<PAGE>
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE)
<TABLE>
<S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JANUARY 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934 (NO FEE REQUIRED)
</TABLE>
For the transition period from ______________ to ______________
COMMISSION FILE NUMBER 0-11822
------------------------
MICHAELS STORES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-1943604
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
</TABLE>
5931 CAMPUS CIRCLE DRIVE
IRVING, TEXAS 75063
P.O. BOX 619566
DFW, TEXAS 75261-9566
(Address of principal executive offices, including zip code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
Common Stock, Par Value $.10 Per Share
------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) 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 this Form 10-K. /X/
As of April 26, 1994, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $564,280,860, based on the closing price of
the Registrant's Common Stock on such date, $42.25, as reported on the NASDAQ
National Market System.
As of April 26, 1994, 17,007,431 shares of the Registrant's Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year
ended January 30, 1994 are incorporated by reference into Part II of this
report, and portions of the Proxy Statement for the Annual Meeting of
Shareholders of the Registrant to be held during 1994 are incorporated by
reference into Part III of this report.
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Michaels Stores, Inc. ("Michaels" or the "Company") is the largest
nationwide specialty retailer of arts, crafts and decorative items, operating a
chain of 254 stores (as of April 15, 1994) located in 32 states and one Canadian
province. Michaels stores offer a wide selection of competitively priced items
including general crafts, wearable art, silk and dried flowers, picture framing
materials and services, art and hobby supplies, and party, seasonal and holiday
merchandise. The average sale is approximately $13.75. The Company's primary
customers are women aged 25 to 54 with above average median household incomes,
and the Company believes repeat customers account for a substantial portion of
its sales. The Company was incorporated in 1983 as the successor to a Colorado
corporation which commenced operations in 1962.
MERCHANDISING
PRODUCT SELECTION
Michaels' merchandising strategy is to provide a broad selection of products
in an appealing store environment with superior customer service. The commitment
to customer service is evidenced through in-store "how to" demonstrations,
project samples displayed throughout the store, and instructional classes for
adults and children. The typical Michaels store offers an assortment of over
30,000 stock keeping units ("SKUs"). In general, each store offers products from
ten departments. Nine of the departments offer essentially the same type of
merchandise throughout the year, although the products may vary from season to
season. The merchandise offered by these nine departments is as follows:
- General craft materials, including those for stenciling, doll making,
jewelry making, woodworking, wall decor, and tole painting;
- Wearable art, including adult's and children's garments, fabric paints,
embellishments, jewels and sequins, transfers and appliques;
- Silk flowers, dried flowers and artificial plants sold separately or in
ready-made and custom floral arrangements, all accessories needed for
floral arranging, wedding millinery and floral items, and other items for
personalizing home decor, such as wreaths, containers, baskets, candles,
and potpourri;
- Picture framing materials and services, including ready-made frames and
custom framing, mat boards, glass, backing materials and related supplies,
framed art and photo albums;
- Fine art materials, representing a number of major brand lines and
including items such as pastels, water colors, oil paints, acrylics,
easels, brushes, paper and canvas;
- Hobby items, including doll houses and miniature furniture, wooden and
plastic model kits and related supplies, and paint-by-number kits;
- Party needs, including paper party goods, gift wrap, candy making and cake
decorating supplies, invitations, greeting cards, balloons and candy;
- Needlecraft items, including stitchery supplies, knitting yarns, needles,
canvas and related supplies for needlepoint, embroidery and cross
stitching, knitting, crochet, and rug making, and quilts and afghans sold
separately or in kits;
- Ribbon, including satins, laces, florals and other styles sold both in
bolts and by the yard.
In addition to the nine departments described above, the Company regularly
features seasonal merchandise. Seasonal merchandise is ordered for several
holiday periods, including Valentine's Day, Easter, Mother's Day, Halloween and
Thanksgiving, in addition to the Christmas season. For example,
1
<PAGE>
seasonal merchandise for the Christmas season includes trees, wreaths, candles,
lights and ornaments. Included in the seasonal department is promotional
merchandise that is offered with the intention of generating customer traffic.
The following table shows sales by the largest departments as a percent of
total sales for fiscal 1993, 1992 and 1991:
<TABLE>
<CAPTION>
PERCENT OF SALES
-------------------------------------
DEPARTMENT 1993 1992 1991
- - --------------------------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
General craft materials and wearable art................................... 21% 22% 21%
Silk and dried flowers and plants.......................................... 21 18 18
Picture framing............................................................ 15 14 15
Seasonal and promotional items............................................. 14 15 16
Fine art materials......................................................... 11 11 13
Hobby, party, needlecraft and ribbon....................................... 18 20 17
--- --- ---
Total................................................................ 100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
During the Christmas selling season, up to 25% of floor and shelf space in a
typical store is devoted to Christmas decorating and gift making merchandise.
Because of the project-oriented nature of these products, the Company's peak
Christmas selling season extends from October through December. Accordingly, a
fully developed seasonal merchandising program, including inventory, merchandise
layout and instructional ideas, is implemented in each store beginning in July
of each year. This program requires additional inventory accumulation so that
each store is fully stocked during the peak season. Sales of all merchandise
typically increase during the Christmas selling season because of increased
customer traffic. The Company believes that merchandise centered around other
traditional holidays, such as Valentine's Day, Easter and Halloween, is becoming
more popular and is a growing contributor to sales.
Michaels' selling floor strategy is developed centrally and implemented at
the store level through the use of "planograms" which provide store managers
with detailed descriptions and illustrations with respect to store layout and
merchandise presentation. Planograms are also used to cluster various products
which can be combined to create individual projects.
CUSTOMER SERVICE
Michaels believes that customer service is critically important to its
merchandising strategy. Many of the craft supplies sold in Michaels stores can
be assembled into unique end-products. Accordingly, Michaels has hundreds of
displays in every store in an effort to stimulate new project ideas, and
supplies project sheets with detailed instructions on how to assemble the
product. In addition, many sales associates are craft enthusiasts with the
experience to help customers with ideas and instructions. The Company also
offers free demonstrations and inexpensive classes in stores as a means of
promoting new craft ideas. The Company creates additional shopper loyalty and
enthusiasm through publication of the "Michaels Arts & Crafts" magazine, which
reaches over 200,000 households six times per year, and sponsorship of the
"Michaels Kids Club" for over 250,000 children nationwide. Michaels believes
that the in-store "how-to" demonstrations, instructional classes, knowledgeable
sales associates, and customer focus groups have allowed the Company to better
understand and serve its customers. In addition, the Company measures its
customer service in each store at least four times a year through a "mystery
shopper" program.
PURCHASING AND DISTRIBUTION
The Company's purchasing strategy is to negotiate centrally with its vendors
in order to take advantage of volume purchasing discounts and improve control
over product mix and inventory. Approximately 90% of the merchandise is acquired
by the stores from vendors on the Company's "approved list." Of this
merchandise, approximately one-half is received from the Company's distribution
centers and one-half is received directly from vendors. In addition, each store
has the flexibility
2
<PAGE>
to purchase approximately 10% of its merchandise directly from local vendors,
which allows the store managers to tailor the products offered in their stores
to local tastes and trends. All store purchases are monitored by district and
regional managers.
The Company currently operates three distribution centers which supply the
stores with certain merchandise, including substantially all seasonal and
promotional items. The Company's distribution centers are located in Irving,
Texas, Buena Park, California and Lexington, Kentucky. The Company also operates
a warehouse in Phoenix, Arizona, which allows the Company to store bulk
purchases of seasonal and promotional merchandise prior to distribution.
Michaels stores receive deliveries from the distribution centers generally once
a week through an internal distribution network using leased trucks.
Substantially all of the products sold in Michaels stores are manufactured
in the United States, the Far East and Mexico. Goods manufactured in the Far
East generally require long lead times and are ordered four to six months in
advance of delivery. Such products are either imported directly by the Company
or acquired from distributors based in the United States. In all cases,
purchases are denominated in U.S. dollars (or Canadian dollars for purchases of
certain items delivered directly to stores in Canada).
ADVERTISING
The Company believes that its advertising promotes craft and hobby project
ideas among its customers. The Company focuses on circular and newspaper
advertising. The Company has found circular advertising, primarily as an insert
to newspapers but also through direct mail or on display within its stores, to
be the most effective medium of advertising. Such circulars advertise numerous
products in order to emphasize the wide selection of products available at
Michaels stores. The Company believes that its ability to advertise through
circulars and newspapers approximately once a week in each of its markets
provides the Company with an advantage over its smaller competitors. In the past
the Company generally limited television advertising to those major markets in
which it has clusters of stores or in which it was adding new stores. In the
future, the Company will conduct advertising campaigns on targeted cable
television networks reaching a nationwide audience. This effort may also be
complemented with network television advertising in select markets.
STORE OPERATIONS
The Company's stores average approximately 15,500 square feet of selling
space, although newer stores average approximately 17,000 square feet of selling
space. Net sales for fiscal 1993 averaged approximately $3,180,000 per store
(for stores open the entire fiscal year) and $218 per square foot of selling
space. Store sites are selected based upon meeting certain economic, demographic
and traffic criteria or for clustering stores in markets where certain operating
efficiencies can be achieved. The Michaels stores currently in operation are
located primarily in strip shopping centers in areas with easy access and ample
parking.
Typically, a Michaels store is managed by a store manager and one to three
assistant store managers, depending on the sales volume of the store. The
Company's vice president of store operations, four regional managers and
twenty-three district managers are responsible for the supervision and operation
of the stores. The Company believes this organizational structure enhances the
communication among the individual stores and between the stores and corporate
headquarters. In addition, the Company believes that the training and experience
of its managers and assistant managers are vital to the success of its stores,
and therefore has implemented extensive training programs for such personnel.
NEW STORE EXPANSION
Michaels currently anticipates adding approximately 70 to 75 stores in the
United States and Canada during fiscal 1994, of which 34 have already opened or
been acquired. Michaels' expansion strategy is to give priority to adding stores
in existing markets in order to enhance economies of scale
3
<PAGE>
associated with advertising, transportation, field supervision, and other
regional expenses. Management believes that few of its existing markets are
saturated. The Company also believes that many attractive new markets available
to the Company exist. The anticipated development of Michaels stores in 1994 and
the rate at which stores are developed thereafter will depend upon a number of
factors, including the success of existing Michaels stores, the availability of
suitable store sites, the availability of suitable acquisition candidates, and
the ability to hire and train qualified managers.
In February 1994 the Company acquired Treasure House Stores, Inc., an arts
and crafts chain of nine stores operating primarily in the Seattle market. In
April 1994 the Company acquired a group of companies operating eight stores
(primarily in Portland, Oregon) under the Oregon Craft and Floral Supply Co.
name and eight stores (in southern California) under the H & H Craft and Floral
Supply Co. name. All of these acquired stores will be operated in the future as
Michaels stores. These acquisitions have created a dominant position for the
Company in Oregon and Washington and further strengthened the Company's position
in southern California. The Company intends to continue to review acquisition
opportunities in existing and new markets.
In October 1993 the Company opened its first Michaels Craft and Floral
Warehouse store ("CFW") using a newly-developed "warehouse superstore" format.
It is anticipated that each store following the CFW format will occupy up to
40,000 square feet of selling space, carry a wider selection of certain
categories of merchandise than the typical store, and generally offer
merchandise at "everyday" discounted retail prices. In order to maintain a lower
cost structure than the typical store, the CFW store utilizes new computer
systems that provide full point-of-sale scanning, automated receiving of
merchandise, and allow the elimination of retail price marking of individual
product. The Company plans to open four or five additional CFW stores during
1994, and may accelerate the opening of such stores in the future if the format
continues to be favorably received by the consumer.
Michaels has developed a standardized procedure which enables the Company to
efficiently open new stores and integrate them into its information and
distribution systems. The Company develops the floor plan and inventory layout,
and organizes the advertising and promotions in connection with the opening of
each new store. In addition, Michaels maintains an experienced store opening
staff to provide new store personnel with in-store training. The Company
generally opens new stores during the period from February through October
because new store personnel require significant in-store training prior to the
first Christmas selling season.
INVENTORY CONTROL/MANAGEMENT INFORMATION SYSTEMS
Michaels' management information systems include automated point-of-sale,
merchandising, distribution and financial applications. All orders from the
stores to the Company's distribution centers are processed electronically to
ensure timely delivery of warehouse-sourced inventory. The Company's
point-of-sale system generally captures sales information by department. Due to
the large number of inexpensive items in the stores, the non-fashion nature of
the merchandise, and the long lead times involved for ordering seasonal goods
(up to nine months), the Company does not currently capture item-level sales
information, inventory or margin electronically in all stores. Sales trend
tracking combines item level point-of-sale scanning data from the CFW store with
point-of-sale department-level sales from all other stores, weekly test counts
of certain SKUs in 40 selected stores, and regular communication from store
managers through the district and regional managers. Inventory and margins are
monitored on a perpetual basis in the distribution centers and in the stores via
physical inventories at least quarterly in groups of 30 to 40 stores and a
year-end complete physical count in most stores. The Company believes that these
procedures and automated systems, together with its other control processes,
allow Michaels to manage and monitor its inventory levels and margin performance
while it implements new SKU management systems.
In conjunction with the centralization of certain merchandising, financial
and operational functions in 1991, the Company developed a Five-Year Information
Technology Plan designed to satisfy the Company's growing management information
needs. The enhancements provided for in this Plan
4
<PAGE>
that have been implemented include improved ordering capabilities in the stores
using radio frequency and bar-code scanning technologies, item-level scanning
and automated receiving for the CFW store, the implementation of electronic data
interchange with key vendors, and additional automation in the distribution
centers also using radio frequency and bar-code scanning technologies.
Additional near-term enhancements will include the implementation of more
sophisticated warehouse replenishment, merchandise assortment planning, and
"planogramming" capabilities.
COMPETITION
Michaels is the largest nationwide specialty retailer dedicated to serving
the arts and crafts marketplace. The specialty retail business is highly
competitive. Michaels competes primarily with other nationwide retailers of
craft items and related merchandise, regional and local merchants that tend to
specialize in particular aspects of arts and crafts, and mass merchandisers that
typically dedicate a portion of their selling space to a limited selection of
arts, crafts, picture framing and seasonal products. The Company believes that
its stores compete based on price, quality and variety of merchandise
assortment, and customer service, such as instructional demonstrations. Michaels
believes the combination of its broad selection of products, emphasis on
customer service, loyal customer base, and capacity to advertise frequently in
all of its markets provides the Company with a competitive advantage.
SERVICE MARKS
The name "Michaels" and the Michaels logo are both federally registered
service marks held by a trust of which a wholly-owned subsidiary of the Company
is beneficiary.
FRANCHISES
The Company has granted to Dupey Management Corporation the right to open
royalty-free, licensed Michaels stores in an eight-county area in north Texas
which includes the Dallas-Fort Worth area. In addition, a majority-owned
subsidiary of the Company has the right to operate licensed Michaels stores in
Canada, in return for which such subsidiary pays royalty fees.
EMPLOYEES
As of March 27, 1994, approximately 10,040 persons were employed by the
Company, approximately 5,830 of whom were employed on a part-time basis. The
number of part-time employees is substantially increased during the Christmas
selling season. Of the Company's full-time employees, 640 are engaged in various
executive, operating, training and administrative functions in the Company's
corporate office, distribution centers and bulk warehouse, and the remainder are
engaged in store operations.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- - --------------------------------------- ----- -------------------------------------------------------
<S> <C> <C>
Sam Wyly............................... 59 Chairman of the Board of Directors and Chief Executive
Officer
Charles J. Wyly, Jr.................... 60 Vice Chairman of the Board of Directors
Jack E. Bush........................... 59 Director, President and Chief Operating Officer
R. Don Morris.......................... 54 Executive Vice President and Chief Financial Officer
Douglas B. Sullivan.................... 43 Executive Vice President
Robert H. Rudman....................... 43 Senior Vice President -- Merchandising and Marketing
</TABLE>
Mr. Sam Wyly became a director of the Company in July 1984 and was elected
Chairman of the Board in October 1984. In 1963, Mr. Wyly founded University
Computing Company, a computer software and services company, and served as
President or Chairman from 1963 until February 1979. Mr. Wyly co-founded Earth
Resources Company, an oil refining and silver and gold mining company,
5
<PAGE>
and served as its Executive Committee chairman from 1968 to 1980. Mr. Wyly and
his brother, Charles J. Wyly, Jr., bought the 20 restaurant Bonanza Steakhouse
chain in 1967. It grew to approximately 600 restaurants by 1989, during which
time he served as Chairman. Mr. Wyly currently serves as Chairman of Sterling
Software, Inc., a computer software company which he co-founded in 1981, and as
President of Maverick Capital, Ltd., an investment fund management company. Sam
Wyly is the father of Evan A. Wyly, a director of the Company.
Mr. Charles J. Wyly, Jr. became a director of the Company in October 1984
and Vice Chairman of the Board of Directors in February 1985. Mr. Wyly served as
an officer and director of University Computing Company from 1964 to 1975,
including President from 1969 to 1973. Mr. Wyly and his brother, Sam Wyly,
founded Earth Resources Company, and Charles J. Wyly, Jr. served as Chairman of
the Board from 1968 to 1980. Mr. Wyly served as Vice Chairman of the Bonanza
Steakhouse chain from 1967 to 1989. Mr. Wyly is a co-founder and currently
serves as Vice Chairman of the Board of Directors of Sterling Software, Inc. and
as Chairman of Maverick Capital, Ltd. Charles J. Wyly, Jr. is the father-in-law
of Donald R. Miller, Jr., a director and Vice President -- Market Development of
the Company.
Mr. Bush became a director of the Company and was elected President and
Chief Operating Officer in August 1991. Prior to joining the Company, Mr. Bush
was Executive Vice President -- Operations and Stores for Ames Department
Stores, Inc. Before joining Ames in 1990, Mr. Bush was President, Chief
Operating Officer and a director of Rose's Stores, Inc., a discount store chain.
From 1980 to 1985, he served as Vice President -- Southern Zone Manager for
Zayre Corporation. Previously, Mr. Bush spent 22 years with J.C. Penney Company,
where he held a variety of executive positions in merchandising, operations,
marketing, strategic planning, specialty businesses, discount stores and
business development.
Mr. Morris became Executive Vice President and Chief Financial Officer of
the Company in August 1990. From January 1990 until August 1990 he was Senior
Vice President -- Finance and Chief Financial Officer. From April 1988 until
January 1990, Mr. Morris was a director, President and Chief Executive Officer
of Frostcollection, Inc. Prior to April 1988, Mr. Morris was Partner-In-Charge
of the Accounting and Audit and the Merger and Acquisition Departments of the
Dallas, Texas office of Arthur Young & Company.
Mr. Sullivan became Executive Vice President of the Company in August 1990.
From March 1988 until August 1990 he was Senior Vice President -- Real Estate.
Prior to his joining the Company, Mr. Sullivan had served with Family Dollar
Stores, Inc. for 11 years, most recently as Vice President -- Real Estate.
Mr. Rudman became Senior Vice President -- Merchandising and Marketing of
the Company in October 1991. From October 1990 until October 1991 he was
Director of Merchandising for Best Products, a catalog showroom retailer. From
September 1989 until October 1990 Mr. Rudman was Senior Vice President --
Merchandising/Marketing and Distribution for Silk Greenhouse, Inc., a chain of
retail silk floral and accessory stores which filed a petition under federal
bankruptcy laws in November 1990. From May 1988 until September 1989 he served
as Vice President -- Non-Foods Merchandise for Pace Membership Club, prior to
which time he was Vice President and Divisional Merchandise Manager of
McCrory's, a chain of variety stores.
ITEM 2. PROPERTIES.
The Company's stores generally are situated in strip shopping centers
located near malls and on well-traveled roads. Almost all stores are in leased
premises with lease terms generally ranging from five to twenty years. The base
rental rates generally range from $75,000 to $175,000 per year. Rental expense
for stores open during the full 12-month period of fiscal 1993 averaged
$137,000. The leases are generally renewable, with increases in rental rates for
renewal terms. A majority of the existing
6
<PAGE>
leases contain provisions pursuant to which the lessor has provided leasehold
improvements to prepare for opening. However, the Company has been paying and
anticipates continuing to pay for a larger portion of future improvements
directly as opposed to financing them through the lessor.
During 1993 the Company purchased a total of seven properties (consisting of
six parcels of land and seven buildings) at a cost of $8.8 million, generally
acquiring such properties by bidding for them in reorganization proceedings of
other retail companies. Four of the properties have been or are in the process
of being sold, generally in transactions pursuant to which the Company will
lease the property back for a specified period of time. It is the Company's
present intention to acquire land and/or buildings only in unusual circumstances
where the economics of the transactions appear favorable to the Company and the
locations involved fit into the Company's expansion strategy.
The following table indicates the number of the Company's stores located in
each state or province:
<TABLE>
<CAPTION>
STATE NUMBER OF STORES
- - ------------------------------------------------------------------ -----------------
<S> <C>
Alabama........................................................... 4
Arizona........................................................... 8
Arkansas.......................................................... 3
California........................................................ 58
Colorado.......................................................... 8
Florida........................................................... 4
Georgia........................................................... 13
Illinois.......................................................... 12
Indiana........................................................... 6
Iowa.............................................................. 4
Kansas............................................................ 2
Kentucky.......................................................... 3
Louisiana......................................................... 4
Michigan.......................................................... 7
Minnesota......................................................... 2
Mississippi....................................................... 1
Missouri.......................................................... 7
Nebraska.......................................................... 1
Nevada............................................................ 2
New Mexico........................................................ 2
New York.......................................................... 4
North Carolina.................................................... 9
Ohio.............................................................. 14
Oklahoma.......................................................... 6
Ontario........................................................... 2
Oregon............................................................ 9
South Carolina.................................................... 4
Tennessee......................................................... 6
Texas............................................................. 32
Utah.............................................................. 3
Virginia.......................................................... 2
Washington........................................................ 11
West Virginia..................................................... 1
-----
Total........................................................... 254
-----
-----
</TABLE>
The Company leases a 210,000 square foot building in Irving, Texas for use
as a distribution center and as the Company's corporate headquarters, and leases
two nearby facilities for supplemental warehouse and office space. The Company
also leases a 400,000 square foot building in Buena Park,
7
<PAGE>
California for use as a distribution center and leases a 350,000 square foot
building in Lexington, Kentucky for the same purpose. In addition, the Company
leases a 160,000 square foot building in Phoenix, Arizona for use as a bulk
warehouse facility.
ITEM 3. LEGAL PROCEEDINGS.
The Company is a defendant from time to time in routine lawsuits incidental
to its business. The Company believes that none of such current proceedings,
individually or in the aggragate, will have a materially adverse effect on the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matter to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's Common Stock is quoted through the NASDAQ National Market
System under the symbol "MIKE." The following table sets forth the high and low
sales prices of the Company's Common Stock for each quarterly period within the
two most recent fiscal years.
<TABLE>
<CAPTION>
FISCAL 1993 HIGH LOW
- - -------------------- -------- --------
<S> <C> <C>
First............... $34 $26 1/4
Second.............. 33 25 1/4
Third............... 39 26 3/8
Fourth.............. 36 1/2 31 7/8
<CAPTION>
FISCAL 1992 HIGH LOW
- - -------------------- -------- --------
<S> <C> <C>
First............... $26 $19
Second.............. 23 1/2 16 1/2
Third............... 29 3/4 20 1/2
Fourth.............. 34 3/4 24 5/8
</TABLE>
On April 26, 1994, the last reported sale price of the Common Stock on the
NASDAQ National Market System was $42.25, and as of such date there were
approximately 1,044 holders of record of the Common Stock.
The Company's present plan is to retain earnings for the foreseeable future
for use in the Company's business and the financing of its growth. The Company
did not pay any dividends on its Common Stock during fiscal 1992 and 1993.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial information required by this item is included in the
Company's 1993 Annual Report to Shareholders (the "1993 Annual Report") on page
1 under the heading "Financial Highlights." Such information is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required by this item is included in the Company's 1993
Annual Report on pages 20 through 22 under the heading "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Such information
is incorporated herein by reference.
8
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements and supplementary data required by this item are
included in this Annual Report on Form 10-K, or are included in the Company's
1993 Annual Report and are incorporated herein by reference, as indicated in the
following Index to Financial Statements and Financial Statement Schedules:
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS AND 1993 ANNUAL
FINANCIAL STATEMENT SCHEDULES 10-K PAGE REPORT PAGE
- - -------------------------------------------------------------------------------------------- --------- -------------
<S> <C> <C>
Report of Independent Auditors.............................................................. 29
Consolidated Balance Sheets at January 30, 1994 and January 31, 1993........................ 23
Consolidated Statements of Income for the fiscal years ended January 30, 1994, January 31,
1993 and February 2, 1992.................................................................. 24
Consolidated Statements of Cash Flows for the fiscal years ended January 30, 1994, January
31, 1993 and February 2, 1992.............................................................. 25
Consolidated Statements of Shareholders' Equity for the fiscal years ended January 30, 1994,
January 31, 1993 and February 2, 1992...................................................... 24
Notes to Consolidated Financial Statements.................................................. 26-29
Financial statement schedules for the fiscal years ended January 30, 1994, January 31, 1993
and February 2, 1992:
</TABLE>
<TABLE>
<S> <C> <C> <C>
I --Marketable Securities -- Other Investments....................... 13
IX --Short-term Borrowings............................................ 14
X --Supplementary Income Statement Information....................... 15
</TABLE>
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of the
schedules, or because the information required is included in the consolidated
financial statements and notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the directors of the company is set forth in the
Proxy Statement to be delivered to shareholders in connection with the Company's
Annual Meeting of Shareholders to be held on May 24, 1994 (the "Proxy
Statement") under the heading "Proposal I -- Election of Directors," which
information is incorporated herein by reference. The name, age and position of
each executive officer of the Company is set forth under the heading: "Executive
Officers of the Registrant" in Item 1 of this report, which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information concerning executive compensation is set forth in the Proxy
Statement under the heading "Management Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement under the heading "Principal
Shareholders and Management Ownership," which information is incorporated herein
by reference.
9
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related transactions is
set forth in the Proxy Statement under the headings "Certain Transactions" and
"Management Compensation -- Compensation and Stock Option Committee Interlocks
and Insider Participation," which information is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K:
(a) The following documents are filed as a part of this Annual Report on
Form 10-K:
(1) Financial Statements:
The financial statements filed as a part of this report are listed
in the "Index to Financial Statements and Financial Statement
Schedules" at Item 8.
(2) Financial Statement Schedules:
The financial statement schedules filed as a part of this report are
listed in the "Index to Financial Statements and Financial Statement
Schedules" at Item 8.
(3) Exhibits:
The exhibits filed as a part of this report are listed under
"Exhibits" at subsection (c) of this Item 14.
(b) Reports on Form 8-K:
No report on Form 8-K was filed on behalf of the Registrant during the
last quarter of the period covered by this report.
(c) Exhibits:
<TABLE>
<C> <S>
3.1 -- Bylaws of the Registrant, as amended and restated.(1)
3.2 -- Restated Certificate of Incorporation of the Registrant.(3)
4.1 -- Form of Common Stock Certificate.(1)
4.2 -- Common Stock and Warrant Agreement dated as of October 16, 1984 between
Michaels Stores, Inc. and Peoples Restaurants, Inc., including form of
Warrant.(10)
4.3 -- First Amendment to Common Stock and Warrant Agreement dated October 31,
1984 between The First Dallas Group, Ltd. and Michaels Stores, Inc.(10)
4.4 -- Second Amendment to Common Stock and Warrant Agreement dated November 28,
1984 between First Dallas Investments -- Michaels I, Ltd. and Michaels
Stores, Inc.(10)
4.5 -- Third Amendment to Common Stock and Warrant Agreement dated February 27,
1985 between First Dallas Investments -- Michaels I, Ltd., The First
Dallas Group, Ltd., Sam Wyly, Charles J. Wyly, Jr. and Michaels Stores,
Inc.(2)
4.6 -- Indenture, dated as of January 22, 1993, between Michaels Stores, Inc.
and NationsBank of Texas, N.A., as Trustee, including the form of
4 3/4%/6 3/4% Step-up Convertible Subordinated Note included therein.(10)
10.1 -- Asset Purchase and Territorial Development Agreement dated March 25, 1983
among Dupey Enterprises, Inc., Dupey Management Corporation, Michael and
Patricia Dupey Family Trust, Mike Dupey and Patty Dupey.(5)
10.2 -- Amendment to Asset Purchase and Territorial Development Agreement dated
March 30, 1985.(10)
</TABLE>
10
<PAGE>
<TABLE>
<C> <S>
10.3 -- Release and Settlement Agreement dated February 15, 1988 between Dupey
Management Corporation, Michael J. Dupey, Patricia Dupey, Michaels
Stores, Inc. and B.B. Tuley.(1)
10.4 -- Michaels Stores, Inc. Employees 401(k) Plan.(1)
10.5 -- Michaels Stores, Inc. Employees 401(k) Trust.(6)
10.6 -- Form of Indemnity Agreement between Michaels Stores, Inc. and certain
officers and directors of the Registrant.(10)
10.7 -- Form of Employment Agreement between Michaels Stores, Inc. and certain
directors of the Registrant.(7)(12)
10.8 -- Form of Consulting Agreement between Michaels Stores, Inc. and certain
directors of the Registrant.(7)(12)
10.9 -- Form of Employment Agreement between Michaels Stores, Inc. and certain
key executives of the Registrant.(7)(12)
10.10 -- Michaels Stores, Inc. Employees Stock Purchase Plan.(9)
10.11 -- Michaels Stores, Inc. Key Employee Stock Compensation Program, as amended
effective February 25, 1992.(3)(12)
10.12 -- Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan dated August
1, 1992.(3)(12)
10.13 -- Form of Non-Statutory Stock Option Agreement covering options granted to
certain directors and consultants of the Company other than pursuant to
the Michaels Stores, Inc. Key Employee Stock Compensation Program and the
Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan.(10)(12)
10.14 -- Credit Agreement dated June 24, 1993, between Michaels Stores, Inc. and
NationsBank of Texas, N.A. (the "Credit Agreement").(11)
10.15 -- Amendment to Credit Agreement dated as of December 31, 1993.(1)
10.16 -- Amendment to Credit Agreement dated as of March 31, 1994.(1)
10.17 -- Credit Agreement dated April 29, 1994, between Michaels Stores, Inc. and
NationsBank of Texas, N.A.(1)
11 -- Computation of Earnings Per Common Share.(1)
13 -- Portions of 1993 Annual Report to Shareholders that are incorporated by
reference into Items 6, 7 and 8 of this Annual Report on form 10-K.(1)
23 -- Consent of Ernst & Young.(1)
<FN>
- - ------------------------
(1) Filed herewith.
(2) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-9456) and incorporated herein by reference.
(3) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-54726) and incorporated herein by reference.
(4) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-1 (No. 2-89370) and incorporated herein by reference.
(5) Previously filed as an Exhibit to the Peoples Restaurants, Inc.
Registration Statement on Form S-1 (No. 2-85737) and incorporated herein
by reference.
(6) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-11985) and incorporated herein by reference.
(7) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 29, 1989 and incorporated herein by
reference.
(8) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 28, 1990 and incorporated herein by
reference.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
(9) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended February 2, 1992 and incorporated herein by
reference.
(10) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1993 and incorporated herein by
reference.
(11) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended August 1, 1993 and incorporated herein by
reference.
(12) Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(c).
</TABLE>
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MICHAELS STORES, INC.
Date: April 28, 1994 By: ___________/s/_SAM WYLY___________
Sam Wyly
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
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
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- - ------------------------------------------------ ------------------------------------------ -------------------
<C> <S> <C>
/s/ SAM WYLY Chairman of the Board of Directors and
-------------------------------------- Chief Executive Officer (Principal April 28, 1994
Sam Wyly Executive Officer)
/s/ CHARLES J. WYLY, JR.
-------------------------------------- Vice Chairman of the Board of April 28, 1994
Charles J. Wyly, Jr. Directors
-------------------------------------- President, Chief Operating Officer and
Jack E. Bush Director
/s/ R. DON MORRIS Executive Vice President and Chief
-------------------------------------- Financial Officer (Principal Financial and April 28, 1994
R. Don Morris Accounting Officer)
/s/ EVAN A. WYLY
-------------------------------------- Director April 28, 1994
Evan A. Wyly
/s/ WILLIAM O. HUNT
-------------------------------------- Director April 28, 1994
William O. Hunt
/s/ F. JAY TAYLOR
-------------------------------------- Director April 28, 1994
F. Jay Taylor
/s/ RICHARD E. HANLON
-------------------------------------- Director April 28, 1994
Richard E. Hanlon
/s/ DONALD R. MILLER, JR.
-------------------------------------- Vice President -- Market Development and April 28, 1994
Donald R. Miller, Jr. Director
/s/ MICHAEL C. FRENCH
-------------------------------------- Director April 28, 1994
Michael C. French
</TABLE>
13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Michaels Stores, Inc.
We have audited the consolidated financial statements of Michaels Stores,
Inc. as of January 30, 1994 and January 31, 1993, and for each of the three
years in the period ended January 30, 1994, and have issued our report thereon
dated February 28, 1994. Our audits also included the financial statement
schedules listed in item 14(b). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG
Dallas, Texas
February 28, 1994
14
<PAGE>
SCHEDULE I
MICHAELS STORES, INC.
MARKETABLE SECURITIES -- OTHER INVESTMENTS
JANUARY 30, 1994
(IN THOUSANDS EXCEPT SHARE OR UNIT DATA)
<TABLE>
<CAPTION>
NUMBER OF
SHARES OR
UNITS --
PRINCIPAL
AMOUNT OF
BONDS AND MARKET
ISSUER AND TITLE OF ISSUE NOTES COST VALUE CARRYING VALUE
- - -------------------------------------------------- ----------- -------------- ----------- -----------------
<S> <C> <C> <C> <C>
Mutual funds...................................... $ 4,102 $ 4,235 $ 4,102
Adjustable dividend preferred stock............... 60,000 2,412 2,369 2,412
Convertible preferred stock:
Industrial...................................... 276,000 5,737 6,547 5,737
Financial services.............................. 80,000 2,000 2,010 2,000
Fixed dividend preferred stock:
Banks........................................... 190,000 4,889 4,939 4,889
Financial services.............................. 180,250 4,866 4,955 4,866
Industrial...................................... 252,542 7,279 7,391 7,279
Utilities....................................... 151,300 7,032 6,977 7,032
Other services.................................. 80,000 1,985 2,010 1,985
Limited partnerships:
Maverick Fund USA Ltd........................... 15,000 16,319 15,000
Other........................................... 5,833 7,282 5,833
U.S. Corporate bonds.............................. 4,350,000 4,469 4,356 4,469
Dollar denominated foreign bonds.................. 2,625,000 2,352 2,627 2,352
-------------- ----------- --------
Total portfolio............................... $ 67,956 $ 72,017 $ 67,956
-------------- ----------- --------
-------------- ----------- --------
</TABLE>
15
<PAGE>
SCHEDULE IX
MICHAELS STORES, INC.
SHORT-TERM BORROWINGS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE
MAXIMUM AMOUNT
WEIGHTED AMOUNT OUTSTANDING WEIGHTED AVERAGE
BALANCE AT AVERAGE OUTSTANDING DURING INTEREST RATE
CATEGORY OF BORROWINGS END OF YEAR INTEREST RATE DURING YEAR YEAR (1) DURING YEAR (2)
- - --------------------------------------------------- ----------- ------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Year ended January 30, 1994........................ $13,000 6.0% $31,000 $13,945 4.9%
Year ended January 31, 1993........................ -- -- -- -- --
Year ended February 2, 1992........................ -- -- $ 1,500 $ 995 7.8%
<FN>
- - ------------------------
(1) The average borrowings were determined on a daily outstanding basis.
(2) The weighted average interest rate during the year was computed by
dividing actual interest expense in the year by average short-term
borrowings during the year.
</TABLE>
16
<PAGE>
SCHEDULE X
MICHAELS STORES, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO EXPENSES FOR THE YEAR
ENDED
-------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Advertising................................................................ $ 29,227 $ 23,764 $ 17,200
----------- ----------- -----------
----------- ----------- -----------
Depreciation and Amortization.............................................. $ 12,490 $ 10,160 $ 8,858
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
17
<PAGE>
APPENDIX A
A DESCRIPTION OF GRAPHIC MATERIAL CONTAINED IN THE COMPANY'S FORM OF COMMON
STOCK CERTIFICATE IS CONTAINED IN EXHIBIT 4.1.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- - --------- -------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
3.1 -- Bylaws of the Registrant, as amended and restated.(1)....................................
3.2 -- Restated Certificate of Incorporation of the Registrant.(3)..............................
4.1 -- Form of Common Stock Certificate.(1).....................................................
4.2 -- Common Stock and Warrant Agreement dated as of October 16, 1984 between Michaels Stores,
Inc. and Peoples Restaurants, Inc., including form of Warrant.(10).......................
4.3 -- First Amendment to Common Stock and Warrant Agreement dated October 31, 1984 between The
First Dallas Group, Ltd. and Michaels Stores, Inc.(10)...................................
4.4 -- Second Amendment to Common Stock and Warrant Agreement dated November 28, 1984 between
First Dallas Investment -- Michaels I, Ltd. and Michaels Stores, Inc.(10)................
4.5 -- Third Amendment to Common Stock and Warrant Agreement dated February 27, 1985 between
First Dallas Investments -- Michaels I, Ltd., The First Dallas Group, Ltd., Sam Wyly,
Charles J. Wyly, Jr. and Michaels Stores, Inc.(2)........................................
4.6 -- Indenture, dated as of January 22, 1993, between Michaels Stores, Inc. and NationsBank of
Texas, N.A., as Trustee, including the form of 4 3/4%/6 3/4% Step-up Convertible
Subordinated Note included therein.(10)..................................................
10.1 -- Asset Purchase and Territorial Development Agreement dated March 25, 1983 among Dupey
Enterprises, Inc., Dupey Management Corporation, Michael and Patricia Dupey Family Trust,
Mike Dupey and Patty Dupey.(5)...........................................................
10.2 -- Amendment to Asset Purchase and Territorial Development Agreement dated March 30,
1985.(10)................................................................................
10.3 -- Release and Settlement Agreement dated February 15, 1988 between Dupey Management
Corporation, Michael J. Dupey, Patricia Dupey, Michaels Stores, Inc. and B.B.
Tuley.(1)................................................................................
10.4 -- Michaels Stores, Inc. Employees 401(k) Plan.(1)..........................................
10.5 -- Michaels Stores, Inc. Employees 401(k) Trust.(6).........................................
10.6 -- Form of Indemnity Agreement between Michaels Stores, Inc. and certain officers and
directors of the Registrant.(10).........................................................
