----------- -----------
17,646,418 13,147,664
----------- -----------
Total Liabilities and Shareholders' Equity $70,688,329 $40,899,041
=========== ===========
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 24
STATEMENT OF OPERATIONS
CROWLEY MILNER AND COMPANY
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
---- ---- ----
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
Revenues --
Net sales -- owned departments . . . . . . . . . . . . $137,835,829 $ 93,771,396 $ 97,074,194
Net sales -- leased departments . . . . . . . . . . . 15,167,467 12,091,107 12,852,490
------------ ------------ ------------
Total Net sales . . . . . . . . . . . . . . . . . . . 153,003,296 105,862,503 109,926,684
Investment income . . . . . . . . . . . . . . . . . . 142,834 96,696 68,726
Other income . . . . . . . . . . . . . . . . . . . . . 217,596 228,075 209,331
------------ ------------ ------------
153,363,726 106,187,274 110,204,741
Cost and Expenses --
Cost of merchandise and services sold . . . . . . . . 100,688,449 71,540,072 74,519,430
Operating expenses . . . . . . . . . . . . . . . . . . 48,868,301 33,446,093 33,784,441
Interest . . . . . . . . . . . . . . . . . . . . . . . 2,562,108 1,804,572 1,615,248
Operating (income) loss and costs related
to integration of Steinbach Stores Inc. - Note B (837,213) 957,276 -
------------ ------------ ------------
151,281,645 107,748,013 109,919,119
------------ ------------ ------------
Earnings (Loss) Before Income Taxes . . . . . . . . . . . . 2,082,081 (1,560,739) 285,622
Federal income taxes -- Note F . . . . . . . . . . . . 270,000 280,000 (250,000)
------------ ------------ ------------
Net Earnings (Loss) . . . . . . . . . . . . . . . . . 1,812,081 (1,840,739) 535,622
============ ============ ============
Per Share Data:
Net earnings (loss) . . . . . . . . . . . . . . . . $ 1.46 $ (1.87) $ 0.44
============ ============ ============
Average number of common and common
equivalent shares outstanding for earnings
per share . . . . . . . . . . . . . . . . . . . . . 1,239,164 985,808 1,220,903
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 25
STATEMENT OF SHAREHOLDERS' EQUITY
CROWLEY MILNER AND COMPANY
<TABLE>
<CAPTION>
COMMON STOCK
------------ OTHER RETAINED
SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------- --------
<S> <C> <C> <C> <C>
Balance January 29, 1994 (as restated) . . . . . . . 509,067 $ 509,067 $ 2,240,558 $ 12,867,258
Issuance of common stock pursuant
to exercise of incentive stock
options and restricted stock award . . . . . . . 30,083 30,083 (29,108) --
Pension plan credit . . . . . . . . . . . . . . . . 121,447
Issuance of common stock pursuant
to stock split . . . . . . . . . . . . . . . . . 509,150 509,150 -- (509,150)
Net earnings, as restated . . . . . . . . -- -- -- 535,622
--------- ---------- ----------- ------------
Balance January 28, 1995 (as restated . . . . . . . . 1,048,300 1,048,300 2,211,450 13,015,177
Sale of common stock . . . . . . . . . . . . . . . 14,705 14,705 39,262 --
Purchase of common stock and stock
options . . . . . . . . . . . . . . . . . . . . . (96,936) (96,936) (1,131,276) --
Restricted stock awards . . . . . . . . . . . . . . -- -- 59,185 --
Pension plan charge . . . . . . . . . . . . . . . . -- -- -- (171,464)
Net Loss, as restated . . . . . . . . . . . . . . . -- -- -- (1,840,739)
--------- ---------- ----------- ------------
Balance February 3, 1996 (as restated) . . . . . . . 966,069 966,069 1,178,621 11,002,974
Sale of common stock . . . . . . . . . . . . . . . 36,518 36,518 183,139 --
Issuance of common stock to acquire
Steinbach Stores, Inc. . . . . . . . . . . . . . 514,800 514,800 1,801,800 --
Cancellation and amortization of
restricted stock awards . . . . . . . . . . . . . (10,000) (10,000) 120,000 --
Pension plan credit . . . . . . . . . . . . . . . . -- -- -- 40,416
Net earnings . . . . . . . . . . . . . . . . . . . -- -- -- 1,812,081
--------- ---------- ----------- ------------
Balance February 1, 1997 . . . . . . . . . . . . . . 1,507,387 $1,507,387 $ 3,283,560 $ 12,855,471
========= ========== =========== ============
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 26
STATEMENT OF CASH FLOWS
CROWLEY MILNER AND COMPANY
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
---- ---- ----
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) . . . . . . . . . . . . . . . . . $ 1,812,081 $ (1,840,739) $ 535,622
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . 1,355,624 1,317,119 1,670,615
Amortization of restricted stock award . . . . . 120,000 59,185 --
Gain on termination of capital lease . . . . . . (377,000) -- --
Changes in operating assets and liabilities:
(Increase) decrease in net accounts receivable . . 1,334,690 (972,258) 1,074,665
(Increase) decrease in inventories . . . . . . . . (4,374,642) 573,184 (350,039)
(Increase) decrease in prepaid expense and
other assets . . . . . . . . . . . . . . . . . . (3,026,720) (153,239) 184,893
Increase (decrease) in accounts payable . . . . . (7,171,767) (534,235) (1,424,252)
Increase (decrease) in accrued compensation
and other liabilities . . . . . . . . . . . . . 3,576,530 (206,695) (37,228)
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (6,751,204) (1,757,678) 1,654,276
INVESTMENT ACTIVITIES
Purchase of properties . . . . . . . . . . . . . . (653,089) (503,687) (527,385)
Steinbach Acquisition . . . . . . . . . . . . . . (1,748,658) -- --
----------- ------------ -----------
NET CASH USED IN INVESTMENT ACTIVITIES . . . . . . . (2,401,747) (503,687) (527,385)
FINANCING ACTIVITIES
Proceeds from revolving line of credit . . . . . . 177,719,400 123,062,956 120,053,977
Principal payments on revolving line of credit . . (168,125,998) (118,470,081) (120,921,076)
Principal payments on long-term debt . . . . . . . (525,000) (485,000) (450,000)
Principal payments on capital lease obligations . (460,405) (170,376) (346,585)
Purchase of common stock and stock options . . . . -- (1,228,212) --
Proceeds from sale of common stock . . . . . . . . 219,657 53,967 --
----------- ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 8,827,654 2,763,254 (1,663,684)
----------- ------------ ------------
Increase (Decrease) in Cash and Cash Equivalents . . (325,297) 501,889 (536,793)
Cash and cash equivalents at beginning of year . . . 540,613 38,724 575,517
----------- ------------ ------------
Cash and cash equivalents at end of year . . . . . . $ 215,316 $ 540,613 $ 38,724
=========== ============ =============
</TABLE>
See notes to consolidated financial statements.
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CROWLEY MILNER AND COMPANY
February 1, 1997
NOTE A -- INDUSTRY DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
INDUSTRY DESCRIPTION: Crowley, Milner and Company ("Crowley's") is
engaged in the operation of nine retail department stores in the Detroit-
metropolitan and suburban Flint, Michigan areas. Steinbach Stores, Inc.
("Steinbach") operates fourteen retail department stores in the states of
Connecticut, New York, New Hampshire, New Jersey and Vermont. In addition to
its own merchandise, both Crowley's and Steinbach (collectively referred to as
"the Company") offer certain goods and services through leased departments. The
Company reports on a 52/53 week fiscal year with the fiscal year ending on the
Saturday closest to January 31. Fiscal years 1996, 1995 and 1994 ended on
February 1, 1997, February 3, 1996, and January 28, 1995 respectively. Fiscal
years 1996 and 1994 were 52 week years, and 1995 had 53 weeks.
BASIS OF PRESENTATION: The consolidated financial statements include
the accounts of Crowley's and its wholly owned subsidiary, Steinbach. (For
further information about the acquisition of Steinbach, see Note B below). All
significant intercompany accounts have been eliminated in consolidation.
CHANGE IN METHOD OF ACCOUNTING FOR INVENTORIES: Effective February 4,
1996, Crowley's changed its method of valuing inventories from the last-in,
first-out retail method ("LIFO") to the first-in, first-out (FIFO) retail
method -- see rationale underlying this change more fully described below.
Pursuant to the provisions of Accounting Principles Board ("APB") Opinion No.
20, "Accounting Changes", the change from LIFO to FIFO has been applied
retroactively. The effect of this restatement was to increase Crowley's
retained earnings as of January 29, 1994 by $6,186,027. As a part of the
restatement from LIFO to FIFO, Crowley's recorded a deferred tax asset of
$1,760,000 at January 29, 1994. The deferred tax asset results from Crowley's
recognizing a portion of its net operating loss carryforward.
A summary of the impact on earnings (loss) and related per share
amounts as a result of the restatement for the fiscal years ended February 3,
1996 and January 28, 1995 follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
FEBRUARY 3, JANUARY 28,
1996 1995
---- ----
<S> <C> <C>
Net earnings (loss) as previously reported . . . . . $ (2,344,487) $ 1,030,977
Net earnings (loss) as restated . . . . . . . . . . (1,840,739) 535,622
Net earnings (loss) per share as previously reported (2.38) 0.84
Net earnings (loss) per share as restated . . . . . (1.87) 0.44
</TABLE>
The rationale for the accounting change is described as follows.
Crowley's ability to obtain a steady flow of retail merchandise largely is
dependent on the short-term credit provided by its vendors that supply the
Company with its goods, and their factors. Historically, Crowley's vendors have
supplied Crowley's with goods on a "net 30-day" payment basis. However, in
light
27
<PAGE> 28
of Crowley's net operating losses during fiscal 1995 and the first six months
of fiscal 1996, certain of Crowley's vendors and their factors had been
requiring Crowley's to maintain deposits with such vendors and/or pay for goods
prior to shipment.
In addition, Crowley's has long-term indebtedness in connection with
bonds issued by the Economic Development Corporation of the City of Detroit
(for further explanation, see Note D). The covenants for these bonds require
(among other things) that Crowley's must maintain a net worth of not less than
$5,000,000. Without the increase in retained earnings that resulted from the
change from LIFO to FIFO, the minimum net worth requirement might have been
violated during the current fiscal year.
Given the emphasis placed on Crowley's net worth by Crowley's vendors
and their factors, management believes that a change in accounting method for
inventory valuation from LIFO to FIFO was appropriate. Management also believes
that the FIFO method of valuing inventories is preferable because it provides a
better measure of the current value of the inventories and financial position
of the Company. Steinbach values its inventories using the FIFO method.
INVENTORIES: Inventories are valued at the lower of cost (determined by FIFO
costing) or market.
ACCOUNTING FOR STOCK-BASED COMPENSATION: In October 1995, the
Financial Accounting Standards Board ("FASB") issued SFAS No. 123, "Accounting
for Stock-Based Compensation." SFAS No. 123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. SFAS No.
123 defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows an entity to continue to measure compensation cost for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to retain the accounting under APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share, as if the fair value based
method of accounting under SFAS No. 123 had been applied. The Company has
elected to retain the intrinsic value based method of accounting. See Note H
for additional information concerning SFAS No. 123.
PROPERTIES, DEPRECIATION AND AMORTIZATION: Properties, including
amounts recorded under capital lease obligations, are stated on the basis of
cost. When assets become fully depreciated their cost and related accumulated
depreciation and amortization are removed from the property accounts.
Depreciation is computed by the straight-line method for financial reporting
purposes and by accelerated cost recovery methods, except for buildings and
assets purchased with tax exempt bond proceeds, for income tax purposes.
CASH EQUIVALENTS: The Company considers cash on hand in stores,
deposits in banks,
28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CROWLEY MILNER AND COMPANY (CONTINUED)
and marketable securities with a maturity of three months or less when
purchased to be cash equivalents.
INCOME TAXES: Income taxes are accounted for using the asset and
liability method. Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
NET EARNINGS (LOSS) PER SHARE: Net earnings (loss) per share is
computed on the basis of the weighted average number of common and common
equivalent shares outstanding, assuming dilutive stock options were exercised
at the beginning of each quarter or at the date of issuance, if later, with
applicable proceeds used to acquire additional shares at the average market
price.
USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE B -- STEINBACH STORES ACQUISITION
As previously reported, on November 17, 1995, the Company entered into
an Agreement and Plan of Reorganization, that was subsequently amended on
December 29, 1995 (the "Acquisition Agreement"), with the shareholders of
Steinbach Stores, Inc. ("Steinbach Shareholders"), an Ohio Corporation
("Steinbach"), to acquire fifteen retail department stores in Connecticut, New
Hampshire, New York, New Jersey and Vermont.
Pursuant to the terms of the Acquisition Agreement, effective August
31, 1996, the Company acquired from the Steinbach Shareholders all of the
issued and outstanding shares of the capital stock of Steinbach, in exchange
for 514,800 shares (representing approximately 35% of the issued and
outstanding shares) of the Common Stock of the Company. The stock issued was
valued at $4.50 per share which was the closing price of the stock on November
17, 1995. As a result, Steinbach became a wholly-owned subsidiary of the
Company as of August 31, 1996. The acquisition was accounted for as a purchase
for financial reporting purposes. Under purchase accounting, the Company
allocated the total cost of acquiring the Steinbach Common Stock to the assets
and liabilities of Steinbach.
In furtherance of the above, the Company entered into a separate
Interim Operating
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CROWLEY MILNER AND COMPANY (CONTINUED)
Agreement with the Steinbach Shareholders, whereas, during the period of
December 31, 1995 through August 31, 1996, the fifteen acquired Steinbach
stores were operated under the management and supervision of the Company with
all revenues, as well as, all costs and expenses relating to the stores
becoming the responsibility of the Company.
During the month of January 1996, the states in which Steinbach
operates experienced extreme and prolonged winter weather which severely
impacted their customer's ability to shop. The weather materially impacted
sales and profits at the stores. In addition, the Company found it necessary to
engage in extensive promotional efforts in order to eliminate inventory that it
believed to be not in keeping with the merchandising and marketing strategy it
implemented in these stores to be acquired.
As such the Company experienced a loss of $727,000 on the operation of
Steinbach during January 1996. Included in the loss is an additional $700,000
reserve for price reductions that needed to be taken to clear the existing
inventory the Company assumed when it began operating the Steinbach stores on
December 31, 1995. Also in January, the Company recorded an additional charge
of $230,000 related to the integration of Steinbach into the Company's
organization. The charge consisted of travel, moving, and other personnel
related costs incurred in establishing the organization both on the east coast
and in Detroit to accommodate the Steinbach acquisition.
Recognizing that the Company acquired only 15 of 24 stores, and did
not acquire the corporate office or distribution center of Steinbach, the
Company views the acquisition as an asset purchase. Sales information for the
15 stores acquired for the three fiscal years ended February 1, 1997 is as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Sales . . . . . . . . . . . $87,442,000 $99,790,000 $108,839,000
</TABLE>
Based on the asset nature of the acquisition, the Company does not believe
additional pro forma information is meaningful.
NOTE C -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Generally accepted accounting principles currently require the Company
to disclose the estimated fair value of its financial instruments. Currently
the Company has an outstanding debt obligation related to its Executive Office
and Central Distribution Center, and an outstanding debt obligation related to
the company store located at Tel-Twelve Mall. (See Note D for a full
description of these two outstanding debt obligations). Given the absence of
quoted market prices, and the inability to estimate the fair value of the two
outstanding debt obligations without incurring excessive costs, it was not
practicable to estimate the fair value of these two
30
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CROWLEY MILNER AND COMPANY (CONTINUED)
outstanding debt obligations. The $5.3 million carrying amount at February 1,
1997 represents the total amount of the two debt obligations outstanding as of
that date.
NOTE D -- FINANCING ARRANGEMENTS
In order to meet the liquidity needs created by the acquisition of the
Steinbach Stores, the Company and Congress Financial Corporation (Central)
("Congress") amended the Loan and Security Agreement dated November 4, 1994
("Original Agreement"), and replaced the Original Agreement with the Amended
and Restated Loan and Security Agreement dated September 5, 1996 ("Amended
Agreement").
The Amended Agreement provides for a revolving line of credit through November
4, 1999, secured by substantially all of the assets of the Company, of up to
$24,000,000 (based on certain lending formulas) and, included within such line
of credit, a facility for letters of credit of up to $5 million, with the
interest rate set at .25% above the prime rate. Interest on the line is payable
monthly. The Amended Agreement also provides for a .25% commitment fee, payable
on the date of the Amended Agreement, an unused line fee of 0.25% payable
monthly, and a monthly monitoring fee of $1,500. Borrowings are generally
limited to 30% of the retail value of eligible inventory as defined in the
Amended Agreement. The weighted average interest rates for outstandings as of
February 1, 1997, February 3, 1996, and January 28, 1995 were 8.95%, 9.50%, and
9.50% respectively. The weighted average interest rates during the fiscal years
ended February 1, 1997, February 3, 1996, and January 28, 1995, were 8.83%,
9.83%, and 9.41% respectively. In addition, the Amended Agreement prohibits the
payment of dividends without the prior consent of Congress.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 1 FEBRUARY 3
1997 1996
-------------- --------------
<S> <C> <C>
EDC Financing:
City of Detroit . . . . . . . . $ 3,430,000 $ 3,715,000
City of Southfield . . . . . . 1,895,000 2,135,000
----------- -----------
5,325,000 5,850,000
Less Current Maturities 575,000 525,000
----------- -----------
$ 4,750,000 $ 5,325,000
=========== ===========
</TABLE>
The Company's executive offices and central distribution center (the "CDC") are
capitalized under a lease-purchase obligation represented by City of Detroit
Economic Development Corporation bonds.
The CDC obligation is comprised of $3,430,000 in term bonds which are
required to be redeemed through annual sinking fund payments ranging from
$315,000 in 1997 to $565,000 at the December 1, 2004 maturity date. The Company
may redeem the bonds prior to maturity at par. Interest on the bonds is
payable semi-annually at the current weighted average annual rate
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CROWLEY MILNER AND COMPANY (CONTINUED)
of 9.23%. The Company has given a guaranty regarding the prompt payment of
principal and interest. The CDC mortgage and trust agreement provides for a
security interest in the real estate, and fixtures and equipment, with a
carrying amount of $2,780,705 at February 1, 1997. The Agreement also provides
for the Company to maintain a minimum net worth of $5,000,000.
The Tel-Twelve Mall store was financed through City of Southfield
Economic Development Corporation bonds. The underlying obligations are
comprised of $1,895,000 in term bonds to be redeemed through annual sinking
fund payments ranging from $260,000 in 1997 to $380,000 at maturity on January
15, 2003. The Company may redeem the bonds prior to maturity at a redemption
premium of 1 1/2%. Interest on the bonds is payable semi-annually at the
current weighted average annual rate of 9.61%.
The various financing agreements provide for real estate mortgages and
other security interests as collateral. Payments of long-term debt in the four
fiscal years subsequent to February 1, 1997 amount to $620,000 in 1998,
$670,000 in 1999, $730,000 in 2000, and $790,000 in 2001.
At February 1, 1997, the Company had two outstanding irrevocable
letters of credit totalling $450,000.
Interest paid aggregated $2,562,000, $1,805,000, and $1,615,000 for
the fiscal years ended February 1, 1997, February 3, 1996, and January 28,
1995, respectively.
NOTE E -- LEASE OBLIGATIONS
The Company occupies retail stores under various capital and operating
lease agreements which contain varying renewal options for terms ranging to
2035, with no significant change in minimum annual payments.
