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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8549
AVATEX CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 25-1425889
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization) 75206
5910 NORTH CENTRAL EXPRESSWAY (Zip Code)
SUITE 1780 , DALLAS, TEXAS
(Address of principal
executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 214-365-7450
FOXMEYER HEALTH CORPORATION, 1220 SENLAC DRIVE, CARROLLTON, TEXAS 75006
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(Former Name, Former Address, If Changed Since Last Report)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, par value $5 per share New York Stock Exchange
$5 Cumulative Convertible Preferred Stock New York Stock Exchange
$4.20 Cumulative Exchangeable Series A Preferred Stock New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. [X]
On June 16, 1997, the aggregate value of voting stock held by non-affiliates of
the registrant was approximately $15,377,900.
On June 16, 1997, there were 13,806,375 shares of the registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of Stockholders of the
registrant to be held on August 12, 1997 are incorporated by reference into
Part III.
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PART I
ITEM 1. BUSINESS
Avatex Corporation (the "Corporation") is a company primarily engaged in owning
and operating hotels and office buildings. The Corporation also holds interests
in other corporations and partnerships. In addition, during a portion of the
fiscal year, the Corporation was involved in health care services, including
the wholesale distribution of a full line of pharmaceutical products and health
and beauty aids to retail, hospital, and alternate care facilities in the
United States through a wholly-owned subsidiary FoxMeyer Corporation
("FoxMeyer"). On August 27, 1996, FoxMeyer and several of its subsidiaries
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. On November
8, 1996, the Bankruptcy Court approved the sale of the principal assets of
FoxMeyer to McKesson Corporation. On March 18, 1997, the Chapter 11 cases were
converted into Chapter 7 liquidation cases.
The Corporation was incorporated in Delaware on September 27, 1982, for the
purpose of effecting a corporate restructuring of National Steel Corporation
("NSC") and its subsidiaries in which NSC assets pertaining to the steel
industry were separated from its non-steel assets. Pursuant to the
restructuring, on September 13, 1983, NSC was merged into a subsidiary of the
Corporation and the stockholders of NSC became stockholders of the Corporation.
The Corporation sold substantially all of its investment in NSC and related
metals operations by fiscal 1991 and invested in distribution businesses,
principally FoxMeyer.
DESCRIPTION OF BUSINESS
Except for historical information contained herein, the matters discussed in
this annual report contain forward-looking statements which involve risks and
uncertainties including, but not limited to, economic, competitive,
governmental and technological factors affecting the Corporation's and its
investments' operations, markets, products and services.
REAL ESTATE
The Corporation has made certain investments in real estate and real estate
loans primarily through limited partnerships. These limited partnerships are
controlled by wholly-owned subsidiaries of the Corporation which generally hold
a 50% general partnership interest in these limited partnerships. The limited
partnerships are engaged in the buying, holding, operating and disposing of
real estate, principally hotels and office buildings, or real estate loans. The
Corporation was also a minority partner in one real estate partnership, which
was accounted for on an equity basis, that owns and operates a hotel. The
Corporation acquired the remainder of this property in June 1997. The
properties owned by these partnerships are located in the Maryland, Virginia
and Washington, D.C. areas and are as follows:
A 36,000 square foot office building and 150 room hotel located in Annapolis,
Maryland. Both properties were purchased in November 1993 and refurbished. The
office building is 100% occupied and the hotel was approximately 65% occupied
during calendar 1996.
A 194 room hotel located in Washington, D.C. in the Watergate area. The
Corporation assumed operating control of the hotel in November 1995 and has
completely refurbished the property. The calendar 1996 occupancy rate was
approximately 58%.
A 103,000 square foot office building with adjoining townhouse located in
Washington, D.C. was purchased in fiscal 1997. The building is presently being
renovated with a plan to convert the building into a 158 room hotel and an
expected opening in the spring of 1998. The townhouse is being offered for
sale.
A partnership in which the Corporation is a 50% general partner had a 34.5%
minority interest in a 325 room hotel located in Arlington, Virginia. The
occupancy rate during calendar 1996 was approximately 54%. The remaining 65.5%
of the property not owned by the partnership was acquired in June 1997.
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The Corporation sold several properties during the year. These properties
consisted of hotels and office buildings in the Washington, D.C. area and
certain real estate loans.
EQUITY INVESTMENT IN PHAR-MOR, INC.
In September 1995, the Corporation acquired a 69.8% interest in Hamilton Morgan
LLC, a Delaware limited liability company ("Hamilton Morgan"). Hamilton Morgan
subsequently acquired an approximate 30.9% common stock interest in Phar-Mor,
Inc. ("Phar-Mor"). The Corporation directly owns common stock of Phar-Mor
representing an additional 7.8% interest and warrants that if converted into
common stock would result in an approximate 0.8% increase in ownership. The
common stock investment held by the Corporation totals 38.7% of Phar-Mor's
common stock outstanding (29.4% net of the minority interest in Hamilton
Morgan). The Corporation accounts for its investment in Phar-Mor on an equity
basis.
Phar-Mor operates a chain of discount retail drugstores devoted to the sale of
prescription and over-the-counter drugs, health and beauty care products, and
other general merchandise and grocery items. The Company operates 103 stores in
22 metropolitan markets in 19 states. Approximately 51% of Phar-Mor stores are
located in Pennsylvania, Ohio and West Virginia. An additional 24% are located
in Virginia, North Carolina and South Carolina.
OTHER
The Corporation owns US HealthData Interchange, Inc. ("USHDI"). USHDI provides
physician management software, electronic claims processing services which link
medical providers to payers nationwide, and on-line verification of eligibility
and benefits. This operation is being accounted for as a discontinued
operation, and the Corporation expects to sell or otherwise dispose of this
operation in the next few months. USHDI occupies an office building in
Arlington, Texas under a lease that expires in October 1997.
The Corporation has an approximate 6.2% interest in Urohealth Systems, Inc., a
developer, manufacturer and distributor for the urology, minimally invasive and
general surgery, and gynecology markets.
The Corporation, through a limited partnership, holds the equivalent of an
approximate 8.5% interest in Carson, Inc., a global manufacturer of ethnic hair
care products for African-Americans and persons of African descent.
The Corporation also owns 10,000 shares of Series B Preferred Stock of National
Steel Corporation. See Note G to the consolidated financial statements for a
discussion of this investment.
The Corporation owned 17.4% of Ben Franklin Retail Stores, Inc. ("Ben
Franklin") which filed for protection under the U.S. Bankruptcy Code in July
1996. The Corporation wrote off its investment in Ben Franklin in fiscal 1997
as a result of the bankruptcy filing.
The Corporation also sold its interest in FoxMeyer Canada, Inc. ("FoxMeyer
Canada") in fiscal 1997. The Corporation held a 47% interest at March 31, 1996
and a 39% interest in FoxMeyer Canada at the time of its sale.
ENVIRONMENTAL REGULATION
The Corporation, like many other enterprises, is subject to federal, state and
local laws and regulations governing environmental matters. Such laws and
regulations primarily affect the Corporation's previously sold or discontinued
operations where the Corporation retained all or part of any environmental
liabilities on conditions existing at the date of sale.
It is anticipated that compliance with statutory requirements related to
environmental quality will continue to necessitate cash outlays by the
Corporation for certain former operations. The amounts of these liabilities are
difficult to estimate due to such factors as the unknown extent of the remedial
actions that may be required and, in the case of sites not owned by the
Corporation, the unknown extent of the Corporation's probable liability in
proportion to the probable liability of other parties. Moreover, the
Corporation may have environmental liabilities
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that the Corporation cannot in its judgment estimate at this time and losses
attributable to remediation costs may arise at other sites. Management
recognizes that additional work may need to be performed to ascertain the
ultimate liability for such sites, and further information may ultimately
change management's current assessment. See Note N to the consolidated
financial statements of the Corporation contained herein. Also, see "Item 3.
Legal Proceedings" below for a discussion of outstanding environmental actions
involving the Corporation.
EMPLOYEES
The number of persons employed by the Corporation and its consolidated
subsidiaries was thirteen at March 31, 1997. This number does not include 89
employees of the consolidated real estate limited partnerships. Effective May
1997, the real estate employees were transferred to companies that manage each
real estate operation. In addition, 31 persons were employed by USHDI at March
31, 1997.
ITEM 2. PROPERTIES
All information with respect to properties owned or leased by the Corporation
has been included under the description of the Corporation's businesses except
for the Corporation's executive office, located at 5910 North Central
Expressway, Suite 1780, Dallas, Texas, which occupies approximately 6,139
square feet of space under a lease agreement that expires in December 2001.
ITEM 3. LEGAL PROCEEDINGS
1994 MERGER LITIGATION
On March 1, 1994, the Corporation and FoxMeyer announced that the Corporation
had proposed a merger in which a wholly-owned subsidiary of the Corporation
would be merged with and into FoxMeyer, making FoxMeyer a wholly-owned
subsidiary of the Corporation. In the announcement, the Corporation initially
proposed that the holders of each share of FoxMeyer's common stock (other than
the Corporation) would receive $14.75 in principal amount of a new issue of
8.75% senior notes due 2004 to be issued by a new holding company created for
the purpose of holding a majority of FoxMeyer's outstanding shares (the
"Initial Offer"). The Initial Offer was subsequently changed to a share
exchange merger in which the public shareholders of FoxMeyer (other than the
Corporation) received 0.904 shares of the Corporation's common stock for each
share of FoxMeyer's common stock. The merger was completed on October 12, 1994
(the "Merger"). Shortly after the announcement of the Initial Offer, class
action lawsuits were filed against the Corporation, FoxMeyer and certain of
FoxMeyer's officers and directors alleging, among other things, that the
defendants breached their fiduciary duties owed to holders of shares of
FoxMeyer common stock.
The class action lawsuits, which have been consolidated, sought to enjoin the
transaction contemplated by the Initial Offer or, if consummated, to rescind
the transaction, and requested an award for money damages, attorneys' fees and
costs. In connection with the Merger, an agreement in principle between
plaintiffs and defendants concerning the terms of the Merger and the settlement
of the class action lawsuits was reached and a Memorandum of Understanding was
executed on June 30, 1994. The Memorandum of Understanding provided that,
subject to confirmatory discovery, plaintiffs would enter into a settlement of
the class action lawsuits, under which the class action lawsuits would be
dismissed and the corporate defendants would pay the attorneys' fees of
plaintiffs' counsel in an amount not to exceed $410,000, as may be awarded by
the court.
Thereafter, certain plaintiffs withdrew from the Memorandum of Understanding
and, on September 30, 1994, sought to enjoin the consummation of the Merger and
to schedule a date for a preliminary injunction hearing. That same day, the
court denied the request to schedule a preliminary injunction hearing.
On October 11, 1994, the State of Wisconsin Investment Board ("SWIB"), alleging
that it was a shareholder of FoxMeyer, moved to intervene in the consolidated
class action lawsuits and sought to file a complaint in intervention
challenging the Merger and defendants' conduct in connection therewith. On
December 2, 1994, SWIB withdrew its motion to intervene and filed a complaint
in the Chancery Court in New Castle County, Delaware
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against the same defendants as in the consolidated class action lawsuits. The
SWIB complaint alleged that the defendants breached their fiduciary duties to
FoxMeyer's shareholders by agreeing to the Merger at an unfair price and at a
time designed so that the Corporation could take advantage of, among other
things, an alleged substantial growth in the business of FoxMeyer. The SWIB
complaint also alleged that the proxy statement issued in connection with the
Merger failed to disclose that (i) the FoxMeyer Special Committee never
examined the basis for FoxMeyer's projections or took into account in reviewing
those projections certain increases in business expected by FoxMeyer, (ii)
certain analyses used by Smith Barney in rendering its fairness opinion on the
Merger were flawed, and (iii) FoxMeyer's actual performance was substantially
exceeding projections at the time of the issuance of the proxy statement. On
April 30, 1995, the SWIB action was consolidated with the class action
lawsuits.
All of the plaintiffs subsequently withdrew from the Memorandum of
Understanding and, on February 13, 1996, filed an amended complaint in the
consolidated case. The amended complaint essentially alleges the same claims
previously raised. Defendants have filed their answer to the amended complaint,
and asserted certain affirmative defenses. No schedule has been set for the
completion of discovery in the case, the briefing of plaintiffs' class
certification motion, or any other proceedings.
ZUCKERMAN LITIGATION
The Corporation and certain of its current and former officers and directors
have been named in a series of purported class action lawsuits that were filed
and subsequently consolidated under Zuckerman, et al. v. FoxMeyer Health
Corporation, et al., in the United States District Court for the Northern
District of Texas, Dallas Division, Case No. 396-CV-2258-T. The lawsuit
purports to be brought on behalf of purchasers of the Corporation's common,
Series A and First Series preferred stock during the period July 19, 1995
through August 27, 1996. On May 1, 1997, plaintiffs in the lawsuit filed a
consolidated amended class action complaint, which alleges that the Corporation
and the defendant officers and directors made misrepresentations of material
facts in public statements or omitted material facts from public statements.
The complaint alleges that the Corporation failed to disclose purportedly
negative information concerning its National Distribution Center and Delta
computer systems and the resulting impact on the Corporation's existing and
future business and financial condition. At the Corporation's request, the
court has entered a stay of all discovery pending a ruling on the Corporation's
motion to dismiss, which was filed on June 20, 1997. The Corporation intends to
prosecute the motion and defend itself in the consolidated lawsuit.
GROSSMAN LITIGATION
The Corporation, Abbey J. Butler and Melvyn J. Estrin have also been named as
defendants in an action styled Grossman v. FoxMeyer Health Corp., et al., Case
No. 96-10866-J, in the 191st Judicial Court of Dallas County, Texas. The
lawsuit purports to be brought on behalf of all holders of the Corporation's
common stock during the period October 30, 1995 through July 1, 1996, and seeks
unspecified money damages. Plaintiff asserts claims of common law fraud and
negligent misrepresentation, based on allegations that she was induced not to
sell her shares by supposed misrepresentations and omissions that are
substantially the same as those alleged in the Zuckerman action described
above. The Corporation has moved for summary judgment in the lawsuit on the
ground that plaintiff, as she admits, did not purchase or sell any of the
Corporation's securities during the class period. Following a hearing on May
29, 1997, the court has taken the motion under advisement. The Corporation
intends to continue to vigorously defend itself in the lawsuit.
FOXMEYER DRUG COMPANY\LUSK LITIGATION
In August 1994, a group of four individuals filed a purported class action
lawsuit against their former employer, FoxMeyer Drug Company, in Texas State
Court. The lawsuit alleged that the termination of plaintiffs' employment, made
as part of a reduction-in-force, violated the Age Discrimination in Employment
Act. The lawsuit also named FoxMeyer and the Corporation as defendants, all of
which denied plaintiffs' allegations. The lawsuit was subsequently removed to
the United States District Court for the Northern District of Texas, Dallas
Division. In August 1996, the case against FoxMeyer Drug Company and FoxMeyer
was stayed following their filing for relief under Chapter 11 of the Bankruptcy
Code. In September 1996, the court granted the Corporation's motion for summary
judgment and entered a partial final judgment in its favor on the ground that
it could not be considered a "single employer" of plaintiffs under the Age
Discrimination in Employment Act. Plaintiffs have
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appealed the judgment to the United States Court of Appeals for the Fifth
Circuit in Lusk v. National Intergroup, Inc., No. 96-11278. The parties have
briefed the issue on appeal and oral argument is scheduled for August 1997. If
the lower court's ruling is reversed, the Corporation will vigorously contest
the lawsuit.
BANKRUPTCY\TRUSTEE LITIGATION
On August 27, 1996, FoxMeyer and certain of its subsidiaries, including
FoxMeyer Drug Company, filed voluntary petitions for relief under Chapter 11 of
the Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware (the "Bankruptcy Court"). On November 25, 1996, the Official Committee
of Unsecured Creditors (the "Committee") filed a lawsuit against the
Corporation in the Bankruptcy Court under Adversary No. 96-205. In the lawsuit,
the Committee alleges that certain property transferred by FoxMeyer to the
Corporation as a dividend on June 19, 1996 constituted an avoidable fraudulent
transfer or preference. The dividend consisted of assets unrelated to
FoxMeyer's core distribution business, including assets of its pharmacy
benefits management operations, its investments in Phar-Mor, FoxMeyer Canada
and other marketable securities, USHDI, and FoxMeyer's forgiveness of a $31.3
million loan to the Corporation. The Committee seeks to recover the property
transferred or the value of the property transferred. The Corporation believes
that the dividend was lawful and is vigorously contesting the lawsuit.
On March 5, 1997, the Bankruptcy Court entered an Agreed Preliminary Injunction
Order, which enjoins the Corporation from transferring, selling or otherwise
disposing of, or encumbering or pledging (i) any of the assets conveyed to it
from FoxMeyer, without the Committee's consent, and (ii) any assets other than
the conveyed assets, except in the ordinary course of business, unless the
Corporation provides five days' prior notice to the Committee and either
obtains the Committee's consent or Bankruptcy Court approval.
On March 18, 1997, the Bankruptcy Court converted the underlying FoxMeyer
bankruptcy cases to liquidation cases under Chapter 7 of the Bankruptcy Code,
and stayed the Committee's lawsuit against the Corporation pending the election
of a permanent Chapter 7 trustee. On April 24, 1997, the creditors in the
Chapter 7 cases elected a permanent trustee, who was qualified to serve in late
May 1997. The trustee has succeeded to the interests of the Committee in the
lawsuit, and the stay of the lawsuit has ended.
MCKESSON\VENDOR LITIGATION
On January 10, 1997, the Corporation filed a ten count lawsuit against McKesson
Corporation ("McKesson") and certain major pharmaceutical manufacturers styled
FoxMeyer Health Corporation v. McKesson Corporation, et al., Case No. 9700311,
in the 95th Judicial District Court of Dallas County, Texas (the "McKesson
Litigation"). In the McKesson Litigation, the Corporation alleges that McKesson
and the pharmaceutical manufacturers conspired to drive the Corporation's
pharmaceutical distribution subsidiary, FoxMeyer Drug Company, out of business,
that McKesson misused confidential financial and competitive information to
which it had gained access in conceiving, perpetrating and promoting a plan to
drive FoxMeyer Drug Company out of its industry, and that McKesson exploited
this information by interfering with FoxMeyer Drug Company's customer and
vendor relationships and disrupting its operations in order to ultimately
effectuate a purchase of its competitor at a significantly distressed price.
With respect to the pharmaceutical manufacturer defendants, the Corporation
alleges that they tightened or outright denied credit to FoxMeyer Drug Company
and thereafter refused to work with an investment group that had agreed to buy
FoxMeyer Drug Company's operations, thereby forcing it into Chapter 11, and
that these actions were the result of an unlawful civil conspiracy. The
Corporation seeks to recover in excess of $400 million in compensatory damages
on account of the value of the Corporation's interests in FoxMeyer Drug
Company, plus punitive damages. In February 1997, certain defendants in the
McKesson Litigation removed the lawsuit to the Bankruptcy Court for the
Northern District of Texas, Dallas Division, under Adversary No. 397-3052, and
filed a motion to transfer the McKesson Litigation to the Bankruptcy Court for
the District of Delaware as a proceeding related to the Chapter 11 case of
FoxMeyer Drug Company. The Corporation has opposed the removal and the motion
to transfer, and has filed a motion to remand the McKesson Litigation back to
Texas State Court. The motion to transfer and the motion to remand are
currently pending before the Dallas Bankruptcy Court.
On February 26, 1997, the Committee filed a lawsuit against the Corporation in
the Delaware Bankruptcy Court under Adversary No. 97-20. In the lawsuit, the
Committee seeks a declaration that the claims asserted by the Corporation in
the McKesson Litigation are property of the FoxMeyer bankruptcy estate, and an
injunction barring
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the Corporation from continuing to prosecute the McKesson Litigation.
Thereafter, on March 19, 1997, McKesson intervened in the Committee's lawsuit
and filed its own complaint, in which McKesson asserted that (a) as of the
commencement of the FoxMeyer Chapter 11 case in August 1996, the claims
asserted in the McKesson Litigation were property of the bankruptcy estate, and
(b) as of November 1996, when McKesson purchased substantially all of the
assets of FoxMeyer Drug Company, the claims were transferred to McKesson. On
May 30, 1997, McKesson filed a motion for partial summary judgment in which it
seeks a declaration that the Corporation has no right, title to or interest in,
or standing to prosecute and maintain, the McKesson Litigation, and a permanent
injunction barring the Corporation from prosecuting or asserting the claims in
the McKesson Litigation. The Corporation believes that it owns the claims
asserted in the McKesson Litigation, and intends to file its answer and
otherwise respond to the two complaints and the motion in July 1997.
HAMILTON MORGAN ARBITRATION
The Corporation and Robert and Mary Haft (collectively, the "Hafts") are the
members of Hamilton Morgan, a Delaware limited liability company that owns
3,750,000 shares of common stock of Phar-Mor. In December 1996, the Corporation
sent notice to the Hafts that the Corporation was triggering the buy-sell
provisions of Hamilton Morgan's operating agreement, under which a member had
the right to acquire the other member's interest in Hamilton Morgan. In
response, the Hafts informed the Corporation that the Hafts were disputing
certain interpretations of the Corporation's triggering of the buy-sell
provisions, and that the Hafts were invoking the arbitration provisions of the
operating agreement. The parties are attempting to negotiate a settlement of
their disputes, and have agreed to toll the arbitration proceeding pending
their settlement discussions.
NATIONAL STEEL CORPORATION
In accordance with certain provisions of the Stock Purchase Agreement and
related documents dated August 27, 1984, as amended (the "Stock Purchase
Agreement") between the Corporation and Nippon Kokan K.K. ("NKK"), whereby the
Corporation sold 50% of the stock of NSC to NKK, the Corporation assumed
primary responsibility for, is obligated to provide funds to NSC for the
payment and discharge of, and agreed to indemnify NSC against, certain
liabilities that existed at the time of the sale. On February 3, 1993, the
Corporation, NII Capital Corporation, NKK Corporation, NKK U.S.A. Corporation
and NSC entered into an agreement (the "Definitive Agreement"), under which the
Corporation is required to pay all liabilities, costs, expenses, attorneys'
fees and disbursements incurred with respect to environmental liabilities
(collectively, "Environmental Liabilities") for which the Corporation had
agreed to indemnify NSC. In accordance with the requirements of the Definitive
Agreement, the Corporation deposited with NSC a total of $10 million as a
prepayment of its indemnification obligation. The Definitive Agreement provides
that after January 14, 1994, NSC will discharge Environmental Liabilities as
they become due and owing after January 14, 1994, up to the $10 million amount
deposited by the Corporation.
In accordance with the terms of the Definitive Agreement, NSC is administering
and discharging Environmental Liabilities incurred at the sites described in
paragraphs (a) through (i) below:
(a) BUCKEYE. The United States Environmental Protection Agency (the "EPA") has
notified NSC that it is one of a number of parties potentially responsible for
wastes present at the Buckeye Reclamation Site in Bridgeport, Ohio, and has
requested NSC's voluntary participation in certain remedial actions. NSC has
joined a group of approximately thirteen other potentially responsible parties
("PRPs") to perform the remedial design pursuant to an Administrative Order by
Consent between the PRPs and the EPA, which took effect on February 10, 1992.
NSC's allocated share for the remedial design stage is 4.63% for the first $1.6
million and 5.05% thereafter. The EPA and a steering committee have estimated
the total cost for the remedial design phase to be approximately $3 million,
and the EPA has estimated the total cost for its proposed remediation
activities to be approximately $25 million. The PRPs are currently negotiating
with the EPA to reduce the scope of the remedy at the site and, accordingly,
the ultimate cost of remediation cannot be estimated. In March 1994,
Consolidated Coal Company, a former owner and operator of the site, filed a
lawsuit against the EPA and various other defendants, including NSC, in the
United States District Court for the Southern District of Ohio, for claims
regarding the alleged release of hazardous substances from the site. The
lawsuit seeks, among other things, a determination of the allocation for the
remedial action costs among the municipal and industrial defendants. In June
1996, NSC entered into a settlement agreement with various parties to the
lawsuit, which resolved the litigation. Under the agreement, which is
contingent on
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approval of the court and the entry of a consent decree with the EPA, NSC will
be obligated to pay 2.8% of the response costs associated with the site.
(b) BROWN'S ISLAND. In January 1993, NSC was notified that the West Virginia
Division of Environmental Projection ("WVDEP") had conducted an investigation
on Brown's Island, Weirton, West Virginia, which was formerly owned by NSC's
Weirton Steel Division and is currently owned by Weirton Steel Corporation
("Weirton"). The WVDEP alleged that samples taken from four groundwater
monitoring wells located at this site contained elevated levels of
contamination. WVDEP informed Weirton that additional investigation, possible
groundwater and soil remediation, and on-site housecleaning was required at the
site. Weirton has spent approximately $210,000 to date on remediation of an
emergency wastewater lagoon located on Brown's Island, and has received
reimbursement of that amount from NSC. Assuming that another site will accept
the waste material, additional sums will be spent on disposal and backfilling,
and the WVDEP may require additional investigation or remediation in the
future. In addition, Weirton has agreed to a three-year groundwater monitoring
program of the Brown's Island facility, and NSC receives copies of the program.
To date, no groundwater remediation has been required, and it cannot be
determined whether future remediation will be required.
(c) WEIRTON EPA ORDER. In September 1996, the EPA issued an administrative
order under the Resource Conservation and Recovery Act ("RCRA") that required
Weirton to undertake certain investigative activities with respect to the
cleanup of possible environmental contamination on Weirton property. Weirton
has informed NSC that the Mainland Coke Plant, Brown's Island and the Avenue H
Disposal Site are likely to be included within the areas of investigation
required by the EPA, and that Weirton considers these areas to be within the
scope of an indemnity agreement with NSC. At this time, NSC and the Corporation
are unable to determine the extent to which activities resulting from the EPA's
order will result in an indemnity obligation on the part of NSC.
(d) SWISSVALE. NSC was named as a third party defendant in a government action
for reimbursement of the EPA's response costs in connection with the cleanup of
a certain scrap metal yard located in Swissvale, Pennsylvania. In December
1993, the defendants reached a settlement with the government in the aggregate
amount of $1.5 million. (The government's latest claim was approximately $4.5
million.) In June 1996, the court approved a Consent Decree between the
plaintiff, the defendants/third party plaintiffs and the third-party
defendants, under which NSC agreed to pay $10,000.
(e) TEX-TIN. In August 1996, Amoco Oil Company ("Amoco") filed a cost recovery
and contribution civil action pursuant to sections 107 and 113(f) of the
Comprehensive Environmental Response Compensation and Liability Act of 1980
("CERCLA") in the United States District Court for the Southern District of
Texas. Amoco has been involved in investigations of contamination at the former
Tex-Tin Superfund Site located in Texas City, Texas, pursuant to an
Administrative Order and Consent ("AOC") entered into with the EPA. In the
lawsuit, Amoco alleges that NSC is one of approximately 100 defendants liable
under section 107 of CERCLA for costs of those investigations and future
response costs. Amoco has spent approximately $9 million pursuant to the AOC at
the site. NSC is unable at this time to ascertain the extent of its liability
at the site, although the EPA's waste-in lists indicate that NSC's former
Weirton division sent less than 1% of the waste identified at the site.
(f) MIDC. In March 1988, the EPA notified NSC that it was considered to be one
of the parties potentially responsible for the dumping of wastes at the
Municipal and Industrial Disposing Site located near Elizabeth, Pennsylvania,
and requested that NSC voluntarily participate in certain remedial actions.
Because NSC's records did not indicate any involvement with this site by its
former Weirton Steel division, NSC declined to participate voluntarily in the
remedial actions.
(g) PFOHL BROTHERS. The New York Department of Environmental Conservation
("DEC") has issued two Information Request letters, dated January 21, 1994 and
January 8, 1995, seeking information concerning waste disposal practices of
Hanna Furnace Corporation. DEC's letters requested information concerning both
general waste disposal practices and those relating to the Pfohl Brothers
Landfill Site. This landfill was operated from the 1930s to 1969 and received
both municipal and industrial wastes. Hanna Furnace Corporation was a
wholly-owed subsidiary of NSC during the relevant period. DEC is currently
undertaking response activities at the Landfill estimated to cost $55 million.
7
<PAGE> 9
(h) HI-VIEW TERRACE. In June 1989, the EPA notified the Donner-Hanna Coke Joint
Venture ("Donner-Hanna") it was one of a number of parties potentially
responsible for wastes present at the Hi-View Terrace site located in West
Seneca, New York, and requested information with respect to this site. Through
its wholly owned subsidiary, the Hanna Furnace Corporation, NSC owned a 50%
interest in Donner-Hanna. Donner-Hanna has advised the EPA that Donner-Hanna's
records do not indicate any involvement with this site.
(i) LOWRY. NSC, Earth Sciences, Inc. ("ESI") and Southwire Company
("Southwire") are general partners in the Alumet Partnership ("Alumet"), which
was identified by the EPA as one of approximately 260 PRPs at the Lowry
Landfill Superfund Site located in Colorado. The owners and operators of the
Lowry Landfill -- the City and County of Denver, Waste Management of Colorado,
Inc. and Chemical Waste Management, Inc. -- are performing remediation
activities at the site. In December 1991, the City and County of Denver filed a
complaint against 40 of the PRPs, including ESI, seeking reimbursement for past
and future response costs incurred at the site, and subsequently reached a
settlement with ESI. In June 1993, the owners and operators of the site made a
settlement demand on Alumet for response costs that were not covered by their
earlier settlement with ESI. In November 1993, the EPA sent Alumet a letter
demanding payment of approximately $15.3 million for past response costs
incurred through that date. In May 1994, the owners and operators filed a
complaint alleging, among other things, that Alumet, the Corporation, NSC and
Southwire were liable under CERCLA for the costs of cleaning up the site. In
November 1994, the EPA issued a unilateral administrative order directing
recipients of the order, including Alumet, to perform the remedial design and
remedial action at the site. The EPA determined that Alumet's percentage of the
total volumetric contribution attributed to the 27 generator respondents listed
in the order was 4.33%. Sitewide past costs are currently $48.3 million and
sitewide remedy costs are estimated to be $93.8 million.
Alumet reached a settlement with the EPA and the Department of Justice
concerning any liability Alumet may have with respect to this site. In February
1996, a Consent Decree was issued and an order was entered dismissing with
prejudice all claims against Alumet, the Corporation, NSC and Southwire and, in
March 1996, the parties paid the EPA approximately $7.3 million. NSC's share of
the settlement was 50% of the overall amount, or $3.65 million, which was
funded out of the $10 million deposited by the Corporation with NSC as a
prepayment of indemnification obligations. In addition, in May 1996, Alumet
entered into a settlement with Continental Casualty Co. and certain other
insurers in which Alumet received a confidential cash settlement with respect
to its Lowry Landfill claims.
NATIONAL ALUMINUM CORPORATION
During the fiscal year ended March 31, 1990, the Corporation disposed of the
operating assets of its subsidiary, National Aluminum Corporation ("NAC"). In
connection with the disposition of such assets, the Corporation retained
responsibility for certain environmental and other matters, as described in
paragraphs (a) through (i) below:
(a) DIAZ. In June 1988, NAC received notification that it was considered to be
one of several hundred PRPs for the clean-up of a site known as the Diaz
Refinery located in Diaz, Arkansas. In September 1989, a complaint was filed in
the Chancery Court of Jackson County, Arkansas, styled Grantors to the Diaz
Refinery PRP Committee Site Trust, et al. v. Rheem Manufacturing Company, et
al., which included NAC as a defendant. This purports to be an action by a
steering committee of PRPs for a declaratory judgment as to liability for the
costs of cleaning the site as well as for recovery of the costs of the
clean-up. In January 1990, NAC was dismissed as a defendant and realigned as a
plaintiff. NAC has joined the steering committee of PRPs that instituted the
action and is participating in site remediation activities.
(b) FISHER-CALO. In December 1988, NAC received notification that it was
considered to be one of a number of PRPs for wastes present at the Fisher-Calo
Chemical and Solvent Recovery Site located in Kingsbury, Indiana. The EPA
ordered 23 entities, including NAC, to undertake and complete emergency removal
activities at the site. The removal work has been substantially completed. In
October 1990, the EPA sent a Special Notice Letter to approximately 350 PRPs,
including NAC, requesting their voluntary participation in performing or
financing the remedial design/remedial action at the site and demanding payment
of the EPA's past costs at the site. The EPA estimates the cost of the remedial
design/remedial action to be approximately $31 million, and the PRPs estimate
the total cost of the cleanup to be approximately $47 million. In August 1991,
approximately 52 PRPs, including NAC, executed a Consent Decree to perform the
remedial design/remedial action, which was filed in federal court
8
<PAGE> 10
on December 30, 1991. In addition, in January 1992, approximately 45 PRPs,
including NAC, agreed to file a contribution action for the recovery of
response costs from non-participating PRPs. Pursuant to the terms of the
Consent Decree and Cost Sharing Agreement among the PRPs, NAC paid its
allocated share of approximately $890,000, which excludes any potential cost
overruns, funding of the planned contribution action against the
non-participating PRPs, or annual administrative fees of $4,000.
(c) ORGANIC CHEMICAL. In March 1991, NAC received notification that its former
Hastings Aluminum Products division was considered to be one of a number of
PRPs for wastes present at the Organic Chemical Site located near Grandville,
Michigan. In the notice, the EPA requested NAC's voluntary participation in
certain remedial actions. In January 1992, the EPA issued an Administrative
Order requiring NAC and approximately 150 other PRPs to perform the first phase
of the remediation at the site. A group of PRPs, including NAC, was formed to
perform the first phase of the site remediation, which is estimated by the EPA
to cost approximately $6 million. The PRPs, including NAC, have informed the
EPA that they intend to comply with the terms of the Administrative Order.
(d) THERMAL INDUSTRIES. In November 1992, Thermal Industries, Inc. ("Thermal")
served a complaint on NAC in a lawsuit filed in the Court of Common Pleas of
Allegheny County, Pennsylvania. Barney C. Gutman and Eugene S. Cohen were also
named as defendants. The complaint alleges claims for breach of contract,
breach of implied warranties, fraud, strict liability and conspiracy against
NAC and the other defendants relating to the sale by NAC to Thermal of certain
property located in Murrysville, Pennsylvania. The complaint alleges that the
defendants are responsible for the costs and expenses incurred by Thermal for
the removal and remediation of certain contaminated soil and tanks that were
discovered after Thermal purchased the property and excavated an area near the
property, and seeks damages in excess of $100,000. During 1994, Thermal
conducted limited discovery directed to third parties, and activity has been
otherwise limited in the lawsuit. NAC is unable to ascertain the amount of
alleged costs and expenses incurred by Thermal to date, and NAC believes it has
valid defenses available to it under the sale agreement.
(e) HASTINGS/AMERIMARK. In April 1992, the United States District Court for the
Western District of Michigan ruled in favor of Amerimark Building Products, the
successor to Hastings Building Products, Inc., that NAC was liable for 50% of
all future costs of removal or remedial action related to the mask wash
contamination of soil and groundwater in the vicinity of a former NAC plant
located in Hastings, Michigan. Thereafter, the court entered an amended ruling
that NAC was liable for 75% of response costs incurred to date and any further
response costs related to mask wash contamination that are not inconsistent
with the national contingency plan. Response costs incurred to date are
approximately $300,000. In October 1992, the parties entered into an
Implementation Agreement, under which the parties agreed on procedures for the
work involved in investigating the site. NAC has paid its 75% share of response
costs incurred to date. NAC cannot estimate its total future costs at the site.
(f) NORTHEAST GRAVEL. NAC is one of 25 PRPs participating in a remedial
investigation/feasibility study ("RI/FS") at the Northeast Gravel Site located
in Plainfield, Michigan. NAC had paid its $955 share of the $300,000 total cost
of the RI/FS, and NAC's share of the total response costs within the PRP group
is 0.19%. No cost estimates are available for the design and remedial action,
and NAC cannot estimate its future costs at the site.
(g) HELEN KRAMER. In October 1989, the United States filed a complaint in the
United States District Court for the District of New Jersey entitled United
States v. Helen Kramer, et al., seeking reimbursement of the EPA's response
costs as well as a declaratory judgment as to liability for future response
costs with respect to the Helen Kramer Landfill Site located in Mantua
Township, New Jersey. Neither NAC nor the Corporation was named as a defendant
in the litigation, but 13 of the 26 named defendants have filed a third-party
complaint for contribution against 264 third-party defendants, including NAC's
predecessor in interest, Denny Corporation. In July 1991, the Court issued an
order granting the third-party defendants' motion to separate the trial of the
third-party claims from the trial of the primary claims, but denied the
third-party defendants' motion to stay discovery as to the third-party claims.
NAC has opted into a court-approved Settlement Process Protocol, and has
reached a tentative settlement of its liability with respect to the site as
part of an overall allocation scheme. NAC believes that the confidential
settlement amount represents a fair and reasonable compromise of liability and
future costs of litigation. As of June 1997, a definitive settlement agreement
has not yet been executed.
(h) GREEN RIVER. In May 1991, the EPA contacted NAC and requested information
regarding its disposal of allegedly hazardous substances at the Green River
Disposal Site located in Davies County, Kentucky. NAC
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<PAGE> 11
responded to the EPA's request, indicating that NAC had disposed of materials
at the Green River Disposal Site and asserting that the materials sent to the
site were not hazardous. In January 1992, NAC received notification that it was
considered to be one of a number of PRPs with respect to contamination at the
site. In March 1992, the Green River Coordinating Committee proposed an
allocation formula for funding an RI/FS, to which NAC and numerous other
parties objected. Many of the objecting parties, including NAC, formed the
Green River Review Committee, which entered into negotiations with the
Coordinating Committee to develop a more equitable allocation scheme. In
February 1993, the Review Committee entered into a settlement agreement with
the Coordinating Committee, under which the Review Committee's 18 members
agreed to pay 21% of the costs associated with the RI/FS, which are estimated
to be $4.7 million. As part of the settlement, NAC, without admitting
liability, paid $40,739, although NAC may be required to pay additional sums if
the cost of the RI/FS exceeds the current estimate. In June 1995, the EPA
issued a special notice letter to NAC and numerous PRPs, in which the EPA
directed the PRPs to make "good faith offers" to implement the Remedial Action
at the Green River Site, demanded reimbursement of approximately $800,000 in
past response costs, and designated NAC as a PRP for future response costs. In
March 1996, pursuant to section 106 of CERCLA, the EPA issued a unilateral
administrative order to ten parties, including NAC, requiring them to perform
the Remedial Action. In March 1997, NAC entered into a confidential settlement
to pay its share of past costs. With respect to the Remedial Action, its exact
costs are unknown, and NAC has paid approximately $100,000 and expects to pay
in the future a lesser amount to complete paying its share of the costs, plus a
small amount each year for operating and maintenance costs.
(i) AB ELECTROLUX. Following the sale of all of the issued and outstanding
capital stock of National Luxembourg Aluminum Company S.A., a Luxembourg
Corporation ("NLAC"), to AB Electrolux, a Swedish Corporation ("AB"), pursuant
to an agreement, dated January 5, 1989 among NAC, the Corporation and AB (the
"Purchase Agreement"), certain disputes arose among the parties with respect to
the accounting standards used prior to the sale. The disputes were submitted
for final resolution to the accounting firm of Price Waterhouse, which agreed
with the position asserted by the Corporation and NAC. In the fall of 1990, AB
and its representatives contacted NAC and the Corporation, claiming that AB was
entitled to a price reduction of approximately $7 million due to certain
alleged failures of the financial statements of NLAC to be in accordance with
the provisions of the Purchase Agreement. In light of the threat of litigation,
and based on the earlier decision by Price Waterhouse, NAC and the Corporation
instituted National Aluminum Corporation and National Intergroup, Inc. v. AB
Electrolux, Civil Action No. 90-1749, in the United States District Court for
the Western District of Pennsylvania, which was essentially a Petition for
Order Confirming Foreign Arbitration Award based on the International
Convention of the Recognition and Enforcement of Foreign Arbitral Orders. AB
filed a motion to dismiss the petition of NAC based on the argument that the
court did not have jurisdiction over the dispute. The motion to dismiss was
granted in July, 1993.
Thereafter, AB commenced AB Electrolux v. National Aluminum Corporation and
National Intergroup, Inc., in the District Court of Luxembourg, Second Section,
alleging that the annual financial statements of NLAC as of December 31, 1988,
March 31, 1988 and March 31, 1987 were not prepared in accordance with the
Accounting Standards (as defined in the Purchase Agreement) with respect to
capitalization of interest relating to the financing of certain fixed assets,
depreciation of certain tangible fixed assets and capitalization of certain
maintenance expenses. Both NAC and the Corporation have responded to the suit
by AB by denying all liability and have filed suit, in the form of claim
against KPMG Peat Marwick, the former independent certified accounting firm of
NLAC. Following a hearing before a three judge panel of a Luxembourg court, the
parties were officially advised by the court clerk in March 1994 that the
claims of AB against the Corporation and NAC had been dismissed. The court also
dismissed the counterclaim of the Corporation and NAC. The Corporation and NAC
have received notice that AB has filed an appeal of the judgment, and a hearing
on the appeal is set in December 1997.
NATIONAL STEEL SERVICE CENTER, INC.
In August 1986, the Corporation sold all of the issued and outstanding common
stock of National Steel Service Center, Inc. ("NSSC") to Traxxon, Inc. By
letter dated February 17, 1994, 21 Pacella Corporation and William A. Haas
wrote to the Corporation, NSSC, NSC, and other companies stating that there was
reason to believe that a release or threat of release of oil or hazardous
material had occurred at property known as 21 Pacella Park Drive located in
Randolph, Massachusetts, and that the various companies receiving the letter
were liable under Massachusetts law. Counsel alleged that 21 Pacella
Corporation had spent over $250,000 in consulting and legal fees to date and
that future response costs could reach or exceed $1,000,000. In April 1994, the
Corporation filed a
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<PAGE> 12
response denying all of the claims. In accordance with Massachusetts law, the
Corporation participated in a mediation with the claimants in February 1995,
which did not result in a settlement. Shortly thereafter, the Corporation was
served with a complaint seeking reimbursement and damages and, in March 1995,
the action was removed to the United States District Court for the District of
Massachusetts under 21 Pacella Corp. and William A. Haas v. National Steel
Corporation and National Intergroup, Inc., C.A. No. 95-10524-NG. The case was
referred to mediation in June 1997, and is set for trial in the fall of 1997.
In June 1997, the Corporation agreed to a settlement with NSC, one of the other
defendants, under which NSC will assume the defense of and indemnify the
Corporation for all liabilities in connection with the 21 Pacella Park site. A
definitive settlement agreement is currently being negotiated and is expected
to be executed in the near future.
BULL MOOSE TUBE COMPANY
In August 1988, the Corporation sold all of the outstanding stock of Bull Moose
Tube Company ("Bull Moose") to Caparo, Inc. ("Caparo"). Bull Moose and Caparo
have indicated that they will seek indemnification from the Corporation for the
costs of removing dioxin contaminated soil at a facility located in Gerald,
Missouri, at which plant roads were allegedly sprayed with dioxin contaminated
oil in 1973 and 1977. The contamination has been remediated under an EPA plan.
The EPA may seek recovery of removal and transportation (but not incineration)
costs from Bull Moose, which may then seek recovery of such costs, along with
defense costs, from the Corporation. The Corporation has not received cost
information from Bull Moose or Caparo.
ENVIRONMENTAL INSURANCE LITIGATION
In March 1995, NSC, NAC and the Corporation filed a lawsuit in the Circuit
Court of Hancock County, West Virginia, against Continental Casualty Co., the
Insurance Company of North America and various other carriers seeking coverage
for certain environmental claims. In May 1995, Continental Casualty Co. filed a
lawsuit in the Superior Court in Delaware for a declaratory judgment that it
owed the policy holders no coverage for these claims under Continental Casualty
Co. et al., v. National Steel Corp., et al., No. 95C-05-237 (Sup. Ct. for New
Castle County, Delaware). In March 1996, the West Virginia Court denied the
insurers' motion to dismiss the complaint on the grounds of forum non
conveniens. The principal parties in the case are participating in court
ordered mediation sessions through June 1997 and, as a result of these
sessions, plaintiffs have entered into settlement agreements with certain
carriers and are continuing to negotiate with the other carriers. The case is
proceeding in West Virginia, and the court has set the first phase of the case
for trial in September 1997 with respect to four environmental sites located in
West Virginia.
OTHER
On May 6, 1997, the Corporation filed with the Securities and Exchange
Commission an application for an order under Section 3(b)(2) of the Investment
Company Act of 1940 (the "Act") or, in the alternative, Section 6(c) of the
Act, for an exemption from Sections 3(a)(1) and 3(a)(3) of the Act. The
application seeks an order declaring that the Corporation is primarily engaged
in a business other than that of investing, reinvesting, owning, holding or
trading in securities or, in the alternative, an order pursuant to Section 6(c)
of the Act exempting the Corporation from all provisions of the Act and the
rules and regulations thereunder. The application is currently pending before
the Commission.
The Corporation also is a party to various other lawsuits arising in the
ordinary course of business. The Corporation, however, does not believe that
the outcome of these lawsuits, individually or in the aggregate, will have a
material adverse effect on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR CORPORATION'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock is listed for trading on the New York Stock
Exchange. At June 16, 1997, the Corporation had 6,308 stockholders of record.
Information concerning the high and low market prices of the Corporation's
common and preferred stock and dividends declared on such stock for each
quarter in the last two fiscal years are shown below:
STOCK PRICES FOR FISCAL 1997 AND 1996
<TABLE>
<CAPTION>
Market Price Range Dividends Declared
--------------------------------------------- Per Share
Fiscal 1997 Fiscal 1996 --------------------
------------------------- ------------------ Fiscal Fiscal
High Low High Low 1997 1996
--------------- -------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Common Stock (Symbol: AAV)
1st Quarter $20 7/8 $13 7/8 $20 $17 3/4 $ 0 $ 0
2nd Quarter 15 2 3/4 26 17 3/4 0 0***
3rd Quarter 3 7/8 1 1/2 28 3/8 21 3/4 0 0
4th Quarter 2 1 26 3/4 15 0 0
- -------------------------------------------------------------------------------------------------------
Convertible Preferred Stock (Symbol: AAVPr)
1st Quarter 53 1/2 49 5/8 53 1/2 50 1/4 1.25 1.25
2nd Quarter 49 7/8 28 1/2 55 51 1.25 1.25
3rd Quarter 31 9 5/8 55 3/4 52 1/4 0** 1.25
4th Quarter 10 1/2 7 3/8 55 49 0** 1.25
- -------------------------------------------------------------------------------------------------------
Preferred Stock Series A (Symbol: AAVA)
1st Quarter 33 1/8 23 3/4 36 5/8 33 1/2 1.05* 1.05*
2nd Quarter 27 3/4 13 38 1/4 35 3/4 1.05* 1.05*
3rd Quarter 18 8 38 1/4 36 0** 1.05*
4th Quarter 8 7/8 5 7/8 37 7/8 30 1/4 0** 1.05*
=======================================================================================================
</TABLE>
* Paid in additional shares of Series A Preferred Stock.
** Dividends were not declared. Both series of preferred stock provide for
cumulative dividends which have been accrued as if declared. For the
Convertible Preferred Stock, the amount accrued each quarter was $1.25 per
share. For the Preferred Stock Series A, $1.05 was accrued for the third
quarter and $1.08 for the fourth quarter of fiscal 1997 for each share.
*** Paid a dividend of one share of Ben Franklin Retail Stores, Inc. common
stock for every six shares of the Corporation's common stock.
Information with respect to restrictions on the payment of dividends is
incorporated herein by reference to Note I to the consolidated financial
statements contained herein in Item 8.
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<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following summary should be read in conjunction with the consolidated
financial statements contained herein:
AVATEX CORPORATION AND SUBSIDIARIES
FIVE-YEAR FINANCIAL SUMMARY AND RELATED DATA
<TABLE>
<CAPTION>
For the years ended March 31,
(In millions of dollars,except per share amounts) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Revenues $ 12.5 $ 10.4 $ 4.2 $ 0.9 $ --
Operating costs 14.9 17.5 14.3 12.4 8.6
Operating loss (2.4) (7.1) (10.1) (11.5) (8.6)
Other income 19.2 21.8 47.4 1.0 0.1
Financing costs, net 4.7 3.6 1.5 1.6 3.0
National Steel Corporation 9.6 3.3 5.4 5.3 (15.1)
Equity in income (loss) of affiliates (5.2) (4.2) 0.8 (0.5) 6.3
Income tax provision (benefit) 29.9 3.0 0.3 (18.1) (23.2)
Minority interest in results of operations of
consolidated subsidiaries (1.1) 2.1 2.3 0.4 --
Income (loss) from continuing operations (12.3) 5.1 39.4 10.4 2.9
Discontinued operations (267.1) (68.8) 2.2 19.1 (2.3)
Net income (loss) $(279.4) $ (63.7) $ 41.6 $ 29.5 $ 0.6
- ----------------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
Earnings (loss) per share:
Continuing operations $ (2.09) $ (0.93) $ 1.37 $ (0.03) $ (0.12)
Discontinued operations (17.81) (4.02) 0.15 1.13 (0.12)
Earnings (loss) per share $(19.90) $ (4.95) $ 1.52 $ 1.10 $ (0.24)
Cash dividends per share -- -- -- -- --
Average number of shares outstanding
(in thousands) 14,997 17,115 14,827 16,931 19,967
- ----------------------------------------------------------------------------------------------------------------------------
FINANCIAL INFORMATION
Working capital $ 46.4 $ 276.4 $ 444.5 $ 375.0 $ 373.2
Total assets 158.4 1,577.1 1,777.0 1,525.5 1,562.1
Capital expenditures 34.7 40.8 59.1 56.3 20.1
Long-term debt 27.5 403.8 422.8 310.9 256.6
Redeemable preferred stock 189.4 187.3 175.0 164.8 50.6
Stockholders' equity (deficit) (113.5) 202.5 304.2 224.8 360.1
- ----------------------------------------------------------------------------------------------------------------------------
KEY FINANCIAL RATIOS
Current ratio 4.80:1 1.38:1 1.57:1 1.59:1 1.52:1
Long-term debt as a percent of total capitalization 26.6% 50.9% 46.9% 44.4% 38.5%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The comparability of the information presented above is affected by
acquisitions, dispositions, and other transactions which are described in the
accompanying footnotes to the consolidated financial statements which should be
read in conjunction with this five-year financial summary. All Summary of
Operations amounts have been reclassified to properly reflect discontinued
operations for all periods presented. Balance sheet amounts have not been
restated. Securities and Exchange Commission regulations require that
capitalization ratios also be shown with the redeemable preferred stock
included in debt. On this basis, long-term debt as a percentage of total
capitalization would be 209.8%, 74.5%, 66.3%, 67.9% and 46.0%, respectively,
for each of the five years ended March 31, 1997.
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<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Avatex Corporation (formerly FoxMeyer Health Corporation) and its subsidiaries
(the "Corporation") are primarily engaged in owning and operating hotels and
office buildings, primarily in the Washington D.C. area. The Corporation also
holds investments in other corporations and partnerships. The Corporation, as
one of its investments, owns approximately 29.4%, net of minority interest, of
Phar-Mor, Inc. ("Phar-Mor"), a discount retail drugstore chain, through common
stock of Phar-Mor directly owned by the Corporation and through a 69.8% owned
subsidiary, Hamilton Morgan LLC ("Hamilton Morgan").
In fiscal 1997, the Corporation's Board of Directors approved a plan to divest
the Corporation's primary operating unit, FoxMeyer Corporation ("FoxMeyer")
including its drug distribution subsidiary, FoxMeyer Drug Company ("FoxMeyer
Drug"). FoxMeyer incurred an operating loss to June 30, 1996 of $17.5 million.
The loss on disposing of this discontinued operation was $254.5 million.
Commencing in mid-July 1996, a group of FoxMeyer Drug's most significant vendors
began reducing their credit lines. Despite positive cash flow projections, the
liquidity offered by a new credit facility and FoxMeyer Drug's history of timely
debt payments, the group of vendors eliminated approximately $100 million of
liquidity from FoxMeyer Drug's operations over a forty-five day period by
shortening repayment terms or requiring prepayment for inventory purchases. In
addition, during July and August 1996, FoxMeyer Drug made certain prepayments to
its suppliers for shipments of critical orders, where after receiving payment,
the vendors refused to release the product. In August 1996, FoxMeyer Drug met
with certain key vendors requesting a reinstatement of credit lines to previous
levels, however, an agreement could not be reached. As a result of these events,
FoxMeyer and most of its subsidiaries filed for protection under Chapter 11 of
the U.S. Bankruptcy Code on August 27, 1996. On November 8, 1996, the Bankruptcy
Court for the District of Delaware (the "Court") approved a sale of the
principal assets of FoxMeyer and FoxMeyer Drug to McKesson Corporation
("McKesson"). On March 18, 1997, the Chapter 11 cases were converted into
Chapter 7 liquidation cases.
In connection with McKesson's purchase of FoxMeyer's and FoxMeyer Drug's assets,
McKesson paid approximately $23 million in cash to debtors, paid off
approximately $500 million in secured debt and assumed an additional $75 million
in other liabilities. The Corporation received no proceeds from the sale of
FoxMeyer's and FoxMeyer Drug's assets to McKesson.
The Corporation received a dividend from FoxMeyer on June 19, 1996, consisting
of assets unrelated to FoxMeyer's core distribution business, including assets
of FoxMeyer's pharmacy benefit management operations; US HealthData
Interchange, Inc. ("USHDI"); FoxMeyer's investment in Phar-Mor (equal to a 7.8%
interest in Phar-Mor's common stock outstanding), FoxMeyer Canada Inc.
("FoxMeyer Canada") and other marketable securities; and FoxMeyer's forgiveness
of a $31.3 million loan to the Corporation. In connection with FoxMeyer's
bankruptcy filing, the Official Committee of Unsecured Creditors in FoxMeyer's
Chapter 11 case (the "Committee"), which was subsequently replaced by a Chapter
7 trustee (the "Trustee"), has contested the dividend and has demanded return of
the assets or their fair market value. The Trustee has valued the property
conveyed at $198 million.
On March 5, 1997, the Court entered an Agreed Preliminary Injunction Order (the
"Order") which enjoins the Corporation from transferring, selling, or otherwise
disposing of, or encumbering or pledging (i) any assets or proceeds from the
sale of the assets which the Corporation received as part of the June 19th
dividend without the consent of the Trustee or approval of the Court and (ii)
any of its other assets, except in the ordinary course of business, unless the
Corporation provides five days prior notice to the Trustee and either obtains
the Trustee's consent or Court approval. The Order requires the funds from the
sale of FoxMeyer Canada, discussed below, be held in a separate account subject
to the restrictions of the Order.
The Order significantly impairs the liquidity of the Corporation and its
ability to conduct business by restricting the use of the Corporation's assets.
In addition to such liquidity concerns, should the Corporation lose the
lawsuit, the outcome would raise doubts as to its ability to continue as a
going concern. The Corporation believes the lawsuit is
14
<PAGE> 16
without merit and may seek to modify the Order and thereby remove any
restrictions on the Corporation's use of its assets.
The Corporation and certain of its current and former officers and directors
have been named in a series of purported class action lawsuits that were filed
and subsequently consolidated under Zuckerman, et al. v. FoxMeyer Health
Corporation, et al. The lawsuit alleges, among other things, that FoxMeyer and
the defendant officers and directors failed to disclose purportedly negative
information concerning certain operations and systems and the resulting impact
on the Corporation's financial condition. The Corporation intends to vigorously
defend itself in the lawsuit.
The Corporation's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The financial
statements do not reflect any adjustments that might ultimately result from the
resolution of these uncertainties.
On July 26, 1996, Ben Franklin Retail Stores, Inc. ("Ben Franklin") filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. As a result, the
Corporation wrote off its remaining investment of $2.0 million in Ben Franklin.
On August 2, 1996, the Corporation sold its pharmacy benefit management
operations which had been accounted for as a discontinued operation since July
1995. The Corporation received $30.5 million in cash plus a note for $2.5
million. The note may increase in value to $5.0 million based on certain
occurrences. The Corporation recognized a gain on disposal of discontinued
operations of approximately $13.3 million.
In October 1996, the Corporation sold its investment in FoxMeyer Canada. The
net proceeds from the sale were $37.4 million. In connection with the sale, the
Corporation recognized a gain of approximately $34.0 million in the third
quarter of fiscal 1997. The Corporation's interest in FoxMeyer Canada was
received as part of the dividend from FoxMeyer on June 19, 1996. The
Corporation and the Committee agreed that the Corporation would receive $5.0
million of the proceeds from the sale and that the remainder of the funds, less
sale expenses, would be put in escrow for a certain time period. These funds
were subsequently transferred to the Corporation but are still restricted as to
their use under the Order.
During the third quarter of fiscal 1997, the Corporation sold certain of its
real estate limited partnership interests for $9.9 million. The transaction
resulted in a gain of approximately $6.0 million.
In April 1997, the Corporation adopted a plan to sell or otherwise dispose of
USHDI, its medical claims processing operation. USHDI had an operating loss to
the disposal date of March 31, 1997 of $3.6 million and, in addition, there was
a $4.9 million loss from the write-off of the Corporation's investment in USHDI
and for projected operating losses through the estimated date of disposal.