10.7 -- Form of Employment Agreement between Michaels Stores, Inc. and certain directors of the
Registrant.(7)(12).......................................................................
10.8 -- Form of Consulting Agreement between Michaels Stores, Inc. and certain directors of the
Registrant.(7)(12).......................................................................
10.9 -- Form of Employment Agreement between Michaels Stores, Inc. and certain key executives of
the Registrant.(7)(12)...................................................................
10.10 -- Michaels Stores, Inc. Employees Stock Purchase Plan.(9)..................................
10.11 -- Michaels Stores, Inc. Key Employee Stock Compensation Program, as amended effective
February 25, 1992.(3)(12)................................................................
10.12 -- Michaels Stores, Inc. 1992 Non-Statutory Stock Option Plan dated August 1,
1992.(3)(12).............................................................................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION NUMBERED PAGE
- - --------- -------------------------------------------------------------------------------------------- -------------
10.13 -- Form of Non-Statutory Stock Option Agreement covering options granted to certain
directors and consultants of the Company other than pursuant to the Michaels Stores, Inc.
Key Employee Stock Compensation Program and the Michaels Stores, Inc. 1992 Non-Statutory
Stock Option Plan.(10)(12)...............................................................
<C> <S> <C>
10.14 -- Credit Agreement dated June 24, 1993, between Michaels Stores, Inc. and NationsBank of
Texas, N.A. (the "Credit Agreement").(11)
10.15 -- Amendment to Credit Agreement dated as of December 31, 1993.(1)
10.16 -- Amendment to Credit Agreement dated as of March 31, 1994.(1)
10.17 -- Credit Agreement dated April 29, 1994, between Michaels Stores, Inc. and NationsBanks of
Texas, N.A.(1)
11 -- Computation of Earnings Per Common Share.(1).............................................
13 -- Portions of 1993 Annual Report to Shareholders that are incorporated by reference into
Items 6, 7 and 8 of this Annual Report on Form 10-K.(1)..................................
23 -- Consent of Ernst & Young.(1).............................................................
<FN>
- - ------------------------
(1) Filed herewith.
(2) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-1 (No. 33-9456) and incorporated herein by reference.
(3) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-54726) and incorporated herein by reference.
(4) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-1 (No. 2-89370) and incorporated herein by reference.
(5) Previously filed as an Exhibit to the Peoples Restaurants, Inc.
Registration Statement on Form S-1 (No. 2-85737) and incorporated herein
by reference.
(6) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form S-8 (No. 33-11985) and incorporated herein by reference.
(7) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 29, 1989 and incorporated herein by
reference.
(8) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 28, 1990 and incorporated herein by
reference.
(9) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended February 2, 1992 and incorporated herein by
reference.
(10) Previously filed as an Exhibit to the Registrant's Annual Report on Form
10-K for the year ended January 31, 1993 and incorporated herein by
reference.
(11) Previously filed as an Exhibit to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended August 1, 1993 and incorporated herein by
reference.
(12) Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this form pursuant to Item 14(c).
</TABLE>
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
MICHAELS STORES, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The initial registered office of the
corporation shall be at such place as is designated in the Certificate of
Incorporation (herein, as amended from time to time, so called) and thereafter
the registered office may be at such other place as the Board of Directors may
from time to time designate by resolution.
SECTION 2. OTHER OFFICES. The corporation may also have offices at
such other place both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
STOCKHOLDERS
SECTION 1. MEETINGS. All meetings of the stockholders for the election
of Directors shall be held at the principal office of the corporation or at such
other place, within or without the State of Delaware, as may be fixed from time
to time by the Board of Directors. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
SECTION 2. ANNUAL MEETING. An annual meeting of the stockholders shall
be held on such date in each fiscal year of the corporation as the Board of
Directors will select, if not a legal holiday, and if a legal holiday, then on
the next secular day following, at which meeting the stockholders shall elect a
Board of Directors, and transact such other business as may properly be brought
before the meeting.
SECTION 3. LIST OF STOCKHOLDERS. At least ten days before each meeting
of stockholders, a complete list of the stockholders entitled to vote at said
meeting, arranged in alphabetical order, with the address of and the number of
voting shares held by each, shall be prepared by the officer or agent having
charge of the stock transfer books. Such list shall be kept on file either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified at the place
where the meeting is to be held for a period
<PAGE>
of ten days prior to such meeting and shall be subject to inspection by any
stockholder at any time during usual business hours. Such list shall be
produced and kept open at the time and place of the meeting during the whole
time thereof, and shall be subject to the inspection of any stockholder who may
be present. The Board of Directors may fix in advance a record date for the
purpose of determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such record date to be not less than ten nor more than
sixty days prior to such meeting. In the absence of any action by the Board of
Directors, the close of business on the day next preceding the day on which
notice is given shall be the record date.
SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by the General Corporation
Law of the State of Delaware (herein called "the Act"), or by the Certificate of
Incorporation, or by these Bylaws (herein, as amended from time to time, so
called), may be called by the President or, the Board of Directors, or shall be
called by the President or Secretary at the request in writing of the holders
entitled to cast at least one-third of the votes which all stockholders are
entitled to cast at the particular meeting. Such request shall state the
purpose or purposes of the proposed meeting. Business transacted at all special
meetings shall be confined to the purposes stated in the notice of the meeting
unless all stockholders entitled to vote are present and consent.
SECTION 5. NOTICE. Written or printed notice stating the place, day
and hour of any meeting of the stockholders and, in case of a special meeting,
the purpose or purposes for which the meeting is called, shall be delivered not
less than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the President, the Secretary,
or the officer or person calling the meeting, to each stockholder of record
entitled to vote at the meeting.
SECTION 6. QUORUM. At all meetings of the stockholders, the presence
in person or by proxy of the holders of a majority of the shares issued and
outstanding and entitled to vote shall be necessary and sufficient to constitute
a quorum for the transaction of business except as otherwise provided by the
Act, by the Certificate of Incorporation or by these Bylaws. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
- 2 -
<PAGE>
SECTION 7. VOTING. When a quorum is present at any meeting, the vote
of the holders of a majority of the shares having voting power present in person
or represented by proxy at such meeting shall decide any questions brought
before such meeting, unless the question is one upon which, by express provision
of the Act or of the Certificate of Incorporation or of these Bylaws (including,
but not limited to, Article III of these Bylaws), a different vote is required,
in which case such express provision shall govern and control the decision of
such question. The stockholders present in person or by proxy at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
SECTION 8. PROXY. Each outstanding share, regardless of class, shall
be entitled to one vote on each matter submitted to a vote at a meeting of
stockholders, except to the extent that the voting rights of the shares of any
class or classes are limited or denied by the Certificate of Incorporation. At
any meeting of the stockholders, every stockholder having the right to vote
shall be entitled to vote in person, or by proxy appointed by an instrument in
writing subscribed by such stockholder, or by his duly authorized attorney in
fact, and bearing a date not more than three years prior to said meeting, unless
said instrument provides for a longer period. Such proxy shall be filed with
the Secretary of the corporation prior to or at the time of the meeting.
A duly elected proxy shall be irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
proxy may be made irrevocable regardless of whether the interest with which it
is coupled is an interest in the stock itself or an interest in the corporation
generally.
SECTION 9. ACTION BY CONSENT. Any action required or permitted to be
taken at a meeting of the stockholders of the corporation by the Act,
Certificate of Incorporation or these Bylaws may be taken without a meeting, if
a consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. BOARD OF DIRECTORS. The business and affairs of the
corporation shall be managed by its Board of Directors who may exercise all such
powers of the corporation and do all such
- 3 -
<PAGE>
lawful acts and things as are not by the Act or by the Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
SECTION 2. NUMBER OF DIRECTORS; ELECTION. The exact number of
Directors shall be fixed by resolution of the Board of Directors from time to
time, none of whom need be stockholders or residents of the State of Delaware.
The Directors shall be elected by plurality vote at the annual meeting of the
stockholders, except as may be provided from time to time in the Certificate of
Incorporation (or, in the case of vacancies, below), and each Director elected
shall hold office until his successor shall be elected and shall qualify.
SECTION 3. VACANCIES. Any Director may be removed either for or
without cause, as provided in the Certificate of Incorporation. Newly created
directorships resulting from any increase in the authorized number of directors
and any vacancies occurring in the Board of Directors caused by death,
resignation, retirement, disqualification or removal from office of any
Directors or otherwise, may be filled by the vote of a majority of the Directors
then in office, though less than a quorum, or a successor or successors may be
chosen at a special meeting of the stockholders called for that purpose, and
each successor Director so chosen shall hold office until the next election of
the class for which such directors shall have been chosen and until their
successors shall be elected and qualified.
ARTICLE IV
MEETINGS OF THE BOARD
SECTION 1. MEETINGS. The Directors of the corporation may hold their
meetings, both regular and special, at such times and places as are fixed from
time to time by resolution of the Board of Directors.
SECTION 2. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held without further notice immediately following
the annual meeting of stockholders, and at the same place, unless by unanimous
consent of the Directors then elected and serving such time or place shall be
changed.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as shall from time
to time be determined by resolution of the Board.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or by a
majority of the Directors in office. The purpose
- 4 -
<PAGE>
of any special meeting shall be specified in the notice or any waiver of notice.
Each notice of a meeting of the Board of Directors may be delivered personally
or by telephone to a director not later than the day before the day on which the
meeting is to be held; sent to a Director at his residence or usual place of
business, or at any other place of which he will have notified the Corporation
by telegram, telex, cable, wireless, facsimile or similar means at least 24
hours before the time at which the meeting is to be held; or posted to him at
such place by prepaid first class or air mail, as appropriate, at least three
days before the day on which the meeting is to be held. Notice of a meeting of
the Board of Directors need not be given to any Director who submits a signed
waiver of notice, whether before or after the meeting, or who attends the
meeting without protesting, prior to or at its commencement, the lack of notice
to him.
SECTION 5. QUORUM. At all meetings of the Board of Directors the
presence of a majority of the number of Directors then constituting the Board of
Directors shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the affirmative vote of at least a majority of the
Directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors, except as may be otherwise specifically provided by the
Act or by the Certificate of Incorporation or by these Bylaws. If a quorum shall
not be present at any meeting of Directors, the Directors present there at may
adjourn the meeting from time to time without notice other than announcement at
the meeting, until a quorum shall be present.
SECTION 6. EXECUTIVE COMMITTEE. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate an Executive
Committee, to consist of two or more Directors of the corporation, one of whom
shall be designated as chairman, who shall preside at all meetings of such
Committee. To the extent provided in the resolution of the Board of Directors,
the Executive Committee shall have and may exercise all of the authority of the
Board of Directors in the management of the business and affairs of the
corporation, except where action of the Board of Directors as a whole is
expressly required by the Act or by the Certificate of Incorporation and shall
have power to authorize the seal of the corporation to be affixed to all papers
which may require it. The Executive Committee shall keep regular minutes of its
proceedings and report the same to the Board of Directors when required. Any
member of the Executive Committee may be removed, for or without cause, by this
affirmative vote of a majority of the whole Board of Directors. If any vacancy
or vacancies occur in the Executive Committee caused by death, resignation,
retirement, disqualification, removal from office or otherwise, the vacancy
shall the filled by the affirmative vote of a majority of the whole Board of
Directors.
- 5 -
<PAGE>
SECTION 7. OTHER COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate other committees, each
committee to consist of two or more Directors of the corporation, which
committees shall have such power and authority and shall perform such functions
as may be provided in such resolution. Such committee or committees shall have
such name or names as may be designated by the Board and shall keep regular
minutes of their proceedings and report the same to the Board of Directors when
required.
SECTION 8. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors, the Executive Committee or any
other committee of the Board of Directors, may be taken without such a meeting
if a consent in writing, setting forth the action so taken, is signed by all the
members of the Board of Directors or the Executive Committee or such other
committee, as the case may be and the writing or writings are filed with the
minutes of proceedings of the Board or Committee.
SECTION 9. COMPENSATION DIRECTORS. Directors, as such, shall not
receive any stated salary for their services, but may receive such compensation
and reimbursements as may be determined from time to time by resolution of the
Board; provided that nothing herein contained shall be construed to preclude any
Director from serving the corporation in any other capacity and receiving
compensation therefor.
ARTICLE V
NOTICE OF MEETINGS
SECTION 1. FORM OF NOTICE. Whenever under the provisions of the Act or of
the Certificate of Incorporation or of these Bylaws, notice is required to be
given to any Director or stockholder, and no provision is made as to how such
notice shall be given, it shall not be construed to mean personal notice, but
any such notice may be given in writing, by mail, postage prepaid, addressed to
such Director or stockholder at such address as appears on the books of the
corporation. Any notice required or permitted to be given by mail shall be
deemed to be given at the time when the same be thus deposited in the United
States mails is aforesaid.
SECTION 2. WAIVER. Whenever any written notice is required to be given
to any stockholder or Director of the corporation, under the provisions of the
Act or of the Certificate of Incorporation or of these Bylaws, a waiver thereof
in writing signed by the person or persons entitled to such notice, whether
before or after the time stated in such notice, shall be deemed equivalent to
the giving of such notice.
- 6 -
<PAGE>
SECTION 3. TELEPHONE MEETINGS. Stockholders, members of the Board of
Directors or members of any committee designated by the Board of Directors may
participate in and hold meetings of such stockholders, Board or committee by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other.
ARTICLE VI
OFFICERS
SECTION 1. IN GENERAL. The officers of the corporation shall be
elected by the Board of Directors and shall be a President, a Vice President, a
Secretary and a Treasurer. The Board of Directors may also elect a Chairman of
the Board, Vice Chairman of the Board, additional Vice Presidents, Assistant
Vice Presidents, a Controller, and one or more Assistant Secretaries and
Assistant Treasurers. Any two or more offices may be held by the same person.
SECTION 2. ELECTION. The Board of Directors, at its first meeting
after each annual meeting of stockholders, shall elect a President from its
members and shall, by resolution, designate one of such officers to be the Chief
Executive Officer of the corporation. At such meeting the Board of Directors
shall also elect one or more Vice Presidents, a Secretary and a Treasurer, none
of whom need be a member of the Board of Directors.
SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors may also
elect and appoint such other officers and agents as it shall deem necessary, who
shall be elected and appointed for such terms and shall exercise such powers and
perform such duties as shall be determined from time to time by the Board.
SECTION 4. SALARIES. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors or by the Executive
Committee, if so authorized by the Board.
SECTION 5. TERM OF OFFICE AND REMOVAL. Each officer of the corporation
shall hold office until his death, or his resignation or removal from office, or
the election and qualification of his successor, whichever shall first occur.
Any officer or agent elected or appointed by the Board of Directors may be
removed by the Board of Directors, whenever in its judgment the best interest of
the corporation will be served thereby. If the office of any officer becomes
vacant for any reason, the vacancy may be filled by the Board of Directors.
SECTION 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall preside at all meetings of the Board at which
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<PAGE>
he may be present and shall be ex officio a member of all standing committees
and shall perform such other duties as may be assigned to him by the Board of
Directors.
SECTION 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if any, shall have such powers and perform such duties as the Board of Directors
or the Executive Committee may from time to time prescribe or as the Chairman of
the Board or the Chief Executive Officer may from time to time delegate to him.
In the absence or disability of the Chairman of the Board, the Vice Chairman of
the Board shall perform the duties and exercise the powers of the Chairman of
the Board.
SECTION 8. PRESIDENT. The President shall be the chief administration
officer of the corporation and shall preside at all meetings of the
stockholders. In the absence of the Chairman of the Board or the Vice Chairman
of the Board, if any, he shall preside at all meetings of the Board of
Directors. He shall be ex officio a member of all standing committees and shall
execute bonds, mortgages, and all other contracts or instruments requiring a
seal, under the seal of the corporation, except where required or permitted by
law to be otherwise signed and executed, and except where the signing and
execution thereof shall be expressly delegated by the Board of Directors to some
other officer or agent of the corporation. The President shall perform such
other duties as from time to time may be assigned to him by the Board of
Directors and by the Chief Executive Officer of the corporation.
SECTION 9. CHIEF EXECUTIVE OFFICER. The Chief Executive officer of the
corporation shall have, subject only to the Board of Directors and the Executive
Committee, general and active management and supervision of the business and
affairs of the corporation and shall see that all orders and resolutions of the
Board of Directors and the Executive Committee are carried into effect. He
shall have all powers and duties of supervision and management usually vested in
the general manager of a corporation, including the supervision and direction of
all other officers of the corporation and the power to appoint and discharge
agents and employees.
SECTION 10. VICE PRESIDENTS. Each Vice President shall have such power
and perform such duties as the Board of Directors or the Executive Committee may
from time to time prescribe, or as the Chief Executive officer may from time to
time delegate to him. In the absence or disability of the President, a Vice
President designated by the Board of Directors shall perform the duties and
exercise the powers of the President.
SECTION 11. SECRETARY. The Secretary shall attend all meetings of the
shareholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose. The
- 8 -
<PAGE>
Secretary shall perform like duties for the Board of Directors and the Executive
Committee when required. He shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors and
shall perform such other duties as may be prescribed by the Board of Directors
or the Chief Executive Officer, under whose supervision he shall be. He shall
keep in safe custody the seal of the corporation.
SECTION 12. ASSISTANT SECRETARIES. Each Assistant Secretary shall have
such power and perform such duties as the Board of Directors may from time to
time prescribe. Unless otherwise provided by the Board of Directors, in the
absence or disability of the Secretary, any Assistant Secretary may perform the
duties and exercise the powers of the Secretary.
SECTION 13. TREASURER. The Treasurer shall have the custody of all
corporate funds and securities, shall keep full and accurate accounts of
receipts and disbursements of the corporation, and shall deposit all moneys and
other valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, shall render to the Chief Executive
Officer and Directors, at the regular meetings of the Board, or whenever they
may require it, an account of all his transactions as Treasurer and of the
financial condition of the corporation, and shall perform such other duties as
the Board of Directors may prescribe.
SECTION 14. ASSISTANT TREASURERS. Each Assistant Treasurer shall have
such powers and perform such duties as the Board of Directors may from time to
time prescribe. Unless otherwise provided by the Board of Directors, in the
absence or disability of the Treasurer, any Assistant Treasurer may perform the
duties and exercise the powers of the Treasurer.
SECTION 15. CONTROLLER. The Controller shall share with the Treasurer
responsibility for the financial and accounting books and records of the
corporation, shall report to the Treasurer, and shall perform such other duties
as the Board of Directors or the Executive Committee or the Chief Executive
Officer may from time to time prescribe.
SECTION 16. BONDING. If required by the Board of Directors, all or
certain of the officers shall give the corporation a bond, in such form, in such
sum, and with such surety or sureties as shall be satisfactory to the Board, for
the faithful performance of the duties of their office and for the restoration
to the corporation, in case of their death, resignation, retirement or removal
from office, of all books, papers, vouchers, money and
- 9 -
<PAGE>
other property of whatever kind in their possession or under their control
belonging to the corporation.
ARTICLE VII
CERTIFICATES OF SHARES
SECTION 1. FORM OF CERTIFICATES. Certificates, in such form as may be
determined by the Board of Directors, representing shares to which stockholders
are entitled shall be delivered to each stockholder. Such certificates shall be
consecutively numbered and shall be entered in the stock book of the corporation
as they are issued. Each certificate shall state on the face thereof the
holder's name, the number, class of shares, and the par value of such shares or
a statement that such shares are without par value. They shall be signed by the
President or a Vice President and the Secretary or an Assistant Secretary, and
may be sealed with the seal of the corporation or a facsimile thereof. If any
certificate is countersigned by a transfer agent, or an assistant transfer agent
or registered by a registrar, either of which is other than the corporation or
an employee of the corporation, the signatures of the corporation's officer may
be facsimiles. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on such certificates, shall
cease to be such officer or officers of the corporation, whether because of
death, resignation or otherwise, before such certificate or certificates have
been delivered by the corporation or its agents, such certificate or
certificates may nevertheless be adopted by the corporation and be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation.
SECTION 2. LOST CERTIFICATES. The Board of Directors may direct that a
new certificate be issued in place of any certificate theretofore issued by the
corporation alleged to have been lost, stolen or destroyed and the Board of
Directors may require the owner of such lost, stolen or destroyed certificate,
or his legal representative, to give the corporation a bond, in such form, in
such sum, and with such surety or sureties as it may direct as indemnity against
any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
SECTION 3. TRANSFER OF SHARES. Shares of stock shall be transferable
only on the books of the corporation by the holder thereof in person or by his
duly authorized attorney, lawfully constituted in writing. No transfer shall be
made which is inconsistent with law.
- 10 -
<PAGE>
SECTION 4. REGISTERED SHAREHOLDERS. The corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Dividends upon the outstanding shares of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Dividends may be declared and paid in cash, in property, or in shares
of the corporation, subject to the provisions of the Act and the Certificate of
Incorporation. The Board of Directors may fix in advance a record date for the
purpose of determining stockholders entitled to receive payment of any dividend,
such record date to be not more than sixty days prior to the payment date of
such dividend, or the Board of Directors may close the stock transfer books for
such purpose for a period of not more than sixty days prior to the payment date
of such dividend. In the absence of any action by the Board of Directors, the
date upon which the Board of Directors adopts the resolution declaring such
dividend shall be the record date.
SECTION 2. RESERVES. There may be created by resolution of the Board
of Directors out of the net profits of the corporation such reserve or reserves
as the Directors from time to time, in their discretion, think proper to provide
for contingencies, or to equalize dividends, or to repair or maintain any
property of the corporation, or for such other purpose as the Directors shall
think beneficial to the corporation, and the Directors may modify or abolish any
such reserve in the manner in which it was created.
SECTION 3. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
SECTION 4. SEAL. The corporation shall have a seal, and said seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. Any officer of the corporation shall have authority to
affix the seal to any document requiring it.
SECTION 5. ANNUAL STATEMENT. The Board of Directors shall present at
each annual meeting, and when called for by vote of the
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<PAGE>
stockholders at any special meeting of the stockholders, a full and clear
statement of the business and condition of the corporation.
SECTION 6. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
ARTICLE IX
INDEMNITY
SECTION 1. INDEMNIFICATION. The corporation shall indemnify its
directors to the fullest extent permitted by the Act and may, if and to the
extent authorized by the Board of Directors, so indemnify its officers and any
other person whom it has the power to indemnify against any liability, expense
or other matter whatsoever.
SECTION 2. INDEMNIFICATION ADDITIONAL TO OTHER RIGHTS. The rights of
indemnification provided for in this Article IX shall be in addition to any
rights to which any such Director, officer or employee may be entitled under any
agreement, vote of stockholders, the Certificate of Incorporation, or as a
matter of law or otherwise.
ARTICLE X
AMENDMENTS
SECTION 1. BY STOCKHOLDERS. These Bylaws may be amended or repealed by
the vote of stockholders entitled to at least a majority of the votes which all
stockholders are entitled to cast thereon, at any regular or special meeting of
the stockholders, duly convened after notice to the stockholders of the purpose.
SECTION 2. BY THE BOARD OF DIRECTORS. These Bylaws may also be amended
or repealed by the Board of Directors by the vote of a majority of Directors,
except as such power may be limited by any one or more bylaws adopted by the
stockholders.
Adopted:
/s/ Mark V. Beasley
----------------------------------------
Secretary
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<PAGE>
[An intertwining line design [An intertwining line design
appears on the left border of appears on the right border of
the stock certificate, with the stock certificate, with
the certificate number appearing the number of shares appearing
at the top of the border and the at the top of the border and
Company's logo at the bottom of the Company's seal appearing at
the border] the bottom of the border]
COMMON STOCK COMMON STOCK
PAR VALUE $.10 PAR VALUE $.10
[A sketch of a woman in a draped gown, with a city skyline in the background,
appears directly above the Company's logo on the stock certificate]
CUSIP 594087 10 8
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE IS TRANSFERABLE IN INCORPORATED UNDER THE LAWS
NEW YORK, NEW YORK; DALLAS, TEXAS; OF THE STATE OF DELAWARE
OR CLEVELAND, OHIO.
MICHAELS-R-
STORES, INC.
[Company name listed above appears in form of logo]
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
MICHAELS STORES, INC. (HEREINAFTER REFERRED TO AS THE "CORPORATION")
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR
BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY ARE ISSUED UNDER
AND SHALL BE SUBJECT TO ALL OF THE PROVISIONS OF THE CERTIFICATE OF
INCORPORATION OF THE CORPORATION AND ANY AMENDMENTS THERETO, COPIES OF WHICH ARE
ON FILE WITH THE CORPORATION AND THE TRANSFER AGENT, TO ALL OF WHICH THE HOLDER,
BY ACCEPTANCE HEREOF, ASSENTS. THIS CERTIFICATE IS NOT VALID UNLESS
COUNTERSIGNED BY A TRANSFER AGENT AND REGISTERED BY A REGISTRAR.
WITNESS THE SEAL OF THE CORPORATION AND THE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
Dated:
Countersigned and Registered:
SOCIETY NATIONAL BANK
Transfer Agent
/s/ Jack E. Bush /s/ Mark V. Beasley By: and Registrar
President Secretary
Authorized Signature
<PAGE>
MICHAELS-R-
STORES, INC.
[Company name listed above appears in form of logo]
---------------------------------------
Michaels Stores, Inc. will furnish to the record holder
of this certificate without charge on written request to
such corporation at its principal place of business a full
statement of the powers, designations, preferences and
relative, participating, optional or other special rights of
each class of stock or series thereof which such corporation
is authorized to issue and the qualifications, limitations
or restrictions of such preferences and/or rights.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ______ Custodian _______
TEN ENT -- as tenants by the (Cust) (Minor)
entireties Under Uniform Gifts to Minors Act
JT TEN -- as joint tenants with
right of survivorship ---------------------------------
and not as tenants in (State)
common
Additional abbreviations may also be used though not in the above list.
For value received, _________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------
| |_____________________________________________
--------------------------------
_______________________________________________________________________________
Please print or typewrite name and address including
postal zip code of assignee.
_______________________________________________________________________________
_______________________________________________________________________________
__________________________________________________________________________Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint_____________________________________________
_______________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated, ______________________________
X______________________________________
NOTICE: (SIGNATURE)
THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRES-
POND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE -->
CERTIFICATE IN EVERY PARTICU-
LAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY
CHANGE WHATEVER. X______________________________________
(SIGNATURE)
-------------------------------------------------------
| THE SIGNATURE(S) MUST BE GUARANTEED BY AN "ELIGIBLE|
|GUARANTOR INSTITUTION" AS DEFINED IN RULE 17Ad-15 UNDER|
| THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.|
-------------------------------------------------------
|SIGNATURE(S) GUARANTEED BY: |
| |
| |
| |
| |
| |
| |
-------------------------------------------------------
<PAGE>
EXHIBIT 10.3
NO. 87-4739-G
DUPEY MANAGEMENT CORPORATION, IN THE DISTRICT COURT OF
Plaintiff,
VS. DALLAS COUNTY, TEXAS
MICHAELS STORES, INC. and
B.B. TULEY, Individually
Defendants. 134TH DISTRICT COURT
RELEASE AND SETTLEMENT AGREEMENT
This Agreement is made on this date by and between Dupey
Management Corporation ("DMC"), Michael J. Dupey, individually
("Dupey"), Patricia Dupey, individually ("Patricia") [DMC, Dupey
and Patricia will be collectively referred to as the "Dupey
Group"], Michaels Stores, Inc. ("MSI"), and B. B. Tuley,
individually ("Tuley"), and is as follows:
WHEREAS, DMC filed Plaintiff's First Amended Petition (the
"Petition") in the above-entitled and numbered cause against MSI
and Tuley; and
WHEREAS, MSI filed Defendant's Original Counter-Petition (the
"Counter-Petition") in the above-entitled and numbered cause
against DMC, Dupey, Patricia and the Michael and Patricia Dupey
Family Trust ("Trust"); and
WHEREAS, the Dupey Group, Michaels and Tuley have reached a
Settlement Agreement whereby the Dupey Group has agreed to release
MSI and Tuley in exchange for a mutual release from MSI and Tuley
of the Dupey Group and the beneficiaries of the
RELEASE AND SETTLEMENT AGREEMENT - Page 1
<PAGE>
Trust, and MSI and Tuley have agreed to release the Dupey Group and
the beneficiaries of the Trust in exchange for a mutual release from
the Dupey Group of MSI and Tuley.
NOW, THEREFORE, for and in consideration of (i) the dismissal
with prejudice of the claims made against MSI and Tuley in the
Petition, (ii) the general release granted herein, and (iii) other
good and valuable consideration, receipt of which is hereby
acknowledged, MSI and Tuley do hereby release, acquit and forever
discharge the Dupey Group, their affiliated corporations and
entities, and their officers, employees, agents, representatives,
successors, heirs and assigns, and the beneficiaries of the Trust,
their successors, heirs and assigns, of and from any and all
actions, causes of action, claims and demands, damages, costs and
expenses of whatever kind or character, whether known or unknown,
existing as of the date of this Agreement, including but not
limited to any and all claims which were made or could have been
made by MSI or Tuley in the referenced cause.
FURTHERMORE, in consideration of (i) the dismissal with
prejudice of claims made against the Dupey Group and the Trust in
the Counter-Petition, (ii) the general release granted herein, and
(iii) other good and valuable consideration, receipt of which is
hereby acknowledged, the Dupey Group does hereby release, acquit
and forever discharge MSI and Tuley, their affiliated corporations
and entities, and their officers,
RELEASE AND SETTLEMENT AGREEMENT - Page 2
<PAGE>
employees, agents, representatives, successors, heirs and assigns,
of and from any and all actions, causes of action, claims and demands,
damages, costs and expenses of whatever kind or character, whether
known or unknown, existing as of the date of this Agreement, including
but not limited to any and all claims which were made or could have
been made by the Dupey Group in the referenced cause.
The Dupey Group represents that the Trust has been dissolved
and thus does not have the capacity to grant a release to MSI and
Tuley. In the event the Trust should ever attempt to assert a
claim against MSI, Tuley, their affiliated corporations or entities
or their officers, employees, agents, representatives, successors,
heirs or assigns, the Dupey Group agrees to indemnify them for such
claims and agrees to cause the Trust to release such claims.
For the same aforesaid consideration, MSI and Tuley do hereby
assign to the Dupey Group any and all causes of action and claims
that they may have against the Dupey Group or the beneficiaries of
the Trust which arise or result from the claims asserted by MSI and
Tuley in the referenced cause.
For the same aforesaid consideration, the Dupey Group does
hereby assign to MSI and Tuley any and all causes of action and
claims that it may have against MSI and/or Tuley which arise or
result from the claims asserted by the Dupey Group in the
referenced cause.
RELEASE AND SETTLEMENT AGREEMENT - Page 3
<PAGE>
For the same aforesaid consideration, the parties hereto agree
that (i) each of the Consulting Agreements between DMC and MSI (or
its predecessor in interest), dated March 25, 1983, July 23, 1984,
and March 30, 1985, respectively, shall be null and void and (ii)
each of the Purchase Agreements between DMC and MSI (or its
predecessor in interest), dated March 25, 1983, July 23, 1984, and
March 30, 1985, respectively, and the Amendment to Purchase
Agreement dated December 15, 1986, shall be null and void;
furthermore, the parties hereto agree that there are no obligations
or monies due or to become due under any of such agreements. It is
stipulated, however, that notwithstanding any other provision of
this Agreement, nothing herein shall (i) release MSI, Tuley or DMC
from any obligations under any new Consulting Agreement executed in
1988 or (ii) affect the rights or obligations of any of the parties
to the March 25, 1983, Asset Purchase and Territorial Development
Agreement among Dupey Enterprises, Inc., DMC and the Trust, as
amended by the March 30, 1985, Amendment to Asset Purchase and
Territorial Development Agreement; provided, however, MSI hereby
releases the Dupey Group and the beneficiaries of the Trust from
the claims asserted against them in Paragraphs XIII and XIV of the
Second Cause of Action contained in the Counter-Petition, and any
other claims relating to the Dupey Group's past use of registered
service marks of MSI; and provided further, however, that Sections
4, 5 and 9 of such
RELEASE AND SETTLEMENT AGREEMENT - Page 4
<PAGE>
Asset Purchase and Territorial Development Agreement shall be null
and void.
It is expressly warranted by MSI and Tuley that they are the
owners of all causes of action arising or resulting from the
occurrences described in the Counter-Petition, and that they have
not assigned any cause of action to a third party.
It is expressly warranted by each member of the Dupey Group
that they are the owners of all causes of action arising or
resulting from the occurrences described in the Petition and that
they have not assigned any cause of action to a third party.
It is expressly agreed by all parties that neither this
Agreement nor any part hereof shall be construed or used as an
admission of liability on the part of the Dupey Group, MSI or
Tuley, all of whom expressly deny liability. Any action taken
hereunder is taken in compromise settlement, and to avoid the
trouble and expense of further investigation and litigation in
connection the aforesaid dispute.
It is understood and agreed that counsel for the Dupey Group,
MSI and Tuley will execute and present to the Court an Agreed Order
of Dismissal in the form and substance of that attached hereto as
Exhibit "A", dismissing the claims asserted by the Dupey Group
against MSI and Tuley, and further dismissing the claims asserted
by MSI against the Dupey Group and the Trust, with prejudice to the
rights of the Dupey Group, MSI or Tuley to refile same or any part
thereof against any of
RELEASE AND SETTLEMENT AGREEMENT - Page 5
<PAGE>
the parties in this cause, and that each party will bear its
own costs.
This Release and Settlement Agreement shall be construed under
and controlled by the laws of the State of Texas.
This Release and Settlement Agreement may not be clarified,
modified, changed, or amended except in writing signed by each of
the respective signatories hereto. This Release and Settlement
Agreement may be executed in multiple counterparts, which, taken
together, constitute the original.
DUPEY MANAGEMENT CORPORATION
By: Michael J. Dupey
------------------------------
Its: C.E.O.
------------------------------
Date: 2-15-88
------------------------------
/s/ Michael J. Dupey
------------------------------------
MICHAEL J. DUPEY, INDIVIDUALLY
/s/ Patricia Dupey
------------------------------------
PATRICIA DUPEY, INDIVIDUALLY
MICHAELS STORES, INC.
By: B. B. Tuley
------------------------------
Its: President
------------------------------
Date: 2-15-88
------------------------------
/s/ B. B. Tuley
------------------------------------
B. B. TULEY, INDIVIDUALLY
RELEASE AND SETTLEMENT AGREEMENT - Page 6
<PAGE>
THE STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned, a Notary Public in and for said
County and State, on this day personally appeared Michael J. Dupey,
the CEO, on behalf of DUPEY MANAGEMENT CORPORATION, known to me to
be the person whose name is subscribed to the foregoing instrument,
and acknowledged to me that he executed the same for the purposes and
consideration therein expressed, in the capacity therein stated and
as the act and deed of said corporation.
GIVEN under my hand and seal of office this 15th day of
February, 1988.
/s/ Karen Clarke Geuley
-----------------------------------
Notary Public - State of Texas
My commission expires: 12-11-89
THE STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned, a Notary Public in and for said
County and State, on this day personally appeared MICHAEL J. DUPEY,
known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that he executed the
same for the purposes and consideration therein expressed.
GIVEN under my hand and seal of office this 15th day of
February, 1988.
/s/ Karen Clarke Geuley
-----------------------------------
Notary Public - State of Texas
My commission expires: 12-11-89
RELEASE AND SETTLEMENT AGREEMENT - Page 7
<PAGE>
THE STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned, a Notary Public in and for said
County and State, on this day personally appeared PATRICIA DUPEY,
known to me to be the person whose name is subscribed to the
foregoing instrument, and acknowledged to me that she executed the
same for the purposes and consideration therein expressed.
GIVEN under my hand and seal of office this 15th day of
February, 1988.
/s/ Karen Clarke Geuley
-----------------------------------
Notary Public - State of Texas
My commission expires: 12-11-89
THE STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned, a Notary Public in and for said
County and State, on this day personally appeared B. B. Tuley,
the President, of MICHAELS STORES, INC., known to me to be the
person whose name is subscribed to the foregoing instrument,
and acknowledged to me that he executed the same for the purposes
and consideration therein expressed, in the capacity therein
stated and as the act and deed of said corporation.
GIVEN under my hand and seal of office this 15th day of
February, 1988.
/s/ Rose M. King
----------------------------------
Notary Public - State of Texas
My commission expires: 4-3-89
RELEASE AND SETTLEMENT AGREEMENT - Page 8
<PAGE>
THE STATE OF TEXAS
COUNTY OF DALLAS
BEFORE ME, the undersigned, a Notary Public in and for said
County and State, on this day personally appeared B.B. TULEY, known
to me to be the person whose name is subscribed to the foregoing
instrument, and acknowledged to me that he executed the same for
the purposes and consideration therein expressed.
GIVEN under my hand and seal of office this 15th day of
February, 1988.
/s/ Rose M. King
-----------------------------------
Notary public - State of Texas
My commission expires: 4-3-89
RELEASE AND SETTLEMENT AGREEMENT - Page 9
<PAGE>
EXHIBIT A
NO. 87-4739
DUPEY MANAGEMENT CORPORATION, IN THE DISTRICT COURT OF
Plaintiff,
VS. DALLAS COUNTY, TEXAS
MICHAELS STORES, INC.,
Defendant. 134TH DISTRICT COURT
AGREED ORDER OF DISMISSAL
On this date came to be heard the Motion of DUPEY MANAGEMENT
CORPORATION, MICHAEL J. DUPEY, Individually, PATRICIA DUPEY,
Individually, MICHAELS STORES, INC., and B. B. TULEY, in the above-
entitled and numbered cause, seeking dismissal of said cause with
prejudice. The Court is of the opinion and finds that all matters
in dispute between the parties as asserted herein have been fully
and finally compromised and settled as evidenced by their execution
of a Release and Settlement Agreement.
IT IS, THEREFORE, ORDERED, ADJUDGED and DECREED that the
above-entitled and numbered cause be and the same is dismissed with
prejudice to the rights of the parties hereto to refile same or any
part thereof, and that each party is to bear its own costs.
SIGNED this ____ day of ___________ , 1988.
-----------------------------------
JUDGE PRESIDING
AGREED ORDER OF DISMISSAL - Page 1
<PAGE>
APPROVED:
JENKENS & GILCHRIST
3200 Allied Bank Tower
Dallas, Texas 75202
By:
-------------------------------
William M. Parrish
State Bar No. 15540325
Attorneys for Dupey
Management Corporation,
Michael J. Dupey, Individually, and
Patricia Dupey, Individually
JACKSON, WALKER, WINSTEAD
CANTWELL & MILLER
901 Main Street
6000 First RepublicBank Plaza
Dallas, Texas 75202
BY:
-------------------------------
Ralph E. Hartman
State Bar No. 09164000
Michael L. Knapek
State Bar No.11579500
Attorneys for Michaels Stores, Inc.
and B. B. Tuley
AGREED ORDER OF DISMISSAL - Page 2
<PAGE>
MICHAELS STORES, INC.