At February 1, 1997, the aggregate minimum annual commitments for all
noncancelable leases are as follows:
<TABLE>
<CAPTION>
FOR FISCAL CAPITAL OPERATING
YEARS ENDING IN LEASES LEASES
--------------- ---------- ------------
<S> <C>
1998 $ 879,395 $4,231,670
1999 892,060 3,824,510
2000 892,060 3,141,200
2001 897,560 2,407,896
2002 931,393 1,940,865
Thereafter 8,006,204 10,311,897
----------- ----------
Total minimum lease payments 12,498,672 25,858,038
==========
Amounts representing interest 5,927,238
-----------
Present value of net minimum lease
payments $ 6,571,434
===========
</TABLE>
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CROWLEY MILNER AND COMPANY (CONTINUED)
Capital leases for stores and equipment included in buildings, and
furniture, fixtures and equipment amounted to $7,960,095 and $5,560,390 at
February 1, 1997 and February 3, 1996, respectively, and accumulated
amortization amounted to $4,071,191 and $2,995,941, respectively. Amortization
of capital leases is included with depreciation and amortization expense.
Required rental payments on stores are based on sales with certain
minimum annual payments. Rental expense amounted to:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
-------------- --------------- --------------
<S> <C> <C> <C>
Minimum rentals for store operating leases $ 3,527,128 $ 2,288,914 $ 2,251,413
Contingent rentals:
Capital leases . . . . . . . . . . . . . . 4,850 1,240 8,099
Operating leases . . . . . . . . . . . . . 1,017,374 642,022 655,119
Other rentals . . . . . . . . . . . . . . . . 216,056 215,016 434,939
------------ ------------ -----------
$ 4,765,408 $ 3,147,192 $ 3,349,570
============ ============ ===========
</TABLE>
NOTE F -- FEDERAL INCOME TAXES
A reconciliation of the total income taxes and the amount computed by
applying the statutory federal income tax rate of 34 percent to earnings or
loss before income taxes is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed Amounts . . . . . . . . . . . . . . . $ 708,000 $ (531,000) $ 97,000
Impact of net operating loss carryforward . . $ (708,000) $ 531,000 $ (97,000)
Change in valuation allowance . . . . . . . . -- 280,000 (250,000)
Tax charge resulting from net operating loss
limitation on inventory accounting changes 270,000 -- --
------------ ---------- ---------
$ 270,000 $ 280,000 $(250,000)
============ ========= =========
</TABLE>
Notwithstanding the Company's tax net operating loss carryforward of
approximately $7,168,000 from 1995, the Company incurred a current federal
income tax expense of $270,000 in 1996. This federal income tax expense
resulted from the limitations imposed by the Internal Revenue Code related to
the Company's ability to offset net operating losses against federal taxable
income generated as a result of changing from the LIFO and FIFO inventory
method in the year of change.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and
33
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CROWLEY MILNER AND COMPANY (CONTINUED)
assets as of February 1, 1997 and February 3, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------
FEBRUARY 1, FEBRUARY 3,
1997 1996
---- ----
<S> <C> <C>
Deferred tax liability:
Tax over book depreciation . . . . . . . . . . . . . . $ (804,000) $ (876,000)
Deferred tax assets:
Employee benefits . . . . . . . . . . . . . . . . . . . 450,000 480,000
Inventory costs . . . . . . . . . . . . . . . . . . . . 270,000 (70,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 116,000 1,000
Net Operating loss carryforward . . . . . . . . . . . . . 1,940,000 2,437,000
---------- ----------
Net deferred tax assets . . . . . . . . . . . . . . . . . 1,972,000 1,972,000
Valuation allowance for net deferred tax asset . . . . . (392,000) (392,000)
----------- ----------
Net deferred taxes . . . . . . . . . . . . . . . . . $ 1,580,000 $1,580,000
=========== ==========
</TABLE>
Income taxes paid amount to $270,000, $2,548 and $0 in 1996, 1995 and
1994, respectively.
The Company's net operating loss carryforward of approximately
$3,760,000 for federal tax purposes expires as follows:
<TABLE>
<S> <C>
2008 . . . . . . . . . . . . . . . . . . $ 690,000
2009 . . . . . . . . . . . . . . . . . . $ 1,100,000
2011 . . . . . . . . . . . . . . . . . . $ 1,970,000
</TABLE>
NOTE G -- RETIREMENT PLANS
Crowley's and the Steinbach Stores, Inc. each have a defined
contribution retirement plan covering substantially all full-time employees. It
is the Company's intent to merge the two plans in 1997. Contributions to the
plans are made at the discretion of the Board of Directors.
Crowley's also sponsors an unfunded Supplemental Executive Retirement
Program (SERP), which is a non-qualified plan that provides certain former
officers additional retirement benefits.
The unfunded status for this plan was as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------
FEBRUARY 1, FEBRUARY 3,
1997 1996
-------------- --------------
<S> <C> <C>
Projected benefit Obligation . . . . . . . . . . $ 1,602,865 $ 1,711,620
Unrecognized Net Loss on Assets . . . . . . . . (375,769) (415,881)
Unrecognized Net Obligation at February 1, 1987 (132,933) (159,520)
Unrecognized Prior Service Cost . . . . . . . . (233,610) (258,669
----------- -----------
Accrued Liability . . . . . . . . . . . . . . $ 860,553 $ 877,550
Minimum Liability Adjustments . . . . . . . . 375,769 415,881
----------- -----------
</TABLE>
34
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CROWLEY MILNER AND COMPANY (CONTINUED)
<TABLE>
<S> <C> <C>
Net Recorded Liability . . . . . . . . . . . . . $1,236,322 $1,293,431
========== ==========
</TABLE>
The cost of the retirement plans, including the SERP plan expense of
$181,000, $186,000, and $189,000, for the fiscal years ended in 1997, 1996, and
1995, respectively, consisted of the following components:
FISCAL YEAR ENDED
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
------------- -------------- --------------
<S> <C> <C> <C>
Service Cost:
Interest Cost on Projected Benefit Obligation . $ 112,950 $ 128,918 $ 124,672
Net Amortization and Deferral:
Amoritization of Initial Unrecognized Transition
Obligation . . . . . . . . . . . . . . . . . . 26,587 26,587 26,587
Amoritization of Net Loss . . . . . . . . . . . . 16,304 5,336 12,582
Amoritization of Prior Service Costs . . . . . . 25,159 25,159 25,159
Defined Contribution Plan . . . . . . . . . . . . . 309,000 105,000 109,000
------- ------- -------
Net Periodic Retirement Cost . . . . . . . . . . . $490,000 $291,000 $298,000
======== ======== ========
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 7-3/4% and 0% at February 1, 1997, 7% and 0%
at February 3, 1996, and 8-1/2% and 0% at January 28, 1995.
NOTE H -- STOCK OPTIONS AND RESTRICTED STOCK PLAN
Effective March 25, 1992, the Company adopted an Incentive Stock Plan
("Plan") for its eligible officers and employees under which the Company may
grant stock options (consisting of incentive stock options (ISOs) and
non-qualified stock options (NQSOs)) and may make awards of restricted stock
for up to 300,000 shares of common stock. Options may be exercised for such
prices and at such times as the Compensation Committee of the Board determines,
provided the ISOs may not be exercised at a price less than the fair market
value at the date of grant. Options become exercisable on a cumulative basis
in equal installments at a rate of 33-1/3% per year, commencing one year after
grant. On February 1, 1997, ISOs for 170,667 shares were outstanding, and
20,000 shares had been issued as an award of restricted stock. The ISOs carried
exercise prices ranging from $4.125 to $10.500 per share (weighted average of
$5.96 per share), of which ISOs to acquire 26,467 shares were exercisable, and
86,001 shares were available for future grants or awards under the Plan.
Shares of restricted stock awarded under the Plan generally may not be
sold or otherwise transferred until the termination of applicable restriction
periods established by the Committee. The shares also vest at a rate of 33 1/3%
per year subject to certain performance objectives being satisfied.
INCENTIVE FEBRUARY 1, FEBRUARY 3,
STOCK PLAN 1997 1996
---------- ----------- -----------
35
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CROWLEY MILNER AND COMPANY (CONTINUED)
<TABLE>
<S> <C> <C>
Outstanding at beginning of fiscal year 96,000 56,000
Granted . . . . . . . . . . . . . . . . . . 128,000 40,000
Exercised . . . . . . . . . . . . . . . . (23,166) --
Cancelled or expired . . . . . . . . . . . (30,167) --
------- -------
Outstanding at end of fiscal year . . . . . 170,667 96,000
======= =======
</TABLE>
In 1995 the Company also established the 1995 Non-Employee Director
Stock Option Plan for its Directors ("Director Plan") under which the Company
may grant non-qualified stock options (director stock options (DSOs)) for up to
100,000 shares of common stock. Under the Director Plan, on the business day
immediately prior to each Annual Meeting of Shareholders, eligible Directors
then serving on the Board shall be granted an option to purchase 2,000 shares
of the Company's common stock at the fair market value of the common stock on
the grant date. The grant shall be automatic and nondiscretionary. Each option
granted becomes exercisable in full three months following the date of grant.
On February 1, 1997, DSOs for 34,000 shares were outstanding. The DSOs carried
exercise prices ranging from $4.75 to $8.75 per share (weighted average of
$6.87 per share), of which DSOs to acquire 34,000 shares were exercisable, and
62,000 shares were available for future grants or awards under the Director
Plan.
As disclosed in Note 1, the Company has elected to follow APB Opinion
No. 25 "Accounting for Stock Issued To Employees" and related interpretations
in accounting for its stock option and restricted stock grants. Accordingly, no
compensation expense has been recognized for the Company's stock option grants.
Compensation expense for restricted stock under APB Opinion No. 25 is recorded
over the vesting periods, and totaled $120,000 and $59,185 in 1996 and 1995,
respectively. Had compensation expense been determined based on the fair value
at the grant dates for awards under the Plan consistent with the method of SFAS
123, "Accounting for Stock-Based Compensation," net income and earnings per
share would not differ materially from amounts reported under APB Opinion No.
25. Since the pro forma disclosures of results under SFAS No. 123 are only
required to consider grants awarded in 1995 and 1996, the pro forma effects of
applying SFAS No. 123 during this initial phase-in period may not be
representative of the effects on the reported results for future years.
NOTE I -- LITIGATION AND CONTINGENT LIABILITIES
The Company is involved in certain lawsuits in the course of
conducting its retail business. Management is of the opinion that the ultimate
disposition of its litigation will not have a material adverse effect on the
Company's financial position.
NOTE J -- STORE CLOSINGS
As a result of the Company's acquisition of Steinbach, effective
September 1, 1996, the Company operated 10 Crowley's stores in the Detroit
Metropolitan area, and fifteen Steinbach stores in the states of Connecticut,
New Hampshire, New York, New Jersey, and Vermont. Since the acquisition,
landlords for two store locations exercised their right to terminate the
36
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CROWLEY MILNER AND COMPANY (CONTINUED)
respective lease. In light of the lease termination, the Steinbach store
located in North Utica, New York, conducted a going-out-of-business sale, and
ceased operations in December 1996. This lease termination resulted in a
$377,000 gain from the elimination of the related capital lease obligation.
In light of its lease termination, the Crowley's store located in
Birmingham, Michigan, also conducted a going-out-of-business sale, and ceased
operations in March 1997. Crowley's recorded a charge of $450,000 which was
included in cost of merchandise and services sold for anticipated store closing
markdowns to be incurred during the going-out-of-business period.
At the present time, management has no intention or plans to close any
other store location.
37
<PAGE> 38
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Additions
-------------------------------------
Charged
Balance at Charged to to Other
Beginning Costs and Accounts Deductions Balance at
of Period Expenses (a) (b) End
--------- -------- -------- ---------- ---
<S> <C> <C> <C> <C> <C>
Valuation Reserves --
Year ended February 1, 1997:
Doubtful accounts receivable . . . . . . $ 61,558 $ 35,894 $ (31,194) $ -- $ 66,258
Year ended February 3, 1996:
Doubtful accounts receivable . . . . . . $ 63,887 $ 24,140 $ (26,349) . $ (120) $ 61,558
Year ended January 28, 1995:
Doubtful accounts receivable . . . . . . $ 216,000 $ 44,545 $ 10,441 $(207,099) $ 63,887
</TABLE>
- ------------
(a) Recoveries on accounts charged off
(b) Accounts charged off
38
<PAGE> 39
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on April 30, 1997.
CROWLEY, MILNER AND COMPANY
By: /S/ DENNIS P. CALLAHAN
---------------------------
Dennis P. Callahan, President
Pursuant to the requirements of the Security Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated, on April 30, 1997.
<TABLE>
<CAPTION>
Signature Capacity
- --------- --------
<S> <C>
/S/ DENNIS P. CALLAHAN Chairman, President and Director (principal
- ------------------------------------
Dennis P. Callahan executive officer)
/S/ JOHN R. DALLACQUA Vice President-Finance, Treasurer and Secretary
- -----------------------------------
John R. Dallacqua (principal financial and accounting officer)
/S/ JO ANN STANDART COUSINO Director
- ---------------------------
Jo Ann Standart Cousino
/S/ CARROLL E. EBERT Director
- ----------------------------
Carroll E. Ebert
/S/ ALFRED M. ENTENMAN, JR. Director
- ----------------------------
Alfred M. Entenman, Jr.
/S/ JOSEPH C. KEYS Director
- ----------------------------
Joseph C. Keys
Director
- ----------------------------
Richard S. Keys
/S/ JULIUS L. PALLONE Director
- ----------------------------
Julius L. Pallone
/S/ PAUL R. RENTENBACH Director
- ----------------------------
Paul R. Rentenbach
/S/ JAMES L. SCHAYE, JR. Director
- ----------------------------
James L. Schaye, Jr.
/S/ JEROME L. SCHOSTAK Director
- ---------------------------
Jerome L. Schostak
</TABLE>
39
<PAGE> 40
<TABLE>
<S> <C>
/S/ ANDREW J. SOFFEL Director
- ------------------------------------
Andrew J. Soffel
Director
- ------------------------------------
Benton Kraner
</TABLE>
40
<PAGE> 41
EXHIBIT INDEX
Exhibit No. Description
10.8 Savings and Profit Sharing Retirement Plan of Steinbach
Stores, Inc. and Participating Afffiliated Companies, as
amended and restated effective as of February 11, 1995
11 Computation of Per Share Earnings
23 Consent of Ernst & Young LLP
27 Financial Data Schedule (EDGAR filing only)
<PAGE> 1
EXHIBIT 10.8
SAVINGS AND PROFIT SHARING RETIREMENT PLAN
OF STEINBACH STORES, INC.
AND PARTICIPATING AFFILIATED COMPANIES
(as amended and restated, effective as of February 11, 1995)
ARTICLE I. THE PLAN
1.1 Purpose of Plan. The purpose of the Plan is to allow Employees to
elect to set aside a portion of their salaries on a before-tax basis in order
to accumulate capital for their retirement, and to encourage Employee savings
by matching such deferrals with Company contributions, to a maximum of 5
percent of compensation. The Plan is a profit sharing plan and the Plan and
Trust are intended to meet the applicable requirements of sections 401(a),
401(k), and 501(a) of the Code.
1.2 Applicability of Plan. The Plan originally was executed on October
31, 1994, effective as of October 1, 1994. Effective February 11, 1995, the
Company is hereby amending and restating the Plan to change the rate of
Matching Employer Contributions and to provide that no further Rollover
Contributions may be made to the Plan. The provisions of this Plan, as amended
and restated as set forth herein, are applicable only to Eligible Employees in
the employ of the Company on or after February 11, 1995, except as specifically
provided herein.
ARTICLE II. DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings set
forth below unless otherwise expressly provided. The masculine pronoun shall
be deemed to refer either to a male or a female, whichever is appropriate in
the context.
2.1 "Accounts" shall mean the separate accounts maintained for each
Member which represent his total proportionate interest in the Trust and which
consist of the sum of the following:
(a) "After-Tax Contributions Account" shall mean that portion of such
Member's Accounts which evidences the value of the After-Tax
Contributions made by the Member under the Prior Plan, if any, prior
to February 1, 1987, including any gains and losses of the Trust
attributable thereto;
(b) "Before-Tax Contributions Account" shall mean that portion of such
Member's Accounts which evidences the value of the Before-Tax
Contributions made on his behalf by the Company, including any gains
and losses of the Trust attributable thereto; "Supplemental
Before-Tax Contributions Account" shall mean a subaccount of the
Member's Before-Tax Contributions Account which evidences the value
of the Supplemental Before-Tax Contributions made on his behalf by
the Company, including any gains and losses of the Trust attributable
thereto;
<PAGE> 2
(c) "Matching Employer Contributions Account" shall mean the portion of
such Member's Accounts which evidences the value of the Matching
Employer Contributions made on his behalf by the Company, including
any gains or losses of the Trust attributable thereto;
(d) "Discretionary Employer Contributions Account" shall mean the portion
of such Member's Accounts which evidences the value of the
Discretionary Employer Contributions made on his behalf by the
Company, including any gains or losses of the Trust attributable
thereto;
(e) "Rollover Account" shall mean the portion of such Member's Accounts
which evidences the value of the Rollover Contributions made by the
Member prior to February 11, 1995, including any gains or losses of
the Trust attributable thereto; and
(f) "Transfer Account" shall mean the value of contributions that were
previously contributed under another qualified plan maintained by the
Company or an Affiliate or its predecessor, which are transferred to
this Plan under section 4.17, including any gains or losses of the
Trust attributable thereto.
Notwithstanding the foregoing provisions of paragraph (f) above, amounts
transferred to this Plan from the Prior Plan effective October 1, 1994 shall be
credited to the specific Account of the Participant identified in (a) through
(f) above, in the same manner as such amounts were credited under the Prior
Plan.
2.2 "Affiliate" shall mean any corporation, trade, or business if it and
the Company are members of a controlled group of corporations, are under common
control, or are members of an affiliated service group, within the meaning of
Code sections 414(b), 414(c), and 414(m), respectively. The term "Affiliate"
shall also include any other entity required to be aggregated with the Company
pursuant to regulations under Code section 414(o).
2.3 "After-Tax Contributions" shall mean those supplemental member
contributions" made by a Member to the Prior Plan, or a predecessor plan, prior
to February 1, 1987.
2.4 "Alternate Payee" shall mean any individual described in section
13.8(a).
2.5 "Annual Addition" shall have the meaning set forth in section
4.14(c)(1).
2.6 "Approved Leave of Absence" shall mean--
(a) an absence during which an Employee shall be directly paid by the
Company, or
(b) an unpaid absence for reasons such as sickness, temporary
disability,
2
<PAGE> 3
temporary layoff, jury duty, or military service, which absence
is authorized by the Company.
2.7 "Balance" shall mean as of a given date, the aggregate balances of a
Member's After-Tax Contributions Account, Before-Tax Contributions Account,
Discretionary Employer Contributions Account, Matching Employer Contributions
Account, Rollover Account, and Transfer Account.
2.8 "Before-Tax Contributions" shall mean the Contributions made by the
Company on behalf of a Member pursuant to the Member's election to reduce his
Compensation as described in section 4.2.
2.9 "Beneficiary" shall mean the person or persons designated under
section 7.4(d).
2.10 "Board of Directors" means the Board of Directors of the Company.
2.11 "Code," shall mean the Internal Revenue Code of 1986, as in effect at
the time with respect to which such term is used.
2.12 "Company" shall mean the Company and Participating Affiliates.
2.13 "Compensation" shall mean:
(1) wages within the meaning of Code section 3401(a) and all other
payments to an Employee for which the Company is required to
furnish the Employee a written statement under Code section
6041(d) and 6051(a)(3), and to the extent not otherwise
included, Before-Tax Contributions under this Plan.