On December 19, 1996, the Corporation announced that it had exercised its
option to either sell its 69.8% interest in Hamilton Morgan or buy the minority
interest from Hamilton Morgan's other major investor, Robert Haft, Chairman and
Chief Executive Officer of Phar-Mor. The Corporation and Mr. Haft are currently
in negotiations. The shares of Phar-Mor owned directly by the Corporation are
not involved in this transaction.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1997 COMPARED
TO YEAR ENDED MARCH 31, 1996
Operating Loss
Revenues from real estate operations increased $2.1 million to $12.5 million
for the year ended March 31, 1997, compared to $10.4 million for the year ended
March 31, 1996. The increase was the result of increased hotel revenues
principally related to revenues from a hotel operating lease purchased late in
fiscal 1996 and the completion of renovations at certain sites, partially
offset by the sale of several properties during the year. Revenues in future
years will be adversely affected by the sales.
Operating costs decreased $2.6 million to $14.9 million for the year ended
March 31, 1997 compared to $17.5 million for the year ended March 31, 1996. The
decrease was primarily the result of the reduction in certain costs following
the disposition of FoxMeyer. The decrease was partially offset by increases in
operating expenses related to the increased revenues from real estate
operations as described above.
15
<PAGE> 17
Other Income, Net
Other income decreased $2.6 million to $19.2 million for the year ended March
31, 1997 compared to $21.8 million for the year ended March 31, 1996. In fiscal
1997, the Corporation recognized a gain of $34.0 million from the sale of
FoxMeyer Canada and $7.3 million from the sale of real estate properties and
the early collection of a real estate note receivable. The gains were partially
offset by the write-down of its investment in Phar-Mor of $13.4 million, the
write-off of the Corporation's investment in Ben Franklin of $2.0 million and
$6.7 million in other losses primarily from marketable securities. In fiscal
1996, the Corporation realized gains of $19.6 million on the settlement of
certain unresolved issues related to the fiscal 1992 sale of The Permian
Corporation and other contingencies. In addition, the Corporation recorded a
write-down of $3.4 million in the value of the Corporation's investment in Ben
Franklin to its market value and $5.6 million in other gains primarily from
marketable securities and the early collection of real estate notes receivable.
Net Financing Costs
Net financing costs increased $1.1 million to $4.7 million for the year ended
March 31, 1997, compared to $3.6 million for the year ended March 31, 1996.
Interest income decreased $1.1 million primarily as a result of the early
collection of certain real estate notes receivable in fiscal 1996 and early
fiscal 1997. Interest expense was $6.4 million for both years. Interest related
to real estate operations increased $1.0 million due principally to additional
borrowings during the year in partnerships that were not sold offset by a
reduction in connection with the retirement of the Corporation's revolving
credit facility in August 1996.
National Steel Corporation Results
The net preferred income for National Steel Corporation ("NSC") was $9.6
million for the year ended March 31, 1997, compared to $3.3 million for the
prior period. The increase was primarily due to a decrease in the expense
related to the Weirton pension obligation for the year ended March 31, 1997.
Equity in Income (Loss) of Affiliates
The equity in the loss of affiliates increased $1.0 million to a loss of $5.2
million for the year ended March 31, 1997 compared to a loss of $4.2 million in
the prior fiscal year. The Corporation's equity in Phar-Mor was $6.3 million
lower than in the prior fiscal year as a result of Phar-Mor losses and losses
related to the write-down of the investment in Phar-Mor in fiscal 1997. This
was substantially offset by the decrease in the equity loss associated with Ben
Franklin and FoxMeyer Canada. As a result of the write-off of the investment in
Ben Franklin in fiscal 1997, no equity loss in Ben Franklin was recorded in
fiscal 1997 compared to an equity loss of $5.0 million in fiscal 1996.
Income Taxes
The Corporation recorded an income tax provision of $29.9 million for the year
ended March 31, 1997 compared to $3.0 million for the year ended March 31,
1996. The provision for fiscal 1997 was primarily due to an increase in the
deferred tax asset valuation allowance resulting from the loss of FoxMeyer's
anticipated taxable income in future years due to FoxMeyer's bankruptcy filing.
The slightly lower than statutory effective income tax rate in fiscal 1996 was
primarily due to permanent differences between book and tax income partially
offset by an increase in the deferred tax asset valuation allowance.
Minority Interest in Results of Operations of Consolidated Subsidiaries
The minority interest in the net loss of consolidated subsidiaries was $1.1
million for the year ended March 31, 1997 compared to a minority interest in
net income of $2.1 million for the year ended March 31, 1996. The minority
interest related to real estate partnerships and the Corporation's investment
in Hamilton Morgan. The decrease was primarily due to the decrease in income of
Hamilton Morgan as a result of lower earnings from its equity investment in
Phar-Mor as discussed above.
16
<PAGE> 18
Discontinued Operations
The loss from discontinued operations for fiscal 1997 was $21.1 million
compared to $61.7 million in fiscal 1996. Both years reflect the loss from the
discontinued operations of FoxMeyer and USHDI. The current year loss primarily
represented FoxMeyer's operating loss to June 30, 1996, the effective date for
treating FoxMeyer as a discontinued operation. The fiscal 1996 loss was
primarily the result of certain significant charges recorded by FoxMeyer
related to the write-down of assets, facility closings, employee severance, the
implementation of new systems and the opening of a new distribution facility.
The loss on disposal of discontinued operations was $246.1 million in the
current fiscal year compared to $7.1 million for the prior fiscal year. The
loss on disposal in the current year represented losses related to
discontinuing the operations of FoxMeyer and USHDI partially offset by the gain
on the sale of the pharmacy benefit management operations. In the prior year,
the loss represented the estimated loss from disposal of FoxMeyer's managed
care and information service operations.
Preferred Stock Dividends
Preferred stock dividends were $19.1 million for the year ended March 31, 1997,
compared to $21.1 million for the year ended March 31, 1996. The decrease of
$2.0 million was primarily due to the payment of incremental dividends-in-kind
on the outstanding Series A Preferred Stock during the first two quarters of
fiscal 1997. The amount of the dividends-in-kind charged against operations was
based on the market value of the Series A Preferred Stock when the dividends
were paid which had decreased compared to the prior fiscal year. The decrease
was partially offset in the last two quarters of fiscal 1997 when the dividends
were based on the cash payments due. In addition, the number of shares of both
series of preferred stock decreased due to share repurchases.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31 , 1996 COMPARED
TO YEAR ENDED MARCH 31, 1995
Operating Loss
Revenues from real estate operations increased $6.2 million to $10.4 million
for the year ended March 31, 1996, compared to $4.2 million for the year ended
March 31, 1995. The increase was the result of increased hotel revenues,
including increases related to the acquisition of new properties, the
completion of renovations at certain sites, additional revenues from a hotel
operating lease purchased in fiscal 1996 and the reclassification of a hotel
held for sale to operating status in fiscal 1996.
Operating costs increased $3.2 million to $17.5 million for the year ended
March 31, 1996 compared to $14.3 million for the year ended March 31, 1995. The
increase was primarily a result of additional operating expenses related to the
increased revenues from real estate operations as described above.
Other Income, Net
Other income decreased $25.6 million to $21.8 million for the year ended March
31, 1996 compared to $47.4 million for the year ended March 31, 1995. In fiscal
1996, the Corporation realized gains of $19.6 million on the settlement of
certain unresolved issues related to the fiscal 1992 sale of The Permian
Corporation and other contingencies. In addition, the Corporation recorded a
write-down of $3.4 million in the value of the Corporation's investment in Ben
Franklin to its market value and $5.6 million in other gains primarily from
marketable securities and the early collection of real estate notes receivable.
In fiscal 1995, the Corporation recognized contingent fee income of $35.8
million from a fiscal 1990 asset sale and gains on marketable securities and
real estate of approximately $11.6 million.
17
<PAGE> 19
Net Financing Costs
Net financing costs increased $2.1 million to $3.6 million for the year ended
March 31, 1996, compared to $1.5 million for the year ended March 31, 1995.
Interest income decreased $0.6 million primarily as a result of the early
collection of certain real estate notes receivable in late fiscal 1995 and
fiscal 1996. Interest expense increased by $1.5 million to $6.4 million in
fiscal 1996 compared to $4.9 million in fiscal 1995 primarily as a result of
additional borrowings. The Corporation used these borrowings primarily to
finance the investment in Hamilton Morgan and other investments.
National Steel Corporation Results
The net preferred income for NSC was $3.3 million for the year ended March 31,
1996 compared to $5.4 million for the prior period. An increase in the expense
related to the Weirton pension obligation for the year ended March 31, 1996 was
the primary reason for the $2.1 million decrease.
Equity in Income (Loss) of Affiliates
The equity in income (loss) of affiliates decreased $5.0 million from equity in
income of $0.8 million in fiscal 1995 to a loss of $4.2 million in fiscal 1996.
The decrease was due primarily to the decrease in operating income of Ben
Franklin of $6.0 million and additional losses from FoxMeyer Canada's
operations of $1.2 million, partially offset by $2.2 million in income from
Phar-Mor and a real estate joint venture.
Income Taxes
The Corporation recorded an income tax provision of $3.0 million for the year
ended March 31, 1996 compared to a provision of $0.3 million for the year ended
March 31, 1995. The slightly lower than statutory effective income tax rate in
fiscal 1996 was primarily due to permanent differences between book and tax
income partially offset by an increase in the deferred tax asset valuation
allowance. The prior period provision was lower than the statutory effective
income tax rate primarily as a result of a reduction in the deferred tax asset
valuation allowance.
Minority Interest in Results of Operations of Consolidated Subsidiaries
The minority interest in the net income of consolidated subsidiaries was $2.1
million for the year ended March 31, 1996 compared to $2.3 million for the year
ended March 31, 1995. The minority interest in fiscal 1996 related to real
estate partnerships and Hamilton Morgan. In fiscal 1995, the minority interest
related to real estate partnerships.
Discontinued Operations
The loss from discontinued operations for fiscal 1996 was $61.7 million
compared to a $2.2 million gain for fiscal 1995. Both years reflect the results
of the discontinued operations of FoxMeyer and USHDI. The loss in fiscal 1996
was primarily the result of certain significant charges recorded by FoxMeyer
related to the write-down of assets, facility closings, employee severance, the
implementation of new systems and the opening of a new distribution facility.
The loss on disposal of discontinued operations of $7.1 million in fiscal 1996
represented the estimated loss on disposal of FoxMeyer's managed care and
information service operations.
Preferred Stock Dividends
Preferred stock dividends were $21.1 million for the year ended March 31, 1996
compared to $19.1 million for the year ended March 31, 1995. The increase of
$2.0 million was primarily due to the payment of incremental dividends-in-kind
on the outstanding Series A Preferred Stock.
18
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES
As of May 30, 1997, the Corporation had cash and short-term investments of
approximately $4.4 million, excluding cash and short-term investments in real
estate limited partnerships and $33.1 million in restricted cash resulting from
the sale of FoxMeyer Canada. The restrictions on these funds are described
below. In addition, the Corporation had borrowed $14.9 million under a secured
loan (the "Hamilton Facility").
The Corporation's mandatory cash requirements include the funding of monthly
operating activities, benefit obligations, and cash outlays attributable to
environmental liabilities of previously-owned businesses, the amounts and
timing of which are uncertain. A principal payment of $2.5 million is required
in September 1997 under the Hamilton Facility. The Corporation also expects to
spend an increasing amount of funds on litigation expenses.
Beginning with the quarterly payments due January 15, 1997, the Corporation has
not declared any cash dividend payments on its Series A preferred stock or its
convertible preferred stock. If the Corporation does not pay dividends on its
preferred stock for six consecutive quarters, the preferred shareholders would
have the ability to elect a specified number of members to the Board of
Directors.
The Hamilton Facility includes certain restrictive covenants, including a
restriction on the payment of dividends on the common stock of the Corporation.
The Corporation had a collateral base deficiency of approximately $1.2 million
at March 31, 1997, in connection with the Hamilton Facility. In June 1997, the
collateral base deficiency no longer existed.
On December 19, 1996, the Corporation announced that it had exercised its
option to either sell its 69.8% interest in Hamilton Morgan or buy the minority
interest from Hamilton Morgan's other major investor, Robert Haft, Chairman and
Chief Executive Officer of Phar-Mor. The Corporation and Mr. Haft are currently
in negotiations. The shares of Phar-Mor owned directly by the Corporation are
not involved in this transaction.
The Corporation received a dividend from FoxMeyer on June 19, 1996, consisting
of assets unrelated to FoxMeyer's core distribution business, including assets
of FoxMeyer's pharmacy benefit management operations; USHDI; FoxMeyer's
investment in Phar-Mor (equal to a 7.8% interest in Phar-Mor's common stock
outstanding), FoxMeyer Canada and other marketable securities; and FoxMeyer's
forgiveness of a $31.3 million loan to the Corporation. In connection with
FoxMeyer's bankruptcy filing, the Official Committee of Unsecured Creditors,
which was subsequently replaced by a Chapter 7 trustee (the "Trustee"), has
contested the dividend payment and has demanded return of the assets or their
fair market value. The Trustee has valued the property conveyed at $198 million.
On March 5, 1997, the Bankruptcy Court for the District of Delaware (the
"Court") entered an Agreed Preliminary Injunction Order (the "Order") which
enjoins the Corporation from transferring, selling, or otherwise disposing of,
or encumbering or pledging (i) any assets or proceeds from the sale of the
assets which the Corporation received as part of the June 19th dividend without
the consent of the Trustee or approval of the Court and (ii) any of its other
assets, except in the ordinary course of business, unless the Corporation
provides five days prior notice to the Trustee and either obtains the Trustee's
consent or Court approval. The Order requires the funds from the sale of
FoxMeyer Canada be held in a separate account subject to the restrictions of the
Order.
The Order significantly impairs the liquidity of the Corporation and its
ability to conduct business by restricting the use of the Corporation's assets.
In addition to such liquidity concerns, should the Corporation lose the
lawsuit, the outcome would raise doubts as to its ability to continue as a
going concern. The Corporation believes the lawsuit is without merit and may
seek to modify the Order and thereby remove any restrictions on the
Corporation's use of its assets.
The Corporation's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The financial
statements do not reflect any adjustments that might ultimately result from the
resolution of this and other uncertainties.
The Corporation intends to continue to invest in real estate, make other
investments and pursue the acquisition of an operating company once the lawsuit
regarding the FoxMeyer dividend is settled and the Order removed. The
Corporation will rely on cash on hand, the FoxMeyer Canada funds to the extent
released, the sale of real estate or
19
<PAGE> 21
other investments, and any excess cash from its real estate operations to meet
its future obligations. The Corporation will liquidate assets, to the extent
necessary and as permitted by the Order, to meet its cash requirements. Because
there can be no assurance as to the value of these assets, the ability of the
Corporation to sell assets subject to the Order or the ability of the
Corporation to timely liquidate these investments when funds are needed, the
Corporation's future ability to meet its ongoing obligations is not assured.
OTHER
The Corporation has approximately $2.9 million in reserves in connection with
environmental claims primarily related to businesses that were disposed of or
discontinued (see Note N to the consolidated financial statements). The
Corporation paid approximately $0.5 million with respect to environmental
claims and related legal fees during fiscal 1997. At March 31, 1997, the
Corporation also has a remaining prepayment on potential environmental claims
of $8.7 million that is held by NSC. Management presently believes that the
remaining prepayment, along with proceeds from insurance policies, is adequate
to cover all environmental claims which may arise from former NSC sites for
which the Corporation has agreed to indemnify NSC (see Note G to the
consolidated financial statements).
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share" which is
effective for periods ending after December 15, 1997. SFAS No. 128 does not
have any impact on the financial results or financial condition of the
Corporation, but will result in a change in the calculation of earnings per
share. The effect of the changes for the three years ended March 31, 1997 is
shown in Note A to the consolidated financial statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report 21
Consolidated Statements of Operations - For the Three Years Ended March 31, 1997 22
Consolidated Balance Sheets - March 31, 1997 and 1996 23
Consolidated Statements of Stockholders' Equity (Deficit) - For the Three Years Ended March 31, 1997 24
Consolidated Statements of Cash Flows - For the Three Years Ended March 31, 1997 25
Notes to Consolidated Financial Statements - For the Three Years Ended March 31, 1997 26
</TABLE>
20
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Avatex Corporation
(formerly FoxMeyer Health Corporation)
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Avatex
Corporation and subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period then ended. Our audits also included the
financial statement schedules listed in the Index at Item 14. These financial
statements and financial statement schedules are the responsibility of the
Corporation's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Avatex Corporation and
subsidiaries at March 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period then ended, in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as whole, present fairly in all material respects
the information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note S to the
financial statements, the Company's recurring losses from operations, pending
litigation and stockholders' deficiency raise substantial doubt about its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Dallas, Texas
June 27, 1997
21
<PAGE> 23
AVATEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended March 31,
(in thousands, except per share amounts) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 12,463 $ 10,439 $ 4,243
OPERATING COSTS
Operating costs, including general and administrative costs 13,386 16,534 13,959
Depreciation and amortization 1,468 1,034 376
- ------------------------------------------------------------------------------------------------------------
OPERATING LOSS (2,391) (7,129) (10,092)
OTHER INCOME, NET 19,228 21,779 47,404
FINANCING COSTS
Interest income 1,678 2,822 3,417
Interest expense 6,416 6,391 4,868
- ------------------------------------------------------------------------------------------------------------
Financing costs, net 4,738 3,569 1,451
- ------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE NATIONAL STEEL
CORPORATION, EQUITY IN INCOME (LOSS) OF AFFILIATES, INCOME
TAX PROVISION AND MINORITY INTEREST 12,099 11,081 35,861
National Steel Corporation net preferred dividend income 9,620 3,329 5,445
Equity in income (loss) of affiliates (5,199) (4,168) 778
- ------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX
PROVISION AND MINORITY INTEREST 16,520 10,242 42,084
Income tax provision 29,870 2,977 315
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST (13,350) 7,265 41,769
Minority interest in results of operations of consolidated subsidiarie (1,106) 2,117 2,322
- ------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS (12,244) 5,148 39,447
Discontinued operations
Income (loss) from discontinued operations, net of tax (21,057) (61,728) 2,167
Loss on disposal of discontinued operations, net of tax (246,055) (7,081) --
- ------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (279,356) (63,661) 41,614
Preferred stock dividends 19,081 21,108 19,096
- ------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCKHOLDERS $ (298,437) $ (84,769) $ 22,518
- ------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK
Income (loss) from continuing operations $ (2.09) $ (0.93) $ 1.37
Discontinued operations (17.81) (4.02) 0.15
- ------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE $ (19.90) $ (4.95) $ 1.52
- ------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,997 17,115 14,827
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
22
<PAGE> 24
AVATEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
(in thousands of dollars) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 7,173 $ 26,987
Restricted cash and investments 33,115 -
Receivables, principally trade, less allowance for possible losses
of $539 in 1997 and $23,540 in 1996 3,059 291,750
Inventories - 632,269
Net assets of discontinued operations held for sale - 16,527
Other current assets 15,293 43,632
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 58,640 1,011,165
INVESTMENT IN NATIONAL STEEL CORPORATION 44,961 44,099
INVESTMENTS IN AFFILIATES 28,711 49,602
PROPERTY, PLANT AND EQUIPMENT 19,414 216,604
Less accumulated depreciation and amortization 1,024 73,749
- ------------------------------------------------------------------------------------------------------------
NET PROPERTY, PLANT AND EQUIPMENT 18,390 142,855
OTHER ASSETS
Goodwill, net of accumulated amortization of $53,245 in 1996 - 207,935
Other intangible assets, net of accumulated amortization of $154 in 1997
and $9,991 in 1996 910 12,554
Deferred tax asset, net of valuation allowance - 79,676
Miscellaneous assets 6,825 29,184
- ------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 7,735 329,349
- ------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 158,437 $ 1,577,070
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,501 $ 610,579
Other accrued liabilities 4,604 39,088
Salaries, wages and employee benefits 3,148 9,919
Income tax payable - 2,468
Deferred income tax payable - 43,917
Long-term debt due within one year 2,969 28,793
- ------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 12,222 734,764
LONG-TERM DEBT 27,482 403,831
OTHER LONG-TERM LIABILITIES 35,985 38,646
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 6,853 10,074
REDEEMABLE PREFERRED STOCK 189,402 187,292
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock $5.00 par value; authorized 50,000,000 shares, issued:
13,805,988 shares in 1997 and 24,188,084 shares in 1996 69,030 120,940
Capital in excess of par value 119,092 209,613
Minimum pension liability (73,531) (64,634)
Net unrealized holding loss on securities - (17)
Retained earnings (deficit) (228,098) 70,431
- ------------------------------------------------------------------------------------------------------------
(113,507) 336,333
Less: cost of common stock held in treasury - 7,520,882 shares in 1996 - 133,870
- ------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (113,507) 202,463
- ------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 158,437 $ 1,577,070
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
23
<PAGE> 25
AVATEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Net
Capital in unrealized
excess of Minimum holding gain Retained
Common par pension (loss) on earnings Treasury
(in thousands of dollars) stock value liability securities (deficit) stock
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994 $ 119,979 $ 207,281 $ (73,797) $ (225) $ 173,029 $ (201,512)
Net income 41,614
Dividends declared - Convertible Preferred -
$5.00 per share (4,510)
Dividends declared - Series A Preferred -
paid in additional stock (13,200)
Amortization of discount on Series A Preferred (1,386)
Purchase of treasury stock (28,953)
Treasury stock issued in FoxMeyer
Corporation merger (10,148) 90,158
Net unrealized holding gain on securities 2,599
Recognition of additional minimum
pension liability (1,631)
Stock options exercised 857 1,829 (452) 2,616
Other 2
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1995 120,836 209,110 (75,428) 2,374 184,949 (137,691)
Net loss (63,661)
Dividend paid in Ben Franklin Retail Stores,Inc.
common stock (29,709)
Dividends declared - Convertible Preferred -
$5.00 per share (4,061)
Dividends declared - Series A Preferred -
paid in additional stock (15,319)
Amortization of discount on Series A Preferred (1,728)
Conversion of preferred stock 104 434
Net unrealized holding loss on securities (2,391)
Reduction in additional minimum
pension liability 10,794
Stock options exercised 69 3,821
Other (40)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 120,940 209,613 (64,634) (17) 70,431 (133,870)
Net loss (279,356)
Dividends declared - Convertible Preferred -
$5.00 per share (1,771)
Dividends declared - Series A Preferred -
paid in additional stock (4,354)
Dividends in arrears on Convertible Preferred
and Series A Preferred (10,806)
Amortization of discount on Series A Preferred (2,150)
Purchase and cancellation of preferred stock 6,355
Purchase of treasury stock (16,726)
Cancellation of treasury stock (51,910) (96,807) 148,717
Net unrealized holding gain on securities 17
Recognition of additional minimum
pension liability (8,897)
Stock options exercised (69) (130) 1,879
Other 38
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1997 $ 69,030 $ 119,092 $ (73,531) $ - $ (228,098) $ -
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
24
<PAGE> 26
AVATEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended March 31,
(in thousands of dollars) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(279,356) $ (63,661) $ 41,614
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES:
Minority interest in results of operations of consolidated subsidiaries (1,106) 2,117 2,322
Equity in loss (income) of affiliates 5,199 4,168 (778)
Depreciation and amortization 1,468 1,034 376
Net preferred income from National Steel Corporation (9,620) (3,329) (5,445)
Loss on disposal of discontinued operations 246,055 7,081 --
Gain on investments (21,141) (6,951) (10,707)
Other non-cash charges (credits) 2,167 (16,644) 402
Deferred income tax provision 29,836 2,938 315
Depreciation and amortization, provision for losses on accounts
receivable and other items related to discontinued operations 11,333 69,796 50,107
Cash provided (used) by working capital items, net of acquisitions:
Receivables 20,802 (55,314) (109,856)
Inventories 26,018 104,627 (197,873)
Other assets and restricted cash (37,146) (160) 4,352
Accounts payable and accrued liabilities (14,687) (8,803) 120,656
Proceeds from accounts receivable financing program 75,000 -- 75,000
Other 110 (182) (1,165)
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 54,932 36,717 (30,680)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Reduction in cash from reclassification to discontinued operations
or change to equity method of accounting (24,366) (9,108) --
Purchase of property, plant and equipment (34,748) (40,789) (59,092)
Purchase of investments (6,366) (84,354) (59,015)
Proceeds from the sale of investments 104,355 33,178 55,954
Acquisitions, net of cash acquired -- (6,215) (16,104)
Other 250 718 6,065
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 39,125 (106,570) (72,192)
- -----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities 447,492 1,444,880 1,288,831
Repayments under revolving credit facilities (326,883) (1,396,880) (1,177,431)
Proceeds from the issuance of long-term debt 14,520 23,603 13,406
Debt repayments (212,486) (2,418) (11,577)
Debt issuance costs (8,140) (1,055) (720)
Purchase of treasury stock (16,726) -- (28,953)
Purchase of preferred stock (8,845) (4,236) (4,400)
Repurchase of common stock of subsidiaries -- -- (182)
Dividends paid on redeemable preferred stock (2,697) (4,180) (4,620)
Dividends paid to minority interests (1,786) (1,555) (2,087)
Exercise of stock options 1,680 3,449 4,850
- -----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (113,871) 61,608 77,117
- -----------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (19,814) (8,245) (25,755)
Cash and short-term investments, beginning of year 26,987 35,232 60,987
- -----------------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 7,173 $ 26,987 $ 35,232
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
25
<PAGE> 27
AVATEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Years Ended March 31, 1997
NOTE A - SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
DESCRIPTION OF BUSINESS: Avatex Corporation (formerly FoxMeyer Health
Corporation) and its subsidiaries (the "Corporation") are primarily engaged in
owning and operating hotels and office buildings. The Corporation also holds
interests in other corporations and partnerships.
BASIS OF PRESENTATION: The preparation of the consolidated financial
statements, in conformity with generally accepted accounting principles,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and the disclosure of contingent assets and
liabilities, at the dates of the financial statements and the reported amounts
of revenues and expenses during such reporting periods. Actual results could
differ from these estimates. Estimates are adjusted when necessary to reflect
actual experience.
The consolidated financial statements include the accounts of all
majority-owned subsidiaries and partnerships in which the Corporation has a
controlling interest. Investments in 20-50% owned companies or partnerships are
accounted for on the equity basis.
The consolidated financial statements include the results of discontinued
operations as discussed in Note B. The consolidated statements of operations
for prior years have been reclassified to reflect the discontinued operations
as well as the spin-off of a majority-owned subsidiary (see Note B). The
consolidated balance sheet of the prior year has not been restated to reflect
the discontinued operations. All significant intercompany balances and
transactions have been eliminated. Certain other previously reported amounts
have been reclassified to conform to current year presentations.
CASH AND SHORT-TERM INVESTMENTS: Cash and short-term investments consist
principally of amounts held in demand deposit accounts and amounts invested in
other instruments having a maturity of three months or less at the time of
purchase and are recorded at cost. Use of approximately $33.1 million of cash
and short-term investments is restricted, principally in connection with
litigation that has been filed against the Corporation (see Note B).
INVENTORIES: All inventory amounts presented relate to discontinued operations.
Inventories, consisting solely of finished goods, were valued at the lower of
cost or market. Cost for a majority of inventory was determined by the last-in,
first-out ("LIFO") cost method (see Note E). Cost for the remainder of the
inventory was determined by the first-in, first-out ("FIFO") cost method of
inventory accounting.
INVESTMENTS: The Corporation's investments in debt and equity securities have
been classified as either "available for sale" or "trading" and are carried at
fair value. The classification of the security is determined at the acquisition
date and reviewed periodically. The unrealized gains or losses, resulting from
the difference in the fair value and the cost of securities, for securities
available for sale are shown as a component of stockholders' equity, and for
trading securities are reported in the results of operations. The Corporation
periodically reviews its investments for which fair value is less than cost to
determine if the decline in value is other than temporary. If the decline in
value is judged to be other than temporary, the cost basis of the security is
written down to fair value. The amount of any write-down would be included in
the results of operations as a realized loss. Realized gains and losses
resulting from the sale of securities are determined using the average cost
method. See Note F.
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES: Minority interest in results of
operations of consolidated subsidiaries primarily represents the minority
shareholders' or partners' proportionate share of the net income of various
consolidated subsidiaries (see Note B). The minority interest in the
consolidated balance sheets reflects the proportionate interest in the equity
of consolidated subsidiaries.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Differences between amounts received and the net carrying values of
properties retired or disposed of are included in results of operations. The
26
<PAGE> 28
cost of maintenance and repairs is charged against results of operations as
incurred. Depreciation of property and equipment is provided using the
straight-line method at rates designed to distribute the cost of properties
over their estimated service lives of 5 to 40 years for buildings and building
improvements, 3 to 10 years for equipment and furniture and 3 to 7 years for
software. Amortization of leasehold improvements is included in depreciation
and amortization and is based on the lesser of the minimum term of the lease
or the asset's estimated useful life of 5 to 20 years. Depreciation for income
tax purposes is computed using both the straight-line and accelerated methods.
Software costs include certain capitalized expenses related to implementation
of purchased software and the internal development of software.
Property, plant and equipment consists of the following (in thousands of
dollars):
<TABLE>
March 31,
1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Land $ 5,804 $ 7,133
Buildings and building improvements 8,967 48,860
Leasehold improvements 28 21,935
Equipment and furniture 720 85,895
Software - 19,500
Construction in progress 3,895 33,281
- ---------------------------------------------------------
$19,414 $216,604
=========================================================
</TABLE>
INTANGIBLE ASSETS: Intangible assets consist principally of goodwill, customers
lists and the purchase of a hotel operating lease. Goodwill, representing the
excess of the purchase price over the estimated fair value of the net assets
acquired, is amortized using the straight-line method over the period of
expected benefit of 15 to 40 years. Customer lists and other intangibles are
amortized using the straight-line method over the period of benefit, but in no
instance exceeding 20 years.
The Corporation periodically reviews intangible assets for impairment whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. If the sum of expected future undiscounted cash flows is less than
the carrying amount, a loss is recognized for the difference between the fair
value and the carrying value of the asset.
SELF-INSURANCE PROGRAMS: During a portion of 1997 and in prior years, the
Corporation was self-insured for various levels of general liability,
automobile, workers' compensation and employee medical coverage. Provisions for
claims under the self-insurance programs were actuarially determined for both
claims reported and for claims incurred but not reported after consideration of
excess loss insurance coverage limits.
REVENUE RECOGNITION: Revenues, consisting of receipts from hotel and related
operations as well as lease income from office rentals, are recorded when
earned. No one customer accounted for over 10% of revenues. All real estate
operations are located in the Washington D.C. and surrounding area.
CONTINGENT FEE INCOME: As part of the consideration for a 1990 sale of certain
assets, a subsidiary of the Corporation obtained the right to receive 10 annual
contingent payments. In 1995, the Corporation received and otherwise settled
its right to these future contingent payments and accordingly recognized $35.8
million of contingent fee income which was included in "Other income."
INCOME TAXES: Deferred tax assets and liabilities are established for temporary
differences between financial statement carrying amounts and the taxable basis
of assets and liabilities using rates currently in effect. A valuation
allowance is established for any portion of the deferred tax asset for which
realization is not likely. The valuation allowance is reviewed periodically to
determine the amount of deferred tax asset considered realizable.
STOCK-BASED COMPENSATION: Statement of Financial Accounting Standards ("SFAS")
No. 123 "Accounting for Stock-Based Compensation" became effective for years
beginning after December 15, 1995. As permitted by SFAS No. 123, the Corporation
will continue to apply the recognition and measurement provisions of Accounting
Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
Employees" and has adopted only the
27
<PAGE> 29
disclosure requirements of SFAS No. 123 beginning in fiscal 1997. Accordingly,
no compensation costs have been recognized in connection with the Corporation's
stock option plans (see Note J ).
EARNINGS (LOSS) PER SHARE: Earnings (loss) per share of common stock is based
on earnings (loss) after preferred stock dividend requirements and the weighted
average number of shares of common stock outstanding during each year after
giving effect to stock options considered to be dilutive common stock
equivalents. Fully diluted earnings per share is not presented as it is
substantially the same as primary earnings per share or is anti-dilutive, as
applicable. In February 1997, SFAS No. 128 "Earnings per Share" was issued.
SFAS No. 128 modifies the presentation of earnings per share under generally
accepted accounting principles requiring a presentation of "basic" and
"diluted" earnings per share effective for periods ending after December 15,
1997. Pro forma earnings per share amounts calculated using SFAS No. 128 are as
follows:
<TABLE>
<CAPTION>
For the years ended March 31,
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings (loss) per share as reported
Income (loss) from continuing operations $ (2.09) $(0.93) $1.37
Discontinued operations (17.81) (4.02) 0.15
Net income (loss) (19.90) (4.95) 1.52
Pro Forma earnings (loss) per share
Basic
Income (loss) from continuing operations (2.10) (0.96) 1.38
Discontinued operations (17.89) (4.17) 0.15
Net income (loss) (19.99) (5.13) 1.53
Diluted
Income (loss) from continuing operations (2.10) (0.96) 1.37
Discontinued operations (17.89) (4.17) 0.15
Net income (loss) (19.99) (5.13) 1.52
=======================================================================================
</TABLE>
NOTE B - ACQUISITIONS AND DISPOSITIONS
FOXMEYER CORPORATION
In 1997, the Board of Directors of the Corporation approved a plan to divest
its drug distribution subsidiary, FoxMeyer Drug Company ("FoxMeyer Drug"), the
primary operating unit of the Corporation. Therefore, the subsidiary and its
parent, FoxMeyer Corporation ("FoxMeyer"), were treated as a discontinued
operation as of the measurement date of June 30, 1996. The Corporation
recognized a loss from discontinued operations of FoxMeyer of $17.5 million, net
of taxes, for the three months ended June 30, 1996. In addition, the Corporation
recognized a loss of $254.5 million from the write-off of its investment in
FoxMeyer. Prior year results of operations have been reclassified to reflect
FoxMeyer as a discontinued operation. Revenues included in results of
discontinued operations were $1.4 billion for the three months ended June 30,
1996 and $5.5 billion and $4.8 billion for the years ended March 31, 1996 and
1995, respectively. The loss from discontinued operations was net of applicable
income tax benefit of $4.6 million in 1997 and $28.9 million for the year ended
March 31, 1996, and a tax provision of $2.2 million for the year ended March 31,
1995.
Commencing in mid-July 1996, a group of FoxMeyer Drug's most significant vendors
began reducing their credit lines. Despite positive cash flow projections, the
liquidity offered by a new credit facility and FoxMeyer Drug's history of timely
debt payments, the group of vendors eliminated approximately $100 million of
liquidity from FoxMeyer Drug's operations over a forty-five day period by
shortening repayment terms or requiring prepayment for inventory purchases. In
addition, during July and August 1996, FoxMeyer Drug made certain prepayments to
its suppliers for shipments of critical orders where, after receiving payment,
the vendors refused to release the product. In August 1996, FoxMeyer Drug met
with certain key vendors requesting a reinstatement of credit lines to previous
levels, however, an agreement could not be reached. As a result of these events,
FoxMeyer and most of its subsidiaries filed for protection under Chapter 11 of
the Bankruptcy Code on August 27, 1996. On
28
<PAGE> 30
November 8, 1996, the U.S. Bankruptcy Court for the District of Delaware (the
"Court") approved a sale of the principal assets of FoxMeyer and FoxMeyer Drug
to McKesson Corporation ("McKesson"). On March 18, 1997, the Chapter 11 cases
were converted into Chapter 7 liquidation cases.
In connection with McKesson's purchase of FoxMeyer's and FoxMeyer Drug's
assets, McKesson paid approximately $23 million in cash to debtors, paid off
approximately $500 million in secured debt and assumed an additional $75 million
in other liabilities. The Corporation received no proceeds from the sale of
FoxMeyer's and FoxMeyer Drug's assets to McKesson.
On October 12, 1994, the Corporation acquired, by way of merger of FoxMeyer
with a wholly-owned subsidiary of the Corporation, the 19.5% of the outstanding
shares of FoxMeyer that it did not previously own in exchange for approximately
4,981,000 shares of the Corporation's common stock. These shares were issued
from treasury stock held by the Corporation. The difference of approximately
$10.1 million between the market value of the common stock issued in the
acquisition ($80.0 million) and the average cost of the treasury stock was
charged to retained earnings.
BEN FRANKLIN RETAIL STORES, INC.
On September 29, 1995, each shareholder of record of the Corporation received
one share of Ben Franklin Retail Stores, Inc.'s ("Ben Franklin") common stock
for every six shares of the Corporation's common stock. The dividend of Ben
Franklin common stock resulted in a charge of $29.7 million to stockholders'
equity. The amount of the dividend was based on the book value of the shares at
the time of the distribution. As a result of the distribution, the
Corporation's ownership in Ben Franklin decreased from 67.7% to 17.4%.
Subsequent to the distribution, the Corporation accounted for Ben Franklin on
an equity basis. Results of operations for 1995 were reclassified to reflect
Ben Franklin's results on an equity basis. The consolidated balance sheet at
March 31, 1996 includes the Corporation's equity investment in Ben Franklin in
"Investments in affiliates". The carrying value of Ben Franklin was reduced by
$3.4 million in 1996 to recognize an impairment of the value of the investment.
The Corporation wrote off the remaining book value of its investment in Ben
Franklin of approximately $2.0 million at June 30, 1996. The write-off resulted
from the Chapter 11 bankruptcy filing by Ben Franklin on July 26, 1996.
OTHER DISCONTINUED OPERATIONS
In July 1995, the Corporation adopted a plan to dispose of certain of its
managed care and information service operations and recognized a $0.5 million
after-tax loss from discontinued operations and a $7.1 million after-tax loss
on the disposal of these discontinued operations. The $7.1 million after-tax
loss was based on management's best estimate at the time of the amounts of
future operating losses and proceeds to be realized on the sale or other
disposition of the discontinued operations. At March 31, 1996, the Corporation
had completed the sale of two of the three operations. The net book value of
those assets and liabilities which were not sold was reflected on the
consolidated balance sheet at March 31, 1996 as "Net assets of discontinued
operations held for sale". On August 2, 1996, the remaining operation was sold
for $30.5 million with an additional $2.5 million due in one year. The
additional payment may increase to a maximum of $5.0 million based on certain
criteria. The August 1996 transaction resulted in a gain on disposal of
discontinued operations of approximately $13.3 million.
In April 1997, the Corporation adopted a plan to dispose of its medical claims
processing operation. As a result, a $3.6 million loss from discontinued
operations was recognized to the measurement date of March 31, 1997. The
Corporation has also recorded a $4.9 million loss on disposal of discontinued
operations. The $4.9 million loss was based on management's best estimate of
the amounts of future operating losses and proceeds to be realized on the sale
or other disposition of this operation.
Sales for the three years ended March 31, 1997 for these discontinued
operations were $1.5 million, $15.7 million and $16.6 million, respectively.
The loss from discontinued operations was net of tax benefits of $0.3 million,
$2.4 million and $1.1 million, respectively, for the three years ended March
31, 1997.
29
<PAGE> 31
PHAR-MOR, INC.
In September 1995, the Corporation acquired a 69.8% interest in Hamilton Morgan
LLC, a Delaware limited liability company ("Hamilton Morgan"). The acquisition
of Hamilton Morgan was accounted for using the purchase method of accounting
resulting in goodwill of approximately $7.8 million. Hamilton Morgan
subsequently acquired an approximate 30.9% common stock interest in Phar-Mor,
Inc. ("Phar-Mor"), which operates a chain of discount retail drugstores devoted
to the sale of prescription and over-the-counter drugs, health and beauty care
products and other general merchandise and grocery items. The Corporation
directly owns common stock of Phar-Mor representing an additional 7.8% interest
and warrants that if converted into common stock would result in an approximate
0.8% increase in ownership.
The total common stock investment held by the Corporation is approximately
38.7% of Phar-Mor's common stock outstanding (29.4% net of the minority
interest in Hamilton Morgan). The Corporation accounts for its investment in
Phar-Mor on an equity basis. At March 31, 1997, the Corporation determined that
there was a decline in the value of its investment in Phar-Mor that was other
than temporary and recorded a charge to earnings of $13.6 million (net of
minority interest) including the write-off of the goodwill related to the
acquisition of Hamilton Morgan. The reduction in value was based on
management's best estimate of the fair value of its investment in Phar-Mor at
March 31, 1997. The carrying value of the investment in Phar-Mor after the
impairment charge was approximately $28.2 million (market value $23.9 million
at March 31, 1997).
On December 19, 1996, the Corporation announced that it had exercised its
option to either sell its 69.8% interest in Hamilton Morgan or buy the minority
interest from Hamilton Morgan's other major investor, Robert Haft, Chairman and
Chief Executive Officer of Phar-Mor. The Corporation and Mr. Haft are currently
in negotiations. The shares of Phar-Mor owned directly by the Corporation are
not involved in this transaction.
Summarized financial information for Phar-Mor was as follows for the periods
from September 1995, the acquisition date (the date Phar-Mor emerged from
bankruptcy), to March 31, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
52 Weeks Ended 30 Weeks Ended
Condensed Statements of Operations March 29, 1997 March 30, 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,084,325 $609,486
Gross profit 190,613 107,628
Operating earnings 4,901 11,632
Net income (loss) (5,378) 5,210
=============================================================================
<CAPTION>
March 29, March 30,
Condensed Balance Sheets 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 270,883 $293,765
Property and equipment 72,366 67,252
Other assets 13,391 10,526
- -----------------------------------------------------------------------------
Total assets $ 356,640 $371,543
- -----------------------------------------------------------------------------
Current liabilities $ 104,043 $104,850
Long-term obligations 163,258 171,979
Stockholders' equity 89,339 94,714
- -----------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 356,640 $371,543
=============================================================================
</TABLE>
DEVELOPMENT
Certain subsidiaries of the Corporation (collectively, "Development") are
controlling general partners in various real estate limited partnerships
engaged in the buying, holding, operating and disposing of real estate and real
estate
30
<PAGE> 32
loans. These partnerships have been consolidated in the accompanying financial
statements. Additionally, Development is a less than 50% general partner or a
limited partner in other real estate partnerships which are generally accounted
for using the equity method. Development's partnerships are generally obligated
to return Development's initial investment together with a preferred rate of
return on the undistributed investment before other partners may receive
distributions. Such preferred returns are accounted for as liquidating
dividends. Development invested, before dividends and return of capital,
approximately $4.0 million in 1997, $5.9 million in 1996 and $5.5 million in
1995 in various real estate partnerships.
During 1997, the Corporation sold its ownership interest in certain real estate
limited partnerships for $9.9 million. The transactions resulted in a gain of
approximately $6.0 million which was included in "Other income" in the
consolidated statements of operations.
FOXMEYER CANADA INC.
On October 7, 1996, the Corporation sold all of its interest in FoxMeyer Canada
Inc. ("FoxMeyer Canada"). The net proceeds from the sale were $37.4 million. In
connection with the sale, the Corporation recognized a gain of approximately
$34.0 million in the third quarter of 1997. Such gain was included in "Other
income" in the consolidated statements of operations. FoxMeyer Canada was a
39% owned affiliate of the Corporation at the time of its sale and was
accounted for on an equity basis.
The Corporation's direct interest in FoxMeyer Canada was received as a dividend
from FoxMeyer on June 19, 1996. As explained in Note N, use of all but $5.0
million of the proceeds received is restricted under an "Agreed Preliminary
Injunction Order". The restricted funds are included in "Restricted cash and
investments" in the consolidated balance sheet.
NOTE C - ACCOUNTS RECEIVABLE FINANCING
During 1997 and 1996, the Corporation, through FoxMeyer, participated in
various accounts receivable financing programs under which FoxMeyer sold a
percentage ownership interest in a defined pool of its trade accounts
receivable with limited recourse. The total availability under the program
ranged from $200.0 million to $300.0 million. During 1997, concurrent with the
bankruptcy filing of FoxMeyer, this financing was terminated.
NOTE D - OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK
The Corporation does not believe that its trade receivables represent a
concentration of credit risk. The accounts receivable valuation allowance of
$0.5 million at March 31, 1997 represents management's best estimate of
potential credit losses. Actual credit losses may differ from these estimated
amounts. Generally, the Corporation requires no collateral from its customers.
In addition, temporary cash investments may also subject the Corporation to a
concentration of credit risk. The Corporation places its temporary cash
investments primarily with major financial institutions and diversified money
market mutual funds.
NOTE E - INVENTORIES
Inventories at March 31, 1996 were entirely related to FoxMeyer's operations. A
portion of the inventory was valued by the LIFO cost method and totaled $547.5
million at March 31, 1996. If the FIFO cost method had been used, inventories
would have been $56.8 million higher than the amount reported in the
consolidated balance sheet at March 31, 1996. In addition, liquidation of LIFO
inventories carried at lower costs prevailing in prior years, compared with the
current cost of purchases, had the effect of reducing the net loss from
discontinued operations in 1996 by $0.1 million.
31
<PAGE> 33
NOTE F - INVESTMENTS IN MARKETABLE SECURITIES
The Corporation's investments in debt securities are classified as "available
for sale" and equity securities are classified as either "available for sale"
or "trading". The carrying value and gross unrealized gains and losses for
available for sale securities are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1997 1996
-----------------------------------------------------------------------
<S> <C> <C>
Carrying value $ -- $877
Unrealized gains -- --
Unrealized losses -- --
=======================================================================
</TABLE>
The gross proceeds and realized gain and losses from the sale of available for
sale securities and the change in unrealized gains (losses) on available for
sale and trading securities are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1997 1996 1995
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Available for sale securities:
Proceeds from sales $ 6 $ 13,523 $39,700
Realized gains -- 1,103 8,077
Realized losses 871 892 148
Net change in unrealized holding gains (losses) 17 (2,391) 2,599
Trading securities:
Net change in unrealized gains (losses) (6,552) 1,952 --
==========================================================================================
</TABLE>
During 1996, approximately $2.0 million of unrealized losses were charged to
operations as a result of changing the classification of certain securities
from available for sale to trading ($5.8 million in unrealized losses less $3.8
million in unrealized gains).
The balance of the net unrealized holding loss on securities shown on the
accompanying balance sheet as of March 31, 1996, represents the Corporation's
equity participation in Ben Franklin's unrealized loss on securities available
for sale.
NOTE G - INVESTMENT IN NATIONAL STEEL CORPORATION
In January 1984, the Corporation, through its then wholly-owned subsidiary
National Steel Corporation ("NSC"), sold substantially all of the assets of the
Weirton Steel Division ("Weirton") to Weirton Steel Corporation. In connection
with the sale, NSC retained certain liabilities arising out of the operation of
Weirton prior to May 1, 1983, including certain environmental liabilities, a
note payable to the NSC pension trust (the "NSC Note") and employee benefits
for Weirton employees, which consisted principally of pension benefits for
active employees based on service prior to May 1, 1983, and pension, life and
health insurance benefits for retired employees (the "Weirton Liabilities"). As
a result of transactions which occurred in August 1984 and June 1990, the
Corporation sold all but 13% of its common stock investment in NSC to NKK
Corporation ("NKK"). As part of the 1984 transaction, the Corporation agreed to
provide NSC sufficient funds for payment of and to indemnify NSC against all
Weirton Liabilities and for certain environmental liabilities related to the
former operations of NSC. As part of the 1990 transaction, the Corporation
received newly issued NSC redeemable Series B preferred stock (the "NSC
Preferred Stock") and $146.6 million in cash. The cash was transferred to NSC
in exchange for NSC releasing the Corporation from an equivalent amount of its
indemnification liability with respect to the Weirton Liabilities (the
"Released Liabilities"). The NSC Preferred Stock was valued at fair market
value at the date of the transaction, with the resulting premium in excess of
the minimum redemption value being amortized on an effective yield basis over
the life of the NSC Preferred Stock.
Under the terms of the Stock Purchase and Recapitalization Agreement (the "NSC
Agreement") between the Corporation, NKK and NSC related to the June 1990
transaction, the Corporation has committed that all NSC
32
<PAGE> 34
Preferred Stock dividends and redemption amounts are to be used to satisfy the
Weirton Liabilities, excluding the Released Liabilities (the "Remaining
Liabilities"), before any funds are available to the Corporation for general
corporate purposes. The NSC Agreement further provides for an independent
actuarial valuation of the Weirton Liabilities that relate to employee benefits
if prior to or coincident with full redemption of the NSC Preferred Stock, the
pension-related Weirton Liabilities are determined to be fully funded. The
amount of any adjustment to the Weirton Liabilities, as determined by the
independent actuary, will increase or decrease the proceeds available to the
Corporation from the redemption of the NSC Preferred Stock. The Remaining
Liabilities have been presented in the Corporation's consolidated balance
sheets as a reduction in the carrying value of the NSC Preferred Stock due to
the requirement that the dividend and redemption payments thereon first be used
to offset these obligations. At March 31, 1997, there were $19.0 million of
Remaining Liabilities, including a $0.7 million net pension liability, the NSC
Note of $17.9 million and $0.4 million for other benefit obligations, offset
against the carrying value of the NSC Preferred Stock. At March 31, 1996, there
were $20.9 million of Remaining Liabilities offset against the carrying value
of the NSC Preferred Stock.
Additionally, the Corporation has reflected its dividend income from the NSC
Preferred Stock, interest accretion and pension charges on the Remaining
Liabilities and premium amortization of the NSC Preferred Stock as a single net
amount in its consolidated statements of operations due to the requirement that
dividends and redemption payments on the NSC Preferred Stock be used first to
fund the Remaining Liabilities.
In connection with a January 1994 disposition of its remaining investment in
NSC common stock, the Corporation was required to pay to NSC $10.0 million as a
prepayment for potential environmental liabilities for which the Corporation
had previously agreed to indemnify NSC. If NSC does not expend the $10.0
million by certain dates (up to 20 years after the receipt of such funds by
NSC), the balance in the fund will be paid by NSC to the Corporation. The
Corporation continues to be obligated to indemnify NSC for all other
liabilities for which the Corporation had previously agreed to indemnify NSC,
including any environmental liabilities exceeding the $10.0 million prepayment.
NSC is currently paying 11.0% interest on the balance in the fund. At March 31,
1997, the prepayment balance was approximately $8.7 million.
Without the Corporation's consent, NSC cannot, prior to 1998, exercise its
option to redeem the Corporation's shares of NSC Preferred Stock that are
subject to mandatory redemption in August 2000. The minimum redemption value of
the NSC Preferred Stock is $58.3 million.
As described above, the Corporation has agreed to provide NSC with
sufficient funds for the payment and discharge of the Weirton pension benefits
for active and retired employees based on service with Weirton prior to May 1,
1983. These employee benefits are provided pursuant to the Weirton Retirement
Program sponsored by NSC. The obligation of the Corporation relating to the
Weirton Retirement Program is a contractual obligation, and the Corporation
does not sponsor, maintain or administer the Weirton Retirement Program or the
Weirton Pension Trust.
Pension cost for the Corporation's obligation relating to the Weirton
Retirement Program for the three years ended March 31, 1997, determined by
assuming an expected long-term rate of return on plan assets of 9.5%, were as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1997 1996 1995
---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net periodic pension cost for the Weirton
Retirement Program:
Service cost - benefits earned for the year $ 157 $ 139 $ 177
Interest cost on projected benefit obligation 35,840 38,586 38,273
Return on plan assets (36,364) (75,827) (28,140)
Net amortization and deferral (3,876) 39,187 (10,751)
----------------------------------------------------------------------------------------
Net periodic pension cost (income) $ (4,243) $ 2,085 $ (441)
========================================================================================
</TABLE>
33
<PAGE> 35
The funded status of the Weirton Retirement Program and amounts recognized in
the Corporation's consolidated balance sheets at March 31, 1997 and 1996,
utilizing a discount rate of 7.75% in 1997 and in 1996 are set forth in the
table below (in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1997 1996
------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation including vested
benefits of $457,112 and $471,921 in 1997 and 1996,
respectively $ 473,984 $ 489,843
Projected benefit obligation 473,984 489,843
Plan assets at fair market value 473,314 488,627
-----------------------------------------------------------------------------------
Projected benefit obligation in excess of plan assets 670 1,216
Unrecognized transition asset 5,602 6,504
Unrecognized net loss (79,133) (71,138)
Adjustment required to recognize minimum liability 73,531 64,634
-----------------------------------------------------------------------------------
Accrued pension cost $ 670 $ 1,216
===================================================================================
</TABLE>
At March 31, 1997, the assets of the Weirton Pension Trust available to service
these obligations were comprised of approximately 67% bonds, 28% stocks and 5%
other.
NOTE H - LONG-TERM DEBT
Long-term debt was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1997 1996
---------------------------------------------------------------------
<S> <C> <C>
Secured loan $ 14,900 $ 20,000
Revolving credit facility -- 15,000
Development notes with various maturities 15,551 17,737
FoxMeyer indebtedness -- 379,887
---------------------------------------------------------------------
30,451 432,624
Long-term debt due within one year 2,969 28,793
---------------------------------------------------------------------
Total $ 27,482 $403,831
=====================================================================
</TABLE>
To fund the Corporation's purchase of a majority interest in Hamilton Morgan
(see Note B), the Corporation entered into a $20.0 million secured loan with a
bank (the "Hamilton Facility"). The Hamilton Facility has a current balance of
$14.9 million, matures September 6, 1998, requires a principal payment of $2.5
million on September 6, 1997 and bears interest at the prime rate plus 1% or a
Euro-dollar rate (as defined) plus 2.75%. The Hamilton Facility is
collateralized by the Corporation's interest in Phar-Mor common stock held by
Hamilton Morgan and other marketable securities. The Hamilton Facility also
includes certain restrictive covenants, including a restriction on the payment
of dividends on the common stock of the Corporation. The Corporation had a
collateral base deficiency of approximately $1.2 million at March 31, 1997.
As of June 1997, the collateral base deficiency no longer exists.
The Corporation had a $15.0 million revolving credit facility outstanding at
March 31, 1996 which was retired on August 2, 1996.
The FoxMeyer debt included senior notes, a revolving credit facility,
industrial development revenue bonds and other notes and mortgages, and were
either wholly or partially repaid in 1997, assumed by McKesson or terminated in
connection with the 1997 FoxMeyer bankruptcy filing (see Note B).
The limited partnerships controlled by Development and included in the
consolidated financial statements have incurred certain indebtedness in
connection with the acquisition of real estate and other assets (the
"Development Notes"). Such indebtedness is typically non-recourse and secured
solely by the underlying assets. The
34
<PAGE> 36
Development Notes bear interest at fixed rates of from 7.0% to 10.2%, and some
loans have balloon payments at the end of their term.
Maturity and approximate sinking fund requirements on all long-term debt of the
Corporation by fiscal year are as follows: $3.0 million in 1998; $15.2 million
in 1999; $0.4 million in 2000; $0.3 million in 2001; $0.3 million in 2002 and
$11.3 million thereafter.
NOTE I - CAPITAL STOCK
COMMON STOCK SHARE REPURCHASE: Under various share repurchase programs approved
by the Corporation's Board of Directors, 4,704,100 shares of common stock were
purchased by the Corporation during the three years ended March 31, 1997
including 2,966,800 shares repurchased during 1997 at a cost of $16.7 million.
The last repurchase program was suspended in September 1996. The Corporation
canceled these shares and all other treasury shares in September 1996 with a
corresponding reduction in common stock and capital in excess of par value of
$148.7 million.
REDEEMABLE PREFERRED STOCK: The Corporation is authorized to issue 10,000,000
shares of preferred stock. At March 31, 1997, there were two series of
redeemable preferred stock outstanding.
At March 31, 1997 and 1996, the Corporation had 652,531 and 740,531 shares of
cumulative convertible preferred stock outstanding, respectively, at a stated
price of $50.00 per share. Each share of this preferred stock is entitled to a
cumulative annual dividend of $5.00 and is convertible into common stock of the
Corporation at a conversion price of $25.80 per share. The Corporation has
reserved 1,264,595 shares of its common stock for issuance upon the conversion
of this preferred stock. The shares are redeemable at a price of $50.00 per
share. The Corporation is required to make sinking fund payments in each year
to 2002 in an amount sufficient to redeem 88,000 shares annually and 220,000
shares in 2003. The Corporation did not declare, nor did it pay, the dividends
due January 15, 1997 and April 15, 1997. Cumulative dividends unpaid at March
31, 1997 were $1.6 million or $2.50 per share. As a result of the failure to
pay dividends on the other series of preferred stock as discussed below, the
Corporation may not redeem any additional shares of this series of preferred
stock as long as any cumulative dividends remain unpaid.
At March 31, 1997 and 1996, the Corporation had 4,312,351 and 4,290,824 shares
of $4.20 Cumulative Exchangeable Series A Preferred Stock, par value $5 per
share, with a liquidation preference of $40 (the "Series A Preferred Stock")
outstanding, respectively. The Series A Preferred Stock is redeemable at $40
per share on November 30, 2003. The Series A Preferred Stock may be redeemed at
the option of the Corporation, in whole or in part, at any time after October
15, 1998, at its liquidation preference plus unpaid dividends thereon. The
Corporation had the option, through October 15, 1996, of issuing either
additional shares of Series A Preferred Stock or paying the dividend in cash.
The Corporation issued 338,527 and 422,451 additional shares of Series A
Preferred Stock in lieu of cash dividends in 1997 and 1996, respectively. In
addition, 317,000 shares of Series A Preferred Stock were repurchased during
1997 on the open market, as part of a 500,000 share repurchase program
announced in August 1996, at a cost of $6.0 million. Dividends due on January
15, 1997 and April 15, 1997 have not been declared or paid. The amount of
cumulative dividends unpaid at March 31, 1997 was $9.2 million or $2.13 per
share. The amount of the cumulative dividend accrued each quarter, if any
dividends remain unpaid, increases as if additional shares of the Series A
Preferred Stock had been issued in lieu of the cash dividend and such
additional shares were outstanding on each succeeding dividend date until such
unpaid dividends have been declared and paid in cash.
