SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended May 2, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from __________ to __________
Commission File Number 1-7562
THE GAP, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-1697231
(State of Incorporation) (I.R.S. Employer
Identification No.)
One Harrison
San Francisco, California 94105
(Address of principal executive offices)
Registrant's telephone number, including area code: (415) 952-4400
_______________________
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.05 par value New York Stock Exchange, Inc.
(Title of class) Pacific Stock Exchange, Inc.
(Name of each exchange where registered)
Securities registered pursuant to Section 12(g) of the Act: None
_______________________
Indicate by check mark whether 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.
Common Stock, $0.05 par value, 392,842,829 shares as of May 30, 1998
<TABLE>
<CAPTION>
PART 1 GAP INC.
ITEM 1 CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except par value) May 2, January 31, May 3,
1998 1998 1997
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and equivalents $ 836,314 $ 913,169 $ 244,643
Short-term investments - - 112,268
Merchandise inventory 823,305 733,174 628,693
Prepaid expenses and other current assets 184,815 184,604 151,132
Total Current Assets 1,844,434 1,830,947 1,136,736
Property and equipment, net 1,475,099 1,365,246 1,174,003
Long-term investments - - 64,623
Lease rights and other assets 162,193 141,309 127,053
Total Assets $ 3,481,726 $ 3,337,502 $ 2,502,415
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 97,264 $ 84,794 $ 86,241
Accounts payable 376,413 416,976 296,089
Accrued expenses 438,514 389,412 213,698
Income taxes payable 71,009 83,597 58,927
Deferred lease credits and other 15,824 16,769 8,845
current liabilities
Total Current Liabilities 999,024 991,548 663,800
Long-term Liabilities:
Long-term debt 496,147 496,044 -
Deferred lease credits and other liabilities 291,999 265,924 219,973
Total Long-Term Liabilities 788,146 761,968 219,973
Shareholders' Equity:
Common stock $.05 par value
Authorized 1,500,000 shares
Issued 441,074, 439,923
and 477,831 shares
Outstanding 392,721, 393,133
and 407,086 shares 22,054 21,996 23,892
Additional paid-in capital 376,050 317,674 452,358
Retained earnings 2,509,420 2,392,750 2,002,458
Foreign currency translation adjustments (12,722) (15,230) (7,316)
Deferred compensation (36,965) (38,167) (42,897)
Treasury stock, at cost (1,163,281) (1,095,037) (809,853)
Total Shareholders' Equity 1,694,556 1,583,986 1,618,642
Total Liabilities and Shareholders' Equity $ 3,481,726 $ 3,337,502 $ 2,502,415
See accompanying notes to condensed consolidated financial statements.
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<TABLE>
<CAPTION>
GAP INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited Thirteen Weeks Ended
($000 except per share amounts)
May 2, 1998 May 3, 1997
<S> <C> <C>
Net sales $ 1,719,712 $ 1,231,186
Costs and expenses
Cost of goods sold and
occupancy expenses 1,031,004 789,126
Operating expenses 472,144 311,911
Net interest income (1,141) (4,738)
Earnings before income taxes 217,705 134,887
Income taxes 81,639 50,583
Net earnings $ 136,066 $ 84,304
Weighted average number of shares - basic 388,650,880 402,803,539
Weighted average number of shares - diluted 405,000,437 413,316,480
Earnings per share - basic $.35 $.21
Earnings per share - diluted $.34 $.20
Cash dividends per share $.05 $.05
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
GAP INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited ($000) Thirteen Weeks Ended
<S> <C> <C>
May 2, 1998 May 3, 1997
Cash Flows from Operating Activities:
Net earnings $ 136,066 $ 84,304
Adjustments to reconcile net earnings to net
provided by operating activities:
Depreciation and amortization (a) 74,801 56,659
Tax benefit from exercise of stock options by
employees and from vesting of restricted stock 42,624 7,095
Change in operating assets and liabilities:
Merchandise inventory (90,016) (51,018)
Prepaid expenses and other (2,966) (24,970)
Accounts payable (38,685) (53,912)
Accrued expenses 49,019 (68,504)
Income taxes payable (12,587) (32,800)
Deferred lease credits and other
long-term liabilities 22,440 25,218
Net cash provided by (used for) operating activities 180,696 (57,928)
Cash Flows from Investing Activities:
Net proceeds from maturity of short-term investments 0 43,747
Net purchase of long-term investments 0 (48,868)
Net purchase of property and equipment (174,156) (93,787)
Acquisition of lease rights and other assets (19,700) (378)
Net cash used for investing activities (193,856) (99,286)
Cash Flows from Financing Activities:
Net increase in notes payable 12,677 46,874
Issuance of common stock 11,191 10,870
Net purchase of treasury stock (68,244) (121,052)
Cash dividends paid (19,396) (20,198)
Net cash used for financing activities (63,772) (83,506)
Effect of exchange rate changes on cash 77 (281)
Net decrease in cash and equivalents (76,855) (241,001)
Cash and equivalents at beginning of year 913,169 485,644
Cash and equivalents at end of quarter $ 836,314 $ 244,643
See accompanying notes to condensed consolidated financial statements.
(a) Includes amortization of restricted stock, discounted stock options
and discount on long-term debt.
</TABLE>
GAP INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The condensed consolidated balance sheets as of May 2, 1998 and May 3,
1997 and the interim condensed consolidated statements of earnings and
cash flows for the thirteen weeks ended May 2, 1998 and May 3, 1997 have
been prepared by the Company, without audit. In the opinion of
management, such statements include all adjustments (which include only
normal recurring adjustments) considered necessary to present fairly the
financial position, results of operations and cash flows of the Company
at May 2, 1998 and May 3, 1997, and for all periods presented.
Certain information and footnote disclosures normally included in the
annual financial statements prepared in accordance with generally
accepted accounting principles have been omitted from these interim
financial statements. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended January 31, 1998.
The condensed consolidated balance sheet as of January 31, 1998 was
derived from the Company's January 31, 1998 balance sheet included in the
1997 Annual Report.
The results of operations for the thirteen weeks ended May 2, 1998 are
not necessarily indicative of the operating results that may be expected
for the year ending January 30, 1999.
2. COMPREHENSIVE EARNINGS
During the first quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income.
This Statement requires that all components of comprehensive earnings be
reported prominently in the financial statements. For the Company, other
comprehensive earnings includes only the foreign currency translation
adjustments. Total comprehensive earnings for the first quarter of 1998
and 1997 were as follows (in thousands):
Thirteen Thirteen
Weeks Ended Weeks Ended
May 2, 1998 May 3, 1997
Net earnings $136,066 $84,304
Foreign currency translation adjustments 2,508 (2,129)
Total comprehensive earnings $138,574 $82,175
3. FINANCIAL INSTRUMENTS
The Company enters into foreign exchange contracts to reduce exposure to
foreign currency exchange risk. These contracts are primarily designated
and effective as hedges of commitments to purchase merchandise. The
market value gains and losses on these contracts are deferred and
recognized as part of the underlying cost to purchase the merchandise.
At the end of the first quarter, the Company had various put option
contracts to repurchase up to 1,550,000 shares of Gap stock. The
contracts have exercise prices ranging from $34.67 to $38.37, with
expiration dates ranging from May 1998 through August 1998.
4. EARNINGS PER SHARE
Under SFAS No. 128, the Company provides dual presentation of EPS on a
basic and diluted basis. The Company's granting of certain stock options
and restricted stock resulted in potential dilution of basic EPS. The
following summarizes the effects of the assumed issuance of dilutive
securities on weighted-average shares for basic EPS.
Thirteen Thirteen
Weeks Weeks
Ended Ended
May 2, 1998 May 3, 1997
Weighted-average number of shares - basic 388,650,880 402,803,539
Incremental shares from assumed
issuance of:
Stock options 13,119,936 5,863,800
Restricted stock 3,229,621 4,649,141
Weighted-average number of shares - diluted 405,000,437 413,316,480
The number of incremental shares from the assumed issuance of stock
options and restricted stock is calculated applying the treasury stock
method.
Excluded from the above computation of weighted-average shares for
diluted EPS were options to purchase 3,401,193 shares of common stock
during the first quarter of fiscal 1998 and 6,921,979 during the first
quarter of fiscal 1997. Issuance of these securities would have resulted
in an antidilutive effect on EPS.
Deloitte & 50 Fremont Street Telephone (415)247-4000
Touche LLP San Francisco, California 94105-2230 Facsimile (415)247-4329
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
The Gap, Inc.:
We have reviewed the accompanying condensed consolidated balance sheets of
The Gap, Inc. and subsidiaries as of May 2, 1998 and May 3, 1997 and the
related condensed consolidated statements of earnings and cash flows for the
thirteen- week periods ended May 2, 1998 and May 3, 1997. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and of making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards,
the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Gap, Inc. and subsidiaries
as of January 31, 1998, and the related consolidated statements of earnings,
stockholders' equity and cash flows for the year then ended (not presented
herein); and in our report dated February 27, 1998, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of January 31, 1998 is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it was derived.
/s/ Deloitte & Touche LLP
May 12, 1998
GAP INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The information below contains certain forward-looking statements which
reflect the current view of Gap Inc. (the "Company") with respect to future
events and financial performance. Wherever used, the words "expect," "plan,"
"anticipate," "believe," and similar expressions identify forward-looking
statements.
Any such forward-looking statements are subject to risks and uncertainties that
could cause the Company's actual results of operations to differ materially
from historical results or current expectations. Some of these risks include,
without limitation, ongoing competitive pressures in the apparel industry,
risks associated with challenging international retail environments, changes
in the level of consumer spending or preferences in apparel, and/or trade
restrictions and political or financial instability in countries where the
Company's goods are manufactured and other factors that may be described in
the Company's Annual Report on Form 10-K and/or other filings with the
Securities and Exchange Commission. Future economic and industry trends that
could potentially impact revenues and profitability remain difficult to
predict.
The Company does not undertake to publicly update or revise its forward-
looking statements even if experience or future changes make it clear that
any projected results expressed or implied therein will not be realized.
RESULTS OF OPERATIONS
Net Sales
Thirteen weeks ended
May 2, 1998 May 3, 1997
Net sales ($000) $1,719,712 $1,231,186
Total net sales growth percentage 40 11
Comparable store sales growth percentage 17 <3>
Net sales per average square foot $109 $95
Square footage of gross store space (000) 15,975 13,163
Fifty-two Fifty-two
weeks ended weeks ended
May 2, 1998 May 3, 1997
Number of
New stores 298 230
Expanded stores 112 49
Closed stores 18 33
The total net sales growth in the first quarter of 1998 over the same period
last year was attributable primarily to the increase in retail selling space,
both through the opening of new stores (net of stores closed) and the
expansion of existing stores, as well as to the increase in comparable store
sales.
The increase in net sales per average square foot for the first quarter of
1998 was primarily attributable to increases in comparable store sales.
Cost of Goods Sold and Occupancy Expenses
Cost of goods sold and occupancy expenses as a percentage of net sales
decreased to 60.0 percent for the first quarter of 1998 from 64.1 percent for
the same period in 1997. The resulting 4.1 percentage point increase in gross
margin net of occupancy expenses was attributable to a 2.7 percentage point
increase in merchandise margin as a percentage of net sales and a 1.4
percentage point decrease in occupancy expenses as a percentage of net sales.
The increase in merchandise margin as a percentage of net sales was primarily
attributable to a greater percentage of merchandise sold at regular prices
when compared to the same period last year. Margin achieved on marked-down
goods was also higher than that of last year. The decrease in occupancy
expense as a percentage of net sales was primarily attributable to leverage
achieved from the increase in comparable store sales.
The Company continually reviews its inventory levels in order to identify slow-
moving merchandise and broken assortments (items no longer in stock in a
sufficient range of sizes) and uses markdowns to clear merchandise. Such
markdowns may have an adverse impact on earnings, depending upon the extent of
the markdowns and amount of inventory affected.
Operating Expenses
Operating expenses as a percentage of net sales were 27.4 percent for the
first quarter of 1998 compared to 25.3 percent in 1997.
The 2.1 percentage point increase was primarily attributable to a 1.1
percentage point increase in advertising/marketing costs as part of the
Company's brand development efforts. An increase in incentive bonus expense
of 1.3 percentage points also contributed to the increase. The Company
increased its rate of accrual for bonus due to the stronger earnings
performance measured against the annual target. The increase in operating
expense from advertising and bonus was partially offset by the leverage
from comparable store sales growth.
Net Interest Income/Expense
Net interest income was approximately $1.1 million for the first quarter of
1998 compared to $4.7 million for the same period last year. The decrease in
1998 was due to the interest expense related to the long-term debt securities
issued during the third quarter of 1997, a decrease in gross average
investments and a decrease in investment interest rates.
Income Taxes
The effective tax rate was 37.5 percent for both of the thirteen weeks ended
May 2, 1998 and May 3, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The following sets forth certain measures of the Company's liquidity:
Thirteen weeks ended
May 2, 1998 May 3, 1997
Cash provided by (used for) operating activities ($000) $180,696 ($57,928)
Working capital ($000) $845,410 $472,936
Current ratio 1.85:1 1.71:1
For the thirteen weeks ended May 2, 1998, the increase in cash flows provided
by operating activities was attributable to the timing of certain payables, an
increase in net earnings, and an increase in tax benefit from the vesting of
restricted stock.
The Company funds inventory expenditures during normal and peak periods
through a combination of cash flows provided by operations and normal trade
credit arrangements. The Company's business follows a seasonal pattern,
peaking over a total of about ten to twelve weeks during the Back-to-School
and Holiday periods.
The Company has committed credit facilities totaling $950 million, consisting
of an $800 million, 364-day revolving credit facility, and a $150 million, 5-
year revolving credit facility through June 30, 2002. These credit facilities
provide for the issuance of up to $450 million in letters of credit. The
Company has additional uncommitted credit facilities of $300 million for the
issuance of letters of credit. At May 2, 1998, the Company had outstanding
letters of credit of approximately $582 million.
To provide financial flexibility, the Company issued $500 million of 6.9
percent, 10-year debt securities in fiscal 1997. The proceeds from this
issuance are being used for general corporate purposes, including store
expansion, brand investment, development of additional distribution channels
and repurchases of the Company's common stock pursuant to its ongoing
repurchase program.
For the thirteen weeks ended May 2, 1998, capital expenditures, net of
construction allowances and dispositions, totaled approximately $173 million.
These expenditures resulted in a net increase in store space of approximately
662,000 square feet or 4 percent due to the addition of 69 new stores, the
expansion of 31 stores and the remodeling of certain stores.
For 1998, the Company expects capital expenditures to total approximately $700
million, net of construction allowances. This represents the addition of 300
to 350 new stores, the expansion of approximately 80 to 90 stores, the
remodeling of certain stores, as well as amounts for headquarters facilities,
a distribution center, equipment and a catalogue facility for the Banana
Republic division. The Company expects to fund such capital expenditures
with cash flow from operations and other sources of financing. Square
footage growth is expected to be 18 to 20 percent before store closings.
New stores are generally expected to be leased.
To further support its growth, the Company continues to explore alternatives
for additional headquarters facilities in San Francisco and San Bruno,
California. The Company acquired the rights to purchase land in San Francisco
and acquired additional land in San Bruno.
During 1997 the Company commenced construction on a distribution center for an
estimated cost at completion of $60 million. The majority of the expenditures
for this facility will be incurred this fiscal year and is thus included in
the projected capital expenditures above. The facility is expected to begin
operations in early 1999.
In October 1996, the Board of Directors approved a program under which the
Company may repurchase up to 45 million shares of its outstanding common stock
in the open market over a three-year period. During the first quarter, the
Company acquired 1.6 million shares for approximately $72 million. To
date under this program, 29.7 million shares have been repurchased for
approximately $816 million.
During the first quarter of 1998, the Company held various put option
contracts in connection with the share repurchase program to hedge against
stock price fluctuations. The Company also continued to enter into foreign
exchange forward contracts to reduce exposure to foreign currency exchange
risk involved in its commitments to purchase merchandise for foreign
operations. Additional information on these contracts and agreements is
presented in the Notes to Condensed Consolidated Financial Statements
(Note 3).
The Company is addressing the need to ensure that its operations will not be
adversely impacted by software or other system failures related to year 2000.
A program office was established in 1997 to coordinate the identification,
evaluation and implementation of any necessary changes to computer systems,
applications, and business processes. The costs associated with this effort
are expected to be incurred through 1999 and are not expected to have a
material impact on the results of operations, cash flows or financial
condition in any given year. However, no assurances can be given that the
Company will be able to completely identify or address all year 2000
compliance issues, or that third parties with whom the Company does
business will not experience system failures as a result of the year 2000
issues, nor can the Company fully predict the consequences of noncompliance.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The market risk of the Company's financial instruments as of May 2, 1998
has not significantly changed since January 31, 1998. The market risk profile
on January 31, 1998 is disclosed in the Company's 1997 Annual Report.
PART II
OTHER INFORMATION
Item 4. Submissions of Matters to a Vote of Security Holders
a) On April 28, 1998 the Annual Meeting of Stockholders of the
Company was held in San Francisco, California. There were 393,500,175
shares of common stock outstanding on the record date and entitled to vote
at the Annual Meeting.
b) The following directors were elected:
Vote For Vote Withheld
Adrian D.P. Bellamy 348,053,603 570,254
John G. Bowes 348,052,103 571,754
Millard S. Drexler 348,053,780 570,077
Donald G. Fisher 348,035,560 588,297
Doris F. Fisher 348,052,403 571,454
Robert J. Fisher 348,053,903 569,954
John M. Lillie 348,053,903 569,954
Charles R. Schwab 322,738,625 25,885,232
Brooks Walker, Jr. 348,051,953 571,904
Sergio Zyman 348,053,303 570,554
There were no abstentions and no broker non-votes.
c) The amendment to the Amended and Restated Certificate of
Incorporation to increase the authorized number of shares of Common Stock was
approved with 284,038,802 votes in favor and 64,309,322 against.
There were 213,938 abstentions and 61,794 broker non-votes.
d) The selection of Deloitte & Touche, LLP as independent auditors
for the fiscal year ending January 30, 1999 was ratified with 347,622,959
votes in favor and 796,099 against.
There were 204,799 abstentions.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
(3) Certificate of Amendment of Amended and Restated
Certificate of Incorporation
(10) Amended and Restated GapShare Plan
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
b) The Company did not file any reports on Form 8-K during the three
months ended May 2, 1998.
SIGNATURES
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 GAP, INC.
Date: June 10, 1998 By /s/ Warren R. Hashagen
Warren R. Hashagen
Chief Financial Officer
(Principal financial officer of the registrant)
Date: June 10, 1998 By /s/ Millard S. Drexler
Millard S. Drexler
President and Chief Executive Officer
EXHIBIT INDEX
(3) Certificate of Amendment of Amended and
Restated Certificate of Incorporation
(10) Amended and Restated GapShare Plan
(15) Letter re: Unaudited Interim Financial Information
(27) Financial Data Schedule
CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
THE GAP, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation")
is The Gap, Inc.
2. The certificate of incorporation of the corporation is hereby
amended by striking out Section 1 of Article FIFTH thereof and by
substituting in lieu of said Section 1 the following new Section 1:
FIFTH: Section 1. Classes and Number of Shares.
