<PAGE> 1
DRAFT
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 1997.
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ______________ to _______________
Commission File Number: 0-17442
MERITAGE HOSPITALITY GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)
MICHIGAN 38-2730460
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
40 PEARL STREET, N.W., SUITE 900
GRAND RAPIDS, MICHIGAN 49503
(Address of Principal Executive Offices) (Zip Code)
(616) 776-2600
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of July 11, 1997 there were 3,217,094 outstanding Common Shares, $.01 par
value.
================================================================================
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The following unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not contain all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
solely of normal recurring adjustments) considered necessary for a fair
presentation of the financial position, results of operations, stockholders'
equity and cash flows of Meritage Hospitality Group Inc. (the "Company") have
been included. For further information, please refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended November 30, 1996. Certain
reclassifications have been made in 1996 to conform with the 1997 presentation.
The results of operations for the three and six month periods ended May 31, 1997
are not necessarily indicative of the results to be expected for the full year.
[REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]
2
<PAGE> 3
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1997 AND NOVEMBER 30, 1996
================================================================================
ASSETS
<TABLE>
<CAPTION>
MAY 31,
1997 NOVEMBER 30,
(UNAUDITED) 1996
-------------- --------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,122,182 $ 2,265,497
Trade accounts receivable, less allowance for
doubtful accounts of $54,000 684,497 938,448
Inventories 368,106 354,226
Deferred income taxes 14,000 14,000
Prepaid expenses and other current assets 673,766 487,295
-------------- --------------
Total current assets 2,862,551 4,059,466
PROPERTY, PLANT AND EQUIPMENT, NET 21,497,733 21,662,823
DEFERRED INCOME TAXES 621,000 621,000
OTHER ASSETS
Goodwill, net of amortization of $2,136,398 and
$1,994,342 respectively 3,596,793 3,687,764
Land held for expansion 697,313 697,313
Financing costs, net of amortization of $81,232 and
and $38,591 respectively 577,952 605,593
Cash surrender value of life insurance, net of policy
loans 199,267 260,710
Marina development costs 485,386 94,245
Sundry 271,666 239,950
-------------- --------------
Total other assets 5,828,377 5,585,575
-------------- --------------
Total assets $ 30,809,661 $ 31,928,864
============== ==============
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS
3
<PAGE> 4
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
MAY 31, 1997 AND NOVEMBER 30, 1996
================================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
MAY 31,
1997 NOVEMBER 30,
(UNAUDITED) 1996
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES
Current portion of long-term debt $ 922,936 $ 395,120
Current portion of obligations under capital lease 250,454 232,442
Trade accounts payable 2,416,233 2,228,406
Accrued expenses 870,546 936,111
Other 188,071 164,275
-------------- ---------------
Total current liabilities 4,648,240 3,956,354
LONG-TERM DEBT 21,851,593 21,711,847
OBLIGATIONS UNDER CAPITAL LEASE 1,825,387 1,953,999
DEFERRED INCOME TAXES 818,000 818,000
DEFERRED COMPENSATION -- 61,444
MINORITY INTEREST 1,441,722 1,405,777
STOCKHOLDERS' EQUITY
Preferred stock - $0.01 par value; authorized 5,000,000 shares;
200,000 shares designated as Series A convertible cumulative
preferred stock; issued and outstanding 138,387 and 108,387
shares respectively (liquidation value - $1,383,870) 1,384 1,084
Common stock - $0.01 par value; authorized 30,000,000
shares; issued and outstanding 3,216,379 and 3,204,483
respectively 32,164 32,045
Additional paid in capital 12,975,142 12,616,727
Note receivable from the sale of shares (5,412,183) (5,135,716)
Accumulated deficit (7,371,788) (5,492,697)
-------------- ---------------
Total stockholders' equity 224,719 2,021,443
-------------- ---------------
Total liabilities and stockholders' equity $ 30,809,661 $ 31,928,864
============== ===============
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS
4
<PAGE> 5
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTH PERIODS ENDED MAY 31, 1997 AND 1996
(UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
1997 1996
---------------- ---------------
<S> <C> <C>
NET REVENUE
Room rents $ 2,502,555 $ 2,571,115
Food and beverages 16,098,443 3,861,790
Sundry 276,918 207,568
Telephone 120,300 51,751
--------------- ---------------
Total revenue 18,998,216 6,692,224
COST AND EXPENSES
Cost of food and beverages 4,870,949 1,339,262
Operating expenses 11,771,010 3,522,786
General and administrative expenses 1,934,579 1,576,310
Depreciation and amortization 1,077,568 449,377
--------------- ---------------
Total costs and expenses 19,654,106 6,887,735
LOSS FROM OPERATIONS (655,890) (195,511)
OTHER INCOME (EXPENSE)
Interest expense (1,431,246) (724,744)
Interest income 283,431 357,652
Minority interest (35,946)
---------------
(1,183,761) (367,092)
Loss before federal income tax (1,839,651) (562,603)
FEDERAL INCOME TAX BENEFIT -- 191,285
Net loss $ (1,839,651) $ (371,318)
=============== ===============
LOSS PER SHARE $ (0.59) $ (0.12)
=============== ===============
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS
5
<PAGE> 6
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MAY 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
==========================================================================================================
<CAPTION>
1997 1996
---------------- ----------------
<S> <C> <C>
NET REVENUE
Room rents $ 1,367,544 $ 1,433,650
Food and beverages 8,646,649 1,897,926
Sundry 166,506 49,439
Telephone 54,609 28,383
--------------- --------------
Total revenue 10,235,308 3,409,398
COST AND EXPENSES
Cost of food and beverages 2,589,207 653,239
Operating expenses 5,967,890 1,659,318
General and administrative expenses 918,582 626,778
Depreciation and amortization 546,643 156,056
--------------- --------------
Total costs and expenses 10,022,322 3,095,391
EARNINGS FROM OPERATIONS 212,986 314,007
OTHER INCOME (EXPENSE)
Interest expense (731,509) (329,030)
Interest income 142,105 187,372
Minority interest (138,298)
--------------- --------------
(727,702) (141,658)
--------------- --------------
Earnings (loss) before federal income tax (514,716) 172,349
FEDERAL INCOME TAX EXPENSE -- (58,600)
Net earnings (loss) $ (514,716) $ 113,749
=============== ==============
EARNINGS (LOSS) PER SHARE $ (0.17) $ 0.04
=============== ==============
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS
6
<PAGE> 7
<TABLE>
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED NOVEMBER 30, 1996 AND THE SIX MONTH PERIOD ENDED MAY 31, 1997
(UNAUDITED)
=============================================================================================================================
<CAPTION>
SERIES A NOTE
CONVERTIBLE ADDITIONAL RECEIVABLE
PREFERRED COMMON PAID-IN SALE OF ACCUMULATED
STOCK STOCK CAPITAL SHARES DEFICIT TOTAL
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 1, 1995 $ -- $ 30,200 $ 10,684,750 $ (5,602,532) $ (2,057,052) $ 3,055,366
Issuance of 108,387 shares of
preferred stock 1,084 -- 1,082,786 -- -- 1,083,870
Issuance of 184,333 shares of
common stock -- 1,845 1,139,281 -- -- 1,141,126
Recognition of interest income
on note receivable from sale
of shares -- -- -- (573,274) -- (573,274)
Dividends paid ($.50 per share) -- -- -- -- (1,510,075) (1,510,075)
Payment and present value
adjustment on note receivable
from sale of shares -- -- (290,090) 1,040,090 -- 750,000
Net loss -- -- -- -- (1,925,570) (1,925,570)
------------------------------------------------------------------------------------------
BALANCE AT NOVEMBER 30, 1996 $ 1,084 $ 32,045 $ 12,616,727 $ (5,135,716) $ (5,492,697) $ 2,021,443
Issuance of 11,896 shares of
common stock -- 119 58,715 -- -- 58,834
Issuance of 30,000 shares of
preferred stock 300 -- 299,700 -- -- 300,000
Dividends paid - preferred stock -- -- -- -- (39,440) (39,440)
Recognition of interest income
on note receivable from sale
of shares -- -- -- (276,467) -- (276,467)
Net loss -- -- -- -- (1,839,651) (1,839,651)
------------------------------------------------------------------------------------------
BALANCE AT MAY 31, 1997 $ 1,384 $ 32,164 $ 12,975,142 $ (5,415,183) $ (7,371,788) $ 224,719
==========================================================================================
</TABLE>
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS
7
<PAGE> 8
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED MAY 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
======================================================================================================================
<CAPTION>
1997 1996
---------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,839,651) $ (371,318)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization 1,077,568 449,377
Compensation and fees paid by issuance of common stock 58,834 --
Minority interest in net earnings of consolidated subsidiaries 35,946
Interest income on note receivable from sale of shares (276,467) (300,130)
(Increase) decrease in assets
Accounts receivable 253,951 (143,605)
Inventories (13,880) --
Prepaid expenses and other current assets (186,470) 460,761
Refundable federal income taxes -- (191,286)
Increase in marina development costs (191,141) --
Increase (decrease) in liabilities
Accounts payable and accrued expenses 146,056 (807,238)
------------ ------------
Net cash used in operating activities (935,254) (903,439)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment (471,925) (769,267)
Additions to amounts due from related parties -- (31,762)
Payments on amounts due from related parties -- 435,124
Increase in other assets (109,021) (486,371)
------------ ------------
Net cash used in investing activities (580,946) (852,276)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 750,000 14,875,000
Proceeds from short-term borrowings -- (2,300)
Principal payments of long-term debt (526,895) (11,587,069)
Partial prepayment of note receivable -- 750,000
Payments on obligations under capital leases (110,780) --
Proceeds from issuance of preferred shares 300,000 --
Dividends paid (39,440) (1,510,075)
------------ ------------
Net cash provided by financing activities 372,885 2,525,556
------------ ------------
Net increase (decrease) in cash (1,143,315) 769,841
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,265,497 1,336,891
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,122,182 $ 2,106,732
============ ============
</TABLE>
SUPPLEMENTAL CASH FLOW INFORMATION - SEE NOTE A
SEE NOTES TO UNAUDITED FINANCIAL STATEMENTS
8
<PAGE> 9
MERITAGE HOSPITALITY GROUP INC. AND SUBSIDIARIES
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIODS ENDED MAY 31, 1997 AND 1996
<TABLE>
======================================================================================================================
<CAPTION>
NOTE A - SUPPLEMENTAL CASH FLOW INFORMATION
1997 1996
---------------- ---------------
<S> <C> <C>
Cash paid for interest expense $1,359,681 $ 724,745
Schedule of non cash investing and financing transactions
Acquisition of equipment
Cost of equipment $ 244,637 $ --
Equipment loan 244,637 --
-------------- --------------
Cash down payment for equipment $ -- $ --
============== ==============
Increase in marina development costs
Increase in marina development costs $ 391,141 $ --
Long-term debt proceeds 200,000 --
-------------- --------------
Cash used in marina development costs $ 191,141 $ --
============== ==============
Compensation and fees paid by issuance of
common stock $ 58,834 $ --
============== ==============
</TABLE>
NOTE B - MORTGAGE NOTE PAYABLE TO INSURANCE COMPANY
On May 23, 1997, the Company's primary lender made a third mortgage loan of
$875,000 for the purpose of completing the improvements to the marina
condominium project being developed by the Company's subsidiary, Grand Harbor
Yacht Club Inc., adjacent to the Company's Grand Haven Holiday Inn property. The
loan requires the Company to make monthly payments of interest at 1% over the
prime rate. Principal payments of $35,000 are required at the time of the sale
of any of the marina condominium units. As of May 31, 1997, the outstanding loan
balance was $200,000 and the Company had $675,000 of available borrowings under
the loan.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
LODGING GROUP
The following summarizes the Company's results of operations for the Lodging
Group for the periods ended May 31, 1997 and 1996.
<TABLE>
<CAPTION>
Statements of Operations
--------------------------------------------------------------------------------------
Six month periods ended May 31, Three month periods ended May 31,
----------------------------------------- ------------------------------------------
$ in Thousands % of Revenue $ in Thousands % of Revenue
------------------- ----------------- -------------------- -------------------
1997 1996 1997 1996 1997 1996 1997 1996
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue
Room revenue $ 2,503 $ 2,571 42.0% 38.4% $ 1,368 $ 1,434 44.5% 42.1%
Food and beverage revenue 3,149 3,862 52.9 57.7 1,527 1,898 49.7 55.7
Telephone and sundry revenue 306 259 5.1 3.9 177 78 5.7 2.3
------------------- ----------------- -------------------- -------------------
Total revenue 5,957 6,692 100.0 100.0 3,071 3,409 100.0 100.0
Costs and expenses
Cost of food and beverages 1,137 1,339 19.1 20.0 548 653 17.8 19.2
Operating expenses 3,875 3,523 65.0 52.6 1,814 1,659 59.1 48.7
General and administrative
expenses 1,280 1,576 21.5 23.6 594 627 19.4 18.4
Depreciation and amortization 541 449 9.1 6.7 276 156 9.0 4.6
------------------- ----------------- -------------------- -------------------
Total costs and expenses 6,833 6,888 114.7 102.9 3,232 3,095 105.2 90.8
Earnings (loss) from operations (876) (196) (14.7) (2.9) (161) 314 (5.2) 9.2
Other income (expense)
Interest expense (1,204) (725) (20.2) (10.8) (615) (329) (20.0) (9.6)
Interest income 277 358 4.6 5.3 138 187 4.5 5.5
------------------- ----------------- -------------------- -------------------
(927) (367) (15.6) (5.5) (477) (142) (15.5) (4.2)
------------------- ----------------- -------------------- -------------------
Earnings (loss) before
federal income tax (1,803) (563) (30.3) (8.4) (638) 172 (20.8) 5.1
Federal income tax benefit (expense) -- 191 -- 2.9 -- (59) -- (1.7)
------------------- ----------------- -------------------- -------------------
Net earnings (loss) $(1,803) $ (371) (30.3%) (5.5%) $ (638) $ 114 (20.8%) 3.3%
=================== ================= ==================== ===================
</TABLE>
10
<PAGE> 11
REVENUE
Total revenue for the Lodging Group was $5,956,765 for the six month
period ended May 31, 1997 compared to $6,692,224 for the same period of 1996, a
decrease of 11.0%. Total revenue for the Lodging Group was $3,071,227 for the
three month period ended May 31, 1997 compared to $3,409,398 for the same period
of 1996, a decrease of 9.9%. The following table outlines revenues (excluding
sundry and telephone) by category:
<TABLE>
<CAPTION>
Six month periods ended May 31, Three month periods ended May 31,
------------------------------------------ ---------------------------------------
$ in Thousands Decrease $ in Thousands Decrease
------------------ -------------------- ----------------- ------------------
1997 1996 $ % 1997 1996 $ %
------------------ -------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Room revenue $ 2,503 $ 2,571 $ (68) (2.7%) $ 1,368 $ 1,434 $ (66) (4.6%)
Food and beverage revenue 3,149 3,862 (713) (18.5) 1,527 1,898 (371) (19.5)
------------------ -------------------- ----------------- ------------------
Total $ 5,652 $ 6,433 $ (781) (12.1%) $ 2,895 $ 3,332 $ (437) (13.1%)
================== ==================== ================= ==================
</TABLE>
The decrease in room revenue was attributable to a decrease in hotel
occupancy from 53.6% to 51.4% for the six month periods ended May 31, 1996 and
1997, respectively. The decrease in occupancy was partially offset by an
increase in the overall average daily rate of $5.68 (8.0%) from $71.19 for the
six month period ended May 31, 1996 to $76.87 for the same period of 1997. For
the second quarter, hotel occupancy decreased from 57.1% in 1996 to 53.6% in
1997 and was partially offset by a $5.17 (6.9%) increase in overall average
daily rate from $74.54 for the three month period ended May 31, 1996 to $79.71
for the same period of 1997.
The declines in room revenue are primarily attributable to increased
competition. Specifically, the hotels are experiencing the impact of new limited
service hotels which are targeting the price sensitive guest with their lower
rates. In addition to the increased competition, the Grand Haven Holiday Inn has
been under renovation over the past year causing a negative impact on room
revenue.
The decrease in food and beverage revenue for the quarter and the six
month periods ended May 31, 1997 and 1996 was also primarily attributable to
increased competition in the area. Catering sales have declined at the Thomas
Edison Inn and St. Clair Inn due to the opening of two new banquet facilities in
their market area. Additionally, a new restaurant was established a short
distance from the St. Clair Inn. While increased competition is the primary
reason for the decline in food and beverage revenue, certain changes instituted
by new management were not well received by the local clientele thus compounding
the impact of increased competition.
The Company is aggressively working towards offsetting the effect of
the increased competition by new marketing programs, hiring locally experienced
sales personnel and by continually reviewing and updating the menu offerings.
Telephone and sundry revenue increased $46,188 (17.8%) for the six
month period ended May 31, 1997 compared to the same period of 1996. For the
second quarter, telephone and sundry revenue increased $98,707 (126.8%). The
installation of new telephone systems at the Thomas Edison Inn and St. Clair Inn
have resulted in improved accounting for telephone charges contributing to the
generation of additional
11
<PAGE> 12
telephone income. Public room rental income and commissions from rental of
audio/visual equipment have contributed to the increase in sundry revenue for
the second quarter.
COST OF FOOD AND BEVERAGES
Cost of food and beverages as a percentage of food and beverage revenue
for the six month period ended May 31, 1997 was 36.1% compared to 34.7% for the
same period of 1996. For the second quarter, cost of food and beverages as a
percentage of food and beverage revenue was 35.8% in 1997 compared to 34.4% in
1996. The increase is attributable to the decline in catering functions at the
hotels, which have a relatively lower cost.
OPERATING EXPENSES
Operating expenses for the six month periods ended May 31, 1997 and
1996 were $3,874,811 and $3,522,786, respectively, an increase of $352,025
(10.0%). As a percentage of total revenue, operating expenses increased 12.4
percentage points, from 52.6% for the six month period ended May 31, 1996 to
65.0% for the same period of 1997. One-half of the increase (approximately
$171,000) is due to the recording of a one-time accounting correction which
decreased the operating expenses for the six month period ended May 31, 1996.
Approximately $65,000 of the increase is attributable to new marketing programs
which were instituted to increase revenue. The remaining increase is
attributable to a reclassification in payroll and certain other expenses.
Operating expenses for the second quarter of 1997 and 1996 were
$1,813,744 and $1,659,318, respectively, an increase of $154,456 (9.3%). As a
percentage of total revenue, operating expenses increased 10.4 percentage
points, from 48.7% for the second quarter of 1996 to 59.1% for the same period
of 1997. This increase is a result of the recording of a one-time accounting
correction of $171,000 decreasing the operating expenses for the quarter ended
May 31, 1996.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased $296,670 (18.8%), from
$1,576,310 for the six month period ended May 31, 1996 to $1,279,640 for the
same period of 1997. For the second quarter, general and administrative expenses
decreased $32,366 (5.2%) from $626,778 in 1996 to $594,412 in 1997. The decrease
in general and administrative expenses is primarily due to approximately
$375,000 of non-recurring expenses incurred in 1996 in connection with the
replacement and restructuring of management of the Company. The Company incurred
$58,000 of management fees in 1996 that were eliminated in 1997, thus further
reducing general and administrative expenses in 1997. Other reductions in
expenses for the six months ended May 31, 1997 compared to the same period of
1996 include a reclassification in payroll and other certain expenses. These
reductions in expenses were offset by a one-time accounting correction of
approximately $243,000 which decreased general and administrative expenses for
the three month period ended May 31, 1997.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased $91,391, from $449,377
for the six month period ended May 31, 1996 to $540,768 for the same period of
1997. For the second quarter, depreciation and amortization increased $120,216
from $156,056 in 1996 to $276,272 in 1997. The increase in depreciation and
amortization for both the three and six month periods was attributable to
significant property, plant and
12
<PAGE> 13
equipment additions in the second half of 1996 and to depreciation and
amortization associated with the acquisition of a majority interest in the
Wendy's Partnership which was accounted for under the purchase method of
accounting.
INTEREST EXPENSE
Interest expense for the six month periods ended May 31, 1997 and 1996
was $1,204,607 and $724,744, respectively. For the second quarter of 1997 and
1996, interest expense was $615,110 and $329,030, respectively. The increase of
$479,863 for the six month period ended May 31, 1997 and $286,080 for the second
quarter ended May 31, 1997 was due to additional borrowings in fiscal 1996. See
"Liquidity and Capital Resources" of this item for details of the Company's
long-term debt.
INTEREST INCOME
Interest income decreased from $357,652 for the six month period ended
May 31, 1996 to $276,884 for the same period of 1997. Interest income decreased
from $187,372 for the second quarter of 1996 to $138,428 for the second quarter
of 1997. The decrease in interest income was due to a decrease in cash and cash
equivalents during the three and six month periods. The decrease is also
attributable to the reduction in note receivable interest income from the sale
of stock due to the reduction in the note receivable as a result of a $750,000
principal payment received in May 1996.
13
<PAGE> 14
FOOD SERVICE GROUP
On October 31, 1996, the Company acquired a majority interest in the
Wendy's of West Michigan Limited Partnership (the "Wendy's Partnership"). At May
31, 1997, the Company owned approximately 54% of the Wendy's Partnership, all of
which was acquired in fiscal 1996. Because of this acquisition, the results of
operations of the Wendy's Partnership have been included in the Company's
Consolidated Statements of Operations for the entire six month and three month
periods ended May 31, 1997 (included on pages 5 and 6). Below is a summary of
the results of the Food Service Group (the Wendy's Partnership) for the six
month and three month periods ended May 31, 1997. Because the Wendy's
Partnership is not a wholly owned subsidiary and because its daily operations
are managed separately, the Wendy's Partnership has its own administrative
expenses related solely to its operations. Therefore, all executive level
general and administrative expenses of the Company are included in the Lodging
Group operations.
<TABLE>
<CAPTION>
Statements of Operations
-----------------------------------------------------------------------------
Six month periods ended Three month periods ended
May 31, 1997 May 31, 1997
--------------------------------- -------------------------------------
$ in Thousands % of Revenue $ in Thousands % of Revenue
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C>
Net revenue
Food and beverage revenue $ 12,950 99.3% $ 7,120 99.4%
Sundry revenue 92 0.7 45 0.6
--------------------------------- -------------------------------------
Total revenue 13,042 100.0 7,165 100.0
Costs and expenses
Cost of food and beverages 3,734 28.6 2,042 28.5
Operating expenses 7,896 60.5 4,154 58.0
General and administrative expenses 655 5.0 324 4.5
Depreciation and amortization 458 3.5 231 3.2
--------------------------------- -------------------------------------
Total costs and expenses 12,743 97.7 6,751 94.2
Earnings from operations 299 2.3 414 5.8
Other income (expense)
Interest expense (227) (1.7) (116) (1.6)
Interest income 6 0.0 3 0.0
--------------------------------- -------------------------------------
(221) (1.7) (113) (1.6)
--------------------------------- -------------------------------------
Earnings before federal
income tax 78 0.6 301 4.2
--------------------------------- -------------------------------------
Federal income tax 0 0.0 0 0.0
Net earnings $ 78 0.6% $ 301 4.2%
================================= =====================================
</TABLE>
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS - SIX MONTHS ENDED MAY 31, 1997
Cash and cash equivalents ("cash") decreased $1,143,315 from $2,265,497 as
of November 30, 1996 to $1,122,182 as of May 31, 1997. The decrease in cash was
the result of the following:
<TABLE>
<CAPTION>
<S> <C>
Net cash used in operating activities $ (935,254)
Net cash used in investing activities (580,946)
Net cash provided by financing activities 372,885
-------------------
Net decrease in cash $ (1,143,315)
===================
</TABLE>
Net cash used in operating activities of $935,254 was primarily due to the
net loss before depreciation and amortization of $762,083. Other non-cash
effects on net income and net cash used in operating activities totaled
$181,687. The net change in non-cash assets and liabilities of $8,516 accounted
for the remaining net cash used in operating activities. Included in this amount
was an increase in marina development costs of $191,141.
Net cash used in investing activities of $580,946 was primarily the result
of purchases of property, plant and equipment of $471,925. Increases in other
assets accounted for the remaining $109,021.
Net cash provided by financing activities of $372,885 was primarily the
result of proceeds from long-term borrowings of $750,000 and proceeds from the
issuance of preferred shares of $300,000. These two items were offset by
principal payments of long-term debt of $526,895 and payments on obligations
under capital leases of $110,780. For the six months ended May 31, 1997, the
Company also paid dividends on preferred stock of $39,440.
FINANCIAL CONDITION
At May 31, 1997, the Company's current liabilities exceeded its current
assets by $1,785,689 compared to November 30, 1996 when current assets exceeded
current liabilities by $103,112. At these dates, the ratios of current assets to
current liabilities were 0.62:1 and 1.03:1 respectively. The discussion above of
cash flows for the six months ended May 31, 1997 explains the decrease in cash
as well as the most significant reasons for the decrease in working capital. The
other reason for the decrease in working capital was the $527,816 increase in
current portion of long-term debt from November 30, 1996 to May 31, 1997.
15
<PAGE> 16
The Company's long-term debt consists primarily of the following:
1) $13,891,775 first mortgage loan requiring monthly payments of
$137,897, including interest at 10.3%, through December 31, 2003 when
the remaining unpaid principal will be due.
2) $5,250,000 second mortgage loan requiring monthly payments of interest
only at 8% over the prime rate through November 1, 1997. Beginning
December 1, 1997, monthly principal payments of $50,000, plus interest
at 8% over the prime rate, will be required through March 1, 1998.
Beginning April 1, 1998, monthly principal payments of $100,000, plus
interest at 8% over the prime rate, will be required until the loan is
retired in June 2002.
3) $875,000 (marina) third mortgage loan requiring monthly payments of
interest at 1% over the prime rate. Principal payments of $35,000 are
required at the time of the sale of any of the marina condominium
units. As of May 31, 1997, the loan balance was $200,000 and the
Company had $675,000 of available borrowings under the loan.
4) $1,886,536 revolving term loan of the Wendy's Partnership requiring
monthly payments of $43,313, including interest at 1% over the prime
rate, through February 2005 when any remaining unpaid principal will
be due. Under the revolving loan agreement, the required monthly
payments may be offset by additional borrowings up to the unused
available borrowings. The total available borrowings under the loan
agreement were $2,856,018 at May 31, 1997. The loan is secured by the
Company and substantially all of the assets of the Wendy's
Partnership.
5) $518,665 note payable requiring monthly payments of $14,693, including
interest at 8.8%, through October 2000.
6) $750,000 note payable to the Company's Chairman of the Board of
Directors (and a shareholder of the Company). The loan requires the
Company to make monthly payments of interest only at the prime rate
plus 8% provided the Company is not in default under its first and
second mortgage long-term debt with its primary lender. Unpaid
principal and accrued interest must be paid by the later of December
31, 1997 or 91 days after the first and second mortgage long-term debt
is paid off.
The loan agreement with the Company's primary lender contains numerous
covenants regarding the maintenance of a prescribed amount of net worth, certain
financial ratios, and restrictions on certain common stock purchases, dividends,
additional indebtedness and executive compensation. At May 31, 1997, the Company
failed to meet certain of these covenants. However, a waiver has been obtained
through October 31, 1997.
The Company has issued $1,383,870 (138,387 shares) of Series A Convertible
Preferred Stock. The shares have an annual dividend rate of $0.90 per share and
payment of dividends is cumulative. Based on the present shares outstanding,
quarterly dividend payments of $31,137 are due on January 1, April 1, July 1 and
October 1 of each year. All dividends declared have been paid through July 1,
1997.
The Company estimates capital expenditures for the next twelve months to be
approximately $1,200,000 for building improvements, and furniture, fixtures and
equipment purchases, at its existing hotels and at the existing Wendy's
Partnership restaurants. Of the $1,200,000, approximately $700,000 is
16
<PAGE> 17
allocated for capital expenditures at existing Wendy's restaurants. The Company
has received various proposals to finance (through debt or lease) both the real
estate and furniture, fixtures and equipment for any new Wendy's restaurants. Of
the $1,200,000, the Company estimates capital expenditures at its full service
hotels to be approximately $500,000. This does not include completing the
improvements to the marina condominium project being developed by the Company's
subsidiary, Grand Harbor Yacht Club Inc. This is a reduction from previous
capital expenditure budgets for the Company's full service hotels as the Company
is reassessing how to best utilize its capital resources between the Lodging
Group and the Food Service Group.
The Company plans to meet its current obligations for the next twelve
months by :
- Completing the acquisition of the remaining units of the Wendy's
Partnership through the issuance of the Company's Common Stock. In
fiscal 1996, net cash from operating activities of the Wendy's
Partnership was approximately $1,201,000. The Wendy's Partnership also
had available borrowings under its long-term revolving loan of
$969,000.
- The sale of non-core assets valued at approximately $1,000,000 to
$1,500,000.
- Reducing the negative cash flow from the lodging group through
improving operations.
- Continuing to explore the sale of one or more of the hotels.
17
<PAGE> 18
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company owns (through its wholly owned subsidiary, MHG Food Service
Inc.) approximately 54% of the outstanding limited partnership units of the
Wendy's of West Michigan Limited Partnership. The partnership agreement for the
Wendy's Partnership authorizes the removal and replacement of the general
partner of the Wendy's Partnership by a majority of the limited partnership
units. On May 19, 1997, the Company, as the majority limited partner of the
Wendy's Partnership, removed Wendy's West Michigan, Inc. as the general partner
of the Wendy's Partnership, and appointed MCC Food Service Inc. (an affiliate of
the Company) as the substitute general partner. On May 21, 1997, Wendy's West
Michigan, Inc. commenced a lawsuit against the Company, MHG Food Service, and
MCC Food Service (Case No. 97-05360-CB, Kent County (Michigan) Circuit Court,
Buth, J.). Wendy's West Michigan, Inc. has attempted to assert claims on behalf
of the Wendy's Partnership as well. The complaint seeks, among other things, (i)
a declaration that Wendy's West Michigan, Inc. is the general partner of the
Wendy's Partnership, (ii) injunctive relief in the form of a temporary
restraining order or a preliminary injunction which would prohibit the
defendants from participating in the management of the Wendy's Partnership, and
(iii) damages for various business torts. Plaintiff's motion for a temporary
restraining order was denied on May 21, 1997. Defendants believe that the
lawsuit is entirely without merit and is seeking its dismissal.
ITEM 2. CHANGES IN SECURITIES.
On May 20, 1997, the Wendy's of West Michigan Limited Partnership
purchased for cash 10,000 shares of newly issued, unregistered Company Common
Shares at $5.00 per share. This issuance was exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1997 Annual Meeting of Shareholders was held at the Van Andel
Museum Center, located at 272 Pearl Street, N.W., Grand Rapids, Michigan, at
10:00 a.m. on Tuesday, May 20, 1997, in accordance with the Company's Bylaws.
The Company solicited proxies for the matters brought before the shareholders
pursuant to a definitive proxy statement that was filed with the Securities and
Exchange Commission on April 21, 1997. 3,032,393 Common Shares were present in
person or by proxy at the meeting, representing 94.3% of the total shares
outstanding.
The shareholders elected the following eight members to the Company's
Board of Directors to serve until the 1998 Annual Meeting: Gary R. Garrabrant;
Christopher B. Hewett; David S. Lundeen; Joseph L. Maggini; Jerry L. Ruyan;
Robert E. Schermer Sr.; Robert E. Schermer, Jr.; and Frank O. Staiger. For each
director, 3,010,048 shares were cast in favor and 22,345 shares were withheld.
The shareholders approved an amendment to the 1996 Management Equity
Incentive Plan increasing the number of Common Shares in the Plan by 175,000.
The following are the results of the shares that voted: In Favor: 2,215,316;
Opposed: 159,018; Abstentions: 17,220; Broker Non-Votes: 640,839.
The shareholders adopted an amendment to the 1996 Directors' Share
Option Plan increasing the number of Common Shares in the Plan by 60,000. The
following are the results of the shares that voted: In Favor: 2,394,215;
Opposed: 173,730; Abstentions: 26,053; Broker Non-Votes: 438,395.
18
<PAGE> 19
The shareholders ratified the appointment of Grant Thornton LLP as
independent public accountants for the Company for fiscal year 1997. The
following are the results of the shares that voted: In Favor: 3,002,011;
Opposed: 17,562; Abstentions: 12,820; Broker Non-Votes: 0.
ITEM 5. OTHER INFORMATION.
The Company owns (through its wholly owned subsidiary, MHG Food Service
Inc.) approximately 54% of the outstanding limited partnership units of the
Wendy's of West Michigan Limited Partnership, which operates 26 "Wendy's Old
Fashioned Hamburger" restaurants in Western and Southern Michigan. The general
partner of the Wendy's Partnership directs the operations of the 26 Wendy's
restaurants. These operations are pursuant to franchise agreements with Wendy's
International, Inc., the franchisor of the 26 Wendy's restaurant. The
partnership agreement for the Wendy's Partnership authorizes the removal and
replacement of the general partner of the Wendy's Partnership by a majority of
the limited partnership units. In addition, the consent of Wendy's International
is required when replacing the general partner to avoid a default under the
franchise agreements with Wendy's International. On May 19, 1997, the Company,
as the majority limited partner of the Wendy's Partnership, removed Wendy's West
Michigan, Inc. as the general partner of the Wendy's Partnership and appointed
MCC Food Service (an affiliate of the Company) as the substitute general
partner. Wendy's International consented to this removal and replacement of the
general partner on May 16, 1997. The Wendy's Partnership subsequently entered
into 23 new franchise agreements with Wendy's International, which were also
executed by the Company as guarantor of the obligations of the Wendy's
Partnership under the franchise agreements.
The Board of Directors approved an amendment to the Company's 401(k)
Plan, effective March 1, 1997, whereby the investment options for the Plan's
participants were changed. This change required the execution of a new (i)
Qualified Retirement Plan and Trust Agreement and (ii) Adoption Agreement. The
amendment did not make any other substantive changes to the Plan.
On May 20, 1997, the Board of Directors appointed the following
officers of the Company: Christopher B. Hewett - President and Chief Executive
Officer; Robert E. Schermer, Jr. - Executive Vice President; Pauline M.
Krywanski - Vice President, Treasurer and Chief Financial Officer; and James R.
Saalfeld - Vice President, General Counsel and Secretary. Robert E. Schermer,
Sr. was reappointed Chairman of the Board of Directors. The Board also
reestablished the Executive Committee, Audit Committee, Compensation Committee
and Nominating Committee as standing committees of the Board of Directors.
On May 20, 1997, the Board of Directors adopted Restated Articles of
Incorporation for the Company. These Restated Articles of Incorporation only
restate and integrate, and do not further amend, the provisions of the Company's
Articles of Incorporation. These Restated Articles of Incorporation were filed
with the Michigan Department of Consumer & Industry Services Corporation,
Securities & Land Development Bureau on June 3, 1997.
On May 20, 1997, the Board of Directors authorized agreements whereby
the Company's largest shareholder (Meritage Capital Corp.), its principals, and
its subsidiary, will be indemnified by the Company for any losses or expenses
that they may incur as guarantors of the Company's and its subsidiaries'
obligations to their franchisors (Holiday Inn or Wendy's International). The
Company and its subsidiary also indemnified the general partner of the Wendy's
Partnership (MCC Food Service Inc.), and an individual who serves as an officer
of MCC Food Service, regarding the removal and replacement of the general
partner of the Wendy's Partnership, and the performance of MCC Food Service's
duties as the general partner of the Wendy's Partnership.
19
<PAGE> 20
As reported on the Company's Quarterly Report on Form 10-Q for the
quarter ended February 28, 1997, the Company is negotiating the terms of a
property improvement plan mandated by Holiday Inns Franchising, Inc. which would
require an extensive renovation of the Grand Haven Holiday Inn. On April 4,
1997, the Company's subsidiary received a 60-day notice of default in which it
was given until June 23, 1997 to complete the work mandated by the plan. The
Company believes that its subsidiary is in compliance with the license agreement
with Holiday Inn. Nevertheless, the Company and Holiday Inn are presently
negotiating a settlement, and Holiday Inn has extended the time for the
Company's subsidiary to complete the work mandated by the terms of a property
improvement plan while the negotiations are ongoing. The Company is also
evaluating the significance of its affiliation with Holiday Inn to determine
whether continuing the affiliation with Holiday Inn is in the Company's best
interest.
20
<PAGE> 21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit List.
------------
Exhibit No. Description of Document
- ----------- --------------------------------------------------------------
3.1 Restated Articles of Incorporation of Meritage Hospitality
Group Inc.
3.2 Restated and Amended Bylaws of Meritage Hospitality Group Inc.
(1).
10.9 Consent Agreement dated May 16, 1997 between Wendy's
International, Inc., Wendy's of West Michigan Limited
Partnership, Meritage Hospitality Group Inc., MHG Food Service
Inc., Meritage Capital Corp., MCC Food Service Inc., Robert E.
Schermer, Jr. and Christopher B. Hewett, with sample Unit
Franchise Agreement, Guaranties, and Release of Claims
attached as exhibits.
10.10 Amendment No. 1 to Loan Agreement dated November 26, 1996
among Meritage Hospitality Group Inc., St. Clair Inn, Inc.,
Grand Harbor Resort Inc., Thomas Edison Inn, Incorporated, MHG
Food Service Inc. and Grand Harbor Yacht Club Inc., as
obligors, and Great American Life Insurance Company, as
lender.
10.11 Promissory Note dated May 23, 1997 by Grand Harbor Yacht Club
Inc., as maker, and Great American Life Insurance Company, as
payee.
MANAGEMENT COMPENSATORY CONTRACTS
10.12 Amended 1996 Management Equity Incentive Plan.
10.13 Amended 1996 Directors' Share Option Plan.
10.14 Meritage Hospitality Group Inc. 401(k) Profit Sharing Plan,
Qualified Retirement Plan and Trust - Basic Plan Document and
Adoption Agreement, as amended March 1, 1997.
11 Statement re: Computation of Per Share Earnings.
27 Financial Data Schedule.
- -------------------------
(1) Previously filed and incorporated by reference from the Annual Report on
Form 10-K for the Company's fiscal year ended November 30, 1996.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed during the quarter for which
this report is filed.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: July 11, 1997 MERITAGE HOSPITALITY GROUP INC.
By /s/ Christopher B. Hewett
----------------------------------------
Christopher B. Hewett
President and Chief Executive Officer
By /s/ Pauline M. Krywanski
----------------------------------------
Pauline M. Krywanski
Vice President and Treasurer
(Chief Financial Officer)
22
<PAGE> 23
EXHIBIT INDEX
Exhibit No. Description of Document
- ----------- ---------------------------------------------------------------
3.1 Restated Articles of Incorporation of Meritage Hospitality Group
Inc.
3.2 Restated and Amended Bylaws of Meritage Hospitality Group Inc.
(1).
10.9 Consent Agreement dated May 16, 1997 between Wendy's
International, Inc., Wendy's of West Michigan Limited Partnership,
Meritage Hospitality Group Inc., MHG Food Service Inc., Meritage
Capital Corp., MCC Food Service Inc., Robert E. Schermer, Jr. and
Christopher B. Hewett, with sample Unit Franchise Agreement,
Guaranties, and Release of Claims attached as exhibits.
10.10 Amendment No. 1 to Loan Agreement dated November 26, 1996 among
Meritage Hospitality Group Inc., St. Clair Inn, Inc., Grand Harbor
Resort Inc., Thomas Edison Inn, Incorporated, MHG Food Service
Inc. and Grand Harbor Yacht Club Inc., as obligors, and Great
American Life Insurance Company, as lender.
10.11 Promissory Note dated May 23, 1997 by Grand Harbor Yacht Club
Inc., as maker, and Great American Life Insurance Company, as
payee.
MANAGEMENT COMPENSATORY CONTRACTS
10.12 Amended 1996 Management Equity Incentive Plan.
10.13 Amended 1996 Directors' Share Option Plan.
10.14 Meritage Hospitality Group Inc. 401(k) Profit Sharing Plan,
Qualified Retirement Plan and Trust - Basic Plan Document and
Adoption Agreement, as amended March 1, 1997.
11 Statement re: Computation of Per Share Earnings.
27 Financial Data Schedule.
- -------------------------
(1) Previously filed and incorporated by reference from the Annual Report on
Form 10-K for the Company's fiscal year ended November 30, 1996.
23
<PAGE> 1
EXHIBIT 3.1
MERITAGE HOSPITALITY GROUP INC.
RESTATED ARTICLES OF INCORPORATION
ARTICLE I
The name of the corporation is Meritage Hospitality Group Inc.
ARTICLE II
The purpose or purposes for which the corporation is organized is to engage in
any activity within the purposes for which corporations may be organized under
the Business Corporation Act of Michigan.
ARTICLE III
The total authorized capital stock is:
Common Shares: 30,000,000 Par Value Per Share $0.01
Preferred Shares: 5,000,000 Par Value Per Share $0.01
A statement of all or any of the relative rights, preferences and limitations of
the shares of each class is as follows:
Authority is hereby expressly reserved and granted to the Board of Directors of
this Corporation to determine in the resolution or resolutions providing for the
issuance of Common Stock and/or Preferred Stock the voting powers, designations,
preferences and relative participating, operational or other special rights,
qualifications, limitations or restrictions thereof which shall be incident to
the ownership of shares of such Common Stock and Preferred Stock.
The Corporation has a series of Preferred Stock, designated as Series A
Convertible Preferred Stock, consisting of 200,000 shares, par value $.01, the
qualifications, limitations, restrictions and terms of which are as follows:
(1) Each of such Shares shall have an annual dividend rate of $.90 per
Share and no more. The right to payment of dividends shall be
cumulative. Said annual dividend shall be payable in equal quarterly
installments upon the 1st day of each January, April, July and October
in each year to holders of record as of the 15th day of the preceding
month commencing January 1, 1997, before any sum shall be set apart or
applied to the redemption or purchase of, or any dividends (other than
dividends of Common Shares) shall be declared or paid upon or set apart
for, Common Shares. The first of such quarterly dividend payments shall
be prorated to reflect the number of days in the quarter during which
the particular Shares were outstanding.
<PAGE> 2
(2) Upon any dissolution, liquidation or winding up of the Corporation,
the holders of each of said Shares, shall be entitled to receive,
before any payment to holders of Common Shares, all accrued but unpaid
dividends, plus a liquidation value of $10.00 per share and no more.
The consolidation or merger of the Corporation, at any time, with
another corporation, or a sale of substantially all of the assets of
the Corporation, shall not be construed as a dissolution, liquidation
or winding up of the Corporation within the meaning hereof.
(3) The Series A Convertible Preferred Shares shall be convertible into
Common Shares of the Corporation at a conversion price of $7.00 for
each Common Share, (taking such Preferred Shares at the liquidation
value of $10.00 per share) upon the following terms and conditions:
(3.1) In case the Common Shares issuable upon conversion of the
Series A Convertible Preferred Shares at any time outstanding
shall be subdivided into a greater or combined into a lesser
number of Common Shares (whether with or without par value), and
whether by stock split or stock dividend, the conversion price
shall be decreased in the case of a subdivision or increased in
the case of a combination to an amount which shall bear the same
relation to the conversion price in effect immediately prior to
such subdivision or combination, and shall bear the total number
of Common Shares outstanding immediately after such subdivision or
combination.
(3.2) No adjustments shall be made for dividends accrued on any
Shares that shall be issuable upon the conversion of such Shares.
(3.3) In case of a merger or consolidation of the Corporation with
or into another corporation, or the reclassification of its Common
Shares (other than by way of split-up or contraction), the holders
of Series A Convertible Preferred Shares shall thereafter be
entitled to receive upon conversion the kind and amount of shares
of stock and securities and property which they would have
received had they converted such Series A Convertible Preferred
Shares into Common Shares of the Corporation as of the record date
for determination of common shareholders entitled to participate
in such merger, consolidation, or reclassification.
(3.4) The holder of any shares of Series A Convertible Preferred
Shares may convert such Shares by surrendering the certificate or
certificates to any transfer agent of the Corporation or to the
Secretary of the Corporation duly endorsed in blank transfer and
accompanied by written notice of election to convert such Shares,
or portion thereof, executed on the form set forth on such
certificates or on such other form as may be provided from time to
time by the Corporation. No fractional Common Shares shall be
issued upon the conversion of any Series A Convertible Preferred
Shares but, in lieu thereof, the Corporation shall pay an amount
in cash equal to the current market value of such fractional
interest computed on the basis of the value of the Common Shares
at the time the preferred shares are surrendered for conversion
<PAGE> 3
as determined in such reasonable manner as the Corporation may
adopt. In case of the voluntary dissolution, liquidation or
winding up of the Corporation, all conversion rights of the
holders of Series A Convertible Preferred Shares shall terminate
on a date fixed by the Board of Directors, but not more than
Thirty (30) days prior to the record date for determining the
holders of the Common Shares entitled to receive any distribution
upon such dissolution, liquidation and winding up.
(3.5) The right of the holder to convert the Series A Convertible
Preferred Shares shall commence upon issuance of such Shares.
(3.6) The Corporation may cause the Series A Convertible Preferred
Shares to be converted at its option at any time if the average of
the closing sale prices for the Corporation's Common Shares is at
least 120 percent of the then effective conversion price, as
described above, for at least 20 trading days within the period of
30 consecutive trading days ending no earlier than 5 trading days
prior to the date of the notice of conversion.
(4) Holders of the Series A Convertible Preferred Shares shall have no
voting rights except as provided by law and except that if at any time
the Corporation fails to make SIX consecutive quarterly dividend
payments thereon, the number of directors constituting its Board of
Directors will be increased by two and the holders of the Shares,
voting as a class with each Share having one vote, will be entitled to
elect two directors to the Board as long as any arrearages in dividend
payments remain outstanding. Upon payment by the Corporation of all
such dividend arrearages, the two directors elected pursuant to this
provision will cease to be directors and the holders of Shares will
have no further right to elect directors on account of such arrearages.
(5) The Corporation shall not, except upon the affirmation vote of the
holders of two-thirds of the Series A Convertible Preferred Shares
outstanding at the time, amend these articles of incorporation in any
manner that would result in the Series A Convertible Preferred Shares
being subordinate in terms of preference as to payments of dividends or
payments on liquidation to any other Preferred Shares of the
Corporation.
ARTICLE IV
1. The address of the registered office is:
40 Pearl Street, N.W., Suite 900
Grand Rapids, Michigan 49503
2. The mailing address of the registered office, if different than above:
(same)
3. The name of the current resident agent is: James R. Saalfeld
<PAGE> 4
ARTICLE V
The name and address of the incorporator is as follows:
Donald W. Reynolds
940 W. Savidge
Spring Lake, MI 49456
ARTICLE VI
When a compromise or arrangement or a plan of reorganization of this corporation
is proposed between this corporation and its creditors or any class of them or
between this corporation and its shareholders or any class of them, a court of
equity jurisdiction within the state, on application of this corporation or of a
creditor or shareholder thereof, or on application of a receiver appointed for
the corporation, may order a meeting of the creditors or class of creditors or
of the shareholders or class of shareholders to be affected by the proposed
compromise or arrangement or reorganization, to be summoned in such manner as
the court directs. If a majority in number representing 3/4 in value of the
creditors or class of creditors, or of the shareholders or class of shareholders
to be affected by the proposed compromise or arrangement or a reorganization,
agree to a compromise or arrangement or a reorganization of this corporation as
a consequence of the compromise or arrangement, the compromise or arrangement
and the reorganization, if sanctioned by the court to which the application has
been made, shall be binding on all the creditors or class of creditors, or on
all the shareholders or class of shareholders and also on this corporation.
ARTICLE VII
Any action required or permitted by the Act to be taken at an annual or special
meeting of shareholders may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken, is
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take the action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to shareholders who have not
consented in writing.
ARTICLE VIII
The Corporation shall be, and is hereby declared to be, subject to the
provisions of Chapter 7a of the Business Corporation Act of the State of
Michigan, as enacted through the adoption of Act No. 115 of the Public Acts of
the State of Michigan of 1984. The requirements therein provided and made
applicable with respect to the Corporation shall be in addition to all other
requirements of law and other provision of the Articles of Incorporation, or any
thereto.
<PAGE> 1
CONSENT AGREEMENT
-----------------
This CONSENT AGREEMENT (hereinafter the "CONSENT AGREEMENT") is made in
Dublin, Ohio, as of the date set forth below, by and among WENDY'S
INTERNATIONAL, INC., an Ohio corporation (hereinafter "WENDY'S"); WENDY'S OF
WEST MICHIGAN LIMITED PARTNERSHIP (the "PARTNERSHIP"); MCC FOOD SERVICE INC.
("MCCFS"); MERITAGE HOSPITALITY GROUP INC. ("MERITAGE"); MHG FOOD SERVICE INC.
("FOOD SERVICE"); MERITAGE CAPITAL CORP. ("MCC"); ROBERT E. SCHERMER, JR. and
CHRISTOPHER B. HEWETT (together, the "PRINCIPALS"); the Principals, Food
Service, MCC, MCCFS and Meritage are collectively referred to herein from time
to time as the "NEW GUARANTORS."
WHEREAS, Wendy's and the Partnership are parties to various Unit
Franchise Agreements and Restaurant Franchise Agreements for the franchise and
Licensed Rights to the Wendy's Old Fashioned Hamburgers Restaurants located as
set forth on Exhibit A attached hereto and incorporated herein by reference (the
"PARTNERSHIP RESTAURANTS"); and
WHEREAS, Wendy's and the Partnership are also parties to a completed
Development Agreement dated August 23, 1978 for the Franchised Area of Ottawa
County, Michigan, for which a right of first refusal is the only developmental
right remaining and which expires December 31, 2000; and
WHEREAS, the aforementioned franchise agreements for the Partnership
Restaurants, the right of first refusal under the Development Agreement, and any
and all amendments and modifications to these agreements are hereinafter
collectively referred to as the "EXISTING PARTNERSHIP FRANCHISE AGREEMENTS"; and
WHEREAS, Wendy's, the Partnership and others are parties to two (2)
Restaurant Franchise Agreements and a New Unit Franchise Agreement for the
franchise and Licensed Rights to the three (3) Wendy's Old Fashioned Hamburgers
Restaurants located as set forth on Exhibit B attached hereto and incorporated
herein by reference (the "CO-FRANCHISED RESTAURANTS"); and
WHEREAS, the franchise agreements associated with the three (3)
Co-franchised Restaurants and any and all amendments and modifications to these
agreements are hereinafter collectively referred to as the "CO-FRANCHISED
FRANCHISE AGREEMENTS"; and
WHEREAS, the New Guarantors have presented evidence to Wendy's that (1)
Food Service is a subsidiary of Meritage which currently owns a controlling
interest (54%) of the limited partnership interest in the Partnership; (2) MCCFS
is a subsidiary of MCC; and (3) the Principals own a controlling interest in
Meritage and 100% of MCC; and
WHEREAS, Food Service desires to exercise certain rights which it
claims as the 54% owner of the limited partnership interest of the Partnership
under the Amended and Restated Agreement of Limited Partnership dated July 31,
1986 (the "PARTNERSHIP AGREEMENT") so as
<PAGE> 2
to replace the general partner of the Partnership and appoint MCCFS as the new
general partner of the Partnership; and
WHEREAS, the parties desire to obtain Wendy's prior written consent and
waiver of any right of first refusal with respect to the changes in the
Partnership; and
WHEREAS, in connection with Wendy's consent and waiver, Wendy's and the
Partnership must execute the new Wendy's Unit Franchise Agreement in the form
which is attached hereto as Exhibit C and which is incorporated herein by
reference to replace the Existing Partnership Franchise Agreements (collectively
the "NEW PARTNERSHIP FRANCHISE AGREEMENTS"); and
WHEREAS, the New Guarantors have agreed to sign Wendy's standard
guaranty agreement as provided herein (except for certain modifications
applicable to Meritage) for all obligations to Wendy's and its subsidiaries
under the Existing Partnership Franchise Agreements, the New Partnership
Franchise Agreements, the Co-franchised Franchise Agreements and this Consent
Agreement; and
WHEREAS, Wendy's has agreed that the Co-franchised Franchise Agreements
shall remain in full force and effect and shall not be modified by this Consent
Agreement; and
WHEREAS, Wendy's is willing to grant its consent and waive any right of
first refusal subject to certain terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein, the parties, intending to be legally bound, mutually
agree as follows:
1. Wendy's hereby consents to and waives its right of first refusal in the
replacement of the general partner in the Partnership, making MCCFS the
sole general partner of the Partnership. Wendy's consent and waiver are
subject to, and in reliance upon, the following terms, conditions,
representations and warranties:
A. The Partnership and the New Guarantors warrant, represent and
agree that, subject to Wendy's consent, (1) MCCFS shall be the
sole general partner of the Partnership, (2) Wendy's of West
Michigan, Inc., John G. Dodgson, Raymond A. Weigel, III, and
Gregory V. Dodgson (collectively the "MICHIGAN PARTIES") have
no interest or rights with respect to the Existing Partnership
Franchise Agreements; and (3) the Partnership is the sole
franchisee under the Existing Partnership Franchise
Agreements. Said parties further warrant, represent and agree
that all other actions legally necessary to effectuate these
changes have been duly completed.
B. The Partnership and the New Guarantors warrant, represent and
agree as follows:
(1) MCC is owned 100% by the Principals.
(2) MCCFS is owned 100% by MCC
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(3) The Partnership is owned as follows:
a) The sole General Partner is MCCFS
b) Limited Partnership Interests - 54% Food Service
- 46% Others
---
100%
(4) Food Service is a subsidiary of Meritage
C. The Partnership and the New Guarantors warrant, represent and
agree that the Partnership, Food Service, Meritage, MCCFS and
MCC are duly-organized entities, in good standing, and are
either registered or authorized to do business in the State of
Michigan. The Partnership and the New Guarantors further
warrant, represent and agree that the activities of the
Partnership and of MCCFS are currently, and shall remain,
limited solely to the ownership and operation of Wendy's Old
Fashioned Hamburgers Restaurants.
D. Notwithstanding the replacement of the Existing Partnership
Franchise Agreements with the New Partnership Franchise
Agreements as described in Paragraph 1(I) herein, the
Partnership agrees to be and to remain liable for all
obligations of "Franchise Owner" or "Franchisee," as those
terms are defined in the Existing Partnership Franchise
Agreements, which obligations arose or accrued up to the
effective date of this Consent Agreement. The Partnership also
agrees to perform all unperformed and partially-performed
terms and conditions of the Existing Partnership Franchise
Agreements which were to be performed up to the effective date
of this Consent Agreement. The Partnership agrees that any
failure to comply with such provisions of the Existing
Partnership Franchise Agreements shall constitute a default of
the New Partnership Franchise Agreements and this Consent
Agreement. The New Guarantors agree that their obligations
shall jointly and severally apply to all obligations of the
Partnership under both the Existing Partnership Franchise
Agreements and the New Partnership Franchise Agreements, as
well as the Co-franchised Franchise Agreements (subject to
certain limitations by the guaranty of Meritage as provided
herein).
E. The Partnership and the New Guarantors acknowledge and agree
that the obligations referenced in Exhibit D must be paid or
otherwise resolved to Wendy's satisfaction or Wendy's may
elect not to execute this Consent Agreement. However,
execution of this Consent Agreement by Wendy's shall not
constitute and is not intended as a waiver of any amounts
outstanding. Notwithstanding the Partnership's execution of
the New Partnership Franchise Agreements as described in
Paragraph 1(I) hereof, the Partnership and the New Guarantors
shall have responsibility for all obligations to Wendy's, its
subsidiaries and any advertising cooperatives under the
Existing Partnership Franchise Agreements, which obligations
arose or have accrued up to the effective date of this Consent
Agreement (subject to certain limitations on the guaranty of
Meritage as provided herein).
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<PAGE> 4
F. The Partnership shall pay to Wendy's contemporaneously with
the execution and return of this Consent Agreement a transfer
fee of $10,000, which shall be nonrefundable.
G. It is acknowledged and agreed that Wendy's reserves all of its
rights with respect to the Michigan Parties; and nothing
herein is intended as a waiver of any rights Wendy's or its
subsidiaries may have with respect to the Michigan Parties.
H. The Partnership warrants, represents and agrees that it is in
substantial compliance with all provisions of the Existing
Partnership Franchise Agreements and the Co-franchised
Franchise Agreements up to the effective date of this Consent
Agreement.
I. The Partnership agrees to execute contemporaneously herewith
two (2) copies of the New Partnership Franchise Agreements in
the form attached as Exhibit C for each of the Partnership
Restaurants listed on Exhibit A. The Partnership further
agrees that except as otherwise specifically provided herein,
the Existing Partnership Franchise Agreements are hereby
superseded and replaced in their entirety with the New
Partnership Franchise Agreements which are incorporated herein
by reference. The New Partnership Franchise Agreements shall
govern the parties' relationship with respect to the
Partnership Restaurant(s) commencing as of the effective date
of this Consent Agreement with a new term of twenty (20)
years. Except as specifically set forth herein, upon the
complete execution of this Consent Agreement and the New
Partnership Franchise Agreements, the Existing Partnership
Franchise Agreements shall be of no further force or effect.
