As filed with the Securities and Exchange Commission on January 7, 2000.
Registration No. 333-
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
Donegal Group Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 23-2424711
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1195 River Road
Marietta, Pennsylvania 17547
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
--------------------
Donegal Mutual Insurance Company 401(k) Plan
(Full title of the plan)
--------------------
Donald H. Nikolaus
President and Chief Executive Officer
Donegal Group Inc.
1195 River Road
Marietta, Pennsylvania 17547
---------------------------------------
(Name and address of agent for service)
(717) 426-1931
-------------------------------------------------------------
(Telephone number, including area code, of agent for service)
--------------------
Copy to:
Frederick W. Dreher, Esquire
Duane, Morris & Heckscher LLP
One Liberty Place
Philadelphia, Pennsylvania 19103-7396
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================================
Proposed Proposed
Title of securities Amount to be maximum offering maximum aggregate Amount of
to be registered registered(1) price per share(2) offering price(2) registration fee
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $1.00 per share...... 300,000 shares $6.1565 $1,846,950 $488
============================================================================================================
</TABLE>
(1) In addition, pursuant to Rule 416(c) under the Securities Act of 1933,
this registration statement (the "Registration Statement") also covers an
indeterminate amount of interests to be offered or sold pursuant to the
Donegal Mutual Insurance Company 401(k) Plan (the "Plan").
(2) Pursuant to paragraph (h) of Rule 457, the proposed maximum offering price
per share and the proposed maximum aggregate offering price have been
computed on the basis of $6.1565 per share, the average of the high and
low sales prices of the Common Stock of the Company on the Nasdaq National
Market on January 7, 2000.
<PAGE>
Introductory Statement Pursuant to General Instruction E to Form S-8
The shares being registered hereunder constitute an additional 300,000
shares of Common Stock of Donegal Group Inc. (the "Company") reserved for
issuance by the Company under the Donegal Mutual Insurance Company 401(k) Plan
(the "Plan"). On December 29, 1999, the Company previously registered 300,000
shares of Common Stock of the Company and an indeterminate number of interests
under the Plan for offer and sale under the Plan under the Securities Act of
1933 on Registration Statement No.333-93785 on Form S-8. Pursuant to General
Instruction E to Form S-8, with respect to the registration of additional
securities hereunder for issuance by the Company under the Plan, the contents of
the Company's Registration Statement No.333-93785 are incorporated herein by
reference.
II-2
<PAGE>
PART II
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 5. Interests of Named Experts and Counsel.
The consolidated financial statements and schedules of Donegal Group Inc.
as of December 31, 1998 and 1997, and for each of the years in the three-year
period ended December 31, 1998, have been incorporated by reference herein in
reliance upon the reports of KPMG LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
The validity of the issuance of the shares of Common Stock registered
hereby will be passed upon for the Company by Duane, Morris & Heckscher LLP,
Philadelphia, Pennsylvania. As of December 17, 1999, partners of Duane, Morris
& Heckscher LLP and its affiliates beneficially owned 29,937 shares of the
Company's outstanding Common Stock, including options to purchase 3,000 shares
of the Company's Common Stock pursuant to currently exercisable stock options.
Frederick W. Dreher, a partner of Duane, Morris & Heckscher LLP, is a director
of Donegal Mutual Insurance Company.
Item 8. Exhibits.
The registrant hereby undertakes that the registrant will submit or has
submitted the Plan and any amendment thereto to the Internal Revenue Service
(the "IRS") in a timely manner and has made or will make all changes required
by the IRS in order to qualify the Plan.
(4) Donegal Mutual Insurance Company 401(k) Plan, as amended.
(5) Opinion of Duane, Morris & Heckscher LLP.
(23.1) Consent of KPMG LLP.
(23.2) Consent of Duane, Morris & Heckscher LLP (included with
its opinion filed as Exhibit 5.
(24) Power of Attorney (included on the signature pages hereto).
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the under signed, thereunto duly
authorized, in Marietta, Pennsylvania on January 7, 2000.
DONEGAL GROUP INC.
By: /s/ Donald H. Nikolaus
---------------------------------
Donald H. Nikolaus, President and
Chief Executive Officer
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Donald H. Nikolaus and Ralph G. Spontak, and each
or either of them, as such person's true and lawful attorneys-in-fact and
agents, with full power of substi tution, for such person, and in such person's
name, place and stead, in any and all capacities to sign any or all amendments
or post-effective amendments to this Registration Statement, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and neces sary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them or their substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
- ----------------------- Chairman of the Board and
C. Edwin Ireland a Director
/s/ Donald H. Nikolaus President, Chief Executive January 7, 2000
- ---------------------- Officer and a Director
Donald H. Nikolaus (principal executive officer)
/s/ Ralph G. Spontak Senior Vice President, Chief January 7, 2000
- -------------------- Financial Officer and
Ralph G. Spontak Secretary (principal financial
and accounting officer)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Patricia A. Gilmartin Director January 7, 2000
- -------------------------
Patricia A. Gilmartin
/s/ Philip H. Glatfelter, II Director January 7, 2000
- ----------------------------
Philip H. Glatfelter, II
/s/ R. Richard Sherbahn Director January 7, 2000
- -----------------------
R. Richard Sherbahn
- --------------------- Director
Thomas J. Finley, Jr.
/s/ Robert S. Bolinger Director January 7, 2000
- ----------------------
Robert S. Bolinger
</TABLE>
II-5
<PAGE>
The Plan. Pursuant to the requirements of the Securities Act of 1933, the
administrator of the Plan has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Marietta,
Pennsylvania on January 7, 2000.
DONEGAL MUTUAL
INSURANCE COMPANY 401(k) PLAN
By: /s/ Donald H. Nikolaus
-------------------------------
Donald H. Nikolaus, Trustee
By: /s/ Ralph G. Spontak
-----------------------------
Ralph G. Spontak, Trustee
By: /s/ Philip H. Glatfelter, II
-------------------------------------
Philip H. Glatfelter, II, Trustee
By: /s/ Daniel J. Wagner
-----------------------------
Daniel J. Wagner, Trustee
II-6
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Description
- ----------- -------------------
(4) Donegal Mutual Insurance Company 401(k) Plan, as amended.
(5) Opinion of Duane, Morris & Heckscher LLP.
(23.1) Consent of KPMG LLP.
(23.2) Consent of Duane, Morris & Heckscher LLP (included with its
opinion filed as Exhibit 5.
(24) Power of Attorney (included on the signature pages hereto).
II-7
DONEGAL MUTUAL INSURANCE COMPANY 401(K) PLAN
(Effective January 1, 1998)
Issue Date:
May 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS............................................ 1
Section 1.1 Parties....................................... 1
1.2 Important Dates............................... 2
1.3 Service and Compensation...................... 2
1.4 Miscellaneous................................. 5
1.5 Construction.................................. 5
ARTICLE II PARTICIPATION.......................................... 5
Section 2.1 Eligibility for Participation................. 5
2.2 Continuing Participation...................... 6
2.3 Reemployment After Termination of
Employment.................................... 6
ARTICLE III CONTRIBUTIONS.......................................... 6
Section 3.1 Employer's Matching Contribution.............. 6
3.2 Payment of Employer Matching
Contributions................................. 6
3.3 Return of Contributions....................... 6
3.4 Participant's Salary Reduction
Election...................................... 7
3.5 Participant Withdrawals....................... 8
3.6 Limitations on Participant's Salary
Reduction Election or Elective Deferrals....... 9
3.7 Limitations on Employee Contributions
and Matching Employer Contributions........... 11
3.8 Limitations on Contributions and Benefits..... 12
3.9 Distribution of Excess Deferrals.............. 15
3.10 Excess Contributions.......................... 15
3.11 Employee Rollover Contributions............... 17
3.12 Direct Rollovers Permitted.................... 17
3.13 Reemployment After Distribution............... 18
ARTICLE IV PARTICIPANTS' ACCOUNTS................................. 19
Section 4.1 Individual Accounts........................... 19
4.2 Valuation of the Trust........................ 19
4.3 Adjustments and Allocations to
Accounts...................................... 19
4.4 Combined Limitations.......................... 20
(1)
<PAGE>
4.5 Self-Directed Accounts........................ 21
ARTICLE V PAYMENT OF BENEFITS.................................... 23
Section 5.1 Vesting and Forfeitures....................... 23
5.2 Retirement.................................... 23
5.3 Age 59-1/2.................................... 23
5.4 Disability.................................... 24
5.5 Death......................................... 24
5.6 Termination of Employment Prior to
Retirement, Disability or Death............... 24
5.7 Limitation on Distributions................... 24
5.8 Distribution upon Retirement,
Disability, Death or Other Termination
of Employment................................. 25
5.9 Distributions of $5,000 or Less............... 26
5.10 Additional Distribution Restrictions.......... 26
ARTICLE VI FIDUCIARY RESPONSIBILITY............................... 27
Section 6.1 Named Fiduciary............................... 27
6.2 Allocation of Fiduciary Responsibility........ 27
6.3 Service in More than One Capacity............. 27
6.4 Employment of Advisers........................ 27
6.5 Compensation of Fiduciaries and
Advisers...................................... 28
6.6 Liability of Fiduciaries ..................... 28
ARTICLE VII PLAN ADMINISTRATION.................................... 28
Section 7.1 Plan Committee................................ 28
7.2 Duties and Powers of the Plan Committee....... 28
7.3 Claims Procedure.............................. 29
7.4 Records and Reports........................... 30
7.5 Application and Forms for Benefits............ 30
ARTICLE VIII AMENDMENT, MERGER AND TERMINATION
OF THE PLAN............................................ 30
Section 8.1 Amendment and Termination..................... 30
8.2 Action by Employer............................ 31
8.3 Effect of Termination......................... 31
8.4 Partial Termination........................... 31
8.5 Manner of Distribution........................ 31
8.6 Merger........................................ 32
8.7 Successor Employer............................ 32
(2)
<PAGE>
ARTICLE IX TOP-HEAVY PROVISIONS AND DEFINITIONS................... 32
Section 9.1 Top-Heavy Plan Definitions.................... 32
9.2 Effective Date................................ 34
9.3 Minimum Contribution Requirements............. 34
9.4 Maximum Compensation Limitation............... 35
9.5 Adjustment to Section 415 Limits.............. 35
9.6 Remedial Provisions........................... 36
9.7 Top Heavy Vesting Schedule ................... 36
ARTICLE X MISCELLANEOUS.......................................... 36
Section 10.1 Non-Guarantee of Employment................... 36
10.2 Non-Alienation of Benefits.................... 36
10.3 Facility of Payment........................... 37
10.4 Exclusive Benefit............................. 37
10.5 No Reversion.................................. 37
10.6 Effect of Social Security Benefits............ 37
10.7 Titles........................................ 37
10.8 Severability.................................. 37
10.9 Applicable Law................................ 37
10.10 Initial Qualification......................... 37
10.11 Plan Designation.............................. 37
(3)
<PAGE>
ARTICLE I
DEFINITIONS
Whenever used herein, the following words shall have the meaning set forth
below, unless otherwise clearly required by the context.
1.1 Parties
(a) "Employer" means Donegal Mutual Insurance Company, a Pennsylvania
corporation, and any successor.
(b) "Plan Committee" or "Committee" means the Committee established by
the Employer to administer the Plan as set forth in Article VII hereof.
(c) "Trustee" means the corporation, individual or individuals
appointed by the Employer to hold and administer the assets of the Trust.
(d) "Employee" means any individual employed by the Employer or an
Affiliated Employer, except that such term shall not include: (i) any
leased Employee as defined in Section 414(n)(2) and (ii) any employee who
is hired as a temporary employee and whose employment is to be of limited
duration generally not in excess of six (6) months.
(e) "Participant" means an Employee who has satisfied the eligibility
requirements and has entered the plan as provided in Article II.
(f) "Beneficiary" or "Designated Beneficiary" means a person or
persons (natural or otherwise) designated by a Participant to receive any
death benefit payable under this plan. If there is no such designation, or
if the designated person or persons predecease the Participant, Beneficiary
shall mean the surviving spouse, surviving children, surviving parents or
estate of the Participant, in the order listed.
(g) "Plan" means the Donegal Mutual Insurance Company 401(k) Plan as
set forth herein and as it may be amended in the future.
(h) "Trust" or "Trust Agreement" means the Donegal Mutual Insurance
Company 401(k) Plan Trust established by the Employer.
(i) "Affiliated Employer" means the Employer, and any trade or
business (whether or not incorporated) which is under common control (as
defined in Section 414(c) of the Code) with the Employer; an organization
(whether or not incorporated) which is a member of an affiliated service
group (as defined in Section 414(m) of the Code) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to regulations under Section 414(o) of the Code.
(j) "Highly Compensated Employee" means an Employee who performs
services during the determination year and is described in one or more of
the following groups:
1. An Employee who is a 5% owner, as defined in Section
<PAGE>
416(i)(1)(A)(iii), at anytime during the determination year
or the preceding year.
2. An Employee who received compensation during the preceding
year in excess of $80,000 (indexed in accordance with IRC
Section 415(d)).
3. If the Employer so elects, an Employee who is in the top
paid group during the preceding year as such term is defined
in IRC Section 414(q).
For purposes of this paragraph:
(1) Compensation is compensation within the meaning of IRC
Section 415(c)(3), including elective or salary
reduction contributions to a cafeteria plan, cash or
deferred arrangement or tax-sheltered annuity, and
(2) Employers aggregated under IRC Sections (415)(b), (c),
(m), or (o) are treated as a single employer.
(3) Highly Compensated Employee includes a former employee
who was separated from service for the Employer prior
to the determination year and was a Highly Compensated
Employee for the year of the termination or for any
determination year in or after the date on which he
attains age 55.
(k) "Non-Highly Compensated Employee" means an Employee of the
Employer who is not a Highly Compensated Employee.
1.2 Important Dates
(a) "Effective Date" means January 1, 1998, the date on which the
provisions of the Plan became effective.
(b) "Plan Year" means the calendar year.
(c) "Anniversary Date" means the last day of each Plan Year after the
Effective Date.
(d) "Limitation Year" means the Plan Year.