The total number of shares of all classes of stock which this
corporation shall have authority to issue is 1,590,000,000 shares. The
classes and the aggregate number of shares of stock of each class which
this corporation shall have authority to issue are as follows:
(i) 1,500,000,000 shares of Common Stock, $0.05 par value per share
(hereinafter the "Common Stock");
(ii) 60,000,000 shares of Class B Common Stock, $0.05 par value per
share (hereinafter the "Class B Stock"); and
(iii) 30,000,000 shares of Preferred Stock, $0.05 par value per share,
with such rights, privileges, restrictions and preferences as the Board of
Directors may authorize from time to time (hereinafter the "Preferred Stock").
3. The amendment of the certificate of incorporation herein certified
has been duly adopted in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware.
Signed on April 28, 1998.
/s/ Anne B. Gust
Anne B. Gust
Senior Vice President
and General Counsel
Updated January 28, 1998
GAPSHARE
INTRODUCTION 1
ARTICLE I - DEFINITIONS 2
ARTICLE II - ELIGIBILITY AND PARTICIPATION 10
Section 2.1 Eligibility Requirements. 10
Section 2.2 Participation. 11
Section 2.3 Years of Service for Eligibility Computation. 11
ARTICLE III - CONTRIBUTIONS 13
Section 3.1 Employer Contributions. 13
Section 3.2 Employee Elective Deferrals. 13
Section 3.3 After-Tax Employee Contributions. 14
Section 3.4 Rollover Contributions. 14
Section 3.5 Trustee-to-Trustee Transfers. 15
Section 3.6 Deduction Limitation. 15
Section 3.7 Minimum Employer Contribution. 15
ARTICLE IV - 401(k) and 401(m) 16
Section 4.1 Distribution of Excess Employee Elective Deferrals. 16
Section 4.2 Actual Deferral Percentage Test. 17
Section 4.3 Distribution of Excess Contributions. 19
Section 4.4 Actual Contribution Percentage Test. 20
Section 4.5 Distribution of Excess Aggregate Contributions. 23
Section 4.6 Recharacterization. 24
ARTICLE V - ALLOCATIONS, VALUATION AND VESTING 25
Section 5.1 Allocation of Contributions. 25
Section 5.2 Participants Who Will Receive an Allocation. 25
Section 5.3 Allocation of Forfeitures. 25
Section 5.4 Allocation Limitations. 25
Section 5.5 Valuation. 33
Section 5.6 Vesting and Accrual. 33
Section 5.7 Allocation of Minimum Employer Contributions. 35
ARTICLE VI - DISTRIBUTIONS 37
Section 6.1 Distributions of Small Account Balances. 37
Section 6.2 Distributions While In-Service. 37
Section 6.3 Distributions Upon Separation From Service. 38
Section 6.4 Distributions Upon Retirement. 38
Section 6.5 Distributions Upon Death. 38
Section 6.6 Distributions Upon Disability. 39
Section 6.7 Special Beneficiary Provisions. 40
Section 6.8 Consent of the Participant Required for
Distributions if Account Balances Greater
Than $5,000. 40
Section 6.9 Commencement of Benefits. 41
Section 6.10 Required Distributions. 42
Section 6.11 Special Distribution Rules for 401(k) Contributions
and Qualified Non-Elective Contributions. 48
Section 6.12 Form of Distribution. 48
Section 6.13 Trustee-to-Trustee Transfers. 48
Section 6.14 Normal Form of Benefit. 49
Section 6.15 Rollovers to Other Plans or IRAs. 49
ARTICLE VII - LOANS 50
Section 7.1 Availability of Loans. 50
Section 7.2 Amount of Loans. 50
Section 7.3 Terms of Loans. 50
ARTICLE VIII - PLAN ADMINISTRATION 53
Section 8.1 Duties of the Employer. 53
Section 8.2 The Committee. 53
Section 8.3 Appointment of Advisor. 54
Section 8.4 Powers and Duties of the Committee. 54
Section 8.5 Organization and Operation. 55
Section 8.6 Claims Procedure. 55
Section 8.7 Records and Reports. 56
Section 8.8 Liability. 57
Section 8.9 Reliance on Statements. 57
Section 8.10 Remuneration and Bonding. 58
Section 8.11 Committee Decisions Final. 58
Section 8.12 Participant-Directed Investments. 58
ARTICLE IX - TRUST AGREEMENT 59
Section 9.1 Establishment of Trust. 59
Section 9.2 Exclusive Benefit. 59
ARTICLE X - AMENDMENT, TERMINATION AND MERGER 60
Section 10.1 Amendment. 60
Section 10.2 Termination. 60
Section 10.3 Merger, Consolidation or Transfer. 61
ARTICLE XI - TOP-HEAVY PROVISIONS 62
Section 11.1 Applicability. 62
Section 11.2 Definitions. 62
Section 11.3 Minimum Allocation. 65
Section 11.4 Nonforfeitability of Minimum Allocation. 65
Section 11.5 Allocation Limitations. 66
Section 11.6 Minimum Vesting Schedules. 66
ARTICLE XII - GENERAL PROVISIONS 67
Section 12.1 Governing Law. 67
Section 12.2 Power to Enforce. 67
Section 12.3 Alienation of Benefits. 67
Section 12.4 Not an Employment Contract. 67
Section 12.5 Discretionary Acts. 68
Section 12.6 Interpretation. 68
ARTICLE XIII - SPECIAL RULES FOR PUERTO RICAN PARTICIPANTS 69
ARTICLE XIV - SIGNATURE PAGE 72
INTRODUCTION
Purpose.
The primary purpose of the GapShare (the "Plan") is to provide
the Employees of Gap, Inc. and affiliates with retirement benefits
in recognition of the contribution of the Employees to the
successful operation of the Employer. The Plan is intended to be a
profit sharing plan, qualified under section 401(a) of the Internal
Revenue Code (the "Code"), which permits salary deferral
contributions as provided by section 401(k) of the Code; and its
affiliated Trust is intended to be exempt from tax under
section 501(a) of the Code. In addition, it is intended that the
Plan meet the applicable requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
Effective Date.
Pursuant to the terms of the Plan which permit its amendment by the
Employer, this document is a restatement, in its entirety, of the
Plan, generally effective January 1, 1998.
The terms of this document now set forth the controlling provisions
of the Plan for all persons who are Employees on or after the
Effective Date; provided, however, that to the extent required
under section 411(d)(6) of the Code (and related Treasury
Regulations), the applicable provisions of the preceding Plan
documents are incorporated herein by reference.
ARTICLE I - DEFINITIONS
The following words and phrases, wherever capitalized, shall have
the meanings set forth below, unless the context in which they
appear within the Plan clearly indicates otherwise:
Account(s) means the aggregate (or as otherwise specified) interest
of a Participant in the assets of the Trust. Each Participant's
interest will be segregated into one or more of the following
Accounts, which will reflect, in addition to contributions
allocated thereto, appropriate allocations of earnings, gains,
losses and expenses of the Trust:
Employee Deferral Account. The separate Account maintained
for each Participant to which are credited his Employee
Elective Deferrals.
100% Vested Matching Contribution Account. The separate
Account maintained for each Participant to which are
credited any 100% Vested Matching Contributions allocated
to him.
Excess Matching Contribution Account. The separate Account
maintained for each Participant to which are credited any
Excess Matching Contributions allocated to him.
Employer Matching Contribution Account. The separate
Account maintained for each Participant to which are
credited any Employer Matching Contributions allocated to
him and made in accordance with Section 3.1.
Qualified Non-Elective Contribution Account. The separate
Account maintained for each Participant to which are
credited any Qualified Non-Elective Contributions allocated
to him and made on his behalf in accordance with
Section 3.1.
Rollover Account. The separate Account maintained for each
applicable Participant to which contributions are made
under Section 3.4.
After-Tax Employee Contribution Account. The separate
Account maintained for each Participant, in accordance with
Section 3.3, reflecting his After-Tax Employee
Contributions.
The Administrator may, in its discretion, establish subaccounts
within each separate Account.
Administrative Delegate means one or more persons or institutions
to whom the Committee has delegated certain administrative
functions pursuant to a written agreement.
Administrator means the Committee designated by the Employer to
administer the Plan.
Affiliate means a member of a controlled group of corporations,
within the meaning of section 414(b) of the Code, which includes
the Employer; a trade or business (whether or not incorporated)
which is in common control with the Employer as determined in
accordance with section 414(c) of the Code; or any organization
which is a member of an affiliated service group, within the
meaning of section 414(m) of the Code, which includes the Employer;
and any other organization required to be aggregated with the
Employer pursuant to section 414(o) of the Code.
After-Tax Employee Contributions means contributions to the Plan,
if any, made by an Employee on an after-tax, nondeductible basis.
Beneficiary means the person or persons or a trust affirmatively
designated by a Participant to receive all or a portion of such
Participant's benefits in the event the Participant dies leaving
benefits payable to such a Beneficiary in accordance with the
provisions of Article VI.
Board means the Board of Directors of the Employer.
Code means the Internal Revenue Code of 1986, as amended from time
to time.
Committee means the Global Benefits Committee of the Employer or
its designated representatives.
Compensation means all of each Participant's compensation as
defined in section 415(c)(3) of the Code and Treasury Regulations
Sections 1.415-2(d)(2) and (3).
Notwithstanding the above, for purposes other than allocations
pursuant to provision(s) providing for permitted disparity and/or
Top-Heavy allocations, Compensation shall be determined by
excluding moving expenses.
Compensation shall include only that Compensation which is actually
paid to the Participant during the determination period. Except as
provided elsewhere in this Plan, the determination period shall be
the Plan Year.
Effective for Plan Years beginning after December 31, 1988, the
annual Compensation of each Participant taken into account for
purposes of determining all benefits provided under the Plan for
any determination period shall not exceed $200,000 as adjusted by
the Secretary at the same time and in the same manner as under
section 415(d) of the Code ("Compensation Limit"), except that
the dollar increase in effect on January 1 of any calendar year
shall be effective for years beginning in such calendar year. The
Compensation Limit for a determination period shall be the
Compensation Limit in effect on the January 1 coinciding with or
preceding such determination period. If Compensation is determined
on the basis of a 12-consecutive-month period ending within the
Plan Year, then the applicable Compensation Limit is the
Compensation Limit in effect for the calendar year in which such
12-month period begins. If Compensation is determined on the basis
of a period of less than 12 calendar months, the Compensation Limit
shall be the annual Compensation Limit which would otherwise be
applicable multiplied by the
ratio obtained by dividing by 12 the number of full months in the
short period. In determining the Compensation of a Participant for
purposes of the $200,000 limitation, the rules of section 414(q)(6)
of the Code shall apply except that, in applying such rules, the
term "family" shall include only the Spouse of the Participant
and any lineal descendants of the Participant who have not attained
age 19 before the close of the Plan Year. If as a result of the
application of such rules the adjusted $200,000 limitation is
exceeded, then (except for purposes of determining the portion of
Compensation up to the integration level, as defined in
Section 5.1, if applicable) the limitation shall be prorated among
the affected individuals in proportion to each such individual's
Compensation as determined prior to the application of this
limitation.
Notwithstanding the above, effective for Plan Years beginning after
December 31, 1993, the annual Compensation Limit shall not exceed
$150,000, adjusted for calendar years beginning after 1994 at the
same time and in the same manner as under section 415(d) of the
Code, but only if and when the aggregate of such potential
adjustments totals at least $10,000, and then only in amounts of
$10,000, in the manner described in section 401(a)(17) of the Code.
If Compensation for any prior determination period is taken into
account in determining an Employee's allocations or benefits for
the current determination period, the Compensation for such prior
period is subject to the applicable annual Compensation Limit in
effect for that prior period. For this purpose, for years
beginning before January 1, 1990, the applicable annual
Compensation Limit is $200,000.
Defined Benefit Plan means a pension plan maintained by the
Employer which is qualified under section 401(a) of the Code and
which is not a Defined Contribution Plan, except to the extent that
it maintains separate accounts with respect to which it is treated
as a Defined Contribution Plan.
Defined Contribution Plan means a plan qualified under
section 401(a) of the Code and maintained by the Employer which
provides for an account for each individual who participates in the
plan, from which account all benefits attributable to amounts
allocated to each such Participant's account (and any income and
expenses or gains or losses attributable to such accounts, both
realized and unrealized) are paid.
Disability means any medically determinable physical or mental
impairment which results in an inability to engage in any
substantial gainful activity by reason thereof and which may be
expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months. The
permanence and degree of such impairment must be supported by
medical evidence. Disability will be determined by a physician
appointed by the Administrator.
Effective Date The provisions of this amendment and restatement are
generally effective January 1, 1998, except for the retroactive
effective dates required by the Tax Reform Act of 1986, the Omnibus
Budget Reconciliation Act of 1986, the Omnibus Budget
Reconciliation Act of 1987, the Technical and Miscellaneous Revenue
Act of 1988, the Omnibus Budget Reconciliation Act of 1989, or any
final Regulations published and effective since the most recent
effective date of this Plan. Further, to the extent the Plan was
operated in accordance with the provisions of this amendment and
restatement as of an effective date earlier than that required by
law, such date shall be the Effective Date.
Employee means any common law Employee of the Employer or any
Affiliate. The term Employee shall also include any Leased
Employee deemed to be an Employee of the Employer or any Affiliate
as provided in section 414(n) or (o) of the Code.
Employee Elective Deferrals means contributions to the Plan from an
Employee's salary, which the Employee could have received currently
in Compensation.
Employer means Gap, Inc., any successor through merger,
consolidation or purchase of substantially all of the assets or
business of the entity which is the Employer immediately prior to
such succession, which successor, within 90 days after such
succession, agrees to continue this Plan; and any Affiliate which
adopts the Plan.
Employer Matching Contributions means those contributions made by
the Employer as described under Section 3.1 which are allocated to
Participants' Employer Matching Contribution Accounts, and does not
include Qualified Non-Elective Contributions (if any).
ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
Forfeitures means the nonvested portion, if any, of a Participant's
Account created as a result of termination of employment by the
Participant prior to the time he becomes 100 percent Vested in his
Account. A Forfeiture occurs immediately after the distribution of
the entire Vested portion of a Participant's Account or the last
day of the Plan Year in which his 5th consecutive One-Year Break in
Service occurs, whichever occurs earlier, or upon approval of Plan
Administrator.
Highly Compensated Employee means and includes active highly
compensated Employees and former highly compensated Employees.
An active highly compensated Employee includes any Employee who
performed service for the Employer during the Plan Year and who:
(1) during the preceding Plan Year received Compensation from the
Employer in excess of $80,000 (as adjusted pursuant to section
415(d) of the Code), and, if elected by the Employer, was a member
of the top-paid group for such year; or (2) during the current or
preceding Plan Year was an owner of more than 5 percent of the
Employer.
A former highly compensated Employee includes any Employee who
separated (or was deemed to have separated) from service prior to
the determination year, who has performed no service for the
Employer during the determination year, and who was a highly
compensated active Employee for either the year of his separation
from service or any determination year ending on or after the
Employee's 55th birthday.
The determination of who is a Highly Compensated Employee
(including the determination of the number and identity of
Employees in the top-paid group and the Compensation that is
considered) will be made in accordance with section 414(q) of the
Code and the Regulations promulgated thereunder. For purposes of
this definition, the Employer shall include any Affiliate.
Hour of Service means:
(a) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer.
These hours will be credited to the Employee for the
computation period in which the duties are performed;
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time
during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including Disability), layoff,
jury duty, military duty or leave of absence. No more than
501 hours of service will be credited under this paragraph
for any single continuous period (whether or not such period
occurs in a single computation period). Hours under this
paragraph will be calculated and credited pursuant to
section 2530.200b-2 of the Department of Labor regulations,
which section is incorporated herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The
same hours of service will not be credited both under
paragraph (a) or paragraph (b), as the case may be, and under
this paragraph (c). These hours will be credited to the
Employee for the computation period or periods to which the
award or agreement pertains rather than the computation
period in which the award, agreement or payment is made.
For purposes of this definition, Employer includes any Affiliate.
Hours of Service will be credited for employment with other members
of any affiliated service group (under section 414(m) of the Code),
controlled group of corporations (under section 414(b) of the
Code), or group of trades or businesses under common control (under
section 414(c) of the Code) of which the adopting Employer is a
member, and any other entity required to be aggregated with the
Employer pursuant to section 414(o) of the Code and the Regulations
promulgated thereunder.
Hours of Service will also be credited with respect to any
individual considered an Employee for purposes of this Plan under
section 414(n) of the Code and the Regulations promulgated
thereunder.
Hours of Service will be credited for all employment with the
Employer regardless of whether the Employee was at the time an
eligible Employee.
Service will be determined on the basis of the actual hours for
which an Employee is paid or entitled to payment.
Late Retirement Date means the date, occurring after Normal
Retirement Age, on which an Employee actually retires from
employment with the Employer.
Leased Employee means any person (other than an Employee of the
Employer) who, pursuant to an agreement between the Employer and
any other person (the "leasing organization"), has performed
services for the Employer (or for the Employer and related persons
determined in accordance with section 414(n)(6) of the Code) on a
substantially full time basis for a period of at least one year,
and such services are of a type historically performed by Employees
in the business field of the Employer. Contributions or benefits
provided to a Leased Employee by the leasing organization which are
attributable to services performed for the Employer shall be
treated as provided by the Employer.
A Leased Employee shall not be considered an Employee of the
Employer if (i) such Employee is covered by a money purchase
pension plan maintained by the leasing organization providing:
(a) a non-integrated employer contribution rate of at least
10 percent of Compensation, as defined in section 415(c)(3) of the
Code, but including amounts contributed pursuant to a salary
reduction agreement which are excludable from the Employee's gross
income under section 125, section 402(e)(3), section 402(h) or
section 403(b) of the Code, (b) immediate participation, and
(c) full and immediate vesting; and (ii) Leased Employees do not
constitute more than 20 percent of the Employer's non-highly
compensated workforce.
Minimum Employer Contributions means contributions made by the
Employer in accordance with the provisions of Section 3.7.
Non-Highly Compensated Employee means an Employee who is not a
Highly Compensated Employee.
Normal Retirement Age means age 60.
One-Year Break in Service means a 12-consecutive-month period
during which the Participant does not complete more than 500 Hours
of Service.
Solely for purposes of determining whether a One-Year Break in
Service has occurred for participation and vesting purposes, an
individual who is absent from work for maternity or paternity
reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such
absence, or in any case in which such hours cannot be determined,
eight Hours of Service per day of such absence, to a maximum of
501 Hours of
Service for any one child-related absence. For purposes of this
paragraph, an absence from work for maternity or paternity reasons
means an absence: (1) by reason of the pregnancy of the individual;
(2) by reason of a birth of a child of the individual; (3) by
reason of the placement of a child with the individual in
connection with the adoption of such child by such individual; or
(4) for purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of
Service credited under this paragraph shall be credited in the
computation period in which the absence begins if necessary to
prevent a One-Year Break in Service in that period or, in all other
cases, in the next following computation period.
Participant means an Employee of the Employer who participates in
the Plan pursuant to Article II; a former Employee who participated
in the Plan under Article II and who continues to be entitled to a
Vested benefit under the Plan; or a former Employee who
participated in the Plan under Article II, and who has not yet
incurred a One-Year Break in Service. For purposes of
Section 6.15, "Participant" shall include a former Participant,
as well as a former Participant's Surviving Spouse and
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 (who shall be deemed
Participants with respect to such Spouse's interest under the
Plan).
Plan means the GapShare, as set forth herein.
Plan Year means the 12-consecutive-month period which begins on
January 1 and on each anniversary thereof.
Regulations means the Treasury regulations pertaining to the
Internal Revenue Code of 1986, as amended from time to time.
Required Distributions shall be as described in Section 6.10 of the
Plan.