EMPLOYEES 401(K) PLAN
(AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 1, 1994)
<PAGE>
TABLE OF CONTENTS
PAGE
P R E A M B L E
ARTICLE 1
DEFINITIONS
1.01 Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Account Balance . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.03 Actual Deferral Percentage. . . . . . . . . . . . . . . . . . . . . . 1
1.04 Adjustment Factor . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.05 Administration Committee or Committee . . . . . . . . . . . . . . . . 1
1.06 Average Actual Deferral Percentage. . . . . . . . . . . . . . . . . . 2
1.07 Average Contribution Percentage . . . . . . . . . . . . . . . . . . . 2
1.08 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.09 Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.10 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.13 Contribution Percentage . . . . . . . . . . . . . . . . . . . . . . . 4
1.14 Effective Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.15 Eligibility Qualification Period. . . . . . . . . . . . . . . . . . . 4
1.16 Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.17 Employee Contributions. . . . . . . . . . . . . . . . . . . . . . . . 5
1.18 Employee Contribution Account . . . . . . . . . . . . . . . . . . . . 5
1.19 Employer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.20 Employer Matching Contributions . . . . . . . . . . . . . . . . . . . 6
1.21 Employer Matching Contribution Account. . . . . . . . . . . . . . . . 6
1.22 Employment Commencement Date. . . . . . . . . . . . . . . . . . . . . 6
1.23 Entry Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.24 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.25 Excess Aggregate Contributions. . . . . . . . . . . . . . . . . . . . 6
1.26 Excess Contributions. . . . . . . . . . . . . . . . . . . . . . . . . 7
1.27 Excess Deferrals. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.28 Family Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.29 Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.30 Highly Compensated Employee . . . . . . . . . . . . . . . . . . . . . 7
1.31 Hour of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.32 Investment Committee. . . . . . . . . . . . . . . . . . . . . . . . . 9
1.33 Leave of Absence. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.34 Limitation Year . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.35 Normal Retirement Date. . . . . . . . . . . . . . . . . . . . . . . . 10
1.36 Nonhighly Compensated Employee. . . . . . . . . . . . . . . . . . . . 10
1.37 One-Year Break in Service . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
1.38 Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.39 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.40 Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.41 Prior Plan Account. . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.42 Rollover Contributions. . . . . . . . . . . . . . . . . . . . . . . . 11
1.43 Rollover Contribution Account . . . . . . . . . . . . . . . . . . . . 11
1.44 Salary Reduction Election . . . . . . . . . . . . . . . . . . . . . . 11
1.45 Salary Reduction Contribution Account . . . . . . . . . . . . . . . . 11
1.46 Salary Reduction Contribution . . . . . . . . . . . . . . . . . . . . 11
1.47 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.48 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
1.49 Valuation Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.50 Vesting Computation Period. . . . . . . . . . . . . . . . . . . . . . 12
1.51 Year of Eligibility Service . . . . . . . . . . . . . . . . . . . . . 12
1.52 Year of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.53 Year of Vesting Service . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.01 Plan Entry Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.02 Participation Requirement(s). . . . . . . . . . . . . . . . . . . . . 12
2.03 Termination of Service. . . . . . . . . . . . . . . . . . . . . . . . 12
2.04 Rehired Employee. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.05 Loss of Participant Status. . . . . . . . . . . . . . . . . . . . . . 13
2.06 Suspension of Participation . . . . . . . . . . . . . . . . . . . . . 13
2.07 Vesting Service . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.08 Notice of Participation . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 3
SALARY REDUCTION CONTRIBUTIONS
3.01 Salary Reduction Contributions. . . . . . . . . . . . . . . . . . . . 13
3.02 Salary Reduction Contribution Election. . . . . . . . . . . . . . . . 15
3.03 Suspension of, or Change in, Salary Reduction Contribution Election . 15
3.04 Deferral Percentage Limitation. . . . . . . . . . . . . . . . . . . . 16
3.05 Special Rules on Deferral Percentage Limitations. . . . . . . . . . . 16
3.06 Adjustment of Deferrals . . . . . . . . . . . . . . . . . . . . . . . 17
3.07 Aggregate Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.08 Return of Contributions Above the Aggregate Limit . . . . . . . . . . 19
ii
<PAGE>
ARTICLE 4
EMPLOYER AND EMPLOYEE CONTRIBUTIONS
4.01 Employer Matching Contributions . . . . . . . . . . . . . . . . . . . 20
4.02 Timing of Employer Matching Contributions . . . . . . . . . . . . . . 20
4.03 Employee Contributions. . . . . . . . . . . . . . . . . . . . . . . . 20
4.04 Percentage Limitation on Employer Matching Contributions. . . . . . . 21
4.05 Special Rules for Contribution Percentage Limit Testing . . . . . . . 21
4.06 Adjustments To Contributions. . . . . . . . . . . . . . . . . . . . . 22
4.07 Overall Limitation on Annual Additions. . . . . . . . . . . . . . . . 23
4.08 Special Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.09 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.10 Reversion of Employer Matching Contributions. . . . . . . . . . . . . 26
ARTICLE 5
PARTICIPANTS' ACCOUNTS
5.01 Separate Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.02 Valuation of Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.03 Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE 6
INVESTMENT OF FUNDS
6.01 Trust Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.02 Authorized Investments and Investment Control . . . . . . . . . . . . 27
6.03 Assumption of Risk by Participants. . . . . . . . . . . . . . . . . . 28
6.04 General Provisions Regarding Investment Direction . . . . . . . . . . 28
6.05 Independent Qualified Public Accountant . . . . . . . . . . . . . . . 30
ARTICLE 7
DEATH BENEFITS AND BENEFICIARY DESIGNATIONS
7.01 Distribution Upon Death . . . . . . . . . . . . . . . . . . . . . . . 30
7.02 Designation of Beneficiary. . . . . . . . . . . . . . . . . . . . . . 30
iii
<PAGE>
ARTICLE 8
VESTING AND TERMINATION OF EMPLOYMENT
8.01 Vesting in Salary Reduction, Employee, and Rollover Contributions . . 32
8.02 Vesting in Employer Matching Contributions. . . . . . . . . . . . . . 32
8.03 Forfeitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.04 Distribution of Vested Benefits . . . . . . . . . . . . . . . . . . . 33
8.05 Forfeiture for Cause. . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE 9
DISTRIBUTION OF BENEFITS
9.01 Normal Form of Benefit. . . . . . . . . . . . . . . . . . . . . . . . 33
9.02 Time of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . 33
9.03 Investment of Account Balance of Terminated Participant . . . . . . . 34
9.04 Latest Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.05 Mandated Commencement of Benefits . . . . . . . . . . . . . . . . . . 35
9.06 Direct Rollovers. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.07 Waiver of 30-Day Notice . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE 10
WITHDRAWALS WHILE EMPLOYED
10.01 Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.02 Hardship Withdrawals. . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE 11
LOANS
11.01 Overall Limitations . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.02 Terms of Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.03 Source of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.04 Withholding and Application of Loan Payments. . . . . . . . . . . . . 40
11.05 Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.06 Administrative Rules and Procedures . . . . . . . . . . . . . . . . . 40
iv
<PAGE>
ARTICLE 12
FIDUCIARIES' DUTIES
12.01 Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.02 Allocation of Responsibilities. . . . . . . . . . . . . . . . . . . . 41
12.03 Procedures for Delegation and Allocation of Responsibilities. . . . . 41
12.04 General Fiduciary Standards . . . . . . . . . . . . . . . . . . . . . 42
12.05 Liability Among Co-Fiduciaries. . . . . . . . . . . . . . . . . . . . 42
ARTICLE 13
EMPLOYER ADMINISTRATION PROVISIONS
13.01 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.02 No Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.03 Employer Action . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.04 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
13.05 Amendment to Vesting Schedule . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 14
COMMITTEES - ADMINISTRATION AND INVESTMENT PROVISIONS
14.01 Appointment of Committees . . . . . . . . . . . . . . . . . . . . . . 45
14.02 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.03 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
14.04 Power of Administration Committee . . . . . . . . . . . . . . . . . . 46
14.05 Power of Investment Committee . . . . . . . . . . . . . . . . . . . . 47
14.06 Manner of Action. . . . . . . . . . . . . . . . . . . . . . . . . . . 48
14.07 Authorized Representative . . . . . . . . . . . . . . . . . . . . . . 48
14.08 Nondiscrimination . . . . . . . . . . . . . . . . . . . . . . . . . . 48
14.09 Interested Member . . . . . . . . . . . . . . . . . . . . . . . . . . 48
14.10 Funding Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
14.11 Individual Statement. . . . . . . . . . . . . . . . . . . . . . . . . 48
14.12 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 15
THE TRUST
15.01 Purpose of the Trust Fund.. . . . . . . . . . . . . . . . . . . . . . 49
15.02 Appointment of Trustee. . . . . . . . . . . . . . . . . . . . . . . . 49
15.03 Exclusive Benefit of Participants . . . . . . . . . . . . . . . . . . 49
v
<PAGE>
15.04 Benefits Supported Only By the Trust Fund . . . . . . . . . . . . . . 49
ARTICLE 16
PARTICIPANT ADMINISTRATIVE PROVISIONS
16.01 Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . 49
16.02 No Beneficiary Designation. . . . . . . . . . . . . . . . . . . . . . 50
16.03 Personal Data to Administration Committee . . . . . . . . . . . . . . 50
16.04 Address for Notification. . . . . . . . . . . . . . . . . . . . . . . 50
16.05 Alienation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
16.06 Litigation Against the Trust. . . . . . . . . . . . . . . . . . . . . 50
16.07 Information Available . . . . . . . . . . . . . . . . . . . . . . . . 51
16.08 Beneficiary's Right to Information. . . . . . . . . . . . . . . . . . 51
16.09 Claims Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
16.10 Appeal Procedure for Denial of Benefits . . . . . . . . . . . . . . . 51
16.11 Place of Payment and Proof of Continued Eligibility . . . . . . . . . 52
16.12 No Rights Implied . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE 17
AMENDMENT OR TERMINATION
17.01 Right to Amend. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
17.02 Right to Terminate Plan . . . . . . . . . . . . . . . . . . . . . . . 53
17.03 Obligations Upon Merger, Consolidation or Transfer. . . . . . . . . . 54
17.04 Obligations Upon Termination, Partial Termination or Discontinuance . 54
17.05 Continued Funding After Plan Termination. . . . . . . . . . . . . . . 54
17.06 Distribution Upon Disposition of Assets or Subsidiary . . . . . . . . 54
ARTICLE 18
GENERAL PROVISIONS
18.01 No Contract of Employment . . . . . . . . . . . . . . . . . . . . . . 55
18.02 No Alienation of Benefits . . . . . . . . . . . . . . . . . . . . . . 55
18.03 Incapacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
18.04 Sole Source of Benefits . . . . . . . . . . . . . . . . . . . . . . . 56
18.05 Address of Payee Unknown. . . . . . . . . . . . . . . . . . . . . . . 56
18.06 Service in More Than One Plan Capacity. . . . . . . . . . . . . . . . 56
18.07 Intent to Qualify . . . . . . . . . . . . . . . . . . . . . . . . . . 56
vi
<PAGE>
ARTICLE 19
ROLLOVER CONTRIBUTIONS AND TRANSFERS
19.01 Rollover of Funds From Other Plans. . . . . . . . . . . . . . . . . . 56
19.02 Rollover of Funds From Conduit Individual Retirement Account (IRA). . 57
19.03 Transfers Directly from Other Plans . . . . . . . . . . . . . . . . . 58
19.04 Mistaken Rollover . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE 20
TOP-HEAVY PROVISIONS
20.01 Top-Heavy Plan Defined. . . . . . . . . . . . . . . . . . . . . . . . 58
20.02 Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 59
20.03 Top-Heavy Contributions . . . . . . . . . . . . . . . . . . . . . . . 60
20.04 Adjustment to Limitation on Annual Additions. . . . . . . . . . . . . 61
ARTICLE 21
QUALIFIED DOMESTIC RELATIONS ORDERS (QDROs)
21.01 Terms of QDRO . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
21.02 QDRO Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . 62
21.03 Payments Prior to Separation from Employment. . . . . . . . . . . . . 63
21.04 Treatment of Former Spouse. . . . . . . . . . . . . . . . . . . . . . 63
21.05 Notification of Receipt of Order. . . . . . . . . . . . . . . . . . . 63
21.06 Separate Accounting . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE 22
EMPLOYER PARTICIPATION
22.01 Adoption by Employers . . . . . . . . . . . . . . . . . . . . . . . . 64
22.02 Withdrawal by Employer. . . . . . . . . . . . . . . . . . . . . . . . 65
22.03 Adoption Contingent Upon Initial and Continued Qualification. . . . . 65
22.04 No Joint Venture Implied. . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE 23
MISCELLANEOUS
23.01 Execution of Receipts and Releases. . . . . . . . . . . . . . . . . . 66
23.02 No Guarantee of Interest. . . . . . . . . . . . . . . . . . . . . . . 66
vii
<PAGE>
23.03 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 66
23.04 Employer Records. . . . . . . . . . . . . . . . . . . . . . . . . . . 66
23.05 Interpretations and Adjustments . . . . . . . . . . . . . . . . . . . 66
23.06 Uniform Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
23.07 Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
23.08 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
23.09 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
23.10 Waiver of Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . 67
23.11 Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
23.12 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
23.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
APPENDIX I
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P R E A M B L E
The Michaels Stores, Inc. Inc. Employees 401(k) Plan (As Amended and
Restated Effective February 1, 1994) (the "Plan") is designed to provide
eligible employees and their beneficiaries with the opportunity to accumulate
capital for their future economic security, to encourage eligible employees to
remain in the service of the employer, and to provide additional incentive for
employee performance on behalf of the employer. The Plan was originally adopted
effective as of February 1, 1987 and was most recently amended and restated
effective May 1, 1992. This instrument contains all amendments to the Plan
through the date of execution hereof.
The Plan is intended to be a profit sharing plan qualifying under Section
401(a) of the Code with a cash or deferred arrangement qualifying under Section
401(k) of the Code. The Plan is intended to comply with the requirements of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
regulations issued thereunder; the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations issued thereunder; and other
appropriate Federal laws and regulations.
ARTICLE 1
DEFINITIONS
The following words and phrases as used herein shall have the following
meanings and the masculine, feminine and neuter gender shall be deemed to
include the others, unless a different meaning is plainly required by the
context:
1.01 ACCOUNT shall mean, to the extent applicable to a Participant, the total
of the separate accounts that are maintained for a Participant under the Plan.
1.02 ACCOUNT BALANCE shall mean the sum of the amounts credited to the
Participant's Accounts as of any date.
1.03 ACTUAL DEFERRAL PERCENTAGE shall mean the ratio (expressed as a
percentage) of the Salary Reduction Contributions made on behalf of the
Participant for the Plan Year to the Participant's Compensation for the Plan
Year.
1.04 ADJUSTMENT FACTOR shall mean the cost of living adjustment factor
prescribed by the Secretary of the Treasury under Section 415(d) of the Code, as
applied to such items and in such manner as the Secretary shall provide.
1.05 ADMINISTRATION COMMITTEE OR COMMITTEE shall mean the person(s), described
in Article 14, who are responsible for the administration of the Plan.
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1.06 AVERAGE ACTUAL DEFERRAL PERCENTAGE shall mean the average (expressed as a
percentage) of the Actual Deferral Percentages of the Participants in a group.
1.07 AVERAGE CONTRIBUTION PERCENTAGE shall mean the average (expressed as a
percentage) of the Contribution Percentages of the Participants in a group.
1.08 BENEFICIARY shall mean the person, persons or entity designated in
writing by a Participant, or otherwise determined in accordance with Section
7.02 of the Plan, entitled to receive any death benefit which may be, or may
become, payable under the Plan.
1.09 BOARD shall mean the Board of Directors of Michaels Stores, Inc., as
constituted from time to time.
1.10 CODE shall mean the Internal Revenue Code of 1986, as amended from time
to time.
1.11 COMPANY shall mean Michaels Stores, Inc., and its divisions, affiliates
and subsidiaries as from time to time constituted, which are making
contributions to the Fund, including all entities that are part of an affiliated
group or are related as described in Sections 414(b), (c), and (m) of the Code.
1.12 COMPENSATION shall have the following meanings for specific purposes
under the Plan:
a. For purposes of the limitations imposed by Section 415 of the
Code and the Top-Heavy plan minimum contribution requirements of Section
416 of the Code, "Compensation" shall mean the total compensation
received from the Employer for personal services rendered by an eligible
Employee to the Employer during the Plan Year as reported on the
Participant's Federal Income Tax Withholding Statement (Form W-2; Box 10)
including base salary, bonuses, commissions, incentive pay, and overtime.
For purposes of this subsection, Compensation shall also include
severance allowances, prizes or awards, amounts representing
reimbursement for travel or other expense or mileage allowances, moving
expense reimbursement, gift certificates, the imputed fair market value
of a company provided automobile or excess group-term life insurance
coverage. Compensation shall not include, however, any amounts realized
from the exercise of a non-qualified stock option, or when restricted
stock (or property) held by an employee either becomes freely
transferable or is no longer subject to a substantial risk of forfeiture.
The term "Compensation" shall be interpreted and construed in accordance
with Treasury Regulation Section 1.415-2(d)(2), exclusive of amounts
listed in Regulation Section 1.415-2(d)(3).
b. For purposes of determining the amount of Salary Reduction
Contributions made on behalf of a Participant pursuant to Section 3.01
and the amount of Employer Matching Contributions on behalf of a
Participant pursuant to Section 4.01, "Compensation" shall mean
"Compensation" as defined in a. above; including, however, any amounts
attributable to an election by an Employee to reduce his Compensation
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pursuant to this Plan or any other plan under Section 125 or 401(k) of
the Code sponsored by the Company shall be disregarded. For purposes of
this subsection, Compensation shall not include severance allowances,
prizes or awards, amounts representing reimbursement for travel or other
expense or mileage allowances, moving expense reimbursement, gift
certificates, the imputed fair market value of a company provided
automobile or excess group-term life insurance coverage. In addition,
Compensation shall not include any amounts realized from the exercise of
a non-qualified stock option, or when restricted stock (or property) held
by an employee either becomes freely transferable or is no longer subject
to a substantial risk of forfeiture. Any compensation paid or payable by
reason of services performed before the date an Employee is eligible to
participate in the Plan shall also be disregarded. This definition of
"Compensation" shall be interpreted and construed in a manner consistent
with the safe harbor definition contained in Section 1.414(s)-1(c)(3) of
the Treasury Regulations.
c. For purposes of defining "Key Employee" under Section 416 of
the Code, "Compensation" shall mean Compensation as defined in paragraph
a. above. determined without regard to elections under Internal Revenue
Code sections 125 (cafeteria plans) and 402(a)(8) (cash or deferred
arrangements).
d. The annual Compensation taken into account under the Plan for
any year shall not exceed $150,000 as adjusted by the Adjustment Factor
for Plan Years beginning on or after February 1, 1994. For Plan Years
beginning on or after February 1, 1989 and ending on or before January
31, 1994, the annual Compensation taken into account under the Plan shall
not exceed $200,000 as adjusted by the Adjustment Factor. The
Compensation of a Participant who is a 5% owner (as defined in Code
Section 416(i)(1)) or one of the 10 Employees who are highly compensated
employees (as defined in Code Section 414(q)) paid the greatest amount of
compensation during the Plan Year shall be aggregated with the
Compensation of such Participant's Spouse or lineal descendants under the
age of 19 (as of the close of the Plan Year) to the extent required by
Code Section 401(a)(17). In addition, and only to the extent required by
Code Section 414(q)(6), if an individual is a member of the family (as
defined in Code Section 414(q)(6)) of a Participant who is a 5% owner (as
defined in Code Section 416(i)(1)) or one of the 10 highly compensated
employees paid the greatest amount of compensation, then:
1. such family member shall not be considered a separate
Employee, and
2. any compensation paid to such family member and any
benefit on behalf of such family member shall be treated as if paid
to or on behalf of the 5% owner or highly compensated employee.
If, as a result of the application of these rules, the adjusted $200,000
limitation is exceeded, then the limitation shall be applied in a pro
rata manner among the affected
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individuals in proportion to each such individual's Compensation as
determined under this Section prior to the application of this
limitation. This paragraph shall be construed in a manner consistent
with Code Section 401(a)(17) and Code Section 414(q)(6). This paragraph
shall not apply for the purposes of determining the limitations imposed
by Code Section 415 and for purposes of defining "Key Employee" under
Code Section 416.
1.13 CONTRIBUTION PERCENTAGE shall mean the ratio (expressed as a percentage)
of the Employer Matching Contributions made under the Plan on behalf of the
Participant and the Employee Contributions made by the Participant for the Plan
Year to the Participant's Compensation for the Plan Year.
1.14 EFFECTIVE DATE shall mean February 1, 1994, the effective date of this
amendment and restatement of this Plan, except as otherwise provided herein and
except as follows:
a. The following provisions shall be effective for Plan Years beginning
on or after December 31, 1986: Article 3, Article 4, Article 11, and
Section 1.16.
b. The following Section shall be effective for Plan Years beginning
after December 31, 1987: 3.07.
c. The following Sections shall be effective for Plan Years beginning
after December 31, 1988: 1.12 and 8.02.
d. The following Article shall be effective after April 30, 1992:
Article 6.
e. The following Section shall be effective for Plan Years beginning
after December 31, 1992: 9.06.
1.15 ELIGIBILITY QUALIFICATION PERIOD shall mean the 12 consecutive month
period beginning on the date the Employee is first credited with an Hour of
Service and each anniversary thereof.
1.16 EMPLOYEE shall mean any person who is receiving remuneration for personal
services rendered in the employment of the Employer including any officer or
director of the Company so employed; including any leased employee deemed to be
an employee of the Employer as provided in Section 414(n) or (o) of the Code;
and including any person who would be receiving such remuneration except for an
authorized Leave of Absence, except that the term "Employee" shall not include
the following:
a. 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 and if two percent or less of the employees who are covered
pursuant to that agreement are professionals as defined in Section
1.410(b)-9 of the Treasury Regulations. For this purpose, the term
"employee
4
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representatives" does not include any organization more than half of
whose members are employees who are owners, officers, or executives of
the Employer;
b. Employees who are nonresident aliens (within the meaning of
Section 7701(b)(1)(B) of the Code) and who receive no earned income
(within the meaning of Section 911(d)(2) of the Code) from the Employer
which constitutes income from sources within the United States (within
the meaning of section 861(a)(3) of the Code); and
c. any person receiving payments as a consultant, independent
contractor, or other arrangement excluded from the common law definition
of the term "employee".
The term Employee shall not include any person not classified by the Company as
an Employee, notwithstanding a final determination by any governmental agency
that such person, in fact, is (or was) an Employee; provided that this exclusion
shall not apply prospectively from the date of such determination with respect
to any person who remains in the employment of the Company after the date of
such determination.
SPECIAL PROVISIONS FOR LEASED EMPLOYEES. The term "leased employee"
means any person (other than an employee of the recipient) who pursuant
to an agreement between the recipient and any other person (a "leasing
organization") has performed services for the recipient (or for the
recipient and related persons determined in accordance with Section
414(n)(6) of the Code) on a substantially full time basis for a period of
at least one year, and such services are of a type historically performed
by employees in the business field of the recipient employer.
Contributions or benefits provided a leased employee 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: (i) such employee is covered by a money purchase pension plan
providing: (1) a nonintegrated employer contribution rate of at least 10
percent of compensation, as defined in Section 415(c)(3) of the code, but
including amounts contributed pursuant to a salary reduction agreement
which are excludable from the employee's gross income under Section 125,
402(e)(3), 402(h)(1)(B), or 403(b) of the Code, (2) immediate
participation, and (3) full and immediate vesting; and (ii) leased
employees do not constitute more than 20 percent of the recipient's
nonhighly compensated workforce.
1.17 EMPLOYEE CONTRIBUTIONS shall mean the amounts contributed by a
Participant pursuant to Section 4.03.
1.18 EMPLOYEE CONTRIBUTION ACCOUNT shall mean the account into which Employee
Contributions made on behalf of a Participant and earnings on those
contributions shall be credited.
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1.19 EMPLOYER shall mean the Company and any subsidiary or affiliated company
which shall ratify and adopt this Plan in a manner satisfactory to the Board.
In determining Hours of Service for the purposes of determining an Employee's
eligibility to participate in the Plan and the vesting of benefits, in
determining the special rules on deferral percentage limitations under Section
3.05 and the special rules for contribution percentage limit testing under
Article 20, in determining whether the Plan is top-heavy under Section 416 of
Code, and in determining the limitations on annual additions under Section 415
of the Code, the term "Employer" shall include any other corporation or other
business entity which must be aggregated with the Employer under Section 414(b),
(c), (m) or (o) of the Code, but only for such periods of time when the Employer
and such other corporation or other business entity must be aggregated as
aforesaid. For purposes of the determination of the limitations on annual
additions, such definition of "Employer" shall be modified by Section 415(h) of
the Code.
1.20 EMPLOYER MATCHING CONTRIBUTIONS shall mean the amounts contributed on
behalf of a Participant pursuant to Article 4.
1.21 EMPLOYER MATCHING CONTRIBUTION ACCOUNT shall mean the account into which
Employer Matching Contributions made on behalf of a Participant and earnings on
those contributions shall be credited.
1.22 EMPLOYMENT COMMENCEMENT DATE shall mean the date on which an Employee is
first credited with an Hour of Service for the performance of duties for an
Employer. For eligibility and vesting purposes, the Employment Commencement
Date of an Employee who was employed immediately prior to commencing the
performance of services with the Employer by one of the entities listed in
Appendix I (as from time to time amended or supplemented by the Administrator)
on or before the Divestiture Date for such entity, shall be the first day of
such Employee's performance of service for such entity; except that, if such
Employee's service for such entity was interrupted by a break in service of one
year or more, the Employment Commencement Date for such Employee shall be the
first day of the Employee's performance of service for such entity following the
break in service. The term "Divestiture Date" shall mean, for an entity listed
on Appendix I, the date shown on Appendix I after which hours of service
performed for the entity do not count for eligibility and/or vesting purposes
under the Plan.
1.23 ENTRY DATE shall mean February 1 and August 1 of each Plan Year.
1.24 ERISA shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.25 EXCESS AGGREGATE CONTRIBUTIONS shall mean Employer Matching Contributions
in excess of the Contribution Percentage limit, as described in Section
401(m)(6)(B) of the Code.
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1.26 EXCESS CONTRIBUTIONS shall mean Salary Reduction Contributions in excess
of the Actual Deferral Percentage limit, as described in Section 401(k)(8)(B) of
the Code.
1.27 EXCESS DEFERRALS shall mean Salary Reduction Contributions in excess of
the limits imposed by Section 402(g) of the Code.
1.28 FAMILY MEMBER shall mean an Employee, such Employee's spouse, lineal
ascendants and descendants and the spouses of such lineal ascendants and
descendants, as described in Section 414(q)(6) of the Code.
1.29 FUND shall mean the aggregate of all assets held in various investment
funds by the Trustee to provide the benefits under the Plan.
1.30 HIGHLY COMPENSATED EMPLOYEE shall mean any Employee who performs service
for an Employer during the determination year and who, during the look-back
year:
a. received Compensation from an Employer in excess of $75,000,
multiplied by the Adjustment Factor;
b. received Compensation from an Employer in excess of $50,000,
multiplied by the Adjustment Factor, and was a member of the top-paid
group for such year; or
c. was an officer of an Employer and received Compensation during
such year that is greater than 50% of the dollar limitation in effect
under Section 415(b)(1)(A) of the Code.
The term Highly Compensated Employee also includes:
d. Employees who are both described in the preceding sentence if
the term "determination year" is substituted for the term "look-back
year" and the Employee is one of the 100 Employees who received the most
Compensation from an Employer during the determination year; and
e. Employees who are 5% owners at any time during the look-back
year or determination year.
If no officer has satisfied the compensation requirement of paragraph c. above
during either a determination year or look-back year, the highest paid officer
for such year shall be treated as a Highly Compensated Employee. No more than
50 Employees (or if lesser, the greater of 3 Employees or 10% of the Employees)
shall be treated as officers.
For this purpose, the determination year shall be the Plan Year. The look-back
year shall be the 12 month period immediately preceding the determination year.
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If an Employee is, during a determination year or look-back year, a Family
Member of either a 5% owner who is an active or former Employee or a Highly
Compensated Employee who is one of the 10 most highly compensated Employees
ranked on the basis of Compensation paid by the Employer during such year, then
the Family Member and the 5% owner or top 10 highly compensated Employee shall
be aggregated. In such case, the Family Member and 5% owner or top 10 highly
compensated Employee shall be treated as a single Employee receiving
Compensation and contributions or benefits of the Family Member and 5% owner or
top 10 highly compensated Employee.
The determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of Employees in the top-paid group,
the top 100 Employees, the number of Employees treated as officers and the
compensation that is considered, will be made in accordance with Section 414(q)
of the Code and the regulations thereunder.
1.31 HOUR OF SERVICE shall mean:
a. each hour for which an Employee is directly or indirectly paid
or entitled to payment for the performance of duties for an Employer;
these hours shall be credited to the computation period in which the
duties are performed, and
b. each hour for which an Employee is directly or indirectly
entitled to payment 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, disability,
layoff, jury duty, military duty or leave of absence; except that
1. not more than 501 Hours of Service shall be credited in
each single computation period during which the Employee performs no
duties, and
2. hours of Service shall not be counted where such payment
is made or is due:
A. under a plan maintained solely for the purpose of
complying with applicable worker's compensation, unemployment
or disability insurance laws, or
B. solely to reimburse an Employee for medical or
medically related expenses;
Hours credited under this paragraph b. shall be credited to the
computation period(s) in which the period during which no duties were
performed occurred, and
c. each hour for which back pay, irrespective of payment due to
mitigation of damages, is either awarded or agreed to by the Employer.
These hours shall be
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credited to the computation period(s) to which the award or agreement for
back pay pertains rather than to the computation period in which the
award, agreement or payment is made; provided, that the limits under
paragraph b. above are applicable and that an Employee shall not be
entitled to additional Hours of Service under this paragraph c. for the
same Hours of Service credited under paragraphs a. or b. above.
Hours of Service hereunder shall be calculated and credited in a manner
consistent with Department of Labor Regulation Sections 2530.200b-2(b) and (c),
which are incorporated by reference hereunder.
In determining Hours of Service for the purpose of determining whether an
Employee has incurred a One-Year Break In Service, if such Employee is absent
from employment because of the Employee's pregnancy, the birth of the Employee's
child, the placement of a child with the Employee in connection with the
adoption of such child by such Employee, or the need to care for such Employee's
child during the period immediately following such child's birth or placement,
then the following hours shall be considered as Hours of Service for purposes of
this Section.
a. the Hours of Service which otherwise would normally have been
credited to such Employee but for such absence, or
b. in any case in which the Administration Committee is unable to
determine the number of hours described in the foregoing clause a., 8
Hours of Service per day of absence,
provided that no more than 501 Hours of Service need be credited under this
paragraph to an Employee because of such pregnancy or placement.
The Hours of Service described in the foregoing paragraph shall be treated as
Hours of Service only in the Eligibility Qualification Period in which the
absence from employment begins, if an Employee would be prevented from incurring
a One-Year Break in Service in such year solely because the period of absence is
considered as Hours of Service under paragraph a. or b. of the foregoing
subsection. In any other case, such Hours of Service shall be considered as
Hours of Service in the immediately following Eligibility Qualification Period.
Hours of Service shall not be credited to an Employee on account of pregnancy or
placement as hereinabove provided, unless such Employee furnishes to the
Administration Committee such timely information as the Administration Committee
may require to establish that the absence from employment is for the reasons
described above and to establish the number of days for which there was such an
absence.
1.32 INVESTMENT COMMITTEE shall mean the person(s), described in Article 14,
who are responsible for the administration of the investments of the Plan.
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1.33 LEAVE OF ABSENCE shall mean an absence authorized by the Employer under
its standard personnel practices as applied in a uniform and non-discriminatory
manner to all persons similarly situated, provided the Employee resumes service
with the Employer within the period specified in the authorization for the Leave
of Absence.
For purposes of determining an Employee's termination of employment date, a
Leave of Absence shall not exceed a period of 12 consecutive months.
Notwithstanding the foregoing, service in the Armed Forces of the United States
of America shall constitute an authorized leave of absence and shall be credited
as employment for purposes of determining a Participant's Years of Service
provided that:
a. the Employee leaves the employ of the Employer to enter the
service of the Armed Forces of the United States of America through the
operation of any law; and
b. the Employee returns to the employ of the Employer within the
period provided by law for the protection of his reemployment rights.
1.34 LIMITATION YEAR shall mean the Plan Year.
1.35 NORMAL RETIREMENT DATE shall mean the date that a Participant attains age
65.
1.36 NONHIGHLY COMPENSATED EMPLOYEE shall mean an Employee who is neither a
Highly Compensated Employee nor a Family Member.
1.37 ONE-YEAR BREAK IN SERVICE shall mean a 12 consecutive month period
beginning with or following an Employee's Employment Commencement Date, in which
the Employee is credited with fewer than 501 Hours of Service with an Employer.
1.38 PARTICIPANT shall mean any Employee who has satisfied the requirements
for participation under this Plan and has agreed to make (or has made) salary
deferral contributions under the terms and conditions of the Plan. For purposes
of the Plan other than Articles 3 (Salary Reduction Contributions); 4 (Employer
and Employee Contributions); and 11 (Loans), the term "Participant" shall also
include:
a. individuals who have terminated employment with the Employer
but who retain an interest in the Plan;
b. retired Employees who are receiving installment payments from
the Plan; and
c. Employees not otherwise eligible to participate in the Plan who
establish Rollover Contribution Accounts as permitted by Article 19 of
the Plan.
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1.39 PLAN shall mean the Michaels Stores, Inc. Employees 401(k) Plan (As
Amended and Restated Effective May 1, 1992), as herein set forth, and as it may
hereafter be amended from time to time.
1.40 PLAN YEAR shall mean the twelve consecutive month period beginning on
February 1st and ending on the immediately following January 31.
1.41 PRIOR PLAN ACCOUNT shall mean the accounts held in the Plan, other than
Participants' Rollover Contribution Accounts, resulting from a merger into this
Plan of any tax-qualified plan previously sponsored by the Company or any of its
affiliates. The Administration Committee may establish one or more Prior Plan
Accounts, and each Prior Plan Account may be subdivided into such sub-accounts
as the Administration Committee determines is necessary in connection with the
administration of the Plan.
1.42 ROLLOVER CONTRIBUTIONS shall mean the amounts transferred to the Plan by
a Participant pursuant to Article 19. Rollover Contributions may include
amounts transferred to this Plan by Participants from a Plan previously
sponsored by the Company, any of its affiliates, or any of its predecessors;
provided, however, that Rollover Contributions shall not include any amounts
merged into this Plan by action of the Company.
1.43 ROLLOVER CONTRIBUTION ACCOUNT shall mean the account into which Rollover
Contributions made by a Participant and earnings on those contributions shall be
credited.
1.44 SALARY REDUCTION ELECTION shall mean the portion of the enrollment
application on which a Participant authorizes and elects the percentage of his
Compensation to be withheld by the Employer and contributed on behalf of the
Participant to his Salary Reduction Contribution Account.
1.45 SALARY REDUCTION CONTRIBUTION ACCOUNT shall mean the account into which
Salary Reduction Contributions made on behalf of a Participant pursuant to
Article 3, and earnings on those contributions, shall be credited.
1.46 SALARY REDUCTION CONTRIBUTIONS shall mean the amounts withheld from the
Compensation of a Participant and contributed by the Employer on behalf of a
Participant pursuant to Section 3.01.
1.47 TRUST shall mean the trust agreement between the Company and the Trustee
established for the purpose of funding benefits under the Plan, or any successor
trust agreement or agreements.
1.48 TRUSTEE shall mean the trustee or trustees of the Trust, or any successor
or successors to said trustee.
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1.49 VALUATION DATE shall mean the last day of January, April, July and
October of each Plan Year, or such other dates as the Administration Committee
may from time to time determine.
1.50 VESTING COMPUTATION PERIOD shall mean the 12 month period beginning with
the Employment Commencement Date or the anniversary thereof.
1.51 YEAR OF ELIGIBILITY SERVICE shall mean an Eligibility Qualification
Period in which an Employee is credited with at least 1,000 Hours of Service.
1.52 YEAR OF SERVICE shall mean each 12 month period beginning on an
Employee's Employment Commencement Date during which an Employee completes 1,000
or more Hours of Service.
1.53 YEAR OF VESTING SERVICE shall mean a Vesting Computation Period in which
an Employee is credited with at least 1,000 Hours of Service.
Words importing the singular shall include the plural and the plural the
singular whenever the context shall require.
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.01 PLAN ENTRY DATE. Each Employee (other than leased employees, defined in
Section 1.16) who has satisfied the requirements specified in Section 2.02 prior
to or on the Effective Date shall be eligible to participate in the Plan on the
Effective Date. Each other Employee who satisfies the requirements specified in
Section 2.02 after the Effective Date shall be eligible to participate on the
Entry Date coincident with or next following the date on which he satisfied such
requirements. An eligible Employee must agree to make a Salary Reduction
Contribution to become a Participant in the Plan.
2.02 PARTICIPATION REQUIREMENT(S). An Employee must complete a Year of
Eligibility Service and attain age twenty-one to be eligible to become a
Participant in the Plan.
2.03 TERMINATION OF SERVICE. A Participant's service for purposes of the Plan
shall terminate upon his resignation from or discharge by the Employer,
retirement, or death.
2.04 REHIRED EMPLOYEE. A Participant who ceases to be an Employee and who is
reemployed in a class of Employees otherwise eligible to participate in the Plan
shall be eligible to become a Participant in the Plan as of the day he performs
his first Hour of Service after his re-employment. Salary Reduction
Contributions on behalf of such an individual shall begin as soon as
administratively practicable after the Participant files a new Salary Reduction
Contribution election with the Administration Committee. Each other Employee
who is reemployed shall be
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eligible to become a Participant on a date determined in accordance with Section
2.01 and Section 2.02.
2.05 LOSS OF PARTICIPANT STATUS. An Employee who becomes a Participant shall
continue to be a Participant in the Plan, whether or not he continues to make
Salary Reduction Contributions, until there are no longer any benefits remaining
payable to him.