The Partnership and the New Guarantors warrant, represent and
agree that they have reviewed the New Partnership Franchise
Agreements, acknowledge that they differ from many of the
Existing Partnership Franchise Agreements, and except as may
be set forth herein, warrant and represent that as of the
effective date of this Consent Agreement, they are in
substantial compliance with all provisions of the New
Partnership Franchise Agreements (including, without
limitation, the provisions contained in Section 16 therein)
and this Consent Agreement.
J. The Co-franchised Franchise Agreements shall not be modified
by this Consent Agreement (except that the general partner of
the Partnership shall be MCCFS pursuant to the rights of Food
Service under the Partnership Agreement). All terms and
conditions of the Co-franchised Franchise Agreements shall
remain in full force and effect, and the franchisees shall
remain as currently set forth in the Co-franchised Franchise
Agreements.
K. The New Guarantors hereby jointly and severally agree to
execute Wendy's Guaranty for all obligations and covenants of
the Partnership under the Existing Partnership Franchise
Agreements, New Partnership Franchise Agreements, the
Co-franchised Franchise Agreements, and under this Consent
Agreement. Said Guaranty shall be in the form attached hereto
as Exhibit E and made a part
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<PAGE> 5
hereof, to be executed contemporaneously with the execution of
this Consent Agreement, except that Meritage shall execute the
modified Guaranty attached as Exhibit F. The New Guarantors
shall individually comply with the noncompetition and
confidentiality provisions of the New Partnership Franchise
Agreements and their failure to do so shall constitute a
default under the New Partnership Franchise Agreements .
L. The Partnership and the New Guarantors warrant, represent and
agree that, except as otherwise provided herein, the
Partnership Restaurants shall be operated only by the
Partnership, and that the Partnership has the legal right to
possession of the Partnership Restaurant premises.
M. The Partnership agrees that an operator approved by Wendy's
shall maintain an equity interest in the business or
sufficient economic incentives as Wendy's deems reasonable.
That operator shall serve as an officer of the Partnership and
shall attend such training program as Wendy's may require. The
Partnership understands that such training shall occur in such
place and for such time period as Wendy's may designate from
time to time.
N. The Partnership agrees to deliver to Wendy's contemporaneously
with the execution and return of this Consent Agreement, a
certificate of insurance specifically covering each of the
Partnership Restaurants under the New Partnership Franchise
Agreements, which certificate complies with the insurance
provisions of the New Partnership Franchise Agreements,
includes the street locations on the front or back of the
certificate (or attached to it as an exhibit), and names the
Partnership as the insured and Wendy's as additional insured.
O. The Partnership acknowledges that the Partnership has voted in
favor of the 1997 WNAP increase, and hereby agree to comply
with the terms of the memorandum and ballot previously
executed by the Partnership which shall be applicable to the
New Partnership Franchise Agreements.
P. The Partnership and the New Guarantors acknowledge and agree
that they have received and reviewed a copy of Wendy's
transaction policy dated April 1, 1994, as amended November 4,
1994, as amended from time to time for the Wendy's System (the
"TRANSACTION POLICY") and agree to comply with the provisions
therein.
2. Except as otherwise specifically set forth in this Consent Agreement,
the Partnership and the New Guarantors agree as follows:
A. It is acknowledged and agreed that the 46% of limited
partnership interests in the Partnership which is owned by
parties other than Food Service may be freely transferred,
pledged, hypothecated, or encumbered without Wendy's consent
or waiver of its right of first refusal, provided, however,
Food Service shall retain at least 54% of the limited
partnership interest in the Partnership as
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<PAGE> 6
a control block interest (the "PARTNERSHIP CONTROL BLOCK").
Except as otherwise specifically set forth herein, any effort
to transfer, hypothecate, or encumber in any way, voluntarily,
by operation of law or otherwise, any portion of this
Partnership Control Block shall require a transfer of the
entire 54% Partnership Control Block; such transfer shall be
subject to Wendy's right of first refusal and prior written
consent, which shall not be unreasonably withheld subject to
compliance with the New Partnership Franchise Agreements, this
Consent Agreement and Wendy's Transaction Policy. The
principals and any controlling persons (20% or more) of any
approved owner of the Partnership Control Block must be
approved in writing by Wendy's and serve as guarantor(s).
Under no circumstances shall a lender or institution (or any
of its affiliates) be acceptable to Wendy's as the owner of
the Partnership Control Block.
B. Except as otherwise specifically set forth herein, there shall
be no direct or indirect change in the structure or ownership
of the Partnership Control Block, MCC, MCCFS or the New
Partnership Franchise Agreements and, except as otherwise
specifically set forth herein, no interest in the Partnership
Control Block, MCC, MCCFS or the New Partnership Franchise
Agreements shall be pledged, hypothecated, assigned or
otherwise transferred, voluntarily, by operation of law or
otherwise, without in each instance Wendy's prior written
consent and waiver of its right of first refusal as described
in Paragraph 13 of the New Partnership Franchise Agreements,
provided, however, Wendy's consent shall not be unreasonably
withheld subject to the terms of the New Partnership Franchise
Agreements, this Consent Agreement, and Wendy's Transaction
Policy.
C. Except as otherwise provided herein, any new or replacement
general partners of the Partnership shall be subject to
Wendy's prior written consent which shall not be unreasonably
withheld, provided that (i) such general partner agrees to
serve as a guarantor and the transaction (and such party)
complies with Wendy's requirements under the New Partnership
Franchise Agreements, this Consent Agreement and Wendy's
Transaction Policy; (ii) the individual principals of that
general partner who directly or indirectly hold 20% or more
voting or equity interest in that general partner shall be
approved by Wendy's and shall serve as guarantors pursuant to
Wendy's guaranty agreement (which shall include (without
limitation) compliance with the noncompetition and
confidentiality provisions of the New Partnership Franchise
Agreements); and (iii) any new or replacement general partner
(and its principals who are serving as guarantors) shall own
51% of the limited partnership units of the Partnership as a
new partnership control block which shall be restricted as
provided herein (except as otherwise specifically set forth
herein).
D. Any limited partner of the Partnership that directly or
indirectly holds, acquires or is transferred 20% or more of
the limited partnership units shall be required to serve as
guarantor pursuant to Wendy's guaranty agreement (which
includes
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<PAGE> 7
compliance with the confidentiality and noncompetition
provisions of the New Partnership Franchise Agreements). Any
person or entity owning 20% or more of any entity which is a
guarantor shall also be subject to the noncompetition and
confidentiality provisions of the New Partnership Franchise
Agreements. If such a limited partner, person or entity fails
to comply, it shall constitute a default under the New
Partnership Franchise Agreements in addition to any other
remedies Wendy's may have.
E. The Partnership and the New Guarantors warrant and agree that
except as provided in Paragraph 3 below, there has not been as
of this date and there shall not be in the future any change
in the structure of the Partnership or the Partnership
Agreement which materially affects the rights or obligations
of limited partners or of the general partner without Wendy's
prior written consent, which shall not be unreasonably
withheld subject to the terms of this Consent Agreement, the
New Partnership Franchise Agreements and Wendy's Transaction
Policy.
F. It is acknowledged that Great American Life Insurance Company
("GALIC") holds a security interest in the Partnership Control
Block. This security interest shall not itself constitute a
violation of this Consent Agreement; provided, however, in the
event GALIC (or any successor or assignee) takes any action
under its security agreements or other documents to exercise
any control over or receives any rights or benefits with
respect to the Partnership Control Block (or any units
comprising that Partnership Control Block), or the
Partnership, then such shall be deemed a transfer of the
Partnership Control Block for purposes of this Consent
Agreement, and GALIC shall comply with the terms of this
Consent Agreement, the Partnership shall be deemed to be in
default of the New Partnership Franchise Agreements. In such
event, Wendy's may in its sole discretion issue notice of
default with thirty (30) days to cure. The Partnership and the
New Guarantors warrant, represent and agree that they have
given notice of these restrictions to GALIC and nothing in the
agreements between GALIC and the Partnership (and/or the New
Guarantors) is intended to (nor shall) supersede or in any way
restrict Wendy's rights hereunder.
3. It is the intent of the Partnership and the New Guarantors to
restructure the Partnership within twelve (12) months of the date
hereof, such that all or substantially all of the 46% interest
currently owned by others shall be acquired by Food Service, the
Partnership shall be dissolved, and the assets (including the New
Partnership Franchise Agreements) shall be owned by a successor limited
partnership with MCCFS as general partner. Provided this acquisition,
dissolution and transfer of assets all occur within twelve (12) months
of the date hereof, Wendy's hereby consents to such action subject to
the following conditions:
A. Written notice shall be given to Wendy's at least thirty (30)
days prior to the effective date of such acquisition.
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<PAGE> 8
B. The Partnership, the successor Limited Partnership, and the
New Guarantors shall execute a General Release of All Claims
similar to Exhibit G.
C. The Partnership, the successor Limited Partnership, and the
New Guarantors shall each execute an indemnity covering all
aspects of the transaction (including without limitation, the
rights of the limited partners and the rights of the Michigan
Parties).
D. Wendy's shall have the right to review, include its disclaimer
in, and provide comments on (which comments may be included in
the disclaimer), any materials provided to any limited
partner, or investor, in connection with this transaction
within a reasonable time (not less than 30 days) prior to the
delivery of such materials to such parties.
E. There shall be no material adverse financial impact on the
Partnership as a result of this transaction.
F. Promptly after the transaction, the parties acknowledge in
writing that (1) the franchisee is the successor limited
partnership with limited partnership units owned 90% or more
by Food Service; (2) MCCFS is the sole general partner; and
(3) all of the New Guarantors continue their liability under
the guarantees and under the New Partnership Franchise
Agreements, the Co-franchised Franchise Agreements and this
Consent Agreement.
4. The Partnership and the New Guarantors agree that within twelve (12)
months of the date of this Consent Agreement they shall have addressed
and resolved to Wendy's reasonable satisfaction any and all interest
that any of the Michigan Parties may have or may claim in the
Co-franchised Franchise Agreements or the Co-franchised Restaurants and
shall obtain their authorization to remove them as signatories to the
Co-Franchised Franchise Agreements, so that the Partnership is clearly
named as the sole franchisee under the Co-franchised Franchise
Agreements and has exclusive control over said restaurants and
agreements. The Partnership and the New Guarantors will cooperate with
Wendy's to ensure that these three (3) agreements and restaurants are
subject to the same agreements and conditions as the Partnership
Restaurants and shall execute such documentation, including, without
limitation, franchise agreements, indemnities and releases, etc. as
Wendy's may reasonably require.
5. Notwithstanding the Transaction Policy or anything contained in the New
Partnership Franchise Agreements, the Partnership and the New
Guarantors, and any affiliates of these entities shall be prohibited
from directly or indirectly acquiring any existing Wendy's restaurants
or developing new restaurants outside of the existing DMA (as defined
in the New Partnership Franchise Agreement) of Grand Rapids
/Kalamazoo/Battle Creek unless this provision is waived by Wendy's in
its sole and absolute discretion. The parties acknowledge and agree
that this restriction includes the direct or indirect acquisition of a
material interest (equity or voting) in any entity which itself has a
material interest in Wendy's restaurants or in assets related to the
operation of Wendy's restaurants outside of the existing markets. The
parties further acknowledge and agree that Wendy's has made numerous
accommodations to deal with the unique structure of Franchisees (and
their controlling entities), certain security interests in the
Principal Control Block and the inability of the general partner to
hold
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<PAGE> 9
51% equity in the business. In consideration of these matters, the
parties further acknowledge and agree that the restrictions and
limitations imposed herein by Wendy's are reasonable, necessary and
appropriate considering all of the facts involved as an alternative to
full compliance with Wendy's transaction policy. The Partnership and
the New Guarantors agree that they shall not commence or participate in
any negotiations in violation of this provision without first obtaining
Wendy's waiver, which may be given in Wendy's sole and absolute
discretion. The Partnership shall be permitted to develop new Wendy's
restaurants and convert competitive units located exclusively in the
existing markets (defined as the DMAs as referenced in the New
Partnership Franchise Agreements) in which the Partnership already
operates Wendy's restaurants subject to Wendy's standard expandability
criteria and site standards, however, it is acknowledged that Wendy's
has a vested interest in limiting this structure to those current
markets. The Partnership shall take such action as is necessary to
properly communicate this restriction to its management personnel and
to the extent appropriate, to its investors.
6. Consistent with Wendy's Transaction Policy, 25% of the net free cash
flow of the Partnership will be retained and reinvested in the Wendy's
business. In addition, the Partnership must have a 1.10 Fixed Charge
Coverage (FCC) Ratio after any distributions, dividends, loans,
pledges, or other investments, and Wendy's will use such distributions
in its FCC calculation of financial expandability. Failure to achieve
and maintain the 1.10 FCC ratio will cause the franchise to be deemed
unexpandable.
7. Wendy's and the Partnership hereby modify each of the New Partnership
Franchise Agreements for those Restaurants listed on Exhibit H to
include the following provision:
A. During the initial term of the New Partnership Franchise
Agreements and provided the Partnership is satisfying Wendy's
then-existing criteria for expansion and development, the
Partnership shall have a right of first refusal to develop
additional Wendy's Old Fashioned Hamburgers Restaurants within
an area determined by drawing a circle around each of the
Partnership Restaurants, which circle shall have the
Restaurant as its center and shall include either a population
of twenty thousand (20,000) persons or a radius of three (3)
miles, whichever is smaller (the "RIGHT OF FIRST REFUSAL
AREA"). For purposes of this paragraph, the twenty thousand
person population shall be computed by using the larger of (i)
the number of individuals residing or employed in the area
between the hours of 8:00 a.m. and 5:00 p.m. on Monday through
Friday, inclusive, or (ii) the residential population of the
area.
B. This right of first refusal shall be conditioned upon the
following:
(1) If, at any time or from time to time during the
initial term of those New Partnership Franchise
Agreements, Wendy's determines that it is desirable
to operate itself or grant rights to others to
operate an additional Wendy's Old Fashioned
Hamburgers Restaurant in the Right of First Refusal
Area, and provided the Partnership is then expandable
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<PAGE> 10
and approved by Wendy's to develop additional Wendy's
Old Fashioned Hamburgers Restaurants in accordance
with Wendy's then existing criteria for expansion,
then subject to the terms of all subsections
contained within this Paragraph 7, the Partnership
shall have a right of first refusal to obtain the
developmental rights for an additional Wendy's Old
Fashioned Hamburgers Restaurant upon such terms and
conditions as are then determined by Wendy's. In such
case, Wendy's shall advise the Partnership in writing
of the terms and conditions for the acquisition of
the developmental rights for an additional Wendy's
Old Fashioned Hamburgers Restaurant. The Partnership
must notify Wendy's in writing within thirty (30)
days of the receipt of such notice whether the
Partnership wishes to acquire the developmental
rights for the additional Wendy's Old Fashioned
Hamburgers Restaurant. If the Partnership does not
exercise this right of first refusal, Wendy's may,
within one hundred eighty (180) days from the
expiration of the thirty (30) day period, grant the
developmental rights for an additional Wendy's Old
Fashioned Hamburgers Restaurant to any other person
or persons on the same terms and conditions or
Wendy's itself may elect to develop and construct
such additional Wendy's Old Fashioned Hamburgers
Restaurant.
(2) If Wendy's owns the proposed site, Wendy's shall
present to the Partnership the right of first refusal
for that specific site. In those instances in which
Wendy's does not own the site, Wendy's shall not be
required to present to the Partnership the
opportunity to develop the same site as may be
proposed. Therefore, the Partnership will have no
right of first refusal or any other right to develop
any specific site controlled by a prospective or
existing franchisee. In such event, the Partnership
may be required to locate a comparable alternative
site within the trade area, and Wendy's cannot assure
the Partnership that there will be other comparable
sites available. Notwithstanding anything contained
in all subsections within this Paragraph 7 to the
contrary, if the subject site is the only acceptable
site in the trade area and that site is not owned by
Wendy's or contractually available to the
Partnership, Wendy's shall be free to proceed with
development itself or franchising of that site to a
third party.
(3) It is understood and agreed that this right of first
refusal shall relate only to "TRADITIONAL
RESTAURANTS." A Traditional Restaurant means a
free-standing Restaurant on a public street having
its own parking facilities. Examples of those
restaurants which are not Traditional Restaurants and
which, therefore, may in Wendy's sole discretion be
developed by Wendy's or which Wendy's may franchise
to a third party, include, without limitation,
Restaurants and other food service facilities which
are situated in, or a part of, shopping malls; retail
centers; airports; hospitals; museums; train, subway
and other rail and bus stations; government/military
offices and office complexes; stadiums; amusement
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<PAGE> 11
parks; zoos; convention centers; car and/or truck
stops or travel centers; gasoline or convenience
stores; or educational institutions or facilities.
The determination of what is or is not a Traditional
Restaurant as defined in this paragraph is within
Wendy's sole reasonable discretion. the Partnership
assumes all risk that the development and operation
of non-Traditional Restaurants by Wendy's or any
third parties may impact the Partnership's desire or
ability to thereafter develop additional Wendy's Old
Fashioned Hamburgers Restaurants pursuant to the
right of first refusal.
(4) It is understood and agreed that if the Partnership
elects to exercise the right of first refusal in
accordance with the provisions contained within all
subsections of this Paragraph 7, and thereafter fails
to develop a Wendy's Old Fashioned Hamburgers
Restaurant in accordance with such election, then the
right of first refusal granted in this Paragraph 7
shall be terminated in its entirety as to all of the
Restaurants under the New Partnership Franchise
Agreements and shall be of no further force or
effect. Such termination shall be effective upon the
expiration of a cure period of thirty (30) days (or
such longer period as may be required by applicable
state law) pursuant to a Notice of Default issued by
Wendy's. It is further understood and agreed that if
any of the New Partnership Franchise Agreements
pertaining to the Restaurants are terminated, then
this right of first refusal and the terms of this
Paragraph 7 shall also be terminated and of no
further force or effect.
8. The Partnership and the New Guarantors hereby agree to separately
execute a General Release of All Claims in the form attached hereto as
Exhibit G contemporaneously with the execution of this Consent
Agreement.
9. The Partnership and New Guarantors acknowledge that they are aware of
the obligation to become a member of the local advertising cooperative,
have investigated the structure and requirements of that cooperative,
and understand and agree to the obligations of cooperative members.
10. The Partnership and New Guarantors warrant, represent and agree that
the terms and conditions of this Consent Agreement modify the New
Partnership Franchise Agreements (but do not modify the Co-franchised
Franchise Agreements) and are hereby incorporated therein; any breach
of the terms or conditions of this Consent Agreement by the Partnership
or the New Guarantors shall constitute a material default under the New
Partnership Franchise Agreements subject to such notice and cure
periods as are provided for therein or by law.
11. All parties understand that Wendy's may in the future approve offerings
and transfers under different terms, conditions and policies existing
at that time. Wendy's consent and waiver here shall not be relied upon
in future transactions as limiting Wendy's position or the conditions
associated with Wendy's consent and/or waiver of its right of first
refusal.
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<PAGE> 12
12. The Partnership and the New Guarantors acknowledge and agree that
Wendy's has no knowledge of, and makes no warranties with respect to,
the accuracy of any representations or warranties made by the
Partnership and the New Guarantors to each other in connection with
this transfer, and Wendy's assumes no obligation in this regard.
13. Wendy's and the Partnership agree that the official mailing address of
the Partnership under the New Partnership Franchise Agreements shall be
as follows:
Wendy's of West Michigan Limited Partnership
c/o MCC Food Service, Inc.
40 Pearl St., N.W.
Suite 900
Grand Rapids, MI 49503
Attn: President
All parties agree that notice to the Partnership shall constitute
notice to each of the New Guarantors.
A. The official mailing address of the Co-franchised Franchise
Agreements shall remain as currently set forth therein,
provided, however, Wendy's agrees to also send notice to the
Partnership at the address referenced above. The current
mailing address for the Co-franchised Franchise Agreements is
acknowledged to be as follows:
The Ledyard Building
125 Ottawa, N.W., Suite 235
Grand Rapids, MI 49503
14. The Partnership and the New Guarantors acknowledge and agree that in
connection with the transfers of interest described herein, except as
may be specifically set forth in this Consent Agreement, Wendy's has
not consented to the collateral assignment of any interest in the
Partnership or the New Partnership Franchise Agreements, and the
Partnership specifically warrants and represents that no such security
interest exists except as may be specifically set forth or permitted in
this Consent Agreement. The Partnership and the New Guarantors further
acknowledge and agree that any such future collateral assignment to any
third party under any promissory note, loan agreement or other
documentation, except as may be specifically set forth or permitted in
this Consent Agreement, shall be specifically subject to the terms of
the New Partnership Franchise Agreements, and shall require Wendy's
prior written consent.
A. The Partnership warrants and represents that the prior
collateral assignment as referenced in the Consent to
Collateral Assignment dated December 12, 1986 has been
terminated in its entirety and the collateral has been
released.
15. In addition to the indemnity provision of the New Partnership Franchise
Agreements, The Partnership and the New Guarantors hereby jointly and
severally agree to
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<PAGE> 13
indemnify, defend and hold Wendy's, its successors, assigns, officers,
directors, and employees harmless from any and all claims, judgments,
actions or expenses (including reasonable attorney fees), arising out
of or otherwise connected with (1) the past ownership, maintenance or
operation of the Restaurants (including the Partnership Restaurants and
the Co-franchised Restaurants); (2) the interest of any other party in
the Partnership, Food Service, Meritage, MCCFS, MCC or the New
Partnership Franchise Agreements; (3) the interest of any of the
Michigan Parties in the Co-franchised Restaurants, the Co-franchised
Franchise Agreements, the Partnership, the Existing Partnership
Franchise Agreements or the New Partnership Franchise Agreements; or
(4) any matter connected with Wendy's consent and waiver as contained
herein or the revisions and ownership changes as referenced herein, to
which Wendy's consents (as applicable) but assumes no responsibility
for effectuating. This indemnity shall be binding upon any successors
of the Partnership or any of the New Guarantors as a contingent claim.
16. The Partnership warrants and represents that no real estate/financing
arrangements with Wendy's or any subsidiary exist. All parties
acknowledge and agree that Wendy's consent in this Consent Agreement is
not intended to provide, and shall not be construed as providing,
Wendy's consent (or the consent of any subsidiary of Wendy's) with
regard to any other right or interest other than Wendy's consent to the
transfer and ownership changes as provided herein. Any other consent
(related to any real estate interest of any Wendy's affiliate, for
example) must be separately obtained pursuant to any controlling
agreements.
17. The Partnership and the New Guarantors hereby warrant and represent
that the financial and other information which has been provided by the
Partnership and the New Guarantors to Wendy's in connection with this
transaction is true and accurate. Wendy's is relying upon the accuracy
of that information in consenting to this transaction. The Partnership
and the New Guarantors agree that any material misrepresentation as to
the capitalization, financial structure, credit worthiness or
background of the Partnership or the New Guarantors or of the material
terms associated with the changes in ownership described herein may be
deemed by Wendy's to be a default of the New Partnership Franchise
Agreements, in addition to any other rights or remedies Wendy's may
have.
18. The parties understand and acknowledge that Wendy's consent and/or
waiver in no way constitutes an acknowledgment, undertaking or
representation by Wendy's as to the financial viability of this
purchase, any approval of the monetary terms of this purchase, or the
earnings potential of the Partnership Restaurants. The parties each
acknowledge and represent that they are sophisticated and experienced
in such business dealings, they have carefully reviewed and evaluated
this transaction using independent professional financial and legal
advisors and have in no way relied upon Wendy's consent and/or waiver
as an appraisal or indication of the earnings potential of the
Restaurants.
19. The Partnership and the New Guarantors hereby acknowledge the receipt
of Wendy's Uniform Franchise Offering Circular at the earlier of the
first personal meeting with
-13-
<PAGE> 14
Wendy's regarding this Consent Agreement or ten (10) business days
prior to the execution of this Consent Agreement. Said parties further
acknowledge the receipt of a final copy of this Consent Agreement at
least five (5) business days prior to the execution hereof.
20. The parties agree that if they fail to execute and return this Consent
Agreement to Wendy's within twenty-one (21) days of the receipt hereof,
this Consent Agreement may not be executed by Wendy's and the terms and
conditions contained herein shall not otherwise be binding upon Wendy's
without such execution.
21. Nothing contained in any documentation between the Partnership and the
New Guarantors (and affiliated parties of said entities), is intended
to conflict with the terms and conditions of this Consent Agreement or
the New Partnership Franchise Agreements as defined herein (and where
applicable, the Existing Partnership Franchise Agreements) as to the
rights of Wendy's and the obligations of the parties to Wendy's, or to
impose additional requirements or restrictions on Wendy's except as may
be specifically set forth herein. Except as otherwise provided for
herein, all terms and conditions of the New Partnership Franchise
Agreements shall remain in full force and effect, and the terms and
conditions of this Consent Agreement are intended to supplement those
provisions contained in the New Partnership Franchise Agreements. In
the event of a conflict between the New Partnership Franchise
Agreements and this Consent Agreement, the terms and conditions of the
this Consent Agreement will control.
A. ALL PARTIES ACKNOWLEDGE AND AGREE THAT AS TO WENDY'S AND THE
RIGHTS OF WENDY'S, THE NEW PARTNERSHIP FRANCHISE AGREEMENTS
AND THIS CONSENT AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF OHIO.
22. If any material provision or restriction contained herein is void under
federal, state or local law, or held unenforceable and against public
policy, the parties shall negotiate in good faith to give each party
the benefit of its bargain consistent with the intent and rights of the
parties.
23. This Consent Agreement sets forth the entire understanding between the
parties concerning the subject matter of this Consent Agreement and
incorporates all prior negotiations and understandings. There are no
covenants, promises, agreements, conditions or understandings, either
oral or written, between the parties relating to the subject matter of
this Consent Agreement other than those set forth herein. No
representation or warranty has been made by or on behalf of any party
to this Consent Agreement (or any officer, director, employee or agent
thereof) to induce the other party to enter into this Consent Agreement
or to abide by or consummate any transactions contemplated by any terms
of this Consent Agreement, except representations and warranties, if
any, expressly set forth herein. No alteration, amendment, change or
addition to this Consent Agreement shall be binding upon either party
unless in writing and signed by the party to be charged. The submission
of any
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<PAGE> 15
unexecuted copy of this Consent Agreement shall not constitute an offer
to be legally bound by any provision of the document submitted, either
currently or in the future; and no party shall be bound by this Consent
Agreement until it is fully executed and delivered by all parties.
IN WITNESS WHEREOF, this Consent Agreement is effective as of the date
it is executed by Wendy's International, Inc.
WENDY'S INTERNATIONAL, INC.
BY: /s/ W. Stephen Wirt
--------------------------------------------
TITLE: Vice President-Franchise Development
--------------------------------------
DATE: May 16, 1997
---------------------------------
WENDY'S OF WEST MICHIGAN LIMITED
PARTNERSHIP
BY: /s/ Christopher B. Hewett
--------------------------------------------
TITLE: Chairman and CEO of MCC
Food Service Inc.- General Partner
--------------------------------------
MERITAGE HOSPITALITY GROUP INC.
BY: /s/ Christopher B. Hewett
--------------------------------------------
TITLE: President and CEO
--------------------------------------
MHG FOOD SERVICE INC.
BY: /s/ Christopher B. Hewett
--------------------------------------------
TITLE: President
--------------------------------------
MERITAGE CAPITAL CORP.
BY: /s/ Christopher B. Hewett
--------------------------------------------
TITLE: President
--------------------------------------
(SIGNATURE LINES CONTINUED ON NEXT PAGE)
-15-
<PAGE> 16
MCC FOOD SERVICE INC.
BY: /s/ Christopher B. Hewett
--------------------------------------------
TITLE: Chairman and CEO
--------------------------------------
/s/ Robert E. Schermer, Jr.
-------------------------------------
ROBERT E. SCHERMER, JR., INDIVIDUALLY
/s/ Christopher B. Hewett
-------------------------------------
CHRISTOPHER B. HEWETT, INDIVIDUALLY
Franchise:__________
-16-
<PAGE> 17
EXHIBIT A
DODGSON/WEIGEL
WENDY'S OLD FASHIONED HAMBURGERS RESTAURANTS
<TABLE>
<CAPTION>
STORE NO. RESTAURANT LOCATION
<S> <C>
#19-001 305 East Michigan, Kalamazoo, MI
#19-002 2814 Portage, Kalamazoo, MI
#19-003 5830 Westnedge Avenue South, Kalamazoo, MI
#19-004 1280 28th Street, S.E., Grand Rapids, MI
#19-005 929 W. Columbia Avenue, Battle Creek, MI
#19-006 1061 Michigan Street, N.E. Grand Rapids, MI
#19-007 2200 28th Street, S.W., Wyoming, MI
#19-008 5455 West Main Street, Kalamazoo, MI
#19-009 3045 Henry Street, Muskegon, MI
#19-010 2315 Alpine Avenue, N.W., Walker, MI
#19-011 3921 28th Street, S.E., Grand Rapids, MI
#19-012 3850 S. Division Avenue, Wyoming, MI
#19-013 2730 W. Michigan, Kalamazoo, MI
#19-014 2071 E. Apple, Muskegon, MI
#19-015 3301 Plainfield, N.E., Grand Rapids, MI
#19-016 4343 Chicago Drive, Grandville, MI
#232-001 320 North Beacon, Grand Haven, MI
#232-002 261 E. 8th Street, Holland, MI
#232-003 12393 James Street, Holland, MI
#746-001 1185 M 89, Plainwell, MI
#747-001 828 S. Kalamazoo, Paw Paw, MI
#983-001 530 68th Street, S.W., Cutlerville, MI
#1011-001 5335 Beckley Road, Battle Creek, MI
</TABLE>
<PAGE> 18
EXHIBIT B
CO-FRANCHISED RESTAURANTS
<TABLE>
<CAPTION>
STORE NO. RESTAURANT LOCATION
<S> <C>
#1695-001 115 Monroe Avenue, Grand Rapids, MI
#1844-001 4694 W. River Road, Grand Rapids, MI
#2020-001 3922 Lake Michigan Drive, N.W., Walker, MI
</TABLE>
<PAGE> 19
EXHIBIT C
WENDY'S INTERNATIONAL, INC.
UNIT FRANCHISE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RECITALS..............................................................................................1
1. GRANT.................................................................................................2
2. TERM AND RENEWAL......................................................................................2
3. DUTIES OF FRANCHISOR..................................................................................3
4. FEES..................................................................................................4
5. SITE DEVELOPMENT AND CONSTRUCTION OF THE RESTAURANT...................................................5
6. DUTIES OF FRANCHISEE..................................................................................7
7. PROPRIETARY MARKS.....................................................................................10
8. CONFIDENTIAL OPERATING MANUAL.........................................................................12
9. CONFIDENTIAL INFORMATION..............................................................................13
10. ACCOUNTING AND RECORDS................................................................................13
11. ADVERTISING...........................................................................................15
12. INSURANCE.............................................................................................19
13. TRANSFER OF INTEREST..................................................................................20
14. DEFAULT AND TERMINATION...............................................................................26
15. OBLIGATIONS UPON TERMINATION OR EXPIRATION............................................................29
16. COVENANTS.............................................................................................31
17. CORPORATE AND PARTNERSHIP FRANCHISEES.................................................................33
18. TAXES, PERMITS, AND INDEBTEDNESS......................................................................34
19. INDEPENDENT CONTRACTOR AND INDEMNIFICATION............................................................35
20. NON-BINDING MEDIATION.................................................................................36
21. APPROVALS AND WAIVERS.................................................................................37
22. NOTICES...............................................................................................37
23. ENTIRE AGREEMENT......................................................................................37
24. SEVERABILITY AND CONSTRUCTION.........................................................................38
25. JOINT AND SEVERAL OBLIGATION..........................................................................38
26. APPLICABLE LAW........................................................................................39
27. ACKNOWLEDGMENTS.......................................................................................40
</TABLE>
<PAGE> 20
EXHIBIT C
INDEX
OF
DEFINED TERMS
We have provided this Index for your convenience. The following terms are
defined in the Wendy's Unit Franchise Agreement on the pages noted:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Advertising Contribution....................................................................................... 15
Affiliate...................................................................................................... 38
Agreement...................................................................................................... 1
Approved Location.............................................................................................. 2
Cooperative.................................................................................................... 16
DMA............................................................................................................ 32
Franchised Business............................................................................................ 2
Franchisee..................................................................................................... 1
Franchisor..................................................................................................... 1
Franchisor Entities............................................................................................ 36
Gross Sales.................................................................................................... 5
Guarantors..................................................................................................... 38
Guaranty....................................................................................................... 38
Local advertising and promotion................................................................................ 16
Manual......................................................................................................... 2
Minimum Royalty................................................................................................ 5
Operator....................................................................................................... 7
Owners......................................................................................................... 21
Permits........................................................................................................ 6
Premises....................................................................................................... 29
Proposed Franchisee............................................................................................ 21
Proprietary Marks.............................................................................................. 1
Restaurant..................................................................................................... 2
System......................................................................................................... 1
Technical Assistance Fee....................................................................................... 4
Transaction Policy............................................................................................. 22
WNAP........................................................................................................... 4
</TABLE>
<PAGE> 21
EXHIBIT C
WENDY'S INTERNATIONAL, INC.
UNIT FRANCHISE AGREEMENT
THIS UNIT FRANCHISE AGREEMENT (the "Agreement") is made and entered
into ______________________, 19____, between WENDY'S INTERNATIONAL, INC., an
Ohio corporation"), with offices at 4288 West Dublin Granville Road, Dublin,
Ohio 43017 ("Franchisor), and __________________________________________________
________________________________________________________________________________
_________________________________________________________________("Franchisee").
WITNESSETH:
WHEREAS, Franchisor, as the result of the expenditure of time, skill,
effort, and money, has developed and owns a distinctive format and system
relating to the establishment and operation of Wendy's Old Fashioned Hamburgers
restaurants featuring, among other things, hamburgers, chili, salads, French
fries, assorted chicken and other sandwiches, and other food and beverages (the
"System");
WHEREAS, the distinguishing characteristics of the System include,
without limitation, distinctive exterior and interior design, decor, color
scheme, and furnishings; menu items prescribed by Franchisor; uniform standards,
specifications, and procedures for operations; quality and uniformity of
products and services offered; procedures for management and inventory control;
training and assistance; and advertising and promotional programs; all of which
may be changed, improved, and further developed by Franchisor from time to time;
WHEREAS, Franchisor identifies the System by means of certain trade
names, service marks, trademarks, logos, emblems, and indicia of origin,
including but not limited to the marks "WENDY'S", and "WENDY'S OLD FASHIONED
HAMBURGERS," and such other trade names, service marks, and trademarks as are
now designated (and may hereinafter be designated by Franchisor in writing) for
use in connection with the System (the "Proprietary Marks");
WHEREAS, Franchisor continues to develop, use, and control the use of
such Proprietary Marks in order to identify for the public the source of
services and products marketed thereunder and under the System, and to represent
the System's high standards of quality, appearance, and service;
WHEREAS, Franchisee desires to enter into the business of operating a
Wendy's Old Fashioned Hamburgers restaurant under Franchisor's System and wishes
to obtain the rights to operate such business from Franchisor for that purpose,
as well as to receive the training and other assistance provided by Franchisor
in connection therewith;
WHEREAS, Franchisee understands and acknowledges the importance of
Franchisor's high standards of quality, cleanliness, appearance, and service,
and the necessity of operating the business franchised hereunder in conformity
with Franchisor's standards and specifications; and
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other party set forth herein, hereby agree as
follows:
<PAGE> 22
EXHIBIT C
1. GRANT
-----
1.1. Franchisor hereby grants to Franchisee, upon the terms and
conditions herein contained, the right, and Franchisee undertakes the
obligation, to operate the Wendy's Old Fashioned Hamburgers restaurant as
described") in accordance with this Agreement and the standards and procedures
set forth in Franchisor's Operating," as described in Section 8 hereof), and to
use solely in connection therewith, the Proprietary Marks and the System, as
they may be changed, improved, and further developed from time to time, only at
the approved location as provided in Section 1.2. hereof.
1.2. The street address of the location approved hereunder is:________
_______________________________________________________________________________
(the "Approved Location"). Franchisee shall not relocate the Franchised Business
without the express prior written consent of Franchisor.
1.3. Franchisee expressly acknowledges that this franchise is
non-exclusive. Franchisee shall only be permitted to operate from the Approved
Location, to sell approved food and beverage products to retail customers for
consumption on the premises or for personal carry-out consumption. Franchisor
shall retain the right, among others, to use, and to license others to use, the
System and the Proprietary Marks for the operation of restaurants at any
location; and to use and license to others the use of these and other
proprietary marks in connection with the operation at any location of
restaurants or any other business which are the same as, similar to, or
different from the Restaurant, on any terms and conditions as Franchisor deems
advisable, and without granting Franchisee any rights therein.
2. TERM AND RENEWAL
----------------
2.1. Except as otherwise provided herein, the term of this Agreement
shall expire twenty (20) years from the date hereof.
2.2. Upon the expiration of the term set forth in Section 2.1,
Franchisee may, at its option, renew the rights and obligations to operate the
Restaurant for one (1) additional consecutive term of ten (10) years, provided
that prior to the expiration of the initial term, the Franchisee has met the
following conditions:
2.2.A. Franchisee shall give Franchisor written notice of
Franchisee's election to renew not less than twelve (12) months nor more than
eighteen (18) months prior to the end of the initial term;
2.2.B. Franchisee shall make or provide for, in a manner
satisfactory to Franchisor, such renovation and modernization of the Restaurant
as Franchisor may require, including, without limitation, renovation of the
exterior facade, signs, interior furnishings, fixtures, and decor, to reasonably
reflect the then-current standards and image of the System;
2.2.C. Franchisee shall have satisfied all monetary obligations
owed by Franchisee to Franchisor and its affiliates (as defined in Section 24.4
hereof) and shall not be in default of any provision of this Agreement, any
amendment hereof or successor hereto, or any other agreement between Franchisee
and Franchisor or its affiliates; and, in the reasonable judgment of Franchisor,
Franchisee shall have substantially and timely complied with all the terms,
conditions and
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<PAGE> 23
EXHIBIT C
obligations of such agreements during the terms thereof and with
the operating standards prescribed by the Franchisor during the term of this
Agreement;
2.2.D. Franchisee shall present evidence satisfactory to
Franchisor that Franchisee has the right to remain in possession of the Approved
Location for the duration of the renewal term;
2.2.E. Franchisee shall execute Franchisor's then-current form of
renewal franchise agreement (and any Guarantor as defined in Section 25.2 shall
execute Franchisor's then-current guaranty agreement), which renewal franchise
agreement shall supersede this Agreement in all respects, and the terms of which
may differ from the terms of this Agreement, including, without limitation, a
higher percentage royalty fee and advertising contribution; provided, however,
that Franchisee shall pay, in lieu of a technical assistance fee or other
initial fee, a renewal fee in an amount to be specified by Franchisor, which
amount shall not be greater than twenty-five percent (25%) of the then-current
Technical Assistance Fee, or similar initial fee, charged to franchisees;
2.2.F. Franchisee and any Guarantors shall execute a general
release, in a form prescribed by Franchisor, of any and all claims against
Franchisor and its affiliates, and their respective officers, directors, agents,
and employees; and
2.2.G. Franchisee shall comply with Franchisor's then-current
training requirements and all other conditions required of franchisees renewing
their agreements at that time.
3. DUTIES OF FRANCHISOR
--------------------
3.1. Prior to the date of opening of the Restaurant, if the Restaurant
is Franchisee's first restaurant operating under the System, Franchisor shall
make available to Franchisee, or Franchisee's "Operator" (as defined in Section
6.2 hereof), and Franchisee's initial management employees and restaurant crew
(as such personnel positions are defined in the Manual), an initial training
program at a location designated by Franchisor. If, however, Franchisee or
Franchisee's Operator owns, or has an ownership interest in, another restaurant
operating under the System, Franchisee shall be required to provide an initial
training program to such persons, in accordance with Franchisor's
specifications, and subject to Franchisor's review and approval of such
training. If the Restaurant is Franchisee's first restaurant operating under the
System, Franchisor shall be responsible for the cost of certain instruction and
materials related to the initial training of the Franchisee or Franchisee's
Operator, subject to the terms set forth in Sections 6.3 and 6.4 of this
Agreement. Franchisee shall be responsible for the cost of training its
management and crew. Franchisor shall make available such other ongoing training
as it may, from time to time, deem appropriate.
3.2. Franchisor shall make available, at no charge to Franchisee,
prototypical plans and specifications for the construction of a standard Wendy's
restaurant and for the exterior and interior design and layout, fixtures,
furnishings, equipment, and signs. Franchisee shall adapt, at Franchisee's
expense, the prototypical plans and specifications to the Approved Location,
subject to Franchisor's approval, as provided in Section 5.2.B hereof, except
that Franchisor will not unreasonably withhold approval of special plans and
specifications, prepared at Franchisee's expense, when the Approved Location
will not accommodate Franchisor's prototypical plans and specifications,
provided that such plans and specifications conform to Franchisor's general
design criteria.
-3-
<PAGE> 24
EXHIBIT C
3.3. Franchisor shall conduct, as it deems advisable, periodic
inspections of the Restaurant and the Restaurant premises during the period of
construction and improvement to determine whether Franchisee is complying with
the approved plans and specifications for the Restaurant.
3.4. Franchisor shall inspect and approve the Restaurant for opening
prior to the opening of the Restaurant. Franchisee shall not commence operation
of the Restaurant until receiving such approval from Franchisor.
3.5. Franchisor shall provide, as Franchisor deems advisable,
pre-opening and opening supervision and assistance, which may include, at
Franchisor's sole discretion, having a representative of Franchisor present at
the opening of the Restaurant.
3.6. Franchisor shall provide Franchisee, on loan, one copy of the
Manual. The Manual shall be deemed to include a multi-volume manual describing
Franchisor's operating standards, as well as bulletins, updates, revisions,
policy statements and amendments thereto, which may be issued by Franchisor from
time to time.
3.7. Franchisor shall provide to Franchisee an initial set of reporting
forms for use in the operation of the Franchised Business. Franchisor may, from
time to time, make available to Franchisee, at Franchisee's expense, additional
forms and standardized reporting and bookkeeping systems, including computer
software and electronic data transmission systems for point of sale reporting.
3.8. Franchisor shall conduct, and may authorize others to conduct, as
it deems advisable, periodic inspections of the Restaurant, and evaluations of
the products sold and services rendered by the Franchised Business.
3.9. Franchisor shall provide, as it deems advisable, periodic and
continuing advisory assistance to Franchisee as to the operation, merchandising,
and promotion of the Restaurant.
3.10. Franchisor shall have the right to review and approve or
disapprove all advertising and promotional materials which Franchisee proposes
to use, pursuant to Section 11.7 hereof.
3.11. Franchisor or its designee shall maintain a system-wide
advertising program, administered by The Wendy"), to the extent required and as
specifically set forth in Section 11 hereof.
3.12. Franchisor may make available to Franchisee, from time to time,
bulletins, brochures, and reports regarding the System, and operations under the
System.
4. FEES
----
4.1. Franchisee has paid to Franchisor a Technical Assistance Fee
("Technical Assistance Fee") of Twenty-five Thousand Dollars ($25,000), receipt
of which is hereby acknowledged by Franchisor. The Technical Assistance Fee
shall be fully earned and shall be nonrefundable in consideration of
administrative and other expenses incurred by Franchisor in granting the rights
in this Agreement and for Franchisor's lost or deferred opportunity to grant
these rights to other parties.
-4-
<PAGE> 25
EXHIBIT C
4.2. Each month during the term of this Agreement, Franchisee shall pay
Franchisor a royalty fee in an amount equal to the greater of (a) four percent
(4%) of the gross sales of the Restaurant, as defined in Section 4". The Minimum
Royalty shall be One Thousand Dollars ($1,000) per month, provided, however, the
Minimum Royalty may be increased by Franchisor, in Franchisor's sole discretion,
and not more frequently than once every five (5) years, by an amount equal to
the percentage change in the Consumer Price Index, all Urban Consumers (1982-84
= 100) published by the U. S. Department of Labor, Bureau of Labor Statistics,
or any successor index, for the period from January 1, 1994 through December
31st of the year immediately prior to Franchisor's notice of its intention to
increase the Minimum Royalty. Franchisee's obligation to pay the monthly royalty
fee shall commence on the earlier of the date the Restaurant opens for business,
or the scheduled opening date as set forth in Section 5.3.
4.3. During the term of this Agreement, Franchisee shall pay, on a
monthly basis, such advertising fees and contributions as set forth in Section
11.1 hereof.
4.4. Except as otherwise specified herein, all monthly payments
required by this Section 4 and by Section 11 hereof shall be paid by the
fifteenth (15th) day of each month based on the gross sales for the preceding
month, and shall be delivered to Franchisor, in the manner specified by
Franchisor, together with any reports or statements required under Section 10.3.
hereof. Franchisor reserves the right to require payment of any and all fees by
means of electronic, computer, wire, or automated transfer or bank clearing
services, and Franchisee agrees to undertake all action reasonably necessary to
accomplish such transfers. Any payment or report not actually received by
Franchisor on or before such date shall be deemed overdue. If any payment is
overdue, Franchisee shall pay Franchisor, in addition to the overdue amount, a
late fee of One Hundred Dollars ($100.00), plus interest on the overdue amount
from the date it was due until paid, at the (i) rate determined from time to
time by Franchisor or (ii) the maximum rate permitted by law, whichever is less.
Entitlement to such interest shall be in addition to any other remedies
Franchisor may have.
4.5. As used in this Agreement, "gross sales" shall include all revenue
from the sale of all services and products and all other income of every kind
and nature related to the Franchised Business or premises, including proceeds of
any business interruption insurance policies, and the sale of any promotional or
premium items, whether for cash or credit, and regardless of collection in the
case of credit, but shall not include (i) any sales taxes or other taxes
collected from customers by Franchisee for transmittal to the appropriate taxing
authority, (ii) the amount of refunds made to customers, and (iii) any amounts
from coupon or discount programs approved by Franchisor for which Franchisee is
not reimbursed.
5. SITE DEVELOPMENT AND CONSTRUCTION OF THE RESTAURANT
---------------------------------------------------
5.1. Franchisee shall demonstrate to Franchisor's satisfaction that
Franchisee has the right to possession of the Approved Location. If Franchisee
will occupy the premises from which the Franchised Business is conducted under a
lease, Franchisor reserves the right to require Franchisee to submit such lease
to Franchisor for its written approval prior to the execution thereof. All
leases, without regard to Wendy's review, shall include the following
provisions, and such other provisions as Franchisor may reasonably require:
5.1.A. A provision which prohibits Franchisee from subleasing or
assigning all or any part of its occupancy rights without Franchisor's prior
written consent;
-5-
<PAGE> 26
EXHIBIT C
5.1.B. A provision requiring that the lessor shall provide to
Franchisor any and all notices of default under Franchisee's lease;
5.1.C. A provision giving Franchisor (subject to the reasonable
consent of lessor) the right to enter the premises to make modifications
necessary to protect the Proprietary Marks or the System or to cure any default
under this Agreement or under the lease; and Franchisor shall repair any damage
caused to the premises in making any such modifications; and
5.1.D. A provision whereby lessor consents to any assignment of
Franchisee's leasehold interest to Franchisor, as agreed to by Franchisee and
Franchisor.
5.2. Before commencing any construction of the Restaurant, Franchisee,
at its expense, shall comply, to Franchisor's satisfaction, with all of the
following requirements:
5.2.A. Franchisee shall employ a qualified, licensed architect or
engineer who is reasonably acceptable to Franchisor to prepare, for Franchisor's
approval, preliminary plans and specifications for site improvement and
construction of the Restaurant based upon the prototypical plans and
specifications furnished by Franchisor;
5.2.B. Franchisee shall be responsible for obtaining all necessary
permits, licenses, variances and approval"), pertaining to the building,
occupancy, signs, utilities, curb cuts, driveways, zoning, use, environmental
controls and any other Permits which are necessary to permit the construction
and use of a Wendy's restaurant which may be required by state or local laws,
ordinances, or regulations. After having obtained such Permits, Franchisee shall
submit to Franchisor, for Franchisor's approval, final plans for construction
based upon the preliminary plans and specifications. Once approved by
Franchisor, such final plans shall not thereafter be changed or modified without
the prior written permission of Franchisor;
5.2.C. Franchisee shall obtain all permits and certifications
required for the lawful construction and operation of the Restaurant and shall
certify in writing to Franchisor that all such permits and certifications have
been obtained; and
5.2.D. Franchisee shall employ a qualified, licensed and bonded
general contractor to construct the Restaurant and to complete all improvements.
Franchisee shall obtain and maintain in force during the entire period of
construction the insurance required under Section 12.4. of this Agreement.
5.3. Franchisee shall construct, furnish, and open the Restaurant
according to the provisions of Section 5.2 hereof, and Franchisee shall open the
Restaurant not later than _______________________, 19____. Time is of the
essence. Prior to opening for business, Franchisee shall comply with all
pre-opening requirements set forth in this Agreement, the Manual, and elsewhere
in writing by Franchisor.
5.4. Franchisee shall provide at least fourteen (14) days prior written
notice to Franchisor of the date on which Franchisee proposes to first open the
Restaurant for business. If Franchisee has five (5) or fewer restaurants
operating under the System, Franchisee shall not open the Restaurant without
Franchisor's representative present unless Franchisor has specifically waived
this requirement in writing for the Approved Location. In the event that
Franchisor cannot provide its representative on the date that Franchisee
proposes to first open the Restaurant for business, then Franchisee may be
-6-
<PAGE> 27
EXHIBIT C
required to reschedule such opening to a date on which the Franchisor's
representative can be in attendance.
6. DUTIES OF FRANCHISEE
--------------------
6.1. Franchisee understands and acknowledges that every detail of the
Franchised Business is important to Franchisee, Franchisor, and other
franchisees in order to develop and maintain high operating standards, to
increase the demand for the services and products sold by all franchisees, and
to protect Franchisor's reputation and goodwill.
6.2. An individual designated by Franchisee (the "Operator") shall
supervise the operation of the Restaurant at all times throughout the term of
this Agreement. The Operator and any replacement Operator shall be first
approved by Franchisor, and shall demonstrate to Franchisor's satisfaction (at
the time of approval and on a continuing basis) that he satisfies Franchisor's
educational, managerial, and business standards, and has the aptitude and
ability to conduct, operate, and supervise the Franchised Business. Any person
designated as the Operator shall maintain such ownership of a beneficial
interest in Franchisee as Franchisor may specify.
6.3. Prior to the opening of the Restaurant, Franchisee (or, if
Franchisee is a corporation, partnership or other business entity, the Operator,
previously approved by Franchisor) and Franchisee's initial management employees
and restaurant crew shall attend and successfully complete, to Franchisor's
satisfaction, the training program or programs offered by Franchisor. Any
management persons subsequently employed by Franchisee shall also attend such
training programs as required by Franchisor. Franchisee and Franchisee's
management employees involved in the operation of the Restaurant shall also
attend such refresher courses, seminars, and other training programs as
Franchisor may reasonably require from time to time.
6.4. Franchisor shall be responsible for the cost of instructors and
materials associated with the initial training program for Franchisee or
Franchisee's Operator if the Restaurant is Franchisee's first restaurant
operating in the System, however, Franchisee may be required to bear the cost of
other required and optional training courses, materials, seminars, and programs
for Franchisee, Franchisee's Operator as well as Franchisee's management and
crew. Franchisee shall always be responsible for any and all expenses incurred
by Franchisee and Franchisee's employees in connection with any training
courses, seminars, and programs, including, without limitation, the costs of
transportation, lodging, meals, wages, and worker's compensation insurance.
6.5. In connection with the opening of the Restaurant, Franchisee shall
conduct, at Franchisee's expense, such grand opening promotional and advertising
activities as Franchisor may require.
6.6. Franchisee shall use the Restaurant premises solely for the
operation of the Franchised Business hereunder; shall keep the business open and
in normal operation for such hours and days as Franchisor may from time to time
specify in the Manual or as Franchisor may otherwise approve in writing; and
shall refrain from using or permitting the use of the Restaurant or the
Restaurant premises for any other purpose or activity at any time without first
obtaining the written consent of Franchisor.
6.7. Franchisee agrees to maintain a competent, conscientious, trained
staff in sufficient numbers as required by Franchisor so that Franchisee may
promptly service customers, including at
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EXHIBIT C
least one manager on duty at all times, and to take such steps as are necessary
to ensure that its employees preserve good customer relations and comply with
such dress code as Franchisor may prescribe. Franchisee acknowledges and agrees
that Franchisee shall be solely responsible for all employment decisions and
functions, including, without limitation, those related to hiring, firing,
establishing wages and hour requirements, disciplining, supervising, and record
keeping.
6.8. Franchisee shall meet and maintain the highest health standards
and ratings applicable to the operation of the Restaurant. Franchisee shall
furnish to Franchisor, within five (5) days after receipt thereof, a copy of all
inspection reports, warnings, citations, certificates, or ratings resulting from
inspections of the Restaurant conducted by any federal, state or municipal
agency.
6.9. Franchisee shall at all times maintain the Restaurant in a high
degree of sanitation, repair, and condition, and in connection therewith shall
make such additions, alterations, repairs, and replacements thereto as may be
required for that purpose (but no others without Franchisor's prior written
consent), including, without limitation, such periodic repainting or replacement
of signs, furnishings, equipment, and decor as Franchisor may reasonably direct.
6.10. At Franchisor's request, which shall not be more often than once
every five (5) years, Franchisee shall refurbish the Restaurant at its expense
to conform to the building design, trade dress, color schemes, and presentation
of the Proprietary Marks in a manner consistent with the image then in effect
for new restaurants under the System, including, without limitation, remodeling,
redecoration, structural changes, and modifications to existing improvements and
equipment.
6.11. To insure that the highest degree of quality and service is
maintained, Franchisee shall operate the Restaurant in strict conformity with
such methods, standards, and specifications as Franchisor may from time to time
prescribe in the Manual or otherwise in writing. Franchisee agrees:
6.11.A. To maintain in sufficient supply, and to use and sell at
all times when the Restaurant is open for business, ingredients, products,
materials, supplies, and paper goods as conform to Franchisor's written
standards and specifications, and to refrain from deviating therefrom by the use
or offer of any non-conforming items, without Franchisor's prior written
consent;
6.11.B. To sell or offer for sale only such menu items, products,
services and related items, including without limitation, promotional and
premium items, as have been expressly approved for sale in writing by
Franchisor; to sell or offer for sale all required menu items and products
utilizing such preparation standards and techniques as specified by Franchisor;
to refrain from any deviation from Franchisor's standards and specifications
without Franchisor's prior written consent; and to discontinue selling and
offering for sale any menu items, products, or services which Franchisor may, in
its discretion, disapprove in writing at any time. Franchisee shall have sole
discretion as to the prices to be charged to customers;
6.11.C. To purchase and install, at Franchisee's expense, all
fixtures, furnishings, equipment, decor, and signs as Franchisor shall specify;
and to refrain from installing or permitting to be installed on or about the
Restaurant premises, without Franchisor's prior written consent, any fixtures,
furnishings, equipment, decor, signs, or other items not previously approved by
Franchisor in writing; and
6.11.D. To refrain from installing or permitting to be installed
any vending machine, game or coin operated device, unless first approved in
writing by Franchisor. If approved by
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EXHIBIT C
Franchisor, revenues associated with such operation shall be included in gross
sales for the purposes of this Agreement.
6.12. Franchisee shall purchase all food items, ingredients, supplies,
materials, and other products used or offered for sale at the Restaurant solely
from suppliers (including manufacturers, distributors, and other sources) who
demonstrate, to the continuing reasonable satisfaction of Franchisor, the
ability to meet Franchisor's then-current standards and specifications for such
items; who possess adequate quality controls and capacity to supply Franchisee's
needs promptly and reliably; and who have been approved in writing by Franchisor
prior to any purchases by Franchisee from any such supplier, and have not
thereafter been disapproved. If Franchisee desires to purchase any products from
an unapproved supplier, Franchisee shall submit to Franchisor a written request
for such approval. Franchisee shall not purchase from any supplier until, and
unless, such supplier has been approved in writing by Franchisor. Franchisor
shall have the right to require that Franchisor or its agents be permitted to
inspect the supplier's facilities, and that samples from the supplier be
delivered, either to Franchisor or to an independent laboratory designated by
Franchisor for testing. A charge not to exceed the reasonable cost of the
inspection and the actual cost of the test shall be paid by Franchisee or the
supplier. Franchisor may also require that the supplier comply with such other
requirements as Franchisor may deem appropriate, including payment of reasonable
continuing inspection fees and administrative costs. Franchisor reserves the
right, at its option, to reinspect from time to time the facilities and products
of any such approved supplier and to revoke its approval upon the supplier's
failure to continue to meet any of Franchisor's then-current criteria. Nothing
in the foregoing shall be construed to require Franchisor to approve any
particular supplier, nor to require Franchisor to make available to prospective
suppliers, standards and specifications for formulas that Franchisor, in its
sole discretion, deems confidential.