Spouse means the spouse or surviving spouse of the Participant,
provided that a former Spouse shall be treated as the spouse or
surviving spouse to the extent provided under a "qualified
domestic relations order" as defined in section 414(p) of the
Code.
Top-Heavy shall have the meaning and effect described in Article XI
of the Plan.
Trust means the Trust as established under Article IX and
maintained for purposes of the Plan which is administered by the
Trustee in accordance with the provisions of the agreement of Trust
between the Employer and the Trustee. If the Trust is governed by
a separate agreement entered into between the Employer and the
Trustee (which shall be incorporated by reference herein and become
part of the Plan) to the extent the terms of such Trust agreement
conflict with the Plan, the terms of such Trust agreement will
control except to the extent that it is necessary to follow the
terms of the Plan in order to maintain the qualified status of the
Plan under section 401(a) of the Code.
Trustee means the party or parties named under the Trust who shall
have exclusive authority and discretion to manage and control the
assets of the Plan. Notwithstanding the above, to the extent the
Plan expressly provides, the Trustee shall be subject to the
direction of the Committee and/or Investment Manager.
Trust Fund means all money and other property received or held by
the Trustee under the Trust, plus all income and gains and minus
all losses, expenses, and distributions chargeable to the Trust
assets.
Valuation Date means any day on which the New York Stock Exchange
is open for business.
Vested means nonforfeitable.
Year of Service means a 12-consecutive-month period during which an
Employee is credited with at least 1,000 Hours of Service. If a
fractional Year of Service is used in the Plan, there will be no
Hours of Service requirement.
ARTICLE II - ELIGIBILITY AND PARTICIPATION
Section 2.1 Eligibility Requirements.
(a) Only Employees of the Employer will be eligible to
participate in the Plan.
(b) Employees become eligible to participate in the Plan upon
attainment of age 21 and completion of one Year of Service.
Employees become eligible to make Employee Elective Deferrals
under the Plan upon attainment of age 21 and completion of
one Year of Service.
(c) Notwithstanding any other provision of this Article II, all
Employees and former Employees who are Participants in the
Plan as of the date immediately preceding the Effective Date
of this amendment and restatement and who then have an
Account balance (whether or not nonforfeitable) shall
continue their participation in the Plan as restated. A
former Employee who was a Participant in the Plan and who
either did or did not receive a distribution of his entire
nonforfeitable Account balance on account of termination of
employment may become eligible to participate in the Plan
upon reemployment.
(d) Notwithstanding any other provision of this Plan, Employees
included within the following described classification(s) are
excluded from participation in this Plan:
(1) Employees in a unit of employees covered by a
collective bargaining agreement between the Employer
and employee representatives, if retirement benefits
were the subject of good faith bargaining and if two
percent or less of the Employees of the Employer who
are covered pursuant to that agreement are
professionals as defined in section 1.410(b)-9(g) of
the Regulations. For this purpose, the term "employee
representatives" does not include any organization
more than half of whose members are Employees who are
owners, officers, or executives of the Employer.
(2) Employees who are nonresident aliens (within the
meaning of section 7701(b)(1)(B) of the Code) and who
receive no earned income
(within the meaning of section 911(d)(2) of the Code)
from the Employer which constitutes income from sources
within the United States within the meaning of
section 861(a)(3) of the Code.
(3) Employees who are employed in a foreign country;
provided that this exclusion shall not apply to an
employee who is temporarily transferred to employment
with an employer in a foreign country and who is a
citizen or a resident alien of the United States at the
time of such transfer.
(4) Any individual who is paid through the accounts payable
system for services rendered, rather than an employer's
regular payroll system and any individual who has a
written agreement with an employer that he or she will
not be covered by the employer's benefit plans.
Section 2.2 Participation.
An Employee will begin participation in the Plan on the first day
of the first pay period following satisfaction of the eligibility
requirements set forth in Section 2.1 above.
For purposes of Employee Elective Deferrals, an eligible non-
excluded Employee will begin participation in the Plan on the first
day of the first pay period following satisfaction of the
eligibility requirements set forth in Section 2.1 above.
Section 2.3 Years of Service for Eligibility Computation.
(a) For purposes of determining Years of Service and One-Year
Breaks in Service for purposes of establishing eligibility to
participate in the Plan, the initial eligibility computation
period shall be the 12-consecutive-month period beginning on
the date on which the Employee first performs an Hour of
Service for the Employer or an Affiliate ("employment
commencement date").
(b) The succeeding 12-consecutive-month eligibility computation
periods shall commence with the first Plan Year which
includes the first anniversary of the Employee's employment
commencement date, regardless of whether the Employee is
entitled to be credited with 1,000 Hours of Service during
the initial eligibility computation period. An Employee who
is credited with service in both the initial eligibility
computation period (described above) and the first Plan Year
which commences prior to the first anniversary of the
Employee's initial eligibility computation period will be
credited with two Years of Service for purposes of
eligibility to participate.
(c) Years of Service and One-Year Breaks in Service will be
measured by the same eligibility computation period.
(d) All Years of Service with the Employer or an Affiliate will
be credited for purposes of determining eligibility except
the following:
(1) If an Employee has a One-Year Break in Service before
satisfying the eligibility requirements of the Plan,
service before such Break will not be taken into
account.
(2) In the case of any Participant whose employment with
the Employer terminates and who subsequently is
reemployed by the Employer, regardless of whether the
Employee has incurred a One-Year Break in Service, such
Employee will participate immediately upon returning to
employment.
(e) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to
participate but has not incurred a One-Year Break in Service,
such Employee will participate immediately upon again
becoming a member of an eligible class of Employees. If such
Participant incurs a One-Year Break in Service, eligibility
will be determined according to the break in service rules of
the Plan otherwise described in this Section 2.3.
An Employee who has not been, but who becomes a member of an
eligible class of Employees shall participate in the Plan
immediately upon becoming a member of such class if such
Employee has satisfied the minimum age and service
requirements necessary to become a Participant under the
Plan.
ARTICLE III - CONTRIBUTIONS
Section 3.1 Employer Contributions.
Employer Matching Contributions:
For each Plan Year the Employer may make an Employer Matching
Contribution to the trust based on After-Tax Employee Contributions
and Employee Elective Deferrals. The amount of the Employer
Matching Contributions shall be determined for each Plan Year by
the Employer, but shall not be based on more than four percent of
Participant's Compensation for the Plan Year.
Qualified Non-Elective Contributions:
At the discretion of the Employer, Qualified Non-Elective
Contributions may be made which may be used for purposes of
ensuring that the Plan complies with the nondiscrimination tests of
sections 401(k) or 401(m) of the Code and the Regulations
promulgated thereunder. Qualified Non-Elective Contributions may
be made with respect to only those Participants who are Non-Highly
Compensated Employees in the same dollar amount or the same
percentage of Compensation for each until the non-discrimination
tests of sections 401(k) and/or 401(m) of the Code are met.
Section 3.2 Employee Elective Deferrals.
Each Plan Year, each Participant may elect to defer between 2 and
16 percent of Compensation (Employee Elective Deferrals) which will
be contributed by the Employer to the Plan. New Participants may
commence deferrals as specified in Section 2.2. A Participant may
change his election or make a new election as of any business day.
Notification must be given to the Plan Administrator or its
designee by a Participant prior to the first pay period affected by
a modification.
In addition, a Participant may cease to have Employee Elective
Deferrals made as of any payroll period if notice is given to the
Plan Administrator or its designee prior to such date. The Plan
Administrator may reduce or completely prohibit Employee Elective
Deferrals at any time if the Administrator determines such action
is necessary to ensure compliance with section 401(k), 402(g), or
415 of the Code.
Employee Elective Deferrals under this and all other qualified
plans maintained by the Employer may not be made on behalf of any
Participant during any taxable year to the extent such would exceed
the dollar limitation of section 402(g) of the Code in effect at
the beginning of the taxable year ($7,000 as adjusted for cost of
living).
Section 3.3 After-Tax Employee Contributions.
Each Plan Year, each Participant may elect to defer between 2 and
21 percent of Compensation on an after-tax basis (After-Tax
Employee Contributions). After-Tax Employee Contributions are
permitted on a nondiscriminatory basis as determined by the
Administrator.
Section 3.4 Rollover Contributions.
(a) An Employee, who is eligible to participate in the Plan under
Section 2.1, regardless of whether he has satisfied the
Participation requirements of Section 2.2, may roll over into
the Plan an eligible rollover distribution (as defined in
section 402(c) of the Code) from another qualified plan, or
from an individual retirement account in the manner described
in section 408(d)(3)(A)(ii) of the Code. If such rollover is
not a direct transfer as described in section 401(a)(31) of
the Code, it must be received by the Plan within 60 days of
the date it was received by the Participant from the
distributing qualified plan or individual retirement account.
(b) The Plan Administrator shall develop such procedures, and may
require such information from an Employee desiring to make
such a rollover, as he deems necessary or desirable to
determine that the proposed rollover will meet the
requirements of this Section. Upon approval by the Plan
Administrator, the amount rolled over shall be deposited in
the Trust and shall be credited to the Employee's Rollover
Account. Such Account shall share in allocations of
earnings, losses and expenses of the Trust Fund, but shall
not share in allocations of Employer contributions. The
Employee's Rollover Account shall be distributed in
accordance with Article VI.
(c) In the event of a rollover contribution on behalf of an
Employee who is otherwise eligible to participate in the Plan
but who has not yet satisfied the participation requirements
of Section 2.2, such Employee's Rollover Account shall
represent his sole interest in the Plan until he becomes a
Participant.
Section 3.5 Trustee-to-Trustee Transfers.
(a) Subject to Plan Administrator approval, an Employee, not
excluded from participation in the Plan, regardless of
whether he has satisfied any age and service requirements for
participation, may cause assets from the qualified plan of a
prior employer to be transferred directly by the trustee of
such plan to the Trustee of this Plan.
(b) A direct rollover as described in Section 6.15 shall not
constitute a trustee-to-trustee transfer for purposes of the
Plan.
Section 3.6 Deduction Limitation.
Employer contributions made with respect to any Plan Year under
this Article III are conditioned upon such contributions being
deductible by the Employer for such Plan Year under section 404 of
the Code.
Section 3.7 Minimum Employer Contribution.
Minimum Employer Contribution
For each Plan Year, the Employer shall make contributions to the
Plan in the form of employer contributions, in cash or stock, at
least equal to a specified dollar amount, on behalf of those
individuals who are entitled to an allocation under Section 5.7.
Such amount shall be determined by the Employer, or its delegatee,
by appropriate action on or before the last day of the Employer's
taxable year that ends within such Plan Year.
The Minimum Employer Contribution for a Plan Year shall be paid by
the Employer in one or more installments without interest. The
Minimum Employer Contribution shall be deemed to be satisfied for
the Plan Year as soon as the total of "employer contributions"
for the Plan Year equals the amount of the Minimum Employer
Contribution. For purposes of this Section 3.7, "employer
contributions" means employer contributions, as defined under
section 404 of the Code, including, but not limited to, Employee
Elective Deferrals and Employer Matching Contributions. The
Employer shall pay the Minimum Employer Contribution at any time
during the Plan Year, and for purposes of deducting such
contribution, shall make the contribution not later than the time
prescribed by the Code for filing the Employer's Federal income tax
return including extensions, for its taxable year that ends within
such Plan Year. Notwithstanding any provision of the Plan to the
contrary, the Minimum Employer Contribution made to the Plan by the
Employer shall not revert to, or be returned to, the Employer.
ARTICLE IV - 401(k) and 401(m)
Section 4.1 Distribution of Excess Employee Elective
Deferrals.
(a) Excess Employee Elective Deferrals shall be distributed in
accordance with the provisions of this Section 4.1. Excess
Employee Elective Deferrals are those elective deferrals that
are includible in a Participant's gross income because they
exceed the dollar limitation ($7,000 as adjusted for cost of
living) imposed under Code section 402(g). Excess Employee
Elective Deferrals shall be treated as Annual Additions under
the Plan, except to the extent they are distributed on or
before the April 15 first following the close of a
Participant's tax year.
(b) A Participant may attribute to this Plan any excess Employee
Elective Deferrals made during a taxable year of the
Participant by notifying the Plan Administrator, through
actual or deemed notification, on or before March 1 following
the calendar year when the excess Employee Elective Deferrals
are made of the amount of the excess Employee Elective
Deferrals to be attributed to the Plan. A Participant will be
deemed to have notified the Plan Administrator of any excess
Employee Elective Deferrals which exist when only those
elective deferrals made to this Plan and any other plan(s)
maintained by the Employer are taken into account.
(c) Notwithstanding any other provision of the Plan, excess
Employee Elective Deferrals, plus any income and minus any
loss allocable thereto, shall be distributed no later than
April 15 to any Participant to whose Account excess Employee
Elective Deferrals were attributed for the preceding year and
who claims excess Employee Elective Deferrals for such
taxable year. With respect to any taxable year, a
Participant's Employee Elective Deferrals are the sum of all
Employer contributions made on behalf of such Participant
pursuant to an election to defer under any qualified cash or
deferred arrangement as described in section 401(k) of the
Code, any simplified employee pension cash or deferred
arrangement as described in section 402(h)(1)(B) of the Code,
any eligible deferred compensation plan under section 457 of
the Code, any plan described under section 501(c)(18) of the
Code, and any Employer contributions made on the behalf of a
Participant for the purchase of an annuity contract under
section 403(b) of the Code pursuant to a salary reduction
agreement, but shall not include amounts distributed pursuant
to the provisions of Section 5.4(a)(3) of this Plan.
(d) Excess Employee Elective Deferrals shall be adjusted for any
income or loss during the Plan Year. The income or loss
allocable to excess Employee Elective Deferrals is the income
or loss allocable to the Participant's Employee Deferral
Account for the taxable year multiplied by a fraction, the
numerator of which is such Participant's excess Employee
Elective Deferrals for the year and the denominator is the
Participant's Account balance attributable to Employee
Elective Deferrals without regard to any income or loss
occurring during such taxable year.
Section 4.2 Actual Deferral Percentage Test.
(a) For each Plan Year, the Actual Deferral Percentage (ADP) for
Participants who are Highly Compensated Employees must bear a
relationship to the ADP for Participants who are Non-Highly
Compensated Employees which satisfies either of the following
tests for nondiscrimination:
(1) The ADP for Participants who are Highly Compensated
Employees is not more than the ADP for Participants who
are Non-Highly Compensated Employees multiplied by
1.25; or
(2) The ADP for Participants who are Highly Compensated
Employees is not more than the ADP for Participants who
are Non-Highly Compensated Employees multiplied by two,
and the ADP for Participants who are Highly Compensated
Employees does not exceed the ADP for Participants who
are Non-Highly Compensated Employees by more than two
percentage points.
Actual Deferral Percentage means, for a specified group of
Participants for a Plan Year, the average of the ratios
(calculated separately for each Participant in such group) of
(i) the amount of Employer contributions actually paid over
to the Trust on behalf of such Participant for the Plan Year
to (ii) the Participant's Compensation for such Plan Year.
Employer contributions on behalf of any Participant shall
include: (i) any Employee Elective Deferrals made pursuant to
the Participant's deferral election, including excess
Employee Elective Deferrals of Highly Compensated Employees,
but excluding (A) Excess Employee Elective Deferrals by Non-
Highly Compensated Employees which are attributable solely to
Employee Elective Deferrals made under the Plan or any other
plan(s) of the Employer and (B) Employee Elective Deferrals
that are taken into account in the Contribution Percentage
test (provided the ADP test is satisfied both with and
without exclusion of these Employee Elective Deferrals); and
(ii) at the election of the Employer, Qualified Non-Elective
Contributions and Qualified Matching Contributions made
either to the Plan or another plan of the Employer qualified
under section 401(a). For purposes of computing Actual
Deferral Percentages, any Employee who would be a
Participant but for the failure to make Employee Elective
Deferrals shall be treated as a Participant on whose behalf
no Employee Elective Deferrals are made. Compensation may be
limited to that which is received for the period the Employee
is a Participant.
(b) The ADP for any Participant who is a Highly Compensated
Employee for the Plan Year shall be determined by aggregating
his employee elective deferrals in all plans maintained by
the Employer. If a Highly Compensated Employee participates
in two or more cash or deferred arrangements having different
plan years, all cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single
arrangement. Notwithstanding the above, any plans required to
be mandatorily segregated pursuant to Regulations promulgated
under section 401(k) of the Code shall not be aggregated for
purposes of this Section 4.2.
(c) In the event that this Plan satisfies the requirements of
sections 401(k), 401(a)(4), or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more
other Plans satisfy the requirements of such sections of the
Code only if aggregated with this Plan, then this Section
shall be applied by determining the ADP of Employees as if
all such plans were a single plan. For Plan Years beginning
after December 31, 1989, plans may be aggregated in order to
satisfy section 401(k) of the Code only if they have the same
Plan Year.
(d) For purposes of determining the ADP of a Participant who is a
5-percent owner or one of the ten most highly paid Highly
Compensated Employees, the Employee Elective Deferrals (and
Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, if treated as Employee Elective
Deferrals for purposes of the ADP test) and Compensation of
such Participant shall include, respectively, the Employee
Elective Deferrals (and, if applicable, Qualified Non-
Elective Contributions and Qualified Matching Contributions,
or both) and Compensation for the Plan Year of family members
(as defined in section 414(q)(6) of the Code). Such family
members shall be disregarded as separate Employees in
determining the ADP both for Participants who are Non-Highly
Compensated Employees and for Participants who are Highly
Compensated Employees.
(e) In order to be considered for purposes of performing the ADP
test(s), Employee Elective Deferrals, Qualified Non-Elective
Contributions and Qualified Matching Contributions must be
made before the last day of the twelve-month period
immediately following the Plan Year to which such
contributions relate.
(f) The Employer shall maintain annual records sufficient to
demonstrate satisfaction of the ADP test and identify the
amount of Qualified Non-Elective Contributions or Qualified
Matching Contributions, or both, used in such test.
(g) The determination and treatment of the amounts considered in
determining the ADP with respect to each Participant shall
satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
Section 4.3 Distribution of Excess Contributions.
(a) Discriminatory Employee Elective Deferrals (Excess
Contributions) are, with respect to any Plan Year, the excess
of:
(1) The aggregate amount of Employer contributions actually
taken into account in computing the ADP of Highly
Compensated Employees for such Plan Year, over
(2) The maximum amount of such contributions permitted
pursuant to the ADP test described under Section 4.2(a)
(determined by reducing contributions made on behalf of
Highly Compensated Employees in order, beginning with
the contributions made on behalf of the Employee with
the highest ADP).
(b) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of
each Plan Year to Participants to whose Accounts such Excess
Contributions were allocated for the preceding Plan Year.
Such distributions shall be made to Highly Compensated
Employees on the basis of the respective portions of the
Excess Contributions attributable to each of such Employees,
calculated as described above. Excess Contributions shall be
allocated to Participants who are subject to the family
member aggregation rules of section 414(q)(6) of the Code in
proportion to the Employee Elective Deferrals (and amounts
treated as Employee Elective Deferrals) of each family member
whose Employee Elective Deferrals are included in the
combined ADP. Excess Contributions (including any amounts
recharacterized as After-Tax Employee Contributions as
permitted under Section 4.6) shall be treated as Annual
Additions under the Plan.
(c) Excess Contributions shall be adjusted for any income or loss
during the Plan Year. The income or loss allocable to Excess
Contributions is the income or loss allocable to the
Participant's Employee Deferral Account (and, if applicable,
his Qualified Non-Elective Contribution Account or Qualified
Matching Contributions Account, or both) for the Plan Year
multiplied by a fraction, the numerator of which is such
Participant's Excess Contributions for the year and the
denominator of which is the Participant's Account balance
attributable to Employee Elective Deferrals (and Qualified
Non-Elective Contributions or Qualified Matching
Contributions, or both, if any of such contributions are
included in the ADP test) without regard to any income or
loss occurring during such Plan Year.