2.06 SUSPENSION OF PARTICIPATION. A Participant who, for any reason, becomes
ineligible to make contributions under the Plan but remains an Employee shall
have his Salary Reduction Contributions and Employer Matching Contributions
suspended. During the period of suspension, the suspended Participant's service
shall continue to be considered for vesting purposes and investment gains and
losses shall continue to accrue with respect to any portion of the Participant's
Account which remains in the Plan. The suspension shall be removed and the
individual shall again become eligible to elect to have Salary Reduction
Contributions made on his behalf and to receive Employer Matching Contributions
when he reenters a class of Employees otherwise eligible to participate in the
Plan. Such individual must execute a new Salary Reduction Contribution election
in order to elect to have his Employer make Salary Reduction Contributions on
his behalf.
2.07 VESTING SERVICE. A reemployed Participant shall be credited with his
prior Years of Vesting Service after completing a Year of Vesting Service after
his reemployment; provided, however, that a Participant's prior Years of Vesting
Service shall be disregarded if more than five consecutive One Year Breaks in
Service occur between the date the Participant receives a distribution of his
Accounts and the date of the Participant's reemployment.
2.08 NOTICE OF PARTICIPATION. Within a reasonable time following the date
upon which an Employee becomes eligible to become a Participant, but prior to
his Entry Date, the Administration Committee shall give such Employee reasonable
notice of his pending commencement of participation in the Plan. Such notice
shall include a summary description of the Plan as well as forms on which the
Employee may make the election provided in Section 3.01 of this Plan. By his
participation, a Participant shall be deemed to have agreed to abide by the
provisions of the Plan. A Participant is treated as benefiting under the Plan
for any Plan Year during which the Participant received or is deemed to receive
an allocation in accordance with Section 1.410(b)-3(a) of the Treasury
Regulations.
ARTICLE 3
SALARY REDUCTION CONTRIBUTIONS
3.01 SALARY REDUCTION CONTRIBUTIONS.
a. Subject to the limitations established by this Article and
Article 4, each Participant shall be eligible to elect to have his
Employer contribute a percentage of his
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Compensation (in whole number amounts of not less than 1% nor more than
15%) directly into the Plan instead of paying such amount to the
Participant. Once each Plan Year a Participant may elect to defer a
portion of his annual bonus, if any, to become payable by the Employer.
Unless the Participant elects otherwise by written notice delivered to
the Administration Committee on or before thirty days immediately
preceding payment of the bonus, the amount of the bonus deferral shall be
an amount equal to the bonus multiplied by a fraction equal to the
fraction of the Participant's Compensation that is being deferred on a
pay period basis. Contributions made in this manner shall be called
Salary Reduction Contributions. A Participant's Salary Reduction
Contributions shall be credited to his Salary Reduction Contribution
Account.
b. For Federal tax purposes (and wherever permitted, for state tax
purposes), Salary Reduction Contributions made pursuant to this section
shall be deemed Employer contributions to the Plan and are intended to
qualify as elective contributions made pursuant to Section 401(k) of the
Code. A Participant's election to enroll in the Plan shall constitute an
election to have his Compensation reduced by the amount of all such
deferrals.
c. All Salary Reduction Contributions shall be forwarded by the
Employer to the Trustee as soon as administratively practicable after the
contributions have been withheld.
d. Notwithstanding the foregoing, no Participant shall be
permitted to make Salary Reduction Contributions under this Plan during
any calendar year in excess of $7,000 or such other amount as may be
determined by multiplying the cap on elective deferrals set by Section
402(g) of the Code by the Adjustment Factor as provided under rules
published by the Secretary of the Treasury. The limitation set by this
paragraph d. applies on an individual basis to all elective deferrals
(within the meaning of Section 401(k) of the Code) made by each
Participant during a calendar year under this or any other similar
qualified plan of the Employer.
e. It shall be the responsibility of each Participant to
coordinate his or her salary deferrals as needed to meet this limit in
connection with any other plan or plans not sponsored by the Employer.
The Company will not take account of deferrals made to any other plan not
sponsored by the Employer. Notwithstanding any other provision of the
Plan, the Participant may state a claim for the return of Excess
Deferrals and such Excess Deferrals and the income allocable thereto
shall be distributed if administratively practicable no later than the
April 15 following the calendar year for which such allocable Excess
Deferrals are made. The Participant's claim shall be in writing; shall
be submitted to the Administration Committee no later than March 1; shall
specify the Participant's Excess Deferrals for the preceding calendar
year; and shall be accompanied by the Participant's written statement
that if such amounts are not distributed, such Excess Deferrals, when
added to amounts deferred under other plans or arrangements
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described in Sections 401(k), 408(k) or 403(b) of the Code, exceed the
limit imposed on the Participant by Section 402(g) of the Code for the
year in which the deferral occurred.
The Excess Deferrals shall be adjusted for income or loss. The income or
loss allocable to Excess Deferrals for the Plan Year shall be determined
by multiplying the income or loss allocable to the Participant's Salary
Reduction Contributions for the Plan Year by a fraction, the numerator of
which is the Excess Deferrals on behalf of the Participant for the Plan
Year and the denominator of which is the Participant's Account Balance
attributable to Salary Reduction Contributions on the last day of the
Plan Year reduced by the gain allocable to such total amount for the Plan
Year and increased by the loss allocable to such total amount for the
Plan Year.
The income allocable to Excess Deferrals for the period between the end
of the Plan Year and the date of the corrective distribution may be
disregarded or calculated under any method permissible in accordance with
regulations and other official pronouncements from the Secretary of the
Treasury.
3.02 SALARY REDUCTION CONTRIBUTION ELECTION. Each Participant may deliver to
the Administration Committee a written direction in a form to be prescribed by
the Administration Committee, directing his Employer to reduce his Compensation
within the limits set forth in Section 3.01. Such election shall become
effective as of a date agreed upon between the Administration Committee and the
Participant provided that such date shall be subsequent to receipt of the Salary
Reduction Contribution election by the Administration Committee.
3.03 SUSPENSION OF, OR CHANGE IN, SALARY REDUCTION CONTRIBUTION ELECTION.
a. SUSPENSION: A Participant may elect to suspend all Salary
Reduction Contributions at any time by giving written notice to the
Administration Committee on forms prescribed for that purpose by the
Administration Committee. Any such election shall be effective as soon
as administratively practicable following the date such suspension notice
is received by the Administration Committee. A Participant who has
suspended all Salary Reduction Contributions may resume such
contributions as soon as administratively practicable following receipt
of such notice by the Administration Committee.
b. CHANGE OF DEFERRAL PERCENTAGE: A Participant may elect to
change the amount of his Salary Reduction Contribution effective February
1, May 1, August 1, or November 1 of each Plan Year by giving at least
thirty days' written notice to the Administration Committee on a form
prescribed for that purpose by the Administration Committee. Any such
election shall be effective as soon as administratively practicable
following the date such change is received by the Administration
Committee.
c. SPECIAL RULE: Notwithstanding the foregoing provisions of
subsections a and b above, the provisions of this subsection c shall
apply to suspension and change
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elections, in the circumstances specified herein, if the Participant is
subject to the requirements of Section 16(b) of the Securities Exchange
Act of 1934. If, at the time of the suspension or change election, the
Participant's investment mix election provides for the investment of all
or any portion of the Participant's future Salary Reduction Contributions
in the Employer common stock investment fund and if the Participant
suspends or reduces to a nominal amount his Salary Reduction
Contributions, then the Participant may not resume Salary Reduction
Contributions or Employee Contributions to the Plan for a period of 6
months from the date of the suspension or change election or until such
time as no portion of the Participant's future Salary Reduction
Contributions are allocated to the Employer common stock investment fund,
if earlier.
3.04 DEFERRAL PERCENTAGE LIMITATION. Subject to the special rules of Section
3.05, and at such intervals as it shall deem proper, the Administration
Committee shall review each Participant's Deferral Election in order to
determine that the Salary Reduction Contributions with respect to all
Participants satisfy one of the following tests:
a. the Average Actual Deferral Percentage for Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the
Average Actual Deferral Percentage for Participants who are Nonhighly
Compensated Employees for the Plan Year multiplied by 1.25; or
b. the Average Actual Deferral Percentage for Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the
Average Actual Deferral Percentage for Participants who are Nonhighly
Compensated Employees for the Plan Year multiplied by 2, provided that
the Average Actual Deferral Percentage for Participants who are Highly
Compensated Employees does not exceed the Average Actual Deferral
Percentage for Participants who are Nonhighly Compensated Employees by
more than 2 percentage points. Notwithstanding the foregoing, the limit
set forth in this subsection b. shall be adjusted in accordance with
Section 3.07.
3.05 SPECIAL RULES ON DEFERRAL PERCENTAGE LIMITATIONS.
a. For purposes of this Article 3, the Actual Deferral Percentage
for any Participant who is a Highly Compensated Employee for the Plan
Year and who is eligible to have Salary Reduction Contributions allocated
to his account under two or more plans or arrangements described in
Section 401(k) of the Code that are maintained by an Employer shall be
determined as if all such Salary Reduction Contributions were made under
a single arrangement. If a Highly Compensated Employee participates in 2
or more plans or arrangements described in Section 401(k) of the Code
that have different plan years, all such arrangements ending with or
within the same calendar year shall be treated as a single arrangement.
b. For purposes of determining the Actual Deferral Percentage of a
Participant who is a 5% owner or one of the 10 most highly paid Highly
Compensated
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Employees, the Salary Reduction Contributions and Compensation of such
Participant shall include Salary Reduction Contributions and Compensation
of the Family Members for the Plan Year. Family Members with respect to
such Highly Compensated Employees shall be disregarded as separate
Employees in determining the Average Actual Deferral Percentage both for
Participants who are Non-Highly Compensated Employees and for
Participants who are Highly Compensated Employees.
c. In the event that this Plan satisfies the requirements of
Sections 401(k), 401(a)(4), or 410(b) of the Code only if aggregated with
one or more other plans, or if one or more plans satisfy the requirements
of such sections of the Code only if aggregated with this Plan, then this
section shall be applied by determining the Actual Deferral Percentage of
Employees as if all such plans were a single plan. Plans may be
aggregated in order to satisfy Section 401(k) of the Code only if they
have the same plan year.
d. For purposes of determining the Actual Deferral Percentage,
Salary Reduction Contributions must be made before the last day of the 12
month period immediately following the Plan Year to which those
contributions relate.
e. The determination and treatment of the Actual Deferral
Percentage of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
3.06 ADJUSTMENT OF DEFERRALS.
a. In the event the Administration Committee determines that one
of the tests set forth in Section 3.04 is not satisfied at the time of
its review hereunder, it may require that one or more Participants adjust
their Salary Reduction Contribution election as of the first pay period
in the month next following receipt of the test results, in order that
one of the tests set forth in Section 3.04 is thereafter satisfied, or,
to the extent permitted by law, the Administration Committee shall have
the power and authority to return all or any part of the Salary Reduction
Contributions of one or more Participants in cash within 2- 1/2 months
after the end of the Plan Year but in no instance later than the last day
of the Plan Year following the Plan Year for which the Excess
Contributions were made, solely to the extent necessary to satisfy one of
the tests set forth in Section 3.04.
b. The Excess Contributions shall be adjusted for income or loss.
The income or loss allocable to Excess Contributions for the Plan Year
shall be determined by multiplying the income or loss allocable to the
Participant's Salary Reduction Contributions for the Plan Year by a
fraction, the numerator of which is the Excess Contributions on behalf of
the Participant for the Plan Year and the denominator of which is the
Participant's Account Balance attributable to Salary Reduction
Contributions
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on the last day of the Plan Year reduced by the gain allocable to such
total amount for the Plan Year and increased by the loss allocable to
such total amount for the Plan Year.
The income allocable to Excess Contributions for the period between the
end of the Plan Year and the date of the corrective distribution may be
disregarded or calculated under any method permissible in accordance with
Regulations and other official pronouncements from the Secretary of the
Treasury.
c. Excess Contributions shall be returned in accordance with the
following procedure. The Actual Deferral Percentage of the Highly
Compensated Employee with the highest Actual Deferral Percentage is
reduced to the extent required to (i) enable the arrangement to satisfy
the test described in Section 3.04, or (ii) cause such Highly Compensated
Employee's Actual Deferral Percentage to equal the ratio of the Highly
Compensated Employee with the next highest Actual Deferral Percentage and
the excess is allocated among Family Members in proportion to the
elective contributions of each Family Member that are combined to
determine the Actual Deferral Percentage. This procedure shall be
repeated until the Plan satisfies the test described in Section 3.04.
Excess Contributions for Family Members shall be reduced according to
procedures established by Section 401(k)(8) of the Code and the
regulations thereunder.
3.07 AGGREGATE LIMIT. Notwithstanding the foregoing, if the Plan does not
satisfy the test set forth in subsection 3.04(a) and the Plan does not satisfy
the test provided in Section 4.02(a), then the sum of the Average Actual
Deferral Percentage for Participants who are Highly Compensated Employees for
the Plan Year, plus the Average Contribution Percentage for Participants who are
Highly Compensated Employees for the Plan Year shall be adjusted, if necessary,
in accordance with Section 3.08 so that the Aggregate Limit, as hereinafter
defined, is not exceeded. The Aggregate Limit is the greater of:
a. the sum of:
1. 1.25 times the greater of the Average Actual Deferral
Percentage or the Average Contribution Percentage for Participants
who are Nonhighly Compensated Employees for the Plan Year, plus
2. 2 percentage points plus the lesser of the Average Actual
Deferral Percentage or the Average Contribution Percentage for
Participants who are Nonhighly Compensated Employees for the Plan
Year. In no event, however, shall the amount calculated pursuant to
this subparagraph a., 2. exceed the product of 2 times the lesser of
the Average Actual Deferral Percentage or the Average Contribution
Percentage for Participants who are Nonhighly Compensated Employees
for the Plan Year; or
b. the sum of:
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1. 1.25 times the lesser of the Average Actual Deferral
Percentage or the Average Contribution Percentage or the Average
Contribution Percentage for Participants who are Nonhighly
Compensated Employees for the Plan Year, plus
2. 2 percentage points plus the greater of the Average Actual
Deferral Percentage or the Average Contribution Percentage for
Participants who are Nonhighly Compensated Employees for the Plan
Year. In no event, however, shall the amount calculated pursuant to
this subparagraph b., 2. exceed the product of 2 times the greater
of the Average Actual Deferral Percentage or the Average
Contribution Percentage for Participants who are Nonhighly
Compensated Employees for the Plan Year.
For purposes of this Section 3.07, the Average Actual Deferral Percentage and
the Average Contribution Percentage for Participants who are Highly Compensated
Employees shall be determined after any corrective distribution of Excess
Deferrals pursuant to Section 3.06, Excess Contributions pursuant to Section
3.06 c., and Excess Aggregate Contributions pursuant to Section 4.06.
3.08 RETURN OF CONTRIBUTIONS ABOVE THE AGGREGATE LIMIT. If the Aggregate
Limit, as defined in Section 3.07, is exceeded pursuant to Section 3.07, the
Plan shall reduce the Average Actual Deferral Percentage and the Average
Contribution Percentage for Participants who are Highly Compensated Employees
who are eligible to make Salary Reduction Contributions and to receive Employer
Matching Contributions as follows:
a. by first returning Excess Contributions in the same manner as
described in Section 3.06, until the Actual Deferral Percentage of a
Highly Compensated Employee is reduced to 3%, or until the arrangement
satisfies the Aggregate Limit, whichever first occurs; and then
b. by returning Excess Contributions in the same manner as
described in Section 3.06 and by simultaneously returning Attributable
Employer Matching Contributions to the extent necessary to enable the
arrangement to satisfy the Aggregate Limit. For purposes of this
subsection b., Attributable Employer Matching Contributions shall mean
those Employer Matching Contributions that were made pursuant to Section
4.01 to match the Excess Contributions returned pursuant to this
subsection b.
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<PAGE>
ARTICLE 4
EMPLOYER AND EMPLOYEE CONTRIBUTIONS
4.01 EMPLOYER MATCHING CONTRIBUTIONS.
a. For each three month period in a Plan Year during which a
Participant makes a Salary Reduction Contribution, the Employer shall
contribute to the Plan, on behalf of Participants who have elected to
make Salary Reduction Contributions and who are employed by the Employer
on the last day of the quarter, an Employer Matching Contribution amount.
The aggregate amount of the Employer Matching Contribution made pursuant
to this subsection 4.01 a. shall be equal to 50% of the Salary Reduction
Contributions made by Participants up to a maximum of 6% of each
Participant's Compensation with respect to such calendar quarter.
Notwithstanding the foregoing, following the end of each Plan Year, the
Employer shall make an additional contribution, if necessary, to the Plan
with respect to Participants employed on the last day of such Plan Year.
The additional contribution shall be of such additional amount as is
necessary to provide each such Participant with an aggregate Employer
Matching Contribution for the prior Plan Year equal to 100% of the
Participant's annual Salary Reduction Contributions, up to a maximum of
3% of the Participant's annual Compensation for such prior Plan Year;
provided, however, that for purposes of determining the amount of the
additional contribution under the preceding sentence, Compensation earned
by a Participant prior to the commencement of Salary Reduction
Contributions shall be disregarded.
b. Subject to the limitations otherwise contained in this Article,
Employer Matching Contributions made pursuant to this Section shall be
allocated as of the last day of each three month period to the Employer
Matching Contribution Accounts of each Participant who made Salary
Reduction Contributions during the period since the last such allocation;
provided that no such allocation shall be made to the Employer Matching
Contribution Accounts of Participants who are not employed by the
Employer as of such allocation date.
4.02 TIMING OF EMPLOYER MATCHING CONTRIBUTIONS. The Employer shall forward
Employer Matching Contributions to the Trustee for investment in the Trust Fund
at such times as the Employer shall determine, but not later than the due date
(including extensions) for filing the Employer's federal income tax return for
the year to which such Employer Matching Contributions relate.
4.03 EMPLOYEE CONTRIBUTIONS. Subject to the provisions of this Plan relating
to Participants who are subject to the requirements of Section 16(b) of the
Securities Exchange Act of 1934, each Participant may elect to make voluntary,
after-tax contributions to his Employee Contribution Account for each month
prior to his Retirement Date, subject to the following provisions and
limitations:
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a. no Participant shall be required to make Employee
Contributions;
b. Employee Contributions shall be subject to the limitations of
Section 4.04;
c. a Participant may not make Employee Contributions in an amount
less than 1%, nor more than 10% of his Compensation during each pay
period. All Employee Contributions shall be fully vested and non-
forfeitable at all times;
d. Employee Contributions may be made by either payroll deduction
or by a lump sum deposit with the Administration Committee within the
month preceding the end of the Plan Year. A Participant may elect to
commence or cease making Employee Contributions at any time;
e. a Participant may not make Employee Contributions to the Plan
during any period in which he is not accruing Hours of Service with the
Employer;
4.04 PERCENTAGE LIMITATION ON EMPLOYER MATCHING CONTRIBUTIONS. At such
intervals as it shall deem proper, the Administration Committee shall review the
Employer Matching Contributions and Employee Contributions made for or by
Participants in order to determine that such contributions, with respect to all
Participants, satisfy one of the following tests:
a. 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 Nonhighly
Compensated Employees for the Plan Year multiplied by 1.25; or
b. 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 Nonhighly
Compensated Employees for the Plan Year multiplied by 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 Nonhighly Compensated Employees by more than 2
percentage points. Notwithstanding the foregoing, the limit set forth in
this subsection b. shall be adjusted in accordance with Section 3.07.
4.05 SPECIAL RULES FOR CONTRIBUTION PERCENTAGE LIMIT TESTING.
a. For purposes of this Section 4.05, the Average Contribution
Percentage for any Participant who is a Highly Compensated Employee for
the Plan Year and who is eligible to receive Employer Matching
Contributions or to make Employee Contributions allocated to his account
under two or more plans described in Section 401(a) of the Code that are
maintained by an Employer shall be determined as if all such
contributions were made under a single plan.
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b. In the event that this Plan satisfies the requirements of
Sections 401(m), 401(a)(4) and 410(b) of the Code only if aggregated with
one or more other plans, or if one or more other plans satisfy the
requirements of such sections of the Code only if aggregated with this
Plan, then this Section shall be applied by determining the Average
Contribution Percentages of Participants as if all such plans were a
single plan.
c. For purposes of determining the Contribution Percentage of a
Participant who is a 5% owner or one of the 10 most highly paid Highly
Compensated Employees, the Employer and Employee Contributions and
Compensation of such Participant shall include the Employer and Employee
Contributions and Compensation of Family Members for the Plan Year.
Family Members with respect to Highly Compensated Employees shall be
disregarded as separate Employees in determining the Average Contribution
Percentage both for Participants who are Non-highly Compensated Employees
and Participants who are Highly Compensated Employees.
d. For purposes of determining the test described in Section 4.04,
Employer Contributions and Employee Contributions must be made before the
last day of the 12 month period immediately following the Plan Year to
which those contributions relate.
e. The determination and treatment of the Average Contribution
Percentage of any Participant shall satisfy such other requirements as
may be prescribed by the Secretary of the Treasury.
4.06 ADJUSTMENTS TO CONTRIBUTIONS.
a. Excess Aggregate Contributions, plus any income and minus any
loss allocable thereto until the date of distribution, shall be
forfeited, if forfeitable, or if not forfeitable, shall be distributed in
cash to Highly Compensated Employees within 2-1/2 months after the end of
the Plan Year but in no instance later than the last day of the Plan Year
following the Plan Year for which the Excess Aggregate Contributions were
made.
b. The Excess Aggregate Contributions shall be adjusted for income
or loss. The income or loss allocable to Excess Aggregate Contributions
for the Plan Year shall be determined by multiplying the income or loss
allocable to the Participant's Employer and Employee Contributions for
the Plan Year by a fraction, the numerator of which is the Excess
Aggregate Contributions on behalf of the Participant for the Plan Year
and the denominator of which is the sum of the Participant's Account
attributable to Employer and Employee Contributions on the last day of
the Plan Year reduced by the gain allocable to such amount for the Plan
Year and increased by the loss allocable to such amount for the Plan
Year. The income allocable to Excess Aggregate Contributions for the
period between the end of the Plan Year and the date of the corrective
distribution may be disregarded or calculated under any method
permissible in accordance with Regulations and other official
pronouncements from the Secretary of the Treasury.
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c. Excess Aggregate Contributions shall be returned in accordance
with the following procedure. The Contribution Percentage of the Highly
Compensated Employee with the highest Contribution Percentage is reduced
to the extent required to (i) enable the arrangement to satisfy the test
described in Section 4.02, or (ii) cause such Highly Compensated
Employee's Contribution Percentage to equal the ratio of the Highly
Compensated Employee with the next highest Contribution Percentage and
the excess is allocated among Family Members in proportion to the
Employer and Employee Contributions made on behalf of each Family Member
that are combined to determine the Contribution Percentage. This
procedure shall be repeated until the Plan satisfies the test described
in Section 4.02. Excess Aggregate Contributions for Family Members shall
be reduced according to procedures established by Section 401(m)(6) of
the Code and the regulations thereunder.
4.07 OVERALL LIMITATION ON ANNUAL ADDITIONS. Any other provision of this Plan
notwithstanding, in no event shall the annual additions allocated to a
Participant's Accounts under the Plan for any Limitation Year, exceed the lesser
of:
a. 25% of the Participant's Compensation for the Limitation Year,
or
b. $30,000 (or, if greater, 1/2 of the amount in effect under
Section 415(b)(1)(A) of the Code) for such Limitation Year.
c. The compensation limitation referred to in paragraph a. shall
not apply to:
1. Any contribution for medical benefits (within the meaning
of Section 419A(f)(2) of the Code) after separation from service
which is otherwise treated as an annual addition, or
2. Any amount otherwise treated as an annual addition under
Section 415(1)(1) of the Code.
If, as of the last day of the Plan Year, the annual addition for a Participant
would exceed the amount provided for in this Section as a result of a reasonable
error in estimating a Participant's Compensation or under other limited facts
and circumstances which the Commissioner of Internal Revenue finds justifies
this method of allocation, the excess amount shall be determined and
administered in accordance with the following:
a. the excess shall be refunded to the Participant from the
Participant's Salary Reduction Contribution Account (adjusted for
earnings and losses thereon) to the extent the excess results from a
mistaken application of the limitations of Section 3.01 a.;
b. next, the excess shall be refunded to the Participant from the
Participant's Employee Contribution Account (adjusted for earnings and
losses thereon);
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c. next, the excess shall be forfeited from the Participant's
Employer Matching Contribution Account (adjusted for earnings and losses
thereon) and the total amount of such forfeitures for all Participant's
shall be held in a suspense account, the balance of which shall be used
to offset the amount of additional Employer Matching Contributions; and
d. finally, the excess, if any remains, shall be refunded to the
Participant from the Participant's Salary Reduction Contribution Account
(adjusted for earnings and losses thereon).
4.08 SPECIAL RULES.
a. PARTICIPATION IN ANOTHER DEFINED CONTRIBUTION PLAN. The
limitation of Section 4.07 with respect to any Participant who at any
time has participated in any other qualified defined contribution plan
maintained by the Employer shall apply as if the total contributions
allocated under all such defined contribution plans in which the
Participant has participated were allocated under one plan.
b. PARTICIPATION IN ANOTHER DEFINED BENEFIT PLAN. If a
Participant has at any time been a participant in a qualified defined
benefit plan maintained by the Employer, the sum of the Participant's
Defined Benefit Plan Fraction and Defined Contribution Plan Fraction (as
hereinafter defined) for any year shall not exceed one (1.0). In the
event said sum of the Defined Benefit Plan Fraction and the Defined
Contribution Plan Fraction would otherwise exceed 1.0 for any Plan Year,
the projected annual retirement income benefit under the
Employer-sponsored defined benefit plan shall be limited, to the extent
necessary, to reduce said Defined Benefit Plan Fraction so that the sum
of the two fractions hereunder does not exceed the foregoing 1.0
limitation.
For purposes of the foregoing paragraph only:
1. The "Defined Benefit Plan Fraction" for any Limitation
Year is a fraction, the numerator of which is the Participant's
projected annual retirement income benefit under all defined benefit
plans maintained by the Employer, determined as of the end of the
Limitation Year, and the denominator of which is the lesser of:
A. the product of 1.25 multiplied by $90,000, as
adjusted by the Adjustment Factor;
B. the product of 1.4 multiplied by 100% of the
Participant's average annual Compensation for the 3 consecutive
calendar years during which his Compensation was the highest.
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2. The "Defined Contribution Plan Fraction" for any
Limitation Year is a fraction, the numerator of which is the sum of
the annual additions to the accounts of the Participant in all
defined contribution plans maintained by the Employer (as of the end
of the Limitation Year) for that Limitation Year and all preceding
Limitation Years and the denominator of which is the sum of the
lesser of the following amounts, determined for such Limitation Year
and for each prior Limitation Year of service with the Employer:
A. the product of 1.25 multiplied by $30,000 (as
adjusted pursuant to Section 415(d)(1)(B) of the Code);
B. the product of 1.4 multiplied by 25% of the
Participant's Compensation for such Limitation Year.
c. ADJUSTMENT OF LIMITATION FOR YEARS OF SERVICE OR PARTICIPATION.
1. In the case of a Participant who has completed less than
10 years of participation in the Plan, the limitation set forth in
paragraph 4.08(b)(1)(A) above, shall be adjusted by multiplying such
amount by a fraction, the numerator of which is the Participant's
number of years (or part thereof) of participation in the plan and
the denominator of which is 10.
2. If a Participant has completed less than 10 years of
service with an Employer, the limitation set forth in paragraph
4.08(b)(1)(B) shall be adjusted by multiplying such amounts by a
fraction, the numerator of which is the Participant's number of
years of service (or part thereof) and the denominator of which is
10.
d. Notwithstanding any provisions of the Plan to the contrary,
Sections 4.07, 4.08 and 4.09 shall be construed in a manner which is
consistent with Section 415 of the Code (which, to the extent necessary,
is hereby incorporated herein) and rulings and regulations issued
thereunder.
4.09 DEFINITIONS. For purposes of Section 4.07 and 4.08, the following
definitions shall apply:
a. "annual addition" shall mean the amount allocated to a
Participant's Account during the Limitation Year that constitutes:
1. Salary Reduction Contributions,
2. Employer Matching Contributions,
3. Employee Contributions, (if any)
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4. forfeitures, and
5. amounts described in Section 415(1)(1) and 419A(d)(2) of
the Code.
4.10 REVERSION OF EMPLOYER MATCHING CONTRIBUTIONS. Except as provided in the
following paragraphs a., b., and c., the assets of the Plan shall never inure to
the benefit of any Employer, and shall be held for the exclusive purposes of
providing benefits to Participants and/or their Beneficiaries, and for defraying
the expenses of administering the Plan.
a. In the case of an Employer Matching Contribution which is made
by virtue of a mistake of fact, this Section shall not prohibit the
return of such contribution to the Employer within 1 year after the
payment of the contribution.
b. If an Employer Matching Contribution is conditioned upon
initial qualification of the Plan under Section 401(a) of the Code, and
if the Plan receives an adverse determination with respect to its initial
qualification, then this Section shall not prohibit the return of such
contribution to the Employer within 1 year after such determination, if
application for the determination is made by the time prescribed by law
for filing the Employer's Federal tax return for the taxable year in
which such plan was adopted, or such later date as the Secretary of the
Treasury may prescribe.
c. In the case of an Employer Matching Contribution which is
determined to be not deductible under Section 404 of the Code, or any
successor provision thereto, then such contribution (to the extent
permissible under the Code) shall be returned to the Employer within 1
year after such disallowance of the deduction.
ARTICLE 5
PARTICIPANTS' ACCOUNTS
5.01 SEPARATE ACCOUNTS. The Administration Committee shall maintain or cause
to be maintained, a separate account for each Participant which shall consist of
his Salary Reduction Contribution Account, Employer Matching Contribution
Account, Employee Contribution Account, and Rollover Account and Prior Plan
Account.
5.02 VALUATION OF FUND. There shall be determined as of each Valuation Date
the fair market value of all assets of the Trust Fund. Such valuation shall be
determined in accordance with the principles of Section 3(26) of ERISA and the
regulations thereunder and shall give effect to brokerage fees, transfer taxes,
contributions, earnings, gains and losses, forfeitures, expenses, disbursements,
and all other transactions during the valuation period since the preceding
Valuation Date. In making such determinations and in crediting net appreciation
or depreciation to the Participant's Accounts, the Administration Committee may
employ such accounting
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<PAGE>
methods as the Administration Committee may deem appropriate in order to fairly
reflect the fair market value of each Participants' Account. For this purpose
the Administration Committee may rely upon information provided by the Trustee,
the investment manager, or other persons believed by the Administration
Committee to be competent.
5.03 STATEMENTS. The Administration Committee shall cause to be furnished to
each Participant a statement showing the value of his Account as of the most
recent Valuation Date.
ARTICLE 6
INVESTMENT OF FUNDS
6.01 TRUST FUND. All contributions made pursuant to the provisions of the
Plan shall be paid into the Fund maintained in connection with the Trust. All
such payments and increments thereon shall be held and disbursed in accordance
with the provisions of the Plan and the Trust, as each shall be applicable under
the circumstances. No person shall have any interest in, or right to, any part
of the funds so held, except as expressly provided in the Plan or Trust
Agreement.
6.02 AUTHORIZED INVESTMENTS AND INVESTMENT CONTROL. Notwithstanding the
foregoing provisions of Section 6.01, the Trustee shall be subject to the
following in connection with the administration of the assets of the Plan:
a. EMPLOYER MATCHING CONTRIBUTIONS--INVESTMENT IN EMPLOYER STOCK.
The Employer Matching Contribution described in Section 4.01 shall be
invested primarily in the common stock of the Employer, provided that the
Administration Committee may direct the Trustee to adjust that amount, if
necessary, to the extent necessary to maintain sufficient liquid assets
for payment of Plan expenses and cash distributions.
The common stock to be held by the Trustee may be contributed, in kind,
to the Plan by the Employer or may be acquired by the Trustee following
the contribution, in cash, of the Employer Matching Contribution amount
determined under Section 4.01. Each Employer Matching Contribution that
is allocated to common stock of the Employer shall be invested in the
common stock of the Employer and shall remain invested in such common
stock as long as the Plan remains in existence, except as it shall be
necessary to convert any shares of such stock into cash as set forth
above. The acquisition, investment, and holding of Plan assets in the
common stock of the Employer is expressly authorized by the Plan and
shall not be subject to any limitations on amount, to the fullest extent
permitted by ERISA.
b. OTHER INVESTMENTS. Except as provided by subsection a. above,
Participants and Beneficiaries may direct the Trustee with respect to the
investment of the funds in their Accounts. Such investments, if made,
shall be made among various
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pooled investment fund alternatives that represent varying degrees of
risk and potential investment return. The Trustee (or an investment
committee, if designated by the Board) shall establish the availability
of the various investment fund alternatives within the Trust. The
Trustee (or the investment committee, if designated by the Board)
reserves the right, at anytime and from time to time, to alter any or all
pooled investment funds under the Plan; provided that the Administration
Committee shall provide reasonable advance notice to affected
Participants and Beneficiaries of the discontinuance of a specific
investment fund. The Trustee (or the investment committee, if designated
by the Board) reserves the right to revoke all such pooled investment
funds and invest all assets of the Trust for the general benefit of
Participants and Beneficiaries.
If a Participant or Beneficiary does not indicate his investment mix in
writing on a form provided by the Administration Committee, then the
Administration Committee shall cause the amounts held in such
Participant's or Beneficiary's Accounts to be invested in the currently
available intermediate investment fund offered under the Trust, until
such time as the Participant's or Beneficiary's written instructions are
received by the Administration Committee. Participants and Beneficiaries
may change their investment mix no more than 4 times within each Plan
Year. A Participant's new or changed investment mix shall become
effective as of the first day of February, May, August, or November next
following receipt of written instructions from the Participant by the
Administration Committee or such other person designated by the
Administration Committee to receive such instructions.
Notwithstanding the foregoing, an investment mix election or change
election for a Participant who is subject to the requirements of Section
16(b) of the Securities Exchange Act of 1934 must be delivered to the
Administration Committee at least 6 months prior to the effective date of
such election if the change will affect the amount of the Participant's
Account or future contributions thereto that are allocated to the
Employer common stock investment fund. During the 6 month period in
which the election is on file with the Administration Committee prior to
the effective date of the election, the election will be irrevocable. In
addition, if a Participant's changes his investment mix to decrease the
amount of his account balance invested in the Employer common stock
investment fund, then no portion of the future additions to the
Participants accounts (other than Employer Contributions) may be
allocated to the Employer common stock investment fund for a period of 6
months following the date of such change.
6.03 ASSUMPTION OF RISK BY PARTICIPANTS. Each Participant (or Beneficiary)
assumes the risk in connection with any decrease in value of his separate
Account, and there shall be no liability to a Participant (or Beneficiary) under
the Plan in excess of the value of his Account.
6.04 GENERAL PROVISIONS REGARDING INVESTMENT DIRECTION. The provisions of
this Section shall apply to all investment directions by Participants under the
Plan:
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a. The Committee shall be responsible for providing information to, and
responding to requests from, Participants concerning investment
directions under the Plan.
b. The Committee shall provide Participants with the following
information, which may be contained in the summary plan description for
the Plan or in other Plan-related materials:
i. An explanation that the Plan is intended to constitute a plan
described in Section 404(c) of ERISA and the Department of Labor
regulations promulgated thereunder;
ii. A statement that the fiduciaries of the Plan may be relieved of
liability for any losses that are the direct and necessary result of
investment directions given by a Participant or Beneficiary;
iii. A description of the investment funds available under the Plan
and, with respect to each designated investment fund, a general
description of the investment objective, including information
relating to the type and diversification of assets comprising the
portfolio of the designated investment fund;
iv. An explanation of the circumstances under which Participants
and Beneficiaries may give investment directions and an explanation
of any specific limitations on such directions under the terms of
the Plan, including any restrictions on transfers to or from a
designated investment fund;
v. A description of any transaction fees and expenses that affect
the Participant's or Beneficiary's Account balance in connection
with purchases or sales of interests in the investments funds (for
example, commissions, sales loads, deferred sales charges, and
redemption or exchanges fees); and
vi. In the case of an investment funds which is subject to the
Securities Act of 1933, and in which the Participant or Beneficiary
has no assets invested, immediately following the Participant's or
Beneficiary's initial investment, a copy of the most recent
prospectus provided to the Plan.
c. The Committee shall provide the following information upon request
by a Participant or Beneficiary:
i. A description of the annual operating expenses of each
designated investment fund (for example, investment management fees,
administrative fees, transaction costs) that reduce the rate of
return to Participants and Beneficiaries, and the aggregate amount
of such expenses expressed as a percentage of average net assets of
the designated investment fund;
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<PAGE>
ii. Copies of any prospectuses, financial statements and reports, and
of any other materials relating to the investment funds available
under the Plan, to the extent such information is provided to the
Plan;
iii. Information concerning the value of shares or units in the
designated investment funds available to Participants and
Beneficiaries under the Plan, as well as the past and current
investment performance of such alternatives, determined net of
expenses on a reasonable and consistent basis; and
iv. Information concerning the value of shares or units in the
designated investment funds held in the Accounts of the Participant or
Beneficiary.
6.05 INDEPENDENT QUALIFIED PUBLIC ACCOUNTANT. The Company shall engage an
independent qualified public accountant to conduct such examinations and to
render such opinions as may be required by Section 103(a)(3) of ERISA. The
Company, in its discretion, may remove and discharge the person so engaged, but
in such case it shall first appoint a successor independent qualified public
accountant to perform such examinations and render such opinions.
ARTICLE 7
DEATH BENEFITS AND BENEFICIARY DESIGNATIONS
7.01 DISTRIBUTION UPON DEATH. If a Participant dies, while an Employee, all
amounts standing to such deceased Participant's credit in his Account, if any,
shall be 100% vested and nonforfeitable. In such case, the Participant's
Account shall be liquidated as of the Valuation Date coincident with or next
following his death, and the value of such Account (determined as of such
Valuation Date) shall be paid in a lump sum in cash as soon as administratively
feasible to his duly designated Beneficiary, but not later than 6 months
following such Valuation Date.