1.3 Service and Compensation
(a) "Hour of Service" means:
-2-
<PAGE>
(1) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer. These hours
shall be credited to the Employee for the computation period in which
the duties are performed; and
(2) Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time during which
no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty or
leave of absence. No more than 501 Hours of Service shall be credited
under this paragraph for any single continuous period (whether or not
such period occurs in a single computation period). Hours under this
paragraph shall be calculated and credited pursuant to Section
2530,200(b)2 of the Department of Labor Regulations which are
incorporated herein by reference; and
(3) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same
Hours of Service shall not be credited both under paragraph (1) or
paragraph (2), as the case may be, and under this paragraph (3). These
hours shall be credited to the Employee for the computation period or
periods to which the award or agreement pertains rather than the
computation period in which the award, agreement or payment is made.
(4) For absences beginning on or after the first day of the Plan
Year, solely for purposes of determining whether a One-Year Break in
Service for participation and vesting purposes has occurred in a Plan
Year (or other computation period), an Employee who is on Maternity or
Paternity Leave shall receive credit for the Hours of Service which
would otherwise have been credited to such Employee but for such
absence, or in any case in which such Hours cannot be determined, 8
Hours of Service per day of such absence. No more than 501 Hours of
Service shall be credited under this paragraph for any single absence
due to Maternity or Paternity Leave. The Hours of Service credited
under this paragraph shall be credited only (i) in the Plan Year (or
other computation period) in which the absence begins if the crediting
is necessary to prevent a One-Year Break in Service in that period, or
(ii) in any other case, in the immediately following Plan Year (or
other computation period).
(b) "One-Year Break in Service" means a Plan Year during which an
Employee fails to complete at least 500 Hours of Service. For purposes of
Section 2.1, the relevant eligibility computation period shall be
substituted for the Plan Year.
(c) "Years of Service" means
(1) For purposes of eligibility to participate, as provided in
Section 2.1.
(2) Years of Service credited prior to a period of consecutive
One-Year Breaks in Service shall not be credited if the number of
consecutive One-Year Breaks in Service during such period before the
Employee earns any vested benefit in Employer contributions under the
Plan equals or exceeds the greater of (A) five (5), or (B) the
aggregate number of Years of Service before such period.
-3-
<PAGE>
(3) An Employee's Years of Service shall include Years of Service
with the Employer and with other businesses under common control which
includes the Employer and with other members of an affiliated service
group which includes the Employer.
(d) "Compensation" means the total taxable compensation paid to an
Employee by the Employer during the Plan Year except as hereinafter
provided. Any bonus, payments under any Employee incentive plan, disability
payments, taxable fringe benefits, non-taxable fringe benefits, amounts
realized from the exercise of stock options, or when restricted stock (or
property) held by the Employee either becomes freely transferrable or is no
longer subject to a substantial risk of forfeiture, and amounts realized
from the sale, exchange or other disposition of stock options shall not be
considered compensation. The foregoing notwithstanding, compensation shall
include any elective contributions made by the Employer that are not
includable in the Employee's gross income under Code Sections 125,
402(g)(3), 402(h), 403(b) or any compensation deferred under Code Section
457(b).
Compensation shall include all compensation (as defined above) which is
actually paid to the Employee during the applicable Plan Year, including the
Plan Year in which the Employee becomes a Participant. Compensation shall be
limited for all purposes to $160,000 as adjusted from time to time in accordance
with Code Section 401(a)(17).
(e) "Authorized Leave of Absence" means any absence authorized by the
Employer under the Employer's standard personnel practices provided that
all persons under similar circumstances must be treated alike in the
granting of such Authorized Leaves of Absence and provided further that the
Employee returns within the period of authorized absence. In the event of
absence due to service in the Armed Forces of the United States, (1) such
absence shall be considered an Authorized Leave of Absence provided that
the Employee returns to employment with the Employer within the period
provided by law, and (2) credit for Hours of Service shall be given to the
extent required by law.
(f) "Employment Commencement Date" means the first day on which an
Employee completes an Hour of Service for the Employer.
(g) "Maternity or Paternity Leave" means an absence from work:
(1) By reason of pregnancy of the Participant;
(2) By reason of the birth of a child of the Participant;
(3) By reason of the placement of a child with the Participant in
connection with the adoption of such child by the Participant; or
(4) For purposes of caring for such child, for a period beginning
immediately after such birth or placement.
In approving such leave, the Plan Committee may require the Participant to
furnish such timely information as it may reasonably require to establish that
the reason for the absence from work is for one of the reasons set forth above
and the number of days for which there was such absence.
-4-
<PAGE>
1.4 Miscellaneous
(a) "Disability" means a condition which renders a Participant unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or to be of a long, continued and indefinite duration. The Plan
Committee may require such proof of Disability as it deems necessary, and
may require a Participant to be examined by a physician of its own
choosing.
(b) "Participant's Elective Deferral" or "Participant's Elective
Contribution" means as to each Participant the amount of the Participant's
salary reduction election made pursuant to Section 3.4 during the Plan Year
by the Employee and allocated to the Participant's Elective Deferral
Account.
(c) "Employer Matching Contribution" means any contribution to the
Plan made by the Employer for the Plan Year and allocated to a
Participant's Employer Matching Contribution Account by reason of the
Participant's Elective Deferrals.
(d) "ERISA" means Public Law No. 93-406, the Employees Retirement
Income Security Act of 1974, as amended from time to time.
(e) "Code" or "IRC" means the Internal Revenue Code of 1986 and
amendments thereto.
(f) "Forfeiture" means that portion of a Participant's account that is
not vested and occurs on the earlier of:
(1) The distribution of the entire vested portion of a
Participant's account, or
(2) The last day of the Plan Year in which the Participant incurs
five consecutive one year breaks in service.
(g) USERRA Compliance. Notwithstanding any provision of this Plan to
the contrary, contributions, benefits and service credit with respect to
qualified military service will be provided in accordance with Section 414
(u) of the Code.
1.5 Construction. Words used herein in the masculine include the feminine,
in the singular include the plural and in the plural include the singular,
unless the context indicates otherwise.
ARTICLE II
PARTICIPATION
2.1 Eligibility for Participation. Each Employee who is employed by the
Employer on the Effective Date shall eligible to become a Participant as of that
date. Each other Employee
-5-
<PAGE>
shall be eligible to become a Participant as of the first day of the month
immediately succeeding the month in which the Employee commences employment with
the Employer. An Employee becomes a Participant by filing with the Plan
Committee a salary reduction election in accordance with Section 3.4 hereof in
the form prescribed by the Committee.
2.2 Continuing Participation.
(a) The Participant shall continue to be a Participant until he incurs
a One-Year Break in Service. Participation shall cease as of the last day
of the Plan Year during which such event occurs.
(b) During a period of Authorized Leave of Absence, an Employee shall
not be deemed to have incurred a One-Year Break in Service. In the event
that an Employee is laid off, such layoff shall be treated as an Authorized
Leave of Absence, to the extent that the Employer's personnel policies so
provide, or in the absence of any such policies, for a period of one year
from the date of layoff.
2.3 Reemployment After Termination of Employment. Upon the reemployment of
any Employee who was a Participant such Employee again shall become a
Participant on the first day of the month coincident with or next following his
completion of at least one Hour of Service. All of an Employee's Years of
Service with the Employer shall be credited except Years of Service which are
disregarded under Section 1.3(c)(2).
ARTICLE III
CONTRIBUTIONS
3.1 Employer's Matching Contribution. The Employer shall contribute
annually on behalf of each Participant in the employ of the Employer on the
Anniversary Date an amount equal to twenty-five percent (25%) of each
Participant's Elective Deferrals for the Plan Year but not in excess of two
percent (2%) of the Participant's Compensation for the Plan Year ("Matching
Contribution"). The requirement that a Participant be employed by the Employer
on the Anniversary Date shall be waived if the employment of the Participant
terminated during the Plan Year because of retirement, disability or death.
3.2 Payment of Employer Matching Contributions. The Employer shall pay its
matching contribution to the Plan within thirty (30) days of the end of each
calendar quarter and under all circumstances the Employer's matching
contribution must be paid not later than the last date, including extensions
thereof for filing it income tax return for the Plan Year with respect to which
the matching contribution is made.
3.3 Return of Contributions. In no event shall any Employer Contributions
revert to or be recoverable by the Employer, unless:
(a) the contribution is made by reason of a mistake of fact, in which
case it shall be returned within one (1) year after the payment of the
contribution, or,
-6-
<PAGE>
(b) the contribution is conditioned upon qualification of the Plan
under Section 401 of the Code and if the Plan does not initially so
qualify, it shall be returned to the Employer within one (1) year after the
date of denial of qualification.
All contributions are conditioned upon the deductibility of the
contribution under Section 404 of the Code. To the extent the deduction is
disallowed, the contribution shall be returned within one (1) year after the
disallowance of the deduction.
3.4 Participant's Salary Reduction Election.
(a) Each Participant may make an Elective Contribution to the Plan and
to the extent he elects to reduce or forego an increase in his
Compensation, the amount by which his Compensation is reduced shall be
treated as the Participant's Elective Contribution and be allocated to that
Participant's Elective Account. The amount of the Elective Contribution may
not be less than 1% nor more than 8% of the Participant's Compensation as
elected by the Participant in units of one percentage point on forms
provided by the Plan Committee, which may limit the amount of a
Participant's Elective Contribution at any time, if it determines that such
limitation is necessary to satisfy the requirements of IRC Section 401(k).
(b) The balance in each Participant's Elective Account shall be fully
vested at all times and shall not be subject to forfeiture for any reason.
(c) A Participant may not make withdrawals from his Elective Account
prior to his attaining age 59-1/2, except in the event of disability,
retirement, termination of employment or hardship as provided in Section
3.5. Distributions made pursuant to this Section shall be deemed to be made
as of the last day of the preceding accounting quarter and the
Participant's Elective Account shall be reduced accordingly.
(d) The Employer shall pay all Participants' Elective Contributions
accumulated through payroll deduction to the Trustee with reasonable
promptness and in all events before the end of the succeeding month
following such payroll deductions.
(e) A Participant may change or terminate his deferral election as
provided in subparagraph (a) by giving thirty (30) days' written notice of
such change or termination to the Plan Committee or its designee and such
change or termination shall be effective as of the first pay period
coincident with or next following the expiration of said thirty (30)-day
period. A Participant who has terminated or not commenced making Elective
Contributions pursuant to paragraph (a) above may commence or reinstate his
deferral election upon thirty (30) days' written notice to the Plan
Committee or its designee and the Participant's Elective Contributions
shall commence with the first pay period commencing on or after the
expiration of the thirty (30)-day period.
(f) A Participant who has taken a hardship distribution as provided in
Section 3.5 hereof shall have his salary reduction election terminated as
of the date of the hardship distribution and shall not be eligible to
reinstate that election until after the first anniversary date of that
distribution. Additionally, the Participant's Elective Contributions for
the taxable year
-7-
<PAGE>
immediately following the taxable year of the hardship distribution may not
exceed the applicable limit on Elective Deferrals under Code Section 402(g)
less the Participant's Elective Contributions for the year in which the
Participant received the hardship distribution.
3.5 Participant Withdrawals.
(a) Participant's Elective Deferral Account. A Participant may not
withdraw any amount attributable to his Elective Deferrals prior to the
Participant's retirement, death, disability, separation from service or
attainment of age 59-1/2 except in the case of hardship as provided herein.
Upon application to the Plan Committee for a withdrawal based on hardship,
the Plan Committee shall make a determination of the existence of hardship.
If the Plan Committee determines that a hardship exists with respect to the
Participant, the Participant may withdraw up to 100 percent of his vested
interest in the Participant's Elective Deferral Account, but not in excess
of the amount requested by the Participant in his initial application.
Withdrawal of amounts less than the total amount in the Participant's
Elective Deferral Account shall be in units of $1,000 with a minimum
withdrawal of $1,000. The Plan Committee shall implement the foregoing by
such rules, regulations, forms and procedures as to which the Plan
Committee seems appropriate, provided always that participants similarly
situated be treated uniformly. Hardship withdrawals may be made from
Participant's Elective Deferrals only, excluding withdrawal of any income
earned by Participant's Elective Deferrals.
(b) Participant's Employer Matching Contribution Account. A
Participant may not withdraw any amount attributable to his Employer
Matching Contribution Account prior to the Participant's retirement, death,
disability, separation from service, or attainment of age 59-1/2.
(c) Hardship Provisions. A distribution because of hardship will be
made only if the Participant has an immediate and heavy financial need
which may not be satisfied from other assets of the Participant. A
distribution is deemed to be on account of an immediate and heavy financial
need only if the distribution is for:
1. Expenses for medical care described in Section 213(d) of the
Code previously incurred by the Participant, the Participant's
spouse or any dependents of the Participant or necessary for
those persons to obtain medical care described in Section 213(d);
2. Costs directly related to the purchase of a principal
residence for the Participant (excluding mortgage payments);
3. Payment of tuition, related educational fees, and room and
board expenses for the next twelve (12) months of post-secondary
education for the Participant or the Participant's spouse,
children or dependents; or
4. Payments necessary to prevent the eviction of a Participant
from the Participant's principal residence or foreclosure on the
mortgage of that residence.
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(d) A distribution is deemed necessary to satisfy an immediate and
heavy financial need of a Participant if all of the following are
satisfied:
1. The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant which may
include amounts necessary to pay the federal, state or local
income taxes and penalties reasonably anticipated as a result of
the distribution.
2. The Participant has obtained all distributions other than
hardship distributions and all non-taxable (at the time of the
loan) loans currently available under all Plans maintained by the
Employer.
3. The Plan and all other plans maintained by the Employer limit
the Participant's elective contributions for the next taxable
year to the applicable limit under Section 402(g) of the Code for
that year minus the Employee's elective contributions for the
year of the hardship distribution.
4. The Participant is prohibited under the terms of the Plan or
an otherwise legally enforceable agreement from making elective
contributions and Employee contributions to the Plan and all
other plans maintained by the Employer for at least twelve (12)
months after receipt of the hardship distribution.