The dividends that would have been paid if declared have been shown in the 1997
consolidated statement of operations as if they had been declared with a
corresponding charge to retained earnings. The liability for the cumulative
unpaid dividends has been added to the carrying value of the redeemable
preferred stock in the consolidated balance sheet.
For those dividends paid in stock, the charge to retained earnings was based on
the ending market value of the Series A Preferred Stock on the ex-dividend
date. The difference in the Series A Preferred Stock's liquidation
35
<PAGE> 37
preference and its market value on the ex-dividend date is being amortized on
an effective yield basis as additional preferred stock dividends and charged to
retained earnings over the remaining life of the Series A Preferred Stock.
In addition, if all cumulative unpaid dividends have been paid, the Series A
Preferred Stock is exchangeable, at the option of the Corporation, in whole but
not in part, commencing on October 15, 1996, and on any dividend payment date
thereafter, for the Corporation's 10.5% Subordinated Notes due 2003 (the
"Exchange Notes") with a principal amount equal to the aggregate liquidation
value of the outstanding Series A Preferred Stock. The Exchange Notes will
mature on November 30, 2003. The Exchange Notes may be redeemed, at the option
of the Corporation, in whole or in part, at any time on or after October 15,
1998, at a redemption price equal to the principal amount plus any unpaid
interest thereon. The payments of principal and interest on the Exchange Notes
will be subordinated to all senior indebtedness of the Corporation.
In the event that dividends on the convertible preferred stock or the Series A
Preferred Stock are in arrears for six full quarterly dividend periods when
such dividends are required to be paid in cash, the holders of preferred stock
would have the ability to elect a specified number of new directors at a
meeting of the stockholders of the Corporation called for that purpose or at
the annual meeting of stockholders (and at each annual meeting of stockholders
thereafter until such cumulative dividends have been paid in full). Such voting
rights and the term of office of these directors shall cease at such time as
all dividends in arrears have been paid in full, or at such time as such
dividends have been declared and an amount sufficient to pay the full amount of
such dividends has been irrevocably set aside for payment.
COMMON STOCK: At March 31, 1997 and 1996, respectively, the Corporation had
13,805,988 and 24,188,084 shares of common stock issued. The decrease in the
number of shares issued between 1997 and 1996 was due to the cancellation of
10,382,096 shares of treasury stock in September 1996. The Corporation has also
reserved 3,993,984 shares of its common stock for issuance under its stock
option and performance award plans (see Note J). Certain limitations on the
payment of dividends have been placed on the Corporation through covenants
under the Hamilton Facility (see Note H). Under these restrictions, no
dividends may be paid on the common stock of the Corporation. In addition, as
long as there are cumulative unpaid dividends on the preferred stock, as
discussed above, no dividends may be paid on the common stock.
NOTE J- EMPLOYEE COMPENSATION PLANS
The Corporation maintains the 1993 Restated Stock Option and Performance Award
Plan (the "Plan"). The Plan provides for the granting of incentive options and
non-qualified options to purchase shares of the common stock of the Corporation
to certain officers and key employees of the Corporation and its subsidiaries
and for the granting of non-qualified stock options to the outside directors on
an automatic basis. The Plan also permits the granting of performance shares,
restricted shares and performance units to participants (other than outside
directors). Under the Plan, the Finance and Personnel Committee of the Board of
Directors of the Corporation determines the price at which options are to be
granted, the period over which options are exercisable, the duration of
performance or restriction periods and performance targets over which
performance shares shall be earned. Options for an aggregate of 4,000,000
shares of the Corporation's common stock may be granted under the Plan.
As part of the merger of FoxMeyer into a wholly-owned subsidiary of the
Corporation on October 12, 1994 (see Note B), all of FoxMeyer's options
retained their original vesting schedules but became exercisable in the
Corporation's common stock. The number of the Corporation's shares covered by
the FoxMeyer options was calculated based on the conversion ratio used in the
merger. As a result of the purchase of FoxMeyer's assets by McKesson (see Note
B), FoxMeyer employees who became McKesson employees had thirty days to
exercise any options exercisable on November 8, 1996. No options were exercised
during this period and all outstanding options were canceled.
36
<PAGE> 38
The following table summarizes the information with respect to stock options
for the three years ended March 31, 1997. The table includes stock options
granted under the Plan and under the Corporation's 1987 Restated Stock Option
and Performance Award Plan, which stock options are still exercisable. All
options granted were at least at the published market price of the
Corporation's common stock on the date of grant.
<TABLE>
<CAPTION>
Outstanding
--------------------------------
Weighted Average
Exercisable Shares Shares Exercise Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1994 1,739,100 $16.76
1995:
Granted 2,146,000 17.85
Options arising from
FoxMeyer merger 1,104,688 15.06
Exercised 317,636 15.27
Canceled or forfeited 1,299,164 15.58
- ------------------------------------------------------------------------------
March 31, 1995 1,003,807 3,372,988 17.50
1996:
Granted 527,500 19.78
Exercised 278,002 16.20
Canceled or forfeited 457,189 20.73
- ------------------------------------------------------------------------------
March 31, 1996 1,329,669 3,165,297 17.52
1997:
Granted 4,932,786 7.13
Exercised 105,586 15.91
Canceled or forfeited 5,753,591 14.90
- ------------------------------------------------------------------------------
March 31, 1997 40,792 2,238,906 1.45
==============================================================================
</TABLE>
The Corporation accounts for stock-based compensation using the intrinsic value
method of APB 25. Accordingly, no compensation expense has been recognized.
Under the disclosure-only provisions of SFAS No. 123 which the Corporation has
adopted, if the Corporation had used the fair value at the grant dates, as
defined by SFAS No. 123, to recognize compensation cost in 1997 and 1996, the
Corporation's net income (loss) and loss per common share would have been as
follows on a pro forma basis (in thousands of dollars, except per share
amounts):
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
As reported
Net income (loss) from continuing operations $ (12,244) $ 5,148
Net loss (279,356) (63,661)
Pro forma
Net income (loss) from continuing operations $ (12,006) $ 4,781
Net loss (279,118) (64,028)
- -------------------------------------------------------------------------------
As reported
Net loss per share from continuing operations $ (2.09) $ (0.93)
Net loss per share (19.90) (4.95)
Pro forma
Net loss per share from continuing operations $ (2.07) $ (0.95)
Net loss per share (19.88) (4.97)
===============================================================================
</TABLE>
The pro forma results for 1997 and 1996 may not be representative of the pro
forma effect for future years because the fair value method has not been
applied to options granted prior to 1996 and because of the significant changes
in the operations of the Corporation during these periods.
37
<PAGE> 39
The fair value of each option grant was estimated on the date of grant by using
the Black-Scholes option-pricing model. The following weighted average
assumptions were used for grants in 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------
<S> <C> <C>
Expected dividend yield (%) 0.0 0.0
Expected volatility (%) 43.7 28.9
Risk-free interest rates (%) 6.3 5.9
Expected option lives (years) 4.5 3.1
========================================================
</TABLE>
The weighted-average fair values of options granted during 1997 and 1996 were
$1.57 and $5.47, respectively.
The following table summarizes information about significant option groups
outstanding and exercisable as of March 31, 1997 and related weighted-average
exercise price and weighted-average contractual life remaining:
<TABLE>
Options with Exercise Prices Outstanding Exercisable Remaining
Ranging from: Shares Price Shares Price Life
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1.00 to $4.00 2,199,114 $ 1.19 1,000 $ 3.94 4.9
$10.00 to $21.00 39,792 15.39 39,792 15.39 0.5
====================================================================================
</TABLE>
Effective January 1, 1997, the Corporation instituted a Performance Incentive
Plan, as approved by the Board of Directors, that covers approximately eight
employees. The participants are entitled to share in a fund, the amount of
which shall be based on a specified percentage of certain components of the
Corporation's net income determined as of March 31st of each year. No amounts
were earned for the period ending March 31, 1997.
NOTE K - RETIREMENT PLANS
The Corporation and its subsidiaries have a number of retirement plans covering
substantially all employees, consisting of both defined benefit and defined
contribution plans. Pension benefits under the defined benefit plans are
generally based upon years of service or a combination of remuneration and
years of service. No current employees of the Corporation are covered under the
defined benefit plans. The Corporation's funding policy for defined benefit
plans is to make payments to the pension trust in accordance with the funding
requirements of federal laws and regulations. The outside directors of the
Corporation are covered under a nonqualified and unfunded defined benefit plan.
A subsidiary of the Corporation, FoxMeyer, maintained an employees' savings and
profit sharing plan under Section 401(k) of the Internal Revenue Code. The plan
covered substantially all the Corporation's employees. Subsequent to the
acquisition of FoxMeyer's assets by McKesson (see Note B), the remaining
employees of the Corporation were no longer covered by the FoxMeyer plan. The
Corporation instituted a new 401(k) plan in April 1997 for all current
employees.
38
<PAGE> 40
Pension income for continuing operations under the Corporation's retirement
plans for the three years ended March 31, 1997, are presented in the table
below (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1997 1996 1995
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net periodic pension cost (income) for
defined benefit plans:
Service cost - benefits earned for the year $ 44 $ 27 $ 9
Interest cost on projected benefit obligation 4,364 4,539 4,493
Return on plan assets 679 (8,950) (2,073)
Net amortization and deferral (6,460) 3,569 (3,538)
---------------------------------------------------------------------------------------------
Net periodic pension cost (income) (1,373) (815) (1,109)
Pension cost for defined contribution plans 20 22 10
----------------------------------------------------------------------------------------------
Total pension cost (income) $(1,353) $ (793) $(1,099)
==============================================================================================
</TABLE>
The net periodic pension income for defined benefit plans was determined by
assuming an expected long-term rate of return on plan assets of 10.0% for the
three years ended March 31, 1997.
The following table sets forth the funded status of the Corporation's defined
benefit pension plans and amounts recognized in the Corporation's consolidated
balance sheets at March 31, 1997 and 1996 utilizing a weighted average discount
rate of 7.8% in 1997 and 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
-------------------------------------------------------
Assets Accumulated Assets Accumulated
exceeding benefits exceeding benefits
accumulated exceeding accumulated exceeding
benefits assets benefits assets
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated benefit obligation
including vested benefits of
$56,231 and $57,706 in 1997 and
1996, respectively $50,484 $ 5,747 $51,426 $ 6,280
Projected benefit obligation 50,484 5,747 51,426 6,280
Plan assets at fair market value 53,911 - 59,128 -
- ----------------------------------------------------------------------------------------
Projected benefit obligation
less than (in excess of) plan
assets 3,427 (5,747) 7,702 (6,280)
Unrecognized transition asset (907) - (1,091) -
Unrecognized net loss 6,210 - 61 -
- ----------------------------------------------------------------------------------------
Prepaid (accrued) pension cost
included in the consolidated
balance sheet $ 8,730 $(5,747) $ 6,672 $(6,280)
========================================================================================
</TABLE>
At March 31, 1997, the assets of the Corporation's defined benefit pension
plans were comprised of approximately 36% bonds, 47% stocks and 17% other.
NOTE L - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Corporation or certain inactive subsidiaries have plans relating to retired
employees that provide for postretirement health care and life insurance
benefits. Health benefits include major medical insurance with deductible and
coinsurance provisions. Life insurance benefits are usually for a flat benefit
that decreases to age 65. Certain plans provide that retirees pay for a portion
of their coverage. The plans are not funded. The Corporation pays all benefits
on a current basis. No current employees are covered under these plans.
39
<PAGE> 41
The net periodic postretirement benefit cost for continuing operations for the
three years ended March 31, 1997 was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned for the year $ - $ - $ -
Interest cost 1,565 1,969 1,955
Amortization of prior service cost and net gain (440) (259) (226)
- --------------------------------------------------------------------------------------
Total postretirement benefit cost $1,125 $1,710 $1,729
======================================================================================
</TABLE>
The following table sets forth the funded status of the postretirement health
care and life insurance plans and amounts recognized in the consolidated
balance sheets at March 31, 1997 and 1996 utilizing a weighted average discount
rate of 7.75% for 1997 and 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation $19,871 $26,921
Unrecognized prior service cost 2,979 3,579
Unrecognized net gain 4,634 431
- --------------------------------------------------------------------------------------
Amount of postretirement benefit obligation included in the
consolidated balance sheet $27,484 $30,931
======================================================================================
</TABLE>
Medical costs were assumed to increase at a rate of 11% during 1997 and then to
decline over a period of 27 years to a rate of 5.75%. An analysis of this trend
rate scenario shows medical costs, on a national basis, stabilizing at 20% of
Gross National Product. To demonstrate the volatility of the valuation results
based on this assumption, the impact of a 1% increase in the cost of health
care would result in a 10.3% increase in the postretirement benefit obligation
and a 14.2% increase in the postretirement benefit cost.
NOTE M - INCOME TAXES
The provision for income taxes consisted of the following for the three years
ended March 31, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1997 1996 1995
-------------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current $ -- $ -- $ --
Deferred 24,557 2,938 (1,433)
State
Current 34 39 --
Deferred 5,279 -- 1,748
-------------------------------------------------------------------
Income tax provision $29,870 $2,977 $ 315
===================================================================
</TABLE>
The Corporation recorded a federal tax provision of $24.6 million in 1997. The
federal income tax provision was primarily attributable to the establishment of
a full valuation allowance against the net deferred tax assets because the
Corporation believes it may not be able to realize its deferred tax assets. The
valuation allowance has increased primarily in recognition of the FoxMeyer
bankruptcy filing (see Note B).
40
<PAGE> 42
The reasons for the difference between the total tax provision and the amount
computed by applying the statutory federal income tax rate to income from
continuing operations before income taxes and minority interest were as follows
(in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1997 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate applied to pre-tax income $ 5,782 $ 3,585 $14,729
Change in deferred tax asset valuation allowance 26,702 2,654 (9,561)
Corporate dividend-received deduction (1,976) (2,197) (1,975)
State income taxes (net of federal tax effect) 3,453 25 1,136
Weirton interest expense (1,063) (498) (725)
Capital losses (14,299) (175) (2,156)
Market adjustments to investments 7,569 - -
Equity in affiliates 1,820 1,459 (272)
Other items 1,882 (1,876) (861)
- ------------------------------------------------------------------------------------
Total tax provision $ 29,870 $ 2,977 $ 315
====================================================================================
</TABLE>
The Corporation's current and noncurrent deferred taxes, which net to a zero
balance as of March 31,1997, and a $35.8 million asset as of March 31, 1996,
consisted of the following temporary differences and net operating losses, at
the statutory rate, tax credits, and valuation allowance (in thousands of
dollars):
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------------
Deferred tax Deferred tax Deferred tax Deferred tax
assets liabilities assets liabilities
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tax net operating losses $ 73,690 $ - $ 73,823 $ -
Other liabilities 11,860 - 9,960 -
Investments - - 8,212 5,587
Tax credits 8,284 - 8,284 -
Items related to discontinued operations - - 72,174 57,379
All other - - - 860
- ------------------------------------------------------------------------------------------------------
Total deferred assets and liabilities 93,834 - 172,453 63,826
Valuation allowance on deferred tax assets (93,834) (72,868)
- ------------------------------------------------------------------------------------------------------
Total deferred taxes - $ - 99,585 $ 63,826
- ------------------------------------------------------------------------------------------------------
Less: deferred tax liability - (63,826)
Deferred tax asset, net $ - $ 35,759
======================================================================================================
</TABLE>
The net change in the valuation allowance for 1997 was an increase of
approximately $21.0 million which consisted of a $26.7 million charge to
operations less $5.7 million related to discontinued operations.
At March 31,1997, the Corporation had, for federal income tax purposes,
operating loss, capital loss, and investment credit carryforwards of
approximately $210.6 million, $92.5 million, and $1.2 million, respectively.
Operating loss carryforwards available for utilization in the Corporation's
consolidated income tax return expire as follows: 2003 -$15.8 million, 2004 -
$58.3 million, 2006 - $94.0 million, 2008 - $0.5 million, 2009 - $1.0 million,
2011 - $31.6 million and 2012 - $9.4 million. The operating loss carryforwards
do not include the operating loss carryforwards for 1996 and prior of $141.2
million attributable to FoxMeyer. It is anticipated that as a result of
FoxMeyer's bankruptcy filing, the operating loss carryforwards attributable to
FoxMeyer will be significantly reduced in the future. The capital loss
carryforwards available for utilization in the Corporation's consolidated
income tax return will expire in 1999. Investment credit carryforwards will
expire during the years 1998 through 2002. The Corporation also has alternative
minimum tax credit carryforwards of $7.0 million, which are available to offset
the future regular income tax liability of the Corporation. Alternative
minimum tax credit carryforwards do not expire.
The losses and tax credits referred to in the preceding paragraph have not been
examined by the U.S. Internal Revenue Service and, therefore, may be subject to
adjustment. The availability of such loss and tax credit carryforwards to reduce
the Corporation's future consolidated federal income tax liability are subject
to various limitations under the Internal Revenue Code of 1986, as amended (the
"Code"), including limitations upon the utilization of loss and tax credit
carryforwards in the event of an ownership change (as defined in the Code) of
the
41
<PAGE> 43
Corporation. The Corporation believes that an ownership change of the
Corporation occurred in 1995. Consequently, utilization of loss and tax credit
carryforwards incurred prior to the ownership change generally will be limited
to approximately $25.0 million per year (with a cumulative carryover). Loss
carryforwards incurred after the ownership change of approximately $41.0 million
are not subject to such an annual limitation.
NOTE N - COMMITMENTS AND CONTINGENCIES
Directly or through its subsidiaries, the Corporation leases various types of
properties, primarily corporate office space and equipment, through
noncancelable operating leases. Rental expense for continuing operations under
operating leases totaled $1.1 million in 1997, $2.5 million in 1996 and $2.2
million in 1995. Minimum rental payments under operating leases with initial or
remaining terms of one year or more at March 31, 1997 total $0.7 million with
payments due during the next five fiscal years of $0.2 million in 1998, $0.2
million in 1999, $0.1 million in 2000, $0.1 in million in 2001 and $0.1 million
in 2002.
The Corporation has retained responsibility for certain potential environmental
liabilities attributable to former operating units. As a result, the
Corporation is subject to federal, state and local environmental laws, rules
and regulations, including the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended, and similar state superfund
statutes. These statutes generally impose joint and several liability on
present and former owners and operators, transporters and generators for
remediation of contaminated properties regardless of fault. The Corporation and
its subsidiaries have received various claims and demands from governmental
agencies relating to investigations and remedial actions to address
environmental clean-up costs and in some instances have been designated as a
potentially responsible party ("PRP") by the Environmental Protection Agency
("EPA").
At March 31, 1997, the Corporation had reserves of $2.9 million for
environmental assessments, remediation activities, penalties or fines at ten
sites that may be imposed for non-compliance with such laws or regulations.
Reserves are established when it is probable that liability for such costs will
be incurred and the amount can be reasonably estimated. The Corporation's
estimates of these costs are based upon currently available facts, existing
technology, presently enacted laws and regulations and the professional
judgment of consultants and counsel. Where the available information is
sufficient to estimate the amount of the liability, that estimate has been
used. Where the information is only sufficient to establish a range of probable
liability and no point within the range is more likely than the other, the
lower end of the range was used.
In 1994, the Corporation paid $10.0 million to NSC as a deposit to cover
potential environmental claims for which it has indemnified NSC (see Note G).
The Corporation believes the remaining deposit will be sufficient to satisfy
current environmental claims for which the Corporation has indemnified NSC, and
as described below, the Corporation and NSC have also filed a lawsuit against
various insurance carriers seeking coverage for certain of these environmental
claims.
The amounts of reserves for environmental liabilities are difficult to estimate
due to such factors as the unknown extent of the remedial actions that may be
required and, in the case of sites not owned by the Corporation, the unknown
extent of the Corporation's probable liability in proportion to the probable
liability of other parties. Moreover, the Corporation may have environmental
liabilities that the Corporation cannot in its judgment estimate at this time
and losses attributable to remediation costs may arise at other sites.
Management recognizes that additional work may need to be performed to
ascertain the ultimate liability for such sites, and further information could
ultimately change management's current assessment. A change in the estimated
liability could have a material impact on the financial condition and results
of operations of the Corporation.
Management believes the Corporation has valid claims, and is actively pursuing
these claims, against its insurers for coverage of certain environmental
exposures. In arriving at a reasonable estimate of environmental reserves, the
Corporation has not offset any potential recoveries against the environmental
liabilities accrued. The Corporation is not aware of any site where other
companies that have been designated as a PRP by the EPA would be unable to
fulfill their portion of the obligations should they and the Corporation be
found to be jointly and severally liable.
42
<PAGE> 44
The Corporation entered into certain agreements in 1996 with Ashland Oil, Inc.
("Ashland") settling unresolved issues relating to the sale of The Permian
Corporation ("TPC") to Ashland in 1992. As a result of the agreements, the
Corporation had settled all outstanding claims and was released from any
additional claims in connection with the sale of TPC to Ashland. Previously
established liabilities of $19.6 million related to these claims by Ashland,
and to other contingencies settled during the year, were released and were
included in "Other income" in 1996 in the accompanying statements of
operations.
In connection with the October 1994 merger of FoxMeyer into a wholly-owned
subsidiary of the Corporation (the "Merger") (see Note B), several class action
lawsuits were filed against the Corporation, FoxMeyer and certain of FoxMeyer's
officers and directors alleging, among other things, that the defendants
breached their fiduciary duties owed to holders of FoxMeyer common stock. In
December 1994, the State of Wisconsin Investment Board ("SWIB") filed a
complaint against the Corporation. The SWIB complaint alleges that the
defendants breached their fiduciary duty to FoxMeyer's shareholders by agreeing
to the Merger at an unfair price and that the proxy statement issued in
connection with the Merger failed to disclose certain important facts. On April
30, 1995, the SWIB action was consolidated with the class action lawsuit. An
amended complaint was filed in the consolidated case on February 13, 1996. The
amended complaint essentially alleges the same claims previously raised. The
Corporation believes these lawsuits are without merit and intends to contest
these allegations.
The Corporation and certain of its current and former officers and directors
have been named in a series of purported class action lawsuits that were filed
and subsequently consolidated under Zuckerman, et al. v. FoxMeyer Health
Corporation, et al., in the United States District Court for the Northern
District of Texas, Dallas Division, Case No. 396-CV-2258-T. The lawsuit
purports to be brought on behalf of purchasers of the Corporation's common
stock and Series A and convertible preferred stock during the period July 19,
1995 through August 27, 1996. On May 1, 1997, plaintiffs in the lawsuit filed a
consolidated amended class action complaint, which alleges that the Corporation
and the defendant officers and directors made misrepresentations of material
facts in public statements or omitted material facts from public statements.
The complaint alleges that the Corporation failed to disclose purportedly
negative information concerning its National Distribution Center and Delta
computer systems and the resulting impact on the Corporation's existing and
future business and financial condition. At the Corporation's request, the
Court has entered a stay of all discovery pending a ruling on the Corporation's
motion to dismiss, which was filed on June 20, 1997. The Corporation intends to
prosecute the motion and defend itself in the consolidated lawsuit.
The Corporation and certain officers also have been named as defendants in an
action in Texas State Court which purports to be brought on behalf of all
holders of the Corporation's common stock during the period from October 30,
1995, to July 1, 1996, and which seeks unspecified money damages. Plaintiff
asserts claims of common law fraud and negligent misrepresentation, based on
allegations that she was induced not to sell her shares by supposed
misrepresentations and omissions that are substantially the same as those
alleged in the federal actions described above. On January 27, 1997, the
Corporation moved for summary judgment in the lawsuit on the ground that the
proposed plaintiff class, as plaintiff herself alleges, did not purchase or
sell any of the Corporation's securities during the class period. The court
held a hearing on the Corporation's summary judgment motion on May 29, 1997.
The Corporation intends to continue to vigorously defend the lawsuit.
On November 25, 1996, in connection with the Chapter 11 cases of FoxMeyer and
certain of its subsidiaries, the Official Committee of the Unsecured Creditors
(the "Committee") filed a lawsuit against the Corporation in the Bankruptcy
Court for the District of Delaware (the "Court"), Adversary No. 96-205. In the
lawsuit, the Committee alleges that certain property transferred by FoxMeyer to
the Corporation as a dividend on June 19, 1996, constituted an avoidable
fraudulent transfer or preference. The dividend consisted of assets unrelated
to FoxMeyer's core distribution business, including assets of its pharmacy
benefits management operations; its investments in Phar-Mor (equal to a 7.8%
interest in Phar-Mor's common stock outstanding), FoxMeyer Canada and other
marketable securities; US HealthData Interchange, Inc.; and FoxMeyer's
forgiveness of a $31.3 million loan to the Corporation. The Committee seeks to
recover the property transferred or the value of the property transferred. The
Committee has valued the property conveyed at $198 million. The Corporation
believes that the dividend was lawful and is vigorously contesting the lawsuit.
On March 5, 1997, the Court entered an Agreed Preliminary Injunction Order (the
"Order") which enjoins the Corporation from transferring, selling, or otherwise
disposing of, or encumbering or pledging (i) any assets or
43
<PAGE> 45
proceeds from the sale of the assets which the Corporation received as part of
the June 19th dividend without the consent of the Committee or approval of the
Court and (ii) any of its other assets, except in the ordinary course of
business, unless the Corporation provides five days prior notice to the
Committee and either obtains the Committee's consent or Court approval. The
Order requires the funds from the sale of FoxMeyer Canada be held in a separate
account subject to the restrictions of the Order (see Note B).
On March 18, 1997, the Court converted the underlying FoxMeyer bankruptcy cases
to liquidation cases under Chapter 7 of the Bankruptcy Code, and stayed the
Committee's lawsuit against the Corporation pending the election of a permanent
Chapter 7 trustee. On April 24, 1997, the creditors in the Chapter 7 cases
elected a permanent trustee, who was qualified to serve in late May 1997. The
trustee has succeeded to the interests of the Committee in the lawsuit, and the
stay of the lawsuit has ended.
On January 10, 1997, the Corporation filed a ten count lawsuit against McKesson
and certain major pharmaceutical manufacturers in the 95th Judicial District
Court of Dallas County, Texas (the "McKesson Litigation"). In the McKesson
Litigation, the Corporation alleges that McKesson and the pharmaceutical
manufacturers conspired to drive the Corporation's pharmaceutical distribution
subsidiary, FoxMeyer Drug Company, out of business. The lawsuit alleges that
McKesson misused confidential financial and competitive information to which it
had gained access in conceiving, perpetrating and promoting a plan to drive
FoxMeyer Drug Company out of its industry, and that McKesson exploited this
information by interfering with FoxMeyer Drug Company's customer and vendor
relationships and disrupting its operations in order to ultimately effectuate a
purchase of its competitor at a significantly distressed price. With respect to
the pharmaceutical manufacturer defendants, the lawsuit alleges that they
tightened or outright denied credit to FoxMeyer Drug Company and thereafter
refused to work with an investment group that had agreed to buy FoxMeyer Drug
Company's operations, thereby forcing it into Chapter 11. The McKesson
Litigation alleges that these actions were the result of an unlawful civil
conspiracy. The Corporation seeks to recover in excess of $400 million in
compensatory damages on account of the value of the Corporation's interests in
FoxMeyer Drug Company, plus punitive damages. Certain defendants in the lawsuit
filed various motions attempting to remove the McKesson Litigation to the
Bankruptcy Court for the Northern District of Texas, Dallas Division, under
Adversary No. 397-3052, and filed a motion to transfer the litigation to the
Court as a proceeding related to the Chapter 11 cases of FoxMeyer and certain
of its subsidiaries. The Corporation has filed opposing papers seeking to have
the McKesson Litigation remanded back to Texas State Court. The motion to
transfer and the motion to remand are currently pending before the Dallas
Bankruptcy Court.
On February 26, 1997, the Committee filed a lawsuit against the Corporation in
the Court under Adversary No. 97-20. In the lawsuit, the Committee seeks a
declaration that the claims asserted by the Corporation in the McKesson
Litigation are property of the FoxMeyer bankruptcy estate, and an injunction
barring the Corporation from continuing to prosecute the McKesson Litigation.
Thereafter, on March 19, 1997, McKesson intervened in the Committee's lawsuit
and filed its own complaint, in which McKesson asserted that (a) as of the
commencement of the FoxMeyer Chapter 11 case in August 1996, the claims
asserted in the McKesson Litigation were property of the bankruptcy estate, and
(b) as of November 1996, when McKesson purchased substantially all of the
assets of FoxMeyer Drug Company, the claims were transferred to McKesson. On
May 30, 1997, McKesson filed a motion for partial summary judgment in which it
seeks a declaration that the Corporation has no right, title to or interest in,
or standing to prosecute and maintain, the McKesson Litigation, and a permanent
injunction barring the Corporation from prosecuting or asserting the claims in
the McKesson Litigation. The Corporation believes that it owns the claims
asserted in the McKesson Litigation, and intends to file its answer and
otherwise respond to the two complaints and the motion in July 1997.
In August 1994, a group of four individuals filed a class action lawsuit
against their former employer, FoxMeyer Drug Company, in Texas State Court. The
lawsuit alleged that the termination of the plaintiffs' employment, made as
part of a reduction-in-force, violated the Age Discrimination in Employment
Act. The lawsuit also named FoxMeyer and the Corporation as defendants, all of
which denied the plaintiffs' allegations. The lawsuit was subsequently removed
to the United States District Court for the Northern District of Texas, Dallas
Division and, in August 1996, the case against FoxMeyer Drug Company and
FoxMeyer was stayed following their filing for relief under Chapter 11 of the
Bankruptcy Code. On September 9, 1996, the Court granted the Corporation's
motion for summary judgment and entered a partial final judgment in the
Corporation's favor on the ground that it could not be considered a "single
employer" of the plaintiffs under the Age Discrimination in Employment Act. The
plaintiffs have appealed the judgment to the United States Court of Appeals for
the Fifth Circuit, No. 96-11278, and the
44
<PAGE> 46
parties have completed their briefing and oral argument is scheduled for August
1997. If the lower court's ruling is reversed, the Corporation will continue to
vigorously contest the lawsuit.
There are various other pending claims and lawsuits arising out of the normal
conduct of the Corporation's businesses. In the opinion of management, the
ultimate outcome of these claims and lawsuits will not have a material effect
on the consolidated financial condition or results of operations of the
Corporation.
NOTE O - OTHER INCOME AND SUPPLEMENTAL CASH FLOW INFORMATION
In 1997, other income consisted of a gain of $34.0 million on the sale of
FoxMeyer Canada and $7.3 million from the sale of real estate properties and
the early collection of a real estate note receivable. The gains were
partially offset by the write-down of the investment in Phar-Mor of $13.4
million, the write-off of the Corporation's investment in Ben Franklin of
$2.0 million and $6.7 million in other losses primarily from marketable
securities. In 1996, other income consisted of a gain of $19.6 million related
to the settlement of certain unresolved issues in connection with the 1992 sale
of The Permian Corporation and other contingencies and $5.6 million in other
gains primarily from marketable securities and the early collection of real
estate notes receivable. The gains were partially offset by a $3.4 million
write-down of the value of Ben Franklin. In 1995, other income consisted of
contingent fee income of $35.8 million from a 1990 asset sale and gains on
marketable securities and real estate of approximately $11.6 million.
The following supplemental cash flow information is provided for interest and
income taxes paid and for non-cash transactions (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $18,738 $33,486 $27,904
Income taxes paid 34 191 1,325
Non-cash transactions:
Exchange of common stock for FoxMeyer common stock - - 80,010
Ben Franklin common stock distributed as a dividend - 29,697 -
Payment of dividends in kind on Series A Preferred Stock 4,354 15,319 13,200
Cumulative dividends accrued but not paid 10,806 - -
Capital lease obligations incurred - - 1,907
===================================================================================================
</TABLE>
NOTE P - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by the
Corporation based on available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates are not necessarily indicative of the amounts that the
Corporation might realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value. The following fair values of financial instruments
have been determined at March 31, 1997 and 1996.
The carrying amounts of cash and short-term investments, accounts receivable,
accounts payable and other accrued liabilities were reasonable estimates of
their fair value.
The carrying value of notes receivable was $2.4 million and $28.8 million at
March 31, 1997 and 1996, respectively, while the estimated fair value of these
notes was $2.4 million and $31.7 million, respectively, based on the
contractual interest rates and the credit worthiness of the debtors. The
carrying value of long-term debt was $30.5 million and $432.6 million at March
31, 1997 and 1996, respectively, while the estimated fair value was $30.1
million and $424.8 million, respectively, based upon interest rates available
to the Corporation for issuance of similar debt with similar terms and
remaining maturities.
Debt and equity securities classified as "available for sale" or "trading" were
carried at their estimated fair value (see Notes A and F). The carrying value
of the investment in NSC Preferred Stock is net of the Remaining Liabilities
(see Note G). The carrying value of the NSC Preferred Stock was $62.8 million
and $63.8 million at March 31, 1997 and 1996, respectively. The estimated fair
market value of the NSC Preferred Stock was approximately $67.1 million and
$70.1 million, respectively, based on NSC's other outstanding debt with similar
terms and remaining maturity. The carrying value of the Remaining Liabilities
consists principally of pension liabilities and the NSC Note bearing interest
at 8.5% with an 11 year remaining amortization. The carrying value of the NSC
Note approximated its fair value at March 31, 1997 and 1996.
45
<PAGE> 47
The fair value of the Corporation's redeemable preferred stock, based on quoted
market prices at March 31, 1997 and 1996, were $41.7 million and $184.0
million, respectively.
The fair value of certain warrants with a carrying value of $1.1 million at
March 31, 1997 and 1996, respectively, was estimated to be $2.2 million and
$5.0 million, respectively, based upon the underlying market value of the
securities into which the warrants may be converted. An investment in a
partnership that holds publicly traded securities with a market value of $14.2
million had a book value of $3.0 million at March 31, 1997.
The carrying value of other investments were estimated to be at fair value, or
it was not practicable to estimate their fair value without incurring
substantial costs. The carrying value of these investments at March 31, 1997
and 1996 was $1.6 million and $6.7 million, respectively.
The fair value estimates were based on pertinent information available to
management as of March 31, 1997 and 1996. Such amounts have not been
comprehensively revalued for purposes of these financial statements since those
dates, and current estimates of fair value may differ significantly from the
amounts presented herein.
NOTE Q - SEGMENT INFORMATION
The Corporation's principal operations are its real estate investments. In
addition, the Corporation performs certain corporate office and investment
activities ("Corporate"). Balance sheet related disclosures also include
information for discontinued operations (see Note B) where necessary. The
following table includes segment information for the three years ended March
31, 1997 (in thousands of dollars):
<TABLE>
<CAPTION>
Discontinued
Real Estate Corporate Operations Consolidated
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Revenues $12,463 $ - $ - $ 12,463
Operating income (loss) 2,608 (4,999) - (2,391)
Depreciation and amortization 934 534 - 1,468
Identifiable assets 26,665 131,772 - 158,437
Capital expenditures 6,707 186 27,855 34,748
- -----------------------------------------------------------------------------------------------
1996:
Revenues 10,439 - - 10,439
Operating income (loss) 940 (8,069) - (7,129)
Depreciation and amortization 723 311 - 1,034
Identifiable assets 29,403 167,075 1,380,592 1,577,070
Capital expenditures 2,017 - 38,772 40,789
- -----------------------------------------------------------------------------------------------
1995:
Revenues 4,243 - - 4,243
Operating loss (396) (9,696) - (10,092)
Depreciation and amortization 369 7 - 376
Identifiable assets 26,452 115,087 1,635,457 1,776,996
Capital expenditures 6,019 50 53,023 59,092
===============================================================================================
</TABLE>
46
<PAGE> 48
NOTE R - QUARTERLY DATA ( UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the two years ended March 31, 1997 (in thousands of dollars, except per
share amounts):
<TABLE>
<CAPTION>
Quarter
- ----------------------------------------------------------------------------------------
First Second Third Fourth
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Revenues $ 3,705 $ 4,101 $ 3,234 $ 1,423
Operating income (loss) (903) (1,378) 229 (339)
Net income (loss) from continuing operations (31,627) (3,613) 32,164 (9,168)
Earnings (loss) per common share from
continuing operations after preferred stock
dividends (2.11) (0.43) 1.91 (1.09)
- ----------------------------------------------------------------------------------------
1996:
Revenues $ 1,656 $ 2,075 $ 1,987 $ 4,721
Operating loss (1,610) (1,637) (2,199) (1,683)
Net income (loss) from continuing operations 6,919 7,119 (4,732) (4,158)
Earnings (loss) per common share from
continuing operations after preferred stock
dividends 0.10 .010 (0.58) (0.54)
========================================================================================
</TABLE>
All results for 1997 and 1996 have been reclassified to reflect discontinued
operations as discussed in Note B.
In addition to the those items discussed below, the Corporation's quarterly
results were significantly affected by the realized and unrealized gains or
losses on securities and other investments.
In the fourth quarter of 1997, a $13.6 million charge, net of minority
interest, was taken in connection with the reduction in the carrying value of
Phar-Mor (see Note B). During the third quarter of 1997, the Corporation sold
FoxMeyer Canada and certain real estate operations resulting in a gain of
approximately $40.0 million (see Note B). During the first quarter of 1997, the
net loss reflected the increase in the valuation allowance for the deferred tax
asset as a result of the FoxMeyer bankruptcy filing (see Note M).
During 1996, the Corporation released previously established reserves related
to the settlement of certain contingent liabilities (see Note N) that had the
effect of increasing net income by $8.6 million and $2.8 million in the first
and second quarters, respectively. Additional released liabilities, net of the
write-down of the Corporation's investment in Ben Franklin, of $4.8 million
were included in net income in the fourth quarter.
Per share amounts were computed independently for each quarter based on the
average number of shares outstanding during that quarter. Therefore, the sum of
the quarterly per share amounts may not equal the total for the fiscal year
because of stock or other transactions that occurred during such years (see
Note I).
NOTE S - GOING CONCERN
On November 25, 1996, in connection with the Chapter 11 cases of FoxMeyer and
certain of its subsidiaries (which were subsequently converted to Chapter 7
cases on March 18, 1997), the Official Committee of Unsecured Creditors filed a
lawsuit against the Corporation in the Bankruptcy Court for the District of
Delaware (the "Court"). On March 5, 1997, the Court entered an Agreed
Preliminary Injunction Order (the "Order") which significantly impairs the
liquidity of the Corporation and its ability to conduct business by restricting
the use of the Corporation's assets (see Note N for a complete description of
the lawsuit, the Order and the bankruptcy proceedings). In addition, the
Corporation has various other pending claims and lawsuits as described in Note
N, recurring losses from operations and a stockholders' deficiency which raise
substantial doubt as to the Corporation's ability to continue as a going
concern.
The Corporation's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The financial
statements do not reflect any adjustments that might ultimately result from the
resolution of these uncertainties.
47
<PAGE> 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
The information called for by Part III (Items 10, 11, 12 and 13) is
incorporated herein by reference to the Corporation's definitive Proxy
Statement for its Annual Meeting of Stockholders which is expected to be filed
with the Securities and Exchange Commission no later than July 29, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the listing on page 50 of all financial
statements filed as part of this report.
(2) Financial Statement Schedules
Reference is made to the listing on page 50 of all financial
statement schedules filed as part of this report.
(3) Exhibits
Reference is made to the Exhibit Index beginning on page 60 for a
list of all exhibits filed as part of this report.
(b) Reports on Form 8-K
During the three months ended March 31, 1997, the Corporation filed
the following Current Report on Form 8-K:
Form 8-K dated February 3, 1997, announcing a change in the
Corporation's name to Avatex Corporation and the issuance of a
temporary restraining order against the Corporation.
48
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Corporation has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Avatex Corporation
By /s/ Edward L. Massman
---------------------------------
Edward L. Massman
Senior Vice President and Chief
Financial Officer
June 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Corporation and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICERS:
/s/ Abbey J. Butler
- ---------------------------- Co-Chairman of the Board and
Abbey J. Butler Co-Chief Executive Officer June 27, 1997
/s/ Melvyn J. Estrin
- ---------------------------- Co-Chairman of the Board and
Melvyn J. Estrin Co-Chief Executive Officer June 27, 1997
/s/ Edward L. Massman
- ---------------------------- Senior Vice President and Chief Financial Officer
Edward L. Massman (Principal Financial Officer) June 27, 1997
ADDITIONAL DIRECTORS:
/s/Hyman H. Frankel
- ----------------------------
Hyman H. Frankel Director June 27, 1997
/s/ Fred S. Katz
- ----------------------------
Fred S. Katz Director June 27, 1997
/s/ William A. Lemer
- ----------------------------
William A. Lemer Director June 27, 1997
/s/ Charles C. Pecarro
- ----------------------------
Charles C. Pecarro Director June 27, 1997
/s/ John L. Wineapple
- ----------------------------
John L. Wineapple Director June 27, 1997
</TABLE>
49
<PAGE> 51
ITEM 14(a) (1) AND (2) AND ITEM 14(d)
AVATEX CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following financial statements of Avatex Corporation and subsidiaries are
included in Item 14 (a) (1):
<TABLE>
<CAPTION>
Page No. in
Form 10-K
-------------
<S> <C>
Independent Auditors' Report 21
Consolidated Statements of Operations - For the Three Years Ended March 31, 1997 22
Consolidated Balance Sheets - March 31, 1997 and 1996 23
Consolidated Statements of Stockholders' Equity (Deficit) - For the Three Years Ended
March 31, 1997 24
Consolidated Statements of Cash Flows - For the Three Years Ended March 31, 1997 25
Notes to Consolidated Financial Statements - For the Three Years Ended March 31, 1997 26
</TABLE>
The following financial statement schedules of Avatex Corporation and
subsidiaries are included in Item 14(d):
<TABLE>
<CAPTION>
Page No. in
Form 10-K
-------------
<S> <C>
Schedule I - Condensed Financial Information of Registrant 51
Schedule II - Valuation and Qualifying Accounts 56
Schedule III - Real Estate and Accumulated Depreciation 58
Independent Auditors' Consent 59
</TABLE>
Financial statement schedules other than those listed above have been omitted
because the required information is contained in the consolidated financial
statements and notes thereto or such information is not applicable.
50
<PAGE> 52
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AVATEX CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended March 31,
(in thousands of dollars) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING COSTS
Administrative and general expenses $ 5,792 $ 8,585 $ 10,104
Depreciation and amortization 8 - -
- ---------------------------------------------------------------------------------------------------------------
OPERATING LOSS (5,800) (8,585) (10,104)
OTHER INCOME, NET 24,740 16,216 91
FINANCING COSTS
Interest income 788 947 741
Interest expense 3,173 3,695 2,083
- ---------------------------------------------------------------------------------------------------------------
Financing costs, net 2,385 2,748 1,342
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE NATIONAL
STEEL CORPORATION, INCOME TAX PROVISION (BENEFIT) AND
EQUITY IN INCOME (LOSS) OF SUBSIDIARIES AND AFFILIATES 16,555 4,883 (11,355)
National Steel Corporation net preferred dividend income 9,620 3,329 5,445
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAX PROVISION (BENEFIT) AND EQUITY IN INCOME (LOSS)
OF SUBSIDIARIES AND AFFILIATES 26,175 8,212 (5,910)
Income tax provision (benefit) 29,863 - (3,258)
- ---------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY
IN INCOME (LOSS) OF SUBSIDIARIES AND AFFILIATES (3,688) 8,212 (2,652)
Equity in income (loss) of subsidiaries and affiliates (8,556) (3,064) 42,099
- ---------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS (12,244) 5,148 39,447
DISCONTINUED OPERATIONS
Equity in income (loss) from discontinued operations (21,057) (61,728) 2,167
Equity in gain (loss) on disposal of discontinued operations 8,417 (7,081) -
Loss on disposal of discontinued operations (254,472) - -
- ---------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (279,356) $ (63,661) $ 41,614
===============================================================================================================
</TABLE>
See notes to condensed financial statements.
51
<PAGE> 53
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AVATEX CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
(in thousands of dollars) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 520 $ 4,392
Restricted cash and investments 32,823 -
Current deferred tax asset, net of valuation allowance - 592
Other current assets 15,221 1,652
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 48,564 6,636
INVESTMENT IN NATIONAL STEEL CORPORATION 44,961 44,099
INVESTMENTS IN SUBSIDIARIES AND AFFILIATES 62,674 393,681
PROPERTY AND EQUIPMENT 186 -
Less accumulated depreciation and amortization 8 -
- ------------------------------------------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT 178 -
OTHER ASSETS
Deferred tax asset, net of valuation allowance - 26,563
Other assets 1,611 686
- ------------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 1,611 27,249
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 157,988 $ 471,665
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 1,060 $ 1,305
Other accrued liabilities 4,891 6,459
Long-term debt due within one year 2,500 26,115
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,451 33,879
INTERCOMPANY PAYABLES 49,035 30,140
LONG-TERM DEBT 12,400 8,885
OTHER LONG-TERM LIABILITIES 12,207 9,006
REDEEMABLE PREFERRED STOCK 189,402 187,292
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock $5.00 par value; authorized 50,000,000 shares, issued:
13,805,988 shares in 1997 and 24,188,084 shares in 1996 69,030 120,940
Capital in excess of par value 119,092 209,613
Minimum pension liability (73,531) (64,634)
Net unrealized holding loss on securities - (17)
Retained earnings (deficit) (228,098) 70,431
- ------------------------------------------------------------------------------------------------------------------
(113,507) 336,333
Less: cost of common stock held in treasury - 7,520,882 shares in 1996 - 133,870
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (113,507) 202,463
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 157,988 $ 471,665
=====================================================================================================================
</TABLE>
See notes to condensed financial statements.
52
<PAGE> 54
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AVATEX CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the years ended March 31,
(in thousands of dollars) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(279,356) $ (63,661) $ 41,614
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES:
Net preferred income from National Steel Corporation (9,620) (3,329) (5,445)
Equity in loss (income) of subsidiaries and affiliates 21,196 71,873 (44,266)
Deferred income tax provision 29,863 - 397
Other non-cash charges (credits) 2,018 (15,383) 1,149
Gain on securities (26,435) - (80)
Loss on disposal of discontinued operations 254,472 - -
Cash provided (used) by working capital items:
Receivables and other current assets (32,139) (555) 43
Accounts payable and accrued liabilities (5,827) (84) (1,540)
Net intercompany activity with subsidiaries 51,547 17,937 1,944
Other 19 (520) 212
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 5,738 6,278 (5,972)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries and affiliates - (29,329) (998)
Sale of affiliates and marketable securities 37,442 - 1,029
Dividends received from subsidiaries and affiliates - 10,000 7,971
Purchase of property and equipment (186) - -
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 37,256 (19,329) 8,002
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) under revolving credit facilities (15,000) - 15,000
Proceeds from the issuance of long-term debt - 20,000 -
Repayment of long-term debt (5,100) - -
Note payable to FoxMeyer Corporation - 2,300 (625)
Debt issuance costs (178) (367) -
Purchase of treasury stock (16,726) - (28,953)
Purchase of preferred stock (8,845) (4,236) (4,400)
Dividends paid on redeemable preferred stock (2,697) (4,180) (4,620)
Exercise of stock options 1,680 3,449 4,850
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (46,866) 16,966 (18,748)
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (3,872) 3,915 (16,718)
Cash and short-term investments, beginning of year 4,392 477 17,195
- ------------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 520 $ 4,392 $ 477
==========================================================================================================================
</TABLE>
See notes to condensed financial statements.
53
<PAGE> 55
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AVATEX CORPORATION (PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
Prior year amounts have been reclassified to conform to current year
presentation and to reflect the treatment of discontinued operations.
On November 25, 1996, in connection with the Chapter 11 cases of FoxMeyer
Corporation ("FoxMeyer") and certain of its subsidiaries (which were
subsequently converted to Chapter 7 cases on March 18, 1997), the Official
Committee of Unsecured Creditors in FoxMeyer's Chapter 11 case filed a lawsuit
against the Corporation in the Bankruptcy Court for the District of Delaware
(the "Court"). On March 5, 1997, the Court entered an Agreed Preliminary
Injunction Order (the "Order") which significantly impairs the liquidity of the
Corporation and its ability to conduct business by restricting the use of the
Corporation's assets (see Note N to the consolidated financial statements for a
complete description of the lawsuit, the Order and the bankruptcy proceedings).
In addition the Corporation has various other pending claims and lawsuits as
described in Note N, recurring losses from operations and a stockholders'
deficiency which raise substantial doubt as to the Corporation's ability to
continue as a going concern.
The Corporation's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. The financial
statements do not reflect any adjustments that might ultimately result from the
resolution of these uncertainities.
Cash and Short-Term Investments: Cash and short-term investments consist
principally of amounts held in demand deposit accounts and amounts invested in
time deposit instruments having a maturity of three months or less at the time
of purchase and are recorded at cost. Cash and short-term investments of $32.8
million are restricted as to use by the Parent Company in connection with
ongoing litigation discussed above.
Deferred Tax Asset: The Parent Company's current and noncurrent deferred tax
assets consist almost entirely of tax net operating loss carryforwards and
liabilities which were not deductible for federal income tax purposes when
accrued. The valuation allowance was increased to equal the deferred tax asset
as a result of the loss of FoxMeyer's anticipated taxable income in future
years due to FoxMeyer's bankruptcy filing.
Intercompany Payables: The intercompany payables between the Parent Company and
its subsidiaries are generally not evidenced by notes and do not bear interest
except for a $30.0 million note payable to FoxMeyer which was forgiven in
fiscal 1997.
NOTE B - DIVIDENDS RECEIVED
The Parent Company received a dividend of $105.9 million from FoxMeyer on June
19, 1996 consisting of marketable securities, certain subsidiaries of FoxMeyer
and the forgiveness of the $30.0 million note receivable from the Parent
Company plus any accrued interest thereon. This dividend is the subject of
litigation (see Note N to the consolidated financial statements for a
discussion of the litigation). The Parent Company received cash dividends of
$10.0 million and $8.0 million from FoxMeyer in each of the fiscal years ended
March 31, 1996 and 1995, respectively.
NOTE C - TAX SHARING PAYMENTS
Under the tax sharing agreements with its subsidiaries, the Parent Company
received $1.7 million and $7.5 million for each of the years ended March 31,
1996 and 1995, respectively. No tax sharing payments were received for the year
ended March 31, 1997.
54
<PAGE> 56
NOTE D - SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental cash flow information is provided for interest and
income taxes paid and for non-cash transactions (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $ 2,050 $ 3,863 $ 3,285
Income taxes paid - - 826
Non-cash transactions:
Exchange of common stock for FoxMeyer common stock - - 80,010
Ben Franklin Retail Stores, Inc. common stock
distributed as a dividend - 29,697 -
Payment of dividends-in-kind on Series A Preferred Stock 4,354 15,319 13,200
Cumulative dividends accrued but not paid 10,806 - -
Dividend received from FoxMeyer 105,888 - -
================================================================================================
</TABLE>
55
<PAGE> 57
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AVATEX CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COL A COL B COL C COL D COL E
- ----------------------------------------------------------------------------------------------------------------------------------
Additions
------------------------------
Charged to
Balance at Charged to Other Balance
Beginning Costs and Accounts- Deductions- at End
Description of Period Expenses Describe Describe of Period
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended March 31, 1997
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
RESERVES DEDUCTED FROM ASSETS
Allowance for possible losses on notes
and accounts receivable $ 23,540 $ 3,906 (1) $ - $ 26,907 (1) $ 539
Reserve for inventory shrinkage 5,036 - - 5,036 (1) -
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility
sales, shutdowns and discontinued
operations 7,205 1,091 - 2,262 (2) 6,034
Year Ended March 31, 1996
(in thousands of dollars)
RESERVES DEDUCTED FROM ASSETS
Allowance for possible losses on notes
and accounts receivable $ 6,510 $ 21,885 (1) $ - $ 4,855 (1) $ 23,540
Allowance for possible losses on
pre-bankruptcy receivable from
Phar-Mor, Inc. 62,795 (1,385)(1) - 61,410 (1) -
Reserve for inventory shrinkage 1,934 4,444 (1) - 1,342 (1) 5,036
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility
sales, shutdowns and discontinued
operations 21,726 (11,867)(3) - 2,654 (2) 7,205
Year Ended March 31, 1995
(in thousands of dollars)
RESERVES DEDUCTED FROM ASSETS
Allowance for possible losses on notes
and accounts receivable $ 15,133 $ (2,284)(1) $ 299 (1) $ 6,638 (1) $ 6,510
Allowance for possible losses on
pre-bankruptcy receivable from
Phar-Mor, Inc. 40,000 22,795 (1) - - 62,795
Reserve for inventory shrinkage 4,136 593 (1) - 2,795 (1) 1,934
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility
sales, shutdowns and discontinued
operations 22,638 1,639 - 2,551 (2) 21,726
</TABLE>
56
<PAGE> 58
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AVATEX CORPORATION AND SUBSIDIARIES
FOR THE THREE YEARS ENDED MARCH 31, 1997
Note 1 - Principally relates to discontinued operations.
Note 2 - Relates to the reclassification of long-term reserves to current
principally for cash disbursements made or anticipated over the next
twelve month period.
Note 3 - Principally the result of the settlement of certain unresolved
issues relating to the sale of The Permian Corporation in 1992. As
a result of the settlement, all outstanding claims were settled and
the Corporation was released from any further liability associated
with the sale. Previously established reserves related to these
claims were released.
57
<PAGE> 59
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
AVATEX CORPORATION AND SUBSIDIARIES
March 31, 1997
(in thousands of dollars)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
COL A COL B COL C COL D COL E
- ----------------------------------------------------------------------------------------------------------------------------------
Cost capitalized Gross amount
Initial cost subsequent at which carried
to company to acquisition at close of period
----------------------------------------------------------------------------------------
Encum- Buildings and Carrying Buildings and
Description brances Land Improvements Improvements Costs Land Improvements Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office building and
hotel Annapolis MD. $ 5,265 $ 1,079 $ 3,402 $ 924 $ - $ 1,079 $ 4,326 $ 5,405
Hotel Washington D.C. 7,243 4,000 2,310 156 - 4,000 2,466 6,466
Office building
Washington D.C. 2,320 725 2,175 - - 725 2,175 2,900
-------------------------------------------------------------------------------------------------------
Total $ 14,828 $ 5,804 $ 7,887 $ 1,080 $ - $ 5,804 $ 8,967 $ 14,771
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
COL A COL F COL G COL H COL I
- ----------------------------------------------------------------------------------------------
Life on
which
Date depreciation
Accumulated of Date is
Description depreciation construction acquired computed
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office building and Hotel - 1971
hotel Annapolis MD. $ 403 Office - 1989 November 1993 5-39 years
Hotel Washington D.C. 324 1961 October 1994 5-20 years
Office building
Washington D.C. - 1955 May 1996 Under renovation
----------
Total $ 727
==========
</TABLE>
NOTES: The cost of land and buildings and improvements for federal income tax
purposes is approximately $13.7 million.
Reconciliation of real estate and accumulated depreciation for each of
the last three fiscal years ended March 31, 1997 is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
Fiscal 1997 Fiscal 1996 Fiscal 1995
----------------------------------------------------------------------------------------
Accumulated Accumulated Accumulated
Real estate Depreciation Real estate Depreciation Real estate Depreciation
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period $ 17,780 $ 1,023 $ 15,260 $ 336 $ 12,920 $ 80
Acquisitions during period:
Acquisitions other than through
foreclosure 2,900 - - - 3,706 -
Improvements 156 - 724 - 1,854 -
Reclassification of asset held
for sale to operating - - 1,796 103 - -
Contribution of joint venture assets 4,000 - - - - -
Depreciation - 397 - 584 - 317
----------------------------------------------------------------------------------------
24,836 1,420 17,780 1,023 18,480 397
Deductions during period:
Cost of real estate sold 10,065 693 - - 3,220 61
----------------------------------------------------------------------------------------
Balance at end of period $ 14,771 $ 727 $ 17,780 $ 1,023 $ 15,260 $ 336
----------------------------------------------------------------------------------------
</TABLE>
58
<PAGE> 60
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-56083, 2-91622, 2-95028, 33-16919, 33-27060, 33-27719 and 33-56097 on Form
S-8, No. 33-2289 and 33-37531 on Form S-3 and No. 2-45941 on Form S-16 of
Avatex Corporation (formerly FoxMeyer Health Corporation) of our report dated
June 27, 1997, which report expresses an unqualified opinion and includes an
explanatory paragraph regarding the Corporation's ability to continue as a
going concern, appearing in this Annual Report on Form 10-K of Avatex
Corporation for the year ended March 31, 1997.
Deloitte & Touche LLP
Dallas, Texas
June 27, 1997
59
<PAGE> 61
AVATEX CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3-A Restated Certificate of Incorporation of the Corporation and all
subsequent amendments thereto. (Filed as Exhibit 3-A to the Corporation's
Annual Report on Form 10-K for the fiscal year ended March 31, 1993 and
incorporated herein by reference.)
3-B Certificate of Amendment of Restated Certificate of Incorporation of the
Corporation dated October 12, 1994. (Filed as Exhibit 3-A to the
Corporation's Annual Report on Form 10-K for the fiscal year ended March
31,1995 and incorporated herein by reference.)
3-C Certificate of Resolution relating to the Corporation's $5 Cumulative
Convertible Preferred Stock. (Filed as Exhibit 4-B to the Corporation's
Registration Statement on Form 8-B (File No. 1-8549) and incorporated
herein by reference.)
3-D Certificate of Designations, Rights and Preferences relating to the
Corporation's $4.20 Cumulative Exchangeable Series A Preferred Stock.