7.02 DESIGNATION OF BENEFICIARY.
a. Each Participant may, at or after the time he becomes a
Participant, designate one or more persons as Beneficiary of his Account
not otherwise to be distributed to his surviving spouse. If more than one
Beneficiary is named, the Participant may specify the sequence and/or
proportion in which payments shall be made to each Beneficiary. The
designation shall be made on the form prescribed by the Administration
Committee and shall, subject to the provisions of paragraph b., become
effective when filed with the Administration Committee. A Participant may,
from time to time, and subject to the provisions of paragraph b. change his
Beneficiary by filing a new Beneficiary designation form with the
Administration Committee. Any change in designation shall be in favor of
the current spouse unless said spouse of the Participant consents in
writing to the designation of a different Beneficiary. Prior to the death
of
30
<PAGE>
the Participant, no designated Beneficiary shall acquire any interest in
any amounts held in the Participant's Account.
b. Should the Participant designate a person other than (or in
addition to) the Participant's spouse as Beneficiary, then such designation
shall not be effective unless the spouse executes a written consent to such
designation. The consent of the spouse (i) must be in writing, (ii) must
acknowledge the effect of the consent, (iii) must acknowledge the election
of a specific Beneficiary and (iv) must be witnessed by a notary public or,
if permitted by the Administration Committee, a representative of the Plan.
Notwithstanding this spousal consent requirement, such consent shall not be
required if it is established to the satisfaction of a Plan representative
that the required consent cannot be obtained because there is no spouse,
the spouse cannot be located, or such other circumstances as may be
prescribed by applicable Treasury Regulations. Any consent under this
section shall be valid only with respect to the spouse who signs the
consent. An election made by a Participant and consented to by his spouse
may be revoked by the Participant, in writing, without the consent of the
spouse, any time prior to the commencement of benefits. Any new election
must comply with the requirements of this Section.
c. Should the Participant designate a person other than (or in
addition to) his spouse as Beneficiary and not obtain the spousal consent
to such designation as required under paragraph b., then any benefits
payable under the Plan upon the Participant's death shall be paid entirely
to the Participant's surviving spouse unless the surviving spouse then
consents to such other or additional designation in the manner consistent
with that provided in paragraph b. of this section.
d. If there is no designated Beneficiary when a death benefit
becomes payable, the benefit shall be paid to the estate of the
Participant. If a primary Beneficiary dies before receiving death benefits
to which he is entitled, the balance of such payments shall be paid to the
contingent Beneficiary. Neither the Employer nor the Trustee (in its
capacity as such) shall be named as Beneficiary.
e. If there is doubt as to the right of any Beneficiary to receive
any amount, the Trustee, on instructions of the Administration Committee,
may retain such amount until the rights hereto are determined, or it may
pay such amount into any court of appropriate jurisdiction. In either of
such events, neither the Plan, Employer, Administration Committee or
Trustee shall be under any other liability to any person with respect to
such disputed amount.
f. The death of any duly designated individual Beneficiary prior to
the death of the Participant shall void the designation as to such
Beneficiary, but in the event of the death of any duly designated
Beneficiary, subsequent to the death of the Participant, the right to
receive amounts included in the designation shall (unless the Participant
shall otherwise have instructed the Administration Committee in writing)
pass under such duly
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<PAGE>
designated Beneficiary's will, or by the laws of descent and distribution
applicable to such Beneficiary.
g. The marriage of a Participant shall void the current designation
of a Beneficiary and benefits shall be subject to distribution in
accordance with the Beneficiary election restrictions of Section 7.02. If
the Participant shall again become an unmarried Participant, through
divorce or death of a spouse, the Participant shall again be entitled to
make a Beneficiary designation pursuant to this Section.
ARTICLE 8
VESTING AND TERMINATION OF EMPLOYMENT
8.01 VESTING IN SALARY REDUCTION, EMPLOYEE, AND ROLLOVER CONTRIBUTIONS. A
Participant shall at all times have a 100% vested and nonforfeitable interest in
his Salary Reduction Contribution Account, Employee Contribution Account, and
Rollover Contribution Account.
8.02 VESTING IN EMPLOYER MATCHING CONTRIBUTIONS. A Participant whose employment
is terminated prior to his Normal Retirement Date (and for any reason other than
death), shall have a vested and nonforfeitable right in his Employer Matching
Contribution Account, and any earnings or losses attributable thereto, in
accordance with the following schedule:
<TABLE>
<CAPTION>
Years of Vesting Service Percentage Vested
------------------------ -----------------
<S> <C>
less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
</TABLE>
Notwithstanding the foregoing, Participants employed by the Employer before May
1, 1992, shall have a 100% vested and nonforfeitable percentage upon the
completion of 5 Years of Vesting Service rather than 6 Years of Vesting Service.
For all such Participants, vesting for service of less than 5 years shall be in
accordance with the foregoing vesting schedule.
8.03 FORFEITURES. If a Participant's employment is terminated, any portion of
his Account in which the Participant does not have a nonforfeitable interest
shall be provisionally forfeited as of his date of termination. A terminating
Participant who does not have any nonforfeitable interest in the Plan shall be
deemed to receive a distribution of $0 on his date of termination.
a. If a Participant who has had a provisional forfeiture shall again
become an Employee prior to incurring 5 consecutive One-Year Breaks in
Service, the Employer
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<PAGE>
shall reinstate (as of the first day of the month following the Employee's
reemployment), the dollar amount of his Account forfeited, unadjusted for
any gains or losses which occurred during said One-Year Breaks in Service.
If such a Participant received a distribution upon termination of
employment, reinstatement of the prior forfeited amounts will be provided
automatically without requiring repayment of the amount of any prior
distribution.
b. If the Participant is not rehired before incurring 5 consecutive
One-Year Breaks in Service, the amount of his provisional forfeiture shall
be forfeited permanently.
Any provisional forfeitures resulting from the operation of this Section shall
be held until the last business day of the calendar quarter in which the
Participant's termination of employment occurred. Provisional forfeitures shall
be used as of the next payment period to reduce Employer Matching Contributions
that are due or may become due under the Plan or to pay expenses incurred in the
administration of the Plan, as determined by the Administration Committee.
8.04 DISTRIBUTION OF VESTED BENEFITS. Benefits payable in the case of a
Participant whose employment is terminated shall be paid in accordance with
Article 7 in the case of death, or Article 9, in the case of a Participant who
retires or otherwise terminates employment with a vested benefit.
8.05 FORFEITURE FOR CAUSE. Notwithstanding any other provisions of this Article
8, in no event shall the Plan permit any Participant's Account Balance under the
Plan to be forfeited for misfeasance, malfeasance or any other cause not
specifically stated in the Plan.
ARTICLE 9
DISTRIBUTION OF BENEFITS
9.01 NORMAL FORM OF BENEFIT. Subject to the limitations of Article 8, and the
provisions of this Article, all distributions of amounts in a Participant's
Account shall be made in the form of a single lump sum payment in cash equal to
the vested balance credited to the Participant's Account as of the Valuation
Date following his Normal Retirement Date or date of termination, as
appropriate.
9.02 TIME OF DISTRIBUTION. Except as otherwise provided in this Article,
distribution of a Participant's vested Account shall be made in accordance with
the following:
a. If a Participant's nonforfeitable interest in his Account is
greater than $3,500, but such Participant and his spouse do not consent to
an immediate distribution, all of the Participant's Account shall be
retained in the Plan until:
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<PAGE>
1. distributed pursuant to this Article as soon as
administratively practicable following the Valuation Date coincident
with or next following the occurrence of the earlier of (a) the
Participant's request for distribution following attainment of Normal
Retirement Age under the Plan, or (b) the date the Participant and his
spouse consent to the payment of an immediate distribution; or
2. distributed pursuant to subsection c. prior to the
Participant's Normal Retirement Date, as of a Valuation Date following
a written request by the Participant and consent of the Participant's
spouse, if necessary.
b. If, on termination of employment, the value of the Participant's
Account (determined as of the Valuation Date immediately preceding the date
of termination of employment) in which the Participant has a nonforfeitable
interest is not greater than $3,500, all nonforfeitable amounts in the
Participant's Account shall be canceled as of such Valuation Date, and the
value thereof paid to the Participant as a single sum distribution.
c. If a Participant's nonforfeitable interest in his Account is
greater than $3,500, then the Participant may elect, in lieu of a single
lump sum payment, to receive his Account in substantially equal monthly
installments, payable on the first day of each month, over a period of at
60, 120, or 180 consecutive months (as selected by the Participant or
Beneficiary). Any such election must be in writing on forms provided for
such purpose by the Administration Committee. In no event, however, shall
the period of payment exceed the Participant's life expectancy. If the
Participant dies after the commencement date but before the number of
certain payments has been made to him, the monthly payments shall continue
to the Beneficiary until the total number of designated certain payments
has been made.
If a distribution to a Participant is made in installments pursuant to this
subsection, the undistributed balance of such Participant's Account shall be
held in the Trust until the last installment is paid. The aggregate of such
installment payments of such Participant may be more than or less than the value
of his Account at his retirement or death, depending on the earnings, losses,
expenses in appreciation and depreciation in value of the Trust Fund during the
period over which such installments are paid from the Trust Fund. In the event
of the death of the Participant prior to his entire Account being distributed,
any amount of his Account not previously distributed shall be canceled and
distributed in a single sum to his Beneficiary in accordance with Article 7.
9.03 INVESTMENT OF ACCOUNT BALANCE OF TERMINATED PARTICIPANT. In the event a
Participant's employment with the Employer is terminated and the Participant
fails to consent to an immediate distribution of his Account, such Account shall
continue to be invested pursuant to provisions of the Plan.
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<PAGE>
9.04 LATEST PAYMENT DATE. Nothing in the Plan shall be construed to permit
payments to a Participant of his Account balance to begin later than the 60th
day after the close of the Plan Year in which the latest of the following events
occurs: (1) the date on which the Participant attains Normal Retirement Age, (2)
the 10th anniversary of the year in which the Participant commenced
participation in the Plan, or (3) the date the Participant terminates his
service with the Employer.
9.05 MANDATED COMMENCEMENT OF BENEFITS. Notwithstanding any other provision of
the Plan to the contrary, payment of the Account balance of any Participant
shall commence not later than April 1 of the calendar year following the
calendar year in which he attains age 70-1/2. Notwithstanding any other
provision of the Plan to the contrary, distributions from the Plan will be made
in accordance with Code Section 401(a)(9) (which is hereby incorporated herein)
and the Treasury Regulations issued thereunder, including Section 1.401(a)(9)-2.
Any Plan provision reflecting Code Section 401(a)(9) shall override any Plan
provision inconsistent with Code Section 401(a)(9).
9.06 DIRECT ROLLOVERS. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this Section,
a distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
a. An eligible rollover distribution is any distribution of all or
any portion of the balance to the credit of the distributee, except that an
eligible rollover distribution does not include: any distribution that is
one of a series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of the
distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the
portion of any distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized appreciation
with respect to employer securities).
b. An eligible retirement plan is an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code, an annuity plan described in
section 403(a) of the Code, or a qualified trust described in section
401(a) of the Code, that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover distribution to
the surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
c. A distributee includes an employee or former employee. In
addition, the employee's or former employee's surviving spouse and the
employee's or former employee's spouse or former spouse who is the
alternate payee under a qualified
35
<PAGE>
domestic relations order, as defined in section 414(p) of the Code, are
distributees with regard to the interest of the spouse or former spouse.
d. A direct rollover is a payment by the Plan to the eligible
retirement plan specified by the distributee.
9.07 WAIVER OF 30-DAY NOTICE. If a distribution is one to which Code Sections
401(a)(11) and 417 do not apply, such distribution may commence less than 30
days after the notice required under Section 1.411(a)-11(c) of the Treasury
Regulations is given, provided that:
a. the Committee clearly informs the Participant that the Participant has
a right to a period of at least 30 days after receiving the notice to
consider the decision of whether or not to elect a distribution (and, if
applicable, a particular distribution option); and
b. the Participant, after receiving the notice, affirmatively elects to
receive a distribution and waives the remainder of the 30 day period.
ARTICLE 10
WITHDRAWALS WHILE EMPLOYED
10.01 WITHDRAWALS.
a. A Participant may withdraw all or any part of the funds held for
his benefit in his Salary Reduction Contribution Account, Employee
Contribution Account and his Rollover Account. Notwithstanding the
foregoing, withdrawals from a Participant's Salary Reduction Contribution
Account shall be subject to the requirements of Section 10.02. A
Participant may not receive any withdrawal from his Employer Matching
Contribution Account or his Prior Plan Account. Withdrawals may be
requested by filing a written request with the Administration Committee on
a form provided for that purpose.
b. Notwithstanding the foregoing, a Participant who is subject to
Section 16(b) of the Securities Exchange Act of 1934 must comply with the
provisions of this subsection 10.01(b) with respect to any withdrawals from
the Plan. Unless specifically designated in writing by the Participant,
the amount of any withdrawal shall be paid from the Participant's Accounts
invested in funds other than the Employer common stock investment fund. If
all or any portion of the withdrawal is paid from the Participant's Account
invested in the Employer common stock investment fund, the Participant must
suspend future Salary Reduction Contributions and Employee Contributions
(to the extent invested in the Employer common stock investment fund) for a
period of 6 months from the date of the withdrawal or until such time as no
portion of the Participant's future
36
<PAGE>
Salary Reduction Contributions are allocated to the Employer common stock
investment fund, if earlier.
10.02 HARDSHIP WITHDRAWALS. A Participant may withdraw all or any part of
the funds (exclusive of earnings thereon) held in his Salary Reduction
Contribution Account, subject to the requirements of this Section 10.02, only on
account of a hardship. For purposes of this Section, a withdrawal will be on
account of hardship only if the withdrawal:
a. is made on account of an immediate and heavy financial need of
the Participant, limited to
1. medical expenses (as described in Section 213(d) of the
Code) incurred by the Participant, the Participant's spouse or any
dependent of the Participant;
2. purchase (excluding mortgage payments) of a principal
residence for the Participant;
3. payment of tuition for the next 12 months of post-secondary
education for the Participant or the Participant's spouse, children or
dependents;
4. the need to prevent eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence; or
5. such other immediate and heavy financial needs as determined
by the Commissioner of the Internal Revenue Service and announced by
publication of revenue rulings, notices and other documents of general
applicability;
b. is necessary to satisfy such immediate and heavy financial need
and does not exceed the amount required to relieve such need and is not
reasonably available from other resources of the Participant. A
distribution will be necessary to satisfy the immediate and heavy financial
need of the Participant if the Administration Committee reasonably relies
upon the Participant's representation that the need cannot be relieved:
1. through reimbursement or compensation by insurance or
otherwise;
2. by reasonable liquidation of the Participant's assets, to
the extent such liquidation would not itself cause an immediate and
heavy financial need;
3. by cessation of Salary Reduction Contributions under the
Plan; or
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<PAGE>
4. by other distributions or nontaxable (at the time of the
loan) loans from plans maintained by the Employer or by any other
employer, or by borrowing from commercial sources on reasonable
commercial terms.
For purposes of this paragraph b., the Participant's resources shall be
deemed to include those assets of the Participant's spouse and minor
children that are reasonably available to the Participant.
The Administration Committee may require the submission of such evidence as it
may reasonably deem necessary to confirm the existence of such a hardship. A
request for withdrawal pursuant to this section shall be approved or denied by
the Administration Committee as soon as reasonably practicable following the
date of the Participant's request. If the request is approved, the distribution
shall be made as soon as reasonable practicable thereafter from the
Participant's Salary Reduction Contribution Account; provided, that under no
circumstance may earnings on the Participant's Salary Reduction Contributions be
distributed pursuant to this Section at any time.
ARTICLE 11
LOANS
11.01 OVERALL LIMITATIONS. The Trustee may make loans to any Participant,
as that term is defined and limited in Section 1.38. Each loan shall be made
upon written application of the Participant and shall be subject to the approval
of the Administration Committee in accordance with uniform and nondiscriminatory
standards adopted by the Administration Committee. The Participant shall be
permitted no more than one outstanding loan at any time. Notwithstanding the
foregoing, a Participant who is not accruing Hours of Service shall not be
permitted to obtain a loan from the Plan.
No loan shall be granted under the Plan to the extent it would cause the
aggregate balance of all loans which a Participant has outstanding under this
Plan and under any other qualified plan maintained by the Employer (an "Other
Plan") to exceed an amount equal to the lesser of:
a. $50,000 reduced by the excess (if any) of:
1. the highest outstanding balance of all loans from the Plan
and all Other Plans during the 1 year period ending on the Loan
Determination Date, over
2. the outstanding balance of all loans from the Plan and all
Other Plans on the date the loan is made; or
b. 1/2 of an amount equal to the vested portion of the Participant's
Accounts.
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<PAGE>
The "Loan Determination Date" for purposes of determining the value of a
Participant's maximum loan hereunder and the outstanding balance of any loan
shall be the first Valuation Date preceding the date as of which the loan is
granted, as reflected on the reports available to the Administration Committee
at that time. In applying for a loan, a Participant must consent on the
application form to the repayment of the loan through periodic payroll
withholding, whenever possible, as described in Section 11.04. In applying for a
loan, a Participant must consent on the loan application form to the payment of
any outstanding balance of the loan from the Participant's loan account in the
event of a default, as determined in accordance with Section 11.05, at the time
when the Participant is first eligible to receive a distribution of his Account.
11.02 TERMS OF LOAN. All loans shall be on such terms and conditions as the
Plan Administration Committee may determine, provided that all loans shall:
a. be made pursuant to a promissory note which is subject to default
rules which are not inconsistent with those described in 11.05 and which is
secured by the Participant's Account;
b. be amortized on a substantially level basis, with payments to be
made from payroll deductions, except as otherwise permitted by the
Administration Committee;
c. bear a reasonable rate of interest which may be a fluctuating
rate, which shall be based on the prime rate as of the date the loan is
made;
d. provide for repayment in full on or before the earlier of (1) 5
years after the date when the loan is made (10 years after the date the
loan is made if the loan is used to acquire a dwelling which, within a
reasonable period of time, is to be used as the principal residence of the
Participant) or (2) the date of distribution of the Participant's Account
Balance; and
e. be in an amount not less than $1000 or such other amount
determined from time to time by the Administration Committee and
communicated to Participants.
11.03 SOURCE OF LOANS. A loan account shall be established for each
Participant who receives a loan from the Plan. The Administration Committee
shall develop such rules as may be necessary to govern the transfer from the
Participant's Accounts to the Participant's loan account. Such rules shall be
administered in a uniform and non-discriminatory manner. Notwithstanding the
foregoing, if all or any portion of the loan is paid from the Participant's
Account invested in the Employer common stock investment fund, the Participant
must suspend future Salary Reduction Contributions and Employee Contributions
(to the extent invested in the Employer common stock investment fund) for a
period of 6 months from the date of the loan or until such time as no portion of
the Participant's future Salary Reduction Contributions are allocated to the
Employer common stock investment fund, if earlier.
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11.04 WITHHOLDING AND APPLICATION OF LOAN PAYMENTS. Principal and interest
payments shall be made through periodic payroll deductions from the
Participant's compensation from the Employer. Principal and interest payments
first shall be credited to the Participant's loan account (and any loss caused
by nonpayment of such loan shall be borne solely by such account) and shall then
be transferred to the Participant's Accounts (in the ratio in which such
Accounts provided funding for the loan) to be invested as otherwise provided in
the Plan.
11.05 DEFAULT. Prior to repayment, a promissory note shall be considered in
default in the event the borrower dies or terminates his or her participation in
the Plan, a payment is not made when due, the borrower files for relief under
the United States Bankruptcy Code or the Plan is terminated. In the event a
default occurs and is not cured within any grace period set forth in the
promissory note, the full amount due under the note shall become immediately due
and payable. In such event, the Administration Committee shall take such
actions as it deems necessary or appropriate to cause the Plan to realize on its
security for the loan. These actions may include (without limitation) repaying
the loan out of any Plan benefit then distributable or repaying the loan out of
the proceeds of an involuntary withdrawal from the Participant's Accounts,
whether or not the withdrawal would be permitted under the Plan on a voluntary
basis; provided that an involuntary withdrawal from the Participant's Salary
Reduction Contribution Account shall be made only in circumstances under which a
withdrawal would not cause the Plan to violate the requirements of Section
401(a) or 401(k) of the Code.
11.06 ADMINISTRATIVE RULES AND PROCEDURES. The Administration Committee may
adopt such written administrative rules and procedures applicable to the
administration of this Section as it may deem necessary or appropriate. Such
rules and procedures may be more restrictive than the provisions of this Section
provided that these rules and procedures are nondiscriminatory in effect,
prospectively applied and permitted under the Code and regulations thereunder.
ARTICLE 12
FIDUCIARIES' DUTIES
12.01 FIDUCIARIES. The "fiduciaries" of the Plan shall be the following:
a. the Employer;
b. the Administration Committee;
c. the Investment Committee;
d. the Trustee; and
e. such other person or persons that are designated to carry out
fiduciary responsibilities under the Plan in accordance with Section 12.03
b. hereof.
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Any person or group of persons may serve in more than one fiduciary capacity
with respect to the Plan. A fiduciary may employ one or more persons to render
advice with regard to any responsibility such fiduciary has under the Plan.
12.02 ALLOCATION OF RESPONSIBILITIES. The powers and responsibilities of
the fiduciaries are allocated as indicated below:
a. Employer: The Employer shall be responsible for all functions
assigned or reserved to it under the Plan and Trust. Any authority
assigned or reserved to the Employer under the Plan and the Trust shall be
exercised by resolution of the Employer's Board of Directors.
b. Administration Committee: The Administration Committee shall
have the responsibility and authority to control the operation and
administration of the Plan in accordance with the terms of the Plan and the
Trust, except with respect to duties and responsibilities specifically
allocated to other fiduciaries. The Administration Committee shall have
the authority to issue written directions to the Trustee to the extent
provided in the Trust. The Trustee shall follow the Administration
Committee's directions unless it is clear that the actions to be taken
under those directions would be violations of applicable fiduciary
standards or would be contrary to the terms of the Plan or Trust Agreement.
c. Investment Committee: The Investment Committee shall have the
responsibility and authority to control the investment of the Trust Fund in
accordance with the terms of the Plan and the Trust, except with respect to
duties, responsibilities specifically allocated to other fiduciaries. The
Investment Committee shall have the authority to issue written directions
to the Trustee to the extent provided in the Trust. The Trustee shall
follow the Investment Committee's directions, unless it is clear that the
actions to be taken under those directions would be violations of
applicable fiduciary standards or would be contrary to the terms of the
Plan or the Trust.
d. Trustee: The Trustee shall have the duty and responsibilities
set out in the Trust, subject, however, to direction by the Administration
and/or Investment Committees as set out in the Trust.
Powers and responsibilities of fiduciaries may be allocated to other fiduciaries
in accordance with Section 12.03, or as otherwise provided in the Plan or Trust.
This Article is intended to allocate to each fiduciary the individual
responsibility for the prudent execution of the functions assigned to it, and
none of such responsibilities or any other responsibility shall be shared by two
or more of such fiduciaries unless such sharing shall be provided by a specified
provision of the Plan or the Trust.
12.03 PROCEDURES FOR DELEGATION AND ALLOCATION OF RESPONSIBILITIES.
Fiduciary responsibilities may be allocated as follows:
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a. Each Committee may specifically allocate responsibilities to a
specified member or members of the Committee.
b. Each Committee may designate a person or persons other than a
fiduciary to carry out fiduciary responsibilities under the Plan (this
authority shall not cause any person or persons employed to perform
ministerial acts and services for the Plan to be deemed fiduciaries of the
Plan).
c. The Investment Committee may appoint an Investment Manager or
managers to manage (including the power to acquire and dispose of) the
assets of the Plan (or a portion thereof).
d. If at any time there be more than one Trustee serving under the
Trust, such Trustees may allocate specific responsibilities, obligations,
or duties among themselves in such manner as they shall agree.
Any allocation of responsibilities pursuant to this Section shall be made by
filing a written notice thereof with the Administration Committee specifically
designating the person or persons to whom such responsibilities or duties are
allocated and specifically setting out the particular duties and
responsibilities with respect to which the allocation or designation is made.
12.04 GENERAL FIDUCIARY STANDARDS. Subject to Section 12.05 hereof, a
fiduciary shall discharge his duties with respect to the Plan solely in the
interest of the Participants and their beneficiaries and
a. for the exclusive purpose of providing benefits to Participants
and their beneficiaries and defraying reasonable expenses of administering
the Plan;
b. with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of
a like character and with like aims;
c. by diversifying the investments of the Plan so as to minimize the
risk of large losses, unless under the circumstances it is clearly prudent
not to do so; and
d. in accordance with the documents and instruments governing the
Plan, insofar as such documents and instruments are consistent with the
provisions of Title I of ERISA.
12.05 LIABILITY AMONG CO-FIDUCIARIES.
a. General. Except for any liability which he may have under ERISA,
a fiduciary shall not be liable for the breach of a fiduciary duty or
responsibility by another fiduciary of the Plan except in the following
circumstances:
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1. he participates knowingly in, or knowingly undertakes to
conceal, an act or omission of such other fiduciary, knowing such act
or omission is a breach;
2. by his failure to comply with the general fiduciary
standards set out in Section 12.04 of the Plan in the administration
of his specific responsibilities which give rise to his status as a
fiduciary, he has enabled such other fiduciary to commit a breach; or
3. he has knowledge of a breach by such other fiduciary and he
does not undertake reasonable efforts under the circumstances to
remedy the breach.
b. Co-Trustees. In the event that there are two or more Trustees
serving under the Trust, each should use reasonable care to prevent a co--
Trustee from committing a breach of fiduciary responsibility and they shall
jointly manage and control assets of the Plan, except that in the event of
an allocation of responsibilities, obligations, or duties, a Trustee to
whom such responsibilities, obligations, or duties have not been allocated
shall not be liable to any person by reason of this Section 12.05, either
individually or as a Trustee, for any loss resulting to the Plan arising
from the acts or omissions on the part of the Trustee to whom such
responsibilities, obligations, or duties have been allocated.
c. Liability Where Allocation is in Effect. To the extent that
fiduciary responsibilities are specifically allocated by a fiduciary, or
pursuant to the express terms of the Plan to any person or persons, then
such fiduciary shall not be liable for any act or omission of such person
in carrying out such responsibility except to the extent that the fiduciary
violated Section 12.04 of the Plan:
1. with respect to such allocation or designation,
2. with respect to the establishment or implementation of the
procedure for making such an allocation or designation,
3. in continuing the allocation or designation, or
4. the fiduciary would otherwise be liable in accordance with
this Section 12.05.
d. Liability of Trustee Following Committee Directions. No Trustee
shall be liable for following instructions of the Committees given pursuant
to Section 12.02(b) and (c) of the Plan.
e. No Responsibility for Employer Action. Neither the Trustee, nor
the Committees, shall have any obligation nor responsibility with respect
to any action
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required by the Plan to be taken by the Employer, any Participant or
eligible Employee, nor for the failure of any of the above person to act or
make any payment or contribution, or to otherwise provide any benefit
contemplated under this Plan, nor shall the Trustee, nor the Committees be
required to collect any contribution required under the Plan, or determine
the correctness of the amount of any Employer contribution.
f. No Duty to Inquire. Neither the Trustee, nor the Committees
shall have any obligation to inquire into or be responsible for any action
or failure to act on the part of the others.
g. Liability of Trustee Where Investment Manager Appointed. If an
Investment Manager has been appointed pursuant to Section 12.03(c) of the
Plan, then neither the Trustee nor the Investment Committee shall be liable
for the acts or omissions of such Investment Manager, or be under any
obligation to invest or otherwise manage any assets of the Plan which are
subject to the management of such Investment Manager.
h. Successor Fiduciary. No fiduciary shall be liable with respect
to any breach of fiduciary duty if such breach was committed before he
became a fiduciary or after he ceased to be a fiduciary.
ARTICLE 13
EMPLOYER ADMINISTRATION PROVISIONS
13.01 INFORMATION. The Employer shall, upon request or as may be
specifically required under the Plan, furnish or cause to be furnished, all of
the information or documentation which is necessary or required by the
Committees and Trustee to perform their respective duties and functions under
the Plan. The Employer's records as to the current information the Employer
furnishes to the Committees and Trustee shall be conclusive as to all persons.
13.02 NO LIABILITY. Subject to Article 16, the Employer assumes no
obligation or responsibility to any of the Employees, Participants, or
Beneficiaries for any act of, or failure to act, on the part of the Committees
or the Trustee.
13.03 EMPLOYER ACTION. Any action required of the Employer shall be by
resolution of its Board of Directors or by a person authorized to act by Board
resolution.
13.04 INDEMNITY. The Employer indemnifies and saves harmless the Board of
Directors, individual Trustee(s), and the members of the Committees, and each of
them, from and against any and all loss resulting from liability to which the
Board of Directors, individual Trustee(s), and the Committees, or the members of
the Board of Directors and Committees, may be subjected by reason of any act or
conduct (except willful or reckless misconduct) in their official capacities in
the administration of this Plan or the Trust or both including all expenses
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reasonably incurred in their defense, in case the Employer fails to provide such
defense. The indemnification provisions of this Section 13.04 shall not relieve
the Board of Directors, individual Trustee(s), or any members of the Committees
from any liability he may have under ERISA for breach of a fiduciary duty.
13.05 AMENDMENT TO VESTING SCHEDULE. Although the Employer reserves the
right to amend the vesting schedule set out in Section 8.02 at any time, the
Employer shall not amend the vesting schedule (and no amendment shall be
effective) if the amendment would reduce the nonforfeitable percentage of any
Participant's Accounts derived from Employer Matching Contributions (determined
as of the later of the date the Employer adopts the amendment or the date the
amendment becomes effective) to a percentage less than the nonforfeitable
percentage computed under the Plan without regard to the amendment.
In the event the vesting schedule of this Plan is amended, any Participant who
has completed at least five Years of Vesting Service may elect to have his
Vested Account balance computed under the Plan without regard to such amendment
by notifying the Administration Committee in writing during the election period
described below. The election period shall begin on the date such amendment is
adopted and shall end no earlier than the latest of the following dates:
a. the date that is sixty days after the day such amendment is
adopted;
b. the date that is sixty days after the day such amendment becomes
effective; or
c. the date that is sixty days after the day the Participant is
given written notice of such amendment by the Administration Committee.
Any election made pursuant to this Section 13.05 shall be irrevocable. The
Administration Committee, as soon as practicable, shall forward a true copy of
any amendment to the vesting schedule to each affected Participant, together
with an explanation of the effect of the amendment, the appropriate form upon
which the Participant may make an election to remain under the vesting schedule
provided under the Plan prior to the amendment, and notice of the time within
which the Participant must make an election to remain under the prior vesting
schedule.
ARTICLE 14
COMMITTEES - ADMINISTRATION AND INVESTMENT PROVISIONS
14.01 APPOINTMENT OF COMMITTEES. The Employer shall appoint an
Administration Committee to administer the Plan, and an Investment Committee to
direct Plan investments, the members of which may or may not be Participants in
the Plan.
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14.02 TERM. Each member of each Committee shall serve until his successor
appointed. Any member of each Committee may be removed by the Board of
Directors, with or without cause, which shall have the power to fill any vacancy
which may occur. A Committee member may resign upon written notice to the
Employer. A member of each Committee who is an employee of the Employer shall
cease to be a member of the Committee upon his resignation or termination of
employment with the Employer.
14.03 COMPENSATION. The members of the Committees shall serve without
compensation for services as such, but the Employer shall pay all expenses of
both Committees, including the expenses for any bond required under ERISA. To
the extent such expenses are not paid by the Employer, they shall be paid by the
Trustee from the Trust Fund.
14.04 POWER OF ADMINISTRATION COMMITTEE Subject to Article 12 of the Plan,
the Committee shall have the following powers and duties:
a. to direct the administration of the Plan in accordance with the
provisions set forth below;
b. to adopt rules of procedure and regulations necessary for the
administration of the Plan provided the rules are not inconsistent with the
terms of the Plan;
c. to determine all questions with regard to rights of Employees,
Participants, and beneficiaries under the Plan, including but not limited
to rights of eligibility of an Employee to participate in the Plan, the
value of a participant's Accounts, and the vested Account balance of each
Participant;
d. to enforce the terms of the Plan and the rules and regulations it
adopts;
e. to direct the Trustee as respects the crediting and distribution
of the Trust and all other matters within its discretion as provided in the
Trust;
f. to review and render decisions respecting a claim for (or denial
of a claim for) a benefit under the Plan;
g. to furnish the Employer with information which the Employer may
require for tax or other purposes;
h. to engage the service of counsel (who may, if appropriate, be
counsel for the Employer) and agents whom it may deem advisable to assist
it with the performance of its duties;
i. to prescribe procedures to be followed by distributees in
obtaining benefits;
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j. to receive from the Employer and from Employees such information
as shall be necessary for the proper administration of the Plan;
k. to receive and review reports of the financial condition and of
the receipts and disbursements of the Trust Fund from the Trustee;
l. to maintain, or cause to be maintained, separate accounts in the
name of each Participant to reflect the Participant's Account balance under
the Plan;
m. to select a secretary, who need not be a member of the
Administration Committee; and
n. to interpret and construe the Plan and to determine benefit
eligibility under the Plan.
14.05 POWER OF INVESTMENT COMMITTEE. The Investment Committee shall have
the following powers and duties:
a. to direct the Trustee in the investment, reinvestment, and
disposition of the Trust Fund as provided in the Trust;
b. to furnish the Employer with information that the Employer may
require for tax or other purposes;
c. to engage the service of counsel (who may, if appropriate, be
counsel for the Employer) and agents whom it may deem advisable to assist
with the performance of its duties;
d. to receive and review reports of the financial condition and of
the receipts and disbursements of the Trust Fund from the Trustee;
e. to engage the services of an Investment Manager or Managers (as
defined in ERISA Section 3(38)), each of whom shall have full power and
authority to manage, acquire or dispose (or direct the Trustee with respect
to acquisition or disposition) of any Plan asset under its control;
f. to select a secretary, who need not be a member of the Investment
Committee; and
g. to exercise the voting rights with respect to the common stock of
the Employer held in the Trust as a result of Employer Matching
Contributions, except in shareholder decisions involving corporate
takeovers, mergers, or dissolutions of the Employer or its affiliates.
Such voting rights shall be exercised by proxy individually issued to
Participants having shares in their Employer Matching Contribution
Accounts.
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The Investment Committee may instruct the Trustee to pass the voting rights
through to Participants having a vested interest in such stock in any
situation in which a potential conflict of interest may arise between any
fiduciary and the Participants in the exercise of such voting rights.
h. to interpret and construe the Plan with respect to the
investment, reinvestment and disposition of Plan assets.
14.06 MANNER OF ACTION. The decision of a majority of the members of each
Committee appointed and qualified shall control. In case of a vacancy in the
membership of the Committees, the remaining members of the respective Committee
may exercise any and all of the powers, authorities, duties, and rights
conferred upon such Committee pending the filling of the vacancy. The
Committees may, but need not, call or hold formal meetings. Any decisions made
or action taken pursuant to written approval of a majority of the then members
shall be sufficient. Each Committee shall maintain adequate records of its
decisions.
14.07 AUTHORIZED REPRESENTATIVE. Each Committee may authorize any one of
its members, or its secretary, to sign on its behalf any notices, directions,
applications, certificates, consents, approvals, waivers, letters, or other
documents. Each Committee must evidence this authority by an instrument signed
by all its respective members and filed with the Trustee.
14.08 NONDISCRIMINATION. The Administration Committee shall administer the
Plan in a uniform, nondiscriminatory manner for the exclusive benefit of the
Participants and their beneficiaries.
14.09 INTERESTED MEMBER. No member of the Administration Committee may
decide or determine any matter concerning the distribution, nature, or method of
settlement of his own benefits under the Plan unless there is only one person
acting alone in the capacity as the Investment Committee.
14.10 FUNDING POLICY. The Investment Committee shall review, not less often
than annually, all pertinent Employee information and Plan data in order to
establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Investment Committee shall
communicate annually to the Trustee and to any Plan Investment Manager, if any,
the Plan's short-term and long-term financial needs so investment policy can be
coordinated with Plan financial requirements.
14.11 INDIVIDUAL STATEMENT. As soon as practicable after each Valuation
Date, the Administration Committee shall deliver to each Participant (and to
each Beneficiary) a statement reflecting the condition of his Accounts in the
Trust as of that date and such other information as may be required under ERISA.
No Participant, except a member of the Administration or Investment Committee,
shall have the right to inspect the records reflecting the Account of any other
Participant.
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14.12 BOOKS AND RECORDS. The Administration Committee shall maintain, or
cause to be maintained, records which will adequately disclose at all times the
state of the Trust Fund and of each separate interest therein. The books,
forms, and methods of accounting shall be the responsibility of the
Administration Committee.
ARTICLE 15
THE TRUST
15.01 PURPOSE OF THE TRUST FUND.. A Trust Fund, including various subfunds
as determined by the Investment Committee shall be created and maintained for
the purposes of the Plan, and the assets of the Trust Fund shall be invested in
accordance with the terms of the Trust. All contributions will be paid into the
Trust Fund, and all benefits under the Plan will be paid from the Trust Fund.
15.02 APPOINTMENT OF TRUSTEE. The Trustee(s) shall be appointed by the
Board of Directors to administer the Trust Fund. The Trustee's obligations,
duties, and responsibilities shall be governed solely by the terms of the Trust
agreement.
15.03 EXCLUSIVE BENEFIT OF PARTICIPANTS. Subject to other applicable
provisions of the Plan, the Trust Fund will be used and applied only in
accordance with the provisions of the Plan to provide benefits to Plan
Participants and their beneficiaries and no part of the corpus or income of the
Trust Fund shall be used for or diverted to purposes other than for the
exclusive benefit of the Participants and their beneficiaries and with respect
to expenses of administration of the Plan. Notwithstanding any provision of the
Plan to the contrary, the Employer reserves the right to recover any amounts
held in a suspense account at the termination of the Trust Fund that cannot be
allocated to the accounts of Participants and their beneficiaries in the year of
termination of the Plan because of the limitations contained in Section 415 of
the Code.
15.04 BENEFITS SUPPORTED ONLY BY THE TRUST FUND. Any person having any
claim under the Plan must look solely to the assets of the Trust Fund for
satisfaction.
ARTICLE 16
PARTICIPANT ADMINISTRATIVE PROVISIONS
16.01 BENEFICIARY DESIGNATION. Each Participant may, from time to time,
designate, in writing, a Beneficiary to whom the Trustee shall pay his Accounts
in the Trust Fund in the event of his death. The Administration Committee shall
prescribe the form for the written designation of Beneficiary and, upon the
Participant's filing the form with the Administration Committee, it effectively
shall revoke all designations filed prior to that date by the same Participant.
As a condition to any married Participant designating a Beneficiary other than
his spouse, the
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Administration Committee shall require the spouse's written and notarized
consent, as required by the Code.