3.6 Limitations on Participant's Salary Reduction Election or Elective
Deferrals.
(a) Maximum Amount of Elective Deferrals. No Employee shall be
permitted to have Elective Deferrals made under this Plan during any
calendar year in excess of $7,000.00 multiplied by the Adjustment Factor
for such year as provided by the Secretary of the Treasury.
(b) Average Actual Deferral Percentages.
(1) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan Year
shall not exceed the Average Actual Deferral Percentage for Eligible
Participants who are Non-Highly Compensated Employees for the Plan
Year multiplied by 1.25; or
(2) The Average Actual Deferral Percentage for Eligible
Participants who are Highly Compensated Employees for the Plan Year
shall not exceed the Average Actual Deferral Percentage for Eligible
Participants who are Non-Highly Compensated Employees for the Plan
Year multiplied by 2, provided that the Average Actual Deferral
Percentage for Eligible Participants who are Highly Compensated
Employees does not exceed the Average Actual Deferral Percentage for
Eligible Participants who are Non-Highly Compensated Employees by more
than two (2) percentage points, or such lesser amount as the Secretary
of the Treasury shall prescribe to prevent the multiple use of this
alternative limitation with respect to any Highly Compensated
Employee.
(c) Definitions. For purposes of this Section 3.6 the
following definitions
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shall be used:
(1) "Actual Deferral Percentage" ("ADP") shall mean the ratio
(expressed as a percentage), of Elective Deferrals on behalf of each
Eligible Participant for the Plan Year to such Eligible Participant's
Compensation for the Plan Year. For this purpose, Elective Deferrals
shall be taken into account only to the extent they relate to
Compensation that either will be received by the Participant in the
Plan Year, but for the deferral election, or which is attributable to
services performed by the Participant in the Plan Year and will be
received by the Participant within 2 1/2 months after the close of the
Plan Year but for the deferral election. Further, Elective Deferrals
shall be taken into account only if they are allocated to the
Participant's Account within the Plan Year to which they relate. An
Elective Deferral is considered allocated within the Plan Year if the
allocation is not contingent upon the Participant's performance of
services or continued participation in the Plan after the allocation
date and the Elective Deferral is actually paid to the trust not later
than 12 months after the Plan Year to which the contribution relates.
(2) "Average Actual Deferral Percentage" shall mean the average
(expressed as a percentage) of the Actual Deferral Percentage of all
Eligible Participants as a group.
(3) "Eligible Participant" shall mean any Employee of the
Employer who is otherwise authorized under the terms of the Plan to
have Elective Deferrals allocated to his account for the Plan Year.
(4) "Excess Contributions" are defined in IRC Section
401(k)(8)(b) and are determined and distributed as provided in Section
3.10 hereof.
(d) Special Rules.
(1) For purposes of this Section 3.6, the Actual Deferral
Percentage for any Eligible Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have Elective
Deferrals allocated to his account under two or more Plans or
arrangements described in Section 401(k) of the Code that are
maintained by the Employer or an Affiliated Employer shall be
determined as if all such Elective Deferrals were made under a single
arrangement.
(2) For purposes of distributing Excess Contributions, the amount
of Excess Contributions that may be distributed to a Highly
Compensated Employee for a Plan Year shall be reduced by the amount of
excess deferrals previously distributed to the Highly Compensated
Employee for his or her taxable year ending with or within such Plan
Year.
(3) A Participant's Elective Contributions which are returned as
provided in (c)(4) above shall not be taken into account in
determining the amount of Matching Contributions to be made for the
Participant's benefit for the year. To the extent Matching
Contributions have already been made with respect to the Elective
Contributions, such Matching Contributions shall be distributed to the
Participant at the same time as the Elective
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Contributions are returned or recharacterized, provided however, that
to the extent the Participant does not have a vested interest in such
Matching Contributions, the Participant shall forfeit such Matching
Contributions.
(4) For purposes of determining the ADP for the Non Highly
Compensated Employees for any determination year, the Plan shall rely
on look-back year data. For this purpose, determination year means the
Plan Year with respect to which the ADP or ACP is being calculated and
look-back means the Plan Year immediately preceding the determination
year.
3.7 Limitations on Employee Contributions and Matching Employer
Contributions.
(a) Contribution Percentage. The Average Contribution Percentage
("ACP") for Eligible Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the Average Contribution Percentage for
Eligible Participants who are Nonhighly Compensated Employees for the Plan
Year multiplied by 1.25; or
The Average Contribution Percentage for Eligible Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the Average
Contribution Percentage for Eligible Participants who are Nonhighly Compensated
Employees the Plan Year multiplied by 2, provided that the Average Contribution
Percentage for Eligible Participants who are Highly Compensated Employees does
not exceed the Average Contribution Percentage for Eligible Participants who are
Nonhighly Compensated Employees by more than two (2) percentage points or such
lesser amount as the Secretary of the Treasury shall prescribe to prevent the
multiple use of this alternative limitation with respect to any Highly
Compensated Employee.
(b) Definitions. For purposes of this Section 3.7 the following
definitions shall apply.
(1) "Average Contribution Percentage" shall mean the average
(expressed as a percentage) of the Contribution Percentages of the
Eligible Participants in a group.
(2) "Contribution Percentage" shall mean the ratio (expressed as
a percentage), of the sum of the Employee Contributions and Matching
Contributions made on behalf of each Eligible Participant for the Plan
Year to such Eligible Participant's Compensation for the Plan Year.
(3) "Eligible Participant" shall mean any employee of the
Employer who is otherwise authorized under the terms of the plan to
have Employee Contributions or Matching Contributions allocated to his
account for the Plan Year.
(c) Special Rules.
(1) For purposes of this section 3.7, the Contribution Percentage
for any Eligible Participant who is a Highly Compensated Employee for
the Plan Year and who is eligible to receive Matching contributions,
or Elective Deferrals allocated to his account under
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<PAGE>
two or more plans described in Section 401(a) of the Code or
arrangements described in Section 401(k) of the Code that are
maintained by the Employer or an Affiliated Employer shall be
determined as if all such contributions and Elective Deferrals were
made under a single plan.
(2) In the event that this plan satisfies the requirements of
Section 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
Section 410(b) of the Code only if aggregated with this plan, then
this Section 3.7 shall be applied by determining the Contribution
Percentages of Eligible Participants as if all such plans were a
single plan.
(d) Excess Aggregate Contributions.
(i) Excess Aggregate Contributions for a Highly-Compensated
Employee will be determined by reducing the Actual Contribution Ratio
(ACR) of the Highly-Compensated Employee with the highest ACR to the
extent necessary to satisfy the Actual Contribution Percentage ("ACP")
test or to cause such ratio to equal the ACR of the Highly-Compensated
Employee with the next highest ratio. This process will be repeated
until the ACP test is satisfied. In no event will Excess Aggregate
Contributions remain unallocated or be allocated to a suspense account
for allocation in the future Plan Year. The amount of the Excess
Aggregate Contributions shall be distributed first to the
Highly-Compensated Employee with the highest dollar amounts of
Matching Contributions or Elective Contributions taken into account in
computing the ACP in an amount equal to the lesser of such total
Excess Aggregate Contributions or the amount necessary to cause the
amount of such Employee's Matching Contributions to equal the amount
of the Matching Contributions taken into account in computing the ACP
of the Highly Compensated Employee with the next highest dollar amount
of Matching Contributions taking into account in computing the ACP.
This process will be repeated until the aggregate amount required to
be distributed is so distributed. Income on such Excess Aggregate
Contributions shall be distributed in accordance with the applicable
Treasury Regulations. Distribution of Excess Aggregate Contributions
will be made after the close of the Plan Year to which the
contributions relate but within twelve months after the close of such
Plan Year. Such distributions shall be treated as Employer
contributions for purposes of Code Sections 401(a)(4), 404 and 415.
Notwithstanding the foregoing, to the extent a Participant receives a
distribution of Excess Aggregate Contributions which relate to
Matching Contributions in which the Participant does not have a vested
interest, such portion of the Excess Aggregate Contribution shall be
forfeited.
(ii) The amount of Excess Aggregate Contributions for a Plan Year
will be determined only after first determining the Excess
Contributions that are treated as Employee contributions because of
recharacterization for the Plan Year.
3.8 Limitations on Contributions and Benefits.
(a) Definition of Annual Additions. For purposes of the Plan, "Annual
Addition" shall mean the amounts allocated to a Participant's account
during the limitation year that constitute:
(1) Employer Contributions,
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(2) Employee Contributions,
(3) Forfeitures, and
(4) Amounts described in Sections 415(l)(1) and 419A(d)(2) of the
Code.
(b) Maximum Annual Addition. The maximum annual addition that may be
contributed or allocated to a Participant's account under the Plan for any
limitation year shall not exceed the lesser of
(1) the Defined Contribution Dollar Limitation, or
(2) Twenty-five (25%) percent of the Participant's compensation,
within the meaning of Section 415(c)(3) of the Code for the Limitation
Year.
(c) Special Rules. The compensation limitation referred to in
subsection (b)(2) 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(l)(1) of the Code.
(d) Definitions. For purposes of Section 3.8,
(1) Defined Contribution Dollar Limitation means $30,000.00 or,
if greater, 1/4 of the defined benefit dollar limitation set forth in
Section 415(b)(1) of the Code as in effect for the Limitation Year.
(2) Limitation Year means the calendar year.
(e) Limitations if Participant in More Than One Plan. The foregoing
limitations of this Section 3.8 shall apply to the Annual Additions to this
Plan and all Annual Additions made to all other defined contribution plans
whether terminated or ever maintained by the Employer or a Related Employer
in which the Participant is or was a Participant.
(f) Overall Limitation on Defined Benefit and Defined Contribution
Plan Benefits. The sum of a Participant's defined benefit plan fraction and
his defined contribution plan fraction shall not exceed 1.0. This
limitation shall be applied in accordance with the following provisions
specified in the following subparagraphs.
(1) A Participant's defined benefit plan fraction is the
projected annual benefit of the Participant under all defined benefit
plans (whether terminated or not) ever maintained by the Employer or
by Related Employers divided by the lesser of
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(a) the product of 1.25 multiplied by the dollar limitation
in effect from time to time under Section 415(b)(1)(A) of the
Code, or
(b) the product of 1.4 multiplied by the amount that may be
taken into account under Section 415(b)(1)(B) of the Code with
respect to such individual for such year.
All such amounts shall be determined as of the close of the Limitation
Year, with such applicable adjustments and reductions as are required under
Section 415(b) of the Code. Notwithstanding the above, if the Participant was a
Participant as of the first day of the first Limitation Year beginning after
December 31, 1986, in one or more defined benefit plans maintained by the
Employer that were in existence on May 6, 1986, the denominator of the fraction
may not be less than 125 percent of the sum of the annual benefits under such
plans that the Participant had accrued as of the close of the Last Limitation
Year beginning before January 1, 1987, disregarding any changes in the terms and
conditions of the plans after May 5, 1986. The preceding sentence shall only
apply if the defined benefit plans individually and in the aggregate satisfied
the requirements of Section 415 of the Code for all Limitation Years beginning
before January 1, 1987.
(2) A Participant's defined contribution plan fraction is the sum
of the Annual Additions to the Participant's account under the Plan
and all other defined contribution plans (whether terminated or not)
ever maintained by the Employer or by Related Employers as of the
close of the Limitation Year, divided by the lesser of:
(a) the sum of the product of 1.25 multiplied by the dollar limitation
in effect under Section 415(c)(1)(A) of the Code (determined without regard
to subsection (c)(6) thereof) for such year and each prior year of service
with the Employer or Related Employers, or
(b) the sum of the product of 1.4 multiplied by the amount that may be
taken into account under Section 415(c)(1)(B) (or subsection (c)(7), if
applicable) of the Code for such year and each prior year of service with
the Employer or Related Employers.
All such amounts shall be determined as of the close of the Limitation Year
and with such applicable limits and adjustments as are required under Section
415(b) of the Code. Notwithstanding the above, if the Employee was a Participant
as of the first day of the first Limitation Year beginning after December 31,
1986, in one or more defined benefit contribution plans maintained by the
Employer that were in existence on May 6, 1986, the numerator of this fraction
will be adjusted if the sum of this fraction and the defined benefit fraction
would otherwise exceed 1.0 under the terms of the Plan. Under the adjustment, an
amount, equal to the product of the excess of the sum of the fractions over 1.0
times the denominator of this fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is calculated using the fractions as
they would be computed as of the end of the last Limitation Year beginning
before January 1, 1987, and disregarding any changes in the terms and conditions
of the plans made after May 6, 1986, but using the Section 415 limitation
applicable to the first Limitation Year beginning on or after January 1, 1987.
(3) For purposes of applying the limitations of this Section 3.8,
the
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amount of any nondeductible Employee Contributions credited for the
Limitation Year under any defined benefit plan maintained by the
Employer or by any Related Employer shall be treated as an Annual
Addition for the benefit of the Participant under a qualified defined
contribution plan.
(g) Source of Benefit Reduction Necessary to Meet Annual Addition
Limitation. If as a result of the foregoing, a Participant's defined
contribution plan Annual Additions will exceed the limitations of this
Section, the required reduction in such Additions shall be made first to
the Donegal Mutual Insurance Company Profit Sharing Plan Annual Additions
and, if necessary, then to the Annual Additions with respect to a
Participant made to this Plan, proceeding first through forfeitures
allocated to the Participant's Employer Matching Contribution account, then
the Employer's Matching Contribution for the Plan Year and then to the
return of the Elective Contributions of a Participant for the Plan Year.
Any reduction in Employer Matching Contributions or forfeitures that would
otherwise have been allocated to the Participant under this Plan in order
to meet the above limitations shall be treated as a forfeiture and used to
reduce the Employer Matching Contribution otherwise required.
3.9 Distribution of Excess Deferrals.
(a) In General. Notwithstanding any other provision of the Plan,
Excess Deferral Amounts for any Plan Year and the income allocable thereto
shall be distributed no later than April 15 of the next succeeding year to
Participants who claim such Allocable Excess Deferral Amounts for the
calendar year.