Notwithstanding the foregoing, Compensation shall be modified to
exclude the following items:
(A) reimbursements or other expense allowances,
(B) fringe benefits,
(C) deferred compensation (other than Before-Tax Contributions
under this Plan),
(D) welfare benefits,
(E) amounts paid or reimbursed by the Company for moving
expenses incurred by an Employee, but only to the extent
that at the time of
3
<PAGE> 4
the payment it is reasonable to believe that these amounts
are deductible by the Employee under Code Section 217
(except that with respect to a Highly Compensated Employee,
Compensation shall be modified to exclude all amounts paid
or reimbursed by the Company for moving expenses incurred by
an Employee, regardless of whether it is reasonable to
believe at the time of the payment that these amounts are
deductible by the Employee under Code section 217),
(F) personal loans made by the Company or its Affiliates to an
Employee which are forgiven, but only to the extent that
the outstanding loan balance which is forgiven by the
Company or its Affiliates is includable in the Member's
gross income, and provided further that the Member is a
Highly Compensated Employee, and
(G) Severance payments made by the Company or its Affiliates to
Employees who are Members.
(2) Notwithstanding the foregoing, for purposes of the discrimination
limits set forth in sections 4.9 and 4.12 of the Plan,
"Compensation" shall mean an Employee's compensation, as defined
in section 414(s) of the Code as determined by the Plan
Administrator on a uniform and consistent basis for all
Employees, exclusive of compensation received by the Employee
while he is not an Eligible Employee. Not withstanding the
preceding sentence, the Plan Administrator may elect to include
in "Compensation" any amounts excluded from wages by reason of an
Employee's salary reduction election under a cafeteria plan under
section 125 of the Code or a cash or deferred arrangement under
section 401(k) of the Code, provided such election is made on a
reasonable and consistent basis from year to year.
The maximum amount of Compensation taken into account under the Plan for any
Plan Year shall be $150,000, or such other amount as is determined by the
Secretary of the Treasury to reflect a cost-of-living adjustment under Code
section 401(a)(17)(B). The cost-of-living adjustment in effect for a calendar
year applies to any period, not exceeding 12 months, over which compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than 12 months, the annual compensation
limit will be multiplied by a fraction, the numerator of which is the number of
months in the determination period, and the denominator of which is 12. In
determining Compensation for purposes of this limitation, the rules of Code
section 414(q)(6) shall apply, except that in applying such rules, the term
"family" shall include only the spouse of the employee and any lineal
descendants who have not attained age 19 before the close of the Plan Year. If
as a result of the application of the
4
<PAGE> 5
rules of Code section 414(q)(6), the limitation is exceeded, then the limitation
shall be prorated among the affected family members in proportion to each such
family member's Compensation as determined under this Section prior to the
application of this limitation.
2.14 "Computation Period" shall mean the Plan Year, except that in
determining whether an Employee completes a Year of Eligibility Service under
section 3.2 during the 12-month period following his commencement of
employment, the term "Computation Period" shall mean that 12-month period.
2.15 "Continuous Service" shall mean the period or uninterrupted
employment from the later of the Employee's Employment Commencement Date or the
date when he reaches age 18, to his Severance from Service, subject to the
following rules:
(a) The period of uninterrupted employment with a company (including any
predecessor company) immediately prior to the date on which that
company becomes an Affiliate, or its business is acquired by the
Company or an Affiliate, shall be included in the Continuous Service
of an Employee who was employed by such company at such date, to the
extent determined by the Board of Directors.
(b) Credit for Continuous Service when an Employee is reemployed after a
Severance from Service shall be subject to the following provisions
of this subsection:
(1) If an Employee is reemployed after a Severance from Service and
he is reemployed before a One Year Period of Severance occurs
after such Severance from Service, the Continuous Service he had
at such Severance from Service shall be reinstated upon his
reemployment. If such Severance from Service resulted from a
quit, discharge, or retirement, he shall receive credit (but not
in excess of 12 months) for Continuous Service for the period
between his Severance from Service and his reemployment, or if
his Severance from Service is by reason of a quit, discharge, or
retirement during any absence from employment of 12 months or
less for any reason other than a quit, discharge, retirement, or
death, and the Employee then performs an Hour of Service within
12 months of the date he was first absent from employment, he
shall receive credit for Continuous Service for the period
between his Severance from Service and his reemployment.
(2) If upon incurring a Severance from Service the Employee had a
vested interest in any portion of his Before-Tax Contributions,
Matching Employer Contributions, Discretionary Employer
Contributions, or Transfer Contributions, the Continuous Service
he had at such time shall be reinstated upon the conclusion of
his Severance from Service.
5
<PAGE> 6
(3) If neither (1) nor (2) is applicable, and if the number of
One-Year Periods of Severance between his Severance from Service
and reemployment does not equal or exceed the greater of five or
the number of years of Continuous Service he had prior to his
Severance from Service, his prior Continuous Service shall be
reinstated upon the conclusion of his Severance from Service.
(c) Continuous Service shall be calculated to completed twelfths of a
year, where one complete calendar month of employment or 30 days of
employment equals a "completed twelfth."
(d) Continuous Service shall include periods recognized as Continuous
Service under the Prior Plan.
2.16 "Deferred Retirement Date" shall be the first day of the month
coincident with or next following the Member's termination of employment with
the Company or an Affiliate after his Normal Retirement Date.
2.17 "Defined Benefit Fraction" shall have the meaning set forth in section
4.14(c)(2).
2.18 "Defined Contribution Fraction" shall have the meaning set forth in
section 4.14(c)(3).
2.19 "Determination Date" shall have the meaning set forth in section
12.8(a).
2.20 "Disability Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Member's employment with
the Company or an Affiliate terminates as a result of Permanent Disability.
2.21 "Discretionary Employer Contributions" shall mean contributions made
by the Company or a Participating Affiliate under section 4.4.
2.22 "Domestic Relations Order" shall have the meaning set forth in section
13.8(b).
2.23 "Effective Date" shall mean October 1, 1994. The effective date of
this amendment and restatement of the Plan shall be February 11, 1995.
2.24 "Eligible Employee" shall mean an Employee eligible to become a Member
of the Plan as described in section 3. 1.
2.25 "Employee" shall mean any individual employed by the Company or an
Affiliate.
2.26 "Employment Commencement Date" shall mean the date on which an
Employee
6
<PAGE> 7
first performs an Hour of Service for the Company or an Affiliate.
2.27 "Entry Date" shall mean the first day of the first payroll period that
begins on or immediately after each February 1, May 1, August 1, and November 1
after the Effective Date and any other day as of which any Affiliate adopts the
Plan with the approval of the Board of Directors.
2.28 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as in effect at the time with respect to which such term is used.
2.29 "Highly Compensated Employee" shall mean an individual determined by
the company to meet the criteria set forth in Code section 414(q) and the
regulations thereunder. For the purposes of section 4.10 hereunder, Highly
Compensated Employee shall also mean an individual determined by the Company
during a given Plan Year to be likely to meet the criteria set forth in Code
section 414(q) and the regulations thereunder for that Plan Year.
(a) The term "Highly Compensated Employee" generally means an Employee who
during the current Plan Year or the immediately preceding Plan Year:
(1) was at any time a five-percent (5%) owner, as defined in section
416(i) of the Code;
(2) received compensation in excess of $75,000, as adjusted by the
Secretary of the Treasury in accordance with section 415(d) of
the Code;
(3) received compensation in excess of $50,000, as adjusted by the
Secretary of the Treasury in accordance with section 415(d) of
the Code, and was in the top-paid group of Employees for such
Plan Year; or
(4) was at any time an officer and received compensation greater
than fifty percent (50%) of the amount in effect under section
415(b)(1)(A) of the Code.
(b) With respect to the Plan Year for which the relevant determination is
being made, an Employee not described in paragraph (a)(2), (a)(3), or
(a)(4) above for the preceding Plan Year shall not be a Highly
Compensated Employee unless such Employee is a member of the group
consisting of the 100 Employees paid the greatest compensation during
the Plan Year for which such determination is being made.
(c) An Employee is in the top-paid group of Employees for any Plan Year
if such Employee is in the group consisting of the top twenty percent
(20%) of the Employees when ranked on the basis of compensation for
such Plan Year. For
7
<PAGE> 8
purposes of determining the number of Employees in the top-paid group,
Employees described in section 414(q)(8) of the Code shall be excluded
to the extent (1) permitted under section 414(q)(8) of the Code and
regulations thereunder and (2) elected by the Plan Administrator.
(d) For purposes of paragraph (a)(4), no more than fifty (50) Employees
(or, if lesser, the greater of three (3) Employees or ten (10)
percent of the Employees, excluding Employees described in section
414(q)(8) of the Code disregarded for purposes of identifying the
top-paid group of Employees) shall be treated as officers, and if for
any Plan Year no officer is described in such paragraph, the highest
paid officer for such Plan Year shall be treated as described in such
paragraph.
(e) If any person is a member of the family of a five-percent (5%) owner
who is an Employee or former Employee or of a Highly Compensated
Employee in the group consisting of the ten (10) Highly Compensated
Employees with the greatest compensation for the Plan Year, such
person shall not be considered a separate Employee. In such case,
the family member (or family members) and five-percent (5%) owner or
Highly Compensated Employee shall be treated as a single Highly
Compensated Employee receiving compensation and Plan contributions
equal to the sum of the compensation and Plan contributions of the
family member(s) and the five-percent (5%) owner or Highly
Compensated Employee. The term "family" shall mean, with respect to
any Employee or former Employee, such Employee's spouse and lineal
ascendants or descendants and the spouses of such lineal ascendants
or descendants.
(f) A former Employee shall be treated as a Highly Compensated Employee,
if such Employee was a Highly Compensated Employee while an active
Employee in either the Plan Year in which such Employee separated
from service or in any Plan Year ending on or after his 55th
birthday.
(g) For purposes of this Section 2.29, "compensation" shall mean
compensation as defined in section 415(c)(3) of the Code that is paid
to the Employee during the applicable period, but including amounts
that are excluded from gross income under section 125, 402(a)(8),
402(h) or 403(b) of the Code.
2.30 "Hours of Service".
(a) General Rule. The words "Hours of Service" shall mean each hour for
which the Employee is directly or indirectly paid or entitled to
payment by the Company or an Affiliate--
(1) for the performance of duties,
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(2) on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship
has terminated) due to vacation, holiday, illness, incapacity
(including disability), layoffs jury duty, military duty, or an
Approved Leave of Absence, or
(3) for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Company provided, however,
that no hour shall be credited as an Hour of Service under more
than one of the preceding paragraphs.
(b) Applicable Computation Period
(1) Hours of Service described in paragraph (a)(1) shall be credited
to the Computation Period in which the duties are performed.
(2) Hours of Service described in paragraph (a)(2) shall be credited
to the Computation Period in which the Employee is compensated
for such Hours of Service.
(3) Hours of Service described in paragraph (a)(3) shall be credited
to the Computation Period to which the award, agreement, or
payment pertains.
(4) Notwithstanding anything to the contrary in paragraph (a)(1),
(a)(2), or (a)(3), in the case of Hours of Service to be
credited to the Employee in connection with a payroll period of
no more than 31 days which extends beyond the end of a
Computation Period, all such Hours of Service shall be credited
to the following Computation Period.
(c) Hours Not Counted. This subsection limits the Hours of Service
credited for periods during which no duties are performed and applies
whether or not Hours of Service otherwise would have been counted for
such periods under paragraph (a)(2).
(1) Unpaid Time. An hour for which an Employee is not paid, either
directly or indirectly, shall not be credited except in the case
of an Approved Leave of Absence. Notwithstanding the foregoing,
an Employee shall receive one Hour of Service for each hour of
the normally scheduled work hours for each day during any period
he is on a leave of absence from work with the Company or an
Affiliate for military service with the armed forces of the
United States, but not to exceed the period required under the
law pertaining to veterans reemployment rights; provided that if
he fails to report to work at the end of such leave during which
he has reemployment rights he shall not receive credit for hours
on such leave.
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(2) Worker's Compensation, Disability Insurance, Unemployment
Compensation. An hour for which an Employee is directly or
indirectly paid or entitled to payment on account of a period
during which the Employee performed no duties shall not be
credited if such payment is made or due under a plan maintained
solely for the purpose of complying with applicable workers'
compensation, unemployment compensation or disability insurance
laws.
(3) Medical Reimbursement. Hours of Service shall not be credited
for a payment which solely reimburses the Employee for medical
or medically related expenses incurred by the Employee.
(4) 501 Hour Limitation. Not more than 501 Hours of Service shall
be credited under paragraph (a)(2) on account of any single
period during which the Employee performs no duties (whether or
not such period occurs in a single calendar year).
(d) Maternity and Paternity Absence. Solely for purposes of determining
whether a One-Year Break in Service has occurred, an Employee shall
be credited with an Hour of Service for each hour which would have
been credited to such Employee but for such Employee's absence from
employment for maternity or paternity reasons. For purposes of this
paragraph, an absence from work for maternity or paternity reasons
means an absence--
(1) by reason of the pregnancy of the Employee,
(2) by reason of the birth of a child of the Employee,
(3) by reason of the placement of a child with the Employee in
connection with the adoption of such child by such Employee, or
(4) for purposes of caring for such child for a period beginning
immediately following such birth or placement. No more than 501
Hours of Service shall be credited under this subsection (d) for
any such absence. Hours of Service credited under this
subsection (d) shall be credited in the first Computation Period
in which such crediting is necessary to prevent a One-Year Break
in Service. In order for an absence to be considered as on
account of the reasons described in this paragraph, an Employee
shall provide the Plan Administrator information establishing
(A) that the absence from work is for reasons set forth in this
paragraph, and (B) the number of days for which there was such
an absence. Nothing in this paragraph shall be construed as
expanding or amending any maternity or
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paternity leave policy of the Company.
(e) Equivalent Hours. When no time records are available, an Employee
shall be given credit for 45 Hours of Service for each week for which
the Employee otherwise would have been credited with at least one
Hour of Service.
(f) Determination of Hours. All Hours of Service shall be determined in
accordance with section 2530.200b-2(b) of the Department of Labor
regulations, which are incorporated herein by this reference.
2.31 "Investment Funds" shall mean any fund, contract, obligation, or
other mode of investment, as selected from time to time by the Plan
Administrator, for the investment of Members' Accounts under section 5.1. The
Plan Administrator shall have discretion to terminate such funds and establish
new funds as it shall deem appropriate in accordance with section 5.1.
2.32 "Key Employee" and "Non-Key Employee" shall mean any individual
described in section 12.8(b) and 12.8(c), respectively.
2.33 "Leased Employee" shall mean any individual described in section
11.3(a).
2.34 "Leasing Organization" shall mean any entity described in section
11.3(b).
2.35 "Leasing Organization Pension Plan" shall mean any plan described in
section 11.3(c).
2.36 "Limitation Compensation" shall have the meaning set forth in section
4.14(c)(4).
2.37 "Matching Employer Contributions" shall mean contributions made by the
Company or a Participating Affiliate under section 4.3.
2.38 "Member" shall mean any Eligible Employee who has enrolled in the Plan
under section 3.3.
2.39 "Normal Retirement Date" shall mean the first day of the month in
which a Member attains his sixty-fifth birthday.
2.40 "One-Year Break in Service" shall mean a Computation Period in which
an Employee is credited with less than 501 Hours of Service.
2.41 "One-Year Period of Severance" shall mean--
(a) Each 12-consecutive month period beginning on the date an Employee
incurs a Severance from Service and ending on each anniversary of
such date, provided
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that the Employee does not perform an Hour of Service for the Company
or any Affiliate during such period.
(b) Solely for purposes of determining whether a One-Year Period of
Severance has occurred, in the case of an Employee who is absent from
work for maternity or paternity reasons, the 12-consecutive month
period beginning on the Employee's Severance from Service shall not
be treated as a Period of Severance. An absence from work for
maternity or paternity reason means an absence by reason of the
pregnancy of the Employee, by reason of the birth of a child of the
Employee, by reason of the placement of a child with the Employee in
connection with the adoption of such child by the Employee, or for
purposes of caring for such child for a period beginning immediately
following such birth or placement. In order for an absence to be
considered as on account of the reasons described in this paragraph,
an Employee shall provide the Plan Administrator information
establishing (1) that the absence from work is for reasons set forth
in this paragraph, and (2) the number of days for which there was
such an absence. Nothing in this paragraph shall be construed as
expanding or amending any maternity or paternity leave policy of the
Company.
2.42 "Participating Affiliate" shall mean any domestic Affiliate which
adopts the Plan with the approval of the Board of Directors. Any such adoption
of the Plan shall be effective as of the February 1, May 1, August 1, or
November 1 which is coincident with or next following the approval of the Board
of Directors, unless another date is specified by the Board of Directors.
2.43 "Permanent Disability" shall mean a mental or physical disability or
illness which prevents an Employee from engaging in any occupation or
employment for remuneration or profit, as determined by the Plan Administrator,
provided such disability--
(a) was not contracted, suffered or incurred while the Employee was
engaged in, or did not result from his having engaged in, a criminal
enterprise, or
(b) did not result from his habitual drunkenness or addiction to
narcotics, or
(c) did not result from an intentionally self-inflicted injury, or
(d) did not result from service in the Armed Forces of any country, which
prevents return to employment with a Company or an Affiliate, and for
which the Employee receives a military pension.
2.44 "Plan" shall mean the Savings and Profit Sharing Retirement Plan of
Steinbach Stores, Inc. and Participating Affiliated Companies, the profit
sharing plan set forth herein.
2.45 "Plan Administrator" shall mean the committee appointed by the
Board of
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Directors pursuant to the provisions of Article IX hereof.
2.46 "Plan Year" shall mean the period commencing on October 1, 1994 and
ending on January 31, 1995 and thereafter means the 12-month period beginning
with February 1 and ending with January 31.
2.47 "Prior Plan" shall mean the Savings and Profit Sharing Retirement
Plan of American Retail Group, Inc. and Participating Affiliated Companies, as
in effect on October 1, 1994.
2.48 "Qualified Domestic Relations Order" shall mean any Domestic Relations
Order described in section 13.8(c).
2.49 "Related Person" shall mean any person described in section 11.3(d).
2.50 "Retirement Date" shall mean the Member's Normal Retirement Date,
Deferred Retirement Date, or Disability Retirement Date.
2.51 "Rollover Contributions" shall mean the amounts described in section
4.16(b).
2.52 "Salary Reduction Agreement" shall mean an agreement described in
section 4.6.
2.53 "Severance from Service" shall mean a termination of employment with
the Company and Affiliates provided, however, that the transfer of an Employee
by the Company or an Affiliate to employment from another Affiliate shall not
constitute a Severance from Service, and provided further that a Severance from
Service shall occur on the earliest to occur of (a), (b), or (c) below:
(a) The date as of which the Employee quits, is discharged, retires, or
dies, or
(b) The first anniversary of the date when the Employee is first absent
from employment because of an Approved Leave of Absence authorized by
the Company or because of a layoff on account of reduction in work
force, provided the Employee fails to return to work following the
expiration of his Approved Leave of Absence or the date upon which the
Company recalls the Employee following a layoff, or
(c) The first anniversary of the first day of an Employee's absence
from employment with the Company and its Affiliates for any reason
other than in (a) or (b), above.
Notwithstanding the foregoing, an Employee who is absent on account of service
in the armed forces of the United States of America shall not incur a Severance
from Service in contradiction of federal law.
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2.54 "Supplemental Before-Tax Contributions" shall mean any Before-Tax
Contributions made on a Member's behalf which are in excess of 5 percent of such
Member's Compensation for any Plan Year.