(d) Excess Contributions shall be distributed from the
Participant's Employee Deferral Account and Qualified
Matching Contributions Account (if applicable) in proportion
to the Participant's Employee Elective Deferrals and
Qualified Matching Contributions (to the extent used in the
ADP test) for the Plan Year. Excess Contributions shall be
distributed from the Participant's Qualified Non-Elective
Contribution Account only to the extent that such Excess
Contributions exceed the balance of the Participant's
Employee Deferral Account and Qualified Matching
Contributions Account.
Section 4.4 Actual Contribution Percentage Test.
(a) For each Plan Year, the Actual Contribution Percentage (ACP)
of Highly Compensated Employees must bear a relationship to
the ACP for Non-Highly Compensated Employees which satisfies
either of the following tests for nondiscrimination:
(1) The ACP for Participants who are Highly Compensated
Employees is not more than the ACP for Participants who
are Non-Highly Compensated Employees multiplied by
1.25; or
(2) The ACP for Participants who are Highly Compensated
Employees is not more than the ACP for Participants who
are Non-Highly Compensated Employees multiplied by two,
and the ACP for participants who are Highly Compensated
Employees does not exceed the ACP for Participants who
are Non-Highly Compensated Employees by more than two
percentage points.
(b) If any Highly Compensated Employees have both Employee
Elective Deferrals and Matching Contributions and/or After-
Tax Employee Contributions made on their behalf to plans
maintained by the Employer, and the sum of the ADP and ACP of
such Highly Compensated Employees subject to either or both
tests exceeds the Aggregate Limit, then the ACP of each such
Highly Compensated Employee will be reduced (beginning with
that of the Highly Compensated Employee whose ACP is the
highest) so that the limit is not exceeded. The amount by
which each Highly Compensated Employee's Contribution
Percentage Amount is reduced shall be treated as an Excess
Aggregate Contribution. The ADP and ACP of the Highly
Compensated Employees are determined after any corrections
required to meet the ADP and ACP tests. Multiple use does
not occur if either the ADP or ACP of the Highly Compensated
Employees does not exceed 1.25 multiplied by the ADP and ACP
of the Non-Highly Compensated Employees.
(c) For purposes of this Section, the Actual Contribution
Percentage for any Participant who is a Highly Compensated
Employee and who is eligible to have Contribution Percentage
Amounts allocated to his or her Account under two or more
plans described in section 401(a) of the Code, or
arrangements described in section 401(k) of the Code that are
maintained by the Employer, shall be determined as if the
total of such Contribution
Percentage Amounts was made under each plan. If a Highly
Compensated Employee participates in two or more cash or
deferred arrangements that have different plan years, all
cash or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
Notwithstanding the above, to the extent mandatorily
disaggregated pursuant to Treasury Regulations promulgated
under section 401(m) of the Code, applicable plans shall
continue to be treated as separate.
(d) In the event that this Plan satisfies the requirements of
sections 401(m), 401(a)(4) or 410(b) of the Code only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such sections of the
Code only if aggregated with this Plan, then this Section
shall be applied by determining the Contribution Percentage
of Employees as if all such plans were a single plan. For
plan years beginning after December 31, 1989, plans may be
aggregated in order to satisfy section 401(m) of the Code
only if they have the same plan year.
(e) For purposes of determining the Actual Contribution
Percentage of a Participant who is a five-percent owner or
one of the ten most highly paid Highly Compensated Employees,
the Contribution Percentage Amounts and Compensation of such
Participant shall include the Contribution Percentage Amounts
and Compensation for the Plan Year of family members as
defined in section 414(q)(6) of the Code. Family members,
with respect to Highly Compensated Employees, shall be
disregarded as separate Employees in determining the
Contribution Percentage both for Participants who are Non-
Highly Compensated Employees and for Participants who are
Highly Compensated Employees.
(f) For purposes of determining the ACP test, Employee
Contributions are considered to have been made in the Plan
Year in which contributions were made to the Trust. Matching
Contributions and Qualified Non-Elective Contributions will
be considered made for a Plan Year if made no later than the
end of the twelve-month period beginning on the day after the
close of the Plan Year.
(g) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and identify the amount of
Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(h) The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the
Treasury.
(i) Definitions:
"Average Contribution Percentage" means, for a specified
group of Participants for a Plan Year, the average of the
ratios (calculated separately for each Participant in such
group) of the Participant's Contribution Percentage Amounts
to the Participant's Compensation for the Plan Year (whether
or not the Employee was a Participant for the entire Plan
Year).
"Aggregate Limit" -- In general, for purposes of this
Section, the Aggregate Limit is the greater of:
(1) The sum of:
(A) 1.25 times the greater of the Relevant Actual
Deferral Percentage or the Relevant Actual
Contribution Percentage, and
(B) Two percentage points plus the lesser of the
Relevant Actual Deferral Percentage or the
Relevant Actual Contribution Percentage. In no
event, however, shall this amount exceed twice
the lesser of the Relevant Actual Deferral
Percentage or the Relevant Actual Contribution
Percentage; or
(2) The sum of:
(A) 1.25 times the lesser of the Relevant Actual
Deferral Percentage or the Relevant Actual
Contribution Percentage, and
(B) Two percentage points plus the greater of the
Relevant Actual Deferral Percentage or the
Relevant Actual Contribution Percentage. In no
event, however, shall this amount exceed twice
the greater of the Relevant Actual Deferral
Percentage or the Relevant Actual Contribution
Percentage.
"Relevant Actual Deferral Percentage" means the Actual
Deferral Percentage of the group of Non-Highly Compensated
Employees eligible under the arrangement subject to
section 401(k) of the Code for the Plan Year, and the term
"Relevant Actual Contribution Percentage" means the Actual
Contribution Percentage of the group of Non-Highly
Compensated Employees eligible under the Plan subject to
section 401(m) of the Code for the Plan Year beginning with
or within the Plan Year of the arrangement subject to
section 401(k) of the Code.
"Contribution Percentage" means the ratio (expressed as a
percentage) of the Participant's Contribution Percentage
Amounts to the Participant's Compensation for the Plan Year
(whether or not the Employee was a Participant for the entire
Plan Year).
"Contribution Percentage Amounts" means the sum of the
Employee Contributions, Matching Contributions, and Qualified
Matching Contributions (to the extent not taken into account
for purposes of the ADP test) made under the Plan on behalf
of the Participant for the Plan Year. Such Contribution
Percentage Amounts shall not include Matching Contributions
which are forfeited either in order to correct Excess
Aggregate Contributions or because the contributions to which
they relate are Excess Employee Deferrals, Excess
Contributions, or Excess Aggregate Contributions. The
Employer may
include Qualified Non-Elective Contributions in the
Contribution Percentage Amounts. The Employer also may elect
to use Employee Elective Deferrals in the Contribution
Percentage Amounts so long as the ADP test is met before the
Employee Elective Deferrals are used in the ACP test and
continues to be met following the exclusion of those Employee
Elective Deferrals that are used to meet the ACP test.
"Eligible Participant" means any Employee who is eligible
to make an After-Tax Employee Contribution, or an Employee
Elective Deferral (if the Employer takes such contributions
into account in the calculation of the Contribution
Percentage), or to receive a Matching Contribution or a
Qualified Matching Contribution.
"After-Tax Employee Contribution" means any contribution
made to the Plan by or on behalf of a Participant that is
included in the Participant's gross income in the year in
which made and that is maintained under a separate Account to
which earnings and losses are allocated.
"Matching Contribution" means an Employer contribution made
to this or any other Defined Contribution Plan on behalf of a
Participant on account of an Employee Contribution made by
such Participant, or on account of a Participant's Employee
Elective Deferral, under a plan maintained by the Employer.
Section 4.5 Distribution of Excess Aggregate Contributions.
(a) "Excess Aggregate Contributions" means, with respect to any
Plan Year, the excess of:
(1) The Actual Contribution Percentage (ACP) amounts taken
into account in computing the numerator of the
Contribution Percentage actually made on behalf of
Highly Compensated Employees for such Plan Year, over
(2) The maximum contribution percentage amounts permitted
by the ACP test (determined by reducing contributions
made on behalf of Highly Compensated Employees in order
of such Employees' Actual Contribution Percentages
beginning with the highest of such percentages).
(b) Notwithstanding any other provision of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss
thereto, shall be forfeited if forfeitable or, if not
forfeitable, distributed no later than the last day of each
Plan Year to Participants to whose Accounts such Excess
Aggregate Contributions were allocated for the preceding Plan
Year. Excess Aggregate Contributions of Participants who are
subject to the family member aggregation rules of section
414(q)(6) of the Code shall be allocated among applicable
family members in proportion to the After-Tax Employee and
Employer
Matching Contributions (or amounts treated as Matching
Contributions) of each family member whose contributions are
included in the combined ACP. Excess Aggregate Contributions
shall be treated as Annual Additions under the Plan.
(c) Excess Aggregate Contributions shall be adjusted for any
income or loss during the Plan Year. The income or loss
allocable to Excess Aggregate Contributions shall be the
Matching Contribution Account (if any, and if all amounts
therein are not used in the ADP test) and, if applicable,
Qualified Non-Elective Contribution Account and Employee
Deferral Account for the Plan Year multiplied by a fraction,
the numerator of which is such Participant's Excess Aggregate
Contributions for the year and the denominator is the
Participant's Account balance(s) attributable to contribution
percentage amounts without regard to any income or loss
occurring during such Plan Year.
(d) Forfeitures of Excess Aggregate Contributions may either be
reallocated to the Accounts of Non-Highly Compensated
Employees or applied to reduce Employer contributions.
(e) Excess Aggregate Contributions shall be forfeited, if
forfeitable, or distributed on a pro rata basis from the
Participant's After-Tax Employee Contribution Account,
Matching Contribution Account, and Qualified Matching
Contribution Account (and, if applicable, the Participant's
Qualified Non-Elective Contribution Account or Employee
Deferral Account, or both).
Section 4.6 Recharacterization.
(a) The Administrator may treat Excess Contributions as an amount
which is distributed to the Participant and then contributed
by the Participant to the Plan as an After-Tax Employee
Contribution in order for the Plan to satisfy the ADP test.
Recharacterized amounts will remain nonforfeitable and
subject to the same distribution requirements as Employee
Elective Deferrals. Amounts may not be recharacterized to
the extent that such amount in combination with other
Employee Contributions made by that Employee would exceed any
stated limit under the Plan applicable to Employee
Contributions.
(b) Recharacterization must occur no later than two and one-half
months after the last day of the Plan Year in which such
Excess Contributions arose and is deemed to occur no earlier
than the date the last Highly Compensated Employee is
informed in writing of the amount recharacterized and the
consequences thereof. Recharacterized amounts will be
taxable to the Participant for the Participant's tax year in
which the Participant would have received them in cash.
ARTICLE V - ALLOCATIONS, VALUATION AND VESTING
Section 5.1 Allocation of Contributions.
As of the Valuation Date, Employee Elective Deferrals, After-Tax
Contributions, Employer Matching Contributions and Qualified Non-
Elective Contributions will be allocated to Participants' Accounts
in the amounts in which they were contributed to the Plan by the
Employer with respect to each Participant pursuant to Article III.
The Allocation of Minimum Employer Contribution is set forth in
Section 5.7.
Section 5.2 Participants Who Will Receive an Allocation.
(a) No Participant will receive an allocation of Employer Regular
Contributions as none are provided under this Plan.
(b) An allocation of Employer Matching Contributions made under
Section 3.1 shall only be made with respect to those
Participants who have performed at least one (1) Hour of
Service regardless of employment status on the last day of
the Plan Year.
(c) Allocation of the Minimum Employer Contribution is set forth
in Section 5.7.
Section 5.3 Allocation of Forfeitures.
Forfeitures, if any, will reduce Employer Matching Contributions
for the current Plan Year.
Section 5.4 Allocation Limitations.
(a) If the Participant does not participate in, and has never
participated in another qualified plan maintained by the
Employer, or a welfare benefit fund, as defined in
section 419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in section 415(l)(2)
of the Code, maintained by the Employer, which provides an
Annual Addition as defined in subsection (d)(1), the
following provisions shall apply:
(1) The amount of Annual Additions which may be credited to
the Participant's Account for any Limitation Year shall
not exceed the lesser of the Maximum Permissible
Amount, as defined in subsection (d)(9), or any other
limitation contained in this Plan. If contributions
that would otherwise be contributed or allocated to the
Participant's Account would cause the Annual Additions
for the Limitation Year to exceed the Maximum
Permissible Amount, the amount
contributed or allocated will be reduced (Employee
Elective Deferrals first) so that the Annual Additions
for the Limitation Year will equal the Maximum
Permissible Amount.
(2) As soon as is administratively feasible after the end
of the Limitation Year, the Maximum Permissible Amount
for the Limitation Year will be determined on the basis
of the Participant's actual Section 415 Compensation
for the Limitation Year.
(3) If there is an excess Annual Addition due to a
reasonable error in estimating a Participant's
Compensation or in determining permissible Employee
Elective Deferrals, or any other facts and
circumstances as determined by the Committee and which
are found by the Commissioner of Internal Revenue to
justify the availability of the procedures for
correcting the excess as set forth in this subsection,
the excess will be corrected as follows:
(A) Any After-Tax Employee Contributions, to the
extent their return would reduce the excess, will
be returned to the Participant;
(B) Any portion of the excess directly attributable
to and arising from Employee Elective Deferrals,
to the extent its return would reduce the excess,
will be returned to the Participant;
(C) If after the application of paragraphs (A) and
(B) an excess still exists, and the Participant
is covered by the Plan at the end of the
Limitation Year, the excess in the Participant's
Account will be used to reduce Employer
contributions beginning with Employee Elective
Deferrals, if any, for the next Limitation Year,
and each succeeding Limitation Year if necessary;
(D) If after the application of paragraphs (A) and
(B) an excess still exists, and the Participant
is not covered by the Plan at the end of a
Limitation Year, the excess will be held
unallocated in a suspense account. The suspense
account will be applied to reduce future
contributions beginning with Employee Elective
Deferrals, if any, for all remaining Participants
for the next Limitation Year, and each succeeding
Limitation Year if necessary;
(E) If a suspense account is in existence at any time
during a Limitation Year pursuant to this
Section, it will not receive any allocation of
the investment gains and losses of the Trust. If
a suspense account is in existence at any time
during a particular Limitation Year, all amounts
in the suspense account must be allocated and
reallocated to Participants' Accounts before any
Employer or any After-Tax Employee Contributions
may be made to the Plan for that Limitation Year.
The excess amount may not be distributed to
Participants or former Participants.
(b) If, in addition to this Plan, a Participant is covered under
another qualified Defined Contribution Plan maintained by the
Employer, a welfare benefit fund (as defined in
section 419(e) of the Code) maintained by the Employer, or an
individual medical account (as defined in section 415(l)(2)
of the Code) maintained by the Employer, which provides an
Annual Addition as defined in subsection (d)(1), during any
Limitation Year, the following provisions shall apply:
(1) The Annual Additions which may be credited to a
Participant's Account under this Plan for any such
Limitation Year may not exceed the Maximum Permissible
Amount reduced by the Annual Additions credited to such
Participant's account under such other plans and/or
welfare benefit funds for the same Limitation Year. If
the Annual Additions with respect to the Participant
under other Defined Contribution Plans and welfare
benefit funds maintained by the Employer are less than
the Maximum Permissible Amount and the Employer
contribution that would otherwise be contributed or
allocated to the Participant's Account under this Plan
would cause such Participant's Annual Additions for the
Limitation Year to exceed this limitation, the amount
contributed or allocated will be reduced so that the
Annual Additions under all such plans and funds for the
Limitation Year will equal the Maximum Permissible
Amount. If the Annual Additions with respect to the
Participant under such other Defined Contribution Plans
and welfare benefit funds in the aggregate are equal to
or greater than the Maximum Permissible Amount, no
amount will be contributed or allocated to the
Participant's Account under this Plan for the
Limitation Year.
(2) As soon as is administratively feasible after the end
of the Limitation Year, the Maximum Permissible Amount
for the Limitation Year will be determined on the basis
of the Participant's actual Section 415 Compensation
for the Limitation Year.
(3) If, as a result of a reasonable error in estimating
compensation, Employee contributions or other facts and
circumstances as determined by the Committee, a
Participant's Annual Additions under this Plan and such
other plans would include an amount in excess of the
Maximum Permissible Amount for a Limitation Year, the
excess will be deemed to consist of the Annual
Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual
medical account will be deemed to have been allocated
first regardless of the actual allocation date.
(4) If an amount in excess of the Maximum Permissible
Amount was allocated to a Participant on an allocation
date of this Plan which coincides with an allocation
date of another plan, the excess attributed to this
Plan will be the product of
(A) the total excess allocated as of such date and
(B) the ratio of (i) the Annual Additions allocated
to the Participant for the Limitation Year as of
such date under this Plan to (ii) the total
Annual Additions allocated to the Participant for
the Limitation Year as of such date under this
and all other qualified Defined Contribution
Plans maintained by the Employer.
(5) Any excess Annual Addition attributed to this Plan will
be disposed of in the manner described in
subsection (a)(3).
(c) If the Employer maintains, or at any time maintained, a
qualified Defined Benefit Plan covering any Participant in
this Plan, the sum of a Participant's Defined Benefit
Fraction and Defined Contribution Fraction shall not exceed
1.0 in any Limitation Year. If the sum of the fractions
exceeds 1.0, the annual benefit provided under the Defined
Benefit Plan will be reduced until the sum of the fractions
equals 1.0.
(d) Definitions:
(1) Annual Additions: The sum of the following amounts
which are credited to a Participant's Account for the
Limitation Year:
(A) Employer contributions,
(B) After-Tax Employee Contributions (if any), and
(C) Amounts allocated, after March 31, 1984, to an
individual medical account, as defined in
section 415(1)(2) of the Code, which is part of a
pension or annuity plan maintained by the
Employer, as well as amounts derived from
contributions paid or accrued after December 31,
1985, in taxable years ending after such date,
attributable to post-retirement medical benefits
and allocated to the separate account of a Key
Employee, as defined in section 419(d)(3) of the
Code, under a welfare benefit fund, as defined in
section 419(e) of the Code, maintained by the
Employer.
For this purpose, any excess applied under
Sections (a)(3) or (b)(5) in the Limitation Year to
reduce Employer contributions will be considered Annual
Additions for such Limitation Year.
(2) Section 415 Compensation: For purposes of this
Section, a Participant's Earned Income (if any), wages,
salaries, and fees for professional services and other
amounts received for personal services actually
rendered in the course of employment with the Employer
maintaining the Plan (including, but not limited to,
commissions paid salesmen, compensation for services on
the basis of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe benefits, and
reimbursements or expense allowances under a
nonaccountable plan as described in Treasury Regulation
Section 1.62-2(c)), and excluding the following:
(A) Employer contributions to a plan of deferred
compensation which are not includible in the
Employee's gross income for the taxable year in
which contributed, or Employer contributions
under a simplified employee pension plan to the
extent such contributions are deductible by the
Employee, or any distributions from a plan of
deferred compensation;
(B) Amounts realized from the exercise of a non-
qualified stock option, or when restricted stock
(or property) held by the Employee either becomes
freely transferable or is no longer subject to a
substantial risk of forfeiture;
(C) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified
stock option; and
(D) Other amounts which received special tax
benefits, or contributions made by the Employer
(whether or not under a salary reduction
agreement) toward the purchase of an annuity
contract described in section 403(b) of the Code
(whether or not the contributions are actually
excludable from the gross income of the
Employee).