16.02 NO BENEFICIARY DESIGNATION. If a Participant fails to name a
Beneficiary in accordance with Section 16.01, or if the Beneficiary named by a
Participant predeceases him, then the Trustee shall pay the Participant's
Accounts in lump sum to the legal representative or representatives of the
estate of the Participant. The Administration Committee, in its sole
discretion, shall direct the Trustee as to whom the Trustee shall make payment
under this Section.
16.03 PERSONAL DATA TO ADMINISTRATION COMMITTEE. Each Participant and
Beneficiary must furnish to the Administration Committee such evidence, data, or
information as the Administration Committee considers necessary or desirable for
the purpose of administering the Plan. The provisions of the Plan are effective
for the benefit of each Participant upon the condition precedent that each
Participant will furnish promptly full, true, and complete evidence, data, and
information when requested by the Administration Committee, provided the
Administration Committee shall advise each Participant of the effect of his
failure to comply with its request.
16.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of a
deceased Participant shall file with the Administration Committee, in writing,
his post office address, and each subsequent change of such post office address.
Any payment or distribution under the Plan and any communication addressed to a
Participant or his Beneficiary at the last address filed with the Administration
Committee (or if no such address has been filed, then the last address indicated
on the records of the Employer) shall be deemed to have been delivered to the
Participant or his Beneficiary on the date that such distribution or
communication is deposited in the United States Mail, postage prepaid.
16.05 ALIENATION. No benefit payable under the Plan shall be subject in any
manner to alienation, sale, transfer, assignment, pledge, encumbrance, charge,
garnishment, execution, or levy of any kind, either voluntary or involuntary,
except to the extent provided under a qualified domestic relations order, prior
to actually being received by the person entitled to the benefit under the terms
of the Plan. The Trust Fund shall not in any manner be liable for, or subject
to, the debts, contracts, liabilities, engagements, or torts of any person
entitled to benefits hereunder, except to the extent that under a qualified
domestic relations order the Trustee is required to pay over a Participant's
Accounts to an alternate payee. In the event the Employer or the Trustee
receives written notice of an adverse claim to a benefit distributable or being
paid to a Participant, former Participant or Beneficiary, the Trustee may
suspend payment of such benefit until such matter is resolved to the
satisfaction of the Trustee.
16.06 LITIGATION AGAINST THE TRUST. If any legal action filed against the
Trustee, Board of Directors, or the Committees or against any member or members
of the Committee or Board of Directors, by or on behalf of any Participant or
Beneficiary results adversely to the Participant or to the Beneficiary, the
Trustee shall reimburse itself, the Board of Directors,
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Committee, and any member or members of the Committee or Board of Directors all
costs and fees expended by it or them by surcharging all costs and fees against
the sums payable under the Plan to the Participant or to the Beneficiary but
only to the extent a court of competent jurisdiction specifically authorizes and
directs any such surcharges and only to the extent permitted under Section
401(a)(13) of the Code and the applicable provisions of ERISA.
16.07 INFORMATION AVAILABLE. Any Participant in the Plan or any Beneficiary
may examine copies of the Plan, the Plan description, the Trust Agreement, the
latest annual report, and any bargaining agreement, contract, or any other
instrument under which the Plan was established or is operated. The
Administration Committee will maintain all of the items listed in this Section
in its office, or in such other place or places as it may designate from time to
time in order to comply with the regulations issued under ERISA, for examination
during reasonable business hours. Upon the written request of a Participant or
Beneficiary, the Administration Committee shall furnish him with a copy of any
item listed in this Section. The Administration Committee may make reasonable
charge to the requesting person for the copy so furnished.
16.08 BENEFICIARY'S RIGHT TO INFORMATION. A Beneficiary's right to (and the
Committee's, or a Trustee's duty to provide to the Beneficiary) information or
data concerning the Plan shall not arise until he first becomes entitled to
receive a benefit under the Plan.
16.09 CLAIMS PROCEDURE. Prior to or upon becoming entitled to receive a
benefit under the Plan, a Participant or Beneficiary shall file a claim for such
benefit with the Administration Committee at the time and in the manner
prescribed by the Administration Committee. Notwithstanding the foregoing, the
Administration Committee may direct the Trustee to commence payment of a
Participant's or Beneficiary's benefits without requiring the filing or a claim
if the Administration Committee has knowledge of such Participant's or
Beneficiary's whereabouts.
16.10 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. The Administration Committee
shall provide adequate notice in writing to any Participant or to any
Beneficiary ("claimant") whose claim for benefits under the Plan has been
denied. Such notice must be sent within ninety days of the date the claim is
received by the Administration Committee unless special circumstances require an
extension of time for processing the claim. Such extension shall not exceed
ninety days and no extension shall be allowed unless, within the initial ninety
day period, the claimant is sent an extension notice indicating the special
circumstances requiring the extension and specifying a date by which the
Administration Committee expects to render its final decision. The
Administration Committee's notice of denial to the claimant shall set forth:
a. the specific reason or reasons for the denial;
b. specific references to pertinent Plan provision on which the
Administration Committee based its denial;
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c. a description of any additional material and information needed
for the claimant to perfect his claim and an explanation of why the
material or information is needed;
d. a statement that the claimant may:
1. request a review upon written application to the Committee;
2. review pertinent Plan documents; and
3. submit issues and comments in writing, and
e. that any appeal the claimant wishes to make of the adverse
determination must be in writing to the Administration Committee within
sixty days after receipt of the Administration Committee's notice of denial
of benefits. The Administration Committee's notice must further advise the
claimant that his failure to appeal the action to the Administration
Committee in writing within the sixty day period will render the
Administration Committee's determination final, binding, and conclusive.
If the claimant should appeal to the Administration Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and comments
he, or his duly authorized representative, feels are pertinent. The
Administration Committee shall reexamine all facts related to the appeal and
make a final determination as to whether the denial of benefits is justified
under the circumstances. The Administration Committee shall advise the claimant
in writing of its decision on his appeal, the specific reasons for the decision,
and the specific Plan provisions on which the decision is based. The notice of
the decision shall be given within sixty days of the claimant's written request
for review, unless special circumstances (such as a hearing) would make the
rendering of a decision within the sixty day period infeasible, but in no event
shall the Administration Committee render a decision regarding the denial of a
claim for benefits later than 120 days after its receipt of a request for
review. If an extension of time for review is required because of special
circumstances, written notice of the extension shall be furnished to the
claimant prior to the date the extension period commences.
The Administration Committee's notice of denial of benefits shall identify the
name of each member of the Administration Committee and the name and address of
the Administration Committee member to whom the claimant may forward his appeal.
16.11 PLACE OF PAYMENT AND PROOF OF CONTINUED ELIGIBILITY. As required by
Section 16.04, each Participant and Beneficiary shall file with the
Administration Committee from time to time in writing his post office address
and each change of post office address. Any check representing payment under
the Plan and any communication addressed to a Participant, a former Participant,
or Beneficiary at its last address filed with the Administration Committee, or
if no such address has been filed, then at his last address as indicated on the
records of the Employer, shall be deemed to have been delivered to such person
on the date on which such check or
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communication is deposited in the United States mail, postage prepaid. If the
Administration Committee, for any reason, is in doubt as to whether payments
under the Plan are being received by the person entitled thereto, it shall, by
certified or registered mail addressed to the person concerned, at his address
last known to the Administration Committee, notify such person that all unmailed
and future Plan benefit payments shall be withheld until he provides the
Administration Committee with evidence of his entitlement to such benefit and
his proper mailing address.
16.12 NO RIGHTS IMPLIED. Nothing contained in this Plan, or with respect to
the establishment of the Trust, or any modification or amendment to the Plan or
Trust, or in the creation of any Account, or the payment of any benefit, shall
give any Employee, Participant, or any Beneficiary any right to continued
employment, any legal or equitable right against the Trustee, or its agents or
employees, except as expressly provided by the Plan, the Trust or ERISA.
ARTICLE 17
AMENDMENT OR TERMINATION
17.01 RIGHT TO AMEND.
a. The Board reserves the right at any time and from time to time
(and retroactively if deemed necessary or appropriate to meet the
requirements of Section 401(a) of the Code and of ERISA, and any similar
provisions of subsequent revenue or other laws, or the rules and
regulations from time to time in effect under any of such laws or to
conform with governmental regulations or other policies), to modify or
amend, in whole or in part, any or all of the provisions of the Plan.
b. No such modification or amendment, however, shall make it
possible for 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 under the Plan prior to the
satisfaction of all liabilities with respect thereto. Moreover, no
amendment or modification shall make it possible to deprive any Participant
of a previously accrued benefit (including an optional form of benefit).
c. The Administration Committee may adopt amendments which do not
significantly affect the cost of the Plan and which may be necessary or
appropriate to qualify or maintain the Plan and any trust which may form a
part of the Plan as a plan and trust meeting the requirements of Sections
401(a) and 501(a) of the Code.
17.02 RIGHT TO TERMINATE PLAN. The Board reserves the power to terminate
the Plan at any time with respect to any or all Employers. Unless the Plan is
sooner terminated, a successor to the business or any portion thereof of an
Employer, by whatever form or manner resulting, with the written consent of the
Company, may continue the Plan and become a party to the trust
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agreement by executing appropriate supplemental agreements and other documents,
and such successor shall succeed to all applicable rights, powers and duties of
such Employer with relation thereto. The employment of any Participant who is
continued in the employ of such successor shall not be deemed to have been
terminated or severed for any purpose of the Plan.
17.03 OBLIGATIONS UPON MERGER, CONSOLIDATION OR TRANSFER. In the event of
any merger or consolidation with, or transfer of assets or liabilities to, any
other plan, each Participant shall be entitled to receive a benefit if the Plan
were to terminate immediately after the merger, consolidation, or transfer,
which is not less than the benefit he would have been entitled to receive if the
Plan had terminated immediately before the merger, consolidation, or transfer.
17.04 OBLIGATIONS UPON TERMINATION, PARTIAL TERMINATION OR DISCONTINUANCE.
a. While each Employer intends to continue the Plan indefinitely,
nevertheless it assumes no contractual obligation as to the Plan's
continuance. In the case of any termination, partial termination or
complete discontinuance of contributions, each Participant who is then an
Employee and who is affected by the termination, partial termination or
complete discontinuance of contributions shall have a 100% nonforfeitable
interest in the value of all amounts credited to his Participant's Account.
b. At the direction of the Administration Committee after any such
discontinuance, and after payment of, or appropriate reserve for, the
expenses of any such discontinuance the dollar value of each Participant's
Account shall be paid in cash to each Participant, or, if he is then
deceased, to his Beneficiary.
c. Notwithstanding the foregoing, a Participant's Account shall not
be distributed pursuant to a termination, partial termination or complete
discontinuance of contributions if the distribution would be contrary to
the requirements of Section 401(k) of the Code and the applicable Treasury
Regulations thereunder.
17.05 CONTINUED FUNDING AFTER PLAN TERMINATION. Anything in the Plan to the
contrary notwithstanding, no Employer, upon any termination or partial
termination of the Plan, shall have any obligation or liability whatsoever to
make any further payments for the benefit of Participants (including all or any
part of any contributions payable prior to any termination of the Plan), to the
Trustee for benefits under the Plan. Neither the Trustee, the Board, the
Administration Committee, nor any Participant, Employee, nor Beneficiary, shall
have any right to compel an Employer to make any payment after the termination
or partial termination of the Plan.
17.06 DISTRIBUTION UPON DISPOSITION OF ASSETS OR SUBSIDIARY.
Notwithstanding any provision of the Plan to the contrary and in accordance with
the provisions of Section 401(k)(2)(B)(i)(II) of the Code, a Participant's
Account may be distributed to the Participant as soon as administratively
feasible after the sale or other disposition of substantially all of the assets
used by the Employer in the trade or business in which the Participant is
employed if the Participant
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is no longer employed by the Employer or an affiliated Employer who has adopted
the Plan and the assets were not sold to a related employer. The Account of a
Participant employed by a subsidiary of an Employer may be distributed to the
Participant as soon as administratively feasible after the sale or other
disposition of the Employer's interest in the subsidiary to an entity that is
not a related Employer as long as the Participant continues employment with such
subsidiary.
ARTICLE 18
GENERAL PROVISIONS
18.01 NO CONTRACT OF EMPLOYMENT. The Plan shall not be deemed to constitute
a contract between the Employer and any Employee. It is not a promise of
continued employment by the Employer or of continued benefits as an Employee.
Employees are employees "at will," and the Employer remains free to change
benefits under the Plan without being required to consult anyone and without
obtaining anyone's agreement. The Employer has and shall continue to have the
absolute right and authority to dismiss any Employee at any time with or without
cause, without regard to the effect which such action may have upon an Employee
as a Participant of the Plan.
18.02 NO ALIENATION OF BENEFITS. Except as may otherwise be provided by
ERISA and the Code, no distribution or payment under the Plan to any
Participant, Beneficiary, or joint or contingent annuitant, shall be subject in
any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge, whether voluntary or involuntary, and any attempt to so
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the
same shall be void; nor shall any such distribution or payment be in any way
liable for or subject to the debts, contracts, liabilities, engagements or torts
of any person entitled to such distribution or payment. If any Participant or
Beneficiary is adjudicated bankrupt or purports to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any such distribution or payment
voluntarily or involuntarily, the Administration Committee, in its discretion,
may hold or cause to be held or applied such distribution or payment or any part
thereof to or for the benefit of such Participant or Beneficiary in such manner
as the Administration Committee shall direct.
Notwithstanding the foregoing, the right to a benefit payable with respect to a
Participant pursuant to a qualified domestic relations order (as defined in
Section 414(p) of the Code and described in Section 21.02 of the Plan) may be
credited, assigned or recognized. The Administration Committee shall establish
reasonable procedures to determine the qualified status of domestic relations
orders and to administer distributions under such qualified orders in a manner
consistent with Section 414 (p) of the Code.
18.03 INCAPACITY. If any person entitled to receive any benefits hereunder
is a minor, or is in the judgment of the Administration Committee, legally,
physically or mentally incapable of personally receiving and receipting for any
distribution, the Administration Committee may
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instruct the Trustee to make distribution to such other person, persons or
institutions as, in the judgment of the Administration Committee, are then
maintaining or who have custody of such person. As a condition to the issuance
of such instruction for the distribution to such other person or institution,
the Administration Committee may require such person or institution to exhibit
or to secure an order, decree, or judgment of a court of competent jurisdiction
with respect to the incapacity of the person who would otherwise be entitled to
receive the benefits. Payments made pursuant to this provision shall completely
discharge the Plan, Administration Committee, and Trustee.
18.04 SOLE SOURCE OF BENEFITS. The Fund shall be the sole source(s) of
benefits under this Plan, and each Employee, Participant, Beneficiary, or any
other person who shall claim the right to any payment or benefit under this Plan
shall be entitled to look only to the Fund for the payment of benefits. Except
as may be otherwise provided by ERISA or other applicable law, the Employer
shall have no liability to make or continue from its own funds the payment of
any benefit under the Plan.
18.05 ADDRESS OF PAYEE UNKNOWN. If the Trustee is unable to make payment to
any Participant or other person to whom a payment is due under the Plan because
it cannot ascertain the identity or whereabouts of such Participant or other
person after reasonable efforts have been made to identify or locate such person
(including a notice of the payment so mailed to the last known address of such
Participant or other person as shown on the records of the Employer), such
payment and all subsequent payments otherwise due to such Participant or other
person shall be forfeited 24 months after the date such payment first became
due; provided, that such payment and any subsequent payments shall be reinstated
retroactively, no later than 60 days after the date on which the Participant or
person is identified or located.
18.06 SERVICE IN MORE THAN ONE PLAN CAPACITY. Any person or group of
persons may serve in more than one fiduciary capacity with respect to the Plan
and any trust agreement which provides for the Fund.
18.07 INTENT TO QUALIFY. The Employer intends that the Plan (including the
trust agreement forming a part thereof) shall be a profit sharing plan of an
employer for the exclusive benefit of its employees or their beneficiaries as
provided for in Section 401(a) of the Code, or as may be provided for in any
similar provisions of subsequent revenue laws, and that the Fund, if any, shall
be a qualified trust and exempt from taxation under Section 501(a) of the Code,
or as may be provided for in any similar provisions of subsequent laws.
ARTICLE 19
ROLLOVER CONTRIBUTIONS AND TRANSFERS
19.01 ROLLOVER OF FUNDS FROM OTHER PLANS. In the event that an individual:
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a. becomes an Employee (i) eligible to participate in the Plan, or
(ii) not eligible to participate in the Plan solely because he has not yet
completed a Year of Eligibility Service or does not elect to make Salary
Reduction Contributions,
b. shall have been a participant in an employer's plan described in
Section 401(a) of the Code, which is exempt from tax under Section 501(a)
of the Code,
c. received from such trust a distribution which qualifies for
rollover treatment in accordance with the Code, and
d. such distribution consists of (i) money, or (ii) other property,
but only if the other property has been sold and converted to money
following the distribution,
then, the eligible Employee may transfer any portion of the distribution to this
Plan on or before the 60th day after the day on which he received such property,
and upon receipt by the Plan, such amount shall be credited to the Rollover
Contribution Account established under the Plan. The eligible Employee shall
have a 100% vested and nonforfeitable right to all amounts credited to his
Rollover Contribution Account as a result of such transfer.
19.02 ROLLOVER OF FUNDS FROM CONDUIT INDIVIDUAL RETIREMENT ACCOUNT (IRA).
In the event that an individual:
a. becomes an Employee (i) eligible to participate in the Plan, or
(ii) not eligible to participate in the Plan solely because he has not yet
completed a Year of Eligibility Service or does not elect to make Salary
Reduction Contributions,
b. shall have established an individual retirement account or
individual retirement annuity (hereinafter collectively referred to as an
"IRA") described in Sections 408(a) and 408(b), respectively, of the Code,
which IRA is comprised solely of amounts constituting a rollover
contribution of a distribution from an employer's plan described in Section
401(a) of the Code, which is exempt from tax under Section 501(a) of the
Code, or an annuity plan described in Section 403(a) of the Code, and
c. received from such IRA the entire amount of the account or the
entire value of the annuity, including any earnings on such sums, pursuant
to Section 408(d)(3)(A)(ii) of the Code,
then, the eligible Employee may transfer the entire amount received in such
distribution to this Plan (for the benefit of such individual) on or before the
60th day after the day on which he received such payment or distribution, and
upon receipt by the Plan, such amount shall be credited to the Rollover
Contribution Account established under the Plan. The eligible Employee shall
have a 100% vested and nonforfeitable right to all amounts credited to his
Rollover Contribution Account as a result of such IRA rollover.
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19.03 TRANSFERS DIRECTLY FROM OTHER PLANS. There may be transferred
directly from the trustee of any other qualified plan to the Trustee, subject to
the approval of the Administration Committee and the Trustee, all or any of the
assets, including voluntary contributions, if any, held (whether by trustee,
custodian or otherwise) under the Plan for any eligible Employees who are, or
are about to become, Participants in the Plan; provided, that the transfer
satisfies Section 411(d)(6) of the Code. A separate account shall be
established for such assets for each eligible Employee.
Notwithstanding the foregoing, an eligible Employee may not transfer any amount
which, if transferred into this Plan would cause the Plan to be a direct or
indirect transferee plan, within the meaning of Section 401(a)(11)(B)(iii)(III)
of the Code and any regulations or rulings effective thereunder, of a plan
described in Section 401(a)(11)(B)(i) or (ii) of the Code. Transfers pursuant
to this Section may be made regardless of whether the eligible Employee has
satisfied the service requirement of this Plan.
19.04 MISTAKEN ROLLOVER. If it is determined that a Participant's rollover
contribution did not qualify under the Code as a tax free rollover, then as soon
as reasonably possible the balance in the Participant's Rollover Account shall
be:
a. segregated from all other Plan assets,
b. treated as a non-qualified trust established by and for the
benefit of the Participant, and
c. distributed to the Participant.
Such a mistaken rollover contribution shall be deemed never to have been a part
of the Plan and shall not adversely affect the tax qualification of the Plan
under the Code.
ARTICLE 20
TOP-HEAVY PROVISIONS
20.01 TOP-HEAVY PLAN DEFINED. This Article shall apply if the Plan is a
"Top-Heavy Plan" as hereinafter provided. The Plan shall be a Top-Heavy Plan in
a Plan Year if, as of the Determination Date, the present value of the
cumulative accrued benefits (as calculated below) of all Key Employees exceeds
60% of the present value of the cumulative accrued benefits under the Plan of
all Employees and Key Employees, but excluding the value of the accrued benefits
of former Key Employees. All plans that are part of the Required Aggregation
Group shall be treated as a single plan.
Solely for the purpose of determining if the Plan, or any other plan included in
a Required Aggregation Group of which this Plan is a part, is Top-Heavy, the
accrued benefit of a Non-Key
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Employee shall be determined under (a) the method, if any, that uniformly
applies for accrual purposes under all plans maintained by the affiliated
employers, or (b) if there is no such method, as if such benefit accrued not
more rapidly than the slowest accrual rate permitted under the fractional
accrual rate of Section 411(b)(1)(C) of the Code.
For this purpose, the present value of an Employee's accrued benefit is equal to
the sum of a. and b. below:
a. the sum of (i) the present value of an Employee's accrued
retirement income in each defined benefit plan which is included in the
Required Aggregation Group determined as of the most recent valuation date
within the 12 month period ending on the Determination Date and as if the
Employee had terminated service as of such valuation date and (ii) the
aggregate distribution made with respect to such Employee during the 5
year period ending on the Determination Date from all defined benefit plans
included in the Required Aggregation Group and not reflected in the value
of his accrued retirement income as of the most recent valuation date. In
determining present value for all plans in the Required Aggregation Group,
the actuarial assumptions set forth for this purpose in the Employer's
defined benefit plan shall be utilized and the commencement date shall be
determined taking any nonproportional subsidy into account; and
b. the sum of (i) the aggregate balance of his accounts in all
defined contribution plans which are part of the Required Aggregation Group
as of the most recent valuation date within the 12 month period ending on
the Determination Date, (ii) any contributions allocated to such an account
after the valuation date and on or before the Determination Date and (iii)
the aggregate distributions made with respect to such Employee during the 5
year period ending on the Determination Date from all defined contribution
plans which are part of the Required Aggregation Group and not reflected in
the value of his account(s) as of the most recent valuation date.
20.02 OTHER DEFINITIONS. For the purposes of this Article, the following
terms shall have the following meanings:
a. "Determination Date" means the last day of the preceding Plan
Year.
b. "Employee" means (i) a current employee or (ii) a former employee
who performed services for the Employer during the Plan Year containing the
Determination Date or any of the 4 preceding Plan Years.
c. "Key Employee" means an Employee, a former Employee, or the
Beneficiary under the Plan of a former Employee who, in the Plan Year
containing the Determination Date, or any of the four preceding Plan Years,
is:
1. an officer of the Employer having an annual Compensation
greater than 50% of the amount in effect under Section 415(b)(1)(A) of
the Code for any
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such Plan Year. Not more than 50 Employees or, if lesser, the greater
of 3 Employees or 10% of the Employees shall be considered as officers
for purposes of this subparagraph.
2. one of the 10 Employees owning (or considered as owning
within the meaning of Section 318 of the Code) the largest interest in
the Employer, which is more than .5% ownership interest in value, and
whose Compensation equals or exceeds the maximum dollar limitation
under Section 415(c)(1)(A) of the Code as in effect for the calendar
year in which the Determination Date falls.
3. a 5% owner of the Employer.
4. a 1% owner of the Employer having an annual Compensation
from the Employer of more than $150,000.
Whether an Employee is a 5% owner or a 1% owner shall be determined in
accordance with Section 416(i) of the Code.
d. "Non-Key Employee" means an Employee who is not a Key Employee.
e. "Required Aggregation Group" means
1. each stock bonus, pension, or profit sharing plan of the
Employer in which a Key Employee participates and which is intended to
qualify under Section 401(a) of the Code; and
2. each other such stock bonus, pension or profit sharing plan
of an Employer which enables any plan in which a Key Employee
participates to meet the requirements of Section 401(a)(4) or Section
410 of the Code.
20.03 TOP-HEAVY CONTRIBUTIONS. Solely in the event that a Non-Key Employee
is not covered by a defined benefit plan of the Employer which provides the
minimum benefit required by Section 416(c)(1) of the Code during a Plan Year in
which this Plan is a Top-Heavy Plan, the Employer contributions and forfeitures
allocated to each such Non-Key Employee who has not separated from service by
the end of the Plan Year shall be equal to not less than the lesser of:
a. 3% of such Participant's Compensation in the Plan Year, or
b. the percentage of such Participant's Compensation in the Plan
Year which is equal to the percentage at which contributions and
forfeitures are made to the Key Employee for whom such percentage is the
highest for the year.
The percentage referred to in subparagraph b. above shall be determined by
dividing the contributions and forfeitures allocated to the Key Employee by such
Employee's Compensation.
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The Employer shall make such additional contributions to the Plan as shall be
necessary to make the allocation described above. The provisions of this
section apply without regard to contributions or benefits under Social Security
or any other Federal or State law. An adjustment may be made to this Section,
as permitted under Treasury Regulations, in the event an Employee is also
entitled to an increased benefit in any other Top Heavy plan while it is in the
Aggregation Group with this Plan.
A Non-Key Employee who is otherwise entitled to a minimum contribution under
this Section shall not fail to receive the required minimum contribution because
the Employee is excluded from participation because the Employee failed to make
elective Salary Reduction Contributions under the Plan or because the Employee
failed to accrue 1000 Hours of Service during the Plan Year.
20.04 ADJUSTMENT TO LIMITATION ON ANNUAL ADDITIONS.
a. If the Employer also maintains a qualified defined benefit plan
(as defined in Section 3(35) ERISA and Section 414(j) of the Code) and
which is not part of a floor-offset arrangement (as defined in Section
414(k) of the Code), then the denominator of both the Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction, as set forth in Section
4.08, for the limitation year ending in such Plan Year will be adjusted by
substituting 1 for 1.25 in each place the figure occurs.
b. The adjustments referred to in subparagraph a. are not required
if:
1. the Plan would not be Top Heavy if 90% were substituted for
60% in Section 20.01, and
2. Section 20.03, a. is adjusted by substituting 4% for 3%
where the figure occurs.
c. The adjustments referred to in subparagraph a. above do not apply
to any Participant as long as no Employer contributions, forfeitures,
salary deferrals, or nondeductible voluntary contributions are allocated to
such Participant's Accounts and the Participant does not accrue any
benefits under any defined benefit plan maintained by the Employer.
ARTICLE 21
QUALIFIED DOMESTIC RELATIONS ORDERS (QDROS)
21.01 TERMS OF QDRO. The provisions of Section 18.02 shall not be
applicable to a Qualified Domestic Relations Order, and payment of benefits
shall be made in accordance with the terms of such order provided that such
order:
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a. creates or recognizes the existence of an Alternate Payee's right
to, or assigns to an Alternate Payee the right to, receive all or a portion
of the Account Balance payable to a Participant under the Plan;
b. clearly specifies:
1. the name and the last known mailing address (if any) of the
Participant and the name and mailing address of each Alternate Payee
covered by the order;
2. the amount or percentage of the Participant's Account
Balance to be paid by the Plan to each such Alternate Payee or the
manner in which such amount or percentage is to be determined;
3. the period to which such order applies, and the Valuation
Date on which the division shall be made; and
4. the name of the Plan to which such order applies;
c. does not require the Plan to provide any type or form of
distribution, or any option, not otherwise provided under the Plan;
d. does not require the Plan to provide increased benefits (other
than investment earnings of the Alternate Payee's separate account); and
e. does not require the payment of benefits to an Alternate Payee
which are required to be paid to another Alternate Payee under another
order previously determined to be a Qualified Domestic Relations Order.
21.02 QDRO DEFINITIONS. The following terms shall have the following
meanings for purposes of this Article:
a. "Qualified Domestic Relations Order" means any judgment decree or
order (including approval of a property settlement agreement) which:
1. relates to the provision of child support, alimony payments,
or marital property rights to a spouse, former spouse, child, or other
dependent of a Participant;
2. is made pursuant to a state domestic relations law
(including a community property law); and
3. which meets the requirements of the foregoing Section 21.01.
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b. "Alternate Payee" means any spouse, former spouse, child or other
dependent of a Participant who is recognized by a Qualified Domestic
Relations Order as having a right to receive all, or a portion of, the
Account Balance payable under the Plan with respect to such Participant.
21.03 PAYMENTS PRIOR TO SEPARATION FROM EMPLOYMENT. In the case of any
payment made before a Participant has separated from the service of the
Employer, a Qualified Domestic Relations Order shall not be considered as
failing to meet the requirements of Section 21.01 solely because such order
requires that a distribution be made to an Alternate Payee:
a. on or after the date on which the Participant attains (or would
have attained) the Earliest Retirement Age (as hereafter defined);
b. as if the Participant had retired on the date on which such
distribution is to be made under such order (but taking into account only
the value of the Account Balance standing to the Participant's credit on
such date); and
c. in any form in which such distribution may be paid under the Plan
to the Participant.
For purposes of this Section, the term "Earliest Retirement Age" means the
earlier of (i) the date on which the Participant is entitled to a distribution
under the Plan, or (ii) the later of (1) the date the Participant attains age
50, or (2) the earliest date on which the Participant could begin receiving
benefits under the Plan if he separated from service. Notwithstanding the
foregoing, the Plan specifically permits distribution to an alternate payee
under a Qualified Domestic Relations Order (without regard to whether the
Participant has attained his Earliest Retirement Age) in the same manner that is
provided for a Participant who has separated from service.
21.04 TREATMENT OF FORMER SPOUSE. To the extent provided in any Qualified
Domestic Relations Order:
a. the former spouse of a Participant shall be treated as a
"surviving spouse" of such Participant for purposes of Section 401(a)(11)
and 417 of the Code, and any spouse of the Participant shall not be treated
as a spouse of the Participant for such purposes; and
b. if married for at least 1 year to the Participant, such former
spouse shall be treated as meeting the requirements of Section 417(d) of
the Code.
21.05 NOTIFICATION OF RECEIPT OF ORDER. The Administration Committee shall
promptly notify a Participant and any other Alternate Payee of the receipt of a
Qualified Domestic Relations Order and of the Plan's procedure for determining
whether the order meets the requirements of a Qualified Domestic Relations Order
under this Article. Within a reasonable period of time after the receipt of such
order, the Administration Committee, in accordance with such
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procedures as it shall from time to time establish, shall determine whether such
order meets the requirements of a Qualified Domestic Relations Order under this
Article and shall notify the Participant and each Alternate Payee of such
determination.
21.06 SEPARATE ACCOUNTING. During any period of time in which the issue of
whether a domestic relations order meet the requirements of a Qualified Domestic
Relations Order under this Article is being determined by a court of competent
jurisdiction, the Administration Committee shall separately account for the
amounts (hereafter referred to as the "segregated amounts") which would have
been payable to the Alternate Payee during such period if the order had been
determined to be a Qualified Domestic Relations Order under this Article. If
within 18 months such order is determined to be a Qualified Domestic Relations
Order under this Article, the Administration Committee shall pay the segregated
amounts (plus any interest thereon) to the person or persons entitled thereto.
If within 18 months it is determined that such order is not a Qualified Domestic
Relations Order under this Article, or the issue as to whether such order so
qualifies is not resolved, the Administration Committee shall pay the segregated
amount (plus any interest thereon) to the person or persons who would have been
entitled to such amounts if there had been no order. Any determination that an
order is a Qualified Domestic Relations Order under this Article which is made
after the end of the 18 month period, shall be applied prospectively only.
ARTICLE 22
EMPLOYER PARTICIPATION
22.01 ADOPTION BY EMPLOYERS. Subject to the further provisions of this
Article, any corporation with employees, now in existence or hereafter formed or
acquired, which is a member of an affiliated group of corporations (within the
meaning of section 1504(a) of the Code) of which the Company is the common
parent corporation and which is otherwise legally eligible, may, with the
consent and approval of the Board of Directors, by formal resolution and
decision of its own board of directors, adopt the Plan and the Trust, for all or
any classification of its employees and thereby, from and after the specified
effective date of the adoption, become an Employer under this Plan. Such
adoption shall be effectuated by and evidenced by a formal resolution of the
Board of Directors of the Company consenting to and containing or incorporating
by reference such formal resolution or decision of the adopting corporation.
The adoption resolution or decision shall become, as to such adopting
corporation and its employees, a part of the Plan as then or subsequently
amended. It shall not be necessary for the adopting corporation to sign or
execute the Plan document or any amendment thereto. The effective date of the
Plan for any such adopting corporation shall be that stated in the resolution or
decision of adoption of the adopting corporation, and from and after such
effective date the adopting corporation shall assume all the rights, obligations
and liabilities of the Employer under the Plan as to its employees. The
administrative powers and control granted to the Company under the Plan, as now
or hereafter provided, including the sole right of amendment of the Plan and
Trust and of appointment and removal of the Administration Committee and its
successors, shall not
64
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be diminished by reason of the participation of any such adopting corporation in
the Plan and Trust.
22.02 WITHDRAWAL BY EMPLOYER. Any Employer, by action of its board of
directors and upon notice to the Company and the Trustee, may withdraw from the
Plan and Trust at anytime without affecting other Employers not withdrawing, by
complying with the provisions of the Plan. Termination of the Plan as it
relates to any Employer upon its withdrawal shall be governed by the provisions
of Article 17. A withdrawing Employer may arrange for the continuation of this
Plan and Trust by itself or its successor in separate form for its own
Employees, with such amendments, if any, as it may deem proper or may arrange
for continuation of the Plan and Trust by merger with an existing plan and trust
qualified under sections 401(a) and 501(a) of the Code and transfer of such
portion of the Trust assets as the Administration Committee determines are
allocable to the Employer and its Employee-Participants. The Company may, in
its absolute discretion, by resolution of its Board of Directors, terminate an
Employer's participation at any time when the Employer is no longer a member of
the affiliated group which qualifies it to adopt the Plan under Section 22.01 or
when in its judgment such Employer fails or refuses to discharge its obligations
under the Plan following such prior notice and opportunity to cure as may be
appropriate under the circumstances.
22.03 ADOPTION CONTINGENT UPON INITIAL AND CONTINUED QUALIFICATION. The
adoption of the Plan and Trust by a corporation as provided in Section 22.01 is
made contingent and subject to the condition precedent that the adopting
corporation meets all the statutory requirements for qualified plans under the
Code for its employees. The adopting corporation may, or at the request of the
Company shall, request an initial letter of determination from the appropriate
District Director of the Internal Revenue Service to the effect that the Plan
and Trust, as herein set forth or as amended with respect to the adopting
corporation, meet the requirements of the applicable federal statutes for tax
qualification purposes for such adopting corporation and its employees. In the
event the Plan or the Trust in their operation, become disqualified for any
reason as to such adopting corporation and its employees, the portion of the
Trust Fund allocable to them shall be segregated as soon as is administratively
feasible, pending either (1) the prompt requalification of the Plan and Trust as
to such corporation and its employees to the satisfaction of the Internal
Revenue Service, so as not to affect the continued qualified status of the Plan
and Trust as to all other Employee or (2) as provided in Section 22.02 above,
the prompt withdrawal of such corporation from this Plan and Trust and a
continuation by itself or its successor of its plan and trust separate and apart
from this Plan and Trust, or by merger with another existing qualified plan are
trust accompanied by a transfer of its segregated portion of Trust assets, or
(3) the prompt termination of the Plan and Trust as to itself and its Employees.
22.04 NO JOINT VENTURE IMPLIED. The adoption of the Plan by any Employer
shall not create a joint venture or partnership between it and any other
Employer. Any rights, duties, liabilities and obligations assumed or incurred
hereunder by any Employer, or imposed upon any Employer by the provisions or the
Plan, shall relate to and affect such Employer alone.
65
<PAGE>
ARTICLE 23
MISCELLANEOUS
23.01 EXECUTION OF RECEIPTS AND RELEASES. Any payment to any Participant,
or to his legal representative or Beneficiary, in accordance with the provisions
of the Plan, shall to the extent thereof be in full satisfaction of all claims
hereunder against the Plan and Trust. The Administration Committee may require
such Participant, legal representative, or Beneficiary, as a condition precedent
to such payment, to execute a receipt and release therefor in such form as it
shall determine.
23.02 NO GUARANTEE OF INTEREST. Neither the Trustee, the Administration
Committee, the Investment Committee, nor the Employer guarantee the Trust Fund
from loss or depreciation. The Employer does not guarantee the payment of any
money which may be or becomes due to any person from the Trust Fund. The
liability of the Administration Committee and the Trustee to make any payment
from the Trust Fund is limited to the then available assets of the Trust.
23.03 PAYMENT OF EXPENSES. All expenses incident to the administration,
termination, protection of the Plan and Trust, including but not limited to
legal, accounting, and Trustee fees, shall be paid by the Employer, except that
in case of failure of Employer to pay the expenses, they will be paid from the
Trust Fund, and until paid, shall constitute a first and prior claim and lien
against the Trust Fund.
23.04 EMPLOYER RECORDS. Records of the Employer as to an Employee's or
Participant's period of employment, termination of employment and the reason
therefor, leaves of absence, re-employment, and Compensation will be conclusive
on all persons, unless determined to be incorrect.
23.05 INTERPRETATIONS AND ADJUSTMENTS. To the extent permitted by law, an
interpretation of the Plan and a decision on any matter within the
Administration Committee's discretion made in good faith is binding on all
persons. A misstatement or other mistake of fact shall be corrected when it
becomes known and the person responsible shall make such adjustment on account
thereof as he considers equitable and practicable.
23.06 UNIFORM RULES. In the administration of the Plan, uniform rules will
be applied to all Participants similarly situated.
23.07 EVIDENCE. Evidence required of anyone under the Plan may be by
certificate, affidavit, document, or other information which the person acting
on it considers pertinent and reliable, and signed, made or presented by the
proper party or parties.
23.08 SEVERABILITY. In the event any provision of the Plan shall be held to
be illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions of the Plan,
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but shall be fully severable and the Plan shall be construed and enforced as if
the illegal or invalid provision had never been included herein.
23.09 NOTICE. Any notice required to be given herein by the Trustee, the
Employer, or the Committees, shall be deemed delivered when (a) personally
delivered, or (b) placed in the United States mails, in an envelope addressed to
the last known address of the person to whom the notice is given.
23.10 WAIVER OF NOTICE. Any person entitled to notice under the Plan may
waive the notice.
23.11 SUCCESSORS. The Plan shall be binding upon all persons entitled to
benefits under the Plan, their respective heirs and legal representatives, upon
the Employer, its successors and assigns, and upon the Trustee, the Committees,
and their successors.
23.12 HEADINGS. The titles and headings of Articles and Sections are
included for convenience or reference only and are not to be considered in
construction of the provisions hereof.
