<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995 Commission file number 1-9700
THE CHARLES SCHWAB CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 94-3025021
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
101 Montgomery Street, San Francisco, CA 94104
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (415) 627-7000
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
174,121,792* shares of $.01 par value Common Stock
Outstanding on August 1, 1995
* Reflects the March 1995 three-for-two common stock split and the two-for-one
common stock split declared July 18, 1995, payable September 1, 1995.
<PAGE>
THE CHARLES SCHWAB CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 1995
Index
Page
----
Part I - Financial Information
Item 1. Condensed Consolidated Financial Statements:
Statement of Income 1
Balance Sheet 2
Statement of Cash Flows 3
Notes 4-5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-13
Part II - Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
<PAGE>
<TABLE>
Part 1 - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C>
Revenues
Commissions $179,245 $131,449 $330,192 $292,434
Interest revenue, net of interest expense (1) 49,639 40,125 95,687 75,987
Principal transactions 52,739 40,176 96,035 90,465
Mutual fund service fees 51,601 38,677 97,840 72,445
Other 9,494 7,767 19,817 14,768
- --------------------------------------------------------------------------------------------------------------
Total 342,718 258,194 639,571 546,099
- ---------------------------------------------------------------------------------------------------------------
Expenses Excluding Interest
Compensation and benefits 139,184 106,614 262,345 227,634
Communications 30,097 28,041 56,460 56,180
Occupancy and equipment 27,309 21,749 50,829 42,710
Depreciation and amortization 14,558 13,880 28,692 26,392
Commissions, clearance and floor brokerage 19,252 11,169 34,851 23,695
Advertising and market development 12,295 9,042 23,193 20,838
Professional services 10,202 5,102 15,849 10,668
Other 16,534 9,378 30,684 21,219
- --------------------------------------------------------------------------------------------------------------
Total 269,431 204,975 502,903 429,336
- --------------------------------------------------------------------------------------------------------------
Income before taxes on income 73,287 53,219 136,668 116,763
Taxes on income 28,868 21,060 53,873 46,414
- --------------------------------------------------------------------------------------------------------------
Net Income $ 44,419 $ 32,159 $ 82,795 $ 70,349
==============================================================================================================
Weighted average number of common and
common equivalent shares outstanding* 178,127 175,058 177,144 175,730
==============================================================================================================
Earnings per Common Equivalent Share* $ .25 $ .18 $ .47 $ .40
==============================================================================================================
Dividends Declared per Common Share* $ .030 $ .023 $ .060 $ .047
==============================================================================================================
(1) Interest revenue is presented net of interest expense. Interest expense for the three months ended
June 30, 1995 and 1994 was $87,666 and $43,100, respectively. Interest expense for the six months ended
June 30, 1995 and 1994 was $166,869 and $78,330, respectively.
* Reflects the March 1995 three-for-two common stock split and the two-for-one common stock split declared
July 18, 1995, payable September 1, 1995.
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<TABLE>
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<CAPTION>
June 30, December 31,
1995 1994
---- ----
(Unaudited)
-----------
<S> <C> <C>
Assets
Cash and equivalents (including resale agreements of
$200,000 in 1995 and $242,500 in 1994) $ 434,701 $ 380,616
Cash and investments required to be segregated under
Federal or other regulations (including resale
agreements of $4,786,404 in 1995 and $3,787,984 in 1994) 5,103,027 4,206,466
Receivable from brokers, dealers and clearing organizations 148,904 86,028
Receivable from customers (less allowance for doubtful
accounts of $3,663 in 1995 and $3,204 in 1994) 2,975,823 2,923,867
Equipment, office facilities and property (less accumulated
depreciation and amortization of $182,819 in 1995 and
$162,474 in 1994) 152,064 129,105
Intangible assets (less accumulated amortization of
$146,243 in 1995 and $140,860 in 1994) 71,104 26,813
Other assets 180,720 164,967
- ------------------------------------------------------------------------------------------------------
Total $9,066,343 $7,917,862
======================================================================================================
Liabilities and Stockholders' Equity
Drafts payable $ 135,230 $ 117,383
Payable to brokers, dealers and clearing organizations 431,971 296,420
Payable to customers 7,510,566 6,670,362
Accrued expenses 218,095 195,320
Long-term borrowings 196,312 171,363
- ------------------------------------------------------------------------------------------------------
Total liabilities 8,492,174 7,450,848
- ------------------------------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock - 10,000,000 shares authorized;
$.01 par value per share; none issued
Common stock - 200,000,000 shares authorized; $.01 par value
per share; 178,459,416 shares issued in 1995 and 1994* 892 595
Additional paid-in capital 180,210 166,103
Retained earnings 445,406 373,161
Treasury stock - 4,451,778 shares in 1995 and 7,563,990
shares in 1994, at cost* (41,707) (57,968)
Unearned ESOP shares (6,038) (10,174)
Unamortized restricted stock compensation (4,102) (4,703)
Foreign currency translation adjustment (492)
- ------------------------------------------------------------------------------------------------------
Stockholders' equity 574,169 467,014
- ------------------------------------------------------------------------------------------------------
Total $9,066,343 $7,917,862
======================================================================================================
* Reflects the March 1995 three-for-two common stock split and the two-for-one common stock split
declared July 18, 1995, payable September 1, 1995.
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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<PAGE>
<TABLE>
THE CHARLES SCHWAB CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30,
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 82,795 $ 70,349
Noncash items included in net income:
Depreciation and amortization 28,692 26,392
Deferred income taxes (236) 8,769
Other 10,242 401
Change in accrued expenses 35,994 4,965
Change in other assets (12,686) 6,510
- ----------------------------------------------------------------------------------------------
Net cash provided before change in customer-related balances 144,801 117,386
- ----------------------------------------------------------------------------------------------
Change in customer-related balances (excluding the effects
of business acquired):
Payable to customers 731,510 279,682
Receivable from customers (40,154) (234,544)
Drafts payable 12,026 (4,398)
Payable to brokers, dealers and clearing organizations 135,551 49,531
Receivable from brokers, dealers and clearing organizations (22,004) (1,859)
Cash and investments required to be segregated under
Federal or other regulations (832,058) (98,514)
- ----------------------------------------------------------------------------------------------
Net change in customer-related balances (15,129) (10,102)
- ----------------------------------------------------------------------------------------------
Net cash provided by operating activities 129,672 107,284
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of equipment, office facilities and property - net (42,879) (20,615)
Cash payments for business acquired, net of cash received (48,292)
- ----------------------------------------------------------------------------------------------
Net cash used by investing activities (91,171) (20,615)
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from long-term borrowings 20,000
Purchase of treasury stock (25,865)
Dividends paid (10,296) (8,042)
Other 6,372 1,104
- ----------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 16,076 (32,803)
- ----------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents (492)
- ----------------------------------------------------------------------------------------------
Increase in cash and equivalents 54,085 53,866
Cash and equivalents at beginning of period 380,616 279,828
- ----------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ 434,701 $ 333,694
==============================================================================================
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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THE CHARLES SCHWAB CORPORATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements include The Charles Schwab Corporation (CSC) and its
subsidiaries (collectively the Company), including Charles
Schwab & Co., Inc. (Schwab) and Mayer & Schweitzer, Inc. (M&S).
These financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission (SEC) and,
in the opinion of management, reflect all adjustments necessary to
present fairly the financial position, results of operations and cash
flows for the periods presented in conformity with generally accepted
accounting principles. All adjustments were of a normal recurring
nature. All material intercompany balances and transactions have
been eliminated. These financial statements should be read in
conjunction with the consolidated financial statements and notes
thereto included in the Company's 1994 Annual Report to Stockholders,
which are incorporated by reference in the Company's 1994 Annual
Report on Form 10-K, and the Company's Quarterly Report on Form 10-Q
for the period ended March 31, 1995.
Intangible assets represent goodwill and customer lists. Prior
periods' financial statements have been reclassified to conform to
the 1995 presentation.
Foreign Currency Translation
Assets and liabilities denominated in foreign currencies are
translated at the exchange rate on the balance sheet date, while
revenues and expenses are translated at average rates of exchange
prevailing during the period. Translation adjustments are
accumulated as a separate component of stockholders' equity.
Contingent Liabilities
In the normal course of its margin lending activities, Schwab is
contingently liable to the Options Clearing Corporation for the
margin requirement of customer margin securities transactions. Such
margin requirement is secured by a pledge of customers' margin
securities. This contingent liability was $152 million at June 30,
1995.
In January 1992, the Company filed a petition in U.S. Tax Court
refuting a claim for additional Federal income tax arising from the
Internal Revenue Service's (IRS) audit of the tax periods ended
March 31, 1988 and December 31, 1988. The majority of the asserted
additional tax related to deductions claimed by the Company for
amortization of intangible assets (mainly customer lists) received in
the Company's 1987 acquisition of Schwab. In August 1995, a settlement
with the IRS was reached regarding these deductions for the tax periods
under audit and any subsequent period. This settlement had no material
effect on the Company's financial position or results of operations.
M&S has been named as one of thirty-three defendant market-making
firms in a consolidated class action which is pending in Federal
District Court in the Southern District of New York pursuant to an
order of the Judicial Panel on Multidistrict Litigation. On December
16, 1994, the plaintiffs filed a consolidated amended complaint
purportedly on behalf of certain persons who purchased or sold Nasdaq
securities during the period May 1, 1989 through May 27, 1994. The
complaint does not set forth any specific conduct by M&S and does not
request any specific amount of damages, although it requests that the
actual damages be trebled where permitted by statute. The
consolidated amended complaint generally alleges an illegal
combination and conspiracy among the defendant market-making firms to
fix and maintain the spreads between the bid and ask prices of Nasdaq
securities. On February 2, 1995, the defendants filed a motion to
dismiss the consolidated amended complaint for failure to state a
claim. On August 3, 1995, the motion was granted in part with
permission to file an amended complaint. The ultimate outcome of
this consolidated action cannot currently be determined.
On June 30, 1995, a class was certified in Civil District Court
for the Parish of Orleans in Louisiana for Louisiana residents who
purchased or sold securities through Schwab between February 1, 1985
and February 1, 1995. Schwab has been named as a defendant, and in
one case as a representative of an alleged defendant class, in seven
additional class action lawsuits filed in state courts in Minnesota,
Illinois, New York, Louisiana and Texas. The class actions were
filed between August 12, 1993 and July 17, 1995, and purport to be
brought on behalf of customers of Schwab who purchased or sold
securities in the over-the-counter market for which Schwab received
monetary payments from the market maker who executed the transaction.
The complaints allege that Schwab failed to disclose and remit such
payments to
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<PAGE>
members of the class, and generally seek damages equal to
the payments received by Schwab. The ultimate outcome of these
actions cannot currently be determined.
There are other various lawsuits pending against the Company
which, in the opinion of management, will be resolved with no
material impact on the Company's financial position or results of
operations.
At June 30, 1995, letters of credit (LOCs) totaling $58.5 million
were outstanding under a $100 million letter of credit facility
established by CSC with a commercial bank in December 1994 for three
of the SchwabFunds (registered trademark) money market funds (the Funds)
in connection with the bankruptcies of Orange County, California and the
Orange County investment pool. In August 1995, the $100 million
facility and one LOC were each reduced to $10.4 million and the maturity of
each was extended from August 1, 1995 to August 1, 1996. The remaining LOCs
expired unutilized in August 1995. Although management is currently
unable to determine whether, or to what extent, the Funds would make
any demands for payments under the LOC, any such payments would not
have a material impact on the Company's financial position or results
of operations.
Acquisition
In June 1995, the Company purchased a majority interest (93% of
the outstanding common stock) of ShareLink Investment Services plc
(ShareLink), a retail discount securities brokerage firm in the
United Kingdom, for approximately $60 million including acquisition-
related expenses. The Company expects to purchase the remaining
common stock of ShareLink during the third quarter of 1995. The
transaction was accounted for as a purchase. The operating results
of ShareLink since the date of the acquisition are included in the
consolidated results of the Company.
Regulatory Requirements
Schwab and M&S are subject to the SEC's Uniform Net Capital Rule
and each compute net capital under the alternative method permitted
by this Rule, which requires the maintenance of minimum net capital,
as defined, of the greater of 2% of aggregate debit balances arising
from customer transactions or a minimum dollar amount, which is based
on the type of business conducted by the broker-dealer. The minimum
dollar amount for both Schwab and M&S is $1 million. Under the
alternative method, a broker-dealer may not repay subordinated
borrowings, pay cash dividends, or make any unsecured advances or
loans to its parent or employees if such payment would result in net
capital of less than 5% of aggregate debit balances or less than 120%
of its minimum dollar amount requirement. At June 30, 1995, Schwab's
net capital was $342 million (11% of aggregate debit balances), which
was $280 million in excess of its minimum required net capital and
$186 million in excess of 5% of aggregate debit balances. At
June 30, 1995, M&S' net capital was $5 million (314% of aggregate
debit balances), which was $4 million in excess of its minimum
required net capital.
Schwab, M&S and ShareLink had portions of their cash and
investments segregated for the exclusive benefit of customers at
June 30, 1995, in accordance with applicable regulations.
Cash Flow Information
Certain additional information affecting the cash flows of the
Company follows (in thousands):
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
1995 1994
---- ----
<S> <C> <C>
Income taxes paid $ 43,111 $ 43,126
======== ========
Interest paid:
Customer cash balances $151,147 $ 69,060
Long-term borrowings 5,406 5,638
Other 8,429 2,837
-------- --------
Total interest paid $164,982 $ 77,535
======== ========
</TABLE>
Subsequent Event
On July 18, 1995, the Board of Directors approved a two-for-one
stock split of the Company's common stock, which will be effected in
the form of a 100% stock dividend. The stock dividend is payable
September 1, 1995 to stockholders of record August 1, 1995. Share
and per share data have been restated to reflect the March 1995 three-
for-two common stock split and this transaction. The Board also
increased the quarterly cash dividend from $.06 per share to $.08 per
share payable August 15, 1995 to stockholders of record August 1,
1995. The indicated quarterly cash dividend on shares outstanding
after the September 1, 1995 two-for-one common stock split is $.04
per share.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Charles Schwab Corporation (CSC) and its subsidiaries
(collectively referred to as the Company) provide brokerage and
related investment services to customers with 3.2 million active (a)
accounts and assets that totaled $153.1 billion at June 30, 1995.
With a network of 210 branch offices, the Company's principal
subsidiary, Charles Schwab & Co., Inc. (Schwab), is physically
represented in 46 states, the Commonwealth of Puerto Rico and the
United Kingdom. Mayer & Schweitzer, Inc. (M&S), a market maker in
Nasdaq securities, provides trade execution services to broker-
dealers and institutional customers.
The Company's business, like that of other securities brokerage
firms, is directly affected by fluctuations in volumes and price
levels in securities markets, which are in turn affected by many
national and international economic and political factors that cannot
be predicted. Transaction-based revenues, primarily commission and
principal transaction revenues, represent the majority of the
Company's revenues. In the short term, most of the Company's
expenses do not vary directly with fluctuations in securities trading
volume and do not increase or decrease quickly, which could result in
the Company experiencing increased profitability with rapid increases
in revenues, or reduced profitability (or losses) in the event of a
material reduction in revenues.
Due to the factors discussed above, the results of any interim
period are not necessarily indicative of results for a full year, and
it is not unusual for the Company to experience significant
variations in quarterly revenue growth. In addition, these factors
may subject the Company's future earnings and common stock price to
significant volatility.
The Company has historically used discount pricing as a tactic in
its efforts to gain market share and enhance the value of its
services. In recent years, Schwab has introduced additional price-
competitive product offerings such as its No-Annual-Fee IRA, its
Mutual Fund OneSource (registered trademark) service and its
Schwab 500 Brokerage (trademark) service, which includes commission
discounts from Schwab's standard rates. Schwab's on-line brokerage
services such as TeleBroker (registered trademark) and StreetSmart
(registered trademark) also provide customers with discounts on commissions.
Management expects to continue aggressive use of this value-pricing
philosophy in the marketing of new products and services.
Three Months Ended June 30, 1995
Compared To Three Months Ended
June 30, 1994
Summary
Net income for the second quarter of 1995 totaled $44 million or
$.25 per share, up 38% from second quarter 1994 net income of
$32 million or $.18 per share. All share and per share amounts
reflect the March 1995 three-for-two common stock split and the two-
for-one common stock split declared July 18, 1995, payable
September 1, 1995.
Second quarter 1995 revenues were $343 million, up 33% from
$258 million for the second quarter of 1994, primarily resulting from
higher trading volume and an increase in customer assets.
Assets in customer accounts totaled $153.1 billion at June 30,
1995, $47.2 billion, or 45%, more than a year ago primarily resulting
from increases in customers' equity securities of $18.3 billion, or
42%, and increases in customer assets in Schwab's Mutual Fund
Marketplace (registered trademark) of $12.5 billion, or 45%. Customer
assets in cash
(a) Accounts with balances or activity within the preceding twelve months.
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<PAGE>
and money market funds at June 30, 1995 increased 34% over the year-ago
level to $33.2 billion. Schwab added 178,800 new customer accounts during
the second quarter of 1995, compared to 210,000 new accounts during the
second quarter of 1994. The quarter-over-quarter decrease was due in part
to the $1,000 minimum opening balance requirement implemented in July 1994
for basic brokerage accounts.
Total operating expenses excluding interest during the second
quarter of 1995 were $269 million, up 31% from $205 million for the
second quarter of 1994, primarily resulting from higher variable
compensation, additional staff to support the Company's continued
growth and expansion, and higher transaction-related expenses. In the second
quarter of 1995, the Company opened two new branch offices.
The profit margin for the second quarter of 1995 was 13%, up from
12% for the second quarter of 1994. The return on stockholders'
equity for the second quarter of 1995 was 33%, up from 32% for the
second quarter of 1994.
Commissions
Schwab executes commission transactions for customers on an agency
basis. Commission revenues totaled $179 million for the second
quarter of 1995, up $48 million, or 36%, from the second quarter of
1994. Commissions earned on retail agency trades, which exclude
commissions from institutional customers, totaled $172 million on a
daily average retail agency trade level of 36,200 in the second
quarter of 1995, compared with commission revenues of $126 million on
a daily average retail agency trade level of 28,300 for the
comparable period in 1994. The following table shows a comparison of
certain factors that influence retail agency commission revenues:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Three Months
Ended
June 30, Percent
1995 1994 Change
- -----------------------------------------------------------------
<S> <C> <C> <C>
Number of customer
accounts that traded during
the quarter (in thousands) 709 590 20%
Average number of retail agency
transactions per account
that traded 3.32 2.98 11
Total number of retail agency
transactions (in thousands) 2,352 1,757 34
Average commission per
retail agency transaction $73.08 $71.44 2
Total retail agency commission
revenues (in millions) $ 172 $ 126 36
==================================================================
Note: The above table excludes customer transactions in Schwab's
Mutual Fund OneSource (registered trademark) service.
</TABLE>
Total retail agency commission revenues increased 36% from the
second quarter of 1994 as Schwab's customer base continued to grow
and customer accounts in general were more active.
Schwab continues to experience significant commission price
competition and expects to continue to develop price-competitive
products and services that address the needs of customers for which
pricing is a primary factor in their selection of financial services.
Interest Revenue, Net of Interest Expense
Interest revenue, net of interest expense increased $10 million,
or 24%, to $50 million from the prior year's second quarter as shown
in the following table (in millions):
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<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Three Months
Ended
June 30,
1995 1994
- ------------------------------------------------------------
<S> <C> <C>
Interest Revenue
Investments, customer-related $ 71 $38
Margin loans to customers 61 43
Other 5 2
- ------------------------------------------------------------
Total 137 83
- ------------------------------------------------------------
Interest Expense
Customer cash balances 79 38
Long-term borrowings 2 3
Other 6 2
- ------------------------------------------------------------
Total 87 43
- ------------------------------------------------------------
Interest Revenue, Net of Interest Expense $ 50 $40
============================================================
</TABLE>
Customer-related daily average balances, interest rates and
average net interest margin for the second quarters of 1995 and 1994
are summarized in the following table (dollars in millions):
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Three Months Ended
June 30,
1995 1994
- -----------------------------------------------------------------
<S> <C> <C>
Earning Assets (customer-related):
Investments:
Average balance outstanding $4,640 $4,005
Average interest rate 6.11% 3.79%
Margin loans to customers:
Average balance outstanding $2,939 $2,732
Average interest rate 8.38% 6.38%
Average yield on earning assets 6.99% 4.84%
Funding Sources (customer-related
and other):
Interest-bearing customer cash balances:
Average balance outstanding $6,167 $5,525
Average interest rate 5.13% 2.79%
Other interest-bearing sources:
Average balance outstanding $ 411 $ 339
Average interest rate 4.27% 2.79%
Average noninterest-bearing portion $1,001 $ 873
Average interest rate on funding sources 4.40% 2.43%
Summary:
Average yield on earning assets 6.99% 4.84%
Average interest rate on funding sources 4.40% 2.43%
- ----------------------------------------------------------------
Average net interest margin 2.59% 2.41%
================================================================
</TABLE>
The increase in interest revenue, net of interest expense from the
prior year's second quarter was primarily due to sharper increases
in average interest rates with respect to earning assets compared to
funding sources, and to higher levels of average earning assets.
Principal Transactions
During the second quarter of 1995, principal transaction revenues
increased $13 million, or 31%, from the comparable period in 1994 to
$53 million. This increase was due to higher trading volume handled
by M&S and the addition of such revenues relating to specialist
posts. During the third quarter of 1994, Schwab commenced operation
of specialist posts on the Pacific Stock Exchange. At June 30,
1995, Schwab had nine posts that collectively make markets in over
400 securities. The Company expects to continue to expand its
capacity to execute principal transactions. The increase in
principal transaction revenues discussed above was partially offset
due to the impact beginning in July 1994 of the National Association
of Securities Dealers, Inc. (NASD) Interpretation to its Rules of
Fair Practice governing the way in which market makers in Nasdaq
securities handle the execution of customer limit orders. As a
market maker in Nasdaq securities, M&S generally executes customer
trades as principal. Substantially all Nasdaq security trades
originated by the customers of Schwab are directed to M&S.
During 1994, the Department of Justice, the Securities and Exchange
Commission (SEC) and the NASD commenced a series of investigations and
regulatory actions involving the activities of many market makers in
Nasdaq securities. These investigations and regulatory actions have
continued into 1995. M&S is a significant participant in the Nasdaq market.
As a result of such investigations and actions, and possible future regulatory
actions, changes are occurring in the manner in which this market
conducts its business. Current practices may change as a
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<PAGE>
consequence of rulemaking and improvements in technology and may be subject
to increased disclosure requirements. New market systems, if approved,
could significantly impact the manner in which business is currently
conducted. Schwab and M&S are cooperating with the various
investigations and have and will continue to work with the regulators
to respond to questions related to their businesses. These
investigations and regulatory actions may have a material adverse
impact on M&S' future business. The Company anticipates that it will
adapt to any new market environment and intends to promote practices
which are designed to benefit its customers.
Mutual Fund Service Fees
Mutual fund service fees increased $13 million, or 33%, to
$52 million in the second quarter of 1995 from the comparable period
in 1994. The increase was primarily attributable to significant
increases in customer assets in Schwab's proprietary funds,
collectively referred to as the SchwabFunds (registered trademark),
and customer assets in funds purchased through Schwab's Mutual Fund
OneSource (registered trademark) service. Most of these fees are
earned for transfer agent, shareholder and investment management
services provided to proprietary money market funds and for record
keeping and shareholder services provided to funds in the Mutual Fund
OneSource service.
Customer assets invested in the SchwabFunds, substantially all of
which are in money market funds, were $27.5 billion at June 30, 1995,
compared to $20.0 billion at June 30, 1994, a 38% increase. Customer
assets held by Schwab that have been purchased through the Mutual
Fund OneSource service, excluding SchwabFunds, totaled $18.1 billion
at June 30, 1995, compared to $10.4 billion at June 30, 1994, a 74%
increase.
Expenses Excluding Interest
Total operating expenses excluding interest for the second quarter
of 1995 were $269 million, up 31% from $205 million for the second
quarter of 1994. Compensation and benefits expense for the second
quarter of 1995 increased $33 million, or 31%, to $139 million
primarily due to increases in variable compensation, and salaries and
wages. At June 30, 1995, the Company had full-time, part-time and temporary
employees, and persons employed on a contract basis that represented the
equivalent of 7,300 full-time employees, compared to approximately 6,100
at June 30, 1994.
Occupancy and equipment expense increased $6 million, or 26%, to
$27 million from the prior year's second quarter primarily due to a
one-time charge made to operating lease expense, increased data
processing equipment expense, and to branch network and customer
telephone service center expansions.
Commissions, clearance and floor brokerage expense increased
$8 million, or 72%, to $19 million from the prior year's second
quarter primarily due to increases in the number of trades processed
by M&S and Schwab, and in the average price per share paid for orders
by M&S.
Professional services expense increased $5 million, or 100%, to
$10 million from the prior year's second quarter primarily due to
increases in consulting fees relating to various company development
projects and legal expenses.
Other expenses increased $7 million, or 76%, to $17 million from
the prior year's second quarter primarily due to increases in
charitable contributions, and travel and entertainment expense.
The Company's effective income tax rate for the second quarter of
1995 was 39.4% compared to 39.6% for the comparable period in 1994.
- 9 -
<PAGE>
Six Months Ended June 30, 1995
Compared To Six Months Ended
June 30, 1994
Summary
Net income for the first half of 1995 totaled $83 million or $.47
per share, compared with net income of $70 million or $.40 per share
for the first half of 1994.
First half 1995 revenues were $640 million, up 17% from
$546 million for the first half of 1994, due to increases in all
major revenue categories primarily resulting from higher trading
volume and an increase in customer assets.
Total operating expenses excluding interest during the first half
of 1995 were $503 million, up 17% from $429 million for the first
half of 1994, primarily resulting from additional staff to support
the Company's continued growth and expansion, and higher-transaction
related expenses. In the first half of 1995, total Company trading
volume was 7.1 million trades, up 15% from the first half of 1994.
Also during this period, the Company opened two new branch offices
and started the expansion of one of its customer telephone service centers.
The profit margin of 13% for the first half of 1995 remained
unchanged from the first half of 1994. The return on stockholders'
equity for the first half of 1995 was 32%, down from 35% for the
first half of 1994, reflecting the Company's higher equity base in
the first half of 1995.
Commissions
Commission revenues totaled $330 million for the first half of
1995, up $38 million, or 13%, from the first half of 1994.