For Limitation Years beginning after December 31, 1991,
for purposes of applying the limitations of this
Article, Section 415 Compensation for a Limitation Year
is the compensation actually paid or made available
during such Limitation Year. Section 415 Compensation
does not include accrued compensation unless it is
uniform and consistent and paid within two weeks.
Notwithstanding the preceding sentence, Section 415
Compensation for a Participant in a Defined
Contribution Plan who is permanently and totally
disabled (as defined in section 22(e)(3) of the Code)
is the compensation such Participant would have
received for the Limitation Year if the Participant had
been paid at the rate of compensation at which he was
paid immediately before becoming permanently and
totally disabled; such imputed compensation for the
disabled Participant may be taken into account only if
the Participant is not a Highly Compensated Employee
(as defined in section 414(q) of the Code) and
contributions made on behalf of such Participant are
nonforfeitable when made.
(3) Defined Benefit Fraction: A fraction, the numerator of
which is the sum of the Participant's Projected Annual
Benefit under all Defined Benefit Plans (whether or not
terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of
the dollar limitation determined for the Limitation
Year under sections 415(b) and (d) of the Code or
140 percent of the highest average Section 415
Compensation, including any adjustments under
section 415(b) of the Code.
Notwithstanding the above, if the Participant was a
Participant, as of the first day of the first
Limitation Year beginning after December 31, 1986, in
one or more Defined Benefit Plans maintained by the
Employer which were in existence on May 6, 1986, the
denominator of this fraction will not be less than
125 percent of the sum of the annual benefits under
such plans which the Participant had accrued as of the
close of the last Limitation Year beginning before
January 1, 1987, disregarding any changes in the terms
and conditions of the plan(s) after May 5, 1986. The
preceding sentence applies only if the Defined Benefit
Plans individually and in the aggregate satisfied the
requirements of section 415 of the Code for all
Limitation Years beginning before January 1, 1987.
(4) Defined Contribution Dollar Limitation: $30,000 or, if
greater, one-fourth of the defined benefit dollar
limitation set forth in section 415(b)(1) of the Code,
as indexed, as in effect for the applicable Limitation
Year.
(5) Defined Contribution Fraction: A fraction, the
numerator of which is the sum of the Annual Additions
to the Participant's Account under this and all other
Defined Contribution Plans (whether or not terminated)
maintained by the Employer for the current and all
prior Limitation Years (including the annual additions
attributable to the Participant's nondeductible
Employee contributions to all Defined Benefit Plans,
whether or not terminated, maintained by the Employer,
and the annual additions attributable to all welfare
benefit funds, as defined in section 419(e) of the
Code, and individual medical accounts, as defined in
section 415(1)(2) of the Code, maintained by the
Employer), and the denominator of which is the sum of
the maximum aggregate amounts for the current and all
prior Limitation Years which also constituted Years of
Service with the Employer (regardless of whether a
Defined Contribution Plan was maintained by the
Employer). The maximum aggregate amount for any
Limitation Year is the lesser of (A) 125 percent of the
dollar limitation determined under sections 415(b)
and (d) of the Code in effect under
section 415(c)(1)(A) of the Code or (B) 35 percent of
the Participant's Section 415 Compensation for such
year.
If the Employee was a Participant as of the end of the
first day of the first Limitation Year beginning after
December 31, 1986 in one or more Defined Contribution
Plans maintained by the Employer which were in
existence on May 6, 1986, the numerator of this
fraction will be adjusted if the sum of this fraction
and the Defined Benefit Fraction would otherwise exceed
1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the
excess of the sum of the fractions over 1.0, multiplied
by (2) the denominator of this fraction, will be
permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the
fractions as they would be computed as of the end of
the last Limitation Year beginning before January 1,
1987, and disregarding any changes in the terms and
conditions of the Plan made after May 5, 1986, but
using the Code section 415 limitation applicable to the
first Limitation Year beginning on or after January 1,
1987.
The Annual Addition for any Limitation Year beginning
before January 1, 1987, shall not be recomputed to
treat all Employee contributions as Annual Additions.
In determining the Defined Contribution Fraction under
section 415(e)(3)(B) of the Code and pursuant to this
Section of the Plan, "100 percent" shall be
substituted for "125 percent" unless the minimum
allocation percentage under section 416(c)(2)(A) of the
Code and Section 11.3(a) of the Plan is increased from
"three percent" to "four percent" and the Plan would
not be a Top-Heavy Plan if the phrase "90 percent"
were substituted for each reference to the phrase
"60 percent" in Section 11.2(b) of the Plan.
(6) Employer: For purposes of this Article, any entity
that adopts this Plan, and all members of a controlled
group of corporations (as defined in section 414(b) of
the Code as modified by section 415(h) of the Code),
all commonly controlled trades or businesses (as
defined in section 414(c) of the Code as modified by
section 415(h) of the Code) or affiliated service
groups (as defined in section 414(m) of the Code) of
which the adopting Employer is part, and any other
entity required to be aggregated with the Employer
pursuant to Regulations under section 414(o) of the
Code.
(7) Highest Average Compensation: The average Section 415
Compensation for the three consecutive Years of Service
with the Employer which produces the highest average.
(8) Limitation Year: The Limitation Year is the Plan Year.
All qualified plans maintained by the Employer must use
the same Limitation Year. If the Limitation Year is
amended to a different 12-consecutive-month period, the
new Limitation Year must begin on a date within the
Limitation Year in which the amendment is made.
(9) Maximum Permissible Amount: The maximum Annual
Addition that may be contributed or allocated to a
Participant's Account under the Plan for any Limitation
Year shall not exceed the lesser of:
(A) the Defined Contribution Dollar Limitation, or
(B) 25 percent of the Participant's Section 415
Compensation for the Limitation Year.
The Section 415 Compensation limitation referred
to in (B) shall not apply to any contribution for
medical benefits (within the meaning of
section 401(h) or section 419A(f)(2) of the Code)
which is otherwise treated as an Annual Addition
under sections 415(1)(1) or 419A(d)(2) of the
Code.
If a short Limitation Year is created because an
amendment changes the Limitation Year to a
different 12-consecutive-month period, the
Maximum Permissible Amount shall not exceed the
Defined Contribution Dollar Limitation multiplied
by the following fraction:
Number of months in the short Limitation Year
12
(10) Projected Annual Benefit: The annual retirement
benefit (adjusted to an actuarially equivalent straight
life annuity if such benefit is expressed in a form
other than a straight life annuity or qualified joint
and survivor annuity) to which the Participant would be
entitled under the terms of the Plan assuming:
(A) The Participant will continue employment until
Normal Retirement Age under the Plan (or current
age, if later), and
(B) The Participant's Section 415 Compensation for
the current Limitation Year and all other
relevant factors used to determine benefits under
the Plan will remain constant for all future
Limitation Years.
Section 5.5 Valuation.
The assets of the Trust will be valued on each Valuation Date at
fair market value. On such date, the earnings and losses of the
Trust will be allocated to each Participant's Account according to
the ratio of such Account balance to all Account balances, or by
utilizing any other formula as is appropriate under the
circumstances.
Section 5.6 Vesting and Accrual.
(a) Employee Elective Deferrals, After-Tax Employee Contributions
and Qualified Non-Elective Contributions are always
100 percent Vested.
(b) The portion of a Participant's Account attributable to the
first $600 of Employer Matching Contributions for any Plan
Year, and earnings thereon, is 100 percent Vested. The
nonforfeitable percentage of a Participant's Account
attributable to any additional Employer Matching
Contributions, and earnings thereon, is determined as
follows:
Years of Service The nonforfeitable
percentage is:
Less than 1 0
Less than 2 0
Less than 3 0
Less than 4 20
Less than 5 40
Less than 6 60
Less than 7 80
7 or more 100
(c) Notwithstanding the vesting schedule(s) specified above, an
Employee's right to his Accounts will be nonforfeitable upon
attainment of Normal Retirement Age, death or Disability.
(d) For purposes of determining Years of Service and One-Year
Breaks in Service in computing an Employee's nonforfeitable
right to his Account balance derived from Employer
contributions, the 12-consecutive-month period will commence
on the date the Employee first performs an Hour of Service
and each subsequent 12-consecutive-month period will commence
on the anniversary of such date.
(e) All of an Employee's Years of Service with the Employer or
any Affiliate will be credited for vesting purposes.
(f) Years of Service before a One-Year Break in Service:
(1) In the case of a Participant who has incurred a One-
Year Break in Service, Years of Service before such
break will be immediately taken into account upon
rehire.
(2) In the case of a Participant who has 5 or more
consecutive One-Year Breaks in Service, all service
after such One-Year Breaks in Service will be
disregarded for the purposes of vesting the Employer-
derived Account balance that accrued before such One-
Year Breaks in Service. Such Participant's pre-break
service will count in counting vesting for the post-
break Employer-derived Account balance.
Separate Accounts will be maintained for the
Participant's pre-break and post-break Employer-derived
Account balance only if the pre-break Employer-derived
Account has a Vested balance. Both Accounts will share
in the earnings and losses of the Trust Fund.
If a Participant ceases to be employed but is then
reemployed by the Employer before a One-Year Break in
Service occurs, he shall continue to participate in the
Plan in the same manner as if such termination had not
occurred.
(g) If a Participant ceases to be employed but is then reemployed
by the Employer before he has incurred five One-Year Breaks
in Service, the forfeited portions of his Account shall be
restored by an additional Employer contribution.
(h) If the Plan's vesting schedule is changed or amended, or the
Plan is amended in any way that directly or indirectly
affects the computation of the Participant's nonforfeitable
percentage, each active Participant will be credited with the
most favorable schedule.
Furthermore, if the vesting schedule of a Plan is amended, in
the case of an Employee who is a Participant as of the later
of the date such amendment is adopted or the date it becomes
effective, the nonforfeitable percentage (determined as of
such date) of such Employee's right to his Employer-derived
accrued benefit will not be less than the percentage computed
under the Plan without regard to such amendment.
(i) If a distribution is made at a time when a Participant has a
nonforfeitable right to less than 100 percent of the Account
balance derived from Employer contributions and the
Participant may increase his nonforfeitable percentage in the
Account:
(1) A separate Account will be established for the
Participant's interest in the Plan as of the time of
the distribution, and
(2) At any relevant time the Participant's nonforfeitable
portion of the separate Account will be equal to an
amount ("X") determined by the formula:
X = P(AB + (R x D)) - (R x D)
For purposes of applying the above formula: P is the
nonforfeitable percentage at the relevant time, AB is
the Account balance at the relevant time, D is the
amount of the distribution, and R is the ratio of the
Account balance at the relevant time to the Account
balance after distribution. "Relevant time" means the
time at which, under the plan, the Vested percentage in
the Account can not increase.
Section 5.7 Allocation of Minimum Employer Contributions.
The Minimum Employer Contribution made for the Plan Year shall be
allocated as follows:
(a) First, the Minimum Employer Contribution for the Plan Year
shall be allocated during the Plan Year to each individual
who is an Eligible Participant on the first day of the Plan
Year as Employee Elective Deferrals pursuant to Section 3.2
and as Employer Matching Contributions pursuant to
Section 3.1. These allocations shall be made to each such
Eligible Participant's Employee Deferral Account and Employer
Matching Contribution Account, respectively.
(b) Second, the balance of the Minimum Employer Contribution
remaining after the allocation in Section 5.7(a) shall be
allocated to the Employer Matching Contribution Account of
each Non-Highly Compensated Employee who is an Eligible
Participant on the first day of the Plan Year and is employed
on the last day of the Plan Year, in the ratio that such
Eligible Participant's Employee Elective Deferrals during the
Plan Year bears to the Employee Elective Deferrals of all
such Eligible Participants during the Plan Year.
(c) Third, notwithstanding Section 5.4 of the Plan, if the total
contributions allocated to a Participant's Accounts including
the Minimum Employer Contribution exceed the Participant's
maximum Annual Additions limit for any Limitation Year, then
such excess shall be held in a suspense account. Such
amounts shall be used to reduce employer contributions in the
next and succeeding Limitation Years.
(d) Fourth, the balance of the Minimum Employer Contribution
remaining after the allocation under Sections 5.7(a), (b) and
(c) shall be allocated as a nonelective contribution to each
Non-Highly Compensated Employee who is an Eligible
Participant on the first day of the Plan Year, in the ratio
that such Eligible Participant's Compensation for the Plan
Year bears to the Compensation for the Plan Year of all such
Eligible Participants. Contributions made pursuant to this
Subsection 5.7(d) shall be allocated to the Employer Matching
Contribution Account of such Eligible Participant
and are distributable only in accordance with the
distribution provisions applicable to Employer Matching
Contributions. Contributions made pursuant to this
Subsection shall be subject to the vesting schedule set forth
in Section 5.6. Such contributions shall be invested under
the Plan in the manner designated by such Eligible
Participant.
(e) Each installment of the Minimum Employer Contribution shall
be held in a contribution suspense account unless, or until,
allocated on or before the end of the Plan Year in accordance
with this Section 5.7. Such suspense account shall not
participate in the allocation of investment gains, losses,
income and deductions of the Trust Fund as a whole, but shall
be invested separately, as directed by the Employer, and all
gains, losses, income and deductions attributable to such
investment shall be applied to reduce Plan expenses, and
thereafter, to reduce employer contributions.
(f) The Minimum Employer Contribution allocated to the Employer
Matching Contribution Account of a Participant pursuant to
Section 5.7(b) shall be treated in the same manner as
Employer Matching Contributions for all purposes of the Plan.
(g) Notwithstanding any other provision of the Plan to the
contrary, any allocation of Employee Elective Deferrals to a
Participant's Employee Deferral Account shall be made under
either Section 5.1 or this Section 5.7, as appropriate, but
not both Sections. Similarly, any allocation of an Employer
Matching Contribution shall be made under either Section 5.1
or this Section 5.7, as appropriate, but not both Sections.
(h) An "Eligible Participant" for purposes of this Section 5.7
is any Employee who has satisfied the eligibility
requirements of Article II and is thereby eligible to make
Employee Elective Deferrals, whether or not such Employee has
elected to make contributions or has completed an enrollment
form. Notwithstanding the definition of "Participant" in
Article I, an Eligible Participant who receives an allocation
of a contribution under this Section 5.7 shall be treated as
a Participant under the Plan for all purposes.
ARTICLE VI - DISTRIBUTIONS
Section 6.1 Distributions of Small Account Balances.
If a Participant terminates service, and the value of the
Participant's Vested Account balance derived from Employer and
Employee contributions is not greater than $5,000, the Participant
will receive a distribution of the value of the entire Vested
portion of such Account balance. If the value of a Participant's
Vested Account balance is zero, the Participant shall be deemed to
have received a distribution of such Vested Account balance.
Section 6.2 Distributions While In-Service.
Subject to the provisions of Section 6.13, in-service distributions
shall be made, at the election of a Participant, in the following
circumstance(s):
(a) Anytime after the Participant's Normal Retirement Age.
(b) In-service distributions shall be permitted upon a
showing of hardship to the Committee. A hardship
withdrawal shall be authorized only upon a showing of
an immediate and heavy financial need.
(1) Hardship withdrawals are available from the
following accounts, and will be withdrawn from
the Participant's accounts in the following
hierarchy:
(A) After-Tax Employee Contribution Account
(B) Rollover Account
(C) Employee Deferral Account
(D) 100% Vested Matching Contribution Account
(not including pre-88 Employer
contributions or contributions less than
24 months old)
(E) Employer Matching Contribution Account
(vested portion of contributions that are
more than 24 months old)
(2) Withdrawals will be taken from the investment
funds on a pro rata basis.
(c) The Committee, at the election of the Participant,
shall direct the Trustee to distribute to any
Participant all or a portion of his or her After-Tax
Employee Contributions.
(d) The Committee, at the election of the Participant,
shall direct the Trustee to distribute to any
Participant all or a portion of his or her Rollover
Contributions.
(e) The Committee, at the election of the Participant,
shall direct to the Trustee to distribute to any
Participant all or a portion of his or her Pre-1998 100
percent Vested Employer Matching Contributions, for
those funds that have been in the Plan for at least 24
months.
(f) The Committee, at the election of the Participant,
shall direct the Trustee to distribute to any
Participant all or a portion of his of her Pre-1998
Regular Employer Matching Contributions for those funds
that have been in the Plan for at least 24 months.
Section 6.3 Distributions Upon Separation From Service.
Subject to the provisions of Sections 6.8 and 6.9, following the
request of the Participant and after approval of the Plan
Administrator, the Trustee shall distribute the value of the
Participant's Vested Account balance in one lump sum. Such
distribution shall begin as soon as administratively feasible,
following the Participant's separation from service.
Section 6.4 Distributions Upon Retirement.
In the event that an applicable retirement date has been reached,
and subject to the terms of Sections 6.8 and 6.9, all Vested
amounts credited to the Participant's Account balance shall become
distributable. Except as provided in Section 6.10, the
distribution will be made in one lump sum. The distribution will
be made, as soon as administratively feasible, following the
applicable retirement date which will include the attainment of
Normal Retirement Age or the Late Retirement Date and after the
Plan Administrator has approved the request of the Participant.
Section 6.5 Distributions Upon Death.
(a) Subject to the provisions of Sections 6.8 and 6.9, upon the
death of a Participant, the Committee shall instruct the
Trustee, in accordance with this Article, to distribute the
Account of a deceased Participant to that Participant's
Beneficiary. The Participant shall not name as his
Beneficiary someone other than his Spouse unless and until
the Participant and Spouse designate, in writing on a valid
waiver form provided by the
Committee for such purpose, an alternate Beneficiary, which
designation shall be witnessed by a notary public or by a
Plan representative. In addition, the Participant may
designate a Beneficiary other than his Spouse if: (1) the
Participant is legally separated or has been abandoned and
the Participant has a court order to such effect (and there
is no "qualified domestic relations order" as defined in
section 414(p) of the Code), or (2) the Participant has no
Spouse, or (3) the Spouse cannot be located. Where the
Participant makes no designation, the Beneficiary shall be
the Spouse, and if there is no Spouse, the Beneficiary shall
be the Participant's estate. The Committee may require such
proof of death and such evidence of the right of other
persons to be Beneficiaries as it shall deem proper under the
circumstances. The Committee's determination of death and of
the right of any Beneficiary to receive payments shall be
conclusive.
(b) The designation of a Beneficiary shall be made on a form
approved by the Committee. A Participant may revoke or
change his designation with the Committee by filing a new
designation form with the Committee. In the event that no
valid designation exists at the time of the Participant's
death, and the Participant has no Spouse, the death benefit
shall be payable to the Participant's estate.
(c) If the Participant was eligible, but had not yet received a
lump sum distribution prior to his death, the Trustee will
make the lump sum distribution to the Beneficiary as if the
Participant has not died.
If the Participant dies before distribution of his interest
has begun or before age 70 1/2, his Account must be
distributed as a lump sum within one year of the death of the
Participant.
Section 6.6 Distributions Upon Disability.
In the event of a Participant's total and permanent Disability, the
Trustee, as directed by the Plan Administrator, shall distribute,
subject to the provisions of Sections 6.8 and 6.9, the value of the
Participant's Vested Account balance. The distribution will be
made, after the request of the Participant and the approval of the
Plan Administrator, in one lump sum. The distribution will be made
as soon as administratively feasible following the determination of
Disability.
Section 6.7 Special Beneficiary Provisions.