6.13. Without limiting the requirements set forth in this Section 6,
Franchisee shall comply with Franchisor's requirements and specifications
concerning the quality, service, and cleanliness of the Restaurant, the products
and services sold, offered for sale, or provided at the Restaurant, and the
operation of the Restaurant under the System, as those requirements may be
specified by Franchisor in this Agreement, in the Manual, or otherwise in
writing.
6.14. Franchisee shall permit Franchisor or its agents, at any
reasonable time, to remove samples of food or non-food items from Franchisee's
inventory, or from the Restaurant, without payment therefor, in amounts
reasonably necessary for testing by Franchisor or an independent laboratory to
determine whether said samples meet Franchisor's then-current standards and
specifications. In addition to any other remedies it may have under this
Agreement, Franchisor may require Franchisee to bear the cost of such testing if
the supplier of the item has not previously been approved by Franchisor or if
the sample fails to conform with Franchisor's specifications.
6.15. Franchisee grants Franchisor and its agents the right to enter
upon the Restaurant premises at any time for the purpose of conducting
inspections with or without prior notice. Franchisee shall cooperate with
Franchisor's representatives in such inspections by rendering such assistance as
they may reasonably request; and, upon notice from Franchisor or its agents and
without limiting Franchisor's other rights under this Agreement, Franchisee
shall take such steps as may be necessary to immediately correct any
deficiencies detected during any such inspection. Inspections shall not be
limited to physical inspections of the Restaurant premises but may also include
any visit by Franchisor's representative for the purpose of assessing
Franchisee's operating systems or overall compliance with this Agreement.
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EXHIBIT C
6.16. Franchisee shall require all advertising and promotional
materials, signs, decorations, paper goods (including disposable food
containers, napkins, menus, and all forms and stationery used in the Franchised
Business), and other items which may be designated by Franchisor to bear the
Proprietary Marks in the form, color, location, and manner prescribed by
Franchisor.
6.17. Franchisee shall implement and adhere to all changes, additions,
and refinements in the System, as may be prescribed by Franchisor from time to
time, including, without limitation, the providing of new or different products
or services at or from the Restaurant. Franchisee shall promptly undertake all
action and make such expenditures as are necessary to implement such changes,
including, without limitation, acquiring and installing new equipment, modifying
leasehold improvements at the Restaurant, and hiring and training additional
personnel.
6.18. Franchisee shall comply with all other requirements set forth in
this Agreement.
7. PROPRIETARY MARKS
7.1. Franchisor represents with respect to the Proprietary Marks that:
7.1.A. Franchisor has the right to use and license others to use
the Proprietary Marks; and
7.1.B. All reasonable steps have been and will be taken to
preserve and protect its rights in and the validity of the Proprietary Marks.
7.2. With respect to Franchisee's use of the Proprietary Marks pursuant
to this Agreement, Franchisee agrees that:
7.2.A. Franchisee shall use only the Proprietary Marks designated
by Franchisor, and shall use them only in the manner authorized and permitted by
Franchisor;
7.2.B. Franchisee shall use the Proprietary Marks only for the
operation of the Franchised Business and only at the Approved Location, or in
Franchisor-approved advertising for the business conducted at or from the
Approved Location;
7.2.C. Unless otherwise authorized or required by Franchisor,
Franchisee shall operate and advertise the Franchised Business only under the
names "WENDY'S" or "WENDY'S OLD FASHIONED HAMBURGERS," without prefix or suffix;
7.2.D. During the term of this Agreement and any renewal hereof,
Franchisee shall identify itself as the owner of the Franchised Business in
conjunction with any use of the Proprietary Marks, including, but not limited
to, uses on invoices, order forms, receipts, and contracts, as well as the
display of a notice in such content and form and at such conspicuous locations
at the Restaurant as Franchisor may designate in writing;
7.2.E. Franchisee's right to use the Proprietary Marks is limited
to such uses as are authorized under this Agreement, and any unauthorized use
thereof shall constitute an infringement of Franchisor's rights;
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EXHIBIT C
7.2.F. Franchisee shall not use the Proprietary Marks to incur any
obligation or indebtedness on behalf of Franchisor;
7.2.G. Franchisee shall not use the Proprietary Marks as part of
its corporate or other legal name; and
7.2.H. Franchisee shall comply with Franchisor's instructions in
filing and maintaining any requisite trade name or fictitious name
registrations, and shall execute any documents deemed necessary by Franchisor or
its counsel to obtain protection for the Proprietary Marks or to maintain their
continued validity and enforceability.
7.3. With respect to actual or potential litigation concerning the
Proprietary Marks:
7.3.A. Franchisee shall promptly notify Franchisor of any
unauthorized use of the Proprietary Marks or marks confusingly similar thereto
as well as any challenge to the Proprietary Marks. Franchisee acknowledges that
as between Franchisor and Franchisee, Franchisor has the sole right to direct
and control any administrative proceeding or litigation involving the ownership
or validity of the Proprietary Marks, including any settlement thereof.
Franchisor has the right, but not the obligation, to take action against uses by
others that may constitute infringement of the Proprietary Marks;
7.3.B. Provided Franchisee has used the Proprietary Marks in
accordance with this Agreement, Franchisor will defend Franchisee at
Franchisor's expense against any third-party claims, suits, or demands related
to Franchisee's use of, or right to use the Proprietary Marks; and
7.3.C. In the event Franchisor undertakes the defense or
prosecution of any litigation relating to the Proprietary Marks, Franchisee
agrees to execute any and all documents and to do such acts and things as may,
in the opinion of counsel for Franchisor, be necessary to carry out such defense
or prosecution, including but not limited to becoming a nominal party to any
legal action. Except to the extent that such litigation is the result of
Franchisee's use of the Proprietary Marks in a manner inconsistent with the
terms of this Agreement, Franchisor agrees to reimburse Franchisee for its
out-of-pocket costs in doing such acts and things, except that Franchisee shall
bear the salary costs of its employees, and Franchisor shall bear the costs of
any judgment or settlement.
7.4. Franchisee expressly understands and acknowledges that:
7.4.A. The Proprietary Marks are valid and serve to identify the
System and those who are authorized to operate under the System;
7.4.B. Franchisee shall not directly or indirectly contest the
validity or ownership of the Proprietary Marks;
7.4.C. Franchisee's use of the Proprietary Marks pursuant to this
Agreement does not give Franchisee any ownership interest or other interest in
or to the Proprietary Marks, except the rights specifically granted by this
Agreement;
7.4.D. Any and all goodwill arising from Franchisee's use of the
Proprietary Marks in its franchised operation under the System shall inure
solely and exclusively to the benefit of Franchisor and its subsidiaries, and
upon transfer, expiration or termination of this Agreement and the
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EXHIBIT C
license herein granted, no monetary amount shall be assigned as attributable to
any goodwill associated with Franchisee's use of the System or the Proprietary
Marks;
7.4.E. The right to use the Proprietary Marks granted hereunder to
Franchisee is non-exclusive, and Franchisor thus has and retains the rights,
among others:
7.4.E.1. To use the Proprietary Marks in connection with
selling products and services;
7.4.E.2. To grant other rights with respect to the
Proprietary Marks, in addition to those already granted to existing
franchisees; and
7.4.E.3. To develop and establish other systems using the
same or similar Proprietary Marks, or any other proprietary marks, and to grant
licenses, sublicenses, franchises, or other rights thereto without providing any
rights therein to Franchisee.
7.4.F. Franchisor reserves the right to substitute different
Proprietary Marks for use in identifying the System and the businesses operating
thereunder if the currently used Proprietary Marks can no longer be used, or if
Franchisor, in its sole discretion, determines that substitution of different
Proprietary Marks will be beneficial to the System. Franchisee agrees to comply
with Franchisor's instructions regarding the substitution of different
Proprietary Marks. Franchisor shall not have any obligation to reimburse
Franchisee for any expenditures made by Franchisee to modify or discontinue the
use of any Proprietary Mark or to adopt additional or substitute marks,
including, without limitation, any expenditures relating to advertising,
promotional materials or signage.
8. CONFIDENTIAL OPERATING MANUAL
-----------------------------
8.1. In order to protect the reputation and goodwill of Franchisor and
to maintain high standards of operation under Franchisor's Proprietary Marks,
Franchisee shall conduct its business in accordance with the Manual, which may
consist of more than one volume. Franchisee acknowledges having received on loan
from Franchisor one copy of such Manual for the term of this Agreement.
8.2. Franchisee shall at all times treat the Manual, any other manuals
created for or approved for use in the operation of the Franchised Business, and
the information contained therein, as confidential, and shall use all reasonable
efforts to maintain such information as secret and confidential. Franchisee
shall not at any time copy, duplicate, record, or otherwise reproduce the
foregoing materials, in whole or in part, nor otherwise make the same available
to any unauthorized person.
8.3. The Manual shall at all times remain the sole property of
Franchisor and shall at all times be kept in a secure place on the Restaurant
premises.
8.4. Franchisor may from time to time revise, update, and supplement
the contents of the Manual through various methods, including without
limitation, the issuance of amendments, policy statements, and bulletins, in
printed or electronically transmitted form, and Franchisee expressly agrees to
make corresponding revisions to its copy of the Manual and to comply with each
new or changed standard.
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EXHIBIT C
8.5. Franchisee shall at all times maintain the Manual at the
Restaurant and insure that the Manual is kept current and up to date; and, in
the event of any dispute as to the contents of the manual, the terms of the
master copy of the Manual maintained by Franchisor at Franchisor's home office
shall be controlling.
9. CONFIDENTIAL INFORMATION
------------------------
9.1. Franchisee shall not, during the term of this Agreement or
thereafter, communicate, divulge, or use for the benefit of any other person,
persons, partnership, association, or corporation any confidential information,
knowledge, or know-how concerning the methods of operation of the business
franchised hereunder which may be communicated to Franchisee or of which
Franchisee may be apprised by virtue of Franchisee's operation under the terms
of this Agreement. Franchisee shall divulge such confidential information only
to such of its employees as must have access to it in order to operate the
Franchised Business. Any and all information, knowledge, know-how, and
techniques which Franchisor designates as confidential shall be deemed
confidential for purposes of this Agreement, including, but not limited to,
marketing plans, development strategies, and financial plans, except information
which Franchisee can demonstrate came to its attention prior to disclosure
thereof by Franchisor; or which, at or after the time of disclosure by
Franchisor to Franchisee, had become or later becomes a part of the public
domain, through publication or communication by others who were lawfully in
possession of such information and were under no obligation to maintain its
confidentiality.
9.2. Franchisee agrees to take all steps necessary to ensure that the
Owners, any Guarantor, the Operator, Restaurant manager, co-manager and
supervisor and any other personnel having access to any confidential information
related to the Restaurant, the Franchisor or the Franchised Business also comply
with the requirements of Section 9.1 above. Franchisor may direct that
Franchisee require its Owners, any Guarantor, Operator, Restaurant manager,
co-managers, and supervisors, and any other personnel having access to any
confidential information from Franchisor, to execute covenants that they will
maintain the confidentiality of information they received in connection with
their employment by or relationship with Franchisee, during, and after
termination or expiration of, such employment or relationship. Such covenants
shall be in a form satisfactory to Franchisor, including, without limitation,
specific identification of Franchisor as a third-party beneficiary of such
covenants with the independent right to enforce them, and Franchisee shall
provide copies of such executed covenants to Franchisor upon Franchisor's
request.
9.3. Franchisee acknowledges that any failure to comply with the
requirements of this Section 9 will cause Franchisor irreparable injury, and
Franchisee agrees to pay all court costs and reasonable attorney's fees incurred
by Franchisor in obtaining specific performance of, or an injunction against
violation of, the requirements of this Section 9.
10. ACCOUNTING AND RECORDS
----------------------
10.1. Franchisee shall maintain during the term of this Agreement, and
shall preserve for at least four (4) years from the dates of their preparation,
full, complete, and accurate books, records, and accounts in accordance with
generally accepted accounting principles and in the form and manner prescribed
by Franchisor from time to time in the Manual or otherwise in writing.
10.2. Franchisee shall prepare and maintain a business plan and
operating budget in the manner prescribed by Franchisor, reflecting such
information as Franchisor may specify, which may
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EXHIBIT C
include, without limitation, operational data, personnel expense information,
factors related to the costs of goods sold, capital expenditures, and revenue
projections. Franchisee shall submit such business plan and operating budget to
Franchisor at such times and places and in such form as may be prescribed by
Franchisor.
10.3. Franchisee shall submit to Franchisor, no later than the
fifteenth (15th) day of each month during the term of this Agreement, in a
format and manner specified by Franchisor, monthly royalty and gross sales
reports, and such other reports as Franchisor may require. Franchisor reserves
the right to require Franchisee to submit copies of all state sales tax returns
for the Franchised Business to Franchisor.
10.4. Franchisee shall, at its expense, provide to Franchisor, in a
format specified by Franchisor, and in accordance with generally accepted
accounting principles, a complete annual financial statement (including, without
limitation, a profit and loss statement, cash flow statement and balance sheet),
on a review basis, prepared by an independent certified public accountant
satisfactory to Franchisor, within ninety (90) days after the end of each fiscal
year of the Franchised Business showing the results of operations of the
Franchised Business and the results of operations for any entity affiliated with
the Franchised Business during said fiscal year. Franchisor reserves the right
to require Franchisee to provide, at Franchisee's expense, an audited annual
financial statement, prepared by an independent certified public accountant
satisfactory to Franchisor.
10.5. Franchisor reserves the right to require Franchisee, at
Franchisee's expense, to provide to Franchisor, in a format specified by
Franchisor, quarterly or semi-annual financial statements (as described in
Section 10.4 above), certified by an officer or accountant of Franchisee (and if
specifically required by Franchisor, certified by an independent certified
public accountant), and such other information as Franchisor may reasonably
specify, showing the results of operations of the Franchised Business and the
results of operations for any entity affiliated with the Franchised Business
during said period. Franchisee shall submit such reports within forty-five (45)
days following the end of each quarter or six-month period of each fiscal year
of the Franchised Business during the term hereof.
10.6. Franchisee shall also submit to Franchisor, for review or
auditing, such other forms, reports, records, information, and data as
Franchisor may reasonably require, including but not limited to financial
statements of each Franchisee and each Guarantor, in the form and at the times
and places reasonably required by Franchisor, upon Franchisor's request and as
specified from time to time in the Manual or otherwise in writing. Franchisor
reserves the right to require each Franchisee and each Guarantor to submit their
respective federal and state income tax returns to Franchisor for review.
Franchisee agrees that Franchisor may, and specifically grants Franchisor the
right to, divulge any and all information submitted by Franchisee pursuant to
this Section 10 or otherwise pertaining to Franchisee to third-party financing
or lending sources being considered by Franchisee.
10.7. Franchisor or its designated agents shall have the right at all
reasonable times to examine and copy, at Franchisor's expense, the books,
records, and tax returns of Franchisee. Franchisor shall also have the right, at
any time, to have an independent audit made of the books of Franchisee. If an
inspection should reveal that any payments to Franchisor or any affiliate have
been understated in any report to Franchisor, or if Franchisee fails to expend
any monies required under this Agreement, then Franchisee shall immediately pay
the amount understated, or expend the amount required, upon demand by
Franchisor. In addition, Franchisee shall pay interest on the understated amount
from the date such amount was due until paid, at the rate to be determined by
Franchisor from time to time, or the maximum rate permitted by law, whichever is
less. If an inspection discloses an
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EXHIBIT C
understatement in any report of two percent (2%) or more, or an underpayment of
required expenditures (including, without limitation, royalties due pursuant to
the Agreement) of two percent (2%) or more, Franchisee shall, in addition,
reimburse Franchisor for any and all costs and expenses connected with the
inspection (including, without limitation, travel, lodging and wage expenses,
and reasonable accounting and legal costs). The foregoing remedies shall be in
addition to any other remedies Franchisor may have.
11. ADVERTISING
-----------
Recognizing the value of advertising, and the importance of the
standardization of advertising programs to the furtherance of the goodwill and
public image of the System, the parties agree as follows:
11.1. Franchisor shall have the right to require Franchisee to expend
on advertising and promotion, or to participate in and contribute for the
purpose of advertising and promotion, each month during the term of this
Agreement, an amount, in the aggregate, equal to four percent (4%) of
Franchisee's gross sales during the preceding month (the "Advertising
Contribution"), or such greater amount as provided for in Section 11.2 hereof,
all in such manner as Franchisor may direct from time to time, subject to the
following:
11.1.A. For so long as WNAP (or any successor entity
designated by Franchisor) is in existence as an advertising and promotional fund
for the System, Franchisee shall contribute to WNAP on a monthly basis such
amount as may be specified by Franchisor from time to time in the Manual or
otherwise in writing, which amount shall not be less than fifty percent (50%) of
the Advertising Contribution, nor greater than seventy-five percent (75%) of the
Advertising Contribution;
11.1.B. Franchisee shall spend, for the purpose of local
advertising and promotion, on a monthly basis, such amounts as may be specified
by Franchisor from time to time in writing, which amounts shall not be less than
twenty-five percent (25%) of Franchisee's Advertising Contribution. Franchisee's
expenditures for local advertising and promotion shall be made in accordance
with Section 11.3 hereof; and
11.1.C. If an advertising and marketing Cooperative (as
defined in Section 11.4) is established for Franchisee's region, Franchisor may
specify the amount that Franchisee shall contribute to the Cooperative each
month; provided, however, that Franchisee's contribution to the Cooperative
shall be credited towards satisfaction of the obligations required by Section
11.1.B hereof, and shall be made in accordance with the provisions set forth in
Section 11.4 hereof.
11.2. Franchisor reserves the right (i) to increase the Advertising
Contribution specified in Section 11.1 at any time to an amount not in excess of
five percent (5%) of Franchisee's gross sales, (ii) to change the contributions
to WNAP outside the range specified in Section 11.1.A, and (iii) to reduce the
minimum expenditures specified in Section 11.1.B; provided, however, that
Franchisor may require any of such changes only upon obtaining an affirmative
vote representing seventy-five percent (75%) or more of all restaurants in the
United States operating in the System (whether operated by Wendy's or by its
franchisees and excepting those restaurants under any franchise agreements with
Wendy's which have been terminated).
11.3. All local advertising and promotion by Franchisee shall be in
such media, and of such type and format as Franchisor may approve; shall be
conducted in a dignified manner; and, shall
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EXHIBIT C
conform to such standards and requirements as Franchisor may specify.
Franchisee shall not use any advertising or promotional plans or materials
unless and until Franchisee has received written approval from Franchisor,
pursuant to the procedures and terms set forth in Section 11.7 hereof.
11.3.A. As used in this Agreement, spending on "local
advertising and promotion" which may be credited toward Franchisee's Advertising
Contribution as set forth under Section 11.1.B. shall be advertising and
promotion related directly to the Restaurant, and shall consist only of the
following: (i) advertising and media - the direct costs of measurable media for
television, radio, newspaper and print, outdoor (billboard or transit), yellow
pages and direct mail, including space or time charges, agency planning,
selection, placement and production; the direct costs of in-store materials,
including window signs, counter signs and other promotional signs; (ii)
promotions - the direct costs of market-wide efforts to stimulate trial,
increase frequency of purchase or increase average amounts of purchase,
including direct advertising costs and costs incurred for planning and execution
of same; (iii) direct out-of-pocket expenses - the directly related expenses
incurred by an advertising cooperative approved by Wendy's and related to the
cost of advertising and marketing for agency travel expense, postage, shipping,
meeting room charges, telephone and photocopying, and (iv) such other activities
and expenses as Franchisor in its sole discretion may specify.
11.3.B. Franchisor may specify the types of expenditures and
costs which shall not qualify as "local advertising and promotion." Franchisee
understands and agrees that the definition of local advertising and promotion
set forth above shall not, however, include, and Franchisee shall not include in
its report of the amounts expended on advertising and promotion, any costs or
expenses incurred by Franchisee in connection with any of the following: (i)
incentive programs, including the cost of honoring coupons; (ii) market-wide or
other research that is not conducted by a professional marketing research firm
approved in writing by Franchisor; (iii) food costs incurred in, or price
reductions associated with, any promotion; (iv) salaries and expenses of any
employees of Franchisee, including salaries or expenses for attendance at
advertising meetings or activities; (v) charitable, political or other
contributions or donations; (vi) press parties or other expenses of publicity
other than those associated with the grand opening or re-opening of the
Restaurant; (vii) in-store materials consisting of fixtures or equipment; (viii)
any entertainment or related expenses for travel, meals and the like; (ix) any
fees paid to parties who are not professional consultants, counselors or
advisors previously approved in writing by Wendy's in marketing, advertising,
public relations, promotion or associated efforts; (x) seminar and educational
costs and expenses of employees of Franchisee; (xi) specialty items (such as tee
shirts, premiums, pins and awards) unless such items are part of a market-wide
advertising program and the cost of such items is not recovered by the
promotion; and (xii) such other items as Wendy's shall reasonably determine in
its discretion.
11.3.C. Franchisee understands and acknowledges that the
required contributions and expenditures are minimum requirements only, and that
Franchisee may, and is encouraged by Franchisor to, expend additional funds for
local advertising and promotion, where appropriate.
11.4. Any regional advertising pertaining to the Franchised Business,
and any local advertising which Franchisor may specify as inconsistent with the
provisions of Section 11.3 pertaining to individual restaurant advertising and
promotion, shall be conducted by and through a regional advertising cooperative
("Cooperative") established or required to be established by Franchisor for that
purpose. Franchisor shall have the right, in its discretion, to designate any
geographical area for purposes of establishing a Cooperative, and Franchisee
agrees to take appropriate steps to establish and participate in such
Cooperative if required to do so by Franchisor. If a Cooperative for the
geographic area in which the Restaurant is located has been established at the
time Franchisee commences operations hereunder, Franchisee shall immediately be
bound by the obligation to become a member of
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EXHIBIT C
such Cooperative under the terms of the then-existing Cooperative agreement. If
a Cooperative for the geographic area in which the Restaurant is located is
established during the term of this Agreement, Franchisee shall immediately
become a member of such Cooperative, and take all steps necessary to become such
member. In no event shall Franchisee be required to be a member of more than one
Cooperative with respect to the Restaurant. The following provisions shall apply
to each such Cooperative:
11.4.A. Each Cooperative shall be organized and governed in a form
and manner approved by Franchisor in writing, and shall commence operations on a
date specified by Franchisor. Any disputes arising among or between Franchisee,
other franchisees in the Cooperative, and/or the Cooperative, shall be resolved
by Franchisor, whose decision shall be final and binding on all parties;
11.4.B. Each Cooperative shall be organized for the exclusive
purpose of administering regional advertising programs, and developing, subject
to Franchisor's approval, standardized promotional materials for use by the
members in local advertising and promotion;
11.4.C. No advertising or promotional plans or materials may be
used by a Cooperative or furnished to its members without the prior approval of
Franchisor, pursuant to the procedures and terms as set forth in Section 11.7.
hereof;
11.4.D. Franchisee shall submit its required contribution to the
Cooperative at such times as determined by the Cooperative, but no later than
the last day of each month on gross sales for the preceding calendar month,
together with such other statements or reports as may be required by Franchisor,
or by the Cooperative with Franchisor's prior written approval;
11.4.E. Franchisor shall, for each of the restaurants operated by
Franchisor under the System which are located in a geographic area for which a
Cooperative has been established, make contributions to the applicable
Cooperative on the same basis as assessments required of comparable franchisees
who are members of such Cooperative; and
11.4.F. Franchisor, in its sole discretion, may grant to any
franchisee an exemption for any length of time from the requirement of
membership in a Cooperative, or from the requirement to pay all or a portion of
the contribution (described in Section 11.1.B.) to the Cooperative upon written
request of such franchisee stating reasons supporting such exemption.
Franchisor's decisions concerning such request for exemption shall be final. If
an exemption is granted to a franchisee, such franchisee shall be required to
expend an amount equal to the exempted portion of the contribution for local
advertising in accordance with and as may be required in Sections 11.1.B and
11.3 hereof.
11.5. To the extent permitted by the organizational and operational
documents of WNAP, WNAP shall be maintained and administered by Franchisor or
its designee, as follows:
11.5.A. Franchisor or its designee shall direct all advertising
programs, with sole discretion over the concepts, materials, and media used in
such programs and the placement and allocation thereof. Franchisee agrees and
acknowledges that WNAP is intended to maximize general public recognition,
acceptance, and use of the System; and that Franchisor and its designee are not
obligated, in administering WNAP, to make expenditures for the benefit of
Franchisee which are equivalent or proportionate to Franchisee's contribution,
or to ensure that any particular franchisee benefits directly or pro rata from
expenditures by WNAP;
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EXHIBIT C
11.5.B. WNAP, all contributions thereto, and any earnings
thereon, shall be used exclusively to meet any and all costs of maintaining,
administering, directing, conducting, and preparing advertising, marketing,
public relations and promotional programs and materials, and any other
activities which Franchisor believes will enhance the image of the System,
including, among other things, the costs of preparing and conducting media
advertising campaigns; direct mail advertising; marketing surveys and other
public relations activities; employing advertising or public relations agencies
to assist therein; purchasing promotional items, conducting and administering
visual merchandising, point of sale, and other merchandising programs; and
providing promotional and other marketing materials and services to the
restaurants operated under the System. WNAP may also be used to provide rebates
or reimbursements to franchisees for local expenditures on products, services,
or improvements, approved in advance by Franchisor, which products, services, or
improvements Franchisor deems, in its sole discretion, will promote general
public awareness and favorable support for the System;
11.5.C. Franchisee shall contribute to WNAP by checks made
payable to WNAP. All sums paid by Franchisee to WNAP shall be maintained in an
account separate from the other monies of Franchisor and shall not be used to
defray any of Franchisor's expenses, except for such reasonable costs and
overhead, if any, as Franchisor may incur in activities reasonably related to
the administration, direction, and implementation of WNAP and advertising
programs for franchisees and the System, including, among other things, costs of
personnel for creating and implementing advertising, merchandising, promotional
and marketing programs and administration of WNAP funds. WNAP and its earnings
shall not otherwise inure to the benefit of Franchisor. Franchisor or its
designee shall maintain separate bookkeeping accounts for WNAP;
11.5.D. Franchisor shall, for each of the restaurants
operated by Franchisor under the System, make contributions to WNAP on the same
basis as assessments required of comparable franchisees within the System;
11.5.E. It is anticipated that all contributions to and
earnings of WNAP shall be expended for advertising and promotional purposes
during the taxable year within which the contributions and earnings are
received. If, however, excess amounts remain in WNAP at the end of such taxable
year, all expenditures in the following taxable year(s) shall be made first out
of accumulated earnings from previous years, next out of earnings in the current
year, and finally from contributions;
11.5.F. The contributions to and earnings of WNAP are not
and shall not be an asset of Franchisor. A statement of the operations of WNAP
as shown on the books of Franchisor shall be prepared annually by an independent
public accountant selected by Franchisor and shall be made available to
Franchisee; and
11.5.G. Although WNAP is intended to be of perpetual
duration, Franchisor has the right to terminate WNAP and not to designate a
successor entity. WNAP shall not be terminated, however, until all monies in
WNAP have been expended for advertising and promotional purposes.
11.6. Franchisor shall make available to Franchisee from time to time,
at Franchisee's expense, advertising plans and promotional materials, which may
include newspaper mats, coupons, merchandising materials, sales aids,
point-of-purchase materials, special promotions, direct mail materials,
community relations programs, and similar advertising and promotional materials.
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EXHIBIT C
11.7. For all advertising and promotional plans which require
Franchisor's approval prior to use, as set forth in Sections 11.3 and 11.4
hereof, Franchisee or the Cooperative, where applicable, shall submit samples of
such plans and materials to Franchisor (by means described in Section 21
hereof), for Franchisor's prior written approval at least forty-five (45) days
in advance of their anticipated usage, if such plans and materials have not been
prepared or previously approved by Franchisor. If written approval is not
received by Franchisee or the Cooperative from Franchisor within fifteen (15)
days of the date of receipt by Franchisor of such samples or materials,
Franchisor shall be deemed to have disapproved them.
11.8. Franchisee shall honor all coupons, discounts, and gift
certificates as reasonably specified by Franchisor and in accordance with
procedures specified by Franchisor in the Manual or otherwise in writing.
12. INSURANCE
---------
12.1. Prior to the commencement of any activities or operations
pursuant to this Agreement, Franchisee shall procure and maintain in full force
and effect during the term of this Agreement, at Franchisee's expense, the
following insurance policy or policies in connection with the Restaurant or
other facilities on the Restaurant premises, or by reason of the construction,
operation, or occupancy of the Restaurant or other facilities on the Restaurant
premises. Such policy or policies shall be written by an insurance company or
companies reasonably satisfactory to Franchisor, and shall include, at a minimum
the following (with such coverages and policy limits as may reasonably be
specified from time to time by Franchisor in the Manual or otherwise in
writing):
12.1.A. Comprehensive general liability insurance including
contractual liability;
12.1.B. All risk property insurance with full replacement
cost limits which are sufficient to satisfy any co-insurance clause contained in
the policy;
12.1.C. Business automobile liability insurance, including
bodily injury and property damage coverage for all owned, non-owned and hired
vehicles;
12.1.D. Product liability coverage;
12.1.E. Commercial umbrella liability insurance;
12.1.F. Statutory workers' compensation insurance and
employer's liability insurance, as well as such other disability benefits type
insurance as may be required by statute or rule of the state in which the
Restaurant is located.
12.1.G. Franchisor reserves the right to require Franchisee
to obtain and maintain business interruption insurance, with such coverage and
policy limits as Franchisor may reasonably specify, provided (a) that Franchisor
provide six (6) months prior written notice of the requirement to Franchisee,
and (b) that Franchisor requires such insurance of other franchisees operating
under this form, or similar forms of franchise agreements, which include the
requirement to obtain business interruption insurance; and
12.1.H. Franchisor reserves the right to require other
insurance and endorsements pursuant to Franchisor's then-existing policies.
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EXHIBIT C
12.2. Certificates evidencing the insurance required by Section 12.1
hereof shall name Franchisor, and each of its affiliates, directors, agents, and
employees (as may be specified by Franchisor) as additional insureds and in the
case of property insurance, such parties shall be named as their interest may
appear. These certificates shall expressly provide that any interest of said
parties shall not be affected by any breach by Franchisee of any policy
provisions for which such certificates evidence coverage.
12.3. All policies listed in Section 12.1 (unless otherwise noted
below) shall contain such endorsements as may be provided in the Manual from
time to time. Franchisor may, from time to time, and in its sole discretion,
make such changes in minimum policy limits and endorsements as it may determine;
provided, however, changes shall apply to franchisees of Franchisor who are
similarly situated. Notwithstanding the foregoing, Franchisor reserves the right
to require Franchisee to maintain insurance (of such types, and in such amounts
as Franchisor may specify) to reflect any particular circumstances or situations
affecting Franchisee or the Restaurant.
12.4. In connection with all significant construction, reconstruction,
or remodeling of the Restaurant during the term hereof, Franchisee will cause
the general contractor, its subcontractors, and any other contractor, to effect
and maintain at general contractor's and all other contractor's own expense,
such insurance policies and bonds with such endorsements as are set forth in the
Manual or otherwise in writing, and which are written by insurance or bonding
companies satisfactory to Franchisor.
12.5. Franchisee's obligation to obtain and maintain the foregoing
policy or policies in the amounts specified shall be through primary insurance
coverage and shall not be limited in any way by reason of any insurance which
may be maintained by Franchisor, nor shall Franchisee's performance of that
obligation relieve it of liability under the indemnity provisions set forth in
Section 19.4. of this Agreement.
12.6. All public liability policies may be required by Wendy's to
contain a provision that Franchisor, although named as additional insured, shall
nevertheless be entitled to recover under said policies on any loss occasioned
to Franchisor or its servants, agents, or employees by reason of the negligence
of Franchisee or its servants, agents, or employees.
12.7. At least thirty (30) days prior to the time any insurance is
first required to be carried by Franchisee, and thereafter at least thirty (30)
days prior to the expiration of any such policy, Franchisee shall deliver to
Franchisor, certificates of insurance evidencing the proper coverage with limits
not less than those required hereunder. All certificates shall expressly provide
that no less than thirty (30) days' prior written notice shall be given
Franchisor in the event of material alteration to, or cancellation of, or
non-renewal of the coverages evidenced by such certificates. Such prior written
notice shall be sent to Franchisor by certified mail as provided in Section 22
hereof. Attached to the certificate shall be a copy of the endorsement amending
that clause in the policy which relates to other insurance and confirming that
all coverage is primary insurance and that Franchisor's insurance is applicable
only after all limits of Franchisee's policy are exhausted.
13. TRANSFER OF INTEREST
--------------------
13.1. Franchisor's Right to Transfer. Franchisor shall have the right
to transfer or assign this Agreement or all or any part of its rights or
obligations under this Agreement to any person or
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EXHIBIT C
legal entity. Franchisee agrees that, from the date of such assignment, the
assignee of Franchisor shall be solely responsible for those obligations of
Franchisor which have been assigned to said assignee arising thereafter under
this Agreement.
13.2. Prohibitions to Transfer. Franchisee understands and acknowledges
that Franchisor has entered into this Agreement in reliance on the business
skill, financial capacity, and personal character of Franchisee and any
Guarantor (or if Franchisee or Guarantor is a business entity, the owners of any
direct or indirect interest in Franchisee or Guarantor). If Franchisee or any
Guarantor is a corporation, partnership, or other business entity, all owners of
any direct or indirect interest in Franchisee or any Guarantor are set forth in
Exhibit A ("Owners"), which Exhibit shall be amended upon any change in the
direct or indirect ownership of that Franchisee or any Guarantor (as approved by
Franchisor). Accordingly, without the prior written consent of Franchisor:
13.2.A. Neither Franchisee nor any Owner shall transfer, pledge,
or otherwise encumber this Agreement, any of the rights or obligations of
Franchisee under this Agreement, any direct or indirect interest in Franchisee,
or any material asset used in the Franchised Business;
13.2.B. Franchisee shall not issue any securities; and
13.2.C. Guarantor shall not violate the provisions of the Guaranty
(as referenced in Section 25) regarding transfers of interest.
Further, no transfer of interest shall be effective unless and until
the transferor has first offered to sell such interest to Franchisor pursuant to
Section 13.4 hereof.
13.3. Conditions to Transfer. Franchisor shall not unreasonably
withhold the consent required by Section 13.2; however, Franchisor shall have
the absolute right to require any or all of the following (among others) as
conditions of its consent:
13.3.A. Prior to the proposed transfer, Franchisee and the
Proposed Franchisee (for purposes of this Agreement, the term "Proposed
Franchisee" shall include all individuals and entities, which after the proposed
transfer, will be franchisees under this Agreement or under any successor
Agreement) shall demonstrate to Franchisor's satisfaction that subsequent to the
transfer, the Proposed Franchisee, the Owners of Proposed Franchisee (if the
Proposed Franchisee is a corporation, partnership or other business entity) and
any guarantors of the Proposed Franchisee, will (i) meet Franchisor's
educational, managerial, and business standards; (ii) possess good moral
character, business reputations, and credit ratings; (iii) have the aptitude and
ability to conduct the Franchised Business (as may be evidenced by prior related
business experience or otherwise); (iv) have the organizational, managerial and
financial structure and resources to conduct the Franchised Business properly,
taking into account such factors as (among others) the number of Wendy's
restaurants and market areas involved and their geographic proximity; (v) comply
with Franchisor's ownership requirements relative to the control of the Proposed
Franchisee and the Franchised Business; (vi) comply with Franchisor's
restrictions relative to involvement in any business which competes with the
Franchised Business; and (vii) have adequate financial resources and capital to
operate the business, all in such manner, in accordance with such standards and
upon satisfaction of such conditions as indicated from time to time by
Franchisor's Transaction Policy, the current copy of which Franchisee
acknowledges having received and which is incorporated into this Agreement by
reference ("Transaction Policy"), and other written policies adopted and
announced by the Franchisor;
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EXHIBIT C
13.3.B. Transfers to existing franchisees (or to owners of
franchisees) in the System may be subject to conditions materially different
from or in addition to conditions with respect to other transfers, which
conditions may be set out from time-to-time in Franchisor's Transaction Policy
adopted and announced by Franchisor. Franchisor reserves the right to disapprove
a transfer based upon (without limitation) any of the following: (i) the current
geographic scope and proximity of the buyer's operations; (ii) the physical and
operational condition, opportunities and obligations present in the buyer's
existing Wendy's market(s) and Wendy's restaurants; (iii) the penetration level
of Wendy's restaurants in buyer's existing market(s); and (iv) the period of
time since buyer last acquired restaurants and the extent to which buyer has
properly assimilated those restaurants into its organization and eliminated
issues arising from or related to such previous acquisition. Franchisor reserves
the right to disapprove any proposed transfer the result of which would be, in
the sole opinion of Franchisor, a disproportionately large ownership of Wendy's
restaurants by the Proposed Franchisee compared with the number of restaurants
operated by all franchisees in the System;
13.3.C. All of Franchisee's accrued monetary obligations and all
other outstanding obligations of Franchisee to Franchisor and its affiliates
shall have been fully satisfied, including, without limitation, compliance with
all covenants, undertakings, performance, and operating standards required by
this Agreement, any amendment hereof or successor hereto, or any other agreement
between Franchisee and Franchisor or its affiliates;
13.3.D. If Franchisor requests, the Franchisee or Proposed
Franchisee, at their own expense, shall modify the Restaurant to conform to the
then-current standards and specifications of System restaurants, and shall
complete the modifications prior to the transfer or within the time subsequent
to the transfer specified by Franchisor;
13.3.E. If Franchisee or Proposed Franchisee is a corporation,
partnership, or other business entity, Franchisor may require that any
individuals who are liable under this Agreement as Franchisees or Guarantors
shall together own not less than fifty-one percent (51%) of any Franchisee or
Proposed Franchisee and have fifty-one percent (51%) voting control of any
Franchisee or Proposed Franchisee;
13.3.F. Employees of the Franchised Business shall successfully
complete any training programs then in effect for such employees under the
System, on such terms and conditions as Franchisor may reasonably require;
13.3.G. Franchisor shall receive a transfer fee of Five Thousand
Dollars ($5,000), or such greater amount as may be necessary to reimburse
Franchisor for its legal, accounting, and other expenses incurred in connection
with the transfer;
13.3.H. The Franchisee, the Proposed Franchisee, all Guarantors of
the obligations of Franchisee, and all guarantors of the obligations of the
Proposed Franchisee under this Agreement or any successor agreement shall have
executed a general release under seal, in a form satisfactory to Franchisor, of
any and all claims against Franchisor and its past and present officers,
directors, shareholders, subsidiaries, affiliates, and employees, in their
corporate and individual capacities, including, without limitation, claims
arising under federal, state, and local laws, rules, and ordinances, arising
prior to the effective date of Wendy's written consent;
13.3.I. The Proposed Franchisee shall execute the standard form
franchise agreement then being offered to new System franchisees, and such other
ancillary agreements as Franchisor may require for the Franchised Business,
which agreements shall supersede this Agreement
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EXHIBIT C
in all respects, and the terms of which agreements may differ from the terms of
this Agreement, including, without limitation, a higher percentage royalty rate
and advertising contribution; provided, however, that the Proposed Franchisee
shall not be required to pay any initial franchise fee;
13.3.J. Notwithstanding the execution of the standard form
franchise agreement by the Proposed Franchisee pursuant to Section 13.3.I,
Franchisee, the Proposed Franchisee, any Guarantors of the obligations of the
Franchisee, and any guarantors of the Proposed Franchisee shall be and remain
liable following the effective date of the transfer for all obligations of
Franchisee to Franchisor under this Agreement which arose in connection with the
Franchised Business prior to the effective date of the transfer (including any
obligation to indemnify the Franchisor), and shall execute any and all documents
reasonably requested by Franchisor to further evidence such liability; and
13.3.K. Franchisor has the absolute right to require any Owners or
other parties having an interest in Franchisee, the Proposed Franchisee, the
Premises or the Franchised Business to execute Wendy's Guaranty agreement as
referenced in Section 25.2.
13.4. WENDY'S RIGHT OF FIRST REFUSAL. In the event Franchisee or any
Owner desires to accept any bona fide offer from a third party to directly or
indirectly purchase all or any part of the Franchisee's or an Owner's ownership
interest in Franchisee as shown in Exhibit A, any interest in the Franchise
Agreement, or any asset material to the operation of the Franchised Business,
the seller shall notify Franchisor in writing of each such offer, and shall
provide to Franchisor such information and documentation relating to the offer
and the prospective purchaser as Franchisor may require, including, but not
limited to, all material information provided to the prospective purchaser by
the seller. Franchisor shall have the right and option, exercisable within
forty-five (45) days after receipt by Franchisor of all such written
notification and all other information required by Franchisor, to send written
notice to the seller that Franchisor intends to purchase the seller's interest
on the same terms and conditions as those offered by the prospective purchaser.
The information to be supplied by the seller and required by Franchisor shall be
accompanied by (i) a written representation and warranty from seller that seller
has provided Franchisor with all of the information required under this Section
13.4, and that such information is true, accurate, and complete; and (ii) if the
seller is not an individual, an appropriate resolution of the seller's board of
directors (or other applicable owners, investors, or the like) approving the
proposed sale, or other evidence satisfactory to Franchisor of seller's intent
to consummate the transaction. Further, if Franchisor elects to exercise its
option hereunder, notwithstanding anything in the offer, Franchisor shall be
entitled to conduct due diligence of the scope customary for transactions of the
type proposed in the offer for a period of not less than sixty (60) days,
commencing upon the date of Franchisor's notice to the seller of Franchisor's
election to purchase pursuant to this Section. Further, in the event Franchisor
elects to exercise its option hereunder, the offer shall not contain any
provision or condition, the effect of which would be to increase the cost to, or
otherwise change the economic terms imposed on Franchisor, as a result of the
substitution of Franchisor for the prospective purchaser, or as a result of
compliance with the procedures set forth herein with respect to Franchisor's
right of first refusal. In the event that Franchisor elects to exercise its
option hereunder, closing on such purchase must occur within the later of: (i)
sixty (60) days from the date of notice to the seller of the election to
purchase by Franchisor, (ii) such period as may have been provided in the offer
or (iii) such period as may be necessary to conduct due diligence as provided
herein. Any material change in the terms of any offer shall constitute a new
offer subject to the same rights of first refusal by Franchisor as in the case
of the initial offer, and notice of any such material change shall be provided
in writing by the seller promptly to Franchisor. Failure of Franchisor to
exercise the option afforded by this Section 13.4. shall not constitute a waiver
of any other provision of this Agreement, including all of the requirements of
this
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EXHIBIT C
=========
Section 13, with respect to a proposed transfer. Seller shall not execute
any contract or accept any offer to purchase any interest, unless the provisions
of this Section 13.4 have been satisfied.
13.4.A. In the event the consideration, terms, and
conditions offered by a third party are such that Franchisor may not reasonably
be required to furnish the same consideration, terms, and conditions, then
Franchisor may purchase the interest proposed to be sold for the reasonable
equivalent in cash. If the parties cannot agree within a reasonable time on the
cash consideration, an independent appraiser shall be designated by Franchisee
from a list of three independent appraisers selected by Franchisor, and that
appraiser's determination shall be binding.
13.5. SECURITY INTERESTS. Franchisee shall neither grant nor permit the
existence of any security interest in this Agreement, in the securities of any
corporation, partnership or other business entity which is a Franchisee (or
which directly or indirectly controls a Franchisee), or in any of the tangible
assets material to the operation of the Franchised Business, including, without
limitation, the premises of the Franchised Business, except with the prior
written consent of the Franchisor. Franchisor may require (among other
conditions) the right and option to be substituted as obligor to the secured
party and to cure any default of Franchisee, except that any acceleration of
indebtedness due to Franchisee's default shall be void. Franchisor may also
require compliance with any policy statements adopted and announced by
Franchisor relative to such security interests. Franchisor reserves the right to
review and approve the terms of any security agreement or other document
granting a security interest in assets described in this Section 13.5, which
approval shall be in writing.
13.6. OFFERING MATERIALS. All materials required by federal or state
law for any direct or indirect offer or sale of securities of Franchisee shall
be submitted to Franchisor for review and consent, prior to their being filed
with any government agency; and any materials to be used in any exempt offering
shall be submitted to Franchisor for review and consent prior to their use. No
such materials shall imply (by use of the Proprietary Marks or otherwise) that
Franchisor is participating as an underwriter, issuer, or offeror of
Franchisee's or Franchisor's securities. Any review by the Franchisor of the
offering materials or the information included therein will be conducted solely
for the benefit of the Franchisor to determine conformance with the Franchisor's
internal policies, and not to benefit or protect any other person. No investor
should interpret such review by the Franchisor as an approval, endorsement,
acceptance, or adoption of any representation, warranty, covenant, or projection
contained in the materials reviewed; and the offering documents shall include
legends and statements as Franchisor may specify, including but not limited to
legends and statements which disclaim Franchisor's liability for, or involvement
in, the transaction described in the offering documents. Franchisee and the
other participants in the offering must agree in writing to fully indemnify
Franchisor in connection with the offering in the form prescribed by Franchisor.
For each proposed offering, Franchisee shall pay Franchisor a non-refundable fee
of Ten Thousand Dollars ($10,000), or such greater amount as may be necessary to
reimburse Franchisor for its reasonable costs and expenses associated with
reviewing the proposed offering, including, without limitation, legal and
accounting fees. Franchisee shall give Franchisor written notice at least sixty
(60) days prior to the date of commencement of any offering covered by this
Section 13.6. Any such offering shall be subject to Franchisor's right of first
refusal, as set forth in Section 13.4 hereof and shall comply with the
Franchisor's Transaction Policy and other written policies adopted and announced
by Franchisor from time to time.
13.7. CONTRACTS RELATED TO THE FRANCHISED BUSINESS. Any lease,
management agreement, or other agreement to which Franchisee will be a party
which would have the effect of transferring any material asset or control of all
or any part of the operations of the Franchised Business to any third party must
first be approved by Franchisor in writing, which approval may be denied if such
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EXHIBIT C
agreement is on terms materially different from those which would result from an
arms-length negotiation or where fees payable are determined by Franchisor to be
excessive. Any such agreement and any party who, as a result of such agreement,
either directly or indirectly is involved in the ownership of the assets or in
the operations of the Franchised Business, must meet such standards and
conditions as may have been established by Franchisor at the time Franchisor's
consent is requested.
13.8. BANKRUPTCY. If Franchisee or any Owner files for protection under
the U.S. Bankruptcy Code, as amended, and if, for any reason, this Agreement is
not terminated pursuant to Section 14 and is to be assumed by, or assigned to,
any person or entity who has made a bona fide offer to accept an assignment of
this Agreement as contemplated by the United States Bankruptcy Code, then notice
to Franchisor of such proposed assignment or assumption shall be required. Such
notice shall be given to Franchisor within twenty (20) days after receipt by
Franchisee of such proposed assignee's offer to accept assignment of the
Franchisee's rights and obligations under this Agreement, and, in any event, at
least ten (10) days prior to the date application is made to a court of
competent jurisdiction for authority and approval to enter into such assignment
and assumption. Such notice shall include the following: (i) the name and
address of the proposed assignee, (ii) all of the terms and conditions of the
proposed assignment and assumption, and (iii) the adequate assurance to be
provided to Franchisor to assure the proposed assignee's future performance
under this Agreement, including, without limitation the assurance referred to in
Section 365 of the Bankruptcy Code and the satisfaction of the preconditions to
transfer set forth in Section 13.3. of this Agreement. Franchisor shall
thereupon have the prior right and option, to be exercised by notice given at
any time prior to the effective date of such proposed assignment and assumption,
to accept an assignment of this Agreement to Franchisor itself, upon the same
terms and conditions and for the same consideration, if any, as in the bona fide
offer made by the proposed assignee, less any brokerage commissions or other
expenses which may be saved by Franchisee, as a result of the exercise by
Franchisor of the rights and options granted herein. Nothing in this paragraph
shall cause Franchisor to be liable for the payment of any brokerage commissions
or other expenses as a result of the exercise of Franchisor's rights and options
hereunder, without Franchisor's separate written consent.
13.8.A. For purposes of any assumption or assignment of this
Agreement pursuant to Bankruptcy Code Section 365, "adequate assurance of future
performance" shall mean that specific evidence shall be given to Franchisor that
any proposed assignee of this Agreement can and will comply with all operational
and other performance requirements, and with all conditions, obligations,
duties, covenants, and requirements of a franchisee under (i) this Agreement,
(ii) the standard form renewal franchise agreement then being offered to System
franchisees, (iii) such other ancillary agreements as Franchisor may require,
and (iv) any of Franchisor's policies describing franchisees' duties,
obligations, conditions, covenants, or performance requirements. Additionally,
adequate assurance of future performance shall mean that any proposed assignee
shall meet Franchisor's then current standards for transfers pursuant to Section
13.3 hereof.
13.9. DEATH OR INCAPACITY. Upon the death or mental incapacity of any
Franchisee or Owner, Franchisor agrees not to unreasonably withhold its consent
to a transfer of the interest held by such person. The personal representative
of such Franchisee or Owner shall have a reasonable time to dispose of such
person's interest in the Franchised Business or in Franchisee subject to and in
accordance with the provisions and conditions of this Section 13 of the
Agreement, specifically including the prior written consent of the Franchisor.
During this time period, Franchisee (or Franchisee's personal representative)
shall at all times remain in compliance with Section 6.2 (regarding an approved
Operator) and with all other terms and conditions of this Agreement.
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EXHIBIT C
13.10. MATERIALITY. Franchisee acknowledges and agrees that each
condition referenced in this Section 13 is necessary to assure compliance with
the obligations hereunder by Franchisee or the Proposed Franchisee.
13.11. NONWAIVER. Franchisor's consent to a transfer of interest shall
not constitute a waiver of any claims Franchisor may have against any Franchisee
or Owner, nor shall it be deemed a waiver of Franchisor's right to require exact
compliance with any of the terms of this Agreement by the Proposed Franchisee.
14. DEFAULT AND TERMINATION
-----------------------
14.1. Franchisee shall be deemed to be in default under this Agreement,
and all rights of Franchisee shall automatically terminate, without notice to
Franchisee, upon the occurrence of any of the following events:
14.1.A. Franchisee or any Guarantor shall make a general
assignment for the benefit of creditors;
14.1.B. Franchisee or any Guarantor shall (i) cause, permit or
acquiesce in, an order for relief under the U. S. Bankruptcy Code entered with
respect to Franchisee or any Guarantor, or (ii) commence a voluntary case or
proceeding under, the Bankruptcy Code (Title 11, United States Code) or any
other applicable bankruptcy, insolvency, reorganization, receivership,
arrangement or readjustment of debt or other similar law now or hereafter in
effect, or (iii) consent to the entry of an order for relief in an involuntary
proceeding or to the conversion of an involuntary proceeding to a voluntary
proceeding under any such law, or (iv) consent to the appointment of, or the
taking of possession by a receiver, trustee, or other custodian (as defined in
the Bankruptcy Code) for all or a substantial part of its property or the
property of the Franchised Business, or (v) adopt any resolution or otherwise
authorize action to approve any of the foregoing through its Board of Directors
or otherwise;
14.1.C. An involuntary petition shall be commenced against
Franchisee or any Guarantor under the Bankruptcy Code or any other applicable
bankruptcy, insolvency, reorganization, receivership, arrangement or
readjustment of debt or other similar law now or hereafter in effect, which
proceeding is not dismissed or vacated within sixty (60) days thereafter; or a
decree or order of a court having jurisdiction in the premises for appointment
of a receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Franchisee, or Guarantor shall have been entered; or
an interim receiver, trustee or other custodian of such Franchisee or any
Guarantor or of all or a substantial part of the property of Franchisee or any
Guarantor shall have been appointed;
14.1.D. If Franchisee or any Guarantor is dissolved;
14.1.E. If execution is levied against any material asset of
Franchisee's business or property, or the business or property of any
Guarantor; or
14.1.F. If any real or personal property which comprises all or a
material part of the Franchised Business or the Restaurant shall be sold after
levy thereupon by any sheriff, marshal, constable or other person so authorized
under local, state or federal law.
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EXHIBIT C
14.2. Upon the occurrence of any of the following events, Franchisee
shall be deemed to be in default and Franchisor may, at its option, terminate
all rights of Franchisee hereunder, without affording Franchisee any opportunity
to cure the default, effective immediately after five (5) days from the mailing
of notice by Franchisor (except as otherwise specified below) or upon receipt of
notice by Franchisee, whichever is earlier:
14.2.A. If Franchisee at any time ceases to operate or otherwise
abandons the Franchised Business, or loses the right to possession of the
Restaurant premises, or otherwise forfeits the right to do or transact business
in the jurisdiction where the Restaurant is located; provided, however, that if,
through no fault of Franchisee, the premises are damaged or destroyed by an
event such that repairs or reconstruction cannot be completed within ninety (90)
days thereafter, then Franchisee shall have thirty (30) days after such event in
which to apply for Franchisor's approval to relocate or reconstruct the
Restaurant, which approval shall not be unreasonably withheld;
14.2.B. If Franchisee, Guarantor, Owner or Operator is convicted
of a felony, a crime involving moral turpitude, or any other crime or offense
that Franchisor believes is reasonably likely to have an adverse effect on the
System, the Proprietary Marks, the goodwill associated therewith or Franchisor's
interest therein;
14.2.C. If an immediate threat or danger to public health or
safety results from the construction, maintenance, or operation of the
Restaurant, in which event the termination shall become effective immediately
upon sending of notice by Franchisor;
14.2.D. If Franchisee or any Owner purports to transfer, pledge or
encumber any rights or obligations under this Agreement, any direct or indirect
interest in Franchisee, or any material asset of the Franchised Business without
Franchisor's prior written consent, contrary to the terms of Section 13 of this
Agreement;
14.2.E. If Franchisee fails to comply with the covenants in
Section 16.2. hereof or fails to obtain execution of the covenants required
under Section 16.5 hereof;
14.2.F. If, contrary to the terms of Sections 8 or 9 hereof,
Franchisee discloses or divulges the contents of the Manual or other
confidential information provided to Franchisee by Franchisor;
14.2.G. If Franchisee knowingly maintains false books or records,
or submits any false reports (including, but not limited to, information
provided as part of Franchisee's application) to Franchisor;
14.2.H. If Franchisee repeatedly is in default under Section 14.3
hereof for failure to substantially comply with any of the requirements imposed
by this Agreement, whether or not cured after notice, or if Franchisee commits
the same default again within a six-month period of the previous default,
whether or not cured after notice; or
14.2.I. If Franchisee or any Guarantor shall become insolvent or
if suit to foreclose any lien or mortgage against any material asset comprising
part of the Franchised Business or the Restaurant premises or equipment is
instituted and not dismissed within thirty (30) days.
14.3. Except with respect to events of default described at Sections
14.1 and 14.2 of this Agreement, or any subsections thereof, the consequences of
which are also described at Sections 14.1 and 14.2, upon any default by
Franchisee which is described at this Section 14.3, Franchisor may, at
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EXHIBIT C
=========
its option, terminate all rights of Franchisee hereunder, by giving written
notice of default to Franchisee stating the nature of such default at least
thirty (30) days prior to the effective date of termination; provided, however,
that Franchisee may avoid termination of Franchisee's rights hereunder by
immediately initiating a remedy to cure such default and curing it to
Franchisor's satisfaction within the thirty-day period (or within such shorter
time period as Franchisor may reasonably specify), and by promptly providing
proof thereof to Franchisor. If any such default is not cured within the
specified time, or such longer period as applicable law may require, at the
option of Franchisor, Franchisee's rights under this Agreement shall terminate
without further notice to Franchisee, effective immediately upon the expiration
of the thirty (30) day period or such longer period as applicable law may
require. Except as provided in Sections 14.1 and 14.2 hereof, defaults which
result in termination of Franchisee's rights under this Agreement only after the
expiration of the cure periods as set forth in this Section 14.3 include, but
are not limited to, the following:
14.3.A. If Franchisee fails to comply with any of the requirements
imposed by or pursuant to this Agreement (such as the Manual or various policy
statements of Franchisor) or any other agreement with Franchisor or its
affiliates related to the Franchised Business or fails to carry out the terms of
this Agreement in good faith, or if any Guarantor fails to comply with any of
the requirements imposed by or pursuant to the Guaranty as defined in Section
25.2;
14.3.B. If Franchisee fails, refuses, or neglects to promptly pay
any monies owing to Franchisor or its affiliates when due, or to submit the
financial or other information required by Franchisor under this Agreement;
14.3.C. Except as provided in Section 14.2.C hereof, if Franchisee
fails to maintain or observe any of the standards or procedures prescribed by
Franchisor (i) in this Agreement or any other agreement with Franchisor or its
other affiliates related to the Franchised Business, (ii) in the Manual, (iii)
pursuant to Franchisor's Transaction Policy or any of Franchisor's other
policies, whether or not written, which describe Franchisee's duties,
obligations, conditions, covenants, or performance requirements, or (iv) in
other written documentation, including, without limitation, the requirements and
specifications concerning the (a) quality, services, and cleanliness of the
Restaurant; (b) the products and services sold or provided at the Restaurant, or
the operation of the Restaurant; and (c) any other operational and other
performance requirements;
14.3.D. Except as provided in Section 14.2.D hereof, if Franchisee
fails, refuses, or neglects to obtain Franchisor's prior written approval or
consent as required by this Agreement;
14.3.E. If Franchisee misuses or makes any unauthorized use of the
Proprietary Marks or otherwise materially impairs the goodwill associated
therewith or Franchisor's rights therein;
14.3.F. If Franchisee fails to construct and open the Restaurant
within the time limits, and according to the requirements, as provided in
Section 5 of this Agreement;
14.3.G. If Franchisee or the Operator, fails to complete, to
Franchisor's satisfaction, the initial or any subsequent training program, as
provided in Section 6.3. of this Agreement;
14.3.H. If Franchisee engages in any business or markets any
service or product under a name or mark which, in Franchisor's opinion, is
confusingly similar to the Proprietary Marks;
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EXHIBIT C
14.3.I. If Franchisee fails to implement or adhere to new or
changed System requirements, fails to implement and offer new products and
services as may be specified by Franchisor, or fails to undertake such actions
as are necessary to implement such new or changed System requirements;
14.3.J. If an approved transfer of an interest in Franchisee is
not effected by Franchisee within a reasonable time, as required by Section 13
hereof; or
14.3.K. If a final material judgment against Franchisee or any
Guarantor remains unsatisfied or of record for thirty (30) days or longer
(unless a supersedeas bond is filed).