(Filed as Exhibit 9(c)(1) to the Corporation's Schedule 13E-4 Issuer
Tender Offer Statement dated October 6, 1993 and incorporated herein by
reference.)
3-E Certificate of Ownership and Merger Merging CareStream Holdings, Inc.
into FoxMeyer Health Corporation. *
3-F By-laws of the Corporation. (Filed as Exhibit 3-D to the Corporation's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and
incorporated herein by reference.)
10-A National Intergroup, Inc. 1993 Stock Option and Performance Award Plan.
(Filed as Exhibit 10-A to the Corporation's Annual Report on Form 10-K for
the fiscal year ended March 31, 1994 and incorporated herein by
reference).
10-B National Intergroup, Inc. Director's Retirement Plan dated December 1,
1983. (Filed as Exhibit 10-A to the Corporation's Annual Report on Form
10-K for the fiscal year ended March 31, 1992 and incorporated herein by
reference.)
10-C Stock Purchase and Recapitalization Agreement, dated as of June 26, 1990,
among the Corporation, NII Capital Corporation, NKK Corporation, NKK
U.S.A. Corporation and National Steel Corporation. (Filed as Exhibit 10-AQ
to the Corporation's Annual Report on Form 10-K for the fiscal year ended
March 31, 1990 and incorporated herein by reference.)
10-D Amendment to Stock Purchase and Recapitalization Agreement, dated as of
July 31, 1991, among the Corporation, NII Capital Corporation, NKK
Corporation, NKK U.S.A. Corporation and National Steel Corporation. (Filed
as Exhibit 2-F to National Steel Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991 and incorporated herein by
reference.)
10-E Put Agreement, dated as of June 26, 1990, among NII Capital Corporation,
NKK U.S.A. Corporation and National Steel Corporation. (Filed as Exhibit
10-AQ to the Corporation's Annual Report on Form 10-K for the fiscal year
ended March 31, 1990 and incorporated herein by reference.)
</TABLE>
60
<PAGE> 62
<TABLE>
<S> <C>
10-F Amended and Restated Weirton Liabilities Agreement, dated as of June 26,
1990, among the Corporation, NII Capital Corporation and National Steel
Corporation. (Filed as Exhibit 10-AQ to the Corporation's Annual Report on
Form 10-K for the fiscal year ended March 31, 1990 and incorporated herein
by reference.)
10-G Amendment to Amended and Restated Weirton Liabilities Agreement, dated as
of July 31, 1991, between the Corporation, NII Capital Corporation and
National Steel Corporation. (Filed as Exhibit 10-H to National Steel
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 and incorporated herein by reference.)
10-H Agreement, dated as of February 3, 1993, among the Corporation, NII
Capital Corporation, NKK Corporation, NKK U.S.A. Corporation and National
Steel Corporation. (Filed as Exhibit 10.30 to National Steel
Corporation's Registration Statement on Form S-1 (File No. 33-57952) and
incorporated herein by reference.)
10-I Amendment dated October 12, 1994 to the 1993 Stock Option and Performance
Award Plan of the Corporation. (Filed as Exhibit 10-D to the Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994 and
incorporated herein by reference.)
10-J Employment Agreement, dated as of February 27, 1995, between the
Corporation and Abbey J. Butler. (Filed as Exhibit 10-AF to the
Corporation's Annual Report on Form 10-K for the fiscal year ended March
31, 1995 and incorporated herein by reference.)
10-K Employment Agreement, dated as of February 27, 1995, between the
Corporation and Melvyn J. Estrin. (Filed as Exhibit 10-AG to the
Corporation's Annual Report on Form 10-K for the fiscal year ended March
31, 1995 and incorporated herein by reference.)
10-L Credit Agreement dated as of September 6, 1995 between the Corporation and
Credit Lyonnais New York Branch. (Filed as Exhibit 10-E to the
Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995 and incorporated herein by reference.)
10-M First Amendment to Credit Agreement, dated as of December 31, 1995,
between the Corporation and Credit Lyonnais New York Branch. (Filed as
Exhibit 10-AI to the Corporation's Annual Report on Form 10-K for the
fiscal year ended March 31, 1996 and incorporated herein by reference.)
10-N Second Amendment to Credit Agreement, dated as of May 7, 1996, between the
Corporation and Credit Lyonnais New York Branch. (Filed as Exhibit 10-AJ
to the Corporation's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996 and incorporated herein by reference.)
10-O Third Amendment to Credit Agreement, dated as of September 13, 1996,
between the Corporation and Credit Lyonnais New York Branch. (Filed as
Exhibit 10-A to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996 and incorporated herein by reference.)
10-P Fourth Amendment to Credit Agreement, dated as of December 12, 1996,
between the Corporation and Credit Lyonnais New York Branch. (Filed as
Exhibit 10-B to the Corporation's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996 and incorporated herein by reference.)
10-Q Asset Purchase Agreement, dated as of October 3, 1996, between the
Corporation, McKesson Corporation, FoxMeyer Corporation and certain
subsidiaries of FoxMeyer Corporation. (Filed as Exhibit 2.1 to McKesson
Corporation's Current Report on Form 8-K dated November 8, 1996 and
incorporated herein by reference.)
10-R First Amendment to Asset Purchase Agreement, dated as of November 7, 1996,
between the Corporation, McKesson Corporation, FoxMeyer Corporation and
certain subsidiaries of FoxMeyer Corporation. (Filed as Exhibit 2.2 to
McKesson Corporation's Current Report on Form 8-K dated November 8, 1996
and incorporated herein by reference.)
</TABLE>
61
<PAGE> 63
<TABLE>
<S> <C>
10-S Employment Agreement dated as of November 7, 1996 between the Corporation and Edward L. Massman.*
10-T Employment Agreement dated as of November 12, 1996 between the Corporation and Grady L. Schleier.*
10-U Employment Agreement dated as of November 12, 1996 between the Corporation and Robert H. Stone.*
10-V Employment Agreement dated as of November 20, 1996 between the Corporation and Scott E Peterson.*
10-W Performance Incentive Plan of the Corporation, effective January 1, 1997.*
10-X Avatex Corporation Employees' Savings and Profit Sharing Plan, effective as of April 1, 1997.*
11 Statement Re: Computation of earnings per common share.*
21 Subsidiaries of the Corporation.*
23 Consent of Independent Auditors is included in the List of Financial Statements and Financial Statement Schedules.
27 Financial Data Schedule.*
</TABLE>
- -------------------
* Filed herewith
62
<PAGE> 1
EXHIBIT 3-E
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING CARESTREAM HOLDINGS, INC.
INTO FOXMEYER HEALTH CORPORATION
(PURSUANT TO SECTION 253 OF THE GENERAL
CORPORATION LAW OF DELAWARE)
FoxMeyer Health Corporation, a Delaware corporation (the "Corporation") does
hereby certify that:
FIRST: That the Corporation is incorporated pursuant to the General Corporation
Law of the State of Delaware.
SECOND: That the Corporation owns all of the outstanding shares of each class
of stock of CareStream Holdings, Inc., a Delaware corporation ("Holdings").
THIRD: That the Corporation, by the following resolutions of its Board of
Directors, duly adopted as of January 13, 1996, determined to merge into itself
Holdings on the terms and conditions set forth in such resolutions:
WHEREAS, under the terms of the Asset Purchase Agreement dated as
of October 4, 1996 between the Corporation, McKesson Corporation
("McKesson") and certain other parties, the Corporation agreed, upon the
request of McKesson, to take reasonable steps to avoid confusing its
continuing business with the business being acquired by McKesson,
including but not limited to changing the Corporation's corporate name;
NOW, THEREFORE, BE IT RESOLVED, that effective upon the filing of
a Certificate of Ownership and Merger, the Corporation shall merge into
itself its subsidiary, CareStream Holdings, Inc., and assume all of that
subsidiary's obligations; and
RESOLVED, that pursuant to the merger, the name of the
Corporation shall be changed to Avatex Corporation by deleting the First
Article of the Certificate of Incorporation of the Corporation and
inserting in lieu thereof a new First Article to read as follows:
-1-
<PAGE> 2
"First: The name of the Corporation is:
Avatex Corporation";
RESOLVED, that the Senior Vice President and Chief Financial
Officer and the Secretary of the Company shall be, and they hereby are,
directed to make, execute and acknowledge a Certificate of Ownership and
Merger setting forth a copy of these resolutions to merge CareStream
Holdings, Inc. into this Corporation, and to assume that subsidiary's
obligations and the date of adoption thereof and to file the same in the
office of the Secretary of State of Delaware.
IN WITNESS WHEREOF, FoxMeyer Health Corporation has caused its corporate
seal to be affixed and this certificate to be signed by Edward L. Massman, its
Senior Vice President and Chief Financial Officer, and Robert H. Stone, its
Secretary, this ___ day of ____________, 1997.
FOXMEYER HEALTH CORPORATION
By:
----------------------------
Edward L. Massman
Senior Vice President and
Chief Financial Officer
ATTEST:
By:
----------------------------
Robert H. Stone
Secretary
-2-
<PAGE> 1
EXHIBIT 10-S
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
November __, 1996, is entered into by and between FoxMeyer Health Corporation,
a Delaware corporation (the "COMPANY"), and Edward L. Massman ("EMPLOYEE").
In consideration of the mutual covenants contained herein, the parties
hereto agree as follows:
1. Employment. The Company hereby agrees to employ Employee, and
Employee hereby agrees to be employed by the Company, beginning on the date of
this Agreement through and including October 31, 1998 (the "TERM OF
EMPLOYMENT"). Notwithstanding the foregoing, the term of this Agreement shall
be automatically renewed for successive one year terms unless the Company
provides Employee with six (6) months prior written notice of its intent not to
renew this Agreement.
2. Position and Responsibilities. The Company hereby employs Employee
to serve as Senior Vice President. Employee shall have such duties,
responsibilities and authority as may, from time to time, be assigned to
Employee by the Chief Executive Officers of the Company.
3. Compensation. As compensation for all services performed or to be
performed by Employee under this Agreement, the Company shall compensate
Employee as follows:
a. Base Salary. The Company shall pay Employee a minimum
monthly base salary of $18,750 (as may be adjusted from time to time,
the "MONTHLY BASE SALARY"). During the term of this Agreement,
Employee's Monthly Base Salary shall be reviewed periodically to
determine whether such salary shall be adjusted in accordance with the
duties and responsibilities of Employee and his performance thereof,
but no adjustment shall reduce Employee's base salary below the
minimum Monthly Base Salary set forth above.
b. Annual Bonus. The Company shall pay Employee a minimum
annual bonus in the amount of $100,000 (the "Bonus"), which shall be
payable no later than November 30 of each year, commencing on November
30, 1997. The Bonus shall be in addition to Employee's Monthly Base
Salary, the Initial Bonus (as defined in Section 3(d) below) and any
amounts that may be paid to Employee under any Performance Incentive
Plan or other similar plan implemented by the Company.
c. Car Allowance. The Company shall pay Employee a minimum
monthly car allowance in the amount of $1,500.
d. Initial Bonus. Upon the execution date of this Agreement,
Employee shall receive the following additional compensation in
respect of Employee's decision to be employed by the Company and
thereby forego any additional compensation and severance benefits to
which he is or may be entitled from FoxMeyer Corporation, FoxMeyer
Drug
<PAGE> 2
Company and any purchasers thereof (which may exceed $400,000), and
for coordinating the separation and relocation of the Company
(collectively, the "INITIAL BONUS"):
(i) The Company shall pay Employee a cash signing bonus in
the amount of $300,000; and
(ii) The Company shall assign to Employee a fifty percent
(50%) interest in all amounts received by the Company
from the proceeds of any sale of any assets of or
interests in Alumet Partnership ("Alumet"), including
but not limited to the Company's partnership interest
in Alumet and/or any land, minerals or leases owned or
leased by Alumet and/or any royalty payments
therefrom. The assignment shall be executed and
delivered on the date hereof in the form of the
Assignment attached hereto as Exhibit A.
The Initial Bonus shall be deemed fully earned and payable upon the
execution of this Agreement.
e. Benefits, Incentives and Perquisites. Employee shall be
entitled to participate in the incentive, stock option and employee
benefit plans of the Company, including but not limited to a
Performance Incentive Plan to be implemented by the Company, and the
perquisites enjoyed by other employees with similar or same titles of
the Company as presently in effect or as they may be modified from
time to time, provided that the Company may not reduce the benefits
provided to Employee pursuant to Employee's life insurance, accidental
death and dismemberment, long-term disability and business travel
accident insurance during the term of this Agreement.
4. Termination. This Agreement may be terminated upon the following
terms:
a. Termination Upon Death. If Employee dies during the Term
of Employment, this Agreement shall terminate immediately.
b. Termination Upon Disability. The Company shall have the
right to terminate this Agreement upon the "Disability" of Employee by
providing ten (10) days written notice to Employee. "DISABILITY" as
used in this section shall mean any illness or any impairment of mind
or body that (i) renders it impossible or impracticable for Employee
to perform his duties and responsibilities hereunder for a continuous
period of at least six (6) months or (ii) is likely to prevent
Employee from performing his duties and responsibilities hereunder for
more than nine (9) months during any eighteen (18) month period, each
as determined in good faith by a physician selected by the Board of
Directors. The Company's selection of a physician shall be subject to
Employee's approval, which shall not be unreasonably withheld. Any
refusal without reasonable cause by Employee to submit to a medical
examination for the purpose of certifying Disability under this
section shall be deemed to constitute conclusive evidence of
2
<PAGE> 3
Employee's Disability. In the event of termination upon Disability,
Employee shall continue to receive the Monthly Base Salary in effect
at the time of termination (reduced by any amounts payable to
Employee as disability benefits under any Company plan, social
security or otherwise) for the remainder of the Term of Employment.
c. Termination for Cause. The Company shall have the right to
terminate this Agreement, and have no further obligation to Employee
under this Agreement, for "Cause" after giving written notice of
termination to Employee. "CAUSE" as used in this section shall mean:
(i) misconduct or negligence in the performance by Employee
of his duties and responsibilities hereunder;
(ii) the failure by Employee to follow any reasonable
directive of the Company's Chief Executive Officers in
carrying out his duties or responsibilities hereunder;
(iii) the failure by Employee to substantially achieve agreed
upon goals and objectives;
(iv) the theft or misappropriation of funds or the disclosure
of trade secrets or other confidential or proprietary
information in violation of Section 6 of this Agreement; or
(v) the conviction of Employee for (A) a crime involving an
act or acts of dishonesty or moral turpitude or (B) a felony.
d. Termination without Cause. The Company shall have the
right to terminate Employee's employment at any time without Cause
("TERMINATION WITHOUT CAUSE"). In the event of a Termination Without
Cause of Employee's employment, and provided that Employee complies
with Section 5 hereof, the Company agrees to provide Employee with:
(i) At Employee's option, (x) a single lump sum severance
payment equal to the amount of the total compensation that
would otherwise be paid by the Company to Employee during the
twelve (12) month period commencing on the effective date of
Termination Without Cause or (y) monthly severance payments
in the amount of Employee's total annual compensation during
the twelve (12) month period commencing on the effective date
of Termination Without Cause, divided by twelve (12), for a
period of twenty-four (24) months; and
(ii) For a period of six months commencing on the effective
date of Termination Without Cause, medical and dental
benefits coverage, less any
3
<PAGE> 4
amount that Employee is required to pay to receive such
medical and dental coverage had termination of his employment
not occurred.
Without in any way limiting the generality of what may be
deemed to constitute a Termination Without Cause hereunder, it is
hereby agreed that the following shall be deemed to constitute a
Termination Without Cause hereunder:
(I) Both Abbey J. Butler and Melvyn J. Estrin no longer being
Chief Executive Officer or Chairman of the Board of the
Company; or
(II) Following the acquisition by any person or entity or
affiliated group of persons or entities (other than Abbey J.
Butler, Melvyn J. Estrin or entities affiliated with either
of them) of more than fifty percent (50%) of the then
outstanding shares of common stock of the Company, (A) any
termination of Employee's employment for any reason (other
than death, Disability or the acts referred to in Sections
4(c)(iv) and (v)) or (B) any material reduction of Employee's
duties, responsibilities and authority;
provided, however, that either of the foregoing events shall
constitute a Termination Without Cause only if Employee remains
employed by the Company for a period of three (3) months after the
occurrence of such event.
e. Termination by Employee. Employee shall be entitled to
terminate his employment with the Company at any time. If Employee's
terminates his employment for Good Reason (as such term is defined
below), such termination shall be deemed a Termination Without Cause
under Section 4(d) of this Agreement. If Employee terminates without
Good Reason, Employee shall no longer be entitled to any form of
compensation, including but not limited to any Monthly Base Salary,
benefits, incentives, perquisites or vacation.
Without in any way limiting the generality of what may be
deemed to constitute a Good Reason hereunder, it is hereby agreed that
a termination by Employee shall be deemed for Good Reason if it is as
a result of or follows:
(i) A breach by the Company of this Agreement (including but
not limited to as a result of or following rejection of this
Agreement under any debtor relief or similar law);
(ii) A reduction in Employee's Monthly Base Salary as in
effect on the date hereof or as may be increased from time to
time;
(iii) The taking of any action by the Company that could be
deemed to constitute a Termination Without Cause; or
4
<PAGE> 5
(iv) The mandatory transfer of the permanent residence of
Employee to another geographic location more than 40 miles
from Dallas, Texas, except for required travel on Company
business to an extent substantially consistent with
Employee's prior business travel obligations.
5. Nondisclosure.
a. Employee acknowledges that during the course of the
performance of his services for the Company he will acquire
confidential and proprietary information with respect to the Company's
business operations (the "CONFIDENTIAL INFORMATION"). Employee agrees
that during the term of this Agreement and thereafter, Employee shall
not divulge any Confidential Information to any person, directly or
indirectly, except to the Company, its directors, officers, agents and
representatives and its subsidiaries and affiliated companies, or as
may reasonably be necessary in connection with his duties on behalf of
the Company or unless required by law.
b. Employee acknowledges that all documents, written
information, records, data, computer information and material, tapes,
film, maps and other material of any kind relating to Confidential
Information, including, without limitation, memoranda, notes,
sketches, records, reports, manuals, business plans and notebooks
(collectively, "MATERIALS") in Employee's possession or under his
control during the term of his employment hereunder are and shall
remain the property of the Company and agrees that if his relationship
with Company is terminated (for whatever reason), he shall not take
with him but shall leave with the Company all Materials and any copies
thereof or, if such Materials are not on the premises of the Company,
he shall return the same to the Company immediately upon his
termination.
c. This Section 5 shall survive any termination of this
Agreement and shall continue to bind Employee in accordance with its
terms. The existence of any claim or cause of action by Employee
against the Company whether predicated on this Agreement or otherwise,
shall not constitute a defense to the Company's enforcement of the
covenants contained in this Agreement.
6. Remedies. In the event that Employee breaches any of the provisions
of Section 5 above, in addition to any legal rights and remedies that the
Company may have to enforce the provisions of this Agreement, the Company shall
have no further obligations to Employee under this Agreement. In the event of
such a breach, Employee agrees that any and all proceeds, funds, payments and
proprietary interests of every kind and description arising from, or
attributable to, such breach shall be the sole and exclusive property of the
Company and the Company shall be entitled to recover any additional actual
damages incurred as a result of such breach.
5
<PAGE> 6
7. Injunctive Relief. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a breach of the provisions of
Section 5 above, the Company shall, in
addition to any other remedies available under law, be entitled to an
injunction enjoining Employee or any person or persons acting for or with
Employee in any capacity whatsoever from violating any of the terms thereof.
8. Severability. If any provision of this Agreement shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision was never contained herein and the remaining
provisions of this Agreement shall remain in full force and effect.
9. Waiver and Limitation. Any waiver by either party of a provision or
a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any other provision or subsequent breach of any provision
hereof.
10. Taxes. Employee shall be responsible for the payment of all
individual taxes on all amounts paid or benefits provided to him under this
Agreement. All compensation paid to Employee shall be subject to any
withholdings as from time to time may be required to be made pursuant to law,
government regulations or order, or by agreement with, or consent of, Employee.
11. No Funding. The right of Employee under this Agreement shall be
that of a general creditor of the Company and Employee shall have no preferred
claims on, or any beneficial ownership in, the assets of the Company.
12. Entire Agreement. Except as expressly provided herein, this
Agreement, the assignment attached hereto as Exhibit A, and the agreements,
documents and compensation, incentive and option plans referred to herein,
contain the entire agreement between the parties hereto relating to the subject
matter hereof and supersede any and all other prior or contemporaneous
employment, compensation, incentive or retirement agreements, either oral or in
writing, between the parties.
13. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
legatees, legal representatives, successors and assigns. Employee may not
assign any of his rights or responsibilities under this Agreement.
14. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by overnight
delivery service, cable, telegram, facsimile transmission or telex to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
6
<PAGE> 7
a. if to the Company:
FoxMeyer Health Corporation
Attention: Abbey J. Butler
207 Dune Road, Box 137
Westhampton Beach, New York 11978
b. if to Employee:
Edward L. Massman
7523 Marquette Street
Dallas, TX 75225
15. Headings. Section and subsection headings used in this Agreement
have been inserted solely for convenience of reference and do not constitute a
part of this Agreement and are not intended to affect the interpretation of any
provision of this Agreement.
16. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
17. Governing Law. This Agreement and all performance hereunder shall
be governed by and construed in accordance with the laws of the State of Texas
without regard to the principles of conflict of laws thereof.
18. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
on the date and year first above written.
FOXMEYER HEALTH CORPORATION
By:
--------------------------
Abbey J. Butler
Chief Executive Officer
-----------------------------
Edward L. Massman
7
<PAGE> 8
EXHIBIT A
FORM OF ASSIGNMENT
<PAGE> 1
EXHIBIT 10-T
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
November __, 1996, is entered into by and between FoxMeyer Health Corporation,
a Delaware corporation (the "COMPANY"), and Grady E. Schleier ("EMPLOYEE").
In consideration of the mutual covenants contained herein, the parties
hereto agree as follows:
1. Employment. The Company hereby agrees to employ Employee, and
Employee hereby agrees to be employed by the Company, beginning on the date of
this Agreement through and including October 31, 1998 (the "TERM OF
EMPLOYMENT").
2. Position and Responsibilities. The Company hereby employs
Employee to serve as Vice President and Treasurer. Employee shall have such
duties, responsibilities and authority as may, from time to time, be assigned
to Employee by more senior officers of the Company.
3. Compensation. As compensation for all services performed and
to be performed by Employee under this Agreement, the Company shall compensate
Employee as follows:
a. Base Salary. The Company shall pay Employee a
minimum monthly base salary of $12,500 (as may be adjusted from time
to time, the "MONTHLY BASE SALARY"). During the term of this
Agreement, Employee's Monthly Base Salary shall be reviewed
periodically to determine whether such salary shall be adjusted in
accordance with the duties and responsibilities of Employee and his
performance thereof, but no adjustment shall reduce Employee's base
salary below the minimum Monthly Base Salary set forth above.
b. Car Allowance. The Company shall pay Employee a
minimum monthly car allowance in the amount of $750.00.
c. Bonus. Upon the execution date of this Agreement, as
additional compensation, Employee shall receive a cash signing bonus,
and a bonus in respect of Employee's decision to be employed by the
Company and thereby forego any additional compensation and severance
benefits to which he is or may be entitled from FoxMeyer Corporation,
FoxMeyer Drug Company and any purchasers thereof, in the amount of
$75,000 (the "BONUS"). Notwithstanding anything herein that may be to
the contrary, the Bonus shall be deemed fully earned and payable upon
the execution of this Agreement.
d. Benefits, Incentives and Perquisites. Employee shall
be entitled to participate in the incentive, stock option and employee
benefit plans of the Company, including but not limited to a
Performance Incentive Plan to be implemented by the Company, and the
perquisites enjoyed by other employees with similar or same titles of
the Company as presently in effect or as they may be modified from
time to time, provided that the Company may not reduce the benefits
provided to Employee pursuant to
<PAGE> 2
Employee's life insurance, accidental death and dismemberment,
long-term disability and business travel accident insurance during the
term of this Agreement.
4. Termination. This Agreement may be terminated upon the
following terms:
a. Termination Upon Death. If Employee dies during the
Term of Employment, this Agreement shall terminate immediately.
b. Termination Upon Disability. The Company shall have
the right to terminate this Agreement upon the "Disability" of
Employee by providing ten (10) days written notice to Employee.
"DISABILITY" as used in this section shall mean any illness or any
impairment of mind or body that (i) renders it impossible or
impracticable for Employee to perform his duties and responsibilities
hereunder for a continuous period of at least six (6) months or (ii)
is likely to prevent Employee from performing his duties and
responsibilities hereunder for more than nine (9) months during any
eighteen (18) month period, each as determined in good faith by a
physician selected by the Board of Directors. The Company's selection
of a physician shall be subject to Employee's approval, which shall
not be unreasonably withheld. Any refusal without reasonable cause by
Employee to submit to a medical examination for the purpose of
certifying Disability under this section shall be deemed to constitute
conclusive evidence of Employee's Disability. In the event of
termination upon Disability, Employee shall continue to receive the
Monthly Base Salary in effect at the time of termination (reduced by
any amounts payable to Employee as disability benefits under any
Company plan, social security or otherwise) for the remainder of the
Term of Employment.
c. Termination for Cause. The Company shall have the
right to terminate this Agreement, and have no further obligation to
Employee under this Agreement, for "Cause" after giving written notice
of termination to Employee. "CAUSE" as used in this section shall
mean:
(i) misconduct or negligence in the performance by
Employee of his duties and responsibilities hereunder;
(ii) the failure by Employee to follow any reasonable
directive of Employee's Supervisor or the Company's Chief
Executive Officers in carrying out his duties or
responsibilities hereunder;
(iii) the failure by Employee to substantially achieve
agreed upon goals and objectives;
(iv) the theft or misappropriation of funds or the
disclosure of trade secrets or other confidential or
proprietary information in violation of Section 6 of this
Agreement; or
2
<PAGE> 3
(v) the conviction of Employee for (A) a crime involving
an act or acts of dishonesty or moral turpitude or (B) a
felony.
d. Termination without Cause. The Company shall have
the right to terminate Employee's employment at any time without Cause
("TERMINATION WITHOUT CAUSE"). In the event of a Termination Without
Cause of Employee's employment, and provided that Employee complies
with Section 5 hereof, the Company agrees to provide Employee with:
(i) At Employee's option, (x) a single lump sum severance
payment equal to the amount of the total compensation that
would otherwise be paid by the Company to Employee during the
six (6) month period commencing on the effective date of
Termination Without Cause or (y) monthly severance payments in
the amount of Employee's total annual compensation during the
twelve (12) month period commencing on the effective date of
Termination Without Cause, divided by twelve (12), for a
period of twelve (12) months; and
(ii) For a period of six months commencing on the
effective date of Termination Without Cause, medical and
dental benefits coverage, less any amount that Employee is
required to pay to receive such medical and dental coverage
had termination of his employment not occurred.
Without in any way limiting the generality of what may be
deemed to constitute a Termination Without Cause hereunder, it is
hereby agreed that any material reduction of Employee's duties,
responsibilities and authority shall be deemed to constitute a
Termination Without Cause hereunder.
e. Termination by Employee. Employee shall be entitled
to terminate his employment with the Company at any time. If
Employee's terminates his employment for Good Reason (as such term is
defined below), such termination shall be deemed a Termination Without
Cause under Section 4(d) of this Agreement. If Employee terminates
without Good Reason, Employee shall no longer be entitled to any form
of compensation, including but not limited to any Monthly Base Salary,
benefits, incentives, perquisites or vacation. In addition, (I) if
the date of the notice or the effective date of any such termination
is on or before December 31, 1996, then Employee shall immediately pay
$75,000 to the Company, and (II) if the date of the notice or the
effective date of any such termination is after December 31, 1996 but
before October 31, 1997, then Employee shall immediately pay $50,000
to the Company (the amount to be paid, whether $75,000 or $50,000, the
"Payment"). The Company shall have the right to setoff the Payment
against any amounts the Company may otherwise owe to Employee;
provided, however, that to the extent the Payment is greater than any
amount setoff, Employee shall remain obligated to pay the balance of
the Payment to the Company. If
3
<PAGE> 4
Employee becomes obligated hereunder to make the Payment to the
Company and fails or refuses to do so, (x) such obligation shall bear
interest at the highest lawful rate (if no highest lawful rate is
established by law, at the rate of eighteen percent (18%) per annum),
and (y) Employee agrees to pay all reasonable attorneys' fees and
other costs incurred by the Company in connection with the collection
of such obligation. Any Payment to the Company, whether by the
payment of cash, the exercise of the setoff right or otherwise, shall
not extinguish any of the Company's other rights or Employee's
obligations hereunder, including but not limited to those set forth in
Sections 5 and 6 of this Agreement.
Without in any way limiting the generality of what may be
deemed to constitute a Good Reason hereunder, it is hereby agreed that
a termination by Employee shall be deemed for Good Reason if it is as
a result of or follows:
(i) A breach by the Company of this Agreement (including
but not limited to as a result of or following rejection of
this Agreement under any debtor relief or similar law);
(ii) A reduction in Employee's Monthly Base Salary as in
effect on the date hereof or as may be increased from time to
time;
(iii) The taking of any action by the Company that could be
deemed to constitute a Termination Without Cause; or
(iv) The mandatory transfer of the permanent residence of
Employee to another geographic location more than 40 miles
from Dallas, Texas, except for required travel on Company
business to an extent substantially consistent with Employee's
prior business travel obligations.
5. Nondisclosure.
a. Employee acknowledges that during the course of the
performance of his services for the Company he will acquire
confidential and proprietary information with respect to the Company's
business operations (the "CONFIDENTIAL INFORMATION"). Employee agrees
that during the term of this Agreement and thereafter, Employee shall
not divulge any Confidential Information to any person, directly or
indirectly, except to the Company, its directors, officers, agents and
representatives and its subsidiaries and affiliated companies, or as
may reasonably be necessary in connection with his duties on behalf of
the Company or unless required by law.
b. Employee acknowledges that all documents, written
information, records, data, computer information and material, tapes,
film, maps and other material of any kind relating to Confidential
Information, including, without limitation, memoranda, notes,
4
<PAGE> 5
sketches, records, reports, manuals, business plans and notebooks
(collectively, "MATERIALS") in Employee's possession or under his
control during the term of his employment hereunder are and shall
remain the property of the Company and agrees that if his relationship
with Company is terminated (for whatever reason), he shall not take
with him but shall leave with the Company all Materials and any copies
thereof or, if such Materials are not on the premises of the Company,
he shall return the same to the Company immediately upon his
termination.
c. This Section 5 shall survive any termination of this
Agreement and shall continue to bind Employee in accordance with its
terms. The existence of any claim or cause of action by Employee
against the Company whether predicated on this Agreement or otherwise,
shall not constitute a defense to the Company's enforcement of the
covenants contained in this Agreement.
6. Remedies. In the event that Employee breaches any of the
provisions of Section 5 above, in addition to any legal rights and remedies
that the Company may have to enforce the provisions of this Agreement, the
Company shall have no further obligations to Employee under this Agreement. In
the event of such a breach, Employee agrees that any and all proceeds, funds,
payments and proprietary interests of every kind and description arising from,
or attributable to, such breach shall be the sole and exclusive property of the
Company and the Company shall be entitled to recover any additional actual
damages incurred as a result of such breach.
7. Injunctive Relief. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a breach of the provisions of
Section 5 above, the Company shall, in addition to any other remedies available
under law, be entitled to an injunction enjoining Employee or any person or
persons acting for or with Employee in any capacity whatsoever from violating
any of the terms thereof.
8. Severability. If any provision of this Agreement shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision was never contained herein and the remaining
provisions of this Agreement shall remain in full force and effect.
9. Waiver and Limitation. Any waiver by either party of a
provision or a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any other provision or subsequent breach of any
provision hereof.
10. Taxes. Employee shall be responsible for the payment of all
individual taxes on all amounts paid or benefits provided to him under this
Agreement. All compensation paid to Employee shall be subject to any
withholdings as from time to time may be required to be made pursuant to law,
government regulations or order, or by agreement with, or consent of, Employee.
5
<PAGE> 6
11. No Funding. The right of Employee under this Agreement shall
be that of a general creditor of the Company and Employee shall have no
preferred claims on, or any beneficial ownership in, the assets of the Company.
12. Entire Agreement. Except as expressly provided herein, this
Agreement, and the agreements, documents and compensation, incentive and option
plans referred to herein, contain the entire agreement between the parties
hereto relating to the subject matter hereof and supersede any and all other
prior or contemporaneous employment, compensation, incentive or retirement
agreements, either oral or in writing, between the parties.
13. Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
legatees, legal representatives, successors and assigns. Employee may not
assign any of his rights or responsibilities under this Agreement.
14. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
a. if to the Company:
FoxMeyer Health Corporation
Attention: Abbey J. Butler
207 Dune Road, Box 137
Westhampton Beach, New York 11978
b. if to Employee:
Grady E. Schleier
4416 Stanhope
Dallas, Texas 75205
15. Headings. Section and subsection headings used in this
Agreement have been inserted solely for convenience of reference and do not
constitute a part of this Agreement and are not intended to affect the
interpretation of any provision of this Agreement.
16. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
17. Governing Law. This Agreement and all performance hereunder
shall be governed by and construed in accordance with the laws of the State of
Texas without regard to the principles of conflict of laws thereof.
6
<PAGE> 7
18. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
on the date and year first above written.
FOXMEYER HEALTH CORPORATION
By:
--------------------------------
Abbey J. Butler
Chief Executive Officer
-----------------------------------
Grady E. Schleier
7
<PAGE> 1
EXHIBIT 10-U
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
November __, 1996, is entered into by and between FoxMeyer Health Corporation,
a Delaware corporation (the "COMPANY"), and Robert H. Stone ("EMPLOYEE").
In consideration of the mutual covenants contained herein, the parties
hereto agree as follows:
1. Employment. The Company hereby agrees to employ Employee, and
Employee hereby agrees to be employed by the Company, beginning on the date of
this Agreement through and including October 31, 1998 (the "TERM OF
EMPLOYMENT").
2. Position and Responsibilities. The Company hereby employs
Employee to serve as Vice President, General Counsel and Secretary. Employee
shall have such duties, responsibilities and authority as may, from time to
time, be assigned to Employee by more senior officers of the Company.
3. Compensation. As compensation for all services performed and to
be performed by Employee under this Agreement, the Company shall compensate
Employee as follows:
a. Base Salary. The Company shall pay Employee a minimum
monthly base salary of $11,667.67 (as may be adjusted from time to time,
the "MONTHLY BASE SALARY"). During the term of this Agreement,
Employee's Monthly Base Salary shall be reviewed periodically to
determine whether such salary shall be adjusted in accordance with the
duties and responsibilities of Employee and his performance thereof, but
no adjustment shall reduce Employee's base salary below the minimum
Monthly Base Salary set forth above.
b. Car Allowance. The Company shall pay Employee a minimum
monthly car allowance in the amount of $750.00.
c. Bonus. Upon the execution date of this Agreement, as
additional compensation, Employee shall receive a cash signing bonus,
and a bonus in respect of Employee's decision to be employed by the
Company and thereby forego any additional compensation and severance
benefits to which he is or may be entitled from FoxMeyer Corporation,
FoxMeyer Drug Company and any purchasers thereof, in the amount of
$75,000 (the "BONUS"). Notwithstanding anything herein that may be to
the contrary, the Bonus shall be deemed fully earned and payable upon
the execution of this Agreement.
d. Benefits, Incentives and Perquisites. Employee shall be
entitled to participate in the incentive, stock option and employee
benefit plans of the Company, including but not limited to a Performance
Incentive Plan to be implemented by the Company, and the perquisites
enjoyed by other employees with similar or same titles of the Company as
presently in effect or as they may be modified from time to time,
provided that the Company may not reduce the benefits provided to
Employee pursuant to
<PAGE> 2
Employee's life insurance, accidental death and dismemberment, long-term
disability and business travel accident insurance during the term of
this Agreement.
4. Termination. This Agreement may be terminated upon the following
terms:
a. Termination Upon Death. If Employee dies during the Term
of Employment, this Agreement shall terminate immediately.
b. Termination Upon Disability. The Company shall have the
right to terminate this Agreement upon the "Disability" of Employee by
providing ten (10) days written notice to Employee. "DISABILITY" as
used in this section shall mean any illness or any impairment of mind or
body that (i) renders it impossible or impracticable for Employee to
perform his duties and responsibilities hereunder for a continuous
period of at least six (6) months or (ii) is likely to prevent Employee
from performing his duties and responsibilities hereunder for more than
nine (9) months during any eighteen (18) month period, each as
determined in good faith by a physician selected by the Board of
Directors. The Company's selection of a physician shall be subject to
Employee's approval, which shall not be unreasonably withheld. Any
refusal without reasonable cause by Employee to submit to a medical
examination for the purpose of certifying Disability under this section
shall be deemed to constitute conclusive evidence of Employee's
Disability. In the event of termination upon Disability, Employee shall
continue to receive the Monthly Base Salary in effect at the time of
termination (reduced by any amounts payable to Employee as disability
benefits under any Company plan, social security or otherwise) for the
remainder of the Term of Employment.
c. Termination for Cause. The Company shall have the right
to terminate this Agreement, and have no further obligation to Employee
under this Agreement, for "Cause" after giving written notice of
termination to Employee. "CAUSE" as used in this section shall mean:
(i) misconduct or negligence in the performance by Employee of
his duties and responsibilities hereunder;
(ii) the failure by Employee to follow any reasonable directive
of Employee's Supervisor or the Company's Chief Executive
Officers in carrying out his duties or responsibilities
hereunder;
(iii) the failure by Employee to substantially achieve agreed
upon goals and objectives;
(iv) the theft or misappropriation of funds or the disclosure
of trade secrets or other confidential or proprietary information
in violation of Section 6 of this Agreement; or
2
<PAGE> 3
(v) the conviction of Employee for (A) a crime involving an
act or acts of dishonesty or moral turpitude or (B) a felony.
d. Termination without Cause. The Company shall have the
right to terminate Employee's employment at any time without Cause
("TERMINATION WITHOUT CAUSE"). In the event of a Termination Without
Cause of Employee's employment, and provided that Employee complies with
Section 5 hereof, the Company agrees to provide Employee with:
(i) At Employee's option, (x) a single lump sum severance
payment equal to the amount of the total compensation that would
otherwise be paid by the Company to Employee during the six (6)
month period commencing on the effective date of Termination
Without Cause or (y) monthly severance payments in the amount of
Employee's total annual compensation during the twelve (12) month
period commencing on the effective date of Termination Without
Cause, divided by twelve (12), for a period of twelve (12)
months; and
(ii) For a period of six months commencing on the effective
date of Termination Without Cause, medical and dental benefits
coverage, less any amount that Employee is required to pay to
receive such medical and dental coverage had termination of his
employment not occurred.
Without in any way limiting the generality of what may be deemed
to constitute a Termination Without Cause hereunder, it is hereby agreed
that any material reduction of Employee's duties, responsibilities and
authority shall be deemed to constitute a Termination Without Cause
hereunder.
e. Termination by Employee. Employee shall be entitled to
terminate his employment with the Company at any time. If Employee's
terminates his employment for Good Reason (as such term is defined
below), such termination shall be deemed a Termination Without Cause
under Section 4(d) of this Agreement. If Employee terminates without
Good Reason, Employee shall no longer be entitled to any form of
compensation, including but not limited to any Monthly Base Salary,
benefits, incentives, perquisites or vacation. In addition, (I) if the
date of the notice or the effective date of any such termination is on
or before December 31, 1996, then Employee shall immediately pay $75,000
to the Company, and (II) if the date of the notice or the effective date
of any such termination is after December 31, 1996 but before October
31, 1997, then Employee shall immediately pay $50,000 to the Company
(the amount to be paid, whether $75,000 or $50,000, the "Payment"). The
Company shall have the right to setoff the Payment against any amounts
the Company may otherwise owe to Employee; provided, however, that to
the extent the Payment is greater than any amount setoff, Employee shall
remain obligated to pay the balance of the Payment to the Company. If
3
<PAGE> 4
Employee becomes obligated hereunder to make the Payment to the Company
and fails or refuses to do so, (x) such obligation shall bear interest
at the highest lawful rate (if no highest lawful rate is established by
law, at the rate of eighteen percent (18%) per annum), and (y) Employee
agrees to pay all reasonable attorneys' fees and other costs incurred by
the Company in connection with the collection of such obligation. Any
Payment to the Company, whether by the payment of cash, the exercise of
the setoff right or otherwise, shall not extinguish any of the Company's
other rights or Employee's obligations hereunder, including but not
limited to those set forth in Sections 5 and 6 of this Agreement.
Without in any way limiting the generality of what may be deemed
to constitute a Good Reason hereunder, it is hereby agreed that a
termination by Employee shall be deemed for Good Reason if it is as a
result of or follows:
(i) A breach by the Company of this Agreement (including but
not limited to as a result of or following rejection of this
Agreement under any debtor relief or similar law);
(ii) A reduction in Employee's Monthly Base Salary as in effect
on the date hereof or as may be increased from time to time;
(iii) The taking of any action by the Company that could be
deemed to constitute a Termination Without Cause; or
(iv) The mandatory transfer of the permanent residence of
Employee to another geographic location more than 40 miles from
Dallas, Texas, except for required travel on Company business to
an extent substantially consistent with Employee's prior business
travel obligations.
5. Nondisclosure.
a. Employee acknowledges that during the course of the
performance of his services for the Company he will acquire confidential
and proprietary information with respect to the Company's business
operations (the "CONFIDENTIAL INFORMATION"). Employee agrees that
during the term of this Agreement and thereafter, Employee shall not
divulge any Confidential Information to any person, directly or
indirectly, except to the Company, its directors, officers, agents and
representatives and its subsidiaries and affiliated companies, or as may
reasonably be necessary in connection with his duties on behalf of the
Company or unless required by law.
b. Employee acknowledges that all documents, written
information, records, data, computer information and material, tapes,
film, maps and other material of any kind relating to Confidential
Information, including, without limitation, memoranda, notes,
4
<PAGE> 5
sketches, records, reports, manuals, business plans and notebooks
(collectively, "MATERIALS") in Employee's possession or under his
control during the term of his employment hereunder are and shall remain
the property of the Company and agrees that if his relationship with
Company is terminated (for whatever reason), he shall not take with him
but shall leave with the Company all Materials and any copies thereof
or, if such Materials are not on the premises of the Company, he shall
return the same to the Company immediately upon his termination.
c. This Section 5 shall survive any termination of this
Agreement and shall continue to bind Employee in accordance with its
terms. The existence of any claim or cause of action by Employee
against the Company whether predicated on this Agreement or otherwise,
shall not constitute a defense to the Company's enforcement of the
covenants contained in this Agreement.
6. Remedies. In the event that Employee breaches any of the
provisions of Section 5 above, in addition to any legal rights and remedies
that the Company may have to enforce the provisions of this Agreement, the
Company shall have no further obligations to Employee under this Agreement. In
the event of such a breach, Employee agrees that any and all proceeds, funds,
payments and proprietary interests of every kind and description arising from,
or attributable to, such breach shall be the sole and exclusive property of the
Company and the Company shall be entitled to recover any additional actual
damages incurred as a result of such breach.
7. Injunctive Relief. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a breach of the provisions of
Section 5 above, the Company shall, in addition to any other remedies available
under law, be entitled to an injunction enjoining Employee or any person or
persons acting for or with Employee in any capacity whatsoever from violating
any of the terms thereof.
8. Severability. If any provision of this Agreement shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision was never contained herein and the remaining
provisions of this Agreement shall remain in full force and effect.
9. Waiver and Limitation. Any waiver by either party of a provision
or a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any other provision or subsequent breach of any
provision hereof.
10. Taxes. Employee shall be responsible for the payment of all
individual taxes on all amounts paid or benefits provided to him under this
Agreement. All compensation paid to Employee shall be subject to any
withholdings as from time to time may be required to be made pursuant to law,
government regulations or order, or by agreement with, or consent of,
5
<PAGE> 6
Employee.
11. No Funding. The right of Employee under this Agreement shall be
that of a general creditor of the Company and Employee shall have no preferred
claims on, or any beneficial ownership in, the assets of the Company.
12. Entire Agreement. Except as expressly provided herein, this
Agreement, and the agreements, documents and compensation, incentive and option
plans referred to herein, contain the entire agreement between the parties
hereto relating to the subject matter hereof and supersede any and all other
prior or contemporaneous employment, compensation, incentive or retirement
agreements, either oral or in writing, between the parties.
13. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
legatees, legal representatives, successors and assigns. Employee may not
assign any of his rights or responsibilities under this Agreement.
14. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by overnight
delivery service, cable, telegram, facsimile transmission or telex to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
a. if to the Company:
FoxMeyer Health Corporation
Attention: Abbey J. Butler
207 Dune Road, Box 137
Westhampton Beach, New York 11978
b. if to Employee:
Robert H. Stone
6103 White Rose Trail
Dallas, Texas 75248
15. Headings. Section and subsection headings used in this Agreement
have been inserted solely for convenience of reference and do not constitute a
part of this Agreement and are not intended to affect the interpretation of any
provision of this Agreement.
16. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
17. Governing Law. This Agreement and all performance hereunder
shall be governed by and construed in accordance with the laws of the State of
Texas without regard to the principles of conflict of laws thereof.
6
<PAGE> 7
18. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
on the date and year first above written.
FOXMEYER HEALTH CORPORATION
By:
--------------------------
Abbey J. Butler
Chief Executive Officer
------------------------------
Robert H. Stone
7
<PAGE> 1
EXHIBIT 10-V
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
November __, 1996, is entered into by and between FoxMeyer Health Corporation,
a Delaware corporation (the "COMPANY"), and Scott E. Peterson ("EMPLOYEE").
In consideration of the mutual covenants contained herein, the parties
hereto agree as follows:
1. Employment. The Company hereby agrees to employ Employee, and
Employee hereby agrees to be employed by the Company, beginning on the date of
this Agreement through and including October 31, 1998 (the "TERM OF
EMPLOYMENT").
2. Position and Responsibilities. The Company hereby employs
Employee to serve as Vice President -- Finance. Employee shall have such
duties, responsibilities and authority as may, from time to time, be assigned
to Employee by more senior officers of the Company.
3. Compensation. As compensation for all services performed and to
be performed by Employee under this Agreement, the Company shall compensate
Employee as follows:
a. Base Salary. The Company shall pay Employee a minimum
monthly base salary of $12,500 (as may be adjusted from time to time,
the "MONTHLY BASE SALARY"). During the term of this Agreement,
Employee's Monthly Base Salary shall be reviewed periodically to
determine whether such salary shall be adjusted in accordance with the
duties and responsibilities of Employee and his performance thereof, but
no adjustment shall reduce Employee's base salary below the minimum
Monthly Base Salary set forth above.
b. Car Allowance. The Company shall pay Employee a minimum
monthly car allowance in the amount of $750.00.
c. Bonus. Upon the execution date of this Agreement, as
additional compensation, Employee shall receive a cash signing bonus,
and a bonus in respect of Employee's decision to be employed by the
Company and thereby forego any additional compensation and severance
benefits to which he is or may be entitled from FoxMeyer Corporation,
FoxMeyer Drug Company and any purchasers thereof, in the amount of
$75,000 (the "BONUS"). Notwithstanding anything herein that may be to
the contrary, the Bonus shall be deemed fully earned and payable upon
the execution of this Agreement.
d. Benefits, Incentives and Perquisites. Employee shall be
entitled to participate in the incentive, stock option and employee
benefit plans of the Company, including but not limited to a Performance
Incentive Plan to be implemented by the Company, and the perquisites
enjoyed by other employees with similar or same titles of the Company as
presently in effect or as they may be modified from time to time,
provided that the Company may not reduce the benefits provided to
Employee pursuant to
<PAGE> 2
Employee's life insurance, accidental death and dismemberment, long-term
disability and business travel accident insurance during the term of
this Agreement.
4. Termination. This Agreement may be terminated upon the following
terms:
a. Termination Upon Death. If Employee dies during the Term
of Employment, this Agreement shall terminate immediately.
b. Termination Upon Disability. The Company shall have the
right to terminate this Agreement upon the "Disability" of Employee by
providing ten (10) days written notice to Employee. "DISABILITY" as
used in this section shall mean any illness or any impairment of mind or
body that (i) renders it impossible or impracticable for Employee to
perform his duties and responsibilities hereunder for a continuous
period of at least six (6) months or (ii) is likely to prevent Employee
from performing his duties and responsibilities hereunder for more than
nine (9) months during any eighteen (18) month period, each as
determined in good faith by a physician selected by the Board of
Directors. The Company's selection of a physician shall be subject to
Employee's approval, which shall not be unreasonably withheld. Any
refusal without reasonable cause by Employee to submit to a medical
examination for the purpose of certifying Disability under this section
shall be deemed to constitute conclusive evidence of Employee's
Disability. In the event of termination upon Disability, Employee shall
continue to receive the Monthly Base Salary in effect at the time of
termination (reduced by any amounts payable to Employee as disability
benefits under any Company plan, social security or otherwise) for the
remainder of the Term of Employment.
c. Termination for Cause. The Company shall have the right
to terminate this Agreement, and have no further obligation to Employee
under this Agreement, for "Cause" after giving written notice of
termination to Employee. "CAUSE" as used in this section shall mean:
(i) misconduct or negligence in the performance by Employee of
his duties and responsibilities hereunder;
(ii) the failure by Employee to follow any reasonable directive
of Employee's Supervisor or the Company's Chief Executive
Officers in carrying out his duties or responsibilities
hereunder;
(iii) the failure by Employee to substantially achieve agreed
upon goals and objectives;
(iv) the theft or misappropriation of funds or the disclosure
of trade secrets or other confidential or proprietary information
in violation of Section 6 of this Agreement; or
2
<PAGE> 3
(v) the conviction of Employee for (A) a crime involving an
act or acts of dishonesty or moral turpitude or (B) a felony.
d. Termination without Cause. The Company shall have the
right to terminate Employee's employment at any time without Cause
("TERMINATION WITHOUT CAUSE"). In the event of a Termination Without
Cause of Employee's employment, and provided that Employee complies with
Section 5 hereof, the Company agrees to provide Employee with:
(i) At Employee's option, (x) a single lump sum severance
payment equal to the amount of the total compensation that would
otherwise be paid by the Company to Employee during the six (6)
month period commencing on the effective date of Termination
Without Cause or (y) monthly severance payments in the amount of
Employee's total annual compensation during the twelve (12) month
period commencing on the effective date of Termination Without
Cause, divided by twelve (12), for a period of twelve (12)
months; and
(ii) For a period of six months commencing on the effective
date of Termination Without Cause, medical and dental benefits
coverage, less any amount that Employee is required to pay to
receive such medical and dental coverage had termination of his
employment not occurred.
Without in any way limiting the generality of what may be deemed
to constitute a Termination Without Cause hereunder, it is hereby agreed
that any material reduction of Employee's duties, responsibilities and
authority shall be deemed to constitute a Termination Without Cause
hereunder.
e. Termination by Employee. Employee shall be entitled to
terminate his employment with the Company at any time. If Employee's
terminates his employment for Good Reason (as such term is defined
below), such termination shall be deemed a Termination Without Cause
under Section 4(d) of this Agreement. If Employee terminates without
Good Reason, Employee shall no longer be entitled to any form of
compensation, including but not limited to any Monthly Base Salary,
benefits, incentives, perquisites or vacation. In addition, (I) if the
date of the notice or the effective date of any such termination is on
or before December 31, 1996, then Employee shall immediately pay $75,000
to the Company, and (II) if the date of the notice or the effective date
of any such termination is after December 31, 1996 but before October
31, 1997, then Employee shall immediately pay $50,000 to the Company
(the amount to be paid, whether $75,000 or $50,000, the "Payment"). The
Company shall have the right to setoff the Payment against any amounts
the Company may otherwise owe to Employee; provided, however, that to
the extent the Payment is greater than any amount setoff, Employee shall
remain obligated to pay the balance of the Payment to the Company. If
3
<PAGE> 4
Employee becomes obligated hereunder to make the Payment to the Company
and fails or refuses to do so, (x) such obligation shall bear interest
at the highest lawful rate (if no highest lawful rate is established by
law, at the rate of eighteen percent (18%) per annum), and (y) Employee
agrees to pay all reasonable attorneys' fees and other costs incurred by
the Company in connection with the collection of such obligation. Any
Payment to the Company, whether by the payment of cash, the exercise of
the setoff right or otherwise, shall not extinguish any of the Company's
other rights or Employee's obligations hereunder, including but not
limited to those set forth in Sections 5 and 6 of this Agreement.
Without in any way limiting the generality of what may be deemed
to constitute a Good Reason hereunder, it is hereby agreed that a
termination by Employee shall be deemed for Good Reason if it is as a
result of or follows:
(i) A breach by the Company of this Agreement (including but
not limited to as a result of or following rejection of this
Agreement under any debtor relief or similar law);
(ii) A reduction in Employee's Monthly Base Salary as in effect
on the date hereof or as may be increased from time to time;
(iii) The taking of any action by the Company that could be
deemed to constitute a Termination Without Cause; or
(iv) The mandatory transfer of the permanent residence of
Employee to another geographic location more than 40 miles from
Dallas, Texas, except for required travel on Company business to
an extent substantially consistent with Employee's prior business
travel obligations.
5. Nondisclosure.
a. Employee acknowledges that during the course of the
performance of his services for the Company he will acquire confidential
and proprietary information with respect to the Company's business
operations (the "CONFIDENTIAL INFORMATION"). Employee agrees that
during the term of this Agreement and thereafter, Employee shall not
divulge any Confidential Information to any person, directly or
indirectly, except to the Company, its directors, officers, agents and
representatives and its subsidiaries and affiliated companies, or as may
reasonably be necessary in connection with his duties on behalf of the
Company or unless required by law.
b. Employee acknowledges that all documents, written
information, records, data, computer information and material, tapes,
film, maps and other material of any kind relating to Confidential
Information, including, without limitation, memoranda, notes,
4
<PAGE> 5
sketches, records, reports, manuals, business plans and notebooks
(collectively, "MATERIALS") in Employee's possession or under his
control during the term of his employment hereunder are and shall remain
the property of the Company and agrees that if his relationship with
Company is terminated (for whatever reason), he shall not take with him
but shall leave with the Company all Materials and any copies thereof
or, if such Materials are not on the premises of the Company, he shall
return the same to the Company immediately upon his termination.
c. This Section 5 shall survive any termination of this
Agreement and shall continue to bind Employee in accordance with its
terms. The existence of any claim or cause of action by Employee
against the Company whether predicated on this Agreement or otherwise,
shall not constitute a defense to the Company's enforcement of the
covenants contained in this Agreement.
6. Remedies. In the event that Employee breaches any of the
provisions of Section 5 above, in addition to any legal rights and remedies
that the Company may have to enforce the provisions of this Agreement, the
Company shall have no further obligations to Employee under this Agreement. In
the event of such a breach, Employee agrees that any and all proceeds, funds,
payments and proprietary interests of every kind and description arising from,
or attributable to, such breach shall be the sole and exclusive property of the
Company and the Company shall be entitled to recover any additional actual
damages incurred as a result of such breach.
7. Injunctive Relief. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a breach of the provisions of
Section 5 above, the Company shall, in addition to any other remedies available
under law, be entitled to an injunction enjoining Employee or any person or
persons acting for or with Employee in any capacity whatsoever from violating
any of the terms thereof.
8. Severability. If any provision of this Agreement shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision was never contained herein and the remaining
provisions of this Agreement shall remain in full force and effect.
9. Waiver and Limitation. Any waiver by either party of a provision
or a breach of any provision of this Agreement shall not operate or be
construed as a waiver of any other provision or subsequent breach of any
provision hereof.
10. Taxes. Employee shall be responsible for the payment of all
individual taxes on all amounts paid or benefits provided to him under this
Agreement. All compensation paid to Employee shall be subject to any
withholdings as from time to time may be required to be made pursuant to law,
government regulations or order, or by agreement with, or consent of,
5
<PAGE> 6
Employee.
11. No Funding. The right of Employee under this Agreement shall be
that of a general creditor of the Company and Employee shall have no preferred
claims on, or any beneficial ownership in, the assets of the Company.
12. Entire Agreement. Except as expressly provided herein, this
Agreement, and the agreements, documents and compensation, incentive and option
plans referred to herein, contain the entire agreement between the parties
hereto relating to the subject matter hereof and supersede any and all other
prior or contemporaneous employment, compensation, incentive or retirement
agreements, either oral or in writing, between the parties.
13. Binding Effect; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective heirs,
legatees, legal representatives, successors and assigns. Employee may not
assign any of his rights or responsibilities under this Agreement.
14. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally,
mailed by certified mail (return receipt requested) or sent by overnight
delivery service, cable, telegram, facsimile transmission or telex to the
parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
a. if to the Company:
FoxMeyer Health Corporation
Attention: Abbey J. Butler
207 Dune Road, Box 137
Westhampton Beach, New York 11978
b. if to Employee:
Scott E. Peterson
3624 Worthington Way
Plano, TX 75023
15. Headings. Section and subsection headings used in this Agreement
have been inserted solely for convenience of reference and do not constitute a
part of this Agreement and are not intended to affect the interpretation of any
provision of this Agreement.
16. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
17. Governing Law. This Agreement and all performance hereunder
shall be governed by and construed in accordance with the laws of the State of
Texas without regard to
6
<PAGE> 7
the principles of conflict of laws thereof.
18. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement effective
on the date and year first above written.