Commissions earned on retail agency trades, which exclude commissions
from institutional customers, totaled $317 million on a daily
average retail agency trade level of 35,400 in the first half of
1995, compared with commission revenues of $280 million on a daily
average retail agency trade level of 30,800 for the comparable period
in 1994. The following table shows a comparison of certain factors
that influence retail agency commission revenues:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
Six Months
Ended
June 30, Percent
1995 1994 Change
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Number of customer
accounts that traded during
the period (in thousands) 1,044 945 10%
Average number of retail agency
transactions per account
that traded 4.23 4.08 4
Total number of retail agency
transactions (in thousands) 4,420 3,855 14
Average commission per
retail agency transaction $71.68 $72.75 (1)
Total retail agency commission
revenues (in millions) $ 317 $ 280 13
====================================================================
Note: The above table excludes customer transactions in Schwab's
Mutual Fund OneSource (registered trademark) service.
</TABLE>
Total retail agency commission revenues increased 13% from the
first half of 1994 as Schwab's customer base continued to grow and
customer accounts in general were more active. Schwab added 344,000
new customer accounts during the first half of 1995, compared to
444,000 new accounts during the first half of 1994.
Interest Revenue, Net of Interest Expense
Interest revenue, net of interest expense increased $20 million, or
26%, to $96 million from the prior year's first six months as shown
in the following table (in millions):
- 10 -
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------
Six Months
Ended
June 30,
1995 1994
- -------------------------------------------------------------
<S> <C> <C>
Interest Revenue
Investments, customer-related $133 $ 69
Margin loans to customers 120 82
Other 10 3
- -------------------------------------------------------------
Total 263 154
- -------------------------------------------------------------
Interest Expense
Customer cash balances 151 69
Long-term borrowings 5 6
Other 11 3
- -------------------------------------------------------------
Total 167 78
- -------------------------------------------------------------
Interest Revenue, Net of Interest Expense $ 96 $ 76
=============================================================
</TABLE>
Customer-related daily average balances, interest rates, and
average net interest margin for the first six months of 1995 and 1994
are summarized in the following table (dollars in millions):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
Six Months Ended
June 30,
1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Earning Assets (customer-related):
Investments:
Average balance outstanding $4,459 $3,934
Average interest rate 6.03% 3.55%
Margin loans to customers:
Average balance outstanding $2,904 $2,667
Average interest rate 8.32% 6.18%
Average yield on earning assets 6.93% 4.61%
Funding Sources (customer-related
and other):
Interest-bearing customer cash balances:
Average balance outstanding $6,025 $5,378
Average interest rate 5.04% 2.60%
Other interest-bearing sources:
Average balance outstanding $ 377 $ 334
Average interest rate 4.23% 2.58%
Average noninterest-bearing portion $ 961 $ 889
Average interest rate on funding sources 4.34% 2.25%
Summary:
Average yield on earning assets 6.93% 4.61%
Average interest rate on funding sources 4.34% 2.25%
- ----------------------------------------------------------------
Average net interest margin 2.59% 2.36%
================================================================
</TABLE>
The increase in interest revenue, net of interest expense from the
first six months of 1994 was primarily due to sharper increases in average
interest rates with respect to earning assets compared to funding sources,
and to higher levels of average earning assets.
Principal Transactions, Mutual Fund Service Fees, and Expenses
Excluding Interest
Explanations and fluctuations in principal transactions, mutual
fund service fees, and expenses excluding interest presented in the
three-month results generally explain fluctuations in those revenues
and expenses between the six-month periods.
The Company's effective income tax rate for the first six months
of 1995 was 39.4% compared to 39.8% for the comparable period in
1994.
Liquidity and Capital Resources
Liquidity
Schwab
Liquidity needs relating to customer trading and margin borrowing
activities are met primarily through cash balances in customer
accounts, which totaled $7.4 billion at June 30, 1995, up 11% from
the December 31, 1994 level of $6.7 billion. Earnings from Schwab's
operations are the primary source of liquidity for capital
expenditures and investments in new services, marketing and
technology. Management believes that customer cash balances and
operating earnings will continue to be the primary sources of
liquidity for Schwab in the future.
To manage Schwab's regulatory capital position, CSC provides
Schwab with a $180 million subordinated revolving credit facility
maturing in September 1996, of which $99 million was outstanding at
June 30, 1995. At quarter end, Schwab also had outstanding
$25 million in fixed-
- 11 -
<PAGE>
rate subordinated term loans from CSC maturing in 1996 and 1997.
Borrowings under these subordinated lending arrangements qualify as
regulatory capital for Schwab.
For use in its brokerage operations, Schwab maintains uncommitted
bank credit lines totaling $495 million, of which $415 million is
available on an unsecured basis. Schwab used such borrowings for
five days during the first six months of 1995, with the daily amounts
borrowed averaging $33 million. These lines were unused at June 30,
1995.
The Charles Schwab Corporation
CSC's liquidity needs are generally met through cash generated by
its subsidiaries. Schwab and M&S are the principal sources of this
liquidity and are subject to regulatory requirements that are
intended to ensure the general financial soundness and liquidity of
broker-dealers. These regulations would prohibit Schwab and M&S from
repaying subordinated borrowings to CSC, paying cash dividends, or
making any unsecured advances or loans to their parent or employees
if such payment would result in net capital of less than 5% of their
aggregate debit balances or less than 120% of their minimum dollar
amount requirement of $1 million. At June 30, 1995, Schwab had
$342 million of net capital (11% of aggregate debit balances), which
was $280 million in excess of its minimum required net capital. At
June 30, 1995, M&S had $5 million of net capital (314% of aggregate
debit balances), which was $4 million in excess of its minimum
required net capital. Management believes that funds generated by
Schwab's and M&S' operations will continue to be the primary funding
source in meeting CSC's liquidity needs and maintaining Schwab's and
M&S' net capital.
CSC has individual liquidity needs that arise from its
$190 million Senior Medium-Term Notes, Series A (Medium-Term Notes),
as well as from the funding of cash dividends, common stock
repurchases and acquisitions. The Medium-Term Notes have maturities
ranging from 1996 to 2003 and fixed interest rates ranging from 4.95%
to 7.72% with interest payable semiannually.
CSC has a prospectus supplement covering the issuance of up to
$100 million in Senior or Senior Subordinated Medium-Term Notes,
Series A, pursuant to a registration statement filed with the SEC.
At June 30, 1995, $60 million in securities remain unissued under the
registration statement.
In June 1995, CSC's committed unsecured credit facility with a
group of ten banks was increased to $250 million from $225 million.
This facility expires in June 1996. The funds are available for
general corporate purposes and CSC pays a commitment fee on the
unused balance. The terms of this facility require CSC to maintain
minimum levels of stockholders' equity and Schwab and M&S to maintain
minimum levels of net capital, as defined. This facility has never
been used. In December 1994, CSC agreed to maintain availability
under this facility to repay any obligations arising under the then-
existing $100 million letter of credit facility. As part of the
reduction and extension of such letter of credit facility (described
below), this availability requirement was eliminated.
At June 30, 1995, letters of credit (LOCs) totaling $58.5 million
were outstanding under a $100 million letter of credit facility
established by CSC with a commercial bank in December 1994 for three
of the SchwabFunds (registered trademark) money market funds (the Funds)
in connection with the bankruptcies of Orange County, California and the Orange
County investment pool. In August 1995, the $100 million facility and one
LOC were each reduced to $10.4 million and the maturity of each was
extended from August 1, 1995 to August 1, 1996. The remaining LOCs expired
unutilized in August 1995. Although management is currently unable to
determine whether, or to what extent, the Funds would make any demands
for payments under the LOC, any such payments would not have a material
impact on the Company's financial position or results of operations.
- 12 -
<PAGE>
See "Contingent Liabilities" note in the Notes to Condensed
Consolidated Financial Statements.
Cash Flows
Net cash provided by operating activities was $130 million for the
first six months of 1995, up 21% from $107 million for the first six
months of 1994. This increase was primarily due to increases in
accrued expenses and net income. During the first six months of
1995, the Company invested $43 million in equipment and office
facilities as it continued to enhance its data processing and
telecommunications systems. The Company also opened two new branch
offices and started the expansion of one of its customer telephone
service centers. In addition, the Company purchased ShareLink
Investment Services plc in June 1995 for approximately $48 million,
net of cash received, and issued $20 million in Medium-Term Notes
during the first half of 1995.
In July 1995, the Board of Directors approved a two-for-one stock
split of the Company's common stock, which will be effected in the
form of a 100% stock dividend. The stock dividend is payable
September 1, 1995 to stockholders of record August 1, 1995. Share
and per share data have been restated to reflect the March 1995 three-
for-two common stock split and this transaction. The Board also
increased the quarterly cash dividend from $.06 per share to $.08 per
share. The indicated quarterly cash dividend on shares outstanding
after the September 1, 1995 two-for-one common stock split is
$.04 per share. During the first six months of 1995, the Company
paid common stock cash dividends totaling $10 million, up from
$8 million paid during the first six months of 1994.
Capital Adequacy
The Company's stockholders' equity at June 30, 1995 totaled
$574 million. In addition to its equity, the Company had long-term
borrowings of $196 million that bear interest at a weighted average
rate of 6.16%. These borrowings, together with the Company's equity,
provided total financial capital of $770 million at June 30, 1995, up
$163 million, or 27% from a year ago.
At June 30, 1995, the ratio of total assets to total stockholders'
equity was 16 to 1 compared to a ratio of 17 to 1 at December 31,
1994. Over 93% of the Company's total assets relate to customer
activity (primarily margin loans and segregated investments).
Management believes that the Company's present level of equity could
support up to $7.6 billion of additional assets relating to customer
activity.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Discussed in Notes to Condensed Consolidated Financial Statements,
under "Contingent Liabilities" in Part I, Item 1, and in Management's
Discussion and Analysis of Financial Condition and Results of
Operations, under "Principal Transactions" in Part I, Item 2, and
incorporated herein by reference.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on May 8,
1995, its stockholders voted upon election of directors for the
ensuing year (all share amounts reflect the March 1995 three-for-two
common stock split and the two-for-one common stock split declared
July 18, 1995, payable September 1, 1995):
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Shares Shares
For Against
--- -------
<S> <C> <C>
Election of director:
Charles R. Schwab 148,689,462 453,889
Lawrence J. Stupski 148,676,425 466,926
David S. Pottruck 148,439,536 703,815
Nancy H. Bechtle 148,659,756 483,595
C. Preston Butcher 148,660,067 483,284
Donald G. Fisher 148,661,400 481,951
Anthony M. Frank 148,648,072 495,279
James R. Harvey 148,653,329 490,022
Stephen T. McLin 148,633,754 509,597
Roger O. Walther 148,640,216 503,135
</TABLE>
There were no abstentions or broker non-votes with respect to the
election of directors. Voting results on the following additional items
were as follows:
Proposal II - Employment Agreement with Charles R. Schwab - Approval
of the Employment Agreement between The Charles Schwab Corporation
and Charles R. Schwab, effective March 31, 1995.
<TABLE>
<CAPTION>
Shares Shares Broker
For Against Abstentions Non-Votes
--- ------- ----------- ---------
<C> <C> <C> <C>
124,643,341 3,401,579 714,297 20,384,134
</TABLE>
Proposal III - Amendments to the Corporate Executive Bonus Plan -
Approval of Amendments to the Corporate Executive Bonus Plan that
change the methods used to determine the amount of annual cash
bonuses payable to the Corporation's executive officers other than
the Chairman.
<TABLE>
<CAPTION>
Shares Shares Broker
For Against Abstentions Non-Votes
--- ------- ----------- ---------
<C> <C> <C> <C>
123,580,573 4,585,394 1,056,346 19,921,038
</TABLE>
A total of 149,143,351 shares were present in person or by proxy at
the Annual Meeting.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as part of this quarterly
report on Form 10-Q.
<TABLE>
<caption
Exhibit
Number Exhibit
<S> <C>
10.152 The Charles Schwab Profit Sharing and Employee Stock
Ownership Plan, amended July 6, 1995, effective January 1,
1995 and April 1, 1995 (supersedes Exhibit 10.145 to the
Registrant's Form 10-K for the year ended December 31,
1994).
10.153 First Amendment dated June 29, 1995 to the Credit
Agreement dated June 30, 1994, between the Registrant and
the banks listed therein.
10.154 First Amendment dated July 31, 1995, as further amended
August 7, 1995, to the Reimbursement Agreement, dated
December 19, 1994, between the Registrant and Bank of
America National Trust and Savings Association.
11.1 Computation of Earnings per Common Equivalent Share.
12.1 Computation of Ratio of Earnings to Fixed Charges.
27.1 Financial Data Schedule (electronic only).
(b) Reports on Form 8-K
On July 21, 1995, the Registrant filed a Current Report on Form 8-K
relating to the certification of a class on June 30, 1995 and denial
of a motion to dismiss a complaint against Schwab relating to
disclosure of order flow payments and the filing of certain other
similar actions.
- 14 -
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
THE CHARLES SCHWAB CORPORATION
(Registrant)
Date: August 11, 1995 A. John Gambs /s/
--------------- ------------------------------------
A. John Gambs
Executive Vice President - Finance,
and Chief Financial Officer
- 15 -
</TABLE>
EXHIBIT 10.152
CHARLES SCHWAB
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
AMENDED JULY 6, 1995,
EFFECTIVE JANUARY 1, 1995 AND APRIL 1, 1995
<PAGE>
CHARLES SCHWAB
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
AMENDED JULY 6, 1995,
EFFECTIVE JANUARY 1, 1995 AND APRIL 1, 1995
Table of Contents
Section Page
1 Introduction and Purpose 1
2 Definitions 3
3 Participation 15
4 Employer Contributions 17
5 Salary Reduction Agreements and Rollover Contributions 25
6 Allocation of Contributions 31
7 Special ESOP Provisions 32
8 Investment of Contributions, Valuations and Participants'
Cash Contribution Accounts 39
9 Retirement Dates 41
10 Eligibility for Payment of Accounts and Vested Interests 42
11 Method of Payment of Accounts and Withdrawals 46
12 Maximum Amount of Allocation 57
13 Voting Rights 59
14 Designation of Beneficiaries 63
15 Administration of the Plan 64
16 Expenses 69
17 Employer Participation 70
18 Amendment or Termination of the Plan 73
19 Top-Heavy Plan Requirements 76
20 General Limitations and Provisions 81
21 Application to Puerto Rico Employees 90
<PAGE>
CHARLES SCHWAB
PROFIT SHARING AND EMPLOYEE STOCK OWNERSHIP PLAN
AMENDED JULY 6, 1995,
EFFECTIVE JANUARY 1, 1995 AND APRIL 1, 1995
SECTION 1. INTRODUCTION AND PURPOSE
1.1 The Plan Sponsor has established and maintains the Plan to enable
each Participant to benefit, in accordance with the terms of the Plan, from
contributions made by the Employer and from any increases in the value of the
Plan assets through investment of such assets. The Plan is comprised of
three parts: (i) a Section 401(k) plan, (ii) a profit sharing plan and (iii)
an employee stock ownership plan. The purpose of the employee stock
ownership plan portion of the Plan is to align Employees' interests with the
interests of shareholders. It is anticipated that Employer contributions to
the employee stock ownership plan will be invested primarily or entirely in
Shares of The Charles Schwab Corporation, that the employee stock ownership
plan may acquire such Shares of The Charles Schwab Corporation from time to
time with the proceeds of one or more Exempt Loans, the repayment of which
may be secured in part by a pledge of the Shares of The Charles Schwab
Corporation acquired with those loan proceeds, and that Employer
contributions to the employee stock ownership plan may be used in full or in
substantial part to the payment of interest on, and retirement of principal of,
such Exempt Loans.
This Plan is a restatement of the Charles Schwab Profit Sharing and
Employee Stock Ownership Plan, which was initially effective as of October 1,
1983 and was most recently amended and restated, effective January 1, 1992.
The effective date of this restatement is January 1, 1994. The rights of any
person who terminated employment or who retired on or before the effective
date of this restated Plan or any provision hereof, including his or her
eligibility for benefits and the time and form in which benefits, if any, will
be paid, shall be determined solely under the terms of the Plan provisions as
in effect on the date of his or her termination of employment or retirement,
unless such person is thereafter reemployed and again becomes a Participant.
The rights of any other person shall be determined solely under the terms of
this restated Plan, except as may otherwise be required by law.
The Plan and Trust are intended to qualify as a plan and trust which are
qualified and exempt from taxation under Sections 401(a) and 501(a) of the
Code. The Plan is intended to qualify in part as a profit sharing plan (as
defined in Section 401(a)(27) of the Code) and in part as a stock bonus plan
and an employee stock ownership plan (as defined by Section 4975(e)(7) of the
Code and Section 407(d)(6) of the Act) designed to invest primarily in shares
of stock of the Employer which meet the requirements for "qualifying employer
securities" under Section 4975(e)(8) of the Code and Section 407(d)(5) of the
Act. All provisions of the Plan and Trust shall be construed accordingly.
All Trust Fund assets acquired under the Plan as a result of debt incurred
to purchase Shares, Employer contributions, income and other additions to the
Trust Fund shall be administered, distributed, forfeited and otherwise
governed by the provisions of the Plan. It is intended that the Trust
associated with the Plan be exempt from federal income taxation pursuant to
the provisions of Section 501(a) of the Code. Subject to the provisions of
Section 16 of the Plan, the assets of the Plan shall be applied exclusively
for the purposes of providing benefits to Participants and Beneficiaries
under the Plan and for defraying expenses incurred in the administration of
the Plan and its corresponding Trust.
<PAGE>
SECTION 2. DEFINITIONS
When used herein the following terms shall have the following meanings:
2.1 "Account" means the account or accounts established and maintained
on behalf of a Participant pursuant to (i) Section 6.1 with respect to the
Participant's Cash Contribution Account and (ii) Section 7.1 with respect to
the Participant's ESOP Account.
2.2 "Act" means the Employee Retirement Income Security Act of 1974,
as now in effect or as hereafter amended.
2.3 "Actual Deferral Percentage" means the average of the ratios
(calculated separately for each Employee) for each Plan Year of (a) the
amount of Elective Contributions and Matching Contributions or Qualified
Nonelective Contributions (if the Committee determines to take such Matching
Contributions or such Qualified Nonelective Contributions into account when
calculating Actual Deferral Percentage) on behalf of each Employee for such
Plan Year to (b) the Employee's compensation (as defined in Treasury
Regulation 1.415-2(d)(10)) while a Participant for such Plan Year.
2.4 "Affiliated Employer" means any corporation which is included in a
controlled group of corporations (within the meaning of Section 414(b) of the
Code) which includes the Plan Sponsor, any trade or business (whether or not
incorporated) which is under common control with the Plan Sponsor (within the
meaning of Section 414(c) of the Code), any organization included in the same
affiliated service group (within the meaning of Section 414(m) of the Code)
as the Plan Sponsor and any other entity required to be aggregated with the
Plan Sponsor pursuant to the Regulations under Section 414(o) of the Code;
except that for purposes of applying the provisions of Sections 12 and 19 with
respect to the limitations on contributions, Section 415(h) of the Code shall
apply.
2.5 "Beneficiary" means the beneficiary or beneficiaries designated
by a Participant pursuant to Section 14 to receive the amount, if any, payable
under the Plan upon the death of such Participant.
2.6 "Board of Directors" means the board of directors of Charles Schwab
& Co., Inc.
2.7 "Break in Service" means a Plan Year (or for purposes of determining
membership in the Plan pursuant to Section 3, the Computation Period) during
which an individual has not completed more than 500 Hours of Service, as
determined by the Committee in accordance with the Regulations. A Break in
Service shall be deemed to have commenced on the first day of the Plan Year
in which it occurs. Solely for purposes of determining whether a Break in
Service has occurred, an individual shall be credited with the Hours of
Service which such individual would have completed but for a maternity or
paternity absence, as determined by the Committee in accordance with this
Section 2.7 and the Code and Regulations; provided, however, that the total
Hours of Service so credited shall not exceed 501 Hours of Service and that
the individual shall timely provide the Committee with such information as it
shall require. Hours of Service credited for a maternity or paternity absence
shall be credited at eight Hours of Service per day and shall be credited
entirely (i) in the Plan Year or Computation Period in which the absence
began if such Hours of Service are necessary to prevent a Break in Service in
such Plan Year, or (ii) in the following Plan Year or Computation Period. For
purposes of this Section 2.7, maternity or paternity absence shall mean an
absence from work by reason of the individual's pregnancy, the birth of the
individual's child or the placement of a child with the individual in
connection with adoption of the child by such individual, or for purposes of
caring for a child for the period immediately following such birth or adoption.
2.8 "Cash Contribution Account" means the account or accounts established
and maintained on behalf of a Participant pursuant to Section 6.1 with
respect to the Participant's Elective Contributions, Matching Contributions,
Profit Sharing Contributions, Qualified Nonelective Contributions or Rollover
Contributions.
2.9 "Code" means the Internal Revenue Code of 1986, as now in effect or
as hereafter amended. All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.
2.10 "Committee" means the Administrative Committee of the Employer
provided for in Section 15. For purposes of the Act, the Employer shall be
the "named fiduciary" (with respect to the matters for which it is hereby
responsible under the Plan) of the Plan, and the Employer shall be the "plan
administrator" of the Plan within the meaning of Section 3(16)(A) of the Act.
2.11 "Compensation" means a Participant's W-2 compensation related to
services rendered to the Employer, excluding (i) living allowances,
(ii) travel or commuting allowances, (iii) reimbursements for financial
planning, (iv) amounts that are paid as a result of participation in the
Employer's Long-Term Incentive Plan, (v) employee referral awards,
(vi) special incentive awards (other than regular bonus programs),
(vii) reimbursements for relocation expenses, (viii) commissions (other than
"dual commissions", commissions based on trading results that are paid to
traders who are also salaried and commissions where the Participant's only
form of remuneration is commissions), (ix) income items attributable to the
taxable portion of employee benefits and any cash payments made as a result
of an Employee's election not to receive insured benefits pursuant to the
Company's Pre-Tax Contribution Plan, (x) amounts paid as short term disability
benefits, (xi) any income items reflecting grants in aid, and
(xii) compensation in excess of $150,000 (adjusted for cost of living to the
extent permitted by Section 401(a)(17) of the Code and Regulations). For
purposes of determining the whole percentage of Compensation for which a
Participant may make a Salary Reduction Agreement, and not for any other
purposes, subparagraph (ix) hereof shall be disregarded. Compensation shall
be determined prior to reduction for any contributions pursuant to such
Participant's election under Section 5.1, and any elective contributions made
by the Employer on behalf of the Participant in the Plan Year that are not
includable in gross income under Section 125 of the Code. Any compensation
paid to any Participant who is a member of the family of a five percent (5%)
owner or one of the ten most Highly Compensated Participants, as defined in
Section 414(q)(6) of the Code, shall be treated as if it were paid to or on
behalf of such five percent (5%) owner or Highly Compensated Participant.
For purposes of the previous sentence, the term "family" means the
Participant's spouse and any of the Participant's lineal descendants who have
not attained age 19 before the end of the Plan Year.
2.12 "Computation Period" means a 12 consecutive month period beginning on
the day an individual first performs an Hour of Service or first performs an
Hour of Service following a Break in Service. Thereafter, the Computation
Period shall be the Plan Year, commencing with the Plan Year that includes
the day immediately following the last day of the Computation Period
determined pursuant to the first sentence hereof.
2.13 "Contribution Percentage" means the average of the ratios (calculated
separately for each Participant for each Plan Year) of (a)(i) Matching
Contributions, if any, made by the Employer on behalf of a Participant and
(ii) Elective Contributions, (if the Committee elects to take into account
Elective Contributions when calculating the Contribution Percentage) to
(b) the Employee's compensation while a Participant (as defined in
Section 1.415-2(d)(10) of the Regulations) for such Plan Year.
2.14 "Deferred Retirement Date" shall have the meaning set forth in
Section 9.2.
2.15 "Disability" means the inability to engage in any substantial
gainful activity considering the Participant's age, education and work
experience by reason of any medically determined physical or mental impairment
that has continued without interruption for a period of at least six months
and that can be expected to be of long, continued and indefinite duration.
The determination of the Committee as to whether a Participant has a
Disability shall be final, binding and conclusive.
2.16 "Effective Date" means October 1, 1983.
2.17 "Elective Contributions" means contributions made to the Trust Fund
pursuant to a Participant's Salary Reduction Agreement entered into pursuant
to Section 5.1, and which are considered tax deferred under Section 401(k) of
the Code.
2.18 "Elective Contribution Subaccount" means the account established and
maintained on behalf of a Participant pursuant to Section 6.2(a) with respect
to his or her Elective Contributions and Qualified Nonelective Contributions.
2.19 "Employee" means any "regular employee" of the Employer, excluding
(i) any person covered by any other pension, profit sharing or retirement plan
to which any Employer or Affiliated Employer is required to contribute either
directly or indirectly, (ii) any nonresident alien individual who received no
earned income (within the meaning of Section 911(d)(2)) from the Employer
which constitutes income from sources within the United States and (iii) any
employee who is included in a unit of employees covered by a negotiated
collective bargaining agreement which does not provide for his or her
membership in the Plan. A director of the Employer is not eligible for
membership in the Plan unless such director is also an Employee. A leased
employee (within the meaning of Section 414(n) of the Code) is not eligible
for membership in the Plan unless the Employer designates such individual as
eligible for membership in the Plan.
2.20 "Employer" means Charles Schwab & Co., Inc. and any Participating
Employer which adopts this Plan subject to the approval of the Board of
Directors.
2.21 "ESOP Account" means the account established and maintained on
behalf of a Participant pursuant to Section 7.1 with respect to his or her ESOP
Contributions.
2.22 "ESOP Contributions" means the Employer contributions, if any, made
to the Plan on behalf of a Participant pursuant to Section 4.2(c).
2.23 "ESOP/Profit Sharing Entry Date" means January 1 and July 1 of each
calendar year.
2.24 "Exempt Loan" means any loan to the Plan or Trust not prohibited by
Section 4975(c) of the Code and Section 406 of the Act because the loan meets
the requirements set forth in Section 4975(d)(3) of the Code, Section
408(b)(3) of the Act and the Regulations promulgated thereunder, the proceeds
of which loan are used within a reasonable time after receipt by the Trust
Fund only for any or all of the following purposes: (a) to acquire Shares;
(b) to repay the same Exempt Loan; or (c) to repay any previous Exempt Loan.