15. OBLIGATIONS UPON TERMINATION OR EXPIRATION
------------------------------------------
Upon expiration of this Agreement or upon termination of Franchisee's
rights hereunder, all rights granted hereunder to Franchisee shall forthwith
terminate, and;
15.1. Franchisee shall immediately cease to operate the Franchised
Business, and shall not thereafter, directly or indirectly, represent to the
public or hold itself out as a present or former franchisee of Franchisor.
15.2. Franchisee shall immediately and permanently cease to use, in any
manner whatsoever, any confidential methods, procedures and techniques
associated with the System, the Proprietary Marks, "WENDY'S" and "WENDY'S OLD
FASHIONED HAMBURGERS," and all other Proprietary Marks and distinctive forms,
slogans, signs, symbols, and devices associated with the System. In particular,
Franchisee shall cease to use, without limitation, all signs, advertising
materials, displays, stationery, forms, and any other articles which display the
Proprietary Marks.
15.3. Franchisee shall take such action as may be necessary to cancel
any of its assumed names or equivalent registrations which contain the
Proprietary Marks "WENDY'S" and "WENDY'S OLD FASHIONED HAMBURGERS" or any other
service mark or trademark of Franchisor, and Franchisee shall furnish Franchisor
with evidence satisfactory to Franchisor of compliance with this obligation
within five (5) days after expiration of this Agreement, or termination of
Franchisee's rights hereunder.
15.4. Franchisee shall, at Franchisor's option, assign to Franchisor
any interest which Franchisee has in any lease or sublease for the Restaurant or
the Restaurant premises ("Premises") at fair market value (if the lease or
sublease has a positive market value as further described in Section 15.4.B). In
the event Franchisee owns the fee interest in the Restaurant or Premises,
Franchisor shall also have the option to purchase Franchisee's fee interest in
such Restaurant and/or Premises at fair market value. Franchisee shall
immediately upon termination provide Franchisor with such information as may be
necessary to enable Franchisor to evaluate such option. The terms of such
option(s) shall be as follows:
15.4.A. Franchisor shall provide Franchisee notice of its
preliminary interest in exercising any of such options within thirty (30) days
after expiration of this Agreement or termination of Franchisee's rights
hereunder. Within sixty (60) days after the date of such notice, Franchisor and
Franchisee shall each select one (1) appraiser and notify the other party of its
designee. Each appraiser selected by the parties shall be instructed to meet
with the other within thirty (30) days after selection
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EXHIBIT C
=========
for the purpose of selecting a third appraiser to serve with them. If the two
(2) appraisers cannot agree on the selection of the third appraiser within
forty-five (45) days after the selection of the last of them, then the president
or chairman of the board of realtors of the county in which the Restaurant is
located shall be requested to select the third appraiser. Each appraiser
selected as described above must have received the M.A.I. designation and must
be actively engaged in appraisal work in the county in which the Restaurant is
located. The three (3) M.A.I. appraisers shall determine the "fair market value"
of the lease, sublease, Restaurant or Premises and notify both the Franchisor
and the Franchisee of the "fair market value" determined by them. If the three
(3) appraisers cannot collectively agree on the "fair market value" of the
Restaurant or Premises, then the average of the two (2) closest of the three (3)
values established by the three (3) appraisers shall be deemed the "fair market
value";
15.4.B. For the purposes of this section, "fair market
value" shall have the meaning customarily used by M.A.I. appraisers. In the case
of a lease or sublease, however, the "fair market value" shall be equal to the
amount by which the value of the lease or sublease (due to favorable rent
structure or the location of the Premises) exceeds the value of other average,
comparable leases or subleases for comparable premises in the immediate vicinity
of the Restaurant;
15.4.C. If after the determination of "fair market value" as
provided herein Franchisor wishes to actually exercise any of its options herein
provided, Franchisor shall provide Franchisee notice of its intent to exercise
such option(s) within thirty (30) days after the determination of "fair market
value," and each party shall bear one half (1/2) of the cost of the appraisals.
If Franchisor elects to exercise any option herein provided, it shall have the
right to set off all amounts due from Franchisee, and one-half (1/2) of the cost
of the appraisals, against any payment therefor. If Franchisor elects not to
exercise its option as herein provided, Franchisor shall bear the cost of all of
the appraisals; and
15.4.D. The closing of any assignment or purchase pursuant
to this Section 15.4 shall take place no later than sixty (60) days after the
determination of the "fair market value" as provided above. The interest
assigned to or purchased by Franchisor must be free and clear of all liens,
conditions and restrictions, and must be conveyed by documents reasonably
satisfactory to Franchisor.
15.5. In the event Franchisor does not elect to exercise its option to
acquire the lease or sublease for the Restaurant and the Premises, or purchase
the Premises, as provided for in Section 15.4, Franchisee shall make such
modifications or alterations to the Premises operated hereunder (including,
without limitation, the changing of the telephone number) immediately upon
expiration of this Agreement or termination of Franchisee's rights hereunder as
may be necessary to distinguish the appearance of said Premises from that of
other restaurants under the System, and shall make such specific additional
changes thereto as Franchisor may reasonably request for that purpose. In the
event Franchisee fails or refuses to comply with the requirements of this
Section 15, Franchisor shall have the right to enter upon the Premises where
Franchisee's Franchised Business was conducted, without being guilty of trespass
or any other tort, for the purpose of making or causing to be made such changes
as may be required, at the expense of Franchisee, which expense Franchisee
agrees to pay upon demand.
15.6. Franchisee agrees, in the event it continues to operate or
subsequently begins to operate any other business, not to use any reproduction,
counterfeit, copy, or colorable imitation of the Proprietary Marks, either in
connection with such other business or the promotion thereof, which is likely to
cause confusion, mistake, or deception, or which is likely to dilute
Franchisor's rights in and
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EXHIBIT C
=========
to the Proprietary Marks, and further agrees not to utilize any designation,
description or representation which falsely suggests or represents an
association or connection with Franchisor.
15.7. Franchisee shall promptly pay all sums owing to Franchisor and
its affiliates. In the event of termination of Franchisee's rights hereunder for
any default of Franchisee, such sums shall include all damages, costs, and
expenses, including reasonable attorneys' fees, incurred by Franchisor as a
result of the default, which obligations shall give rise to and remain, until
paid in full, a lien in favor of Franchisor against any and all of the personal
property, furnishings, equipment, signs, fixtures, and inventory owned by
Franchisee and on the premises operated hereunder at the time of default.
15.8. Franchisee shall pay Franchisor all damages, costs, and expenses,
including reasonable attorneys' fees, incurred by Franchisor subsequent to the
expiration of this Agreement or termination of Franchisee's rights hereunder in
obtaining injunctive or other relief for the enforcement of any provisions of
this Section 15.
15.9. Franchisee shall immediately deliver to Franchisor the Manual,
and all other manuals, records, and instructions containing confidential
information, all of which are acknowledged to be the property of the Franchisor.
15.10. Franchisor shall have the option, to be exercised within thirty
(30) days after termination of Franchisee's rights hereunder, to purchase from
Franchisee any or all of the furnishings, equipment, signs, fixtures, supplies,
or inventory of Franchisee related to the operation of the Franchised Business,
at Franchisee's cost or fair market value, whichever is less. If the parties
cannot agree on a fair market value within a reasonable time, an independent
appraiser shall be designated by Franchisor, and his determination shall be
binding. If Franchisor elects to exercise any option to purchase herein
provided, it shall have the right to set off all amounts due from Franchisee,
and one-half (1/2) of the cost of the appraisal, if any, against any payment
therefor.
15.11. Franchisee shall comply with the covenants contained in
Section 16.3. of this Agreement.
16. COVENANTS
---------
16.1. Franchisee covenants that during the term of this Agreement
except as otherwise approved in writing by Franchisor, Franchisee (or the
approved Operator) shall devote full time and best efforts to the management and
operation of the Franchised Business.
16.2. Franchisee specifically acknowledges that, pursuant to this
Agreement, Franchisee will receive valuable specialized training and
confidential information, including, without limitation, information regarding
the operational, sales, promotional, and marketing methods and techniques of
Franchisor and the System. Franchisee covenants that, except as otherwise
approved in writing by Franchisor, neither the Franchisee, nor any party
controlling, controlled by or under common control with Franchisee, nor the
Operator, nor any Owner, nor any Guarantor having a direct or indirect interest
in or business association with the Franchisee or the Franchised Business shall,
during the term of this Agreement, either directly or indirectly, for
themselves, or in conjunction with any person, persons, partnership, or
corporation:
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EXHIBIT C
16.2.A. Divert or attempt to divert any business or customer of the
Franchised Business or of any restaurant under the System to any competitor, by
direct or indirect inducement or otherwise, or do or perform, directly or
indirectly, any other act injurious or prejudicial to the goodwill associated
with Franchisor's Proprietary Marks and the System;
16.2.B. Own, maintain, advise, help, invest in, make loans to, operate,
engage in, be employed by, have any interest in, participate in any capacity in,
or be connected in any manner (by franchising or otherwise) with, any business
which is, or is intended to be, either of the following:
16.2.B.1. Any quick-service restaurant located within the
Designated Market Area of the Restaurant, as defined by the Nielsen Ratings
Service, or in the event that the Nielsen Ratings Service is no longer in the
business of rating viewership of television advertising or otherwise materially
alters its determination of Designated Market Area, then such comparable market
area as defined by a replacement ratings service selected by Franchisor ("DMA");
or
16.2.B.2. Any quick-service restaurant selling chicken sandwiches
or hamburgers or products similar to Franchisor which is located within a
three-mile radius of the Restaurant, or within a three-mile radius of any
restaurant operating under the System.
16.3. Franchisee covenants that, except as otherwise approved in
writing by Franchisor, neither the Franchisee, nor any party controlling,
controlled by or under common control with the Franchisee, nor the Operator, nor
any Owner, nor any Guarantor having a direct or indirect interest in or business
association with the Franchisee or the Franchised Business shall, for a
continuous uninterrupted period commencing upon the expiration or termination of
this Agreement, regardless of the cause for termination, and continuing for two
(2) years thereafter, either directly or indirectly, for themselves or in
conjunction with any persons, partnership, or corporation, own, maintain,
advise, help, invest in, make loans to, operate, engage in, be employed by, have
any interest in, participate in any capacity in, or be connected in any manner
(by franchising or otherwise) with, any business which is a quick service
restaurant which offers chicken sandwiches, hamburgers or food similar to that
offered for sale from the Restaurant, and is, or is intended to be, located
within the DMA in which the Restaurant is located.
16.4. Sections 16.2.B. and 16.3. hereof shall not apply to ownership by
Franchisee of less than two percent (2%) beneficial interest in the outstanding
equity securities of any publicly-held corporation. The term "publicly-held
corporation" as used in this Agreement means a corporation with securities
registered under the Securities Exchange Act of 1934.
16.5. Franchisee agrees to take all reasonable steps and to use its
best efforts to ensure that no person directly or indirectly involved in the
operation, management or ownership of the Franchised Business or the Restaurant
shall violate this Section 16. In addition, Franchisor may direct that
Franchisee require and obtain execution of covenants similar to those set forth
in this Section 16 (including covenants applicable upon the termination of a
person's relationship with Franchisee) from any or all persons directly or
indirectly involved in the operation, management or ownership of the Franchised
Business or the Restaurant, and from any person described or identified in the
second sentence of Section 16.2 of this Agreement. Every covenant required by
this Section 16.5. shall be in a form satisfactory to Franchisor, including,
without limitation, specific identification of Franchisor as a third-party
beneficiary of such covenants with the independent right to enforce them.
Failure by Franchisee to obtain execution of a covenant required by this Section
16.5. shall constitute a default under Section 14.2.E. hereof.
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EXHIBIT C
16.6. The parties agree that each of the foregoing covenants shall be
construed as independent of any other covenant or provision of this Agreement.
If all or any portion of a covenant in this Section 16 is held unreasonable or
unenforceable by a court or agency having valid jurisdiction in an unappealed
final decision to which Franchisor is a party, Franchisee expressly agrees to be
bound by any lesser covenant subsumed within the terms of such covenant that
imposes the maximum duty permitted by law, as if the resulting covenant were
separately stated in and made a part of this Section 16.
16.7. Franchisee understands and acknowledges that Franchisor shall
have the right, in its sole discretion, to reduce the scope of any covenant set
forth in Sections 16.2. and 16.3. in this Agreement, or any portion thereof,
without Franchisee's consent, effective immediately upon receipt by Franchisee
of written notice thereof; and Franchisee agrees that it shall comply forthwith
with any covenant as so modified, which shall be fully enforceable
notwithstanding the provisions of Section 23 hereof.
16.8. Franchisee expressly agrees that the existence of any claims it
may have against Franchisor, whether or not arising from this Agreement, shall
not constitute a defense to the enforcement by Franchisor of the covenants in
this Section 16. Franchisee agrees to pay all costs and expenses (including
reasonable attorneys' fees) incurred by Franchisor in connection with the
enforcement of this Section 16.
16.9. Franchisee acknowledges that Franchisee's violation of the terms
of this Section 16 would result in irreparable injury to Franchisor for which no
adequate remedy at law may be available, and Franchisee accordingly consents to
the issuance of an injunction prohibiting any conduct by Franchisee in violation
of the terms of this Section 16.
17. CORPORATE AND PARTNERSHIP FRANCHISEES
-------------------------------------
17.1. A Franchisee or Owner which is a corporation shall comply with
the following requirements throughout the term of the Agreement unless otherwise
approved in writing by Franchisor:
17.1.A. Franchisee's charter shall at all times provide that its
activities are confined exclusively to operating Wendy's Old Fashioned
Hamburgers restaurants;
17.1.B. Franchisee shall promptly furnish to Franchisor copies of
Franchisee's Articles of Incorporation, Bylaws, any other documents Franchisor
may reasonably request, and any and all amendments thereto, including the
resolution of the Board of Directors authorizing entry into this Agreement;
17.1.C. Exhibit A shall at all times contain the names and show
the direct or indirect interest of each Owner in the Franchisee throughout the
term of this Agreement. Each Owner at the time of execution of this Agreement
shall have executed an agreement to be bound by the provisions of Section 9,
Section 13 and Section 16 and each new Owner shall execute such an agreement;
17.1.D. Franchisee shall maintain stop-transfer instructions
against the transfer on its records of any equity securities; and shall issue no
securities upon the face of which the following printed legend does not legibly
and conspicuously appear:
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EXHIBIT C
The transfer of ownership of shares represented by this
Certificate is subject to the terms and conditions of a
Franchise Agreement with Wendy's International, Inc. dated
_________________, 19__. Reference is made to the provisions
of the said Franchise Agreement and to the Articles and Bylaws
of this Corporation.
17.1.E. The requirements of Section 17.1.D shall not apply to a
publicly-held corporation. If Franchisee is a corporation with securities
registered under the Securities and Exchange Commission Act of 1934, Franchisee
shall furnish to Franchisor copies of all communications sent to the Owners of
Franchisee.
17.2. A Franchisee or Owner which is a partnership or other business
entity shall comply with the following requirements throughout the term of this
Agreement unless otherwise approved in writing by Franchisor:
17.2.A. Franchisee's partnership agreement or other governing
agreement shall at all times provide that its activities are confined
exclusively to operating Wendy's Old Fashioned Hamburgers restaurants;
17.2.B. Franchisee shall promptly furnish to Franchisor its
partnership agreement or other governing agreement and any other documents which
Franchisor may reasonably request and any and all amendments thereto;
17.2.C. Exhibit A shall at all times contain the names and show
the direct or indirect interest of each Owner throughout the term of this
Agreement. Each Owner at the time of execution of this Agreement shall have
executed an agreement to be bound by the provisions of Section 9, Section 13 and
Section 16 and each new Owner shall also execute such an agreement;
17.2.D. The partnership agreement or other governing agreement
shall contain a restriction on the transfer of any ownership interest without
the prior written consent of Franchisor and waiver of its right of first
refusal; and
17.2.E. The requirements of Section 17.2.D shall not apply to a
partnership registered under the Securities and Exchange Commission Act of 1934
and otherwise approved by Franchisor. If Franchisee is a limited partnership
with securities registered under the Securities Exchange Act of 1934, Franchisee
shall furnish to Franchisor copies of all communications sent to the limited
partners of Franchisee.
18. TAXES, PERMITS, AND INDEBTEDNESS
--------------------------------
18.1. Franchisee shall promptly pay when due all taxes levied or
assessed, including, without limitation, unemployment and sales taxes, and all
accounts and other indebtedness of every kind incurred by Franchisee in
conducting the Franchised Business. Franchisee shall pay Franchisor an amount
equal to any sales tax, gross receipts tax, or similar tax (other than income
tax) imposed on Franchisor with respect to any payments to Franchisor or WNAP
required under this Agreement, unless the tax is credited against income tax
otherwise payable by Franchisor or WNAP.
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EXHIBIT C
18.2. In the event of any bona fide dispute as to Franchisee's
liability for taxes assessed or other indebtedness, Franchisee may contest the
validity or the amount of the tax or indebtedness in accordance with procedures
of the taxing authority or applicable law; however, in no event shall Franchisee
permit a tax sale or seizure by levy of execution or similar writ or warrant, or
attachment by a creditor, to occur against the premises of the Franchised
Business, or any improvements thereon.
18.3. Franchisee shall comply with all federal, state, and local laws,
rules, and regulations, and shall timely obtain any and all permits,
certificates, or licenses necessary for the full and proper conduct of the
Franchised Business, including, without limitation, licenses to do business,
health certificates, fictitious name registrations, sales tax permits, and fire
clearances.
18.4. Franchisee shall notify Franchisor in writing within five (5)
days of the commencement of any action, suit, or proceeding, and of the issuance
of any citation, order, writ, injunction, award, or decree of any court, agency,
or other governmental instrumentality, which may adversely affect the operation
or financial condition of the Franchised Business.
19. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
------------------------------------------
19.1. It is understood and agreed by the parties hereto that this
Agreement does not create a fiduciary relationship between them, that Franchisee
shall be an independent contractor, and that nothing in this Agreement is
intended to constitute either party an agent, legal representative, subsidiary,
joint venturer, partner, employee, or servant of the other for any purpose
whatsoever. As an independent contractor, Franchisee shall be responsible for
the hiring of employees and the working conditions of employees in the
Restaurant, the payment of all business expenses and taxes and all purchasing
decisions (subject to Franchisor's quality control standards and approval as set
forth in this Agreement and the Manual).
19.2. During the term of this Agreement and any extensions hereof,
Franchisee shall hold itself out to the public as an independent contractor
operating the business pursuant to a franchise from Franchisor. Franchisee
agrees to take such action as may be necessary to do so, including, without
limitation, exhibiting a notice of that fact in a conspicuous place in the
Restaurant, the content of which Franchisor reserves the right to specify.
19.3. It is understood and agreed that nothing in this Agreement
authorizes Franchisee to make any contract, agreement, warranty, or
representation on Franchisor's behalf, or to incur any debt or other obligation
in Franchisor's name; and that Franchisor shall in no event assume liability
for, or be deemed liable as a result of, any such action; nor shall Franchisor
be liable by reason of any act or omission of Franchisee in its conduct of the
Franchised Business or for any claim or judgment arising therefrom against
Franchisee or Franchisor.
19.4. Franchisee shall indemnify and hold Franchisor, and Franchisor's
officers, directors, and employees harmless against any and all claims arising
directly or indirectly from, as a result of, or in connection with Franchisee's
operation of the Franchised Business, as well as the costs, including attorneys'
fees, of defending against them.
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EXHIBIT C
20. NON-BINDING MEDIATION
---------------------
20.1. All controversies, disputes and claims between Franchisor, its
affiliates, subsidiaries, and their shareholders, officers, directors and agents
(collectively the "Franchisor Entities"), or any of them, on the one hand, and
Franchisee, its affiliates, subsidiaries, Guarantors, Owners, partners,
officers, directors and agents, or any of them, on the other hand, arising out
of or related to this Agreement, the Restaurant or the Franchised Business shall
be subject to non-binding mediation pursuant to the terms of this Section 20.
Except as specified in Section 20.5, no litigation may be commenced between such
parties prior to the mediation termination date, as defined in Section 20.4, on
any claim which is subject to non-binding mediation hereunder, whether or not
the mediation has been commenced. The commencement or pendency of litigation
shall not stay non-binding mediation required hereunder, and non-binding
mediation required hereunder shall not stay any litigation commenced in
conformity with Section 20.5. Mediation under this Section 20 is not intended to
alter or suspend the rights or obligations of the parties under this Agreement
or to determine the validity or effect of any provision of this Agreement, but
is intended to provide the parties with an opportunity to amicably and
expeditiously resolve disputes in a cost-effective manner on mutually acceptable
terms and conditions.
20.2. The non-binding mediation provided for hereunder shall be
commenced by the party demanding mediation (the "complainant") by giving written
notice of the demand for mediation (the "demand") to the party with whom
mediation is sought (the "respondent"). The demand shall specify with reasonable
particularity the matter or matters on which non-binding mediation is being
sought. A copy of the demand shall be given by the complainant simultaneously to
Franchisor if Franchisor is not a complainant or a respondent.
20.3. Non-binding mediation hereunder shall be conducted by a mediator
or mediation program designated by Franchisor in writing (the "designation"), or
by such mediator as complainant and respondent may otherwise agree to.
Franchisor shall send the designation to complainant and respondent within a
reasonable time after its receipt of the demand.
20.4. Non-binding mediation hereunder shall be concluded within sixty
days of the giving of the demand or such longer period as may be mutually agreed
to in writing by the parties to the mediation (the "mediation termination
date"). All aspects of the mediation process shall be treated as confidential,
shall not be disclosed to others, and shall not be offered or admissible in any
other proceeding or legal action whatever. Complainant and respondent shall each
bear its own costs of mediation, and each shall bear one-half the cost of the
mediator and mediation service.
20.5. If Franchisee is more than forty-five (45) days past due in any
of its payments to any of the Franchisor Entities, none of the Franchisor
Entities shall be required to seek or to participate in mediation of any matter
or dispute under this Section 20 (although they reserve the right to require
mediation), and any of the Franchisor Entities shall be free to commence or to
pursue litigation at any time. None of the Franchisor Entities shall be required
to seek or to participate in mediation of any matter or dispute relating to the
indemnification or insurance provisions of this Agreement (although they reserve
the right to require mediation). Nothing in this Section 20 shall prevent any
party from instituting or pursuing litigation at any time to preserve the status
quo, protect the Proprietary Marks, protect the health or safety of the public,
or avoid irreparable harm.
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EXHIBIT C
21. APPROVALS AND WAIVERS
---------------------
21.1. Whenever this Agreement requires the prior approval or consent of
Franchisor, Franchisee shall make a timely written request to Franchisor
therefor, and such approval or consent must be obtained in writing.
21.2. Franchisor makes no warranties or guarantees upon which
Franchisee may rely, and assumes no liability or obligation to Franchisee, by
providing any waiver, approval, consent, or suggestion to Franchisee in
connection with this Agreement, or by reason of any neglect, delay, or denial of
any request therefor.
21.3. No delay, waiver, omission, or forbearance on the part of
Franchisor to exercise any right, option, duty, or power arising out of any
breach or default by Franchisee under any of the terms, provisions, covenants,
or conditions hereof, shall constitute a waiver by Franchisor to enforce any
such right, option, duty, or power as against Franchisee, or as to subsequent
breach or default by Franchisee. Subsequent acceptance by Franchisor of any
payments due to it hereunder shall not be deemed to be a waiver by Franchisor of
any preceding breach by Franchisee of any terms, provisions, covenants, or
conditions of this Agreement.
22. NOTICES
-------
Any and all notices required or permitted under this Agreement shall be
in writing and shall be personally delivered, sent by certified, registered
mail, or by other means, including any recognized overnight delivery service,
which afford the sender evidence of delivery or of attempted delivery, to the
respective parties at the following addresses unless and until a different
address has been designated by written notice to the other party:
Notices to Franchisor: Wendy's International, Inc.
- --------------------- 4288 West Dublin-Granville Road
Dublin, OH 43017
Attention: Franchise Legal Department
Notices to Franchisee: _____________________________________
- ---------------------- _____________________________________
_____________________________________
_____________________________________
Any notice by a means which affords the sender evidence of delivery, or
attempted delivery, shall be deemed to have been given at the date and time of
mailing or sending of such notice.
23. ENTIRE AGREEMENT
----------------
This Agreement and the documents referred to herein constitute the
entire, full, and complete Agreement between Franchisor and Franchisee
concerning the subject matter hereof, and supersede all prior agreements, no
other representations having induced Franchisee to execute this Agreement.
Except for those permitted to be made unilaterally by Franchisor hereunder, no
amendment, change, or variance from this Agreement shall be binding on either
party unless mutually agreed to by the parties and executed by their authorized
officers or agents in writing.
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EXHIBIT C
24. SEVERABILITY AND CONSTRUCTION
-----------------------------
24.1. Except as expressly provided to the contrary herein, each
portion, section, part, term, or provision of this Agreement shall be considered
severable; and if, for any reason, any section, part, term, or provision herein
is determined to be invalid and contrary to, or in conflict with, any existing
or future law or regulation by a court or agency having valid jurisdiction, such
shall not impair the operation of, or have any other effect upon, such other
portions, sections, parts, terms, or provisions of this Agreement as may remain
otherwise intelligible; and the latter shall continue to be given full force and
effect and bind the parties hereto; and said invalid portions, sections, parts,
terms, or provisions shall be deemed not to be a part of this Agreement.
24.2. Except as expressly provided to the contrary herein, nothing in
this Agreement is intended, nor shall be deemed, to confer any rights or
remedies upon any person or legal entity other than Franchisee, Franchisor,
Franchisor's officers, directors, and employees, and such of Franchisee's and
Franchisor's respective successors and assigns as may be contemplated (and, as
to Franchisee, permitted) by Section 13 hereof.
24.3. Franchisee expressly agrees to be bound by any promise or
covenant imposing the maximum duty permitted by law which is subsumed within the
terms of any provision hereof, as though it were separately articulated in and
made a part of this Agreement, that may result from striking from any of the
provisions hereof any portion or portions which a court may hold to be
unenforceable in a final decision to which Franchisor is a party, or from
reducing the scope of any promise or covenant to the extent required to comply
with such a court order.
24.4. For purposes of this Agreement, an "affiliate" of any party to
this Agreement means any person, corporation, partnership, or other business
entity that directly, or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such party, and, with
respect to Franchisor, the term "affiliate" shall also include, without
limitation, WNAP, and any advertising cooperative operating under the System.
24.5. All captions in this Agreement are intended solely for the
convenience of the parties, and none shall be deemed to affect the meaning or
construction of any provision hereof.
25. JOINT AND SEVERAL OBLIGATION
----------------------------
25.1 If more than one person or entity is a named Franchisee under this
Agreement, such persons' liability under this Agreement shall be deemed to be
joint and several and all references in the Agreement to "Franchisee" shall
include all Franchisees individually and collectively.
25.2 Franchisor may require certain parties (the "Guarantors") to
guarantee all obligations of Franchisee by executing a Guaranty in the form
attached hereto as Exhibit B ("Guaranty"). In the event of the death of any
Guarantor, Franchisor may require replacement guarantees sufficient to provide
Franchisor with the same protection as it had originally bargained for.
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EXHIBIT C
26. APPLICABLE LAW
--------------
26.1. This Agreement takes effect upon its acceptance and execution by
Franchisor in Ohio, and shall be interpreted and construed under the laws of the
State of Ohio. In the event of any conflict of law, the laws of Ohio shall
prevail, without regard to, and without giving effect to, the application of
Ohio conflict of law rules. If, however, any provision of this Agreement would
not be enforceable under the laws of Ohio, and if the Restaurant is located
outside of Ohio and such provision would be enforceable under the laws of the
state in which the Restaurant is located, then such provision shall be
interpreted and construed under the laws of that state. Nothing in this Section
26.1. is intended by the parties to subject this Agreement to any franchise or
similar law, rule, or regulation of the State of Ohio or of any other state to
which it would not otherwise be subject.
26.2. Section 20 of this Agreement provides for non-binding mediation
of certain disputes between the parties hereto. Subject to Section 20,
Franchisee and any Guarantor may pursue any claim they may assert against any of
the Franchisor Entities in an individual action, which shall not be joined or
combined in any manner with any action or claim of any other franchisee against
any of the Franchisor Entities. Neither Franchisee nor any Guarantor will join
together with any other franchisee of Franchisor in bringing any litigation
against any of the Franchisor Entities; nor will Franchisee or any Guarantor
maintain any claim against any of the Franchisor Entities in a class action,
whether as a representative or as a member of a class or purported class; nor
will Franchisee or any Guarantor seek to consolidate, or consent to the
consolidation of, all or any part of any litigation by either of them against
any of the Franchisor Entities with any other litigation against any of the
Franchisor Entities. Any action brought by Franchisee or any Guarantor against
any of the Franchisor Entities in any court, whether federal or state, shall be
brought only within the state and judicial district in which Franchisor has its
principal place of business. Any action brought by any of the Franchisor
Entities against Franchisee or any Guarantor in any court, whether federal or
state, may be brought within the state and judicial district in which Franchisor
has its principal place of business. Franchisee and any Guarantor hereby waive
all questions of personal jurisdiction or venue for the purpose of carrying out
this provision.
26.3. No right or remedy conferred upon or reserved to Franchisor or
Franchisee by this Agreement is intended to be, nor shall be deemed, exclusive
of any other right or remedy herein or by law or equity provided or permitted,
but each shall be cumulative of every other right or remedy.
26.4. Franchisor, Franchisee and any Guarantor irrevocably waive trial
by jury in any action, proceeding, or counterclaim, whether at law or in equity,
brought by Franchisor against Franchisee or Guarantor on the one hand, or by
Franchisee or Guarantor against any of the Franchisor Entities on the other
hand, whether or not there are other parties in such action or proceeding. Any
and all claims and actions arising out of or relating to this Agreement, the
relationship of Franchisee and Franchisor, or Franchisee's operation of the
Restaurant, brought by Franchisor against Franchisee or Guarantor on the one
hand, or by Franchisee or Guarantor against any of the Franchisor Entities on
the other hand, shall be commenced within two (2) years from the occurrence of
the facts giving rise to such claim or action, or such claim or action shall be
barred.
26.5. Franchisor, Franchisee, and any Guarantor hereby waive to the
fullest extent permitted by law any right to or claim of any punitive or
exemplary damages against the other and agree that in the event of a dispute
between them each shall be limited to the recovery of any actual damages
sustained by it.
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EXHIBIT C
26.6. Nothing herein contained shall bar Franchisor's right to obtain
injunctive relief against threatened conduct that will cause it loss or damages,
under the usual equity rules, including the applicable rules for obtaining
restraining orders and preliminary injunctions.
27. ACKNOWLEDGMENTS
---------------
27.1. Franchisee acknowledges that it has conducted an independent
investigation of the business franchised hereunder, recognizes that the business
venture contemplated by this Agreement involves business risks, and that its
success will be largely dependent upon the ability of Franchisee and if a
corporation, partnership, or other business entity, its Owners as independent
business persons. Franchisor expressly disclaims the making of, and Franchisee
acknowledges that it has not received, any warranty, guarantee or
representation, express or implied, as to the potential volume, profits, or
success of the business venture contemplated by this Agreement.
27.2. Franchisee acknowledges that it received a copy of the complete
Wendy's International, Inc. Unit Franchise Agreement, the Exhibit(s) thereto,
and agreements relating thereto, if any, at least five (5) business days prior
to the date on which this Agreement was executed or any initial franchise fee
paid. Franchisee further acknowledges that it received the disclosure document
required by the Trade Regulation Rule of the Federal Trade Commission entitled
"Disclosure Requirements and Prohibitions Concerning Franchising and Business
Opportunity Ventures" at least ten (10) business days prior to the date on which
this Agreement was executed or any initial franchise fee paid.
27.3. Franchisee acknowledges that it has read and understood this
Agreement, the attachment(s) hereto, and agreements relating thereto, if any,
and that Franchisor has accorded Franchisee ample time and opportunity to
consult with advisors of Franchisee's own choosing about the potential benefits
and risks of entering into this Agreement. Franchisor encourages Franchisee to
obtain independent professional assistance (both legal and financial) in
connection with its review of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement which shall be effective on the date of Wendy's execution as set
forth above.
WITNESS: WENDY'S INTERNATIONAL, INC.
-------------------------------------
Franchisor
________________________________ By:__________________________________
Name:________________________________
Title:_______________________________
WITNESS: _____________________________________
Franchisee
________________________________ By:__________________________________
Name:________________________________
Title:_______________________________
Date:________________________________
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<PAGE> 61
EXHIBIT C
EXHIBIT A
OWNERSHIP ACKNOWLEDGMENT
------------------------
Franchisee hereby acknowledges that a partnership, joint venture,
corporation, or other business entity ("Business Association") is included as a
Franchisee or Guarantor as defined in the Wendy's Unit Franchise Agreement to
which this Ownership Acknowledgment is attached. As a material part of the
Wendy's Unit Franchise Agreement, Franchisee hereby warrants, acknowledges and
represents that the information set out below is complete and accurate, and
Franchisee agrees that any change in the structure of the Business
Association(s) shall be in accordance with the terms and conditions of the
Wendy's Unit Franchise Agreement.
(A) The following list includes the names of each person who owns a
voting or equity interest in ______________________________ (a Franchisee or
Guarantor), and the percentage of the total authorized shares or interest which
each person owns in that Business Association, showing a total of 100%. If more
than one Business Association is a Franchisee or Guarantor, the Supplemental
Ownership Acknowledgment on the back of this page has been used to set out that
ownership.
<TABLE>
<CAPTION>
NAME PERCENTAGE OF VOTING PERCENTAGE OF EQUITY
INTEREST OWNED INTEREST OWNED
(IF DIFFERENT FROM VOTING INTEREST)
<S> <C> <C>
</TABLE>
(B) If any of the owners of the Franchisee or Guarantor [as listed in
(A) above] are also Business Associations, the following list includes the name
of each person who owns a voting or equity interest in
______________________________ ______________________ (an owner of the
Franchisee or Guarantor) and the percentage of the total authorized shares or
interest which each person owns in that Business Association, showing a total of
100%. If more than one Business Association is an owner of the Franchisee or
Guarantor, the Supplemental Ownership Acknowledgment on the back of this page
has been used to set out that ownership.
<TABLE>
<CAPTION>
NAME PERCENTAGE OF VOTING PERCENTAGE OF EQUITY
INTEREST OWNED INTEREST OWNED
(IF DIFFERENT FROM VOTING INTEREST)
<S> <C> <C>
</TABLE>
FRANCHISEE
-----------------------
-----------------------
<PAGE> 62
EXHIBIT C
EXHIBIT A
SUPPLEMENTAL OWNERSHIP ACKNOWLEDGMENT
-------------------------------------
FOR
---
------------------------------------
<TABLE>
<CAPTION>
A. NAME PERCENTAGE OF PERCENTAGE OF EQUITY
VOTING INTEREST OWNED
INTEREST OWNED (IF DIFFERENT FROM VOTING INTEREST)
<S> <C> <C>
</TABLE>
<TABLE>
<CAPTION>
B. NAME PERCENTAGE OF PERCENTAGE OF EQUITY
VOTING INTEREST OWNED
INTEREST OWNED (IF DIFFERENT FROM VOTING INTEREST)
<S> <C> <C>
</TABLE>
<PAGE> 63
EXHIBIT C
EXHIBIT B
GUARANTY
========
As an inducement for and in consideration of the granting of franchise
and Licensed Rights for the Wendy's Old Fashioned Hamburgers Restaurants to be
located at _________________________________________________ to
______________________ _____________________ (hereinafter "Franchisee") pursuant
to the terms and conditions of the _______________ Franchise Agreements dated
______________________ (hereinafter the "Franchise Agreement"),
______________________________ (hereinafter "Guarantors") hereby jointly and
severally unconditionally guarantee all of the obligations, terms and conditions
of the Franchise Agreements on behalf of Franchisee under the Franchise
Agreement. Guarantors hereby further agree to pay all costs and expenses,
including, without limitation, all court costs and reasonable attorneys fees and
legal expenses, paid or incurred by Wendy's International, Inc. or its
subsidiaries (collectively, "Wendy's") in endeavoring to enforce, or of
prosecuting any action with respect to, any of the terms and conditions of the
Franchise Agreements, any promissory note, agreement, document or instrument
entered into by Franchisee and delivered to Wendy's, and pertaining to the
Franchise Agreement as defined herein.
Guarantors hereunder are either financially interested in Franchisee or
will receive other benefits as the result of the Guarantors' promise herein.
Guarantors agree that in the event of a breach of any promise or
obligation under the Franchise Agreements by Franchisee, Guarantors shall
perform as if Guarantors were personally and fully liable thereon. Such
guarantee shall continue until and unless Wendy's has, in writing, specifically
released Guarantors from such guarantee. In the event of the death, incapacity,
bankruptcy, dissolution or insolvency of Guarantors, or any of them, or if
Guarantors (or any of them) dispose of all or substantially all of their assets,
then, in addition to any other rights and remedies, Wendy's reserves the right
to require a replacement guarantor(s) (i) with a net worth comparable to the net
worth of Guarantors on the date of execution of this Guaranty, (ii) who executes
Wendy's then-current Guaranty; and (iii) who is otherwise acceptable to Wendy's.
The Guarantors independently agree to be bound by and comply with the
provisions, covenants and requirements contained in Sections 9, 13, 16, 20 and
26 of the Franchise Agreements.
Except as otherwise provided herein, this Guaranty shall be a
continuing, absolute and unconditional Guaranty, irrespective of (i) the absence
of any attempt by Wendy's to enforce the provisions of the Franchise Agreements
as to Franchisee, or (ii) any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. The
obligations of Guarantors hereunder are independent of the obligations of
Franchisee under the Franchise Agreements, and separate action or actions may be
brought and prosecuted against Guarantors, whether action is brought against
Franchisee or whether Franchisee, its successors or assigns are joined in any
such action or actions. Guarantors hereby waive any right to
<PAGE> 64
EXHIBIT C
require Wendy's to: (i) proceed against Franchisee, (ii) proceed against or
exhaust any security from Franchisee or (iii) pursue any remedy in Wendy's power
whatsoever.
The Guarantors further agree that this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time the payment of
Franchisee's obligations, or any part thereof, to Wendy's, or fulfillment of any
other term or condition under the Franchise Agreements is rescinded or must
otherwise be returned or undone by Wendy's upon the insolvency, bankruptcy or
reorganization of Franchisee or otherwise, all as though such payment to Wendy's
had not been made.
Wendy's is hereby authorized, without notice or demand and without
affecting the liability of Guarantors hereunder, to, from time to time, (i)
change, modify or otherwise amend the provisions of the Franchise Agreements,
(ii) change, modify or otherwise amend the terms of any promissory note, or
other agreement, document or instrument pertaining to the Franchise Agreements
and now or hereafter entered into by Franchisee and delivered to Wendy's, (iii)
accept partial payment, or partial performance by Franchisee under the Franchise
Agreements, or under any promissory note, other agreement, document or
instrument pertaining to the Franchise Agreements and now or hereafter entered
into by Franchisee and delivered to Wendy's; and (iv) settle, release, waive,
compromise, extend, collect or otherwise liquidate part or all of the
obligations due Wendy's under the Franchise Agreements or under any other
agreement, document, promissory note or instrument pertaining thereto, all
without affecting or impairing the obligations of Guarantors hereunder.
Guarantors agree that notice to the Franchisee will constitute notice
to Guarantors.
Guarantors hereby waive any benefit of, and any right to participate
in, any security or collateral given to Wendy's to secure payment of any
obligations due Wendy's under the Franchise Agreements, or any other liability
of Franchisee to Wendy's. Guarantors further agree that any and all claims of
Guarantors against Franchisee, any indorser or any other guarantor of all or any
part of any obligations under the Franchise Agreements, or against any of their
respective properties, whether arising by reason of any payment by Guarantors to
Wendy's pursuant to the provisions hereof, or otherwise, shall be subordinate
and subject in right of payment to the prior payment, in full, of all
obligations under the Franchise Agreements, all reasonable costs of collection
(including reasonable attorneys' fees and legal expenses) and any other
liabilities or obligations owing to Wendy's by Franchisee, which may arise
either with respect to or on any note, instrument, document, item, agreement or
other writing heretofore, now or hereafter delivered to Wendy's. Guarantors also
waive all setoffs and counterclaims and all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance of this Guaranty. Guarantors further waive
all notices of the existence, creation or incurring of new or additional
indebtedness, arising either from loans extended to Franchisee or otherwise, and
also waives all notices that the obligations under the Franchise Agreements, or
any portion thereof, and/or any interest on any instrument or document
evidencing all or any part of any loan indebtedness is due, notices of any and
all proceedings to collect from the makers, any indorser or any other guarantor
of all or any part of any other indebtedness, or from anyone else, and, to the
extent
-2-
<PAGE> 65
EXHIBIT C
permitted by law, notices of exchange, sale, surrender or other handling of any
security or collateral given to Wendy's to secure payment of the obligations
under the Franchise Agreements, or any other indebtedness.
No delay on the part of Wendy's in the exercise of any right or remedy
under the Franchise Agreements shall operate as a waiver thereof, and no single
or partial exercise by Wendy's of any right or remedy under the Franchise
Agreements shall preclude any further exercise thereof, nor shall any
modification or waiver of any of the provisions of this Guaranty be binding upon
Wendy's, except as expressly set forth in a writing duly signed and delivered on
Wendy's behalf by an authorized officer or agent of Wendy's. Wendy's failure at
any time or times hereafter to require strict performance by Franchisee, its
successors and assigns, or Guarantors of any of the terms and conditions
contained in the Franchise Agreements, any promissory note, security agreement,
agreement, guaranty, instrument or document now or at any time or times
hereafter executed by Franchisee and delivered to Wendy's relative to the
Restaurants which are the subject of the Franchise Agreements as defined herein
shall not waive, affect or diminish any right of Wendy's at any time or times
hereafter to demand strict performance thereof and such right shall not be
deemed to have been waived by any act or knowledge of Wendy's, its agents,
officers or employees, unless such waiver is contained in an instrument in
writing signed by an officer or agent of Wendy's and directed to Franchisee,
specifying such waiver. No waiver by Wendy's of any default shall operate as a
waiver of any other default or the same default on a future occasion, and no
action by Wendy's permitted hereunder shall in any way affect or impair Wendy's
rights or the obligations of Guarantors under this Guaranty.
This Guaranty shall be binding upon Guarantors and upon the successors
and assigns, heirs and legal representatives of Guarantors and shall inure to
the benefit of Wendy's and its successors and assigns. If any of Guarantors are
a corporation, partnership or other business entity (referred to in this
paragraph as the "Business Association Guarantors"), such Business Association
Guarantors represent that they have accurately completed the Ownership
Acknowledgment attached as Exhibit A to the Wendy's Unit Franchise Agreement.
The Business Association Guarantors also agree that without the prior written
consent of Wendy's, there shall be no sale, resale, pledge, assignment, transfer
or encumbrance of any voting stock of, or other ownership interest in, the
Business Association Guarantors, which would, alone or together with other
related, previous, simultaneous or proposed transfers, result in a change of
"control" of the Business Association Guarantors within the meaning of the
Securities Exchange Act of 1934 and the regulations thereunder. If the Business
Association Guarantors request but Wendy's does not grant such consent, then the
Business Association Guarantors may propose a replacement guarantor(s), which
replacement guarantor(s) must (i) have a net worth comparable to the net worth
of the Business Association Guarantors on the date of execution of this
Guaranty, (ii) execute Wendy's then-current Guaranty, and (iii) be otherwise
acceptable to Wendy's. All references herein to Franchisee shall be deemed to
include its successors and assigns, including, without limitation, a receiver,
trustee or debtor in possession of or for Franchisee. All references to the
singular shall be deemed to include the plural where the context so requires.
-3-
<PAGE> 66
EXHIBIT C
This Guaranty has been delivered and accepted at and shall be deemed to
have been made at Columbus, Ohio. This guaranty shall be interpreted, and the
rights and liabilities of the parties hereto determined, in accordance with the
local laws of the State of Ohio. Guarantors consent to the personal jurisdiction
of the courts of the State of Ohio and the federal courts located in Ohio so
that Wendy's may sue Guarantors in Ohio to enforce this agreement. The
Guarantors agree not to claim that Ohio is an inconvenient place for trial. At
Wendy's option, the venue (location) of any suit to enforce this agreement may
be in Franklin County, Ohio.
Wherever possible each provision of this Guaranty shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provisions shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guaranty.
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guarantors
this ____ day of __________________, 19___.
------------------------------------------
ADDRESS:
----------------------------------
------------------------------------------
ADDRESS:
----------------------------------
-4-
<PAGE> 67
EXHIBIT D
DODGSON/WEIGEL
SUMMARY OF OBLIGATIONS
AS OF APRIL 25, 1997
<TABLE>
<CAPTION>
19 232 746 747 983 1011 1695 1844 2020 TOTALS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Royalty (3/97) 54,029.84 9,285.36 3,909.16 3,073.60 4,307.32 3,548.00 1,031.44 2,764.64 3,339.28 85,288.64
WNAP (3/97) 33,768.68 5,803.36 2,443.23 1,921.00 2,692.08 2,217.50 644.65 1,727.90 2,087.05 53,305.45
Gift Certificates (1,168.00) (1,168.00)
TOTALS 86,630.52 15,088.72 6,352.39 4,994.60 6,999.40 5,765.50 1,676.09 4,492.54 5,426.33 137,426.09
</TABLE>
<PAGE> 68
GUARANTY
========
As an inducement for and in consideration of the granting of Wendy's
consent to the transfer of certain interests related to the New Unit Franchise
Agreements ("FRANCHISE AGREEMENTS") for the Wendy's Old Fashioned Hamburgers
Restaurants as referenced on the attached Exhibit A (the "RESTAURANTS") and with
respect to WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP (the "FRANCHISEE"),
ROBERT E. SCHERMER, JR., CHRISTOPHER B. HEWETT, MHG FOOD SERVICE INC., MCC FOOD
SERVICE INC., AND MERITAGE CAPITAL CORP. (hereinafter collectively referred to
as "GUARANTORS") hereby jointly and severally unconditionally guarantee all of
the obligations, terms and conditions of the Franchise Agreements on behalf of
Franchisee. Guarantors hereby further agree to pay all costs and expenses,
including, without limitation, all court costs and reasonable attorneys fees and
legal expenses, paid or incurred by Wendy's International, Inc. or its
subsidiaries (collectively, "WENDY'S") in endeavoring to enforce, or of
prosecuting any action with respect to, any of the terms and conditions of the
Franchise Agreements, any promissory note, agreement, document or instrument
entered into by Franchisee and delivered to Wendy's, and pertaining to the
Franchise Agreements as defined herein.
Guarantors hereunder are either financially interested in Franchisee or
will receive other benefits as the result of the Guarantors' promise herein.
Guarantors agree that in the event of a breach of any promise or
obligation under the Franchise Agreements by Franchisee, Guarantors shall
perform as if Guarantors were personally and fully liable thereon. Such
guarantee shall continue until and unless Wendy's has, in writing, specifically
released Guarantors from such guarantee. In the event of the death, incapacity,
bankruptcy, dissolution or insolvency of Guarantors, or any of them, or if
Guarantors (or any of them) dispose of all or substantially all of their assets,
then, in addition to any other rights and remedies, Wendy's reserves the right
to require a replacement guarantor(s) (i) with a net worth comparable to the net
worth of Guarantors on the date of execution of this Guaranty, (ii) who executes
Wendy's then-current Guaranty; and (iii) who is otherwise acceptable to Wendy's.
Without limitation, the Guarantors independently agree to be bound by
and comply with the provisions, covenants and requirements contained in Sections
9, 13, 16, 20 and 26 of the Franchise Agreements, as well as any warranty,
representation or agreement of Guarantors set forth in the Consent Agreement to
be executed contemporaneously herewith (the "CONSENT AGREEMENT").
Except as otherwise provided herein, this Guaranty shall be a
continuing, absolute and unconditional Guaranty, irrespective of (i) the absence
of any attempt by Wendy's to enforce the provisions of the Franchise Agreements
as to Franchisee, or (ii) any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. The
obligations of Guarantors hereunder are independent of the obligations of
Franchisee under the Franchise Agreements, and separate action or actions may be
brought and prosecuted against
<PAGE> 69
Guarantors, whether action is brought against Franchisee or whether Franchisee,
its successors or assigns are joined in any such action or actions. Guarantors
hereby waive any right to require Wendy's to: (i) proceed against Franchisee,
(ii) proceed against or exhaust any security from Franchisee or (iii) pursue any
remedy in Wendy's power whatsoever.
The Guarantors further agree that this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time the payment of
Franchisee's obligations, or any part thereof, to Wendy's, or fulfillment of any
other term or condition under the Franchise Agreements is rescinded or must
otherwise be returned or undone by Wendy's upon the insolvency, bankruptcy or
reorganization of Franchisee or otherwise, all as though such payment to Wendy's
had not been made.
Wendy's is hereby authorized, without notice or demand and without
affecting the liability of Guarantors hereunder, to, from time to time, (i)
change, modify or otherwise amend the provisions of the Franchise Agreements,
(ii) change, modify or otherwise amend the terms of any promissory note, or
other agreement, document or instrument pertaining to the Franchise Agreements
and now or hereafter entered into by Franchisee and delivered to Wendy's, (iii)
accept partial payment, or partial performance by Franchisee under the Franchise
Agreements, or under any promissory note, other agreement, document or
instrument pertaining to the Franchise Agreements and now or hereafter entered
into by Franchisee and delivered to Wendy's; and (iv) settle, release, waive,
compromise, extend, collect or otherwise liquidate part or all of the
obligations due Wendy's under the Franchise Agreements or under any other
agreement, document, promissory note or instrument pertaining thereto, all
without affecting or impairing the obligations of Guarantors hereunder.
Guarantors agree that notice to the Franchisee will constitute notice
to Guarantors.
Guarantors hereby waive any benefit of, and any right to participate
in, any security or collateral given to Wendy's to secure payment of any
obligations due Wendy's under the Franchise Agreements, or any other liability
of Franchisee to Wendy's. Guarantors further agree that any and all claims of
Guarantors against Franchisee, any indorser or any other guarantor of all or any
part of any obligations under the Franchise Agreements, or against any of their
respective properties, whether arising by reason of any payment by Guarantors to
Wendy's pursuant to the provisions hereof, or otherwise, shall be subordinate
and subject in right of payment to the prior payment, in full, of all
obligations under the Franchise Agreements, all reasonable costs of collection
(including reasonable attorneys' fees and legal expenses) and any other
liabilities or obligations owing to Wendy's by Franchisee, which may arise
either with respect to or on any note, instrument, document, item, agreement or
other writing heretofore, now or hereafter delivered to Wendy's. Guarantors also
waive all setoffs and counterclaims and all presentments, demands for
performance, notices of nonperformance, protests, notices of protest, notices of
dishonor, and notices of acceptance of this Guaranty. Guarantors further waive
all notices of the existence, creation or incurring of new or additional
indebtedness, arising either from loans extended to Franchisee or otherwise, and
also waives all notices that the obligations under the Franchise Agreements, or
any portion thereof, and/or any interest on any instrument or document
evidencing all or any part of any
-2-
<PAGE> 70
loan indebtedness is due, notices of any and all proceedings to collect from the
makers, any indorser or any other guarantor of all or any part of any other
indebtedness, or from anyone else, and, to the extent permitted by law, notices
of exchange, sale, surrender or other handling of any security or collateral
given to Wendy's to secure payment of the obligations under the Franchise
Agreements, or any other indebtedness.
No delay on the part of Wendy's in the exercise of any right or remedy
under the Franchise Agreements shall operate as a waiver thereof, and no single
or partial exercise by Wendy's of any right or remedy under the Franchise
Agreements shall preclude any further exercise thereof, nor shall any
modification or waiver of any of the provisions of this Guaranty be binding upon
Wendy's, except as expressly set forth in a writing duly signed and delivered on
Wendy's behalf by an authorized officer or agent of Wendy's. Wendy's failure at
any time or times hereafter to require strict performance by Franchisee, its
successors and assigns, or Guarantors of any of the terms and conditions
contained in the Franchise Agreements, any promissory note, security agreement,
agreement, guaranty, instrument or document now or at any time or times
hereafter executed by Franchisee and delivered to Wendy's relative to the
Restaurants which are the subject of the Franchise Agreements as defined herein
shall not waive, affect or diminish any right of Wendy's at any time or times
hereafter to demand strict performance thereof and such right shall not be
deemed to have been waived by any act or knowledge of Wendy's, its agents,
officers or employees, unless such waiver is contained in an instrument in
writing signed by an officer or agent of Wendy's and directed to Franchisee,
specifying such waiver. No waiver by Wendy's of any default shall operate as a
waiver of any other default or the same default on a future occasion, and no
action by Wendy's permitted hereunder shall in any way affect or impair Wendy's
rights or the obligations of Guarantors under this Guaranty.
This Guaranty shall be binding upon Guarantors and upon the successors
and assigns, heirs and legal representatives of Guarantors and shall inure to
the benefit of Wendy's and its successors and assigns. All references herein to
Franchisee shall be deemed to include its successors and assigns, including,
without limitation, a receiver, trustee or debtor in possession of or for
Franchisee.
If any of Guarantors are a corporation, partnership or other business
entity (referred to in this paragraph as the "BUSINESS ASSOCIATION GUARANTORS"),
in addition to any restrictions contained in the Franchise Agreements and the
Consent Agreement, such Guarantors 'agree that without the prior written consent
of Wendy's, there shall be no sale, resale, pledge, assignment, transfer or
encumbrance of any voting stock of, or other ownership interest in, the Business
Association Guarantors, which would, alone or together with other related,
previous, simultaneous or proposed transfers, result in a change of "control" of
the Business Association Guarantors within the meaning of the Securities
Exchange Act of 1934 and the regulations thereunder. If the Business Association
Guarantors request but Wendy's does not grant such consent, then the Business
Association Guarantors may propose a replacement guarantor(s), which replacement
guarantor(s) must (i) have a net worth comparable to the net worth of the
Business Association Guarantors on the date of execution of this Guaranty, (ii)
execute Wendy's then-current Guaranty, and (iii) be otherwise acceptable to
Wendy's.
-3-
<PAGE> 71
This Guaranty has been delivered and accepted at and shall be deemed to
have been made at Columbus, Ohio. This guaranty shall be interpreted, and the
rights and liabilities of the parties hereto determined, in accordance with the
local laws of the State of Ohio. Guarantors consent to the personal jurisdiction
of the courts of the State of Ohio and the federal courts located in Ohio so
that Wendy's may sue Guarantors in Ohio to enforce this agreement. The
Guarantors agree not to claim that Ohio is an inconvenient place for trial. At
Wendy's option, the venue (location) of any suit to enforce this agreement may
be in Franklin County, Ohio.
Wherever possible each provision of this Guaranty shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provisions shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guaranty. All references to the singular shall be deemed to
include the plural and all references to the plural shall be deemed to be
singular where the context so requires.
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guarantors
this ____ day of __________________, 1997.
-------------------------------------
ROBERT E. SCHERMER, JR., Individually
ADDRESS:
------------------------------
--------------------------------------
CHRISTOPHER B. HEWETT, Individually
ADDRESS:
------------------------------
--------------------------------------
MHG FOOD SERVICE INC.
By:
-----------------------------------
Title:
--------------------------------
ADDRESS:
------------------------------
--------------------------------------
(SIGNATURE LINES CONTINUED ON NEXT PAGE)
-4-
<PAGE> 72
MCC FOOD SERVICE INC.