2.55 "Transfer Contributions" shall mean those Company contributions
that were previously contributed under another qualified plan maintained by the
Company or an Affiliate or its predecessor which have been transferred to this
Plan under section 4.17.
2.56 "Trust" shall mean the trust established by and under the Trust
Agreement in connection with the Plan under which Plan assets are held and
invested and from which all benefits under the Plan are paid.
2.57 "Trust Agreement" shall mean the agreement by and between the
Company and the Trustee as currently in effect and as it may hereafter be
amended.
2.58 "Trustee" shall mean the person or persons acting as trustee of the
Trust.
2.59 "Valuation Date" shall mean the last day of each month and other
dates elected by the Plan Administrator.
2.60 "Year of Eligibility Service" for an Employee shall have the
meaning set forth in section 3.2.
ARTICLE III. PARTICIPATION AND SERVICE
3.1 Eligibility to Commence Participation.
(a) Existing Employees. Each Employee of the Company on October 27,
1994 who was a member of the Prior Plan on such date shall automatically become
a Member under this Plan on the Effective Date.
(b) In General. Each Employee of the Company (including an Employee
who is on an Approved Leave of Absence or layoff) (1) who is not a member of a
collective bargaining unit covered under a collective bargaining agreement
(unless such agreement specifically provides for coverage of such bargaining
unit members in the Plan), (2) who is not, as to the United States, a
non-resident alien with no U.S. source income from the Company, and (3) who
receives Compensation from the Company on a salaried or hourly basis shall be
eligible to become a Member on the Entry Date coincident with or next following
the date the Employee attains his twenty-first birthday and has completed one
Year of Eligibility Service.
3.2 Year of Eligibility Service. "Year of Eligibility Service" means
any Computation Period during which the Employee completes at least 1,000 Hours
of Service beginning on the
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Employee's Employment Commencement Date, or any February 1 thereafter.
Notwithstanding the foregoing sentence, if an Employee has a termination of
employment, incurs one or more One Year Breaks in Service, and is subsequently
reemployed, such Employee's Years of Eligibility Service completed prior to
such One-Year Breaks in Service shall be disregarded if--
(a) the number of such Employee's consecutive One-Year Breaks in
Service equals or exceeds the greater of (1) five, or (2) the aggregate number
of his Years of Eligibility Service completed immediately prior to the
commencement of the first of such consecutive One-Year Breaks in Service, and
(b) at the time of his termination of employment such Employee had no
vested interest in his Before-Tax Contributions Account, Matching Employer
Contributions Account, Discretionary Employer Contributions Account, or Transfer
Account.
3.3 Participation, Enrollment Forms. An Eligible Employee who
qualifies to become a Member in accordance with section 3.1 may enroll as a
Member as of the Entry Date coincident with or next following the date he first
qualifies as a Member, by filing with the Company an enrollment form prescribed
by the Plan Administrator. Such form shall--
(a) designate the rate of his Before-Tax Contributions;
(b) serve as a Salary Reduction Agreement pursuant to section 4.6;
(c) serve as an investment election pursuant to section 5.3; and
(d) serve as a Beneficiary designation pursuant to section 7.4(d). The
Plan Administrator shall file an enrollment form on behalf of any Eligible
Employee who fails to do so within a reasonable time after his eligibility, in
which the Plan Administrator shall designate a zero rate of Before-Tax
Contributions and elect the Fixed Income Fund (or such other Fund or Funds as
the Plan Administrator determines is appropriate) as the investment election
pending receipt of a form filed by such Eligible Employee.
3.4 Eligibility for Contributions.
(a) Before-Tax Contributions. An Eligible Employee may elect to have
Before-Tax Contributions made on his behalf as soon as he becomes a Member. If
he does not elect to have Before-Tax Contributions made when he first becomes a
Member, then Before-Tax Contributions shall begin for the first payroll period
coinciding with or next following any February 1, May 1, August 1, or November 1
thereafter, provided the Eligible Employee submits the enrollment form described
in section 3.3 on which he elects to have Before-Tax Contributions made on his
behalf at least 30 days prior to the effective date of such change.
(b) Matching Employer Contributions and Discretionary Employer
Contributions.
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An Eligible Employee shall be eligible to have Matching Employer Contributions
and Discretionary Employer Contributions made on his behalf as soon as he
becomes a Member.
3.5 Layoffs and Leaves of Absence, Reemployed Members. A Member who is
on an unpaid Approved Leave of Absence or has been laid off by the Company due
to a curtailment or reduction in force shall not be eligible to make Before-Tax
Contributions to the Plan for the period of his unpaid Approved Leave of Absence
or layoff, as applicable. Upon return to active employment following the
expiration of his Approved Leave of Absence or upon rehire following a layoff,
as applicable, the Member's Before-Tax Contributions will resume as of the next
payroll date following his date of rehire at the same rate as in effect on the
date of the Approved Leave of Absence or layoff, unless the Member elects to
continue to suspend Before-Tax Contributions to the Plan by giving the Plan
Administrator written notice prior to the date of rehire.
3.6 Cessation of Participation. Participation hereunder shall cease
upon the complete distribution of the Member's Accounts.
ARTICLE IV. CONTRIBUTIONS AND ALLOCATIONS
4.1 After-Tax Contributions. No After-Tax Contributions shall be
permitted to the Plan.
4.2 Before-Tax Contributions.
(a) Limitation Applicable to Non-Highly Compensated Employees. The
Company shall contribute to the Trust for each payroll period on behalf of each
Member who is not a Highly Compensated Employee an amount equal to the amount by
which the Member's Compensation for such payroll period has been reduced under a
Salary Reduction Agreement as described in section 4.6, but not in excess of 15
percent of a Member's Compensation.
(b) Limitation Applicable to Highly Compensated Employees. The Company
shall contribute to the Trust for each payroll period on behalf of each Member
who is a Highly Compensated Employee an amount equal to the amount by which the
Member's Compensation for such payroll period has been reduced under a Salary
Reduction Agreement as described in section 4.6, but not in excess of 10 percent
of a Member's Compensation.
(c) Payment to Trustee. Before-Tax Contributions shall be transferred
to the Trustee and invested by the Trustee in the Investment Fund designated by
the Member under section 5.3 as soon as practicable after the end of the month
in which such payroll period ends. Contributions under this section on behalf
of each Member shall be credited to the Member's Before-Tax Contributions
Account.
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4.3 Matching Employer Contributions. The Company shall make a
contribution for each Plan Year on behalf of each Member of 100 percent of such
Member's Before-Tax Contributions for the Plan Year, but not in excess of three
percent of the Member's Compensation for such Plan Year. Matching Employer
Contributions shall be transferred to the Trustee and invested by the Trustee in
the Investment Fund designated by the Member under section 5.3 as soon as
practicable, but in no event later than the time prescribed by law for filing
the Company's Federal income tax return for such taxable year (including
extensions thereof) as contemplated by Code section 404(a)(6). Matching
Employer Contributions shall be credited to the Member's Matching Employer
Contributions Account.
4.4 Discretionary Employer Contributions.
(a) Amount of Discretionary Employer Contributions. For any Plan Year
the Company may pay to the Trustee a Discretionary Employer Contribution in such
amount as may be voted by the Board of Directors. The Board of Directors shall
make all determinations of the amount of Discretionary Employer Contributions,
if any, which may vary from Participating Affiliate to Participating Affiliate
so long as such variances do not operate to discriminate in favor of Highly
Compensated Employees. Any Discretionary Employer Contributions shall be
allocated in accordance with subsection (b) below. Such contribution shall be
transferred to the Trustee and invested by the Trustee in the Investment Fund
designated by the Member under section 5.3 as soon as practicable after the end
of the Plan Year to which such contribution is made, but in no event later than
the time prescribed by law for filing the Employer's return for such taxable
year (including extensions thereof) as contemplated by Code section 404(a)(6).
Discretionary Employer Contributions shall be credited to the Member's
Discretionary Employer Contributions Account.
(b) Allocation of Discretionary Employer Contributions.
(1) Schedule. As soon as practicable after the end of each Plan
Year, the Plan Administrator shall construct a schedule showing--
(A) the amount of the Discretionary Employer Contributions,
if any, for the Plan Year, and
(B) the name of each Member--
(i) who was an Employee in the employ of the Company on
the last day of such Plan Year, or
(ii) whose employment terminated on a Normal Retirement
Date, Disability Retirement Date, or Deferred
Retirement Date during such Plan Year, or
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(iii) who died during such Plan Year, and
(C) opposite the name of each such Member the amount of
Compensation paid to him by the Company during such Plan Year while an
Eligible Employee and the name of the Company or the Participating
Affiliate for whom such Member is employed.
(2) Formula. Upon receiving the total Discretionary Employer
Contributions, if any, made by the Company or a Participating Affiliate for
such Plan Year, the Plan Administrator will cause the Trustee to allocate
the Discretionary Employer Contributions (which may vary from the Company
to Participating Affiliate or Participating Affiliate to Participating
Affiliate) to the Discretionary Employer Contributions Account of each
Member listed on the schedule in proportion to his Compensation.
(3) Allocation of Discretionary Employer Contributions to Members
Who Are Shared Employees. For purposes of this subsection (b), those
Members who are employed (or are paid) by the Company or a Participating
Affiliate but who perform substantial services for another Participating
Affiliate or Participating Affiliates shall be assigned to the
Participating Affiliate for whom they are deemed to perform primary
services. Such determination shall be made by the Board of Directors, or
if the Board of Directors so provides pursuant to a written resolution, by
the Plan Administrator.
4.5 Limitation on Company Contributions. The total amount of
Before-Tax Contributions made pursuant to section 4.2, Matching Employer
Contributions made pursuant to section 4.3, and Discretionary Employer
Contributions made pursuant to section 4.4 for any Plan Year shall not exceed an
amount equal to 15 percent of the Compensation of all Members during the Plan
Year.
4.6 Salary Reduction Agreement. In order to have Before-Tax
Contributions made on his behalf, an Eligible Employee shall execute a Salary
Reduction Agreement with the Company on a form prescribed by the Plan
Administrator whereby his Compensation for each payroll period shall be reduced
by a specified whole percentage from one percent to ten percent and whereby the
Company agrees to contribute on the Employee's behalf to the Plan for such
payroll period the amount specified in section 4.2 as Before-Tax Contributions.
The initial agreement shall be effective for payroll periods commencing on and
after the date on which participation begins under section 3.3, and shall be
effective until canceled or amended. Notwithstanding the foregoing, an Eligible
Employee who is not a Highly Compensated Employee may execute a Salary Reduction
Agreement with the Company on a form prescribed by the Plan Administrator
whereby his Compensation for each payroll period shall be reduced from 1 percent
to 15 percent and whereby the Company agrees to contribute on the Employee's
behalf for such payroll period the amount specified in section 4.2 as Before-Tax
Contributions.
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4.7 Change and Suspension of Contributions.
(a) Change. A Member may change the amount of his contributions for
any Plan Year made under section 4.2 as of the first payroll
period coinciding with or next following any February 1, May 1,
August 1, or November 1 thereafter, by giving written notice to
the Plan Administrator at least 30 days prior to the date on which
he desires the change to be effective, or such later date as the
Plan Administrator may establish.
(b) Suspension. A Member may suspend or discontinue his contributions
for any Plan Year under section 4.2 as of any payroll date by
giving written notice to the Plan Administrator at least 30 days
prior to such date, or such later date as the Plan Administrator
may establish. During a period of suspension of contributions, no
Matching Employer Contributions shall be made on behalf of such
Member.
(c) Resumption of Contributions. A Member for whom contributions
under section 4.2 have been suspended may resume such
contributions as of the first payroll period coinciding with or
next following any February 1, May 1, or August 1, November 1
following the date of such discontinuance or suspension,
provided notice of such election is filed with the Plan
Administrator at least 30 days prior to the effective date of
such resumption or at such later date as the Plan Administrator
shall establish.
4.8 Maximum Before-Tax Contributions.
(a) Annual Limitation. Notwithstanding anything contained herein to
the contrary, Before-Tax Contributions made on behalf of an
Eligible Employee under this Plan together with elective deferrals
(as defined in section 402(g) of the Code) under any other plan or
arrangement maintained by the Company or an Affiliate shall not
exceed $7,000 (as adjusted in accordance with section 402(g) of
the Code and regulations thereunder). Furthermore, should a Member
claim that his Before-Tax Contributions under this Plan when added
to his other elective deferrals under any other plan or
arrangement (whether or not maintained by the Company or an
Affiliate) exceed the limit imposed by section 402(g) of the Code
for the calendar year in which the deferrals occurred, the Plan
Administrator notwithstanding any other provision of the Plan
shall distribute, by April 15 of the following calendar year, the
amount of Before-Tax Contributions specified in the Member's
claim, plus income thereon determined in the manner described in
section 4.11(c). The Member's claim shall be in writing and shall
be submitted to the Plan Administrator no later than the March 1
following the calendar year in which such deferrals occurred.
Notwithstanding anything in this section 4.8 to the contrary, a
Member shall be deemed to have made a claim for distribution of
excess deferrals
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from the Plan to the extent that his Before-Tax Contributions
together with his elective deferrals under any other plan or
arrangement maintained by the Company or an Affiliate exceed the
limit imposed by section 402(g) of the Code for the calendar year.
(b) Coordination with Other Distributions. The amount of excess
Before-Tax Contributions distributed under this section 4.8 shall
be reduced by any excess contributions previously distributed under
section 4.11 or returned to the Member pursuant to section 4.14(d).
(c) Forfeiture of Related Matching Employer Contributions. In the
event a Member receives a distribution of excess Before-Tax
Contributions pursuant to subsection (a) and, after application of
section 4.13 for such year, any Matching Employer Contributions
allocated to the Participant by reason of the distributed
Before-Tax Contributions remain in the Member's Account, the Member
shall forfeit such Matching Employer Contributions (plus income
thereon), whether or not such amounts would otherwise be vested.
Amounts forfeited shall be used to reduce future Matching Employer
Contributions made pursuant to section 4.3.
4.9 Limitation on Before-Tax Contributions. In no event shall the
Company make Before-Tax Contributions for any Plan Year that would cause the
actual deferral percentage of the group of Highly Compensated Employees who are
Eligible Employees to exceed the greater of --
(a) one and one-quarter times the actual deferral percentage of the
group of all other Eligible Employees; or
(b) the lesser of (1) two times the actual deferral percentage of the
group of all other Eligible Employees or (2) the actual deferral
percentage of the group of all other Eligible Employees plus two
percentage points.
The "actual deferral percentage" for each such group of Eligible Employees for
a Plan Year is the average of the ratios (expressed as a percentage to the
nearest one-hundredth of one percent), calculated separately for each Employee
in each such group, of (A) the Eligible Employee's Before-Tax Contributions for
the Plan Year (excluding any Before-Tax Contributions that are (i) taken into
account in determining the "contribution percentage" under section 4.12, (ii)
distributed to an Eligible Employee who is not a Highly Compensated Employee
pursuant to a deemed claim for distribution under section 4.8, or (iii)
returned to the Employee pursuant to section 4.14) plus, in the case of any
Highly Compensated Employee who is eligible to participate in more than one
cash or deferred arrangement maintained by the Company or an Affiliate,
elective deferrals made on his behalf under all such arrangements (excluding
those that are not permitted to be aggregated under Treas. Reg. Section
1.401(k)-l(b)(3)(ii)(B)) for the Plan Year, to (B) the Employee's Compensation
for the Plan Year. The ratio of any Highly Compensated
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Employee described in section 2.29(e) shall be determined by aggregating the
Compensation and Before-Tax Contributions of all family members who are Eligible
Employees and are required to be treated as a single Employee. Except to the
extent taken into account in the preceding sentence, the Compensation and
Before-Tax Contributions of each such family member shall not be taken into
account in determining the actual deferral percentage for the group of Eligible
Employees who are not Highly Compensated Employees or for the group of Eligible
Employees who are Highly Compensated Employees.
4.10 Adjustment of Before-Tax Contributions During Plan Year. If the
Plan Administrator determines that the nondiscrimination test set forth in
section 4.9 otherwise might not be met for the Plan Year, the Plan Administrator
may reduce the maximum percentage of Compensation at which Highly Compensated
Employees may elect to have Before-Tax Contributions made on their behalf to
such percentage, if any, as the Plan Administrator determines appropriate to
ensure that such test will be met for such Plan Year. Such a reduction may be
imposed for the entire Plan Year or any part thereof.
4.11 Excess Before-Tax Contributions After Plan Year.
(a) Correction of Excess Before-Tax Contribution After Plan Year. If
the Plan Administrator determines after the end of the Plan Year
that the nondiscrimination test set forth in section 4.9 has not
been met, excess Before-Tax Contributions (adjusted to reflect any
income or losses allocable to such excess) of the Highly
Compensated Employees shall be returned to such Highly Compensated
Employees to eliminate excess Before-Tax Contributions.
(b) Determination of Amount of Excess Before-Tax Contributions. The
amount of excess Before-Tax Contributions for a Highly Compensated
Employee for a Plan Year is to be determined by the following
leveling method, under which the actual deferral percentage of the
Highly Compensated Employee with the highest actual deferral
percentage is reduced to the extent necessary to--
(1) enable the Plan to satisfy the actual deferral percentage
limitation set forth in section 4.9, or
(2) cause such Highly Compensated Employee's actual deferral
percentage to equal the percentage of the Highly
Compensated Employee with the next highest actual deferral
percentage.
This process must be repeated until the Plan satisfies the actual deferral
percentage limitation.
(c) Return of Excess Before-Tax Contributions. Excess Before-Tax
Contributions which are returned to Highly Compensated Employees
pursuant to this section 4.11 shall be distributed to such
Employees as soon as practicable but in no event
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later than 12 months after the close of the Plan Year for which
such contributions were made, without regard to any limitation
otherwise imposed by law or by the provisions of this Plan. Any
distribution of Before-Tax Contributions shall include a
distribution of the income, if any, allocable to such
contributions. Such income shall be equal to the allocable gain or
loss for the Plan Year, and the period between the end of the Plan
Year and the date of distribution, and shall be determined by the
Plan Administrator in a manner uniformly applicable to all Members
and consistent with Treasury regulations. In addition, in the event
of the return of excess Before-Tax Contributions under this
subsection (c), the provisions of section 4.8(c) regarding
forfeiture of related Matching Employer Contributions shall apply.
(d) Coordination with Other Distributions. The amount of excess
Before-Tax Contributions distributed under this section 4.11 shall
be reduced by any excess contributions previously distributed under
section 4.8.
4.12 Limitation on Matching Employer Contributions. In no event shall
Matching Employer Contributions for any Plan Year be made which would cause the
contribution percentage of the group of Highly Compensated Employees who are
Eligible Employees to exceed the greater of
(a) one and one-quarter times the contribution percentage of the group
of all other Eligible Employees, or
(b) the lesser of (1) two times the contribution percentage of the
group of all other Eligible Employees or (2) the contribution
percentage of the group of all other Eligible Employees plus two
percentage points.