FOXMEYER HEALTH CORPORATION
By:
-----------------------
Abbey J. Butler
Chief Executive Officer
------------------------------
Scott E. Peterson
7
<PAGE> 1
EXHIBIT 10-W
AVATEX CORPORATION
PERFORMANCE INCENTIVE PLAN
A. Purpose.
The Performance Incentive Plan (the "Plan") of Avatex Corporation,
formerly known as FoxMeyer Health Corporation (the "Company"), is intended to:
1. Motivate and reward high performing executives;
2. Focus executive attention on achieving key objectives for each
fiscal year; and
3. Be a material component of a total competitive pay structure.
B. Effective Date.
The effective date of the Plan is January 1, 1997. The Plan shall
continue in effect unless and until it is terminated or amended, subject to the
terms hereof (including but not limited to Section H hereof), by the Co-Chief
Executive Officers, and approved by the Finance and Personnel Committee of the
Board of Directors of the Company.
C. Eligibility.
Participants in the Plan shall be entitled to share in a fund (the
"Fund"), the amount of which shall be based on a specified percentage of
certain components of the Company's annual "Net Income", as described below.
Participation in the Plan shall be limited to officers and other employees of
the Company whose positions have a direct influence on the Company's growth and
profitability. The initial participants in the Plan, their respective
positions as of November 12, 1996, and their respective percentage award levels
under the Plan are identified on Exhibit A. The Co-Chief Executive Officers of
the Company may add additional individuals as participants in the Plan by
amending Exhibit A, and may change the percentage award level(s) under the Plan
for the participants listed on Exhibit A, in accordance with Section E below.
D. Amounts to Be Distributed.
The Fund in which participants shall be entitled to share shall be
equal to seventeen and one-half percent (17.5%) of the Company's Net Income,
determined as follows:
<PAGE> 2
1. Except as expressly provided herein, Net Income shall be
calculated in accordance with generally accepted accounting
principles, after all applicable taxes but before any
preferred dividends.
2. The calculation of Net Income shall exclude for all purposes
any activities relating in any way to the Company's investment
in, relationship with or indemnification of National Steel
Corporation.
3. Net Income shall be measured on an annual basis as of March 31
of each year, which is the close of the Company's fiscal year.
The initial period for which Net Income shall be measured
under the Plan shall be from January 1, 1997 through March 31,
1997.
Payment of the amounts to be distributed to participants shall be made within
ninety (90) days after March 31 of each year; provided, however, that to the
extent a particular component of Net Income is a non-cash item and does not
thereby generate a corresponding increase in positive cash flow, the Plan
administrators shall make a good faith determination of the timetable for
paying the applicable percentage of such component to participants based on
when positive cash flow is expected to be generated with respect to such item.
E. Modifications of Percentages and Amounts to Be Awarded.
The Co-Chief Executive Officers of the Company, subject to the
approval of the Finance and Personnel Committee of the Board of Directors of
the Company, reserve the right:
1. To add additional participant(s) and, in such event, to change
the percentage award level(s) under the Plan for each of the
pre-existing participants on a proportionate basis; and/or
2. Upon the departure of a participant(s), to increase the
percentage award level(s) under the Plan for each of the
pre-existing participants on a proportionate basis; and/or
3. On April 1, 1997, to change the percentage of Net Income that
shall constitute the Fund; provided, however, that such
percentage shall not be reduced below seventeen and one-half
percent (17.5%); and/or
4. On April 1, 1998, and on April 1 of each year thereafter, to
change the participants in the Plan, the definition,
composition or percentage of Net Income that shall constitute
the Fund, or the percentage award level(s) under the Plan for
any of the participants.
Notwithstanding anything in this Agreement to the contrary, including
but not limited to the provisions of Section E above:
2
<PAGE> 3
(a) Neither (i) the percentage of any Net Income attributable to
or generated as a result of or in connection with the
litigation originally commenced by the Company against
McKesson Corporation and certain pharmaceutical manufacturers
in the 95th Judicial District Court of Dallas County, Texas,
Case No. 97-00311-D (the "Litigation Income"), nor (ii) the
percentage award levels for any of the initial participants
listed on Exhibit A hereto with respect to any Litigation
Income, shall be changed in any manner whatsoever,
irrespective of when such Net Income is accrued or received by
the Company, unless the initial participant has voluntarily
terminated his or her employment with the Company or is
terminated by the Company for cause prior to the date any such
award is to be paid. If the initial participant's employment
has been terminated due to death, disability, retirement or
involuntary termination other than for cause prior to the date
any such award is to be paid, then he or she shall still be
entitled to an award under the provisions of this paragraph
(a).
(b) If (i) all or substantially all of the assets or more than
fifty percent (50%) of the then outstanding shares of common
stock of the Company are acquired by any person or entity or
affiliated group of persons or entities (other than Abbey J.
Butler, Melvyn J. Estrin or entities affiliated with either of
them), (ii) the Company acquires all or substantially all of
the assets or more than fifty percent (50%) of the then
outstanding shares of common stock of another entity or
affiliated group of entities, (iii) the Company merges with or
into another entity or affiliated group of entities, or (iv)
another entity or affiliated group of entities merges with or
into the Company, then the Plan may be terminated by the Plan
administrators (but not with respect to Litigation Income as
provided in paragraph (a) of Section E), provided that the
Plan administrators shall use their best efforts to make a
reasonable, good faith effort to allocate or otherwise account
for the then-existing Net Income of the Company or the
reasonable expectation of Net Income of the Company (other
than Litigation Income) through the current fiscal year or
other reasonable time period, had such acquisition or merger
not taken place.
F. Employment Status and Termination.
To receive his or her award, a participant must be an officer or other
employee of the Company or an affiliate of the Company as of the date the award
is to be paid. A participant who voluntarily terminates his or her employment
or who is terminated for cause before such date shall forfeit all rights to any
award. The foregoing does not apply to payments that are deferred pursuant to
the proviso contained in the last sentence of Section D above.
3
<PAGE> 4
If a participant's employment is terminated due to death, disability,
retirement or involuntary termination other than for cause, the participant
shall receive a pro-rated award at the end of the plan year, based on the
duration of employment during the fiscal year before such termination, subject
to the provisions of paragraph (a) of Section E above.
G. Plan Administration.
The Plan shall be administered by the Co-Chief Executive Officers of
the Company. Subject to the approval of the Finance and Personnel Committee of
the Board of Directors of the Company, the Plan administrators may delegate the
administration of the Plan to such person(s) as the Plan administrators deem
appropriate. The Plan administrators hereby initially designate the Senior
Vice President and Chief Financial Officer of the Company to administer the
day- to-day affairs of the Plan. The Plan administrators shall have the full
power and authority to construe, interpret and administer the Plan, and to
designate the persons entitled to participate in the Plan and the level of such
participation. No participant or any other person shall have any claim or any
right to pursue any litigation against the Company or any other person,
including but not limited to the Plan administrators, with respect to the
construction, interpretation and/or administration of the Plan and/or the
amount (if any) of any awards thereunder.
H. Termination of Plan.
The Plan may be terminated at any time on or after April 1, 1998 by
the Co-Chief Executive Officers of the Company, subject to the approval of the
Finance and Personnel Committee of the Board of Directors of the Company. If
the Plan is terminated during a fiscal year, then the Plan Administrators shall
determine the amount of the Fund as of the termination date, and the
participants shall be entitled to share in the Fund based on their
then-existing percentage award levels.
I. Other Provisions.
Nothing in this Plan shall be construed to limit in any way the
Company's right to terminate an employee's employment with the Company at any
time, nor shall it be evidence of any agreement or understanding, expressed or
implied, that the Company shall employ an individual in any particular position
for any particular period of time.
Acceptance by a participant of any funds from the Company under the
Plan shall constitute a release by the participant of any claims he may have
against the Company arising under or related to the Plan.
4
<PAGE> 5
PURSUANT TO THE APPROVAL OF THIS PLAN BY THE FINANCE AND PERSONNEL
COMMITTEE OF THE BOARD OF DIRECTORS OF THE COMPANY, THE COMPANY HEREBY ADOPTS
THIS PLAN EFFECTIVE AS OF JANUARY 1, 1997.
AVATEX CORPORATION
By:
------------------------
Name:
----------------------
Title:
---------------------
5
<PAGE> 6
EXHIBIT A
INITIAL PARTICIPANTS
<TABLE>
<CAPTION>
Percentage Percentage
Award of Award
Name Title Net Income of Fund
---- ----- ---------- ----------
<S> <C> <C> <C>
Abbey J. Butler Co-Chairman of the Board of 4.125% 23.5%
Directors and Co-Chief
Executive Officer
Melvyn J. Estrin Co-Chairman of the Board of 4.125% 23.5%
Directors and Co-Chief
Executive Officer
Edward L. Massman Senior Vice President 3.125% 17.5%
and Chief Financial Officer
Scott E. Peterson Vice President -- Finance 1.625% 9.3%
Grady E. Schleier Vice President and Treasurer 1.625% 9.3%
Robert H. Stone Vice President, General Counsel 1.625% 9.3%
and Secretary
Tanis Darnell Director of Planning and 0.625% 3.8%
Business Development
Steven N. Shapu Director of Accounting 0.625% 3.8%
------- -------
Totals ............................................................ 17.5% 100.0%
</TABLE>
6
<PAGE> 1
EXHIBIT 10-X
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN
AND TRUST/CUSTODIAL ACCOUNT
Sponsored By
BANK ONE TRUST COMPANY, N.A.
BASIC PLAN DOCUMENT #04
MARCH 1995
COPYRIGHT 1993 McKAY HOCHMAN CO., INC.
<PAGE> 2
THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNITED STATES. USE,
DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS
PROHIBITED BY LAW WITHOUT THE EXPRESS CONSENT OF THE AUTHOR.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PARAGRAPH PAGE
- --------- ----
<S> <C> <C>
ARTICLE I
DEFINITIONS
1.1 Actual Deferral Percentage 1
1.2 Adoption Agreement 1
1.3 Aggregate Limit 2
1.4 Allocation Date 2
1.5 Annual Additions 2
1.6 Annuity Starting Date 2
1.7 Applicable Calendar Year 3
1.8 Applicable Life Expectancy 3
1.9 Average Contribution Percentage (ACP) 3
1.10 Average Deferral Percentage (ADP) 3
1.11 Break In Service 3
1.12 Code 3
1.13 Compensation 3
1.14 Contribution Percentage 6
1.15 Custodian 6
1.16 Defined Benefit Plan 6
1.17 Defined Benefit (Plan) Fraction 6
1.18 Defined Contribution Dollar Limitation 7
1.19 Defined Contribution Plan 7
1.20 Defined Contribution (Plan) Fraction 7
1.21 Designated Beneficiary 7
1.22 Disability 8
1.23 Distribution Calendar Year 8
1.24 Early Retirement Age 8
1.25 Earned Income 8
1.26 Effective Date 8
1.27 Election Period 8
1.28 Elective Deferral 8
1.29 Eligible Participant 8
1.30 Employee 9
1.31 Employer 9
1.32 Entry Date 9
1.33 Excess Aggregate Contributions 9
1.34 Excess Amount 9
1.35 Excess Contribution 9
1.36 Excess Elective Deferrals 10
1.37 Family Member 10
1.38 First Distribution Calendar Year 10
1.39 Fund 10
1.40 Hardship 10
1.41 Highest Average Compensation 10
1.42 Highly Compensated Employee 10
1.43 Hour Of Service 11
1.44 Key Employee 12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
1.45 Leased Employee 12
1.46 Limitation Year 12
1.47 Master Or Prototype Plan 12
1.48 Matching Contribution 12
1.49 Maximum Permissible Amount 13
1.50 Net Profit 13
1.51 Normal Retirement Age 13
1.52 Owner-Employee 13
1.53 Paired Plans 13
1.54 Participant 13
1.55 Participant's Benefit 13
1.56 Permissive Aggregation Group 13
1.57 Plan 14
1.58 Plan Administrator 14
1.59 Plan Year 14
1.60 Present Value 14
1.61 Projected Annual Benefit 14
1.62 Qualified Deferred Compensation Plan 14
1.63 Qualified Domestic Relations Order 14
1.64 Qualified Early Retirement Age 15
1.65 Qualified Joint And Survivor Annuity 15
1.66 Qualified Matching Contribution 15
1.67 Qualified Non-Elective Contributions 15
1.68 Qualified Voluntary Contribution 15
1.69 Recordkeeper 15
1.70 Required Aggregation Group 15
1.71 Required Beginning Date 15
1.72 Rollover Contribution 16
1.73 Salary Savings Agreement 16
1.74 Self-Employed Individual 16
1.75 Service 16
1.76 Shareholder Employee 16
1.77 Simplified Employee Pension Plan 16
1.78 Sponsor 16
1.79 Spouse (Surviving Spouse) 16
1.80 Super Top-Heavy Plan 17
1.81 Taxable Wage Base 17
1.82 Top-Heavy Determination Date 17
1.83 Top-Heavy Plan 17
1.84 Top-Heavy Ratio 17
1.85 Top-Paid Group 18
1.86 Transfer Contribution 19
1.87 Trustee 19
1.88 Valuation Date 19
1.89 Vested Account Balance 19
1.90 Voluntary Contribution 19
1.91 Welfare Benefit Fund 19
1.92 Year Of Service 20
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 Participation 21
2.2 Change In Classification Of Employment 21
2.3 Computation Period 21
2.4 Employment Rights 21
2.5 Service With Controlled Groups 21
2.6 Owner-Employees 21
2.7 Leased Employees 22
2.8 Thrift Plans 23
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 Amount 24
3.2 Expenses And Fees 24
3.3 Responsibility For Contributions 24
3.4 Return Of Contributions 24
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 Voluntary Contributions 25
4.2 Qualified Voluntary Contributions 25
4.3 Rollover Contribution 25
4.4 Transfer Contribution 26
4.5 Employer Approval Of Transfer Contributions 26
4.6 Elective Deferrals 27
4.7 Required Voluntary Contributions 27
ARTICLE V
PARTICIPANT ACCOUNTS
5.1 Separate Accounts 28
5.2 Adjustments To Participant Accounts 28
5.3 Allocating Employer Contributions 29
5.4 Allocating Investment Earnings And Losses 29
5.5 Participant Statements 30
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 Normal Retirement Benefits 31
6.2 Early Retirement Benefits 31
6.3 Benefits On Termination Of Employment 31
6.4 Restrictions On Immediate Distributions 33
6.5 Normal Form Of Payment 34
6.6 Commencement Of Benefits 34
6.7 Claims Procedures 34
6.8 In-Service Withdrawals 35
6.9 Hardship Withdrawal 36
ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 Joint And Survivor Annuity Requirements 38
7.2 Minimum Distribution Requirements 38
7.3 Limits On Distribution Periods 38
7.4 Required Distributions On Or After The
Required Beginning Date 38
7.5 Required Beginning Date 39
7.6 Transitional Rule 40
7.7 Designation Of Beneficiary For Death Benefit 42
7.8 Nonexistence Of Beneficiary 42
7.9 Distribution Beginning Before Death 42
7.10 Distribution Beginning After Death 42
7.11 Distribution Of Excess Elective Deferrals 43
7.12 Distributions Of Excess Contributions 44
7.13 Distribution Of Excess Aggregate Contributions 44
7.14 Direct Rollover Of Benefits 45
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 Applicability Of Provisions 47
8.2 Payment Of Qualified Joint And Survivor
Annuity 47
8.3 Payment Of Qualified Pre-Retirement
Survivor Annuity 47
8.4 Qualified Election 47
8.5 Notice Requirements For Qualified Joint
And Survivor Annuity 48
8.6 Notice Requirements For Qualified Pre
Retirement Survivor Annuity 48
8.7 Special Safe-Harbor Exception For
Certain Profit-Sharing Plans 49
8.8 Transitional Joint And Survivor
Annuity Rules 50
8.9 Automatic Joint And Survivor Annuity
And Early Survivor Annuity 50
8.10 Annuity Contracts 51
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
ARTICLE IX
VESTING
9.1 Employee Contributions 52
9.2 Employer Contributions 52
9.3 Computation Period 52
9.4 Requalification Prior To Five Consecutive
One-Year Breaks In Service 52
9.5 Requalification After Five Consecutive
One-Year Breaks In Service 52
9.6 Calculating Vested Interest 52
9.7 Forfeitures 53
9.8 Amendment Of Vesting Schedule 53
9.9 Service With Controlled Groups 53
ARTICLE X
LIMITATIONS ON ALLOCATIONS AND
ANTIDISCRIMINATION TESTING
10.1 Participation In This Plan Only 54
10.2 Disposition Of Excess Annual Additions 54
10.3 Participation In This Plan And Another
Prototype Defined Contribution Plan,
Welfare Benefit Fund, Or Other Medical
Account Maintained By The Employer 55
10.4 Disposition Of Excess Annual Additions
Under Two Plans 56
10.5 Participation In This Plan And Another
Defined Contribution Plan Which Is Not
A Master Or Prototype Plan 56
10.6 Participation In This Plan And A Defined
Benefit Plan 57
10.7 Average Deferral Percentage (ADP) Test 57
10.8 Special Rules Relating To Application
Of ADP Test 57
10.9 Recharacterization 58
10.10 Average Contribution Percentage (ACP) Test 59
10.11 Special Rules Relating To Application
Of ACP Test 59
ARTICLE XI
ADMINISTRATION
11.1 Plan Administrator 61
11.2 Trustee/Custodian 61
11.3 Recordkeeper 62
11.4 Administrative Fees And Expenses 62
11.5 Division Of Duties And Indemnification 63
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
ARTICLE XII
TRUST FUND/CUSTODIAL ACCOUNT
12.1 The Fund 65
12.2 Control Of Plan Assets 65
12.3 Exclusive Benefit Rules 65
12.4 Assignment And Alienation Of Benefits 65
12.5 Determination Of Qualified Domestic
Relations Order (QDRO) 65
ARTICLE XIII
INVESTMENTS
13.1 Fiduciary Standards 67
13.2 Funding Arrangement 67
13.3 Investment Alternatives Of The Trustee 67
13.4 Investment Alternatives Of The Custodian 69
13.5 Participant Loans 70
13.6 Insurance Policies 72
13.7 Employer Investment Direction 73
13.8 Employee Investment Direction 74
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Applicability Of Rules 75
14.2 Minimum Contribution 75
14.3 Minimum Vesting 75
14.4 Limitations On Allocations 76
ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment By Sponsor 77
15.2 Amendment By Employer 77
15.3 Termination 77
15.4 Qualification Of Employer's Plan 77
15.5 Mergers And Consolidations 78
15.6 Resignation And Removal 78
15.7 Qualification Of Prototype 78
ARTICLE XVI
GOVERNING LAW 79
</TABLE>
<PAGE> 8
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN AND
TRUST/CUSTODIAL ACCOUNT
Sponsored By
BANK ONE TRUST COMPANY, N.A.
The Sponsor hereby establishes the following Prototype Retirement Plan and
Trust/Custodial Account for use by those of its customers who qualify and wish
to adopt a qualified retirement program. Any Plan and Trust/Custodial Account
established hereunder shall be administered for the exclusive benefit of
Participants and their beneficiaries under the following terms and conditions:
ARTICLE I
DEFINITIONS
1.1 ACTUAL DEFERRAL PERCENTAGE The ratio (expressed as a percentage and
calculated separately for each Participant) of:
(a) the amount of Employer contributions [as defined at (c) and
(d)] actually paid over to the Fund on behalf of such
Participant for the Plan Year to
(b) the Participant's Compensation for such Plan Year. Compensation
will only include amounts for the period during which the
Employee was eligible to participate.
Employer contributions on behalf of any Participant shall include:
(c) any Elective Deferrals made pursuant to the Participant's
deferral election, including Excess Elective Deferrals, but
excluding Elective Deferrals that are either taken into account
in the Contribution Percentage test (provided the ADP test is
satisfied both with and without exclusion of these Elective
Deferrals) or are returned as excess Annual Additions; and
(d) at the election of the Employer, Qualified Non-Elective
Contributions and Qualified Matching Contributions.
For purposes of computing Actual Deferral Percentages, an Employee who would be
a Participant but for the failure to make Elective Deferrals shall be treated
as a Participant on whose behalf no Elective Deferrals are made.
1.2 ADOPTION AGREEMENT The document attached to this Plan by which an
Employer elects to establish a qualified retirement plan and trust/custodial
account under the terms of this Prototype Plan and Trust/Custodial Account.
1
<PAGE> 9
1.3 AGGREGATE LIMIT The sum of:
(a) 125 percent of the greater of the ADP of the non-Highly
Compensated Employees for the Plan Year or the ACP of non-
Highly Compensated Employees under the Plan subject to Code
Section 401(m) for the Plan Year beginning with or within the
Plan Year of the cash or deferred arrangement as described in
Code Section 401(k) or Code Section 402(h)(l)(B), and
(b) the lesser of 200% or two percent plus the lesser of such ADP
or ACP.
Alternatively, the aggregate limit can be determined by substituting "the
lesser of 200% or 2 percent plus" for "125% of " in (a) above, and substituting
"125% of " for "the lesser of 200% or 2 percent plus" in (b) above.
1.4 ALLOCATION DATE The date or dates on which allocations are made to
Participant's accounts in accordance with Article V.
1.5 ANNUAL ADDITIONS The sum of the following amounts credited to a
Participant's account for the Limitation Year:
(a) Employer Contributions,
(b) Employee Contributions (under Article IV),
(c) forfeitures,
(d) amounts allocated after March 31, 1984 to an individual medical
account, as defined in Code Section 415(1)(2), which is part of
a pension or annuity plan maintained by the Employer (these
amounts are treated as Annual Additions to a Defined
Contribution Plan though they arise under a Defined Benefit
Plan), and
(e) amounts derived from contributions paid or accrued after 1985,
in taxable years ending after 1985, which are either
attributable to post-retirement medical benefits allocated to
the account of a Key Employee, or to a Welfare Benefit Fund
maintained by the Employer, are also treated as Annual
Additions to a Defined Contribution Plan. For purposes of this
paragraph. an Employee is a Key Employee if he or she meets the
requirements of paragraph 1.43 at any time during the Plan Year
or any preceding Plan Year. Welfare Benefit Fund is defined at
paragraph 1.89.
Excess amounts applied in a Limitation Year to reduce Employer contributions
will be considered Annual Additions for such Limitation Year, pursuant to the
provisions of Article X.
1.6 ANNUITY STARTING DATE The first day of the first period for which an amount
is paid as an annuity or in any other form.
2
<PAGE> 10
1.7 APPLICABLE CALENDAR YEAR The First Distribution Calendar Year, and in the
event of the recalculation of life expectancy, such succeeding calendar year.
If payments commence in accordance with paragraph 7.4(e) before the Required
Beginning Date, the Applicable Calendar Year is the year such payments
commence. If distribution is in the form of an immediate annuity purchased
after the Participant's death with the Participant's remaining interest, the
Applicable Calendar Year is the year of purchase.
1.8 APPLICABLE LIFE EXPECTANCY Used in determining the required minimum
distribution. The life expectancy (or joint and last survivor expectancy)
calculated using the attained age of the Participant (or Designated
Beneficiary) as of the Participant's (or Designated Beneficiary's) birthday in
the Applicable Calendar Year reduced by one for each calendar year which has
elapsed since the date life expectancy was first calculated. If life expectancy
is being recalculated, the Applicable Life Expectancy shall be the life
expectancy as so recalculated. The life expectancy of a non-Spouse Beneficiary
may not be recalculated.
1.9 AVERAGE CONTRIBUTION PERCENTAGE (A C P) The average of the Contribution
Percentages for each Highly Compensated Employee and for each non-Highly
Compensated Employee.
1.10 AVERAGE DEFERRAL PERCENTAGE (ADP) The average of the Actual Deferral
Percentages for each Highly Compensated Employee and for each non-Highly
Compensated Employee.
1.11 BREAK IN SERVICE A 12-consecutive month period during which an Employee
fails to complete more than 500 Hours of Service.
1.12 CODE The Internal Revenue Code of 1986, including any amendments.
1.13 COMPENSATION The Employer may select one of the following three
safe-harbor definitions of Compensation in the Adoption Agreement. Compensation
shall only include amounts earned while a Participant if Plan Year is chosen as
the applicable computation period.
(a) Code Section 3401(a) Wages. Compensation is defined as wages
within the meaning of Code Section 3401(a) for the purposes of
Federal income tax withholding at the source but determined
without regard to any rules under Code Section 3401(a) that
limit the remuneration included in wages based on the nature or
location of the employment or the services performed [such as
the exception for agricultural labor in Code Section
3401(a)(2)].
(b) Code Section 6041 and 6051 Wages. Compensation is defined as
wages as defined in Code Section 3401(a) and all other payments
of compensation to an Employee by the Employer (in the course
of the Employer's trade or business) for which the Employer is
required to furnish the employee a written statement under Code
Section 6041(d) and 6051(a)(3). Compensation must be determined
without regard to any rules under Code Section 3401(a) that
limit the remuneration included in wages based on the nature or
location of the employment or the services performed [such as
the exception for agricultural labor in Code Section
3401(a)(2)].
3
<PAGE> 11
(c) Code Section 415 Compensation. For purposes of applying the
limitations of Article X and Top-Heavy Minimums, the definition
of Compensation shall be Code Section 415 Compensation defined
as follows: a Participant's Earned Income, wages, salaries, and
fees for professional services and other amounts received
(without regard to whether or not an amount is paid in cash)
for personal services actually rendered in the course of
employment with the Employer maintaining the Plan to the extent
that the amounts are includible in gross income [including, but
not limited to, commissions paid salesmen, Compensation for
services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits and
reimbursements or other expense allowances under a
nonaccountable plan (as described in Regulation 1.62-2(c)), and
excluding the following:
1. 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 or
any distributions from a plan of deferred compensation,
2. 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,
3. Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
4. other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of
anannuity contract described in Code Section 403(b)
(whether or not the contributions are actually excludible
from the gross income of the Employee).
For purposes of applying the limitations of Article X and Top-Heavy Minimums.
the definition of Compensation shall be Code Section 415 Compensation described
in this paragraph 1.12(c). Also, for purposes of applying the limitations of
Article X, Compensation for a Limitation Year is the Compensation actually paid
or made available during such Limitation Year. Notwithstanding the preceding
sentence, Compensation for a Participant in a defined contribution plan who is
permanently and totally disabled [as defined in Code Section 22(e)(3)] is the
Compensation such Participant would have received for the Limitation Year if
the Participant had been paid at the rate of Compensation paid immediately
before becoming permanently and totally disabled. 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 Code Section 414(q)] and
contributions made on behalf of such Participant are nonforfeitable when made.
4
<PAGE> 12
If the Employer fails to pick the applicable period in the Adoption Agreement,
the Plan Year shall be used. Unless otherwise specified by the Employer in the
Adoption Agreement, Compensation shall be determined as provided in Code
Section 3401(a) [as defined in this paragraph 1.12(a)]. In nonstandardized
Adoption Agreement 002, the Employer may choose to eliminate or exclude
categories of Compensation which do not violate the provisions of Code Sections
401(a)(4), 414(s) the regulations thereunder and Revenue Procedure 89-65.
Beginning with 1989 Plan Years, the annual Compensation of each Participant
which may be taken into account for determining all benefits provided under the
Plan (including benefits under Article XIV) for any year shall not exceed the
limitation as imposed by Code Section 401(a)(17), and as adjusted under Code
Section 415(d). In determining the Compensation of a Participant for purposes
of this limitation, the rules of Code Section 414(q)(6) shall apply, except 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 end of the Plan year. If, as a result of the application of
such rules the adjusted annual Compensation limitation, as imposed by Code
Section 401(a)(17), is exceeded, then (except for purposes of determining the
portion of Compensation up to the integration level if this Plan provides for
permitted disparity), the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation as determined
under this section prior to the application of this limitation.
If a Plan has a Plan Year that contains fewer than 12 calendar months, then the
annual Compensation limit for that period is an amount equal to the limitation
as imposed by Code Section 401(a)(17) as adjusted for the calendar year in
which the Compensation period begins, multiplied by a fraction the numerator of
which is the number of full months in the short Plan Year and the denominator
of which is 12. If Compensation for any prior Plan Year is taken into account
in determining an Employee's contributions or benefits for the current year,
the Compensation for such prior year is subject to the applicable annual
Compensation limit in effect for that prior year. For this purpose, for years
beginning before January 1, 1990, the applicable annual Compensation limit is
$200,000. For Plan Years beginning on or after January 1, 1994, the annual
Compensation of each Participant taken into account for determining all
benefits provided under the Plan for any Plan Year shall not exceed $150,000,
as adjusted for increases in the cost-of-living in accordance with Code Section
401(a)(17). The cost-of-living adjustment in effect for a calendar year applies
to any determination period beginning in such calendar year.
Compensation shall not include deferred Compensation other than contributions
through a salary reduction agreement to a cash or deferred plan under Code
Section 401(k), a Simplified Employee Pension Plan under Code Section
402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity
under Code Section 403(b). Unless elected otherwise by the Employer in the
Adoption Agreement, these deferred amounts will be considered as Compensation
for Plan purposes. These deferred amounts are not counted as Compensation for
purposes of Articles X and XIV. When applicable to a Self-Employed Individual,
Compensation shall mean Earned Income.
5
<PAGE> 13
1.14 CONTRIBUTION PERCENTAGE The ratio (expressed as a percentage and
calculated separately for each Participant) of:
(a) the Participant's Contribution Percentage Amounts [as defined
at (c)-(f)] for the Plan Year, to
(b) the Participant's Compensation for the Plan Year. Compensation
will only include amounts for the period during which the
Employee was eligible to participate.
Contribution Percentage Amounts on behalf of any Participant shall include:
(c) the amount of Employee Voluntary 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,
(d) forfeitures of Excess Aggregate Contributions or Matching
Contributions allocated to the Participant's account which
shall be taken into account in the year in which such
forfeiture is allocated,
(e) at the election of the Employer, Qualified Non-Elective
Contributions, and
(f) the Employer also may elect to use Elective Deferrals in the
Contribution Percentage Amounts so long as the ADP test is met
before the Elective Deferrals are used in the ACP test and
continues to be met following the exclusion of those Elective
Deferrals that are used to meet the ACP test.
Contribution Percentage Amounts shall not include Matching Contributions,
whether or not Qualified, that are forfeited either to correct Excess Aggregate
Contributions, or because the contributions to which they relate are Excess
Deferrals, Excess Contributions, or Excess Aggregate Contributions.
1.15 CUSTODIAN The individual or institution appointed by the Trustee to have
custody of all or part of the Fund.
1.16 DEFINED BENEFIT PLAN A Plan under which a Participant's benefit is
determined by a formula contained in the Plan and no individual accounts are
maintained for Participants.
1.17 DEFINED BENEFIT (PLAN) FRACTION A fraction, the numerator of which is the
sum of the Participant's Projected Annual Benefits under all the 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 Code Sections 415(b) and (d) or 140
percent of the Highest Average Compensation, including any adjustments under
Code Section 415(b).
6
<PAGE> 14
Notwithstanding the above, if the Participant was a Participant as of the first
day of the first Limitation Year beginning after 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 1987, disregarding
any changes in the terms and conditions of the plan 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 for all Limitation
Years beginning before 1987.
1.18 DEFINED CONTRIBUTION DOLLAR LIMITATION Thirty thousand dollars ($30,000)
or if greater. one-fourth of the defined benefit dollar limitation set forth in
Code Section 415(b)(1) as in effect for the Limitation Year.
1.19 DEFINED CONTRIBUTION PLAN A Plan under which individual accounts are
maintained for each Participant to which all contributions, forfeitures,
investment income and gains or losses, and expenses are credited or deducted. A
Participant's benefit under such Plan is based solely on the fair market value
of his or her account balance.
1.20 DEFINED CONTRIBUTION (PLAN) FRACTION A Fraction, the numerator of which is
the sum of the Annual Additions to the Participant's account under all the
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 paragraph 1.89 and individual medical
accounts, as defined in Code Section 415(l)(2), 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 of service with the Employer
(regardless of whether a Defined Contribution Plan was maintained by the
Employer). The maximum aggregate amount in the Limitation Year is the lesser of
125 percent of the dollar limitation determined under Code Sections 415(b) and
(d) in effect under Code Section 415(c)(1)(A) or 35 percent of the
Participant's 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 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 times (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 1987, and disregarding any
changes in the terms and conditions of the Plan made after May 6 1986, but
using the 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 1987, shall not be re-computed to treat all Employee
Contributions as Annual Additions.
1.21 DESIGNATED BENEFICIARY The individual who is designated as the beneficiary
under the Plan in accordance with Code Section 401(a)(9) and the regulations
thereunder.
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1.22 DISABILITY An illness or injury of a potentially permanent nature,
expected to last for a continuous period of not less than 12 months, certified
by a physician selected by or satisfactory to the Employer, which prevents the
Employee from engaging in any occupation for wage or profit for which the
Employee is reasonably fitted by training, education or experience.
1.23 DISTRIBUTION CALENDAR YEAR A calendar year for which a minimum
distribution is required.
1.24 EARLY RETIREMENT AGE The age set by the Employer in the Adoption Agreement
(but not less than 55), which is the earliest age at which a Participant may
retire and receive his or her benefits under the Plan.
1.25 EARNED INCOME Net earnings from self-employment in the trade or business
with respect to which the Plan is established, determined without regard to
items not included in gross income and the deductions allocable to such items,
provided that personal services of the individual are a material
income-producing factor. Earned income shall be reduced by contributions made
by an Employer to a qualified plan to the extent deductible under Code Section
404. For tax years beginning after 1989, net earnings shall be determined
taking into account the deduction for one-half of self-employment taxes allowed
to the Employer under Code Section 164(f) to the extent deductible.
1.26 EFFECTIVE DATE The date on which the Employer's retirement plan or
amendment to such plan becomes effective. For amendments reflecting statutory
and regulatory changes post Tax Reform Act of 1986, the Effective Date will be
the earlier of the date upon which such amendment is first administratively
applied or the first day of the Plan Year following the date of adoption of
such amendment.
1.27 ELECTION PERIOD The period which begins on the first day of the Plan Year
in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from service prior to the first
day of the Plan Year in which age 35 is attained, the Election Period shall
begin on the date of separation, with respect to the account balance as of the
date of separation.
1.28 ELECTIVE DEFERRAL Employer contributions made to the Plan at the election
of the Participant, in lieu of cash Compensation. Elective Deferrals shall also
include contributions made pursuant to a Salary Savings Agreement or other
deferral mechanism, such as a cash option contribution. With respect to any
taxable year, a Participant's Elective Deferral is 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 Code
Section 401(k), any simplified employee pension cash or deferred arrangement as
described in Code Section 402(h)(l)(B), any eligible deferred compensation plan
under Code Section 457, any plan as described under Code Section 50l(c)(18),
and any Employer contributions made on the behalf of a Participant for the
purchase of an annuity contract under Code Section 403(b) pursuant to a Salary
Savings Agreement. Elective Deferrals shall not include any deferrals properly
distributed as Excess Annual Additions.
1.29 ELIGIBLE PARTICIPANT Any Employee who is eligible to make a Voluntary
Contribution, or an Elective Deferral (if the Employer takes such contributions
into account in the calculation of the Contribution Percentage), or to receive
a Matching Contribution (including forfeitures) or a Qualified Matching
Contribution. If a Voluntary Contribution or Elective Deferral is required as a
condition of participation in the Plan, any Employee who would be a Participant
in the Plan if such Employee made such a contribution shall be treated as an
Eligible Participant even though no Voluntary Contributions or Elective
Deferrals are made.
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1.30 EMPLOYEE Any person employed by the Employer (including Self-Employed
Individuals and partners), all Employees of a member of an affiliated service
group [as defined in Code Section 414(m)], Employees of a controlled group of
corporations [as defined in Code Section 414(b)], all Employees of any
incorporated or unincorporated trade or business which is under common control
[as defined in Code Section 414(c)], Leased Employees [as defined in Code
Section 414(n)] and any Employee required to be aggregated by Code Section
414(o). All such Employees shall be treated as employed by a single Employer.
1.31 EMPLOYER The Self-Employed Individual, partnership, corporation or other
organization which adopts this Plan including any firm that succeeds the
Employer and adopts this Plan. For purposes of Article X, Limitations on
Allocations, Employer shall mean the Employer that adopts this Plan, and all
members of a controlled group of corporations [as defined in Code Section
414(b) as modified by Code Section 415(h)], all commonly controlled trades or
businesses [as defined in Code Section 414(c) as modified by Code Section
415(h)] or affiliated service groups [as defined in Code Section 414(m)] of
which the adopting Employer is a part, and any other entity required to be
aggregated with the Employer pursuant to regulations under Code Section 414(o).
1.32 ENTRY DATE The date on which an Employee commences participation in the
Plan as determined by the Employer in the Adoption Agreement.
1.33 EXCESS AGGREGATE CONTRIBUTIONS The excess, with respect to any Year, of:
(a) The aggregate Contribution Percentage 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
(b) The maximum Contribution Percentage Amounts permitted by the
ACP test (determined by reducing contributions made on behalf
of Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to paragraph 1.35 and then determining Excess Contributions
pursuant to paragraph 1.34.
1.34 EXCESS AMOUNT The excess of the Participant's Annual Additions for the
Limitation Year over the Maximum Permissible Amount.
1.35 EXCESS CONTRIBUTION With respect to any Plan Year, the excess of:
(a) The aggregate amount of Employer contributions actually taken
into account in computing the ADP of Highly Compensated
Employees for such Plan Year, over
(b) The maximum amount of such contributions permitted by the ADP
test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of the ADPs, beginning
with the highest of such percentages).
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1.36 EXCESS ELECTIVE DEFERRALS Those Elective Deferrals that are includible in
a Participant's gross income under Code Section 402(g) to the extent such
Participant's Elective Deferrals for a taxable year exceed the dollar
limitation under such Code Section. Excess Elective Deferrals shall be treated
as Annual Additions under the Plan, unless such amounts are distributed no
later than the first April 15th following the close of the Participant's
taxable year.
1.37 FAMILY MEMBER The Employee's Spouse, any lineal descendants and ascendants
and the Spouse of such lineal descendants and ascendants.
1.38 FIRST DISTRIBUTION CALENDAR YEAR 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 paragraph 7.10.
1.39 FUND All contributions received by the Trustee/Custodian under this Plan
and Trust/Custodial Account, investments thereof and earnings and appreciation
thereon.
1.40 HARDSHIP An immediate and heavy financial need of the Employee where such
Employee lacks other available resources.
1.41 HIGHEST AVERAGE COMPENSATION The average Compensation for the three
consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the 12-consecutive month period
defined in the Adoption Agreement.
1.42 HIGHLY COMPENSATED EMPLOYEE Any Employee who performs service for the
Employer during the determination year and who, during the immediate prior
year:
(a) received Compensation from the Employer in excess of $75,000
[as adjusted pursuant to Code Section 415(d)]; or
(b) received Compensation from the Employer in excess of $50,000
[as adjusted pursuant to Code Section 415(d)] and was a member
of the Top-Paid Group for such year; or
(c) was an officer of the Employer and received Compensation during
such year that is greater than 50 percent of the dollar
limitation in effect under Code Section 415(b)(1)(A).
Notwithstanding (a), (b) and (c), an Employee who was not Highly Compensated
during the preceding Plan Year shall not be treated as a Highly Compensated
Employee with respect to the current Plan Year unless such Employee is a member
of the 100 Employees paid the greatest Compensation during the year for which
such determination is being made.
(d) Employees who are five percent (5%) Owners at any time during
the immediate prior year or determination year.
Highly Compensated Employee includes Highly Compensated active Employees and
Highly Compensated former Employees.
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1.43 HOUR OF SERVICE
(a) Each hour for which an Employee is paid. or entitled to
payment, for the performance of duties for the Employer. These
hours shall be credited to the Employee for the computation
period in which the duties are performed; and
(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 shall 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 shall
be calculated and credited pursuant to Section 2530.200b-2 of
the Department of Labor Regulations which are 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 shall not be credited both under
paragraph (a) or paragraph (b), as the case may be, and under
this paragraph (c). These hours shall 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.
(d) Hours of Service shall be credited for employment with the
Employer and with other members of an affiliated service group
[as defined in Code Section 414(m)], a controlled group of
corporations [as defined in Code Section 414(b)], or a group of
trades or businesses under common control [as defined in Code
Section 414(c)] of which the adopting Employer is a member, and
any other entity required to be aggregated with the Employer
pursuant to Code Section 414(o) and the regulations thereunder.
Hours of Service shall also be credited for any individual
considered an Employee for purposes of this Plan under Code
Section 414(n) or Code Section 414(o) and the regulations
thereunder.
(e) Solely for purposes of determining whether a Break in Service,
as defined in paragraph 1.10, for participation and vesting
purposes has occurred in a computation period, an individual
who is absent from work for maternity or paternity reason 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, 8 Hours
of Service per day of such absence. For purposes of this
paragraph, an absence from work for maternity or paternity
reasons means an absence by reason of the pregnancy of the
individual, by reason of a birth of a child of the individual,
by reason of the placement of a child
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with the individual in connection with the adoption of such
child by such individual, or 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 the crediting is necessary to prevent a Break in
Service in that period, or in all other cases, in the following
computation period. No more than 501 hours will be credited
under this paragraph.
(f) Hours of Service shall be determined on the basis of the method
selected in the Adoption Agreement.
1.44 KEY EMPLOYEE Any Employee or former Employee (and the beneficiaries of
such employee) who at any time during the determination period was an officer
of the Employer if such individual's annual compensation exceeds 50% of the
dollar limitation under Code Section 415(b)(1)(A) (the defined benefit maximum
annual benefit), an owner (or considered an owner under Code Section 318) of
one of the ten largest interests in the employer if such individual's
compensation exceeds 100% of the dollar limitation under Code Section
415(c)(1)(A), a 5% owner of the Employer, or a 1% owner of the Employer who has
an annual compensation of more than $150,000. For purposes of determining who
is a Key Employee, annual compensation shall mean Compensation as defined for
Article X, but including amounts deferred through a salary reduction agreement
to a cash or deferred plan under Code Section 401(k), a Simplified Employee
Pension Plan under Code Section 408(k), a cafeteria plan under Code Section 125
or a tax-deferred annuity under Code Section 403(b). The determination period
is the Plan Year containing the Determination Date and the four preceding Plan
Years. The determination of who is a Key Employee will be made in accordance
with Code Section 416(i)(l) and the regulations thereunder.
1.45 LEASED EMPLOYEE Any person (other than an Employee of the recipient) who,
pursuant to an agreement between the recipient and any other person ("leasing
organization"), has performed services for the recipient [or for the recipient
and related persons determined in accordance with Code Section 414(n)(6)] 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 recipient Employer.
1.46 LIMITATION YEAR The calendar year or such other 12-consecutive month
period designated by the Employer in the Adoption Agreement for purposes of
determining the maximum Annual Addition to a Participant's account. 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.
1.47 MASTER OR PROTOTYPE PLAN A plan, the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.48 MATCHING CONTRIBUTION An Employer contribution made to this or any other
defined contribution plan on behalf of a Participant on account of an Employee
Voluntary Contribution made by such Participant, or on account of a
Participant's Elective Deferral, under a Plan maintained by the Employer.
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1.49 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% of the Participants Compensation for the Limitation Year.
The compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits [within the meaning of Code Section 401(h) or
Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under
Code Section 415(l)(1) or 419(d)(2). If a short Limitation Year is created
because of an amendment changing the Limitation Year to a different
12-consecutive month period, the Maximum Permissible Amount will not exceed the
Defined Contribution Dollar Limitation multiplied by the following fraction:
Number of months in the short Limitation Year divided by 12.
1.50 NET PROFIT The current and accumulated operating earnings of the Employer
before Federal and State income taxes, excluding nonrecurring or unusual items
of income, and before contributions to this and any other qualified plan of the
Employer. Alternatively, the Employer may fix another definition in the
Adoption Agreement.
1.51 NORMAL RETIREMENT AGE The age, set by the Employer in the Adoption
Agreement, at which a Participant may retire and receive his or her benefits
under the Plan.
1.52 OWNER-EMPLOYEE A sole proprietor, or a partner owning more than 10% of
either the capital or profits interest of the partnership.
1.53 PAIRED PLANS Two or more Plans maintained by she Sponsor designed so that
a single or any combination of Plans adopted by an Employer will meet the
antidiscrimination rules, the contribution and benefit limitations, and the
Top-Heavy provisions of the Code.
1.54 PARTICIPANT Any Employee who has met the eligibility requirements and is
participating in the Plan.
1.55 PARTICIPANT'S BENEFIT The account balance as of the last Valuation Date in
the calendar year immediately preceding the Distribution Calendar Year
(valuation calendar year) increased by the amount of any contributions or
forfeitures allocated to the account balance as of the dates in the valuation
calendar year after the Valuation Date and decreased by distributions made in
the valuation calendar year after the Valuation Date. A special exception
exists for the second distribution Calendar Year. For purposes of this
paragraph, 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.
1.56 PERMISSIVE AGGREGATION GROUP Used for Top-Heavy testing purposes, it is
the Required Aggregation Group of plans plus any other plan or plans of the
Employer which, when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.
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1.57 PLAN The Employer's retirement plan as embodied herein and in the Adoption
Agreement.
1.58 PLAN ADMINISTRATOR The Employer, its committee or other designee.
1.59 PLAN YEAR The 12-consecutive month period designated by the Employer in
the Adoption Agreement.
1.60 PRESENT VALUE Used for Top-Heavy test and determination purposes, when
determining the Present Value of accrued benefits, with respect to any Defined
Benefit Plan maintained by the Employer, interest and mortality rates shall be
determined in accordance with the provisions of the respective plan. If
applicable, interest and mortality assumptions will be specified in Section 11
of the Adoption Agreement.
1.61 PROJECTED ANNUAL BENEFIT Used to test the maximum benefit which may be
obtained from a combination of retirement plans, it is the annual retirement
benefit (adjusted to an actuarial 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 a Defined Benefit Plan or plans, assuming:
(a) the Participant will continue employment until Normal
Retirement Age under the plan (or current age, if later), and
(b) the Participant's 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.
1.62 QUALIFIED DEFERRED COMPENSATION PLAN Any pension, profit-sharing, stock
bonus, or other plan which meets the requirements of Code Section 401 and
includes a trust exempt from tax under Code Section 501(a) or any annuity plan
described in Code Section 403(a)
An Eligible Retirement Plan is an individual retirement account (IRA) as
described in Code Section 408(a), an individual retirement annuity (IRA) as
described in Code Section 408(b), an annuity plan as described in Code Section
403(a), or a qualified trust as described in Code Section 401(a). which accepts
Eligible Rollover Distributions. However in the case of an Eligible Rollover
Distribution to a Surviving Spouse, an Eligible Retirement Plan is an
individual retirement account or individual retirement annuity
1.63 QUALIFIED DOMESTIC RELATIONS ORDER A QDRO is a signed Domestic Relations
Order issued by a State Court which creates, recognizes or assigns to an
alternate payee(s) the right to receive all or part of a Participant's Plan
benefit and which meets the requirements of Code Section 414(p). An alternate
payee is a Spouse, former Spouse, child, or other dependent who is treated as a
beneficiary under the Plan as a result of the QDRO.
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1.64 QUALIFIED EARLY RETIREMENT AGE For purposes of paragraph 8.9, Qualified
Early Retirement Age is the latest of:
(a) the earliest date, under the Plan, on which the Participant may
elect to receive retirement benefits, or
(b) the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age, or
(c) the date the Participant begins participation.
1.65 QUALIFIED JOINT AND SURVIVOR ANNUITY An immediate annuity for the life of
the Participant with a survivor annuity for the life of the Participant's
Spouse which is at least one-half of but not more than the amount of the
annuity payable during the joint lives of the Participant and the Participant's
Spouse. The exact amount of the Survivor Annuity is to be specified by the
Employer in the Adoption Agreement. If not designated by the Employer, the
Survivor Annuity will be 1/2 of the amount paid to the Participant during his
or her lifetime. The Qualified Joint and Survivor Annuity will be the amount of
benefit which can be provided by the Participant's Vested Account Balance.
1.66 QUALIFIED MATCHING CONTRIBUTION Matching Contributions which when made are
subject to the distribution and nonforfeitability requirements under Code
Section 401(k)
1.67 QUALIFIED NON-ELECTIVE CONTRIBUTIONS Contributions (other than Matching
Contributions or Qualified Matching Contributions) made by the Employer and
allocated to Participants' accounts that the Participants may not elect to
receive in cash until distributed from the Plan; that are nonforfeitable when
made; and that are distributable only in accordance with the distribution
provisions that are applicable to Elective Deferrals and Qualified Matching
Contributions.
1.68 QUALIFIED VOLUNTARY CONTRIBUTION A tax-deductible voluntary Employee
contribution. These contributions may no longer be made to the Plan
1.69 RECORDKEEPER The person or entity who may be retained by the Plan
Administrator on behalf of the Plan to provide specified administrative
services to the plan
1.70 REQUIRED AGGREGATION GROUP Used for Top-Heavy testing purposes, it
consists of:
(a) 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
(b) any other qualified plan of the Employer which enables a plan
described in (a) to meet the requirements of Code Sections
401(a)(4) or 410.
1.71 REQUIRED BEGINNING DATE The date on which a Participant is required take
his or her first minimum distribution under the Plan. The rules are set forth
paragraph 7.5
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1.72 ROLLOVER CONTRIBUTION A contribution made by a Participant of an amount
distributed to such Participant from another Qualified Deferred Compensation
Plan in accordance with Code Sections 402(a)(5), (6), and (7).
An Eligible Rollover Distribution is any distribution of all or any portion of
the balance to the credit of the Participant except that an Eligible Rollover
Distribution does not include:
(a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and the
Participant's Designated Beneficiary, or for a specified period
of ten years or more;
(b) any distribution to the extent such distribution is required
under Code Section 401(a)(9); and
(c) 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).
A Direct Rollover is a payment by the plan to the Eligible Retirement Plan
specified by the Participant.
1.73 SALARY SAVINGS AGREEMENT An agreement between the Employer and a
participating Employee where the Employee authorizes the Employer to withhold a
specified percentage of his or her Compensation for deposit to the Plan on
behalf of such Employee.
1.74 SELF-EMPLOYED INDIVIDUAL An individual who has Earned Income for the
taxable year from the trade or business for which the Plan is established
including an individual who would have had Earned Income but for the fact that
the trade or business had no Net Profit for the taxable year.
1.75 SERVICE The period of current or prior employment with the Employer. If
the Employer maintains a plan of a predecessor employer, Service for such
predecessor shall be treated as Service for the Employer.
1.76 SHAREHOLDER EMPLOYEE An Employee or Officer who owns [or is considered as
owning within the meaning of Code Section 318(a)(1)], on any day during the
taxable year of an electing small business corporation (S Corporation), more
than 5% of such corporation's outstanding stock.
1.77 SIMPLIFIED EMPLOYEE PENSION PLAN An individual retirement account which
meets the requirements of Code Section 408(k), and to which the Employer makes
contributions pursuant to a written formula. These plans are considered for
contribution limitation and Top-Heavy testing purposes.
1.78 SPONSOR Bank One Trust Company. N.A., or any successor(s) or assign(s).
1.79 SPOUSE (SURVIVING SPOUSE) The Spouse or Surviving Spouse of the
Participant, provided that a former Spouse will be treated as the Spouse or
Surviving Spouse and a current Spouse will not be treated as the Spouse or
Surviving Spouse to the extent provided under a Qualified Domestic Relations
Order as described in Code Section 414(p).
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1.80 SUPER TOP-HEAVY PLAN A Plan described at paragraph 1.81 under which the
Top-Heavy Ratio [as defined at paragraph 1.82] exceeds 90%.
1.81 TAXABLE WAGE BASE For plans with an allocation formula which takes into
account the Employer's contribution under the Federal Insurance Contributions
Act (FICA), the maximum amount of earnings which may be considered wages for
such Plan Year under Section 230 of the Social Security Act, or the amount
elected by the Employer in the Adoption Agreement.
1.82 TOP-HEAVY 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.
1.83 TOP-HEAVY PLAN For any Plan Year beginning after 1983, the Employer's Plan
is top-heavy if any of the following conditions exist:
(a) If the Top-Heavy Ratio for the Employer's Plan exceeds 60% and
this Plan is not part of any required Aggregation Group or
Permissive Aggregation Group of Plans.
(b) If the Employer's plan is a part of a Required Aggregation
Group of plans but not part of a Permissive Aggregation Group
and the Top-Heavy Ratio for the group of plans exceeds 60%.
(c) If the Employer's 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%.
1.84 TOP-HEAVY RATIO
(a) 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,
(1) the numerator of which is the sum of the account
balances of all Key Employees as of the Determination
Date(s) [including any part of any account balance
distributed in the 5-year period ending on the
Determination Date(s)], and
(2) 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 Code Section 416 and the regulations thereunder.
Both the numerator and denominator of the Top2Heavy 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 Code Section 416 and the regulations
thereunder.
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(b) 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 (a) 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 (a) above, and the
Present Value of accrued benefits under the Defined Benefit
Plan or Plans for all Participants as of the Determination
Date(s), all determined in accordance with Code Section 416 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 5-year period ending on the
Determination Date.
(c) For purposes of (a) and (b) 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 Code Section 416 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 (1) who is not a Key Employee but who
was a Key Employee in a prior year, or (2) 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 Code Section 416 and the
regulations thereunder. Qualified Voluntary Employee
Contributions 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 (1) the method,
if any, that uniformly applies for accrual purposes under all
Defined Benefit Plans maintained by the Employer, or (2) if
there is no such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted under the
fractional rule of Code Section 411(b)(1)(C).
1.85 TOP-PAID GROUP The group consisting of the top 20% of Employees when
ranked on the basis of Compensation paid during such year. For purposes of
determining the number of Employees in the group (but not who is in it), the
following Employees shall be excluded:
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(a) Employees who have not completed 6 months of Service.
(b) Employees who normally work less than 17-1/2 hours per week.
(c) Employees who normally do not work more than 6 months during
any year.
(d) Employees who have not attained age 21.
(e) Employees included in a collective bargaining unit, covered by
an agreement between employee representatives and the Employer,
where retirement benefits were the subject of good faith
bargaining and provided that 90% or more of the Employer's
Employees are covered by the agreement.
(f) Employees who are nonresident aliens and who receive no earned
income which constitutes income from sources within the United
States.
1.86 TRANSFER CONTRIBUTION A non-taxable transfer of a Participant's benefit
directly from a Qualified Deferred Compensation Plan to this Plan.
1.87 TRUSTEE The individual(s) or institution appointed by the Employer to
invest the Fund.
1.88 VALUATION DATE The last day of the Plan Year or such other date as
specified in the Adoption Agreement as arranged by the Employer and the
Trustee/Custodian on which the Market Value of the Participant accounts are
revalued. For Top-Heavy purposes, the date selected by the Employer as of which
the Top-Heavy Ratio is calculated. For minimum required distribution purposes
as provided in Section 7.2, the last day of the Plan Year.
1.89 VESTED ACCOUNT BALANCE The aggregate value of the Participant's Vested
Account Balances derived from Employer and Employee contributions (including
Rollovers), whether vested before or upon death, including the proceeds of
insurance contracts, if any, on the Participant's life. The provisions of
Article VIII shall apply to a Participant who is vested in amounts attributable
to Employer contributions, Employee contributions (or both) at the time of
death or distribution.
1.90 VOLUNTARY CONTRIBUTION An Employee 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.
1.91 WELFARE BENEFIT FUND Any fund that is part of a plan of the Employer, or
has the effect of a plan, through which the Employer provides welfare benefits
to Employees or their beneficiaries. For these purposes, Welfare Benefits means
any benefit other than those with respect to which Code Section 83(h) (relating
to transfers of property in connection with the performance of services), Code
Section 404 (relating to deductions for contributions to an Employee's trust or
annuity and Compensation under a deferred payment plan), Code Section 404A
(relating to certain foreign deferred compensation plans) apply. A "Fund" is
any social club, voluntary employee benefit association, supplemental
unemployment benefit trust or qualified group legal service organization
described in Code Section 50l(c)(7), (9), (17) or (20); any trust, corporation,
or other organization not exempt from income tax, or to the extent provided in
regulations, any account held for an Employer by any person.
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1.92 YEAR OF SERVICE A 12-consecutive month period during which an Employee is
credited with not less than 1,000 (or such lesser number as specified by the
Employer in the Adoption Agreement) Hours of Service.
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ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 PARTICIPATION Employees who meet the eligibility requirements in the
Adoption Agreement on the Effective Date of the Plan shall become Participants
as of the Effective Date of the Plan. If so elected in the Adoption Agreement,
all Employees employed on the Effective Date of the Plan may participate, even
if they have not satisfied the Plan's specified eligibility requirements. Other
Employees shall become Participants on the Entry Date coinciding with or
immediately following the date on which they meet the eligibility requirements.
The Employee must satisfy the eligibility requirements specified in the
Adoption Agreement and be employed on the Entry Date to become a Participant in
the Plan. In the event an Employee who is not a member of the eligible class of
Employees becomes a member of the eligible class, such Employee shall
participate immediately if such Employee has satisfied the minimum age and
service requirements and would have previously become a Participant had he or
she been in the eligible class. A former Participant shall again become a
Participant upon returning to the employ of the Employer at the next Entry Date
or if earlier, the next Valuation Date. For this purpose, Participant's
Compensation and Service shall be considered from date of rehire.
2.2 CHANGE IN CLASSIFICATION OF EMPLOYMENT In the event a Participant becomes
ineligible to participate because he or she is no longer a member of an
eligible class of Employees, such Employee shall participate upon his or her
return to an eligible class of Employees.