(a) Lost Beneficiary. If, after five years have expired
following reasonable efforts of the Committee to locate a
Participant or his Beneficiary, including sending a
registered letter, return receipt requested to the last known
address, the Committee is unable to locate the Participant or
Beneficiary, then the amounts distributable to such
Participant or Beneficiary shall, pursuant to applicable
state and Federal laws, be treated as a Forfeiture under the
Plan. Where a Participant or Beneficiary is located
subsequent to a Forfeiture, such benefits shall be reinstated
by the Committee, and shall not count as an Annual Addition
under section 415 of the Code.
(b) Minor Beneficiary. The Committee may instruct the Trustee to
distribute a sum payable to a minor instead to his or her
legal guardian, or if there is no guardian, to a parent or
other responsible adult who maintains the residence of the
minor. In the alternative such distribution could be made to
the appropriate custodian under the Uniform Gifts to Minors
Act or Gift to Minors Act if applicable under the state laws
of the state in which the minor resides. Any payment in this
format shall discharge all fiduciaries involved in the
distribution including the Trustee, Employer, and Plan from
liability in regard to the transaction.
(c) Alternate Payee. A Participant's rights and benefits shall
be subject to the rights afforded to an alternate payee under
a qualified domestic relations order. In connection with a
proper qualified domestic relations order under section
414(p) of the Code, a distribution shall be permitted if such
distribution is authorized by the qualified domestic
relations order even if the Participant has not achieved a
distributable event under the Plan.
Section 6.8 Consent of the Participant Required for
Distributions if Account Balances Greater Than
$5,000.
If the value of a Participant's Vested Account balance derived from
Employer and Employee contributions exceeds (or at the time of any
prior distribution exceeded) $5,000, and the Account balance is
immediately distributable, the Participant (or where either the
Participant or the Spouse has died, the survivor) must consent to
any distribution of such Account balance. An Account balance is
immediately distributable if any part of the Account balance could
be distributed to the Participant (or Surviving Spouse) before the
Participant attains or would have attained if not deceased the
later of Normal Retirement Age or age 62.
The consent of the Participant shall not be required to the extent
that a distribution is required to satisfy section 401(a)(9) or
section 415 of the Code. In addition, upon termination of this
Plan, if the plan does not offer an annuity option (purchased from
a commercial provider) and if the Employer or any entity within the
same controlled group as the Employer does not maintain another
Defined Contribution Plan (other than an employee stock ownership
plan as defined in
section 4975(e)(7) or 409 of the Code or a simplified employee
pension plan as defined in section 408(k) of the Code, the
Participant's Account balance may, without the Participant's
consent, be distributed to the Participant. However, if any entity
within the same controlled group as the Employer maintains another
Defined Contribution Plan (other than an employee stock ownership
plan as defined in section 4975(e)(7) or 409 of the Code or a
simplified employee pension plan as defined in section 408(k) of
the Code) then the Participant's Account balance will be
transferred, without the Participant's consent, to the plan if the
Participant does not consent to an immediate distribution.
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 Income Tax Regulations is given,
provided that:
(a) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days
after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable, a
particular distribution option), and
(b) the Participant, after receiving the notice, affirmatively
elects a distribution either in writing or by other permitted
electronic medium.
Section 6.9 Commencement of Benefits.
Unless the Participant elects otherwise, distribution of benefits
will begin no later than the 60th day after the latest of the close
of the Plan Year in which:
(a) the Participant attains age 65 (or Normal Retirement Age, if
earlier);
(b) occurs the 10th anniversary of the year in which the
Participant commenced participation in the Plan; or
(c) the Participant terminates service with the Employer.
Notwithstanding the foregoing, the failure of a Participant, Spouse
or Beneficiary to consent to a distribution while a benefit is
immediately distributable, within the meaning of Section 6.8 of the
Plan, shall be deemed to be an election to defer commencement of
payment of any benefit sufficient to satisfy this Section.
Section 6.10 Required Distributions.
(a) The requirements of this Article shall apply to any
distribution of a Participant's interest and will take
precedence over any inconsistent provisions of this Plan.
Unless otherwise specified, the provisions of this Article
apply to calendar years beginning after December 31, 1984.
All distributions shall be determined and made in accordance
with the proposed Regulations promulgated under section
401(a)(9) of the Code, including the minimum distribution
incidental benefit requirement of section 1.401(a)(9)-2 of
the proposed Regulations.
(b) The entire interest of a Participant must be distributed or
must begin to be distributed no later than the Participant's
Required Beginning Date (defined below) which is generally
the April 1st following his attainment of age 70 1/2.
Distributions may not be made over a period which exceeds
each of the following (or a combination thereof):
(1) the life of the Participant,
(2) the life of the Participant and a Designated
Beneficiary,
(3) a period certain not extending beyond the Life
Expectancy of the Participant, or
(4) a period certain not extending beyond the joint life
and last survivor expectancy of the Participant and a
Designated Beneficiary.
(c) If the Participant's interest is to be distributed in other
than a single sum, the following minimum distribution rules
shall apply on or after the Required Beginning Date:
(1) Distributions During the Participant's Life: If a
Participant's benefit is to be distributed over (1) a
period not extending beyond the Life Expectancy of the
Participant or the joint life and last survivor
expectancy of the Participant and the Participant's
Designated Beneficiary or (2) a period not extending
beyond the Life Expectancy of the Designated
Beneficiary, then the amount required to be distributed
for each calendar year, beginning with distributions
for the first Distribution Calendar Year, must at least
equal the quotient obtained by dividing the
Participant's benefit by the Applicable Life
Expectancy.
For calendar years beginning before January 1, 1989, if
the Participant's Spouse is not the Designated
Beneficiary, the method of distribution selected must
assure that at least 50 percent of the present value of
the amount available for distribution is paid within
the Life Expectancy of the Participant.
For calendar years beginning after December 31, 1988,
the amount to be distributed each year, beginning with
distributions for the first Distribution Calendar Year
shall not be less than the quotient obtained by
dividing the Participant's benefit by the lesser of
(1) the Applicable Life Expectancy or (2) if the
Participant's Spouse is not the Designated Beneficiary,
the applicable divisor determined from the table set
forth in Q&A-4 of section 1.401(a)(9)-2 of the proposed
Regulations. Distributions after the death of the
Participant shall be made using the Applicable Life
Expectancy above as the relevant divisor without regard
to proposed Regulations section 1.401(a)(9)-2.
The minimum distribution required for the Participant's
first Distribution Calendar Year must be made on or
before the Participant's Required Beginning Date. The
minimum distribution for other calendar years,
including the minimum distribution for the Distribution
Calendar Year in which the Employee's Required
Beginning Date occurs, must be made on or before
December 31 of that Distribution Calendar Year.
(2) Distributions After the Participant's Death: If the
Participant dies after distribution of his interest has
begun and after attaining age 70 1/2, the remaining
portion of such interest, if any, will continue to be
distributed at least as rapidly as under the method of
distribution being used prior to the Participant's
death.
If the Participant dies before distribution of his
interest began or prior to attaining age 70 1/2,
distribution of the Participant's entire interest shall
be completed by the later of December 31 of the
calendar year containing the fifth anniversary of the
Participant's death or, if any portion of the
Participant's interest is payable to a Designated
Beneficiary, distributions may be made over the life or
over a period certain not greater than the Life
Expectancy of the Designated Beneficiary commencing on
or before December 31 of the calendar year immediately
following the calendar year in which the Participant
died notwithstanding the above, however, but if the
Designated Beneficiary is the Participant's Surviving
Spouse, distributions are required to begin not earlier
than the later of (a) December 31 of the calendar year
in which the Participant died, or (b) December 31 of
the calendar year in which the Participant would have
attained age 70 1/2.
If the Participant has not made an election pursuant to
this Section by the time of his or her death, the
Participant's Designated Beneficiary must elect the
method of distribution no later than the earlier of
(1) December 31 of the calendar year in which
distributions would be required to begin under this
Section, or (2) December 31 of the calendar year which
contains the fifth anniversary of the date of death of
the Participant. If the Participant has no Designated
Beneficiary, or if the Designated Beneficiary does not
elect a method of distribution, distribution of the
Participant's entire interest must be completed by
December 31 of the calendar year containing the fifth
anniversary of the Participant's death.
For purposes of the above paragraphs, if the Surviving
Spouse dies after the Participant, but before payments
to such Spouse begin, the provisions above, except for
the spousal exception rule, shall be applied as if the
Surviving Spouse were the Participant.
Any amount paid to a child of the Participant will be
treated as if it has been paid to the Surviving Spouse
if the amount becomes payable to the Surviving Spouse
when the child reaches the age of majority.
Distribution of a Participant's interest is considered
to begin on the Participant's Required Beginning Date
(or, if applicable, the date distribution is required
to begin to the Surviving Spouse pursuant to the
above). If distribution in the form of an annuity
irrevocably commences to the Participant before the
Required Beginning Date, the date distribution is
considered to begin is the date distribution actually
commences.
(3) Definitions:
(A) Applicable Life Expectancy: The Life Expectancy
(or joint life and last survivor expectancy)
calculated using the attained age of the
Participant (or Designated Beneficiary) as of the
Participant's (or Designated Beneficiary's)
birthday in the applicable calendar year reduced
by one (1) for each calendar year which has
elapsed since the date the Life Expectancy was
first calculated. If Life Expectancy is being
recalculated, the Applicable Life Expectancy
shall be the Life Expectancy as so recalculated.
The applicable calendar year shall be the first
Distribution Calendar Year and if Life Expectancy
is being recalculated, such succeeding calendar
year.
(B) Designated Beneficiary: An individual
affirmatively elected by the Participant or the
Participant's Surviving Spouse. If no
Beneficiary is elected, the Designated
Beneficiary shall be the Spouse of the
Beneficiary under the Plan in accordance with
section 401(a)(9) of the Code and the proposed
Regulations thereunder.
(C) Distribution Calendar Year: A calendar year for
which a minimum distribution is required. For
distributions beginning before the Participant's
death, the first Distribution Calendar Year is
the calendar year immediately preceding the
calendar year which contains the Participant's
Required Beginning Date. For distributions
beginning after the Participant's death, the
first Distribution Calendar Year is the calendar
year in which distributions are required to begin
pursuant to the above.
(D) Life Expectancy: Life Expectancy and joint life
and last survivor expectancy are computed by use
of the expected return multiples in Tables V and
VI of section 1.72-9 of the Regulations.
Unless the Participant or the Surviving Spouse
elects otherwise by the time distributions are
required to begin, life expectancies shall be
recalculated annually. An election shall be
irrevocable as to the Participant or Surviving
Spouse and shall apply to all subsequent years.
The Life Expectancy of a non-Spouse Beneficiary
may not be recalculated.
(E) Participant's Benefits:
(i) The Account balance as of the last
Valuation Date in the calendar year
immediately preceding the Distribution
Calendar Year (valuation calendar year)
increased by the amount of any
contributions allocated to the Account
balance as of dates in the valuation
calendar year after the Valuation Date and
decreased by distributions made in the
valuation calendar year after the Valuation
Date.
(ii) For purposes of paragraph (a) above, if any
portion of the minimum distribution for the
first Distribution Calendar Year is made in
the second Distribution Calendar Year on or
before the Required Beginning Date, the
amount of the minimum distribution made in
the second Distribution Calendar Year shall
be treated as if it had been made in the
immediately preceding Distribution Calendar
Year.
(F) Required Beginning Date:
(i) General Rule. The Required Beginning Date
of a Participant is the first day of April
of the calendar year following the calendar
year in which the Participant attains age
70 1/2 subject to the transitional rules
below.
(ii) Transitional rules. The Required Beginning
Date of a Participant who attains age
70 1/2 before January 1, 1988, shall be
determined in accordance with (a) or (b)
below:
(a) Non-5-percent owners. The Required
Beginning Date of a Participant who
is not a 5-percent owner is the first
day of April of the calendar year
following the calendar year in which
the later of retirement or attainment
of age 70 1/2 occurs.
(b) 5-percent owners. The Required
Beginning Date of a Participant who
is a 5-percent owner during any year
beginning after December 31, 1979, is
the first day of April following the
later of:
(I) the calendar year in which the
Participant attains age 70 1/2,
or
(II) the earlier of the calendar
year with or within which ends
the Plan Year in which the
Participant becomes a 5-percent
owner, or the calendar year in
which the Participant retires.
(III) The Required Beginning Date of
a Participant who is not a 5-
percent owner who attains age
70 1/2 during 1988 and who has
not retired as of January 1,
1989, is April 1, 1990.
(iii) 5-percent owner. A Participant is treated
as a 5-percent owner for purposes of this
Section if such Participant is a 5-percent
owner as defined in section 416(i) of the
Code (determined in accordance with
section 416 of the Code but without regard
to whether the Plan is Top-Heavy) at any
time during the Plan Year ending with or
within the calendar year in which such
owner attains age 66 1/2 or any subsequent
Plan Year.
(iv) Once distributions have begun to a 5-
percent owner under this Section, they must
continue to be distributed even if the
Participant ceases to be a 5-percent owner
in a subsequent year.
(d) Transitional Rules for TEFRA Elections:
Notwithstanding the other requirements of this Section and
subject to the joint and survivor annuity requirements,
distribution on behalf of any Employee, including a
5-percent owner, may be made if all of the following
requirements are satisfied (regardless of when such
distribution commences):
(1) The distribution by the Trust is one which would not
have disqualified the Trust under section 401(a)(9) of
the Code as in effect prior to amendment by the Deficit
Reduction Act of 1984.
(2) The distribution is in accordance with a method of
distribution designated by the Employee whose interest
in the Trust is being distributed or, if the Employee
is deceased, by a Beneficiary of such Employee.
(3) Such designation was in writing, was signed by the
Employee or the Beneficiary, and was made before
January 1, 1984.
(4) The Employee had accrued a benefit under the Plan as of
December 31, 1983.
(5) The method of distribution designated by the Employee
or the Beneficiary specifies the time at which
distribution will commence, the period over which
distributions will be made, and in the case of any
distribution upon the Employee's death, the
Beneficiaries of the Employee listed in order of
priority.
A distribution upon death will not be covered by this
transitional rule unless the information in the designation
contains the required information described above with
respect to the distributions to be made upon the death of the
Employee.
For any distribution which commences before January 1, 1984,
but continues after December 31, 1983, the Employee or the
Beneficiary to whom such distribution is being made, will be
presumed to have designated the method of distribution under
which the distribution is being made if the method of
distribution was specified in writing and the distribution
satisfied the requirements of (1) and (5) above.
If a designation is revoked, any subsequent distribution must
satisfy the requirements of section 401(a)(9) of the Code and
the proposed Regulations thereunder. If a designation is
revoked subsequent to the date distributions are required to
begin, the Trust must distribute by the end of the calendar
year following the calendar year in which the revocation
occurs the total amount not yet distributed which would have
been required to have been distributed to satisfy
section 401(a)(9) of the Code and the proposed Regulations
thereunder, but for the section 242(b)(2) election. For
calendar years beginning after December 31, 1988, such
distributions must meet the minimum distributions incidental
benefit requirements in section 1.401(a)(9)-2 of the proposed
Regulations. Any changes in the designation will be
considered to be a revocation of the designation. However,
the mere substitution or addition of another Beneficiary (one
not named in the designation) under the designation will not
be considered to be a revocation of the designation, so long
as such substitution or addition does not alter the period
over which distributions are to be made under the
designation, directly or indirectly (for example, by altering
the relevant measuring life). In the case in which an amount
is transferred or rolled over from the Plan to another plan,
the rules in Q&A J-2 and
Q&A J-3 of the proposed Regulations shall apply.
Section 6.11 Special Distribution Rules for 401(k)
Contributions and Qualified Non-Elective
Contributions.
Employee Elective Deferrals, Qualified Non-Elective Contributions
and income allocable to each are not distributable to a Participant
or his or her Beneficiary or Beneficiaries, in accordance with such
Participant's or Beneficiary's or Beneficiaries' election, earlier
than upon separation from service, death, or Disability other than
upon the occurrence of one or more of the following events:
(a) Termination of the Plan without the establishment of another
Defined Contribution Plan other than an employee stock
ownership plan (as defined in section 4975(e) or 409 of the
Code), or a simplified employee pension plan (as defined in
section 408(k) of the Code).
(b) The transfer by the Employer, if a corporation, to an
unrelated corporation of substantially all of the assets
(within the meaning of section 409(d)(2) of the Code) used in
a trade or business of such corporation if the Employer
continues to maintain this Plan after the disposition, but
only with respect to Employees who continue employment with
the corporation acquiring such assets.
(c) The transfer by the Employer, if a corporation, to an
unrelated entity of such corporation's interest in a
subsidiary (within the meaning of section 409(d)(3) of the
Code) if the Employer continues to maintain this Plan, but
only with respect to Employees who continue employment with
such subsidiary.
Section 6.12 Form of Distribution.
Distributions shall be made in cash or in-kind. In-kind
distributions shall be limited to Employer stock.
Section 6.13 Trustee-to-Trustee Transfers.
Subject to Plan Administrator approval, at the direction of a
Participant, the Trustee of this Plan will make a transfer of such
Participant's applicable Account balance to the trustee of another
plan designated by the Participant, and qualified under section
401(a) of the Code.
Section 6.14 Normal Form of Benefit
The Participant will receive a distribution in the form of one lump
sum, except as required in Section 6.10.
Section 6.15 Rollovers to Other Plans or IRAs.
Effective with respect to any distribution made on or after
January 1, 1993 and notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Participant's election
under this Section, a Participant may elect, at the time and in the
manner prescribed by the Administrator, to have any portion of an
eligible rollover distribution paid, in a direct rollover, to an
eligible retirement plan specified by the Participant.
Definitions:
(a) Eligible rollover distribution. An eligible rollover
distribution is any distribution of all or any portion of the
balance to the credit of the Participant, except:
(1) any distribution that is one of a series of
substantially equal periodic payments (made not less
frequently than annually) made over the life (or life
expectancy) of the distributee or the joint lives (or
joint life expectancies) of the Participant and the
Participant's designated Beneficiary, or over a
specified period of ten years or more;
(2) any distribution to the extent such distribution is
required under section 401(a)(9) of the Code; and
(3) the portion of any distribution that is not includible
in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect
to employer securities).
(b) Eligible retirement plan. 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.
(c) Direct rollover. A direct rollover is a payment by the Plan
to the eligible retirement plan specified by the Participant.
ARTICLE VII - LOANS
Section 7.1 Availability of Loans.
Loans shall be permitted under this Plan as established by the
policy of the Plan Administrator. Any such loan shall be subject to
such conditions and limitations as the Plan Administrator deems
necessary for administrative convenience and to preserve the tax-
qualified status of the Plan.
Section 7.2 Amount of Loans.
No loan to any Participant or Beneficiary may be made to the extent
that such loan, when added to the outstanding balance of all other
loans to the Participant or Beneficiary, would exceed the lesser of
(a) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans during the one-year period ending on
the day before the loan is made, over the outstanding balance of
loans from the Plan on the date the loan is made, or (b) one-half
the present value of the nonforfeitable accrued benefit of the
Participant. For the purpose of the above limitation, all loans
from all plans of the Employer and other members of a group of
employers described in sections 414(b), 414(c), 414(m), and 414(o)
of the Code are aggregated. Furthermore, any loan shall by its
terms require that repayment (principal and interest) be amortized
in level payments, not less frequently than quarterly, over a
period not extending beyond five years from the date of the loan.
If such loan is used to acquire a dwelling unit which within a
reasonable time (determined at the time the loan is made) will be
used as the principal residence of the Participant, the repayment
period shall be five or fifteen years from the date of the loan.