2.25 "Highly Compensated Participant" means any Participant who, during
the relevant period is treated as a highly compensated employee under
Section 414(q) of the Code. For purposes of determining which Employee is a
Highly Compensated Participant, the look-back determination shall be made on
the basis of the calendar year and the simplified method of Section 414(q)(12)
of the Code shall be used by the Employer to the extent permissible under
Code. The Plan shall comply with the procedures of Treasury Regulation
1.401(k)-1(f) to the extent applicable. For purposes of determining which
Employee is a Highly Compensated Participant:
(A) Highly Compensated Participant means a Participant who performs
Service during the determination year and is described in one or more of the
following groups:
(1) An Employee who is a five percent (5%) owner, as defined in
Section 416(i)(1)(A)(iii) of the Code, at any time during the determination
year or the look-back year.
(2) An Employee who receives compensation in excess of $75,000
(indexed in accordance with Section 415(d) of the Code) during the look-back
year.
(3) An Employee who receives compensation in excess of $50,000
(indexed in accordance with Section 415(d) of the Code) during the look-back
year and is a Participant of the "top-paid" group for the look-back year.
(4) An Employee who is an officer, within the meaning of
Section 416(i) of the Code, during the look-back year and who receives
compensation in the look-back year greater than fifty percent (50%) of the
dollar limitation in effect under Section 415(b)(1)(A) for the calendar year
in which the look-back year begins.
(5) An Employee who is both described in subparagraphs 2, 3, or
4 above when these paragraphs are modified to substitute the determination year
for the look-back year and one of the 100 employees who receive the most
compensation from the Employer during the determination year.
(B) For purposes of this Section:
(1) The determination year is the Plan Year for which the
determination of who is a Highly Compensated Participant is being made.
(2) The look-back year is the calendar year ending with or
within the determination year.
(3) The "top-paid" group consists of the top twenty percent (20%)
of Employees ranked on the basis of compensation received during the past
calendar year. For purposes of determining the number of Employees in the
top-paid group, Employees described in Section 414(q)(8) of the Code and
Q & A 9(b) of Section 1.414(q)-1T of the Regulations are excluded.
(4) The number of officers is limited to 50 (or, if lesser, the
greater of 3 Employees or ten percent (10%) of Employees) excluding those
Employees who may be excluded in determining the top-paid group.
(5) When no officer has compensation in excess of fifty percent
(50%) of the Section 415(b)(1)(A) limit, the highest paid officer is treated as
highly compensated.
(6) For purposes of this Section 2.25, the term "compensation"
means compensation as defined in Section 415(c)(3) of the Code and Treasury
Regulation Section 1.415-2(d)(10), determined without reduction for any
elective or salary reduction contributions to a cafeteria plan or cash or
deferred arrangement.
(7) Employers aggregated under Section 414(b), (c), (m), or (o)
of the Code are treated as a single employer.
(8) Highly Compensated Participants include a former Employee
who had a separation year prior to the determination year and who was a Highly
Compensated Participant for either (A) the determination year in which the
Employee separated from Service or (B) any determination year ending on or
after the Employee's 55th birthday. With respect to an Employee who separated
from Service before January 1, 1987, an Employee will be included as a Highly
Compensated Participant only if the Employee was a five percent (5%) owner or
received Compensation in excess of $50,000 during (1) the determination year
in which the Employee separated from Service (or the year preceding such
separation year) or (2) any year ending on or after such Employee's 55th
birthday (or the last year ending before such Employee's 55th birthday).
2.26 "Hours of Service" means hours during the applicable Computation
Period in which an individual performs Service or is treated as performing
Service and, except in the case of military service or as otherwise determined
by the Committee, for which the Participant is directly or indirectly entitled
to payment. For all purposes under the Plan, (i) an individual scheduled to
work more than twenty hours per week shall be credited (under rules
determined by the Committee, uniformly applicable to all individuals
similarly situated and in accordance with the Regulations) with 190 Hours
of Service for each calendar month in which the individual would otherwise
be credited with one or more Hours of Service and (ii) an individual who is
scheduled to work less than twenty hours per week shall be credited with Hours
of Service for the applicable period in which such Hours of Service accrue in
accordance with Labor Department Regulation 29 CFR Section 2530.200b-2(c),
which regulation is incorporated herein by reference. Hours of Service for
reasons other than the performance of duties shall be credited in accordance
with Labor Department Regulation 29 CFR Section 2530.200b-2(b), which
regulation is incorporated herein by reference.
The term "Service" includes performance of duties (or periods which are
treated as the performance of duties) for the Employer or for any Affiliated
Employer (under rules determined by the Committee, uniformly applicable to
all individuals similarly situated and in accordance with the Regulations)
for which an individual is entitled to receive credit for "Service", including
(i) vacation, (ii) holiday, (iii) absence authorized by the Employer for
sickness or incapacity (including disability or leave of absence), (iv) layoff,
(v) jury duty, (vi) if and to the extent required by the Military Selective
Service Act, as amended or any other federal law, service in the Armed Forces
of the United States and (vii) an approved leave of absence granted by the
Employer to an individual on or after August 5, 1993 pursuant to the Family
Medical Leave Act, but only if such individual returns to work for the
Employer at the end of such approved leave. Service also includes periods
of time for which back pay, irrespective of mitigation of damages, is awarded
or agreed to by the Employer or any Affiliated Employer; provided that such
award or agreement is not already credited as Service under either of the
preceding two sentences. Service may also include any period of a
Participant's prior employment by an organization upon such terms and
conditions as the Committee may approve and subject to any required IRS
approval. Notwithstanding the foregoing, (i) Hours of Service credited with
respect to an individual's service with BankAmerica Corporation or a related
corporation between January 11, 1983 and March 31, 1987 shall be considered
Service only if such individual was employed by the Employer by the Employer
prior to November 23, 1993, (ii) Hours of Service credited with respect to
an individual's service with BankAmerica Corporation or a related corporation
prior to January 11, 1983 shall be considered Service, but only if such
individual was employed by the Employer prior to April 1, 1987, (iii) Hours
of Service credited with respect to service with Mayer & Schweitzer, Inc.
prior to July 1, 1991 shall be considered Service, and (iv) Service credited
with respect to service with The Rose Company prior to April 1, 1989 shall be
considered Service.
2.27 "IRS" means the United States Internal Revenue Service.
2.28 "Labor Department" means the United States Department of Labor.
2.29 "Matching Contribution" means any Employer contribution, if any,
made to the Plan on behalf of a Participant pursuant to Section 4.2(a).
2.30 "Matching Contribution Subaccount" means the account established
and maintained on behalf of a Participant pursuant to Section 6.2(b) with
respect to the Participant's Matching Contributions.
2.31 "Normal Retirement Date" shall have the meaning set forth in
Section 9.1.
2.32 "Participant" means any Employee who has satisfied the eligibility
requirements of Section 3 below.
2.33 "Participating Employer" means Charles Schwab & Co., Inc. or any
other Affiliated Employer, the board of directors or equivalent governing
body of which shall adopt the Plan and Trust Agreement by appropriate action
with the written consent of the Board of Directors. By its adoption of this
Plan, a Participating Employer shall be deemed to appoint Charles Schwab
& Co., Inc., the Committee and the Trustee its exclusive agent to exercise on
its behalf all of the power and authority conferred by this Plan upon the
Employer. The authority of Charles Schwab & Co., Inc., the Committee and
the Trustee to act as such agent shall continue until the Plan is terminated as
to the Participating Employer and the relevant Trust Fund assets have been
distributed by the Trustee as provided in Section 17 of this Plan.
2.34 "Plan" means this Charles Schwab Profit Sharing and Employee Stock
Ownership Plan as the same is stated herein and as it may be amended from
time to time.
2.35 "Plan Sponsor" means The Charles Schwab Corporation.
2.36 "Plan Year" means the calendar year.
2.37 "Profit Sharing Contribution" means the Employer contribution, if
any, made to the Plan on behalf of a Participant pursuant to Section 4.2(b)(ii).
2.38 "Profit Sharing Subaccount" means the account established and
maintained on behalf of a Participant pursuant to Section 6.2(c) with respect
to the Participant's Profit Sharing Contributions.
2.39 "Purchasing Agent" means the agent designated by the Trustee to
enter into certain transactions with respect to Shares hereunder.
2.40 "Qualified Nonelective Contribution" means the Employer
contribution, if any, made to the Plan on behalf of a Participant pursuant to
Section 4.2(b)(i).
2.41 "Regulations" means the applicable regulations issued under the
Code or the Act by the IRS, the Labor Department or any other governmental
authority and any temporary rules or releases promulgated by such authorities
pending the issuance of such regulations.
2.42 "Restated Effective Date" shall mean January 1, 1994.
2.43 "Retirement Date" means the Participant's Normal or Deferred
Retirement Date which has become effective pursuant to Section 9 below.
2.44 "Rollover Subaccount" means the account established and maintained
on behalf of a Participant pursuant to Section 6.2(d) with respect to the
Participant's Rollover Contributions.
2.45 "Rollover Contribution" means any contribution made by an Employee
pursuant to Section 5.6.
2.46 "Salary Reduction Agreement" means an agreement between a
Participant and the Employer entered into pursuant to Section 5.1.
2.47 "Section 401(k) Entry Date" means April 1 and October 1 of each
calendar year.
2.48 "Shares" means (i) with respect to Plan assets acquired with the
proceeds of an Exempt Loan, the common stock issued by The Charles Schwab
Corporation or any successor corporation thereto meeting the requirements of
both Section 4975(e)(8) of the Code and Section 407(d)(5) of the Act for
"qualifying employer securities," and (ii) with respect to Plan assets other
than those acquired with the proceeds of an Exempt Loan, stock issued by The
Charles Schwab Corporation or any successor corporation thereto, of any type,
kind or class meeting the requirements of Section 407(d)(5) of the Act for
"qualifying employer securities". All valuations of Shares, where such
Shares are not readily tradable on an established securities market and where
such valuations relate to activities carried on by the Plan, shall be made by
one or more independent appraisers retained by the Committee, who meet the
requirements, if any, of the Code and Regulations. To the extent and in the
manner required by the Code and Regulations, all independent appraisers, if
any, making appraisals pursuant to the foregoing sentence shall be registered
with the IRS.
2.49 "Surviving Spouse" means the survivor of a Participant to whom such
Participant was legally married on the date of the Participant's death.
2.50 "Suspense Subfund" means the subfund established under Section 7.3.
2.51 "Taxable Compensation" means the W-2 compensation paid to an
individual for Service during any period under consideration.
2.52 "Taxable Year" means the calendar year.
2.53 "Total Break in Service" means a period of five or more consecutive
Computation Periods in which a Participant incurs a Break in Service, with
respect to a Participant who did not have a nonforfeitable right to any
portion of his or her Profit Sharing Subaccount or ESOP Account prior to the
beginning of the first such Computation Period.
2.54 "Trustee" means the Trustee selected by the Employer to hold the
funds contributed by the Employer to provide benefits under the Plan or any
successor or substitute.
2.55 "Trust Agreement" means the Charles Schwab Profit Sharing and
Employee Stock Ownership Plan Trust Agreement, as it may from time to time
be amended, and such additional and successor trust agreements as may be
executed.
2.56 "Trust Fund" means the funds held by the Trustee from which
payments to the Trustee are made to provide benefits under the Plan.
2.57 "Valuation Date" means the last day of each Plan Year or such
interim periods as the Committee may designate from time to time.
2.58 "Vested Interest" means the portion of a Participant's Account
which has become nonforfeitable pursuant to Section 10.3 below.
2.59 "Year of Eligibility Service" means a Computation Period during
which an Employee completes at least 1,000 Hours of Service.
2.60 "Year of Service" means a Computation Period during which an
individual completed at least 1,000 Hours of Service or satisfied any
alternative requirement, as determined by the Committee from time to time in
accordance with the Regulations.
<PAGE>
SECTION 3. PARTICIPATION
3.1 Commencement of Participation.
(a) An Employee who is a Participant as of the date immediately
preceding the Restated Effective Date shall continue to be a Participant of
the Plan as of the Restated Effective Date.
(b) An Employee who is not a Participant on the Restated Effective
Date and who (A) is in Service on the Restated Effective Date or (B) commences
Service on or after the Restated Effective Date shall be eligible to become a
Participant of the Plan for purposes of:
(i) Elective Contributions, Matching Contributions and Qualified
Nonelective Contributions on the first Section 401(k) Entry Date coincident
with or next following his or her commencement of Service; and
(ii) Profit Sharing Contributions and ESOP Contributions on the
first ESOP/Profit Sharing Entry Date coincident with or next following the
date on which he or she completes a Year of Eligibility Service.
(c) An Employee who is eligible to become a Participant, but declines
to participate in the Plan, may become a Participant as of any subsequent
Section 401(k) Entry Date or ESOP/Profit Sharing Entry Date.
(d) An Employee who satisfies the requirements of Section 3.1(b)(ii)
for participation but who terminates Service prior to becoming a Participant in
the Plan and subsequently becomes an Employee again prior to incurring a
Break in Service will become a Participant in the Plan for all purposes as of
the first day on which such individual again becomes an Employee.
3.2 Cessation of Participation. A Participant shall cease to be a
Participant upon the earliest to occur of (i) the Participant's retirement on
his or her Retirement Date, (ii) the Participant's death or Disability or
(iii) the Participant's termination of Service prior to his or her Retirement
Date followed by a Break in Service. A Participant who, without any Break in
Service, ceases to be an Employee for any reason, shall not cease to be a
Participant, provided that, notwithstanding any other provision of the Plan,
and except as provided in Section 4.3 no contribution shall be made for the
benefit of such Participant, no contributions under the Plan shall be
allocated, added or otherwise credited to the Account of such Participant,
and no contributions, forfeitures or Shares released from a Suspense Subfund
shall be allocated, added or otherwise credited to the Account of such
Participant on or after the date on which such Participant ceases to be an
Employee and before the first day of the Plan Year coincident with or
preceding the date, if any, on which such Participant again
resumes Service as an Employee.
3.3 Readmission After Cessation of Participation. A Participant who has
incurred a Total Break in Service and subsequently returns to Service shall be
treated as a new Employee for all purposes of the Plan. In all other cases, a
former Participant who returns to Service following a Break in Service shall
again become a Participant as of the first date of such former Participant's
return to Service, except that if such former Participant is not then an
Employee, such former Participant shall again become a Participant as of the
first day on which such former Participant again becomes an Employee.
3.4 Waiver of Participation. An individual who has satisfied the
requirements for participation set forth in Section 3.1 may permanently waive
participation in the Plan, but only if such individual is on temporary
transfer of employment to a Participating Employer from an Affiliated
Employer that is not a Participating Employer.
<PAGE>
SECTION 4. EMPLOYER CONTRIBUTIONS
4.1 Elective Contributions. The Employer shall, subject to the
limitations of Sections 5 and 12, contribute to the Trust Fund for each Plan
Year on behalf of all Participants the total amount of Elective Contributions
designated to be contributed pursuant to Salary Reduction Agreements under
Section 5.1. Such contributions shall be paid in cash by the Employer to the
Trustee as soon as practicable, but in no event later than 90 days from the
date on which such amounts otherwise would have been payable to the
Participant in cash.
4.2 Employer Contributions.
(a) Subject to the limitations of Section 12, the Employer shall
contribute Matching Contributions to the Trust Fund on behalf of all
Participants for whom Elective Contributions have been made equal to a
percentage of such Elective Contributions made for each such Participant. The
percentage (and, if desired, a maximum dollar amount) of Matching
Contributions shall be determined from time to time by the Board of Directors
and communicated to the Participants.
(b) Subject to the limitations of Section 12, for any Plan Year, the
Board of Directors may designate (i) a percentage of the aggregate
Compensation of all Participants or a fixed dollar amount to be contributed to
the Plan as Qualified Nonelective Contributions on behalf of certain
Participants who are not Highly Compensated Participants and may designate
(ii) a percentage of the aggregate Compensation of all Participants or a fixed
dollar amount to be contributed to the Plan as Profit Sharing Contributions on
behalf of all Employees who are or would be Participants but for their
election not to make Elective Contributions. Provided, however, that
effective as of January 1, 1995, no further Profit Sharing Contributions
shall be made to the Plan.
(c) Subject to the limitations of Section 12, and the provisions of any
applicable loan or contribution agreement, the Employer shall contribute to the
Trust Fund for each Plan Year as ESOP Contributions such sum as the Board
of Directors may, in its sole discretion, determine, which sum may be zero. All
or any part of the contributions made under this Section 4.2(c) may be applied
to repay any outstanding Exempt Loan. The Committee may, subject to any
pledge or similar agreement, direct or determine the proportions of such
contributions which are applied to repay each such Exempt Loan and, with
respect to any particular Exempt Loan, the proportion of such contribution to
be applied to repay principal and interest on such Exempt Loan.
4.3 Allocation of Matching Contributions, Profit Sharing Contributions and
ESOP Contributions. Matching Contributions shall only be allocated to those
Participants employed on the last day of the Plan Year. Profit Sharing
Contributions and ESOP Contributions shall only be allocated to Participants
who are members of the Allocation Group for the Plan Year. For purposes of
Sections 4 and 7, the term "Allocation Group" means the group consisting of
(i) each Participant who completed at least One Thousand (1,000) Hours of
Service during the Plan Year and is employed by the Employer as of the last
day of the Plan Year, and (ii) each Participant whose employment with the
Employer terminated during the Plan Year by reason of Disability, death or
retirement on or after the Participant's Retirement Date. Profit Sharing
Contributions and ESOP Contributions shall be allocated among the Accounts
of Participants who are members of the Allocation Group for the Plan Year in
the same proportion that a Participant's Compensation during the Plan Year
bears to the total Compensation during the Plan Year of all Participants who
are members of the Allocation Group for such Plan Year. For purposes of the
preceding sentence, Compensation earned by a Participant prior to the
Participant's entry into the Plan pursuant to Section 3.1(b)(ii) shall not be
taken into account.
4.4 Timing of Employer Contributions.
(a) Any Profit Sharing Contributions, Qualified Nonelective
Contributions and ESOP Contributions shall be deemed made on account of a
Taxable Year if (i) the Board of Directors determines the amount of such
contribution by appropriate action and announces the amount in writing to its
Employees within 30 days after the end of such Taxable Year, (ii) the Employer
designates such amount in writing as payment on account of such Taxable Year
or (iii) the Employer claims such amount as a deduction on its federal tax
return for such Taxable Year.
(b) Profit Sharing Contributions, Matching Contributions, and, subject
to the provisions of any Exempt Loan, ESOP Contributions for any particular
Taxable Year may be paid to the Trustee in installments, but in any event such
contributions shall be paid no later than the due date for the Employer's
federal income tax return for such Taxable Year. The Employer may, during any
Taxable Year, make advance payments toward its contributions for such
Taxable Year. Any income, earnings or appreciation earned by any amount
contributed by the Employer prior to the end of the Plan Year shall be treated
as part of the Profit Sharing Contributions, Matching Contributions, or ESOP
Contributions, as the case may be, for such Plan Year. On or about the date of
such payment the Committee shall be advised of the amount of such payment
upon which its allocation pursuant to Section 4.3 is to be calculated.
4.5 Forfeitures. Forfeitures of Profit Sharing Contributions arising
during the Plan Year pursuant to Section 10 shall be used to reduce the amount
of Matching Contributions made for such Plan Year pursuant to Section 4.2(a).
Forfeitures of Shares attributable to ESOP Contributions (or ESOP
Contributions) arising during the Plan Year pursuant to Section 10 shall be
reallocated as ESOP Contributions on the last day of the Plan Year in which
such forfeiture occurs to all Participants entitled to receive Shares
attributable to ESOP Contributions (or ESOP Contributions), in the same
proportion as contributions are allocated pursuant to Sections 4.3 and 7.2.
Provided, in either case, that forfeitures shall first be used to fund
adjustments to Participants' Accounts required to correct operational errors,
to the extent directed by the Committee.
4.6 Contribution Percentage Test.
(a) Participants' Contribution Percentages must satisfy at least one
of the following tests:
(1) The Contribution Percentage for the Highly Compensated
Participants shall not exceed the Contribution Percentage of all other
Participants multiplied by 1.25; or
(2) (a) The excess of the Contribution Percentage for the Highly
Compensated Participants over the Contribution Percentage of all other
Participants shall not be more than two percentage points and (b) the
Contribution Percentage for Highly Compensated Participants shall not be more
than the Contribution Percentage for all other Participants multiplied by 2.
(b) All Matching Contributions and Elective Contributions that
are made under two or more plans that are aggregated for purposes of Sections
401(a)(4) and 410(b) of the Code (other than Section 410(b)(2)(a)(ii)) are to
be treated as made under a single plan; and if two or more plans are
permissively aggregated such plans shall satisfy Sections 401(a)(4) and 410(b)
as though they were a single plan in accordance with Section 401(m) of the
Code and Section 1.401(m)-1 of the Regulations. For purposes of this Section
4.6, Matching Contributions are taken into account for a Plan Year only if (i)
made on account of the Participant's Elective Contributions for the Plan Year,
(ii) allocated to the Participant's Account during the Plan Year and (iii)
paid to the Trust Fund prior to the end of the twelfth month following the
close of the Plan Year. For purposes of determining whether the test of this
Section 4.6 and Section 5.3 of this Plan are satisfied, the Actual Deferral
Percentage and the Contribution Percentage shall be determined with reference
to Section 1.401(m)-2(b) of the Regulations. Any excess over the amount
permitted by Section 1.401(m)-2(b) of the Regulations shall be reduced by
treating such excess as an excess Elective Contribution and by refunding
excess Elective Contributions in the manner set forth in Section 5.5 hereof,
but only for all those Highly Compensated Participants who are eligible for
contributions pursuant to Section 4 and Section 5 hereof.
(c) In applying the tests set forth in subsections (a) and (b) of
this Section 4.6, the following rules shall apply.
(1) In the case of an Employee who receives no Matching
Contributions, the Matching Contributions that are to be included in
determining the Participant's Contribution Percentage are zero;
(2) In the case of a Highly Compensated Participant who is
either a five percent (5%) owner or one of the ten most Highly Compensated
Participants and is thereby subject to the family aggregation rules of Section
414(q)(6) of the Code, the Contribution Percentage for the "family" (which is
treated as one Highly Compensated Participant) is the Contribution Percentage
determined by combining the contributions and Compensation of all eligible
family members. Except to the extent taken into account in the preceding
sentence, the contributions and Compensation of all family members are
disregarded in determining the Contribution Percentages for the Highly
Compensated Participants and non-highly compensated Participants. For
purposes of this Section 4.6, the term "family" means the spouse, lineal
ascendants and descendants (and the spouses of such lineal ascendants and
descendants).
(3) The availability of Matching Contributions shall not
discriminate in favor of Highly Compensated Participants.
(4) In the case of a Highly Compensated Participant whose
Contribution Percentage is determined under the family aggregation rules, the
determination of the amount of excess aggregate contributions shall be reduced
in accordance with the "leveling" method described in Section 1.401(m)-1(e)(2)
of the Regulations and the excess aggregate contributions shall be allocated
among the family members in proportion to the contributions of each family
member.
(5) The distribution of excess aggregate contributions will
include the income allocable thereto and shall be made on the basis of the
respective portions of such amounts attributable to each Highly Compensated
Participant. The income allocable to the excess aggregate contributions
includes income for the Plan Year for which the excess aggregate contributions
were made in accordance with Section 1.401(m) - 1(e)(3)(ii) of the
Regulations.
(6) A Participant shall include any Employee who is directly
or indirectly eligible to receive an allocation of Matching Contributions
and includes (i) an Employee who would be a Participant but for the failure to
make required contributions and (ii) a Participant whose right to receive
Matching Contributions has been suspended because of an election (other than
certain one-time elections) not to participate.
4.7 Distribution of Excess Aggregate Contributions.
(a) The Committee shall determine as of the end of the Plan Year, and
at such other time or times in its discretion, whether one of the Contribution
Percentages of Section 4.6 is satisfied for such Plan Year. If neither of the
tests set forth in Section 4.6 is satisfied, the Committee shall distribute the
excess aggregate contributions in the manner described in this Section 4.7.
For purposes of this Section 4.7, "excess aggregate contributions" means, with
respect to any Plan Year and with respect to any Participant, the excess of the
aggregate amount of (i) Matching Contributions (and any earnings and losses
allocable thereto prior to distribution) and (ii) the Elective Contributions
(if the Regulations permit and the Committee elects to take into account
Elective Contributions when calculating the Participant's Contribution
Percentage) of Highly Compensated Participants for such Plan Year, over the
maximum amount of such contributions that could be made on behalf of
Participants without violating the requirements of Section 4.6. The amount of
each Highly Compensated Participant's excess aggregate contributions shall be
determined by reducing the Matching Contributions of all Highly Compensated
Participants whose Contribution Percentage as adjusted by this Section 4.7 are
at the highest percentage rate for the Plan Year on a pro rata basis by one
hundredth of one percent (0.01%). The Committee shall continue to utilize this
procedure until one of the tests of Section 4.6 is satisfied.
(b) If the Committee is required to distribute excess aggregate
contributions for any Highly Compensated Participant for a Plan Year in order
to satisfy the requirements of Section 4.6, then the Committee shall distribute
such excess aggregate contributions with respect to such Highly Compensated
Participants to the extent practicable before April 15th of the Plan Year next
following the Plan Year for which such excess aggregate contributions were
made, but in no event later than the end of the Plan Year following such Plan
Year. For each of such Participants, the amounts so distributed shall be made
in the following order of priority:
(i) by distributing Matching Contributions and earnings thereon, to
the extent necessary; and
(ii) by distributing Elective Contributions (to the extent such
amounts are included in the Contribution Percentage), and earnings thereon.
All such distributions shall be made to Highly Compensated
Participants on the basis of the respective portions of such amounts
attributable to each such Highly Compensated Participant. No spousal consent
shall be required of any married Participant who receives a refund of excess
aggregate contributions.
4.8 Aggregate Limit for Contribution Percentage and Actual Deferral
Percentage.
(a) The sum of the Contribution Percentage and the Actual Deferral
Percentage for Highly Compensated Participants for the Plan Year shall not
exceed the "aggregate limit" defined in this Section 4.8.
(b) The term "aggregate limit" means the greater of (1) or (2) below:
(1) The sum of (a) the greater of the Actual Deferral Percentage
for all Participants other than the Highly Compensated Participants or the
Contribution Percentage for all Participants other than the Highly Compensated
Participants, for the Plan Year multiplied by 1.25 and (b) the lesser of such
Actual Deferral Percentage or Contribution Percentage plus 2, but not greater
than 2 multiplied by the lesser of such Actual Deferral Percentage or
Contribution Percentage.