2.3 COMPUTATION PERIOD To determine Years of Service and Breaks in Service for
purposes of eligibility, the 12-consecutive month period shall commence on the
date on which an Employee first performs an Hour of Service for the Employer
and each anniversary thereof, such that the succeeding 12-consecutive month
period commences with the employee's first anniversary of employment and so on.
If, however, the period so specified is one year or less, the succeeding
12-consecutive month period shall commence on the first day of the Plan Year
prior to the anniversary of the date they first performed an Hour of Service
regardless of whether the Employee is entitled to be credited with 1,000 (or
such lesser number as specified by the Employer in the Adoption Agreement)
Hours of Service during their first employment year.
2.4 EMPLOYMENT RIGHTS Participation in the Plan shall not confer upon a
Participant any employment rights, nor shall it interfere with the Employer's
right to terminate the employment of any Employee at any time.
2.5 SERVICE WITH CONTROLLED GROUPS All Years of Service with other members of a
controlled group of corporations [as defined in Code Section 414(b)], trades or
businesses under common control [as defined in Code Section 414(c)], or members
of an affiliated service group [as defined in Code Section 414(m)] shall be
credited for purposes of determining an Employee's eligibility to participate.
2.6 OWNER-EMPLOYEES If this Plan provides contributions or benefits for one or
more Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and the Plan
established for other trades or businesses must, when looked at as a single
Plan, satisfy Code Sections 401(a) and (d) for the Employees of this and all
other trades or businesses.
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If the Plan provides contributions or benefits for one or more Owner-Employees
who control one or more other trades or businesses, the Employees of the other
trades or businesses must be included in a Plan which satisfies Code Sections
401(a) and (d) and which provides contributions and benefits not less favorable
than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two or more
trades or businesses which are not controlled, and the individual controls a
trade or business, then the contributions or benefits of the Employees under
the plan of the trades or businesses which are controlled must be as favorable
as those provided for him or her under the most favorable plan of the trade or
business which is not controlled.
For purposes of the preceding sentences, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(a) own the entire interest in an unincorporated trade or business,
or
(b) in the case of a partnership, own more than 50% of either the
capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee,
or such two or more Owner-Employees, are considered to control within the
meaning of the preceding sentence.
2.7 LEASED EMPLOYEES Any Leased Employee shall be treated as an Employee of the
recipient Employer; however, contributions or benefits provided by the leasing
organization which are attributable to services performed for the recipient
Employer shall be treated as provided by the recipient Employer. A Leased
Employee shall not be considered an Employee of the recipient if such Employee
is covered by a money purchase pension plan providing:
(a) a non-integrated Employer contribution rate of at least 10% of
Compensation, [as defined in Code Section 415(c)(3) but
including amounts contributed by the Employer pursuant to a
salary reduction agreement, which are excludable from the
Employee's gross income under a cafeteria plan covered by Code
Section 125, a cash or deferred profit-sharing plan under
Section 401(k) of the Code, a Simplified Employee Pension Plan
under Code Section 402(h)(1)(B) and a tax-sheltered annuity
under Code Section 403(b)],
(b) immediate participation, and
(c) full and immediate vesting
This exclusion is only available if Leased Employees do not constitute more
than twenty percent (20%) of the recipient's non-highly compensated work force.
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2.8 THRIFT PLANS If the Employer makes an election in the Adoption Agreement to
require Voluntary Contributions to participate in this Plan, the Employer shall
notify each eligible Employee in writing of his or her eligibility for
participation at least 30 days prior to the appropriate Entry Date. The
Employee shall indicate his or her intention to join the Plan by authorizing
the Employer to withhold a percentage of his or her Compensation as provided in
the Plan. Such authorization shall be returned to the Employer at least 10 days
prior to the Employee's Entry Date. The Employee may decline participation by
so indicating on the enrollment form or by failure to return the enrollment
form to the Employer prior to the Employee's Entry Date. If the Employee
declines to participate, such Employee shall be given the opportunity to join
the Plan on the next Entry Date. The taking of a Hardship Withdrawal under the
provisions of paragraph 6.9 will impact the Participant's ability to make these
contributions.
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ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 AMOUNT The Employer intends to make periodic contributions to the Plan in
accordance with the formula or formulas selected in the Adoption Agreement.
However, the Employer's contribution for any Plan Year shall be subject to the
limitations on allocations contained in Article X.
3.2 EXPENSES AND FEES The Employer shall also be authorized to reimburse the
Fund for all expenses and fees incurred in the administration of the Plan or
Trust/Custodial Account and paid out of the assets of the Fund. Such expenses
shall include, but shall not be limited to, fees for professional services,
printing and postage. Brokerage commissions may not be reimbursed.
3.3 RESPONSIBILITY FOR CONTRIBUTIONS Neither the Trustee/Custodian nor the
Sponsor shall be required to determine if the Employer has made a contribution
or if the amount contributed is in accordance with the Adoption Agreement or
the Code. The Employer shall have sole responsibility in this regard. The
Trustee/Custodian shall be accountable solely for contributions actually
received by it, within the limits of Article XI.
3.4 RETURN OF CONTRIBUTIONS Contributions made to the Fund by the Employer
shall be irrevocable except as provided below:
(a) Any contribution forwarded to the Trustee/Custodian because of
a mistake of fact, provided that the contribution is returned
to the Employer within one year of the contribution.
(b) In the event that the Commissioner of Internal Revenue
determines that the Plan is not initially qualified under the
Internal Revenue Code, any contribution made incident to that
initial qualification by the Employer must be returned to the
Employer within one year after the date the initial
qualification is denied, but only if the application for the
qualification is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan is
adopted, or such later date as the Secretary of the Treasury
may prescribe.
(c) Contributions forwarded to the Trustee/Custodian are presumed
to be deductible and are conditioned on their deductibility.
Contributions which are determined to not be deductible will be
returned to the Employer.
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ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 VOLUNTARY CONTRIBUTIONS An Employee may make Voluntary Contributions to the
Plan established hereunder if so authorized by the Employer in a uniform and
nondiscriminatory manner. Such contributions are subject to the limitations on
Annual Additions and are subject to antidiscrimination testing.
4.2 QUALIFIED VOLUNTARY CONTRIBUTIONS A Participant mayno longer make Qualified
Voluntary Contributions to the Plan. Amounts already contributed may remain in
the Trust Fund/Custodial Account until distributed to the Participant. Such
amounts will be maintained in a separate account which will be nonforfeitable
at all times. The account will share in the gains and losses of the Trust in
the same manner as described at paragraph 5.4 of the Plan. No part of the
Qualified Voluntary Contribution account will be used to purchase life
insurance. Subject to Article VIII, Joint and Survivor Annuity Requirements (if
applicable), the Participant may withdraw any part of the Qualified Voluntary
Contribution account by making a written application to the Plan Administrator.
4.3 ROLLOVER CONTRIBUTION Unless provided otherwise in the Adoption Agreement,
a Participant may make a Rollover Contribution to any Defined Contribution Plan
established hereunder of all or any part of an amount distributed or
distributable to him or her from a Qualified Deferred Compensation Plan
provided:
(a) the amount distributed to the Participant is deposited to the
Plan no later than the sixtieth day after such distribution was
received by the Participant,
(b) the amount distributed is not one of a series of substantially
equal periodic payments made for the life (or life expectancy)
of the Participant' or the joint lives (or joint life
expectancies) of the Participant and the Participant's
Designated Beneficiary, or for a specified period of ten years
or more;
(c) the amount distributed is not required under Code Section 401
(a)(9);
(d) if the amount distributed included property, such property is
rolled over, or if sold the proceeds of such property may be
rolled over,
(e) the amount distributed is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
In addition, if the Adoption Agreement allows Rollover Contributions, the Plan
will also accept any Eligible Rollover Distribution (as defined at paragraph
1.70) directly to the Plan.
Rollover Contributions, which relate to distributions prior to January 1, 1993,
must be made in accordance with paragraphs (a) through (e) and additionally
meet the requirements of paragraph (f):
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(f) The distribution from the Qualified Deferred Compensation Plan
constituted the Participant's entire interest in such Plan and
was distributed within one taxable year to the Participant:
(1) on account of separation from Service, a Plan termination,
or in the case of a profit- sharing or stock bonus plan, a
complete discontinuance of contributions under such plan
within the meaning of Code Section 402(a)(6)(A), or
(2) in one or more distributions which constitute a qualified
lump sum distribution within the meaning of Code Section
402(e)(4)(A), determined without reference to
subparagraphs (B) and (H).
Such Rollover Contribution may also be made through an individual retirement
account qualified under Code Section 408 where the IRA was used as a conduit
from the Qualified Deferred Compensation Plan, the Rollover Contribution is
made in accordance with the rules provided under paragraphs (a) through (e) and
the Rollover Contribution does not include any regular IRA contributions, or
earnings thereon, which the Participant may have made to the IRA. Rollover
Contributions, which relate to distributions prior to January 1, 1993, may be
made through an IRA in accordance with paragraphs (a) through (f) and
additional requirements as provided in the previous sentence. The
Trustee/Custodian shall not be held responsible for determining the tax-free
status of any Rollover Contribution made under this Plan.
4.4 TRANSFER CONTRIBUTION Unless provided otherwise in the Adoption Agreement a
Participant may, subject to the provisions of paragraph 4.5, also arrange for
the direct transfer of his or her benefit from a Qualified Deferred
Compensation Plan to this Plan. For accounting and record keeping purposes,
Transfer Contributions shall be treated in the same manner as Rollover
Contributions.
In the event the Employer accepts a Transfer Contribution from a Plan in which
the Employee was directing the investments of his or her account, the Employer
may continue to permit the Employee to direct his or her investments in
accordance with paragraph 13.7 with respect only to such Transfer Contribution.
Notwithstanding the above, the Employer may refuse to accept such Transfer
Contributions.
4.5 EMPLOYER APPROVAL OF TRANSFER CONTRIBUTIONS The Employer maintaining a
Safe-Harbor Profit-Sharing Plan in accordance with the provisions of paragraph
8.7, acting in a nondiscriminatory manner, may in its sole discretion refuse to
allow Transfer Contributions to its profit-sharing plan, if such contributions
are directly or indirectly being transferred from a defined benefit plan, a
money purchase pension plan (including a target benefit plan), a stock bonus
plan, or another profit-sharing plan which would otherwise provide for a life
annuity form of payment to the Participant.
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4.6 ELECTIVE DEFERRALS A Participant may enter into a Salary Savings Agreement
with the Employer authorizing the Employer to withhold a portion of such
Participant's Compensation not to exceed $7,000 per calendar year as adjusted
under Code Section 415(d) or, if lesser, the percentage of Compensation
specified in the Adoption Agreement and to deposit such amount to the Plan. No
Participant shall be permitted to have Elective Deferrals made under this Plan
or any other qualified plan maintained by the Employer, during any taxable
year, in excess of the dollar limitation contained in Code Section 402(g) in
effect at the beginning of such taxable year. Thus, the $7,000 limit may be
reduced if a Participant contributes pre-tax contributions to qualified plans
of this or other Employers. Any such contribution shall be credited to the
Employee's Salary Savings Account. Unless otherwise specified in the Adoption
Agreement, a Participant may amend his or her Salary Savings Agreement to
increase, decrease or terminate the percentage upon written notice to the
Employer. If a Participant terminates his or her agreement, such Participant
shall not be permitted to put a new Salary Savings Agreement into effect until
the first pay period in the next Plan Year, unless otherwise stated in the
Adoption Agreement. The Employer may also amend or terminate said agreement on
written notice to the Participant. If a Participant has not authorized the
Employer to withhold at the maximum rate and desires to increase the total
withheld for a Plan Year, such Participant may authorize the Employer upon 30
days notice to withhold a supplemental amount up to 100% of his or her
Compensation for one or more pay periods. In no event may the sum of the
amounts withheld under the Salary Savings Agreement plus the supplemental
withholding exceed 25% of a Participant's Compensation for a Plan Year. The
Employer may also recharacterize as after-tax Voluntary Contributions all or
any portion of amounts previously withheld under any Salary Savings Agreement
within the Plan Year as provided for at paragraph 10.9. This may be done to
insure that the Plan will meet one of the antidiscrimination tests under Code
Section 401(k). Elective Deferrals shall be deposited in the Trust within 30
days after being withheld from the Participant's pay.
4.7 REQUIRED VOLUNTARY CONTRIBUTIONS If the Employer makes a thrift election in
the Adoption Agreement, each eligible Participant shall be required to make
Voluntary Contributions to the Plan for credit to his or her account as
provided in the Adoption Agreement. Such Voluntary Contributions shall be
withheld from the Employee's Compensation and shall be transmitted by the
Employer to the Trustee/Custodian as agreed between the Employer and
Trustee/Custodian. A Participant may discontinue participation or change his or
her Voluntary Contribution percentage by so advising the Employer at least 10
days prior to the date on which such discontinuance or change is to be
effective. If a Participant discontinues his or her Voluntary Contributions,
such Participant may not again authorize Voluntary Contributions for a period
of one year from the date of discontinuance. A Participant may voluntarily
change his or her Voluntary Contribution percentage once during any Plan Year
and may also agree to have a reduction in his or her contribution, if required
to satisfy the requirements of the ACP test.
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ARTICLE V
PARTICIPANT ACCOUNTS
5.1 SEPARATE ACCOUNTS The Employer shall establish a separate bookkeeping
account for each Participant showing the total value of his or her interest in
the Fund. Each Participant's account shall be separated for bookkeeping
purposes into the following sub-accounts:
(a) Employer contributions.
(1) Matching Contributions.
(2) Qualified Matching Contributions.
(3) Qualified Non-Elective Contributions.
(4) Discretionary Contributions.
(5) Elective Deferrals.
(b) Voluntary Contributions (and additional amounts including
required contributions and, if applicable, either repayments of
loans previously defaulted on and treated as "deemed
distributions" on which a tax report has been issued, and
amounts paid out upon a separation from service which have been
included in income and which are repaid after being re-hired by
the Employer).
(c) Qualified Voluntary Contributions (if the Plan previously
accepted these).
(d) Rollover Contributions and Transfer Contributions.
5.2 ADJUSTMENTS TO PARTICIPANT ACCOUNTS As of each Valuation Date of Plan,
the Employer shall add to each account:
(a) the Participant's share of the Employer's contribution and
forfeitures as determined in the Adoption Agreement,
(b) any Elective Deferrals, Voluntary, Rollover or Transfer
Contributions made by the Participant,
(c) any repayment of amounts previously paid out to a Participant
upon a separation from Service and repaid by the Participant
since the last Valuation Date, and
(d) the Participant's proportionate share of any investment
earnings and increase in the fair market value of the Fund
since the last Valuation Date, as determined at paragraph 5.4.
As of the Allocation Date chosen in the Adoption Agreement for reallocation of
forfeitures, such Participant's share of forfeitures will be added to the
Participant's account.
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The Employer shall deduct from each account:
(e) any withdrawals or payments made from the Participant's account
since the last Valuation Date, and
(f) the Participant's proportionate share of any decrease in the
fair market value of the Fund since the last Valuation Date, as
determined at paragraph 5.4.
5.3 ALLOCATING EMPLOYER CONTRIBUTIONS The Employer's contribution shall be
allocated to Participants in accordance with the allocation formula selected by
the Employer in the Adoption Agreement, and the minimum contribution and
allocation requirements for Top-Heavy Plans. Beginning with the 1990 Plan Year
and thereafter, for plans on Standardized Adoption Agreement 001, Participants
who are credited with more than 500 Hours of Service or are employed on the
last day of the Plan Year must receive a full allocation of Employer
contributions. In Nonstandardized Adoption Agreement 002, Employer
contributions shall be allocated to the accounts of Participants employed by
the Employer on the last day of the Plan Year unless indicated otherwise in the
Adoption Agreement. In the case of a non-Top-Heavy, Nonstandardized Plan,
Participants must also have completed a Year of Service unless otherwise
specified in the Adoption Agreement. For Nonstandardized Adoption Agreement
002, the Employer may only apply the last day of the Plan Year and Year of
Service requirements if the Plan satisfies the requirements of Code Sections
401(a)(26) and 410(b) and the regulations thereunder including the exception
for 401(k) plans. If, when applying the last day and Year of Service
requirements, the Plan fails to satisfy the aforementioned requirements,
additional Participants will be eligible to receive an allocation of Employer
Contributions until the requirements are satisfied. Participants who are
credited with a Year of Service, but not employed at Plan Year end, are the
first category of additional Participants eligible to receive an allocation. If
the requirements are still not satisfied, Participants credited with more than
500 Hours of Service and employed at Plan Year end are the next category of
Participants eligible to receive an allocation, Finally, if necessary to
satisfy the said requirements, any Participant credited with more than 500
Hours of Service will be eligible for an allocation of Employer Contributions.
The Service requirement is not applicable with respect to any Plan Year during
which the Employer's Plan is Top-Heavy
5.4 ALLOCATING INVESTMENT EARNINGS AND LOSSES The Recordkeeper, at the
direction of the Plan Administrator, shall employ one of the following two
methods for crediting investment earnings and gains and losses to the
Participants' accounts:
(a) All contributions will be credited with an allocation of the
actual investment earnings and gains and losses from the actual
date of deposit of each such contribution. The actual
investment earnings shall be credited to the Participants'
accounts as of the Valuation Date coincident with or next
following the date of deposit. Participants will share in the
earnings of the investment funds in which they have deposits as
of the date such earnings are either credited or accrued.
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(b) A Participant's share of the actual investment earnings and
gains and losses shall be based on the proportionate value of
all active accounts (other than accounts with segregated
investments) as of the prior Valuation Date less withdrawals
since the prior Valuation Date. If contributions, which are
deposited prior to the Valuation Date and subsequent to the
prior Valuation Date, are made on a recurrent, periodic basis
(i.e. monthly. quarterly, etc.) than the value of all active
accounts for allocation of the investment earnings and gains
and losses shall include one-half of such contributions. If
contributions, which are deposited prior to the Valuation Date
and subsequent to the prior Valuation Date, are not made on a
recurrent, periodic basis then it is assumed that such
contributions are deposited as of the Valuation Date.
Accounts not yet forfeited shall receive an allocation of investment earnings
and gains and losses in accordance with the method selected above.
Accounts with segregated investments shall receive only the income or loss on
such segregated investments regardless of the method selected above.
In no event shall the selection of a method of allocating gains and losses be
used to discriminate in favor of the Highly Compensated Employees.
5.5 PARTICIPANT STATEMENTS Upon completing the allocations described above for
the Valuation Date coinciding with the end of the Plan Year, the Employer shall
prepare a statement for each Participant showing the additions to and
subtractions from his or her account since the last such statement and the fair
market value of his or her account as of the current Valuation Date. Employers
so choosing may prepare Participant statements for each Valuation Date.
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ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 NORMAL RETIREMENT BENEFITS A Participant shall be entitled to receive the
balance held in his or her account from Employer contributions upon attaining
Normal Retirement Age or at such earlier dates as the provisions of this
Article VI may allow. If the Participant elects to continue working past his or
her Normal Retirement Age, he or she will continue as an active Plan
Participant and no distribution shall be made to such Participant until his or
her actual retirement date unless the employer elects otherwise in the Adoption
Agreement, or a minimum distribution is required by law. Settlement shall be
made in the normal form, or if elected, in one of the optional forms of payment
provided below.
6.2 EARLY RETIREMENT BENEFITS If the Employer so provides in the Adoption
Agreement, an Early Retirement Benefit will be available to individuals who
meet the age and Service requirements. An individual who meets the Early
Retirement Age requirements and separates from Service, will become fully
vested, regardless of any vesting schedule which otherwise might apply. If a
Participant separates from Service before satisfying the age requirements, but
after having satisfied the Service requirement, the Participant will be
entitled to elect an Early Retirement benefit upon satisfaction of the age
requirement.
6.3 BENEFITS ON TERMINATION OF EMPLOYMENT
(a) If a Participant terminates employment prior to Normal
Retirement Age, such Participant shall be entitled to receive
the vested balance held in his or her account payable at Normal
Retirement Age in the normal form, or if elected, in one of the
optional forms of payment provided hereunder. If applicable,
the Early Retirement Benefit provisions may be elected.
Notwithstanding the preceding sentence, a former Participant
may, if allowed in the Adoption Agreement, make application to
the Employer requesting early payment of any deferred vested
and nonforfeitable benefit due.
(b) If a Participant terminates employment, and the value of that
Participant's Vested Account Balance derived from Employer and
Employee contributions is not greater than $3,500, the
Participant may receive a lump sum distribution of the value of
the entire vested portion of such account balance and the
non-vested portion will be treated as a forfeiture. The
Employer shall continue to follow their consistent policy, as
may be established, regarding immediate cash-outs of Vested
Account Balances of $3,500 or less. For purposes of this
Article, 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 immediately
following termination. Likewise, if the Participant is
reemployed prior to incurring 5 consecutive 1-year Breaks in
Service they will be deemed to have immediately repaid such
distribution. For Plan Years beginning prior to 1989, a
Participant's Vested Account Balance shall not include
Qualified
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Voluntary Contributions. Notwithstanding the above, if the
Employer maintains or has maintained a policy of not
distributing any amounts until the Participant's Normal
Retirement Age, the Employer can continue to uniformly apply
such policy.
(c) If a Participant terminates employment with a Vested Account
Balance derived from Employer and Employee contributions in
excess of $3,500, and elects (with his or her Spouse's consent,
if required) to receive 100% of the value of his or her Vested
Account Balance in a lump sum, the non-vested portion will be
treated as a forfeiture. The Participant (and his or her
Spouse, if required) must consent to any distribution, when the
Vested Account Balance described above exceeds $3,500 or if at
the time of any prior distribution it exceeded $3,500. For
purposes of this paragraph, for Plan Years beginning prior to
1989, a Participant's Vested Account Balance shall not include
Qualified Voluntary Contributions.
(d) Distribution of less than 100% of the Participant's Vested
Account Balance shall only be permitted if the Participant is
fully vested upon termination of employment.
(e) If a Participant who is not 100% vested receives or is deemed
to receive a distribution pursuant to this paragraph and
resumes employment covered under this Plan, the Participant
shall have the right to repay to the Plan the full amount of
the distribution attributable to Employer contributions on or
before the earlier of the date that the Participant incurs 5
consecutive 1-year Breaks in Service following the date of
distribution or five years after the first date on which the
Participant is subsequently reemployed. In such event, the
Participant's account shall be restored to the value thereof at
the time the distribution was made and may further be increased
by the Plan's income and investment gains and/or losses on the
undistributed amount from the date of distribution to the date
of repayment.
(f) A Participant shall also have the option, to postpone payment
of his or her Plan benefits until the first day of April
following the calendar year in which he or she attains age
70-1/2. Any balance of a Participant's account resulting from
his or her Employee contributions not previously withdrawn, if
any, may be withdrawn by the Participant immediately following
separation from Service.
(g) If a Participant ceases to be an active Employee as a result of
a Disability as defined at paragraph 1.21, such Participant
shall be able to make an application for a disability
retirement benefit payment. The Participant's account balance
will be deemed "immediately distributable" as set forth in
paragraph 6.4, and will be fully vested pursuant to paragraph
9.2.
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6.4 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS
(a) 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 the Normal Retirement
Age or age 62.
(b) 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) $3,500, and the
account balance is immediately distributable, the Participant
and his or her Spouse (or where either the Participant or the
Spouse has died, the survivor) must consent to any distribution
of such account balance. The consent of the Participant and the
Spouse shall be obtained in writing within the 90-day period
ending on the annuity starting date, which is the first day of
the first period for which an amount is paid as an annuity or
any other form. The Plan Administrator shall notify the
Participant and the Participant's Spouse of the right to defer
any distribution until the Participant's account balance is no
longer immediately distributable. Such notification shall
include a general description of the material features, and an
explanation of the relative values of, the optional forms of
benefit available under the plan in a manner that would satisfy
the notice requirements of Code Section 417(a)(3), and shall be
provided no less than 30 days and no more than 90 days prior to
the annuity starting date.
(c) Notwithstanding the foregoing, only the Participant need
consent to the commencement of a distribution in the form of a
qualified Joint and Survivor Annuity while the account balance
is immediately distributable. Furthermore, if payment in the
form of a Qualified Joint and Survivor Annuity is not required
with respect to the Participant pursuant to paragraph 8.7 of
the Plan, only the Participant need consent to the distribution
of an account balance that is immediately distributable.
Neither the consent of the Participant nor the Participant's
Spouse shall be required to the extent that a distribution is
required to satisfy Code Section 401(a)(9) or Code Section 415.
In addition, upon termination of this Plan if the Plan does not
offer an annuity option (purchased from a commercial provider),
the Participant's account balance may, without the
Participant's consent, be distributed to the Participant or
transferred to another Defined Contribution Plan [other than an
employee stock ownership plan as defined in Code Section
4975(e)(7)] within the same controlled group.
(d) For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first day
of the first Plan Year beginning after 1988, the Participant's
Vested Account Balance shall not include amounts attributable
to Qualified Voluntary Contributions.
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6.5 NORMAL FORM OF PAYMENT The normal form of payment for a profit-sharing plan
satisfying the requirements of paragraph 8.7 hereof shall be a lump sum with no
option for annuity payments. For all other plans, the normal form of payment
hereunder shall be a Qualified Joint and Survivor Annuity as provided under
Article VIII. A Participant whose Vested Account Balance derived from Employer
and Employee contributions exceeds $3,500, or if at the time of any prior
distribution it exceeded $3,500, shall (with the consent of his or her Spouse)
have the right to receive his or her benefit in a lump sum or in monthly,
quarterly, semiannual or annual payments from the Fund over any period not
extending beyond the life expectancy of the Participant and his or her
Beneficiary. For purposes of this paragraph, for Plan Years prior to 1989, a
Participant's Vested Account Balance shall not include Qualified Voluntary
Contributions. The normal form of payment shall be automatic, unless the
Participant files a written request with the Employer prior to the date on
which the benefit is automatically payable, electing a lump sum or installment
payment option. No amendment to the Plan may eliminate one of the optional
distribution forms listed above.
6.6 COMMENCEMENT OF BENEFITS
(a) Unless the Participant elects otherwise. distribution of
benefits will begin no later than the 60th day after the close
of the Plan Year in which the latest of the following events
occurs:
(1) the Participant attains age 65 (or normal retirement age
if earlier),
(2) the 10th anniversary of the year in which the Participant
commenced participation in the Plan, or
(3) the Participant terminates Service with the Employer.
(b) Notwithstanding the foregoing, the failure of a Participant and
Spouse (if necessary) to consent to a distribution while a
benefit is immediately distributable, within the meaning of
paragraph 6.4 hereof, shall be deemed an election to defer
commencement of payment of any benefit sufficient to satisfy
this paragraph.
6.7 CLAIMS PROCEDURES Upon retirement, death, or other severance of employment,
the Participant or his or her representative may make application to the
Employer requesting payment of benefits due and the manner of payment. If no
application for benefits is made, the Employer shall automatically pay any
vested benefit due hereunder in the normal form at the time prescribed at
paragraph 6.4. If an application for benefits is made, the Employer shall
accept, reject, or modify such request and shall notify the Participant in
writing setting forth the response of the Employer and in the case of a denial
or modification the Employer shall:
(a) state the specific reason or reasons for the denial,
(b) provide specific reference to pertinent Plan provisions on
which the denial is based,
(c) provide a description of any additional material or information
necessary for the Participant or his representative to perfect
the claim and an explanation of why such material or
information is necessary, and
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<PAGE> 42
(d) explain the Plan's claim review procedure as contained in this
Plan.
In the event the request is rejected or modified, the Participant or his or her
representative may within 60 days following receipt by the Participant or
representative of such rejection or modification, submit a written request for
review by the Employer of its initial decision. Within 60 days following such
request for review, the Employer shall render its final decision in writing to
the Participant or representative stating specific reasons for such decision.
If the Participant or representative is not satisfied with the Employer's final
decision, the Participant or representative can institute an action in a
federal court of competent jurisdiction; for this purpose, process would be
served on the Employer.
6.8 IN-SERVICE WITHDRAWALS An Employee may withdraw all or any part of the fair
market value of his or her Mandatory Contributions, Voluntary Contributions,
Qualified Voluntary Contributions or Rollover Contributions, upon written
request to the Employer. Transfer Contributions, which originate from a Plan
meeting the safe-harbor provisions of paragraph 8.7, may also be withdrawn by
an Employee upon written request to the Employer. Transfer Contributions not
meeting the safe-harbor provisions may only be withdrawn upon retirement,
death, Disability, termination or termination of the Plan, and will be subject
to Spousal consent requirements contained in Code Sections 411(a)(11) and 417.
No such withdrawals are permitted from a money purchase plan until the
participant reaches Normal Retirement Age. Such request shall include the
Participant's address, social security number, birth date, and amount of the
withdrawal. If at the time a distribution of Qualified Voluntary Contributions
is received the Participant has not attained age 59-1/2 and is not disabled, as
defined at Code Section 22(e)(3), the Participant will be subject to a federal
income tax penalty, unless the distribution is rolled over to a qualified plan
or individual retirement plan within 60 days of the date of distribution. A
Participant may withdraw all or any part of the fair market value of his or her
pre-1987 Voluntary Contributions with or without withdrawing the earnings
attributable thereto. Post-1986 Voluntary Contributions may only be withdrawn
along with a portion of the earnings thereon. The amount of the earnings to be
withdrawn is determined by using the formula: DA[1-(V/V + E)], where DA is the
distribution amount, V is the amount of Voluntary Contributions and V + E is
the amount of Voluntary Contributions plus the earnings attributable thereto. A
Participant withdrawing his or her other contributions prior to attaining age
59-1/2, will be subject to a federal tax penalty to the extent that the
withdrawn amounts are includible in income. Unless the Employer provides
otherwise in the Adoption Agreement, any Participant in a profit-sharing plan
who is 100% fully vested in his or her Employer contributions may withdraw all
or any part of the fair market value of any of such contributions that have
been in the account at least two years, plus the investment earnings thereon,
after attaining age 59-1/2 without separation from Service. Such distributions
shall not be eligible for redeposit to the Fund. A withdrawal under this
paragraph shall not prohibit such Participant from sharing in any future
Employer Contribution he or she would otherwise be eligible to share in. A
request to withdraw amounts pursuant to this paragraph must if applicable, be
consented to by the Participant's Spouse. The consent shall comply with the
requirements of paragraph 6.4 relating to immediate distributions.
Elective Deferrals, Qualified Non-elective Contributions, and Qualified
Matching Contributions, and income allocable to each are not distributable to a
Participant or his or her Beneficiary or Beneficiaries, in accordance with such
Participant's or Beneficiary's or Beneficiaries' election, earlier than upon
separation from Service, death, or Disability. Such amounts may also be
distributed upon:
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<PAGE> 43
(a) Termination of the Plan without the establishment of another
Defined Contribution Plan.
(b) The disposition by a corporation to an unrelated corporation of
substantially all of the assets [within the meaning of Code
Section 409(d)(2)] used in a trade or business of such
corporation if such corporation continues to maintain this Plan
after the disposition, but only with respect to Employees who
continue employment with the corporation acquiring such assets.
(c) The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary [within the meaning of
Code Section 409(d)(3)] if such corporation continues to
maintain this plan, but only with respect to Employees who
continue employment with such subsidiary.
(d) The attainment of age 59-1/2.
(e) The Hardship of the Participant as described in paragraph 6.9.
All distributions that may be made pursuant to one or more of the foregoing
distributable events are subject to the Spousal and Participant consent
requirements, if applicable, contained in Code Sections 401(a)(11) and 417.
6.9 HARDSHIP WITHDRAWAL If permitted by the Trustee/Custodian and the Employer
in the Adoption Agreement, a Participant may request a Hardship withdrawal
prior to attaining age 59-1/2. If the Participant has not attained age 59-1/2,
the Participant may be subject to a federal income tax penalty. Such request
shall be in writing to the Employer who shall have sole authority to authorize
a Hardship withdrawal, pursuant to the rules below. Hardship withdrawals may
include Elective Deferrals regardless of when contributed and any earnings
accrued and credited thereon as of the last day of the Plan Year ending before
July 1, 1989 and Employer related contributions, including but not limited to
Employer Matching Contributions, plus the investment earnings thereon to the
extent vested. Qualified Matching Contributions, Qualified Non-Elective
Contributions and Elective Deferrals reclassified as Voluntary Contributions
plus the investment earnings thereon are only available for Hardship withdrawal
prior to age 59-1/2 to the extent that they were credited to the Participant's
Account as of the last day of the Plan Year ending prior to July 1, 1989. The
Plan Administrator may limit withdrawals to Elective Deferrals and the earnings
thereon as stipulated above. Hardship withdrawals are subject to the Spousal
consent requirements contained in Code Sections 401(a)(11) and 417. Only the
following reasons are valid to obtain Hardship withdrawal:
(a) medical expenses [within the meaning of Code Section 213(d)],
incurred or necessary for the medical care of the Participant,
his or her Spouse, children and other dependents
(b) the purchase (excluding mortgage payments) of the principal
residence for the Participant
(c) payment of tuition and related educational expenses for the
next twelve (12) months of post-secondary education for the
Participant, his or her Spouse, children or other dependents,
or
(d) the need to prevent eviction of the Employee from or a
foreclosure on the mortgage of, the Employee's principal
residence.
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<PAGE> 44
Furthermore, the following conditions must be met in order for a withdrawal to
be authorized:
(e) the Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all
plans maintained by the Employer,
(f) all plans maintained by the Employer, other than flexible
benefit plans under Code Section 125 providing for current
benefits, provide that the Employee's Elective Deferrals and
Voluntary Contributions will be suspended for twelve months
after the receipt of the Hardship distribution,
(g) the distribution is not in excess of the amount of the
immediate and heavy financial need [(a) through (d) above],
including amounts necessary to pay any federal, state or local
income tax or penalties reasonably anticipated to result from
the distribution, and
(h) all plans maintained by the Employer provide that an Employee
may not make Elective Deferrals for the Employee's taxable year
immediately following the taxable year of the Hardship
distribution in excess of the applicable limit under Code
Section 402(g) for such taxable year, less the amount of such
Employee's pre-tax contributions for the taxable year of the
Hardship distribution,
If a distribution is made at a time when a Participant has a nonforfeitable
right to less than 100% of the account balance derived from Employer
contributions and the Participant may increase the nonforfeitable percentage in
the account:
(a) A separate account will be established for the Participant's
interest in the Plan as of the time of the distribution, and
(b) 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 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.
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ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 JOINT AND SURVIVOR ANNUITY REQUIREMENTS All distributions made under the
terms of this Plan must comply with the provisions of Article VIII including,
if applicable, the safe harbor provisions thereunder.
7.2 MINIMUM DISTRIBUTION REQUIREMENTS All distributions required under this
Article shall be determined and made in accordance with the minimum
distribution requirements of Code Section 401(a)(9) and the regulations
thereunder, including the minimum distribution incidental benefit rules found
at Regulations Section 1.401(a)(9)-2. The entire interest of a Participant must
be distributed or begin to be distributed no later than the Participant's
Required Beginning Date. Life expectancy and joint and last survivor lift
expectancy are computed by using the expected return multiples found in Tables
V and VI of Regulations Section 1.72-9.
7.3 LIMITS ON DISTRIBUTION PERIODS As of the First Distribution Calendar Year,
distributions if not made in a single-sum, may only be made over one of the
following periods (or a combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a Designated Beneficiary,
(c) a period certain not extending beyond the life expectancy of
the participant, or
(d) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
beneficiary.
7.4 REQUIRED DISTRIBUTIONS ON OR AFTER THE REQUIRED BEGINNING DATE
(a) 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, 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
(b) For calendar years beginning before 1989, if the Participant's
Spouse is not the Designated Beneficiary, the method of
distribution selected must have assured that at least 50% of
the Present Value of the amount available for distribution was
to be paid within the life expectancy of the Participant.
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<PAGE> 46
(c) For calendar years beginning after 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 (I) 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 Regulations Section 1 .401(a)(9)-2. Distributions after the
death of the Participant shall be distributed using the
Applicable Life Expectancy as the relevant divisor without
regard to Regulations Section 1.401(a)(9)-2.
(d) 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 Participant's
Required Beginning Date occurs, must be made on or before
December 31 of that Distribution Calendar Year.
(e) If the Participant's benefit is distributed in the form of an
annuity purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements of
Code Section 401(a)(9) and the Regulations thereunder,
(f) For purposes of determining the amount of the required
distribution for each Distribution Calendar Year, the account
balance to be used is the account balance determined as of the
last valuation preceding the Distribution Calendar Year. This
balance will be increased by the amount of any contributions or
forfeitures allocated to the account balance after the
valuation date in such preceding calendar year. Such balance
will also be decreased by distributions made after the
Valuation Date in such preceding Calendar Year.
(g) For purposes of subparagraph 7.4(f), 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.
7.5 REQUIRED BEGINNING DATE
(a) 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.
(b) Transitional Rules. The Required Beginning Date of a
Participant who attains age 70-1/2 before 1988, shall be
determined in accordance with (1) or (2) below:
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<PAGE> 47
(1) 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. In the case 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, the Required
Beginning Date is April 1, 1990.
(2) 5-percent owners. The Required Beginning Date of a
Participant who is a 5-percent owner during any year
beginning after 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
(c) A Participant is treated as a 5-percent owner for purposes of
this Paragraph if such Participant is a 5-percent owner as
defined in Code Section 416(i) (determined in accordance with
Code Section 416 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.
(d) Once distributions have begun to a 5-percent owner under this
paragraph, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent
year.
7.6 TRANSITIONAL RULE
(a) Notwithstanding the other requirements of this Article and
subject to the requirements of Article VIII, Joint and Survivor
Annuity Requirements, distribution on behalf of any Employee,
including a 5-percent owner, may be made in accordance with all
of the following requirements (regardless of when such
distribution commences):
(1) The distribution by the Trust is one which would not have
disqualified such Trust under Code Section 401(a)(9) 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.
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<PAGE> 48
(3) Such designation was in writing, was signed by the
Employee or the beneficiary, and was made before 1984.
(4) The Employee had accrued a benefit under the Plan as of
December 31, 1983.
(5) The method or 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.
(b) 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.
(c) For any distribution which commences before 1984 but continues
after 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 satisfies the requirements in
subparagraphs (a)(l) and (5) above.
(d) If a designation is revoked, any subsequent distribution must
satisfy the requirements of Code Section 40l(a)(9) and the
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 Code Section 401(a)(9) and the
regulations thereunder, but for the section 242(b)(2) election
of the Tax Equity and Fiscal Responsibility Act of 1982. For
calendar years beginning after 1988, such distributions must
meet the minimum distribution incidental benefit requirements
in section 1.40l(a)(9)-2 of the Income Tax 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 one
plan to another plan, the rules in Q&A J-2 and Q&A J-3 of the
regulations shall apply.
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7.7 DESIGNATION OF BENEFICIARY FOR DEATH BENEFIT Each Participant shall file a
written designation of beneficiary with the Employer upon qualifying for
participation in this Plan. Such designation shall remain in force until
revoked by the Participant by filing a new beneficiary form with the Employer.
The Participant may elect to have a portion of his or her account balance
invested in an insurance contract. If an insurance contract is purchased under
the Plan, the Trustee must be named as Beneficiary under the terms of the
contract. However, the Participant shall designate a Beneficiary to receive the
proceeds of the contract after settlement is received by the Trustee. Under a
profit-sharing plan satisfying the requirements of paragraph 8.7, the
Designated Beneficiary shall be the Participant's Surviving Spouse, if any,
unless such Spouse properly consents otherwise.
7.8 NONEXISTENCE OF BENEFICIARY Any portion of the amount payable hereunder
which is not disposed of because of the Participant's or former Participant's
failure to designate a beneficiary, or because all of the Designated
Beneficiaries predeceased the Participant, shall be paid to his or her Spouse.
If the Participant had no Spouse at the time of death, payment shall be made to
the personal representative of his or her estate in a lump sum.
7.9 DISTRIBUTION BEGINNING BEFORE DEATH If the Participant dies after
distribution of his or her interest has begun, the remaining portion of such
interest will continue to be distributed at least as rapidly as under the
method of distribution being used prior to the Participant's death.
7.10 DISTRIBUTION BEGINNING AFTER DEATH If the Participant dies before
distribution of his or her interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death except to the
extent that an election is made to receive distributions in accordance with (a)
or (b) below:
(a) If any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made over the life
or over a period certain not greater than the life expectancy
of the Designated Beneficiary commencing on or before December
31 of the calendar year immediately following the calendar year
in which the Participant died.
(b) If the Designated Beneficiary is the Participant's surviving
Spouse, the date distributions are required to begin in
accordance with (a) above shall not be earlier than the later
of (1) December 31 or the calendar year immediately following
the calendar year in which the participant died or (2) 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 paragraph 7.10 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, then 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.
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For purposes of this paragraph if the Surviving Spouse dies after the
Participant, but before payments to such Spouse begin, the provisions of this
paragraph with the exception or paragraph (b) therein, shall be applied as if
the Surviving Spouse were the Participant. For the purposes of this paragraph
and paragraph 7.9, distribution of a Participant's interest is considered to
begin on the Participant's Required Beginning Date (or, if the preceding
sentence is applicable, the date distribution is required to begin to the
Surviving Spouse). If distribution in the form of an annuity described in
paragraph 7.4(e) irrevocably commences to the Participant before the Required
Beginning Date, the date distribution is considered to begin is the date
distribution actually commences.
For purposes of paragraph 7.9 and this paragraph, if an amount is payable to
either a minor or an individual who has been declared incompetent, the benefits
shall be paid to the legally appointed guardian for the benefit of said minor
or incompetent individual, unless the court which appointed the guardian has
ordered otherwise.
7.11 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
(a) Notwithstanding any other provision of the Plan, Excess
Elective Deferrals plus any income and minus any loss allocable
thereto, shall be distributed no later than April 15, 1988, and
each April 15 thereafter, to Participants to whose accounts
Excess Elective Deferrals were allocated for the preceding
taxable year, and who claim Excess Elective Deferrals for such
taxable year. Excess Elective Deferrals shall be treated as
Annual Additions under the Plan, unless such amounts are
distributed no later than the first April 15th following the
close of the Participant's taxable year. A Participant is
deemed to notify the Plan Administrator of any Excess Elective
Deferrals that arise by taking into account only those Elective
Deferrals made to this Plan and any other plans of this
Employer.
(b) Furthermore, a Participant who participates in another plan
allowing Elective Deferrals may assign to this Plan any Excess
Elective Deferrals made during a taxable year of the
Participant, by notifying the Plan Administrator of the amount
of the Excess Elective Deferrals to be assigned. The
Participant's claim shall be in writing; shall be submitted to
the Plan Administrator not later than March 1 of each year;
shall specify the amount of the Participant's Excess Elective
Deferrals for the preceding taxable year; and shall be
accompanied by the Participant's written statement that if such
amounts are not distributed, such Excess Elective Deferrals,
when added to amounts deferred under other plans or
arrangements described in Code Sections 401(k), 408(k)
[Simplified Employee Pensions], or 403(b) [annuity programs for
public schools and charitable organizations] will exceed the
$7,000 limit as adjusted under Code Section 415(d) imposed on
the Participant by Code Section 402(g) for the year in which
the deferral occurred.
(c) Excess Elective Deferrals shall be adjusted for any income or
loss up to the end of the taxable year, during which such
excess was deferred. Income or loss will be calculated under
the method used to calculate investment earnings and losses
elsewhere in the Plan.
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(d) If the Participant receives a return of his or her Elective
Deferrals, the amount of such contributions which are returned
must be brought into the Employee's taxable income.
7.12 DISTRIBUTIONS OF EXCESS CONTRIBUTIONS
(a) 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. If
such excess amounts are distributed more than 2-1/2 months
after the last day of the Plan Year in which such excess
amounts arose, a ten (10) percent excise tax will be imposed on
the Employer maintaining the Plan with respect to such amounts.
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. Excess
Contributions of Participants who are subject to the Family
Member aggregation rules of Code Section 414(q)(6) shall be
allocated among the Family Members in proportion to the
Elective Deferrals (and amounts treated as Elective Deferrals)
of each Family Member that is combined to determine the Average
Deferral Percentage.
(b) Excess Contributions (including the amounts recharacterized)
shall be treated as Annual Additions under the Plan.
(c) Excess Contributions shall be adjusted for any income or loss
up to the end of the Plan Year. Income or loss will be
calculated under the method used to calculate investment
earnings and losses elsewhere in the Plan.
(d) Excess Contributions shall be distributed from the
Participant's Elective Deferral account and Qualified Matching
Contribution account (if applicable) in proportion to the
Participant's Elective Deferrals and Qualified Matching
Contributions (to the extent used in the ADP test) for the Plan
Year. Excess Contributions shall be distributed from the
Participant's Qualified Non-Elective Contribution account only
to the extent that such Excess Contributions exceed the balance
in the Participant's Elective Deferral account and Qualified
Matching Contribution account.
7.13 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
(a) Notwithstanding any other provision of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss
allocable 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 shall be allocated to
Participants who are subject to the Family Member aggregation
rules of Code Section 414(q)(6) in the manner prescribed by the
regulations.
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If such Excess Aggregate Contributions are distributed more than
2-1/2 months after the last day of the Plan Year in which such
excess amounts arose, a ten (10) percent excise tax will be
imposed on the Employer maintaining the Plan with respect to
those amounts. Excess Aggregate Contributions shall be treated
as Annual Additions under the plan.
(b) Excess Aggregate Contributions shall be adjusted for any income
or loss up to the end of the Plan Year. The income or loss
allocable to Excess Aggregate Contributions is the sum of
income or loss for the Plan Year allocable to the Participant's
Voluntary Contribution account, Matching Contribution account
(if any, and if all amounts therein are not used in the ADP
test) and, if applicable, Qualified Non-Elective Contribution
account and Elective Deferral account. Income or loss will be
calculated under the method used to calculate investment
earnings and losses elsewhere in the Plan.
(c) Forfeitures of Excess Aggregate Contributions may either be
reallocated to the accounts of non-Highly Compensated Employees
or applied to reduce Employer contributions, as elected by the
employer in the Adoption Agreement.
(d) Excess Aggregate Contributions shall be forfeited if such
amount is not vested. If vested, such excess shall be
distributed on a prorata basis from the Participant's Voluntary
Contribution account (and, if applicable, the Participant's
Qualified Non-Elective Contribution account, Matching
Contribution account, Qualified Matching Contribution account,
or Elective Deferral account, or both).
7.14 DIRECT ROLLOVER OF BENEFITS Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Participant's election under this
paragraph, for distributions made on or after January 1, 1993, a Participant
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Participant in a Direct Rollover. Any
portion of a distribution which is not paid directly to an Eligible Retirement
Plan shall be distributed to the Participant. For purposes of this paragraph, a
Surviving Spouse or a Spouse or former Spouse who is an alternate payee under a
Qualified Domestic Relations Order as defined in Code Section 414(p), will be
permitted to elect to have any Eligible Rollover Distribution paid directly to
an individual retirement account (IRA) or an individual retirement annuity
(IRA).
If a distribution is one to which Section 401 (a)(11) and 417 of the Internal
Revenue 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:
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(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 nor
to elect a distribution (and, if applicable, a particular
distribution option), and
(b) the Participant, after receiving the notice, affirmatively
elects a distribution
The Plan provisions otherwise applicable to distributions continue to apply to
Rollover and Transfer Contributions.
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ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 APPLICABILITY OF PROVISIONS The provisions of this Article shall apply to
any Participant who is credited with at least one Hour of Service with the
Employer on or after August 23, 1984 and such other Participants as provided in
paragraph 8.8.
8.2 PAYMENT OF QUALIFIED JOINT AND SURVIVOR ANNUITY Unless an optional form of
benefit is selected pursuant to a Qualified Election within the 90-day period
ending on the Annuity Starting Date, a married Participant's Vested Account
Balance will be paid in the form of a Qualified Joint and Survivor Annuity and
an unmarried Participant's Vested Account Balance will be paid in the form of a
life annuity. The Participant may elect to have such annuity distributed upon
attainment of the Early Retirement Age under the Plan.
8.3 PAYMENT OF QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY Unless an optional
form of benefit has been selected within the Election Period pursuant to a
Qualified Election, if a Participant dies before benefits have commenced then
the Participant's Vested Account Balance shall be paid in the form of an
annuity for the life of the Surviving Spouse. The Surviving Spouse may elect to
have such annuity distributed within a reasonable period after the
Participant's death.
A Participant who does not meet the age 35 requirement set forth in the
Election Period as of the end of any current Plan Year may make a special
qualified election to waive the qualified Pre-retirement Survivor Annuity for
the period beginning on the date of such election and ending on the first day
of the Plan Year in which the Participant will attain age 35. Such election
shall not be valid unless the Participant receives a written explanation of the
Qualified Pre-retirement Survivor Annuity in such terms as are comparable to
the explanation required under paragraph 8.5. Qualified Pre-retirement Survivor
Annuity coverage will be automatically reinstated as of the first day of the
Plan Year in which the Participant attains age 35. Any new waiver on or after
such date shall be subject to the full requirements of this Article.
8.4 QUALIFIED ELECTION A Qualified Election is an election to either waive a
Qualified Joint and Survivor Annuity or a qualified pre-retirement survivor
annuity. Any such election shall not be effective unless
(a) the Participant's Spouse consents in writing to the election;
(b) the election designates a specific beneficiary, including any
class of beneficiaries or any contingent beneficiaries, which
may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any
further spousal consent),
(c) the Spouse's consent acknowledges the effect of the election;
and
(d) the Spouse's consent is witnessed by a Plan representative or
notary public.
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Additionally, a Participant's waiver of the Qualified Joint and Survivor
Annuity shall not be effective unless the election designates a form of benefit
payment which may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any further spousal
consent). If it is established to the satisfaction of the Plan Administrator
that there is no Spouse or that the Spouse cannot be located, a waiver will be
deemed a Qualified. Election. Any consent by a Spouse obtained under this
provision (or establishment that the consent of a Spouse may not be obtained)
shall be effective only with respect to such Spouse. A consent that permits
designations by the Participant without any requirement of further consent by
such Spouse must acknowledge that the Spouse has the right to limit consent to
a specific beneficiary, and a specific form of benefit where applicable, and
that the Spouse voluntarily elects to relinquish either or both of such rights.
A revocation of a prior waiver may be made by a Participant without the consent
of the Spouse at any time before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under this provision
shall be valid unless the Participant has received notice as provided in
paragraphs 8.5 and 8.6 below.
8.5 NOTICE REQUIREMENTS FOR QUALIFIED JOINT AND SURVIVOR ANNUITY In the case of
a Qualified Joint and Survivor Annuity, the Plan Administrator shall, no less
than 30 days and no more than 90 days prior to the Annuity Starting date,
provide each Participant a written explanation of:
(a) the terms and conditions of a Qualified Joint and Survivor
Annuity,
(b) the Participant's right to make and the effect of an election
to waive the Qualified Joint and Survivor Annuity form of
benefit;
(c) the rights of a Participant's Spouse; and
(d) the right to make, and the effect of, a revocation of a
previous election to waive the Qualified Joint and Survivor
Annuity.
8.6 NOTICE REQUIREMENTS FOR QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY In the
case of a qualified pre-retirement survivor annuity as described in paragraph
8.3, the Plan Administrator shall provide each Participant within the
applicable period for such Participant a written explanation of the qualified
pre-retirement survivor annuity in such terms and in such manner as would be
comparable to the explanation provided for meeting the requirements of
paragraph 8.5 applicable to a Qualified Joint and Survivor Annuity. The
applicable period for a Participant is whichever of the following periods ends
last:
(a) the period beginning with the first day of the Plan Year in
which the Participant attains age 32 and ending with the close
of the Plan Year preceding the Plan Year in which the
Participant attains age 35;
(b) a reasonable period ending after the individual becomes a
Participant;
(c) a reasonable period ending after this Article first applies to
the Participant. Notwithstanding the foregoing, notice must be
provided within a reasonable period ending after separation
from Service in the case of a Participant who separates from
Service before attaining age 35.
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For purposes of applying the preceding paragraph, a reasonable period ending
after the events described in (b) and (c) is the end of the two-year period
beginning one-year prior to the date the applicable event occurs, and ending
one-year after that date. In the case of a Participant who separates from
Service before the Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year prior to separation and
ending one year after separation. If such a Participant subsequently returns to
employment with the Employer, the applicable period for such Participant shall
be re-determined
8.7 SPECIAL SAFE-HARBOR EXCEPTION FOR CERTAIN PROFIT-SHARING PLANS
(a) This paragraph shall apply to a Participant in a profit-sharing
plan, and to any distribution, made on or after the first day
of the first plan year beginning after 1988, from or under a
separate account attributable solely to Qualified Voluntary
contributions, as maintained on behalf of a Participant in a
money purchase pension plan, (including a target benefit plan)
if the following conditions are satisfied:
(1) the Participant does not or cannot elect payments in the
form of a life annuity; and
(2) on the death of a Participant, the Participant's Vested
Account Balance will be paid to the Participant's
Surviving Spouse, but if there is no Surviving Spouse, or
if the Surviving Spouse has consented in a manner
conforming to a Qualified Election, then to the
Participant's Designated Beneficiary.
The Surviving Spouse may elect to have distribution of the
Vested Account Balance commence within the 90-Day period
following the date of the Participant's death. The account
balance shall be adjusted for gains or losses occurring after
the Participant's death in accordance with the provisions of the
Plan governing the adjustment of account balances for other
types of distributions. These safe-harbor rules shall not be
operative with respect to a Participant in a profit-sharing plan
if that plan is a direct or indirect transferee of a Defined
Benefit Plan, money purchase plan, a target benefit plan, stock
bonus plan, or profit-sharing plan which is subject to the
survivor annuity requirements of Code Section 401(a)(l 1) and
Code Section 417, and would therefore have a Qualified Joint and
Survivor Annuity as its normal form of benefit.
(b) The Participant may waive the spousal death benefit described
in this paragraph at any time provided that no such waiver
shall be effective unless it satisfies the conditions
(described in paragraph 8.4) that would apply to the
Participant's waiver of the Qualified Pre-Retirement Survivor
Annuity.
(c) If this paragraph 8.7 is operative, then all other provisions
of this Article other than paragraph 8.8 are inoperative.
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8.8 TRANSITIONAL JOINT AND SURVIVOR ANNUITY RULES Special transition rules
apply to Participants who were not receiving benefits on August 23, 1984.
(a) Any living Participant not receiving benefits on August 23,
1984, who would otherwise not receive the benefits prescribed
by the previous paragraphs of this Article, must be given the
opportunity to elect to have the prior paragraphs of this
Article apply if such Participant is credited with at least one
Hour of Service under this Plan or a predecessor Plan in a Plan
Year beginning on or after January 1, 1976 and such Participant
had at least 10 Years of Service for vesting purposes when he
or she separated from Service.
(b) Any living Participant not receiving benefits on August 23,
1984, who was credited with at least one Hour of Service under
this Plan or a predecessor Plan on or after September 2, 1974,
and who is not otherwise credited with any Service in a Plan
Year beginning on or after January 1, 1976, must be given the
opportunity to have his or her benefits paid in accordance with
paragraph 8.9.
(c) The respective opportunities to elect [as described in (a) and
(b) above must be afforded to the appropriate Participants
during the period commencing on August 23, 1984 and ending on
the date benefits would otherwise commence to said
Participants.
8.9 AUTOMATIC JOINT AND SURVIVOR ANNUITY AND EARLY SURVIVOR ANNUITY Any
Participant who has elected pursuant to paragraph 8.8(b) and any Participant
who does not elect under paragraph 8.8(a) or who meets the requirements of
paragraph 8.8(a), except that such Participant does not have at least 10 years
of vesting Service when he or she separates from Service, shall have his or her
benefits distributed in accordance with all of the following requirements if
benefits would have been payable in the form of a life annuity.
(a) Automatic Joint and Survivor Annuity. If benefits in the form
of a life annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after
Normal Retirement Age, or
(2) dies on or after Normal Retirement Age while still working
for the Employer, or
(3) begins to receive payments on or after the Qualified Early
Retirement Age, or
(4) separates from Service on or after attaining Normal
Retirement (or the Qualified Early Retirement Age) and
after satisfying the eligibility requirements for the
payment of benefits under the Plan and thereafter dies
before beginning to receive such benefits, then such
benefits will be received under this
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Plan in the form of a Qualified Joint and Survivor Annuity,
unless the Participant has elected otherwise during the
Election Period. The Election Period must begin at least 6
months before the Participant attains Qualified Early
Retirement Age and end not more than 90 days before the
commencement of benefits. Any election will be in writing
and may be changed by the Participant at any time.
(b) Election of Early Survivor Annuity. A Participant who is
employed after attaining the Qualified Early Retirement Age
will be given the opportunity to elect, during the Election
Period, to have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments under such
annuity must not be less than the payments which would have
been made to the Spouse under the Qualified Joint and Survivor
Annuity if the Participant had retired on the day before his or
her death. Any election under this provision will be in writing
and may be changed by the Participant at any time. The Election
Period begins on the later of:
(1) the 90th day before the Participant attains the
Qualified Early Retirement Age, or
(2) the date on which participation begins,
and ends on the date the Participant terminates employment.
8.10 ANNUITY CONTRACTS Any annuity contract distributed under this Plan must be
nontransferable. The terms of any annuity contract purchased and distributed by
the Plan to a Participant or Spouse shall comply with the requirements of this
Plan.
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ARTICLE IX
VESTING
9.1 EMPLOYEE CONTRIBUTIONS A Participant shall always have a 100% vested and
nonforfeitable interest in his or her Elective Deferrals, Voluntary
Contributions, Qualified Voluntary Contributions, Rollover Contributions, and
Transfer Contributions plus the earnings thereon. No forfeiture of Employer
related contributions (including any minimum contributions made under paragraph
14.2) will occur solely as a result of an Employee's withdrawal of any Employee
contributions.