By:
-----------------------------------
Title:
--------------------------------
ADDRESS:
------------------------------
--------------------------------------
MERITAGE CAPITAL CORP
By:
-----------------------------------
Title:
--------------------------------
ADDRESS:
------------------------------
--------------------------------------
-5-
<PAGE> 73
EXHIBIT A
WENDY'S OLD FASHIONED HAMBURGERS RESTAURANTS
<TABLE>
<CAPTION>
STORE NO. RESTAURANT LOCATION
<S> <C>
#19-001 305 East Michigan, Kalamazoo, MI
#19-002 2814 Portage, Kalamazoo, MI
#19-003 5830 Westnedge Avenue South, Kalamazoo, MI
#19-004 1280 28th Street, S.E., Grand Rapids, MI
#19-005 929 W. Columbia Avenue, Battle Creek, MI
#19-006 1061 Michigan Street, N.E. Grand Rapids, MI
#19-007 2200 28th Street, S.W., Wyoming, MI
#19-008 5455 West Main Street, Kalamazoo, MI
#19-009 3045 Henry Street, Muskegon, MI
#19-010 2315 Alpine Avenue, N.W., Walker, MI
#19-011 3921 28th Street, S.E., Grand Rapids, MI
#19-012 3850 S. Division Avenue, Wyoming, MI
#19-013 2730 W. Michigan, Kalamazoo, MI
#19-014 2071 E. Apple, Muskegon, MI
#19-015 3301 Plainfield, N.E., Grand Rapids, MI
#19-016 4343 Chicago Drive, Grandville, MI
#232-001 320 North Beacon, Grand Haven, MI
#232-002 261 E. 8th Street, Holland, MI
#232-003 12393 James Street, Holland, MI
#746-001 1185 M 89, Plainwell, MI
#747-001 828 S. Kalamazoo, Paw Paw, MI
#983-001 530 68th Street, S.W., Cutlerville, MI
#1011-001 5335 Beckley Road, Battle Creek, MI
#1695-001 115 Monroe Avenue, Grand Rapids, MI
#1844-001 4694 W. River Road, Grand Rapids, MI
#2020-001 3922 Lake Michigan Drive, N.W., Walker, MI
</TABLE>
<PAGE> 74
EXHIBIT F
MERITAGE GUARANTY
=================
As an inducement for and in consideration of the granting of Wendy's
consent to the transfer of certain interests related to the New Unit Franchise
Agreements ("FRANCHISE AGREEMENTS") for the Wendy's Old Fashioned Hamburgers
Restaurants as referenced on the attached Exhibit A (the "RESTAURANTS") and with
respect to WENDY'S OF WEST MICHIGAN LIMITED PARTNERSHIP (the "FRANCHISEE"),
MERITAGE HOSPITALITY GROUP, INC. (hereinafter referred to as "GUARANTOR") hereby
jointly and severally with the other New Guarantors as defined in the Consent
Agreement executed contemporaneously herewith (the "CONSENT AGREEMENT")
unconditionally guarantees all of the financial obligations of the Partnership
to Wendy's or its subsidiaries (collectively "WENDY'S") under the Franchise
Agreements, including without limitation, those obligations arising directly or
indirectly from indemnities, or any claims or damages thereunder, as well as
royalty and advertising fees ("FINANCIAL OBLIGATIONS"). Guarantor hereby further
agrees to pay all costs and expenses, including, without limitation, all court
costs and reasonable attorneys fees and legal expenses, paid or incurred by
Wendy's in endeavoring to enforce, or of prosecuting any action with respect to,
any of the Financial Obligations, any promissory note, agreement, document or
instrument entered into by Franchisee and delivered to Wendy's, and pertaining
to the Franchise Agreements as defined herein.
Guarantor hereunder is financially interested in Franchisee and will
receive other benefits as the result of the Guarantor's promise herein.
Guarantor agrees that in the event of a breach of any of the Financial
Obligations by Franchisee, Guarantor shall perform as if Guarantor was
personally and fully liable thereon. Such guarantee shall continue until and
unless Wendy's has, in writing, specifically released Guarantor from such
guarantee. In the event of the bankruptcy, dissolution or insolvency of
Guarantor, or if Guarantor disposes of all or substantially all of its assets,
then, in addition to any other rights and remedies, Wendy's reserves the right
to require a replacement guarantor (i) with a net worth comparable to the net
worth of Guarantor on the date of execution of this Guaranty, (ii) who executes
a Guaranty in substantially the same form; and (iii) who is otherwise acceptable
to Wendy's.
Without limitation, the Guarantor independently agrees to be bound by
and comply with the provisions, covenants and requirements contained in Sections
9, 16, 20 and 26 of the Franchise Agreements, as well as any warranty,
representation or agreement of Guarantor set forth in the Consent Agreement.
Except as otherwise provided herein, this Guaranty shall be a
continuing, absolute and unconditional Guaranty, irrespective of (i) the absence
of any attempt by Wendy's to enforce the provisions of the Franchise Agreements
as to Franchisee, or (ii) any other circumstance which might otherwise
constitute a legal or equitable discharge or defense of a guarantor. The
obligations of Guarantor hereunder are independent of the Financial Obligations
of Franchisee under the Franchise Agreements, and separate action or actions may
be brought and
-7-
<PAGE> 75
EXHIBIT F
prosecuted against Guarantor, whether action is brought against Franchisee or
whether Franchisee, its successors or assigns are joined in any such action or
actions. Guarantor hereby waives any right to require Wendy's to: (i) proceed
against Franchisee, (ii) proceed against or exhaust any security from Franchisee
or (iii) pursue any remedy in Wendy's power whatsoever.
The Guarantor further agrees that this Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time the payment of
Franchisee's Financial Obligations, or any part thereof, to Wendy's is rescinded
or must otherwise be returned or undone by Wendy's upon the insolvency,
bankruptcy or reorganization of Franchisee or otherwise, all as though such
payment to Wendy's had not been made.
Wendy's is hereby authorized, without notice or demand and without
affecting the liability of Guarantor hereunder, to, from time to time, (i)
change, modify or otherwise amend the provisions of the Franchise Agreements,
(ii) change, modify or otherwise amend the terms of any promissory note, or
other agreement, document or instrument pertaining to the Franchise Agreements
and now or hereafter entered into by Franchisee and delivered to Wendy's, (iii)
accept partial payment, or partial performance by Franchisee under the Franchise
Agreements, or under any promissory note, other agreement, document or
instrument pertaining to the Franchise Agreements and now or hereafter entered
into by Franchisee and delivered to Wendy's; and (iv) settle, release, waive,
compromise, extend, collect or otherwise liquidate part or all of the
obligations due Wendy's under the Franchise Agreements or under any other
agreement, document, promissory note or instrument pertaining thereto, all
without affecting or impairing the obligations of Guarantor hereunder.
Guarantor agrees that notice to the Franchisee will constitute notice
to Guarantor.
Guarantor hereby waives any benefit of, and any right to participate
in, any security or collateral given to Wendy's to secure payment of any
Financial Obligations, or any other liability of Franchisee to Wendy's.
Guarantor further agrees that any and all claims of Guarantor against
Franchisee, any indorser or any other guarantor of all or any part of the
Financial Obligations, or against any of their respective properties, whether
arising by reason of any payment by Guarantor to Wendy's pursuant to the
provisions hereof, or otherwise, shall be subordinate and subject in right of
payment to the prior payment, in full, of all obligations under the Franchise
Agreements, all reasonable costs of collection (including reasonable attorneys'
fees and legal expenses) and any other liabilities or obligations owing to
Wendy's by Franchisee, which may arise either with respect to or on any note,
instrument, document, item, agreement or other writing heretofore, now or
hereafter delivered to Wendy's. Guarantor also waives all setoffs and
counterclaims and all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance of this Guaranty. Guarantor further waives all notices of the
existence, creation or incurring of new or additional indebtedness, arising
either from loans extended to Franchisee or otherwise, and also waives all
notices that the Financial Obligations, or any portion thereof, and/or any
interest on any instrument or document evidencing all or any part of any loan
indebtedness is due, notices of any and all proceedings to collect from the
-2-
<PAGE> 76
EXHIBIT F
makers, any indorser or any other guarantor of all or any part of any other
indebtedness, or from anyone else, and, to the extent permitted by law, notices
of exchange, sale, surrender or other handling of any security or collateral
given to Wendy's to secure payment of the Financial Obligations, or any other
indebtedness.
No delay on the part of Wendy's in the exercise of any right or remedy
under the Franchise Agreements shall operate as a waiver thereof, and no single
or partial exercise by Wendy's of any right or remedy under the Franchise
Agreements shall preclude any further exercise thereof, nor shall any
modification or waiver of any of the provisions of this Guaranty be binding upon
Wendy's, except as expressly set forth in a writing duly signed and delivered on
Wendy's behalf by an authorized officer or agent of Wendy's. Wendy's failure at
any time or times hereafter to require strict performance by Franchisee, its
successors and assigns, or Guarantor of any of the terms and conditions
contained in the Franchise Agreements, any promissory note, security agreement,
agreement, guaranty, instrument or document now or at any time or times
hereafter executed by Franchisee and delivered to Wendy's relative to the
Restaurants which are the subject of the Franchise Agreements as defined herein
shall not waive, affect or diminish any right of Wendy's at any time or times
hereafter to demand strict performance thereof and such right shall not be
deemed to have been waived by any act or knowledge of Wendy's, its agents,
officers or employees, unless such waiver is contained in an instrument in
writing signed by an officer or agent of Wendy's and directed to Franchisee,
specifying such waiver. No waiver by Wendy's of any default shall operate as a
waiver of any other default or the same default on a future occasion, and no
action by Wendy's permitted hereunder shall in any way affect or impair Wendy's
rights or the obligations of Guarantor under this Guaranty.
This Guaranty shall be binding upon Guarantor and upon the successors
and assigns, and legal representatives of Guarantor and shall inure to the
benefit of Wendy's and its successors and assigns. All references herein to
Franchisee shall be deemed to include its successors and assigns, including,
without limitation, a receiver, trustee or debtor in possession of or for
Franchisee.
This Guaranty has been delivered and accepted at and shall be deemed to
have been made at Columbus, Ohio. This guaranty shall be interpreted, and the
rights and liabilities of the parties hereto determined, in accordance with the
local laws of the State of Ohio. Guarantor consents to the personal jurisdiction
of the courts of the State of Ohio and the federal courts located in Ohio so
that Wendy's may sue Guarantor in Ohio to enforce this agreement. The Guarantor
agrees not to claim that Ohio is an inconvenient place for trial. At Wendy's
option, the venue (location) of any suit to enforce this agreement may be in
Franklin County, Ohio.
Wherever possible each provision of this Guaranty shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Guaranty shall be prohibited by or invalid under such law,
such provisions shall be ineffective to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or the remaining
provisions of this Guaranty. All references to the singular shall be deemed to
-3-
<PAGE> 77
EXHIBIT F
include the plural and all references to the plural shall be deemed to be
singular where the context so requires.
IN WITNESS WHEREOF, this Guaranty has been duly executed by Guarantor
this ____ day of __________________, 1997.
MERITAGE HOSPITALITY GROUP, INC.
By:__________________________________________
Title:_______________________________________
ADDRESS:_____________________________________
_____________________________________________
-4-
<PAGE> 78
EXHIBIT F
EXHIBIT A
WENDY'S OLD FASHIONED HAMBURGERS RESTAURANTS
<TABLE>
<CAPTION>
STORE NO. RESTAURANT LOCATION
<S> <C>
#19-001 305 East Michigan, Kalamazoo, MI
#19-002 2814 Portage, Kalamazoo, MI
#19-003 5830 Westnedge Avenue South, Kalamazoo, MI
#19-004 1280 28th Street, S.E., Grand Rapids, MI
#19-005 929 W. Columbia Avenue, Battle Creek, MI
#19-006 1061 Michigan Street, N.E. Grand Rapids, MI
#19-007 2200 28th Street, S.W., Wyoming, MI
#19-008 5455 West Main Street, Kalamazoo, MI
#19-009 3045 Henry Street, Muskegon, MI
#19-010 2315 Alpine Avenue, N.W., Walker, MI
#19-011 3921 28th Street, S.E., Grand Rapids, MI
#19-012 3850 S. Division Avenue, Wyoming, MI
#19-013 2730 W. Michigan, Kalamazoo, MI
#19-014 2071 E. Apple, Muskegon, MI
#19-015 3301 Plainfield, N.E., Grand Rapids, MI
#19-016 4343 Chicago Drive, Grandville, MI
#232-001 320 North Beacon, Grand Haven, MI
#232-002 261 E. 8th Street, Holland, MI
#232-003 12393 James Street, Holland, MI
#746-001 1185 M 89, Plainwell, MI
#747-001 828 S. Kalamazoo, Paw Paw, MI
#983-001 530 68th Street, S.W., Cutlerville, MI
#1011-001 5335 Beckley Road, Battle Creek, MI
#1695-001 115 Monroe Avenue, Grand Rapids, MI
#1844-001 4694 W. River Road, Grand Rapids, MI
#2020-001 3922 Lake Michigan Drive, N.W., Walker, MI
</TABLE>
<PAGE> 79
EXHIBIT G
GENERAL RELEASE OF ALL CLAIMS
=============================
This GENERAL RELEASE OF ALL CLAIMS is made this _____ day of
__________________, 1997. In consideration for the willingness on the part of
Wendy's International, Inc., an Ohio corporation ("WENDY'S"), to consent to the
change in ownership as set forth in the Consent Agreement, between Wendy's and
the undersigned, to be executed contemporaneously herewith (the "CONSENT
AGREEMENT"), and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the undersigned, individually and
collectively, hereby unconditionally RELEASE, DISCHARGE and ACQUIT Wendy's, its
past and present shareholders, officers, directors, employees, successors,
assigns, agents, and subsidiaries from any and all liabilities, claims, damages,
demands, costs, indebtedness, expenses, debts, indemnities, compensation, suits,
controversies, actions and causes of action of any kind whatsoever, whether
developed or undeveloped, known or unknown, fixed or contingent, regarding or
arising out of any franchise agreement or any and all Wendy's Old Fashioned
Hamburgers Restaurants (including without limitation those Restaurants listed on
Exhibit A and Exhibit B to the Consent Agreement), whether currently or
previously owned or operated by the undersigned or any of them, which the
undersigned or any of them individually or collectively has asserted, may have
asserted or could have asserted against Wendy's (or any of the aforementioned
related parties) at any time up to the date of this GENERAL RELEASE OF ALL
CLAIMS, including specifically, claims under the Sherman and Clayton Acts and
the anti-trust Laws of the United States. This GENERAL RELEASE OF ALL CLAIMS
shall survive the assignment or termination of any of the franchise agreements
or other documents entered into by and between Wendy's and any of the
undersigned. This GENERAL RELEASE OF ALL CLAIMS is not intended as a waiver of
those rights of the undersigned which cannot be waived under applicable state
franchise laws.
WITNESS: WENDY'S OF WEST MICHIGAN
LIMITED PARTNERSHIP
BY ITS GENERAL PARTNER
By:
- ----------------------------- -----------------------------------
Title:
--------------------------------
- ----------------------------- --------------------------------------
ROBERT E. SCHERMER, JR., INDIVIDUALLY
- ----------------------------- --------------------------------------
CHRISTOPHER B. HEWETT, INDIVIDUALLY
(SIGNATURE LINES CONTINUED ON NEXT PAGE)
<PAGE> 80
EXHIBIT G
MERITAGE HOSPITALITY GROUP INC.
By:
- ----------------------------- -----------------------------------
Title:
--------------------------------
MERITAGE CAPITAL CORP.
By:
- ----------------------------- -----------------------------------
Title:
--------------------------------
MHG FOOD SERVICE INC.
By:
- ----------------------------- -----------------------------------
Title:
--------------------------------
MCC FOOD SERVICE INC.
By:
- ----------------------------- -----------------------------------
Title:
--------------------------------
-2-
<PAGE> 81
EXHIBIT H
RIGHT OF FIRST REFUSAL RESTAURANTS
<TABLE>
<CAPTION>
STORE NO. RESTAURANT LOCATION
<S> <C>
#19-001 305 East Michigan, Kalamazoo, MI
#19-002 2814 Portage, Kalamazoo, MI
#19-003 5830 Westnedge Avenue South, Kalamazoo, MI
#19-004 1280 28th Street, S.E., Grand Rapids, MI
#19-005 929 W. Columbia Avenue, Battle Creek, MI
#19-006 1061 Michigan Street, N.E. Grand Rapids, MI
#19-007 2200 28th Street, S.W., Wyoming, MI
#19-008 5455 West Main Street, Kalamazoo, MI
#19-009 3045 Henry Street, Muskegon, MI
#19-010 2315 Alpine Avenue, N.W., Walker, MI
#19-011 3921 28th Street, S.E., Grand Rapids, MI
#19-012 3850 S. Division Avenue, Wyoming, MI
#19-013 2730 W. Michigan, Kalamazoo, MI
#19-014 2071 E. Apple, Muskegon, MI
#19-015 3301 Plainfield, N.E., Grand Rapids, MI
#19-016 4343 Chicago Drive, Grandville, MI
#232-001 320 North Beacon, Grand Haven, MI
#232-002 261 E. 8th Street, Holland, MI
</TABLE>
<PAGE> 1
AMENDMENT NO. 1
---------------
This Amendment No. 1 (the "Amendment") is made and entered into this
23rd day of May, 1997 to that certain Loan Agreement dated November 26, 1996
by and among MERITAGE HOSPITALITY GROUP INC. ("MHG"), ST. CLAIR INN, INC.
("SCI"), GRAND HARBOR RESORT INC. ("GH Resort"), THOMAS EDISON INN,
INCORPORATED ("TEI"), MHG FOOD SERVICE INC. ("Food Service"), GRAND HARBOR
YACHT CLUB INC. ("GH Yacht Club"), collectively, the Obligors and GREAT
AMERICAN LIFE INSURANCE COMPANY, as Lender.
WITNESSETH
WHEREAS, GH Yacht Club has requested the Lender to make an additional
loan to GH Yacht Club in the amount of Eight Hundred Seventy-Five Thousand and
00/100 Dollars ($875,000.00) (such loan shall hereinafter be referred to as
"Loan III"); and
WHEREAS, the Lender has agreed to make Loan III to GH Yacht Club under
the terms of this Amendment No. 1;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. LOAN III. The Lender agrees to make Loan III to GH Yacht Club. Such
loan shall be evidenced by a promissory note, substantially in the form of the
attached Exhibit "A." Loan III shall be cross-collateralized with Loans I and
II as set forth herein. The proceeds of Loan III shall be used by GH Yacht Club
solely to finance the construction and improvement of boat slips on the
property of GH Yacht Club and to pay an amount not exceeding $134,000 in real
estate taxes due and payable on the property of GH Yacht Club and GH Resort.
2. LOAN III FEE. GH Yacht Club shall pay to the Lender a fee of Eight
Thousand Seven Hundred Fifty and 00/100 Dollars ($8,750.00) in connection with
the Lender's commitment to make Loan III. Such fee shall be paid to the Lender
contemporaneously with the execution of this Amendment.
3. SECURITY FOR LOAN III. In order to secure the obligations of GH
Yacht Club to repay Loan III, together with the interest accrued thereon and
all other charges relating thereto, GH Yacht Club shall deliver, or cause to be
delivered to, the Lender, the following:
(a) a mortgage on the real property and marina facility owned
by GH Yacht Club substantially in the form of the attached Exhibit
"B";
(b) a security agreement substantially in the form of the
attached Exhibit "C" granting to the Lender a security interest in all
personal property, tangible and intangible,
<PAGE> 2
- 2 -
of GH Yacht Club, together with appropriate UCC Financing Statements
to perfect the security interest granted to Lender;
(c) a Guaranty, substantially in the form of the attached
Exhibit "D", executed by MHG and a Guaranty substantially in the form
of Exhibit "E", executed by each of SCI, GH Resort, TEI and Food
Service;
(d) mortgages on the real property owned by SCI, GH Resort
and TEI, substantially in the forms of Exhibits "F", "G" and "H",
respectively; and
(e) an Assignment of Construction Agreements, Management
Agreements, Permits and Contracts, substantially in the form of
Exhibit "I" hereto.
4. DISBURSEMENTS OF LOAN PROCEEDS. The Lender shall make disbursements
of the proceeds of Loan III to GH Yacht Club in accordance with the following
provisions:
(a) GH Yacht Club shall submit to the Lender, no more
frequently than twice per month, a master affidavit requesting an
advance of loan proceeds at least five (5) days prior to the date of
each disbursement. The affidavit shall list by name, trade breakdown
and amount, the names of each contractor, subcontractor and
materialman who has done work or supplied materials for the
improvements to the property of GH Yacht Club;
(b) Borrower shall also submit supporting affidavits from
each contractor/subcontractor and a materialman's certificate from
each supplier, which evidence the following:
(1) whether or not such party has been paid;
(2) amount paid to the supplier or
contractor/subcontractor to date; and
(3) balance due the supplier or
contractor/subcontractor to date.
In the event that any such affidavit or certificate states that there are one
(1) or more persons to whom sums are owing in respect to the construction, GH
Yacht Club hereby authorizes Lender to pay on behalf of GH Yacht Club the sums
owed to such persons directly.
(c) GH Yacht Club shall, upon request, submit an AIA form
G702 Application and Certificate for Payment and AIA form G703
Continuation Sheet certified by an officer of GH Yacht Club indicating
that such officer has inspected the improvements and agrees that the
improvements, the cost of which payment is being requested, have been
installed on the property of GH Yacht Club;
(d) Lender hereby reserves the right to require GH Yacht Club
to provide such documents and follow such procedures as are required
under applicable Michigan law;
<PAGE> 3
- 3 -
(e) Lender shall have the right to pay any contractor,
subcontractor or supplier directly without the consent of GH Yacht
Club, and to consider the amount of such payment as an advance against
Loan III as though such amount had been advanced pursuant to a request
by GH Yacht Club if such disbursement is deemed necessary by Lender to
aid in the progress of construction. Lender shall, in no event, be
responsible or liable to any person other than GH Yacht Club for its
disbursement of or failure to disburse the proceeds of Loan III or any
part thereof, and no contractor, subcontractor, supplier or laborer
shall have any right or claim against Lender under this Amendment No.
1 or by virtue of Lender's administration hereof;
(f) Each request for advance submitted by GH Yacht Club shall
constitute a representation that the work and materials for which
payment is being requested have physically been incorporated into the
property of GH Yacht Club, free of any security interest, lien or
encumbrance, other than the liens in favor of Lender created as
security for Loan III. The amount to be disbursed by Lender on the
date set for each disbursement shall be an amount equal to that
percent of the total construction work to be done that has been
completed to date in accordance with the plans and specifications
submitted to Lender less the total amount disbursed by lender prior to
the disbursement date. Notwithstanding the foregoing, nothing herein
shall obligate Lender to disburse any portion of the proceeds of Loan
III for work performed where such disbursement request is for amounts
in excess of the amounts set forth on the cost budget required to be
provided to Lender;
(g) At any time requested by Lender, GH Yacht Club shall
provide such evidence satisfactory to Lender to establish that there
are sufficient funds available under Loan III to complete the
improvements. To give effect to this condition, Lender may require
either (i) that GH Yacht Club provide its own funds in an amount which
is necessary in addition to Loan III to complete the improvements;
and/or (ii) that a sufficient amount be retained from Loan III
proceeds to assure, at all times, that the construction of the
improvements can be completed; and
(h) Lender hereby reserves the right to automatically draw
against any interest or sinking fund reserves that are established in
connection with Loan III to fund such payments when due.
5. SALE OF BOAT SLIPS AND PREPAYMENT OF LOAN III. At the time of the
sale of any of the boat slips, to be constructed by GH Yacht Club (other than
slips 35, 36, 37, 38, 39, 54 and 55, which are not being mortgaged to Lender),
GH Yacht Club shall pay to the Lender the sum of Thirty-Five Thousand and
00/100 Dollars ($35,000.00) from the proceeds of such sale as a prepayment of
Loan III. Upon such payment and the application thereof, Lender shall release
all liens on the slip which has been sold which secure the repayment of Loan
III, and Loans I and II. After Loan III has been paid in full, either as a
result of the sale of boat slips, or otherwise, Thirty-Five Thousand and 00/100
Dollars ($35,000.00) from the proceeds of the sale of any additional boat slips
shall be applied in prepayment of Loan II. After Loan II has been paid in full,
Lender shall release any remaining liens
<PAGE> 4
- 4 -
on the assets of GH Yacht Club. Notwithstanding any other provision of the Loan
Agreement or the other Loan Documents to the contrary, Lender hereby consents
to the sale of the boat slips and the disposition of the proceeds therefrom as
contemplated hereby.
6. SALES OF LOAN II COLLATERAL. Notwithstanding any other term or
provision of the Loan Agreement, so long as any principal amount of Loan III
shall remain outstanding or any interest or other amount payable with respect
to Loan III shall remain unpaid, the proceeds from the sale of any Loan II
Collateral shall be applied to reduce the outstanding principal of Loan III. No
prepayment penalty shall be assessed in connection with any such sale or
prepayment of Loan III.
7. SUBORDINATION OF INDEBTEDNESS OF ROBERT E. SCHERMER, SR.
Contemporaneously with the execution of this Amendment, MHG shall provide
Lender with evidence satisfactory to Lender that the indebtedness of MHG to
Robert E. Schermer, Sr. is subordinated to all obligations of MHG and its
subsidiaries to Lender (including Loan III) on terms acceptable to Lender in
its sole discretion.
8. BORROWINGS AGAINST LIFE INSURANCE POLICIES. The Lender hereby
agrees and consents that, notwithstanding any other provision of the Loan
Agreement or the other Loan Documents, MHG shall be permitted to borrow up to
Two Hundred Thousand and 00/100 Dollars ($200,000) of the cash value of the
Life Insurance policies.
9. REVISED DEFINITIONS. For purposes of this Amendment and the Loan
Agreement after the date hereof, the following terms shall have the following
meanings:
"LOANS" means Loan I, Loan II and Loan III and any other loan made by
the Lender under the Loan Agreement or any amendment or modification
thereto. The term "Loan" shall mean any of the Loans.
10. RATIFICATION OF LOAN AGREEMENT. Except as specifically amended
hereby, the terms of the Loan Agreement are hereby ratified and confirmed as of
this date.
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed and delivered by their proper and duly authorized officers, as of the
date first above written.
WITNESSES: GREAT AMERICAN LIFE INSURANCE
COMPANY
BY:/s/ Mark F. Muething
- --------------------------- ---------------------------------
ITS: Vice President
- --------------------------- -------------------------------
<PAGE> 5
- 5 -
MERITAGE HOSPITALITY GROUP INC.
BY:/s/ Christopher B. Hewett
- -------------------------------- ---------------------------------
Christopher B. Hewett, President
- --------------------------------
ST. CLAIR INN, INC.
BY:/s/ Christopher B. Hewett
- -------------------------------- ---------------------------------
Christopher B. Hewett, President
- --------------------------------
GRAND HARBOR RESORT INC.
BY:/s/ Christopher B. Hewett
- -------------------------------- ---------------------------------
Christopher B. Hewett, President
- --------------------------------
THOMAS EDISON INN, INCORPORATED
BY:/s/ Christopher B. Hewett
- -------------------------------- ---------------------------------
Christopher B. Hewett, President
- --------------------------------
GRAND HARBOR YACHT CLUB INC.
BY:/s/ Christopher B. Hewett
- -------------------------------- ---------------------------------
Christopher B. Hewett, President
- --------------------------------
MHG FOOD SERVICE INC.
BY:/s/ Christopher B. Hewett
- -------------------------------- ---------------------------------
Christopher B. Hewett, President
- --------------------------------
<PAGE> 1
EXHIBIT "A"
-----------
PROMISSORY NOTE
$875,000.00 Cincinnati, Ohio
May 23, 1997
This Promissory Note ("Note") is made and entered into on the date set
forth above by GRAND HARBOR YACHT CLUB INC., ("GH Yacht Club") to the order of
GREAT AMERICAN LIFE INSURANCE COMPANY, an Ohio corporation, (hereinafter,
together with its permitted successors and assigns, "Lender").
This Note has been executed and delivered in connection with Amendment
No. 1 dated as of this date to that certain Loan Agreement dated as of November
26, 1996, among GH Yacht Club, Meritage Hospitality Group Inc., MHG Food
Service Inc., Thomas Edison Inn, Incorporated, Grand Harbor Resort Inc., St.
Clair Inn, Inc. and Lender (as amended by Amendment No. 1, the "Loan
Agreement") and is subject to the terms and conditions of the Loan Agreement.
All capitalized terms used herein shall have the meanings assigned to them in
the Loan Agreement unless the context hereof requires otherwise.
FOR VALUE RECEIVED, the undersigned hereby promises to pay to the
order of Lender the principal sum of Eight Hundred Seventy-Five Thousand and
00/100 Dollars ($875,000.00), together with interest at the annual rate equal
to one percent (1%) in excess of the rate of interest announced from time to
time by The Provident Bank, Cincinnati, Ohio, as its prime rate ("Prime Rate");
PROVIDED, HOWEVER, in the event and during the continuation of a violation by
the Obligors of certain financial covenants contained in the Loan Agreement,
such interest rate shall be increased as provided in Section 2.3 of the Loan
Agreement. A rate based on the Prime Rate will change each time and as of the
date the Prime Rate changes. Interest only shall be due and payable monthly in
arrears on the first day of each month commencing on July 1, 1997 and
continuing on the first day of each month thereafter through and including
September 1, 2000. The entire outstanding principal balance due hereunder,
unless earlier prepaid in accordance with the terms hereof, shall be due and
payable, together with all accrued and unpaid interest, on September 30, 2000
(the "Maturity Date").
Any amount of principal and interest which is not paid when due,
whether at stated maturity, by acceleration or otherwise, shall bear interest,
payable on demand at the Default Rate, or such lesser amount as shall be the
maximum rate legally enforceable.
Principal and interest payments shall be made in lawful money of the
United States of America and shall be divided equally and payable fifty percent
(50%) to the Lender at Bank of New York, Acct. No. 141001 and, fifty percent
(50%) to Great American Insurance Company at Bankers Trust Company, Acct. No.
97-960, or at such other address as the holder hereof may give to the Borrower,
in immediately available funds.
<PAGE> 2
- 2 -
This Note is secured as described in Amendment No. 1. Proceeds from
the sale of any Loan II Collateral or the additional collateral provided to
Lender in connection with this Note shall be applied first to repay this Note,
and thereafter to repay Loan II. GH Yacht Club shall pay to Lender a fee of one
percent (1%) in connection with the loan made to GH Yacht Club hereby.
Except as otherwise provided herein, all payments received by Lender
from the undersigned shall be applied as provided in the Loan Agreement.
The undersigned may, at its option, voluntarily prepay this Note in
whole at any time, or in part as provided for in Section 2.5 of the Loan
Agreement.
In case of an Event of Default, the entire unpaid principal amount of
this Note, and all interest due hereon, may become immediately due and payable.
GH Yacht Club shall be required to make prepayments of the principal
outstanding hereunder in accordance with Section 4 of Amendment No. 1.
The undersigned hereby: (i) waives presentment, demand, notice of
demand, protest, notice of protest and notice of nonpayment and any other
notice required to be given by law in connection with the delivery, acceptance,
performance, default or enforcement of this Note, of any indorsement or
guaranty of this Note; and (ii) consents to any and all delays, extensions,
renewals or other modifications of this Note or waivers of any term hereof or
the failure to act on the part of Lender or any indulgence shown by Lender,
from time to time and in one or more instances, (without notice to or further
assent from the undersigned) and agrees that no such action, failure to act or
failure to exercise any right or remedy, on the part of Lender shall in any way
affect or impair the obligations of the undersigned or be construed as a waiver
by Lender of, or otherwise affect, any of Lender's rights under this Note,
under any indorsement or guaranty of this Note.
This Note is made and delivered in the City of Cincinnati, Ohio and
shall be governed by and construed in accordance with the laws of the State of
Ohio. The undersigned hereby designates all courts of record sitting in
Cincinnati, Ohio and having jurisdiction over the subject matter, state and
federal, as forums where any action, suit or proceeding in respect of or
arising from or out of this Note, its making, validity or performance, may be
prosecuted as to all parties, their successors and assigns, and by the
foregoing designation the undersigned consents to the jurisdiction and venue of
such courts.
THE UNDERSIGNED HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN THE COUNTY OF HAMILTON, STATE OF OHIO AND
IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE, THE OTHER LOAN DOCUMENTS
OR ANY OBLIGATION SHALL BE LITIGATED IN SUCH COURTS. THE UNDERSIGNED ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY OTHER LOAN DOCUMENT OR SUCH
<PAGE> 3
- 3 -
OBLIGATION. THE UNDERSIGNED DESIGNATES AND APPOINTS CT CORPORATION SYSTEM AND
SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY THE UNDERSIGNED WHICH
IRREVOCABLY AGREE IN WRITING TO SO SERVE AS ITS AGENT TO RECEIVE ON ITS BEHALF
SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE
BEING HEREBY ACKNOWLEDGED BY THE UNDERSIGNED TO BE EFFECTIVE AND BINDING
SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE MAILED
BY REGISTERED MAIL TO THE UNDERSIGNED AT ITS ADDRESS PROVIDED IN THE LOAN
AGREEMENT EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE
TO MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY
AGENT APPOINTED BY THE UNDERSIGNED REFUSES TO ACCEPT SERVICE, THE UNDERSIGNED
HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE VALID SERVICE OF
PROCESS. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS
AGAINST THE UNDERSIGNED IN THE COURTS OF ANY OTHER JURISDICTION.
THE UNDERSIGNED AND LENDER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
NOTE, ANY OF THE LOAN DOCUMENTS, OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS LOAN TRANSACTION AND THE LENDER/BORROWER RELATIONSHIP
THAT IS BEING ESTABLISHED. THE UNDERSIGNED AND LENDER ALSO WAIVE ANY BOND OR
SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE REQUIRED
OF LENDER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY
AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT
MATTER OF THIS TRANSACTION, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY
CLAIMS. THE UNDERSIGNED AND LENDER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED
ON THE WAIVER IN ENTERING INTO THIS NOTE AND THAT EACH WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. THE UNDERSIGNED AND LENDER FURTHER
WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS NOTE, THE LOAN DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
TO THE LOAN OR THE NOTE. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS
A WRITTEN CONSENT TO A TRIAL BY THE COURT.
<PAGE> 4
- 4 -
IN WITNESS WHEREOF, GH Yacht Club has caused this Note to be executed
by its duly authorized officer on the day and year first above written.
GRAND HARBOR YACHT CLUB INC.
By: /s/ Christopher B. Hewett
--------------------------------------
Christopher B. Hewett, President
<PAGE> 1
MERITAGE HOSPITALITY GROUP INC.
1996
MANAGEMENT EQUITY INCENTIVE PLAN
ARTICLE 1
OBJECTIVES
Meritage Hospitality Group Inc. has established this Management Equity
Incentive Plan effective April 16, 1996 as an incentive to the attraction and
retention of dedicated and loyal employees of outstanding ability, to stimulate
the efforts of such persons in meeting Meritage Hospitality Group Inc.'s
objectives and to encourage ownership of its Common Shares by employees.
ARTICLE 2
DEFINITIONS
2.1 For purposes of the Plan the following terms shall have the
definition which is attributed to them, unless another definition is clearly
indicated by a particular usage and context.
A. "CODE" means the Internal Revenue Code of 1986, as amended.
B. The "COMPANY" means Meritage Hospitality Group Inc. and any
subsidiary of Meritage Hospitality Group Inc., as the term
"subsidiary" is defined in Section 424(f) of the Code.
C. "DATE OF EXERCISE" means the date on which the Company has
received a written notice of exercise of an Option, in such form as
is acceptable to the Committee, and full payment of the purchase
price.
D. "DATE OF GRANT" means the date on which the Committee makes
an award of an Option.
E. "ELIGIBLE EMPLOYEE" means any individual who performs
services for the Company and is treated as an employee for federal
income tax purposes.
F. "FAIR MARKET VALUE" means the last sale price reported on any
stock exchange or over-the-counter trading system on which Shares are
trading on the last trading day prior to a specified date or, if no
last sales price is reported, the average of the closing bid and
<PAGE> 2
- 2 -
asked prices for a Share on a specified date. If no sale has been
made on the specified date, then prices on the last preceding day on
which any such sale shall have been made shall be used in determining
Fair Market Value under either method prescribed in the previous
sentence.
G. "INCENTIVE SHARE OPTION" shall have the same meaning as given
to that term by Section 422 of the Code.
H. "NONQUALIFIED SHARE OPTION" means any Option granted under
the Plan which is not considered an Incentive Share Option.
I. "OPTION" means the right to purchase a stated number of
Shares at a specified price. The Option may be granted to an Eligible
Employee subject to the terms of this Plan, and such other conditions
and restrictions as the Committee deems appropriate. Each Option
shall be designated by the Committee to be either an Incentive Share
Option or a Nonqualified Share Option.
J. "OPTION PRICE" means the purchase price per Share subject to
an Option and shall be fixed by the Committee, but shall not be less
than 100% of the Fair Market Value of a Share on the Date of Grant in
the case of an Incentive Share Option.
K. "PERMANENT AND TOTAL DISABILITY" shall mean any medically
determinable physical or mental impairment rendering an individual
unable to engage in any substantial gainful activity, which
disability can be expected to result in death or which has lasted or
can be expected to last for a continuous period of not less than 12
months.
L. "PLAN" means this 1996 Management Equity Incentive Plan as it
may be amended from time to time.
M. "SHARE" means one Common Share, $.01 par value, of the
Company.
ARTICLE 3
ADMINISTRATION
3.1 The Plan shall be administered by a committee (the "Committee")
designated by the Board of Directors of the Company. The Committee shall be
comprised solely of three or more directors each of whom shall be (i) a
"disinterested person" as defined under Rule 16b-3 of the Securities and
Exchange Act of 1934 (the "Act") and (ii) an "outside director" to the extent
required by Section 162(m) of the Internal Revenue Code ("Section 162(m)").
Notwithstanding the foregoing, to the extent relevant state law now or
hereafter permits, the Committee may be comprised solely of two or more such
directors.
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Actions shall be taken by a majority of the Committee.
3.2 Except as specifically limited by the provisions of the Plan, the
Committee in its discretion shall have the authority to:
A. Determine which Eligible Employees shall be granted Options;
B. Determine the number of Shares which may be subject to each
Option;
C. Determine the Option Price;
D. Determine the term of each Option;
E. Determine whether each Option is an Incentive Share Option or
Nonqualified Share Option;
F. Interpret the provisions of the Plan and decide all questions of
fact arising in its application; and
G. Prescribe such rules and procedures for Plan administration as
from time to time it may deem advisable.
3.3 Any action, decision, interpretation or determination by the
Committee with respect to the application or administration of this Plan shall
be final and binding upon all persons, and need not be uniform with respect to
its determination of recipients, amount, timing, form, terms or provisions of
Options.
3.4 No member of the Committee shall be liable for any action or
determination taken or made in good faith with respect to the Plan or any
Option granted hereunder, and to the extent permitted by law, all members shall
be indemnified by the Company for any liability and expenses which may occur
through any claim or cause of action.
ARTICLE 4
SHARES SUBJECT TO PLAN
4.1 The Shares that may be made subject to Options granted under the
Plan shall not exceed 475,000 Shares in the aggregate. Except as provided in
Section 4.2, upon lapse or termination of any Option for any reason without
being completely exercised, the Shares which were subject to such Option may
again be subject to other Options.
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4.2 The maximum number of Shares with respect to which Options may be
granted to any employee during each fiscal year of the Company is 50,000
Shares. If an Option is canceled, it continues to be counted against the
maximum number of Shares for which Options may be granted to an employee. If an
Option is repriced, the transaction is treated as a cancellation of the Option
and a grant of a new Option.
ARTICLE 5
GRANTING OF OPTIONS
Subject to the terms and conditions of the Plan, the Committee may, from
time to time prior to April 16, 2006, grant Options to Eligible Employees on
such terms and conditions as the Committee may determine. More than one Option
may be granted to the same Eligible Employee.
ARTICLE 6
TERMS OF OPTIONS
6.1 Subject to specific provisions relating to Incentive Share Options set
forth in Article 9, each Option shall be for a term of from one to ten years
from the Date of Grant and may not be exercised during the first twelve months
of the term of said Option. Commencing on the first anniversary of the Date of
Grant of an Option, the Option may be exercised for 20% of the total Shares
covered by the Option with an additional 20% of the total Shares covered by the
Option becoming exercisable on each succeeding anniversary until the Option is
exercisable to its full extent. This right of exercise shall be cumulative and
shall be exercisable in whole or in part. The Committee in its sole discretion
may permit particular holders of Options to exercise an Option to a greater
extent than provided herein. The Committee may establish a different exercise
schedule and impose other conditions upon exercise for any particular Option or
groups of Options.
6.2 The holder of an Option must remain continuously in the service of the
Company as an employee for a period of at least twelve months. Nothing
contained in this Plan or in any Option granted pursuant to it shall confer
upon any employee any right to continue in the employ of the Company or to
interfere in any way with the right of the Company to terminate employment at
any time. So long as a holder of an Option shall continue to be an employee of
the Company, the Option shall not be affected by any change of the employee's
duties or position.
ARTICLE 7
EXERCISE OF OPTIONS
Any person entitled to exercise an Option in whole or in part may do so by
delivering a written notice of exercise to the Company, attention Corporate
Secretary, at its principal office. The
<PAGE> 5
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written notice shall specify the number of Shares for which an Option is being
exercised and the grant date of the option being exercised and shall be
accompanied by full payment of the Option Price for the Shares being purchased.
ARTICLE 8
PAYMENT OF OPTION PRICE
8.1 Payment of the Option Price may be made in cash, by the tender of
Shares, or both. Shares tendered shall be valued at their Fair Market Value on
the Date of Exercise.
8.2 Payment through tender of Shares may be made by instruction from
the Optionee to the Company to withhold from the Shares issuable upon exercise
that number which have a Fair Market Value on the Date of Exercise equal to the
exercise price for the Option or portion thereof being exercised.
ARTICLE 9
INCENTIVE SHARE OPTIONS AND NONQUALIFIED SHARE OPTIONS
9.1 The Committee in its discretion may designate whether an Option is
to be considered an Incentive Share Option or a Nonqualified Share Option. The
Committee may grant both an Incentive Share Option and a Nonqualified Share
Option to the same individual. However, where both an Incentive Share Option
and a Nonqualified Share Option are awarded at one time, such Options shall be
deemed to have been awarded in separate grants, shall be clearly identified,
and in no event will the exercise of one such Option affect the right to
exercise the other such Option.
9.2 Any option designated by the Committee as an Incentive Share
Option will be subject to the general provisions applicable to all Options
granted under the Plan. In addition, the Incentive Share Option shall be
subject to the following specific provisions:
A. At the time the Incentive Share Option is granted, if the
Eligible Employee owns, directly or indirectly, shares representing
more than 10% of (i) the total combined voting power of the Common
Shares of the Company, or (ii) a corporation that owns 50% or more of
the total combined voting power of the Common Shares of the Company,
then:
(i) The Option Price must equal at least 110% of the
Fair Market Value on the Date of Grant; and
(ii) The term of the Option shall not be greater
than five years from the Date of Grant.
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B. The aggregate Fair Market Value of Shares (determined at
the Date of Grant) with respect to which Incentive Share Options are
exercisable by an Eligible Employee for the first time during any
calendar year under this Plan or any other plan maintained by the
Company shall not exceed $100,000.
9.3 If any Option is not granted, exercised, or held pursuant to the
provisions noted immediately above, it will be considered to be a Nonqualified
Share Option to the extent that the grant is in conflict with these
restrictions.
ARTICLE 10
TRANSFERABILITY OF OPTION
An Option in not transferable by the Eligible Employee to whom granted
other than by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code or Title 1 of the
Employee Retirement Income Security Act, as amended.
ARTICLE 11
TERMINATION OF OPTIONS
11.1 An Option will terminate as follows:
A. Upon exercise or expiration by its terms.
B. Except as provided in Subsection 11.1.C, upon termination
of employment for reasons other than cause, the then-exercisable portion of any
Option will terminate on the 60th day after the date of termination. The
portion not then exercisable will terminate on the date of termination of
employment. For purposes of the Plan, a leave of absence approved by the
Company shall not be deemed to be termination of employment.
C. If an Eligible Employee holding an Option dies or becomes
subject to a Permanent and Total Disability while employed by the Company, or
within 60 days after termination of employment, for reasons other than cause,
such Option may be exercised, to the extent exercisable on the date of such
death, Permanent and Total Disability or termination of employment, at any time
within one year after the date the employment of such Eligible Employee
terminated, by the estate or guardian of such person or by those persons to
whom the Option may have been transferred by will or by the laws of descent and
distribution.
D. Options shall terminate immediately if employment is
terminated for cause. Cause is defined as including, but not limited to, theft
of or intentional damage to Company property, intentional harm to the Company's
reputation, material breach of the Optionee's duty of
<PAGE> 7
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fidelity to the Company, excessive use of alcohol, the use of illegal drugs,
the commission of a criminal act, willful violation of Company policy, or
trading in securities of the Company for personal gain based on knowledge of
the Company's activities or results when such information is not available to
the general public.
E. If an Eligible Employee holding an Option violates any
terms of any written employment or noncompetition agreement between the Company
and the Eligible Employee, all existing Options held by such Employee will
terminate. In addition, if at the time of such violation the Employee has
exercised Options but has not received certificates for the shares to be
issued, the Company may void the Option and its exercise. Any such actions by
the Company shall be in addition to any other rights or remedies available to
the Company in such circumstances.
11.2 Except as provided in Article 12 hereof, in no event will the
continuation of the term of an Option beyond the date of termination of
employment allow the Eligible Employee, or his beneficiaries or heirs, to
accrue additional rights under the Plan, or to purchase more Shares through the
exercise of an Option than could have been purchased on the day that employment
was terminated. In addition, notwithstanding anything contained herein, no
Option may be exercised in any event after the expiration of ten years from the
date of grant of such Option.
ARTICLE 12
ADJUSTMENTS TO SHARES AND OPTION PRICE
12.1 In the event of changes in the outstanding Common Shares of the
Company as a result of share dividends, splitups, recapitalizations,
combinations of Shares or exchanges of Shares, the number and class of Shares
for all purposes covered by the Plan and number and class of Shares and price
per Share for each Option and each outstanding Option covered by the Plan shall
be correspondingly adjusted by the Committee.
12.2 The Committee shall make appropriate adjustments in the Option
Price to reflect any spin-off of assets, extraordinary dividends or other
distributions to shareholders.
12.3 In the event of the dissolution or liquidation of the Company or
any merger, consolidation, exchange or other transaction in which the Company
is not the surviving corporation or in which the outstanding Shares of the
Company are converted into cash, other securities or other property, each
outstanding Option shall terminate as of a date fixed by the Committee provided
that not less than 20 days' written notice of the date of expiration shall be
given to each holder of an Option and each such holder shall have the right
during such period following notice to exercise the Option as to all or any
part of the Shares for which it is exercisable at the time of such notice. The
Committee, in its sole discretion, may provide that Options in such
circumstances may be exercised to an extent greater than the number of Shares
for which they were exercisable at the time of such a notice.
<PAGE> 8
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12.4 All outstanding Options shall become immediately exercisable in
full if a change in control of the Company occurs. For purposes of this
Agreement, a "change in control of the Company" shall be deemed to have
occurred if (a) any "person," as such term is used in Sections 13(d) and 14(d)
of the Act, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company becomes the "beneficial owner," as defined
in Rule 13d-3 under the Act, directly or indirectly, of securities of the
Company representing 30% or more of the combined voting power of the Company's
then outstanding securities; or (b) during any period of one year (not
including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board of Directors and any new
director whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3) of
the Directors then still in office who either were Directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof.
ARTICLE 13
OPTION AGREEMENTS
13.1 All Options granted under the Plan shall be evidenced by a
written agreement in such form or forms as the Committee in its sole discretion
may determine.
13.2 Each optionee, by acceptance of an Option under this Plan, shall
be deemed to have consented to be bound, on the optionee's own behalf and on
behalf of the optionee's heirs, assigns and legal representatives, by all terms
and conditions of this Plan.
ARTICLE 14
AMENDMENT OR DISCONTINUANCE OF PLAN
14.1 The Board of Directors of the Company may at any time amend,
suspend, or discontinue the Plan; provided, however, that no amendments by the
Board of Directors of the Company shall, without further approval of the
shareholders of the Company:
A. Change the definition of Eligible Employees;
B. Except as provided in Articles 4 and 12 hereof, increase the
number of Shares which may be subject to Options granted under the
Plan.
C. Cause the Plan or any Option granted under the Plan to fail
to be excluded from the $1 million deduction limitation imposed by
Section 162(m) of the Code, or qualify as an "Incentive Share Option"
as defined by Section 422 of the Code.
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14.2 No amendment or discontinuance of the Plan shall alter or impair
any Option granted under the Plan without the consent of the holder thereof.
ARTICLE 15
EFFECTIVE DATE
This Plan shall become effective as of April 16, 1996, having been
adopted by the Board of Directors of the Company on such date subject to
approval by the affirmative vote of the holders of a majority of the Common
Shares of the Company voting on the issue, and all Options granted prior to
such approval are expressly conditioned upon such approval being received. If
shareholder approval is not received within 12 months of the Effective Date,
Options granted pursuant to this Plan shall be null and void.
ARTICLE 16
MISCELLANEOUS
16.1 Nothing contained in this Plan or in any action taken by the
Board of Directors or shareholders of the Company shall constitute the granting
of an Option. An Option shall be granted only at such time as a written Option
shall have been executed and delivered to the respective employee and the
employee shall have executed an agreement respecting the Option in conformance
with the provisions of the Plan.
16.2 Certificates for Shares purchased through exercise of Options
will be issued in regular course after exercise of the Option and payment
therefor as called for by the terms of the Option but in no event shall the
Company be obligated to issue certificates more often than once each quarter of
each fiscal year. No persons holding an Option or entitled to exercise an
Option granted under this Plan shall have any rights or privileges of a
shareholder of the Company with respect to any Shares issuable upon exercise of
such Option until certificates representing such Shares shall have been issued
and delivered. No Shares shall be issued and delivered upon exercise of an
Option unless and until the Company, in the opinion of its counsel, has
complied with all applicable registration requirements of the Securities Act of
1933 and any applicable state securities laws and with any applicable listing
requirements of any national securities exchange on which the Company
securities may then be listed as well as any other requirements of law.
16.3 This Plan shall continue in effect until the expiration of all
Options granted under the Plan unless terminated earlier in accordance with
Article 14; provided, however, that it shall otherwise terminate ten years
after the Effective Date.
<PAGE> 1
MERITAGE HOSPITALITY GROUP INC.
1996 DIRECTORS' SHARE OPTION PLAN
The purpose of the 1996 Directors' Share Option Plan is to advance the
interests of Meritage Hospitality Group Inc. and its shareholders by affording
non-employee members of the Company's Board of Directors an opportunity to
increase their proprietary interest in the Company by the grant of options to
them to purchase Common Shares under the terms set forth herein. The Company
believes that this Plan will give an incentive to these members of the Board to
increase revenues and profits.
1. EFFECTIVE DATE OF THE PLAN. This Plan shall become effective at
such time as it is approved by shareholders at the 1996 Annual Meeting of
Shareholders of the Company.
2. SHARES SUBJECT TO THE PLAN. The shares to be issued upon the
exercise of the options granted under the Plan shall be Common Shares, $.01 par
value, of the Company. Either treasury or authorized and unissued Common
Shares, or both, as the Board of Directors shall from time to time determine,
may be so issued. No Common Shares which are the subject of any lapsed, expired
or terminated options may be made the subject of additional options under the
Plan.
Subject to the provisions of Section 4 hereof, the aggregate number of
Common Shares for which options may be granted under the Plan shall be 120,000
Shares.
3. ADMINISTRATION. The Plan shall be administered by a committee
appointed in accordance with the Bylaws and consisting of three or more
directors which directors may also be eligible to participate in the Plan.
Subject to the express provisions of the Plan, the Committee shall
have the authority to establish the terms and conditions of such option
agreements, consistent with this Plan. Such agreements need not be uniform.
4. ADJUSTMENTS TO COMMON SHARES AND OPTION PRICE.
4.1 In the event of changes in the outstanding Common Shares
of the Company as a result of share dividends, split-ups,
recapitalizations, combinations or exchanges, the number and class of
Common Shares authorized to be the subject of options under the Plan
and the number and class of Common Shares and Option Price for each
option which is outstanding under this Plan shall be correspondingly
adjusted by the Committee.
4.2 The Committee shall make appropriate adjustments in the
Option Price to reflect any spin-off of assets, extraordinary
dividends or other distributions to shareholders.
- i -
<PAGE> 2
4.3 In the event of the dissolution or liquidation of the
Company or any merger, consolidation or combination in which the
Company is not the surviving corporation or in which the outstanding
Common Shares of the Company are converted into cash, other securities
or other property, each outstanding option issued hereunder shall
terminate as of a date fixed by the Committee, provided that no less
than 20 days' written notice of the date of expiration shall be given
to each holder of an option. Each such holder shall have the right
during such period following notice to exercise the option as to all
or any part of the option for which it is exercisable at the time of
such notice.
5. ELIGIBLE DIRECTORS; GRANT OF OPTIONS. An Eligible Director is each
director of the Company as of the time of grant of an Option called for
hereafter who is not also an employee of the Company.
Each Eligible Director shall be granted an option for the purchase of
5,000 Common Shares immediately after the 1996 Annual Shareholders' Meeting and
an additional Option for 1,000 Common Shares immediately after each subsequent
Annual Shareholders' Meeting. Persons who become Eligible Directors after the
effective date of the Plan shall be granted an option for 5,000 shares as a
result of their election, whether by shareholders or directors, and upon each
subsequent Annual Shareholders' Meeting, another option for 1,000 shares. All
grants shall be made on the date of the event giving rise to the option. Such
grants shall continue until the number of the shares provided for in Section 2
are exhausted.
6. PRICE. The purchase price of the Common Shares which may be
acquired pursuant to the exercise of any option granted pursuant to the Plan
shall be the last closing sale price reported on the date of grant, provided
such price shall not be less than Seven Dollars ($7.00) per share on all grants
made immediately after the 1996 Annual Shareholders' Meeting.
7. PERIOD OF OPTION. The term of each option shall be ten years from
the date of grant.
8. EXERCISE OF OPTION. An option may be exercised by an Eligible
Director as to all or part of the shares covered thereby by giving written
notice to the Company at its principal office, directed to the attention of its
Secretary, accompanied by payment of the Option Price in full for shares being
purchased. The payment of the Option Price shall be either in cash or, subject
to any conditions set forth in the option agreement, by delivery of Common
Shares of the Company having a fair market value equal to the purchase price on
the date of exercise of the option, or by any combination of cash and such
shares.
Unless there is in effect at the time of exercise a registration
statement under the Securities Act of 1933 permitting the resale to the public
of shares acquired under the Plan, the holder of the option shall, except to
the extent determined by the Committee that such is not required, (i) represent
and warrant in writing to the Company that the shares acquired are being
acquired for investment and not with a view to the distribution thereof, (ii)
acknowledge that the shares acquired may not be sold unless registered for sale
under said Act or pursuant to an exemption from such registration,
- ii -
<PAGE> 3
and (iii) agree that the certificates evidencing such shares shall bear a
legend to the effect of clauses (i) and (ii).
9. NONTRANSFERABILITY OF OPTIONS. An option is not transferable by an
Eligible Director to whom granted other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Internal Revenue Code of 1986, as amended (the "Code"), or Title 1 of the
Employee Retirement Income Security Act, as amended.
10. DEATH OR DISABILITY OF AN OPTIONEE. If an optionee shall cease to
be an Eligible Director on account of disability or death, an option
theretofore granted to such Eligible Director may be exercised by the optionee
or, in the case of death, by the legal representative of the estate of the
deceased option holder or by the person or persons to whom such Eligible
Director's rights under the option shall pass by will or the laws of descent
and distribution, at any time within one year from the date the optionee ceased
to be an Eligible Director, but only to the extent the option holder was
entitled to exercise the option at the date of such cessation and only during
the option period. "Disability" shall have the meaning ascribed to it in
Section 105(d)(4) of the Code.
11. RIGHTS AS A SHAREHOLDER. The holder of an option shall not have
any of the rights of a shareholder of the Company with respect to the shares
subject to an option until a certificate or certificates for such shares shall
have been issued upon the exercise of the option.
12. AMENDMENT AND TERMINATION.
12.1 The Plan shall terminate five years after its effective
date and thereafter no options shall be granted thereunder. All
options outstanding at the time of termination of the Plan shall
continue in full force and effect in accordance with and subject to
the terms and conditions of the Plan. The Board of Directors of the
Company at any time prior to that date may terminate the Plan or make
such amendments to it as the Board of Directors shall deem advisable;
provided, however, that except as provided in Section 4 hereof, the
Board of Directors may not, without shareholder approval, increase the
maximum number of shares as to which options may be granted under the
Plan, change the class of persons eligible to receive options under
the Plan or change the number of options to be granted to each
eligible person under the Plan. No termination or amendment of the
Plan may, without the consent of the holder of an option then
existing, terminate the option or materially and adversely affect the
rights under the option.