(2) The sum of (a) the lesser of the Actual Deferral Percentage for
all Participants other than the Highly Compensated Participants or the
Contribution Percentage for all Participants other than the Highly Compensated
Participants, for the Plan Year multiplied by 1.25 and (b) the greater of such
Actual Deferral Percentage or Contribution percentage plus 2, but not greater
than 2 multiplied by the greater of such Actual Deferral Percentage or
Contribution Percentage.
(c) If the aggregate limit is exceeded, the Committee shall determine
whether to: (i) make Qualified Nonelective Contributions to permit the
satisfaction of the test set forth in subsection (a) hereof; (ii) reduce the
Contribution Percentage of the Highly Compensated Participants as set forth in
Section 4.7; or (iii) reduce the Actual Deferral Percentage of the Highly
Compensated Participants as set forth in Section 5.5.
<PAGE>
SECTION 5. SALARY REDUCTION AGREEMENTS
AND ROLLOVER CONTRIBUTIONS
5.1 Salary Reduction Agreements.
(a) A Participant may elect to make Elective Contributions in any
Plan Year by entering into a written Salary Reduction Agreement with the
Employer. Each Salary Reduction Agreement shall provide that a portion of
the Participant's Compensation shall be paid through payroll deduction to the
Trust Fund as an Elective Contribution pursuant to Section 4.1 rather than paid
currently to the Participant. The Salary Reduction Agreement shall provide for
Elective Contributions equal to any whole percentage between one percent (1%)
and fifteen percent (15%) of a Participant's Compensation in any payroll
period, not to exceed the limitation set forth in Section 402(g) of the Code
(adjusted automatically for increases in accordance with the Regulations).
Notwithstanding the foregoing provisions of this Section 5.1, the Committee
may, but need not, adopt a procedure to enable Participants to make lump sum
Elective Contributions under the Plan through payroll deductions. No Salary
Reduction Agreement shall be effective unless the Participant has filed a
written investment direction pursuant to Section 8.3.
(b) A Salary Reduction Agreement will be taken into account for any
Plan Year only if it relates to Compensation that would have been received by
the Participant in the Plan Year (but for the deferral election).
(c) In the event that the aggregate amount of Elective Contributions
by a Participant exceeds the limitation described in subsection (a) of this
Section 5.1, the amount of such excess, increased by any income and decreased
by any losses attributable thereto, shall be refunded to the Participant no
later than the April 15th of the calendar year following the calendar year for
which the Elective Contributions were made. If a Participant also participates,
in any calendar year, in any other plans subject to the limitations set forth
in Section 402(g) of the Code and has made excess deferrals under this Plan
when combined with the other plans subject to such limits, to the extent the
Participant designates, in writing submitted to the Committee no later than the
March 1 of the calendar year next following the calendar year for which the
Elective Contributions were made, any Elective Contributions under this Plan
as excess deferrals, the amount of such designated excess, increased by any
income and decreased by any losses attributable thereto, shall be refunded to
the Participant no later than the April 15 of the calendar year next following
the calendar year for which the Elective Contributions were made.
5.2 Change or Suspension of Salary Reduction Agreements. Subject to
Section 5.1, a Participant may enter into or change his or her Salary Reduction
Agreement on each Section 401(k) Entry Date, effective as of the first day of
the Section 401(k) Entry Date, in accordance with rules determined by the
Committee. In addition, a Participant may also suspend his or her Salary
Reduction Agreement at any time, in accordance with rules determined by the
Committee. A Participant who suspends his or her Salary Reduction
Agreement in accordance with this Section 5.2 may enter into a new Salary
Reduction Agreement effective as of the next succeeding Section 401(k) Plan
Entry Date.
A Participant's most recent Salary Reduction Agreement shall continue
unchanged from year to year unless the Participant notifies the Committee in
writing of a change in such Salary Reduction Agreement in accordance with
the rules determined by the Committee
5.3 Actual Deferral Percentage Test.
(a) Participants' Elective Contributions must satisfy at least
one of the following tests:
(1) The Actual Deferral Percentage for the Highly Compensated
Participants shall not exceed the Actual Deferral Percentage of all other
Participants multiplied by 1.25; or
(2) (A) The excess of the Actual Deferral Percentage for the
Highly Compensated Participants over the Actual Deferral Percentage of all
other Participants shall not be more than two percentage points, and (B) the
Actual Deferral Percentage for the Highly Compensated Participants shall not
be more than the Actual Deferral Percentage for all other Participants
multiplied by 2.
(b) All Elective Contributions that are made under two or more
plans that are aggregated for purposes of Sections 401(a)(4) and 410(b) of the
Code (other than Section 410(b)(2)(A)(ii)) are to be treated as made under a
single plan; and if two or more plans are permissively aggregated, such plans
shall satisfy Sections 401(a)(4) and 410(b) as though they were a single plan
in accordance with Section 401(k) and Section 1.401(k)-1 of the Regulations.
(c) In applying the tests set forth in subsections (a) and (b) of this
Section 5.3, the following rules shall apply:
(1) In the case of a Participant who makes no Elective
Contributions, the Elective Contributions that are to be included in
determining the Participant's Actual Deferral Percentage are zero;
(2) In the case of a Highly Compensated Participant who is
either a five percent (5%) owner or one of the ten most Highly Compensated
Participants and is thereby subject to the family aggregation rules of Section
414(q)(6) of the Code, the Actual Deferral Percentage for the "family" (which
is treated as one Highly Compensated Participant) is the greater of (1) the
Actual Deferral Percentage determined by combining the contributions and
Compensation of all eligible family members who are highly compensated
without regard to family aggregation, and (2) the Actual Deferral Percentage
determined by combining the contributions and Compensation of all eligible
family members. Except to the extent taken into account in the preceding
sentence, the contributions and Compensation of all family members are
disregarded in determining the Actual Deferral Percentages for the Highly
Compensated Participants and non-highly compensated Participants. For
purposes of this Section 5.3, the term "family" means the spouse, lineal
ascendants and descendants (and the spouses of such lineal ascendants and
descendants).
(3) In the case of a Highly Compensated Participant whose
Actual Deferral Percentage is determined under the family aggregation rules,
the determination of the amount of excess contributions shall be reduced in
accordance with the "leveling" method described in Section 1.401(k)-1(f)(2) of
the Regulations and the excess aggregate contributions shall be allocated
among the family members in proportion to the contributions of each family
member.
(4) The distribution of excess contributions will include the
income attributable thereto and shall be made on the basis of the respective
portions of such amounts attributable to each Highly Compensated Participant.
The income allocable to the excess contributions includes income for the Plan
Year for which the excess contributions were made in accordance with
1.401(k) - 1(f)(4)(ii) of the Regulations.
5.4 Amendment or Revocation of Salary Reduction Agreement by
Committee. The Committee shall determine as of the end of the Plan Year, and
at such other time or times in its discretion, whether one of the Actual
Deferral Percentage tests of Section 5.3 will be satisfied for such Plan Year.
In the event that neither of such Actual Deferral Percentage Tests is
satisfied, the Committee may amend or revoke the Salary Reduction Agreement of
any Participant at any time if it determines that such an amendment or
revocation is necessary to ensure that at least one of the Actual Deferral
Percentage tests of Section 5.3 will be satisfied for any Plan Year. The
determination of whether it is necessary to amend or revoke any Salary
Reduction Agreement shall be made pursuant to Section 5.3 and the procedure
for such amendment or revocation shall be determined pursuant to Section
5.5(a).
5.5 Distribution of Excess Contributions.
(a) If neither of the tests set forth in Section 5.3 are satisfied, the
Committee shall in its discretion, to the extent permissible under the Code and
the Regulations, refund the excess contributions in the manner described in
Section 5.5(b). For purposes of this Section 5.5, "excess contributions"
means, with respect to any Plan Year, the excess of the aggregate amount of
Elective Contributions (and any earnings and losses allocable thereto prior to
distribution) made by Highly Compensated Participants for such Plan Year,
over the maximum amount of such Elective Contributions that could be made
by such Highly Compensated Participants without violating the requirements of
Section 5.3.
(b) If required in order to comply with the provisions of Subsection
5.3 and the Code, the Committee shall refund excess contributions for a Plan
Year. The distribution of such excess contributions shall be made to Highly
Compensated Participants, to the extent practicable, before the March 15th of
the Plan Year next following the Plan Year for which such excess contributions
were made, but in no event later than the end of the Plan Year next following
such Plan Year. Any such distribution shall be made to each Highly
Compensated Participant by reducing the Elective Contributions of all Highly
Compensated Participants whose Elective Contributions, as amended by this
Section 5.5, are at the highest percentage rate for the Plan Year on a pro rata
basis by one hundredth of one percent (0.01%). The Committee shall continue
to utilize this procedure until one of the tests of Section 5.3 is satisfied.
Matching Contributions attributable to Elective Contributions returned to a
Participant shall be distributed as provided in Section 4.6.
5.6 Rollover Contributions.
(a) A Participant may make a Rollover Contribution to the Plan in
accordance with rules established by the Committee uniformly applied
consisting of an eligible rollover distribution, as defined in Section 11.8(b),
from a plan qualified under Section 401(a) of the Code or an individual
retirement account qualified under Section 408(a) of the Code (no part of which
is attributable to any source other than an eligible rollover distribution
from a qualified plan under Section 401(a) of the Code); provided such eligible
rollover distribution is in cash and contributed to the Plan on or before the
60th day after the day in which such Participant received such eligible
rollover distribution. If a Participant elects to make a Rollover
Contribution, the Committee may require such evidence, assurances, opinions
and certifications, including a statement from the previous plan that such
plan was a qualified plan, that the Committee may deem necessary to establish
to its satisfaction that the amounts to be contributed qualify as an eligible
rollover distribution and will not affect the qualification of the Plan or the
tax-exempt status of the Trust under Sections 401(a) and 501(a) of the Code,
respectively. Except as otherwise permitted by Section 5.7, in no event shall
any assets be transferred to this Plan from any profit sharing, pension or
retirement plan that would cause this Plan to become a "transferee" plan
(within the meaning set forth in Section 401(a)(11)(B) of the Code).
(b) Any Rollover Contribution shall be allocated to the appropriate
Participant's Rollover Contribution Subaccount which shall be established and
separately accounted for. A Participant shall have at all times a
nonforfeitable right in the amount credited to his or her Rollover
Contribution Subaccount.
(c) Each request by a Participant to make a Rollover Contribution
shall be subject to review by the Committee which shall make a case by case
determination that each Rollover Contribution meets the requirements set forth
in Section 5.6(a), and such other requirements or conditions as the Committee
may, from time to time and in its sole discretion, impose; provided, however,
that any determination made by the Committee pursuant to this Section 5.6
shall not have the effect of discriminating in favor of Participants who are
officers, shareholders or who are Highly Compensated Participants.
5.7 Trustee-to-Trustee Transfer of Assets. Notwithstanding anything in
Section 5.6 to the contrary, in the event of an acquisition by the Employer or
the Plan Sponsor of a company which maintains a plan and trust which are
qualified under Sections 401(a) and 501(a) of the Code, respectively, the Board
of Directors may (but shall not be required to) authorize a "trustee-to-
trustee" transfer of assets from such qualified plan into the Plan and Trust
Fund. The Trustee may require such evidence, assurances, opinions and
certifications, including a statement from the acquired company's plan that
such plan and trust are qualified under Sections 401(a) and 501(a) of the
Code, which the Trustee may deem necessary to establish to its satisfaction
that the amounts to be transferred will not affect the qualification of the
Plan or the tax-exempt status of the Trust under Sections 401(a) and 501(a)
of the Code, respectively.
<PAGE>
SECTION 6. ALLOCATION OF CONTRIBUTIONS
6.1 Establishment of Cash Contribution Account. The Committee shall
establish and maintain or cause to be established and maintained with respect
to each Participant a Cash Contribution Account showing his or her interest
under the Plan and in the Trust Fund and all relevant data pertaining thereto.
Each Participant shall be furnished with a written statement of his or her Cash
Contribution Account at least once annually and upon any distribution to him
or her. In maintaining the Cash Contribution Accounts under the Plan, the
Committee can conclusively rely on the valuations of the Trust Fund in
accordance with the Plan. The establishment and maintenance of, or
allocations and credits to, the Cash Contribution Account of any Participant
shall not vest in any Participant any right, title or interest in and to any
Plan assets or benefits, except at the time or times and upon the terms and
conditions and to the extent expressly set forth in the Plan and in accordance
with the terms of the Trust Fund.
6.2 Establishment of Subaccounts. Each Participant's Cash Contribution
Account shall contain each of the following applicable subaccounts therein:
(a) All Elective Contributions on behalf of a Participant under Section
4.1 and Qualified Nonelective Contributions on behalf of a Participant under
Section 4.2(b)(i) shall be credited to the Participant's Elective Contribution
Subaccount.
(b) All Matching Contributions on behalf of a Participant under
Section 4.2(a) shall be allocated and credited to the Participant's Matching
Contribution Subaccount.
(c) All Profit Sharing Contributions on behalf of a Participant under
Section 4.2(b)(ii) shall be allocated and credited to the Participant's Profit
Sharing Subaccount.
(d) All Rollover Contributions on behalf of a Participant under Section
5.6 shall be allocated and credited to the Participant's Rollover Contribution
Subaccount.
<PAGE>
SECTION 7. SPECIAL ESOP PROVISIONS
7.1 Investment of ESOP Accounts. The ESOP Accounts of all
Participants shall be invested exclusively in Shares, except for cash or cash
equivalent investments held (a) for the limited purpose of making Plan
distributions to Participants and Beneficiaries, (b) pending the investment by
the Purchasing Agent of contributions or other cash receipts in Shares, (c)
pending use to repay an Exempt Loan, (d) for purposes of paying, under the
terms described in the Plan or Trust Agreement, fees and expenses incurred
with respect to the Plan or Trust and not paid for by the Participating
Employers or (e) in the form of de minimis cash balances. Neither any
Participating Employer nor the Purchasing Agent, the Committee or the
Trustee shall have any responsibility or duty to time any transaction involving
Shares in order to anticipate market conditions or changes in stock value, nor
shall any such person have any responsibility or duty to sell Shares held in
the ESOP Accounts (or otherwise to provide investment management for Shares
held in the ESOP Accounts) in order to maximize return or minimize loss.
Participating Employer contributions made in cash, and other cash received by
the Trustee, may be used by the Purchasing Agent to acquire Shares from
shareholders of the Employer or directly from the Employer.
7.2 Allocation to ESOP Accounts.
(a) Subject to the provisions of Section 4, the ESOP Account
maintained for each Participant will be credited as of the last day of each
Plan Year with the Participant's allocable share of:
(i) Shares purchased by the Purchasing Agent using cash
contributed by or on behalf of the Participating Employer employing such
Participant (or contributed directly to the Trust Fund) and
(ii) Shares released from the Suspense Subfund pursuant to
Section 7.3 and allocable to the contribution made by or on behalf of such
Participating Employer pursuant to Section 7.4.
(b) Shares attributable to ESOP Contributions shall be allocated
among the Accounts of Participants who are members of the Allocation Group for
the Plan Year in the same proportion that a Participant's Compensation during
the Plan Year bears to the total Compensation during the Plan Year of all
Participants who are members of the Allocation Group for such Plan Year. For
purposes of the preceding sentence, Compensation earned by a Participant prior
to the Participant's entry into the Plan pursuant to Section 3.1(b)(ii) shall
not be taken into account.
(c) Shares contributed directly to the Trust Fund for a Plan Year
shall be allocated under Section 7.2(a)(i) in the same proportion as Shares
purchased by the Trust Fund and allocated under Section 7.2(b).
7.3 Suspense Subfund for ESOP Accounts. Shares acquired by the
Participants' ESOP Accounts through an Exempt Loan shall be added to and
maintained in the Suspense Subfund and shall thereafter be released from the
Suspense Subfund and allocated to Participants' ESOP Accounts as provided in
Sections 7.3 and 7.4. Shares acquired for the Trust Fund with the proceeds of
an Exempt Loan shall be released from the Suspense Subfund as the Exempt Loan
is repaid, in accordance with the provisions of this Section 7.3.
(a) For each Plan Year until the Exempt Loan is fully repaid, the
number of Shares released from the Suspense Subfund shall equal the number of
unreleased Shares immediately before such release for the current Plan Year
multiplied by the "Release Fraction." As used herein, the term "Release
Fraction" shall mean a fraction, the numerator of which is the amount of
principal and interest paid on the Exempt Loan for such current Plan Year and
the denominator of which is the sum of the numerator plus the principal and
interest to be paid on such Exempt Loan for all future years during the term
of such Exempt Loan (determined without reference to any possible extensions
or renewals thereof). For purposes of computing the denominator of the
Release Fraction, if the interest rate on the Exempt Loan is variable, the
interest to be paid in subsequent Plan Years shall be calculated by assuming
that the interest rate in effect as of the end of the applicable Plan Year
will be the interest rate in effect for the remainder of the term of the
Exempt Loan.
Notwithstanding the foregoing, in the event such Exempt Loan shall be
repaid with the proceeds of a subsequent Exempt Loan (the "Substitute Loan"),
such repayment shall not operate to release all such Shares in the Suspense
Subfund, but, rather, such release shall be effected pursuant to the foregoing
provisions of this Section 7.3(a) on the basis of payments of principal and
interest on such Substitute Loan.
(b) If required by any pledge or similar agreement, or if permitted
by such pledge or agreement and required by the Committee pursuant to a one-
time, irrevocable designation (which shall be made, if at all, in connection
with the making of an Exempt Loan) by the Committee, then, in lieu of applying
the provisions of Section 7.3(a) hereof with respect to an Exempt Loan, Shares
shall be released from the Suspense Subfund as the principal amount of such
Exempt Loan is repaid (without regard to interest payments), provided the
following three conditions are satisfied:
(i) The Exempt Loan shall provide for annual payments of
principal and interest at a cumulative rate that is not less rapid at any
time than level annual payments of such amounts for ten years;
(ii) The interest portion of any payment shall be disregarded
only to the extent it would be treated as interest under standard loan
amortization tables; and
(iii) If the Exempt Loan is renewed, extended or refinanced, the
sum of the expired duration of the Exempt Loan and the renewal, extension or
new Exempt Loan period shall not exceed ten years.
(c) If at any time there is more than one Exempt Loan outstanding,
then separate accounts may be established under the Suspense Subfund for each
such Exempt Loan. Each Exempt Loan for which a separate account is maintained
may be treated separately for purposes of the provisions governing the release
of Shares from the Suspense Subfund under this Section 7.3 (including for
purposes of determining whether Section 7.3(a) or Section 7.3(b) governs the
release of Shares from any particular Suspense Subfund) and for purposes
of the provisions governing the application of Participating Employer
contributions to repay an Exempt Loan under Section 4.2.
(d) All Shares released from the Suspense Subfund during any Plan
Year shall be allocated among Participants as prescribed by Section 7.4.
7.4 Disposition of Shares Released from Suspense Subfund.
(a) Shares released from the Suspense Subfund for a Plan Year in
accordance with Section 7.3 shall be held in the Trust Fund on an unallocated
basis until allocated by the Committee as of last day of the Plan Year.
Shares released from the Suspense Subfund on account of a payment for a Plan
Year of principal or interest on an Exempt Loan, to the extent payment is made
with contributions for such Plan Year, shall be allocated under Section
7.2(a)(ii) in the same proportion as Shares purchased with contributions under
Section 7.2(b).
(b) (i) Shares released from the Suspense Subfund on account of the
payment for a Plan Year of principal or interest on an Exempt Loan to the
extent such payment is made with dividends paid on Shares allocated to ESOP
Accounts, shall be allocated in the same proportion as dividends used to pay
principal or interest on such Exempt Loan would have been allocated under
Section 7.9(b) had such dividends not been so used; and
(ii) Subject to Section 4.2, Shares released from the Suspense
Subfund on account of the payment of principal or interest on an Exempt Loan,
to the extent such payment is made with dividends on Shares not allocated to
Accounts, shall be allocated to those ESOP Accounts and in the same proportion
as Shares released pursuant to Section 7.4(b)(i); provided that Shares so
released shall be otherwise allocated if necessary to satisfy the requirements
of the Code (other than Section 404(k)) and any Regulations thereunder.
(c) All Shares in the Trust Fund, other than the Shares held in the
Suspense Subfund as of the last day of any Plan Year, must be allocated to
ESOP Accounts as of the last day of any Plan Year.
7.5 Limitations on Allocations to ESOP Accounts. Notwithstanding the
foregoing provisions of this Section 7:
(a) If more than one-third of all ESOP Contributions for a Plan Year
which are deductible only under Section 404(a)(9) of the Code would be
allocated, in the aggregate, to Participants described in Section 414(q) of
the Code, then the Committee may reduce such allocations pro rata in an
amount sufficient to ensure that such ESOP Contributions will be deductible
with respect to such Plan Year; and
(b) Any contributions which are prevented from being allocated due
to the restriction contained in Section 7.5(a) shall be allocated as of the
last day of the Plan Year pursuant to Sections 7.2 and 7.4 as though those
Participants described in Section 414(q) of the Code did not participate in
the Plan.
7.6 Acquisition of Shares.
(a) Notwithstanding the foregoing provisions of this Section 7, in
the event that Shares are acquired in a transaction to which Section 1042 of
the Code applies, then, in accordance with the Regulations, such Shares shall
not be allocated, directly or indirectly, to prohibited individuals as defined
in Section 409(n)(1) of the Code for the duration of the nonallocation period
(as defined in Section 409(n)(3)(C) of the Code).
(b) If Shares are prevented from being allocated due to the
prohibition contained in Section 7.6(a), the allocation of Shares attributable
to ESOP Contributions (or ESOP Contributions) otherwise provided under Section
7.2 shall be adjusted to reflect such result.
7.7 Effect of Change in Plan Sponsor's Capitalization. Any Shares
received by the Trustee as a result of a stock split, dividend, conversion,
or as a result of a reorganization or other recapitalization of the Plan
Sponsor shall be allocated as of the day on which the Shares are received by
the Trustee in the same manner as the Shares to which they are attributable
are then allocated.
7.8 Trustee and Committee Discretion to Engage in Transactions in
Shares. Neither the Purchasing Agent, the Trustee nor the Committee shall be
required to engage in any transaction, including, without limitation,
directing the purchase or sale of Shares, which it determines in its sole
discretion may subject itself, its Participants, the Plan, any Participating
Employer, or any Participant to liability under federal or other state laws.
7.9 Valuation of ESOP Accounts.
(a) Subject to the requirements of Section 7.9(b), the fair market
value of the assets of the ESOP Accounts shall be determined as of each
Valuation Date, in accordance with generally accepted valuation methods and
practices including, but not limited to, in the case of Shares, the use of one
or more independent appraisers.
(b) The value of a Participant's ESOP Account as of any Valuation
Date shall equal the sum of:
(i) The aggregate value (as determined under Section 7.9(a))
of all Shares and dividends on Shares previously allocated to such
Participant's ESOP Account as of such Valuation Date; and
(ii) Subject to Section 7.9(c), the aggregate value (as
determined under Section 7.10(a)) of dividends, if any, received during the
Plan Year on Shares allocated to such Participant's ESOP Account.
(iii) Such Participant's allocable portion (determined in
accordance with the rules set forth in Section 7.4 for determining
Participant's allocable portion of Shares released from the Suspense Subfund)
of the earnings, if any, on all amounts contributed to the Trust Fund for
purposes other than the repayment of an Exempt Loan.
(c) Except as provided in Section 7.7, dividends payable, if any,
with respect to Shares held by the Participant's ESOP Account will be, in the
discretion of the Committee and in conformity with the terms of the Shares on
which such dividends are paid, (i) used for the purpose of repaying one or
more Exempt Loans, (ii) distributed from the Trust Fund to Participants or
their Beneficiaries not later than 90 days after the close of the Plan Year
in which they are paid to the Trust Fund, (iii) paid directly to such
Participants or their Beneficiaries, (iv) retained in the Trust Fund and
allocated pursuant to Section 7.9(b), or (v) paid or utilized in a
combination of any or all of the foregoing four options.
(d) The Committee shall establish accounting procedures for the
purpose of making the allocations, valuations and adjustments to
Participant's ESOP Accounts in accordance with the provisions of the Plan.
From time to time, the Committee may modify its accounting procedures for the
purpose of achieving equitable and nondiscriminatory allocations among the
ESOP Accounts of Participants in accordance with the provisions of the Plan.
7.10 Role of Purchasing Agent.
(a) All purchases of Shares made by the Trust Fund shall be made
by the Purchasing Agent. The Trustee shall forward to the Purchasing Agent
all amounts contributed to the employee stock ownership plan, and all amounts
to be invested in Shares pursuant to participant investment directions given
pursuant to Sections 8.3, 8.4 and 8.5. Amounts to be invested in Shares shall
be invested in Shares in the amount, in the manner and at the price determined
by the Purchasing Agent in its sole discretion, provided such price shall be
the fair market value of such Shares at the time of purchase. The Purchasing
Agent shall in its sole discretion select the broker-dealer through which the
purchase of such Shares shall be executed. The Purchasing Agent shall also
invest any cash dividends received on any Shares which are allocated to
Participants' Accounts and held as part of the Plan as provided in
Section 5.05(c) of the Trust Agreement.
(b) The Purchasing Agent shall sell Shares only at the direction
of the Trustee, which shall issue such instructions only at the direction of
the Committee; provided that such Committee direction shall not be required
for any sales of Shares required pursuant to the participant investment
directions given pursuant to Sections 8.3, 8.4 or 8.5, or pursuant to the
provisions of Section 13.5 or 13.6.
<PAGE>
SECTION 8. INVESTMENT OF CONTRIBUTIONS, VALUATIONS
AND PARTICIPANTS' CASH CONTRIBUTION ACCOUNTS
8.1 Delivery of Contributions to Trust Fund. All monies, securities or
other property contributed to Participants' Cash Contribution Accounts shall be
delivered to the Trustee under the Trust Fund, to be managed, invested,
reinvested and distributed in accordance with the Plan and the Trust Fund.
8.2 Participants' Right to Select Investments. Each Participant shall
have the right to invest his or her Cash Contribution Account among one or
more investment funds selected by the Company, which may include a fund
established for investment in Shares.
8.3 Participant Investment Election. As of any date permitted by the
Committee, a Participant may, in accordance with the rules of the Committee
uniformly applied, specify the percentage (in minimum multiples as may be
determined from time to time by the Committee) of contributions which are
made to the Participant's Cash Contribution Account that shall be invested in
investment funds selected by the Committee. An investment election may be
made separately with respect to (i) the aggregate of the Participant's Elective
Contribution Subaccount and (ii) the Participant's Profit Sharing Subaccount.