9.2 EMPLOYER CONTRIBUTIONS A Participant shall acquire a vested and
nonforfeitable interest in his or her account attributable to Employer
contributions in accordance with the table selected in the Adoption Agreement,
provided that if a Participant is not already fully vested, he or she shall
become so upon attaining Normal Retirement Age, Early Retirement Age, on death
prior to normal retirement, on retirement due to Disability, or on termination
of the Plan.
9.3 COMPUTATION PERIOD The computation period for purposes of determining Years
of Service and Breaks in Service for purposes of computing a Participant's
nonforfeitable right to his or her account balance derived from Employer
contributions shall be determined by the Employer in the Adoption Agreement. In
the event a former Participant with no vested interest in his or her Employer
contribution account requalifies for participation in the Plan after incurring
a Break in Service, such Participant shall be credited for vesting with all
pre-break and post-break Service.
9.4 REQUALIFICATION PRIOR TO FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE The
account balance of such Participant shall consist of any undistributed amount
in his or her account as of the date of re-employment plus any future
contributions added to such account plus the investment earnings on the
account. The Vested Account Balance of such Participant shall be determined by
multiplying the Participant's account balance (adjusted to include any
distribution or redeposit made under paragraph 6.3) by such Participant's
vested percentage. All Service of the Participant, both prior to and following
the break, shall be counted when computing the Participant's vested percentage.
9.5 REQUALIFICATION AFTER FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE If such
Participant is not fully vested upon re-employment, a new account shall be
established for such Participant to separate his or her deferred vested and
nonforfeitable account, if any, from the account to which new allocations will
be made. The Participant's deferred account to the extent remaining shall be
fully vested and shall continue to share in earnings and losses of the Fund.
When computing the Participant's vested portion of the new account, all
pre-break and post-break Service shall be counted. However, notwithstanding
this provision, no such former Participant who has had five consecutive
one-year Breaks in Service shall acquire a larger vested and nonforfeitable
interest in his or her prior account balance as a result of requalification
hereunder.
9.6 CALCULATING VESTED INTEREST A Participant's vested and nonforfeitable
interest shall be calculated by multiplying the fair market value of his or her
account attributable to Employer contributions on the Allocation Date preceding
distribution by the decimal equivalent of the vested percentage as of his or
her termination date. The amount attributable to Employer contributions for
purposes of the calculation includes amounts previously paid out pursuant to
paragraph 6.3 and
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not repaid. The Participant's vested and nonforfeitable interest, once
calculated above, shall be reduced to reflect those amounts previously paid out
to the Participant and not repaid by the Participant. The Participant's vested
and nonforfeitable interest so determined shall continue to share in the
investment earnings and any increase or decrease in the fair market value of
the Fund up to the Allocation Date preceding or coinciding with payment.
9.7 FORFEITURES Any balance in the account of a Participant who has separated
from Service to which he or she is not entitled under the foregoing provisions,
shall be forfeited and applied as provided in the Adoption Agreement. A
forfeiture may only occur if the Participant has received a distribution from
the Plan or if the Participant has incurred five consecutive 1-year Breaks in
Service. Furthermore, a Highly Compensated Employee's Matching Contributions
may be forfeited, even if vested, if the contributions to which they relate are
Excess Deferrals, Excess Contributions or Excess Aggregate Contributions.
9.8 AMENDMENT OF VESTING SCHEDULE No amendment to the Plan shall have the
effect of decreasing a Participant's vested interest determined without regard
to such amendment as of the later of the date such amendment is adopted or the
date it becomes effective. Further, if the vesting schedule of the Plan is
amended, or the Plan is amended in any way that directly or indirectly affects
the computation of any Participant's nonforfeitable percentage or if the Plan
is deemed amended by an automatic change to or from a Top-Heavy vesting
schedule, each Participant with at least three Years of Service with the
Employer may elect, within a reasonable period after the adoption of the
amendment, to have his or her nonforfeitable percentage computed under the Plan
without regard to such amendment. For Participants who do not have at least one
Hour of Service in any Plan Year beginning after 1988, the preceding sentence
shall be applied by substituting "Five Years of Service" for "Three Years of
Service" where such language appears. The period during which the ejection may
be made shall commence with the date the amendment is adopted and shall end on
the later of:
(a) 60 days after the amendment is adopted
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the
amendment by the Employer or the Trustee/Custodian. If the
Trustee/Custodian is asked to so notify, the Fund will be
charged for the costs thereof.
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 (relating to financial
hardships). 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.
9.9 SERVICE WITH CONTROLLED GROUPS All Years of Service with other members of a
controlled group of corporations [as defined in Code Section 414(b)], trades or
businesses under common control [as defined in Code Section 414(c)], or members
of an affiliated service group [as defined in Code Section 414(m)] shall be
considered for purposes of determining a Participant's nonforfeitable
percentage.
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ARTICLE X
LIMITATIONS ON ALLOCATIONS
AND ANTIDISCRIMINATION TESTING
10.1 PARTICIPATION IN THIS PLAN ONLY If the Participant does not participate in
and has never participated in another qualified plan, a Welfare Benefit Fund
(as defined in paragraph 1.89) or an individual medical account, as defined in
Code Section 415(1)(2), maintained by the adopting Employer, which provides an
Annual Addition as defined in paragraph 1.4, the amount of Annual Additions
which may be credited to the Participant's account for any Limitation Year will
not exceed the lesser of the Maximum Permissible Amount or any other limitation
contained in this Plan. If the Employer contribution 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 so that the Annual Additions
for the Limitation Year will equal the Maximum Permissible Amount. Prior to
determining the Participant's actual Compensation for the Limitation Year, the
Employer may determine the Maximum Permissible Amount for a Participant on the
basis of a reasonable estimate of the Participant's Compensation for the
Limitation Year, uniformly determined for all Participants similarly situated.
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 Compensation for the Limitation Year.
10.2 DISPOSITION OF EXCESS ANNUAL ADDITIONS If pursuant to paragraph 10.1 or as
a result of the allocation of forfeitures, there is an Excess Amount, the
excess will be disposed of under one of the following methods as determined in
the Adoption Agreement. If no election is made in the Adoption Agreement then
method "(a)" below shall apply.
(a) Suspense Account Method
(1) Any nondeductible Employee Voluntary, Required Voluntary
Contributions and unmatched Elective Deferrals to the
extent they would reduce the Excess Amount will be
returned to the Participant. To the extent necessary to
reduce the Excess Amount, non-Highly Compensated Employees
will have all Elective Deferrals returned whether or not
there was a corresponding match.
(2) If after the application of paragraph (1) an Excess Amount
still exists, and the Participant is covered by the Plan
at the end of the Limitation Year, the Excess Amount in
the Participant's account will be used to reduce Employer
contributions (including any allocation of forfeitures)
for such Participant in the next Limitation Year, and each
succeeding Limitation Year if necessary.
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(3) If after the application of paragraph (1) an Excess Amount
still exists, and the Participant is not covered by the
Plan at the end of the Limitation Year, the Excess Amount
will be held unallocated in a suspense account. The
suspense account will be applied to reduce future Employer
contributions (including allocation of any forfeitures)
for all remaining Participants in the next Limitation
Year, and each succeeding Limitation Year if necessary.
(4) If a suspense account is in existence at any time during
the Limitation Year pursuant to this paragraph, it will
not participate in the allocation of investment gains and
losses. If a suspense account is in existence at any time
during a particular Limitation Year, all amounts in the
suspense account must be allocated and reallocated to
Participants' accounts before any Employer contributions
or any Employee Contributions may be made to the Plan for
that Limitation Year. Excess amounts may not be
distributed to Participants or former Participants.
(b) Spillover Method
(1) Any nondeductible Employee Voluntary, Required Voluntary
Contributions and unmatched Elective Deferrals to the
extent they would reduce the Excess Amount will be
returned to the Participant. To the extent necessary to
reduce the Excess Amount, non-Highly Compensated Employees
will have all Elective Deferrals returned whether or not
there was a corresponding match.
(2) Any Excess Amount which would be allocated to the account
of an individual Participant under the Plan's allocation
formula will be reallocated to other Participants in the
same manner as other Employer contributions. No such
reallocation shall be made to the extent that it will
result in an Excess Amount being created in such
Participant's own account.
(3) To the extent that amounts cannot be reallocated under (1)
above, the suspense account provisions of (a) above will
apply.
10.3 PARTICIPATION IN THIS PLAN AND ANOTHER MASTER AND PROTOTYPE DEFINED
CONTRIBUTION PLAN, WELFARE BENEFIT FUND OR INDIVIDUAL MEDICAL ACCOUNT
MAINTAINED BY THE EMPLOYER The Annual Additions which may be credited to a
Participant's account under this Plan for any Limitation Year will not exceed
the Maximum Permissible Amount reduced by the Annual Additions credited to a
Participant's account under the other Master or Prototype Defined Contribution
Plans, Welfare Benefit Funds, and individual medical accounts as defined in
Code Section 415(l)(2), maintained by the Employer, which provide an Annual
Addition as defined in paragraph 1.4 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
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Amount and the Employer contribution that would otherwise be contributed or
allocated to the Participant's account under this Plan would cause the 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. Prior to determining the Participant's actual Compensation for
the Limitation Year, the Employer may determine the Maximum Permissible Amount
for a Participant in the manner described in paragraph 10.1. As soon as
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 Compensation for the Limitation Year.
10.4 DISPOSITION OF EXCESS ANNUAL ADDITIONS UNDER TWO PLANS If, pursuant to
paragraph 10.3 or as a result of forfeitures, a Participant's Annual Additions
under this Plan and such other plans would result in an Excess Amount for a
Limitation Year, the Excess Amount 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 as defined in Code Section 415(l)(2)
will be deemed to have been allocated first regardless of the actual allocation
date. If an Excess Amount was allocated to a Participant on an allocation date
of this Plan which coincides with an allocation date of another plan, the
Excess Amount attributed to this Plan will be the product of:
(a) the total Excess Amount allocated as of such date, times
(b) the ratio of:
(1) the Annual Additions allocated to the Participant for the
Limitation Year as of such date under the Plan, to
(2) the total Annual Additions allocated to the Participant
for the Limitation Year as of such date under this and all
the other qualified Master or Prototype Defined
Contribution Plans.
Any Excess Amount attributed to this Plan will be disposed of in the manner
described in paragraph 10.2.
10.5 PARTICIPATION IN THIS PLAN AND ANOTHER DEFINED CONTRIBUTION PLAN WHICH IS
NOT A MASTER OR PROTOTYPE PLAN If the Participant is covered under another
qualified Defined Contribution Plan maintained by the Employer which is not a
Master or Prototype Plan, Annual Additions which may he credited to the
Participant's account under this Plan for any Limitation Year will be limited
in accordance with paragraphs 10.3 and 10.4 as though the other plan were a
Master or Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
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10.6 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN If the Employer
maintains, or at any time maintained, a qualified Defined Benefit Plan covering
any Participant in this Plan, the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any
Limitation Year. For any Plan Year during which the Plan is Top-Heavy, the
Defined Benefit and Defined Contribution Plan Fractions shall be calculated in
accordance with Code Section 416(h). The Annual Additions which may be credited
to the Participant's account under this Plan for any Limitation Year will be
limited in accordance with the provisions set forth in the Adoption Agreement.
10.7 AVERAGE DEFERRAL PERCENTAGE (A DP) TEST With respect to any Year, the
Average Deferral Percentage for Participants who are Highly Compensated
Employees and the Average Deferral Percentage for Participants who are Highly
Compensated Employees must satisfy one of the following tests:
(a) BASIC TEST - The Average Deferral Percentage for Participants
who are Highly Compensated Employees for the Plan Year is not
more than 1.25 times the Average Deferral Percentage f for
Participants who are non-Highly Compensated Employees for the
same Plan Year, or
(b) ALTERNATIVE TEST - The Average Deferral Percentage for
Participants who are Highly Compensated Employees for the Plan
Year does not exceed the Average Deferral Percentage for
Participants who are non-Highly Compensated Employees for the
same Plan Year by more than 2 percentage points provided that
the Average Deferral Percentage for Participants who are Highly
Compensated Employees is not more than 2.0 times the Average
Deferral Percentage for Participants who are non-Highly
Compensated Employees.
10.8 SPECIAL RULES RELATING TO APPLICATION OF ADP TEST
(a) The Actual Deferral Percentage for any Participant who is a
Highly Compensated Employee for the Plan Year and who is
eligible to have Elective Deferrals (and Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both, if
treated as Elective Deferrals for purposes of the ADP test)
allocated to his or her accounts under two or more arrangements
described in Code Section 401(k), that are maintained by the
Employer, shall be determined as if such Elective Deferrals
(and, if applicable, such Qualified Non-Elective Contributions
or Qualified Matching Contributions, or both) were made under a
single arrangement. 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.
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(b) In the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b), only if aggregated with
one or more other plans, or if one or more other plans satisfy
the requirements of such Code Sections only if aggregated with
this Plan, then this Section shall be applied by determining
the Actual Deferral Percentage of Employees as if all such
plans were a single plan. For Plan Years beginning after 1989,
plans may be aggregated in order to satisfy Code Section 401(k)
only if they have the same Plan Year.
(c) For purposes of determining the Actual Deferral Percentage of a
Participant who is a 5-percent owner or one of the ten most
highly-paid Highly Compensated Employees, the Elective
Deferrals (and Qualified Non-Elective Contributions or
Qualified Matching Contributions, or both, if treated as
Elective Deferrals for purposes of the ADP test) and
Compensation of such Participant shall include the Elective
Deferrals (and, if applicable, Qualified Non-Elective
Contributions and Qualified Matching Contributions, or both)
for the Plan Year of Family Members as defined in paragraph
1.36 of this Plan. Family Members, with respect to such Highly
Compensated Employees, 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. In the event of repeal of the
family aggregation rules under Code Section 414(q)(6), all
applications of such rules under this Plan will cease as of the
effective date of such repeal.
(d) For purposes of determining the ADP test, 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 contributions relate.
(e) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified
Non-Elective Contributions or Qualified Matching Contributions,
or both, used in such test.
(f) The determination and treatment of the Actual Deferral
Percentage amounts of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the
Treasury.
10.9 RECHARACTERIZATION If the Employer allows for Voluntary Contributions in
the Adoption Agreement, a Participant may treat his or her Excess Contributions
as an amount distributed to the Participant and then contributed by the
Participant to the Plan. Recharacterized amounts will remain nonforfeitable and
subject to the same distribution requirements as Elective Deferrals. Amounts
may not be recharacterized by a Highly Compensated Employee to the extent that
such amount in combination with other Employee Contributions made by that
Employee would exceed any stated limit under the Plan on Voluntary
Contributions. Recharacterization must
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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.
10.10 AVERAGE CONTRIBUTION PERCENTAGE (ACP) TEST If the Employer makes Matching
Contributions or if the Plan allows Employees to make Voluntary Contributions,
the Plan must meet additional nondiscrimination requirements provided under
Code Section 401(m). If Employee Contributions (including any Elective
Deferrals recharacterized as Voluntary Contributions) are made pursuant to this
Plan, then in addition to the ADP test referenced in paragraph 10.7, the
Average Contribution Percentage test is also applicable. The Average
Contribution Percentage for Participants who are Highly Compensated Employees
for each Plan Year and the Average Contribution Percentage for Participants who
are Non-Highly Compensated Employees for the same Plan Year must satisfy one of
the following tests:
(a) BASIC TEST - The Average Contribution Percentage for
Participants who are Highly Compensated Employees for the Plan
Year shall not exceed the Average Contribution Percentage for
Participants who are non-Highly Compensated Employees for the
same Plan Year multiplied by 1.25; or
(b) ALTERNATIVE TEST - The ACP for Participants who are Highly
Compensated Employees for the Plan Year shall not exceed the
Average Contribution Percentage for Participants who are
non-Highly Compensated Employees for the same Plan Year
multiplied by two (2), provided that the Average Contribution
Percentage for Participants who are Highly Compensated
Employees does not exceed the Average Contribution Percentage
for participants who are non-Highly Compensated Employees by
more than two (2) percentage- points.
10.11 SPECIAL RULES RELATING TO APPLICATION OF ACP TEST
(a) If one or more Highly Compensated Employees participate in both
a cash or deferred arrangement and a plan subject to the ACP
test maintained by the Employer and the sum of the ADP and ACP
of those Highly Compensated Employees subject to either or both
tests exceeds the Aggregate Limit, then the ADP or ACP of those
Highly Compensated Employees who also participate in a cash or
deferred arrangement will be reduced (beginning with such
Highly Compensated Employee whose ADP or ACP is the highest) as
set forth in the Adoption Agreement so that the limit is not
exceeded. The amount by which each Highly Compensated
Employee's Contribution Percentage Amounts 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 both the ADP and ACP of the Highly
Compensated Employees does not exceed 1.25 multiplied by the
ADP and ACP of the non-Highly Compensated Employees.
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(b) For purposes of this Article, the Contribution Percentage for
any Participant who is a Highly Compensated Employee and who is
eligible to have Contribution Percentage Amounts allocated to
his or her account under two or more plans described in Code
Section 401(a), or arrangements described in Code Section
401(k) 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.
(c) In the event that this Plan satisfies the requirements of Code
Sections 401(a)(4), 401(m), or 410(b) only if aggregated with
one or more other plans, or if one or more other plans satisfy
the requirements of such Code Sections 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 1989, plans
may be aggregated in order to satisfy Code Section 401(m) only
if the aggregated plans have the same Plan Year.
(d) For purposes of determining the 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 Paragraph
1.36 of this Plan. 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. In the event
of repeal of the family aggregation rules under Code Section
414(q)(6), all applications of such rules under this Plan will
cease as of the effective date of such repeal.
(e) For purposes of determining the Contribution Percentage test,
Employee Contributions are considered to have been made in the
Plan Year in which contributed to the trust. Matching
Contributions and Qualified Non-Elective Contributions 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.
(f) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified
Non-Elective Contributions or Qualified Matching Contributions,
or both, used in such test.
(g) 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.
(h) Qualified Matching Contributions and Qualified Non-Elective
Contributions used to satisfy the ADP test may not be used to
satisfy the ACP test.
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ARTICLE XI
ADMINISTRATION
11.1 PLAN ADMINISTRATOR The Employer shall be the named fiduciary and Plan
Administrator. These duties shall include:
(a) appointing the Plan's attorney, accountant, actuary, or any
other party needed to administer the Plan,
(b) directing the Trustee/Custodian with respect to payments from
the Fund,
(c) communicating with Employees regarding their participation and
benefits under the Plan, including the administration of all
claims procedures,
(d) filing any returns and reports with the Internal Revenue
Service, Department of Labor, or any other governmental agency,
(e) reviewing and approving any financial reports, investment
reviews, or other reports prepared by any party appointed by
the Employer under paragraph (a),
(f) establishing a funding policy and investment objectives
consistent with the purposes of the Plan and the Employee
Retirement Income Security Act of 1974, and
(g) construing and resolving any question of Plan interpretation.
The Plan Administrator's interpretation of Plan provisions
including eligibility and benefits under the Plan is final, and
unless it can be shown to be arbitrary and capricious will not
be subject to "de novo" review.
11.2 TRUSTEE/CUSTODIAN The Trustee/Custodian shall be responsible for the
administration of investments held in the Fund. These duties shall include:
(a) receiving contributions under the terms of the Plan,
(b) making distributions from the Fund in accordance with written
instructions received from an authorized representative of the
Employer,
(c) keeping accurate records reflecting its administration of the
Fund and making such records available to the Employer for
review and audit. Within 90 days after each Plan Year, and
within 90 days after its removal or resignation, the
Trustee/Custodian shall file with the Employer an accounting of
its administration of the Fund during such year or from the end
of the preceding Plan Year to the date of removal or
resignation. Such accounting shall include a statement of cash
receipts and disbursements since the date of its last
accounting and shall contain an asset list showing the fair
market value of investments held in the Fund as of the end of
the Plan Year. The value of marketable investments
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shall be determined using the most recent price quoted on a
national securities exchange or over the counter market. The
value of non-marketable investments shall be determined in the
sole judgment of the Trustee/Custodian which determination shall
be binding and conclusive. The value of investments in
securities or obligations of the Employer in which there is no
market shall be determined in the sole judgment of the Employer
and the Trustee/Custodian shall have no responsibility with
respect to the valuation of such assets. The Employer shall
review the Trustee/Custodian's accounting and notify the
Trustee/Custodian in the event of its disapproval of the report
within 90 days, providing the Trustee/Custodian with a written
description of the items in question. The Trustee/Custodian
shall have 60 days to provide the Employer with a written
explanation of the items in question. If the Employer again
disapproves, the Trustee/Custodian shall file its accounting in
a court of competent jurisdiction for audit and adjudication,
and
(d) employing such agents, attorneys or other professionals as the
Trustee may deem necessary or advisable in the performance of
its duties.
The Trustee's/Custodian's duties shall be limited to those described above. The
Employer shall be responsible for any other administrative duties required
under Plan or by applicable law.
11.3 RECORDKEEPER The Recordkeeper, if retained shall be responsible for
maintaining Plan administrative records. The Recordkeeper's duties shall
include but are not limited to:
(a) transmitting Employer directives, as agent of the Employer, to
the Trustee,
(b) keeping accurate records reflecting the administration of the
Fund,
(c) making such records available to the Employer for review and
audit,
(d) accounting of any loans made to Participants, and
(e) any and all duties agreed upon between the Employer and
Recordkeeper.
11.4 ADMINISTRATIVE FEES AND EXPENSES All reasonable costs, charges and
expenses incurred by the Trustee/Custodian in connection with the
administration of the Fund and all reasonable costs, charges and expenses
incurred by the Plan Administrator in connection with the administration of the
Plan (including fees for legal services rendered to the Trustee/Custodian or
Plan Administrator) may be paid by the Employer, but if not paid by the
Employer when due, shall be paid from the Fund. Such reasonable compensation to
the Trustee/Custodian as may be agreed upon from time to time between the
Employer and the Trustee/Custodian and such reasonable compensation to the Plan
Administrator as may be agreed upon from time to time between the Employer and
Plan Administrator may be paid by the Employer,
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but if not paid by the Employer when due shall be paid by the Fund. The Trustee
shall have the right to liquidate trust assets to cover its fees.
Notwithstanding the foregoing, no compensation other than reimbursement for
expenses shall be paid to a Plan Administrator who is the Employer or a
full-time Employee of the Employer. In the event any part of the
Trust/Custodial Account becomes subject to tax, all taxes incurred will be paid
from the Fund unless the Plan Administrator advises the Trustee/Custodian not
to pay such tax.
11.5 DIVISION OF DUTIES AND INDEMNIFICATION
(a) The Trustee/Custodian shall have the authority and discretion
to manage and govern the Fund to the extent provided in this
instrument, but does not guarantee the Fund in any manner
against investment loss or depreciation in asset value, or
guarantee the adequacy of the Fund to meet and discharge all
any liabilities of the Plan.
(b) The Trustee/Custodian shall not be liable for the making,
retention or sale of any investment or reinvestment made by it,
as herein provided, or for any other loss to, or diminution of
the Fund, or for any other loss or damage which may result from
the discharge of its duties hereunder except to the extent it
is judicially determined that the Trustee/Custodian has failed
to exercise the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a
like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character with like aims.
(c) The Employer warrants that all directions issued to the
Trustee/Custodian, Trustees if the individual or Recordkeeper,
by it or the Plan Administrator will be in accordance with the
terms of the Plan and not contrary to the provisions of the
Employee Retirement Income Security Act of 1974 and regulations
issued thereunder.
(d) Neither the Trustee/Custodian nor the Recordkeeper shall be
answerable for any action taken pursuant to any direction,
consent, certificate, or other paper or document on the belief
that the same is genuine and signed by the proper person. All
directions by the Employer, Participant or the Plan
Administrator shall be in writing. The Employer shall deliver
to the Trustee/Custodian or Recordkeeper certificates
evidencing the individual or individuals authorized to act as
set forth in the Adoption Agreement or as the Employer may
subsequently inform the Trustee/Custodian or Recordkeeper in
writing and shall deliver to the Trustee/Custodian specimens of
their signatures.
(e) The duties and obligations of the Trustee/Custodian and
Recordkeeper shall be limited to those expressly imposed upon
it by this instrument or subsequently agreed upon by the
parties. Responsibility for administrative duties required
under the Plan or applicable law not expressly imposed upon or
agreed to by the Trustee/Custodian and Recordkeeper, shall rest
solely with the Employer.
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(f) The Trustee shall be indemnified and saved harmless by the
Employer from and against any and all liability to which the
Trustee/Custodian may be subjected, including all expenses
reasonably incurred in its defense, for any action or failure
to act resulting from compliance with the instructions of the
Employer, the employees or agents of the Employer, the Plan
Administrator, or any other fiduciary to the Plan, and for any
liability arising from the actions or non-actions of any
predecessor Trustee/Custodian or fiduciary or other fiduciaries
of the Plan.
(g) The Trustee/Custodian shall not be responsible in any way for
the application of any payments it is directed to make or for
the adequacy of the Fund to meet and discharge any and all
liabilities under the Plan
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ARTICLE XII
TRUST FUND/CUSTODIAL ACCOUNT
12.1 THE FUND The Fund shall consist of all contributions made under Article
III and Article IV of the Plan and received by the Trustee and the investment
thereof and earnings thereon. All contributions and the earnings thereon less
payments made under the terms of the Plan, shall constitute the Fund. The Fund
shall be administered as provided in this document.
12.2 CONTROL OF PLAN ASSETS The assets of the Fund or evidence of ownership
shall be held by the Trustee/Custodian under the terms of the Plan and
Trust/Custodial Account. If the assets represent amounts transferred from
another trustee/custodian under a former plan, the Trustee/Custodian named
hereunder shall not be responsible for the propriety of any investment under
the former plan.
12.3 EXCLUSIVE BENEFIT RULES No part of the Fund shall be used for, or diverted
to, purposes other than for the exclusive benefit of Participants, former
Participants with a vested interest, and the beneficiary or beneficiaries of
deceased Participants having a vested interest in the Fund at death.
12.4 ASSIGNMENT AND ALIENATION OF BENEFITS No right or claim to, or interest
in, any part of the Fund, or any payment from the Fund, shall be assignable,
transferable, or subject to sale, mortgage. pledge, hypothecation, commutation,
anticipation, garnishment, attachment, execution, or levy of any kind. The
Trustee/Custodian shall not recognize any attempt to assign, transfer, sell,
mortgage, pledge, hypothecate, commute, or anticipate the same, except to the
extent required by law. The preceding sentences 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
Code Section 414(p), or any domestic relations order entered before January 1,
1985 which the Plan attorney and Plan Administrator deem to be qualified.
12.5 DETERMINATION OF QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) A Domestic
Relations Order shall specifically state all of the following in order to be
deemed a Qualified Domestic Relations Order ("QDRO"):
(a) The name and last known mailing address (if any) of the
Participant and of each alternate payee covered by the QDRO.
However, if the QDRO does not specify the current mailing
address of the alternate payee, but the Plan Administrator has
independent knowledge of that address, the QDRO will still be
valid.
(b) The dollar amount or percentage of the Participant's benefit to
be paid by the Plan to each alternate payee, or the manner in
which the amount or percentage will be determined.
(c) The number of payments or period for which the Order applies.
(d) The specific plan (by name) to which the Domestic Relations
Order applies.
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The Domestic Relations Order shall not be deemed a QDRO if it
requires the Plan to provide:
(e) any type or form of benefit, or any option not already provided
for in the Plan;
(f) increased benefits, or benefits in excess of the Participant's
vested rights;
(g) payment of a benefit earlier than allowed by the Plan's
earliest retirement provisions or in the case of a
profit-sharing plan, prior to the allowability of in-service
withdrawals, or,
(h) payment of benefits to an alternate payee which are required to
be paid to another alternate payee under another QDRO. to
Unless an alternate procedure is attached, promptly, upon receipt of a Domestic
Relations Order ("Order") which may or may not be "Qualified", the Plan
Administrator shall notify the Participant and any alternate payee(s) named in
the Order of such receipt, and include a copy of this paragraph 12.5. The Plan
Administrator shall then forward the Order to the Plan's legal counsel for an
opinion as to whether or not the Order is in fact "Qualified" as defined in
Code Section 414(p). Within a reasonable time after receipt of the Order, not
to exceed 60 days, the Plan's legal counsel shall make a determination as to
its "Qualified" status and the Participant and any alternate payee(s) shall be
promptly notified in writing of the determination.
If the "Qualified" status of the Order is in question, there will be a delay in
any payout to any payee including the Participant, until the status is
resolved. In such event, the Plan Administrator shall segregate the amount that
would have been payable to the alternate payee(s) if the Order had been deemed
a QDRO. If the Order is not Qualified, or the status is not resolved (for
example, it has been sent back to the Court for clarification or modification)
within 18 months beginning with the date the first payment would have to be
made under the Order, the Plan Administrator shall pay the segregated amounts
plus interest to the person(s) who would have been entitled to the benefits had
there been no Order. If a determination as to the Qualified status of the Order
is made after the 18-month period described above, then the Order shall only be
applied on a prospective basis. If the Order is determined to be a QDRO, the
Participant and alternate payee(s) shall again be notified promptly after such
determination. Once an Order is deemed a QDRO, the Plan Administrator shall pay
to the alternate payee(s) all the amounts due under the QDRO, including
segregated amounts plus interest which may have accrued during a dispute as to
the Order's qualification.
Unless specified otherwise in the Adoption Agreement, the earliest retirement
age with regard to the Participant against whom the Order is entered shall be
the date the order is determined to be qualified. This will only allow payouts
to alternate payee(s) and not the Participant.
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ARTICLE XIII
INVESTMENTS
13.1 FIDUCIARY STANDARDS The Trustee/Custodian shall invest and reinvest
principal and income in the same Fund in accordance with the investment
objectives established by the Employer, provided that:
(a) such investments are prudent under the Employee Retirement
Income Security Act of 1974 and the regulations thereunder,
(b) such investments are sufficiently diversified or otherwise
insured or guaranteed to minimize the risk of large losses, and
(c) such investments are similar to those which would be purchased
by another professional money manager for a like plan with
similar investment objectives.
13.2 FUNDING ARRANGEMENT The Employer shall, in the Adoption Agreement, appoint
a Trustee to administer the Fund and/or a Custodian to have custody of the
Fund. The Trustee shall invest the Fund in any of the alternatives available
under paragraph 13.3. If a Custodian is appointed, the Fund shall be invested
as provided in paragraph 13.4.
13.3 INVESTMENT ALTERNATIVES OF THE TRUSTEE The Trustee shall implement an
investment program based on the Employer's investment objectives and the
Employee Retirement Income Security Act of 1974. In addition to powers given by
law, the Trustee may:
(a) invest the Fund in any form of property, including common and
preferred stocks, exchange traded put and call options, bonds,
money market instruments, mutual funds (including funds for
which the Trustee or its affiliates serve as investment
advisor), savings accounts, certificates of deposit, Treasury
bills, insurance policies and contracts, or in any other
property, real or personal, having a ready market. The Trustee
may invest in time deposits (including, if applicable, its own
or those of affiliates) which bear a reasonable interest rate.
No portion of any Qualified Voluntary Contribution, or the
earnings thereon, may be invested in life insurance contracts
or, as with any Participant-directed investment, in tangible
personal property characterized by the IRS as a collectible,
(b) to invest and reinvest the Trust assets in any collective
investment fund maintained by the Trustee or any affiliate or
subsidiary of the Trustee for employee benefit trusts. Money
and other Trust assets invested in any such collective
investment fund shall be held and administered in accordance
with the terms and provisions of such collective investment
fund. All of the terms and provisions of any such collective
investment fund, as the same shall be from time to time
amended, altered or supplemented, shall be deemed to be
incorporated herein and to be a part hereof at all times when
any money or other assets of the Trust are held in any such
collective investment fund,
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(c) invest up to 100% of the Fund in the common stock, debt
obligations, or any other security issued by the Employer or by
an affiliate of the Employer within the limitations provided
under Sections 406, 407, and 408 of the Employee Retirement
Income Security Act of 1974 and further provided that such
investment does not constitute a prohibited transaction under
Code Section 4975. Any such investment in Employer securities
shall only be made upon written direction of the Employer who
shall be solely responsible for propriety of such investment,
(d) to invest and reinvest the (trust estate) in any kind of real
or personal property without regard to any law restricting
investment by (trustees), including, but not limited to,
securities of any open-end or closed-end management type
investment company or investment trust registered under the
Investment Company Act of 1940, as amended, which would be
regarded by prudent businessmen as a safe investment. The fact
that the (Trustee/Agent), any affiliate of the (Trustee/Agent),
or any affiliate of BANC ONE CORPORATION is providing services
to and receiving remuneration from the foregoing investment
company or investment trust as investment advisor, custodian,
transfer agent, registrar, or otherwise shall not preclude the
(Trustee/Agent) from investing in the securities of such
investment company or investment trust, so long as the other
conditions of the appropriate Prohibited Transaction Class
Exemption are met,
(e) to invest and reinvest or otherwise deposit the (Trust) assets
in savings accounts, time deposit accounts, certificates of
deposit, money market funds or other evidences of deposit
issued by (Trustee/Agent) and/or any other national bank,
savings and loan institution, state member bank, state
non-member bank, or other depository institution which now or
in the future is an affiliate or subsidiary of (Trustee/Agent)
or of BANC ONE CORPORATION,
(f) join in or oppose the reorganization, recapitalization,
consolidation, sale or merger of corporations or properties,
including those in which it is interested as Trustee, upon such
terms as it deems wise,
(g) hold investments in nominee or bearer form,
(h) except as provided in Section 13.3 below with respect to the
voting of Qualifying Employer Securities, handle all proxies
with respect to all securities held in the account as set forth
in the Adoption Agreement. The Trustee will give to the
investment manager any proxies of securities (except Qualifying
Employer Securities) for which an investment manager has been
appointed pursuant to ERISA Section 403(a) to be voted by the
investment manager unless the Employer has reserved to itself
the right to direct the Plan Trustee as to how such proxies
should be voted. In such case, the Employer will notify the
Plan Trustee, in writing, as to how to vote such proxies. The
Plan Trustee shall be under no duty to inquire or investigate
as to who has responsibility for voting proxies on securities
for which an investment manager has been appointed, and it
shall not vote such proxies unless and until it has been
notified to do so.
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(i) be directed by each Participant and Beneficiary in the voting
of all Qualifying Employer Securities, as that term is defined
in ERISA Section 407(d)(5), allocated to that person's
Accounts. All voting of Qualifying Employer Securities shall be
in compliance with all applicable rules and regulations of the
Securities and Exchange Commission and all applicable rules of
or any agreement with any stock exchange on which the Employer
stock being voted is traded. The Trustee shall vote all such
Qualifying Employer Securities as directed by the Participant.
(j) be directed by each Participant and Beneficiary as to the
manner in which to respond to a tender or exchange offer for
Qualifying Employer Securities, as that term is defined in
ERISA Section 407(d)(5), allocated to such person's Accounts.
The Employer shall use its best efforts to notify or cause to
be notified each Participant and Beneficiary of any tender or
exchange offer and to distribute or cause to be distributed to
each Participant and beneficiary such information as is
distributed in connection with any tender or exchange offer to
holders generally of Employer stock, together with the
appropriate forms for directing the Trustee as to the manner in
which to respond to such tender or exchange offer. Upon timely
receipt of such directions from the Participant or Beneficiary,
the Trustee shall respond to the tender or exchange offer in
accordance with, and only in accordance with, such directions.
If the Trustee does not receive timely directions from a
Participant or Beneficiary, the Trustee shall respond to the
tender or exchange offer for Employer stock on behalf of the
Participant or Beneficiary in such manner as the Trustee deems
appropriate.
(k) exercise all ownership rights with respect to assets held in
the Fund,
(l) the (Trustee/Agent) is not authorized and shall not disclose
the name, address, or security positions of the beneficial
owners of the (Trust) in response to requests concerning
shareholder communications under Section 14 of the Securities
Exchange Act of 1934, the rules and regulations thereunder, or
any similar statute, regulation, or rule in effect from time to
time.
13.4 INVESTMENT ALTERNATIVES OF THE CUSTODIAN The Custodian shall be depository
of all or part of the Fund and shall, at the direction of the Trustee hold any
assets received from the Trustee or its agents. The Custodian shall receive and
deliver assets as instructed by the Trustee or its agents. To the extent that
the Custodian holds title to Plan assets and such ownership requires action on
the part of the registered owner, such action will be taken by the Custodian
only upon receipt of specific instructions from the Trustee or its agents.
Proxies shall be voted by or pursuant to the express direction of the Trustee
or authorized agent of the Trustee. The Custodian shall not give any investment
advice, including any opinion on the prudence of directed investments. The
Employer and Trustee and the agents thereof assume all responsibility for
adherence to fiduciary standards under the Employee Retirement Income Security
Act of 1974 (ERISA) and all amendments thereof, and regulations thereunder.
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13.5 PARTICIPANT LOANS If agreed upon by the Trustee and permitted by the
Employer in the Adoption Agreement, a Plan Participant may make application to
the Employer requesting a loan from the Fund. The Employer shall have the sole
right to approve or disapprove a Participant's application provided that loans
shall be made available to all Participants on a reasonably equivalent basis.
Loans shall not be made available to Highly Compensated Employees [as defined
in Code Section 414(q)] in an amount greater than the amount made available to
other Employees. Any loan granted under the Plan shall be made subject to the
following rules:
(a) No loan, when aggregated with any outstanding Participant
loan(s), shall exceed the lesser of (i) $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 (ii) one-half of the fair market
value of a Participant's Vested Account Balance built up from
Employer Contributions, Voluntary Contributions, and Rollover
Contributions. 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 Code Sections 414(b), 414(c),
and 414(m) are aggregated. 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.
(b) All applications must be made on forms provided by the Employer
and must be signed by the Participant.
(c) Any loan shall bear interest at a rate reasonable at the time
of application, considering the purpose of the loan and the
rate being charged by representative commercial banks in the
local area for a similar loan unless the Employer sets forth a
different method for determining loan interest rates in its
loan procedures. The loan agreement shall also provide that the
payment of principal and interest be amortized in level
payments not less than quarterly.
(d) The term of such loan shall not exceed five years except in the
case of a loan for the purpose of acquiring any house,
apartment, condominium, or mobile home (not used on a transient
basis) which is used or is to be used within a reasonable time
as the principal residence of the Participant. The term of such
loan shall be determined by the Employer considering the
maturity dates quoted by representative commercial banks in the
local area for a similar loan.
(e) The principal and interest paid by a Participant on his or her
loan shall be credited to the Fund in the same manner as for
any other Plan investment. If elected in the Adoption
Agreement, loans may be treated as segregated investments of
the individual Participants. This provision is not available if
its election will result in discrimination in operation of the
Plan.
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(f) If a Participant's loan application is approved by the
Employer, such Participant shall be required to sign a note,
loan agreement, and assignment of 50% of his or her interest in
the Fund as collateral for the loan. The Participant, except in
the case of a profit-sharing plan satisfying the requirements
of paragraph 8.7 must obtain the consent of his or her Spouse,
if any, within the 90 day period before the time his or her
account balance is used as security for the loan. A new consent
is required if the account balance is used for any
renegotiation, extension, renewal or other revision of the
loan, including an increase in the amount thereof. The consent
must be written, must acknowledge the effect of the loan, and
must be witnessed by a plan representative or notary public.
Such consent shall subsequently be binding with respect to the
consenting Spouse or any subsequent Spouse.
(g) If a valid Spousal consent has been obtained, then,
notwithstanding any other provision of this Plan, the portion
of the Participant's Vested Account Balance used as a security
interest held by the Plan by reason of a loan outstanding to
the Participant shall be taken into account for purposes of
determining the amount of the account balance payable at the
time of death or distribution, but only if the reduction is
used as repayment of the loan. If less than 100% of the
Participant's Vested Account Balance (determined without regard
to the preceding sentence) is payable to the Surviving Spouse,
then the account balance shall be adjusted by first reducing
the Vested Account Balance by the amount of the security used
as repayment of the loan, and then determining the benefit
payable to the Surviving Spouse.
(h) The Employer may also require additional collateral in order to
adequately secure the loan.
(i) A Participant's loan shall immediately become due and payable
if such Participant terminates employment for any reason or
fails to make a principal and/or interest payment as provided
in the loan agreement. If such Participant terminates
employment, the Employer shall immediately request payment of
principal and interest on the loan. If the Participant refuses
payment following termination, the Employer shall reduce the
Participant's Vested Account Balance by the remaining principal
and interest on his or her loan. If the Participant's Vested
Account Balance is less than the amount due, the Employer shall
take whatever steps are necessary to collect the balance due
directly from the Participant. However, no foreclosure on the
Participant's note or attachment of the Participant's account
balance will occur until a distributable event occurs in the
Plan.
(j) No loans will be made to Owner-Employees (as defined in
paragraph 1.51) or Shareholder-Employees (as defined in
paragraph 1.74), unless the Employer obtains a prohibited
transaction exemption from the Department of Labor.
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13.6 INSURANCE POLICIES If agreed upon by the Trustee and permitted by the
Employer in the Adoption Agreement, Employees may elect the purchase of life
insurance policies under the Plan. If elected, the maximum annual premium for a
whole life policy shall not exceed 50% of the aggregate Employer contributions
allocated to the account of a Participant. For profit-sharing plans the 50%
test need only be applied against Employer contributions allocated in the last
two years. Whole life policies are policies with both nondecreasing death
benefits and nonincreasing premiums. The maximum annual premium for term
contracts or universal life policies and all other policies which are not whole
life shall not exceed 25% of aggregate Employer contributions allocated to the
account of a Participant. The two-year rule for profit-sharing plans again
applies. The maximum annual premiums for a Participant with both a whole life
and a term contract or universal life policies shall be limited to one-half of
the whole life premium plus the term premium, but shall not exceed 25% of the
aggregate Employer contributions allocated to the account of a Participant,
subject to the two year rule for profit-sharing plans. Any policies purchased
under this Plan shall be held subject to the following rules:
(a) The Trustee shall be applicant and owner of any policies
issued.
(b) All policies or contracts purchased hereunder, shall be
endorsed as nontransferable, and must provide that proceeds
will be payable to the Trustee; however, the Trustee shall be
required to pay over all proceeds of the contracts to the
Participant's Designated Beneficiary in accordance with the
distribution provisions of this Plan. Under no circumstances
shall the Trust retain any part of the proceeds.
(c) Each Participant shall be entitled to designate a beneficiary
under the terms of any contract issued; however, such
designation will be given to the Trustee which must be the
named beneficiary on any policy. Such designation shall remain
in force, until revoked by the Participant, by filing a new
beneficiary form with the Trustee. A Participant's Spouse will
be the Designated Beneficiary of the proceeds in all
circumstances unless a Qualified Election has been made in
accordance with paragraph 8.4. The beneficiary of a deceased
Participant shall receive, in addition to the proceeds of the
Participant's policy or policies, the amount credited to such
Participant's investment account.
(d) A Participant who is uninsurable or insurable at substandard
rates, may elect to receive a reduced amount of insurance, if
available, or may waive the purchase of any insurance.
(e) All dividends or other returns received on any policy purchased
shall be applied to reduce the next premium due on such policy,
or if no further premium is due, such amount shall be credited
to the Fund as part of the account of the Participant for whom
the policy is held.
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(f) If Employer contributions are inadequate to pay all premiums on
all insurance policies, the Trustee may, at the option of the
Employer, utilize other amounts remaining in each Participant's
account to pay the premiums on his or her respective policy or
policies, allow the policies to lapse, reduce the policies to a
level at which they may be maintained, or borrow against the
policies on a prorated basis, provided that the borrowing does
not discriminate in favor of the policies on the lives of
Officers, Shareholders, and highly compensated Employees.
(g) On retirement or termination of employment of a Participant,
the Employer shall direct the Trustee to cash surrender the
Participant's policy and credit the proceeds to his or her
account for distribution under the terms of the Plan. However,
before so doing, the Trustee shall first offer to transfer
ownership of the policy to the Participant in exchange for
payment by the Participant of the cash value of the policy at
the time of transfer. Such payment shall be credited to the
Participant's account for distribution under the terms of the
Plan. All distributions resulting from the application of this
paragraph shall be subject to the Joint and Survivor Annuity
Rules of Article VIII, if applicable.
(h) The Employer shall be solely responsible to see that these
insurance provisions are administered properly and that if
there is any conflict between the provisions of this Plan and
any insurance contracts issued that the terms of this Plan will
control.
13.7 EMPLOYER INVESTMENT DIRECTION If agreed upon by the Trustee and approved
by the Employer in the Adoption Agreement, the Employer shall have the right to
direct the Trustee with respect to investments of the Fund, may appoint an
investment manager (registered as an investment advisor under the Investment
Advisors Act of 1940) to direct investments, or may give the Trustee sole
investment management responsibility. The Employer may purchase and sell
interests in a registered investment company (i.e., mutual funds) for which the
Sponsor, its parent, affiliates, or successors, may serve as investment advisor
and receive compensation from the registered investment company for its
services as investment advisor. The Employer shall advise the Trustee in
writing regarding the retention of investment powers, the appointment of an
investment manager, or the delegation of investment powers to the Trustee. Any
investment directive under this Plan shall be made in writing by the Employer
or investment manager, as the case may be. In the absence of such written
directive, the Trustee shall automatically invest the available cash in its
discretion in an appropriate interim investment until specific investment
directions are received. Such instructions regarding the delegation of
investment responsibility shall remain in force until revoked or amended in
writing. The Trustee shall not be responsible for the propriety of any directed
investment made and shall not be required to consult with or advise the
Employer regarding the investment quality of any directed investment held
hereunder. If the Employer fails to designate an investment manager, the
Trustee shall have full investment authority. If the Employer does not issue
investment directions, the Trustee shall have authority to invest the Fund in
its sole discretion. While the Employer may direct the Trustee with respect to
Plan investments, the Employer may not:
(a) borrow from the Fund or pledge any of the assets of the Fund as
security for a loan,
(b) buy property or assets from or sell property or assets to the
Fund,
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(c) charge any fee for services rendered to the Fund, or
(d) receive any services from the Fund on a preferential basis.
13.8 EMPLOYEE INVESTMENT DIRECTION If agreed to by the Trustee and approved by
the Employer in the Adoption Agreement, Participants shall be given the option
to direct the investment of their personal contributions and their share of the
Employer's contribution among alternative investment funds selected by the
Employer and established as part of the overall Fund. Unless otherwise
specified by the Employer in the Adoption Agreement, such investment funds
shall be under the full control of the management of the Trustee. If
investments outside the Trustee's control are allowed, Participants may not
direct that investments be made in collectibles, other than U.S. Government or
State issued gold and silver coins. In this connection, a Participant's right
to direct the investment of any contribution shall apply only to selection of
the desired fund. The following rules shall apply to the administration of such
funds:
(a) At the time an Employee becomes eligible for the Plan, he or
she shall complete an investment designation form stating the
percentage of his or her contributions to be invested in the
available funds.
(b) A Participant may change his or her election with respect to
future contributions by filing a new investment designation
form with the Employer in accordance with the procedures
established by the Plan Administrators
(c) A Participant may elect to transfer all or part of his or her
balance from one investment fund to another by filing an
investment designation form with the Employer in accordance
with the procedures established by the Plan Administrators.
(d) The Plan Administrator/Recordkeeper shall be responsible when
transmitting Employee and Employer contributions to show the
dollar amount to be credited to each investment fund for each
Employee.
(e) Except as otherwise provided in the Plan, neither the Trustee,
nor the Employer, nor any fiduciary of the Plan shall be liable
to the Participant or any of his or her beneficiaries for any
loss resulting from action taken at the direction of the
Participant.
If no investment direction is received from the Participant, then the Employer
directs the Trustee to invest such Participant's account in the most
conservative investment option available under the Plan.
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ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 APPLICABILITY OF RULES If the Plan is or becomes Top-Heavy in any Plan
Year beginning after 1983, the provisions of this Article will supersede any
conflicting provisions in the Plan or Adoption Agreement.
14.2 MINIMUM CONTRIBUTION Notwithstanding any other provision in the Employer's
Plan, for any Plan Year in which the Plan is Top-Heavy or Super Top-Heavy, the
aggregate Employer contributions and forfeitures allocated on behalf of any
Participant (without regard to any Social Security contribution) under this
Plan and any other Defined Contribution Plan of the Employer shall be lesser of
3% of such Participant's Compensation or the largest percentage of Employer
contributions and forfeitures, as a percentage of the first $200,000, as
adjusted under Code Section 415(d), of the Key Employee's Compensation,
allocated on behalf of any Key Employee for that year.
Each Participant who is employed by the Employer on the last day of the Plan
Year shall be entitled to receive an allocation of the Employer's minimum
contribution for such Plan Year. The minimum allocation applies even though
under other Plan provisions the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because the Participant fails to make Mandatory Contributions to the Plan, the
Participant's Compensation is less than a stated amount, or the Participant
fails to complete 1,000 Hours of Service (or such lesser number designated by
the Employer in the Adoption Agreement) during the Plan Year. A Paired
profit-sharing plan designated to provide the minimum Top-Heavy contribution
must do so regardless of profits. An Employer may make the minimum Top-Heavy
contribution available to all Participants or just non-Key Employees.
For purposes of computing the minimum allocation, Compensation shall mean
Compensation as defined in paragraph 1.12(c) of the Plan.
The Top-Heavy minimum contribution does not apply to any Participant to the
extent the Participant is covered under any other plan(s) of the Employer and
the Employer has provided in Section 11 of the Adoption Agreement that the
minimum allocation or benefit requirements applicable to Top-Heavy Plans will
be met in the other plan(s).
If a Key Employee makes an Elective Deferral or has an allocation of Matching
Contributions made to his or her account, a Top-Heavy minimum will be required
for non-Key Employees who are Participants, however, neither Elective Deferrals
by nor Matching Contributions to non-Key Employees may be taken into account
for purposes of satisfying the top-heavy Minimum Contribution requirement.
14.3 MINIMUM VESTING For any Plan Year in which this Plan is Top-Heavy, the
minimum vesting schedule elected by the Employer in the Adoption Agreement will
automatically apply to the Plan. If the vesting schedule selected by the
Employer in the Adoption Agreement is less liberal than the allowable schedule,
the schedule will automatically be modified. If the vesting schedule under the
Employer's Plan shifts in or out of the Top-Heavy schedule for any Plan Year,
such shift is an amendment to the vesting schedule and the election in
paragraph 9.8 of the Plan applies. The minimum vesting schedule applies to all
accrued benefits within the meaning of Code Section 411(a)(7) except those
attributable to Employee contributions, including
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benefits accrued before the effective date of Code Section 416 and benefits
accrued before the Plan became Top-Heavy. Further, no reduction in vested
benefits may occur in the event the Plan's status as Top-Heavy changes for any
Plan Year. However, this paragraph does not apply to the account balances of
any Employee who does not have an Hour of Service after the Plan initially
becomes Top-Heavy and such Employee's account balance attributable to Employer
contributions and forfeitures will be determined without regard to this
paragraph.
14.4 LIMITATIONS ON ALLOCATIONS In any Plan Year in which the Top-Heavy Ratio
exceeds 90% (i.e., the Plan becomes Super Top-Heavy), the denominators of the
Defined Benefit Fraction (as defined in paragraph 1.16) and Defined
Contribution Fraction (as defined in paragraph 1.19) shall be computed using
100% of the dollar limitation instead of 125%.
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ARTICLE XV
AMENDMENT AND TERMINATION
15.1 AMENDMENT BY SPONSOR The Sponsor may amend any or all provisions of this
Plan and Trust/Custodial Account at any time without obtaining the approval or
consent of any Employer which has adopted this Plan and Trust/Custodial Account
provided that no amendment shall authorize or permit any part of the corpus or
income of the Fund to be used for or diverted to purposes other than for the
exclusive benefit of Participants and their beneficiaries, or eliminate an
optional form of distribution. In the case of a mass-submitted plan, the
mass-submitter shall amend the Plan on behalf of the Sponsor.
15.2 AMENDMENT BY EMPLOYER The Employer may amend any option in the Adoption
Agreement, and may include language as permitted in the Adoption Agreement,
(a) to satisfy Code Section 415, or
(b) to avoid duplication of minimums under -Code Section 416
because of the required aggregation of multiple plans.
The Employer may add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as an individually designed plan for which the Employer must
obtain a separate determination letter.
If the Employer amends the Plan and Trust/Custodial Account other than as
provided above, the Employer's Plan shall no longer participate in this
Prototype Plan and will be considered an individually designed plan.
15.3 TERMINATION Employers shall have the right to terminate their Plans upon
60 days notice in writing to the Trustee/Custodian. If the Plan is terminated,
partially terminated, or if there is a complete discontinuance of contributions
under a profit-sharing plan maintained by the Employer, all amounts credited to
the accounts of Participants shall vest and become nonforfeitable. In the event
of a partial termination, only those who are affected by such partial
termination shall be fully vested. In the event of termination, the Employer
shall direct the Trustee/Custodian with respect to the distribution of accounts
to or for the exclusive benefit of Participants or their beneficiaries. The
Trustee/Custodian shall dispose of the Fund in accordance with the written
directions of the Plan Administrator, provided that no liquidation of assets
and payment of benefits, (or provision therefor), shall actually be made by the
Trustee/Custodian until after it is established by the Employer in a manner
satisfactory to the Trustee/Custodian, that the applicable requirements, if
any, of the Employee Retirement Income Security Act of 1974 and the Internal
Revenue Code governing the termination of employee benefit plans, have been or
are being, complied with, or that appropriate authorizations, waivers,
exemptions, or variances have been, or are being obtained.
15.4 QUALIFICATION OF EMPLOYER'S PLAN If the adopting Employer fails to attain
or retain Internal Revenue Service qualification, such Employer's Plan shall no
longer participate in this Prototype Plan and will be considered an
individually designed plan.
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15.5 MERGERS AND CONSOLIDATIONS
(a) In the case of any merger or consolidation of the Employer's
Plan with, or transfer of assets or liabilities of the
Employer's Plan to, any other plan, Participants in the
Employer's Plan shall be entitled to receive benefits
immediately after the merger, consolidation, or transfer which
are equal to or greater than the benefits they would have been
entitled to receive immediately before the merger,
consolidation, or transfer if the Plan had then terminated.
(b) Any corporation into which the Trustee/Custodian or any
successor trustee/custodian may be merged, or with which it may
be consolidated, or any corporation resulting from any merger
or consolidation to which the Trustee/Custodian or any
successor trustee/custodian may be a party, or any corporation
to which all or substantially all the trust business of the
Trustee/Custodian or any successor trustee/custodian may be
transferred, shall be the successor of such Trustee/Custodian
without the filing of any instrument or performance of any
further act, before any court.
15.6 RESIGNATION AND REMOVAL The Trustee/Custodian may resign by written notice
to the Employer which shall be effective 60 days after delivery. The Employer
may discontinue its participation in this Prototype Plan and Trust/Custodial
Account effective upon 60 days written notice to the Sponsor. In such event the
Employer shall, prior to the effective date thereof, amend the Plan to
eliminate any reference to this Prototype Plan and Trust/Custodial Account and
appoint a successor trustee or custodian or arrange for another funding agent.
The Trustee/Custodian shall deliver the Fund to its successor on the effective
date of the resignation or removal, or as soon thereafter as practicable,
provided that this shall not waive any lien the Trustee/Custodian may have upon
the Fund for its compensation or expenses. If the Employer fails to amend the
Plan and appoint a successor Trustee, custodian, or other funding agent within
the said 60 days, or such longer period as the Trustee/Custodian may specify in
writing, the Plan shall be deemed individually designed and the Employer shall
be deemed the successor trustee/custodian. The Employer must then obtain its
own determination letter.
15.7 QUALIFICATION OF PROTOTYPE The Sponsor intends that this Prototype Plan
will meet the requirements of the Code as a qualified Prototype Retirement Plan
and Trust/Custodial Account. Should the Commissioner of Internal Revenue or any
delegate of the Commissioner at any time determine that the Plan and
Trust/Custodial Account fails to meet the requirements of the Code, the Sponsor
will amend the Plan and Trust/Custodial Account to maintain its qualified
status.
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ARTICLE XVI
GOVERNING LAW
Construction, validity and administration of the Prototype Plan and
Trust/Custodial Account, and any Employer Plan and Trust/Custodial Account as
embodied in the Prototype document and accompanying Adoption Agreement, shall
be governed by Federal law to the extent applicable and to the extent not
applicable by the laws of the State/Commonwealth in which the principal office
of the Sponsor is located.
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<TABLE>
<S> <C>
INTERNAL REVENUE SERVICE Department of the Treasury
Plan Description: Prototype Standardized
profit Sharing Plan with CODA
FFN: 502l5l3l904-00l Case: 9500829 EIN: 31-0838515 Washington, DC 20224
BPD: 04 Plan: 001 Letter Serial No: D264834a
Person to Contact: Ms. Arrington
BANK ONE TRUST CO NA Telephone Number: (202) 622-8173
100 EAST BROAD STREET Refer Reply to: CP:E:EP:Q:ICU
COLUMBUS, OH 43271 Date: 10/31/95
</TABLE>
Dear Applicant:
In our opinion the form of the plan identified above is acceptable under
section 401 of the Internal Revenue Code for use by employers for the benefit
of their employees. This opinion relates only to the acceptability of the form
of the plan under the Internal Revenue Code. It is not an opinion of the effect
of other Federal or local statutes.
You must furnish a copy of this letter to each employer who adopts this plan.