(b) Definitions. For purposes of this Section 3.9, "Excess Deferral
Amount" means the amount of Elective Deferrals for a calendar year that the
Participant allocates to this Plan pursuant to the claim procedure set
forth in Section 3.9(c).
(c) Claims. The Participant's claim shall be in writing and be
submitted to the Plan Committee no later than March 1 of the next
succeeding year. It shall specify the Participant's Excess Deferral Amount
for the preceding calendar year and be accompanied by the Participant's
written statement that if such amounts are not distributed, such Excess
Deferral Amount, when added to amounts deferred under other plans or
arrangements described in Section 401(k), 408(k) or 403(b) of the Code,
will exceed the limit imposed on the Participant by Section 402(g) of the
Code for the year in which the deferral occurred.
(d) Maximum Distribution Amount. The Excess Deferral Amount
distributed to a Participant with respect to a calendar year shall be
adjusted for income and, if there is a loss allocable to the Excess
Deferral, shall in no event be less than the lesser of the Participant's
account under the Plan or the Participant's Elective Deferrals for the Plan
Year.
3.10 Excess Contributions.
(a) In General. Excess Contributions as defined in IRC Section
401(k)(8)(B) and the income allocable thereto (as provided in paragraph (c)
hereof) shall be distributed no later than the March 15th of the next
succeeding Plan Year to the Highly-Compensated Employees as provided
herein. The amount of Excess Contributions to be distributed shall be
determined by reducing the Elective Deferral amount of the Highly
Compensated Employee
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having the highest Elective Deferral amount for such year to the higher of
(1), the level at which the ADP test is passed by the Plan without the
reduction of the ADP of any other Highly Compensated Employees or (2) the
ADP of the Highly Compensated Employee having the next highest Elective
Deferral amount. If this process does not satisfy the ADP test for the
Plan, this process as described in the preceding sentence shall be repeated
at the progressively descending elective deferral amount levels amount
Highly Compensated Employees until the ADP test is satisfied, or until the
aggregate of excess Elective Deferral amounts has been refunded, whichever
is the first to occur. All excess contributions must be corrected by the
close of the Plan Year following the Plan Year for which they were made.
(b) Election to Treat As Employee Contributions. Any amount required
to be distributed to a Participant by paragraph (a) hereof shall, at the
election of the Participant and to the extent provided in Treasury
Regulations, be retained in the Plan as a Voluntary Employee Contribution
and treated as an amount distributed to the Participant and then
contributed as such a Voluntary Employee Contribution. Any excess
contributions recharacterized as Employee Contributions pursuant to the
preceding sentence shall nevertheless remain subject to the same
nonforfeitability requirements and distribution limitations as apply to
Elective Contributions.
(c) Excess Aggregate Contributions. Excess Aggregate Contributions in
the amount allocable thereto (as provided in paragraph (d) hereof shall be
distributed no later than the March 15th of the next succeeding Plan Year
to the Highly-Compensated Participants on the basis of the respective
portions of such amounts attributable to each of such Participants. Excess
Aggregate Contributions means the amount described in Section 401(m)(6)(B)
of the Code.
The foregoing notwithstanding, the amount of Excess Contributions to be
distributed shall be reduced by Excess Deferrals (ss.3.9) previously distributed
for the taxable year ending in the same Plan Year and Excess Deferrals to be
distributed for a taxable year will be reduced by Excess Contributions
previously distributed or recharacterized for the Plan Year beginning in such
taxable year.
(d) Determination of Income. The income allocable to Excess
Contributions and Excess Aggregate Contributions shall be determined by
computing both the income for the Plan Year with respect to which the
excess amounts relate and the income for the period between the end of that
year and the date of distribution ("the gap"). The income allocable to such
excess amounts will be equal to the sum of the income allocable to the
Participant's account containing the excess amounts for the applicable year
and the income allocable to such account for the gap period multiplied by a
fraction, the numerator of which is the excess amount and the denominator
of which is the closing balance as of the end of the applicable year. Until
provided otherwise by Treasury Regulations, such distribution shall be made
without reduction for net losses.
(e) Limitations on Multiple Use of Alternative Limitation. The
alternative method of compliance with IRC Sections 401(k) and 401(m) shall
be limited as provided in Treas. Reg. Section 1.401(m)-(2)(b). In the event
a multiple use of the alternative limitation occurs, correction of such use
with respect to the affected Highly-Compensated Employees shall be
accomplished by reducing the Actual Deferral Percentage of the
Highly-Compensated Employees and such reduction shall be treated as an
Excess Contribution subject to the provisions of this Section 3.10.
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3.11 Employee Rollover Contributions.
(a) An Employee eligible to participate in the Plan, whether or not a
Participant, may transfer to the Plan within the time period and in the
manner prescribed in paragraph (c) below and pursuant to procedures
promulgated by the Plan Committee, a rollover amount as defined in
paragraph (b) below, provided that such rollover amount shall be subject in
all respects to this section 3.11. The rollover amount shall be credited to
a Rollover Account maintained for that Employee/Participant. That Account
shall share in the income allocations of the trust fund as provided in
section 4.3(d) hereof, but it shall not share in Employer contributions nor
any other allocations under section 4.3. Upon the termination of the
Participant's employment with the Employer, for whatever reason, the total
balance in the Rollover Account shall be distributed in the same manner as
the balances in the Participant's other accounts in accordance with
Article V hereof.
(b) For purposes of this section, rollover amount means as to any
Employee, an "eligible rollover distribution" as defined in Section
402(c)(4) of the Code.
(c) Rollover amounts must be transferred to this Plan on or before the
sixtieth (60th) day following the Employee's receipt of the rollover
amount. The Employee may authorize the Plan Committee to obtain the
rollover amount from the transferor plan directly. As a condition precedent
to being permitted to transfer a rollover amount to the Plan, the Employee
shall comply with such requirements and complete such forms as the Plan
Committee reasonably believes are necessary to insure that any amount it
authorizes the Trustee to accept constitutes a rollover amount as defined
in Section 402(c)(4) of the Code.
(d) The foregoing notwithstanding, in determining whether the
distribution to be received as a rollover is being received from a
qualified plan, the Plan Committee shall be entitled to rely on the
representations of the Employee as provided in the Treasury Regulations
that the distributing plan is a qualified plan. Regardless of whether it is
ultimately determined that such distributing plan is or is not a qualified
plan, the acceptance of such contribution shall not be a grounds for
disqualification of the Plan. Nevertheless, if the Plan Committee
determines at any time that any amount accepted as a rollover amount
pursuant to this section, for whatever reason, was not eligible for such
classification or otherwise did not qualify as a rollover amount, the
Committee shall direct the Trustees to pay to the Employee/Participant or
his designated beneficiary the total amount accepted as a rollover amount
plus all earnings and increments in value thereon from the date of
acceptance to the date of such distribution. The Plan Committee shall
authorize the Trustees or other payor to withhold from such distribution
any taxes as required by law and to submit such information documents to
the taxing authorities as required by law.
(e) Under all circumstances and at all times the Employee/Participant
shall be 100% vested in the balance of the Employee's Rollover Account.
3.12 Direct Rollovers Permitted
(a) Notwithstanding any provision of the Plan to the contrary that
would
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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.
(b) Definitions.
1. Eligible rollover distribution: 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).
2. Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of the Code,
an individual retirement annuity described in Section 408(b) of the
Code, an annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
3. Distributee: 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 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.
4. Direct rollover: A direct rollover is a payment by the Plan to
the eligible retirement plan specified by the distributee.
3.13 Reemployment after Distribution. If any former Participant shall be
re-employed by the Employer before incurring five consecutive 1 year Breaks in
Service, and such former Participant had received a distribution of his entire
vested interest prior to his re-employment, his forfeited account shall be
reinstated only if he repays the full amount distributed to him before the
earlier of five years after (1) the first date on which the Participant is
subsequently re-employed by the Employer, or (2) the close of the first of five
consecutive 1 year Breaks in Service commencing after the distribution. If a
distribution occurs for any reason other than a separation from service, the
time for repayment may not end earlier than five years after the date of
separation. In the event the former Participant does repay the full amount
distributed to him,
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the undistributed portion of the Participant's Account must be restored in full,
unadjusted by any gains or losses occurring subsequent to the Anniversary Date
coinciding with or preceding his termination. The source for such reinstatement
shall first be any forfeitures occurring during the year. if such source is
insufficient, then the Employer shall contribute an amount which is sufficient
to restore any such forfeited Account. Additionally, the Employer shall
establish a separate account for the Participant's interest in the Plan at the
time of the distribution and at any time during which the Participant's vested
percentage in that account can increase that vested portion will equal or exceed
an amount determined by applying the following formula where "x" equals the
amount: x = P (ab + (r x d) - (r x d). "P" is the vested percentage; "ab" is the
account balance; "d" is the amount of the distribution; and "r" is the ratio of
the account balance at the relevant time to the account balance after the
distribution.
ARTICLE IV
PARTICIPANTS' ACCOUNTS
4.1 Individual Accounts. The Plan Committee shall establish and maintain
for each Participant (or Beneficiary of a deceased Participant) an Elective
Deferral Account and Employer Matching Contribution Account. Credits and charges
shall be made to each such Account in the manner hereinafter described. The
maintenance of Accounts is for accounting purposes only, and a segregation of
the assets of the Trust to each Account shall not be required.
4.2 Valuation of the Trust. The Trust shall be valued by the Trustees on
the Anniversary Date in each Plan Year. Such valuation shall be made on the
basis of the fair market value of all property held in Trust. Any contribution
made on account of a particular Plan Year but received by the Trustees after the
end of such Plan Year shall be treated as having been made on the Anniversary
Date.
4.3 Adjustments and Allocations to Accounts. At the end of each Plan Year,
the Accounts of each Participant (or Beneficiary of a deceased Participant)
shall be adjusted in the following order:
(a) decreased by any amounts distributed to or for the benefit of the
Participant (or Beneficiary of a deceased Participant);
(b) increased by the contributions made by or on behalf of the
Participant to his account not previously so allocated;
(c) increased by the Employer's Matching Contribution which shall be
allocated to each Participant's Employer Matching Contribution Account,
provided that no allocation shall be made to the account of a Participant
unless that Participant is in the employ of the Employer on the last day of
the year, except as provided in Section 3.1; and
(d) increased by the income of the Trust in proportion to the account
balances in each such account on the last day of each calendar quarter in
proportion to the balances of all
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such accounts on the same day prior to the income allocation provided
herein.
(e) The foregoing notwithstanding, if as a result of a reasonable
error in estimating a Participant's Plan Compensation, or a reasonable
error in determining the amount of a Participant's Elective Deferrals, the
annual additions for a Participant for a particular Plan Year would cause
the limitations of Code Section 415 applicable to that Participant for that
Plan Year to be exceeded, such excess amounts shall not be deemed to be
annual additions to that Participant's account and shall not increase that
Participant's account, but rather shall be removed from that Participant's
account and be used to reduce the Employer contributions for the next
Limitation Year (Plan Year) and succeeding Limitation Years, if necessary,
for that Participant if that Participant is covered by the Plan as of the
end of the Limitation Year. If the Participant is not covered by the Plan
as of the end of the Limitation Year, then such excess must be held
unallocated in a suspense account for that Limitation Year and allocated
and reallocated in the next Limitation Year to all remaining Participants
and such excess amounts must be used to reduce the Employer contributions
for such Limitation Years. No such excess amounts may be distributed to
Participants or former participants.
4.4 Combined Limitations.
(a) In the event any Participant in this Plan is a participant under
any other Defined Contribution Plan maintained by the Employer (whether or
not terminated), the total amount of Annual Additions to such Participant's
Accounts for any Limitation Year from all such Defined Contribution Plans
shall not exceed the limitations set forth in Section 3.8. Any reduction
shall be made first from the Employer's profit sharing plan or plans and
then from the Employer's other defined contribution plans. If it is
determined that as a result of the limitations set forth in this Section,
the Annual Additions to a Participant's account in this Plan must be
reduced, such reduction shall be accomplished in accordance with the
provisions of Section 3.10.
(b) In the event that any Participant under this Plan is a participant
under one or more Defined Benefit Plans maintained by the Employer (whether
or not terminated), then for any Limitation Year the sum of the Defined
Benefit Plan Fraction for such Limitation Year and the Defined Contribution
Plan Fraction for such Limitation Year shall not exceed one (1.0). If it is
determined that, as a result of the limitations set forth in this Section
4.4, the Annual Additions under this Plan must be reduced, such reduction
shall be accomplished in accordance with the provisions of Section 3.10.
(c) Definitions Relating to Annual Addition Limitations: For purposes
of Section 4.4, the following definitions shall apply:
(1) "Retirement Plan" means a Plan maintained by the Employer
which is (A) a profit sharing, or pension plan described in Section
401(a) of the Code, (B) an annuity plan or annuity contract described
in Sections 403(a) or 403(b) of the Code, (C) a qualified bond
purchase plan described in Section 405(a) of the Code, or (D) an
individual retirement account, individual retirement annuity or
retirement bond described in Sections 408(a), 408(b) or 409 of the
Code.
(2) "Defined Contribution Plan" means a Retirement Plan which
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provides for an individual account for each Participant and for
benefits based solely on the amount contributed to the Participant's
account, and any income, expense, gains and losses, and any
forfeitures of accounts of other participants which may be allocated
to such participant's account.
(3) "Defined Benefit Plan" means any Retirement Plan which does
not meet the definition of a Defined Contribution Plan.
(4) "Defined Benefit Plan Fraction", for any Limitation Year
means a fraction (A) the numerator of which is the projected annual
benefit of the Participant (the annual benefit to which such
Participant would be entitled under the terms of the Defined Benefit
Plan on the assumptions that he continues employment until his normal
retirement age as determined under the terms of such Defined Benefit
Plan, that his compensation continues at the same rate as in effect in
the Limitation Year under consideration until the date of his normal
retirement age and that all other relevant factors used to determined
benefits under such Defined Benefit Plan remain constant as of the
current Limitation Year for all future Limitation Years) under all
Defined Benefit Plans maintained by the Employer, determined as of the
close of the Limitation Year, and (B) the denominator of which is the
lesser of (i) the product of 1.25 multiplied by the dollar limitation
in effect under subsection (b)(1)(A) of Section 415 of the Code for
such Limitation Year, or (ii) the product of 1.4 multiplied by 100% of
the Participant's average compensation for his high three Limitation
Years.