8.4 Change in Investment Election for Future Contributions. Any
investment direction specified by a Participant shall be deemed to be a
continuing direction until changed. A Participant may change an investment
direction as to future contributions made by such Participant or on his or her
behalf to the subaccounts of his or her Cash Contribution Account as of any day
permitted by the Committee in accordance with the rules of the Committee
uniformly applied.
8.5 Change in Investment Election for Prior Contributions. As of any
date permitted by the Committee, a Participant may change the percentages (in
minimum multiples as may be determined from time to time by the Committee)
in which the investment of the portion of his or her Cash Contribution Account
attributable to prior contributions shall be allocated among the funds
maintained by the Trustee. Such changes of investment allocation may be
made separately with respect to (i) the aggregate of the Participant's Elective
Contribution Subaccount, Matching Contribution Subaccount, and Rollover
Contribution Subaccount, and (ii) the Participant's Profit Sharing Subaccount.
8.6 Valuation of Cash Contribution Accounts.
(a) As of each Valuation Date, Participants' Cash Contribution
Accounts shall be valued pursuant to the terms of the Plan. Such valuation
shall be conclusive and binding upon all persons having an interest in the
Trust Fund.
(b) The Committee shall adjust the value of each Elective Contribution
Subaccount, Matching Contribution Subaccount, Profit Sharing Subaccount, or
Rollover Contribution Subaccount, as the case may be, maintained under
Participants' Cash Contribution Accounts as of each Valuation Date to reflect
the effect of income received and accrued, realized and unrealized profits and
losses, and all other transactions of the preceding period. Such adjustments
shall be made with respect to the period since the next preceding Valuation
Date by (i) deducting from each such Subaccount the total of all payments made
from such Subaccount during such period, (ii) adding to or deducting from, as
the case may be, each such Subaccount such proportion of each item of income,
profit or loss as the amount in such Subaccount as of the next preceding
Valuation Date bears to the total of the amounts in all of such Participants'
Elective Contribution Subaccount, Matching Contribution Subaccount, Profit
Sharing Subaccount, or Rollover Contribution Subaccount, as the case may be,
as of the preceding Valuation Date and (iii) adding contributions to each such
Elective Contribution Subaccount, Matching Contribution Subaccount, Profit
Sharing Subaccount, or Rollover Contribution Subaccount, as the case may be,
pursuant to Sections 4 and 5 of the Plan. In making such allocations, the
Committee can conclusively rely on the valuations of the Subaccounts by the
Trustee in accordance with the Plan and the Trust.
<PAGE>
SECTION 9. RETIREMENT DATES
9.1 Normal Retirement Date. The Normal Retirement Date of a Participant
shall be his or her 65th birthday. Upon attainment of his or her Normal
Retirement Date, a Participant shall have a nonforfeitable right to 100% of his
or her Account.
9.2 Deferred Retirement Date. A Participant who remains in Service after
his or her Normal Retirement Date may retire on a Deferred Retirement Date
which shall be the first day of the month coincident with or next following his
or her termination of Service or as specified in a written application to the
Committee.
<PAGE>
SECTION 10. ELIGIBILITY FOR PAYMENT OF ACCOUNTS
AND VESTED INTERESTS
10.1 Participants' Right to Account Upon Termination Due to
Retirement, Death or Disability.
(a) A Participant shall have a nonforfeitable right to his or her
Account upon the occurrence of any of the following events while employed by
the Employer:
(i) attainment of his or her Retirement Date;
(ii) his or her death; or
(iii) his or her Disability.
(b) Upon the termination of Service of any Participant on or after
his or her Retirement Date or by reason of his or her death or Disability
("Terminated Participant"), the Terminated Participant (or, in the event of the
Participant's death, his or her Beneficiary) shall be entitled to an amount
equal to the Terminated Participant's Account, including any subsequent
contribution allocated to the Terminated Participant's Account pursuant to
Sections 6 or 7 with respect to the Plan Year in which the Participant's
Service is terminated. The Participant's Account shall be distributable, in
accordance with the methods and rules of distribution described in Section 11,
as soon as practicable following the Participant's termination of Service.
The value of the Participant's Account shall be determined as of the Valuation
Date coincident with or immediately preceding the date of distribution of the
Participant's Account.
10.2 Participants' Right to Account Upon Other Termination of Service.
Upon the termination of Service of any Participant prior to his or her
Retirement Date for any reason other than death or Disability, the Terminated
Participant shall be entitled to receive an amount equal to the sum of (i) 100%
of the Participant's Elective Contribution Subaccount, Matching Contribution
Subaccount, and Rollover Contribution Subaccount and (ii) the Participant's
Vested Interest in his or her Profit Sharing Subaccount and ESOP Account,
including the Participant's Vested Interest in any subsequent contribution
allocated to the Participant's Account pursuant to Sections 6 or 7 with
respect to the Plan Year in which the Participant's Service terminated. The
Participant's Account shall be distributable, in accordance with the methods
and rules of distribution described in Section 11, as soon as practicable
following the Valuation Date immediately following the Participant's
termination of Service. The value of the Participant's Account shall be
determined as of the Valuation Date coincident with or immediately preceding
the date of distribution of the Participant's Account. If such Terminated
Participant's Vested Interest is less than 100 percent, the non-vested balance
of such Participant's Profit Sharing Subaccount and ESOP Account shall be
forfeited and reallocated pursuant to Section 4.5 as of the last day of the
earlier of (i) the Plan Year in which the Participant's Account is
distributed, or (ii) the Plan Year in which the Participant incurs a Total
Break in Service.
10.3 Vesting Schedule for Determining Vested Interests. For all purposes
of this Plan, a Participant's Vested Interest in his or her Profit Sharing
Subaccount and ESOP Account shall consist of (i) the Participant's percentage
of his or her Profit Sharing Subaccount and (ii) the percentage of the
Participant's ESOP Account, both as determined from the following vesting
schedule on the basis of the number of Years of Service which the Participant
has completed as of the date of the Participant's termination of Service.
VESTING SCHEDULE
Years of Service Percentage
Less than three years 0%
Three years but less than four years 20%
Four years but less than five years 40%
Five years but less than six years 60%
Six years but less than seven years 80%
Seven years or more 100%
10.4 Breaks in Service. If a Participant's Service is terminated prior to
his or her Retirement Date for any reason other than the Participant's death
or Disability prior to completing three Years of Service, and such Participant
incurs a Total Break in Service, such Participant shall not be entitled to any
benefit attributable to amounts allocated to the Participant's Profit Sharing
Subaccount or ESOP Account prior to such Total Break in Service. If a
Participant returns to Service, Years of Service before such return shall be
counted, in addition to Years of Service following such return, in determining
the Participant's Vested Interest in the amount credited to the Participant's
Profit Sharing Subaccount or ESOP Account subsequent to the Participant's
return to Service. If such Participant does not complete one Year of Service
following his or her return, then the Participant shall not be entitled to any
further benefit under the Plan and the non-vested balance of any Profit Sharing
Contribution or ESOP Contributions credited or recredited to such Participant's
Profit Sharing Subaccount or ESOP Account subsequent to the Participant's
return shall be forfeited and reallocated pursuant to Section 4.5 upon the
Participant's termination of Service. All forfeitures shall occur in conformity
with the ordering rules of Section 54.4975-11(d) of the Regulations.
10.5 Participant's Right to Restoration of Account Upon Return to Service.
If a Terminated Participant who had a vested interest in such Participant's
Profit Sharing Subaccount or ESOP Account returns to Service prior to
incurring a Total Break in Service, the non-vested balance of the Terminated
Participant's Account, if any, forfeited pursuant to Section 10.2 shall be
recredited to such Participant's Account, provided that, not later than the
fifth anniversary of the first date on which the Participant is subsequently
employed, such Participant repays the full amount of any distribution made to
the Participant upon his or her prior termination of Service. Any amount so
repaid, together with any non-vested portion of such Participant's Account
recredited pursuant to this Section 10.5, shall be invested in the Trust Fund.
If such Participant fails to make a repayment of any distributed amounts
pursuant to this Section 10.5, the non-vested portion of such Participant's
Account, if any, shall not be recredited.
10.6 Participant's Right to Account Upon Death After Termination of
Service. Subject to the provisions of Section 10, if a Terminated Participant
dies before payment of the full value of his or her Account from the Trust
Fund, an amount equal to the current value of the unpaid portion of the
Participant's Vested Interest in his or her Account, including any subsequent
contribution allocated to the Terminated Participant's Account pursuant to
Sections 6 or 7 with respect to the Plan Year in which the Participant's
Service is terminated, shall be distributable, in accordance with the methods
and rules of distribution described in Section 11, as soon as practicable
following the Participant's death. The value of the Participant's Account
shall be determined as of the Valuation Date coincident with or immediately
preceding the date of distribution of the Participant's Account.
10.7 Amendment of Vesting Schedule. If the vesting schedule contained in
Section 10.3 is amended, each Participant who has completed at least three (3)
Years of Service may elect, during the election period specified in this
Section, to have his or her vested percentage determined without regard to such
amendment. For purposes of this Section, the election period shall begin as of
the date on which the amendment changing the vesting schedule is adopted,
and shall end on the latest of the following dates: (i) the date occurring
sixty (60) days after the Plan amendment is adopted; (ii) the date which is
sixty (60)days after the day on which the Plan amendment becomes effective;
(iii) the date which is sixty (60) days after the day the Participant is
issued written notice of the Plan amendment by the Committee; or (iv) such
later date as may be specified by the Committee. The election provided for
in this Section shall be made in writing and shall be irrevocable when made.
<PAGE>
SECTION 11. METHOD OF PAYMENT OF ACCOUNTS
AND WITHDRAWALS
11.1 Methods of Payment. Any benefit payable under the Plan, except as
otherwise provided in Section 11.2 shall be payable as soon as practicable
following the last day of the calendar month in which falls a Participant's
termination of Service (or other event requiring a distribution under the
Plan), in one lump sum payment from the Trust Fund, provided that the
Participant may elect to direct the Committee to directly transfer all or any
portion of his or her "eligible rollover distribution" (as defined in Section
11.8 below) to another tax-qualified plan pursuant to Section 401(a)(31) of
the Code. A Participant who has no Vested Interest in his or her Account
upon his or her termination of Service will be deemed to have received a full
distribution of his or her Account as of such date. A Participant may also
elect to receive a distribution of his or her Account as soon as practicable
following the first anniversary of the last day of the calendar month in which
occurs such termination of Service (or other event requiring a distribution
under the Plan), or as soon as practicable following the Participant's Normal
Retirement Date.
11.2 Commencement of Payment. Notwithstanding any other provision of the
Plan to the contrary, (i) if a Participant has a Vested Interest in his or her
Account with a value of $3,500 or less it shall be distributed in one lump sum
as soon as is administratively feasible following the last day of the calendar
month in which such Participant's termination of employment occurs, and (ii) if
a Participant has a Vested Interest in his or her Account with a value of more
than $3,500 it shall not commence to be distributed without the consent of the
Participant before the Participant's Normal Retirement Date.
In the absence of receipt of such consent by the Committee, payment of the
benefit to such Participant shall commence as soon as practicable after the
Participant's attainment of his or her Normal Retirement Date, which benefit
shall be in an amount equal to the value of the Participant's distributable
Account as of the Valuation Date coincident with or immediately following the
Participant's attainment of his or her Normal Retirement Date. In any case
where distribution of any benefit amount from the Participant's Cash
Contribution Account is to be deferred, the Committee shall either
(i) establish or cause to be established a special account for the benefit of
the former Participant, to be invested by the Trustee in a fixed investment
account established by the Trustee or (ii) cause all amounts in the
Participant's Cash Contribution Account deferred by the Participant to be
invested at the Participant's election in the same manner as the normal Cash
Contribution Accounts maintained for Participants under to the Plan.
11.3 Special Rules For Distribution of Shares.
(a) Distribution of a Participant's Vested Interest from his or her
Account which is invested in Shares will be made entirely in whole Shares,
with the value of any fractional interest in Shares paid in cash. Any cash or
other property in a Participant's ESOP Account will be used by the Purchasing
Agent to acquire Shares, valued as of the last day of the calendar month in
which occurs (i) the Participant's election to receive a distribution of his
or her Account pursuant to Section 11.1, (ii) the Participant's termination of
Service, in the case of a distribution pursuant to Section 11.2(i), or (iii)
the Participant's Normal Retirement Date (or the Participant's death, if
earlier), in the case of a distribution pursuant to Section 11.2(ii) to a
Participant who failed to consent to a distribution prior to his or her Normal
Retirement Date (the "Share Conversion Date"). Notwithstanding the foregoing,
if applicable corporate charter or bylaw provisions restrict ownership of
substantially all outstanding Shares to Employees or to a plan or trust
described in Section 401(a) of the Code, then any distribution of a
Participant's Vested Interest in the Participant's ESOP Account shall be in
cash. When a distribution consists in whole or in part of Shares, and if such
Shares consists of more than one class of securities, the distribution of
such Shares shall consist of substantially the same proportion
of each such class of Shares as such classes of Shares represent proportions of
the Participant's Account. If the record date for dividends payable with
respect to Shares distributable to a Participant occurs following the Share
Conversion Date, such dividends shall not be considered attributable to such
Shares, but shall be considered as earnings of the Fund and allocated among
Participants' Accounts pursuant to Section 8.6(b).
(b) Notwithstanding anything in Section 11 to the contrary, in the
discretion of the Committee, Section 11.1 may not apply to Shares held in a
Participant's ESOP Account until the close of the Plan Year in which any
Exempt Loan used to acquire such Shares is repaid in full.
(c) If at the time of distribution, Shares distributed from the Trust
Fund that were acquired with the proceeds of an Exempt Loan are not treated
as "readily tradable on an established market" within the meaning of Section
409(h) of the Code and Regulations, such Shares shall be subject to a put
option in the hands of a Qualified Holder by which such Qualified Holder may
sell all or any part of such Shares to the Trust. Should the Trust decline
to purchase all or any part of such Shares, the Employer shall purchase those
Shares that the Trust declines to purchase. The put option shall be subject
to the following conditions:
(i) The term "Qualified Holder" shall mean the Participant or
Beneficiary receiving the distribution of such Shares, any other party to whom
the Shares are transferred by gift or reason of death, or any trustee of an
individual retirement account (as defined under Code Section 408) to which all
or any portion of the distributed Shares is transferred pursuant to a tax-free
"rollover" transaction satisfying the requirements of Sections 402 and 408 of
the Code.
(ii) During the 60-day period following any distribution of such
Shares, a Qualified Holder shall have the right to require the Trust or the
Employer to purchase all or a portion of the distributed Shares held by the
Qualified Holder. The purchase price to be paid for any such Shares shall be
their fair market value determined as of the Valuation Date coinciding with or
immediately preceding the exercise of the put option under this Section
11.3(c)(ii), provided that in the case of a transaction between the Plan and a
"disqualified person" within the meaning of Section 4975(e)(2) of the Code,
such fair market value shall be determined as of the date of the transaction.
(iii) If a Qualified Holder shall fail to exercise such put option,
the put option shall temporarily lapse upon the expiration of the 60-day
period. As soon as practicable following the last day of the Plan Year in
which the 60-day option period expires, the Employer shall notify the non-
electing Qualified Holder (if he or she is then a shareholder of record) of
the valuation of the Shares as of that date. During the 60-day period
immediately following receipt of such valuation notice, the Qualified Holder
shall again have the right to require the Employer to purchase all or any
portion of the distributed Shares. The purchase price to be paid therefor
shall be based on the valuation of the Shares as of the Valuation Date
coinciding with or immediately preceding the exercise of the option under
this Section 11.3(c)(iii), provided that in the case of a transaction between
the Plan and a "disqualified person" within the meaning of Section 4975(e)(2)
of the Code, such fair market value shall be determined as of the date of the
transaction.
(iv) The foregoing put options under Section 11.3(c)(ii) and (iii)
hereof shall be effective solely against the Employer and shall not obligate
the Plan or Trust in any manner.
(v) Except as otherwise required or permitted by the Code, the put
options under this Section 11.3(c) shall satisfy the requirements of Section
54.4975-7(b) of the Treasury Regulations to the extent, if any, that such
requirements apply to such put options.
If a Qualified Holder exercises a put option under this Section
11.3(c), payment for the Shares shall be made in substantially equal annual
payments over a period beginning not later than 30 days after the exercise of
the put option and not exceeding five years (provided that adequate security
and reasonable interest are provided with respect to unpaid amounts).
Except as provided in this Section 11.3(c) or in Section 11.2, no
shares acquired with the proceeds of an Exempt Loan may be subject to a put,
call or other option, or buy-sell or similar arrangement while held by or
distributed from the Plan. The rights and protections set forth in this
Section 11.3(c) shall be non-terminable.
11.4 Payments to Surviving Spouse or Beneficiary. If a Participant or
former Participant dies before the commencement of his or her benefits under
the Plan, such Participant's or former Participant's Vested Interest in his or
her Account is payable in full to his or her Surviving Spouse. If such
Participant has no Surviving Spouse, he or she may designate a Beneficiary
pursuant to Section 14. A Participant may with the written consent of his or
her spouse elect to designate a Beneficiary other than or in addition to his
or her spouse. The written consent of the spouse must acknowledge the effect
of such election and must be witnessed by a representative of the Plan or a
notary public. Any such election may not be changed without spousal consent.
Such an election or revocation must be made in accordance with the procedures
developed by the Committee in accordance with the Code and Regulations.
11.5 Latest Date for Commencement of Benefits.
(a) Payments will commence no later than 60 days following the
latest of the close of the Plan Year in which:
(i) the Participant attains his or her Normal Retirement Date,
(ii) occurs the 10th anniversary of the year in which the
Participant commenced participation in the Plan, or
(iii) the Participant terminates his or her Service with the
Employer.
(b) Notwithstanding the provisions of the foregoing sentence, if the
amount payable cannot be ascertained, or, subject to the provisions of Section
20.6, the Participant cannot be located after reasonable efforts, a payment
retroactive to the date determined under the foregoing sentence may be made
not later than 60 days after the earliest date on which the amount of such
payment can be ascertained under the Plan or the date on which the Participant
is located (whichever is applicable).
(c) Notwithstanding any other provision of the Plan, benefits
payable to a Participant shall commence no later than the later of April 1st of
the calendar year following the calendar year in which such Participant attains
age 70.5.
(d) If a Participant dies before benefits have commenced,
distributions to any Surviving Spouse or Beneficiary shall be made as soon as
administratively feasible, but not later than five years after such
Participant's death. In the event that payment is made to the Participant's
Surviving Spouse, such distribution shall not commence later than the date on
which such Participant would have attained age 70.5 (or, in either case, on any
later date prescribed by Regulations). If the Participant's Surviving Spouse
dies after such Participant's death but before distribution has been made to
such Surviving Spouse, this Section 11.5(d) shall be applied to require
payment of any benefits as if such Surviving Spouse were the Participant.
(e) Pursuant to Regulations, any benefit paid to a child shall be
treated as if paid to a Participant's Surviving Spouse if such amount would
become payable to such Surviving Spouse on the child's attaining majority, or
other designated event permitted by Regulations.
11.6 Redirection of Investment of ESOP Account. Effective March 1,
1990, upon both attaining age 50 and completing five Years of Service, a
Participant shall be permitted to direct the Plan to transfer all or any
portion of the Vested Interest in the Participant's ESOP Account to the
Participant's Cash Contribution Account. Under rules prescribed by the
Committee, such directions shall be permitted during semi-annual periods, to
be determined by the Committee, effective as soon as administratively
feasible, but not later than 30 days from the date on which such direction is
given (except that, in the case of an individual who is subject to Section 16
of the Securities Exchange Act of 1934, as amended, such direction
shall be effective as of the first day of the seventh month next
following the month in which such direction is given), and shall be
made in ten percent (10%) increments of the Participant's Vested
Interest in his or her ESOP Account. In the event that the Participant's
Account does not provide at least three investment options to the Participant
other than investment in Shares, the Committee shall provide diversification
options to any Participant required to be given such diversification options
under Section 401(a)(28)(B) of the Code in a manner consistent with the Code.
Notwithstanding the foregoing, the ability to make transfers may be restricted
by the Committee to the extent necessary to comply with any applicable federal
securities laws (including Rule 144); provided, however, that in no event shall
a Participant be prevented from transferring any amount necessary in order to
meet the diversification requirements set forth in Section 401(a)(28)(B) of the
Code.
11.7 Hardship Withdrawals.
(a) A Participant who is an Employee may elect to withdraw all or
any portion of the Vested Interest in his or her Cash Contribution Account
attributable to Elective Contributions (but excluding any earnings on Elective
Contributions accruing after December 31, 1988), Profit Sharing Contributions
(if, and only if, the withdrawal is occasioned by a life threatening illness
to the Participant) by giving written notice thereof to the Committee
specifying such date, which shall not be less than 30 days following the date
such notice is given to the Committee. Such notice shall designate that the
hardship withdrawal shall be withdrawn from the investment funds in which the
Participant has directed investment of the Participant's Cash Contribution
Account.
(b) The Committee may authorize a hardship withdrawal only for:
(i) medical expenses described in Section 213(d) of the Code
incurred or immediately anticipated by the Participant, the Participant's
spouse, or any dependents of the Participant (as defined in Section 152 of
the Code);
(ii) the purchase (excluding mortgage payments) of a principal
residence of the Participant;
(iii) the payment of tuition and related educational fees for the
next 12 months of post-secondary education for the Participant or the
Participant's spouse, children, or dependents; or
(iv) the need to prevent the eviction of the Participant from the
Participant's principal residence or foreclosure on the mortgage of the
Participant's principal residence.
(c) A hardship withdrawal may be authorized only to the extent
necessary to satisfy the hardship. A distribution will be deemed to be
necessary to satisfy the hardship only if the distribution is not in excess
of the amount of the immediate and heavy financial need of the Participant
and such Participant's tax obligations as a result of such distribution and
the Employee certifies in writing that such a hardship exists (and the
Committee has no knowledge to the contrary); provided that the Committee may
set stricter standards for making such determination on a nondiscriminatory
basis; and provided further that the Participant must obtain the written
consent of his or her spouse to the extent required by law. The Committee's
decision shall be final and binding on the Participant.
(d) In the event that a Participant's Vested Interest is less than
100% at the time of making a withdrawal from his Profit Sharing Subaccount
pursuant to Section 11.7(a), the Participant's Vested Interest in his or her
Profit Sharing Subaccount at any relevant time thereafter shall be equal to an
amount ("X") determined by the following formula: X = P [AB + (R x D)] -
(R x D). For purposes of applying the formula: P is the Participant's Vested
Interest at the relevant time, AB is the balance of the Participant's Profit
Sharing Subaccount at the relevant time; D is the amount distributed to the
Participant pursuant to Section 11.7(a); and R is the ratio of the
Participant's Profit Sharing Subaccount balance at the relevant time to the
Participant's Profit Sharing Subaccount balance immediately after the
distribution pursuant to Section 11.7(a).
11.8 Direct Rollovers to Another Qualified Plan or IRA.
(a) This Section 11.8 applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the contrary
that would otherwise limit a distributee's election under this Section 11.8, a
distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a
direct rollover.
(b) An eligible rollover distribution is any distribution of all
or any portion of the balance to the credit of the distributee, except that
an eligible rollover distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the distributee or
the joint lives (or joint life expectancies) of the distributee and the
distributee's designated Beneficiary, or for a specified period of ten years
or more; any distribution to the extent such distribution is required under
Section 401(a)(9) of the Code; and the portion of any distribution that is not
includable in gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer securities).
(c) An eligible retirement plan is an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code, an annuity plan described in section
403(a) of the Code or a qualified trust described in section 401(a) of the
Code, that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the surviving
spouse, an eligible retirement plan is an individual retirement account or
individual retirement annuity.
(d) A distributee includes a Participant or former Participant. In
addition, the Participant's or former Participant's Surviving Spouse and the
Participant's or former Participant's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with regard to the interest of the
Surviving Spouse, spouse or former spouse.
(e) A direct rollover is a payment by the Plan to the eligible
retirement plan specified by the distributee.
(f) If a distribution is one to which Sections 401(a)(11) and 417 of
the Code do not apply, such distribution may commence less than 30 days after
the notice required under Section 1.411(a)-11(c) of the Regulations is given,
provided that:
(1) the Committee clearly informs the Participant that the
Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution
(and, if applicable, a particular distribution option), and
(2) the Participant, after receiving the notice, affirmatively
elects a distribution.
11.9 Certain Securities Law Restrictions. Any distribution of Shares
pursuant to this Section 11 shall be subject to all applicable laws, rules and
regulations and to such approvals by stock exchanges or governmental agencies
as may be deemed necessary or appropriate by the Board of Directors. Each
distributee may be required to give the Employer a written representation that
such distributee will not be involved in a violation of state or federal
securities laws, including the Securities Act of 1933, as amended; the form
of such written representation will be prescribed by the Board of Directors.
11.10 Participant Loans.
(a) Upon a Participant's written request the Committee may direct the
Trustee to make a loan to such Participant from such Participant's Account.
Loans to Participants pursuant to this Section 11.10 shall be administered by
the Committee and shall be subject to a Participant Loan Policy and such other
procedures as may be adopted from time to time by the Committee. The
Company shall not have the discretion to refuse a loan request, so long as the
terms of the loan comply with the requirements of this Section 11.10 and the
Participant Loan Policy. The terms of the loan shall be determined by the
Committee, subject to the limits set forth in this Section, and shall be
evidenced by the Participant's promissory note. Loans shall be held in a
segregated Account of the Trust.
(b) The aggregate outstanding balance of all loans to a Participant
from this Plan and all other qualified plans maintained by the Employer, when
added to any principal repayments on any participant loans made within the
twelve-month period preceding the date on which the loan is made, may not
exceed the lesser of (i) $50,000 or (ii) 50% of the vested interest in the
Participant's Account as of the day of making the loan.
(c) Principal and interest shall be repaid in level, periodic
installments by payroll deductions not less frequent than quarterly over a
definite period of time not to exceed five (5) years, provided, however, that
in the case of a loan the proceeds of which are used by the Participant to
acquire a principal residence of the Participant, the loan may be repayable
over a reasonable period of time in excess of five (5) years as determined by
the Committee.
(d) All loans shall be secured by a lien on the Participant's interest
in the trust. The amount of the loan may not exceed fifty percent (50%) of the
value of the Participant's vested Account balance at the time the loan is made.
The Committee may determine that any distribution made pursuant to the Plan
shall be reduced by an amount up to the outstanding principal and interest
balance of the loan.
(e) Any loan made pursuant to this Section 11.10 must not
constitute a prohibited transaction as defined in Section 4975 of the Code.