The "contribution percentage" for each such group of Eligible Employees for a
Plan Year is the average of the ratios (expressed as a percentage to the
nearest one-hundredth of one percent), calculated separately for each Employee
in each such group, of (A) the Matching Employer Contributions allocated to a
Participant's Account for the Plan Year, plus in the case of any Highly
Compensated Employee who is eligible to participate in more than one plan
maintained by the Company or an Affiliate to which employee or matching
contributions are made, after-tax employee contributions and employer matching
contributions made on his behalf under all such plans (excluding those that are
not permitted to be aggregated under Treas. Reg. Section 1.401(m)1(b)(3)(ii))
for the Plan Year, to (B) the Member's Compensation for the Plan Year. To the
extent permitted by applicable regulations, the Plan Administrator may elect to
take Before-Tax Contributions into account in determining the contribution
percentage. The ratio of any Highly Compensated Employee described in section
2.29(e) shall be determined by aggregating the Compensation and Matching
Employer Contributions of all family members who are Eligible Employees and are
required to be treated as a single Employee. Except to the extent taken into
account in the preceding sentence, the, Compensation and Matching Employer
Contributions of
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<PAGE> 23
each such family member shall not be taken into account in determining the
contribution percentage for the group of Eligible Employees who are not Highly
Compensated Employees or for the group of Eligible Employees who are Highly
Compensated Employees.
4.13 Excess Aggregate Contributions After Plan Year.
(a) Correction of Excess Aggregate Contributions After Plan Year. If
the Plan Administrator determines after the end of the Plan Year
that the nondiscrimination test set forth in section 4.12 has not
been met, and a portion of certain Highly Compensated Employees'
Accounts therefore constitutes "excess aggregate contributions," as
defined under Code section 401(m)(6)(B), such excess aggregate
contributions shall be adjusted, within twelve (12) months of the
close of the Plan Year to which the adjustment applies, by
distributing, or to the extent applicable, forfeiting, Matching
Employer Contributions (adjusted for earnings or losses
attributable thereto) until no excess aggregate contributions
remain in the Plan. Any distribution or forfeiture of Matching
Employer Contributions pursuant to this subsection (a) shall
include a distribution or forfeiture of the income, if any,
allocable to such contributions. Such income shall be equal to the
sum of the allocable gain or loss for the Plan Year, and the period
between the end of the Plan Year and the date of distribution, and
shall be determined by the Plan Administrator in a manner uniformly
applicable to all Members and consistent with Treasury regulations.
Matching Employer Contributions forfeited hereunder shall be used
to reduce future Matching Employer Contributions made pursuant to
Section 4.3.
(b) Determination of Amount of Excess Aggregate Contributions. The
amount of excess aggregate contributions for a Highly Compensated
Employee for a Plan Year is to be determined by the following
leveling method, under which the actual contribution percentage of
a Highly Compensated Employee with the highest actual contribution
percentage is reduced to the extent required to--
(1) enable the Plan to satisfy the actual contribution
percentage limitation, or
(2) cause such Highly Compensated Employee's actual
contributions percentage to equal the percentage of the
Highly Compensated Employee with the next highest actual
contribution percentage. This process must be repeated
until the Plan satisfies the actual contribution
percentage limitation.
(c) Restriction on Multiple Use of Alternative Limit. If the
discrimination limits set forth in sections 4.9 and 4.12 of the
Plan would otherwise be satisfied only by use of the alternative
limitation set forth in subsection (b) of sections 4.9 and 4.12 of
the Plan, the "contribution percentage" of Highly Compensated
Employees shall
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<PAGE> 24
be reduced in the manner described in section 4.13(a) and (b) of
the Plan until the "aggregate limit" (as defined in Treasury
Regulation section 1.401(m)-(2)) is satisfied.
(d) Application of Discrimination Limits. Notwithstanding any
provision of the Plan to the contrary:
(1) for purposes of sections 4.9, 4.12 and 4.13(c), this Plan
shall be aggregated and treated as a single plan with
other plans maintained by the Company or an Affiliate to
the extent that this Plan is aggregated with any such
other plan for purposes of satisfying Code section 410(b)
(other than Code section 410(b)(2)(A)(ii)); and
(2) in the case of a Highly Compensated Employee whose actual
deferral percentage or contribution percentage is
determined by aggregating Compensation and contributions
of family members, the actual deferral percentage or
contribution percentage shall be reduced as described in
section 4.11 or 4.13, whichever applies, and any excess
amounts shall be allocated among the family members in
proportion to the contributions of each family member that
has been aggregated.
4.14 Limitation on Annual Additions.
(a) General Limitation. Notwithstanding the foregoing provisions of
this Article IV, the amount of Annual Addition with respect to a
Member for a Plan Year shall not exceed the lesser of--
(1) $30,000 or, if greater, one-fourth of the defined benefit
dollar limitation in effect for the Plan Year under Code
section 415(b)(1)(A), or
(2) 25 percent of the Member's Limitation Compensation (as
defined in section 4.14(c)(4) of the Plan below) for such
Plan Year.
Notwithstanding the foregoing, any contribution made after a
Member's termination of employment with the Company for the purpose
for providing medical care (within the meaning of Code section
419A(f)(2)) and any amount otherwise treated as an Annual Addition
under Code section 415(1)(l), shall not be treated as an Annual
Addition for purposes of section 4.14(a)(2) above.
(b) Limitation for Member Also Covered by Defined Benefit Plan. In the
case of a Member who is or has been covered under a qualified
defined benefit plan maintained by the Company, the Projected
Annual Benefit (as defined below) under such defined benefit plan
shall be reduced (prior to any reduction under this
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<PAGE> 25
Plan) to the extent necessary to ensure that the sum of the Defined
Contribution Fraction (as defined below) and the Defined Benefit
Fraction (as defined below) does not exceed 1.0 for any Plan Year.
(c) Definitions. For purposes of this section,
(1) Annual Addition. "Annual Addition" means, for any Member
for any Plan Year, the sum of--
(A) the Company's contributions made for him under
"any defined contribution plan" for the year;
(B) Employee contributions;
(C) forfeitures allocated to him under any defined
contribution plan for the year; and
(D) amounts allocated on his behalf to any individual
medical account under sections 401(h)(6) and
419A(d) of the Code.
"Any defined contribution plan" means all defined contribution
plans of the Company considered as one plan. For purposes of this
section 4.14, the Plan Year shall be the limitation year and the
term "Company" shall include all Affiliates of the Company
provided, however, that "Affiliate" shall have the meaning
prescribed in section 2.2, but with the application of Code
sections 414(b) and (c) modified by Code section 415(h).
(2) "Defined Benefit Fraction" means a fraction, the numerator
of which is the sum of the Member's Projected Annual
Benefits under all qualified defined benefit plans
(whether or not terminated) maintained by the Company, and
the denominator of which is the lesser of--
(A) 1.25 times the dollar limitation of Code section
415(b)(1)(A) in effect for the Plan Year, or
(B) 1.4 times the Member's average Limitation
Compensation for the three consecutive Plan Years
that produce the highest average.
(3) "Defined Contribution Fraction" means a fraction, the
numerator of which is the sum of the Annual Additions to
the Member's accounts under all qualified defined
contribution plans (whether or not terminated) maintained
by the Company for the current Plan Year and all prior
years of service with the Company, and the denominator of
which is the sum of
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<PAGE> 26
the lesser of the following amounts determined for such
year and for each prior year of service with the Company--
(A) 1.25 times the dollar limitation in effect under
Code section 415(c)(1)(A) for such year, or
(B) 1.4 times the amount which may be taken into
account under section 4.14(a)(2) above.
(4) "Limitation Compensation" means the total of regular,
overtime, bonus, and other cash compensation paid or made
available to the Employee during the Plan Year for
services rendered to the Company during the Plan Year, but
not including Before-Tax Contributions or the items listed
in Treasury Regulations section 1.415-2(d)(3) (relating to
deferred compensation, stock options, and proceeds from
the sale of certain securities).
(5) "Projected Annual Benefit" means the annual benefit to
which the Member would be entitled under the terms of a
defined benefit plan, if-
(A) the Member continued in covered employment until
his Normal Retirement Date (or current age, if
later), and
(B) the Member's Limitation Compensation for the Plan
Year and all other relevant factors used to
determine such benefit remained constant until
such Normal Retirement Date (or current age, if
later).
(d) Procedure by Which Excess Annual Additions Shall be Reduced. If the
amount otherwise allocable to the Account of a Member would exceed
the amount described in subsection (a) above as a result of the
reallocation of forfeitures, a reasonable error in estimating the
Member's Compensation, a reasonable error in determining the amount
of elective deferrals (within the meaning of section 402(g) of the
Code) that may be made under the limitations of section 415 of the
Code, or such other circumstances as permitted by law, the Plan
Administrator shall determine which portion, if any, of such excess
amount is attributable to the Member's Before-Tax Contributions,
and/or Matching Employer Contributions, and/or Discretionary
Employer Contributions, if any, until such amount has been
exhausted. To the extent any portion of a Member's Before-Tax
Contributions are determined to be excess Annual Additions, such
Before-Tax Contributions, with income thereon, shall be returned to
the Member as soon as administratively practicable. To the extent
any portion of the Matching Employer Contributions and/or
Discretionary Employer Contributions allocable to a Member are
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<PAGE> 27
determined to be excess Annual Additions, while the Member remains
an Eligible Employee, his excess Matching Employer Contributions
and/or Discretionary Employer Contributions shall be held in a
suspense account (which shall share in investment gains and losses
of the Trust) by the Trustee until the following Plan Year (or any
succeeding Plan Years), at which time such amounts shall be
allocated to the Member's Account before any Matching Employer
Contributions and/or Discretionary Employer Contributions are made
on his behalf for the Plan Year. When the Member ceases to be an
Eligible Employee, his excess Matching Employer Contributions
and/or Discretionary Employer Cont held the suspense account shall
be allocated in the following Plan Year (or any succeeding Plan
Years) to the Accounts of other Members in the Plan.
4.15 Return of Contributions.
(a) Each contribution made by the Company pursuant to sections 4.2, 4.3
and 4.4 is hereby made expressly contingent on the deductibility
thereof for federal income tax purposes for the fiscal year with
respect to which such contribution is made.
(b) Except as provided in this section 4.15, the Company and its
Affiliates shall have no right, title, or interest in the
contributions made to the Trust under the Plan, and no part of the
Trust assets shall revert to the Company or any of its Affiliates.
(1) Disallowance of Deductions. In the event that all or part
of the deductions under Code section 404 for the Company's
contributions to the Plan on or after the Effective Date
are disallowed by the Internal Revenue Service, all
contributions being conditioned on their deductibility
under the Code shall be returned to the Company.
(2) Mistake of Fact. In the event that a Company contribution
to the Plan is made by a mistake of fact, then such
contribution shall be returned to the Company.
Any return of contributions permitted under this section 4.15 shall be made
within one year after the disallowance of deduction, or the payment of the
contribution due to a mistake of fact, as applicable. In the event that any
refund is paid to the Company hereunder, such refund shall be made without
regard to net investment gains attributable to the contribution, but shall be
reduced to reflect net investment losses attributable thereto.
4.16 Rollover Contributions. Effective February 11, 1995, no Rollover
Contributions may be made to the Plan. The term "Rollover Contribution" shall
mean any amount which is in U.S. dollars and is attributable to a distribution
from another qualified plan, if such distribution meets the requirements for an
eligible rollover distribution defined in--
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<PAGE> 28
(1) Code section 402(c)(4), or
(2) Code section 408(d)(33) (relating to certain distributions
from an individual retirement account or an individual
retirement annuity).
4.17 Transfer Contributions. Effective as of February 11, 1995, no
Transfer Contributions may be made to the Plan; provided, however, that if
directed by the Plan Administrator, the Trustee may accept a transfer of assets
from the Prior Plan consisting of the accrued benefits in the Prior Plan of
individuals who became employees of the Company as of October 2, 1994, but
provided further, however, that no Transfer Contribution shall be accepted from
a defined benefit pension plan. The Plan Administrator shall establish and
maintain or cause to be established or maintained, as part of the Trust, an
Account for the amounts transferred hereunder, and all relevant data pertaining
thereto. All such transferred amounts shall be held by the Trustee for the
exclusive benefit of such Employee in accordance with the terms of this Plan. to
be commingled, invested, and reinvested with the other assets of the Plan.
ARTICLE V. MEMBER ACCOUNTS: INVESTMENT FUNDS
5.1 Investment Policy. All Before-Tax Contributions, Matching Employer
Contributions, Discretionary Employer Contributions, Rollover Contributions,
Transfer Contributions, and After-Tax Contributions shall be paid to the Trustee
and held in the Trust in accordance with the Trust Agreement for the sole and
exclusive purpose of providing benefits under the Plan to Members and their
Beneficiaries, and such persons shall look only to the Trust for payment of
their benefits under the Plan. The Trust Fund shall consist of Investment Funds
as the Plan Administrator shall designate, consistent with its investment policy
and method for funding the Plan and the requirements of ERISA. The Plan
Administrator will also have the right to terminate any such Investment Fund.
The Plan is intended to constitute a plan described in section 404(c) of ERISA
and Title 29 of the Code of Federal Regulations section 2550.404c- 1.
5.2 Investment of Contributions. Subject to the provisions of Article
XIII (Qualified Domestic Relations Orders), each Member may direct the
investment of his Accounts in any of the Investment Funds which shall be
established and maintained by the Trustee under section 5.1 and which are
described in section 5.4 below. In the case of Members who have outstanding
loans under Article VIII, notes representing such loans shall be held in a Loan
Fund, which also shall be an Investment Fund under the Plan. At least
semi-annually, the Plan Administrator shall notify each Member of the value of
his monies in each Investment Fund.
5.3 Investment Election By Members.
(a) Investment of Contributions. At such time and in such manner as
the Plan Administrator shall prescribe, and subject to the provisions of Article
XIII (Qualified Domestic
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<PAGE> 29
Relations Orders), each Member may file with the Plan Administrator such
Member's investment election with respect to the existing Balance of the
Member's Accounts and with respect to the portion of future contributions which
are allocated to his Accounts. Each Member may elect to have the amounts in his
Accounts invested, in increments of 10 percent of the total in his Accounts, in
one or more of the Investment Funds. Separate investment elections with respect
to Before-Tax Contributions, After-Tax Contributions, Matching Employer
Contributions, Discretionary Employer Contributions, Rollover Contributions, and
Transfer Contributions may not be made. Each Member is solely responsible for
the selection of his investment options. The fact that an Investment Fund is
available to Members for investment under the Plan shall not be construed as a
recommendation for investment in that Investment Fund.
(b) Election to Change Investment Funds with Respect to Future
Contributions. Any investment direction given by a Member shall be deemed to be
a continuing direction until changed. A Member may change his investment
direction with respect to the investment of his future contributions at such
times as the Plan Administrator may prescribe by filing a new election with the
Plan Administrator on such form, at such time in advance, and in accordance with
such other procedures as the Plan Administrator or its delegate may prescribe.
Such change shall be limited to the Investment Funds described in section 5.4
and the percentages described in this section 5.3. Separate changes of
investment elections with respect to each type of contribution may not be made.
Such change shall be made operative only with respect to those contributions
actually received by the Trustees on and after the date the Trustees receive
from the Plan Administrator such written notice of change as shall be agreed to
between the Plan Administrator and the Trustees.
(c) Election to Change Investment Funds with Respect to Existing
Amounts. At such times as the Plan Administrator may prescribe, a Member may
transfer, in multiples of 10 percent, part or all of the value of his monies in
one or more of the Investment Funds described in section 5.4, to another of the
Investment Fund or Investment Funds described therein. A Member may transfer
part or all of the value of his monies by filing a new election with the Plan
Administrator on such form, at such time in advance, and in accordance with such
other procedures as the Plan Administrator or its delegate may prescribe.
(d) The right to change investment elections described in subsection
(c), above, shall also apply to the Beneficiary of a deceased
Member's Account Balance.
5.4 Description of Investment Funds. The Investment Funds shall be any
fund, contract, obligation, or other mode of investment, as selected from time
to time by the Plan Administrator, for the investment of Members' Accounts in
accordance with the provisions of section 5.1. The Plan Administrator shall
have discretion to terminate such funds and establish new funds as it shall deem
appropriate in accordance with section 5.1.
5.5 Temporary Investment. The assets of any Investment Fund may be
invested, pending permanent investment, or pending distribution to a Member or
Beneficiary, in short-
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term securities issued or guaranteed by the United States of America or any
agency or instrumentality thereof or in other investments of short- term
nature, including prime commercial paper and participation in pooled accounts
or funds.
5.6 Plan Expenses.
(a) Investment Fees. Expenses attributable to the management and
investment of each Investment Fund shall be charged against the respective fund.
(b) Administrative Expenses. Subject to section 6.4, all fees paid to
the Trustee for Trust services and annual audit expenses paid to the auditors or
certified public accountants selected by the Plan Administrator shall be paid
from the Trust and charged against the Investment Funds. All other fees,
including fees paid for record-keeping services performed by the Trustee or by
any other third-party service provider (except for such services as are
attributable to the Member loan program described in Article VIII), and all
reasonable expenses incurred in the administration of the Plan (including, but
not limited to, the fees and compensation of auditors, accountants, legal
counsel, and actuarial counsel) may be paid from the Trust and charged against
the Investment Funds at the discretion of the Company, in accordance with
section 408(b)(2) of ERISA. To the extent such fees are not paid by the Trust
they shall be paid by the Company.
(c) Missing Persons. Notwithstanding anything to the contrary in
subsection (b) above, any expense attributable to account maintenance for any
Member who has --
(1) terminated employment with the Company and its Affiliates,
(2) has left no instructions with the Plan Administrator
regarding disposition of such Member's Accounts, and
(3) for whom the Plan Administrator has no current mailing
address, shall be charged against such Member's Account.
5.7 Valuations; Allocation of Investment Earnings and Losses. Accounts
and Investment Funds shall be valued at fair market value as of each Valuation
Date. Earnings, gains, and losses (realized or unrealized) for each Investment
Fund shall be allocated to the portion of a Member's Accounts ("subaccount")
maintained with respect to such Investment Fund, in the same ratio that the
value of his subaccount bears to the sum of the values of all Members'
subaccounts maintained with respect to such Investment Fund. For the purpose of
this ratio, the value of a subaccount shall be the value of the subaccount as of
the last preceding Valuation Date, adjusted for contributions, reallocated
forfeitures, loan repayments, transfers between Investment Funds, distributions,
withdrawals, and expenses since that Valuation Date.
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ARTICLE VI. VESTING
6.1 Vesting in After-Tax Contributions Account, Before-Tax
Contributions Account, and Rollover Account. A Member shall be fully vested and
have a nonforfeitable interest in his After-Tax Contributions Account,
Before-Tax Contributions Account and Rollover Contribution Account, and any
amounts attributable thereto. A Member also shall be fully vested and have a
nonforfeitable interest in the entire balance of his Account that is
attributable to amounts transferred from the Prior Plan to this Plan.
6.2 Vesting in Matching Employer Contributions. A Member shall have a
nonforfeitable interest in the Matching Employer Contributions credited to his
Account in accordance with the following schedule--
Years of Continuous
Service Vested Percentage
Less than 2 years 0%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more years 100%
Notwithstanding the foregoing, a Member shall have a nonforfeitable interest in
the Matching Employer Contributions credited to his Account, without regard to
his completed years of Continuous Service, upon his Normal Retirement Date,
Disability Retirement Date, Deferred Retirement Date, or upon his death while
an Employee.
6.3 Vesting in Discretionary Employer Contributions and Transfer
Contributions. A Member who terminates his employment shall have a
nonforfeitable interest in the Discretionary Employer Contributions credited to
his Account in accordance with the following schedule:
Years of Continuous
Service Vested Percentage
Less than 2 years 0%
2 but less than 3 20%
3 but less than 4 30%
4 but less than 5 40%
5 but less than 6 60%
6 but less than 7 80%
7 or more years 100%
A Member who terminates his employment shall have a nonforfeitable interest in
the Transfer
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<PAGE> 32
Contributions credited to his Account determined in accordance with the above
schedule except as otherwise determined by the Board of Directors or required
to comply with applicable law. Notwithstanding the foregoing, a Member shall
have a nonforfeitable interest in the Discretionary Employer Contributions and
Transfer Contributions credited to his Account, without regard to his completed
years of Continuous Service, upon his Normal Retirement Date, Disability
Retirement Date, or Deferred Retirement Date, or upon his death while an
Employee.