(5) "Defined Contribution Plan Fraction" for any Limitation Year
shall mean a fraction (A) the numerator of which is the sum of the
Annual Additions to the Participant's accounts under all Defined
contribution Plans maintained by the Employer in such Limitation Year,
and (B) 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: (i) the product of
1.25 multiplied by the dollar limitation in effect under subsection
(c)(1)(A) of Section 415 of the Code for such Limitation Year (without
regard to subsection (c)(6) thereof), or (ii) the product of 1.4
multiplied by 25% of the Participant's Limitation Year Compensation.
(6) "Limitation Year" shall mean the Plan Year.
(7) "Limitation Year Compensation" shall mean compensation as
defined in Section 1.3(d) of the Plan.
(8) "Employer" means the employer that adopts this Plan, and all
members of a controlled group of corporations (as defined in Section
414(b) of the Code as modified by Section 415(h), all commonly
controlled trades or businesses (as defined in Section 414(c) of the
Code as modified by Section 415(h) or affiliated Service groups (as
defined in Section 414(m) of the Code) of which the adopting employer
is a part.
4.5 Self-Directed Accounts.
(a) Each Participant shall direct the Trustees as to how all or any
portion of
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the Participant's Account shall be invested in accordance with such rules
and regulations that permit a Participant the opportunity to exercise
control over the assets in his individual account and provide an
opportunity to choose, from a broad range of investments, the manner in
which some or all of such assets are invested. The Trustees shall implement
such Participant instructions except as provided in paragraph (c) below.
All rules and regulations shall be applied consistently and uniformly to
all Participants similarly situated.
(b) The Trustees shall make available to each Participant the
opportunity to choose from at least three diversified categories of
investments (including look-through investments) and to transfer all or any
portion of the Participant's Account between and among such investments no
less frequently than quarterly annually. In addition to investment
directions which may be given pursuant to paragraph (d) below, a
Participant may invest in any of the look-through investment vehicles as
selected by the Trustees. All of the information concerning such
investments shall be made available to a Participant upon request to the
Trustees by distribution of the prospectuses and other information
concerning such look-through investments as is provided to the Trustees.
(c) The Trustees shall not honor investment directions which, if
implemented would not be in accordance with the Plan documents to the
extent the Plan documents are consistent with Title I of ERISA; would cause
the Plan to maintain an indicia of ownership of any Plan assets outside of
the United States; would jeopardize the Plan's tax qualified status under
the Internal Revenue Code; would result in a prohibited transaction as
described in ERISA Section 406, or in IRC Section 4975; could result in a
loss in excess of the Participant's Account balance; or, would generate
income taxable to the Plan.
(d) In addition to the look-through investment vehicles available to
the Participant under paragraph (b) above, a Participant may select any
other investment, subject to the limitations of paragraph (c) and subject
to the Participant bearing the expenses of carrying out the Participant's
instructions in purchasing such investments, all of which shall be detailed
in writing by the Trustees to the Participant to the extent known and, if
there are expenses which are unknown that fact shall be in writing on forms
supplied by the Trustees and shall be signed by the Participant and
witnessed by a Trustee.
(e) Under no circumstances shall the ability of a Participant to
direct the investment of the amounts credited to his Account be interpreted
to allow the Participant to invest such Accounts directly or to ever take
possession of all or any portion of his Account, except as specifically
provided by this Plan. All funds while held in the Trust are part of the
trust fund and are managed exclusively by the Trustees subject to this
Section 4.5.
(f) It is specifically intended that the Plan qualify as an ERISA
404(c) Plan. The Plan Committee is the identified plan fiduciary to accept
Participant's investment choices and to distribute such investment
information. The Plan Committee may designate all or a portion of this
responsibility to others provided such designation is communicated in
writing to the Participants. To the extent the Plan does qualify as an
ERISA 404(c) Plan, with respect to each Participant the Plan fiduciaries
may be relieved of liability for any losses which are the direct and
necessary result of investment choices made by the Participant or the
Participant's beneficiary. A Participant may change the allocation of his
contribution and account balances at
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least once in any three months. Each Participant shall have the opportunity
to give investment instructions to the Plan Committee or its designee and
will obtain written conformation of such instructions. Under no
circumstances is any person, including any member of the Plan Committee, or
any employee of the Employer, authorized to distribute to a Participant
information concerning any investment that is not contained in a prospectus
or otherwise made available pursuant to all applicable laws regulating the
sale and investment of securities and other property.
ARTICLE V
PAYMENT OF BENEFITS
5.1 Vesting and Forfeitures.
(a) Elective Deferral Account - A Participant shall be 100% vested at
all times in the amounts held in this account.
(b) Employer Matching Contribution Account - A Participant will be
100% vested in the amounts held in this account after the completion of
three (3) Years of Service:
(c) Except as provided above, for purposes of this Plan, the word
"Accounts" shall mean both a Participant's Elective Deferral Account and
the Employer Matching Contribution Account.
(d) All forfeitures arising under this Plan shall be applied to the
restoration of any accounts of Participants who are reemployed during the
Plan Year as required by this Plan and forfeitures remaining, if any, will
be applied toward the Employer's Matching Contribution for the Plan Year in
which the forfeitures occurred. If there are any forfeitures remaining
unapplied after the application of the preceding sentence, they will be
applied to the Matching Contribution accounts of the Participants remaining
in the Plan in proportion to their compensation for that Plan Year.
5.2 Retirement. A Participant shall reach Normal Retirement Age upon
attaining age 65 and Early Retirement Age upon attaining age 55 and may retire
as of the first day of the month coincident with or following his attainment of
such ages as the Participant elects, which day shall be called the Participant's
Retirement Date. A Participant shall have a nonforfeitable right to the balances
in his Accounts upon attainment of Early or Normal Retirement Age. A Participant
may remain actively employed by the Employer after his Normal Retirement Date,
subject to any written mandatory retirement policy of the Employer. He shall
continue to be a Participant in the Plan as long he remains so employed by the
Employer, and he may retire or be retired in accordance with any such written
mandatory retirement policy of the Employer, as of the first day of any month
after his Normal Retirement Date. A Participant who retires under this section
shall be entitled to distribution of his entire Accounts balance at the time and
in the manner provided by Section 5.8.
5.3 Age 59-1/2. Upon attainment of age 59-1/2, a Participant may request a
distribution
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of all or any portion of the vested portion of his Accounts attributable to
contributions made pursuant to Sections 3.1, 3.4, and 3.11. Such distribution
may be made even though the Participant has not terminated employment and
continues as a Participant in the Plan thereafter. A Participant requesting a
distribution under this Section shall be entitled to distribution at the time
and in the manner provided by Section 5.8.
5.4 Disability. A Participant who is determined by the Employer to be
disabled as defined in Section 1.4(a) hereof, shall be considered to have taken
disability retirement as of the first day of the month following the month in
which the Employer makes such determination. The Employer may require the
Participant to submit to medical examinations for the purpose of verifying the
Participant's disability. A Participant who becomes disabled shall have a 100%
nonforfeitable right to the balances in his Accounts and shall be entitled to
distribution of his Accounts at the time and in the manner provided by Section
5.8.
5.5 Death. In the event of a Participant's death prior to his termination
of employment with the Employer, the balances in such Participant's Accounts
shall become fully vested and payable to the Participant's beneficiary as
designated under the Plan. Distribution of such balances shall be made at the
time and in the manner provided by Section 5.8. Unless otherwise elected in the
manner prescribed in this Section, the Beneficiary of any death benefit payable
hereunder shall be the Participant's spouse. The Participant may designate a
Beneficiary other than his or her spouse only if:
(a) The Participant's spouse has consented to the Beneficiary
Designation. Such consent must be in writing and must be witnessed by a
representative of the Plan Committee or notarized. The consent will be
valid only as to the spouse who signed it; or
(b) The Participant establishes to the satisfaction of the Plan
Committee that he or she has no spouse; or
(c) The Participant's spouse cannot be located; or
(d) Because of other circumstances under which no spousal consent is
required in accordance with applicable regulations under the Code or ERISA.
5.6 Termination of Employment Prior to Retirement, Disability or Death. A
Participant who terminates employment with the Employer and who is not entitled
to distribution of his account balance under any previous section of this
Article V, shall be entitled to distribution of the vested balances in his
Accounts at the time and in the manner provided by Section 5.8.
5.7 Limitation on Distributions. Except as provided in Section 5.8, no
distributions shall be made to a Participant from his Accounts until such
Participant's retirement, attainment of age 59-1/2, death, disability, other
termination of employment or due to hardship as provided herein.
The Plan Administrator shall not permit a distribution of any benefit prior
to the Participant's Normal or Early Retirement Age where the present value of
the non-forfeitable accrued benefit (taking into account benefits derived from
both Employer and Employee contributions) is in excess of $5,000 without the
consent of the Participant's spouse. The Plan
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Administrator must obtain the written consent of the Participant and where
applicable the Participant's spouse not more than 90 days before the
commencement of the distribution of any part of an accrued benefit hereunder.
5.8 Distribution upon Retirement, Disability, Death or Other Termination of
Employment.
(a) Time and Manner of Distribution. Upon a Participant's retirement,
attainment of age 59-1/2 (if a distribution is requested at that time
pursuant to the provisions of Section 5.3), disability, death, or other
termination of employment, there shall be distributed to the Participant,
or to his Beneficiary in the case of death, the vested balances in the
Participant's Accounts as of the Accounting Date immediately preceding the
date of such separation from employment, plus any contributions credited or
to be credited to his Accounts subsequent to such Accounting Date, in a
lump sum, to be distributed as soon as practicable after such separation
from employment (and in the case of an age 59-1/2 in-service distribution
as soon as practical after the written request is received by the Plan
Committee) unless elected otherwise by the Participant or the Participant's
surviving spouse. For purposes of this Section 5.8 "Accounting Date" means
a date on which the Trustee values the Investment Funds and makes
allocations to Accounts pursuant to Article IV. Notwithstanding the
foregoing, a Participant who has separated from employment may elect,
pursuant to Plan Committee rules, to defer such lump sum distribution to
any subsequent date, subject to the restrictions contained in subsection
(b) hereof. The Accounting Date for such deferred lump sum distribution
shall be the Accounting Date which immediately precedes the date of
distribution elected by the Participant. An election to defer a
distribution may be changed no more frequently than annually and shall be
irrevocable upon the death of the Participant.
If a Participant (or Beneficiary) entitled to receive a distribution under
this Section 5.8 should die prior to the time he has received the full
distribution to which he is entitled, then the amount credited to his Accounts
as of the Accounting Date for the month in which the death occurs shall be
distributed to the deceased Participant's Beneficiary or to the estate of the
Beneficiary in the case of the Beneficiary's death. The provisions of this
Section 5.8 shall apply to all benefits payable to a Participant derived from
both Employer and non-deductible Employee Contributions. If a distribution is
considered to have commenced in accordance with the Treasury Regulations before
the Participant's death, the remaining interest of the Participant will be
distributed at least as rapidly as under the method of distribution being used
as of the date of the Participant's death. Additionally, distributions under
this Plan will be made in accordance with the requirement of the Treasury
Regulations under Section 401(a)(9), including the minimum distribution
incidental benefit requirements of Section 1.401(a)(9)-2 of the proposed
Regulations.
(b) Restrictions. Distributions are subject to the following
restrictions where applicable:
(1) No Participant (or Beneficiary) may elect a distribution date
which is earlier than 60 days following the date on which the
Participant's Accounts are to be valued.
(2) Each Participant's Accounts balances must be distributed to
him in
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full no later than the April 1st following the calendar year in which
he attains age 70-1/2; provided however, if Participant dies before
his entire Accounts balances have been distributed, or if distribution
has commenced to the Participant's surviving spouse who dies before
the entire Account balances have been distributed then the entire
remaining Account balances must be distributed to the Participant's
designated Beneficiary within five years of the Participant's death
(or the death of his surviving spouse). The foregoing notwithstanding,
a Participant other than a five (5%) percent owner shall not be
required to accept a distribution regardless of age prior to the
termination of his employment with the Employer.
(3) Notwithstanding (2) above or any other provision herein to
the contrary, in no event shall distribution of a Participant's
Accounts be made later than the sixtieth (60th) day after the close of
the Plan Year in which occurs the latest of the following events:
(a) The attainment by the Participant of age 65;
(b) In the case of a Plan Participant who commences participation in
the Plan within five (5) years before attaining age 65, the fifth
anniversary of the time the Plan Participant commences participation in the
Plan;
(c) In the case of a Plan Participant not described in paragraph (b)
above, the tenth anniversary of the Plan Year in which the Participant
joined the Plan as a Participant;
(d) The termination of the Participant's service with the Employer; or
(e) The date specified by the Participant in his election made
pursuant to subsection (a) hereof.
5.9 Distributions of $5,000 or Less. Upon the termination of a
Participant's employment with the Employer, prior to a Participant's annuity
starting date, the Plan Committee shall make an immediate total distribution of
the vested value of the account of the Participant if the present value of such
account to the extent vested (calculated using an interest rate not greater than
the PBGC rate) is $5,000 or less and, at no time prior to the termination of the
Participant's employment, ever exceeded $5,000.00. Such amount shall be paid to
the Participant, or if the Participant is then deceased, to the Participant's
designated beneficiary; provided, however, if the distribution provided
hereunder is less than the total amount of the Participant's account at the time
of the distribution and if the Participant is reemployed within the five (5)
year period commencing on such termination, the Participant shall have repayment
rights with respect to such distribution identical to those provided in Section
3.13 hereof.