<PAGE>
SECTION 12. MAXIMUM AMOUNT OF ALLOCATION
12.1 Section 415 Limitations. Annual additions to a Participant's
Account with respect to any Plan Year may not exceed the limitations set
forth in Section 415 of the Code, which are incorporated herein by reference.
For these purposes, (i) "annual additions" shall have the meaning set forth
in Section 415(c)(2) of the Code, as modified elsewhere in the Code and the
Regulations, (ii) the limitation year shall mean the Plan Year unless any
other twelve consecutive month period is designated pursuant to a written
resolution adopted by the Employer, (iii) "compensation" shall have the
meaning set forth in Section 1.415-2(d)(11)(ii), and (iv) "annual additions"
shall include annual additions under all other defined contribution plans
maintained by the Employer or any affiliated Employer. If the requirements
of Section 7.5(a) are satisfied, the term "annual additions" shall not include
any amounts credited to the Participant's Account (i) resulting from rollover
contributions, (ii) due to Participating Employer contributions relating to
interest payments on an Exempt Loan deductible under Section 404(a)(9)(B)
of the Code, or (iii) attributable to a forfeiture of Shares acquired with the
proceeds of an Exempt Loan.
If a Participant in the Plan also participates in any defined benefit
plan (as defined in Sections 414(j) and 415(k) of the Code) maintained by
the Employer or any Affiliated Employer, in the event that in any Plan Year
the sum of the Participant's Defined Benefit Fraction (as defined in Section
415(e)(2) of the Code) and the Participant's Defined Contribution Fraction (as
defined in Section 415(e)(3) of the Code) exceed 1.0, the benefit under such
defined benefit plan or plans shall be reduced in accordance with the provisions
of that plan or those plans, so that the sum of such fractions with respect to
the Participant will not exceed 1.0. If this reduction does not ensure that
the limitation set forth in this Section 12.1 is not exceeded, then the Annual
Addition to any defined contribution plan, other than the Plan, shall be
reduced in accordance with the provisions of that plan but only to the extent
necessary to ensure that such limitation is not exceeded.
12.2 Refund or Forfeiture of Amounts in Excess of Section 415 Limits.
(a) In the event that amounts which would otherwise be allocated
to a Participant's Account under the Plan must be reduced by reason of the
limitations of Section 12.1, then such reduction shall be made in the following
order or priority, but only to the extent necessary:
(i) first the Participant's Profit Sharing Contributions shall be
forfeited and reallocated pursuant to this Section 12.2; and then
(ii) the Participant's Matching Contributions shall be forfeited and
reallocated pursuant to this Section 12.2; and then
(iii) the Participant's Elective Contributions shall be refunded to the
Participant; and then
(iv) Shares allocated to the Participant's Account attributable to
ESOP Contributions shall be forfeited and reallocated pursuant to this Section
12.2.
(b) Forfeitures arising under the Plan and allocable to such Participant
in respect of such Plan Year shall be reallocated to the Accounts of other
Participants as of the end of the Plan Year for which such reduction is made in
the manner provided under Section 4.5 above.
(c) If, with respect to any Plan Year, there is an excess contribution on
account of the limitations contained in this Section 12.2, and such excess
cannot be fully allocated in accordance with Section 12.2(b) because of the
limitations prescribed in this Section 12, the amount of such excess which
cannot be so allocated shall be held in suspense and allocated in the
succeeding Plan Year prior to any other contributions by the Employer for
such Plan Year.
<PAGE>
SECTION 13. VOTING RIGHTS
13.1 Voting of Shares in General. Except as otherwise required by the
Act, the Code and the Regulations, all voting rights of Shares held in
Participants' Accounts shall be exercised by the Purchasing Agent only as
directed by the Participants or their Beneficiaries in accordance with the
provisions of this Section 13.
13.2 Voting of Allocated Shares.
(a) If any Participating Employer has a registration-type class of
securities (as defined in Section 409(e)(4) of the Code or any successor
statute thereto), then, with respect to all corporate matters submitted to
shareholders, all Shares (including fractional interests in Shares) allocated
and credited to the Accounts of Participants shall be voted only in accordance
with the directions of such Participants as given to the Purchasing Agent.
Any allocated Shares with respect to which Participants are entitled to vote
pursuant to this Section 13.2 and for which such directions are not received
by the Purchasing Agent shall not be voted by the Purchasing Agent.
(b) If no Participating Employer has a registration-type class of
securities (as defined in Section 409(e)(4) of the Code or any successor
statute thereto), then, only with respect to corporate matters relating to a
corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all assets of a trade or
business, or such other similar transaction that Regulations require, all
Shares allocated and credited to the Accounts of Participants shall be
voted only in accordance with the directions of such Participants
as given to the Purchasing Agent. Any allocated Shares with respect
to which Participants are entitled to vote pursuant to this Section
13.2 and for which such directions are not received by the Purchasing
Agent shall not be voted by the Purchasing Agent. The Purchasing Agent shall
vote all Shares held in the Trust Fund allocated to the Accounts of
Participants from whom voting instructions are not required to be solicited
under Section 13.2 only as the Purchasing Agent directs in the Purchasing
Agent's sole discretion in accordance with the Act, after the Purchasing
Agent determines such action to be in the best interests of the Participants
and their Beneficiaries.
13.3 Mechanics of Voting Allocated Shares. If Participants are entitled
under Section 13.2 to direct the vote with respect to allocated Shares, then, at
at least 30 days before each annual or special shareholders' meeting of the
Employer (or, if such schedule cannot be met, as early as practicable before
such meeting), the Committee shall furnish to each Participant a copy of the
proxy solicitation material sent generally to shareholders, together with a
form requesting confidential instructions concerning the manner in which the
Shares allocated to such Participant's Account (including fractional Shares to
1/1000th of a Share) are to be voted. Upon timely receipt of such instructions,
the Purchasing Agent (after combining votes of fractional Shares to give effect
to the greatest extent possible to Participants' instructions) shall vote the
Shares as instructed. The instructions received by the Purchasing Agent from
each Participant shall be held by the Purchasing Agent in strict confidence
and shall not be divulged or released to any person, including, without
limitation, any officers or Employees of any Participating Employer, or of
any other Employer. The Trustee, the Employer, the Purchasing Agent and the
Committee shall not make recommendations to Participants on whether to vote
or how to vote. If voting instructions for Shares allocated to any
Participants are not timely received for a particular shareholders' meeting,
such Shares shall not be voted.
13.4 Voting of Unallocated Shares. The Purchasing Agent shall vote
unallocated Shares held in the Trust Fund in the same proportions as the
Shares for which Participant voting has been received, provided the Purchasing
Agent determines that such action is consistent with its fiduciary obligations
under the Act.
13.5 Tender or Exchange of Allocated Shares. The Committee shall notify
each Participant of each tender or exchange offer for the Shares and utilize its
best efforts to distribute or cause to be distributed to each Participant in a
timely manner all information distributed to shareholders of the Employer in
connection with any such tender or exchange offer. Each Participant shall have
the right from time to time with respect to the Shares allocated to the
Participant's Account (including fractional Shares to 1/1000th of a Share) to
instruct the Purchasing Agent in writing as to the manner in which to respond
to any tender or exchange offer which shall be pending or which may be made in
the future for all Shares or any portion thereof. A Participant's instructions
shall remain in force until superseded in writing by the Participant. The
Purchasing Agent shall tender or exchange whole Shares only as and to the
extent so instructed. If the Purchasing Agent does not receive instructions from
a Participant regarding any tender or exchange offer for Shares, the Purchasing
Agent shall have no discretion in such matter and shall not tender or exchange
any such Shares in response thereto. Unless and until Shares are tendered or
exchanged, the individual instructions received by the Purchasing Agent from
Participants shall be held by the Purchasing Agent in strict confidence and
shall not be divulged or released to any person, including, without limitation,
any officers or Employees of any Participating Employer, or of any other
Employer; provided, however, that the Purchasing Agent shall advise the
Employer, at any time upon request, of the total number of Shares not subject
to instructions to tender or exchange.
13.6 Tender or Exchange of Unallocated Shares. The Purchasing Agent shall
tender unallocated Shares held in the Trust Fund in proportion to the ratio
that (A) the number of Shares with respect to which Participant instructions in
favor of the tender have been received bears to (B) the number of shares with
respect to which Participant instructions for or against the tender have been
received, provided the Purchasing Agent determines that such action is consis-
tent with its fiduciary obligations under the Act. Neither the Purchasing
Agent, the Committee nor the Trustee shall have the discretion or power to sell,
convey or transfer any unallocated Shares held in the Participant's Accounts in
response to a tender or exchange offer unless a court of competent jurisdiction
determines that the Purchasing Agent is authorized to sell, convey or transfer
any unallocated Shares held in the Accounts in response to any tender or
exchange offer. In exercising any discretion or power, the Purchasing Agent
shall consider, to the extent permitted by applicable law, including the
Regulations, not only the potential increase in value, if any, in the Accounts
of the Participants as a result of a tender or exchange of the unallocated
Shares, but also the impact of any change in the management or control of the
Employer in the long run, including but not limited to whether Participants will
receive larger or smaller employee benefits than at present under the Plan.
13.7 Voting of Deceased Participant's Shares. If this Section 13 applies
to Shares allocated to the Account of a deceased Participant, such Participant's
Beneficiary shall be entitled to direct the manner in which to respond to any
tender or exchange offer as if such Beneficiary were the Participant.
<PAGE>
SECTION 14. DESIGNATION OF BENEFICIARIES
14.1 Designation of Beneficiary. Each Participant shall file with the
Committee a written designation of one or more persons as the Beneficiary who
shall be entitled to receive the amount, if any, payable under the Plan upon his
or her death. A Participant may from time to time revoke or change his or her
Beneficiary designation without the consent of any prior Beneficiary by filing a
new designation with the Committee. The last such designation received by the
Committee shall be controlling; provided, however, that no designation, or
change or revocation thereof, shall be effective unless received by the
Committee prior to the Participant's death, and in no event shall it be
effective as of a date prior to such receipt. A Participant's Beneficiary
designation shall not be effective to the extent that payments to the
Surviving Spouse are required pursuant to Section 11, and in no event shall it
be effective as of a date prior to such receipt.
14.2 Failure to Designate Beneficiary. If no such Beneficiary
designation is in effect at the time of a Participant's death, or if no
designated Beneficiary survives the Participant, the payment of the amount, if
any, payable under the Plan upon his or her death shall be made to the
Participant's Surviving Spouse, if any; or if the Participant has no Surviving
Spouse, then to the Participant's children, if any, in equal shares; or if the
Participant has no children, to the Participant's parents, if any, in equal
shares; or if the Participant has no parents, to the Participant's brothers
and sisters, if any, in equal shares. If the Participant has no brothers or
sisters, payment shall be made to the Participant's estate. If the Committee
is in doubt as to the right of any person to receive such amount, the
Committee may direct the Trustee to retain such amount, without liability for
any interest thereon, until the rights thereto are determined, or the
Committee may direct the Trustee to pay such amount into
any court of appropriate jurisdiction and such payment shall be a complete
discharge of the liability of the Plan and the Trust Fund therefor.
<PAGE>
SECTION 15. ADMINISTRATION OF THE PLAN
15.1 The Committee. The Committee shall have general responsibility for
the administration, interpretation and construction of the Plan. The Committee
shall be responsible for establishing and maintaining Plan records, including
responsibility for compliance with the Actual Deferral Percentage and Actual
Contribution Percentage tests described in Sections 4.6 and 5.3, and the
Committee shall be responsible for complying with the reporting and disclosure
requirements of the Act. The Committee shall report to the Board of Directors,
or to a committee of the Board of Directors designated for that purpose,
periodically as shall be specified by the Board of Directors or such designated
committee, with regard to the matters for which it is responsible under the
Plan.
15.2 The Trustee. Except as otherwise provided in the Trust Agreement or
the Plan, the Trustee may act only as directed by the Committee, the Employer
or any other party, as applicable. The Trustee shall have responsibility under
the Plan for the management and control of the assets of the Plan. The
Committee shall periodically review the performance and methods of the
Trustee. The Employer or the Committee shall have the power to appoint,
remove or change the Trustee and, to the extent that the Trust Fund is invested
in assets other than Shares, shall have the power to appoint or remove one or
more investment advisers and to delegate to such adviser authority and
discretion to manage (including the power to acquire and dispose of) the
assets of the Plan, provided that (i) such adviser with such authority and
discretion shall be either a bank or a registered investment adviser under the
Investment Advisers Act of 1940, and shall acknowledge in writing that it
is a fiduciary with respect to the Plan and (ii) the Committee shall
periodically review the investment performance and methods of each
adviser(s) with such authority and discretion. The Committee shall establish
investment standards and policies and communicate the same to the Trustee.
If annuities are to be purchased under the Plan, the Committee shall determine
what contracts should be made available to terminated Participants or
purchased by the Trust Fund.
15.3 Committee's Responsibility for Entering into Exempt Loans and
Valuation of Shares. The Committee shall have responsibility for directing the
Trustee as to whether and under what terms it shall enter into an Exempt Loan
and for directing the Purchasing Agent whether and under what terms it shall
purchase or otherwise dispose of Shares. In the event that there is no generally
recognized market for Shares, the Committee shall be the named fiduciary with
responsibility for determining the fair market value of the Shares, provided,
that any such determination shall be in accordance with applicable Regulations,
if any, and the Committee shall, in making such determination, retain an
independent appraiser to make such valuation on behalf of the Committee in
accordance with Section 7.9.
15.4 Committee's Power to Engage Outside Experts. The Committee may
arrange for the engagement of such legal counsel, who may be counsel for the
Employer, and make use of such agents and clerical or other personnel as they
each shall require or may deem advisable for purposes of the Plan. The
Committee may rely upon the written opinion of such counsel and the
accountants engaged by the Committee and may delegate to any such agent of
said Committee its authority to perform any act hereunder, including without
limitation, those matters involving the exercise of discretion, provided that
such delegation shall be subject to revocation at any time at the discretion
of said Committee. The Committee shall engage such certified public
accountants, who may be accountants for the Employer, as it shall require or
may deem advisable for purposes of the Plan.
15.5 Composition of Committee. The Committee shall consist of at least
three members, each of whom shall be appointed by, shall remain in office at
the will of, and may be removed, with or without cause, by the Board of
Directors. Any member of said Committee may resign at any time. No
member of said Committee shall be entitled to act on or decide any matter
relating solely to himself or any of his or her rights or benefits under the
Plan. The members of the Committee shall not receive any special compensation
for serving in their capacities as members of such Committee but shall be
reimbursed for any reasonable expenses incurred in connection therewith.
Except as otherwise required by the Act, no bond or other security need be
required of the Committee or any member thereof in any jurisdiction. Any
member of the Committee, or any agent to whom said Committee delegates any
authority, and any other person or group of persons, may serve in more than
one fiduciary capacity (including service both as a Trustee and administrator)
with respect to the Plan.
15.6 Actions of Committee. The Committee shall elect or designate its own
chairman, establish its own procedures and the time and place for its meetings
and provide for the keeping of minutes of all meetings. A majority of the
members of the Committee shall constitute a quorum for the transaction of
business at a meeting of the Committee. Any action of the Committee may be
taken upon the affirmative vote of a majority of the members of the Committee
at a meeting or, at the direction of its Chairman, without a meeting, by mail,
telephone or facsimile, provided that all of the members of the Committee are
informed by mail or telephone of their right to vote on the proposal and of the
outcome of the vote thereon.
15.7 Disbursement of Plan Funds. The Committee shall cause to be kept
full and accurate accounts of receipts and disbursements of the Plan, shall
cause to be deposited all funds of the Plan to the name and credit of the
Plan in such depositories as may be designated by the Committee, shall cause
to be disbursed the monies and funds of the Plan when so authorized by the
Committee and shall generally perform such other duties as may be assigned to
them from time to time by the Committee.
15.8 Application for Benefits. Each Participant or Beneficiary believing
himself eligible for benefits under the Plan shall apply for such benefits by
completing and filing with the Committee an application for benefits on a form
supplied by the Committee. Before the date on which benefit payments
commence, each such application must be supported by such information and
data as the Committee deems relevant and appropriate. Evidence of age,
marital status (and, in the appropriate instances, health, death or disability)
and location of residence shall be require of all applicants for benefits. All
claims for benefits under the Plan shall, within a reasonable period of time,
be decided by one or more persons designated in writing by the chairman of the
Committee.
15.9 Denied Claims for Benefits. In the event that any claim for
benefits is denied in whole or in part, the Participant or Beneficiary whose
claim has been so denied shall be notified of such denial in writing by the
Committee. The notice advising of the denial shall specify the reason or
reasons for denial, make specific reference to pertinent Plan provisions,
describe any additional material or information necessary for the claimant to
perfect the claim (explaining why such material or information is needed) and
shall advise the Participant or Beneficiary, as the case may be, of the
procedure for the appeal of such denial. All appeals shall be made by the
following procedure:
(a) The Participant or Beneficiary whose claim has been denied shall
file with the Committee a notice of desire to appeal the denial. Such notice
shall be filed within sixty (60) days of notification by the Committee of claim
denial, shall be made in writing and shall set forth all of the facts upon
which the appeal is based. Appeals not timely filed shall be barred.
(b) The Committee shall, within thirty (30) days of receipt of the
Participant's or Beneficiary's notice of appeal, establish a hearing date on
which the Participant or Beneficiary may make an oral presentation to the
Committee in support of his or her appeal. The Participant or Beneficiary
shall be given not less than ten (10) days' notice of the date set for the
hearing.
(c) The Committee shall consider the merits of the claimant's written
and oral presentations, the merits of any facts or evidence in support of the
denial of benefits and such other facts and circumstances as the Committee
shall deem relevant. If the claimant elects not to make an oral presentation,
such election shall not be deemed adverse to the claimant's interest, and the
Committee shall proceed as set forth below as though an oral presentation of
the contents of the claimant's written presentation had been made.
(d) The Committee shall render a determination upon the appealed
claim which determination shall be accompanied by a written statement as to
the reasons therefor. The determination so rendered shall be binding on all
parties.
(e) For all purposes under the Plan, such decisions on claims (where
no review is requested) and decisions on review (where review is requested)
shall be final, binding and conclusive on all interested persons as to
participation and benefit eligibility, the Employee's amount of Compensation
and any other matter of fact or interpretation relating to the Plan.
15.10 Indemnification. To the maximum extent permitted by law, no
member of the Committee shall be personally liable by reason of any contract
or other instrument executed by such member of the Committee or on his or her
behalf in the Committee member's capacity as a member of such Committee
nor for any mistake of judgment made in good faith, and the Employer shall
indemnify and hold harmless, directly from its own assets (including the
proceeds of any insurance policy the premiums of which are paid from the
Employer's own assets), each member of the Committee and each other officer,
employee or director of the Employer to whom any duty or power relating
to the administration or interpretation of the Plan or to the management and
control of the assets of the Plan may be delegated or allocated, against any
cost or expense (including counsel fees) or liability (including any sum paid
in settlement of a claim with the approval of the Employer) arising out of any
act or omission to act in connection with the Plan unless arising out of such
person's own fraud or willful misconduct. The Employer shall advance funds
for legal expenses to the extent permitted by the Act.
15.11 Agent for Service of Process. The Committee or such other person as
may from time to time be designated by the Committee shall be the agent for
service of process under the Plan.
<PAGE>
SECTION 16. EXPENSES
16.1 Payment of Plan Expenses. The expenses incurred in the management
and administration of the Plan shall be paid from the Trust Fund, except to the
extent the Employer, in its sole discretion, may choose to pay such expenses
from time to time; provided that any Trustee expenses paid to The Charles
Schwab Trust Company shall be payable solely by the Employer. Such
expenses shall include (i) the fees and expenses of any employee and of the
Trustee for the performance of their duties under the Plan and Trust Fund
(including but not limited to obtaining investment advice, record keeping
services and legal services), (ii) the expenses incurred by the members of the
Committee in the performance of their duties under the Plan (including
reasonable compensation for any legal counsel, certified public accountants,
consultants and agents, and cost of services rendered with respect to the Plan)
and (iii) all other proper charges and disbursements of the Trustee or the
members of the Committee (including settlements of claims or legal actions
approved by counsel to the Plan).
16.2 Expenses Attributable to Investment of Plan Assets and Taxes.
Brokerage fees, transfer taxes and any other expenses incident to the purchase
or sale of securities by the Trustee shall be deemed to be part of the cost of
such securities, or deducted in computing the proceeds therefrom, as the case
may be. Expenses attributable to investments of the Trust Fund shall be paid
out of the Trust Fund, except to the extent the Employer, in its sole
discretion, may choose to pay such expenses from time to time; provided that
expense entirely attributable to any one investment or to any one investment
fund shall be allocated pro rata in accordance with Account balances among
Accounts invested in such investment or investment fund. Taxes, if any, of
any and all kinds whatsoever which are levied or assessed on any assets held
or income received by the Trustee shall be paid out of the Trust Fund.
<PAGE>
SECTION 17. EMPLOYER PARTICIPATION
17.1 Adoption of Plan by Affiliated Employer. Any Affiliated
Employer may adopt the Plan and the Trust Fund by resolution of its board of
directors or equivalent governing body provided that (i) the Board of
Directors has not expressly disallowed participation by such Affiliated
Employer in the Plan; (ii) the Affiliated Employer has not previously
expressly declined to participate in the Plan; or (iii) the Affiliated Employer
is not precluded from participating in the Plan by a legally binding written
document that precludes such participation; and provided further that the
Board of Directors consents to such adoption. Any Affiliated Employer which
so adopts the Plan shall be deemed to appoint Charles Schwab & Co., Inc., the
Committee and the Trustee its exclusive agents to exercise on its behalf all
of the power and authority conferred under the Plan or the Trust Agreement.
This authority shall continue until the Plan is terminated and the relevant
Trust Fund assets have been distributed.
17.2 Termination of Participation by Participating Employer. A
Participating Employer may terminate its participation in the Plan by
giving the Committee prior written notice specifying a termination date
which shall be the last day of a month at least 60 days subsequent to the
date such notice is received by the Committee. The Board of Directors
may terminate any Participating Employer's participation in the Plan,
as of any termination date specified by the Committee, for the failure
of the Participating Employer to make proper contributions or to comply
with any other provision of the Plan.
17.3 Effect of Termination of Participation by Participating
Employer. Upon termination of the Plan as to any Participating
Employer, such Participating Employer shall not make any further
contributions under the Plan and no amount shall thereafter be payable
under the Plan to or with respect to any Participants then employed by
such Participating Employer, except as provided in this Section 17. To
the maximum extent permitted by the Act, any rights of Participants
no longer employed by such Participating Employer and of former
Participants and their Beneficiaries and Surviving Spouses and other
eligible survivors under the Plan shall be unaffected by such termination
and any transfer, distribution or other disposition of the assets of the Plan
as provided in this Section 17 shall constitute a complete discharge of
all liabilities under the Plan with respect to such Participating Employer's
participation in the Plan and any Participant then employed by such
Participating Employer.
The interest of each such Participant who is in Service with such
Participating Employer as of the termination date is the amount, if any,
credited to his or her Account after payment of or provision for expenses
and charges and appropriate adjustment of the Accounts of all such
Participants for expenses and charges as described in Section 16, and all
forfeitures shall be nonforfeitable as of the termination date, and upon
receipt by the Committee of IRS approval of such termination, the full current
value of such amount shall be paid from the Trust Fund in the manner
described in Section 17.4 or transferred to a successor employee benefit plan
which is qualified under Section 401(a) of the Code; provided, however, that in
the event of any transfer of assets to a successor employee benefit plan the
provisions of Section 17.4 will apply. No advances against such payments shall
be made prior to such receipt of approval, but after such receipt the Committee,
in its sole discretion, may direct the Trustee to make one or more advances in
accordance with Section 11.1.
All determinations, approvals and notifications referred to above
shall be in form and substance and from a source satisfactory to the
Committee. To the maximum extent permitted by the Act, the termination
of the Plan as to any Participating Employer shall not in any way affect
any other Participating Employer's participation in the Plan.
17.4 Limitations on Transfer of Plan Assets to Successor Plan. No
transfer of the Plan's assets and liabilities to a successor employee benefit
plan (whether by merger or consolidation with such successor plan or
otherwise) shall be made unless each Participant would, if either the Plan or
such successor plan then terminated, receive a benefit immediately after such
transfer which (after taking account of any distributions or payments to such
Participants as part of the same transaction) is equal to or greater than the
benefit such Participant would have been entitled to receive immediately before
such transfer if the Plan had then been terminated. The Committee may also
request appropriate indemnification from the employer or employers
maintaining such successor plan before making such a transfer.
17.5 Shares Allocated to Suspense Fund Excluded from Transfer of
Plan Assets to Successor Plan. Notwithstanding any provision of this Section
17 to the contrary, any Shares allocated to a Suspense Subfund shall not be
transferred to a successor employee benefit plan except as is required or
permitted by the Committee in accordance with the terms of an Exempt Loan
and the Regulations.
<PAGE>
SECTION 18. AMENDMENT OR TERMINATION OF THE PLAN
18.1 Amendment, Suspension or Termination of Plan.
(a) Subject to the provisions of Section 18.1(b) and (c) hereof,
the board of directors of the Plan Sponsor reserves the right at any time to
suspend or terminate the Plan, any contributions thereunder, or any other
agreement or arrangement forming a part of the Plan, in whole or in part and
for any reason, and to adopt any amendment or modification thereto, all
without the consent of any Participating Employer, Participant, Beneficiary,
Surviving Spouse or other eligible survivor. Subject to the provisions of
Section 18.1(b) and (c) hereof, the Board of Directors reserves the right at any
time to amend or modify the Plan. Each Participating Employer by its adoption
of the Plan shall be deemed to have delegated this authority to the Board of
Directors.
(b) The Board of Directors shall not make any amendment or
modification which would (i) retroactively impair any rights to any benefit
under the Plan which any Participant, Beneficiary, Surviving Spouse or
other eligible survivor would otherwise have had at the date of such
amendment by reason of the contributions theretofore made or (ii) make it
possible for any part of the funds of the Plan (other than such part as is
required to pay taxes, if any, and administration expenses as provided in
Section 16) to be used for or diverted to any purposes other than for the
exclusive benefit of Participants and their Beneficiaries and Surviving
Spouses and other eligible survivors under the Plan prior to the satisfaction
of all liabilities with respect thereto.
(c) The Board of Directors shall not amend Sections 4.2(b)(ii)
and 4.2(c) of the Plan more than once every six months, other to comport
with changes in the Code, the Act or the rules thereunder.