6.4 Forfeitures.
(a) Matching Employer Contributions and Transfer Contributions. A
Member's Matching Employer Contributions, and Transfer
Contributions in which his interest is not vested under section 6.2
or 6.3 shall constitute a forfeiture following a Severance from
Service, except to the extent provided in section 6.5. All
forfeited amounts shall be used first to offset the expenses of
administering the Plan (unless otherwise determined by the Plan
Administrator), and then shall be used to reduce the Matching
Employer Contributions made by the Company under section 4.3.
(b) Discretionary Employer Contributions. A Member's Discretionary
Employer Contributions in which his interest is not vested under
section 6.3 shall constitute a forfeiture following a Severance
from Service, except to the extent provided in section 6.5. All
forfeited amounts shall be used first to offset the expenses of
administering the Plan (unless otherwise determined by the Plan
Administrator) and shall then be treated as additional
Discretionary Employer Contributions pursuant to section 4.4.
6.5 Reinstatement of Forfeited Amounts. If a Member has a Severance
from Service, incurs a forfeiture of amounts in his Matching Employer
Contributions Account, Discretionary Employer Contributions Account, or the
Member's Transfer Account credited to him, and is subsequently reemployed and
credited with an Hour of Service prior to incurring five consecutive One- Year
Periods of Severance, then he shall have reinstated to him the amount of
Matching Employer Contributions, Discretionary Employer Contributions, and
Transfer Contributions forfeited at his Severance from Service. Such
reinstatement shall be made by an additional Company contribution for the Plan
Year of restoration or, failing that for any reason, by reallocating current
forfeitures to affected Members' Accounts. Any amount reinstated pursuant to
this paragraph shall be invested in the Investment Funds in the proportions
selected in the most recent written direction filed with the Plan Administrator
pursuant to section 5.3 of the Plan.
If a Member who (a) had previously received a distribution of his partially
vested interest in the Matching Employer Contributions, Discretionary Employer
Contributions, or the Transfer Contributions credited to his Account and (b) is
reemployed prior to incurring five- consecutive One-Year Periods of Severance,
again incurs a Severance from Service prior to attaining a fully
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vested interest in the Matching Employer Contributions, Discretionary Employer
Contributions, or the Transfer Contributions credited to his Account, then the
portion of the Matching Employer Contributions, Discretionary Employer
Contributions, or the Transfer Contributions credited to his Account which is
distributable upon his later Severance from Service shall be determined as
follows-
(1) the amount of Matching Employer Contributions, Discretionary
Employer Contributions, or the Transfer Contributions distributed
to the Member from his Account upon his earlier Severance from
Service shall be added to the adjusted balance of Matching Employer
Contributions, Discretionary Employer Contributions, or the
Transfer Contributions credited to his Account;
(2) the amount determined under paragraph (1) shall be multiplied by
the Member's vested percentage as of the date of his later
Severance from Service determined under sections 6.2 and 6.3 of
this Plan; and
(3) the amount of Matching Employer Contributions, Discretionary
Employer Contributions, or the Transfer Contributions distributed
to the Member upon his Severance from Service shall be deducted
from the product calculated under paragraph (2) to determine the
amount distributable upon his later Severance from Service.
ARTICLE VII. DISTRIBUTIONS
7.1 Eligibility. Upon the termination of employment of a Member, the
Member shall have the right to commence receiving a distribution of the
nonforfeitable value of his Accounts. Distribution of a Member's Accounts shall
be made as provided in subsection 7.2. For purposes of this Article VII, the
term "termination of employment" shall have a meaning consistent with the term
"separation from service" under section 401(k) of the Code, as determined by the
Plan Administrator in accordance with the Code and applicable Treasury
Regulations.
7.2 Methods of Distribution. Unless otherwise provided in this Article
VII or in Article XIII (Qualified Domestic Relations Orders), the Balance of the
Member's Accounts shall be distributed under (a) or (b) below, as applicable.
a) Normal Form.
(1) Termination of Employment Prior to Attainment of Age 65.
If a Member has a termination of employment prior to age
65, the nonforfeitable value of a Member's Account shall
be determined as of the Valuation Date coinciding with or
immediately subsequent to his Normal Retirement Date and
distribution shall be made in a single lump sum as soon as
practicable
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after such Valuation Date.
(2) Termination of Employment on or After Attainment of Age
65. If a Member has a termination of employment on or
after age 65, the nonforfeitable value of a Member's
Account shall be determined as of the Valuation Date
coinciding with or immediately subsequent to his Deferred
Retirement Date, as applicable, and distribution shall be
made in a single lump sum as soon as practicable
thereafter.
(b) Installment Option. In lieu of the normal form of payment under
subsection (a) above, a Member who incurs a termination of
employment or who is subject to the distribution requirements of
section 7.3 herein, may elect to receive the nonforfeitable value
of his Accounts in annual cash installment payments over a period
not exceeding the lesser of (1) five years or (2) the life
expectancy of the Member or the joint life expectancy of the Member
and his Beneficiary, as designated by the Member, with each such
installment determined by dividing the nonforfeitable value of the
Member's Accounts on the Valuation Date coinciding with or
immediately preceding the date of payment by the number of
installments remaining to be paid. If the Member dies after
commencing benefit payments hereunder but before receiving the
entire nonforfeitable amount credited to his Account, then the
remaining Balance shall be paid in a single lump sum in cash to the
Member's Beneficiary, as soon as practicable after the Valuation
Date which coincides with or next follows the Member's death.
(c) Early Commencement of Benefits. A Member who incurs a termination
of employment prior to age 65 may elect to receive the normal form
of benefit payment or the installment option payment of his
nonforfeitable Account Balance upon his termination of employment.
His Accounts shall be valued as of the Valuation Date coinciding
with or subsequent to his termination of employment and
distribution shall be made as soon as practicable following such
Valuation Date. If a Member incurs a termination of employment
prior to age 65 and makes no election hereunder, the Plan
Administrator shall send such Member, via certified mail, return
receipt requested, a notice informing the Member of his right to
elect to commence immediate distribution of his nonforfeitable
Account Balance upon his termination of employment. The Member
shall retain the right to elect early distribution of his
nonforfeitable Account Balance for 60 days following receipt of
such certified mailing.
(d) Termination of Employment on Account of Permanent Disability. If a
Member has suffered a Permanent Disability and terminates
employment with the Company by reason of such Permanent Disability,
that Member may elect to receive the normal form of benefit payment
or the installment option payment of his Account Balance upon his
Disability Retirement Date. Ms Accounts shall be
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valued as of the Valuation Date coinciding with or immediately
subsequent to his Disability Retirement Date, and distribution
shall be made as soon as practicable following such Valuation Date.
(e) Payment of Small Amounts. Notwithstanding the provisions of
paragraph (a)(1) or subsections (b), (c) or (d) above, if the
nonforfeitable value of a Member's Accounts is $3,500 or less as of
the Valuation Date coinciding with or immediately subsequent to his
termination of employment with the Company or any Affiliate (and,
if the Member has not attained age 65, has never exceeded $3,500 at
the time of any prior distribution), then the Plan Administrator
shall specify that the distribution of the Member's Account shall
be made in a single lump sum as soon as practicable after his
termination of employment.
(f) Payment of Transfer Contributions. If a Member has Transfer
Contributions credited to his Account from another plan of the
Company or an Affiliate, then the nonforfeitable value of his
Transfer Contributions shall be payable according to the terms and
the forms set forth in said plan or plans, in accordance with
Treasury Regulations under Code section 41 1 (d)(6).
Notwithstanding the foregoing, if the nonforfeitable Account
Balance of such Member does not exceed $3,500 (and, if the Member
has not attained age 65, has never exceeded $3,500 at the time of
any prior distribution), then payment of the Member's Account,
including his Transfer Account, shall be payable in a single lump
sum as soon as practicable following his termination of employment
with the Company and its Affiliates.
(g) Investment of Member's Accounts. If the value of a Member's
Accounts are to be paid as a deferred lump sum under paragraph
(a)(1), or a deferred installment payment form under subsection
(b), the Member may, after his termination of employment, elect to
transfer his Accounts in the Investment Funds in the same manner as
provided in Section 5.3 for an active Member.
(h) Notice and Consent Requirements. Notwithstanding anything in
subsections (c) and (d) to the contrary, in the case of a Member
described in subsection (c) or (d) who has not reached age 65 and
whose vested Account balance exceeds $3,500 (or has ever exceeded
$3,500 at the time of any prior distribution), no distribution
shall be made (or commence) without the written consent of the
Member. If the Member does not so consent, then distribution will
be deferred as described in subsection (a). A Member's election to
receive payment prior to age 65 must be made no earlier than
ninety (90) days and no later than thirty (30) days prior to the
benefit commencement date and in no event earlier than the date the
Plan Administrator provides the Member with written information
relating to his right to defer payment until age 65, the modes of
payment available to him and the relative values of each. Such
information must be supplied not less than 30 days
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nor more than 90 days prior to the benefit commencement date.
(i) Optional Trustee-to-Trustee Transfers. In the event any payment or
payments (excluding any amount not includable in gross income) to
be made to a Member pursuant to this Article VII would constitute
an "eligible rollover distribution" within the meaning of section
402(f)(2)(A) of the Code, such Member may request that, in lieu of
payment to the Member, the amount of such payment or payments be
transferred directly from the Trust to the trustee of (1) an
individual retirement account described in section 408(a), (2) an
individual retirement annuity described in section 408(b) (other
than an endowment contract), (3) an annuity plan described in
section 403(a), or (4) a qualified defined contribution plan the
terms of which permit the acceptance of rollover distributions.
Any such request shall be made in writing, on the form prescribed
by the Plan Administrator for such purpose, at least 30 days prior
to the date such payment would otherwise be made.
The provisions of this subsection (i) shall be construed to comply
with the requirements set forth in section 401(a)(31) of the Code
and any regulations thereunder.
7.3 Minimum Distribution Requirements. Notwithstanding any other
provision of the Plan to the contrary--
(a) Basic Rule. Unless the Member otherwise elects in writing,
distribution to such Member shall be made (or shall commence) not
later than the sixtieth day after the close of the Plan Year in
which occurs the latest of the following events:
(1) the Member attains age 65;
(2) the Member attains the tenth anniversary of the date on
which he became a Member under the Plan, or
(3) the Member's termination of employment.
(b) Required Distribution Date. Notwithstanding anything to the
contrary in this Article VII, payment of all benefits to a Member
who is a 5 percent or greater owner (as defined in Code section
416(i)(1)(B)(i)) at any time during the 5-Plan year period ending
in the calendar year in which the Member attains age 70 1/2 or
thereafter shall be made by the later of (1) April 1 of the
calendar year following the calendar year in which the Member
attains age 70 1/2 or (2) April of the calendar year following the
calendar year in which he becomes a 5 percent owner regardless of
whether he is still employed by the Company or an Affiliate. In
the case of a Member who is not a "5 percent owner," (as defined in
Code section
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416(i)(I)(B)(i)) at any time during the 5-Plan-Year period ending
in the calendar year in which the Member attains age 70 1/2- or
thereafter, a Member's entire interest in the Plan shall be
distributed to him (or begin to be distributed to him) not later
than April 1 following the calendar year in which he (1) attains
age 70 1/2, or (2) terminates his employment with the Company and
its Affiliates, whichever is later; provided that, beginning in
1989, a Member's nonforfeitable Account Balance in the Plan shall
be distributed to him (or shall commence to be distributed to him)
not later than April 1 following the calendar year in which he
attains age 70 1/2, regardless of when he terminates his
employment. Notwithstanding the preceding sentence--
(A) a Member who attained age 70 1/2 on or before December 31,
1987 and who was not a 5 percent owner at any time during
the Plan Year ending with or within the calendar year in
which such individual attains age 66 1/2 or during any
subsequent Plan Year, may delay commencement of his
distribution until April 1 of the calendar year in which
occurs the later of (i) termination of employment or (ii)
attainment of age 70 1/2; and
(B) the required distribution date in the case of a Member who
(i) attains age 70 1/2 during calendar year 1988; (ii) who
remains in the employment of the Company or its Affiliates
throughout such calendar year; and (iii) who was not a 5
percent owner at any time during the Plan Year ending with
or within the calendar year in which such individual
attains age 66 1/2. or during any subsequent Plan Year,
shall be April 1, 1990.
(c) Periodic Benefit Payments. A Member's entire interest in the Plan
shall be distributed to him beginning not later than the date
required pursuant to subsection (a) and (b) above, over the life of
the Member (or over the joint lives of the Member and his
designated Beneficiary) or in a payment or series of payments over
a period not extending beyond the life expectancy of the Member (or
the joint life expectancies of the Member and his designated
Beneficiary), without recalculation of life expectancy. The amount
to be distributed each year must be at least an amount equal to the
quotient obtained by dividing the Member's entire interest by the
life expectancy of the Member or the joint and last survivor
expectancy of the Member and his designated Beneficiary.
Distributions hereunder will be made in accordance with Code section 401(a)(9)
and the regulations thereunder, including proposed regulation section
1.401(a)(9)-2, which are incorporated by reference herein pending the adoption
of final regulations. The rules contained in Code section 401(a)(9) and the
regulations thereunder shall override any distribution options in the Plan
inconsistent with Code section 401(a)(9) and the regulations thereunder.
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7.4 Distribution Upon Death.
(a) In General.
(1) Married Member. Unless the exception provided by
paragraph (b) of this section 7.4 applies, in the event of
a married Member's death prior to benefit commencement,
the Plan Administrator shall direct the Trustee to
distribute the Member's vested Balance to the Member's
surviving spouse in one lump sum payment as soon as
administratively practicable after the Valuation Date
which coincides with or next follows the Member's death.
(2) Unmarried Member. In the case of a Member who does not
have a surviving spouse, the Plan Administrator shall
direct the Trustee to distribute the Member's vested
Balance to the designated Beneficiary in one lump sum
payment as soon as administratively practicable after the
Valuation Date which coincides with or next follows the
Member's death.
(b) Exception. The requirement of paragraph (a)(1) of this section 7.4
shall not apply if the Member makes a qualified election under
subsection (c) of this section 7.4 to designate a Beneficiary other
than his spouse. If a Member makes a qualified election under
subsection (c) of this section 7.4 to designate a Beneficiary other
than his Spouse, the Plan Administrator shall direct the Trustee to
distribute the Member's Balance to the designated Beneficiary in
one lump sum payment.
(c) Qualified Election. A married Member may designate a Beneficiary
other than his spouse. The written election by a Member to
designate a Beneficiary other than his spouse shall not be
effective unless it satisfies either of the following conditions:
(1) The Member's spouse has consented in writing (A) to the
specific Beneficiary or Beneficiaries designated by the
Member or (B) to the Member's right to change his
Beneficiary designation in the future without further
consent by the spouse. In either case, the consent shall
acknowledge the effect of such election, and such spouse's
consent and acknowledgment shall be witnessed by a notary
public.
(2) It is established to the satisfaction of the Plan
Administrator that the consent of the spouse could not
have been obtained because there is no spouse, because the
spouse cannot be located, or because of other
circumstances prescribed by regulations under Code section
401(a)(11) or 417(a)(2).
Any consent by a spouse under paragraph (1) above, or any determination by the
Plan
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<PAGE> 39
Administrator under paragraph (2) above, shall be effective only with
respect to that particular spouse. A spouse's consent under this section
7.4 shall be irrevocable. A former spouse shall be treated as a spouse to
the extent retirement income must be paid to such former spouse pursuant to
a qualified domestic relations order within the meaning of Code section
414(p), except that no consent shall be required from such former spouse
with respect to the form of payment specified in said order.
(d) Designation of Beneficiary.
(1) General Rule. Any unmarried Member and any married
Member, subject to the requirements of subsection (c) of
this section 7.4, may designate one or more persons as
Beneficiary to receive the balances in his Accounts upon
his death. Each such designation shall be made on a form
provided by the Plan Administrator, shall be effective
only when filed in writing with the Plan Administrator,
and shall revoke all prior designations.
(2) Default Beneficiary. If no person is otherwise designated
under this subsection, or if a designation is revoked in
whole or in part, or if no designated Beneficiary survives
the Member, the Member's Beneficiary shall be his
surviving spouse or, if there is no surviving spouse, the
following classes of survivors as the Plan Administrator
may direct:
(A) The Member's children (including adopted
children), or
(B) The Member's parents (including step-parents), or
(C) the brothers and sisters of the Member (including
half- and step siblings).
7.5 In-Service Withdrawal of After-Tax Contributions. Subject to the
provisions of Article XIII (Qualified Domestic Relations Orders), a Member may
withdraw all or any portion of his After-Tax Contributions Account; provided,
however, that After-Tax Contributions made to the Prior Plan prior to January 1,
1987 (exclusive of income thereon) shall be withdrawn before amounts
attributable to After-Tax Contributions made to the Prior Plan after December
31, 1986 and any earnings on After-Tax Contributions.
7.6 In-Service Withdrawal of Matching Employer Contributions,
Discretionary Employer Contributions. and Transfer Contributions. Except as
otherwise required pursuant to section 7.2(f) or 7.3, no withdrawals are
permitted with respect to Matching Employer Contributions, Discretionary
Employer Contributions, or Transfer Contributions.
7.7 In Service Withdrawal of Supplemental Before-Tax Contributions.
Subject to the provisions of Article VIII (Qualified Domestic Relations Orders),
a Member who has attained
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age 59-1/2 may withdraw all or any portion of his Supplemental Before-Tax
Contributions Account (as defined in section 2. 1 (b)).
7.8 Hardship Withdrawals.
(a) General Rule. Subject to the provisions of Article XIII
(Qualified Domestic Relations Orders), during employment with the Company or an
Affiliate a Member may withdraw his Before-Tax Contributions Account (except
that portion of his Before-Tax Contributions Account which represents earnings
on Before-Tax Contributions credited to a Member's Before-Tax Contributions
Account under the Prior Plan after December 31, 1988), but such a withdrawal
shall be available only upon a determination by the Plan Administrator that the
Member has suffered a "financial hardship" and that the distribution is
"necessary to meet the need created by such financial hardship."
(b) Financial Hardship. For purposes of this section 7.8, a
"financial hardship" means one of the following events, provided that such event
occurs in connection with an "immediate and heavy financial need" as determined
by the Plan Administrator taking into account all of the relevant facts and
circumstances:
(1) medical expenses described in Code section 213(d) incurred
or reasonably anticipated to be incurred by the Member, the Member's
spouse, or any dependents of the Member (as defined in Code section 152);
(2) the acquisition, construction, reconstruction, or
rehabilitation (excluding mortgage payments) of a principal residence for
the Member;
(3) the education of the Member, his or her spouse, children,
or dependents,
(4) the need to prevent the eviction of the Member from his
principal residence or foreclosure on the mortgage of the Member's
principal residence; or
(5) an immediate and heavy financial need which would
otherwise prevent the Member from feeding or sheltering his immediate
family. The Plan Administrator shall make its findings as to the existence
of financial hardship in accordance with uniform and nondiscriminatory
standards, and shall be guided in such determination by Treasury Department
Regulations under section 401(k) of the Code. The Plan Administrator may
require a Member to submit any and all documentation that it deems
necessary to substantiate the existence of a "financial hardship."