23.13 GOVERNING LAW. All questions arising with respect to the provisions
of this Plan shall be determined by application of the laws of the State of
Texas except to the extent Texas law is preempted by Federal statute.
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IN WITNESS WHEREOF, MICHAELS STORES, INC. has caused this Plan to be signed
by its duly authorized officer this 18th day of February, 1994.
MICHAELS STORES, INC.
By: /s/ Jack E. Bush
----------------------------------------
Its: President and Chief Operating Officer
----------------------------------------
68
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APPENDIX I
Employment by any of the following immediately preceding employment by the
Employer will affect the Employment Commencement Date:
Answer Systems, Inc;
Central Staff, Inc. (formerly Executive Records)
Decision Systems, Inc. and its predecessors
Financial Marketing, Inc.
Fourth Generation Software Services, Inc.
GRI, Inc.
Informatics General Corporation and its predecessors
Informatics General Systems Corporation and its predecessors
Knowledge Systems Concepts, Inc.
Lakestone Systems, Inc.
Management Control Systems, Inc.
Metro-Mark Integrated Systems, Inc.
National Systems Corporation
Net America Corp.
Pacesetter Systems, Inc.
Peoples Restaurants, Inc.
Photomatrix
Restaurant Property Co.
SSI Midlantic Software Services, Inc.
SSI National Software Services, Inc.
SSI New England Software Services, Inc.
SSI Southwest Software Services, Inc.
SSI Western Software Services, Inc.
Sterling Check Liquidation, Inc. (formerly Check Consultants, Inc.) and its
predecessors
Sterling Distribution Services, Inc.
Sterling Legal Information Services, Inc.
Sterling Professional Services, Inc. and its predecessors
Sterling Software, Inc. and its predecessors
Sterling Software (America), Inc. (formerly Ordernet Services, Inc.)
Sterling Software (Midwest), Inc. (formerly Creative Data Systems, Inc.) and its
predecessors
Sterling Software (North America), Inc. (formerly Systems Center, Inc. and
Software Laboratories, Inc.--Communications Division) and their predecessors
Sterling Software (Northern America), Inc. (formerly Directions, Inc.) and its
predecessors
Sterling Software (U.S.), Inc. (formerly Sterling Federal Systems, Inc.)
Sterling Software (U.S.A.), Inc. (formerly Systems Software Marketing, Inc. and
Software Laboratories, Inc.) and their predecessors
69
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Sterling Software (U.S. of America), Inc. (formerly Systems Center, Inc.--
Systems Management Division) and its predecessors
Sterling Software (United States), Inc. (formerly Dylakor, Inc. and Zanthe
Information, Inc.) and their predecessors
Sterling Software (United States of America), Inc. (formerly Systems Center,
Inc.--VM Software Division) and its predecessors
Sterling ZeroOne, Inc. and its predecessors
Texas Arkansas Petroleum
USA Cafe's Inc.
USA Cafe's Limited Partnership and its predecessors
WylyCollection
ZeroOne Systems, Inc. and its predecessors
DIVESTITURE DATES:
Pacesetter Systems, Inc. - August 13, 1984
70
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EXHIBIT 10.15
[Logo]
Effective as of December 31, 1993
Michaels Stores, Inc.
5931 Campus Circle Drive
Irving, Texas 70563
Attention: Kristin L. Magnuson,
Vice President-Finance
Re: Credit Agreement dated as of June 24, 1993, between Michaels Stores, Inc.
and NationsBank of Texas, N.A.
Gentlemen:
Reference is made to that certain Credit Agreement dated as of June 24, 1993 (as
heretofore amended or modified, the "Credit Agreement"), between Michaels
Stores, Inc., a Delaware corporation ("Borrower"), and NationsBank of Texas,
N.A., a national banking association ("Lender"). Unless otherwise defined
herein, each defined term used herein shall have the meaning given such term in
the Credit Agreement.
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Borrower and Lender agree as follows:
1. The December 31, 1993 date appearing in the second sentence of Section 2.1
of the Credit Agreement is amended to read "March 31, 1994".
2. Except as modified and amended hereby, the Credit Agreement and the other
Loan Papers are unchanged, and are hereby ratified and confirmed.
3. This letter agreement and the other Loan Papers shall be construed in
accordance with and governed by the Laws of Texas, except to the extent that
federal Laws may apply and except to the extent otherwise required by Law.
4. This letter agreement may be executed in a number of identical counterparts,
each of which shall be deemed an original for all purposes and all of which
constitute, collectively, one agreement; but, in making proof of this
agreement, it shall not be necessary to produce or account for more than one
such counterpart.
5. THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT
<PAGE>
Michaels Stores, Inc.
Effective as of December 31, 1993
Page 2
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN
THE PARTIES.
If Borrower is in agreement with the foregoing, please so indicate by executing
this letter in the space provided below and returning it to Lender.
Very truly yours,
NATIONSBANKS OF TEXAS, N.A.
By: Joseph G. Taylor
--------------------------
Name: Joseph G. Taylor
-----------------------
Title: Vice President
----------------------
Accepted and Agreed To:
MICHAELS STORES, INC.
By: Kristin L. Magnuson
-------------------------
Name: Kristin L. Magnuson
-----------------------
Title: Vice President - Finance and Business Planning
----------------------
<PAGE>
Exhibit 10.16
[Logo]
Effective as of March 31, 1994
Michaels Stores, Inc.
5931 Campus Circle Drive
Irving, Texas 70563
Attention: Kristin L. Magnuson,
Vice President-Finance
Re: Credit Agreement dated as of June 24, 1993, as amended, between Michaels
Stores, Inc. and NationsBank of Texas, N.A.
Gentlemen:
Reference is made to that certain Credit Agreement dated as of June 24, 1993,
(as heretofore amended or modified, the "Credit Agreement") between
Michaels Stores, Inc., a Delaware corporation ("Borrower"), and NationsBank
of Texas, N.A., a national banking association ("Lender"). Unless otherwise
defined herein, each defined term used herein shall have the meaning given
such term in the Credit Agreement.
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Borrower and Lender agree as follows:
1. The $30,000,000 number appearing in the first sentence of Section 2.1 of
the Credit Agreement is amended to read "$50,000,000", and the March 31,
1994 date appearing in the second sentence of Section 2.1 of the Credit
Agreement is amended to read "April 30, 1994".
2. Exhibit A to the Credit Agreement is amended to read in its entirety as
in Exhibit A attached hereto, and concurrently with the execution and
delivery of this letter agreement, Borrower shall execute and deliver to
Lender a Note in the form of Exhibit A attached hereto in replacement and
increase of the Note originally executed and delivered by Borrower
pursuant to the Credit Agreement.
3. Except as modified and amended hereby, the Credit Agreement and the other
Loan Papers are unchanged, and are hereby ratified and confirmed.
4. This letter agreement and the other Loan Papers shall be construed in
accordance with and governed by the Laws of Texas, except to the extent
that federal Laws may apply and except to the extent otherwise required
by Law.
<PAGE>
Michaels Stores, Inc.
Effective as of March 31, 1994
Page 2
5. This letter agreement may be executed in a number of identical
counterparts, each of which shall be deemed an original for all purposes
and all of which constitute, collectively, one agreement; but, in making
proof of this agreement, it shall not be necessary to produce or account
for more than one such counterpart.
6. THIS AGREEMENT AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
If the Borrower is in agreement with the foregoing, please so indicate by
executing this letter in the space provided below and returning it to Lender.
Very truly yours,
NATIONSBANK OF TEXAS, N.A.
By: Joseph G. Taylor
-------------------------
Name: Joseph G. Taylor
-----------------------
Title: Vice President
----------------------
Accepted and Agreed To:
MICHAELS STORES, INC.
By: Kristin L. Magnuson
-------------------------
Name: Kristin L. Magnuson
-----------------------
Title: Vice President
----------------------
<PAGE>
EXHIBIT A
PROMISSORY NOTE
$50,000,000 Dallas, Texas March 31, 1994
FOR VALUE RECEIVED, MICHAELS STORES, INC. ("MAKER") hereby promises to pay
to the order of NATIONSBANK OF TEXAS, N.A. ("Payee") the principal sum of
FIFTY MILLION DOLLARS ($50,000,000) or so much thereof as may be disbursed and
outstanding hereunder, together with interest, as hereinafter described.
This note has been executed and delivered under, and is subject to the terms
of, the $50,000,000 Credit Agreement (as heretofore or hereafter renewed,
extended, amended, or supplemented, the "CREDIT AGREEMENT") dated as of June
24, 1993, between Maker and Payee and is the "Note" referred to therein.
Reference is made to the Credit Agreement for provisions affecting this note
regarding voluntary and mandatory prepayments, acceleration of maturity,
exercise of rights, payment of attorneys' fees, court costs, and other costs of
collection, and certain waivers by Maker and others now or hereafter obligated
for payment of any sums due hereunder.
The principal of this note shall bear interest at the rate or rates set forth
in the Credit Agreement, and such principal and interest shall be payable at the
times set forth in the Credit Agreement.
This note is executed in replacement and increase of that certain Promissory
Note dated June 24, 1993, in the principal amount of $30,000,000, executed by
Maker, payable to the order of Payee.
MICHAELS STORES, Inc.
By: Kristin L. Magnuson
------------------------
Kristin L. Magnuson,
Vice President-Finance
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is entered into as of April 29, 1994, between
MICHAELS STORES, INC., a Delaware corporation ("BORROWER"), and NATIONSBANK OF
TEXAS, N.A., a national banking association ("LENDER"). In consideration of
the mutual covenants contained herein, Borrower and Lender agree as follows:
SECTION 1. CERTAIN DEFINITIONS AND TERMS.
As used herein, the following terms have the meanings indicated:
ACQUIRED SUBSIDIARY means any Subsidiary acquired by Borrower, with the
consent of Lender, subsequent to the date of this Agreement.
AGREEMENT means this Credit Agreement, including the Exhibits hereto, as
the same may be renewed, extended, amended, supplemented, or modified from
time to time.
ASSESSMENT RATE means, for any day, the net annual assessment rate (rounded
upward to the nearest 1/100 of 1%), determined by Lender in accordance with
its usual procedures, payable by Lender for the insurance by the Federal
Deposit Insurance Corporation (or any successor) of its dollar time deposits.
BUSINESS DAY means any day on which banks are not required or authorized to
close in Dallas, Texas, and, if the applicable Business Day relates to any
Eurodollar Rate Loan, a day on which dealings are carried on in the London
interbank market.
CD BASE RATE means, with respect to any CD Rate Loan for the Interest
Period applicable thereto, an interest rate per annum (rounded upward to the
nearest 1/100 of 1%) determined by Lender to be the prevailing rate bid at
10:00 a.m., or as soon thereafter as practicable, on the fist day of such
Interest Period, by one or more certificate of deposit dealers of recognized
standing selected by Lender for the purchase at face value from Lender of its
certificate of deposit having a maturity comparable to the duration of such
Interest Period and in the approximate amount of such CD Rate Loan.
CD RATE means, with respect to any CD Rate Loan for the Interest Period
applicable thereto, an interest rate per annum determined pursuant to the
following formula:
CD Base Rate
CD Rate = --------------------------- + Assessment Rate + 1.00%
1 - CD Reserve Percentage
-1-
<PAGE>
CD RATE LOAN means each Loan which bears interest at the CD Rate.
CD RESERVE PERCENTAGE means, for any day, that percentage (expressed as a
decimal) which is in effect on such day, as prescribed by the Board of
Governors of the Federal Reserve System (or any successor) for determining the
maximum reserve requirement (including without limitation any basic,
supplemental or emergency reserves) for a member bank of the Federal Reserve
System in the Dallas Federal Reserve District in respect of new nonpersonal
Dollar time deposits in the amount of $100,000 or more and having a maturity
comparable to the related Interest Period.
CURRENT FINANCIALS means the consolidated Financial Statements of Borrower
and its Subsidiaries for the fiscal year ended January 30, 1994.
DEBT of any Person means all obligations, contingent or otherwise, which in
accordance with GAAP should be classified upon such Person's balance sheet as
liabilities, but in any event including liabilities secured by any Lien
existing on property owned or acquired by such Person or a Subsidiary thereof
(whether or not the liability secured thereby shall have been assumed),
obligations which have been or under GAAP should be capitalized for financial
reporting purposes, and all guaranties and endorsements, including, but not
limited to, any obligations to acquire any Debt of others, to purchase, sell,
or furnish property or services primarily for the purpose of enabling such
other Person to make payment of any of such Debt.
DEBTOR RELIEF LAWS means the Bankruptcy Code of the United States of
America and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization,
fraudulent transfer or conveyance, suspension of payments, or similar Laws
from time to time in effect affecting the Rights of creditors generally.
DEFAULT has the meaning set forth in Section 9.
EURODOLLAR RATE means, with respect to any Eurodollar Loan for the Interest
Period applicable thereto, an interest rate per annum determined pursuant to
the following formula:
London Interbank Rate
------------------------------------ plus 1.00%
100% - Eurodollar Reserve Percentage
EURODOLLAR RATE LOAN means each Loan which bears interest at the Eurodollar
Rate.
EURODOLLAR RESERVE PERCENTAGE means the maximum reserve requirement
(including, without limitation, any basic, supplemental, marginal and
emergency reserves) (expressed as a percentage) applicable to member banks of
the Federal Reserve
-2-
<PAGE>
System in respect of "Eurocurrency Liabilities" under Regulation D of the
Board of Governors of the Federal Reserve System, or such additional,
substituted or amended reserve requirement as may be hereafter applicable to
member banks of the Federal Reserve System.
EXHIBIT means an exhibit attached hereto.
FINANCIAL STATEMENTS means balance sheets, profit and loss statements, and
statements of cash flows prepared in comparative form with respect to the
corresponding period of the preceding fiscal year and prepared in accordance
with GAAP.
GAAP means all applicable generally accepted accounting principles of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and the Financial Accounting Standards Board which are applicable
at the time in question.
HIGHEST LAWFUL RATE means the maximum rate or amount of interest which
Lender is allowed to contract for, charge, take, reserve, or receive under
applicable Law.
INTEREST PERIOD means, for each Loan, the period commencing on the date of
such Loan and ending on the last day of such period as selected by Borrower
pursuant to the provisions hereof. The duration of each such Interest Period
for (i) each Eurodollar Rate Loan shall be 1, 2, or 3 months, (ii) each CD
Rate Loan shall be 30, 60, or 90 days and (iii) each Prime Rate Loan shall be
from the date of such Prime Rate Loan to the next succeeding March 31, June 30,
September 30 or December 31 and thereafter from such March 31, June 30,
September 30 or December 31 to the next succeeding March 31, June 30,
September 30 or December 31; PROVIDED HOWEVER, that:
(i) Whenever the last day of any Interest Period would otherwise occur on
a day other than a Business Day, the last day of such Interest Period
shall be extended to occur on the next succeeding Business Day,
PROVIDED, in the case of any Interest Period for a Eurodollar Rate
Loan, that if such extension would cause the last day of such Interest
Period to occur in the next following calendar month, the last day of
such Interest Period shall occur on the next preceding Business Day; and
(ii) No Interest Period with respect to any Loan may extend beyond the
Termination Date.
LAW means all applicable statutes, laws, ordinances, regulations, orders,
writs, injunctions, or decrees of any Tribunal.
LIEN means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind.
-3-
<PAGE>
LITIGATION means any proceeding, claim, lawsuit, or investigation conducted
or threatened by or before any Tribunal.
LOAN PAPERS means (a) this Agreement, (b) the Note, the L/C Applications
and any and all other agreements, documents, and instruments ever delivered
pursuant to this Agreement or otherwise as security for or in connection with
the Obligation, and (c) all renewals, extensions, or restatements of, or
amendments, modifications, or supplements to, all or any part of the foregoing.
LONDON INTERBANK RATE means, for the applicable Interest Period, the rate
of interest per annum (rounded upward, if necessary, to the next higher 1/16
of 1%) determined by Lender, in accordance with its customary general practice
from time to time, to be the rate at which deposits in immediately available
funds in Dollars are or would be offered or quoted to Lender by major banks in
the London interbank market, as of approximately 11:00 a.m. London time, or as
soon thereafter as practicable, on the second Business Day immediately
preceding the first day of such Interest Period, for a term comparable to such
Interest Period and in the amount of Five Million Dollars ($5,000,000.00). If
no such offers or quotes are generally available for such amount, then Lender
shall be entitled to determine the London Interbank Rate by estimating in its
reasonable judgment the per annum rate (as described above) that would be
applicable if such quotes or offers were generally available.
MATERIAL ADVERSE EFFECT means any set of circumstances or events which
would reasonably be expected to (a) have any adverse effect upon the validity
or enforceability of any Loan Paper, (b) be material and adverse to the
financial condition or business operations of Borrower and its Subsidiaries,
taken as a whole, as represented to Lender in the Current Financials, or (c)
cause a Default.
OBLIGATION means all present and future indebtedness, obligations, and
liabilities, and all renewals, extensions, and modifications thereof, now or
hereafter owed to Lender by Borrower, arising from, by virtue of, or pursuant
to the Loan Papers together with all interest accruing thereon and costs,
expenses, and attorneys' fees incurred in the enforcement or collection
thereof.
PERSON means any individual, entity, or Tribunal.
PRIME RATE means the prime interest rate charged by Lender as announced or
published by Lender from time to time. It is understood that the Prime Rate is
set by Lender as a general reference rate of interest and is not necessarily
the lowest or best rate actually charged to any customer or a favored rate.
PRIME RATE LOAN means each Loan which bears interest at the Prime Rate.
-4-
<PAGE>
PRINCIPAL DEBT means the outstanding principal balance of the Loans at the
time in question.
PRIOR CREDIT AGREEMENT means that certain Credit Agreement dated June 24,
1993, as heretofore amended or modified, between Borrower and Lender.
RESTRICTED PAYMENT means (a) any direct or indirect cash distribution,
dividend, redemption, acquisition or other payment on account of any of the
capital stock or other securities of Borrower, (b) any payment or prepayment of
any principal of or accrued interest on any Debt of Borrower or any of its
Subsidiaries which is subordinated in right of payment to the Obligation, other
than regularly scheduled payment of principal or accrued interest made at a time
that no Default exists, or (c) any cash payment made by Borrower or any of its
Subsidiaries for the acquisition of the capital stock, partnership interests or
other securities of any Person or assets from any Person (other than in the
ordinary course of business) in an amount which, individually or when aggregated
with other such cash payments) exceeds $15,000,000.
RIGHTS means rights, remedies, powers, privileges, and benefits.
SECTION means a section of this Agreement.
SUBSIDIARY of a Person means any other Person of which an aggregate of more
than 50% (in number of votes) of the securities having ordinary voting power for
the election of directors (or individuals performing similar functions) is owned
of record or beneficially, directly or indirectly, by such Person.
TRIBUNAL means any (a) local, state, or federal judicial, executive, or
legislative instrumentality, or (b) private arbitration board or panel.
SECTION 2. LOAN COMMITMENT.
2.1. COMMITMENT TO LEND. Subject to and in reliance upon the terms,
conditions, representations, and warranties contained in this Agreement, Lender
agrees to make revolving credit loans to Borrower in one or more advances
("LOANS") so long as the sum of the Principal Debt plus the L/C Liabilities
never exceeds $100,000,000 ("the COMMITTED SUM"). Lender shall have no
obligation to make any Loan on a non-Business Day or after, and Lender's
commitment to lend shall expire at Noon (Dallas, Texas time) on, July 29, 1994
(the "TERMINATION DATE").
2.2. BORROWING PROCEDURE; DISBURSEMENT. Each Loan shall be made on
Borrower's written or telephonic notice to Lender requesting a Loan on a certain
date ( the "BORROWING DATE"). Such notice shall be irrevocable and binding and
must be received by Lender no later than 11:00 a.m. (Dallas, Texas time) (a) on
the
-5-
<PAGE>
Borrowing Date for a Prime Rate Loan, (b) one Business Day prior to the
Borrowing Date for a CD Rate Loan, and (c) two Business Days prior to the
Borrowing Date for a Eurodollar Rate Loan. A Eurodollar Rate Loan or a CD Rate
Loan, as the case may be, shall not be available if Lender determines that such
Eurodollar Rate Loan or CD Rate Loan would be unlawful or that the London
Interbank Rate or the CD Base Rate, as the case may be, does not fairly reflect
the cost to Lender of funding such Eurodollar Rate Loan or CD Rate Loan. Each
Loan shall be in an amount $1,000,000 or a greater integral multiple of $100,000
in excess thereof. Lender will make the requested Loan no later than 1:00 p.m.
(Dallas, Texas time) on the Borrowing Date by a credit in immediately available
funds to Borrower's account with Lender.
2.3. REDUCTION OR CANCELLATION. Upon two Business Days' prior written and
irrevocable notice to Lender, Borrower may reduce in whole or in part the
Committed Sum to an amount which is not less than the sum of the Principal Debt
plus the L/C Liabilities.
SECTION 3. LETTER OF CREDIT COMMITMENT.
3.1. COMMITMENT TO ISSUE. Subject to and in reliance upon the terms,
conditions, representations, and warranties contained in this Agreement, Lender
agrees to issue standby or commercial Letters of Credit (herein so called) for
the account of Borrower so long as the sum (the "L/C Liabilities") of the
undrawn amount of the then outstanding Letters of Credit plus any then
outstanding and unpaid reimbursement obligations of Borrower to Lender under the
Letters of Credit never exceeds the Committed Sum minus the Principal Debt.
Lender shall have no obligation to issue any Letter of Credit after the
Termination Date or any Letter of Credit having an expiration date more than 12
months after the issuance date. Letters of Credit issued pursuant to the Prior
Credit Agreement and outstanding on the date hereof shall be deemed to be
Letters of Credit issued hereunder.
3.2. ISSUANCE PROCEDURE. Each Letter of Credit shall be issued pursuant to
an application and agreement for letter of credit on Lender's customary form
(the "L/C Application") submitted by Borrower to Lender no later than 11:00 a.m.
(Dallas, Texas time) on the Business Day before the Business Day the Letter of
Credit is requested to be issued.
SECTION 4. TERMS OF PAYMENT.
4.1. NOTE. The Loans and interest thereon shall be evidenced by a
promissory note substantially in the form and upon the terms of EXHIBIT A (the
"NOTE"). Each Prime Rate Loan shall bear interest at the Prime Rate. Each
Eurodollar Rate Loan shall bear interest at the Eurodollar Rate. Each CD Rate
Loan shall bear interest at the CD Rate. The principal of and accrued interest
on each Eurodollar Rate Loan and CD Rate Loan shall be due and payable on the
last day of the Interest Period applicable to such Loan.
-6-
<PAGE>
The principal of each Prime Rate Loan shall be due and payable on the
Termination Date. Accrued Interest on each Prime Rate Loan shall be due and
payable on the last day of each Interest Period applicable thereto.
4.2. LETTERS OF CREDIT. Amounts paid by Lender under any Letter of Credit
and interest thereon shall be due and payable in accordance with the L/C
Application submitted by Borrower in connection with such Letter of Credit.
4.3. DEFAULT RATE. At Lender's option and to the extent permitted by Law,
all past-due Principal Debt and accrued interest thereon and fees shall bear
interest from maturity (stated or by acceleration) at the Prime Rate plus 2%
until paid, regardless whether such payment is made before or after entry of a
judgment.
4.4. INTEREST AND FEE CALCULATIONS. All payments of interest at the Prime
Rate and fees shall be calculated on the basis of actual days (including the
first day but excluding the last day) elapsed but computed as if each calendar
year consisted of 365 or 366 days, as the case may be. All payments of interest
at the Eurodollar Rate or the CD Rate shall be calculated on the basis of actual
days (including the first day but excluding the last day) elapsed but computed
as if each calendar year consisted of 360 days.
4.5. PAYMENTS. Each payment or prepayment on the Obligation must be paid at
Lender's address set forth in Section 11.1 in funds which are or will be
available for immediate use by Lender at such address at or before Noon (Dallas,
Texas time) on the day due. If any action is required or any payment is to be
made on a day which is not a Business Day, then such action or payment may be
delayed until the next succeeding Business Day. Any extension of time shall be
included in the computation of interest due.
4.6. PRINCIPAL PREPAYMENTS. Borrower shall be entitled to prepay Prime Rate
Loans from time to time and at any time, in whole or in part, without penalty.
If Lender determines that it may not lawfully maintain a Eurodollar Rate Loan or
CD Rate Loan to the last day of the Interest Period therefor, Borrower shall
prepay such Eurodollar Rate Loan or CD Rate Loan on the date required by Lender.
If there is an optional prepayment by Borrower of any Eurodollar Rate Loan or CD
Rate Loan prior to the last day of the Interest Period therefor, Borrower shall,
upon request of Lender, pay to Lender any loss or expense which Lender may incur
or sustain as a result of such prepayment. A statement as to the amount of such
loss or expense, prepared in good faith and in reasonable detail by Lender and
submitted to Borrower shall be conclusive and binding for all purposes absent
manifest error in computation. Prior to the Termination Date, the Loans prepaid
may, subject to the conditions of this Agreement, be reborrowed hereunder, and
this Agreement shall not be deemed to be terminated or cancelled prior to the
expiration or termination of Lender's commitment to lend
-7-
<PAGE>
hereunder solely because the Obligation may from time to time be paid in full.
4.7. ORDER OF APPLICATION. So long as no Default has occurred, all payments
of the Obligation shall be applied as directed by Borrower. At any time during
which a Default has occurred and is continuing, all payments and prepayments of
the Obligation shall be applied to the Obligation in the order and manner as
Lender deems appropriate.
SECTION 5. FEES.
5.1. COMMITMENT FEE. From the date hereof until Lender is no longer
committed to lend under this Agreement, Borrower shall pay to Lender a
commitment fee, as it accrues on the last day of each March, June, September
and December and on the Termination Date, beginning June 30, 1994, equal to .15%
per annum times the difference between the Committed Sum and the sum of the
average daily Principal Debt plus the average daily L/C Liabilities during the
calendar quarter then ended.
5.2. LETTER OF CREDIT FEES. Borrower shall pay to Lender letter of credit
fees, as they accrue on the last day of each March, June, September and December
and on the Termination Date, beginning June 30, 1994, equal to 1/2% per annum
times the amount available to be drawn under each Letter of Credit which is a
commercial Letter of Credit and equal to 1% per annum times the amount available
to be drawn under each Letter of Credit which is a standby Letter of Credit.
5.3. YIELD PROTECTION AND INDEMNITY. If at any time after the date hereof,
and from time to time, Lender determines that the adoption or modification of
any applicable law, rule or regulation regarding Lender's required levels of
reserves, deposits, insurance or capital (including any allocation of capital
requirements or conditions but excluding any reserve requirements reflected in
the Eurodollar Reserve Percentage for a particular Eurodollar Rate Loan or
reflected in the CD Reserve Percentage or Assessment Rate for a particular CD
Rate Loan), or similar requirements, or any interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation, administration or compliance by Lender with any of
such requirements, has or would have the effect of (i) increasing Lender's costs
relating to the Obligation hereunder, or (ii) reducing the yield or rate of
return of Lender on the Obligation hereunder to a level below that which Lender
could have achieved but for the adoption or modification of any such
requirements, Borrower shall, within fifteen (15) days of any request by Lender,
pay to Lender such additional amounts as (in Lender's sole judgment, after good
faith and reasonable computation) will compensate Lender for such increase in
costs or reduction in yield or rate of return of Lender. No failure by Lender to
immediately demand payment of any additional amounts payable hereunder shall
-8-
<PAGE>
constitute a waiver of Lender's right to demand payment of such amounts at any
subsequent time.
SECTION 6. CONDITIONS PRECEDENT.
6.1. EACH CREDIT. Lender will not be obligated to make any Loan or issue any
Letter of Credit unless (a) the proceeds of the first such Loan are used, to
the extent necessary, to repay in full all amounts owing under the Prior
Credit Agreement and the Prior Credit Agreement is terminated (and by their
execution hereof Borrower and Lender agree that the Prior Credit Agreement is
so terminated); (b) at the time of each Loan and the issuance of each Letter
of Credit (i) the representations and warranties made in the Loan Papers are
true and correct in all material respects, and (ii) neither any Material
Adverse Effect nor any Default shall have occurred and shall be continuing;
(c) the making of each Loan and the issuance of each Letter of Credit is
permitted by Law; and (d) Lender shall have received the Note or an L/C
Application and such other agreements, documents, instruments, information,
approvals, or opinions as Lender may reasonably request.
6.2. WAIVER OF CONDITIONS. Lender may, at its election, make any Loan or
issue any Letter of Credit without all conditions being satisfied, but this
shall not be deemed to be a waiver of the requirement that each such condition
precedent be satisfied as a prerequisite for any subsequent Loan or issuance
of a Letter of Credit, unless Lender specifically waives each such item in
writing.
SECTION 7. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to
Lender as follows:
7.1. CORPORATE EXISTENCE AND AUTHORITY. Each of Borrower and its
Subsidiaries is a corporation or business trust duly organized, validly
existing, and in good standing under the Laws of the state of its
organization, is duly qualified to transact business and is in good standing
as a foreign corporation in each jurisdiction where the nature and extent of
its assets, business, properties, or operations require the same, except where
failure to be so duly qualified and in good standing could not, individually
or collectively, reasonably be expected to have a Material Adverse Effect, and
Borrower has all requisite corporate power to conduct its business as now
conducted and to execute, deliver and perform its obligations under the Loan
Papers.
7.2. BINDING OBLIGATIONS. The execution, delivery and performance by
Borrower of the Loan Papers have been duly authorized and approved by all
necessary corporate action and constitute the legal, valid, and binding
obligations of Borrower, enforceable against it in accordance with their terms
except as the enforceability thereof may be limited by applicable Debtor
Relief Laws.
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<PAGE>
7.3. COMPLIANCE WITH LAWS AND DOCUMENTS. The execution, delivery and
performance by Borrower of the Loan Papers will not cause Borrower to be in
violation of (a) any Laws or material agreements or instruments applicable to
or binding on it, other than such violations which could not, individually or
collectively, reasonably be expected to have a Material Adverse Effect, or (b)
its bylaws or certificate of incorporation.
7.4. FINANCIAL STATEMENTS. The Current Financials were prepared in
accordance with GAAP and present fairly the financial condition and the result
of operations of Borrower and its Subsidiaries as of, and for the fiscal year
ending on, the date thereof. Since the date of the Current Financials, there
has been no material adverse change in the financial condition of Borrower.
7.5. LITIGATION. Except as disclosed to Lender or as may be reflected in
Borrower's filings with the Securities and Exchange Commission, neither
Borrower nor any of its Subsidiaries is involved in, nor is Borrower aware of
the threat of, any Litigation which could, collectively or individually,
reasonably be expected to have a Material Adverse Effect if determined
adversely against Borrower or any of its Subsidiaries.
7.6. PURPOSE OF LOANS. The proceeds of the Loans will be used for working
capital and other lawful corporate purposes. No part of any Loan will be used,
directly or indirectly, to purchase or carry any "margin stock", within the
meaning of Regulation U of the Board of Governors of the Federal Reserve
System.
SECTION 8. COVENANTS. So long as Lender is committed to make Loans and issue
Letters of Credit under this Agreement and thereafter until the Obligation is
paid and performed in full, unless Borrower receives a prior written notice
from Lender that it does not object to a deviation, Borrower covenants and
agrees with Lender as follows:
8.1. ITEMS TO BE FURNISHED. Borrower shall cause the following to be
furnished to Lender:
(a) As soon as available, but no later than 90 days after the last day of
each fiscal year of Borrower, Financial Statements showing the consolidated
financial condition and result of operations of Borrower and its Subsidiaries
as of, and for the year ended on, such last day, accompanied by the opinion,
without material qualification, of a firm of independent certified public
accountants reasonably acceptable to Lender, based on an audit using generally
accepted auditing standards, that such Financial Statements were prepared in
accordance with GAAP and present fairly the consolidated financial condition
and result of operations of Borrower and its Subsidiaries.
(b) As soon as available, but no later than 45 days after the last day of
each fiscal quarter of Borrower, Financial Statements
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<PAGE>
showing the consolidated financial condition and result of operations of
Borrower and its Subsidiaries as of, and for the period from the beginning of
the current fiscal year to, such last day.
(c) Notice, promptly after Borrower knows or has reason to know, of (i) the
existence and status of any Litigation with respect to Borrower or any of its
Subsidiaries which could have a Material Adverse Effect, (ii) any change in any
material fact or circumstance represented or warranted in any Loan Paper, and
(iii) a Default, specifying the nature thereof and what action Borrower has
taken, is taking, or proposes to take with respect thereto.
(d) Promptly upon request therefor by Lender, such information (not otherwise
required to be furnished under the Loan Papers) respecting the business affairs,
assets, and liabilities of Borrower and its Subsidiaries and such opinions,
certifications, and documents, in addition to those mentioned in this Agreement,
as Lender may reasonably request.
8.2. MAINTENANCE OF CORPORATE EXISTENCE, ASSETS, BUSINESS AND INSURANCE.
Borrower shall, and shall cause each of its Subsidiaries to, at all times
maintain its corporate existence and authority to transact business and good
standing in its jurisdiction of incorporation and all other jurisdictions where
the failure to do so could reasonably be expected to have a Material Adverse
Effect; maintain all licenses, permits, and franchises necessary for its
businesses; and maintain insurance with such insurers or through self-
insurance, in such amounts and covering such risks, as is customary for
similarly situated businesses.
8.3. GENERAL INDEMNIFICATION OF LENDER. Borrower shall indemnify, defend and
hold Lender, its directors, officers and employees (collectively, the
"INDEMNIFIED PARTIES"), harmless from and against any and all loss, liability,
obligation, damage, penalty, judgment, claim, deficiency and expense (including
interest, penalties, attorneys' fees and amounts paid in settlement) to which
any Indemnified Party may become subject arising out of this Agreement and the
other Loan Papers; PROVIDED, however, that although each Indemnified Party shall
have the Right to be indemnified from its own ordinary negligence, no
Indemnified Party shall have the Right to be indemnified hereunder for its own
fraud, gross negligence or willful misconduct. The obligations of Borrower under
this Section shall survive the termination of this Agreement and/or the payment
of the Note.
8.4. COMPLIANCE WITH LAWS AND DOCUMENTS. Borrower will not, and will not
permit any of its Subsidiaries to, directly or indirectly, violate the
provisions of any Laws, its certificate of incorporation or bylaws or any
material agreement if such violation alone, or when aggregated with all other
such violations, could reasonably be expected to have a Material Adverse Effect.
-11-
<PAGE>
8.5. DEBT. Borrower will not, and will not permit any of its Subsidiaries
to, create or incur any Debt for or in respect of borrowed money, other than
(a) under or pursuant to this Agreement, (b) such Debt existing on the date of
this Agreement and reflected in the Current Financials or otherwise disclosed
to Lender prior to the date of this Agreement, (c) such Debt owing by Borrower
to one or more of its Subsidiaries or by one or more of its Subsidiaries to
Borrower, and (d) Debt of the Acquired Subsidiary in an amount not to exceed
$50,000,000.
8.6. RESTRICTED PAYMENTS. Borrower will not, and will not permit any of its
Subsidiaries to, make any Restricted Payment, other than the repayment of Debt
of the Acquired Subsidiary in an amount not to exceed $50,000,000.
SECTION 9. DEFAULT. The term "DEFAULT" means the occurence of any one or more
of the following events:
9.1. PAYMENT OF OBLIGATION. The failure or refusal of Borrower to pay any
portion of the Principal Debt or the L/C Liabilities, as the same becomes due
in accordance with the terms of the Loan Papers, or the failure or refusal of
Borrower to pay any other portion of the Obligation, as the same becomes due
and payable in accordance with the terms of the Loan Papers and such failure
or refusal continues for a period of five days.
9.2. COVENANTS. The failure or refusal of Borrower punctually and properly
to perform, observe, and comply with any covenant, agreement, or condition
contained in any of the Loan Papers, other than covenants to pay the Obligation,
and such failure or refusal continues for a period of 30 days after notice
thereof from Lender.
9.3. VOLUNTARY DEBTOR RELIEF. Borrower or any of its Subsidiaries shall
(a) execute an assignment for the benefit of creditors, (b) admit in writing
its inability to pay its debts generally as they become due, (c) voluntarily
seek the benefits of any Debtor Relief Law which could suspend or otherwise
affect any of Lender's Rights under any of the Loan Papers, or (d) take any
corporate action to authorize any of the foregoing.
9.4. INVOLUNTARY PROCEEDINGS. Borrower or any of its Subsidiaries shall
involuntarily (a) have an order, judgment or decree entered against it by any
Tribunal pursuant to any Debtor Relief Law that could suspend or otherwise
affect any of Lender's Rights under any of the Loan Papers or (b) have a
petition filed against it seeking the benefit or benefits provided for by any
Debtor Relief Law that could suspend or otherwise affect any of Lender's
Rights under any of the Loan Papers, and such order, judgment, decree, or
petition is not discharged or stayed within 60 days after the entry or filing
thereof.
9.5. MISREPRESENTATION. The discovery by Lender that any statement,
representation, or warranty in the Loan Papers or in any
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<PAGE>
writing ever delivered to Lender pursuant to the Loan Papers is false,
misleading, or erroneous in any material respect when made or deemed to be
repeated.
9.6. OTHER DEBT. Borrower or any of its Subsidiaries shall default in the
payment when due (subject to any applicable notice or grace period), whether at
stated maturity or otherwise, of any amount owing in respect of Debt having a
principal balance of $5,000,000 or more, or Borrower or any of its Subsidiaries
shall default in the performance or observance of any covenant or undertaking in
respect of any such Debt which causes or permits such Debt to become due and
payable prior to its stated maturity date.
9.7. CHANGE OF CONTROL. Any person or group of persons (within the meaning
of Section 13 or 14 of the Securities Exchange Act of 1934, as amended), other
than any person or persons having beneficial ownership (within the meaning of
Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act)
of 5% or more of the outstanding shares of the common stock of Borrower as of
the date of this Agreement, shall acquire beneficial ownership of 50% or more of
the outstanding shares of common stock of Borrower, or during any period of 12
consecutive months, individuals who were directors of Borrower on the first day
of such period shall cease to constitute a majority of the board of directors of
Borrower.
SECTION 10. RIGHTS AND REMEDIES.