18.2 Power to Retroactively Amend, Suspend or Terminate Plan
Provisions. Subject to the provisions of Section 18.1, any amendment,
modification, suspension or termination of any provision of the Plan may
be made retroactively if necessary or appropriate to qualify or maintain the
Plan as a plan meeting the requirements of Sections 401(a) of the Code or
any other applicable provision of law (including the Act) as now in effect
or hereafter amended or adopted and the Regulations issued thereunder.
18.3 Notice of Amendment, Suspension or Termination. Notice of
any amendment, modification, suspension or termination of the Plan shall
be given by the Board of Directors or the board of directors of the Plan
Sponsor, as the case may be, to the Trustee and all Participating Employers.
18.4 Effect of Termination of Plan. Upon termination of the Plan, no
Participating Employer shall make any further contributions under the Plan
and no amount shall thereafter be payable under the Plan to or with respect
to any Participant except as provided in this Section 18, and to the maximum
extent permitted by the Act, transfers or distributions of the assets of the
Plan as provided in this Section 18 shall constitute a complete discharge of
all liabilities under the Plan. The provisions of the Plan which are
necessary for the operation of the Plan and the distribution or transfer of
the assets of the Plan shall remain in force.
Upon receipt by the Committee of IRS approval of such termination,
the full current value of such adjusted amount, and the full value of each
account described in Sections 6.2 and 7.1 above, shall be paid from the
Trust Fund to each Participant and former Participant (or, in the event
of the death of a Participant or former Participant, to the Surviving
Spouse or Beneficiary thereof) in any manner of distribution specified
in Section 11 above, including payments which are deferred until the
Participant's termination of Service, as the Committee shall determine.
Without limiting the foregoing, any such distribution may be made in cash
or in property, or both, as the Committee in its sole discretion may direct.
All determinations, approvals and notifications referred to above
shall be in form and substance and from a source satisfactory to the Committee.
18.5 Partial Termination of Plan. In the event that any governmental
authority, including without limitation the IRS, determines that a partial
termination (within the meaning of the Act) of the Plan has occurred or if
there is a complete discontinuance of Employer contributions then (i) the
interest of each Participant affected thereby in his or her Account shall
become nonforfeitable as of the date of such partial termination or
complete discontinuance of contributions and (ii) the provisions of
Sections 18.2, 18.3 and 18.4 above, which in the opinion of the Committee
are necessary for the execution of the Plan and the allocation and distribution
of the assets of the Plan, shall apply.
18.6 Trust for Exclusive Benefit of Participant. In no event shall any
part of the Trust Fund (other than such part as is required to pay taxes, if
any, and administration expenses as provided in Section 16 above) be used for
or diverted to any purposes other than for the exclusive benefit of
Participants and their Beneficiaries and Surviving Spouses under the Plan.
<PAGE>
SECTION 19. TOP-HEAVY PLAN REQUIREMENTS
19.1 Top-Heavy Plan - In General. For any Plan Year for which this
Plan is a Top-Heavy Plan, the provisions of this Section 19 shall apply
notwithstanding any other provisions of the Plan.
19.2 Effect of Top-Heavy Status. Each Participant who (i) is a Non-Key
Employee and (ii) is employed on the last day of the Plan Year, shall be
entitled to have contributions allocated to his or her Account of not less than
three percent (3%) of the Participant's Compensation (the "Minimum Contribution
Percentage") regardless of (i) whether such Non-Key Employee has completed
a Year of Service, and (ii) the amount of such Non-Key Employee's
Compensation; provided, however, that the minimum contribution percentage
for any Plan Year shall not exceed the percentage at which contributions are
made under the Plan for the Plan Year for the Key Employee for whom such
percentage is the highest for such Plan Year. For this purpose, such percentage
shall be determined by dividing the contributions made for such Key Employee
by so much of his or her Compensation (which solely for this purpose includes
Elective Contributions made by the Employer for the Key Employee) for the
Plan Year as does not exceed $150,000 (adjusted automatically for increases in
accordance with the Regulations).
Contributions taken into account under this Section 19.2 shall include
contributions under this Plan and under all other defined contribution plans
(as defined in Section 414(i) of the Code) required to be included in an
Aggregation Group; provided, however, that such contributions shall not
include (i) contributions to any defined contribution plan in the required
aggregation group if such contributions enable such a defined contribution
plan to meet the requirements of Sections 401(a)(4) or 410 of the Code or (ii)
contributions under the Social Security Act or any other federal or state law.
19.3 Maintenance of Defined Benefit Plan in Addition to Plan. In the
event that the Plan is a Top-Heavy Plan for any Plan Year and the Employer
also maintains a defined benefit plan (within the meaning of Section 414 of the
Code) which provides benefits on behalf of Participants, then one of the two
following provisions shall apply:
(1) If the Plan is a Top-Heavy Plan for any Plan Year but would not
be a "Top-Heavy Plan" for the Plan Year if "90 percent" were substituted for
"60 percent" in Section 19.4(a), then Section 19.2 shall be applied for such
Plan Year by substituting "four percent" for "three percent."
(2) If a Top-Heavy Plan would continue to be a "Top-Heavy Plan"
for the Plan Year if "90 percent" were substituted for "60 percent", then the
denominator of the defined contribution plan fraction shall be calculated for
such Plan Year by substituting "1.0" for "1.25", except with respect to any
Participant who is not entitled to an allocation of Employer contributions and
does not receive any accruals under any defined benefit plan (within the
meaning of Section 414(j) of the Code) maintained by the Employer.
In the event that another defined contribution plan or a defined benefit
plan maintained by the Employer provides contributions or benefits on behalf of
Participants, the Committee shall take such other plan into account as a part
of this Plan to the extent required by the Code and in accordance with the
Regulations.
In addition, in the event that the Plan is a Top-Heavy Plan
(irrespective of whether (1) or (2) applies), all contributions shall be
vested according to the vesting schedule in Section 10.3 hereof.
19.4 Definitions.
(a) "Top-Heavy Plan" means this Plan for any Plan Year if, as of the
Determination Date, (i) the present value of the Accounts of all Participants
who are Key Employees (excluding former Key Employees) exceeds 60 percent
of the present value of all Participants' Accounts (excluding former Key
Employees) or (ii) the Plan is required to be in an Aggregation Group which for
such Plan Year is a Top-Heavy Group. In determining whether the Plan
constitutes a Top-Heavy Plan, the Committee shall make the following
adjustments:
(i) When more than one plan is aggregated, the Committee
shall determine separately for each plan as of any Determination Date, the
present value of accrued benefits of all Participants and the value of Accounts
of all Participants.
(ii) Any such determination shall include the present value of
distributions made to former Participants under the applicable plan (including a
terminated plan) during the five-year period ending on the Determination Date,
unless reflected in the value of the accrued benefits or the Accounts of such
former Participants as of the Determination Date.
(iii) Any such determination shall include any Rollover
Contribution from any other plan as follows:
(A) If the Rollover Contribution is initiated by the
Employee and made to or from a plan maintained by a corporation which is not
an Affiliated Employer, the plan providing the distribution shall include such
distribution in the value of such accrued benefit or Account.
(B) If the Rollover Contribution is not initiated by the
Employee or made from a plan maintained by an Affiliated Employer, the plan
accepting the distribution shall include such distribution in the value of such
accrued benefit or Account.
(b) "Determination Date" means for any Plan Year the last day of
the next preceding Plan Year.
(c) "Aggregation Group" means all plans maintained by the
Employer or any Affiliated Employer which are required to be aggregated or
permitted to be aggregated. For purposes of this Section 19.4(c),
(i) The group of plans that are required to be aggregated
(the "required aggregation group") includes each plan of the Employer or any
Affiliated Employer in which a Key Employee is a Participant, and each other
plan of the Employer or any Affiliated Employer which enables a plan in which
a Key Employee is a Participant to meet the requirements of Sections 401(a)(4)
or 410 of the Code; and
(ii) The group of plans that are permitted to be aggregated
(the "permissive aggregation group") includes the required aggregation group
plus one or more plans of the Employer or any Affiliated Employer that is not
part of the required aggregation group and that the Committee certifies as
constituting a plan within the permissive aggregation group. Such plan or
plans may be added to the permissive aggregation group only if the permissive
aggregation group would continue to meet the requirements of Sections
401(a)(4) and 410 of the Code.
(d) "Top Heavy Group" means the Aggregation Group, if as of any
Determination Date, the sum of (i) the present value of the accrued benefits of
all Participants who are Key Employees under all defined benefit plans (within
the meaning of Section 414(j) of the Code) included in the Aggregation Group
plus (ii) the aggregate value of the Accounts of all Participants who are Key
Employees under all defined contribution plans (within the meaning of Section
414(i) of the Code) included in the Aggregation Group exceeds 60 percent of
the sum of (i) the present value of the accrued benefits for all Participants
(excluding former Key Employees), under all such defined benefit plans plus
(ii) the aggregate value of the Accounts of all Participants (excluding former
Key Employees) under all such defined contribution plans. If the Aggregation
Group that is a Top-Heavy Group is a required aggregation group, each plan in
the Aggregation Group will be a Top-Heavy Plan. If the Aggregation Group
that is a Top-Heavy Group is a permissive aggregation group, only those plans
that are part of the required aggregation group will be treated as a Top-Heavy
Plan. If the Aggregation Group is not a Top-Heavy Group, no plan within such
Aggregation Group will be a Top-Heavy Plan.
For purposes of Section 19.4(a), the present value of accrued benefits
under any defined benefit plan and the value of Accounts under any defined
contribution plan shall be determined as of the Valuation Date that is
coincident with the Determination Date in accordance with the Regulations.
(e) "Key Employee" means any Employee or former Employee who,
at any time during the Plan Year preceding the Determination Date or during
any of the four preceding Plan Years, is or was one of the following:
(i) An officer of the Employer or any Affiliated Employer
having annual compensation (within the meaning of Section 414(q)(7)) greater
than 50 percent of the amount in effect under Section 415(b)(1)(A) of the Code
for any Plan Year (as adjusted for increases in the cost of living in accordance
with the Regulations). For purposes of the preceding sentence there shall be
treated as officers for any such Plan Year no more than the lesser of:
(A) 50 Employees, or
(B) the greater of three Employees or 10 percent of the
Employees of the Employer or any Affiliated Employer;
(ii) One of the ten Employees owning (or considered as
owning within the meaning of Section 318 of the Code) more than a five
percent (5%) interest and one of the largest interests in the Employer or any
Affiliated Employer. An Employee will not be considered such an owner for
any Plan Year if the Employee's compensation (within the meaning of Section
414(q)(7)) is less than $30,000 (as adjusted for increases in the cost of living
in accordance with the Regulations); for purposes of determining ownership
pursuant to Section 19.4(e)(ii) the aggregation rules of Section 4.14(b),
(c) and (m) of the Code apply.
(iii) Any person who owns (or considered as owning within the
meaning of Section 318 of the Code) more than a five percent interest in the
Employer;
(iv) Any person having compensation (within the meaning of
Section 414(q)(7)) of more than $150,000, and owning (or considered as
owning within the meaning of Section 318 of the Code) more than a one
percent interest in the Employer. For purposes of this Section 19.4(e), a
Beneficiary of a Key Employee shall be treated as a Key Employee and the
interests inherited by such Beneficiary shall be treated the same as if owned
by the Key Employee.
(f) "Non-Key Employee" means any "Non-Key Employee" as
defined in Section 416(i)(2) of the Code and the Regulations promulgated
thereunder.
<PAGE>
SECTION 20. GENERAL LIMITATIONS AND PROVISIONS
20.1 Exclusive Benefit of Participants and Beneficiaries. In no event
shall any part of the funds of the Plan be used for or diverted to any purposes
other than for the exclusive benefit of Participants and their Beneficiaries
under the Plan except as permitted under Section 403(c) of the Act. Upon the
transfer by a Participating Employer of any money to the Trustee, all interest
of the Participating Employer therein shall cease and terminate.
20.2 No Rights to Continued Employment. Nothing contained in the
Plan shall give any employee the right to be retained in the employment of the
Employer or any Affiliated Employer or affect the right of the Employer or any
Affiliated Employer to dismiss any employee. The adoption and maintenance
of the Plan shall not constitute a contract between the Employer and any
employee or be consideration for, or an inducement to or condition of, the
employment of any employee.
20.3 Trust Sole Source of Benefits. The Trust Fund shall be the sole
source of benefits under the Plan and, except as otherwise required by the Act,
the Employer and the Committee assume no liability or responsibility for
payment for such benefits, and each Participant, Surviving Spouse, Beneficiary
or other person who shall claim the right to any payment under the Plan shall
be entitled to look only to the Trust Fund for such payment and shall not have
any right, claim or demand therefor against the Employer, the Committee, or
any Participant thereof, or any employee or director of the Employer.
20.4 Risk of Decrease in Assets. Each Participant, Beneficiary and
Surviving Spouse shall assume all risk in connection with any decrease in the
value of the assets of the Trust Fund and the Participants' Accounts or special
accounts and neither the Employer nor the Committee shall be liable or
responsible therefor.
20.5 Incapacity of Participant or Beneficiary. If the Committee shall
find that any person to whom any amount is payable under the Plan is unable to
care for his or her affairs because of illness or accident, or is a minor, or
has died, then any payment due such person or his or her estate shall be made
to his or her duly appointed legal representative. Any such payment shall be
a complete discharge of the liability of the Plan and the Trust Fund therefor.
20.6 Antialienation; Qualified Domestic Relations Orders.
(a) Except insofar as may otherwise be required by law or pursuant
to the terms of a Qualified Domestic Relations Order, as set forth in this
Section 20.5, no amount payable at any time under the Plan and the Trust Fund
shall be subject in any manner to alienation by anticipation, sale, transfer,
assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind
nor in any manner be subject to the debts or liabilities of any person, and
any attempt to so alienate or subject any such amount, whether presently or
thereafter payable, shall be void. If any person shall attempt to, or shall,
alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber
any amount payable under the Plan and Trust Fund, or any part thereof, or if by
reason of his or her bankruptcy or other event happening at any such time such
amount would be made subject to his or her debts or liabilities or would
otherwise not be enjoyed by such person, then the Committee, if it so elects,
may direct that such amount be withheld and that the same or any part thereof
be paid or applied to or for the benefit of such person.
(b) Upon receipt of notification of any judgment, decree or order
(including approval of a property settlement agreement) which relates to the
provision of child support, alimony payments, or marital property rights of a
spouse, former spouse, child, or other dependent of a Participant and which is
made pursuant to a state domestic relations law (including a community
property law) (herein referred to as a "domestic relations order"), the
Committee shall (i) notify the Participant and any prospective Alternate Payee
named in the order of the receipt and date of receipt of such domestic relations
order and of the Plan's procedures for determining the status of the domestic
relations order as a Qualified Domestic Relations Order, and (ii) within a
reasonable period after receipt of such order, determine whether it constitutes
a Qualified Domestic Relations Order. The Plan's procedures for the
determination of whether a domestic relations order constitutes a Qualified
Domestic Relations Order shall be set forth by the Committee in writing, shall
provide for the notification of each person specified in that order as entitled
to payment of benefits under the Plan (at the address included in the domestic
relations order) of such procedures promptly upon receipt by the Committee of
such domestic relations order, and shall permit the prospective Alternate Payee
to designate a representative for receipt of copies of notices that are sent to
the prospective Alternate Payee with respect to a domestic relations order.
(c) During any period in which the issue of whether a domestic
relations order is a Qualified Domestic Relations Order is being determined (by
the Committee, by a court of competent jurisdiction, or otherwise), including
the period beginning on the date of the Committee's receipt of the order, the
Committee shall segregate in a separate account in the Plan or in an escrow
account held by a Trustee the amounts, if any, which would have been payable
to the Alternate Payee during such period if the order had been determined to
constitute a Qualified Domestic Relations Order, provided that if no payments
would otherwise be made under the Plan to the Alternate Payee or to the
Participant or a Beneficiary of the Participant while the status of the order as
a Qualified Domestic Relations Order is being determined, no segregation into a
separate or escrow account shall be required. If a domestic relations order is
determined to be a Qualified Domestic Relations Order within eighteen (18)
months of the date of its receipt by the Committee (or from the beginning of
any other period during which the issue of its being a Qualified Domestic
Relations Order is being determined by the Committee) the Committee shall
cause to be paid to the persons entitled thereto the amounts, if any, held in
the separate or escrow account referred to above in one lump sum. If a domestic
relations order is determined not be a Qualified Domestic Relations Order, or
if the status of the domestic relations order as a Qualified Domestic Relations
Order is not finally resolved within such eighteen month period, the Committee
shall cause the separate account or escrow account balance to be returned, with
interest thereon, to the Participant's Account or to be paid to the person or
persons to whom such amount would have been paid if there had been no such
domestic relations order, whichever shall apply. Any subsequent determination
that such domestic relations order is a Qualified Domestic Relations Order
shall be prospective in effect only.
(d) (i) Benefits payable to an Alternate Payee shall be payable in
one lump sum and in no event shall such benefits continue beyond the lifetime
of the Alternate Payee. Such payment may be made at the time specified in the
Qualified Domestic Relations Order irrespective of whether the Participant has
attained the "earliest retirement age" (within the meaning of Section
414(p)(4)(B) of the Code). In particular, no Alternate Payee shall have the
right with respect to any benefit payable by reason of a Qualified Domestic
Relations Order to (A) designate a beneficiary with respect to amounts
becoming payable under the Plan, (B) elect a method of benefit distribution
providing for benefits continuing beyond the Alternate Payee's lifetime, (C)
provide survivorship benefits to a spouse or dependent of such Alternate Payee
or to any other person, spouse, dependent or other person, or (D) transfer
rights under the Qualified Domestic Relations Order by will or by state law of
intestacy.
(ii) None of the payments, benefits or rights of any Alternate Payee
shall be subject to any claim of any creditor, and, in particular, to the
fullest extent permitted by law, all such payments, benefits and rights shall
be free from attachment, garnishment, trustee's process, or any other legal or
equitable process available to any creditor of such Alternate Payee. No
Alternate Payee shall have the right to alienate, anticipate, commute, pledge,
encumber or assign any of the benefits or payments which he or she may expect
to receive, contingently or otherwise, under the Plan.
(iii) Alternate Payees shall not have any right to (A) borrow
money under any Participant loan provisions under the Plan, (B) exercise
any Participant investment direction rights or privileges under the Plan,
(C) exercise any other election, privilege, option or direction rights of the
Participant under the Plan except as specifically provided in the Qualified
Domestic Relations Order, or (D) receive communications with respect to the
Plan except as specifically provided by law, regulation or the Qualified
Domestic Relations Order.
(iv) Each Alternate Payee shall advise the Committee in writing
of each change of his or her name, address or marital status, and of each
change in the provisions of the Qualified Domestic Relations Order or any
circumstance set forth therein which may be material to the Alternate Payee's
entitlement to benefits thereunder or the amount thereof. Until such written
notice has been provided to the Committee, the Committee shall be (A) fully
protected in not complying with, and in conducting the affairs of the Plan in a
manner inconsistent with, the information set forth in the notice, and (B)
required to act with respect to such notice prospectively only, and then only to
the extent provided for in the Qualified Domestic Relations Order. The
Committee shall not be required to modify or reverse any payment, transaction
or application of funds occurring before the receipt of any notice that would
have affected such payment, transaction or application of funds, nor shall the
Committee or any other party be liable for any such payment, transaction or
application of funds.
(v) Except as specifically provided for in the Qualified Domestic
Relations Order, an Alternate Payee shall have no right to interfere with the
exercise by the Participant or by any Beneficiary of their respective rights,
privileges and obligations under the Plan.
(e) For purposes of this Plan, a Qualified Domestic Relations Order
means any judgment, decree, or order (including approval of a property
settlement agreement) which has been determined by the Committee in
accordance with procedures established under the Plan, to constitute a qualified
domestic relations order within the meaning of Section 414(p)(1) of the Code
and Alternate Payee means any person entitled to current or future payment of
benefits under the Plan pursuant to a Qualified Domestic Relations Order.
20.7 Inability to Locate Participant or Beneficiary. If the Committee
cannot ascertain the whereabouts of any person to whom a payment is due
under the Plan, and if, after five years from the date such payment is due, a
notice of such payment due is mailed to the last known address of such person,
as shown on the records of the Committee or the Employer, and within three
months after such mailing such person has not made written claim therefor, the
Committee, if it so elects, may direct that such payment and all remaining
payments otherwise due to such person be canceled on the records of the Plan
and the amount thereof applied to reduce the contributions of the Employer,
and upon such cancellation, the Plan and the Trust Fund shall, to the maximum
extent permitted by the Act, have no further liability therefor except that, in
the event such person later notifies the Committee of his or her whereabouts
and requests the payment or payments due to such person under the Plan, the
amount so applied shall be paid to him or her as provided in Section 11. All
elections, designations, requests, notices, instructions, and other
communications from the Employer, a Participant, Beneficiary, Surviving
Spouse or other person to the Committee required or permitted under the Plan
shall be in such form as is prescribed from time to time by the Committee, shall
be mailed or delivered to such location as shall be specified by the Committee,
and shall be deemed to have been given and delivered only upon actual receipt
thereof by the Committee at such location.
20.8 Failure to Receive IRS Approval. Notwithstanding any other
provision herein, if this Plan shall not be approved by the IRS under the
provisions of the Code and the Regulations for any reason (including failure to
comply with any condition for such approval imposed by the IRS) contributions
made after the restatement of this Plan and prior to such denial shall be
returned, without any liability to any person, within one year after the date of
denial of such approval.
20.9 Contributions Conditioned on Deductibility. Notwithstanding any
other provision herein, all contributions to the Trust Fund are expressly
conditioned upon their deductibility under Section 404 of the Code and the
Regulations, and in the event of the final disallowance of the deduction for
any contribution, in whole or in part, then such contribution (to the extent the
deduction is disallowed) shall upon direction of the Committee, which shall be
given in conformity with the provisions of the Act, be returned, without
liability to any person, within one year after such final disallowance.
20.10 Mistake of Fact. Notwithstanding any other provisions herein, if
any contribution is made by a mistake of fact, such contribution shall upon the
direction of the Committee, which shall be given in conformity with the
provisions of the Act, be returned, without liability to any person, within one
year after the payment of such contribution.
20.11 Communications with Committee. All elections, designations,
requests, notices, instructions, and other communications from the Employer, a
Participant, Beneficiary, Surviving Spouse or other person to the Committee
required or permitted under the Plan shall be in such form as is prescribed
from time to time by such Committee, shall be mailed by first-class mail or
delivered to such location as shall be specified by such Committee, and shall
be deemed to have been given and delivered only upon actual receipt thereof
by such Committee at such location.
20.12 Communications with Participants and Beneficiaries. All notices,
statements, reports and other communications from the Employer or the
Committee to any Employee, Participant, Surviving Spouse, Beneficiary or
other person required or permitted under the Plan shall be deemed to have been
duly given when delivered to, or when mailed by first-class mail, postage
prepaid and addressed to, such Employee, Participant, Surviving Spouse,
Beneficiary or other person at his or her address last appearing on the records
of the Committee.
20.13 Prior Service Credit. Upon such terms and conditions as the
Committee may approve, and subject to any required IRS approval, benefits
may be provided under the Plan to a Participant with respect to any period of
the Participant's prior employment by any organization, and such benefits (and
any Service credited with respect to such period of employment under Section
2.25) may be provided for, in whole or in part, by funds transferred, directly
or indirectly (including a rollover from an individual retirement account), to
the Trust Fund from an employee benefit plan of such organization which
qualified under Section 401(a) of the Code.
20.14 Gender and Number. Except where otherwise required by the
context, whenever used in the Plan the masculine gender includes the feminine
and the singular shall include the plural.
20.15 Headings. The captions preceding the Sections of the Plan have
been inserted solely as a matter of convenience and in no way define or limit
the scope or intent of any provisions of the Plan.
20.16 Governing Law. The Plan and all rights thereunder shall be
governed by and construed in accordance with the Act and, to the extent not
inconsistent therewith, the laws of the State of California.
20.17 Severability of Provisions. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provisions had not been included.
20.18 Heirs, Assigns and Personal Representatives. The Plan shall be
binding upon the heirs, executors, administrators, successors and assigns of the
parties, including each Participant and Beneficiary, present and future and all
persons for whose benefit there exists any QDRO with respect to any
Participant (except that no successor to the Plan Sponsor shall be considered a
Plan Sponsor unless that successor adopts the Plan).
20.19 Reliance on Data and Consents. The Plan Sponsor, the Employer,
each participating Employer, the Board of Directors, the Committee, the
Trustee, all fiduciaries with respect to the Plan, and all other persons or
entities associated with the operation of the Plan, the management of its
assets, and the provision of benefits thereunder, may reasonably rely on the
truth, accuracy and completeness of all data provided by any Participant,
Surviving Spouse, Beneficiary, and Alternate Payee, including, without
limitation, data with respect to age, health and marital status. Furthermore,
the Plan Sponsor, the Employer, each participating Employer, the Board of
Directors, the Committee, the Trustee, and all fiduciaries with respect to the
Plan may reasonably rely on all consents, elections and designations filed with
the Plan or those associated with the operation of the Plan and its correspond-
ing Trust by any Participant, Surviving Spouse, Beneficiary, Alternate Payee,
or any representative of any such person, without duty to inquire into the
genuineness of any such consent, election or designation. None of the
aforementioned persons or entities associated with the operation of the Plan,
its assets and the benefits provided under the Plan shall have any duty to
inquire into any such data, and all may rely on such data being current to the
date of reference, it being the duty of the Participants, Surviving Spouses,
Beneficiaries and Alternate Payees to advise the appropriate parties of any
change in such data.
<PAGE>
SECTION 21. APPLICATION TO PUERTO RICO EMPLOYEES
21.1 Modifications Applicable to Puerto Rico. The provisions of this
Section shall govern the application of the provisions of the Plan to
Participants who are employed by the Company in and are residents of the
Commonwealth of Puerto Rico ("Puerto Rico Participants"):
(a) Notwithstanding Section 2.25, the definition of "Highly
Compensated Participant" shall be a Puerto Rico Participant employed by the
Company who receives Compensation that exceeds the Compensation paid to
two thirds of the Puerto Rico Participants, as provided in Section 165(e) of
the Puerto Rico Income Tax Act;
(b) The following shall apply in lieu of the second sentence of
Section 5.1(a) hereof: The Salary Reduction Agreement shall provide for
Elective Contributions equal to any whole percentage between one percent
(1%) and ten percent (10%) of a Participant's Compensation in any payroll
period, not to exceed $7,000 in any calendar year;
(c) The Actual Deferral Percentage Test set forth in Section 5.3
shall be applied separately with respect to Puerto Rico Participants. For
purposes of applying the Actual Deferral Percentage Test to Puerto Rico
Participants, the definition of Highly Compensated Employee contained in
subparagraph (a) hereof shall be used; and
(d) For purposes of applying subparagraphs (b) and (c) of this
Section 21.1, the definition of Compensation contained in Section 2.11 shall
be applied without regard to clause (xii) thereof.