An assignment or pledge of any portion of the Participant's
interest in the Plan and a loan, pledge, or assignment with respect
to any insurance contract purchased under the Plan, will be treated
as a loan under this paragraph.
Section 7.3 Terms of Loans.
(a) Loans shall be made available to all Participants and
Beneficiaries on a reasonably equivalent basis.
(b) Loans shall not be made available to Highly Compensated
Employees (as defined in section 414(q) of the Code) in an
amount greater than the amount made available to other
Employees.
(c) Loans must be adequately secured using not more than
50 percent of the Participant's Vested Account balance, and
bear a reasonable interest rate.
(d) No Participant loan shall exceed the present value of the
Participant's Vested accrued benefit. A Participant loan for
less than $1,000 dollars is not permitted.
(e) In the event of default, foreclosure on the note and
attachment of security will not occur until a distributable
event occurs in the Plan.
(f) A Participant may have no more than two (2) loans from the
Plan outstanding at any one time. Notwithstanding, if a
Participant's first loan is in default, a second loan will
not be made to the Participant.
(g) No loans will be made to any shareholder-employee. For
purposes of this requirement, a shareholder-employee means an
Employee or officer of an electing small business (Subchapter
S) corporation who owns (or is considered as owning within
the meaning of section 318(a)(1) of the Code) on any day
during the taxable year of such corporation, more than
5 percent of the outstanding stock of the corporation.
(h) Loans granted or renewed on or after the last day of the
first Plan Year beginning after December 31, 1988 shall be
made pursuant to a written Participant loan program
incorporated herein by reference which will include the
following:
(1) the basis on which loans will be approved or denied;
(2) procedures for applying for the loans;
(3) person or positions authorized to administer the
Participant loan program;
(4) limitations, if any, on the types and amounts of loans
offered;
(5) procedures under the program for determining the rates
of interest;
(6) the types of collateral which may secure a Participant
loan; and
(7) the events constituting default and the steps that will
be taken to preserve Plan assets.
(i) Loans are available from the following accounts, and will be
withdrawn from the Participant's accounts in the following
hierarchy:
(1) After-Tax Employee Contribution Account
(2) Rollover Account
(3) Employee Deferral Account
(4) 100% Vested Matching Contribution Account
(5) Vested Employer Matching Contribution Account
(6) Vested Excess Matching Contribution Account
(j) Loans will be taken from the investment funds on a pro rata
basis.
ARTICLE VIII - PLAN ADMINISTRATION
Section 8.1 Duties of the Employer.
The Employer shall have overall responsibility for selecting and
appointing the Trustee, and for the establishment, amendment,
termination, administration, and operation of the Plan. The
Employer shall discharge this responsibility by appointing a
Committee, to which shall be delegated overall responsibility for
administering and operating the Plan.
Upon written notice to the Trustee and the Committee, the Employer
may appoint one or more investment managers as described in ERISA
section 3(38), which shall have the power to manage, acquire, or
dispose of all or part of the Trust assets in accordance with the
provisions of the Plan and Trust agreement. The Committee and
investment manager shall execute a written agreement specifying the
Trust assets to be managed and the investment manager's duties and
responsibilities with respect to such assets, and in such agreement
the investment manager shall acknowledge that it is a fiduciary
with respect to the Plan and Trust. The Committee may authorize
the investment manager to give written instructions to the Trustee
with respect to acquiring, managing, and disposing of assets
managed by the investment manager, and the Trustee shall follow
such instructions and shall be under no duty to make an independent
determination regarding whether the instruction is proper. The
fees and expenses of an investment manager shall be paid by the
Trust except to the extent paid by the Employer.
Section 8.2 The Committee.
(a) The Committee shall be the "named fiduciary" (as defined in
section 402(a)(2) of ERISA), the "Administrator" (as
defined in section 3(16) of ERISA and section 414(g) of the
Code), and an agent for service of process of the Plan.
(b) The Committee shall consist of officers or other Employees of
the Employer, or any other person(s) who shall be appointed
by the Employer. The members of the Committee shall serve at
the discretion of the Employer. In the absence of such
appointment, the Employer shall serve as the Committee. Any
member of the Committee may resign by delivering his written
resignation to the Employer and to the Committee, which shall
become effective upon the date specified therein. In the
event of a vacancy on the Committee, the remaining members
shall constitute the Committee with full power to act until
the Employer appoints a new Committee member. The Employer
may from time to time remove any Committee member with or
without cause and appoint a successor thereto.
Section 8.3 Appointment of Advisor.
The Committee may employ any such person or entity as it deems
necessary to assist in the Administration of the Plan and provide
services including but not limited to tax advice, amendment,
termination and operation of the Plan, and advice concerning
reports filed with the Internal Revenue Service. Any such advisor
shall not be the Administrator of the Plan (as defined in section
3(16) of ERISA and section 414(g) of the Code).
The Committee shall have the authority and discretion to engage an
Administrative Delegate who shall perform, without discretionary
authority or control, administrative functions within the framework
of policies, interpretations, rules, practices and procedures made
by the Committee or other Plan fiduciary. Any action made or taken
by the Administrative Delegate may be appealed by an affected
Participant to the Committee in accordance with the claims review
procedures provided in Section 8.6. Any decisions which call for
interpretations of Plan provisions not previously made by the
Committee shall be made only by the Committee.
Section 8.4 Powers and Duties of the Committee.
(a) The Committee, on behalf of the Participants and
Beneficiaries of the Plan, shall enforce the Plan and Trust
in accordance with the terms thereof, and shall have all
powers necessary to carry out such provisions. The Committee
shall have full discretion to interpret the Plan and Trust
and to determine all questions arising in the administration
and application of the Plan and Trust. Any such
interpretation or determination by the Committee shall be
conclusive and binding on all persons.
The Committee shall establish rules and regulations necessary
for the proper conduct and administration of the Plan, and
from time to time may change or amend these rules and
regulations. The Committee shall also have the power to
authorize all disbursements from the Trust by the Trustee in
accordance with the Plan's terms.
(b) At the direction of the Committee, distributions to minors or
persons declared incompetent may be made by the Trustee
directly to such persons or to the legal guardians or
conservators of such persons. The Employer, the Committee,
and the Trustee shall not be required to see to the proper
application of such distributions made to any of such
persons, but his or their receipt thereof shall be a full
discharge of the Employer, the Committee, and the Trustee of
any obligation under the Plan or the Trust.
Section 8.5 Organization and Operation.
(a) The Committee shall act by a majority of its members then in
office, and such action may be taken either by a vote at a
meeting or by written consent without a meeting. The
Committee may authorize any one or more of its members to
execute any document or documents on behalf of the Committee,
in which event the Committee shall notify the Employer, in
writing, of such authorization and the name or names of its
member or members so designated. The Employer thereafter
shall accept and rely on any documents executed by said
member of the Committee or members as representing action by
the Committee until the Committee shall file with the
Employer a written revocation of such designation.
(b) The Committee may adopt such bylaws and regulations as it
deems desirable for the conduct of its affairs and may employ
and appropriately compensate such accountants, counsel,
specialists, actuaries, and other persons as it deems
necessary or desirable in connection with the administration
and maintenance of the Plan. The Committee shall have the
authority to control and manage the operation and
administration of the Plan.
Section 8.6 Claims Procedure.
(a) A claim for benefits under the Trust shall be filed on an
application form supplied by the Committee. Written notice
of the disposition of the claim shall be furnished to the
claimant within 90 days after an application form is received
by the Committee, unless special circumstances (as determined
by the Committee) require an extension for processing the
claim. If such an extension is required, the Committee shall
render a decision as soon as possible subsequent to the 90-
day period, but such decision shall not be rendered later
than 180 days after the application form is received by the
Committee. Written notice of such extension shall be
furnished to the claimant prior to the commencement of the
extension indicating the special circumstances requiring such
extension and the date by which the Committee expects to
render the decision on the claim. In the event the claim is
denied, the Committee shall set forth in writing the reasons
for the denial and shall cite pertinent provisions of the
Plan and Trust upon which the decision is based. In
addition, the Committee shall provide a description of any
additional material or information necessary for the claimant
to perfect the claim, an explanation of why such information
is necessary, and appropriate information as to the steps to
be taken if the Participant or Beneficiary wish to submit
such claim for review as provided in (b) below.
(b) A Participant or Beneficiary whose claim described in (a)
above has been denied in whole or in part shall be entitled
to the following rights if exercised within 60 days after
written denial of a claim is received:
(1) to request a review of the claim upon written
application to the Committee;
(2) to review documents associated with the claim; and
(3) to submit issues and comments in writing to the
Committee.
(c) If a Participant or a Beneficiary requests a review of the
claim under (b) above, the Committee shall conduct a full
review (including a formal hearing if desired) of such
request, and a decision on such request shall be made within
60 days after the Committee has received the written request
for review from the Participant or the Beneficiary. Special
circumstances (such as a need for full hearing on request)
can allow the Committee to extend the decision on such
request, but the decision shall be rendered no later than
120 days after receipt of the request for review. Written
notice of such an extension shall be furnished to the
Participant or the Beneficiary prior to the commencement of
the extension. The decision of the Committee on review shall
be set forth in writing and shall include specific reasons
for the decision as well as specific references to the
pertinent provisions of the Plan or Trust on which the
decision is based.
Section 8.7 Records and Reports.
(a) The Committee shall be entitled to rely upon certificates,
reports, and opinions provided by an accountant, tax or
pension advisor, actuary or legal counsel employed by the
Employer or Committee. The Committee shall keep a record of
all its proceedings and acts, and shall keep all such books
of account, records, and other data as may be necessary for
the proper administration of the Plan. The regularly kept
records of the Committee, the Employer, and the Trustee shall
be conclusive evidence of a Participant's service, his
Compensation, his age, his marital status, his status as an
Employee, and all other matters contained therein and
relevant to this Plan; provided, however, that a Participant
may request a correction in the record of his age at any time
prior to his retirement and such correction shall be made if
within 90 days after such request he furnishes a birth
certificate, baptismal certificate, or other documentary
proof of age satisfactory to the Committee in support of this
correction.
(1) Each Participant and each Participant's designated
Beneficiary must notify the Committee in writing of his
mailing address and each change thereof. Any
communication, statement or notice addressed to a
Participant or Beneficiary at the last mailing address
filed with the Committee, or if no address is filed
with the Committee, the last mailing address as shown
on the Employer's records, will be binding on the
Participant and his Beneficiary for all purposes of the
Plan. Neither the Committee nor the Trustee shall be
required to search for or locate a Participant or a
Beneficiary.
Section 8.8 Liability.
(a) A member of the Committee shall not be liable for any act, or
failure to act, of any other member of the Committee, except
to the extent that such member:
(1) Knowingly participates in, or undertakes to conceal, an
act or omission of another Committee member, knowing
that such act or omission is a breach of fiduciary duty
to the Plan;
(2) Fails to comply with the specific responsibilities
given him as a member of the Committee, and such
failure enables another member of the Committee to
commit a breach of fiduciary duty to the Plan; or
(3) Has knowledge of a breach of fiduciary duty to the Plan
by another member of the Committee, unless such member
makes reasonable effort under the circumstances to
remedy such breach.
(b) Each member of the Committee shall be liable with respect to
his own acts of willful misconduct or gross negligence
concerning the Plan. The Employer shall indemnify the
Committee or each of its members for part or all expenses,
costs, or liabilities arising out of the performance of
duties required by the terms of the Plan or Trust, except for
those expenses, costs, or liabilities arising out of a
member's willful misconduct or gross negligence.
Section 8.9 Reliance on Statements.
The Committee, in any of its dealings with Participants hereunder,
may conclusively rely on any written statement, representation, or
documents made or provided by such Participants.
Section 8.10 Remuneration and Bonding.
(a) Unless otherwise determined by the Committee, the members of
the Committee shall serve without remuneration for services
to the Plan and Trust. However, all expenses of the
Committee shall be paid by the Trust except to the extent
paid by the Employer. Such expenses shall include any
expenses incidental to the functioning of the Committee,
including but not limited to fees of accountants, legal
counsel, and other specialists, or any other costs entailed
in administering the Plan.
(b) Title I of ERISA requires certain persons with discretion
over Plan assets to be bonded. Except as required by ERISA or
other federal law, the members of the Committee shall serve
without bond.
Section 8.11 Committee Decisions Final.
Any decision of the Committee with respect to matters within its
jurisdiction shall be final, binding, and conclusive upon the
Employer and the Trustee and upon each Employee, Participant,
former Participant, Beneficiary, and every other person or party
interested or concerned.
Section 8.12 Participant-Directed Investments.
The Committee authorizes the Trustee to accept investment direction
from Participants. The Trustee shall invest in the Investment
Funds in accordance with investment directions given by the
Participants and Beneficiaries for whose accounts such assets are
held, to the extent authorized. All such directions by the
Participants or Beneficiaries to the Trustee will be made by
electronic media or in such other manner as is acceptable to the
Trustee. Participants and Beneficiaries will be deemed responsible
for purposes of such investment selection and allocation.
Where the Committee, a Participant, a Beneficiary or an Investment
Manager other than the Trustee has the power and authority to
direct the investment of assets of the Trust Fund, the Trustee does
not have any duty to question any direction, to review any
securities or other property, or to make any suggestions in
connection therewith. The Trustee will promptly comply with any
direction given by the Committee, a Participant, a Beneficiary or
Investment Manager. The Trustee will neither be liable for failing
to invest any assets of the Trust Fund under the management and
control of the Committee, a Participant, a Beneficiary or an
Investment Manager in the absence of investment directions
regarding such assets. The Trustee and the Committee shall be
indemnified by the Participant from and against any personal
liability to which the Trust and the Committee may be subject due
to carrying out an elective investment directed by the Participant
or for failure to act in absence of restrictions from the
Participant.
ARTICLE IX - TRUST AGREEMENT
Section 9.1 Establishment of Trust.
The Employer and the Trustee have entered into a trust agreement
which is set forth in a separate document and is incorporated
herein. The trust agreement establishes a Trust consisting of such
sums of money and other property as may from time to time be
contributed or transferred to the Trustee under the terms of the
Plan, along with any property to which the Trust Fund may from time
to time be converted, and which provides for the investment of Plan
assets and the operation of the Trust. The trust agreement, as
amended from time to time, shall be deemed part of the Plan, and
all rights and benefits provided to persons under the Plan shall be
subject to the terms of the trust agreement.
Section 9.2 Exclusive Benefit.
(a) The Employer shall have no beneficial interest in the assets
of the Trust, and no part of the Trust shall ever revert to
or be repaid to the Employer, directly or indirectly, except
that upon written request, the Employer shall have a right to
recover:
(1) a contribution to the Plan made by mistake of fact if
such contribution (to the extent made by mistake of
fact) is returned to the Employer within one year after
payment of such contribution;
(2) any contributions to the Plan conditioned upon initial
qualification of the Plan under section 401(a) of the
Code if the Plan does not so qualify and such
contributions are returned to the Employer within one
year after the denial of qualification of the Plan and
only if a determination letter request is filed by the
time prescribed by law for filing the Employer's tax
return for the taxable year in which the Plan is
adopted;
(3) a contribution to the Plan which is disallowed as a
deduction under section 404 of the Code if such
contribution (to the extent disallowed) is returned to
the Employer within one year after the deduction is
disallowed; and
(4) any residual assets due to a section 415 excess
contribution upon termination of the Plan if all
liabilities of the Plan to Participants and their
Beneficiaries have been satisfied and the reversion
does not contravene any provision of law.
ARTICLE X - AMENDMENT, TERMINATION AND MERGER
Section 10.1 Amendment.
(a) The Employer shall have the right to amend the Plan and Trust
at any time to the extent permitted under the Code and ERISA.
The Employer may delegate some or all of its amendment
authority to the Committee.
(b) No amendment affecting the rights or duties of the Trustee
shall be effective without the written consent of the
Trustees.
(c) No amendment to the Plan shall be effective to the extent
that it has the effect of decreasing a Participant's accrued
benefit. Notwithstanding the preceding sentence, a
Participant's Account balance may be reduced to the extent
permitted under section 412(c)(8) of the Code. For purposes
of this paragraph, a Plan amendment which has the effect of
decreasing a Participant's Account balance or eliminating an
optional form of benefit, with respect to benefits
attributable to service before the amendment, shall be
treated as reducing an accrued benefit.
Section 10.2 Termination.
(a) The Employer intends to continue the Plan indefinitely and to
fund the Plan as required by law and its terms. However, the
Employer shall have the right to terminate the Plan at any
time.
(b) If the Plan is totally or partially terminated, or in the
event of a complete discontinuation of contributions under
the Plan, a Participant whose participation in the Plan is
terminated as a result of such total or partial termination
or who is affected by the complete discontinuation of
contributions to the Plan shall be 100 percent Vested with
respect to his Accounts, determined as of the date of such
total or partial termination.
(c) Upon termination of the Plan, the Employer shall allocate the
assets of the Plan, after the payment of or set aside for the
payment of all expenses, among the Participants and their
Beneficiaries in accordance with the Code and ERISA.
(d) Upon termination of the Plan, and after all liabilities of
the Plan to Participants and Beneficiaries have been
satisfied, any residual assets of the Plan which are
attributable to a contribution in excess of Code section 415
limits shall be distributed to the Employer, provided such
distribution does not contravene any provision of the law or
the Plan.
(e) The allocation of benefits under this Article shall be
accomplished either through the continuance of the Trust, the
creation of a new Trust, the payment of the benefits to be
provided to the Participants or Beneficiaries, or the
purchase of annuity contracts, as determined by the Employer.
Section 10.3 Merger, Consolidation or Transfer.
The Employer shall have the right at any time to merge or
consolidate the Plan with any other plan, or transfer the assets or
liabilities of the Trust to any other plan provided each
Participant would (if the Plan were then terminated) receive a
benefit immediately after such merger, consolidation or transfer
which would equal or exceed the benefit the Participant would have
been entitled to immediately before such merger, consolidation or
transfer (if the Plan were then terminated).
ARTICLE XI - TOP-HEAVY PROVISIONS
Section 11.1 Applicability.
The provisions of this Article shall not apply to the Plan with
respect to any Plan Year in which the Plan is not Top-Heavy. If
the Plan is or becomes Top-Heavy in any Plan Year, the provisions
of this Article will supersede any conflicting provisions in the
Plan.
Section 11.2 Definitions.
(a) Key Employee: Any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the
"Determination Period" was (1) an officer of the Employer
if such individual's Annual Compensation exceeds 50 percent
of the dollar limitation under section 415(b)(1)(A) of the
Code, (2) an owner (or considered an owner under section 318
of the Code) of one of the ten largest interests in the
Employer if such individual's Annual Compensation exceeds 100
percent of the dollar limitation under section 415(c)(1)(A)
of the Code, (3) a more-than-5-percent owner of the Employer,
or (4) a more-than-1-percent owner of the Employer who has
annual Compensation of more than $150,000. Annual
Compensation means compensation as defined in
section 415(c)(3) of the Code, but including amounts
contributed by the Employer pursuant to a salary reduction
agreement which are excludable from the Employee's gross
income under section 125, section 402(e)(3), section 402(h)
or section 403(b) of the Code. The "Determination Period"
is the Plan Year containing the Determination Date and the
four (4) preceding Plan Years.
The determination of who is a Key Employee will be made in
accordance with section 416(i)(1) of the Code and the
Regulations thereunder.
(b) Top-Heavy Plan: For any Plan Year beginning after
December 31, 1983, this Plan is Top-Heavy if any of the
following conditions exists:
(1) If the Top-Heavy Ratio for this Plan exceeds 60 percent
and this Plan is not part of any Required Aggregation
Group or Permissive Aggregation Group of plans.