10.1. REMEDIES UPON DEFAULT. Should a Default occur, Lender may, at
its election, do any one or more of the following without notice of any kind,
including, without limitation, notice of acceleration or of intention to
accelerate, presentment and demand or protest, all of which are hereby expressly
waived by Borrower: (a) Declare the entire unpaid balance of the Obligation, or
any part thereof, immediately due and payable, whereupon it shall be due and
payable (PROVIDED THAT, upon the occurrence of a Default under Section 9.3 or
9.4, the entire Obligation shall automatically become due and payable without
notice or other action of any kind whatsoever); (b) terminate its commitment to
lend hereunder; (c) reduce any claim to judgment; and (d) exercise any and all
other legal or equitable Rights afforded by the Loan Papers, the Laws of the
State of Texas or any other jurisdiction as Lender shall deem appropriate. In
the event that the Obligation is declared to be or otherwise becomes immediately
due and payable, Borrower shall pledge and deliver to Lender cash collateral to
secure, and in an amount equal to, any L/C Liabilities which are not then due
and payable.
10.2. WAIVERS BY BORROWER AND OTHERS. Borrower and each surety,
endorser, guarantor, and other party ever liable for payment of any of the
Obligation jointly and severally waive notice, presentment, demand for payment,
protest, notice of
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<PAGE>
intention to accelerate, notice of acceleration, and notice of protest and
nonpayment, and agree that their liability with respect to the Obligation, or
any part thereof, shall not be affected by any renewal or extension in the time
of payment of the Obligation, by any indulgence, or by any release or change in
any security for the payment of the Obligation, and hereby consent to any and
all renewals, extensions, indulgences, releases, or changes, regardless of the
number thereof.
10.3. NO WAIVER; CUMULATIVE REMEDIES. The acceptance by Lender at any
time and from time to time of partial payment on the Obligation shall not be
deemed to be a waiver of any Default then existing. No failure to exercise and
no delay on the part of Lender in exercising any Right under this Agreement or
any of the Loan Papers shall operate as a waiver thereof, nor shall any single
or partial exercise of any Right under this Agreement preclude any other or
further exercise thereof or the exercise of any other Right. No modification or
waiver of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by Lender and Borrower, and then such waiver or
consent shall be effective only in the specific instance to which it relates and
for the purpose for which it is given. The Rights provided for in this
Agreement and the other Loan Papers are cumulative and not intended to be
exclusive of any other Right given hereunder or now or hereafter existing at law
or in equity or by statute or otherwise.
10.4. EXPENDITURES BY LENDER. All court costs, reasonable attorneys'
fees, other costs of collection, and other sums spent by Lender pursuant to the
exercise of any Right (including, without limitation, any effort to collect or
enforce the Note) provided herein shall be payable to Lender on demand, shall
become part of the Obligation, and shall bear interest at the Prime Rate plus 2%
from the date spent until the date repaid.
SECTION 11. MISCELLANEOUS.
11.1. COMMUNICATIONS. Unless specifically otherwise provided, whenever
any Loan Paper requires or permits any consent, approval, notice, request, or
demand from one party to another, such communication must be in writing (which
may be by telecopier) to be effective and shall be deemed to have been given on
the day actually delivered or telecopied, or, if mailed, on the third Business
Day after it is enclosed in an envelope, addressed to the party to be notified
at the address stated below, properly stamped, sealed, and deposited in the
appropriate official postal service. Until changed by notice pursuant hereto,
the address, and telecopy number for each party for purposes hereof is as
follows:
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<PAGE>
BORROWER: Michaels Stores, Inc.
5931 Campus Circle Drive
Irving, Texas 75063
Telecopy No.: (214)714-7155
Attention: Kristen L. Magnuson,
Vice President/Finance
& Business Planning
LENDER: NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Telecopy No.: (214) 508-0980
Attention: Joseph G. Taylor
11.2. EXCEPTIONS TO COVENANTS. Borrower shall not take any action or
fail to take any action which is permitted as an exception to any of the
covenants contained in any of the Loan Papers if such action or omission would
result in the breach of any other covenant contained in any of the Loan Papers.
11.3. GOVERNING LAW. This Agreement and all other Loan Papers shall be
construed in accordance with and governed by the Laws of Texas, except to the
extent that federal Laws may apply and except to the extent otherwise required
by Law.
11.4. MAXIMUM INTEREST RATE. Regardless of any provision contained in
any of the Loan Papers, Lender shall never be entitled to contract for, charge,
take, reserve, receive, or apply, as interest on the Obligation, or any part
thereof, any amount in excess of the Highest Lawful Rate, and, in the event
Lender ever contracts for, charges, takes, reserves, receives, or applies as
interest any such excess, it shall be deemed a partial prepayment of principal
and treated hereunder as such and any remaining excess shall be refunded to
Borrower. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Highest Lawful Rate, Borrower and Lender shall
"spread" the total amount of interest throughout the entire contemplated term of
the Obligation. Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79,
Revised Civil Statutes of Texas, 1925, as amended, Borrower agrees that such
Chapter 15 (which regulates certain revolving credit loan accounts and revolving
triparty accounts) shall not govern or in any manner apply to the Obligation.
11.5. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable, and
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected thereby.
11.6. ENTIRETY AND AMENDMENTS. THIS AGREEMENT AND THE OTHER LOAN
PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
BY THE PARTIES. THERE ARE NO
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UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. This Agreement embodies the
entire agreement between Borrower and Lender and supersedes all prior proposals,
agreement and understandings relating to the subject matter hereof. This
Agreement may be amended, or the provisions hereof waived, only by an instrument
in writing executed jointly by an authorized officer of Borrower and Lender.
11.7. MULTIPLE COUNTERPARTS. This Agreement may be executed in a
number of identical counterparts, each of which shall be deemed an original for
all purposes and all of which constitute, collectively, one Agreement; but, in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
11.8. PARTIES BOUND; ASSIGNMENTS. This Agreement is binding upon, and
inures to the benefit of, Lender and Borrower, and their respective successors
and assigns; PROVIDED THAT Borrower may not, without the prior written consent
of Lender, assign any Rights, duties, or obligations hereunder, and any
purported assignment in violation of the foregoing shall be void and
ineffective.
EXECUTED as of the day and year first mentioned.
MICHAELS STORES, INC.
By: /s/ Kristen L. Magnuson
---------------------------------------
Kristen L. Magnuson,
Vice President/Finance
& Business Planning
NATIONSBANK OF TEXAS, N.A.
By:
---------------------------------------
Joseph G. Taylor,
Senior Vice President
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<PAGE>
EXHIBIT A
PROMISSORY NOTE
$100,000,000 Dallas, Texas April 29, 1994
FOR VALUE RECEIVED, MICHAELS STORES, INC. ("MAKER") hereby promises to pay
to the order of NATIONSBANK OF TEXAS, N.A. ("Payee") the principal sum of ONE
HUNDRED MILLION DOLLARS ($100,000,000) or so much thereof as may be disbursed
and outstanding hereunder, together with interest, as hereinafter described.
This note has been executed and delivered under, and is subject to the
terms of, the $100,000,000 Credit Agreement (as hereafter renewed, extended,
amended, or supplemented, the "CREDIT AGREEMENT") dated as of the date hereof,
between Maker and Payee and is the "Note" referred to therein. Reference is
made to the Credit Agreement for provisions affecting this note regarding
voluntary and mandatory prepayments, acceleration of maturity, exercise of
rights, payment of attorneys' fees, court costs, and other costs of collection,
and certain waivers by Maker and others now or hereafter obligated for payment
of any sums due hereunder.
The principal of this note shall bear interest at the rate or rates set
forth in the Credit Agreement, and such principal and interest shall be payable
at the times set forth in the Credit Agreement.
MICHAELS STORES, INC.
By:
-----------------------------------------
Kristen L. Magnuson,
Vice President/Finance
& Business Planning
<PAGE>
EXHIBIT 11
MICHAELS STORES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE COMMON
AVERAGE AND COMMON
COMMON SHARES EQUIVALENT SHARES
OUTSTANDING OUTSTANDING
------------- --------------------
FULLY
PRIMARY DILUTED
--------- ---------
<S> <C> <C> <C>
For the year ended January 30, 1994:
Weighted average common shares outstanding................. 16,592 16,592 16,592
Assumed issuance of shares upon conversion of convertible
subordinated debt at beginning of year.................... 2,572
Net shares to be issued upon exercise of dilutive stock
options after applying treasury stock method.............. 639 645
------------- --------- ---------
Total average outstanding shares........................... 16,592 17,231 19,809
------------- --------- ---------
------------- --------- ---------
Net income................................................. $ 26,287 $ 26,287
Assumed interest on convertible subordinated debt less tax
benefit of $2,427......................................... 3,902
--------- ---------
Net income for per share computation....................... $ 26,287 $ 30,189
--------- ---------
--------- ---------
Earnings per common share.................................. $1.53 $1.52
For the year ended January 31, 1993:
Weighted average common shares outstanding................. 15,933 15,933 15,933
Net shares to be issued upon exercise of dilutive stock
options and warrants after applying treasury stock
method.................................................... 759 920
------------- --------- ---------
Total average outstanding shares........................... 15,933 16,692 16,853
------------- --------- ---------
------------- --------- ---------
Net income................................................. $ 20,378 $ 20,378
--------- ---------
--------- ---------
Earnings per common share.................................. $1.22 $1.21
</TABLE>
<PAGE>
MICHAELS STORES, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE COMMON SUPPLEMENTAL
AVERAGE AND COMMON CALCULATION OF
COMMON SHARES EQUIVALENT SHARES EARNINGS
OUTSTANDING OUTSTANDING PER SHARE(1)
--------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
--------- --------- --------- ---------
For the year ended February 2, 1992:
Weighted average common shares outstanding........ 10,485 10,485 10,485 10,485 10,485
Assumed issuance of shares to retire debt at
beginning of year................................ 2,426 2,426
Net shares to be issued upon exercise of dilutive
stock options and warrants after applying
treasury stock method............................ 1,398 1,926 1,398 1,926
--------------- --------- --------- --------- ---------
Total average outstanding shares.................. 10,475 11,883 12,411 14,309 14,837
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
Income before extraordinary item.................. $ 10,739 $ 10,739 $ 14,359 $ 14,359
Extraordinary item................................ 3,843 3,843 4,195 4,195
--------- --------- --------- ---------
Net Income........................................ $ 6,896 $ 6,896 $ 10,164 $ 10,164
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per common share:
Income before extraordinary item................ $ 0.90 $ 0.87 $ 1.00 $ 0.97
Extraordinary item.............................. 0.32 0.31 0.29 0.28
--------- --------- --------- ---------
Net income...................................... $ 0.58 $ 0.56 $ 0.71 $ 0.69
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
- - ------------------------
(1) To give effect to the redemption of 12 3/4% Senior Subordinated Notes as
of the beginning of the fiscal year. Appropriate adjustments have been
made to reduce interest and related expenses ($3,620 net of tax), to
increase the extraordinary item as of the beginning of the year ($352 net
of tax), and to increase the weighted average shares outstanding during
the year.
</TABLE>
<PAGE>
EXHIBIT 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------------------
1993 1992 1991 1990(1) 1989
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE AND STORE DATA)
<S> <C> <C> <C> <C> <C>
Results of Operations:
Net sales..................................... $ 619,688 $ 493,159 $ 410,899 $ 362,028 $ 289,754
Operating income.............................. 41,356 34,263 25,643 20,694 14,900
Income before extraordinary item.............. 26,287 20,378 10,739 5,855 13
Earnings per share............................ 1.52 1.21 .87 .57 .00
Stores Open at End of Period.................... 220 168 140 137 122
Balance Sheet Data:
Currents assets............................... $ 291,012 $ 170,021 $ 125,873 $ 84,572 $ 92,133
Total assets.................................. 397,830 322,099 180,913 144,238 150,817
Working capital............................... 181,816 104,462 74,786 44,080 58,680
Long-term debt................................ 97,750 97,750 -- 52,983 73,168
Total liabilities............................. 212,415 166,822 54,614 97,623 110,440
Shareholders' equity.......................... 185,415 155,277 126,299 46,615 40,377
<FN>
- - ------------------------
(1) Fiscal 1990 was a 53-week fiscal year.
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
In fiscal years 1991, 1992 and 1993, the Company added 4, 28 and 54 stores,
respectively. During these periods, the Company obtained a substantial portion
of its sales increases from stores added during, or subsequent to, the prior
comparable period and thus not yet included in comparable store sales
comparisons. During these periods, sales from these newer stores accounted for
approximately 55%, 56% and 88%, respectively, of aggregate sales increases. The
Company intends to add approximately 70 to 75 stores in fiscal 1994, of which
nine stores have been opened and 25 stores have been added through acquisitions.
In fiscal 1994 and beyond, sales increases from newly opened and acquired stores
will depend in part on the availability of suitable store sites, the rate of
development of new stores, the availability of suitable acquisition candidates,
and the Company's ability to hire and train qualified managers.
RESULTS OF OPERATIONS
The following table shows the percentage of net sales that each item in the
Consolidated Statements of Income represents. This table should be read in
conjunction with the following discussion and with the Company's Consolidated
Financial Statements, including the related notes.
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Net sales....................................................................... 100.0% 100.0% 100.0%
-------- -------- --------
Cost of sales and occupancy expense............................................. 65.2 65.6 66.8
Selling, general and administrative expense..................................... 28.1 27.5 27.0
-------- -------- --------
Operating income................................................................ 6.7 6.9 6.2
Interest expense................................................................ 1.0 0.0 1.7
Other (income) and expense, net................................................. (1.2) 0.1 0.2
-------- -------- --------
Income before income taxes and extraordinary item............................... 6.9 6.8 4.3
Provision for income taxes...................................................... 2.7 2.7 1.7
-------- -------- --------
Income before extraordinary item................................................ 4.2 4.1 2.6
Extraordinary item.............................................................. 0.0 0.0 0.9
-------- -------- --------
Net income...................................................................... 4.2% 4.1% 1.7%
-------- -------- --------
-------- -------- --------
</TABLE>
In the discussion below, all percentages given for expense items are
calculated as a percentage of sales for the applicable year.
FOR FISCAL 1993 COMPARED TO FISCAL 1992
Net sales in the fiscal year ended January 30, 1994 ("1993"), increased
$126.5 million, or 26%, over the fiscal year ended January 31, 1993 ("1992").
The results for 1993 included sales of 54 stores added during the year. During
1993, sales of the newer stores (not included in comparable store sales)
accounted for $111.3 million of the increase. Comparable store sales increased
three percent in 1993 compared to the prior year.
Cost of sales and occupancy expense for 1993 decreased by 0.4% compared to
1992 due primarily to increases in sales of higher margin custom framing and
floral services, an improvement in the gross margin achieved on seasonal
merchandise sales, greater margin contributions from new stores, and
20
<PAGE>
an increase in volume discounts from vendors. This improvement in gross margin
was partially offset by an increase in occupancy expenses driven by the
Company's shift to new stores with higher average selling square footage than
existing stores, coupled with the Company's expansion into states with higher
occupancy costs such as New York, Ohio, Minnesota and Michigan.
Selling, general and administrative expense increased by 0.6% in 1993 from
1992. The increase was due to expenses associated with the Company's new store
opening program and additional payroll attributed to the increase in custom
framing and floral services, offset in part by a decrease in general and
administrative expenditures, as a percentage of sales, which were spread over a
larger revenue base in 1993.
Interest expense for 1993 was $6.4 million compared to $0.3 million in 1992.
The increase was due primarily to the issuance of convertible subordinated debt
in January 1993.
Other income (net of other expense) was $7.7 million in 1993 compared to
other expense of $0.5 million in 1992, as the Company earned substantial
interest, dividends and capital gains on its investment portfolio during 1993.
Due to planned expansion activity, the average investment portfolio is expected
to decrease during 1994, resulting in less investment income.
The effective tax rate was reduced to 38.4% in 1993 from 39.1% in 1992
primarily due to the Company's investments in tax-advantaged securities.
FOR FISCAL 1992 COMPARED TO FISCAL 1991
Net sales in 1992 increased $82.3 million, or 20%, over the fiscal year
ended February 2, 1992 ("1991"). The results for 1992 included sales of 28
stores added during the year. During 1992, sales of the newer stores (not
included in comparable store sales) accounted for $45.7 million of the increase.
Comparable store sales increased approximately seven percent in 1992 compared to
the prior year. The Company attributed the increase in comparable store sales
primarily to increased advertising and increased sales of Halloween, Fall and
Christmas merchandise.
Cost of sales and occupancy expense for 1992 decreased by 1.2% compared to
1991 due primarily to lower distribution costs, more favorable purchase prices
from vendors and continuing efforts to improve inventory management and control.
Selling, general and administrative expense increased by 0.5% in 1992 from
1991. The increase was primarily attributable to a more extensive advertising
program, particularly in certain markets in which new stores were opened.
Another factor contributing to the increase was the pre-opening expenses for the
24 stores opened during 1992, compared to pre-opening expenses for only four
stores for the prior year. These increases were offset in part by a decrease in
general and administrative expenditures, as a percentage of sales, which were
spread over a larger revenue base in 1992.
Interest expense for 1992 was $0.3 million compared to $7.0 million in 1991.
The decrease resulted from the retirement of all long-term borrowings at the end
of 1991.
21
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company added 54 new stores during 1993. Expenditures for property and
equipment amounted to approximately $46.8 million during 1993; such expenditures
related primarily to the 54 new store openings, and, to a lesser extent, the
remodeling, expansion and relocation of certain existing stores.
The Company plans to add approximately 70 to 75 stores in fiscal 1994,
including Craft and Floral Warehouse ("CFW") stores, additional stores in
Canada, and stores acquired through acquisitions. The Company anticipates the
costs of adding stores (excluding CFW stores) to be approximately $300,000 to
$400,000 per store, which includes furniture, fixtures, equipment, and
pre-opening expenses. Leasehold improvement costs tend to vary among locations.
The inventory investment associated with the typical new store will range from
approximately $400,000 to $600,000 depending on the store size, operating
format, and date opened; however, due to the Company's typical payment terms and
inventory turnover, the Company's vendors, in effect, finance a significant
component of this initial inventory investment. The Company also expects to
spend approximately $10 million on store renovation, the development of new
point-of-sale and merchandising systems, and the expansion of distribution
facilities in fiscal 1994.
The Company currently has a $50 million line of credit (which expires on
April 30, 1994), and is negotiating with its principal lender on a new $100
million line of credit to replace the current line.
As of January 30, 1994, the Company had working capital of $181.8 million,
compared to $104.5 million at January 31, 1993. Working capital at March 27,
1994 was $181.7 million. Management believes that the Company has sufficient
working capital (including marketable and other securities of approximately $68
million), cash flow from operating activities, and access to credit to sustain
current growth plans.
OTHER MATTERS
The Company's business is seasonal in nature with higher store sales in the
third and fourth quarters. Historically, the fourth quarter, which includes the
Christmas selling season, has accounted for approximately 35% of the Company's
sales and approximately 50% of its operating income.
Management considers the effect of inflation on 1993 results and its
projected effect on fiscal 1994 financial results to be nominal.
See Notes to Consolidated Financial Statements regarding Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes",
and SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities".
22
<PAGE>
MICHAELS STORES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 31,
1994 1993
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents......................................................... $ 867 $ 42,075
Marketable and other securities.............................................. 67,956 --
Merchandise inventories...................................................... 206,185 118,300
Prepaid expenses and other................................................... 16,004 9,646
--------------- ---------------
Total current assets..................................................... 291,012 170,021
--------------- ---------------
Property and equipment, at cost................................................ 119,555 73,255
Less accumulated depreciation................................................ (43,683) (32,740)
--------------- ---------------
75,872 40,515
--------------- ---------------
Costs in excess of net assets of acquired operations, net...................... 23,503 24,223
Long-term investment portfolio................................................. -- 81,633
Other assets................................................................... 7,443 5,707
--------------- ---------------
30,946 111,563
--------------- ---------------
$ 397,830 $ 322,099
--------------- ---------------
--------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................. $ 42,309 $ 30,764
Short-term bank debt......................................................... 13,000 --
Income taxes payable......................................................... 7,866 4,562
Accrued liabilities and other................................................ 46,021 30,233
--------------- ---------------
Total current liabilities................................................ 109,196 65,559
--------------- ---------------
Convertible subordinated notes................................................. 97,750 97,750
Deferred income taxes and other................................................ 5,469 3,513
--------------- ---------------
Total long-term liabilities.............................................. 103,219 101,263
--------------- ---------------
212,415 166,822
--------------- ---------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.10 par value, 2,000,000 shares authorized, none issued.... -- --
Common stock, $.10 par value, 50,000,000 shares authorized, 16,697,357 issued
and outstanding (16,474,330 in fiscal 1992)................................. 1,670 1,647
Additional paid-in capital................................................... 107,168 103,340
Retained earnings............................................................ 76,577 50,290
--------------- ---------------
Total shareholders' equity............................................... 185,415 155,277
--------------- ---------------
$ 397,830 $ 322,099
--------------- ---------------
--------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
MICHAELS STORES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................................................. $ 619,688 $ 493,159 $ 410,899
----------- ----------- -----------
Cost of sales and occupancy expense........................................ 403,869 323,577 274,375
Selling, general and administrative expense................................ 174,463 135,319 110,881
----------- ----------- -----------
Operating income........................................................... 41,356 34,263 25,643
Interest expense........................................................... 6,378 263 6,971
Other (income) and expense,net............................................. (7,666) 538 913
----------- ----------- -----------
Income before income taxes and extraordinary item.......................... 42,644 33,462 17,759
Provision for income taxes................................................. 16,357 13,084 7,020
----------- ----------- -----------
Income before extraordinary item........................................... 26,287 20,378 10,739
Extraordinary item -- early redemption of debt, net of income tax of
$2,335.................................................................... -- -- 3,843
----------- ----------- -----------
Net income................................................................. $ 26,287 $ 20,378 $ 6,896
----------- ----------- -----------
----------- ----------- -----------
Earnings per common and common equivalent share:
Income before extraordinary item........................................... $ 1.53 $ 1.22 $ .90
Net income................................................................. 1.53 1.22 .58
Earnings per common share -- assuming full dilution:
Income before extraordinary item........................................... 1.52 1.21 .87
Net income................................................................. 1.52 1.21 .56
Weighted average common and common equivalent shares outstanding........... 17,231 16,692 11,883
Weighted average shares outstanding assuming full dilution................. 19,809 16,853 12,411
</TABLE>
See accompanying notes to consolidated financial statements.
MICHAELS STORES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JANUARY 30, 1994
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER ADDITIONAL
OF COMMON PAID-IN RETAINED TREASURY
SHARES STOCK CAPITAL EARNINGS STOCK TOTAL
------------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 3, 1991............ 9,859,050 $ 989 $ 22,695 $ 23,016 $ (85) $ 46,615
Exercise of stock options and
warrants, and issuance of shares in
an exchange offer and under the
401(k) plan......................... 1,749,706 172 11,332 -- 85 11,589
Proceeds from stock offering......... 3,450,000 345 60,854 -- -- 61,199
Net income........................... -- -- -- 6,896 -- 6,896
------------- ----------- ----------- --------- --- -----------
Balance at February 2, 1992............ 15,058,756 1,506 94,881 29,912 -- 126,299
Exercise of stock options and
warrants............................ 1,300,191 129 6,643 -- -- 6,772
Issuance of shares in an
acquisition......................... 115,383 12 1,816 -- -- 1,828
Net income........................... -- -- -- 20,378 -- 20,378
------------- ----------- ----------- --------- --- -----------
Balance at January 31, 1993............ 16,474,330 1,647 103,340 50,290 -- 155,277
Exercise of stock options............ 223,027 23 3,828 -- -- 3,851
Net income........................... -- -- -- 26,287 -- 26,287
------------- ----------- ----------- --------- --- -----------
Balance at January 30, 1994............ 16,697,357 $ 1,670 $ 107,168 $ 76,577 $ -- $ 185,415
------------- ----------- ----------- --------- --- -----------
------------- ----------- ----------- --------- --- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE>
MICHAELS STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------
1993 1992 1991
------------ ------------ ----------
<S> <C> <C> <C>
Operating activities:
Income before extraordinary item....................................... $ 26,287 $ 20,378 $ 10,739
Adjustments:
Depreciation and amortization........................................ 12,490 10,160 9,228
Other................................................................ (3,537) 466 270
Change in assets and liabilities excluding the effects of
acquisitions:
Merchandise inventories............................................ (87,885) (27,354) (10,019)
Prepaid expenses and other......................................... (6,358) (451) (1,699)
Other assets....................................................... (2,640) (354) (459)
Accounts payable................................................... 11,545 10,474 4,731
Income taxes payable............................................... 3,304 294 1,541
Accrued liabilities and other...................................... 15,830 3,032 5,181
Deferred income taxes and other.................................... 2,029 164 (556)
------------ ------------ ----------
Net change in assets and liabilities............................. (64,175) (14,195) (1,280)
------------ ------------ ----------
Net cash provided by (used in) operating activities.............. (28,935) 16,809 18,957
------------ ------------ ----------
Investing activities:
Additions to property and equipment.................................... (46,816) (19,796) (5,505)
Purchases of marketable and other securities and long-term
investments........................................................... (166,171) (81,633) --
Proceeds from sales of marketable and other securities and long-term
investments........................................................... 183,978 -- --
Acquisitions and other................................................. -- (1,853) --
------------ ------------ ----------
Net cash used in investing activities............................ (29,009) (103,282) (5,505)
------------ ------------ ----------
Financing activities:
Borrowings under bank credit facilities................................ 119,000 -- 57,300
Payments under bank credit facilities.................................. (106,000) -- (67,800)
Net proceeds from issuance of long-term debt........................... -- 94,636 --
Redemption of senior subordinated notes................................ -- -- (47,099)
Payment of other long-term liabilities................................. (115) (216) (196)
Proceeds from issuance of common stock................................. 3,851 6,772 71,591
------------ ------------ ----------
Net cash provided by financing activities........................ 16,736 101,192 13,796
------------ ------------ ----------
Net increase (decrease) in cash and equivalents.......................... (41,208) 14,719 27,248
Cash and equivalents at beginning of year................................ 42,075 27,356 108
------------ ------------ ----------
Cash and equivalents at end of year...................................... $ 867 $ 42,075 $ 27,356
------------ ------------ ----------
------------ ------------ ----------
Cash payments for:
Interest............................................................... $ 5,034 $ 222 $ 6,851
Income taxes........................................................... 11,620 8,087 4,863
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
MICHAELS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Michaels Stores, Inc. (the "Company") owns and operates a chain of specialty
retail stores. The Company reports on a 52/53-week fiscal year which ends on the
Sunday closest to January 31; thus, fiscal 1993 ("1993"), fiscal 1992 ("1992"),
and fiscal 1991 ("1991") ended on January 30, 1994, January 31, 1993, and
February 2, 1992, respectively.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all wholly-owned and majority-owned subsidiaries. All intercompany accounts
and transactions have been eliminated.
CASH AND EQUIVALENTS
Cash and equivalents are generally comprised of highly liquid instruments
with original maturities of three months or less. Cash equivalents are carried
at cost which approximates market value.
MERCHANDISE INVENTORIES
Store merchandise inventories are valued at the lower of average cost
(determined by a retail method) or market. Distribution center inventories are
valued at the lower of cost (determined by the first-in, first-out method) or
market.
PROPERTY AND EQUIPMENT
Depreciation is provided on a straight-line basis over the estimated useful
lives of the assets.
COSTS IN EXCESS OF NET ASSETS OF ACQUIRED OPERATIONS
Costs in excess of net assets of acquired operations are being amortized
over 40 years on a straight-line basis. Accumulated amortization was $5,182,000
and $4,462,000 as of the end of 1993 and 1992, respectively.
STORE PRE-OPENING COSTS
Store pre-opening costs are expensed in the fiscal year in which the store
opens. In 1993, 1992 and 1991, the Company incurred $4,893,000, $2,377,000 and
$195,000, respectively, of store pre-opening costs.
EARNINGS PER SHARE
Earnings per share data are based on the weighted average number of shares
outstanding, including common stock equivalents and other dilutive securities.
The assumed conversion of the convertible subordinated notes was dilutive for
the fourth quarter and full year of 1993 and was therefore included in the
calculation of fully diluted earnings per share data for those periods.
DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
1993 1992
----------- ---------
(IN THOUSANDS)
<S> <C> <C>
Property and equipment:
Land and buildings......................................................... $ 7,500 $ --
Fixtures and equipment..................................................... 87,443 60,013
Leasehold improvements..................................................... 24,612 13,242
----------- ---------
$ 119,555 $ 73,255
----------- ---------
----------- ---------
Accrued liabilities and other:
Salaries, bonuses and other payroll-related costs.......................... $ 13,498 $ 12,721
Rent....................................................................... 7,138 5,943
Taxes, other than income and payroll....................................... 9,337 5,252
Other...................................................................... 16,048 6,317
----------- ---------
$ 46,021 $ 30,233
----------- ---------
----------- ---------
</TABLE>
26
<PAGE>
MICHAELS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUBORDINATED DEBT
In January 1993 the Company issued $97.75 million of convertible
subordinated notes ("Notes") due January 15, 2003. Interest, payable on January
15 and July 15, is computed at the rate of 4 3/4% from the date of issuance to
January 15, 1996, and at 6 3/4% thereafter. Interest expense is accrued by the
Company based on an effective interest rate of 6.38% (including amortization of
deferred issuance costs) over the full term of the Notes. The Notes are
redeemable at the option of the Company on or after January 24, 1996 at
redemption prices ranging from 104.14% to 100%. The Notes are convertible into
the Company's common stock at any time, at a conversion price of $38 per share.
A total of 2,572,368 shares of common stock are reserved for conversion. The
Notes are not entitled to any sinking fund. The fair value, based on dealer
quotes, of the Notes as of January 30, 1994 and January 31, 1993 was $105.6
million and $102.6 million, respectively.
EXTRAORDINARY ITEM
In January 1992 the Company called for redemption all outstanding 12 3/4%
Senior Subordinated Notes.
INCOME TAXES
Effective February 1, 1993, the Company changed its method of accounting for
income taxes as required by SFAS No. 109, "Accounting for Income Taxes." Prior
years' financial statements have not been restated and the cumulative effect of
adoption in 1993 had no material impact.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
deferred tax liabilities and assets as of January 30, 1994 are as follows
(amounts in thousands):
<TABLE>
<S> <C>
Deferred tax liabilities:
Tax over book depreciation/amortization...................................................... $ 3,981
Other-net.................................................................................... 937
---------
Total deferred tax liabilities................................................................. 4,918
---------
Deferred tax assets:
Tax inventory in excess of book inventory.................................................... 1,121
Accrued expenses not deductible until paid................................................... 2,385
Other-net.................................................................................... 987
---------
Total deferred tax assets...................................................................... 4,493
---------
Net deferred tax liabilities................................................................... $ 425
---------
---------
</TABLE>
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
----------- ----------------------
<S> <C> <C> <C>
1993 1992 1991
----------- ----------- ---------
(IN THOUSANDS)
Income tax provision:
Current................................................................. $ 16,210 $ 13,219 $ 8,594
Deferred................................................................ 147 (135) (1,574)
----------- ----------- ---------
$ 16,357 $ 13,084 $ 7,020
----------- ----------- ---------
----------- ----------- ---------
Deferred income tax benefit:
Tax depreciation greater (less) than book depreciation.................. $ 55 $ (448)
Tax inventory less (greater) than book inventory........................ 95 (558)
Accrued expenses not deductible until paid and other.................... (285) (568)
----------- ---------
$ (135) $ (1,574)
----------- ---------
----------- ---------
Reconciliation of income tax provision to statutory rate:
Income tax expense at statutory rate.................................... $ 14,925 $ 11,377 $ 6,038
State income taxes, net of federal income tax benefit................... 1,275 1,347 545
Amortization of intangibles and other................................... 157 360 437
----------- ----------- ---------
$ 16,357 $ 13,084 $ 7,020
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
27
<PAGE>
MICHAELS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMMITMENTS AND CONTINGENCIES
COMMITMENTS
The Company operates stores and uses distribution and office facilities and
equipment leased under noncancellable operating leases, the majority of which
provide for renewal options. Future minimum rentals for all noncancellable
operating leases as of January 30, 1994 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR RENT
- - ---------------------------------------- ----------------
(IN THOUSANDS)
<S> <C>
1994.................................... $ 38,664
1995.................................... 38,212
1996.................................... 34,415
1997.................................... 28,503
1998.................................... 23,667
1999 and thereafter..................... 67,300
----------------
$ 230,761
----------------
----------------
</TABLE>
Rental expense applicable to operating leases was $33,551,000, $26,188,000
and $24,445,000 in 1993, 1992 and 1991, respectively.
CONTINGENCIES
Management of the Company believes that any uninsured losses related to
various lawsuits or claims pending against the Company will be immaterial;
accordingly, no provision has been recorded in the financial statements.
STOCK OPTIONS
All full-time employees are eligible to participate in the Michaels Stores,
Inc. Key Employee Stock Compensation Program (the "Program"), as amended, under
which 3,000,000 shares of common stock have been authorized for issuance.
Selected employees and key advisors, including directors, of the Company may
participate in the 1992 Non-Statutory Stock Option Plan of Michaels Stores, Inc.
(the "Plan") under which 3,000,000 shares of common stock have been authorized
for issuance. In addition, stock options have been granted to certain directors
and key advisors other than pursuant to the Program or the Plan. The exercise
price of all options granted was the fair market value on the date of grant.
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES PER SHARE
---------- --------------
<S> <C> <C>
Exercised during 1991............................. 733,865 $3
Exercised during 1992............................. 1,307,838 $3 to $15 1/4
Exercised during 1993............................. 223,027 $3 to $27
Outstanding at January 30, 1994................... 2,409,763 $3 to $32 1/8
Exercisable at January 30, 1994................... 628,888 $3 to $32 1/8
</TABLE>
MARKETABLE AND OTHER SECURITIES
The Company invests excess cash in a diversified portfolio consisting of a
variety of securities of both domestic and foreign issuers including preferred
stock, corporate bonds, mutual funds and government debt instruments, which may
include both investment grade and non-investment grade securities. The Company
limits its credit exposure to any one entity. Net realized gains, dividend
income, and interest income for 1993 were $4.1 million, $4.0 million, and $1.5
million, respectively.
Maverick Capital Ltd. ("Maverick"), an investment management company,
provides investment management services for the Company. Maverick is owned and
managed by a group of individuals, five of whom are directors of the Company.
The Company has invested $15 million (fair market value of approximately $16.3
million at January 30, 1994) in an investment partnership managed by Maverick.
The Company has the right to withdraw all or part of its investment at the end
of any calendar quarter. The Company records gains and losses on its investment
when realized by the partnership.
Maverick also manages the Company's investments in marketable securities.
The aggregate fair value of marketable securities as of January 30, 1994 was
approximately $55.7 million and was estimated based on quoted market prices or
dealer quotes as of the last trading day of the fiscal year.
The Company believes that the fees and allocations under the investment
management and partnership agreements are comparable to those that would be
charged to the Company by unaffiliated third parties for comparable
arrangements. Fees of $436,000 were paid to Maverick during 1993, pursuant to
these agreements.
28
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MICHAELS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At January 31, 1993, securities that the Company intended to hold for more
than one year were classified as long-term investments and were carried at cost.
The fair value of the long-term portfolio was $81.9 million, and was estimated
based on quoted market prices or dealer quotes.
Marketable securities held by the Company at January 30, 1994 will be
classified as available-for-sale securities under SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which the Company will adopt
in the first quarter of 1994. The adoption will not have a material effect on
the Company's financial position.
SUBSEQUENT EVENT
On February 23, 1994, the Company purchased Treasure House Stores, Inc.
("THSI"), which operated a chain of nine arts and crafts stores in Washington
and Oregon and held leases on two additional stores to be opened in 1994. A
total of 280,000 shares of Michaels common stock were issued in exchange for
100% of the issued and outstanding common stock of THSI. The purchase
transaction will be accounted for as a pooling-of-interests, and will not be
material to sales, net income or financial position for all years presented.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Michaels Stores, Inc.
We have audited the accompanying consolidated balance sheets of Michaels
Stores, Inc. as of January 30, 1994 and January 31, 1993, and the related
consolidated statements of income, cash flows, and shareholders' equity for each
of the three years in the period ended January 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Michaels
Stores, Inc. at January 30, 1994 and January 31, 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
January 30, 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG
Dallas, Texas
February 28, 1994
29
<PAGE>
MICHAELS STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED SUPPLEMENTAL QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1993:
Net sales..................................................... $ 112,961 $ 115,414 $ 155,750 $ 235,563
Cost of sales and occupancy expense........................... 73,279 74,150 101,588 154,852
Operating income.............................................. 5,962 5,756 7,819 21,819
Net income.................................................... 3,798 3,635 4,852 14,002
Fully-diluted earnings per common share....................... $ .22 $ .21 $ .28 $ .75
Weighted average shares outstanding assuming full dilution.... 17,130 17,145 17,287 19,932
FISCAL 1992:
Net sales..................................................... $ 94,351 $ 93,408 $ 123,349 $ 182,051
Cost of sales and occupancy expense........................... 61,741 61,161 80,831 119,844
Operating income.............................................. 5,038 4,601 6,300 18,324
Net income.................................................... 3,045 2,643 3,605 11,085
Fully-diluted earnings per common share....................... $ .18 $ .16 $ .21 $ .64
Weighted average common and common equivalent shares
outstanding.................................................. 16,630 16,691 17,101 17,201
</TABLE>
30
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Michaels Stores, Inc. of our report dated February 28, 1994, included in the
1994 Annual Report to Stockholders of Michaels Stores, Inc.
We also consent to the incorporation by reference in the Registration Statements
listed below and in the related Prospectuses of our reports dated February 28,
1994, with respect to the consolidated financial statements and schedules of
Michaels Stores, Inc. included or incorporated by reference in the Annual Report
(Form 10-K) for the year ended January 30, 1994.
Form Registration No. Pertaining to Michaels Stores, Inc.
S-8 2-92412 Stock Investment Plan
S-8 2-97848 Key Employee Stock Compensation Program
S-8 33-18476 Key Employee Stock Compensation Program
S-8 33-11985 Employees 401(k) Plan
S-3 33-21299 Registration of 802,000 Shares of Common Stock
S-3 33-9456 Post Effective Amendment No. 1 to the
Registration Statement on Form S-1 for the
registration of 1,000,000 Shares of Common
Stock
S-8 33-26338 Key Employee Stock Compensation Program
S-8 33-21573 Moskatel's, Inc. 401(k) Plan
S-3 33-22532 Registration of 30,000 shares of Common Stock
S-3 33-40673 Registration of 1,240,000 shares of Common
Stock
S-8 33-43039 Employee Stock Purchase Plan
S-8 33-54726 Key Employee Stock Compensation Program
S-3 33-52311 Registration of 280,000 shares of Common
Stock
S-3 33-67804 1992 Non-Statutory Stock Option Plan
ERNST & YOUNG
Dallas, Texas
April 25, 1994