In all other respects, the terms of this Plan shall apply to Puerto
Rico Participants.
>
EXHIBIT 10.153
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "First Amendment") is
entered into as of June 29, 1995 between The Charles Schwab Corporation,
a Delaware corporation (the "Borrower"), and the Bank named on the signature
page hereto (the "Bank"). Except as otherwise provided herein, each
capitalized word or term used in this First Amendment has the same meaning
ascribed to it in that certain Credit Agreement between Borrower and Bank
dated as of June 30, 1994 (the "Credit Agreement").
WHEREAS, pursuant to the Credit Agreement, Bank has made available to
Borrower and there remains in effect a Revolving Credit Facility as described
in Section 2.1 of the Credit Agreement in the Credit amount specified on the
original Schedule I to the Credit Agreement; and
WHEREAS, for a 364-day period effective as of June 29, 1995, Borrower and
Bank desire to renew and extend the Revolving Credit Facility, in the Credit
amount specified in Schedule I hereto.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. Subject to satisfaction of the conditions precedent specified in
Section 2 below, effective as of June 29, 1995, Bank shall make available to
Borrower, for a 364-day period, a Revolving Credit Facility in the initial
Credit amount specified on Schedule I hereto (the "1995 Revolving Credit
Facility"). The terms and conditions of each Advance under the 1995
Revolving Credit Facility shall be governed in all respects by the provisions
of the Credit Agreement, as amended as follows for all Advances under the 1995
Revolving Credit Facility:
a. Except for the reference to "June 30, 1994" in Sections 2.8 and
2.9 of the Credit Agreement, all references to the date "June 30, 1994" in
the Credit Agreement shall be and hereby are amended to be references to the
date "June 29, 1995";
b. All references to the date "June 28, 1995" in the Credit
Agreement shall be and hereby are amended to be references to the date
"June 26, 1996";
c. All references to the date "June 29, 1995" in the Credit
Agreement shall be and hereby are amended to be references to the date
"June 27, 1996";
d. All references to the date "September 27, 1995" in the Credit
Agreement shall be and hereby are amended to be references to the date
"September 25, 1996";
e. The definition of "CD Reference Banks" on page 4 of the Credit
Agreement shall be and hereby is amended to substitute Bank of America
Illinois (as successor-in-interest to Continental Bank) for and in place of
Continental Bank; and
f. From on and after June 29, 1995, (i) the definition of "Borrowing
Agreement" on page 2 of the Credit Agreement shall be and hereby is amended
to include any credit agreement described in such definition that has been
amended substantially contemporaneously herewith by an amendatory document
having terms substantially similar to those contained in this First
Amendment, (ii) any reference to "Schedule I" in the Credit Agreement shall
be deemed a reference to Schedule I to this First Amendment, which shall
replace and supersede the original Schedule I to the Credit Agreement; and
(iii) any reference to the "Credit" in the Credit Agreement shall be and
hereby is amended to be a reference to the Bank's commitment as specified in
Schedule I to this First Amendment.
2. As conditions precedent to the effectiveness of this First Amendment,
a. Borrower shall deliver to Bank the following documents on or
before June 29, 1995 concurrently with the execution of this Agreement:
(i) A written opinion, dated as of the date hereof, of counsel
for the Borrower, in the form of Exhibit A hereto;
(ii) A copy of a resolution or resolutions adopted by the Board
of Directors of Borrower, certified by the Secretary or an Assistant
Secretary of Borrower as being in full force and effect on the date hereof,
authorizing the execution, delivery and performance of this First Amendment
and the consummation of the transactions contemplated hereby;
(iii) A certificate signed by the Chief Financial Officer of
Borrower that, as of the date hereof, there has been no material adverse
change in Borrower's consolidated financial condition since December 31,
1994 not reflected on Borrower's Quarterly Reports on form 10-Q filed with
the Securities and Exchange Commission for the period ending March 31, 1995;
(iv) A certificate signed by an officer of Borrower that, as of
the date hereof, the representations and warranties set forth in Article 5 of
the Credit Agreement are true and correct in all material respects, and that
no Event of Default or any event that, upon lapse of time or notice or both,
would become an Event of Default (as defined in Article 8 of the Credit
Agreement) has occurred and is continuing;
(v) A certificate signed by the Secretary or an Assistant
Secretary of the Borrower that, as of the date hereof, there have been no
changes, modifications or amendments to the Bylaws or the Articles of
Incorporation of Borrower since the delivery to Bank of the Certificate of
Pamela E. Herlich dated June 30, 1994; and
(vi) To the extent that the initial Credit amount of the 1995
Revolving Credit Facility as set forth on Schedule I hereto (the "1995 RCF
Credit") is different than the Credit amount of the Revolving Credit Facility
as set forth on the original Schedule I to the Credit Agreement, a new
Revolving Note (in substantially the form of Exhibit A-1 attached to the
Credit Agreement) dated as of the date hereof and in the principal amount of
the 1995 RCF credit, duly executed by Borrower (the "new Revolving Note"),
which new Revolving Note shall replace and supersede the existing Revolving
Note delivered pursuant to Section 2.1 of the Credit Agreement (the "existing
Revolving Note");
b. Borrower shall pay to Bank, on or before June 29, 1995, a renewal
facility fee in an amount equal to 50/1000 of 1% of the Bank's commitment as
specified on Schedule I to this First Amendment;
c. Borrower shall pay to Confirming Bank, on or before June 29,
1995, a renewal fee of $10,000; and
d. Borrower and Citicorp USA, Inc. shall have entered into a First
Amendment to Confirming Bank Agreement in substantially the form of Exhibit B
hereto.
3. If Bank receives a new Revolving Note from Borrower pursuant to
Section 2a(vi) above, reasonably promptly following such receipt Bank shall
deliver to Borrower the existing Revolving Note, for immediate cancellation
by Borrower.
4. Except as expressly amended by this First Amendment, all terms and
provisions of the Credit Agreement remain unchanged and continue in full
force and effect, and are hereby confirmed and ratified.
5. The Credit Agreement, as amended by this First Amendment, together
with the Schedules and Exhibits thereto, embodies the entire agreement with
respect to the subject matter hereof between Borrower and Bank.
6. This First Amendment may be executed in counterparts, each of which
shall be deemed an original but all of which, taken together, shall
constitute but one and the same document.
7. This First Amendment and any 1995 Revolving Note delivered pursuant
hereto shall be deemed to be contracts under, and for all purposes shall be
governed by, and construed and interpreted in accordance with, the laws of
the State of California.
8. The provisions of this First Amendment shall be binding upon and inure
to the benefit of Bank and Borrower and their respective successors and
assigns, and the term "Borrower" as used herein shall include Borrower and
all such successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above
written.
BANK OF AMERICA ILLINOIS THE CHARLES SCHWAB CORPORATION
(as successor-in-interest
to Continental Bank)
By: /s/ Steven W. Kastenholz By: /s/ Christopher V. Dodds
Christopher V. Dodds
Title: Vice President Senior Vice President and
Treasurer
<PAGE>
8. The provisions of this First Amendment shall be binding upon and inure
to the benefit of Bank and Borrower and their respective successors and
assigns, and the term "Borrower" as used herein shall include Borrower and
all such successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above written.
BANK OF NEW YORK THE CHARLES SCHWAB CORPORATION
By: /s/ Lee B. Stephens, III By: /s/ Christopher V. Dodds
Christopher V. Dodds
Title: Vice President Senior Vice President and
Treasurer
<PAGE>
8. The provisions of this First Amendment shall be binding upon and inure
to the benefit of Bank and Borrower and their respective successors and
assigns, and the term "Borrower" as used herein shall include Borrower and
all such successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above
written.
BANK OF TOKYO TRUST COMPANY THE CHARLES SCHWAB CORPORATION
By: /s/ Ryuichi Hirabayashi By: /s/ Christopher V. Dodds
Christopher V. Dodds
Title: Vice President Senior Vice President and
Treasurer
<PAGE>
8. The provisions of this First Amendment shall be binding upon and inure
to the benefit of Bank and Borrower and their respective successors and
assigns, and the term "Borrower" as used herein shall include Borrower and
all such successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above
written.
BANK NATIONALE DE PARIS THE CHARLES SCHWAB CORPORATION
By: /s/ Judith A. Dowling By: /s/ Christopher V. Dodds
Christopher V. Dodds
Title: Vice President Senior Vice President and
Treasurer
<PAGE>
8. The provisions of this First Amendment shall be binding upon and inure
to the benefit of Bank and Borrower and their respective successors and
assigns, and the term "Borrower" as used herein shall include Borrower and
all such successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above
written.
CHEMICAL BANK THE CHARLES SCHWAB CORPORATION
By: /s/ Richard Cassa By: /s/ Christopher V. Dodds
Christopher V. Dodds
Title: Vice President Senior Vice President and
Treasurer
<PAGE>
8. The provisions of this First Amendment shall be binding upon and inure
to the benefit of Bank and Borrower and their respective successors and
assigns, and the term "Borrower" as used herein shall include Borrower and
all such successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above
written.
CITICORP USA, INC. THE CHARLES SCHWAB CORPORATION
By: /s/ B. Danforth Ely By: /s/ Christopher V. Dodds
Christopher V. Dodds
Title: Vice President Senior Vice President and
Treasurer
<PAGE>
8. The provisions of this First Amendment shall be binding upon and inure
to the benefit of Bank and Borrower and their respective successors and
assigns, and the term "Borrower" as used herein shall include Borrower and
all such successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above
written.
CREDIT LYONNAIS THE CHARLES SCHWAB CORPORATION
SAN FRANCISCO BRANCH By: /s/ Christopher V. Dodds
Christopher V. Dodds
By: /s/ William J. Fischer Senior Vice President and
Title: Vice President Treasurer
<PAGE>
8. The provisions of this First Amendment shall be binding upon and inure
to the benefit of Bank and Borrower and their respective successors and
assigns, and the term "Borrower" as used herein shall include Borrower and
all such successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above
written.
FIRST NATIONAL BANK THE CHARLES SCHWAB CORPORATION
OF CHICAGO By: /s/ Christopher V. Dodds
Christopher V. Dodds
By: /s/ James P. Murray Senior Vice President and
Title: Vice President Treasurer
<PAGE>
8. The provisions of this First Amendment shall be binding upon and inure
to the benefit of Bank and Borrower and their respective successors and
assigns, and the term "Borrower" as used herein shall include Borrower and
all such successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above
written.
NORWEST BANK OF THE CHARLES SCHWAB CORPORATION
MINNESOTA, N.A. By: /s/ Christopher V. Dodds
Christopher V. Dodds
By: /s/ Janet M. Grauer Senior Vice President and
Title: Assistant Vice President Treasurer
<PAGE>
8. The provisions of this First Amendment shall be binding upon and inure
to the benefit of Bank and Borrower and their respective successors and
assigns, and the term "Borrower" as used herein shall include Borrower and
all such successors and assigns.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above
written.
PNC BANK, NATIONAL THE CHARLES SCHWAB CORPORATION
ASSOCIATION By: /s/ Christopher V. Dodds
Christopher V. Dodds
By: /s/ Brenda Peck Senior Vice President and
Title: Vice President Treasurer
<PAGE>
SCHEDULE I
to First Amendment to Credit Agreement
dated as of June 29, 1995 between
The Charles Schwab Corporation and the Banks listed below
(Dollars in Millions)
Commitment/Credit
Amount
Bank of America Illinois (as successor- $35
in-interest to Continental Bank)
Attn: Steven W. Kastenholz, Vice President
231 South LaSalle Street
Chicago, IL 60697
Bank of New York 30
Attn: Lee Stephens III, Vice President
One Wall Street
New York, NY 10286
Bank of Tokyo Trust Company 20
Attn: Dennis Graham, Vice President
100 Broadway, Main Floor
New York, NY 10005
Banque Nationale de Paris 20
Attn: Judith Dowling, Vice President
180 Montgomery Street, Suite 400
San Francisco, CA 94104
Chemical Bank 20
Attn: Richard Cassa, Vice President
Four New York Plaza, 2nd Floor
New York, NY 10004-2477
Citicorp USA, Inc. 35
Attn: Michael Mauerstein
399 Park Avenue, 12th Floor, Zone 11
New York, NY 10043
<PAGE>
Commitment/Credit
Amount
Credit Lyonnais San Francisco Branch $20
Attn: Edward Leong, Vice President
3 Embarcadero Center, Suite 1640
San Francisco, CA 94111
First National Bank of Chicago 20
Attn: James Murray, Vice President
Mail Suite 0157
Chicago, IL 60670-0157
Norwest Bank of Minnesota, N.A. 20
Attn: Janet Grauer, Assistant Vice President
Norwest Center
Sixth & Marquette
Minneapolis, MN 55479-0085
PNC Bank 30
Attn: Brenda Peck, Vice President
Land Title Building
Broad & Chestnut Streets
Philadelphia, PA 19101
<PAGE>
EXHIBIT B
FIRST AMENDMENT TO CONFIRMING BANK AGREEMENT
This FIRST AMENDMENT TO CONFIRMING BANK AGREEMENT (the "First
Amendment") is entered into as of June 29, 1995 by and between The
Charles Schwab Corporation, a Delaware corporation (the "Borrower"), and
Citicorp USA, Inc. (the "Confirming Bank"). Except as otherwise provided
herein, each capitalized word or term used in this First Amendment has the
same meaning ascribed to it in the Confirming Bank Agreement dated as of
June 30, 1994 by and between the Borrower and the Confirming Bank (the
"existing Agreement").
WHEREAS, the Borrower is entering into a substantially similar First
Amendment to Credit Agreement dated as of June 29, 1995 (the "First
Amendments") with the Banks listed on Schedule I hereto, which amends in
certain respects those Credit Agreements referenced in the first "WHEREAS"
paragraph of the existing Agreement (the "existing Credit Agreements"),
including the extension of the Revolving Credit Facility under each existing
Credit Agreement through June 27, 1996; and
WHEREAS, the Borrower and the Confirming Bank desire to amend the
existing Agreement so that it continues to apply in respect of the existing
Credit Agreements as amended by the First Amendments.
NOW, THEREFORE, the parties hereto agree as follows:
1. Effective as of June 29, 1995, the first "WHEREAS" paragraph on
page 1 of the existing Agreement shall be deemed amended and restated in its
entirety as follows:
WHEREAS, under the terms of separate substantially similar Credit
Agreements dated as of June 30, 1994, as amended by separate substantially
similar First Amendment to Credit Agreements dated as of June 29, 1995 (the
"First Amendments"), between the Borrower and each of the Banks (the "Banks")
set forth on Schedule I hereto, the Banks have severally agreed to lend
certain amounts to the Borrower on a revolving credit loan basis through
June 27, 1996;
2. Effective as of June 29, 1995, any reference to Schedule I in the
existing Agreement shall be deemed to be a reference to Schedule I attached
hereto and made a part hereof, which shall replace and supersede the original
Schedule I.
3. Except as expressly provided above, all terms and conditions of the
existing Agreement remain unchanged and continue in full force and effect.
4. This First Amendment shall be deemed to be a contract under, and for
all purposes shall be governed by and construed and interpreted in accordance
with, the laws of the State of California.
5. This First Amendment may be executed in as many counterparts as may
be deemed necessary or convenient, and by the parties hereto on separate
counterparts, each of which, when so executed, shall be deemed an original,
but all such counterparts shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment by their duly authorized officers as of the date first above
written.
CITICORP USA, INC. THE CHARLES SCHWAB CORPORATION
By /s/ B. Danforth Ely By /s/ Christopher V. Dodds
Its Vice President Christopher V. Dodds
Senior Vice President
and Treasurer
<PAGE>
SCHEDULE I
to First Amendment to Confirming Bank
Agreement dated as of June 29, 1995 between
The Charles Schwab Corporation and Citicorp USA, Inc.
(Dollars in Millions)
Commitment/Credit
Amount
Bank of America Illinois (as successor- $35
in-interest to Continental Bank)
Attn: Steven W. Kastenholz, Vice President
231 South LaSalle Street
Chicago, IL 60697
Bank of New York 30
Attn: Lee Stephens III, Vice President
One Wall Street
New York, NY 10286
Bank of Tokyo Trust Company 20
Attn: Dennis Graham, Vice President
100 Broadway, Main Floor
New York, NY 10005
Banque Nationale de Paris 20
Attn: Judith Dowling, Vice President
180 Montgomery Street, Suite 400
San Francisco, CA 94104
Chemical Bank 20
Attn: Richard Cassa, Vice President
Four New York Plaza, 2nd Floor
New York, NY 10004-2477
Citicorp USA, Inc. 35
Attn: Michael Mauerstein
399 Park Avenue, 12th Floor, Zone 11
New York, NY 10043
<PAGE>
Commitment/Credit
Amount
Credit Lyonnais San Francisco Branch $20
Attn: Edward Leong, Vice President
3 Embarcadero Center, Suite 1640
San Francisco, CA 94111
First National Bank of Chicago 20
Attn: James Murray, Vice President
Mail Suite 0157
Chicago, IL 60670-0157
Norwest Bank of Minnesota, N.A. 20
Attn: Janet Grauer, Assistant Vice President
Norwest Center
Sixth & Marquette
Minneapolis, MN 55479-0085
PNC Bank 30
Attn: Brenda Peck, Vice President
Land Title Building
Broad & Chestnut Streets
Philadelphia, PA 19101
EXHIBIT 10.154
AMENDMENT TO REIMBURSEMENT AGREEMENT
This Amendment to Reimbursement Agreement dated as of
July 31, 1995 is entered into with reference to that certain
Reimbursement Agreement dated as of December 19, 1994 (the
"Reimbursement Agreement") between THE CHARLES SCHWAB
CORPORATION, a Delaware corporation (the "Company"), and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, a
national banking association (the "Bank"), as letter of
credit issuing bank (hereafter, together with any successor
thereto in such capacity called the "Issuing Bank").
Capitalized terms used in this Amendment but not defined
herein are used with the meanings set forth for those
terms in the Reimbursement Agreement.
RECITALS
WHEREAS, pursuant to the Reimbursement Agreement, the
Issuing Bank agreed to issue irrevocable letters of credit
in an amount not to exceed $100,000,000 in the aggregate for
the account of the Company and for the benefit of certain
investment funds (each a "Beneficiary"), the assets of which
are managed by a Company affiliate; and
WHEREAS, the Reimbursement Agreement has a Termination
Date of August 1, 1995; and
WHEREAS, the Company desires that the Termination Date
be extended for one year and further desires to amend the
Reimbursement Agreement in certain respects, including reducing
the aggregate amount of the letters of credit available
thereunder to $22,675,000 as of the date hereof, and further
reducing said amount as of a later date; and
WHEREAS, the Issuing Bank is willing to amend the
Reimbursement Agreement as set forth herein on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing
and for other valuable consideration, the parties hereto
agree as follows:
1. Section 1.1. The following terms set forth in
Section 1.1 of the Reimbursement Agreement are amended to
read in full as follows:
"Letters of Credit Commitment" means the Issuing
Bank's aggregate commitment in an amount equal to
$22,675,000 under this Agreement to make credit available
to the Company by means of the issuance of Letters of
Credit. This amount may be reduced upon written notice
by the Company.
"Termination Date" means August 1, 1996.
2. Section 7.1. Section 7.1 is hereby deleted in its
entirety.
<PAGE>
3. Section 9.2. Section 9.2 is hereby deleted in its
entirety.
4. Section 9.3. Section 9.3 is hereby deleted in its
entirety.
5. Conditions Precedent to this Amendment. This Amendment
shall become effective upon satisfaction of each of the
following conditions (the "Effective Date"):
(a) Default. No Event of Default or
Unmatured Event of Default shall have occurred and be
continuing.
(b) Warranties. The warranties contained
in Section 6 of the Reimbursement Agreement shall be true
and correct.
(c) Certification. The Company shall have
delivered to the Issuing Bank a certificate of the Company's
President, Chief Financial Officer or Treasurer as to the
matters set forth in Section 5.1(a) and (b), above.
(d) Extension Request. The Company will
deliver an Application for Amendment to Standby Letter of
Credit requesting the extension of the Stated Expiry Date
of Letter of Credit No. LASB-222630 from August 1, 1995 to
August 1, 1996.
(e) Certificate for Permanent Reduction
of Stated Amount. The Issuing Bank shall have received a
Certificate for Permanent Reduction of Stated Amount in
the form of Exhibit C to Letter of Credit No. LASB-222630,
reducing the Stated Amount of such Letter of Credit to $
22,675,000.
6. Miscellaneous.
(a) Except as amended herein, the
Reimbursement Agreement shall remain unchanged and in full
force and effect. Each reference in the Reimbursement
Agreement to "this Agreement," "herein," "hereof," and
words of similar import, shall be deemed a reference to
the Reimbursement Agreement as amended hereby.
(b) This Amendment shall be governed by
and construed in accordance with the laws of the State
of California.
(c) The Company shall reimburse the Issuing
Bank for its out-of-pocket expenses, including legal fees
and disbursements of counsel to the Issuing Bank, incurred
in connection with the negotiation, execution and delivery
of this Amendment.
(d) This Amendment may be executed in any
number of counterparts, all of which taken together shall
constitute one and the same amendatory instrument and any
of the parties hereto may execute this Amendment by signing
any such counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be executed and delivered by
their duly authorized officers, all as of the day and
year first above written.
THE CHARLES SCHWAB CORPORATION
By: /s/ A. John Gambs
Title: Executive Vice President and
Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: Steven W. Kastenholz
Vice Pesident
<PAGE>
[The Charles Schwab Corporation]
[LOGO]
August 4, 1995
Mr. Steve Kastenholz
Bank of America
Securities & Commodities Division
231 South LaSalle Street
Chicago,IL 60697
RE: Reimbursement Agreement
Dear Steve:
Reference is made to the Reimbursement Agreement dated
as of December 19,1994 between The Charles Schwab
Corporation, a Delaware corporation (the "Company"),
and Bank of America National Trust and Savings Association,
a national banking association (the "Bank"), as letter of
credit issuing bank (hereafter, together with any successor
thereto in such capacity called the "Issuing Bank"), as
amended by that certain Amendment to Reimbursement
Agreement dated as of July 31, 1995 (as so amended, the
"Reimbursement Agreement"). Capitalized terms used but
not defined herein are used with the meanings set forth
for those terms in the Reimbursement Agreement.
Pursuant to Section 1.1 of the Reimbursement Agreement,
the Company is entitled to reduce the amount of the Letter
of Credit Commitment upon written notice to the Issuing Bank.
Accordingly, the Company hereby gives notice that it desires
to reduce said amount to $10,375,000, effective as of
August 7, 1995.
I have enclosed an extra copy of this letter. Please
acknowledge the reduction in the Letter of Credit
Commitment by signing in the designated space below,
and return the signed copy to Neil Pack's attention.
Please contact Neil if you have any questions
regarding the foregoing. Thank you for your cooperation.
Sincerely,
/s/ A. John Gambs
A. John Gambs
Executive Vice President &
Chief Financial Officer
AGREED AND ACKNOWLEDGED:
Bank of America NT&SA
By: /s/ Steven W. Kastenholz
Its: Vice President
EXHIBIT 11.1
THE CHARLES SCHWAB CORPORATION
Computation of Earnings per Common Equivalent Share
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 44,419 $ 32,159 $ 82,795 $ 70,349
=================================================================================================
Shares*
Weighted average number of common
shares outstanding 171,951 169,793 170,903 170,359
Common stock equivalent shares
related to option plans 6,176 5,265 6,241 5,371
- -------------------------------------------------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding 178,127 175,058 177,144 175,730
=================================================================================================
Earnings per Common Equivalent Share* $ .25 $ .18 $ .47 $ .40
=================================================================================================
* Reflects the March 1995 three-for-two common stock split and the two-for-one common
stock split declared July 18, 1995, payable September 1, 1995.
</TABLE>
EXHIBIT 12.1
THE CHARLES SCHWAB CORPORATION
Computation of Ratio of Earnings to Fixed Charges
(Dollar amounts in thousands, unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings before taxes on income $ 73,287 $ 53,219 $136,668 $116,763
- ------------------------------------------------------------------------------------------------------
Fixed charges
Interest expense - customer 78,810 38,387 150,716 69,336
Interest expense - other 8,856 4,713 16,153 8,994
Interest portion of rental expense 5,735 4,194 10,408 8,225
- ------------------------------------------------------------------------------------------------------
Total fixed charges (a) 93,401 47,294 177,277 86,555
- ------------------------------------------------------------------------------------------------------
Earnings before taxes on income and fixed charges (b) $166,688 $100,513 $313,945 $203,318
======================================================================================================
Ratio of earnings to fixed charges (b) divided by (a)* 1.8 2.1 1.8 2.3
======================================================================================================
Ratio of earnings to fixed charges as adjusted** 6.0 7.0 6.1 7.8
======================================================================================================
* The ratio of earnings to fixed charges is calculated in a manner consistent with SEC requirements.
For such purposes, "earnings" consist of earnings before taxes on income and fixed charges. "Fixed
charges" consist of interest expense incurred on payables to customers, term debt and one-third of
rental expense, which is estimated to be representative of the interest factor.
** Because interest expense incurred in connection with payables to customers is completely offset by
interest revenue on related investments and margin loans, the Company considers such interest to be
an operating expense. Accordingly, the ratio of earnings to fixed charges as adjusted reflects the
elimination of such interest expense as a fixed charge.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Statement of Income and Condensed Consolidated Balance
Sheet of the Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1995, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 551324
<RECEIVABLES> 3124727
<SECURITIES-RESALE> 4986404
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 0
<PP&E> 152064
<TOTAL-ASSETS> 9066343
<SHORT-TERM> 135230
<PAYABLES> 7942537
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 196312
<COMMON> 892
0
0
<OTHER-SE> 573277
<TOTAL-LIABILITY-AND-EQUITY> 9066343
<TRADING-REVENUE> 96035
<INTEREST-DIVIDENDS> 262556
<COMMISSIONS> 330192
<INVESTMENT-BANKING-REVENUES> 0
<FEE-REVENUE> 97840
<INTEREST-EXPENSE> 166869
<COMPENSATION> 262345
<INCOME-PRETAX> 136668
<INCOME-PRE-EXTRAORDINARY> 82795
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82795
<EPS-PRIMARY> .47
<EPS-DILUTED> .47
</TABLE>