(c) Distribution Necessary to Satisfy Financial Need. A distribution
pursuant to this section 7.8 will not be treated as necessary to satisfy an
immediate and heavy financial need of a Member to the extent the amount of the
distribution is in excess of the amount required to relieve the financial need
of the Member or to the extent such need may be satisfied from other resources
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<PAGE> 41
that are reasonably available to the Member. This determination shall be made
by the Plan Administrator on the basis of all relevant facts and circumstances
and may take into account Federal state and local income taxes which the Member
will be required to pay on any distribution from the Plan. A distribution
generally may be treated as necessary to satisfy a financial need if the Company
reasonably relies upon the Member's representation that the need cannot be
relieved--
(1) through reimbursement or compensation by insurance or otherwise,
(2) by reasonable liquidation of the Member's assets, to the extent
such liquidation would not itself cause an immediate and heavy
financial need,
(3) by cessation of Before-Tax Contributions under the Plan, or
(4) by other distributions or nontaxable (at the time of the loan)
loans from plans maintained by the Company, its Affiliates, by any
other employer, or by borrowing from commercial sources on
reasonable commercial terms to the extent such loan would not
itself cause an immediate and heavy financial need.
For purposes of this subsection, the Member's resources shall be deemed to
include those assets of his spouse and minor children that are reasonably
available to the Member.
(d) Suspension of Before-Tax Contributions. If a Member withdraws
any amount from his Before-Tax Contributions Account pursuant to this section,
such Participant may not make Before-Tax Contributions under this Plan or
elective deferrals under any other plan maintained by the Employer for a period
of 12 months commencing on the date of his receipt of the withdrawal.
7.9 In-Service Withdrawals from Rollover Account. Subject to the
provisions of Article XIII (Qualified Domestic Relations Orders), a Member may
withdraw all or any part of the amount in his Rollover Account.
7.10 Provisions Applicable to All Withdrawals.
(a) General. Payment of a withdrawal under section 7.5, 7.6, 7.7,
7.8, or 7.9 shall be made as soon as practicable.
(b) Allocation Among Investment Funds. All withdrawals shall be made
in cash and shall be allocated proportionately from each
Investment Fund in which the Members' Accounts are invested.
Account balances available for withdrawal shall be valued as of
the Valuation Date next following the date such notice of
withdrawal is delivered to the Plan Administrator.
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(c) Reduction for Loans. Notwithstanding anything in section 7.5, 7.6,
7.7, 7.8, or 7.9 or this section 7.10 to the contrary, if a Member
has a loan outstanding under Article VIII, then such Member may not
withdraw any amount from his Accounts which will cause the
outstanding balance of such loan to exceed the limits in section
8.2, determined immediately following such withdrawal.
ARTICLE VIII. LOANS TO MEMBERS
8.1 Plan Administrator Authorized to Make Loans.
(a) Eligibility to Apply for a Loan. A Member is eligible to apply
for a loan if the Member is an Employee or if the Member is a former Employee
and a "party in interest" within the meaning of section 3(14) of ERISA.
(b) General Rule. Upon the written application of an eligible Member
who has been a Member of the Plan for at least one year and whose nonforfeitable
interest in his Account is at least $2,000, the Plan Administrator may direct
the Trustee to make a cash loan to the Member if the Plan Administrator
determines that the loan is on account of a "financial hardship" and that the
loan is "necessary to satisfy the immediate and heavy financial need." In making
such determination, the Plan Administrator shall take into account all relevant
facts and circumstances in accordance with section 7.8(b) and (c). Whether such
loans are made, as well as their amounts and terms, shall be in the sole and
absolute discretion of the Plan Administrator, subject to the provisions of this
Article and section 13.6 (regarding Domestic Relations Orders).
(c) Members with Less than One Year of Membership. Upon application
of an eligible Member who has not completed the one year of membership
requirement set forth in (a) above, but who has met the other requirements of
subsection (a), the Plan Administrator may direct the Trustee to make a cash
loan to the Member, but only with respect to the Member's Rollover Account. Any
such loan shall meet the other requirements of this Article VIII, except that
section 8.4(e) shall not be applicable to such a loan.
Any loans made under this Article VIII shall be made as soon as practicable and
the maximum amount of such loan shall be based upon the valuation of the
Member's Accounts as of the Valuation Date immediately preceding the date of
such loan.
8.2 Amount of Loan.
(a) Minimum Amount. The Minimum amount of any loan shall be $ 1,000.
(b) Maximum Amount. The maximum amount of any loan (together with
the amount outstanding on the date of the loan from any other loans under this
Plan or any other qualified plan maintained by the Company or an Affiliate)
shall not exceed the lesser of --
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(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the plans described
above during the one-year period ending on the day before
the date the loan is made, over the outstanding balance of
loans from such plans on the date on which such loan was
made, or
(2) 50 percent of the nonforfeitable Account Balance of the
Member.
8.3 Interest. Each loan shall bear such reasonable rate of interest
as the Plan Administrator may determine. In determining such rate of interest,
the interest rates being charged by commercial lenders for loans made under
similar circumstances and at the time a loan is made shall be considered. The
Plan Administrator shall determine the applicable rate of interest no less
frequently than on a quarterly basis.
8.4 Other Restrictions.
(a) No more than two loans may be outstanding to a Member at any
time.
(b) If a Member's employment with the Company or its Affiliates
terminates for any reason, any loan shall then become due and
payable.
(c) Loans shall be available to all Members on a reasonably
equivalent basis.
(d) No loan shall be made unless the Plan Administrator, in his sole
discretion, determines that the loan is adequately secured.
(e) Loans shall be drawn from the following Accounts, in order:
Before-Tax Contributions (excluding that portion of the Member's
Before-Tax Contributions Account which represents earnings on
Before-Tax Contributions credited to a Member's Before-Tax
Contributions Account after December 31, 1988), Rollover
Contributions, Matching Employer Contributions, Discretionary
Employer Contributions, and Transfer Contributions.
(f) Loans shall be made as of the Valuation Date which coincides with
or next follows the date which is 30 days after the Plan
Administrator has received the Member's application for the loan.
8.5 Term. Loans shall be for the period requested by the Member but
the term of an loan shall not exceed five years, except for a loan for the
purpose of acquiring a dwelling unit which is to be used as the principal
residence of the Member.
8.6 Repayment.
(a) Loans shall be repaid in equal installments, one per payroll
period, representing a
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combination of interest and principal, sufficient to amortize the loan during
its term. Repayment shall commence as soon as practicable after the loan is
made. Upon a change of the Member's payroll period, repayment amounts shall be
adjusted if necessary to reflect the change.
(b) Payments by active Employees shall be made through payroll
withholding or other means acceptable to the Plan Administrator in its sole and
absolute discretion.
(c) Should there be an outstanding loan balance with respect to a
Member at the time of his termination of employment with the Company or its
Affiliates, the Member shall be given the opportunity to repay the outstanding
loan balance in a single sum. If the Member declines to make such a repayment
within 30 days of his termination of employment with the Company or its
Affiliates, and to the extent a distribution of such Member's Accounts becomes
payable, such Member's Account shall be reduced by any unpaid loan balance, and
by any amounts withheld for the payment of taxes, as soon as practicable
following his termination of employment, and the loan shall be considered fully
paid as of the date of such reduction-, provided, however, that in the event the
loan is secured by a residential property mortgage, the distribution to the
Member shall consist of cash equal to the value of the Member's Account less the
face value of the note and mortgage held in the Member's Loan Fund (as described
in Section 8.7) plus the note and residential property mortgage held in the Loan
Fund. The previous sentence shall not apply to a Member who, following his
termination of employment, will remain a "party in interest" within the meaning
of section 3(14) of ERISA.
8.7 Loan Treated as Plan Investment . (a) Loan proceeds shall
be paid pro rata from the Investment Funds In accordance with the proportion of
the total value of the Member's Accounts (net of the Loan Fund), determined as
of the Valuation Date which is coincident with or immediately preceding the date
on which such loan is approved by the Plan Administrator, which is invested in
each such fund. A nonnegotiable promissory note of the same face value shall
then be credited as an asset of an individual Loan Fund established in the
Member's name. The value of a Member's Accounts shall include the amount of
principal remaining to be paid under such notes.
(b) Repayments received by the Trustee shall be transferred to the
Investment Funds in accordance with the Member's current investment election
under section 5.3 at the time repayment is made.
8.8 Documents. No loan under this Article shall be made until the
Member has completed the appropriate form and submitted to the Plan
Administrator the following:
(a) A loan application setting forth such information as the Plan
Administrator deems appropriate.
(b) A promissory note designating the Trustee as payee, stating the
amount, term,
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repayment schedule, interest rate and other terms and conditions
consistent with this Article.
(c) The Member's written authorization and direction that the Company
shall withhold each payroll period, and remit to the Trustee, the
installment amounts determined under section 8.6(a).
(d) A security agreement granting a conditional security interest in
fifty percent (50%) of the Member's entire Vested Balance in his
Account to the Trustee as security for repayment of the loan
and/or a residential property mortgage acceptable to the Plan
Administrator to secure the amount of the loan. The Plan
Administrator shall determine, in its sole discretion, whether to
secure loans with residential property mortgages.
8.9 Default. If a Member fails to make payment on a loan when due
and such failure continues for 60 days thereafter, or in the event of the
Member's bankruptcy, impending bankruptcy, insolvency, or impending insolvency,
the Plan Administrator may declare the loan to be in default, in which case the
entire unpaid balance shall become due and payable. The Plan Administrator may
pursue collection of the debt by any means generally available to a creditor
where a promissory note is in default. If the entire amount due is not paid by
the Member within 30 days following the declaration of default and if the Member
has either attained age 59- 1/2 incurred a financial hardship within the meaning
of section 7.8, or terminated employment with the Company and its Affiliates,
the Plan Administrator may exercise its security interest by reducing the
Member's Balance by the amounts due and by amounts withheld for the payment of
taxes payable in connection with such reduction. Upon such exercise the note
shall be canceled to the extent of such reduction.
ARTICLE IX. ADMINISTRATION OF THE PLAN
9.1 Appointment of the Plan Administrator. The Plan shall be
administered by a committee (not to be less than three or more than five
individuals) as shall be appointed by the Board of Directors as Plan
Administrator and who shall serve at the pleasure of the Board of Directors. If
any member of the committee is an Employee, he shall not receive compensation
with respect to his services as Plan Administrator.
9.2 Allocation of Fiduciary Responsibility. The Company and the Plan
Administrator shall be deemed to be "named fiduciaries" within the meaning of
section 402(a)(2) of ERISA with respect to the Plan. However, the Company, the
Plan Administrator, and the Trustee shall have only those specific powers,
duties, responsibilities. and obligations as are specifically given to them
under this Plan or the Trust Agreement. Except as otherwise provided by its
Board of Directors, the Company shall have the sole authority to determine the
finding medium for the Plan; to appoint and remove the Trustee, the Plan
Administrator, and any "investment manager"
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(as defined in ERISA section 3(38); and (subject to section 10.1) to amend or
terminate, whole or in part, this Plan or the Trust Agreement. The Plan
Administrator shall have the sole responsibility for the administration of the
Plan, which responsibility is specifically described in this Article. The
Trustee shall have the sole responsibility for the safekeeping of the assets of
the Plan held by it under the Trust Agreement. The Company and any investment
manager appointed by the Company shall have the sole responsibility for the
management of the assets of the Plan.
9.3 Powers and Duties. Except for the authority and duties expressly
given to the Trustee either under the Plan or under the Trust Agreement, the
Plan Administrator shall control and manage the operation and administration of
the Plan in accordance with its terms and purpose and shall have all powers
necessary to do so, including, but not limited to, the following:
(a) to construe and interpret provisions of the Plan;
(b) to make factual determinations and to decide all questions of
eligibility for Plan participation and for the distribution of
benefits,
(c) to provide appropriate parties, including government agencies,
with such returns, reports, schedules, descriptions, and
individual statements as are required by law within the times
prescribed by law; and to furnish to the Company, upon request,
copies of any or all such materials, and further, to make copies
of such instruments, reports, and descriptions as are required by
law available for examination by Members and such of their
Beneficiaries who are or may be entitled to benefits under the
Plan in such places and in such manner as required by law;
(d) to obtain from the Company, Employees, and the Trustee such
information as shall be necessary for the proper administration
of the Plan;
(e) to determine the amount, manner, and time of distribution of
benefits hereunder;
(f) to appoint and retain such agents, counsel, and accountants
deemed necessary for the proper administration of the Plan and,
when required to do so by law, to engage an independent certified
public accountant to audit the Plan's operations and financial
statements;
(g) to communicate to the Trustee in writing 0 necessary information
to carry out the terms of the Plan and the Trust Agreement;
(h) to notify the Trustee in writing of the termination of the Plan
or the complete discontinuance of Company contributions;
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(i) to direct the Trustee to make distribution to each Member and
Beneficiary in accordance with Article VII; and
(j) to do such other acts and adopt such rules reasonably required to
administer the Plan in accordance with its provisions or as may be
provided for or required by law.
(k) to vote proxies or exercise any night appurtenant to any
investment held in the Trust.
The Plan Administrator shall have no authority or responsibility other than as
is granted in the Plan, or as is imposed as a matter of law, and shall
discharge its duties hereunder solely in the interest of Members and their
Beneficiaries and for the exclusive purpose of providing benefits to said
Members and their Beneficiaries. Any decisions and determinations made by the
Plan Administrator pursuant to its powers and duties described in the Plan
shall be conclusive and binding upon all parties. The Company shall furnish
the Plan Administrator with all information available to it which the Plan
Administrator may reasonably require in order to perform its functions
hereunder. Except as otherwise provided in ERISA, neither the Plan
Administrator nor any person to whom the Plan Administrator may delegate any
duty or power shall be liable for any act or omission, except for its or his
own gross negligence or wilful misconduct. Except as otherwise provided in
ERISA, the Plan Administrator shall not be personally liable under any
contract, or any bond made by him or on his behalf as the Plan Administrator,
or for any mistake of judgment made by him or on his behalf as the Plan
Administrator, or for any loss not resulting from his own gross negligence or
willful misconduct.
9.4 Payment to Minors. If the Beneficiary of any Member shall be a
minor, the Plan Administrator shall be fully protected in directing the Trustee
to make any payment required to be made to such minor to any person who shall be
a custodian for such minor under the provisions of the Uniform Gifts to Minors
Act in effect in the state in which such minor shall reside at the time of such
payment.
9.5 Claims Procedure.
(a) All claims for benefits and for the determination of the qualified
status of a Domestic Relations Order under this Plan shall be filed
in writing with the Plan Administrator in accordance with such
procedures as the Plan Administrator shall reasonably establish.
If any claim under the Plan is wholly or partially denied, the
following procedure shall apply.
(b) Notice of Denial. The claimant shall be given notice in writing of
such denial within 90 days after receipt of the claim, setting
forth the following information:
(1) the specific reason or reasons for the denial;
47
<PAGE> 48
(2) specific reference to pertinent Plan provisions on which
the denial is based;
(3) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is
necessary;
(4) an explanation that a full and fair review by the Plan
Administrator of the decision denying the claim may be
requested by the claimant or his authorized representative
by fifing with the Plan Administrator, within 60 days
after such notice has been received, a written request for
such review" and;
(5) an explanation that if such request is so filed, the
claimant or his authorized representative may review
pertinent documents and submit issues and comments in
writing within the same 60-day period specified in
paragraph (4) above.
(c) Extension of Time for Notice of Denial. If special circumstances
require an extension of time beyond the 90-day period. the claimant
shall be so advised in writing within the initial 90-day period.
In no event shall such extension exceed an additional 90 days.
(d) Time of Plan Administrator Decision. The decision of the Plan
Administrator shall be made promptly, and not later than 60 days
after the Plan Administrator's receipt of the request for review.
unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered as soon as
possible, but not later than 120 days after receipt of the request
for review. The claimant shall be given a copy of the decision
promptly. The decision shall be in writing and shall include
specific reasons for the decision, written in a manner calculated
to be understood by the claimant, and specific references to the
pertinent Plan provisions on which the decision is based.
(e) Exhaustion of Remedy. No claimant shall institute any action or
proceeding in any state or federal court of law or equity, or
before any administrative tribunal or arbitrator, for a claim for
benefits under the Plan, until he has first exhausted the
procedures set forth in this section.
9.6 Indemnity for Liability. To the maximum extent allowed by law and
to the extent not otherwise indemnified, the Company shall indemnify all
Employees involved in the design, administration, or operation of the Plan
against any and all claims, losses, damages, expenses, including counsel fees,
incurred by such persons and any liability, including any amounts paid in
settlement with the Company's approval, arising from such person's action or
failure to act with
48
<PAGE> 49
regard to the Plan.
ARTICLE X. AMENDMENT; TERMINATION, MERGER
10.1 Right to Amend or Terminate. The Company reserves the right at any
time and from time to time to amend this Plan, or discontinue or terminate the
Plan by delivering to the Plan Administrator a copy of an amendment or
appropriate Board of Directors resolution of discontinuance or termination
certified by an officer of the Company; provided, however, that except as
provided in section 4.15, the Company shall have no power to amend or terminate
this Plan in such manner as would cause or permit any of the Trust assets to be
diverted to purposes other than for the exclusive benefit of the Employees of
the Company or their Beneficiaries or would cause any reduction in the amount
theretofore credited to any Member or would cause or permit any portion of the
Trust assets to revert to or become the property of the Company; and provided,
further, that the duties or liabilities of the Plan Administrator shall not be
changed without its written consent. Notwithstanding anything in this Section
to the contrary, the Plan Administrator may make all technical, administrative,
regulatory and compliance amendments to the Plan as it shall deem necessary or
appropriate, without the approval of the Company or the Board of Directors;
provided, however, that the Plan Administrator shall report to the Board of
Directors at least annually on Plan amendments adopted by the Plan Administrator
pursuant to this sentence.
10.2 Amendment for Tax Exemption. The Company reserves the right to
amend this Plan in such manner as may be necessary or advisable so that said
Plan may qualify and continue to qualify as a qualified employee benefit plan
under the provisions of the Code as now in force or as it may hereafter be
changed or amended; and any such amendment may be made retroactively provided,
however, that no such amendment shall operate either directly or indirectly to
deprive any Member of the Member's vested and nonforfeitable interest in his
Accounts as of the time of such amendment.
10.3 Terminations and Partial Terminations. In the event of, and upon,
the Company's termination or partial termination of the Plan or complete
discontinuance of contributions, the interest in the Accounts of each Member who
shall be an Employee on the date of such termination or complete discontinuance
(or, in the case of a partial termination, the Members affected thereby) shall
vest. For the purposes hereof "partial termination" shall have the same meaning
as under section 1.411 (d)-2 of the Treasury Regulations.
10.4 Mergers, Consolidations, Transfers of Assets. The Plan shall not
be merged or consolidated with, nor shall any of its assets or liabilities be
transferred to another plan unless. immediately after such merger,
consolidation, or transfer, each Member and Beneficiary shall be entitled to
receive a benefit which is at least as large as the benefit he would have been
entitled to if the Plan had been terminated immediately prior to such merger,
consolidation, or transfer.
49
<PAGE> 50
ARTICLE XI. LEASED EMPLOYEES
11.1 Treatment of Leased Employees Under the Plan.
(a) Eligibility and Vesting. Solely for purposes of determining when
an individual has completed a Year of Eligibility Service, and for determining
an individual's years of Continuous Service, hours of service as a Leased
Employee (as defined below) shall be treated as Hours of Service and Continuous
Service as an Employee.