(2) If this Plan is a part of a Required Aggregation Group
of plans, but not part of a Permissive Aggregation
Group of plans and the Top-Heavy Ratio for the
Permissive Aggregation Group exceeds 60 percent.
(3) If this Plan is a part of a Required Aggregation Group
and part of a Permissive Aggregation Group of plans and
the Top-Heavy Ratio for the Permissive Aggregation
Group exceeds 60 percent.
(c) Super-Top-Heavy Plan: A plan is Super-Top-Heavy if such a
plan would be Top-Heavy if "90 percent" were substituted
for "60 percent" each place it appears in (b) above.
(d) Top-Heavy Ratio:
(1) If the Employer maintains one or more Defined
Contribution Plans (including any simplified employee
pension plan) and the Employer has not maintained any
Defined Benefit Plan which during the 5-year period
ending on the Determination Date(s) has or has had
accrued benefits, the Top-Heavy Ratio for this Plan
alone or for the required or Permissive Aggregation
Group, as appropriate, is a fraction, the numerator of
which is the sum of the Account balances of all Key
Employees as of Determination Date(s) (including any
part of any Account balance distributed in the 5-year
period ending on the Determination Date(s)), and the
denominator of which is the sum of all Account balances
(including any part of any Account balance distributed
in the 5-year period ending on the Determination
Date(s)), both computed in accordance with section 416
of the Code and the Regulations thereunder. Both the
numerator and denominator of the Top-Heavy Ratio are
increased to reflect any contribution not actually made
as of the Determination Date, but which is required to
be taken into account on that date under section 416 of
the Code and the Regulations thereunder.
(2) If the Employer maintains one or more Defined
Contribution Plans (including any simplified employee
pension plan) and the Employer maintains or has
maintained one or more Defined Benefit Plans which
during the 5-year period ending on the Determination
Date(s) has or has had any accrued benefits, the Top-
Heavy Ratio for any required or Permissive Aggregation
Group as appropriate, is a fraction, the numerator of
which is the sum of account balances under the
aggregated Defined Contribution Plan or Plans for all
Key Employees, determined in accordance with (1) above,
and the Present Value of accrued benefits under the
aggregated Defined Benefit Plan or Plans for all Key
Employees as of the Determination Date(s), and the
denominator of which is the sum of the account balances
under the aggregated Defined Contribution Plan or Plans
for all Participants, determined in accordance with
(1) above, and the Present Value of accrued benefits
under the Defined Benefit Plan or Plans for all
Participants as of the Determination Date(s), are
determined in accordance with section 416 of the Code
and the Regulations thereunder. The accrued benefits
under a Defined Benefit Plan in both the numerator and
denominator of the Top-Heavy Ratio are increased for
any distribution of an accrued benefit made in the
five-year period ending on the Determination Date.
(3) For purposes of (1) and (2) above, the value of account
balances and the Present Value of accrued benefits will
be determined as of the most recent Valuation Date that
falls within or ends with the 12-month period ending on
the Determination Date, except as provided in section
416 of the Code and the Regulations thereunder for the
first and second plan years of a Defined Benefit Plan.
The account balances and accrued benefits of a
Participant (a) who is not a Key Employee but who was a
Key Employee in a prior year, or (b) who has not been
credited with at least one Hour of Service with any
Employer maintaining the Plan at any time during the 5-
year period ending on the Determination Date will be
disregarded. The calculation of the Top-Heavy Ratio,
and the extent to which distributions, rollovers and
transfers are taken into account will be made in
accordance with section 416 of the Code and the
Regulations thereunder. Employee contributions
previously deductible under section 219 of the Code
will not be taken into account for purposes of
computing the Top-Heavy Ratio. When aggregating plans,
the value of account balances and accrued benefits will
be calculated with reference to the Determination Dates
that fall within the same calendar year.
The accrued benefit of a Participant other than a Key
Employee shall be determined under either (a) the
method, if any, that uniformly applies for accrual
purposes under all Defined Benefit Plans maintained by
the Employer, or (b) if there is no such method, as if
such benefit accrued not more rapidly than the slowest
accrual rate permitted under the fractional rule of
section 411(b)(1)(C) of the Code.
(e) Permissive Aggregation Group: The Required Aggregation Group
of plans plus any other plan or plans of the Employer which,
when considered as a group with the Required Aggregation
Group, would continue to satisfy the requirements of sections
401(a)(4) and 410 of the Code.
(f) Required Aggregation Group: (1) Each qualified plan of the
Employer in which at least one Key Employee participates or
participated at any time during the Determination Period
(regardless of whether the plan has terminated), and (2) any
other qualified plan of the Employer which enables a plan
described in (1) to meet the requirements of
sections 401(a)(4) or 410 of the Code.
(g) Determination Date: For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan Year.
For the first Plan Year of the Plan, the last day of that
year.
(h) Valuation Date: The date as defined in Article I of the Plan
as of which Account balances or accrued benefits are valued
for purposes of calculating the Top-Heavy Ratio.
(i) Present Value: Present Value shall be determined using the
interest and mortality rates specified in the applicable
plans. Notwithstanding the foregoing, all determinations
shall be made in accordance with section 416 of the Code and
the Regulations promulgated thereunder.
Section 11.3 Minimum Allocation.
(a) Except as otherwise provided in (c) and (d) below, Employer
contributions, not including Employee Elective Deferrals,
allocated on behalf of any Participant who is not a Key
Employee shall not be less than the lesser of three percent
(four percent if the Plan is super-Top-Heavy) of such
Participant's Compensation or, in the case where the Employer
has no Defined Benefit Plan which designates this Plan to
satisfy section 401 of the Code, the largest percentage of
Employer contributions, as a percentage of the first $200,000
of the Key Employee's Compensation, allocated on behalf of
any Key Employee for that year. The minimum allocation is
determined without regard to any Social Security
contribution. This minimum allocation shall be made even
though, under the Plan provisions, the Participant would not
otherwise be entitled to receive an allocation, or would have
received a lesser allocation for the year because of (1) the
Participant's failure to complete 1,000 hours of service (or
any equivalent provided in the Plan), or (2) the
Participant's failure to make mandatory Employee
contributions to the Plan or (3) Compensation less than a
stated amount.
(b) For purposes of computing the minimum allocation,
Compensation means Compensation as defined in Article I of
the Plan.
(c) The provision in (a) above shall not apply to any Participant
who was not employed by the Employer on the last day of the
Plan Year.
(d) The provision in (a) above shall not apply to any Participant
to the extent the Participant is covered under any other plan
or plans of the Employer and the minimum allocation or
benefit requirement applicable to Top-Heavy Plans will be met
in the other plan or plans.
Section 11.4 Nonforfeitability of Minimum Allocation.
The minimum allocation required (to the extent required to be
nonforfeitable under section 416(b) of the Code) may not be
forfeited under section 411(a)(3)(D) of the Code.
Section 11.5 Allocation Limitations.
In determining the Defined Contribution Fraction under section
415(e)(3)(B) of the Code and pursuant to Section 5.4 of the Plan
"100 percent" shall be substituted for "125 percent" unless the
minimum allocation percentage under section 416(c)(2)(A) of the
Code and Section 11.3(a) of the Plan is increased from "three
percent" to "four percent" and the Plan would not be a
Top-Heavy Plan if "90 percent" were substituted for "60 percent"
each place it appears in Section 11.2(b) of the Plan.
Section 11.6 Minimum Vesting Schedules.
(a) For any Plan Year during which the Plan is Top-Heavy, the
vesting schedule below will automatically apply to all
benefits within the meaning of section 411(a)(7) of the Code
except those attributable to Employee contributions,
including benefits accrued before the effective date of
section 416 of the Code and benefits accrued before the Plan
became Top-Heavy. Further, no decrease in a Participant's
nonforfeitable percentage may occur in the event the Plan's
status as Top-Heavy changes for any Plan Year. However, this
Section does not apply to the Account balance(s) of any
Employee who does not have an Hour of Service after the Plan
has initially become Top-Heavy. Such Employee's Account
balance attributable to Employer contributions and
Forfeitures will be determined without regard to this
Section.
(b) The nonforfeitable interest of each Employee in his or her
Account balance attributable to Employer contributions shall
be as follows:
The nonforfeitable
Year(s) of Service: percentage is:
Less than 1 0
Less than 2 0
Less than 3 20
Less than 4 40
Less than 5 60
Less than 6 80
6 or more 100
(c) If the vesting schedule under the Plan becomes subject to or
is no longer subject to the above schedule for any Plan Year
because of the Plan's Top-Heavy status, such shift is an
amendment to the vesting schedule and the election provided
in Section 5.6.
ARTICLE XII - GENERAL PROVISIONS
Section 12.1 Governing Law.
(a) The Plan is established under, and its validity, construction
and effect shall be governed by, the laws of the State of
California to the extent not preempted by ERISA.
(b) The parties to the Trust intend that the Trust be exempt from
taxation under section 501(a) of the Code, and any
ambiguities in its construction shall be resolved in favor of
an interpretation which will effect such intention.
Section 12.2 Power to Enforce.
The Committee shall have authority to enforce the Plan on behalf of
any and all persons having or claiming any interest in the Trust or
Plan.
Section 12.3 Alienation of Benefits.
Benefits under the Plan shall not be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or
charge and any attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge the same shall be void, nor
shall any such benefits be in any way liable for or subject to the
debts, contracts, liabilities, engagements or torts of any person
entitled to such benefits. This Section shall also apply to the
creation, assignment or recognition of a right to any benefit
payable with respect to a Participant pursuant to a domestic
relations order, unless such order is determined to be a qualified
domestic relations order as defined in section 414(p) of the Code,
or any domestic relations order entered before January 1, 1985.
Section 12.4 Not an Employment Contract.
The Plan is not and shall not be deemed to constitute a contract
between the Employer and any Employee, or to be a consideration
for, or an inducement to, or a condition of, the employment of any
Employee. Nothing contained in the Plan shall give or be deemed to
give an Employee the right to remain in the employment of the
Employer or to interfere with the right to be retained in the
employ of the Employer, any legal or equitable right against the
Employer, or to interfere with the right of the Employer to
discharge or retire any Employee at any time.
Section 12.5 Discretionary Acts.
Any discretionary acts to be undertaken under the Plan with respect
to the classification of Employees, contributions, or benefits
shall be nondiscriminatory and uniform in nature and applicable to
all persons similarly situated.
Section 12.6 Interpretation.
(a) Savings Clause. If any provision or provisions of the Plan
shall for any reason be invalid or unenforceable, the
remaining provisions of the Plan shall be carried into
effect, unless the effect thereof would be to materially
alter or defeat the purposes of the Plan.
(b) Gender. Wherever appropriate, pronouns of either gender
shall be deemed synonymous as shall singular and plural
pronouns.
(c) Headings. Headings and titles of sections and subsections
within the Plan document are inserted solely for convenience
of reference. They constitute no part of the Plan itself and
shall not be considered in the construction of the Plan.
(d) Family Aggregation. Notwithstanding anything to the contrary
in the Plan, the family aggregation rules do not apply as of
December 31, 1996.
ARTICLE XIII - SPECIAL RULES FOR PUERTO RICAN PARTICIPANTS
(a) Purpose and Effect. The purpose of this Article is to comply
with the requirements of section 1165 of The Puerto Rico Internal
Revenue Code of 1994, as amended (the "PR Code"). This
Article shall apply to those Employees who are residents of
the Commonwealth of Puerto Rico ("Article XIII
Participants").
(b) Compensation. "Compensation" shall mean all remuneration
which is required to be reported as wages by the Employer to
the Puerto Rico Treasury Department on Form 499 R-2/W-2 PR.
Compensation for purposes of Article IV testing under Puerto
Rico law, shall not be subject to section 401(a)(17) of the
Code, the $160,000 compensation limit.
(c) Puerto Rico Limitations on Contributions.
(1) For any Plan Year, contributions under the Plan shall
not exceed the limitations on deductions imposed under
section 1023(n)(1)(C) and section 1023(n)(1)(F) of the PR Code;
(2) Supplemental Section 1165(e) Employer Contributions.
As soon as possible after the end of the Plan Year, the
Company, in its discretion, may determine to make a
section 1165(e) Employer contribution. The Supplemental
section 1165(e) Employer Contribution for any Plan Year under
this paragraph will be made no later than the
expiration of the period within which such contribution
may be paid and deducted for the purpose of Puerto Rico
income taxes; and
(3) Annual Dollar Limitation. The maximum amount of a
Puerto Rico Employee's pre-tax Elective Contributions
for a Plan Year may not be more than the lesser of
(1) $8,000, or (2) an amount equal to 10 percent of the
Employee's Compensation for the Plan Year; provided
however, that this limitation will automatically be
adjusted (up or down) to correspond with the maximum
amount permitted under the applicable provisions of the
PR Code.
(d) Puerto Rico Plan Coverage Requirements.
(1) For any Plan Year, the Plan shall satisfy the coverage
requirements of section 1165(a)(3) of the PR Code.
(e) Highly-Compensated Employees. The highest paid one-third of
the Employees for any Plan Year shall be deemed to be
"Highly Compensated Employees" and the remaining two-thirds
of the Employees for that Plan Year will be deemed to be
"Non-highly Compensated Employees".
(f) Non-discrimination.
(1) Puerto Rico Actual Deferral Contribution Percentage
Test. In no event shall the actual deferral percentage
of the Highly Compensated Employees for any Plan year
be greater than:
(A) 1.25 of the average of the Actual Deferral
Percentages for all eligible Nonhighly
Compensated Employees, or
(B) Two times the average of the Actual Deferral
Percentages for all eligible Nonhighly
Compensated Employees, and the excess of the
average of the Actual Deferral Percentages for
all Highly Compensated Employees if the excess of
the average of the Actual Deferral Percentages
for the eligible Highly Compensated Employees
over the average of the Actual Deferral
Percentages for the eligible Nonhighly
Compensated Employees does not exceed two
percentage points. The Actual Deferral
Percentage for each group of employees is the
average ratio, computed separately for each
employee in each group, of the amount of cash or
deferred arrangement contributions on behalf of
an employee to the employees compensation.
The Actual Contribution Percentage Test, as defined in
Article IV, Section 4.4 of this Plan shall not be applied
for purposes of complying with the coverage requirements
enacted under Section 1165(e) of the PR Code.
(2) Aggregation with Other Plans or Arrangements.
(A) Any "employee contributions" (within the
meaning of Act section 1165(e)(3) and any "matching
contributions" (within the meaning of Act
section 1165(e)(3)(E)(i) made on the behalf of a Highly
Compensated Employee and allocated to his account
under one or more than one plan described in Code
401(a) or Act section 1165(e) maintained by an Affiliate
shall be treated as one single arrangement and
must be aggregated in determining the Actual
Deferral Percentage for any Participant who is a
Highly Compensated Employee for a Plan Year.
If this Plan satisfies the coverage requirements
of Act section 1165(a)(3)(A) only if aggregated with one
or more other plans, or if one or more other
plans satisfy the coverage requirements of Act
section 1165(a)(3)(A) only if aggregated with this Plan,
then the Actual Deferral Percentages of
Participants shall be determined as if all such
plans were a single plan.
The determination and treatment of the Company
Matching Contributions and the Actual Deferral
Percentage of any Participant shall satisfy such
other requirements as may be prescribed by the
Secretary of the Treasury of the Commonwealth of
Puerto Rico.
(B) For purposes of the Actual Deferral Percentage,
the deferral percentage of a Highly Compensated
Employee who has made elective deferrals under
any other qualified cash or deferred arrangement
maintained by the Company or an Affiliated
Company pursuant to section 1165(e) of the PR Code shall
be the sum of his deferral percentages under all
such plans.
(3) Distribution or Forfeiture of Excess Aggregate
Contributions. Notwithstanding any other provision of
this Plan, Excess Aggregate Contributions made for any
Plan Year adjusted for investment gains and losses
shall be forfeited to the extent forfeitable under this
Plan or distributed to the extent not so forfeitable,
from the Accounts of Highly Compensated Employees no
later than the last day of the immediately following
Plan Year. Such forfeitures shall be made on the basis
of the respective portions attributable to such Excess
Aggregate Contributions and shall be made in uniform
increments of one percentage point or less, starting
with the highest rate of Actual Deferral Percentages of
Highly Compensated Employees and ending when the Excess
Aggregate Contributions have been distributed or
forfeited in full.
(4) Return of Excess Contributions. If the average
deferral percentage for all Highly Compensated
Employees exceeds the amount specified in this Article
for any Plan Year; then Participant(s) with the Highest
deferral percentage shall be reduced so that his
applicable percentage is reduced to the greater of
(a) such percentage that enables the Plan to satisfy
the applicable percentage test, or (b) a percentage
equal to the applicable percentage of the Highly
Compensated Employee(s) with the next highest
percentage. This procedure shall be repeated until the
Puerto Rico Actual Deferral Test is satisfied. The
amount so reduced, together with the attributable
earnings thereon, shall be deemed to have been
contributed to the Plan by mistake of fact, shall be
refunded to the Employer and the portion attributable
to Basic and Supplemental Contributions shall
thereafter be paid (subject, however, to the
withholding of taxes and other amounts as though such
amounts were current remuneration) by the Employer to
the Article XIII Participant from whose Compensation
such amount was obtained.
(g) Use of Terms. All terms and provisions of the Plan shall
apply to this Article, except that where the terms and
provisions of the Plan and this Article conflict, the terms
and provisions of this Article shall govern.
ARTICLE XIV - SIGNATURE PAGE
IN WITNESS WHEREOF, this Plan has been restated the day and year
written below.
Signed, sealed, and delivered on this 30th day of January, 1998, in
the presence of:
Gap, Inc.
By /s/ Richard S. McKinley
EMPLOYER
Richard S. McKinley
EMPLOYER (Print Name)
WITNESS AS TO EMPLOYER(S)
By /s/ Joanne K. Garrison
COUNSEL TO PLAN SPONSER
Joanne K. Garrison
COUNSEL TO PLAN SPONSER (Print Name)
WITNESS AS TO COUNSEL
Deloitte & 50 Fremont Street Telephone (415)247-4000
Touche LLP San Francisco, California 94105-2230 Facsimile (415)247-4329
To the Board of Directors and Stockholders of
The Gap, Inc.:
We have made reviews, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
condensed consolidated financial statements of The Gap, Inc. and
subsidiaries for the thirteen-week periods ended May 2, 1998 and May 3,
1997, as indicated in our report dated May 12, 1998; because we did not
perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended May 2, 1998, is
incorporated by reference in Post Effective Amendment No. 1 to Registration
Statement No. 2-72586, Registration Statement No. 2-60029, Registration
Statement No. 33-39089, Registration Statement No. 33-40505, Registration
Statement No. 33-54686, Registration Statement No. 33-54688, Registration
Statement No. 33-54690, Registration Statement No. 33-56021, Registration
Statement No. 333-00417, Registration Statement No. 333-12337, and
Registration Statement No. 333-36265.
We also are aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the
Registration Statement prepared or certified by an accountant or a report
prepared or certified by an accountant within the meaning of Sections 7 and
11 of that Act.
/s/ Deloitte & Touche LLP
June 9, 1998
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<TOTAL-REVENUES> 1,719,712
<CGS> 1,031,004
<TOTAL-COSTS> 472,144
<OTHER-EXPENSES> (1,141)
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<INCOME-TAX> 81,639
<INCOME-CONTINUING> 136,066
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<EPS-PRIMARY> .35
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</TABLE>