You are also required to send a copy of the approved form of the plan, any
approved amendments and related documents to each Key District Director of
Internal Revenue Service in whose jurisdiction there are adopting employers.
Our opinion on the acceptability of the form of the plan is not a ruling or
determination as to whether an employer's plan qualifies under Code section
401(a). An employer who adopts this plan will be considered to have a plan
qualified under code section 401(a) provided all the terms of the plan are
followed, and the eligibility requirements and contribution or benefit
provisions are not more favorable for highly compensated employees than for
other employees. Except as stated below, the Key District Director will not
issue a determination letter with regard to this plan.
Our opinion does not apply to the form of the plan for purposes of Code section
401(a) (16) if: (1) an employer ever maintained another qualified plan for one
or more employees who are covered by this plan, other than a specified paired
plan within the meaning of section 7 of Rev. Proc. 89-9, 1989-1 C.B. 780; or
(2) after December 31, 1985, the employer maintains a welfare benefit fund
defined in Code section 419(e), which provides postretirement medical benefits
allocated to separate accounts for key employees as defined in code section
419A(d) (3).
An employer that has adopted a standardized plan may not rely on this opinion
letter with respect to: (1) whether any amendment or series of amendments to
the plan satisfies the nondiscrimination requirements of section 1.401 (a)
(4)-5(a) of the regulations, except with respect to plan amendments granting
past service that meet the safe harbor described in section 1.401(a)(4)-5 (a)
(5) and are not part of a pattern of amendments that significantly
discriminates in favor of highly compensated employees; or (2) whether the plan
satisfies the effective availability requirement of section 1.401(a) (4}-4(c)
of the regulations with respect to any benefit, right or feature.
An employer that has adopted a standardized plan as an amendment to a plan
other than a standardized plan may not rely on this opinion letter with respect
to whether a benefit, right or other feature that is prospectively eliminated
satisfies the current availability requirements of section 1.401 (a) -4 of the
regulations.
<PAGE> 88
BANK ONE TRUST CO NA
FFN: 50215l31904-00l
Page 2
The employer may request a determination (l) as to whether the plan, considered
with all related qualified plans and, if appropriate, welfare benefit funds,
satisfies the requirements of Code section 401 (a) (16) as to limitations on
benefits and contributions in Code section 415; (2) regarding the
nondiscriminatory effect of grants of past service; and (3) with respect to
whether a prospectively eliminated benefit, right or feature satisfies the
current availability requirements.
Our opinion does not apply to the form of the plan for purposes of section
401(a) of the Code unless the terms of the plan, as adopted or amended, that
pertain to the requirements of sections 401(a) (4), 401(a) (5), 401(a) (17),
401(1), 410(b) and 414(s) of the Code, as amended by the Tax Reform Act of 1986
or subsequent legislation. (a) are made effective retroactively to the first
day of the first plan year beginning after December 3l, 1988 (or such other
date on which these requirements first became effective with respect to this
plan); or (b) are made effective no later than the first day on which the
employer is no longer entitled, under regulations, to rely on a reasonable,
good faith interpretation of these requirements, and the prior provisions of
the plan constitute such an interpretation.
Because you submitted this plan for approval after March 31, 1991, the
continued, interim and extended reliance provisions of sections 13 and 17.03 of
Rev. Proc. 89-9, 1989-1 C.B. 780, are not applicable.
Because you submitted this plan after the later of December 31, 1994, or the
date that was 90 days after the date on which a favorable opinion letter was
issued for your mass submitter's plan, it does not meet the requirements for
the extension of the remedial amendment period provided by Rev. Proc. 95-12,
1995-3 I.R.B. 24.
This letter may not be relied upon with respect to whether the plan satisfies
the qualification requirements as amended by Uruguay Round Agreements Act, Pub.
L. 103-465.
If you, the sponsoring organization, have any questions concerning the IRS
processing of this case, please call the above telephone number. This number is
only for use of the sponsoring organization. Individual participants and/or
adopting employers with questions concerning the plan should contact the
sponsoring organization. The plan's adoption agreement must include the
sponsoring organization's address and telephone number for inquiries by
adopting employers.
If you write to the IRS regarding this plan, please provide your telephone
number and the most convenient time for us to call in case we need more
information. Whether you call or write, please refer to the Letter Serial
Number and File Folder Number shown in the heading of this letter.
You should keep this letter as a permanent record. Please notify us if you
modify or discontinue sponsorship of this plan.
Sincerely yours,
Chief, Employee Plans Technical Branch 1
<PAGE> 89
PLAN #001
STANDARDIZED
ADOPTION AGREEMENT
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING
PLAN AND TRUST/CUSTODIAL ACCOUNT
SPONSORED BY
BANK ONE TRUST COMPANY, N.A.
The Employer named below hereby establishes a Cash or Deferred
Profit-Sharing Plan for eligible Employees as provided in this
Adoption Agreement and the accompanying Basic Prototype Plan and
Trust/Custodial Account Basic Plan Document #04.
1. EMPLOYER INFORMATION
NOTE: If multiple Employers are adopting the Plan, complete this
section based on the lead Employer. Additional Employers may adopt
this Plan by attaching executed signature pages to the back of the
Employer's Adoption Agreement.
(a) NAME AND ADDRESS:
AVATEX CORPORATION
5910 N. CENTRAL EXPRESSWAY. SUITE 1780
DALLAS, TX 75206
(b) TELEPHONE NUMBER: (214)365-7465
(c) TAX ID NUMBER: 25-1425889
(d) FORM OF BUSINESS:
[ ] (i) Sole Proprietor
[ ] (ii) Partnership
[X] (iii) Corporation
[ ] (iv) "S" Corporation (formerly known as Subchapter S)
[ ] (v) Other:
1
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PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
(e) NAME OF INDIVIDUAL AUTHORIZED TO ISSUE INSTRUCTIONS TO THE
TRUSTEE/CUSTODIAN: TANIS A. DARNELL
(f) NAME OF PLAN: AVATEX CORPORATION EMPLOYEES
SAVINGS AND PROFIT SHARING PLAN
(g) THREE DIGIT PLAN NUMBER
FOR ANNUAL RETURN/REPORT: 003
2. EFFECTIVE DATE
(a) This is a new Plan having an effective date of April 1, 1997
(b) This is an amended Plan.
The effective date of the original Plan was______________________
The effective date of the amended Plan is _______________________
(c) If different from above, the Effective Date for the Plan's
Elective Deferral provisions shall be ___________________________
3. DEFINITIONS
(a) "Allocation Date(s)" Allocations to Participant Accounts will be
done in accordance with Article V of the Basic Plan Document #04:
[ ] (i) Daily [ ] (iv) Semi-Annually
[X] (ii) Monthly [ ] (vi) Annually
[ ] (iii) Quarterly
(b) "Collective or Commingled Funds" (Applicable to Institutional
Trustees only.) Investment in collective or commingled funds as
permitted at paragraph l3.3(b) of the Basic Plan Document #04
shall only be made to the following specifically named fund(s):
2
<PAGE> 91
PROTOTYPE CASH OR DEFERRED
PROFIT SHARING PLAN #001
Funds made available after the execution of this Adoption Agreement
will be listed on schedules attached to the end of this Adoption
Agreement.
(c) "Compensation" Compensation shall be determined on the basis of the:
[X] (i) Plan Year.
[ ] (ii) Employer's Taxable Year.
[ ] (iii) Calendar Year.
Compensation shall be determined on the basis of the following
safe-harbor definition of Compensation in IRS Regulation
Section 1.414(s)-1(c):
[ ] (iv) Code Section 6041 and 6051 Compensation,
[X] (v) Code Section 3401(a) Compensation, or
[ ] (vi) Code Section 415 Compensation.
Reimbursements or other expense allowances, fringe benefits (cash and
noncash), moving expenses, deferred Compensation and welfare benefits
(even if includible in gross income) [ ] will [X] will not be
included in Compensation as determined in accordance with the
definition selected above.
Compensation [X] shall [ ] shall not include Employer contributions
made pursuant to a Salary Savings Agreement which are not includible
in the gross income of the Employee for the reasons indicated in the
definition of Compensation at 1.13 of the Basic Plan Document #04
For purposes of the Plan, Compensation shall be limited to $_________,
the maximum amount which will be considered for Plan purposes. [If an
amount is specified, it will limit the amount of contributions
allowed on behalf of higher compensated Employees. Completion of this
section is not intended to coordinate with the $200,000 of Code
Section 415(d), thus the amount should be less than $200,000 as
adjusted for cost-of-living increases.]
(d) "Entry Date"
[ ] (i) The first day of the next payroll period, unless it
is the first day of the Plan Year, beginning after
the date on which an Employee meets the eligibility
requirements.
3
<PAGE> 92
PROTOTYPE CASH OR DEFERRED
PROFITSHARING PLAN #001
[ ] (ii) The first day of the Plan Year nearest the date on
which an Employee meets the eligibility requirements.
[X] (iii) The earlier of the first day of the Plan Year or the
first day of the seventh month of the Plan Year
coinciding with or following the date on which an
Employee meets the eligibility requirements.
[ ] (iv) The first day of the Plan Year following the date on
which the Employee meets the eligibility requirements.
If this election is made, the Service requirement at
4(a)(ii) may not exceed 1/2 year and the age
requirement at 4(b)(ii) may not exceed 20-1/2.
[ ] (v) The first day of the month coinciding with or following
the date on which an Employee meets the eligibility
requirements.
[ ] (vi) The first day of the Plan Year, or the first day
of the fourth month, or the first day of the seventh
month or the first day of the tenth month, of the Plan
Year coinciding with or following the date on which
an Employee meets the eligibility requirements.
(e) "Hours of Service" Shall be determined on the basis of the method
selected below. Only one method may be selected. The method selected
shall be applied to all Employees covered under the Plan as follows:
[ ] (i) On the basis of actual hours for which an Employee is
paid or entitled to payment.
[ ] (ii) On the basis of days worked.
An Employee shall be credited with ten (10) Hours of
Service if under paragraph 1.43 of the Basic Plan
Document #04 such Employee would be credited with at
least one (1) Hour of Service during the day.
[ ] (iii) On the basis of weeks worked.
An Employee shall be credited with forty-five (45)
Hours of Service if under paragraph 1.43 of the Basic
Plan Document #04 such Employee would be credited with
at least one (1) Hour of Service during the week.
[ ] (iv) On the basis of semi-monthly payroll periods.
An Employee shall be credited with ninety-five
(95) Hours of Service if under paragraph 1.43 of the
Basic Plan Document #04 such Employee would be credited
with at least one (1) Hour of Service during the
semi-monthly payroll period.
4
<PAGE> 93
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
[X] (v) On the basis of months worked.
An Employee shall be credited with one-hundred-ninety
(190) Hours of Service if under paragraph 1.43 of the
Basic Plan Document #04 such Employee would be
credited with at least one (1) Hour of Service during
the month.
(f) "Limitation Year" The 12-consecutive month period commencing on
JANUARY 1 and ending on DECEMBER 31.
If applicable, the Limitation Year will be a short Limitation Year
commencing on April 1, 1997 and ending on December 31, 1997.
Thereafter, the Limitation Year shall end on the date last specified
above.
(g) "Net Profit"
[X] (i) Not applicable (profits will not be required for any
contributions to the plan).
[ ] (ii) As defined in paragraph 1.50 of the Basic Plan
Document #04.
[ ] (iii) Shall be defined as:
___________________________________________________
(Only use if definition in paragraph 1.50 of the
Basic Plan Document #04 is to be superseded.)
(h) "Plan Year" The 12-consecutive month period commencing on JANUARY 1
and ending on DECEMBER 31.
If applicable, the Plan Year will be a short Plan Year commencing on
APRIL 1,1997 and ending on DECEMBER 31 1997. Thereafter, the Plan
Year shall end on the date last specified above.
(i) "Qualified Early Retirement Age" For purposes of making distributions
under the provisions of a Qualified Domestic Relations Order, the
Plan's Qualified Early Retirement Age with regard to the Participant
against whom the order is entered [X] shall [ ] shall not be the date
the order is determined to be qualified. If "shall" is elected, this
will only allow payout to the alternate payee(s).
(j) "Qualified Joint and Survivor Annuity" The safe-harbor provisions of
paragraph 8.7 of the Basic Plan Document #04 [X] are [ ] are not
applicable. If not applicable, the survivor annuity shall be ___%
(50%, 66-2/3%, 75% or 100%) of the annuity payable during the lives
of the Participant and Spouse. If no answer is specified, 50% will be
used.
5
<PAGE> 94
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
(k) "Taxable Wage Base" [paragraph 1.81]
[X] (i) Not Applicable - Plan is not integrated with Social
Security.
[ ] (ii) The maximum earnings considered wages for such Plan
Year under section 230 of the Social Security Act at
the beginning of the Plan Year.
[ ] (iii) ___% (not more than 100%) of the amount considered
wages for such Plan Year under section 230 of the
Social Security Act at the beginning of the Plan Year.
[ ] (iv) $_____, provided that such amount is not in excess of
the amount determined under paragraph 3(k)(ii) above.
[ ] (v) For the 1989 Plan Year $10,000. For all subsequent
Plan Years, 20% of the maximum earnings considered
wages for such Plan Year under Code Section 3121(a).
NOTE: Using less than the maximum at (ii) may result in a
change in the allocation formula in Section 7.
(1) "Valuation Date(s)" Allocations to Participant Accounts will be done
in accordance with Article V of the Basic Plan Document #04:
(i) Daily (v) Quarterly
(ii) Weekly (vi) Semi-Annually
(iii) Monthly (vii) Annually
(iv) Bi-Monthly
Indicate Valuation Date(s) to be used by specifying option
from list above:
6
<PAGE> 95
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
Type of Contribution(s) Valuation Date(s)
----------------------- -----------------
After-Tax Voluntary Contributions [Section 6]
-----------------
Elective Deferrals [Section 7(b)] i
-----------------
Matching Contributions [Section 7(c)] i
-----------------
Qualified Non-Elective Contributions [Section 7(d)] i
-----------------
Non-Elective Contributions [Section 7(e), (f) and (g)] i
-----------------
Minimum Top-Heavy Contributions [Section 7(i)] i
-----------------
(m) "Year of Service"
(i) For Eligibility Purposes: The 12-consecutive month period
during which an Employee is credited with N/A (not more than
1,000) Hours of Service.
(ii) For Allocation Accrual Purposes: The 12-consecutive month
period during which an Employee is credited with 501 (not
more than 1,000) Hours of Service. (For Plan Years
beginning in 1990 and thereafter, if a number greater than
501 is specified, it will be deemed to be 501.)
(iii) For Vesting Purposes: The 12-consecutive month period during
which an Employee is credited with 1000 (not more than 1,000)
Hours of Service.
4 ELIGIBILITY REQUIREMENTS
(a) Service:
[ ] (i) The Plan shall have no service requirement.
[X] (ii) The Plan shall cover only Employees having completed
at least .25 [not more than three (3)] Years of
Service. If more than one (1) is specified, for Plan
Years beginning in 1989 and later, the answer will be
deemed to be one (1).
NOTE: If the eligibility period selected is less than one
year, an Employee will not be required to complete any
specified number of Hours of Service to receive credit
for such period.
7
<PAGE> 96
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
(b) Age:
[ ] (i) The Plan shall have no minimum age requirement.
[X] (ii) The Plan shall cover only Employees having attained
age 18 (not more than age 21).
(c) Classification:
The Plan shall cover all Employees who have met the age and service
requirements with the following exceptions:
[X] (i) No exceptions.
[ ] (ii) The Plan shall exclude Employees included 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. For this purpose, the term "Employee
Representative' does not include any organization more
than half of whose members are Employees who are
owners, officers, or executives of the Employer.
[ ] (iii) The Plan shall exclude Employees who are
nonresident aliens and who receive no earned income
from the Employer which constitutes income from
sources within the United States.
(d) Employees on Effective Date:
[ ] (i) Not Applicable. All Employees will be required to
satisfy both the age and Service requirements
specified above.
[X] (ii) Employees employed on the Plan's Effective Date do not
have to satisfy the Service requirements specified
above.
[X] (iii) Employees employed on the Plan's Effective Date do not
have to satisfy the age requirements specified above.
8
<PAGE> 97
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
5. RETIREMENT AGES
(a) Normal Retirement Age:
If the Employer imposes a requirement that Employees retire upon
reaching a specified age, the Normal Retirement Age selected
below may not exceed the Employer imposed mandatory retirement
age.
[X] (i) Normal Retirement Age shall be 65 (not to exceed
age 65).
[ ] (ii) Normal Retirement Age shall be the later
of attaining age (not to exceed age 65) or the
____ (not to exceed the 5th) anniversary of the
first day of the first Plan Year in which the
Participant commenced participation in the Plan.
(b) Early Retirement Age:
[ ] (i) Not Applicable.
[X] (ii) The Plan shall have an Early Retirement
Age of 55 (not less than 55) and completion of
N/A Years of Service.
6. EMPLOYEE CONTRIBUTIONS
[X] (a) Participants shall be permitted to make Elective Deferrals
in any amount from 1% up to 15% of their Compensation.
If (a) is applicable, Participants shall be permitted to
amend their Salary Savings Agreements to change the
contribution percentage as provided below:
[ ] (i) On the first day of the Plan Year and on the
first day of the seventh month of the Plan Year.
[ ] (ii) On the first day of the next payroll period.
[X] (iii) On the first day of each month.
[ ] (iv) On the first day of each quarter.
[ ] (b) Participants shall be permitted to make after tax Voluntary
Contributions.
9
<PAGE> 98
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
[ ] (c) Participants shall be required to make after tax Voluntary
Contributions as follows (Thrift Savings Plan):
[ ] (i) ____ % of Compensation.
[ ] (ii) A percentage determined by the Employee on his or
her enrollment form.
[X] (d) If necessary to pass the Average Deferral Percentage Test,
Participants [ ] may [X] may not have Elective Deferrals
recharacterized as Voluntary Contributions.
NOTE: The Average Deferral Percentage Test will apply to
contributions under (a) above. The Average Contribution
Percentage Test will apply to contributions under (b) and
(c) above, and may apply to (a).
7. EMPLOYER CONTRIBUTIONS AND ALLOCATION THEREOF
NOTE: The Employer shall make contributions to the Plan in
accordance with the formula or formulas selected below. The
Employer's contribution shall be subject to the limitations
contained in Articles III and X. For this purpose, a
contribution for a Plan Year shall be limited for the
Limitation Year which ends with or within such Plan Year.
Also, the integrated allocation formulas below are for Plan
Years beginning in 1989 and later. The Employer's allocation
for earlier years shall be as specified in its Plan prior to
amendment for the Tax Reform Act of 1986.
(a) Profits Requirement:
(i) Current or Accumulated Net Profits are required for:
[ ] (A) Matching Contributions.
[ ] (B) Qualified Non-Elective Contributions.
[ ] (C) discretionary contributions.
(ii) No Net Profits are required for:
[X] (A) Matching Contributions.
[X] (B) Qualified Non-Elective Contributions.
[X] (C) discretionary contributions.
NOTE: Elective Deferrals can always be contributed regardless
of profits.
10
<PAGE> 99
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
[X] (b) Salary Savings Agreement:
The Employer shall contribute and allocate to each Participant's
account an amount equal to the amount withheld from the
Compensation of such Participant pursuant to his or her Salary
Savings Agreement. If applicable, the maximum percentage is
specified in Section 6 above.
An Employee who has terminated his or her election under the
Salary Savings Agreement other than for hardship reasons may not
make another Elective Deferral: [ ] (i) until the first day of
the next Plan Year.
[ ] (ii) until the first day of the next payroll period.
[X] (iii) until the first day of the next month.
[ ] (iv) until the first day of the next quarter.
[X] (c) Matching Employer Contribution [See paragraphs (h) and (i)]:
[X] (i) PERCENTAGE MATCH: The Employer shall contribute
and allocate to each eligible Participant's
account an amount equal to 50% of the amount
contributed and allocated in accordance with
paragraph 7(b) above and (if checked) _______%
of [ ] the amount of Voluntary Contributions
made in accordance with paragraph 4.1 of the
Basic Plan Document #04. The Employer shall not
match Participant Elective Deferrals as
provided above in excess of $N/A or in excess
of 6% of the Participant's Compensation or if
applicable, Voluntary Contributions in excess
of $_______ or in excess of ______ % of the
Participant's Compensation. In no event will
the match on both Elective Deferrals and
Voluntary Contributions exceed a combined
amount of $ or ____%.
[ ] (ii) DISCRETIONARY MATCH: The Employer shall
contribute and allocate to each eligible
Participant's account a percentage of the
Participant's Elective Deferral contributed
and allocated in accordance with paragraph
7(b) above. The Employer shall set such
percentage prior to the end of the Plan Year.
The Employer shall not match Participant
Elective Deferrals in excess of $______ or in
excess of _____ % of the Participant's
Compensation.
11
<PAGE> 100
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
[ ] (iii) TIERED MATCH: The Employer shall contribute and
allocate to each Participant's account an amount
equal to ____% of the first ____ % of the
Participant's Compensation, to the extent
deferred.
_________% of the next ________% of the
Participant's Compensation, to the extent
deferred.
_________% of the next ________% of the
Participant's Compensation, to the extent
deferred.
NOTE: Percentages specified in (iii) above may not increase as the
percentage of Participant's contribution increases
[ ] (iv) FLAT DOLLAR MATCH: The Employer shall contribute and
allocate to each Participant's account $_____ if the
Participant defers at least 1% of Compensation.
[ ] (v) PERCENTAGE OF COMPENSATION MATCH: The Employer shall
contribute and allocate to each Participant's account
_____% of Compensation if the Participant defers at
least 1% of Compensation.
[ ] (vi) PROPORTIONATE COMPENSATION MATCH: The Employer shall
contribute and allocate to each Participant who defers
at least 1% of Compensation, an amount determined by
multiplying such Employer Matching Contribution by a
fraction the numerator of which is the Participant's
Compensation and the denominator of which is the
Compensation of all Participants eligible to receive
such an allocation, The Employer shall set such
discretionary contribution prior to the end of the
Plan Year.
[X] (vii) QUALIFIED MATCH: Employer Matching Contributions will
be treated as Qualified Matching Contributions to the
extent specified below:
[ ] (A) All Matching Contributions.
[ ] (B) None.
[ ] (C) _______% of the Employer's Matching
Contribution.
[ ] (D) up to _______ % of each Participant's
Compensation.
[X] (E) The amount necessary to meet the
[ ] Average Deferral Percentage (ADP)
test, [ ] Average Contribution
Percentage (ACP) test, [X]
Both the ADP and ACP tests.
12
<PAGE> 101
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
(viii) MATCHING CONTRIBUTION COMPUTATION PERIOD: The time
period upon which matching contributions will be based
shall be:
[ ] (A) weekly
[ ] (B) bi-weekly
[ ] (C) semi-monthly
[X] (D) monthly
[ ] (E) quarterly
[ ] (F) semi-annually
[ ] (G) annually
[ ] (H) each payroll period
(ix) ELIGIBILITY FOR MATCH: Employer Matching Contributions,
whether or not Qualified, will only be made on Employee
Contributions not withdrawn prior to the end of the
[X] valuation period [ ] Plan Year.
[X] (d) Qualified Non-Elective Employer Contribution - [See paragraphs (h)
and (i)] These contributions are fully vested when contributed.
The Employer shall have the right to make an additional discretionary
contribution which shall be allocated to each eligible Employee in
proportion to his or her Compensation as a percentage of the
Compensation of all eligible Employees. This part of the Employer's
contribution and the allocation thereof shall be unrelated to any
Employee contributions made hereunder. The amount of Qualified
non-Elective Contributions taken into account for purposes of meeting
the ADP or ACP test requirements is:
[ ] (i) All such Qualified non-Elective Contributions.
[X] (ii) The amount necessary to meet [ ] the ADP test, [ ] the
ACP test, [X] Both the ADP and ACP tests.
13
<PAGE> 102
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
Qualified non-Elective Contributions will be made to:
[ ] (iii) All Employees eligible to participate.
[X] (iv) Only non-Highly Compensated Employees eligible to
participate.
[X] (e) Additional Employer Contribution Other Than Qualified Non-Elective
Contributions Non-Integrated [See paragraphs (h) and(i)]
The Employer shall have the right to make an additional discretionary
contribution which shall be allocated to each eligible Employee in
proportion to his or her Compensation as a percentage of the
Compensation of all eligible Employees. This part of the Employer's
contribution and the allocation thereof shall be unrelated to any
Employee contributions made hereunder.
[ ] (f) Additional Employer Contribution - Integrated Allocation Formula [See
paragraphs (h) and (i)]
The Employer shall have the right to make an additional discretionary
contribution. The Employer's contribution for the Plan Year plus any
forfeitures shall be allocated to the accounts of eligible
Participants as follows:
(i) First, to the extent contributions and forfeitures are
sufficient, all Participants will receive an allocation equal to
3% of their Compensation.
(ii) Next, any remaining Employer Contributions and forfeitures will
be allocated to Participants who have Compensation in excess of
the Taxable Wage Base (excess Compensation). Each such
Participant will receive an allocation in the ratio that his or
her excess compensation bears to the excess Compensation of all
Participants. Participants may only receive an allocation of 3%
of excess Compensation.
(iii) Next, any remaining Employer contributions and forfeitures will
be allocated to all Participants in the ratio that their
Compensation plus excess Compensation bears to the total
Compensation plus excess Compensation of all Participants.
Participants may only receive an allocation of up to 2.7% of
their Compensation plus excess Compensation, under this
allocation method. If the Taxable Wage Base defined at Section
3(j) is less than or equal to the greater of $10,000 or 20% of
the maximum, the 2.7% need not be reduced. If the amount
specified is greater than the greater of $10,000 or 20% of the
maximum Taxable Wage Base, but not more than 80%, 2.7% must be
reduced to 1.3%. If the amount specified is greater than 80% but
less than 100% of the maximum Taxable Wage Base, the 2.7% must
be reduced to 2.4%.
14
<PAGE> 103
PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN #001
NOTE: If the Plan is not Top-Heavy or if the Top-Heavy minimum
contribution or benefit is provided under another Plan [see
Section 11(c)(ii)] covering the same Employees,
sub-paragraphs (i) and (ii) above may be disregarded and
5.7%, 4.3% or 5.4% may be substituted for 2.7%, 1.3% or
2.4% where it appears in (iii) above.
(iv) Next, any remaining Employer contributions and forfeitures will
be allocated to all Participants (whether or not they received
an allocation under the preceding paragraphs) in the ratio that
each Participant's Compensation bears to all Participants'
Compensation.
[ ] (g) Additional Employer Contribution-Alternative Integrated Allocation
Formula (See paragraph (h) and (i)]
The Employer shall have the right to make an additional discretionary
contribution. To the extent that such contributions are sufficient,
they shall be allocated as follows:
________% of each eligible Participant's Compensation plus _____% of
Compensation in excess of the Taxable Wage Base defined at Section
3(j) hereof. The percentage on excess compensation may not exceed the
lesser of (i) the amount first specified in this paragraph or (ii)
the greater of 5.7% or the percentage rate of tax under Code Section
3111(a) as in effect on the first day of the Plan Year attributable
to the Old Age (OA) portion of the OASDI provisions of the Social
Security Act. If the Employer specifies a Taxable Wage Base in
Section 3(j) which is lower than the Taxable Wage Base for Social
Security purposes (SSTWB) in effect as of the first day of the Plan
Year, the percentage contributed with respect to excess Compensation
must be adjusted. If the Plan's Taxable Wage Base is greater than the
larger of $10,000 or 20% of the SSTWB but not more than 80% of the
SSTWB, the excess percentage is 4.3%. If the Plan's Taxable Wage Base
is greater than 80% of the SSTWB but less than 100% of the SSTWB, the
excess percentage is 5.4%
NOTE: Only one plan maintained by the Employer may be integrated with Social
Security.
(h) Allocation of Excess Amounts (Annual Additions)
In the event that the allocation formula above results in an Excess
Amount, such excess shall be:
[ ] (i) placed in a suspense account accruing no gains or losses
for the benefit of the Participant.
15
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[X] (ii) reallocated as additional Employer contributions to all
other Participants to the extent that they do not have
any Excess Amount.
(i) Minimum Employer Contribution Under Top-Heavy Plans:
For any Plan Year during which the Plan is Top-Heavy, the sum of the
contributions and forfeitures as allocated to eligible Employees
under paragraphs 7(d), 7(e), 7(f), 7(g) and 9 of this Adoption
Agreement shall not be less than the amount required under paragraph
14.2 of the Basic Plan Document #04. Top-Heavy minimums will be
allocated to:
[X] (i) all eligible Participants.
[ ] (ii) only eligible non-Key Employees who are
Participants.
(j) Return of Excess Contributions and/or Excess Aggregate Contributions:
In the event that one or more Highly Compensated Employees is subject
to both the ADP and ACP tests and the sum of such tests exceeds the
Aggregate Limit, the limit will be satisfied by reducing the:
[ ] (i) the ADP of the affected Highly Compensated
Employees.
[ ] (ii) the ACP of the affected Highly Compensated
Employees.
[X] (iii) a combination of the ADP and ACP of the affected
Highly Compensated Employees.
8. ALLOCATIONS TO TERMINATED EMPLOYEES
(a) For Plan Years beginning prior to 1990:
[ ] (i) For Plan Years beginning prior to 1990, the
Employer will not allocate Employer related
contributions to any Participant who terminates
employment during the Plan Year.
[ ] (ii) The Employer will allocate Employer related
contributions to Employees who terminate during
the Plan Year as a result of:
[ ] (1) Retirement.
[ ] (2) Disability.
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[ ] (3) Death.
[ ] (4) Other termination provided that
the Participant has completed a
Year of Service.
[ ] (5) Other termination.
(b) For Plan Years beginning in 1990 and thereafter, the Employer will
allocate Employer related contributions to any Participant who is
credited with more than 500 Hours of Service or is employed on the
last day of the Plan Year without regard to the number of Hours of
Service.
The Employer will also allocate Employer related contributions to any
Participant who terminates during the Plan Year without accruing the
necessary Hours of Service if they terminate as a result of:
[X] (i) Retirement.
[X] (ii) Disability.
[X] (iii) Death.
9. ALLOCATION OF FORFEITURES
NOTE: Subsections (a), (b) and (c) below apply to forfeitures
of amounts other than Excess Aggregate Contributions.
(a) Allocation Alternatives:
If forfeitures are allocated to Participants, such allocation shall be
done in the same manner as the Employer's contribution.
[X] (i) Not Applicable. All contributions are always
fully vested.
[ ] (ii) Forfeitures shall be allocated to Participants
in the same manner as the Employer's contribution.
If allocation to other Participants is selected, the
allocation shall be as follows:
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[1] Amount attributable to Employer discretionary
contributions and Top-Heavy minimums will be allocated
to:
[ ] all eligible Participants under the Plan.
[ ] only those Participants eligible for an allocation
of matching contributions in the current year.
[2] Amounts attributable to Employer Matching contributions
will be allocated to:
[ ] all eligible Participants.
[ ] only those Participants eligible for allocations of
matching contributions in the current year.
[ ] (iii) Forfeitures shall be applied to reduce the Employer's
contribution for such Plan Year.
[ ] (iv) Forfeitures shall be applied to offset administrative
expenses of the Plan. If forfeitures exceed these expenses,
(iii) above shall apply.
(b) Date for Reallocation:
NOTE: If no distribution has been made to a former Participant,
sub-section (ii) below will apply to such Participant even if the
Employer elects (i), (iii), (iv), or (v) below as its normal
administrative policy.
[X] (i) For Daily Valued Plans, forfeitures shall be reallocated
during the Valuation at end of next Plan Year immediately
following receipt of cashout.
[ ] (ii) Forfeitures shall be reallocated at the end of the Plan Year
during which the former Participant incurs his or her fifth
consecutive one year Break In Service.
[ ] (iii) Forfeitures will be reallocated immediately (as of the next
Valuation Date).
[ ] (iv) Forfeitures shall be reallocated at the end of the Plan Year
during which the former Employee incurs his or her __
(1st, 2nd, 3rd, or 4th) consecutive one year Break In
Service.
[ ] (v) Forfeitures will be reallocated immediately (as of the Plan
Year end).
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(c) Restoration of Forfeitures:
If amounts are forfeited prior to five consecutive 1-year Breaks in
Service, the Funds for restoration of account balances will be
obtained from the following resources in the order indicated (fill in
the appropriate number)
[1] (i) Current year's forfeitures.
[2] (ii) Additional Employer contribution.
[ ] (iii) Income or gain to the Plan.
(d) Forfeitures of Excess Aggregate Contributions shall be:
[X] (i) Applied to reduce Employer contributions.
[ ] (ii) Allocated, after all other forfeitures under the
Plan, to the Matching Contribution account of each
non-Highly Compensated Participant who made
Elective Deferrals or Voluntary Contributions in
the ratio which each such Participant's
Compensation for the Plan Year bears to the total
Compensation of all Participants for such Plan
Year. Such forfeitures cannot be allocated to the
account of any Highly Compensated Employee.
Forfeitures of Excess Aggregate Contributions will be so applied at
the end of the Plan Year in which they occur.
10. CASH OPTION
[ ] (a) The Employer may permit a Participant to elect to defer to the
Plan, an amount not to exceed ______ % of any Employer paid cash
bonus made for such Participant for any year. A Participant must
file an election to defer such contribution at least fifteen
(15) days prior to the end of the Plan Year. If the Employee
fails to make such an election, the entire Employer paid cash
bonus to which the Participant would be entitled shall be paid
as cash and not to the Plan. Amounts deferred under this section
shall be treated for all purposes as Elective Deferrals.
Notwithstanding the above, the erection to defer must be made
before the bonus is made available to the Participants.
[X] (b) Not Applicable.
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11 LIMITATIONS ON ALLOCATIONS
[ ] This is the only Plan the Employer maintains or ever maintained;
therefore, this section is not applicable.
[X] The Employer does maintain or has maintained another Plan (including
a Welfare Benefit Fund or an individual medical account [as defined
in Code Section 415(l)(2)], under which amounts are treated as Annual
Additions) and has completed the proper sections below.
Complete (a), (b) and (c) only if the Employer maintains or ever
maintained another qualified plan, including a Welfare Benefit Fund
or an individual medical account [as defined in Code Section
415(l)(2)], in which any Participant in this Plan is (or was) a
participant or could possibly become a participant.
(a) If the Participant is covered under another qualified Defined
Contribution Plan maintained by the Employer, other than a Master or
Prototype Plan:
[X] (i) the provisions of Article X of the Basic Plan Document #04
will apply, as if the other plan were a Master or Prototype
Plan.
[ ] (ii) Attach provisions stating the method under which the plans
will limit total Annual Additions to the Maximum
Permissible Amount, and will properly reduce any Excess
Amounts, in a manner that precludes Employer discretion.
(b) If a Participant is or ever has been a participant in a Defined
Benefit Plan maintained by the Employer:
Attach provisions which will satisfy the 1.0 limitation of Code
Section 415(e). Such language must preclude Employer discretion.
The Employer must also specify the interest and mortality
assumptions used in determining Present Value in the Defined
Benefit Plan.
(c) The minimum contribution or benefit required under Code Section 416
relating to Top-Heavy Plans shall be satisfied by:
[X] (i) this Plan.
[ ] (ii)
_________________________________________________
(Name of other qualified plan of the Employer).
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[ ] (iii) Attach provisions stating the method under which
the minimum contribution and benefit provisions of
Code Section 416 will be satisfied. If a Defined
Benefit Plan is or was maintained, an attachment
must be provided showing interest and mortality
assumptions used in the Top-Heavy Ratio.
12. VESTING
Employees shall have a fully vested and nonforfeitable interest in any
Employer contribution and the investment earnings thereon made in
accordance with paragraphs (select one or more options) [X] 7(c), [X]
7(e), [ ] 7(f), [ ] 7(g) and [X] 7(i) hereof. Contributions under
paragraph 7(b), 7(c)(vii) and 7(d) are always fully vested. If one or more
of the foregoing options are not selected, such Employer contributions
shall be subject to the vesting table selected by the Employer.
Each Participant shall acquire a vested and nonforfeitable percentage in
his or her account balance attributable to Employer contributions and the
earnings thereon under the procedures selected below except with respect
to any Plan Year during which the Plan is Top-Heavy, in which case the
Two-twenty vesting schedule [Option (b)(iv)] shall automatically apply
unless the Employer has already elected a faster vesting schedule. If the
Plan is switched to option (b)(iv), because of its Top-Heavy status, that
vesting schedule will remain in effect even if the Plan later becomes
non-Top-Heavy until the Employer executes an amendment of this Adoption
Agreement indicating otherwise.
(a) Computation Period:
The computation period for purposes of determining Years of Service
and Breaks in Service for purposes of computing a Participant's
nonforfeitable right to his or her account balance derived from
Employer contributions:
[X] (i) shall not be applicable since Participants are always
fully vested,
[ ] (ii) shall commence on the date on which an Employee first
performs an Hour of Service for the Employer and each
subsequent 12-consecutive month period shall commence on
the anniversary thereof, or
[ ] (iii) shall commence on the first day of the Plan Year during
which an Employee first performs an Hour of Service for
the Employer and each subsequent 12-consecutive month
period shall commence on the anniversary thereof.
A Participant shall receive credit for a Year of Service if he or she
completes at least 1,000 hours of Service [or if lesser, the number
of hours specified at 3(l)(iii) of this
21
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PROTOTYPE CASH OR DEFERRED
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Adoption Agreement] at any time during the 12-consecutive month
computation period. Consequently, a Year of Service may be earned
prior to the end of the 12-consecutive month computation period and
the Participant need not be employed at the end of the 12-consecutive
month computation period to receive credit for a Year of Service.
(b) Vesting Schedules:
NOTE: The vesting schedules below only apply to a Participant who has
at least one Hour of Service during or after the 1989 Plan Year.
If applicable, Participants who separated from Service prior to
the 1989 Plan Year will remain under the vesting schedule as in
effect in the Plan prior to amendment for the Tax Reform Act of
1986.
(i) Full and immediate vesting
<TABLE>
<CAPTION>
Years of Service
----------------
1 2 3 4 5 6 7
- - - - - - -
<S> <C> <C> <C> <C> <C> <C> <C>
(ii) % 100%
------
(iii) % % 100%
------ ------
(iv) % 20% 40% 60% 80% 100%
------
(v) % % 20% 40% 60% 80% 100%
------ ------
(vi) 10% 20% 30% 40% 60% 80% 100%
(vii) % % % % 100%
------ ------ ------ ------
(viii) % % % % % % 100%
------ ------ ------ ------ ------ ------
</TABLE>
NOTE: The percentages selected for schedule (viii) may not be less for
any year than the percentages shown at schedule (v).
[ ] All contributions other than those which are fully vested when
contributed will vest under schedule ___ above.
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PROTOTYPE CASH OR DEFERRED
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[ ] Contributions other than those which are fully vested when
contributed will vest as provided below:
Vesting
Option Selected Type Of Employer Contribution
--------------- -----------------------------
7(c) Employer Match on Salary Savings
---------------
7(c) Employer Match on Employee
Voluntary
---------------
7(e) Employer Discretionary
---------------
7(f) & (g) Employer Discretionary -
Integrated
---------------
(c) Service disregarded for Vesting:
[X] (i) Not Applicable. All Service shall be considered.
[ ] (ii) Service prior to the Effective Date of this Plan or
a predecessor plan shall be disregarded when
computing a Participant's vested and nonforfeitable
interest.
[ ] (iii) Service prior to a Participant having attained age
18 shall be disregarded when computing a
Participant's vested and nonforfeitable interest.
13. SERVICE WITH PREDECESSOR ORGANIZATION
For purposes of satisfying the Service requirements for eligibility, Hours
of Service shall include Service with the following predecessor
organization(s):
(These hours will also be used for vesting purposes.)
FOXMEYER CORPORATION
14. ROLLOVER/TRANSFER CONTRIBUTIONS
(a) Rollover Contributions, as described at paragraph 4.3 of the Basic
Plan Document #04, [X] shall [ ] shall not be permitted. If permitted
Employees [X] may [ ] may not make Rollover Contributions prior to
meeting the eligibility requirements for participation in the Plan.
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(b) Transfer Contributions, as described at paragraph 4.4 of the Basic
Plan Document #04 [X] shall [ ] shall not be permitted. If permitted,
Employees [X] may [ ] may not Transfer Contributions prior to meeting
the eligibility requirements for participation in the Plan.
NOTE: Even if available, the Employer may refuse to accept such
contributions if its Plan meets the safe-harbor rules of
paragraph 8.7 of the Basic Plan Document #04.
15. HARDSHIP WITHDRAWALS
Hardship withdrawals, as provided for in paragraph 6.9 of the Basic Plan
Document #04, [X] are [ ] are not permitted.
16. PARTICIPANT LOANS
Participant loans, as provided for in paragraph 13.5 of the Basic Plan
Document #04, [X] are [ ] are not permitted. If permitted, repayments of
principal and interest shall be repaid to [X] the Participant's segregated
account or [ ] the general Fund.
17. INSURANCE POLICIES
The insurance provisions of paragraph 13.6 of the Basic Plan Document #04
[ ] shall [X] shall not be applicable.
18. EMPLOYER INVESTMENT DIRECTION AND PROXY VOTING
(a) The Employer investment direction provisions, as set forth in
paragraph 13.7 of the Basic Plan Document #04, [ ] shall [X] shall
not be applicable.
(b) Employer hereby directs that the voting of proxies on securities in
which the trust assets are invested (except Qualifying Employer
Securities) shall be voted by the Plan Trustee (choose one of the
following):
at the direction of the Employer; OR
[X] as it determines in its discretion.
The voting of any proxies of securities (except Qualifying Employer
Securities) for which an investment manager has been appointed
pursuant to ERISA Section 403(a) shall be voted by the investment
manager unless the Employer has reserved to itself the right to
direct the Plan Trustee as to how such proxies should be voted. In
such case, the Employer will notify the Plan Trustee, in writing, as
to how to vote such proxies.
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The Plan Trustee shall be under nO duty to inquire OR investigate as
to who has responsibility for voting proxies on securities for which
an investment manager has been appointed, and it shall not vote such
proxies unless and until it has been notified to do so.
19. EMPLOYEE INVESTMENT DIRECTION
(a) The Employee investment direction provisions, as set forth in
paragraph 13.8 of the Basic Plan Document #04, [X] shall [ ] shall
not be applicable.
If applicable, Participants may direct their investments:
[X] (i) among finds offered by the Trustee.
[ ] (ii) among any allowable investments.
(b) Participants may direct the following kinds of contributions and the
earnings thereon (check all applicable):
[X] (i) All Contributions.
[ ] (ii) Elective Deferrals.
[ ] (iii) Employee Voluntary Contributions (after-tax).
[ ] (iv) Employee Mandatory Contributions (after-tax).
[ ] (v) Employer Qualified Matching Contributions.
[ ] (vi) Other Employer Matching Contributions.
[ ] (vii) Employer Qualified Non-Elective Contributions.
[ ] (viii) Employer Discretionary Contributions.
[ ] (ix) Rollover Contributions.
[ ] (x) Transfer Contributions.
[ ] (xi) All of above which are checked, but only to the
extent that the Participant is vested in those
contributions.
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PROTOTYPE CASH OR DEFERRED
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NOTE: To the extent Employee investment direction was previously
allowed, the Trustee shall have the right to either make the
assets part of the general Trust, or leave them as separately
invested subject to the rights of paragraph 13.8.
20. EARLY PAYMENT OPTION
(a) A Participant who separates from Service prior to retirement, death
or Disability [X] may [ ] may not make application to the Employer
requesting an early payment of his or her vested account balance.
(b) A Participant who has attained age 59-1/2 and who has not separated
from Service [X] may [ ] may not obtain a distribution of his or her
vested Employer contributions. Distribution can only be made if the
Participant is 100% vested.
(c) A Participant who has attained the Plan's Normal Retirement Age and
who has not separated from Service [X] may [ ] may not receive a
distribution of his or her vested account balance.
NOTE: If the Participant has had the right to withdraw his or her
account balance in the past, this right may not be taken away.
Notwithstanding the above, to the contrary, required minimum
distributions will be paid. For timing of distributions, see
item 21(a) below.
21. DISTRIBUTION OPTIONS
(a) Timing of Distributions:
In cases of termination for other than death, Disability or
retirement, benefits shall be paid:
[ ] (i) As soon valuation as administratively feasible, following
the close of the period during which a distribution is
requested or otherwise payable.
[ ] (ii) As soon as administratively feasible following the close of
the Plan Year during which a distribution is requested or
is otherwise payable.
[X] (iii) As soon as administratively feasible, following the date on
which a distribution is requested or is otherwise payable.
[ ] (iv) As soon as administratively feasible, after the close of
the Plan Year during which the Participant incurs ____
consecutive one-year Breaks in Service.
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[ ] (v) Only after the Participant has achieved the Plan's Normal
Retirement Age, or Early Retirement Age, if applicable.
In cases of death, Disability or retirement, benefits shall be paid:
[ ] (vi) As soon as administratively feasible, following the close
of the valuation period during which a distribution is
requested or is otherwise payable.
[ ] (vii) As soon as administratively feasible following the close
of the Plan Year during which a distribution is requested
or is otherwise payable.
[X] (viii) As soon as administratively feasible, following the date
on which a distribution is requested or is otherwise
payable.
(b) Optional Forms of Payment:
[X] (i) Lump Sum.
[ ] (ii) Installment Payments.
[ ] (iii) Life Annuity *
[ ] (iv) Life Annuity Term Certain *.
Life Annuity with payments guaranteed for ________ years
(not to exceed 20 years, specify all applicable).
[ ] (v) Joint and [ ] 50%, [ ] 66-2/3%, [ ] 75% or [ ]100%
survivor annuity* (specify all applicable).
[ ] (vi) Other form(s) specified:
*Not available in Plan meeting provisions of paragraph 8.7 of Basic
Plan Document #04.
(c) Recalculation of Life Expectancy:
In determining required distributions under the Plan, Participants
and/or their Spouse (Surviving Spouse) [X] shall [ ] shall not have
the right to have their life expectancy recalculated annually.
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PROTOTYPE CASH OR DEFERRED
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If "shall"
[ ] only the Participant shall be recalculated.
[ ] both the Participant and Spouse shall be recalculated.
[X] who is recalculated shall be determined by the Participant.
22. SPONSOR CONTACT
Employers should direct questions concerning the language contained in and
qualification of the Prototype to:
BANK ONE TRUST COMPANY. N.A.
(Job Title) EMPLOYEE BENEFITS DEPARTMENT
(Phone Number) (614)248-6455
In the event that the Sponsor amends, discontinues or abandons this
Prototype Plan, notification will be provided to the Employer's address
provided on the first page of this Agreement.
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PROTOTYPE CASH OR DEFERRED
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23. SIGNATURES
DUE TO THE SIGNIFICANT TAX RAMIFICATIONS, THE SPONSOR RECOMMENDS THAT
BEFORE YOU EXECUTE THIS ADOPTION AGREEMENT, YOU CONTACT YOUR ATTORNEY OR
TAX ADVISOR, IF ANY.
(a) EMPLOYER:
Name and address of Employer if different than specified in
Section 1 above.
This agreement and the corresponding provisions of the Plan and
Trust/Custodial Account Basic Plan Document #04 were adopted by
the Employer the 29 day of April, 1997.
Signed for the Employer by:
Title:
Signature:
_________________________________________________
THE EMPLOYER UNDERSTANDS THAT ITS FAILURE TO PROPERLY COMPLETE
THE ADOPTION AGREEMENT MAY RESULT IN DISQUALIFICATION OF ITS
PLAN.
Employer's Reliance: An Employer who maintains or has ever
maintained or who later adopts any Plan [including, after
December 31, 1985, a Welfare Benefit Fund, as defined in Section
419(e) of the Code, which provides post-retirement medical
benefits allocated to separate accounts for Key Employees, as
defined in Section 419A(d)(3)] or an individual medical account,
as defined in Code Section 415(l)(2) in addition to this Plan
may not rely on the opinion letter issued by the National Office
of the Internal Revenue Service as evidence that this Plan is
qualified under Section 401 of the Code. If the Employer who
adopts or maintains multiple Plans wishes to obtain reliance
that such Plan(s) are qualified, application for a determination
letter should be made to the appropriate Key District Director
of Internal Revenue. The Employer understands that its failure
to properly complete the Adoption Agreement may result in
disqualification of its plan.
The Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that
this Plan is qualified under Section 401 of the Code unless the
terms of the Plan, as herein adopted or amended, that pertain to
the requirements of Sections 401(a)(4), 401(a)(17), 401(l),
401(a)(5), 410(b) and 414(s)
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23. SIGNATURES
DUE TO THE SIGNIFICANT TAX RAMIFICATIONS, THE SPONSOR RECOMMENDS THAT
BEFORE YOU EXECUTE THIS ADOPTION AGREEMENT, YOU CONTACT YOUR ATTORNEY OR
TAX ADVISOR, IF ANY.
(a) EMPLOYER:
Name and address of Employer if different than specified in
Section 1 above.
US HealthData Interchange, Inc.
This agreement and the corresponding provisions of the Plan and
Trust/Custodial Account Basic Plan Document #04 were adopted by
the Employer the 29 day of April, 1997.
Signed for the, Employer by:
Title:
Signature:
_________________________________________________
THE EMPLOYER UNDERSTANDS THAT ITS FAILURE TO PROPERLY COMPLETE
THE ADOPTION AGREEMENT MAY RESULT IN DISQUALIFICATION OF ITS
PLAN.
Employer's Reliance: An Employer who maintains or has ever
maintained or who later adopts any Plan [including, after
December 31, 1985, a Welfare Benefit Fund, as defined in Section
419(e) of the Code, which provides post-retirement medical
benefits allocated to separate accounts for Key Employees, as
defined in Section 419A(d)(3)] or an individual medical account,
as defined in Code Section 415(l)(2) in addition to this Plan
may not rely on the opinion letter issued by the National Office
of the Internal Revenue Service as evidence that this Plan is
qualified under Section 401 of the Code. If the Employer who
adopts or maintains multiple Plans wishes to obtain reliance
that such Plan(s) are qualified, application for a determination
letter should be made to the appropriate Key District Director
of Internal Revenue. The Employer understands that its failure
to properly complete the Adoption Agreement may result in
disqualification of its plan.
The Employer may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence that
this Plan is qualified under Section 401 of the Code unless the
terms of the Plan, as herein adopted or amended, that pertain to
the requirements of Sections 401(a)(4), 401(a)(17), 401(1),
401(a)(5), 41O(b) and 414(s)
29
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PROTOTYPE CASH OR DEFERRED
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of the Code, as amended by the Tax Reform Act of 1986, or later
laws, (a) are made effective retroactively to the first day of
the first Plan Year beginning after December 31, 1988 (or such
later date on which these requirements first become effective
with respect to this Plan); or (b) are made effective no later
than the first day on which the Employer is no longer entitled,
under regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions
of the Plan constitute such an interpretation.
This Adoption Agreement may only be used in conjunction with
Basic Plan Document #04.
30
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PROTOTYPE CASH OR DEFERRED
PROFIT-SHARING PLAN 11001
[X] (b) TRUSTEE:
Trust Agreement:
[X] as contained in the Basic Plan Document.
[ ] as contained in the accompanying Trust Agreement.
Complete remaining only if the Trust Agreement is set forth in
Basic Plan Document #04
Name of Trustee:
BANK ONE TRUST COMPANY, N.A.
The assets of the Fund shall be invested in accordance with
paragraph 13.3 of the Basic Plan Document #04 as a Trust. As
such, the Employer's Plan as contained herein was accepted by
the Trustee the day of _______________, 19__.
Signed for the Trustee by:
Title:
Signature: ______________________________
[ ] CUSTODIAN:
Custodial Agreement.
[ ] as contained in the Basic Plan Document.
[ ] as contained in the accompanying Custodial Agreement
Complete remaining only if the Custodial Agreement is set forth
in Basic Plan Document #04.
Name of Custodian:
The assets of the Fund shall be invested in accordance with
paragraph 13.4 of the Basic Plan Document #04 as a Custodial
Account. As such, the Employer's Plan as contained herein was
accepted by the Custodian the ____ day of ________________ 19__.
Signed for the Custodian by:
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PROTOTYPE CASH OR DEFERRED
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Title:
Signature:
________________________________ _________________________________
(d) SPONSOR:
The Employer's Agreement and the corresponding provisions of the Plan and
Trust/Custodial Account Basic Plan Document #04 were accepted by the
Sponsor the day of _______________ 19 .
Signed for the Sponsor by:
Title:
Signature:
________________________________ _________________________________
32
<PAGE> 1
AVATEX CORPORATION AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
For the years ended March 31,
(in thousands, except per share amounts) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY
Income (loss) from continuing operations $ (12,244) $ 5,148 $39,447
Deduct dividends on preferred shares 19,081 21,108 19,096
------------------------------------------
Income (loss) from continuing operations applicable
to common stockholders $ (31,325) $(15,960) $20,351
==========================================
Income (loss) from discontinued operations $(267,112) $(68,809) $ 2,167
==========================================
Shares
Weighted average number of common shares outstanding 14,997 17,115 14,827
==========================================
Income (loss) from continuing operations $ (2.09) $ (0.93) $ 1.37
Income (loss) from discontinued operations (17.81) (4.02) 0.15
------------------------------------------
Net income (loss) $ (19.90) $ (4.95) $ 1.52
==========================================
ASSUMING FULL DILUTION
Income (loss) from continuing operations $ (12,244) $ 5,148 $39,447
Dividends on non-convertible preferred shares 15,678 17,047 14,586
Dividends on convertible preferred shares (conversion of
preferred shares would be anti-dilutive) 3,403 4,061 4,510
------------------------------------------
Income (loss) from continuing operations applicable
to common stockholders $ (31,325) $(15,960) $20,351
==========================================
Income (loss) from discontinued operations $(267,112) $(68,809) $ 2,167
==========================================
Shares
Weighted average number of common shares outstanding 14,997 17,115 14,827
Conversion of preferred stock (anti-dilutive) -- -- --
Additional dilutive effect of outstanding options (as deter-
mined by the treasury stock method) 1 504 286
------------------------------------------
Weighted average number of common shares outstanding 14,998 17,619 15,113
==========================================
Income (loss) from continuing operations $ (2.09) $ (0.90) $ 1.35
Income (loss) from discontinued operations (17.81) (3.91) 0.14
------------------------------------------
Net income (loss) * $ (19.90) $ (4.81) $ 1.49
==========================================
</TABLE>
===============================================================================
* This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
63
<PAGE> 1
EXHIBIT 21
AVATEX CORPORATION
SUBSIDIARIES OF THE CORPORATION
AS OF MARCH 31, 1997
All subsidiaries are 100% owned except where otherwise indicated:.
Beta, Inc. (Delaware)
Davenport, Inc. (Delaware)
Hamilton Morgan LLC (Delaware) (69.8%)
Healthcare Connect, Inc. (Delaware)
Health Systems, Inc. (Delaware)
OmNex Health, Inc. (Delaware)
Health Care Pharmacy Providers, Inc. (Delaware)
NexCare, Inc. (Delaware)
Scrip Card Enterprises, Inc. (Utah)
SCE Acquisition Corporation (Delaware)
US HealthData Interchange, Inc. (Delaware)
Intergroup Services, Inc. (Delaware)
M&A Investments, Inc. (Delaware)
National Aluminum Corporation (Delaware)
National Intergroup Realty Bestgate, Inc. (Delaware)
National Intergroup Realty Corporation (Delaware)
National Intergroup Realty Riva, Inc. (Delaware)
National Intergroup Realty Development, Inc. (Delaware)
National Intergroup Ventures, Inc. (Delaware)
National Intergroup Realty Funding, Inc. (Delaware)
National Magnesium Corporation (Texas)
National Steel Products Company (Texas)
National Steel Products Company, Inc. (Indiana)
Natmin Development Corporation (Delaware)
Natoil Corporation (Kansas)
NII Health Care Corporation (Delaware)
NI World Trade, Incorporated (Delaware)
Oceanside Enterprises, Inc. (Delaware)
Riverside Insurance Co., Ltd. (Bermuda)
Starcom International, Inc. (Delaware) (80%)
The following subsidiaries are in Chapter 7 bankruptcy proceedings (except
for FoxMeyer Funding, Inc.):
FoxMeyer Corporation (Delaware)
FoxMeyer Drug Company (Delaware)
FoxMeyer Funding, Inc. (Delaware)
Health Mart, Inc. (Colorado)
FoxMeyer Software, Inc. (Delaware) (80%)
Healthcare Transportation System, Inc. (Delaware)
Merchandise Coordinator Services Corporation (Delaware)
64
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF AVATEX CORPORATION FOR THE YEAR ENDED MARCH
31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1996
<PERIOD-END> MAR-31-1997
<CASH> 7,173
<SECURITIES> 13,618
<RECEIVABLES> 3,598
<ALLOWANCES> 539
<INVENTORY> 0
<CURRENT-ASSETS> 58,640
<PP&E> 19,414
<DEPRECIATION> 1,024
<TOTAL-ASSETS> 158,437
<CURRENT-LIABILITIES> 12,222
<BONDS> 27,482
189,402
0
<COMMON> 69,030
<OTHER-SE> (182,537)
<TOTAL-LIABILITY-AND-EQUITY> 158,437
<SALES> 12,463
<TOTAL-REVENUES> 12,463
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,416
<INCOME-PRETAX> 17,626
<INCOME-TAX> 29,870
<INCOME-CONTINUING> (12,244)
<DISCONTINUED> (267,112)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (279,356)
<EPS-PRIMARY> (19.90)
<EPS-DILUTED> (19.90)
</TABLE>