(b) Limitation on Annual Additions. For purposes of the limitation on
Annual Additions set forth in section 4.14--
(1) any contributions or benefits which are provided under a
plan maintained by a Leasing Organization (as defined
below) and which are attributable to an individual's
service as -a Leased Employee performed for the Company or
a Related Person (as defined below) shall be treated as
provided by the recipient of such services, and
(2) Limitation Compensation shall include the amounts
specified in section 4.14(c)(4) which are received by the
individual for his service as a Leased Employee.
(c) Eligibility to Participate. A Leased Employee shall not be
eligible to become a Member under the Plan unless and except to the extent that
he shall qualify as an Eligible Employee without regard to the provisions of
this Article XI.
11.2 Service Not Counted. Except for section 11.1 (c), this Article XI
shall not apply to any Leased Employee for any period during which such
individual is covered by a Leasing Organization Pension Plan (as defined below),
unless Leased Employees constitute more than 20 percent of the Company's
Nonhighly Compensated Work Force.
11.3 Definitions. For purposes of this Article--
(a) "Leased Employee" shall mean any individual who provides services
for the Company and--
(1) such services are provided pursuant to an agreement
between the Company and a Leasing Organization,
(2) such services are of a type historically performed the
business field of the Company by a common law employee,
(3) such individual is not a common law employee of the
Company, and
50
<PAGE> 51
(4) such individual has performed such services as a Leased
Employee for the Company and any Related Person on a
substantially full-time basis for a period of at least one
year.
For purposes of the preceding sentence, an individual is considered
to have performed services on a substantially full-time basis for a
period of at least one during any consecutive 12-month period such
person has either (A) performed at least 1,500 Hours of Service for
the Company and any Related Person, or (B) performed services for
the Company and any Related Person for a number of hours of service
at least equal to 75 percent of the number of hours customarily
performed by a common law employee of the Company or Related Person
in the particular position.
(b) "Leasing Organization" shall have the same meaning as under Code
section 414(n)(2)(A).
(c) "Leasing Organization Pension Plan" shall mean a plan maintained by
a Leasing Organization which with respect to the Leased Employee--
(1) is a money purchase pension plan with a nonintegrated
Company contribution rate of at least 10 percent,
(2) provides for immediate participation and for full and
immediate vesting, and
(3) provides for immediate participation for each Leased
Employee (other than Leased Employees who perform
substantially all of their services for the Leasing
Organization and Leased Employees whose compensation
(within the meaning of Code section 414(n)(5)(C)(iii))
from the Leasing Organization is less than $1,000 in each
Plan Year during the 4-plan-year period ending with the
Plan Year for which a determination is being made).
(d) "Related Person" shall have the meaning prescribed in Code section
144(a)(3).
(e) "Nonhighly Compensated Work Force" shall have the meaning in Code
section 414(n)(5)(C)(ii).
11.4 Construction. The purpose of this Article M is to comply with the
provisions of Code section 414(n). All provisions of this Article shall be
construed consistently therewith, and, without limiting the generality of the
foregoing, no individual shall be treated as a Leased Employee except as
required under such Code section 414(n).
51
<PAGE> 52
ARTICLE XII. TOP-HEAVY PROVISIONS
12.1 General Rule. In the event that the Plan becomes top-heavy, or is
a member of a top-heavy group, the provisions of this Article shall apply.
12.2 When Plan is Top-Heavy. The Plan shall be top-heavy for a Plan
Year if, as of the Determination Date (as defined below), the aggregate of the
Account balances of Key Employees (as defined below) under the Plan exceeds 60
percent of the aggregate of the Account balances of all Employees under the
Plan. For purposes of this section and section 12.3--
(a) Account balances shall include the aggregate amount of any
distributions (including distributions from terminated plans) made
with respect to the Employee during the five-year period ending on
the Determination Date and any contributions due but unpaid as of
said determination date, and
(b) the Account balance of any individual who has not performed
services for the Company or its Affiliates at any time during the
five-year period ending on the applicable Determination Date shall
not be taken into account.
The determination of the foregoing ratio shall be made in accordance with Code
section 416(g), which is incorporated herein by this reference.
Notwithstanding the foregoing, the Plan shall not be top-heavy if it is part of
an affiliation group of plans. as defined in section 12.3 (a), that is not a
top-heavy group.
12.3 When Plan is in Top-Heavy Group. A Plan is a member of a top-heavy
group with respect to a Plan Year if, as of the Determination Date, it is part
of an affiliation group of plans which is top-heavy. For purposes of this
section--
(a) an "affiliation group of plans" includes all plans qualified under
Code section 401 (a) which are maintained by the Company or an Affiliate and--
(1) in which a Key Employee is a Member, or
(2) which enables any other plan described in paragraph (1) to
meet the requirements of Code section 401(a)(4) or 410.
In addition, at the election of the Plan Administrator,
the affiliation group of plans may be expanded to include
any other qualified plan maintained by the Company or an
Affiliate such expanded affiliation group of plans meets
the requirements of Code section 401 (a)(4) and 410.
(b) An affiliation group of plans shall be a "top-heavy group" with
respect to a Plan Year if, as of the Determination Date, the sum of--
52
<PAGE> 53
(1) the present value of the cumulative accrued benefits for
Key Employees under all defined benefit plans included in
such group and
(2) the aggregate of the accounts of Key Employees under all
defined contribution plans included in such group exceeds
60 percent of a similar sum determined for all Employees
(other than former Key Employees) covered under the
affiliation group of plans. In making this determination.
the provisions of section 12.2 (other than the first
sentence thereof) shall be applicable. The accrued
benefits of individuals who have not performed services for
the Company or its Affiliates at any time during the five
year period ending on the Determination Date shall not be
taken into account. The determination of the foregoing
ratio shall be made in accordance with section 416(g) of
the Code, which is incorporated herein by this reference.
12.4 Minimum Contribution. For each Plan Year with respect to which the
Plan is top heavy or is a member of a top-heavy group, the minimum amount of
Company contributions allocated under the Plan for the benefit of each Member
who is a Non-Key Employee and who is otherwise eligible for such an allocation,
together with amounts allocated under all other qualified defined contribution
plans maintained by the Company or an Affiliate, shall be the lesser of--
(a) 3 percent of the Member's Limitation Compensation for the Plan
Year, or
(b) the Member's Limitation Compensation times a percentage equal to
the largest percentage of such Limitation Compensation allocated under such
plans with respect to any Key Employee for the Plan Year.
Notwithstanding the foregoing, before-tax contributions and employer matching
contributions shall not be taken into account for purposes of satisfying the
minimum contribution requirement. This section shall not apply to an Employee
covered under a qualified defined benefit plan maintained by the Company if the
Employee's benefit thereunder satisfies the requirements of Code section 416(c).
12.5 Limitation on Compensation. For purposes of allocating
contributions to a Member's Accounts under section 4.4 for a Plan Year with
respect to which the Plan is top-heavy, or is a member of a top-heavy group, the
maximum amount of Compensation taken into account in section 2.13 shall apply.
12.6 Adjustment in Maximum Limitation on Account Additions. For any
Plan Year with respect to which the Plan is top-heavy, or a member of a
top-heavy group, sections 4.14(c)(2)(A) and (3)(A) shall be applied by
substituting "1.0" for "1.25."
53
<PAGE> 54
12.7 Minimum Vesting Requirements. Notwithstanding the provisions of
sections 6.2 and 6.3, if the Plan is determined to be top-heavy with respect to
a Plan Year then a Member shall have a nonforfeitable right to the Matching
Employer Contributions, Discretionary Employer Contributions, and Transfer
Contributions credited to his Account in accordance with the following schedule:
Continuous Service Vested Percentage
Less than 3 0%
3 or more 100%
If in a subsequent Plan Year the Plan is no longer top-heavy, the vesting
provisions that were in effect prior to the time the Plan became top- heavy
shall be reinstated provided, however, that no reduction in vested benefits may
occur in the event the Plan's status as top-heavy changes for any Plan Year and
further provided that a Member who has at least three years of Continuous
Service at the start of such Plan Year shall have the option of remaining under
the vesting schedule in effect while the Plan was top-heavy. However, this
section does not apply to the Account of any Member who does not have an Hour
of Service after the Plan has initially become top-heavy.
12.8 Definitions. For purposes of this Article XII--
(a) "Determination Date" with respect to a Plan Year shall mean (1) the
last date of the preceding Plan Year, or (2) in the case of the
first Plan Year of any plan, the last day of such Plan Year.
(b) "Key Employee" shall mean an Employee, former Employee, or a
Beneficiary as prescribed in Code section 416(i).
(c) "Non-Key Employee" shall mean any Employee who is not a Key
Employee or a Beneficiary of such an Employee.
ARTICLE XIII. QUALIFIED DOMESTIC RELATIONS ORDERS
13.1 Applicability of Article. The Plan Administrator shall apply the
provisions of this Article with regard to a Domestic Relations Order (as defined
below) to the extent not inconsistent with Code section 414(p).
13.2 Establishment of Procedures. The Plan Administrator shall
establish procedures, consistent with Code section 414(p), to determine the
qualified status of any Domestic Relations Order, to administer distributions
under any Qualified Domestic Relations Order (as defined below), and to provide
to the Member and the Alternate Payee(s) (as defined below) all notices required
under Code section 414(p) with respect to any Domestic Relations Order.
54
<PAGE> 55
13.3 Determination of Qualified Domestic Relations Order Status. Within
a reasonable period of time after the receipt of a Domestic Relations Order (or
any modification thereof), the Plan Administrator shall determine whether such
order is a Qualified Domestic Relations Order.
13.4 Establishment of Segregated Accounts and Payment Procedures.
(a) Separate Account for Members Not Yet Entitled to Receive Benefits.
If a Domestic Relations Order has been determined to be a Qualified
Domestic Relations Order in accordance with section 13.3, a
separate account for the benefit of the Alternate Payee(s) named in
such order shall be established. The Plan Administrator shall cause
to be transferred from the affected Member's Accounts to the
Alternate Payee's account such amount as the Plan Administrator
deems reasonable and necessary to satisfy such order. If the Plan
Administrator subsequently determines that the amounts it has
caused to be so transferred are less than are reasonable and
necessary to satisfy such order, the Plan Administrator may cause
to be transferred such additional amounts as it deems reasonable
and necessary to satisfy such order. If the Plan Administrator
subsequently determines that the amounts it has caused to be so
transferred are more than are reasonable or necessary to satisfy
such order, the Plan Administrator may cause any such excess
amounts to be paid to the person or persons who would have been
entitled to such amounts if there had been no order, provided,
however, if the Member or his Beneficiaries are not yet entitled,
or have not elected, to receive benefit payments under the Plan,
such excess amounts shall be credited to the Member s Accounts and
invested in accordance with the investment election most recently
submitted by the Member pursuant to section 5.3. The amount of any
transfers caused to be made by the Plan Administrator pursuant to
this subsection (a) shall be determined in the sole and absolute
discretion of the Plan Administrator.
(b) Temporary Holding Account for Members Entitled to Receive Benefits.
If, during any period in which the issue of whether a Domestic
Relations Order is a Qualified Domestic Relations Order is being
determined (by the Plan Administrator, by a court of competent
jurisdiction, or otherwise), the Alternate Payee(s) would be
entitled to any payment if the order had been determined to be a
Qualified Domestic Relations Order, the Plan Administrator shall
cause to be segregated in a separate account all amounts which
would have been payable to any Alternate Payee(s) during such
period if such order had been determined to be a Qualified Domestic
Relations Order.
(c) Payment from Temporary Holding Account to Plan Member in Certain
Cases. If, by the expiration of the 18-month period beginning on
the date the first payment would be required to be made to an
Alternate Payee(s) under a Domestic
55
<PAGE> 56
Relations Order, either it has been determined that a Domestic
Relations Order is not a Qualified Domestic Relations Order or the
issue as to whether such order is a Qualified Domestic Relations
Order has not been resolved, the Plan Administrator shall cause to
be paid all amounts which have been segregated by reason of such
order pursuant to subsection (a) above, including any earnings
accrued thereon, to the person or persons who would have been
entitled to such amounts if there had been no order.
Notwithstanding the preceding sentence, if the Member or his
Beneficiaries are not yet entitled, or have not elected, to receive
benefit payments under the Plan, such segregated amounts, including
all earnings having accrued thereon, shall be restored to the
Member's Accounts and invested in accordance with the investment
election most recently submitted by the Member pursuant to section
5.3.
(d) Payment from Separate Account and Temporary Holding Account to
Alternate Payee(s) if Order is Determined to be a Qualified
Domestic Relations Order. If a Domestic Relations Order (or any
modification thereof) is determined to be a Qualified Domestic
Relations Order, the Plan Administrator shall instruct the Trustee
to apply, on a prospective basis, the terms and provisions of such
Qualified Domestic Relations Order, and, in the event any amounts
were segregated by reason of such order pursuant to subsection (b)
above, the Plan Administrator shall cause to be paid in accordance
with the Qualified Domestic Relations Order any appropriate amounts
which have been so segregated (and have not been released pursuant
to subsection (c)), including any earnings accrued thereon, to the
Alternate Payee(s) entitled thereto, without regard to whether the
Member has attained the "earliest retirement age" (as defined in
Code section 414(p)(4)(B)) under the Plan.
13.5 Subsequent Determination or Order to be Applied Prospectively. If a
determination is made after the expiration of the 18- month period beginning on
the date the first payment would be required to be made to an Alternate Payee(s)
under a Domestic Relations Order that such order (or any modification thereof)
is a Qualified Domestic Relations Order, such order shall be applied
prospectively only.
13.6 Withdrawals, Distributions, and Loans by or to Members
(a) Withdrawals and Distributions. A Member shall not be permitted to
withdraw or borrow from the Plan, nor shall there be distributed to
a Member, any amounts being held in a segregated account by reason
of a Domestic Relations Order.
(b) Loans. In determining the maximum amount of any loan to a Member
pursuant to Article VIII the Plan Administrator shall not include
in the Vested Balance of the Member the vested portion of his
Accounts being held in a segregated account by reason of a Domestic
Relations Order.
56
<PAGE> 57
13.7 Investment. Unless a Qualified Domestic Relations Order provides
to the contrary, an Alternate Payee shall have the right to direct the
investment of the separate account established for the Alternate Payee pursuant
to a Qualified Domestic Relations Order in the same manner as provided in
Article V with respect to the Member.
13.8 Definitions. For purposes of this Article--
(a) "Alternate Payee" shall mean any spouse, former spouse, child, or
other dependent of a Member who is recognized by a Domestic
Relations Order as having a right to receive a, or a portion of,
the benefits payable under the Plan with respect to such Member.
(b) "Domestic Relations Order" shall mean any judgment, decree, or
order (including approval of a property settlement agreement)
which--
(1) relates to the provision of child support, alimony
payments, or marital property rights to a spouse, former
spouse, child, or other dependent of a Member and
(2) is made pursuant to a state domestic relations law
(including a community property law).
(c) "Qualified Domestic Relations Order" shall mean a Domestic
Relations Order which meets the requirements of Code section
414(p)(1).
ARTICLE XIV. MISCELLANEOUS PROVISIONS
14.1 Construction. Except as otherwise provided in section 514 of
ERISA, the Plan shall be construed and regulated in accordance with the laws of
the State of New York.
14.2 Nonassignability. Except to the extent permissible under Code
sections 40l(a)(13) and 414(p) and Article XIII, no Account or interest under
this Plan shall be anticipated, assigned (either at law or in equity), alienated
or subject to attachment, garnishment, levy, execution, or other legal or
equitable process (whether voluntary or involuntary), provided, however, that
nothing herein shall prevent a Member from assigning his interest under this
Plan as security for the repayment of any loan made to him from the Plan
pursuant to Article VIII. Any attempt at such a prohibited assignment,
alienation, attachment, garnishment, levy, execution, pledge. transfer,
mortgage, or encumbrance shall be void and unenforceable.
14.3 Missing Persons. If the Company is unable to locate a proper payee
within one year after an Account becomes payable, the Company may treat the
balance credited to the Account as a forfeiture; however, if a claim for
benefits is subsequently presented by a person entitled to a payment, the
forfeited amount shall be recredited to the Account upon verification of
57
<PAGE> 58
the claim, except for those amounts that have been paid pursuant to an escheat
or other applicable law.
14.4 Interest of Members. The sole interest of each Member and his
respective Beneficiaries under the Plan shall be to receive the benefits
provided for hereunder as and when the same shall become due and payable in
accordance with the terms hereof, and neither any Member nor any such
Beneficiary shall have any right, title or interest in or to any asset of the
Plan.
14.5 No Right to Employment Granted by Plan. Nothing contained herein
shall require the Company or any of its Affiliates to continue any Member in its
employ, or require any Member to continue in the employ of the Company or its
Affiliates, or require the Company or its Affiliates to continue to compensate
any Member during a Leave of Absence, or require the Company or its Affiliates
to compensate any Member during any Leave of Absence at the same rate as prior
to the commencement thereof, or require the Company or its Affiliates to rehire
any former Member.
14.6 Titles. The titles of sections are included only for convenience
and shall not be construed as part of this Plan or in any respect affecting or
modifying its provisions.
IN WITNESS WHEREOF, STEINBACH STORES, INC. has caused this instrument to be
executed by its duly authorized officers this ____ day of February, 1995,
effective as of February 11, 1995.
STEINBACH STORES, INC.
By: /S/ THOMAS R. KETTELER
-------------------------
Its: Vice President
58
<PAGE> 1
Exhibit 11 -- Computation of Earnings Per Share
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------------
FEBRUARY 1, FEBRUARY 3, JANUARY 28,
1997 1996 1995
---- ---- ----
(AS RESTATED) (AS RESTATED)
<S> <C> <C> <C>
PRIMARY
Average shares outstanding 1,183,239 966,069 1,018,300
Net effect of dilutive stock
options, based on the
treasury stock method
using average market price 55,925 19,739 202,603
---------- ----------- ----------
Total 1,239,164 985,808 1,220,903
========== =========== ==========
Net earnings (loss) $1,812,081 $(1,840,739) $ 535,622
Per share amount $ 1.46 $ (1.87) $ 0.44
========== =========== ==========
FULLY-DILUTED
Average shares outstanding (a) n/a n/a n/a
</TABLE>
- -----------
(a) The fully-diluted computation for the years ended February 1, 1997,
February 3, 1996, and January 28, 1995 are not reported as the calculation did
not exceed 3% of the primary calculation.
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-48389 and 33-61201) pertaining to the Crowley, Milner and
Company 1992 Incentive Stock Plan in the Registration Statement (Form S-8 No.
33-61203) pertaining to the Crowley, Milner and Company 1995 Non-Employee
Director Stock Option Plan, and in the Registration Statement (Form S-8 No.
33-61207) pertaining to the Crowley, Milner and Company Profit Sharing Plan, of
our report dated April 3, 1997, with respect to the consolidated financial
statements and schedule of Crowley, Milner and Company and subsidiary included
in its Annual Report on Form 10-K for the year ended February 1, 1997.
May 1, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> FEB-01-1997
<CASH> 215,316
<SECURITIES> 0
<RECEIVABLES> 2,880,017
<ALLOWANCES> 66,258
<INVENTORY> 46,555,769
<CURRENT-ASSETS> 52,932,202
<PP&E> 27,705,672
<DEPRECIATION> 15,086,513
<TOTAL-ASSETS> 70,688,329
<CURRENT-LIABILITIES> 40,002,293
<BONDS> 4,750,000
1,507,387
0
<COMMON> 0
<OTHER-SE> 16,139,031
<TOTAL-LIABILITY-AND-EQUITY> 70,688,329
<SALES> 153,003,296
<TOTAL-REVENUES> 153,363,726
<CGS> 100,688,449
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 48,868,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,562,108
<INCOME-PRETAX> 2,082,081
<INCOME-TAX> 270,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,812,081
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
</TABLE>