12.2 This Plan may not be amended more than once every six
months other than to conform with changes in the Code, the Employee
Retirement Income Security Act, as amended, or the rules thereunder.
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13. AUTOMATIC TERMINATION OF OPTION. Notwithstanding anything
contained herein to the contrary:
13.1 If at any time a holder of an option granted under this
Plan becomes an employee, officer or director of or a consultant to an
entity which the Committee determines is a competitor of the Company,
such option shall automatically terminate as of the date such
conflicting relationship was established regardless of whether such
option is exercisable in whole or in part at such time.
13.2 An Option shall terminated immediately if such
termination is for cause. Cause is defined as including, but not
limited to, theft or intentional damage to Company property, the use
of illegal drugs, the commission of a criminal act, or willful
violations of the law or of policies of the Company which prohibit
directors from trading Common Shares for personal gain based on
knowledge of the Company's activities or results when such information
is not available to the general public.
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QUALIFIED RETIREMENT
PLAN AND TRUST
======================================================================
Basic Plan Document
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TABLE OF CONTENTS
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SECTION ONE DEFINITIONS
1.01 Adoption Agreement................................................ 1
1.02 Basic Plan Document............................................... 1
1.03 Beneficiary....................................................... 1
1.04 Break In Eligibility Service...................................... 1
1.05 Break In Vesting Service.......................................... 1
1.06 Code.............................................................. 1
1.07 Compensation...................................................... 1
1.08 Custodian......................................................... 2
1.09 Disability........................................................ 2
1.10 Early Retirement Age.............................................. 2
1.11 Earned Income..................................................... 2
1.12 Effective Date.................................................... 2
1.13 Eligibility Computation Period.................................... 2
1.14 Employee.......................................................... 2
1.15 Employer.......................................................... 2
1.16 Employer Contribution............................................. 3
1.17 Employment Commencement Date...................................... 3
1.18 Employer Profit Sharing Contribution.............................. 3
1.19 Entry Dates....................................................... 3
1.20 ERISA............................................................. 3
1.21 Forfeiture........................................................ 3
1.22 Fund.............................................................. 3
1.23 Highly Compensated Employee....................................... 3
1.24 Hours of Service - Means.......................................... 3
1.25 Individual Account................................................ 4
1.26 Investment Fund................................................... 4
1.27 Key Employee...................................................... 4
1.28 Leased Employee................................................... 4
1.29 Nondeductible Employee Contributions.............................. 4
1.30 Normal Retirement Age............................................. 4
1.31 Owner - Employee.................................................. 4
1.32 Participant....................................................... 4
1.33 Plan.............................................................. 4
1.34 Plan Administrator................................................ 4
1.35 Plan Year......................................................... 4
1.36 Prior Plan........................................................ 4
1.37 Prototype Sponsor................................................. 4
1.38 Qualifying Participant............................................ 4
1.39 Related Employer.................................................. 5
1.40 Related Employer Participation Agreement.......................... 5
1.41 Self-Employed Individual.......................................... 5
1.42 Separate Fund..................................................... 5
1.43 Taxable Wage Base................................................. 5
1.44 Termination of Employment......................................... 5
1.45 Top-Heavy Plan.................................................... 5
1.46 Trustee........................................................... 5
1.47 Valuation Date.................................................... 5
1.48 Vested............................................................ 5
1.49 Year Of Eligibility Service....................................... 5
1.50 Year Of Vesting Service........................................... 5
SECTION TWO ELIGIBILITY AND PARTICIPATION
2.01 Eligibility To Participate........................................ 6
2.02 Plan Entry........................................................ 6
2.03 Transfer To Or From Ineligible Class.............................. 6
2.04 Return As A Participant After Break In Eligibility Service........ 6
2.05 Determinations Under This Section................................. 6
2.06 Terms Of Employment............................................... 6
2.07 Special Rules Where Elapsed Time Method Is Being Used............. 6
2.08 Election Not To Participate....................................... 7
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SECTION THREE CONTRIBUTIONS
3.01 Employer Contributions............................................ 7
3.02 Nondeductible Employee Contributions.............................. 9
3.03 Rollover Contributions............................................ 9
3.04 Transfer Contributions............................................ 9
3.05 Limitation On Allocations......................................... 9
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 Individual Accounts............................................... 12
4.02 Valuation Of Fund................................................. 12
4.03 Valuation Of Individual Accounts.................................. 12
4.04 Modification Of Method For Valuing Individual Accounts............ 12
4.05 Segregation Of Assets............................................. 12
4.06 Statement of Individual Accounts.................................. 12
SECTION FIVE TRUSTEE OR CUSTODIAN
5.01 Creation Of Fund.................................................. 13
5.02 Investment Authority.............................................. 13
5.03 Financial Organization Custodian Or Trustee
Without Full Trust Powers......................................... 13
5.04 Financial Organization Trustee With Full Trust Powers
And Individual Trustee............................................ 13
5.05 Division Of Fund Into Investment Funds............................ 14
5.06 Compensation And Expenses......................................... 14
5.07 Not Obligated To Question Data.................................... 14
5.08 Liability For Withholding On Distributions........................ 15
5.09 Resignation Or Removal Of Trustee (Or Custodian).................. 15
5.10 Degree Of Care - Limitations Of Liability......................... 15
5.11 Indemnification Of Prototype Sponsor And Trustee (Or Custodian)... 15
5.12 Investment Managers............................................... 15
5.13 Matters Relating To Insurance..................................... 16
5.14 Direction Of Investments By Participant........................... 16
SECTION SIX VESTING AND DISTRIBUTION
6.01 Distribution To Participant....................................... 16
6.02 Form Of Distribution To A Participant............................. 19
6.03 Distributions Upon The Death Of A Participant..................... 19
6.04 Form Of Distribution To Beneficiary............................... 20
6.05 Joint And Survivor Annuity Requirements........................... 20
6.06 Distribution Requirements......................................... 22
6.07 Annuity Contracts................................................. 24
6.08 Loans To Participants............................................. 24
6.09 Distribution In Kind.............................................. 25
6.10 Direct Rollovers Of Eligible Rollover Distributions............... 25
6.11 Procedure For Missing Participants Or Beneficiaries............... 26
SECTION SEVEN CLAIMS PROCEDURE
7.01 Filing A Claim For Plan Distributions............................. 26
7.02 Denial Of Claim................................................... 26
7.03 Remedies Available................................................ 26
SECTION EIGHT PLAN ADMINISTRATOR
8.01 Employer Is Plan Administrator.................................... 26
8.02 Powers And Duties Of The Plan Administrator....................... 26
8.03 Expenses And Compensation......................................... 27
8.04 Information From Employer......................................... 27
SECTION NINE AMENDMENT AND TERMINATION
9.01 Right Of Prototype Sponsor To Amend The Plan...................... 27
9.02 Right of Employer To Amend The Plan............................... 27
9.03 Limitation On Power To Amend...................................... 27
9.04 Amendment Of Vesting Schedule..................................... 28
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9.05 Permanency........................................................ 28
9.06 Method And Procedure For Termination.............................. 28
9.07 Continuance Of Plan by Successor Employer......................... 28
9.08 Failure Of Plan Qualification..................................... 28
SECTION TEN MISCELLANEOUS
10.01 State Community Property Laws..................................... 28
10.02 Headings.......................................................... 28
10.03 Gender And Number................................................. 28
10.04 Plan Merger Or Consolidation...................................... 28
10.05 Standard Of Fiduciary Conduct..................................... 28
10.06 General Undertaking Of All Parties................................ 29
10.07 Agreement Binds Heirs, Etc........................................ 29
10.08 Determination Of Top-Heavy Status................................. 29
10.09 Special Limitations For Owner-Employees........................... 30
10.10 Inalienability Of Benefits........................................ 30
10.11 Cannot Eliminate Protected Benefits............................... 30
SECTION ELEVEN 401(k) PROVISIONS
11.100 Definitions....................................................... 30
11.101 Actual Deferral Percentage (ADP).................................. 30
11.102 Aggregate Limit................................................... 31
11.103 Average Contribution Percentage (ACP)............................. 31
11.104 Contributing Participant.......................................... 31
11.105 Contribution Percentage........................................... 31
11.106 Contribution Percentage Amounts................................... 31
11.107 Elective Deferrals................................................ 31
11.108 Eligible Participant.............................................. 31
11.109 Excess Aggregate Contributions.................................... 31
11.110 Excess Contributions.............................................. 31
11.111 Excess Elective Deferrals......................................... 31
11.112 Matching Contribution............................................. 32
11.113 Qualified Nonelective Contributions............................... 32
11.114 Qualified Matching Contributions.................................. 32
11.115 Qualifying Contributing Participant............................... 32
11.200 Contributing Participant.......................................... 32
11.201 Requirements To Enroll As A Contributing Participant.............. 32
11.202 Changing Elective Deferral Amounts................................ 32
11.203 Ceasing Elective Deferrals........................................ 32
11.204 Return As A Contributing Participant
After Ceasing Elective Deferrals ............................. 32
11.205 Certain One-Time Irrevocable Elections............................ 32
11.300 Contributions..................................................... 32
11.301 Contributions By Employer......................................... 32
11.302 Matching Contributions............................................ 33
11.303 Qualified Nonelective Contributions............................... 33
11.304 Qualified Matching Contributions.................................. 33
11.305 Nondeductible Employee Contributions.............................. 33
11.400 Nondiscrimination Testing......................................... 33
11.401 Actual Deferral Percentage Test (ADP)............................. 33
11.402 Limits On Nondeductible Employee Contributions
And Matching Contributions........................................ 34
11.500 Distribution Provisions........................................... 35
11.501 General Rule...................................................... 35
11.502 Distribution Requirements......................................... 35
11.503 Hardship Distribution............................................. 35
11.504 Distribution Of Excess Elective Deferrals......................... 35
11.505 Distribution Of Excess Contributions.............................. 36
11.506 Distribution Of Excess Aggregate Contributions.................... 36
11.507 Recharacterization................................................ 36
11.508 Distribution Of Elective Deferrals If Excess Annual Additions..... 37
11.600 Vesting........................................................... 37
11.601 100% Vesting On Certain Contributions............................. 37
11.602 Forfeitures And Vesting Of Matching Contributions................. 37
</TABLE>
<PAGE> 5
QUALIFIED RETIREMENT PLAN AND TRUST
Defined Contribution Basic Plan Document 04
=================================================================
SECTION ONE DEFINITIONS
The following words and phrases when used in the Plan with initial
capital letters shall, for the purpose of this Plan, have the
meanings set forth below unless the context indicates that other
meanings are intended:
1.01 ADOPTION AGREEMENT
Means the document executed by the Employer through which it
adopts the Plan and Trust and thereby agrees to be bound by all
terms and conditions of the Plan and Trust.
1.02 BASIC PLAN DOCUMENT
Means this prototype Plan and Trust document.
1.03 BENEFICIARY
Means the individual or individuals designated pursuant to Section
6.03(A) of the Plan.
1.04 BREAK IN ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an
Eligibility Computation Period during which an Employee fails to
complete more than 500 Hours of Service (or such lesser number of
Hours of Service specified in the Adoption Agreement for this
purpose).
1.05 BREAK IN VESTING SERVICE
Means a Plan Year (or other vesting computation period described
in Section 1.50) during which an Employee fails to complete more
than 500 Hours of Service (or such lesser number of Hours of
Service specified in the Adoption Agreement for this purpose).
1.06 CODE
Means the Internal Revenue Code of 1986 as amended from
time-to-time.
1.07 COMPENSATION
A. BASIC DEFINITION
For Plan Years beginning on or after January 1, 1989, the
following definition of Compensation shall apply:
As elected by the Employer in the Adoption Agreement (and if no
election is made, W-2 wages will be deemed to have been
selected), Compensation shall mean one of the following:
1. W-2 wages. Compensation is defined as information required
to be reported under Sections 6041 and 6051, and 6052 of the
Code (Wages, tips and other compensation as reported on Form
W-2). Compensation is defined as wages within the meaning of
Section 3401(a) of the Code and all other payments of
compensation to an Employee by the Employer (in the course
of the Employer's trade or business) for which the Employer
is required to furnish the Employee a written statement
under Sections 6041(d) and 6051(a)(3), and 6052 of the Code.
Compensation must be determined without regard to any rules
under Section 3401(a) that limit the remuneration included
in wages based on the nature or location of the employment
or the services performed (such as the exception for
agricultural labor in Section 3401(a)(2)).
2. Section 3401(a) wages. Compensation is defined as wages
within the meaning of Section 3401(a) of the Code, for the
purposes of income tax withholding at the source but
determined without regard to any rules that limit the
remuneration included in wages based on the nature or
location of the employment or the services performed (such
as the exception for agricultural labor in Section
3401(a)(2)).
3. 415 safe-harbor compensation. Compensation is defined as
wages, salaries, and fees for professional services and
other amounts received (without regard to whether or not an
amount is paid in cash) for personal services actually
rendered in the course of employment with the Employer
maintaining the Plan to the extent that the amounts are
includible in gross income (including, but not limited to,
commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits, and reimbursements
or other expense allowances under a nonaccountable plan (as
described in 1.62-2(c)), and excluding the following:
a. Employer contributions to a plan of deferred
compensation which are not includible in the Employee's
gross income for the taxable year in which contributed,
or employer contributions under a simplified employee
pension plan to the extent such contributions are
deductible by the Employee, or any distributions from a
plan of deferred compensation;
b. Amounts realized from the exercise of a nonqualified
stock option, or when restricted stock (or property)
held by the Employee either becomes freely transferable
or is no longer subject to a substantial risk of
forfeiture;
c. Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
d. Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not
under a salary reduction agreement) towards the
purchase of an annuity contract described in Section
403(b) of the Code (whether or not the contributions
are actually excludable from the gross income of the
Employee).
For any Self-Employed Individual covered under the Plan,
Compensation will mean Earned Income.
B. DETERMINATION PERIOD AND OTHER RULES
Compensation shall include only that Compensation which is
actually paid to the Participant during the determination period.
Except as provided elsewhere in this Plan, the determination
period shall be the Plan Year unless the Employer has selected
another period in the Adoption Agreement. If the Employer makes
no election, the determination period shall be the Plan Year.
Unless otherwise indicated in the Adoption Agreement,
Compensation shall include any amount which is contributed by the
Employer pursuant to a salary reduction agreement and which is
not includible in the gross income of the Employee under Sections
125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code.
<PAGE> 6
================================================================================
2
Where this Plan is being adopted as an amendment and restatement
to bring a Prior Plan into compliance with the Tax Reform Act of
1986, such Prior Plan's definition of Compensation shall apply
for Plan Years beginning before January 1, 1989.
C. LIMITS ON COMPENSATION
For years beginning after December 31, 1988 and before January 1,
1994, the annual Compensation of each Participant taken into
account for determining all benefits provided under the Plan for
any determination period shall not exceed $200,000. This
limitation shall be adjusted by the Secretary at the same time
and in the same manner as under Section 415(d) of the Code,
except that the dollar increase in effect on January 1 of any
calendar year is effective for Plan Years beginning in such
calendar year and the first adjustment to the $200,000 limitation
is effective on January 1, 1990.
For Plan Years beginning on or after January 1, 1994, the annual
Compensation of each Participant taken into account for
determining all benefits provided under the Plan for any Plan
Year shall not exceed $150,000, as adjusted for increases in the
cost-of-living in accordance with Section 401(a)(17)(B) of the
Internal Revenue Code. The cost-of-living adjustment in effect
for a calendar year applies to any determination period beginning
in such calendar year.
If the period for determining Compensation used in calculating an
Employee's allocation for a determination period is a short Plan
Year (i.e., shorter than 12 months), the annual Compensation
limit is an amount equal to the otherwise applicable annual
Compensation limit multiplied by a fraction, the numerator of
which is the number of months in the short Plan Year, and the
denominator of which is 12.
In determining the Compensation of a Participant for purposes of
this limitation, the rules of Section 414(q)(6) of the Code shall
apply, except in applying such rules, the term "family" shall
include only the spouse of the Participant and any lineal
descendants of the Participant who have not attained age 19
before the close of the year. If, as a result of the application
of such rules the adjusted $200,000 limitation is exceeded, then
(except for purposes of determining the portion of Compensation
up to the integration level, if this Plan provides for permitted
disparity), the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation
as determined under this Section prior to the application of this
limitation.
If Compensation for any prior determination period is taken into
account in determining an Employee's allocations or benefits for
the current determination period, the Compensation for such prior
determination period is subject to the applicable annual
Compensation limit in effect for that prior period. For this
purpose, in determining allocations in Plan Years beginning on or
after January 1, 1989, the annual Compensation limit in effect
for determination periods beginning before that date is $200,000.
In addition, in determining allocations in Plan Years beginning
on or after January 1, 1994, the annual Compensation limit in
effect for determination periods beginning before that date is
$150,000.
1.08 CUSTODIAN
Means an entity specified in the Adoption Agreement as Custodian or
any duly appointed successor as provided in Section 5.09.
1.09 DISABILITY
Unless the Employer has elected a different definition in the
Adoption Agreement, Disability means the inability to engage in any
substantial, gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to
result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months. The permanence and
degree of such impairment shall be supported by medical evidence.
1.10 EARLY RETIREMENT AGE
Means the age specified in the Adoption Agreement. The Plan will not
have an Early Retirement Age if none is specified in the Adoption
Agreement.
1.11 EARNED INCOME
Means the net earnings from self-employment in the trade or business
with respect to which the Plan is established, for which personal
services of the individual are a material income-producing factor.
Net earnings will be determined without regard to items not included
in gross income and the deductions allocable to such items. Net
earnings are reduced by contributions by the Employer to a qualified
plan to the extent deductible under Section 404 of the Code.
Net earnings shall be determined with regard to the deduction
allowed to the Employer by Section 164(f) of the Code for taxable
years beginning after December 31, 1989.
1.12 EFFECTIVE DATE
Means the date the Plan becomes effective as indicated in the
Adoption Agreement. However, as indicated in the Adoption Agreement,
certain provisions may have specific effective dates. Further, where
a separate date is stated in the Plan as of which a particular Plan
provision becomes effective, such date will control with respect to
that provision.
1.13 ELIGIBILITY COMPUTATION PERIOD
An Employee's initial Eligibility Computation Period shall be the 12
consecutive month period commencing on the Employee's Employment
Commencement Date. The Employee's subsequent Eligibility Computation
Periods shall be the 12 consecutive month periods commencing on the
anniversaries of his or her Employment Commencement Date; provided,
however, if pursuant to the Adoption Agreement, an Employee is
required to complete one or less Years of Eligibility Service to
become a Participant, then his or her subsequent Eligibility
Computation Periods shall be the Plan Years commencing with the Plan
Year beginning during his or her initial Eligibility Computation
Period. An Employee does not complete a Year of Eligibility Service
before the end of the 12 consecutive month period regardless of when
during such period the Employee completes the required number of
Hours of Service.
1.14 EMPLOYEE
Means any person employed by an Employer maintaining the Plan or of
any other employer required to be aggregated with such Employer
under Sections 414(b), (c), (m) or (o) of the Code.
The term Employee shall also include any Leased Employee deemed to
be an Employee of any Employer described in the previous paragraph
as provided in Section 414(n) or (o) of the Code.
1.15 EMPLOYER
Means any corporation, partnership, sole-proprietorship or other
entity named in the Adoption Agreement and any successor who by
merger, consolidation, purchase or otherwise assumes the obligations
of the Plan. A partnership is considered to be the Employer of each
of the partners and a sole-proprietorship is considered to be the
Employer of a sole proprietor. Where this Plan is being maintained
by a union or other entity that represents its member Employees in
the negotiation of collective bargaining agreements, the term
Employer shall mean such union or other entity.
<PAGE> 7
================================================================================
3
1.16 EMPLOYER CONTRIBUTION
Means the amount contributed by the Employer each year as determined
under this Plan.
1.17 EMPLOYMENT COMMENCEMENT DATE
An Employee's Employment Commencement date means the date the
Employee first performs an Hour of Service for the Employer.
1.18 EMPLOYER PROFIT SHARING CONTRIBUTION
Means an Employer Contribution made pursuant to the Section of the
Adoption Agreement titled "Employer Profit Sharing Contributions."
The Employer may make Employer Profit Sharing Contributions without
regard to current or accumulated earnings or profits.
1.19 ENTRY DATES
Means the first day of the Plan Year and the first day of the
seventh month of the Plan Year, unless the Employer has specified
different dates in the Adoption Agreement.
1.20 ERISA
Means the Employee Retirement Income Security Act of 1974 as amended
from time-to-time.
1.21 FORFEITURE
Means that portion of a Participant's Individual Account derived
from Employer Contributions which he or she is not entitled to
receive (i.e., the nonvested portion).
1.22 FUND
Means the Plan assets held by the Trustee for the Participants'
exclusive benefit.
1.23 HIGHLY COMPENSATED EMPLOYEE
The term Highly Compensated Employee includes highly compensated
active employees and highly compensated former employees.
A highly compensated active employee includes any Employee who
performs service for the Employer during the determination year and
who, during the look-back year: (a) received Compensation from the
Employer in excess of $75,000 (as adjusted pursuant to Section
415(d) of the Code); (b) received Compensation from the Employer in
excess of $50,000 (as adjusted pursuant to Section 415(d) of the
Code) and was a member of the top-paid group for such year; or (c)
was an officer of the Employer and received Compensation during such
year that is greater than 50% of the dollar limitation in effect
under Section 415(b)(1)(A) of the Code. The term Highly Compensated
Employee also includes: (a) Employees who are both described in the
preceding sentence if the term "determination year" is substituted
for the term "look-back year" and the Employee is one of the 100
Employees who received the most Compensation from the Employer
during the determination year; and (b) Employees who are 5% owners
at any time during the look-back year or determination year.
If no officer has satisfied the Compensation requirement of (c)
above during either a determination year or look-back year, the
highest paid officer for such year shall be treated as a Highly
Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The
look-back year shall be the 12 month period immediately preceding
the determination year.
A highly compensated former employee includes any Employee who
separated from service (or was deemed to have separated) prior to
the determination year, performs no service for the Employer during
the determination year, and was a highly compensated active employee
for either the separation year or any determination year ending on
or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a
family member of either a 5% owner who is an active or former
Employee or a Highly Compensated Employee who is one of the 10 most
Highly Compensated Employees ranked on the basis of Compensation
paid by the Employer during such year, then the family member and
the 5% owner or top 10 Highly Compensated Employee shall be
aggregated. In such case, the family member and 5% owner or top 10
Highly Compensated Employee shall be treated as a single Employee
receiving Compensation and Plan contributions or benefits equal to
the sum of such Compensation and contributions or benefits of the
family member and 5% owner or top 10 Highly Compensated Employee.
For purposes of this Section, family member includes the spouse,
lineal ascendants and descendants of the Employee or former Employee
and the spouses of such lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including
the determinations of the number and identity of Employees in the
top-paid group, the top 100 Employees, the number of Employees
treated as officers and the Compensation that is considered, will be
made in accordance with Section 414(q) of the Code and the
regulations thereunder.
1.24 HOURS OF SERVICE - Means
A. Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours will
be credited to the Employee for the computation period in which
the duties are performed; and
B. Each hour for which an Employee is paid, or entitled to payment,
by the Employer on account of a period of time during which no
duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military
duty or leave of absence. No more than 501 Hours of Service will
be credited under this paragraph for any single continuous
period (whether or not such period occurs in a single
computation period). Hours under this paragraph shall be
calculated and credited pursuant to Section 2530.200b-2 of the
Department of Labor Regulations which is incorporated herein by
this reference; and
C. Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The
same Hours of Service will not be credited both under paragraph
(A) or paragraph (B), as the case may be, and under this
paragraph (C). These hours will be credited to the Employee for
the computation period or periods to which the award or
agreement pertains rather than the computation period in which
the award, agreement, or payment is made.
D. Solely for purposes of determining whether a Break in
Eligibility Service or a Break in Vesting Service has occurred
in a computation period (the computation period for purposes of
determining whether a Break in Vesting Service has occurred is
the Plan Year or other vesting computation period described in
Section 1.50), an individual who is absent from work for
maternity or paternity reasons shall receive credit for the
Hours of Service which would otherwise have been credited to
such individual but for such absence, or in any case in which
such hours cannot be determined, 8 Hours of Service per day of
such absence. For purposes of this paragraph, an absence from
work for maternity or paternity reasons means an
<PAGE> 8
================================================================================
4
absence (1) by reason of the pregnancy of the individual, (2) by
reason of a birth of a child of the individual, (3) by reason of
the placement of a child with the individual in connection with
the adoption of such child by such individual, or (4) for
purposes of caring for such child for a period beginning
immediately following such birth or placement. The Hours of
Service credited under this paragraph shall be credited (1) in
the Eligibility Computation Period or Plan Year or other vesting
computation period described in Section 1.50 in which the
absence begins if the crediting is necessary to prevent a Break
in Eligibility Service or a Break in Vesting Service in the
applicable period, or (2) in all other cases, in the following
Eligibility Computation Period or Plan Year or other vesting
computation period described in Section 1.50.
E. Hours of Service will be credited for employment with other
members of an affiliated service group (under Section 414(m) of
the Code), a controlled group of corporations (under Section
414(b) of the Code), or a group of trades or businesses under
common control (under Section 414(c) of the Code) of which the
adopting Employer is a member, and any other entity required to
be aggregated with the Employer pursuant to Section 414(o) of
the Code and the regulations thereunder.
Hours of Service will also be credited for any individual
considered an Employee for purposes of this Plan under Code
Sections 414(n) or 414(o) and the regulations thereunder.
F. Where the Employer maintains the plan of a predecessor employer,
service for such predecessor employer shall be treated as
service for the Employer.
G. The above method for determining Hours of Service may be altered
as specified in the Adoption Agreement.
1.25 INDIVIDUAL ACCOUNT
Means the account established and maintained under this Plan for
each Participant in accordance with Section 4.01.
1.26 INVESTMENT FUND
Means a subdivision of the Fund established pursuant to Section
5.05.
1.27 KEY EMPLOYEE
Means any person who is determined to be a Key Employee under
Section 10.08.
1.28 LEASED EMPLOYEE
Means any person (other than an Employee of the recipient) who
pursuant to an agreement between the recipient and any other person
("leasing organization") has performed services for the recipient
(or for the recipient and related persons determined in accordance
with Section 414(n)(6) of the Code) on a substantially full time
basis for a period of at least one year, and such services are of a
type historically performed by Employees in the business field of
the recipient Employer. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to
services performed for the recipient Employer shall be treated as
provided by the recipient Employer.
A Leased Employee shall not be considered an Employee of the
recipient if: (1) such employee is covered by a money purchase
pension plan providing: (a) a nonintegrated employer contribution
rate of at least 10% of compensation, as defined in Section
415(c)(3) of the Code, but including amounts contributed pursuant to
a salary reduction agreement which are excludable from the
employee's gross income under Section 125, Section 402(e)(3),
Section 402(h)(1)(B) or Section 403(b) of the Code, (b) immediate
participation, and (c) full and immediate vesting; and (2) Leased
Employees do not constitute more than 20% of the recipient's
nonhighly compensated work force.
1.29 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
Means any contribution made to the Plan by or on behalf of a
Participant that is included in the Participant's gross income in
the year in which made and that is maintained under a separate
account to which earnings and losses are allocated.
1.30 NORMAL RETIREMENT AGE
Means the age specified in the Adoption Agreement. However, if the
Employer enforces a mandatory retirement age which is less than the
Normal Retirement Age, such mandatory age is deemed to be the Normal
Retirement Age. If no age is specified in the Adoption Agreement,
the Normal Retirement Age shall be age 65.
1.31 OWNER - EMPLOYEE
Means an individual who is a sole proprietor, or who is a partner
owning more than 10% of either the capital or profits interest of
the partnership.
1.32 PARTICIPANT
Means any Employee or former Employee of the Employer who has met
the Plan's eligibility requirements, has entered the Plan and who is
or may become eligible to receive a benefit of any type from this
Plan or whose Beneficiary may be eligible to receive any such
benefit.
1.33 PLAN
Means the prototype defined contribution plan adopted by the
Employer. The Plan consists of this Basic Plan Document plus the
corresponding Adoption Agreement as completed and signed by the
Employer.
1.34 PLAN ADMINISTRATOR
Means the person or persons determined to be the Plan Administrator
in accordance with Section 8.01.
1.35 PLAN YEAR
Means the 12 consecutive month period which coincides with the
Employer's fiscal year or such other 12 consecutive month period as
is designated in the Adoption Agreement.
1.36 PRIOR PLAN
Means a plan which was amended or replaced by adoption of this Plan
document as indicated in the Adoption Agreement.
1.37 PROTOTYPE SPONSOR
Means the entity specified in the Adoption Agreement that makes this
prototype plan available to employers for adoption.
1.38 QUALIFYING PARTICIPANT
Means a Participant who has satisfied the requirements described in
Section 3.01(B)(2) to be entitled to share in any Employer
Contribution (and Forfeitures, if applicable) for a Plan Year.
<PAGE> 9
================================================================================
5
1.39 RELATED EMPLOYER
Means an employer that may be required to be aggregated with the
Employer adopting this Plan for certain qualification requirements
under Sections 414(b), (c), (m) or (o) of the Code (or any other
employer that has ownership in common with the Employer). A Related
Employer may participate in this Plan if so indicated in the Section
of the Adoption Agreement titled "Employer Information" or if such
Related Employer executes a Related Employer Participation
Agreement.
1.40 RELATED EMPLOYER PARTICIPATION AGREEMENT
Means the agreement under this prototype Plan that a Related
Employer may execute to participate in this Plan.
1.41 SELF-EMPLOYED INDIVIDUAL
Means an individual who has Earned Income for the taxable year from
the trade or business for which the Plan is established; also, an
individual who would have had Earned Income but for the fact that
the trade or business had no net profits for the taxable year.
1.42 SEPARATE FUND
Means a subdivision of the Fund held in the name of a particular
Participant representing certain assets held for that Participant.
The assets which comprise a Participant's Separate Fund are those
assets earmarked for him or her and those assets subject to the
Participant's individual direction pursuant to Section 5.14.
1.43 TAXABLE WAGE BASE
Means, with respect to any taxable year, the contribution and
benefit base in effect under Section 230 of the Social Security Act
at the beginning of the Plan Year.
1.44 TERMINATION OF EMPLOYMENT
A Termination of Employment of an Employee of an Employer shall
occur whenever his or her status as an Employee of such Employer
ceases for any reason other than death. An Employee who does not
return to work for the Employer on or before the expiration of an
authorized leave of absence from such Employer shall be deemed to
have incurred a Termination of Employment when such leave ends.
1.45 TOP-HEAVY PLAN
This Plan is a Top-Heavy Plan for any Plan Year if it is determined
to be such pursuant to Section 10.08.
1.46 TRUSTEE
Means an individual, individuals or corporation specified in the
Adoption Agreement as Trustee or any duly appointed successor as
provided in Section 5.09. Trustee shall mean Custodian in the event
the financial organization named as Trustee does not have full trust
powers.
1.47 VALUATION DATE
Means the date or dates as specified in the Adoption Agreement. If
no date is specified in the Adoption Agreement, the Valuation Date
shall be the last day of the Plan Year and each other date
designated by the Plan Administrator which is selected in a uniform
and nondiscriminatory manner when the assets of the Fund are valued
at their then fair market value.
1.48 VESTED
Means nonforfeitable, that is, a claim which is unconditional and
legally enforceable against the Plan obtained by a Participant or
the Participant's Beneficiary to that part of an immediate or
deferred benefit under the Plan which arises from a Participant's
Years of Vesting Service.
1.49 YEAR OF ELIGIBILITY SERVICE
Means a 12 consecutive month period which coincides with an
Eligibility Computation Period during which an Employee completes at
least 1,000 Hours of Service (or such lesser number of Hours of
Service specified in the Adoption Agreement for this purpose). An
Employee does not complete a Year of Eligibility Service before the
end of the 12 consecutive month period regardless of when during
such period the Employee completes the required number of Hours of
Service.
1.50 YEAR OF VESTING SERVICE
Means a Plan Year during which an Employee completes at least 1,000
Hours of Service (or such lesser number of Hours of Service
specified in the Adoption Agreement for this purpose).
Notwithstanding the preceding sentence, where the Employer so
indicates in the Adoption Agreement, vesting shall be computed by
reference to the 12 consecutive month period beginning with the
Employee's Employment Commencement Date and each successive 12 month
period commencing on the anniversaries thereof.
In the case of a Participant who has 5 or more consecutive Breaks in
Vesting Service, all Years of Vesting Service after such Breaks in
Vesting Service will be disregarded for the purpose of determining
the Vested portion of his or her Individual Account derived from
Employer Contributions that accrued before such breaks. Such
Participant's prebreak service will count in vesting the postbreak
Individual Account derived from Employer Contributions only if
either:
(A) such Participant had any Vested right to any portion of his or
her Individual Account derived from Employer Contributions at
the time of his or her Termination of Employment; or
(B) upon returning to service, the number of consecutive Breaks in
Vesting Service is less than his or her number of Years of
Vesting Service before such breaks.
Separate subaccounts will be maintained for the Participant's
prebreak and postbreak portions of his or her Individual Account
derived from Employer Contributions. Both subaccounts will share in
the gains and losses of the Fund.
Years of Vesting Service shall not include any period of time
excluded from Years of Vesting Service in the Adoption Agreement.
In the event the Plan Year is changed to a new 12-month period,
Employees shall receive credit for Years of Vesting Service, in
accordance with the preceding provisions of this definition, for
each of the Plan Years (the old and new Plan Years) which overlap as
a result of such change.
<PAGE> 10
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6
SECTION TWO ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY TO PARTICIPATE
Each Employee of the Employer, except those Employees who belong
to a class of Employees which is excluded from participation as
indicated in the Adoption Agreement, shall be eligible to
participate in this Plan upon the satisfaction of the age and
Years of Eligibility Service requirements specified in the
Adoption Agreement.
2.02 PLAN ENTRY
A. If this Plan is a replacement of a Prior Plan by amendment
or restatement, each Employee of the Employer who was a
Participant in said Prior Plan before the Effective Date
shall continue to be a Participant in this Plan.
B. An Employee will become a Participant in the Plan as of the
Effective Date if the Employee has met the eligibility
requirements of Section 2.01 as of such date. After the
Effective Date, each Employee shall become a Participant on
the first Entry Date following the date the Employee
satisfies the eligibility requirements of Section 2.01
unless otherwise indicated in the Adoption Agreement.
C. The Plan Administrator shall notify each Employee who
becomes eligible to be a Participant under this Plan and
shall furnish the Employee with the application form,
enrollment forms or other documents which are required of
Participants. The eligible Employee shall execute such forms
or documents and make available such information as may be
required in the administration of the Plan.
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS
If an Employee who had been a Participant becomes ineligible to
participate because he or she is no longer a member of an
eligible class of Employees, but has not incurred a Break in
Eligibility Service, such Employee shall participate immediately
upon his or her return to an eligible class of Employees. If such
Employee incurs a Break in Eligibility Service, his or her
eligibility to participate shall be determined by Section 2.04.
An Employee who is not a member of the eligible class of
Employees will become a Participant immediately upon becoming a
member of the eligible class provided such Employee has satisfied
the age and Years of Eligibility Service requirements. If such
Employee has not satisfied the age and Years of Eligibility
Service requirements as of the date he or she becomes a member of
the eligible class, such Employee shall become a Participant on
the first Entry Date following the date he or she satisfies those
requirements unless otherwise indicated in the Adoption
Agreement.
2.04 RETURN AS A PARTICIPANT AFTER BREAK IN ELIGIBILITY SERVICE
A. EMPLOYEE NOT PARTICIPANT BEFORE BREAK - If an Employee
incurs a Break in Eligibility Service before satisfying the
Plan's eligibility requirements, such Employee's Years of
Eligibility Service before such Break in Eligibility Service
will not be taken into account.
B. NONVESTED PARTICIPANTS - In the case of a Participant who
does not have a Vested interest in his or her Individual
Account derived from Employer Contributions, Years of
Eligibility Service before a period of consecutive Breaks in
Eligibility Service will not be taken into account for
eligibility purposes if the number of consecutive Breaks in
Eligibility Service in such period equals or exceeds the
greater of 5 or the aggregate number of Years of Eligibility
Service before such break. Such aggregate number of Years of
Eligibility Service will not include any Years of
Eligibility Service disregarded under the preceding sentence
by reason of prior breaks.
If a Participant's Years of Eligibility Service are
disregarded pursuant to the preceding paragraph, such
Participant will be treated as a new Employee for
eligibility purposes. If a Participant's Years of
Eligibility Service may not be disregarded pursuant to the
preceding paragraph, such Participant shall continue to
participate in the Plan, or, if terminated, shall
participate immediately upon reemployment.
C. VESTED PARTICIPANTS - A Participant who has sustained a
Break in Eligibility Service and who had a Vested interest
in all or a portion of his or her Individual Account derived
from Employer Contributions shall continue to participate in
the Plan, or, if terminated, shall participate immediately
upon reemployment.
2.05 DETERMINATIONS UNDER THIS SECTION
The Plan Administrator shall determine the eligibility of each
Employee to be a Participant. This determination shall be
conclusive and binding upon all persons except as otherwise
provided herein or by law.
2.06 TERMS OF EMPLOYMENT
Neither the fact of the establishment of the Plan nor the fact
that a common law Employee has become a Participant shall give to
that common law Employee any right to continued employment; nor
shall either fact limit the right of the Employer to discharge or
to deal otherwise with a common law Employee without regard to
the effect such treatment may have upon the Employee's rights
under the Plan.
2.07 SPECIAL RULES WHERE ELAPSED TIME METHOD IS BEING USED
This Section 2.07 shall apply where the Employer has indicated in
the Adoption Agreement that the elapsed time method will be used.
When this Section applies, the definitions of year of service,
break in service and hour of service in this Section will replace
the definitions of Year of Eligibility Service, Year of Vesting
Service, Break in Eligibility Service, Break in Vesting Service
and Hours of Service found in the Definitions Section of the Plan
(Section One).
For purposes of determining an Employee's initial or continued
eligibility to participate in the Plan or the Vested interest in
the Participant's Individual Account balance derived from
Employer Contributions, (except for periods of service which may
be disregarded on account of the "rule of parity" described in
Sections 1.50 and 2.04) an Employee will receive credit for the
aggregate of all time period(s) commencing with the Employee's
first day of employment or reemployment and ending on the date a
break in service begins. The first day of employment or
reemployment is the first day the Employee performs an hour of
service. An Employee will also receive credit for any period of
severance of less than 12 consecutive months. Fractional periods
of a year will be expressed in terms of days.
For purposes of this Section, hour of service will mean each hour
for which an Employee is paid or entitled to payment for the
performance of duties for the Employer. Break in service is a
period of severance of at least 12 consecutive months. Period of
severance is a continuous period of time during which the
Employee is not employed by the Employer. Such period begins on
the date the Employee retires, quits or is discharged, or if
earlier, the 12 month anniversary of the date on which the
Employee was otherwise first absent from service.
In the case of an individual who is absent from work for
maternity or paternity reasons, the 12 consecutive month period
beginning on the first anniversary of the first date of such
absence shall not constitute a break in service. For purposes of
this
<PAGE> 11
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7
paragraph, an absence from work for maternity or paternity
reasons means an absence (1) by reason of the pregnancy of the
individual, (2) by reason of the birth of a child of the
individual, (3) by reason of the placement of a child with the
individual in connection with the adoption of such child by such
individual, or (4) for purposes of caring for such child for a
period beginning immediately following such birth or placement.
Each Employee will share in Employer Contributions for the period
beginning on the date the Employee commences participation under
the Plan and ending on the date on which such Employee severs
employment with the Employer or is no longer a member of an
eligible class of Employees.
If the Employer is a member of an affiliated service group (under
Section 414(m) of the Code), a controlled group of corporations
(under Section 414(b) of the Code), a group of trades or
businesses under common control (under Section 414(c) of the
Code), or any other entity required to be aggregated with the
Employer pursuant to Section 414(o) of the Code, service will be
credited for any employment for any period of time for any other
member of such group. Service will also be credited for any
individual required under Section 414(n) or Section 414(o) to be
considered an Employee of any Employer aggregated under Section
414(b), (c), or (m) of the Code.
2.08 ELECTION NOT TO PARTICIPATE
This Section 2.08 will apply if this Plan is a nonstandardized
plan and the Adoption Agreement so provides. If this Section
applies, then an Employee or a Participant may elect not to
participate in the Plan for one or more Plan Years. The Employer
may not contribute for an Employee or Participant for any Plan
Year during which such Employee's or Participant's election not
to participate is in effect. Any election not to participate must
be in writing and filed with the Plan Administrator.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules as it deems necessary or advisable to
carry out the terms of this Section, including, but not limited
to, rules prescribing the timing of the filing of elections not
to participate and the procedures for electing to re-participate
in the Plan.
An Employee or Participant continues to earn credit for vesting
and eligibility purposes for each Year of Vesting Service or Year
of Eligibility Service he or she completes and his or her
Individual Account (if any) will share in the gains or losses of
the Fund during the periods he or she elects not to participate.
SECTION THREE CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS
A. OBLIGATION TO CONTRIBUTE - The Employer shall make
contributions to the Plan in accordance with the
contribution formula specified in the Adoption Agreement. If
this Plan is a profit sharing plan, the Employer shall, in
its sole discretion, make contributions without regard to
current or accumulated earnings or profits.
B. ALLOCATION FORMULA AND THE RIGHT TO SHARE IN THE EMPLOYER
CONTRIBUTION -
1. General - The Employer Contribution for any Plan Year
will be allocated or contributed to the Individual
Accounts of Qualifying Participants in accordance with
the allocation or contribution formula specified in the
Adoption Agreement. The Employer Contribution for any
Plan Year will be allocated to each Participant's
Individual Account as of the last day of that Plan
Year.
Any Employer Contribution for a Plan Year must
satisfy Section 401(a)(4) and the regulations
thereunder for such Plan Year.
2. Qualifying Participants - A Participant is a Qualifying
Participant and is entitled to share in the Employer
Contribution for any Plan Year if the Participant was a
Participant on at least one day during the Plan Year
and satisfies any additional conditions specified in
the Adoption Agreement. If this Plan is a standardized
plan, unless the Employer specifies more favorable
conditions in the Adoption Agreement, a Participant
will not be a qualifying Participant for a Plan Year if
he or she incurs a Termination of Employment during
such Plan Year with not more than 500 Hours of Service
if he or she is not an Employee on the last day of the
Plan Year. The determination of whether a Participant
is entitled to share in the Employer Contribution shall
be made as of the last day of each Plan Year.
3. Special Rules for Integrated Plans - This Plan may not
allocate contributions based on an integrated formula
if the Employer maintains any other plan that provides
for allocation of contributions based on an integrated
formula that benefits any of the same Participants. If
the Employer has selected the integrated contribution
or allocation formula in the Adoption Agreement, then
the maximum disparity rate shall be determined in
accordance with the following table.
<TABLE>
<CAPTION>
MAXIMUM DISPARITY RATE
<S> <C> <C> <C>
Top-Heavy Nonstandardized and
Integration Level Money Purchase Profit Sharing Non-Top-Heavy Profit Sharing
---------------------------------------------------------------------------------------------------------
Taxable Wage Base (TWB) 5.7% 2.7% 5.7%
More than $0 but not more
than 20% of TWB 5.7% 2.7% 5.7%
More than 20% of TWB but
not more than 80% of TWB 4.3% 1.3% 4.3%
More than 80% of TWB but
not more than TWB 5.4% 2.4% 5.4%
</TABLE>
<PAGE> 12
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8
C. ALLOCATION OF FORFEITURES - Forfeitures for a Plan Year
which arise as a result of the application of Section
6.01(D) shall be allocated as follows:
1. Profit Sharing Plan - If this is a profit sharing plan,
unless the Adoption Agreement indicates otherwise,
Forfeitures shall be allocated in the manner provided
in Section 3.01(B) (for Employer Contributions) to the
Individual Accounts of Qualifying Participants who are
entitled to share in the Employer Contribution for such
Plan Year. Forfeitures shall be allocated as of the
last day of the Plan Year during which the Forfeiture
arose (or any subsequent Plan Year if indicated in the
Adoption Agreement).
2. Money Purchase Pension and Target Benefit Plan - If
this Plan is a money purchase plan or a target benefit
plan, unless the Adoption Agreement indicates
otherwise, Forfeitures shall be applied towards the
reduction of Employer Contributions to the Plan.
Forfeitures shall be allocated as of the last day of
the Plan Year during which the Forfeiture arose (or any
subsequent Plan Year if indicated in the Adoption
Agreement).
D. TIMING OF EMPLOYER CONTRIBUTION - The Employer Contribution
for each Plan Year shall be delivered to the Trustee (or
Custodian, if applicable) not later than the due date for
filing the Employer's income tax return for its fiscal year
in which the Plan Year ends, including extensions thereof.
E. MINIMUM ALLOCATION FOR TOP-HEAVY PLANS - The contribution
and allocation provisions of this Section 3.01(E) shall
apply for any Plan Year with respect to which this Plan is a
Top-Heavy Plan.
1. Except as otherwise provided in (3) and (4) below, the
Employer Contributions and Forfeitures allocated on
behalf of any Participant who is not a Key Employee
shall not be less than the lesser of 3% of such
Participant's Compensation or (in the case where the
Employer has no defined benefit plan which designates
this Plan to satisfy Section 401 of the Code) the
largest percentage of Employer Contributions and
Forfeitures, as a percentage of the first $200,000
($150,000 for Plan Years beginning after December 31,
1993), (increased by any cost of living adjustment made
by the Secretary of Treasury or the Secretary's
delegate) of the Key Employee's Compensation, allocated
on behalf of any Key Employee for that year. The
minimum allocation is determined without regard to any
Social Security contribution. The Employer may, in the
Adoption Agreement, limit the Participants who are
entitled to receive the minimum allocation. This
minimum allocation shall be made even though under
other Plan provisions, the Participant would not
otherwise be entitled to receive an allocation, or
would have received a lesser allocation for the year
because of (a) the Participant's failure to complete
1,000 Hours of Service (or any equivalent provided in
the Plan), or (b) the Participant's failure to make
mandatory Nondeductible Employee Contributions to the
Plan, or (c) Compensation less than a stated amount.
2. For purposes of computing the minimum allocation,
Compensation shall mean Compensation as defined in
Section 1.07 of the Plan and shall include any amounts
contributed by the Employer pursuant to a salary
reduction agreement and which is not includible in the
gross income of the Employee under Sections 125,
402(e)(3), 402(h)(1)(B) or 403(b) of the Code even if
the Employer has elected to exclude such contributions
in the definition of Compensation used for other
purposes under the Plan.
3. The provision in (1) above shall not apply to any
Participant who was not employed by the Employer on the
last day of the Plan Year.
4. The provision in (1) above shall not apply to any
Participant to the extent the Participant is covered
under any other plan or plans of the Employer and the
Employer has provided in the adoption agreement that
the minimum allocation or benefit requirement
applicable to Top-Heavy Plans will be met in the other
plan or plans.
5. The minimum allocation required under this Section
3.01(E) and Section 3.01(F)(1) (to the extent required
to be nonforfeitable under Code Section 416(b)) may not
be forfeited under Code Section 411(a)(3)(B) or
411(a)(3)(D).
F. SPECIAL REQUIREMENTS FOR PAIRED PLANS - The Employer
maintains paired plans if the Employer has adopted both a
standardized profit sharing plan and a standardized money
purchase pension plan using this Basic Plan Document.
1. Minimum Allocation - When the paired plans are
top-heavy, the top-heavy requirements set forth in
Section 3.01(E)(1) of the Plan shall apply.
a. Same eligibility requirements. In satisfying the
top-heavy minimum allocation requirements set
forth in Section 3.01(E) of the Plan, if the
Employees benefiting under each of the paired
plans are identical, the top-heavy minimum
allocation shall be made to the money purchase
pension plan.
b. Different eligibility requirements. In satisfying
the top-heavy minimum allocation requirements set
forth in Section 3.01(E) of the Plan, if the
Employees benefiting under each of the paired
plans are not identical, the top-heavy minimum
allocation will be made to both of the paired
plans.
A Participant is treated as benefiting under the
Plan for any Plan Year during which the
Participant received or is deemed to receive an
allocation in accordance with Section
1.410(b)-3(a).
2. Only One Plan Can Be Integrated - If the Employer
maintains paired plans, only one of the Plans may
provide for the disparity in contributions which is
permitted under Section 401(l) of the Code. In the
event that both Adoption Agreements provide for such
integration, only the money purchase pension plan shall
be deemed to be integrated.
G. RETURN OF THE EMPLOYER CONTRIBUTION TO THE EMPLOYER UNDER
SPECIAL CIRCUMSTANCES - Any contribution made by the
Employer because of a mistake of fact must be returned to
the Employer within one year of the contribution.
In the event that the Commissioner of Internal Revenue
determines that the Plan is not initially qualified under
the Code, any contributions made incident to that initial
qualification by the Employer must be returned to the
Employer within one year after the date the initial
qualification is denied, but only if the application for
qualification is made by the time prescribed by law for
filing the Employer's return for the taxable year in which
the Plan is adopted, or such later date as the Secretary of
the Treasury may prescribe.
In the event that a contribution made by the Employer under
this Plan is conditioned on deductibility and is not
deductible under Code Section 404, the contribution, to the
extent of the amount disallowed, must be returned to the
Employer within one year after the deduction is disallowed.
H. OMISSION OF PARTICIPANT
1. If the Plan is a money purchase plan or a target
benefit plan and, if in any Plan Year, any Employee who
should be included as a Participant is erroneously
omitted and discovery of such omission is not made
until after a contribution by the Employer for the year
has been made and allocated, the Employer shall make a
subsequent contribution to
<PAGE> 13
================================================================================
9
include earnings thereon, with respect to the omitted
Employee in the amount which the Employer would have
contributed with respect to that Employee had he or she
not been omitted.
2. If the Plan is a profit sharing plan, and if in any Plan
Year, any Employee who should be included as a
Participant is erroneously omitted and discovery of such
omission is not made until after the Employer
Contribution has been made and allocated, then the Plan
Administrator must re-do the allocation (if a correction
can be made) and inform the Employee. Alternatively, the
Employer may choose to contribute for the omitted
Employee the amount to include earnings thereon, which
the Employer would have contributed for the Employee.
3.02 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
This Plan will not accept Nondeductible Employee Contributions
and matching contributions for Plan Years beginning after the
Plan Year in which this Plan is adopted by the Employer.
Nondeductible Employee Contributions for Plan Years beginning
after December 31, 1986, together with any matching contributions
as defined in Section 401(m) of the Code, will be limited so as
to meet the nondiscrimination test of Section 401(m) of the Code.
A separate account will be maintained by the Plan Administrator
for the Nondeductible Employee Contributions of each Participant.
A Participant may, upon a written request submitted to the Plan
Administrator withdraw the lesser of the portion of his or her
Individual Account attributable to his or her Nondeductible
Employee Contributions or the amount he or she contributed as
Nondeductible Employee Contributions.
Nondeductible Employee Contributions and earnings thereon will be
nonforfeitable at all times. No Forfeiture will occur solely as a
result of an Employee's withdrawal of Nondeductible Employee
Contributions.
The Plan Administrator will not accept deductible employee
contributions which are made for a taxable year beginning after
December 31, 1986. Contributions made prior to that date will be
maintained in a separate account which will be nonforfeitable at
all times. The account will share in the gains and losses of the
Fund in the same manner as described in Section 4.03 of the Plan.
No part of the deductible employee contribution account will be
used to purchase life insurance. Subject to Section 6.05, joint
and survivor annuity requirements (if applicable), the
Participant may withdraw any part of the deductible employee
contribution account by making a written application to the Plan
Administrator.
3.03 ROLLOVER CONTRIBUTIONS
If so indicated in the Adoption Agreement, an Employee may
contribute a rollover contribution to the Plan. The Plan
Administrator may require the Employee to submit a written
certification that the contribution qualifies as a rollover
contribution under the applicable provisions of the Code. If it
is later determined that all or part of a rollover contribution
was ineligible to be rolled into the Plan, the Plan Administrator
shall direct that any ineligible amounts, plus earnings
attributable thereto, be distributed from the Plan to the
Employee as soon as administratively feasible.
A separate account shall be maintained by the Plan Administrator
for each Employee's rollover contributions which will be
nonforfeitable at all times. Such account will share in the
income and gains and losses of the Fund in the manner described
in Section 4.03 and shall be subject to the Plan's provisions
governing distributions.
The Employer may, in a uniform and nondiscriminatory manner, only
allow Employees who have become Participants in the Plan to make
rollover contributions.
3.04 TRANSFER CONTRIBUTIONS
If so indicated in the Adoption Agreement, the Trustee (or
Custodian, if applicable) may receive any amounts transferred to
it from the trustee or custodian of another plan qualified under
Code Section 401(a). If it is later determined that all or part
of a transfer contribution was ineligible to be transferred into
the Plan, the Plan Administrator shall direct that any ineligible
amounts, plus earnings attributable thereto, be distributed from
the Plan to the Employee as soon as administratively feasible.
A separate account shall be maintained by the Plan Administrator
for each Employee's transfer contributions which will be
nonforfeitable at all times. Such account will share in the
income and gains and losses of the Fund in the manner described
in Section 4.03 and shall be subject to the Plan's provisions
governing distributions.
The Employer may, in a uniform and nondiscriminatory manner, only
allow Employees who have become Participants in the Plan to make
transfer contributions.
3.05 LIMITATION ON ALLOCATIONS
A. If the Participant does not participate in, and has never
participated in another qualified plan maintained by the
Employer or a welfare benefit fund, as defined in Section
419(e) of the Code maintained by the Employer, or an
individual medical account, as defined in Section 415(l)(2)
of the Code, or a simplified employee pension plan, as
defined in Section 408(k) of the Code, maintained by the
Employer, which provides an annual addition as defined in
Section 3.08(E)(1), the following rules shall apply:
1. The amount of annual additions which may be credited to
the Participant's Individual Account for any limitation
year will not exceed the lesser of the maximum
permissible amount or any other limitation contained in
this Plan. If the Employer Contribution that would
otherwise be contributed or allocated to the
Participant's Individual Account would cause the annual
additions for the limitation year to exceed the maximum
permissible amount, the amount contributed or allocated
will be reduced so that the annual additions for the
limitation year will equal the maximum permissible
amount.
2. Prior to determining the Participant's actual
Compensation for the limitation year, the Employer may
determine the maximum permissible amount for a
Participant on the basis of a reasonable estimation of
the Participant's Compensation for the limitation year,
uniformly determined for all Participants similarly
situated.
3. As soon as is administratively feasible after the end
of the limitation year, the maximum permissible amount
for the limitation year will be determined on the basis
of the Participant's actual Compensation for the
limitation year.
4. If pursuant to Section 3.05(A)(3) or as a result of the
allocation of Forfeitures there is an excess amount,
the excess will be disposed of as follows:
a. Any Nondeductible Employee Contributions, to the
extent they would reduce the excess amount, will
be returned to the Participant;
b. If after the application of paragraph (a) an
excess amount still exists, and the Participant is
covered by the Plan at the end of the limitation
year, the excess amount in the Participant's
Individual Account will be used to reduce
<PAGE> 14
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10
Employer Contributions (including any allocation
of Forfeitures) for such Participant in the next
limitation year, and each succeeding limitation
year if necessary;
c. If after the application of paragraph (b) an
excess amount still exists, and the Participant is
not covered by the Plan at the end of a limitation
year, the excess amount will be held unallocated
in a suspense account. The suspense account will
be applied to reduce future Employer Contributions
(including allocation of any Forfeitures) for all
remaining Participants in the next limitation
year, and each succeeding limitation year if
necessary;
d. If a suspense account is in existence at any time
during a limitation year pursuant to this Section,
it will not participate in the allocation of the
Fund's investment gains and losses. If a suspense
account is in existence at any time during a
particular limitation year, all amounts in the
suspense account must be allocated and reallocated
to Participants' Individual Accounts before any
Employer Contributions or any Nondeductible
Employee Contributions may be made to the Plan for
that limitation year. Excess amounts may not be
distributed to Participants or former
Participants.