5.10 Additional Distribution Restrictions. Notwithstanding anything else
contained in this Plan, amounts attributable to Elective Deferrals may not be
distributed earlier than the occurrence of one of the following events:
(1) the Participant's retirement, death or disability or
separation from service;
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(2) the termination of this Plan without the establishment or
maintenance of another defined contribution plan (other than an ESOP
or SEP);
(3) the Participant's attainment of age 59 1/2 or hardship as
provided herein;
(4) the sale or disposition by the Employer to an unrelated
corporation of substantially all of its assets, but only with respect
to Employees who continue employment with the acquiring corporation
and the acquiring corporation does not maintain the Plan after the
disposition; and
(5) the sale or other disposition by the Employer of its interest
in a subsidiary to an unrelated entity but only with respect to
Employees who continue employment with the subsidiary and the
acquiring entity does not maintain the Plan after the disposition.
Clauses, 2, 4, and 5 apply only if the distribution is in the form of
a lump sum and clauses 4 and 5 apply only if the transferor
corporation continues to maintain the Plan.
ARTICLE VI
FIDUCIARY RESPONSIBILITY
6.1 Named Fiduciary. The Employer shall be the "named fiduciary" referred
to in Section 402(a) of ERISA with respect to the management, operation and
administration of the Plan and is also responsible for making contributions
provided for under Section 3.1. The "Plan Administrator" as defined in Section
414(g) of the Code and Section 3(16) of ERISA is the Plan Committee as
established by Article VIII hereof.
6.2 Allocation of Fiduciary Responsibility. Each fiduciary, whether named
herein or otherwise, shall only have the individual responsibility for
exercising the functions and responsibilities assigned or allocated to such
fiduciary hereunder. Unless otherwise specifically provided herein, no fiduciary
responsibility shall be shared by two or more fiduciaries. Where one fiduciary
follows the directions of another fiduciary, who has the fiduciary
responsibility for such action, then the fiduciary following such direction
shall not be deemed a fiduciary hereunder in taking such action.
6.3 Service in More than One Capacity. Any person, or group of persons, may
serve in more than one fiduciary capacity with respect to this Plan.
6.4 Employment of Advisers. A fiduciary may engage accountants, attorneys,
actuaries or such other advisers as it deems necessary or advisable to properly
carry out its duties under this Plan. The functions of any such persons
designated by the fiduciary shall be limited to the specific services and duties
for which they are engaged, and such persons shall have no other
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duties, obligations or responsibilities under the Plan.
6.5 Compensation of Fiduciaries and Advisers. The fees, expenses and costs
charged or incurred by any fiduciary or any adviser hereunder may be paid in
whole or in part by the Employer, and any such fees, expenses or costs not paid
by the Employer shall be paid out of the Trust; provided that such compensation
or reimbursement is reasonable under the circumstances; and provided further
that no person who already receives full-time pay from an Employer whose
employees are Participants in the Plan shall receive any compensation from the
Trust, except for reimbursement of expenses properly and actually incurred.
6.6 Liability of Fiduciaries. Each fiduciary, and each adviser to any
fiduciary, shall be free from all liability for any act or conduct in carrying
out its responsibilities under this Plan, except for acts of willful misconduct
or gross negligence; provided, however, that the foregoing shall not relieve any
such fiduciary or adviser from any responsibility or liability that it may have
pursuant to ERISA.
ARTICLE VII
PLAN ADMINISTRATION
7.1 Plan Committee. A Plan Committee consisting of at least two officers of
the Employer shall be the Plan Administrator. The Plan Committee may appoint one
member authorized to sign any reports required by ERISA in representation of all
members. Members of the Plan Committee shall serve until their resignation or
dismissal by the Employer and vacancies shall be filled in the same manner as
the original appointments. The Employer may dismiss any member of the Plan
Committee at any time with or without cause.
7.2 Duties and Powers of the Plan Committee. The Plan Committee shall have
such duties and powers as may be necessary to discharge its duties hereunder,
including, but not limited to, the following:
(a) To construe and interpret the Plan and Trust.
(b) To decide all questions of the eligibility of Employees to become
Participants under the Plan.
(c) To determine the amount, manner and time of payment of benefits
under the Plan.
(d) To authorize and direct all disbursements by the Trustee from the
Trust.
(e) To prescribe procedures to be followed by Participants or
Beneficiaries for filing applications for benefits.
(f) To prepare and distribute to Participants information explaining
the Plan.
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(g) To make and publish rules for the regulation of the Plan which are
not inconsistent with the terms of the Plan or with ERISA.
(h) To designate one or more of its members to assume responsibility
for any of its functions or to delegate to individuals not members of the
Committee any administrative, clerical or other nondiscretionary duties
provided always in such delegation, the Committee shall alone remain
responsible for decisions affecting the rights of Participants and their
beneficiaries.
(i) To take any action required to take self corrective measures as
required by the Internal Revenue Service or the Department of Labor to
preserve the tax qualified status of the Plan, to correct errors in
fiduciary conduct or such other action to maintain the Plan in compliance
with all applicable laws.
The Plan Committee shall have no power to add to, subtract from or modify
any of the terms of the Plan, or to modify any benefits provided by the Plan, or
to waive or fail to apply any requirements for eligibility for a benefit under
the Plan. All policies, rules, interpretations and decisions of the Plan
Committee shall be uniformly and consistently applied in a nondiscriminatory
manner to all Participants in similar circumstances. The Plan Committee shall be
entitled to rely upon information furnished by a Participant or Beneficiary in
carrying out its duties hereunder.
7.3 Claims Procedure. The Plan Committee shall make all determinations as
to the right of any person to a benefit under this Plan. If a claim is denied by
the Plan Committee, it shall give written notice to the claimant setting forth
(a) the specific reason or reasons for the denial, (b) the specific reference to
pertinent Plan provisions on which the denial is based, (c) a description of any
additional material or information necessary for the claimant to perfect the
claim and an explanation of why such material or information is necessary, and
(d) an explanation of the claim review procedure, in accordance with this
Section.
Within sixty days after the receipt by the claimant of a written notice of
denial of a claim, or such later time as may be deemed reasonable taking into
account the nature of the benefit subject to the claim and any other attendant
circumstances, the claimant may file a written request with the Plan Committee
that it conduct a full and fair review of the denial of the claim for benefits.
If such review is requested, the claimant or his duly authorized representative
may (a) request a review upon written application, (b) review pertinent
documents, and (c) submit issues and comments in writing.
The Plan Committee shall issue a written decision on the claim within sixty
days after the receipt of the aforesaid request for review, except that if there
are special circumstances (such as the need to hold a hearing) which require an
extension of time for processing the claim, the aforesaid sixty day period shall
be extended to one hundred twenty days. In the event of such extension, written
notice of the extension shall be furnished to the claimant prior to the
commencement of the extension. Any decision on review shall be in writing, and
shall be written in a manner calculated to be understood by the claimant, shall
include the specific reason or reasons for the decision, and shall contain
specific reference to pertinent Plan provisions upon which the decision is
based.
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The foregoing notwithstanding, the Plan Committee shall be responsible for
maintaining records of Participants' service, account balances, vesting and
other matters relating to amount of benefits under the Plan. The Plan Committee
shall also be responsible for filing such reports, and making such disclosure to
Participants as may be required by ERISA and the Code.
7.4 Records and Reports. The Plan Committee shall be responsible for
maintaining records of Participants' service, account balances, vesting and
other matters relating to amount of benefits under the Plan. The Plan Committee
shall also be responsible for filing such reports, and making such disclosures
to Participants as may be required by ERISA and the Code.
7.5 Application and Forms for Benefits. The Plan Committee may require a
Participant to complete and file with the Committee an application for a
benefit, or any other forms approved by the Committee, and to furnish all
pertinent information requested by the Plan Committee. The Plan Committee may
rely on all such information so furnished.
ARTICLE VIII
AMENDMENT, MERGER AND TERMINATION OF THE PLAN
8.1 Amendment and Termination.
(a) General. The Employer intends to continue this Plan and the
payment of contributions hereunder indefinitely, but such continuance is
not assumed as a contractual obligation, and the Employer expressly
reserves the right to discontinue contributions to the Plan or to terminate
the Plan at any time, as to its Employees without the consent of any other
party. Any amendment may be made retroactive by its terms, but no such
amendment shall cause any part of the Trust to be used for, or diverted to,
any purpose other than the exclusive benefit of Participants or their
Beneficiaries; provided, however, the Employer may make any amendment it
determines necessary or desirable, with or without retroactive effect, to
qualify or maintain the Plan as a qualified plan within the meaning of
Section 401(a) of the Code, and to qualify or maintain the Trust as tax
exempt under Section 501(a) of the Code, and the regulations issued
thereunder.
(b) Limitations on Amendment.
(1) If the Plan's vesting schedule is amended or the Plan is
amended in any way that directly or indirectly affects the
computation of a Participant's nonforfeitable percentage, or if
the Plan is deemed amended by an automatic change to or from a
top-heavy vesting schedule, each Participant with at least three
years of service with the Employer may elect, within a reasonable
period after the adoption of the amendment or change to have the
Participant's nonforfeitability percentage computed under the
Plan without regard to such amendment or change. The period
during which the election may be made shall commence with the
date the amendment is adopted or deemed to be made and shall end
on the latest of:
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(i) Sixty (60) days after the amendment is adopted
(ii) Sixty (60) days after the amendment becomes effective
or
(iii) Sixty (60) days after the Participant is issued
written notice of the amendment by the Plan Committee.
(2) No amendment to the Plan shall be effective to the extent it
has the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's account
balance may be reduced to the extent permitted under Section
412(c)(8) of the Code. For purposes of this section, a Plan
amendment which has the effect of decreasing a Participant's
account balance or eliminating an optional form of benefit with
respect to benefits attributable to service before the amendment
shall be treated as reducing an accrued benefit. Furthermore, no
amendment of the Plan shall have the effect of decreasing a
Participant's vested interest determined without regard to such
amendment as of the later of the date such amendment is adopted
or the date it becomes effective.
8.2 Action by Employer. Any action by the Employer under this Plan may be
taken by means of a writing signed by an authorized officer.
8.3 Effect of Termination. Upon termination of the Plan, the accounts of
all Participants or Beneficiaries affected thereby shall become fully vested and
nonforfeitable, and the Plan Committee shall, after payment of expenses properly
chargeable to the Fund, allocate any unallocated assets in the Fund to the
accounts of such Participants or Beneficiaries pursuant to the rules set forth
in Article IV hereof. In making such final allocation, the Plan Committee may,
if it determines that a termination of the Plan has occurred prior to the date
of formal action by the Employer, reverse any forfeitures of accounts of
Participants which have occurred in the interim.
8.4 Partial Termination. Upon termination of the Plan with respect to a
group of Participants which constitutes a partial termination of the Plan under
the Code, the accounts of such group of Participants shall become fully vested
and non-forfeitable.
8.5 Manner of Distribution. In the event of termination or partial
termination of the Plan, the Plan Committee shall direct the Trustee either (a)
to make distribution of benefits to Participants or their Beneficiaries affected
by such termination or partial termination pursuant to Section 5.8, or (b) to
retain such benefits for distribution upon the occurrence of one of the events
set forth in Article V hereof.
To the extent that no discrimination in value results, any distribution
after termination or partial termination of the Plan may be made, in whole or in
part, in cash, in securities or other assets in kind, or in nontransferable
annuity contracts, as the Plan Committee and the Trustee may determine. All
non-cash distributions shall be valued at fair market value at the date of
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<PAGE>
distribution.
8.6 Merger. In the event of any merger or consolidation of the Plan with,
or transfer in whole or in part of the assets and liabilities of the Fund to
another trust fund held under any other plan of deferred compensation maintained
or to be established for the benefit of all or some of the Participants in this
Plan, the assets of the Fund applicable to such Participants shall be
transferred to the other trust fund only if:
(a) Each Participant would (if either this Plan or the other plan then
terminated) receive a benefit immediately after the merger, consolidation
or transfer which is equal to or greater than the benefit he would have
been entitled to receive immediately before the merger, consolidation or
transfer (if this Plan had then terminated).
(b) A writing signed by the authorized partner of the Employer under
this Plan, or of any new or successor employer of the affected
Participants, shall authorize such transfer of assets, and, in the case of
the new or successor employer of the affected Participants, its resolutions
shall include an assumption of liabilities with respect to such
Participants' inclusion in the new employer's plan, and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Internal Revenue Code.
8.7 Successor Employer. In the event of the dissolution, merger,
consolidation or reorganization of the Employer, provision may be made by which
the Plan and Trust will be continued by the successor; and, in that event, such
successor shall be substituted for the Employer under the Plan. The substitution
of the successor shall constitute an assumption of Plan liabilities by the
successor and the successor shall have all of the powers, duties and
responsibilities of the Employer under the Plan.
ARTICLE IX
TOP-HEAVY
PROVISIONS AND DEFINITIONS
9.1 Top-Heavy Plan Definitions.
(a) "Top-Heavy Plan" means a plan which, as of the Determination Date
(1) the Present Value of Accrued Benefits of Key Employees and (2) the
aggregate of the Accounts of Key Employees under the plan exceeds sixty
percent (60%) of the Present Value of Accrued Benefits and the aggregate of
the Accounts of all employees under such plan. The determination of whether
a plan is top-heavy shall be made after aggregating all other plans of the
Employer or any of its affiliates which are part of a Required Aggregation
Group and after aggregating any other plan of the Employer or any of its
affiliates which is part of the Permissive Aggregation Group, if such
permissive aggregation thereby eliminates the top-heavy status of any plan
within such Permissive Aggregation Group. A plan is a "Super Top-Heavy
Plan" if, as of the Determination Date, the plan would meet the test
specified above for being a Top-Heavy Plan if
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<PAGE>
ninety percent (90%) were substituted for sixty percent (60%) in each place
it appears in this subsection.
(b) "Determination Date" means, for purposes of determining whether a
plan is a Top-Heavy Plan for a particular Plan Year, the last day of the
preceding Plan Year (or, in the case of the first Plan Year of a plan, the
last day of the first Plan Year).
(c) "Valuation Date" means, for purposes of determining the value of
Accounts under this Section, the same date as the Determination Date.
(d) "Key Employee" means any Employee or former Employee (including a
Beneficiary of such Employee) who at any time during the Plan Year of
Determination, or during any of the four (4) preceding Plan Years, is:
(1) An officer of the Employer having annual Compensation for
such Plan Year which is in excess of 50% of the dollar limit in effect
under Section 415(b)(1)(A) for the calendar year in which such Plan
Year ends;
(2) An owner of (or considered as owning within the meaning of
Section 318) both more than an one-half percent interest as well as
one of the ten largest interests in the Employer and having annual
compensation greater than the dollar limit in effect under Section
415(c)(1)(A) for the Plan Year;
(3) A 5% owner of the Employer; or
(4) A 1% owner of the Employer whose annual compensation is more
than $150,000.
For purposes of determining 5% and 1% owners, the aggregation rules and the
rules of subsections (b), (c) and (m) of Section 414 of the Code do not apply.
(e) "Non-Key Employee" means any Employee or former Employee
(including a Beneficiary of such Employee) who is not a Key Employee.
(f) "Account" means the value of all accounts (as defined in Sections
1.4(b), (c) and (d) under the Plan as of the Valuation Date, including all
employer contributions paid or payable to such Account and all employee
contributions actually paid to such Account, except as follows:
(1) The value of each Account shall be increased by the aggregate
distributions made with respect to an Employee under the Plan during
the five (5) year period ending on the Determination Date.
(2) In the case of a profit sharing plan, the value of each
Account shall not include any employer contribution actually made
after the Determination Date, except in the case of the first Plan
Year each account shall include such contributions that are allocated
to the Account as of a date within the first Plan Year.
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<PAGE>
(3) The value of an Account maintained for voluntary deductible
Employee contributions (if any) shall not be included.
(4) The value of an Account maintained for rollover contributions
(if any) shall not be included if the rollover contribution was
initiated by the Employee and was not made from a plan maintained by
the Employer (or by an employer required to be aggregated with the
Employer under Sections 414(b), (c) or (m) of the Code).
(5) The value of an Account maintained for an Employee who is a
Non-Key Employee with respect to a plan for any Plan Year who was a
Key Employee with respect to a plan for any prior Plan Year shall not
be included.
(6) If an individual has not performed any services for any
employer maintaining the Plan at any time during the five (5) year
period ending on the Determination Date, the value of the Account of
such individual shall not be included.
(g) "Required Aggregation Group" means (1) each qualified plan of the
Employer or any of its affiliates in which at least one Key Employee
participates, including for this purpose any terminated plan that covered a
Key Employee maintained by the Employer within the five year period ending
on the Determination Date, and (2) any other qualified plan of the Employer
or any of its affiliates which enables a plan described in (1) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
(h) "Permissive Aggregation Group" means the Required Aggregation
Group of plans plus any other plan or plans of the Employer or any of its
affiliates which, when considered as a group with the Required Aggregation
Group would continue to satisfy the requirements of Sections 401(a)(4) and
410 of the Code.
(i) "Present Value of Accrued Benefit" means, in the case of a defined
benefit plan, the present value of a Participant's accrued benefit as
determined under the provisions of the applicable defined benefit plan.
(j) "Employer or any of its Affiliates" means the Employer maintaining
the Plan, and all commonly controlled trades or businesses (as defined in
Section 414(c) of the Code), and affiliated service groups (as defined in
Section 414(m) of the Code) of which the Employer is a part.
9.2 Effective Date. In any Plan Year in which the Plan is a Top-Heavy Plan,
the Plan shall meet the requirements set forth in Sections 9.3 and 9.7.
9.3 Minimum Contribution Requirements.
(a) Definition of Compensation. For purposes of this Section,
Compensation for any Plan Year shall mean the amount of Compensation
received from the Employer for that Plan Year.
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<PAGE>
(b) Allocation. The total allocable amount under Section 4.3 shall be
allocated as follows:
(1) The total allocable amount shall first be allocated among the
accounts of Participants who have completed a Year of Service as
defined in Section 2.1 (except that such requirement that the
Participant complete 1,000 Hours of Service in the Plan Year shall not
apply to any Participant) in the same proportion that each such
Participant's Compensation bears to the aggregate Compensation of all
such Participants for such Plan Year, provided that the amount so
allocated to the account of any Participant who is not a Key Employee
shall not be less than the lesser of 3% or the highest rate allocated
to any Key Employee for the Plan Year (such rate determined by
calculating the largest percentage of Compensation not in excess of
$200,000.00). If the highest rate allocated to a Key Employee for such
Plan Year is less than 3%, amounts contributed attributable to a
salary reduction arrangement shall be included in determining
contributions made on behalf of Key Employees.
(2) The remainder of the total allocable amount, if any, shall be
allocated as set forth in Section 4.3.
(c) Exceptions to the Minimum Contribution Requirement. The minimum
contribution required under subsection (b) shall be reduced or eliminated,
as the case may be, in the following circumstances:
(1) If the allocation in any Plan Year of the total allocable
amount under Section 4.3 (determined without regard to this Section)
results in an allocation to each Participant who is eligible to
receive an allocation under Section 9.3(b)(1) of at least 3% of such
Participant's Compensation for the Plan Year, then the provisions of
Section 9.3(b) shall not apply for such Plan Year.
(2) No minimum contribution will be required (or the minimum
contribution percentage will be reduced, as the case may be) for any
Plan Year for a Participant who is eligible to receive an allocation
under Section 9.3(b)(1) if the employer maintains another qualified
plan under which a minimum benefit or contribution is being accrued or
made for such Plan Year in whole or in part for the Participant in
accordance with Section 416(c) of the Code.
(d) Effect of Defined Benefit Plan. The 3% minimum contribution
requirement in subsections (b) and (c) shall be increased to 5% for any
Plan Year in which the Employer also maintains a defined benefit pension
plan to the extent necessary to avoid the application of Section 416(f) of
the Code and regulations thereunder.
9.4 Maximum Compensation Limitation. The Compensation (as defined in both
Section 9.3(a) and Section 1.3(d)) of each Participant in the Plan for any Plan
Year shall not exceed the first $200,000 of such Participant's Compensation;
provided that such dollar limitation shall be adjusted to take into account any
adjustments prescribed by the Secretary of the Treasury or his delegate under
Section 416(d)(2) of the Code.
9.5 Adjustment to Section 415 Limits. If the Plan is a Super Top-Heavy Plan
or if the Plan is a Top-Heavy Plan, and the minimum benefits required by Section
416(h) of the Code are
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<PAGE>
not provided, then the 1.25 factor used in the denominators of the Defined
Contribution Plan Fraction (under Section 4.4(c)(5)) and Defined Benefit Plan
Fraction (under Section 4.4(c)(4)) shall be changed to 1.0.
9.6 Remedial Provisions. In addition to the other powers granted hereunder,
the Plan Committee shall have the power to take such action as it deems
necessary or appropriate to determine whether the Plan is a Top-Heavy Plan, and
in such event, to apply the provisions of this Article to the Plan, including,
but not limited to the power to reallocate employer contributions, forfeitures
and income, to reverse all or part of any forfeitures which may have been
improperly recognized, and to direct the Trustee to make required distributions
hereunder.
9.7 Top Heavy Vesting Schedule. For any Plan Year in which the Plan is
determined to be "top heavy", as defined in Section 9.1 hereof, the vesting
schedule applicable to Employer Matching Contributions as provided in Section
5.1(b) shall be superseded by the following schedule:
Years Vesting
of Service Percentage
----------- ----------
Less than 2 0
2 20
3 40
4 60
5 80
6 or more 100
If the Plan ceases to be top heavy in a subsequent Plan Year, the vesting
schedule provided in Section 5.1(b) will apply to a Participant's benefits
accrued subsequent to the last year the Plan was top heavy, provided however
that any Participant with 5 or more Years of Service must be given the
opportunity to choose between the vesting schedule contained in this Section and
that contained in Section 5.1(b).
ARTICLE X
MISCELLANEOUS
10.1 Non-Guarantee of Employment. Nothing contained herein shall be
construed as a contract of employment between the Employer and any Employee, or
as a right of any Employee to be continued in the employment of the Employer, or
as a limitation of the right of the Employer to discharge any Employee, with or
without cause.
10.2 Non-Alienation of Benefits. The benefits payable hereunder shall not
be assigned or alienated by or on behalf of any Participant or Beneficiary
except to the extent permitted under Sections 401(a)(13) and 414(p) of the Code.
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<PAGE>
10.3 Facility of Payment. If any Participant or Beneficiary shall be
physically or mentally incapable of receiving or acknowledging receipt of any
payment due under the terms of the Plan, and no legal representative shall have
been appointed for him, the Plan Administrator may direct the Trustee to make
such payment to the person or institution maintaining such Participant or
Beneficiary, and the payment to such person or institution in good faith shall
constitute a valid and complete discharge for such payment.
10.4 Exclusive Benefit. This Plan is established for the exclusive benefit
of the Employees of the Employer.
10.5 No Reversion. Except as otherwise expressly permitted hereunder, no
assets of the Plan or the Trust shall ever revert to or be used or enjoyed by
the Employer, nor, prior to the satisfaction of all liabilities under this Plan
to Participants and their Beneficiaries, shall any of the assets of the Plan or
Trust ever be used other than for the benefit of the Employees of the Employer
and their Beneficiaries and defraying reasonable expenses of administering the
Plan.
10.6 Effect of Social Security Benefits. Benefits paid to or on behalf of a
retired or terminated Participant hereunder shall not be reduced or otherwise
affected by increases or other adjustments in Social Security benefits such
Participants may receive.
10.7 Titles. Titles of Articles and Sections are inserted for convenience
only and shall not affect the meaning or construction of the Plan.
10.8 Severability. If any provision of this Plan shall be held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provisions hereof, and this Plan shall be constructed and enforced as if such
provision had not been included herein.
10.9 Applicable Law. This Plan shall be construed in accordance with
Pennsylvania law.
10.10 Initial Qualification. This Plan has been adopted and is based upon
the condition precedent that the Internal Revenue Service issue its
determination that it meets the requirements of the Code and regulations issued
hereunder with respect to qualified plans. Notwithstanding any other provision
herein, if the Internal Revenue Service determines that the Plan does not
initially qualify under the Code, any assets attributable to Employer
contributions which have been made prior to notice of such adverse determination
shall be returned to the Employer, and this Plan shall terminate.
10.11 Plan designation. For purposes of Code ss.401(a)(27), this Plan is a
profit sharing plan.
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<PAGE>
IN WITNESS WHEREOF, and as evidence of the adoption of the Plan, the
Employer has caused its duly authorized president to execute this Plan as of
this 28th day of October, 1998.
DONEGAL MUTUAL INSURANCE COMPANY
ATTEST:
/s/ Ralph G. Spontak By: /s/ Donald H. Nikolaus
- ---------------------------- -------------------------------
Secretary President
[CORPORATE SEAL]
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<PAGE>
Amendment No. 1
Donegal Mutual Insurance Company
401(k) Plan ("Plan")
In accordance with Section 8.1 of the Plan, the Plan is hereby amended
effective January 1, 2000 as follows:
1. Section 3.1 is deleted and the following substituted therefor:
"3.1 Employer's Matching Contribution. The Employer shall contribute
annually on behalf of each Participant in the employ of the Employer on the
Anniversary Date an amount equal to the sum of (a) 100% of each Participant's
Elective deferrals for the Plan Year not in excess of 3% of the Participant's
Compensation for the Plan year and (b) 50% of each Participant's Elective
Deferrals in excess of 3% of the Participant's Compensation, but not in excess
of 9% of the Participant's Compensation for the Plan year ("Matching
Contribution"). The requirement that a Participant be employed by the Employer
on the Anniversary Date shall be waived if the employment of the Participant
terminated during the Plan Year because of retirement, disability or death."
2. Paragraph (a) of Section 3.4 is deleted and the following substituted
therefor:
"(a) Each Participant may make an Elective Contribution to the Plan and to
the extent he elects to reduce or forego an increase in his Compensation, the
amount by which his compensation is reduced shall be treated as the
Participant's Elective Contribution and be allocated to that Participant's
elective account. The amount of the Elective Contribution may not be less than
1% nor more than 15% of the Participant's Compensation as elected by the
Participant in units of one (1) percentage point on forms provided by the Plan
Committee, which may limit the amount of the
<PAGE>
Participant's Elective Contribution at any time if it determines that such
limitation is necessary to satisfy the requirement with IRC Section 401(k)."
3. There is added to the Plan at the end of paragraph (b) of Section 4.5
the following:
"Effective January 1, 2000, each Participant shall have the opportunity to
invest all or a portion of the Participant's Account in the common stock of the
Employer. The duties of the Employer and Trustees concerning such investment and
the rights of Participants concerning an investment in the stock of the Employer
are detailed in Section 4.6 below."
4. There is added to the Plan new Section 4.6 reading as follows:
"4.6 Investment in Employer Stock.
(a) Definitions.
i. Employer Stock means the common stock of Donegal Group, Inc., the
parent company of the Employer as traded on the NASDAQ National Market
Exchange.
ii. Custodian means Reliance Trust Company, a _______ corporation.
Custodian is an "investment manager" as defined in Section 3(38) of ERISA
with respect to Employer Stock.
iii. Record Keeper means TransAmerica. The Record Keeper will
maintain all record of the Participants' accounts with respect to investments
in Employer Stock.
iv. Investment in Employer Stock. A Participant may elect to invest a
portion of the Participant's Elective Contributions and Employer Matching
Contributions made on his behalf in Employer Stock. Such election shall be
made on forms supplied by the Trustees and maintained by the Record Keeper.
<PAGE>
(b) Purchase and Sale of Employer Stock.
i. Notwithstanding anything to the contrary contained in this Plan or
the Trust Agreement, the Trustees may direct the Custodian to purchase shares
of Employer Stock upon the receipt by the Custodian of contributions from the
Employees pursuant to a nondiscretionary purchasing program developed by the
Custodian to effect such purchases in an orderly manner without disruption of
the market for such stock.
ii. If a Participant's vested interest in the Participant's Accounts
or a portion thereof is to be distributed on account of the Participant's
retirement, disability, death, termination of employment, pursuant to a
hardship withdrawal, withdrawal of a rollover contribution or as a result of
a qualified domestic relations order or because of the minimum distribution
rules, the Trustees will direct the Custodian to sell the Participant's
shares of Employer Stock or distribute such stock in kind, at the election of
the Participant or the Participant's designated beneficiary. If the
Participant elects to take a cash distribution, the amount of cash to be
distributed to the Participant attributable to the Participant's shares of
Employer Stock, will be determined on the basis of the price or the average
of the prices realized on the disposition of such shares on the day or days
during the calendar month as may be designated by the Trustees in a uniform
and nondiscriminatory manner. Notwithstanding the foregoing, the Custodian
may net out transactions internally (so as not to be both a buyer and a
seller on the open market) at the then prevailing market prices as determined
by the Custodian.