B. If, in addition to this Plan, the Participant is covered
under another qualified master or prototype defined
contribution plan maintained by the Employer, a welfare
benefit fund maintained by the Employer, an individual
medical account maintained by the Employer, or a simplified
employee pension maintained by the Employer that provides an
annual addition as defined in Section 3.05(E)(1), during any
limitation year, the following rules apply:
1. The annual additions which may be credited to a
Participant's Individual Account under this Plan for
any such limitation year will not exceed the maximum
permissible amount reduced by the annual additions
credited to a Participant's Individual Account under
the other qualified master or prototype plans, welfare
benefit funds, individual medical accounts and
simplified employee pensions for the same limitation
year. If the annual additions with respect to the
Participant under other qualified master or prototype
defined contribution plans, welfare benefit funds,
individual medical accounts and simplified employee
pensions maintained by the Employer are less than the
maximum permissible amount and the Employer
Contribution that would otherwise be contributed or
allocated to the Participant's Individual Account under
this Plan would cause the annual additions for the
limitation year to exceed this limitation, the amount
contributed or allocated will be reduced so that the
annual additions under all such plans and funds for the
limitation year will equal the maximum permissible
amount. If the annual additions with respect to the
Participant under such other qualified master or
prototype defined contribution plans, welfare benefit
funds, individual medical accounts and simplified
employee pensions in the aggregate are equal to or
greater than the maximum permissible amount, no amount
will be contributed or allocated to the Participant's
Individual Account under this Plan for the limitation
year.
2. Prior to determining the Participant's actual
Compensation for the limitation year, the Employer may
determine the maximum permissible amount for a
Participant in the manner described in Section
3.05(A)(2).
3. As soon as is administratively feasible after the end
of the limitation year, the maximum permissible amount
for the limitation year will be determined on the basis
of the Participant's actual Compensation for the
limitation year.
4. If, pursuant to Section 3.05(B)(3) or as a result of
the allocation of Forfeitures a Participant's annual
additions under this Plan and such other plans would
result in an excess amount for a limitation year, the
excess amount will be deemed to consist of the annual
additions last allocated, except that annual additions
attributable to a simplified employee pension will be
deemed to have been allocated first, followed by annual
additions to a welfare benefit fund or individual
medical account, regardless of the actual allocation
date.
5. If an excess amount was allocated to a Participant on
an allocation date of this Plan which coincides with an
allocation date of another plan, the excess amount
attributed to this Plan will be the product of,
a. the total excess amount allocated as of such date,
times
b. the ratio of (i) the annual additions allocated to
the Participant for the limitation year as of such
date under this Plan to (ii) the total annual
additions allocated to the Participant for the
limitation year as of such date under this and all
the other qualified prototype defined contribution
plans.
6. Any excess amount attributed to this Plan will be
disposed in the manner described in Section 3.05(A)(4).
C. If the Participant is covered under another qualified
defined contribution plan maintained by the Employer which
is not a master or prototype plan, annual additions which
may be credited to the Participant's Individual Account
under this Plan for any limitation year will be limited in
accordance with Sections 3.05(B)(1) through 3.05(B)(6) as
though the other plan were a master or prototype plan unless
the Employer provides other limitations in the Section of
the Adoption Agreement titled "Limitation on Allocation -
More Than One Plan."
D. If the Employer maintains, or at any time maintained, a
qualified defined benefit plan covering any Participant in
this Plan, the sum of the Participant's defined benefit plan
fraction and defined contribution plan fraction will not
exceed 1.0 in any limitation year. The annual additions
which may be credited to the Participant's Individual
Account under this Plan for any limitation year will be
limited in accordance with the Section of the Adoption
Agreement titled "Limitation on Allocation - More Than One
Plan."
E. The following terms shall have the following meanings when
used in this Section 3.05:
1. Annual additions: The sum of the following amounts
credited to a Participant's Individual Account for the
limitation year:
a. Employer Contributions,
b. Nondeductible Employee Contributions,
c. Forfeitures,
d. amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Section
415(l)(2) of the Code, which is part of a pension
or annuity plan maintained by the Employer are
treated as annual additions to a defined
contribution plan. Also amounts derived from
contributions paid or accrued after December 31,
1985, in taxable years ending after such date,
which are attributable to post-retirement medical
benefits, allocated to the separate account of a
key employee, as defined in Section 419A(d)(3) of
the Code, under a welfare benefit fund, as
<PAGE> 15
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11
defined in Section 419(e) of the Code,
maintained by the Employer are treated as annual
additions to a defined contribution plan, and
e. allocations under a simplified employee pension.
For this purpose, any excess amount applied under
Section 3.05(A)(4) or 3.05(B)(6) in the limitation year
to reduce Employer Contributions will be considered
annual additions for such limitation year.
2. Compensation: Means Compensation as defined in Section
1.07 of the Plan except that Compensation for purposes
of this Section 3.05 shall not include any amounts
contributed by the Employer pursuant to a salary
reduction agreement and which is not includible in the
gross income of the Employee under Sections 125,
402(e)(3), 402(h)(1)(B) or 403(b) of the Code even if
the Employer has elected to include such contributions
in the definition of Compensation used for other
purposes under the Plan. Further, any other exclusion
the Employer has elected (such as the exclusion of
certain types of pay or pay earned before the Employee
enters the Plan) will not apply for purposes of this
Section.
Notwithstanding the preceding sentence, Compensation for
a Participant in a defined contribution plan who is
permanently and totally disabled (as defined in Section
22(e)(3) of the Code) is the Compensation such
Participant would have received for the limitation year
if the Participant had been paid at the rate of
Compensation paid immediately before becoming
permanently and totally disabled; such imputed
Compensation for the disabled Participant may be taken
into account only if the Participant is not a Highly
Compensated Employee (as defined in Section 414(q) of
the Code) and contributions made on behalf of such
Participant are nonforfeitable when made.
3. Defined benefit fraction: A fraction, the numerator of
which is the sum of the Participant's projected annual
benefits under all the defined benefit plans (whether or
not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125% of the dollar
limitation determined for the limitation year under
Section 415(b) and (d) of the Code or 140% of the
highest average compensation, including any adjustments
under Section 415(b) of the Code.
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first limitation
year beginning after December 31, 1986, in one or more
defined benefit plans maintained by the Employer which
were in existence on May 6, 1986, the denominator of
this fraction will not be less than 125% of the sum of
the annual benefits under such plans which the
Participant had accrued as of the close of the last
limitation year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of
the plan after May 5, 1986. The preceding sentence
applies only if the defined benefit plans individually
and in the aggregate satisfied the requirements of
Section 415 of the Code for all limitation years
beginning before January 1, 1987.
4. Defined contribution dollar limitation: $30,000 or if
greater, one-fourth of the defined benefit dollar
limitation set forth in Section 415(b)(1) of the Code as
in effect for the limitation year.
5. Defined contribution fraction: A fraction, the numerator
of which is the sum of the annual additions to the
Participant's account under all the defined contribution
plans (whether or not terminated) maintained by the
Employer for the current and all prior limitation years
(including the annual additions attributable to the
Participant's nondeductible employee contributions to
all defined benefit plans, whether or not terminated,
maintained by the Employer, and the annual additions
attributable to all welfare benefit funds, as defined in
Section 419(e) of the Code, individual medical accounts,
and simplified employee pensions, maintained by the
Employer), and the denominator of which is the sum of
the maximum aggregate amounts for the current and all
prior limitation years of service with the Employer
(regardless of whether a defined contribution plan was
maintained by the Employer). The maximum aggregate
amount in any limitation year is the lesser of 125% of
the dollar limitation determined under Section 415(b)
and (d) of the Code in effect under Section 415(c)(1)(A)
of the Code or 35% of the Participant's Compensation for
such year.
If the Employee was a Participant as of the end of the
first day of the first limitation year beginning after
December 31, 1986, in one or more defined contribution
plans maintained by the Employer which were in existence
on May 6, 1986, the numerator of this fraction will be
adjusted if the sum of this fraction and the defined
benefit fraction would otherwise exceed 1.0 under the
terms of this Plan. Under the adjustment, an amount
equal to the product of (1) the excess of the sum of the
fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the
numerator of this fraction. The adjustment is calculated
using the fractions as they would be computed as of the
end of the last limitation year beginning before January
1, 1987, and disregarding any changes in the terms and
conditions of the Plan made after May 5, 1986, but using
the Section 415 limitation applicable to the first
limitation year beginning on or after January 1, 1987.
The annual addition for any limitation year beginning
before January 1, 1987, shall not be recomputed to treat
all Nondeductible Employee Contributions as annual
additions.
6. Employer: For purposes of this Section 3.05, Employer
shall mean 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) as modified by
Section 415(h)) or affiliated service groups (as defined
in Section 414(m)) of which the adopting Employer is a
part, and any other entity required to be aggregated
with the Employer pursuant to regulations under Section
414(o) of the Code.
7. Excess amount: The excess of the Participant's annual
additions for the limitation year over the maximum
permissible amount.
8. Highest average compensation: The average compensation
for the three consecutive years of service with the
Employer that produces the highest average.
9. Limitation year: A calendar year, or the 12-consecutive
month period elected by the Employer in the Adoption
Agreement. All qualified plans maintained by the
Employer must use the same limitation year. If the
limitation year is amended to a different 12-consecutive
month period, the new limitation year must begin on a
date within the limitation year in which the amendment
is made.
10. Master or prototype plan: A plan the form of which is
the subject of a favorable opinion letter from the
Internal Revenue Service.
11. Maximum permissible amount: The maximum annual addition
that may be contributed or allocated to a Participant's
Individual Account under the Plan for any limitation
year shall not exceed the lesser of:
a. the defined contribution dollar limitation, or
b. 25% of the Participant's Compensation for the
limitation year.
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12
The compensation limitation referred to in (b) shall
not apply to any contribution for medical benefits
(within the meaning of Section 401(h) or Section
419A(f)(2) of the Code) which is otherwise treated
as an annual addition under Section 415(l)(1) or
419A(d)(2) of the Code.
If a short limitation year is created because of an
amendment changing the limitation year to a
different 12-consecutive month period, the maximum
permissible amount will not exceed the defined
contribution dollar limitation multiplied by the
following fraction:
Number of months in the short limitation year
---------------------------------------------
12
12. Projected annual benefit: The annual retirement benefit
(adjusted to an actuarially equivalent straight life
annuity if such benefit is expressed in a form other
than a straight life annuity or qualified joint and
survivor annuity) to which the Participant would be
entitled under the terms of the Plan assuming:
a. the Participant will continue employment until
Normal Retirement Age under the Plan (or current
age, if later), and
b. the Participant's Compensation for the current
limitation year and all other relevant factors
used to determine benefits under the Plan will
remain constant for all future limitation years.
Straight life annuity means an annuity payable
in equal installments for the life of the
Participant that terminates upon the
Participants's death.
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 INDIVIDUAL ACCOUNTS
A. The Plan Administrator shall establish and maintain an
Individual Account in the name of each Participant to
reflect the total value of his or her interest in the Fund.
Each Individual Account established hereunder shall consist
of such subaccounts as may be needed for each Participant
including:
1. a subaccount to reflect Employer Contributions and
Forfeitures allocated on behalf of a Participant;
2. a subaccount to reflect a Participant's rollover
contributions;
3. a subaccount to reflect a Participant's transfer
contributions;
4. a subaccount to reflect a Participant's Nondeductible
Employee Contributions; and
5. a subaccount to reflect a Participant's deductible
employee contributions.
B. The Plan Administrator may establish additional accounts as
it may deem necessary for the proper administration of the
Plan, including, but not limited to, a suspense account for
Forfeitures as required pursuant to Section 6.01(D).
4.02 VALUATION OF FUND
The Fund will be valued each Valuation Date at fair market value.
4.03 VALUATION OF INDIVIDUAL ACCOUNTS
A. Where all or a portion of the assets of a Participant's
Individual Account are invested in a Separate Fund for the
Participant, then the value of that portion of such
Participant's Individual Account at any relevant time equals
the sum of the fair market values of the assets in such
Separate Fund, less any applicable charges or penalties.
B. The fair market value of the remainder of each Individual
Account is determined in the following manner:
1. First, the portion of the Individual Account invested
in each Investment Fund as of the previous Valuation
Date is determined. Each such portion is reduced by any
withdrawal made from the applicable Investment Fund to
or for the benefit of a Participant or the
Participant's Beneficiary, further reduced by any
amounts forfeited by the Participant pursuant to
Section 6.01(D) and further reduced by any transfer to
another Investment Fund since the previous Valuation
Date and is increased by any amount transferred from
another Investment Fund since the previous Valuation
Date. The resulting amounts are the net Individual
Account portions invested in the Investment Funds.
2. Secondly, the net Individual Account portions invested
in each Investment Fund are adjusted upwards or
downwards, pro rata (i.e., ratio of each net Individual
Account portion to the sum of all net Individual
Account portions) so that the sum of all the net
Individual Account portions invested in an Investment
Fund will equal the then fair market value of the
Investment Fund. Notwithstanding the previous sentence,
for the first Plan Year only, the net Individual
Account portions shall be the sum of all contributions
made to each Participant's Individual Account during
the first Plan Year.
3. Thirdly, any contributions to the Plan and Forfeitures
are allocated in accordance with the appropriate
allocation provisions of Section 3. For purposes of
Section 4, contributions made by the Employer for any
Plan Year but after that Plan Year will be considered
to have been made on the last day of that Plan Year
regardless of when paid to the Trustee (or Custodian,
if applicable).
Amounts contributed between Valuation Dates will not
be credited with investment gains or losses until
the next following Valuation Date.
4. Finally, the portions of the Individual Account
invested in each Investment Fund (determined in
accordance with (1), (2) and (3) above) are added
together.
4.04 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS
If necessary or appropriate, the Plan Administrator may establish
different or additional procedures (which shall be uniform and
nondiscriminatory) for determining the fair market value of the
Individual Accounts.
4.05 SEGREGATION OF ASSETS
If a Participant elects a mode of distribution other than a lump
sum, the Plan Administrator may place that Participant's account
balance into a segregated Investment Fund for the purpose of
maintaining the necessary liquidity to provide benefit
installments on a periodic basis.
4.06 STATEMENT OF INDIVIDUAL ACCOUNTS
No later than 270 days after the close of each Plan Year, the
Plan Administrator shall furnish a statement to each Participant
indicating the Individual Account balances of such Participant as
of the last Valuation Date in such Plan Year.
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13
SECTION FIVE TRUSTEE OR CUSTODIAN
5.01 CREATION OF FUND
By adopting this Plan, the Employer establishes the Fund which
shall consist of the assets of the Plan held by the Trustee (or
Custodian, if applicable) pursuant to this Section 5. Assets
within the Fund may be pooled on behalf of all Participants,
earmarked on behalf of each Participant or be a combination of
pooled and earmarked. To the extent that assets are earmarked for
a particular Participant, they will be held in a Separate Fund
for that Participant.
No part of the corpus or income of the Fund may be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries.
5.02 INVESTMENT AUTHORITY
Except as provided in Section 5.14 (relating to individual
direction of investments by Participants), the Employer, not the
Trustee (or Custodian, if applicable), shall have exclusive
management and control over the investment of the Fund into any
permitted investment. Notwithstanding the preceding sentence, a
Trustee may make an agreement with the Employer whereby the
Trustee will manage the investment of all or a portion of the
Fund. Any such agreement shall be in writing and set forth such
matters as the Trustee deems necessary or desirable.
5.03 FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT FULL TRUST
POWERS
This Section 5.03 applies where a financial organization has
indicated in the Adoption Agreement that it will serve, with
respect to this Plan, as Custodian or as Trustee without full
trust powers (under applicable law). Hereinafter, a financial
organization Trustee without full trust powers (under applicable
law) shall be referred to as a Custodian. The Custodian shall
have no discretionary authority with respect to the management of
the Plan or the Fund but will act only as directed by the entity
who has such authority.
A. PERMISSIBLE INVESTMENTS - The assets of the Plan shall be
invested only in those investments which are available
through the Custodian in the ordinary course of business
which the Custodian may legally hold in a qualified plan and
which the Custodian chooses to make available to Employers
for qualified plan investments. Notwithstanding the
preceding sentence, the Prototype Sponsor may, as a
condition of making the Plan available to the Employer,
limit the types of property in which the assets of the Plan
may be invested.
B. RESPONSIBILITIES OF THE CUSTODIAN - The responsibilities of
the Custodian shall be limited to the following:
1. To receive Plan contributions and to hold, invest and
reinvest the Fund without distinction between principal
and interest; provided, however, that nothing in this
Plan shall require the Custodian to maintain physical
custody of stock certificates (or other indicia of
ownership of any type of asset) representing assets
within the Fund;
2. To maintain accurate records of contributions,
earnings, withdrawals and other information the
Custodian deems relevant with respect to the Plan;
3. To make disbursements from the Fund to Participants or
Beneficiaries upon the proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a statement which
reflects the value of the investments in the hands of
the Custodian as of the end of each Plan Year and as of
any other times as the Custodian and Plan Administrator
may agree.
C. POWERS OF THE CUSTODIAN - Except as otherwise provided in
this Plan, the Custodian shall have the power to take any
action with respect to the Fund which it deems necessary or
advisable to discharge its responsibilities under this Plan
including, but not limited to, the following powers:
1. To invest all or a portion of the Fund (including idle
cash balances) in time deposits, savings accounts,
money market accounts or similar investments bearing a
reasonable rate of interest in the Custodian's own
savings department or the savings department of another
financial organization;
2. To vote upon any stocks, bonds, or other securities; to
give general or special proxies or powers of attorney
with or without power of substitution; to exercise any
conversion privileges or subscription rights and to
make any payments incidental thereto; to oppose, or to
consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate
securities, and to pay any assessment or charges in
connection therewith; and generally to exercise any of
the powers of an owner with respect to stocks, bonds,
securities or other property;
3. To hold securities or other property of the Fund in its
own name, in the name of its nominee or in bearer form;
and
4. To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all
other instruments that may be necessary or appropriate
to carry out the powers herein granted.
5.04 FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS AND
INDIVIDUAL TRUSTEE
This Section 5.04 applies where a financial organization has
indicated in the Adoption Agreement that it will serve as Trustee
with full trust powers. This Section also applies where one or
more individuals are named in the Adoption Agreement to serve as
Trustee(s).
A. PERMISSIBLE INVESTMENTS - The Trustee may invest the assets
of the Plan in property of any character, real or personal,
including, but not limited to the following: stocks,
including shares of open-end investment companies (mutual
funds); bonds; notes; debentures; options; limited
partnership interests; mortgages; real estate or any
interests therein; unit investment trusts; Treasury Bills,
and other U.S. Government obligations; common trust funds,
combined investment trusts, collective trust funds or
commingled funds maintained by a bank or similar financial
organization (whether or not the Trustee hereunder); savings
accounts, time deposits or money market accounts of a bank
or similar financial organization (whether or not the
Trustee hereunder); annuity contracts; life insurance
policies; or in such other investments as is deemed proper
without regard to investments authorized by statute or rule
of law governing the investment of trust funds but with
regard to ERISA and this Plan.
Notwithstanding the preceding sentence, the Prototype
Sponsor may, as a condition of making the Plan available to
the Employer, limit the types of property in which the
assets of the Plan may be invested.
B. RESPONSIBILITIES OF THE TRUSTEE - The responsibilities of
the Trustee shall be limited to the following:
1. To receive Plan contributions and to hold, invest and
reinvest the Fund without distinction between principal and
interest; provided, however, that nothing in this Plan shall
require the Trustee to maintain physical custody of stock
certificates (or other indicia of ownership) representing
assets within the Fund;
<PAGE> 18
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14
2. To maintain accurate records of contributions, earnings,
withdrawals and other information the Trustee deems relevant
with respect to the Plan;
3. To make disbursements from the Fund to Participants or
Beneficiaries upon the proper authorization of the Plan
Administrator; and
4. To furnish to the Plan Administrator a statement which
reflects the value of the investments in the hands of the
Trustee as of the end of each Plan Year and as of any other
times as the Trustee and Plan Administrator may agree.
C. POWERS OF THE TRUSTEE - Except as otherwise provided in this
Plan, the Trustee shall have the power to take any action
with respect to the Fund which it deems necessary or
advisable to discharge its responsibilities under this Plan
including, but not limited to, the following powers:
1. To hold any securities or other property of the Fund in its
own name, in the name of its nominee or in bearer form;
2. To purchase or subscribe for securities issued, or real
property owned, by the Employer or any trade or business
under common control with the Employer but only if the
prudent investment and diversification requirements of ERISA
are satisfied;
3. To sell, exchange, convey, transfer or otherwise dispose of
any securities or other property held by the Trustee, by
private contract or at public auction. No person dealing
with the Trustee shall be bound to see to the application of
the purchase money or to inquire into the validity,
expediency, or propriety of any such sale or other
disposition, with or without advertisement;
4. To vote upon any stocks, bonds, or other securities; to give
general or special proxies or powers of attorney with or
without power of substitution; to exercise any conversion
privileges or subscription rights and to make any payments
incidental thereto; to oppose, or to consent to, or
otherwise participate in, corporate reorganizations or other
changes affecting corporate securities, and to delegate
discretionary powers, and to pay any assessments or charges
in connection therewith; and generally to exercise any of
the powers of an owner with respect to stocks, bonds,
securities or other property;
5. To invest any part or all of the Fund (including idle cash
balances) in certificates of deposit, demand or time
deposits, savings accounts, money market accounts or similar
investments of the Trustee (if the Trustee is a bank or
similar financial organization), the Prototype Sponsor or
any affiliate of such Trustee or Prototype Sponsor, which
bear a reasonable rate of interest;
6. To provide sweep services without the receipt by the Trustee
of additional compensation or other consideration (other
than reimbursement of direct expenses properly and actually
incurred in the performance of such services);
7. To hold in the form of cash for distribution or investment
such portion of the Fund as, at any time and from
time-to-time, the Trustee shall deem prudent and deposit
such cash in interest bearing or noninterest bearing
accounts;
8. To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other
instruments that may be necessary or appropriate to carry
out the powers herein granted;
9. To settle, compromise, or submit to arbitration any claims,
debts, or damages due or owing to or from the Plan, to
commence or defend suits or legal or administrative
proceedings, and to represent the Plan in all suits and
legal and administrative proceedings;
10. To employ suitable agents and counsel, to contract with
agents to perform administrative and recordkeeping duties
and to pay their reasonable expenses, fees and compensation,
and such agent or counsel may or may not be agent or counsel
for the Employer;
11. To cause any part or all of the Fund, without limitation as
to amount, to be commingled with the funds of other trusts
(including trusts for qualified employee benefit plans) by
causing such money to be invested as a part of any pooled,
common, collective or commingled trust fund (including any
such fund described in the Adoption Agreement) heretofore or
hereafter created by any Trustee (if the Trustee is a bank),
by the Prototype Sponsor, by any affiliate bank of such a
Trustee or by such a Trustee or the Prototype Sponsor, or by
such an affiliate in participation with others; the
instrument or instruments establishing such trust fund or
funds, as amended, being made part of this Plan and trust so
long as any portion of the Fund shall be invested through
the medium thereof; and
12. Generally to do all such acts, execute all such instruments,
initiate such proceedings, and exercise all such rights and
privileges with relation to property constituting the Fund
as if the Trustee were the absolute owner thereof.
5.05 DIVISION OF FUND INTO INVESTMENT FUNDS
The Employer may direct the Trustee (or Custodian) from
time-to-time to divide and redivide the Fund into one or more
Investment Funds. Such Investment Funds may include, but not be
limited to, Investment Funds representing the assets under the
control of an investment manager pursuant to Section 5.12 and
Investment Funds representing investment options available for
individual direction by Participants pursuant to Section 5.14.
Upon each division or redivision, the Employer may specify the
part of the Fund to be allocated to each such Investment Fund and
the terms and conditions, if any, under which the assets in such
Investment Fund shall be invested.
5.06 COMPENSATION AND EXPENSES
The Trustee (or Custodian, if applicable) shall receive such
reasonable compensation as may be agreed upon by the Trustee (or
Custodian) and the Employer. The Trustee (or Custodian) shall be
entitled to reimbursement by the Employer for all proper expenses
incurred in carrying out his or her duties under this Plan,
including reasonable legal, accounting and actuarial expenses. If
not paid by the Employer, such compensation and expenses may be
charged against the Fund.
All taxes of any kind that may be levied or assessed under
existing or future laws upon, or in respect of, the Fund or the
income thereof shall be paid from the Fund.
5.07 NOT OBLIGATED TO QUESTION DATA
The Employer shall furnish the Trustee (or Custodian, if
applicable) and Plan Administrator the information which each
party deems necessary for the administration of the Plan
including, but not limited to, changes in a Participant's status,
eligibility, mailing addresses and other such data as may be
required. The Trustee (or Custodian) and Plan Administrator shall
be entitled to act on such information as is supplied them and
shall have no duty or responsibility to further verify or
question such information.
<PAGE> 19
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15
5.08 LIABILITY FOR WITHHOLDING ON DISTRIBUTIONS
The Plan Administrator shall be responsible for withholding
federal income taxes from distributions from the Plan, unless the
Participant (or Beneficiary, where applicable) elects not to have
such taxes withheld. The Trustee (or Custodian) or other payor
may act as agent for the Plan Administrator to withhold such
taxes and to make the appropriate distribution reports, if the
Plan Administrator furnishes all the information to the Trustee
(or Custodian) or other payor it may need to do withholding and
reporting.
5.09 RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN)
The Trustee (or Custodian, if applicable) may resign at any time
by giving 30 days advance written notice to the Employer. The
resignation shall become effective 30 days after receipt of such
notice unless a shorter period is agreed upon.
The Employer may remove any Trustee (or Custodian) at any time by
giving written notice to such Trustee (or Custodian) and such
removal shall be effective 30 days after receipt of such notice
unless a shorter period is agreed upon. The Employer shall have
the power to appoint a successor Trustee (or Custodian).
Upon such resignation or removal, if the resigning or removed
Trustee (or Custodian) is the sole Trustee (or Custodian), he or
she shall transfer all of the assets of the Fund then held by
such Trustee (or Custodian) as expeditiously as possible to the
successor Trustee (or Custodian) after paying or reserving such
reasonable amount as he or she shall deem necessary to provide
for the expense in the settlement of the accounts and the amount
of any compensation due him or her and any sums chargeable
against the Fund for which he or she may be liable. If the Funds
as reserved are not sufficient for such purpose, then he or she
shall be entitled to reimbursement from the successor Trustee (or
Custodian) out of the assets in the successor Trustee's (or
Custodian's) hands under this Plan. If the amount reserved shall
be in excess of the amount actually needed, the former Trustee
(or Custodian) shall return such excess to the successor Trustee
(or Custodian).
Upon receipt of the transferred assets, the successor Trustee (or
Custodian) shall thereupon succeed to all of the powers and
responsibilities given to the Trustee (or Custodian) by this
Plan.
The resigning or removed Trustee (or Custodian) shall render an
accounting to the Employer and unless objected to by the Employer
within 30 days of its receipt, the accounting shall be deemed to
have been approved and the resigning or removed Trustee (or
Custodian) shall be released and discharged as to all matters set
forth in the accounting. Where a financial organization is
serving as Trustee (or Custodian) and it is merged with or bought
by another organization (or comes under the control of any
federal or state agency), that organization shall serve as the
successor Trustee (or Custodian) of this Plan, but only if it is
the type of organization that can so serve under applicable law.
Where the Trustee or Custodian is serving as a nonbank trustee or
custodian pursuant to Section 1.401-12(n) of the Income Tax
Regulations, the Employer will appoint a successor Trustee (or
Custodian) upon notification by the Commissioner of Internal
Revenue that such substitution is required because the Trustee
(or Custodian) has failed to comply with the requirements of
Section 1.401-12(n) or is not keeping such records or making such
returns or rendering such statements as are required by forms or
regulations.
5.10 DEGREE OF CARE - LIMITATIONS OF LIABILITY
The Trustee (or Custodian) shall not be liable for any losses
incurred by the Fund by any direction to invest communicated by
the Employer, Plan Administrator, investment manager appointed
pursuant to Section 5.12 or any Participant or Beneficiary. The
Trustee (or Custodian) shall be under no liability for
distributions made or other action taken or not taken at the
written direction of the Plan Administrator. It is specifically
understood that the Trustee (or Custodian) shall have no duty or
responsibility with respect to the determination of matters
pertaining to the eligibility of any Employee to become a
Participant or remain a Participant hereunder, the amount of
benefit to which a Participant or Beneficiary shall be entitled
to receive hereunder, whether a distribution to Participant or
Beneficiary is appropriate under the terms of the Plan or the
size and type of any policy to be purchased from any insurer for
any Participant hereunder or similar matters; it being understood
that all such responsibilities under the Plan are vested in the
Plan Administrator.
5.11 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE (OR CUSTODIAN)
Notwithstanding any other provision herein, and except as may be
otherwise provided by ERISA, the Employer shall indemnify and
hold harmless the Trustee (or Custodian, if applicable) and the
Prototype Sponsor, their officers, directors, employees, agents,
their heirs, executors, successors and assigns, from and against
any and all liabilities, damages, judgments, settlements, losses,
costs, charges, or expenses (including legal expenses) at any
time arising out of or incurred in connection with any action
taken by such parties in the performance of their duties with
respect to this Plan, unless there has been a final adjudication
of gross negligence or willful misconduct in the performance of
such duties.
Further, except as may be otherwise provided by ERISA, the
Employer will indemnify the Trustee (or Custodian) and Prototype
Sponsor from any liability, claim or expense (including legal
expense) which the Trustee (or Custodian) and Prototype Sponsor
shall incur by reason of or which results, in whole or in part,
from the Trustee's (or Custodian's) or Prototype Sponsor's
reliance on the facts and other directions and elections the
Employer communicates or fails to communicate.
5.12 INVESTMENT MANAGERS
A. DEFINITION OF INVESTMENT MANAGER - The Employer may appoint
one or more investment managers to make investment decisions
with respect to all or a portion of the Fund. The investment
manager shall be any firm or individual registered as an
investment adviser under the Investment Advisers Act of
1940, a bank as defined in said Act or an insurance company
qualified under the laws of more than one state to perform
services consisting of the management, acquisition or
disposition of any assets of the Plan.
B. INVESTMENT MANAGER'S AUTHORITY - A separate Investment Fund
shall be established representing the assets of the Fund
invested at the direction of the investment manager. The
investment manager so appointed shall direct the Trustee (or
Custodian, if applicable ) with respect to the investment of
such Investment Fund. The investments which may be acquired
at the direction of the investment manager are those
described in Section 5.03(A) (for Custodians) or Section
5.04(A) (for Trustees).
C. WRITTEN AGREEMENT - The appointment of any investment
manager shall be by written agreement between the Employer
and the investment manager and a copy of such agreement (and
any modification or termination thereof) must be given to
the Trustee (or Custodian).
The agreement shall set forth, among other matters, the
effective date of the investment manager's appointment and
an acknowledgement by the investment manager that it is a
fiduciary of the Plan under ERISA.
<PAGE> 20
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16
D. CONCERNING THE TRUSTEE (OR CUSTODIAN) - Written notice of
each appointment of an investment manager shall be given to
the Trustee (or Custodian) in advance of the effective date
of such appointment. Such notice shall specify which portion
of the Fund will constitute the Investment Fund subject to
the investment manager's direction. The Trustee (or
Custodian) shall comply with the investment direction given
to it by the investment manager and will not be liable for
any loss which may result by reason of any action (or
inaction) it takes at the direction of the investment
manager.
5.13 MATTERS RELATING TO INSURANCE
A. If a life insurance policy is to be purchased for a
Participant, the aggregate premium for certain life
insurance for each Participant must be less than a certain
percentage of the aggregate Employer Contributions and
Forfeitures allocated to a Participant's Individual Account
at any particular time as follows:
1. Ordinary Life Insurance - For purposes of these
incidental insurance provisions, ordinary life
insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing
premiums. If such contracts are purchased, less than
50% of the aggregate Employer Contributions and
Forfeitures allocated to any Participant's Individual
Account will be used to pay the premiums attributable
to them.
2. Term and Universal Life Insurance - No more than 25% of
the aggregate Employer Contributions and Forfeitures
allocated to any Participant's Individual Account will
be used to pay the premiums on term life insurance
contracts, universal life insurance contracts, and all
other life insurance contracts which are not ordinary
life.
3. Combination - The sum of 50% of the ordinary life
insurance premiums and all other life insurance
premiums will not exceed 25% of the aggregate Employer
Contributions and Forfeitures allocated to any
Participant's Individual Account.
If this Plan is a profit sharing plan, the above
incidental benefits limits do not apply to life
insurance contracts purchased with Employer
Contributions and Forfeitures that have been in the
Participant's Individual Account for at least 2 full
Plan Years, measured from the date such
contributions were allocated.
B. Any dividends or credits earned on insurance contracts for a
Participant shall be allocated to such Participant's
Individual Account.
C. Subject to Section 6.05, the contracts on a Participant's
life will be converted to cash or an annuity or distributed
to the Participant upon commencement of benefits.
D. The Trustee (or Custodian, if applicable) shall apply for
and will be the owner of any insurance contract(s) purchased
under the terms of this Plan. The insurance contract(s) must
provide that proceeds will be payable to the Trustee (or
Custodian), however, the Trustee (or Custodian) shall be
required to pay over all proceeds of the contract(s) to the
Participant's designated Beneficiary in accordance with the
distribution provisions of this Plan. A Participant's spouse
will be the designated Beneficiary of the proceeds in all
circumstances unless a qualified election has been made in
accordance with Section 6.05. Under no circumstances shall
the Fund retain any part of the proceeds. In the event of
any conflict between the terms of this Plan and the terms of
any insurance contract purchased hereunder, the Plan
provisions shall control.
E. The Plan Administrator may direct the Trustee (or Custodian)
to sell and distribute insurance or annuity contracts to a
Participant (or other party as may be permitted) in
accordance with applicable law or regulations.
5.14 DIRECTION OF INVESTMENTS BY PARTICIPANT
If so indicated in the Adoption Agreement, each Participant may
individually direct the Trustee (or Custodian, if applicable)
regarding the investment of part or all of his or her Individual
Account. To the extent so directed, the Employer, Plan
Administrator, Trustee (or Custodian) and all other fiduciaries
are relieved of their fiduciary responsibility under Section 404
of ERISA.
The Plan Administrator shall direct that a Separate Fund be
established in the name of each Participant who directs the
investment of part or all of his or her Individual Account. Each
Separate Fund shall be charged or credited (as appropriate) with
the earnings, gains, losses or expenses attributable to such
Separate Fund. No fiduciary shall be liable for any loss which
results from a Participant's individual direction. The assets
subject to individual direction shall not be invested in
collectibles as that term is defined in Section 408(m) of the
Code.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules relating to individual direction as it
deems necessary or advisable including, but not limited to, rules
describing (1) which portions of Participant's Individual Account
can be individually directed; (2) the frequency of investment
changes; (3) the forms and procedures for making investment
changes; and (4) the effect of a Participant's failure to make a
valid direction.
The Plan Administrator may, in a uniform and nondiscriminatory
manner, limit the available investments for Participants'
individual direction to certain specified investment options
(including, but not limited to, certain mutual funds, investment
contracts, deposit accounts and group trusts). The Plan
Administrator may permit, in a uniform and nondiscriminatory
manner, a Beneficiary of a deceased Participant or the alternate
payee under a qualified domestic relations order (as defined in
Section 414(p) of the Code) to individually direct in accordance
with this Section.
SECTION SIX VESTING AND DISTRIBUTION
6.01 DISTRIBUTION TO PARTICIPANT
A. DISTRIBUTABLE EVENTS
1. Entitlement to Distribution - The Vested portion of a
Participant's Individual Account shall be distributable
to the Participant upon (1) the occurrence of any of
the distributable events specified in the Adoption
Agreement; (2) the Participant's Termination of
Employment after attaining Normal Retirement Age; (3)
the termination of the Plan; and (4) the Participant's
Termination of Employment after satisfying any Early
Retirement Age conditions.
If a Participant separates from service before
satisfying the Early Retirement Age requirement, but
has satisfied the service requirement, the
Participant will be entitled to elect an early
retirement benefit upon satisfaction of such age
requirement.
2. Written Request: When Distributed - A Participant
entitled to distribution who wishes to receive a
distribution must submit a written request to the Plan
Administrator. Such request shall be made upon a form
provided by the Plan Administrator. Upon a valid
request, the Plan Administrator shall direct the
Trustee (or Custodian, if applicable) to commence
distribution no later than the time specified in the
Adoption Agreement for this purpose and, if not
specified in the Adoption Agreement, then no later than
90 days following the later of:
<PAGE> 21
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17
a. the close of the Plan Year within which the event
occurs which entitles the Participant to
distribution; or
b. the close of the Plan Year in which the request is
received.
3. Special Rules for Withdrawals During Service - If this
is a profit sharing plan and the Adoption Agreement so
provides, a Participant may elect to receive a
distribution of all or part of the Vested portion of his
or her Individual Account, subject to the requirements
of Section 6.05 and further subject to the following
limits:
a. Participant for 5 or more years. An Employee who
has been a Participant in the Plan for 5 or more
years may withdraw up to the entire Vested portion
of his or her Individual Account.
b. Participant for less than 5 years. An Employee who
has been a Participant in the Plan for less than 5
years may withdraw only the amount which has been
in his or her Individual Account attributable to
Employer Contributions for at least 2 full Plan
Years, measured from the date such contributions
were allocated. However, if the distribution is on
account of hardship, the Participant may withdraw
up to his or her entire Vested portion of the
Participant's Individual Account. For this
purpose, hardship shall have the meaning set forth
in Section 6.01(A)(4) of the Code.
4. Special Rules for Hardship Withdrawals - If this is a
profit sharing plan and the Adoption Agreement so
provides, a Participant may elect to receive a hardship
distribution of all or part of the Vested portion of his
or her Individual Account, subject to the requirements
of Section 6.05 and further subject to the following
limits:
a. Participant for 5 or more years. An Employee who
has been a Participant in the Plan for 5 or more
years may withdraw up to the entire Vested portion
of his or her Individual Account.
b. Participant for less than 5 years. An Employee who
has been a Participant in the Plan for less than 5
years may withdraw only the amount which has been
in his or her Individual Account attributable to
Employer Contributions for at least 2 full Plan
Years, measured from the date such contributions
were allocated.
For purposes of this Section 6.01(A)(4) and
Section 6.01(A)(3) hardship is defined as an
immediate and heavy financial need of the
Participant where such Participant lacks other
available resources. The following are the only
financial needs considered immediate and heavy:
expenses incurred or necessary for medical care,
described in Section 213(d) of the Code, of the
Employee, the Employee's spouse or dependents;
the purchase (excluding mortgage payments) of a
principal residence for the Employee; payment of
tuition and related educational fees for the
next 12 months of post-secondary education for
the Employee, the Employee's spouse, children or
dependents; or the need to prevent the eviction
of the Employee from, or a foreclosure on the
mortgage of, the Employee's principal residence.
A distribution will be considered as necessary
to satisfy an immediate and heavy financial need
of the Employee only if:
1) The employee has obtained all
distributions, other than hardship
distributions, and all nontaxable loans
under all plans maintained by the
Employer;
2) The distribution is not in excess of the
amount of an immediate and heavy
financial need (including amounts
necessary to pay any federal, state or
local income taxes or penalties
reasonably anticipated to result from
the distribution).
5. One-Time In-Service Withdrawal Option - If this is a
profit sharing plan and the Employer has elected the
one-time in-service withdrawal option in the Adoption
Agreement, then Participants will be permitted only one
in-service withdrawal during the course of such
Participants employment with the Employer. The amount
which the Participant can withdraw will be limited to
the lesser of the amount determined under the limits set
forth in Section 6.01(A)(3) or the percentage of the
Participant's Individual Account specified by the
Employer in the Adoption Agreement. Distributions under
this Section will be subject to the requirements of
Section 6.05.
6. Commencement of Benefits - Notwithstanding any other
provision, unless the Participant elects otherwise,
distribution of benefits will begin no later than the
60th day after the latest of the close of the Plan Year
in which:
a. the Participant attains Normal Retirement Age;
b. occurs the 10th anniversary of the year in which
the Participant commenced participation in the
Plan; or
c. the Participant incurs a Termination of
Employment.
Notwithstanding the foregoing, the failure of a
Participant and spouse to consent to a
distribution while a benefit is immediately
distributable, within the meaning of Section
6.02(B) of the Plan, shall be deemed to be an
election to defer commencement of payment of any
benefit sufficient to satisfy this Section.
B. DETERMINING THE VESTED PORTION - In determining the Vested
portion of a Participant's Individual Account, the following
rules apply:
1. Employer Contributions and Forfeitures - The Vested
portion of a Participant's Individual Account derived
from Employer Contributions and Forfeitures is
determined by applying the vesting schedule selected in
the Adoption Agreement (or the vesting schedule
described in Section 6.01(C) if the Plan is a Top-Heavy
Plan).
2. Rollover and Transfer Contributions - A Participant is
fully Vested in his or her rollover contributions and
transfer contributions.
3. Fully Vested Under Certain Circumstances - A Participant
is fully Vested in his or her Individual Account if any
of the following occurs:
a. the Participant reaches Normal Retirement Age;
b. the Plan is terminated or partially terminated; or
c. there exists a complete discontinuance of
contributions under the Plan.
Further, unless otherwise indicated in the Adoption Agreement,
a Participant is fully Vested if the Participant dies, incurs
a Disability, or satisfies the conditions for Early Retirement
Age (if applicable).
<PAGE> 22
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18
4. Participants in a Prior Plan - If a Participant was a
participant in a Prior Plan on the Effective Date, his
or her Vested percentage shall not be less than it would
have been under such Prior Plan as computed on the
Effective Date.
C. MINIMUM VESTING SCHEDULE FOR TOP-HEAVY PLANS - The following
vesting provisions apply for any Plan Year in which this Plan
is a Top-Heavy Plan.
Notwithstanding the other provisions of this Section 6.01 or
the vesting schedule selected in the Adoption Agreement
(unless those provisions or that schedule provide for more
rapid vesting), a Participant's Vested portion of his or her
Individual Account attributable to Employer Contributions and
Forfeitures shall be determined in accordance with the vesting
schedule elected by the Employer in the Adoption Agreement
(and if no election is made the 6 year graded schedule will be
deemed to have been elected) as described below:
<TABLE>
<CAPTION>
6 YEAR GRADED 3 YEAR CLIFF
<S> <C> <C> <C> <C>
YEARS OF VESTING SERVICE VESTED PERCENTAGE YEARS OF VESTING SERVICE VESTED PERCENTAGE
1 0 1 0
2 20 2 0
3 40 3 100
4 60
5 80
6 100
</TABLE>
This minimum vesting schedule applies to all benefits within
the meaning of Section 411(a)(7) of the Code, except those
attributable to Nondeductible Employee Contributions including
benefits accrued before the effective date of Section 416 of
the Code and benefits accrued before the Plan became a
Top-Heavy Plan. Further, no decrease in a Participant's Vested
percentage may occur in the event the Plan's status as a
Top-Heavy Plan changes for any Plan Year. However, this
Section 6.01(C) does not apply to the Individual Account of
any Employee who does not have an Hour of Service after the
Plan has initially become a Top-Heavy Plan and such Employee's
Individual Account attributable to Employer Contributions and
Forfeitures will be determined without regard to this Section.
If this Plan ceases to be a Top-Heavy Plan, then in accordance
with the above restrictions, the vesting schedule as selected
in the Adoption Agreement will govern. If the vesting schedule
under the Plan shifts in or out of top-heavy status, such
shift is an amendment to the vesting schedule and the election
in Section 9.04 applies.
D. BREAK IN VESTING SERVICE AND FORFEITURES - If a Participant
incurs a Termination of Employment, any portion of his or her
Individual Account which is not Vested shall be held in a
suspense account. Such suspense account shall share in any
increase or decrease in the fair market value of the assets of
the Fund in accordance with Section 4 of the Plan. The
disposition of such suspense account shall be as follows:
1. Breaks in Vesting Service - If a Participant neither
receives nor is deemed to receive a distribution
pursuant to Section 6.01(D)(3) or (4) and the
Participant returns to the service of the Employer
before incurring 5 consecutive Breaks in Vesting
Service, there shall be no Forfeiture and the amount in
such suspense account shall be recredited to such
Participant's Individual Account.
2. Five Consecutive Breaks in Vesting Service - If a
Participant neither receives nor is deemed to receive a
distribution pursuant to Section 6.01(D)(3) or (4) and
the Participant does not return to the service of the
Employer before incurring 5 consecutive Breaks in
Vesting Service, the portion of the Participant's
Individual Account which is not Vested shall be treated
as a Forfeiture and allocated in accordance with Section
3.01(C).
3. Cash-out of Certain Participants - If the value of the
Vested portion of such Participant's Individual Account
derived from Nondeductible Employee Contributions and
Employer Contributions does not exceed $3,500, the
Participant shall receive a distribution of the entire
Vested portion of such Individual Account and the
portion which is not Vested shall be treated as a
Forfeiture and allocated in accordance with Section
3.01(C). For purposes of this Section, if the value of
the Vested portion of a Participant's Individual Account
is zero, the Participant shall be deemed to have
received a distribution of such Vested Individual
Account. A Participant's Vested Individual Account
balance shall not include accumulated deductible
employee contributions within the meaning of Section
72(o)(5)(B) of the Code for Plan Years beginning prior
to January 1, 1989.
4. Participants Who Elect to Receive Distributions - If
such Participant elects to receive a distribution, in
accordance with Section 6.02(B), of the value of the
Vested portion of his or her Individual Account derived
from Nondeductible Employee Contributions and Employer
Contributions, the portion which is not Vested shall be
treated as a Forfeiture and allocated in accordance with
Section 3.01(C).
5. Re-employed Participants - If a Participant receives or
is deemed to receive a distribution pursuant to Section
6.01(D)(3) or (4) above and the Participant resumes
employment covered under this Plan, the Participant's
Employer-derived Individual Account balance will be
restored to the amount on the date of distribution if
the Participant repays to the Plan the full amount of
the distribution attributable to Employer Contributions
before the earlier of 5 years after the first date on
which the Participant is subsequently re-employed by the
Employer, or the date the Participant incurs 5
consecutive Breaks in Vesting Service following the date
of the distribution.
Any restoration of a Participant's Individual Account
pursuant to Section 6.01(D)(5) shall be made from other
Forfeitures, income or gain to the Fund or contributions
made by the Employer.
E. DISTRIBUTION PRIOR TO FULL VESTING - If a distribution is made
to a Participant who was not then fully Vested in his or her
Individual Account derived from Employer Contributions and the
Participant may increase his or her Vested percentage in his
or her Individual Account, then the following rules shall
apply:
1. a separate account will be established for the
Participant's interest in the Plan as of the time of the
distribution, and
2. at any relevant time the Participant's Vested portion of
the separate account will be equal to an amount ("X")
determined by the formula: X=P (AB + (R x D)) - (R x D)
where "P" is the Vested percentage at the relevant time,
"AB" is the separate account balance at the relevant
time; "D" is the amount of the distribution; and "R" is
the ratio of the separate account balance at the
relevant time to the separate account balance after
distribution.
<PAGE> 23
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19
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT
A. VALUE OF INDIVIDUAL ACCOUNT DOES NOT EXCEED $3,500 - If the
value of the Vested portion of a Participant's Individual
Account derived from Nondeductible Employee Contributions
and Employer Contributions does not exceed $3,500,
distribution from the Plan shall be made to the Participant
in a single lump sum in lieu of all other forms of
distribution from the Plan as soon as administratively
feasible.
B. VALUE OF INDIVIDUAL ACCOUNT EXCEEDS $3,500
1. If the value of the Vested portion of a Participant's
Individual Account derived from Nondeductible Employee
Contributions and Employer Contributions exceeds (or at
the time of any prior distribution exceeded) $3,500,
and the Individual Account is immediately
distributable, the Participant and the Participant's
spouse (or where either the Participant or the spouse
died, the survivor) must consent to any distribution of
such Individual Account. The consent of the Participant
and the Participant's spouse shall be obtained in
writing within the 90-day period ending on the annuity
starting date. The annuity starting date is the first
day of the first period for which an amount is paid as
an annuity or any other form. The Plan Administrator
shall notify the Participant and the Participant's
spouse of the right to defer any distribution until the
Participant's Individual Account is no longer
immediately distributable. Such notification shall
include a general description of the material features,
and an explanation of the relative values of, the
optional forms of benefit available under the Plan in a
manner that would satisfy the notice requirements of
Section 417(a)(3) of the Code, and shall be provided no
less than 30 days and no more than 90 days prior to the
annuity starting date.
If a distribution is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do
not apply, such distribution may commence less than
30 days after the notice required under Section
1.411(a)-11(c) of the Income Tax Regulations is
given, provided that:
a. the Plan Administrator clearly informs the
Participant that the Participant has a right to a
period of at least 30 days after receiving the
notice to consider the decision of whether or not
to elect a distribution (and, if applicable, a
particular distribution option), and
b. the Participant, after receiving the notice,
affirmatively elects a distribution.
Notwithstanding the foregoing, only the
Participant need consent to the commencement of
a distribution in the form of a qualified joint
and survivor annuity while the Individual
Account is immediately distributable. Neither
the consent of the Participant nor the
Participant's spouse shall be required to the
extent that a distribution is required to
satisfy Section 401(a)(9) or Section 415 of the
Code. In addition, upon termination of this Plan
if the Plan does not offer an annuity option
(purchased from a commercial provider), the
Participant's Individual Account may, without
the Participant's consent, be distributed to the
Participant or transferred to another defined
contribution plan (other than an employee stock
ownership plan as defined in Section 4975(e)(7)
of the Code) within the same controlled group.
An Individual Account is immediately
distributable if any part of the Individual
Account could be distributed to the Participant
(or surviving spouse) before the Participant
attains or would have attained (if not deceased)
the later of Normal Retirement Age or age 62.
2. For purposes of determining the applicability of the
foregoing consent requirements to distributions made
before the first day of the first Plan Year beginning
after December 31, 1988, the Vested portion of a
Participant's Individual Account shall not include
amounts attributable to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B)
of the Code.
C. OTHER FORMS OF DISTRIBUTION TO PARTICIPANT - If the value of
the Vested portion of a Participant's Individual Account
exceeds $3,500 and the Participant has properly waived the
joint and survivor annuity, as described in Section 6.05,
the Participant may request in writing that the Vested
portion of his or her Individual Account be paid to him or
her in one or more of the following forms of payment: (1) in
a lump sum; (2) in installment payments over a period not to
exceed the life expectancy of the Participant or the joint
and last survivor life expectancy of the Participant and his
or her designated Beneficiary; or (3) applied to the
purchase of an annuity contract.
Notwithstanding anything in this Section 6.02 to the
contrary, a Participant cannot elect payments in the form of
an annuity if the Retirement Equity Act safe harbor rules of
Section 6.05(F) apply.
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT
A. DESIGNATION OF BENEFICIARY - SPOUSAL CONSENT - Each
Participant may designate, upon a form provided by and
delivered to the Plan Administrator, one or more primary and
contingent Beneficiaries to receive all or a specified
portion of the Participant's Individual Account in the event
of his or her death. A Participant may change or revoke such
Beneficiary designation from time to time by completing and
delivering the proper form to the Plan Administrator.
In the event that a Participant wishes to designate a
primary Beneficiary who is not his or her spouse, his or her
spouse must consent in writing to such designation, and the
spouse's consent must acknowledge the effect of such
designation and be witnessed by a notary public or plan
representative. Notwithstanding this consent requirement, if
the Participant establishes to the satisfaction of the Plan
Administrator that such written consent may not be obtained
because there is no spouse or the spouse cannot be located,
no consent shall be required. Any change of Beneficiary will
require a new spousal consent.
B. PAYMENT TO BENEFICIARY - If a Participant dies before the
Participant's entire Individual Account has been paid to him
or her, such deceased Participant's Individual Account shall
be payable to any surviving Beneficiary designated by the
Participant, or, if no Beneficiary survives the Participant,
to the Participant's estate.
C. WRITTEN REQUEST: WHEN DISTRIBUTED - A Beneficiary of a
deceased Participant entitled to a distribution who wishes
to receive a distribution must submit a written request to
the Plan Administrator. Such request shall be made upon a
form provided by the Plan Administrator. Upon a valid
request, the Plan Administrator shall direct the Trustee (or
Custodian) to commence distribution no later than the time
specified in the Adoption Agreement for this purpose and if
not specified in the Adoption Agreement, then no later than
90 days following the later of:
1. the close of the Plan Year within which the Participant
dies; or
2. the close of the Plan Year in which the request is
received.
<PAGE> 24
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20
6.04 FORM OF DISTRIBUTION TO BENEFICIARY
A. VALUE OF INDIVIDUAL ACCOUNT DOES NOT EXCEED $3,500 - If the
value of the Participant's Individual Account derived from
Nondeductible Employee Contributions and Employer
Contributions does not exceed $3,500, the Plan Administrator
shall direct the Trustee (or Custodian, if applicable) to
make a distribution to the Beneficiary in a single lump sum
in lieu of all other forms of distribution from the Plan.
B. VALUE OF INDIVIDUAL ACCOUNT EXCEEDS $3,500 - If the value of
a Participant's Individual Account derived from
Nondeductible Employee Contributions and Employer
Contributions exceeds $3,500 the preretirement survivor
annuity requirements of Section 6.05 shall apply unless
waived in accordance with that Section or unless the
Retirement Equity Act safe harbor rules of Section 6.05(F)
apply. However, a surviving spouse Beneficiary may elect any
form of payment allowable under the Plan in lieu of the
preretirement survivor annuity. Any such payment to the
surviving spouse must meet the requirements of Section 6.06.
C. OTHER FORMS OF DISTRIBUTION TO BENEFICIARY - If the value of
a Participant's Individual Account exceeds $3,500 and the
Participant has properly waived the preretirement survivor
annuity, as described in Section 6.05 (if applicable) or if
the Beneficiary is the Participant's surviving spouse, the
Beneficiary may, subject to the requirements of Section
6.06, request in writing that the Participant's Individual
Account be paid as follows: (1) in a lump sum; or (2) in
installment payments over a period not to exceed the life
expectancy of such Beneficiary.
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS
A. The provisions of this Section shall apply to any
Participant who is credited with at least one Hour of
Eligibility Service with the Employer on or after August 23,
1984, and such other Participants as provided in Section
6.05(G).
B. QUALIFIED JOINT AND SURVIVOR ANNUITY - Unless an optional
form of benefit is selected pursuant to a qualified election
within the 90-day period ending on the annuity starting
date, a married Participant's Vested account balance will be
paid in the form of a qualified joint and survivor annuity
and an unmarried Participant's Vested account balance will
be paid in the form of a life annuity. The Participant may
elect to have such annuity distributed upon attainment of
the earliest retirement age under the Plan.
C. QUALIFIED PRERETIREMENT SURVIVOR ANNUITY - Unless an
optional form of benefit has been selected within the
election period pursuant to a qualified election, if a
Participant dies before the annuity starting date then the
Participant's Vested account balance shall be applied toward
the purchase of an annuity for the life of the surviving
spouse. The surviving spouse may elect to have such annuity
distributed within a reasonable period after the
Participant's death.
D. DEFINITIONS
1. Election Period - The period which begins on the first
day of the Plan Year in which the Participant attains
age 35 and ends on the date of the Participant's death.
If a Participant separates from service prior to the
first day of the Plan Year in which age 35 is attained,
with respect to the account balance as of the date of
separation, the election period shall begin on the date
of separation.
Pre-age 35 waiver - A Participant who will not yet
attain age 35 as of the end of any current Plan Year
may make special qualified election to waive the
qualified preretirement survivor annuity for the
period beginning on the date of such election and
ending on the first day of the Plan Year in which
the Participant will attain age 35. Such election
shall not be valid unless the Participant receives a
written explanation of the qualified preretirement
survivor annuity in such terms as are comparable to
the explanation required under Section 6.05(E)(1).
Qualified preretirement survivor annuity coverage
will be automatically reinstated as of the first day
of the Plan Year in which the Participant attains
age 35. Any new waiver on or after such date shall
be subject to the full requirements of this Section
6.05.
2. Earliest Retirement Age - The earliest date on which,
under the Plan, the Participant could elect to receive
retirement benefits.
3. Qualified Election - A waiver of a qualified joint and
survivor annuity or a qualified preretirement survivor
annuity. Any waiver of a qualified joint and survivor
annuity or a qualified preretirement survivor annuity
shall not be effective unless: (a) the Participant's
spouse consents in writing to the election, (b) the
election designates a specific Beneficiary, including
any class of beneficiaries or any contingent
beneficiaries, which may not be changed without spousal
consent (or the spouse expressly permits designations
by the Participant without any further spousal
consent); (c) the spouse's consent acknowledges the
effect of the election; and (d) the spouse's consent is
witnessed by a plan representative or notary public.
Additionally, a Participant's waiver of the qualified
joint and survivor annuity shall not be effective
unless the election designates a form of benefit
payment which may not be changed without spousal
consent (or the spouse expressly permits designations
by the Participant without any further spousal
consent). If it is established to the satisfaction of a
plan representative that there is no spouse or that the
spouse cannot be located, a waiver will be deemed a
qualified election.
Any consent by a spouse obtained under this
provision (or establishment that the consent of a
spouse may not be obtained) shall be effective only
with respect to such spouse. A consent that permits
designations by the Participant without any
requirement of further consent by such spouse must
acknowledge that the spouse has the right to limit
consent to a specific Beneficiary, and a specific
form of benefit where applicable, and that the
spouse voluntarily elects to relinquish either or
both of such rights. A revocation of a prior waiver
may be made by a Participant without the consent of
the spouse at any time before the commencement of
benefits. The number of revocations shall not be
limited. No consent obtained under this provision
shall be valid unless the Participant has received
notice as provided in Section 6.05(E) below.