(c) Voting of Shares. Notwithstanding anything to the contrary
contained in this Plan or the Trust Agreement, whenever any proxies or
consents are solicited from shareholders, each Participant (or designated
beneficiary in the case of a decease Participant) whose account contains
Employer Stock will have the right to direct the Trustees, in writing, as to
the voting of such shares.
<PAGE>
The Trustees or the Custodian will use their best efforts to distribute or
cause to be distributed in a timely manner to each Participant or
designated beneficiary a copy of the proxy solicitation material sent to
shareholders, together with a form addressed to the Trustees or the Custodian
containing confidential, written instructions as to the manner in which said
shares will be voted. If the instructions are sent to the Custodian, the
Custodian must communicate the instructions to the Trustees. Upon receipt of
such instructions, the Trustees will vote said shares as instructed. Shares
of Employer Stock as to which the Trustees do not receive instructions will
be voted by the Trustees in the proportion as shares are to be voted pursuant
to the written voting instructions received from all Participants by the
Trustees. Each Participant (or designated beneficiary) will be entitled to
one vote for each full share of Employer Stock allocated to the Participant's
accounts. Fractional shares of Employer Stock will not be permitted to vote.
(d) Valuation. Employer Stock will be valued as of any business day
of each Plan Year based on the published valuation for such stock on the
NASDAQ National Market Exchange. Any dividends received on Employer Stock
will be reinvested and become part of the Participant's Accounts. The Record
Keeper will maintain adequate records of the cost basis of Employer Stock for
each Participant's account. The Record Keeper may time to time modify its
accounting procedures to achieve equitable and nondiscriminatory allocations
among Participants" Matching Contributions Account in accordance with the
provisions of this Plan and requirements of law.
(e) Named Fiduciary Status\Confidentiality. Each Participant or
designated beneficiary shall be deemed to be a named fiduciary within the
meaning of Section 402(a) of ERISA with respect to the voting of the shares
of Employer Stock as to which such Participant or designated beneficiary has
the right of direction. Directions received from Participants or designated
beneficiaries by the Trustees or the Custodian shall be held in strict
confidence and shall not be divulged or released
<PAGE>
to any person, including employees, officers or directors of the Employer,
provided, however, that to the extent necessary for the operation of
the Plan, such directions may be relayed by the Trustees to the Record Keeper
or auditor for the Plan, which Record Keeper or Auditors is not the Employer
and agrees not to divulge such directions to any other person including
employees, officers or directors of the Employer."
5. There is added to the Plan new ARTICLE XI reading as follows:
"ARTICLE XI. Money Purchase Pension Plan Account.
Section 11.1. General. This Article applies only to those employees who
were participants in DMIC Money Purchase Pension Plan and who had accounts in
that Plan on December 31, 1999. This Articles does not apply to any other
Employee or Participant.
Section 11.2. Money Purchase Pension Benefit. For purposes of this Plan,
the term "Money Purchase Pension Benefit" means the account balance of the
Participant in the Money Purchase Pension Plan as of December 31, 1999. As
provided by amendment to that Plan, all such accounts are fully vested in the
Participants and under no circumstances may any forfeitures arise with respect
to those accounts.
Section 11.3. Participants' Accounts. Under all circumstances a
Participant's Account shall be treated as a segregated investment individually
directed by the Participant and shall be adjusted for only the income or loss
realized with respect to each such Account.
Section 11.4. Determination and Distribution of Benefits. The provisions of
ARTICLES VI and VII of the Money Purchase Pension Plan as in effect on December
31, 1999 are hereby incorporated by reference and for convenience set forth in
full in Appendix "A" to the Plan. The provisions of these Articles will apply to
the determination and distribution of a Participant's Money
<PAGE>
Purchase Pension Benefit. Otherwise, the provisions of this Plan shall
govern with respect to a Participant's Money Purchase Pension Benefit.
6. There is added to the Plan new ARTICLE XII reading as follows:
"ARTICLE XII. Profit Sharing Plan.
Section 12.1. General. This Article applies only to those employees who
were participants in the DMIC Profit Sharing Plan and who had accounts in that
Plan on December 31, 1999. This Articles does not apply to any other Employee or
Participant.
Section 12.2. Profit Sharing Plan. For purposes of this Plan, the term
"Profit Sharing Benefit" means the account balance of the Participant in the
Profit Sharing Pension Plan as of December 31, 1999. As provided by amendment to
that Plan, all such accounts are fully vested in the Participants and under no
circumstances may any forfeitures arise with respect to those accounts.
Section 12.3. Participants' Accounts. Under all circumstances a
Participant's Account shall be treated as a segregated investment individually
directed by the Participant and shall be adjusted for only the income or loss
realized with respect to each such Account.
Section 12.4. Determination and Distribution of Benefits. The provisions of
ARTICLES VI and VII of the Profit Sharing Plan as in effect on December 31, 1999
are hereby incorporated by reference and for convenience set forth in full in
Appendix "B" to the Plan. The provisions of these Articles will apply to the
determination and distribution of a Participant's Profit Sharing Benefit.
Otherwise, the provisions of this Plan shall govern with respect to a
Participant's Profit Sharing Benefit.
IN WITNESS WHEREOF and as evidence of the adoption of this amendment,
Donegal Mutual Insurance Company has caused its duly authorized officers to
execute this document on its behalf and under its seal as of this 13th day
December, 1999.
<PAGE>
Donegal Mutual Insurance Company
ATTEST:
/s/ Ralph G. Spontak By: /s/ Donald H. Nikolaus
- ------------------------------ ---------------------------------
Ralph G. Spontak, Secretary Donald H. Nikolaus, President
(Corporate Seal)
<PAGE>
Amendment No. 2
Donegal Mutual Insurance Company
401(K) Plan ("Plan")
In accordance with Section 8.1 of the Plan, the Plan is hereby amended
effective January 6, 2000 as follows:
1. The paragraph at the end of paragraph (b) of Section 4.5 is deleted
and the following substituted therefor:
"Effective January 1, 2000, each Participant shall have the
opportunity to invest all or a portion of the Participant's Account in Employer
Stock. The duties of the Employer and Trustees concerning such investment and
the rights of Participants concerning an investment in Employer Stock are
detailed in Section 4.6 below."
2. Section 4.6 is deleted and the following is substituted therefor:
"4.6 Investment in Employer Stock.
(a) Definitions.
(i) Employer Stock means the common stock of Donegal
Group Inc., the majority-owned subsidiary of the Employer as
traded on the Nasdaq National Market.
(ii) Custodian means Reliance Trust Company, a Georgia
corporation. Custodian is an "investment manager" as defined
in Section 3(38) of ERISA with respect to Employer Stock.
(iii) Record Keeper means TransAmerica. The Record
Keeper will maintain all record of the Participants'
accounts with respect to investments in Employer Stock.
(iv) Investment in Employer Stock. A Participant may
elect to invest a portion of the Participant's Elective
Contributions and Employer Matching Contributions made on
his behalf in Employer Stock. Such election shall be made on
forms supplied by the Trustees and maintained by the Record
Keeper.
(b) Purchase and Sale of Employer Stock.
(i) Notwithstanding anything to the contrary contained
in this Plan or the Trust Agreement, the Trustees in their
discretion from time to time may direct the Custodian to
purchase shares of Employer Stock upon the receipt by the
Custodian of contributions from the Employees pursuant to a
nondiscretionary purchasing
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<PAGE>
program developed by the Custodian to effect such purchases
in an orderly manner without disruption of the market for
such stock or may purchase Employer Stock directly from
Donegal Group Inc. at the fair market value thereof at the
time of purchase.
(ii) If a Participant's vested interest in the
Participant's Accounts or a portion thereof is to be
distributed on account of the Participant's retirement,
disability, death, termination of employment, pursuant to a
hardship withdrawal, withdrawal of a rollover contribution
or as a result of a qualified domestic relations order or
because of the minimum distribution rules, the Trustees will
direct the Custodian to sell the Participant's shares of
Employer Stock or distribute such stock in kind, at the
election of the Participant or the Participant's designated
beneficiary. If the Participant elects to take a cash
distribution, the amount of cash to be distributed to the
Participant attributable to the Participant's shares of
Employer Stock, will be determined on the basis of the price
or the average of the prices realized on the disposition of
such shares on the day or days during the calendar month as
may be designated by the Trustees in a uniform and
nondiscriminatory manner. Notwithstanding the foregoing, the
Custodian may net out transactions internally (so as not to
be both a buyer and a seller on the open market) at the then
prevailing market prices as determined by the Custodian.
(c) Voting of Shares. Notwithstanding anything to the
contrary contained in this Plan or the Trust Agreement, whenever
any proxies or consents are solicited from shareholders, each
Participant (or designated beneficiary in the case of a deceased
Participant) whose account contains Employer Stock will have the
right to direct the Trustees, in writing, as to the voting of
such shares. The Trustees or the Custodian will use their best
efforts to distribute or cause to be distributed in a timely
manner to each Participant or designated beneficiary a copy of
the proxy solicitation material sent to shareholders, together
with a form addressed to the Trustees or the Custodian containing
confidential, written instructions as to the manner in which said
shares will be voted. If the instructions are sent to the
Custodian, the Custodian must communicate the instructions to the
Trustees. Upon receipt of such instructions, the Trustees will
vote said shares as instructed. Shares of Employer Stock as to
which the Trustees do not receive instructions will be voted by
the Trustees in the proportion as shares are to be voted pursuant
to the written voting instructions received from all Participants
by the Trustees. Each Participant (or designated beneficiary)
will be entitled to one vote for each full share of Employer
Stock allocated to the Participant's accounts. Fractional shares
of Employer Stock will not be permitted to vote.
(d) Valuation. Employer Stock will be valued as of any
business day of each Plan Year based on the closing price for
such stock on the Nasdaq National Market. Any dividends received
on Employer Stock will be reinvested and become part of the
Participant's Accounts. The Record Keeper will maintain adequate
records of the cost basis of Employer Stock for each
Participant's account. The Record Keeper may time to time modify
its accounting procedures to achieve equitable and
nondiscriminatory allocations among Participants Matching
Contributions Account in accordance with the provisions of this
Plan and requirements of law.
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<PAGE>
(e) Named Fiduciary Status\Confidentiality. Each Participant
or designated beneficiary shall be deemed to be a named fiduciary
within the meaning of Section 402(a) of ERISA with respect to the
voting of the shares of Employer Stock as to which such
Participant or designated beneficiary has the right of direction.
Directions received from Participants or designated beneficiaries
by the Trustees or the Custodian shall be held in strict
confidence and shall not be divulged or released to any person,
including employees, officers or directors of the Employer,
provided, however, that to the extent necessary for the operation
of the Plan, such directions may be relayed by the Trustees to
the Record Keeper or auditor for the Plan, which Record Keeper or
Auditors is not the Employer and agrees not to divulge such
directions to any other person including employees, officers or
directors of the Employer."
IN WITNESS WHEREOF and as evidence of the adoption of this Amendment
No. 2, Donegal Mutual Insurance Company has caused its duly authorized officers
to execute this document on its behalf and under its seal as of this 6th day of
January, 2000.
DONEGAL MUTUAL INSURANCE COMPANY
ATTEST:
/s/ Ralph G. Spontak By: /s/ Donald H. Nikolaus
- --------------------------------- ---------------------------------
Ralph G. Spontak, Secretary Donald H. Nikolaus, President and
Chief Executive Officer
[Corporate Seal]
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Exhibit 5
[Duane, Morris & Heckscher LLP Letterhead]
January 7, 2000
The Board of Directors of
Donegal Group Inc.
1195 River Road
Marietta, PA 17547
Ladies and Gentlemen:
We have acted as counsel to Donegal Group Inc. (the "Company") in
connection with the preparation and filing with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, of a registration
statement on Form S-8 (the "Registration Statement") relating to the offer and
sale by the Company of up to 300,000 shares (the "Shares") of Common Stock,
$1.00 par value, of the Company, under the Donegal Mutual Insurance Company
401(k) Plan (the "Plan").
As counsel to the Company, we have supervised all corporate proceedings in
connection with the preparation and filing of the Registration Statement. We
have also examined the Company's Certificate of Incorporation and By-laws, as
amended to date, the corporate minutes and other proceedings and the records
relating to the authorization, sale and issuance of the Shares, and such other
documents and matters of law as we have deemed necessary or appropriate in order
to render this opinion.
Based upon the foregoing, it is our opinion that each of the Shares, when
issued in accordance with the terms and conditions of the Plan, will be duly
authorized, legally and validly issued and outstanding, fully paid and
nonassessable.
We hereby consent to the use of this opinion in the Registration Statement,
and we further consent to the reference to our name under the caption "Interests
of Named Experts and Counsel" in the Registration Statement.
Sincerely,
DUANE, MORRIS & HECKSCHER LLP
By: /s/ Frederick W. Dreher
---------------------------
A Partner
II-8
Exhibit 23.1
The Board of Directors
Donegal Group Inc.:
We consent to incorporation by reference in the registration statement on Form
S-8 of Donegal Group Inc. of our reports dated March 2, 1999, relating to the
consolidated balance sheets of Donegal Group Inc. as of December 31, 1998 and
1997, and the related consolidated statements of income and comprehensive
income, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1998, and all related schedules, which
reports appear in the December 31, 1998 annual report on Form 10-K of Donegal
Group Inc., and to the reference of our firm under the heading "Item 5.
Interests of Named Experts and Counsel" in the registration statement.
/s/ KPMG LLP
Philadelphia, Pennsylvania
January 7, 2000
II-9