4. Qualified Joint and Survivor Annuity - An immediate
annuity for the life of the Participant with a survivor
annuity for the life of the spouse which is not less
than 50% and not more than 100% of the amount of the
annuity which is payable during the joint lives of the
Participant and the spouse and which is the amount of
benefit which can be purchased with the Participant's
vested account balance. The percentage of the survivor
annuity under the Plan shall be 50% (unless a different
percentage is elected by the Employer in the Adoption
Agreement).
5. Spouse (surviving spouse) - The spouse or surviving
spouse of the Participant, provided that a former
spouse will be treated as the spouse or surviving
spouse and a current spouse will not be treated as the
spouse or surviving spouse to the extent provided under
a qualified domestic relations order as described in
Section 414(p) of the Code.
6. Annuity Starting Date - The first day of the first
period for which an amount is paid as an annuity or any
other form.
<PAGE> 25
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21
7. Vested Account Balance - The aggregate value of the
Participant's Vested account balances derived from
Employer and Nondeductible Employee Contributions
(including rollovers), whether Vested before or upon
death, including the proceeds of insurance contracts,
if any, on the Participant's life. The provisions of
this Section 6.05 shall apply to a Participant who is
Vested in amounts attributable to Employer
Contributions, Nondeductible Employee Contributions (or
both) at the time of death or distribution.
E. NOTICE REQUIREMENTS
1. In the case of a qualified joint and survivor annuity,
the Plan Administrator shall no less than 30 days and
not more than 90 days prior to the annuity starting
date provide each Participant a written explanation of:
(a) the terms and conditions of a qualified joint and
survivor annuity; (b) the Participant's right to make
and the effect of an election to waive the qualified
joint and survivor annuity form of benefit; (c) the
rights of a Participant's spouse; and (d) the right to
make, and the effect of, a revocation of a previous
election to waive the qualified joint and survivor
annuity.
2. In the case of a qualified preretirement annuity as
described in Section 6.05(C), the Plan Administrator
shall provide each Participant within the applicable
period for such Participant a written explanation of
the qualified preretirement survivor annuity in such
terms and in such manner as would be comparable to the
explanation provided for meeting the requirements of
Section 6.05(E)(1) applicable to a qualified joint and
survivor annuity.
The applicable period for a Participant is whichever
of the following periods ends last: (a) the period
beginning with the first day of the Plan Year in
which the Participant attains age 32 and ending with
the close of the Plan Year preceding the Plan Year
in which the Participant attains age 35; (b) a
reasonable period ending after the individual
becomes a Participant; (c) a reasonable period
ending after Section 6.05(E)(3) ceases to apply to
the Participant; and (d) a reasonable period ending
after this Section 6.05 first applies to the
Participant. Notwithstanding the foregoing, notice
must be provided within a reasonable period ending
after separation from service in the case of a
Participant who separates from service before
attaining age 35.
For purposes of applying the preceding paragraph, a
reasonable period ending after the enumerated events
described in (b), (c) and (d) is the end of the
two-year period beginning one year prior to the date
the applicable event occurs, and ending one year
after that date. In the case of a Participant who
separates from service before the Plan Year in which
age 35 is attained, notice shall be provided within
the two-year period beginning one year prior to
separation and ending one year after separation. If
such a Participant thereafter returns to employment
with the Employer, the applicable period for such
Participant shall be redetermined.
3. Notwithstanding the other requirements of this Section
6.05(E), the respective notices prescribed by this
Section 6.05(E), need not be given to a Participant if
(a) the Plan "fully subsidizes" the costs of a
qualified joint and survivor annuity or qualified
preretirement survivor annuity, and (b) the Plan does
not allow the Participant to waive the qualified joint
and survivor annuity or qualified preretirement
survivor annuity and does not allow a married
Participant to designate a nonspouse beneficiary. For
purposes of this Section 6.05(E)(3), a plan fully
subsidizes the costs of a benefit if no increase in
cost, or decrease in benefits to the Participant may
result from the Participant's failure to elect another
benefit.
F. RETIREMENT EQUITY ACT SAFE HARBOR RULES
1. If the Employer so indicates in the Adoption Agreement,
this Section 6.05(F) shall apply to a Participant in a
profit sharing plan, and shall always apply to any
distribution, made on or after the first day of the
first Plan Year beginning after December 31, 1988, from
or under a separate account attributable solely to
accumulated deductible employee contributions, as
defined in Section 72(o)(5)(B) of the Code, and
maintained on behalf of a Participant in a money
purchase pension plan, (including a target benefit
plan) if the following conditions are satisfied:
a. the Participant does not or cannot elect payments
in the form of a life annuity; and
b. on the death of a Participant, the Participant's
Vested account balance will be paid to the
Participant's surviving spouse, but if there is no
surviving spouse, or if the surviving spouse has
consented in a manner conforming to a qualified
election, then to the Participant's designated
Beneficiary. The surviving spouse may elect to
have distribution of the Vested account balance
commence within the 90-day period following the
date of the Participant's death. The account
balance shall be adjusted for gains or losses
occurring after the Participant's death in
accordance with the provisions of the Plan
governing the adjustment of account balances for
other types of distributions. This Section 6.05(F)
shall not be operative with respect to a
Participant in a profit sharing plan if the plan
is a direct or indirect transferee of a defined
benefit plan, money purchase plan, a target
benefit plan, stock bonus, or profit sharing plan
which is subject to the survivor annuity
requirements of Section 401(a)(11) and Section 417
of the code. If this Section 6.05(F) is operative,
then the provisions of this Section 6.05 other
than Section 6.05(G) shall be inoperative.
2. The Participant may waive the spousal death benefit
described in this Section 6.05(F) at any time provided
that no such waiver shall be effective unless it
satisfies the conditions of Section 6.05(D)(3) (other
than the notification requirement referred to therein)
that would apply to the Participant's waiver of the
qualified preretirement survivor annuity.
3. For purposes of this Section 6.05(F), Vested account
balance shall mean, in the case of a money purchase
pension plan or a target benefit plan, the
Participant's separate account balance attributable
solely to accumulated deductible employee contributions
within the meaning of Section 72(o)(5)(B) of the Code.
In the case of a profit sharing plan, Vested account
balance shall have the same meaning as provided in
Section 6.05(D)(7).
G. TRANSITIONAL RULES
1. Any living Participant not receiving benefits on August
23, 1984, who would otherwise not receive the benefits
prescribed by the previous subsections of this Section
6.05 must be given the opportunity to elect to have the
prior subsections of this Section apply if such
Participant is credited with at least one Hour of
Service under this Plan or a predecessor plan in a Plan
Year beginning on or after January 1, 1976, and such
Participant had at least 10 Years of Vesting Service
when he or she separated from service.
2. Any living Participant not receiving benefits on August
23, 1984, who was credited with at least one Hour of
Service under this Plan or a predecessor plan on or
after September 2, 1974, and who is not otherwise
credited with any service in a Plan Year beginning on
or after January 1, 1976, must be given the opportunity
to have his or her benefits paid in accordance with
Section 6.05(G)(4).
3. The respective opportunities to elect (as described in
Section 6.05(G)(1) and (2) above) must be afforded to
the appropriate Participants during the period
commencing on August 23, 1984, and ending on the date
benefits would otherwise commence to said Participants.
<PAGE> 26
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22
4. Any Participant who has elected pursuant to Section
6.05(G)(2) and any Participant who does not elect under
Section 6.05(G)(1) or who meets the requirements of
Section 6.05(G)(1) except that such Participant does
not have at least 10 Years of Vesting Service when he
or she separates from service, shall have his or her
benefits distributed in accordance with all of the
following requirements if benefits would have been
payable in the form of a life annuity:
a. Automatic Joint and Survivor Annuity - If benefits
in the form of a life annuity become payable to a
married Participant who:
(1) begins to receive payments under the Plan on
or after Normal Retirement Age; or
(2) dies on or after Normal Retirement Age while
still working for the Employer; or
(3) begins to receive payments on or after the
qualified early retirement age; or
(4) separates from service on or after attaining
Normal Retirement Age (or the qualified early
retirement age) and after satisfying the
eligibility requirements for the payment of
benefits under the Plan and thereafter dies
before beginning to receive such benefits;
then such benefits will be received under
this Plan in the form of a qualified joint
and survivor annuity, unless the Participant
has elected otherwise during the election
period. The election period must begin at
least 6 months before the Participant
attains qualified early retirement age and
ends not more than 90 days before the
commencement of benefits. Any election
hereunder will be in writing and may be
changed by the Participant at any time.
b. Election of Early Survivor Annuity - A Participant
who is employed after attaining the qualified
early retirement age will be given the opportunity
to elect, during the election period, to have a
survivor annuity payable on death. If the
Participant elects the survivor annuity, payments
under such annuity must not be less than the
payments which would have been made to the spouse
under the qualified joint and survivor annuity if
the Participant had retired on the day before his
or her death. Any election under this provision
will be in writing and may be changed by the
Participant at any time. The election period
begins on the later of (1) the 90th day before the
Participant attains the qualified early retirement
age, or (2) the date on which participation
begins, and ends on the date the Participant
terminates employment.
c. For purposes of Section 6.05(G)(4):
1. Qualified early retirement age is the latest
of:
a. the earliest date, under the Plan, on
which the Participant may elect to
receive retirement benefits,
b. the first day of the 120th month
beginning before the Participant reaches
Normal Retirement Age, or
c. the date the Participant begins
participation.
2. Qualified joint and survivor annuity is an
annuity for the life of the Participant with
a survivor annuity for the life of the spouse
as described in Section 6.05(D)(4) of this
Plan.
6.06 DISTRIBUTION REQUIREMENTS
A. GENERAL RULES
1. Subject to Section 6.05 Joint and Survivor Annuity
Requirements, the requirements of this Section shall
apply to any distribution of a Participant's interest
and will take precedence over any inconsistent
provisions of this Plan. Unless otherwise specified,
the provisions of this Section 6.06 apply to calendar
years beginning after December 31, 1984.
2. All distributions required under this Section 6.06
shall be determined and made in accordance with the
Income Tax Regulations under Section 401(a)(9),
including the minimum distribution incidental benefit
requirement of Section 1.401(a)(9)-2 of the proposed
regulations.
B. REQUIRED BEGINNING DATE - The entire interest of a
Participant must be distributed or begin to be distributed
no later than the Participant's required beginning date.
C. LIMITS ON DISTRIBUTION PERIODS - As of the first
distribution calendar year, distributions, if not made in a
single sum, may only be made over one of the following
periods (or a combination thereof):
1. the life of the Participant,
2. the life of the Participant and a designated
Beneficiary,
3. a period certain not extending beyond the life
expectancy of the Participant, or
4. a period certain not extending beyond the joint and
last survivor expectancy of the Participant and a
designated Beneficiary.
D. DETERMINATION OF AMOUNT TO BE DISTRIBUTED EACH YEAR - If the
Participant's interest is to be distributed in other than a
single sum, the following minimum distribution rules shall
apply on or after the required beginning date:
1. Individual Account
a. If a Participant's benefit is to be distributed
over (1) a period not extending beyond the life
expectancy of the Participant or the joint life
and last survivor expectancy of the Participant
and the Participant's designated Beneficiary or
(2) a period not extending beyond the life
expectancy of the designated Beneficiary, the
amount required to be distributed for each
calendar year, beginning with distributions for
the first distribution calendar year, must at
least equal the quotient obtained by dividing the
Participant's benefit by the applicable life
expectancy.
b. For calendar years beginning before January 1,
1989, if the Participant's spouse is not the
designated Beneficiary, the method of distribution
selected must assure that at least 50% of the
present value of the amount available for
distribution is paid within the life expectancy of
the Participant.
c. For calendar years beginning after December 31,
1988, the amount to be distributed each year,
beginning with distributions for the first
distribution calendar year shall not be less than
the quotient obtained by dividing the
Participant's benefit by the lesser of (1) the
applicable life expectancy or (2) if the
Participant's spouse is not the
<PAGE> 27
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23
designated Beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of
Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations. Distributions after the death of
the Participant shall be distributed using the
applicable life expectancy in Section
6.05(D)(1)(a) above as the relevant divisor
without regard to proposed regulations
1.401(a)(9)-2.
d. The minimum distribution required for the
Participant's first distribution calendar year
must be made on or before the Participant's
required beginning date. The minimum distribution
for other calendar years, including the minimum
distribution for the distribution calendar year in
which the Employee's required beginning date
occurs, must be made on or before December 31 of
that distribution calendar year.
2. Other Forms - If the Participant's benefit is
distributed in the form of an annuity purchased from an
insurance company, distributions thereunder shall be
made in accordance with the requirements of Section
401(a)(9) of the Code and the regulations thereunder.
E. DEATH DISTRIBUTION PROVISIONS
1. Distribution Beginning Before Death - If the Participant
dies after distribution of his or her interest has
begun, the remaining portion of such interest will
continue to be distributed at least as rapidly as under
the method of distribution being used prior to the
Participant's death.
2. Distribution Beginning After Death - If the Participant
dies before distribution of his or her interest begins,
distribution of the Participant's entire interest shall
be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's
death except to the extent that an election is made to
receive distributions in accordance with (a) or (b)
below:
a. if any portion of the Participant's interest is
payable to a designated Beneficiary, distributions
may be made over the life or over a period certain
not greater than the life expectancy of the
designated Beneficiary commencing on or before
December 31 of the calendar year immediately
following the calendar year in which the
Participant died;
b. if the designated Beneficiary is the Participant's
surviving spouse, the date distributions are
required to begin in accordance with (a) above
shall not be earlier than the later of (1)
December 31 of the calendar year immediately
following the calendar year in which the
Participant dies or (2) December 31 of the
calendar year in which the Participant would have
attained age 70 1/2.
If the Participant has not made an election
pursuant to this Section 6.05(E)(2) by the time
of his or her death, the Participant's
designated Beneficiary must elect the method of
distribution no later than the earlier of (1)
December 31 of the calendar year in which
distributions would be required to begin under
this Section 6.05(E)(2), or (2) December 31 of
the calendar year which contains the fifth
anniversary of the date of death of the
Participant. If the Participant has no
designated Beneficiary, or if the designated
Beneficiary does not elect a method of
distribution, distribution of the Participant's
entire interest must be completed by December
31 of the calendar year containing the fifth
anniversary of the Participant's death.
3. For purposes of Section 6.06(E)(2) above, if the
surviving spouse dies after the Participant, but
before payments to such spouse begin, the
provisions of Section 6.06(E)(2), with the
exception of paragraph (b) therein, shall be
applied as if the surviving spouse were the
Participant.
4. For purposes of this Section 6.06(E), any amount
paid to a child of the Participant will be treated
as if it had been paid to the surviving spouse if
the amount becomes payable to the surviving spouse
when the child reaches the age of majority.
5. For purposes of this Section 6.06(E), distribution
of a Participant's interest is considered to begin
on the Participant's required beginning date (or,
if Section 6.06(E)(3) above is applicable, the
date distribution is required to begin to the
surviving spouse pursuant to Section 6.06(E)(2)
above). If distribution in the form of an annuity
irrevocably commences to the Participant before
the required beginning date, the date distribution
is considered to begin is the date distribution
actually commences.
F. DEFINITIONS
1. Applicable Life Expectancy - The life expectancy
(or joint and last survivor expectancy) calculated
using the attained age of the Participant (or
designated Beneficiary) as of the Participant's
(or designated Beneficiary's) birthday in the
applicable calendar year reduced by one for each
calendar year which has elapsed since the date
life expectancy was first calculated. If life
expectancy is being recalculated, the applicable
life expectancy shall be the life expectancy as so
recalculated. The applicable calendar year shall
be the first distribution calendar year, and if
life expectancy is being recalculated such
succeeding calendar year.
2. Designated Beneficiary - The individual who is
designated as the Beneficiary under the Plan in
accordance with Section 401(a)(9) of the Code and
the regulations thereunder.
3. Distribution Calendar Year - A calendar year for
which a minimum distribution is required. For
distributions beginning before the Participant's
death, the first distribution calendar year is the
calendar year immediately preceding the calendar
year which contains the Participant's required
beginning date. For distributions beginning after
the Participant's death, the first distribution
calendar year is the calendar year in which
distributions are required to begin pursuant to
Section 6.05(E) above.
4. Life Expectancy - Life expectancy and joint and
last survivor expectancy are computed by use of
the expected return multiples in Tables V and VI
of Section 1.72-9 of the Income Tax Regulations.
Unless otherwise elected by the Participant (or
spouse, in the case of distributions described
in Section 6.05(E)(2)(b) above) by the time
distributions are required to begin, life
expectancies shall be recalculated annually.
Such election shall be irrevocable as to the
Participant (or spouse) and shall apply to all
subsequent years. The life expectancy of a
nonspouse Beneficiary may not be recalculated.
5. Participant's Benefit
a. The account balance as of the last valuation
date in the valuation calendar year (the
calendar year immediately preceding the
distribution calendar year) increased by the
amount of any Contributions or Forfeitures
allocated to the account balance as of dates
in the valuation calendar year after the
valuation date and decreased by distributions
made in the valuation calendar year after the
valuation date.
<PAGE> 28
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24
b. Exception for second distribution calendar
year. For purposes of paragraph (a) above, if
any portion of the minimum distribution for
the first distribution calendar year is made
in the second distribution calendar year on
or before the required beginning date, the
amount of the minimum distribution made in
the second distribution calendar year shall
be treated as if it had been made in the
immediately preceding distribution calendar
year.
6. Required Beginning Date
a. General Rule - The required beginning date of
a Participant is the first day of April of
the calendar year following the calendar year
in which the Participant attains age 70 1/2.
b. Transitional Rules - The required beginning
date of a Participant who attains age 70 1/2
before January 1, 1988, shall be determined
in accordance with (1) or (2) below:
(1) Non 5% Owners - The required beginning
date of a Participant who is not a 5%
owner is the first day of April of the
calendar year following the calendar
year in which the later of retirement or
attainment of age 70 1/2 occurs.
(2) 5% Owners - The required beginning date
of a Participant who is a 5% owner
during any year beginning after December
31, 1979, is the first day of April
following the later of:
(a) the calendar year in which the
Participant attains age 70 1/2, or
(b) the earlier of the calendar year
with or within which ends the Plan
Year in which the Participant
becomes a 5% owner, or the calendar
year in which the Participant
retires.
The required beginning date of a
Participant who is not a 5% owner
who attains age 70 1/2 during 1988
and who has not retired as of
January 1, 1989, is April 1, 1990.
c. 5% Owner - A Participant is treated as a 5%
owner for purposes of this Section 6.06(F)(6)
if such Participant is a 5% owner as defined
in Section 416(i) of the Code (determined in
accordance with Section 416 but without
regard to whether the Plan is top-heavy) at
any time during the Plan Year ending with or
within the calendar year in which such owner
attains age 66 1/2 or any subsequent Plan
Year.
d. Once distributions have begun to a 5% owner
under this Section 6.06(F)(6) they must
continue to be distributed, even if the
Participant ceases to be a 5% owner in a
subsequent year.
G. TRANSITIONAL RULE
1. Notwithstanding the other requirements of this
Section 6.06 and subject to the requirements of
Section 6.05, Joint and Survivor Annuity
Requirements, distribution on behalf of any
Employee, including a 5% owner, may be made in
accordance with all of the following requirements
(regardless of when such distribution commences):
a. The distribution by the Fund is one which
would not have qualified such Fund under
Section 401(a)(9) of the Code as in effect
prior to amendment by the Deficit Reduction
Act of 1984.
b. The distribution is in accordance with a
method of distribution designated by the
Employee whose interest in the Fund is being
distributed or, if the Employee is deceased,
by a Beneficiary of such Employee.
c. Such designation was in writing, was signed
by the Employee or the Beneficiary, and was
made before January 1, 1984.
d. The Employee had accrued a benefit under the
Plan as of December 31, 1983.
e. The method of distribution designated by the
Employee or the Beneficiary specifies the
time at which distribution will commence, the
period over which distributions will be made,
and in the case of any distribution upon the
Employee's death, the Beneficiaries of the
Employee listed in order of priority.
2. A distribution upon death will not be covered by
this transitional rule unless the information in
the designation contains the required information
described above with respect to the distributions
to be made upon the death of the Employee.
3. For any distribution which commences before
January 1, 1984, but continues after December 31,
1983, the Employee, or the Beneficiary, to whom
such distribution is being made, will be presumed
to have designated the method of distribution
under which the distribution is being made if the
method of distribution was specified in writing
and the distribution satisfies the requirements in
Sections 6.06(G)(1)(a) and (e).
4. If a designation is revoked, any subsequent
distribution must satisfy the requirements of
Section 401(a)(9) of the Code and the regulations
thereunder. If a designation is revoked subsequent
to the date distributions are required to begin,
the Plan must distribute by the end of the
calendar year following the calendar year in which
the revocation occurs the total amount not yet
distributed which would have been required to have
been distributed to satisfy Section 401(a)(9) of
the Code and the regulations thereunder, but for
the Section 242(b)(2) election. For calendar years
beginning after December 31, 1988, such
distributions must meet the minimum distribution
incidental benefit requirements in Section
1.401(a)(9)-2 of the Proposed Income Tax
Regulations. Any changes in the designation will
be considered to be a revocation of the
designation. However, the mere substitution or
addition of another Beneficiary (one not named in
the designation) under the designation will not be
considered to be a revocation of the designation,
so long as such substitution or addition does not
alter the period over which distributions are to
be made under the designation, directly or
indirectly (for example, by altering the relevant
measuring life). In the case in which an amount is
transferred or rolled over from one plan to
another plan, the rules in Q&A J-2 and Q&A J-3
shall apply.
6.07 ANNUITY CONTRACTS
Any annuity contract distributed under the Plan (if permitted or
required by this Section 6) must be nontransferable. The terms of
any annuity contract purchased and distributed by the Plan to a
Participant or spouse shall comply with the requirements of the
Plan.
6.08 LOANS TO PARTICIPANTS
If the Adoption Agreement so indicates, a Participant may receive
a loan from the Fund, subject to the following rules:
A. Loans shall be made available to all Participants on a
reasonably equivalent basis.
B. Loans shall not be made available to Highly Compensated
Employees (as defined in Section 414(q) of the Code) in an
amount greater than the amount made available to other
Employees.
<PAGE> 29
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25
C. Loans must be adequately secured and bear a reasonable
interest rate.
D. No Participant loan shall exceed the present value of the
Vested portion of a Participant's Individual Account.
E. A Participant must obtain the consent of his or her spouse,
if any, to the use of the Individual Account as security for
the loan. Spousal consent shall be obtained no earlier than
the beginning of the 90 day period that ends on the date on
which the loan is to be so secured. The consent must be in
writing, must acknowledge the effect of the loan, and must
be witnessed by a plan representative or notary public. Such
consent shall thereafter be binding with respect to the
consenting spouse or any subsequent spouse with respect to
that loan. A new consent shall be required if the account
balance is used for renegotiation, extension, renewal, or
other revision of the loan. Notwithstanding the foregoing,
no spousal consent is necessary if, at the time the loan is
secured, no consent would be required for a distribution
under Section 417(a)(2)(B). In addition, spousal consent is
not required if the Plan or the Participant is not subject
to Section 401(a)(11) at the time the Individual Account is
used as security, or if the total Individual Account subject
to the security is less than or equal to $3,500.
F. In the event of default, foreclosure on the note and
attachment of security will not occur until a distributable
event occurs in the Plan. Notwithstanding the preceding
sentence, a Participant's default on a loan will be treated
as a distributable event and as soon as administratively
feasible after the default, the Participant's Vested
Individual Account will be reduced by the lesser of the
amount in default (plus accrued interest) or the amount
secured. If this Plan is a 401(k) plan, then to the extent
the loan is attributable to a Participant's Elective
Deferrals, Qualified Nonelective Contributions or Qualified
Matching Contributions, the Participant's Individual Account
will not be reduced unless the Participant has attained age
59 1/2 or has another distributable event. A
Participant will be deemed to have consented to the
provision at the time the loan is made to the Participant.
G. No loans will be made to any shareholder-employee or
Owner-Employee. For purposes of this requirement, a
shareholder-employee means an employee or officer of an
electing small business (Subchapter S) corporation who owns
(or is considered as owning within the meaning of Section
318(a)(1) of the Code), on any day during the taxable year
of such corporation, more than 5% of the outstanding stock
of the corporation.
If a valid spousal consent has been obtained in accordance
with 6.08(E), then, notwithstanding any other provisions of
this Plan, the portion of the Participant's Vested
Individual Account used as a security interest held by the
Plan by reason of a loan outstanding to the Participant
shall be taken into account for purposes of determining the
amount of the account balance payable at the time of death
or distribution, but only if the reduction is used as
repayment of the loan. If less than 100% of the
Participant's Vested Individual Account (determined without
regard to the preceding sentence) is payable to the
surviving spouse, then the account balance shall be adjusted
by first reducing the Vested Individual Account by the
amount of the security used as repayment of the loan, and
then determining the benefit payable to the surviving
spouse.
To avoid taxation to the Participant, no loan to any
Participant can be made to the extent that such loan when
added to the outstanding balance of all other loans to the
Participant would exceed the lesser of (a) $50,000 reduced
by the excess (if any) of the highest outstanding balance of
loans during the one year period ending on the day before
the loan is made, over the outstanding balance of loans from
the Plan on the date the loan is made, or (b) 50% of the
present value of the nonforfeitable Individual Account of
the Participant or, if greater, the total Individual Account
up to $10,000. For the purpose of the above limitation, all
loans from all plans of the Employer and other members of a
group of employers described in Sections 414(b), 414(c), and
414(m) of the Code are aggregated. Furthermore, any loan
shall by its terms require that repayment (principal and
interest) be amortized in level payments, not less
frequently than quarterly, over a period not extending
beyond 5 years from the date of the loan, unless such loan
is used to acquire a dwelling unit which within a reasonable
time (determined at the time the loan is made) will be used
as the principal residence of the Participant. An assignment
or pledge of any portion of the Participant's interest in
the Plan and a loan, pledge, or assignment with respect to
any insurance contract purchased under the Plan, will be
treated as a loan under this paragraph.
The Plan Administrator shall administer the loan program in
accordance with a written document. Such written document
shall include, at a minimum, the following: (i) the identity
of the person or positions authorized to administer the
Participant loan program; (ii) the procedure for applying
for loans; (iii) the basis on which loans will be approved
or denied; (iv) limitations (if any) on the types and
amounts of loans offered; (v) the procedure under the
program for determining a reasonable rate of interest; (vi)
the types of collateral which may secure a Participant loan;
and (vii) the events constituting default and the steps that
will be taken to preserve Plan assets in the event of such
default.
6.09 DISTRIBUTION IN KIND
The Plan Administrator may cause any distribution under this Plan
to be made either in a form actually held in the Fund, or in cash
by converting assets other than cash into cash, or in any
combination of the two foregoing ways.
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS
A. DIRECT ROLLOVER OPTION
This Section applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan
to the contrary that would otherwise limit a distributee's
election under this Section, a distributee may elect, at the
time and in the manner prescribed by the Plan Administrator,
to have any portion of an eligible rollover distribution
that is equal to at least $500 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:
a. any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or
life expectancy) of the 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;
b. any distribution to the extent such distribution
is required under Section 401(a)(9) of the Code;
c. the portion of any other distribution that is not
includible in gross income (determined without
regard to the exclusion for net unrealized
appreciation with respect to employer securities);
and
d. any other distribution(s) that is reasonably
expected to total less than $200 during a year.
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
<PAGE> 30
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26
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.
6.11 PROCEDURE FOR MISSING PARTICIPANTS OR BENEFICIARIES
The Plan Administrator must use all reasonable measures to locate
Participants or Beneficiaries who are entitled to distributions
from the Plan. In the event that the Plan Administrator cannot
locate a Participant or Beneficiary who is entitled to a
distribution from the Plan after using all reasonable measures to
locate him or her, the Plan Administrator may, consistent with
applicable laws, regulations and other pronouncements under
ERISA, use any reasonable procedure to dispose of distributable
plan assets, including any of the following: (1) establish a bank
account for and in the name of the Participant or Beneficiary and
transfer the assets to such bank account, (2) purchase an annuity
contract with the assets in the name of the Participant or
Beneficiary, or (3) after the expiration of 5 years after the
benefit becomes payable, treat the amount distributable as a
Forfeiture and allocate it in accordance with the terms of the
Plan and if the Participant or Beneficiary is later located,
restore such benefit to the Plan.
SECTION SEVEN CLAIMS PROCEDURE
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS
A Participant or Beneficiary who desires to make a claim for the
Vested portion of the Participant's Individual Account shall file
a written request with the Plan Administrator on a form to be
furnished to him or her by the Plan Administrator for such
purpose. The request shall set forth the basis of the claim. The
Plan Administrator is authorized to conduct such examinations as
may be necessary to facilitate the payment of any benefits to
which the Participant or Beneficiary may be entitled under the
terms of the Plan.
7.02 DENIAL OF CLAIM
Whenever a claim for a Plan distribution by any Participant or
Beneficiary has been wholly or partially denied, the Plan
Administrator must furnish such Participant or Beneficiary
written notice of the denial within 60 days of the date the
original claim was filed. This notice shall set forth the
specific reasons for the denial, specific reference to pertinent
Plan provisions on which the denial is based, a description of
any additional information or material needed to perfect the
claim, an explanation of why such additional information or
material is necessary and an explanation of the procedures for
appeal.
7.03 REMEDIES AVAILABLE
The Participant or Beneficiary shall have 60 days from receipt of
the denial notice in which to make written application for review
by the Plan Administrator. The Participant or Beneficiary may
request that the review be in the nature of a hearing. The
Participant or Beneficiary shall have the right to
representation, to review pertinent documents and to submit
comments in writing. The Plan Administrator shall issue a
decision on such review within 60 days after receipt of an
application for review as provided for in Section 7.02. Upon a
decision unfavorable to the Participant or Beneficiary, such
Participant or Beneficiary shall be entitled to bring such
actions in law or equity as may be necessary or appropriate to
protect or clarify his or her right to benefits under this Plan.
SECTION EIGHT PLAN ADMINISTRATOR
8.01 EMPLOYER IS PLAN ADMINISTRATOR
A. The Employer shall be the Plan Administrator unless the
managing body of the Employer designates a person or persons
other than the Employer as the Plan Administrator and so
notifies the Trustee (or Custodian, if applicable). The
Employer shall also be the Plan Administrator if the person
or persons so designated cease to be the Plan Administrator.
The Employer may establish an administrative committee that
will carry out the Plan Administrator's duties. Members of
the administrative committee may allocate the Plan
Administrator's duties among themselves.
B. If the managing body of the Employer designates a person or
persons other than the Employer as Plan Administrator, such
person or persons shall serve at the pleasure of the
Employer and shall serve pursuant to such procedures as such
managing body may provide. Each such person shall be bonded
as may be required by law.
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR
A. The Plan Administrator may, by appointment, allocate the
duties of the Plan Administrator among several individuals
or entities. Such appointments shall not be effective until
the party designated accepts such appointment in writing.
B. The Plan Administrator shall have the authority to control
and manage the operation and administration of the Plan. The
Plan Administrator shall administer the Plan for the
exclusive benefit of the Participants and their
Beneficiaries in accordance with the specific terms of the
Plan.
C. The Plan Administrator shall be charged with the duties of
the general administration of the Plan, including, but not
limited to the following:
1. To determine all questions of interpretation or policy
in a manner consistent with the Plan's documents and
the Plan Administrator's construction or determination
in good faith shall be conclusive and binding on all
persons except as otherwise provided herein or by law.
Any interpretation or construction shall be done in a
nondiscriminatory manner and shall be consistent with
the intent that the Plan shall continue to be deemed a
qualified plan under the terms of Section 401(a) of the
Code, as amended from time-to-time, and shall comply
with the terms of ERISA, as amended from time-to-time;
2. To determine all questions relating to the eligibility
of Employees to become or remain Participants
hereunder;
3. To compute the amounts necessary or desirable to be
contributed to the Plan;
4. To compute the amount and kind of benefits to which a
Participant or Beneficiary shall be entitled under the
Plan and to direct the Trustee (or Custodian, if
applicable) with respect to all disbursements under the
Plan, and, when requested by
<PAGE> 31
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27
the Trustee (or Custodian), to furnish the Trustee
(or Custodian) with instructions, in writing, on
matters pertaining to the Plan and the Trustee (or
Custodian) may rely and act thereon;
5. To maintain all records necessary for the
administration of the Plan;
6. To be responsible for preparing and filing such
disclosure and tax forms as may be required from
time-to-time by the Secretary of Labor or the Secretary
of the Treasury; and
7. To furnish each Employee, Participant or Beneficiary
such notices, information and reports under such
circumstances as may be required by law.
D. The Plan Administrator shall have all of the powers
necessary or appropriate to accomplish his or her duties
under the Plan, including, but not limited to, the
following:
1. To appoint and retain such persons as may be necessary
to carry out the functions of the Plan Administrator;
2. To appoint and retain counsel, specialists or other
persons as the Plan Administrator deems necessary or
advisable in the administration of the Plan;
3. To resolve all questions of administration of the Plan;
4. To establish such uniform and nondiscriminatory rules
which it deems necessary to carry out the terms of the
Plan;
5. To make any adjustments in a uniform and
nondiscriminatory manner which it deems necessary to
correct any arithmetical or accounting errors which may
have been made for any Plan Year; and
6. To correct any defect, supply any omission or reconcile
any inconsistency in such manner and to such extent as
shall be deemed necessary or advisable to carry out the
purpose of the Plan.
8.03 EXPENSES AND COMPENSATION
All reasonable expenses of administration including, but not
limited to, those involved in retaining necessary professional
assistance may be paid from the assets of the Fund.
Alternatively, the Employer may, in its discretion, pay any or
all such expenses. Pursuant to uniform and nondiscriminatory
rules that the Plan Administrator may establish from
time-to-time, administrative expenses and expenses unique to a
particular Participant may be charged to a Participant's
Individual Account or the Plan Administrator may allow
Participants to pay such fees outside of the Plan. The Employer
shall furnish the Plan Administrator with such clerical and other
assistance as the Plan Administrator may need in the performance
of his or her duties.
8.04 INFORMATION FROM EMPLOYER
To enable the Plan Administrator to perform his or her duties,
the Employer shall supply full and timely information to the Plan
Administrator (or his or her designated agents) on all matters
relating to the Compensation of all Participants, their regular
employment, retirement, death, Disability or Termination of
Employment, and such other pertinent facts as the Plan
Administrator (or his or her agents) may require. The Plan
Administrator shall advise the Trustee (or Custodian, if
applicable) of such of the foregoing facts as may be pertinent to
the Trustee's (or Custodian's) duties under the Plan. The Plan
Administrator (or his or her agents) is entitled to rely on such
information as is supplied by the Employer and shall have no duty
or responsibility to verify such information.
SECTION NINE AMENDMENT AND TERMINATION
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN
A. The Employer, by adopting the Plan, expressly delegates to the
Prototype Sponsor the power, but not the duty, to amend the Plan
without any further action or consent of the Employer as the
Prototype Sponsor deems necessary for the purpose of adjusting
the Plan to comply with all laws and regulations governing
pension or profit sharing plans. Specifically, it is understood
that the amendments may be made unilaterally by the Prototype
Sponsor. However, it shall be understood that the Prototype
Sponsor shall be under no obligation to amend the Plan documents
and the Employer expressly waives any rights or claims against
the Prototype Sponsor for not exercising this power to amend. For
purposes of Prototype Sponsor amendments, the mass submitter
shall be recognized as the agent of the Prototype Sponsor. If the
Prototype Sponsor does not adopt the amendments made by the mass
submitter, it will no longer be identical to or a minor modifier
of the mass submitter plan.
B. An amendment by the Prototype Sponsor shall be accomplished by
giving written notice to the Employer of the amendment to be
made. The notice shall set forth the text of such amendment and
the date such amendment is to be effective. Such amendment shall
take effect unless within the 30 day period after such notice is
provided, or within such shorter period as the notice may
specify, the Employer gives the Prototype Sponsor written notice
of refusal to consent to the amendment. Such written notice of
refusal shall have the effect of withdrawing the Plan as a
prototype plan and shall cause the Plan to be considered an
individually designed plan. The right of the Prototype Sponsor to
cause the Plan to be amended shall terminate should the Plan
cease to conform as a prototype plan as provided in this or any
other section.
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN
The Employer may (1) change the choice of options in the Adoption
Agreement; (2) add overriding language in the Adoption Agreement
when such language is necessary to satisfy Section 415 or Section
416 of the Code because of the required aggregation of multiple
plans; and (3) add certain model amendments published by the
Internal Revenue Service which specifically provide that their
adoption will not cause the Plan to be treated as individually
designed. An Employer that amends the Plan for any other reason,
including a waiver of the minimum funding requirement under
Section 412(d) of the Code, will no longer participate in this
prototype plan and will be considered to have an individually
designed plan.
An Employer who wishes to amend the Plan to change the options it
has chosen in the Adoption Agreement must complete and deliver a
new Adoption Agreement to the Prototype Sponsor and Trustee (or
Custodian, if applicable). Such amendment shall become effective
upon execution by the Employer and Trustee (or Custodian).
The Employer further reserves the right to replace the Plan in
its entirety by adopting another retirement plan which the
Employer designates as a replacement plan.
9.03 LIMITATION ON POWER TO AMEND
No amendment to the Plan shall be effective to the extent that it
has the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's
Individual Account may be reduced to the extent permitted under
<PAGE> 32
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Section 412(c)(8) of the Code. For purposes of this paragraph, a
plan amendment which has the effect of decreasing a Participant's
Individual Account 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, if the vesting schedule of a Plan is amended, in the
case of an Employee who is a Participant as of the later of the
date such amendment is adopted or the date it becomes effective,
the Vested percentage (determined as of such date) of such
Employee's Individual Account derived from Employer Contributions
will not be less than the percentage computed under the Plan
without regard to such amendment.
9.04 AMENDMENT OF VESTING SCHEDULE
If the Plan's vesting schedule is amended, or the Plan is amended
in any way that directly or indirectly affects the computation of
the Participant's Vested 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 3 Years of Vesting
Service with the Employer may elect, within the time set forth
below, to have the Vested percentage computed under the Plan
without regard to such amendment.
For Participants who do not have at least 1 Hour of Service in
any Plan Year beginning after December 31, 1988, the preceding
sentence shall be applied by substituting "5 Years of Vesting
Service" for "3 Years of Vesting Service" where such language
appears.
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 the later of:
A. 60 days after the amendment is adopted;
B. 60 days after the amendment becomes effective; or
C. 60 days after the Participant is issued written notice of
the amendment by the Employer or Plan Administrator.
9.05 PERMANENCY
The Employer expects to continue this Plan and make the necessary
contributions thereto indefinitely, but such continuance and
payment is not assumed as a contractual obligation. Neither the
Adoption Agreement nor the Plan nor any amendment or modification
thereof nor the making of contributions hereunder shall be
construed as giving any Participant or any person whomsoever any
legal or equitable right against the Employer, the Trustee (or
Custodian, if applicable) the Plan Administrator or the Prototype
Sponsor except as specifically provided herein, or as provided by
law.
9.06 METHOD AND PROCEDURE FOR TERMINATION
The Plan may be terminated by the Employer at any time by
appropriate action of its managing body. Such termination shall
be effective on the date specified by the Employer. The Plan
shall terminate if the Employer shall be dissolved, terminated,
or declared bankrupt. Written notice of the termination and
effective date thereof shall be given to the Trustee (or
Custodian), Plan Administrator, Prototype Sponsor, Participants
and Beneficiaries of deceased Participants, and the required
filings (such as the Form 5500 series and others) must be made
with the Internal Revenue Service and any other regulatory body
as required by current laws and regulations. Until all of the
assets have been distributed from the Fund, the Employer must
keep the Plan in compliance with current laws and regulations by
(a) making appropriate amendments to the Plan and (b) taking such
other measures as may be required.
9.07 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER
Notwithstanding the preceding Section 9.06, a successor of the
Employer may continue the Plan and be substituted in the place of
the present Employer. The successor and the present Employer (or,
if deceased, the executor of the estate of a deceased
Self-Employed Individual who was the Employer) must execute a
written instrument authorizing such substitution and the
successor must complete and sign a new plan document.
9.08 FAILURE OF PLAN QUALIFICATION
If the Plan fails to retain its qualified status, the Plan will
no longer be considered to be part of a prototype plan, and such
Employer can no longer participate under this prototype. In such
event, the Plan will be considered an individually designed plan.
SECTION TEN MISCELLANEOUS
10.01 STATE COMMUNITY PROPERTY LAWS
The terms and conditions of this Plan shall be applicable without
regard to the community property laws of any state.
10.02 HEADINGS
The headings of the Plan have been inserted for convenience of
reference only and are to be ignored in any construction of the
provisions hereof.
10.03 GENDER AND NUMBER
Whenever any words are used herein in the masculine gender they
shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and whenever any
words are used herein in the singular form they shall be
construed as though they were also used in the plural form in all
cases where they would so apply.
10.04 PLAN MERGER OR CONSOLIDATION
In the case of any merger or consolidation of the Plan with, or
transfer of assets or liabilities of such Plan to, any other
plan, each Participant shall be entitled to receive benefits
immediately after the merger, consolidation, or transfer (if the
Plan had then terminated) which are equal to or greater than the
benefits he or she would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the
Plan had then terminated). The Trustee (or Custodian) has the
authority to enter into merger agreements or agreements to
directly transfer the assets of this Plan but only if such
agreements are made with trustees or custodians of other
retirement plans described in Section 401(a) of the Code.
10.05 STANDARD OF FIDUCIARY CONDUCT
The Employer, Plan Administrator, Trustee and any other fiduciary
under this Plan shall discharge their duties with respect to this
Plan solely in the interests of Participants and their
Beneficiaries and with the care, skill, prudence and diligence
under the circumstances then prevailing that a prudent man acting
in like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like aims.
No fiduciary shall cause the Plan to engage in any transaction
known as a "prohibited transaction" under ERISA.
<PAGE> 33
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29
10.06 GENERAL UNDERTAKING OF ALL PARTIES
All parties to this Plan and all persons claiming any interest
whatsoever hereunder agree to perform any and all acts and
execute any and all documents and papers which may be necessary
or desirable for the carrying out of this Plan and any of its
provisions.
10.07 AGREEMENT BINDS HEIRS, ETC.
This Plan shall be binding upon the heirs, executors,
administrators, successors and assigns, as those terms shall
apply to any and all parties hereto, present and future.
10.08 DETERMINATION OF TOP-HEAVY STATUS
A. For any Plan Year beginning after December 31, 1983, this
Plan is a Top-Heavy Plan if any of the following conditions
exist:
1. If the top-heavy ratio for this Plan exceeds 60% and
this Plan is not part of any required aggregation group
or permissive aggregation group of plans.
2. If this Plan is part of a required aggregation group of
plans but not part of a permissive aggregation group
and the top-heavy ratio for the group of plans exceeds
60%.
3. If this Plan is a part of a required aggregation group
and part of a permissive aggregation group of plans and
the top-heavy ratio for the permissive aggregation
group exceeds 60%.
For purposes of this Section 10.08, the following
terms shall have the meanings indicated below:
B. KEY EMPLOYEE - Any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the
determination period was an officer of the Employer if such
individual's annual compensation exceeds 50% of the dollar
limitation under Section 415(b)(1)(A) of the Code, an owner
(or considered an owner under Section 318 of the Code) of
one of the 10 largest interests in the Employer if such
individual's compensation exceeds 100% of the dollar
limitation under Section 415(c)(1)(A) of the Code, a 5%
owner of the Employer, or a 1% owner of the Employer who has
an annual compensation of more than $150,000. Annual
compensation means compensation as defined in Section
415(c)(3) of the Code, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which
are excludable from the Employee's gross income under
Section 125, Section 402(e)(3), Section 402(h)(1)(B) or
Section 403(b) of the Code. The determination period is the
Plan Year containing the determination date and the 4
preceding Plan Years.
The determination of who is a Key Employee will be made in
accordance with Section 416(i)(1) of the Code and the
regulations thereunder.
C. TOP-HEAVY RATIO
1. If the Employer maintains one or more defined
contribution plans (including any simplified employee
pension plan) and the Employer has not maintained any
defined benefit plan which during the 5-year period
ending on the determination date(s) has or has had
accrued benefits, the top-heavy ratio for this Plan
alone or for the required or permissive aggregation
group as appropriate is a fraction, the numerator of
which is the sum of the account balances of all Key
Employees as of the determination date(s) (including
any part of any account balance distributed in the
5-year period ending on the determination date(s)), and
the denominator of which is the sum of all account
balances (including any part of any account balance
distributed in the 5-year period ending on the
determination date(s)), both computed in accordance
with Section 416 of the Code and the regulations
thereunder. Both the numerator and the denominator of
the top-heavy ratio are increased to reflect any
contribution not actually made as of the determination
date, but which is required to be taken into account on
that date under Section 416 of the Code and the
regulations thereunder.
2. If the Employer maintains one or more defined
contribution plans (including any simplified employee
pension plan) and the Employer maintains or has
maintained one or more defined benefit plans which
during the 5-year period ending on the determination
date(s) has or has had any accrued benefits, the
top-heavy ratio for any required or permissive
aggregation group as appropriate is a fraction, the
numerator of which is the sum of account balances under
the aggregated defined contribution plan or plans for
all Key Employees, determined in accordance with (1)
above, and the present value of accrued benefits under
the aggregated defined benefit plan or plans for all
Key Employees as of the determination date(s), and the
denominator of which is the sum of the account balances
under the aggregated defined contribution plan or plans
for all Participants, determined in accordance with (1)
above, and the present value of accrued benefits under
the defined benefit plan or plans for all Participants
as of the determination date(s), all determined in
accordance with Section 416 of the Code and the
regulations thereunder. The accrued benefits under a
defined benefit plan in both the numerator and
denominator of the top-heavy ratio are increased for
any distribution of an accrued benefit made in the
5-year period ending on the determination date.
3. For purposes of (1) and (2) above, the value of account
balances and the present value of accrued benefits will
be determined as of the most recent valuation date that
falls within or ends with the 12-month period ending on
the determination date, except as provided in Section
416 of the Code and the regulations thereunder for the
first and second plan years of a defined benefit plan.
The account balances and accrued benefits of a
Participant (a) who is not a Key Employee but who was a
Key Employee in a Prior Year, or (b) who has not been
credited with at least one Hour of Service with any
employer maintaining the plan at any time during the
5-year period ending on the determination date will be
disregarded. The calculation of the top-heavy ratio,
and the extent to which distributions, rollovers, and
transfers are taken into account will be made in
accordance with Section 416 of the Code and the
regulations thereunder. Deductible employee
contributions will not be taken into account for
purposes of computing the top-heavy ratio. When
aggregating plans the value of account balances and
accrued benefits will be calculated with reference to
the determination dates that fall within the same
calendar year.
The accrued benefit of a Participant other than a
Key Employee shall be determined under (a) the
method, if any, that uniformly applies for accrual
purposes under all defined benefit plans maintained
by the Employer, or (b) if there is no such method,
as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional
rule of Section 411(b)(1)(C) of the Code.
4. Permissive aggregation group: The required aggregation
group of plans plus any other plan or plans of the
Employer which, when considered as a group with the
required aggregation group, would continue to satisfy
the requirements of Sections 401(a)(4) and 410 of the
Code.
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30
5. Required aggregation group: (a) Each qualified plan of
the Employer in which at least one Key Employee
participates or participated at any time during the
determination period (regardless of whether the Plan
has terminated), and (b) any other qualified plan of
the Employer which enables a plan described in (a) to
meet the requirements of Sections 401(a)(4) or 410 of
the Code.
6. Determination date: For any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan
Year. For the first Plan Year of the Plan, the last day
of that year.
7. Valuation date: For purposes of calculating the
top-heavy ratio, the valuation date shall be the last
day of each Plan Year.
8. Present value: For purposes of establishing the
"present value" of benefits under a defined benefit
plan to compute the top-heavy ratio, any benefit shall
be discounted only for mortality and interest based on
the interest rate and mortality table specified for
this purpose in the defined benefit plan, unless
otherwise indicated in the Adoption Agreement.
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES
If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan
is established and one or more other trades or businesses, this
Plan and the plan established for other trades or businesses
must, when looked at as a single plan, satisfy Sections 401(a)
and (d) of the Code for the employees of those trades or
businesses.
If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or
businesses, the employees of the other trades or businesses must
be included in a plan which satisfies Sections 401(a) and (d) of
the Code and which provides contributions and benefits not less
favorable than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans
of two or more trades or businesses which are not controlled and
the individual controls a trade or business, then the
contributions or benefits of the employees under the plan of the
trade or business which is controlled must be as favorable as
those provided for him or her under the most favorable plan of
the trade or business which is not controlled.
For purposes of the preceding paragraphs, an Owner-Employee, or
two or more Owner-Employees, will be considered to control a
trade or business if the Owner-Employee, or two or more
Owner-Employees, together:
A. own the entire interest in a unincorporated trade or
business, or
B. in the case of a partnership, own more than 50% of either
the capital interest or the profit interest in the
partnership.
For purposes of the preceding sentence, an Owner-Employee, or two
or more Owner-Employees, shall be treated as owning any interest
in a partnership which is owned, directly or indirectly, by a
partnership which such Owner-Employee, or such two or more
Owner-Employees, are considered to control within the meaning of
the preceding sentence.
10.10 INALIENABILITY OF BENEFITS
No benefit or interest available hereunder will be subject to
assignment or alienation, either voluntarily or involuntarily.
The preceding sentence shall also apply to the creation,
assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order,
unless such order is determined to be a qualified domestic
relations order, as defined in Section 414(p) of the Code.
Generally, a domestic relations order cannot be a qualified
domestic relations order until January 1, 1985. However, in the
case of a domestic relations order entered before such date, the
Plan Administrator:
(1) shall treat such order as a qualified domestic relations
order if such Plan Administrator is paying benefits pursuant
to such order on such date, and
(2) may treat any other such order entered before such date as a
qualified domestic relations order even if such order does
not meet the requirements of Section 414(p) of the Code.
Notwithstanding any provision of the Plan to the contrary, a
distribution to an alternate payee under a qualified domestic
relations order shall be permitted even if the Participant
affected by such order is not otherwise entitled to a
distribution and even if such Participant has not attained
earliest retirement age as defined in Section 414(p) of the Code.
10.11 CANNOT ELIMINATE PROTECTED BENEFITS
Pursuant to Section 411(d)(6) of the Code, and the regulations
thereunder, the Employer cannot reduce, eliminate or make subject
to Employer discretion any Section 411(d)(6) protected benefit.
Where this Plan document is being adopted to amend another plan
that contains a protected benefit not provided for in this
document, the Employer may attach a supplement to the Adoption
Agreement that describes such protected benefit which shall
become part of the Plan.
SECTION ELEVEN 401(k) PROVISIONS
In addition to Sections 1 through 10, the provisions of this
Section 11 shall apply if the Employer has established a 401(k)
cash or deferred arrangement (CODA) by completing and signing the
appropriate Adoption Agreement.
11.100 DEFINITIONS
The following words and phrases when used in the Plan with
initial capital letters shall, for the purposes of this Plan,
have the meanings set forth below unless the context indicates
that other meanings are intended.
11.101 ACTUAL DEFERRAL PERCENTAGE (ADP)
Means, for a specified group of Participants for a Plan Year, the
average of the ratios (calculated separately for each Participant
in such group) of (1) the amount of Employer Contributions
actually paid over to the Fund on behalf of such Participant for
the Plan Year to (2) the Participant's Compensation for such Plan
Year (taking into account only that Compensation paid to the
Employee during the portion of the Plan Year he or she was an
eligible Participant, unless otherwise indicated in the Adoption
Agreement). For purposes of calculating the ADP, Employer
Contributions on behalf of any Participant shall include: (1) any
Elective Deferrals made pursuant to the Participant's deferral
election, (including Excess Elective Deferrals of Highly
Compensated Employees), but excluding (a) Excess Elective
Deferrals of Non-highly Compensated Employees that arise solely
from Elective Deferrals made under the Plan or plans of this
Employer and (b) Elective Deferrals that are taken into account
in the Contribution Percentage test (provided the ADP test is
satisfied both with and without exclusion of these Elective
<PAGE> 35
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31
Deferrals); and (2) at the election of the Employer, Qualified
Nonelective Contributions and Qualified Matching Contributions.
For purposes of computing Actual Deferral Percentages, an
Employee who would be a Participant but for the failure to make
Elective Deferrals shall be treated as a Participant on whose
behalf no Elective Deferrals are made.
11.102 AGGREGATE LIMIT
Means the sum of (1) 125% of the greater of the ADP of the
Participants who are not Highly Compensated Employees for the
Plan Year or the ACP of the Participants who are not Highly
Compensated Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within the Plan Year
of the CODA; and (2) the lesser of 200% or two plus the lesser of
such ADP or ACP. "Lesser" is substituted for "greater" in "(1)"
above, and "greater" is substituted for "lesser" after "two plus
the" in "(2)" if it would result in a larger Aggregate Limit.
11.103 AVERAGE CONTRIBUTION PERCENTAGE (ACP)
Means the average of the Contribution Percentages of the Eligible
Participants in a group.
11.104 CONTRIBUTING PARTICIPANT
Means a Participant who has enrolled as a Contributing
Participant pursuant to Section 11.201 and on whose behalf the
Employer is contributing Elective Deferrals to the Plan (or is
making Nondeductible Employee Contributions).
11.105 CONTRIBUTION PERCENTAGE
Means the ratio (expressed as a percentage) of the Participant's
Contribution Percentage Amounts to the Participant's Compensation
for the Plan Year (taking into account only the Compensation paid
to the Employee during the portion of the Plan Year he or she was
an eligible Participant, unless otherwise indicated in the
Adoption Agreement).
11.106 CONTRIBUTION PERCENTAGE AMOUNTS
Means the sum of the Nondeductible Employee Contributions,
Matching Contributions, and Qualified Matching Contributions made
under the Plan on behalf of the Participant for the Plan Year.
Such Contribution Percentage Amounts shall not include Matching
Contributions that are forfeited either to correct Excess
Aggregate Contributions or because the contributions to which
they relate are Excess Deferrals, Excess Contributions, Excess
Aggregate Contributions or excess annual additions which are
distributed pursuant to Section 11.508. If so elected in the
Adoption Agreement, the Employer may include Qualified
Nonelective Contributions in the Contribution Percentage Amount.
The Employer also may elect to use Elective Deferrals in the
Contribution Percentage Amounts so long as the ADP test is met
before the Elective Deferrals are used in the ACP test and
continues to be met following the exclusion of those Elective
Deferrals that are used to meet the ACP test.
11.107 ELECTIVE DEFERRALS
Means any Employer Contributions made to the Plan at the election
of the Participant, in lieu of cash compensation, and shall
include contributions made pursuant to a salary reduction
agreement or other deferral mechanism. With respect to any
taxable year, a Participant's Elective Deferral is the sum of all
Employer contributions made on behalf of such Participant
pursuant to an election to defer under any qualified CODA as
described in Section 401(k) of the Code, any simplified employee
pension cash or deferred arrangement as described in Section
402(h)(1)(B), any eligible deferred compensation plan under
Section 457, any plan as described under Section 501(c)(18), and
any Employer contributions made on the behalf of a Participant
for the purchase of an annuity contract under Section 403(b)
pursuant to a salary reduction agreement. Elective Deferrals
shall not include any deferrals properly distributed as excess
annual additions.
No Participant shall be permitted to have Elective Deferrals made
under this Plan, or any other qualified plan maintained by the
Employer, during any taxable year, in excess of the dollar
limitation contained in Section 402(g) of the Code in effect at
the beginning of such taxable year.
Elective Deferrals may not be taken into account for purposes of
satisfying the minimum allocation requirement applicable to
Top-Heavy Plans described in Section 3.01(E).
11.108 ELIGIBLE PARTICIPANT
Means any Employee who is eligible to make a Nondeductible
Employee Contribution or an Elective Deferral (if the Employer
takes such contributions into account in the calculation of the
Contribution Percentage), or to receive a Matching Contribution
(including Forfeitures thereof) or a Qualified Matching
Contribution.
If a Nondeductible Employee Contribution is required as a
condition of participation in the Plan, any Employee who would be
a Participant in the Plan if such Employee made such a
contribution shall be treated as an Eligible Participant on
behalf of whom no Nondeductible Employee Contributions are made.
11.109 EXCESS AGGREGATE CONTRIBUTIONS
Means, with respect to any Plan Year, the excess of:
A. The aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution
Percentage actually made on behalf of Highly Compensated
Employees for such Plan Year, over
B. The maximum Contribution Percentage Amounts permitted by the
ACP test (determined by reducing contributions made on
behalf of Highly Compensated Employees in order of their
Contribution Percentages beginning with the highest of such
percentages).
Such determination shall be made after first determining
Excess Elective Deferrals pursuant to Section 11.111 and
then determining Excess Contributions pursuant to Section
11.110.
11.110 EXCESS CONTRIBUTIONS
Means, with respect to any Plan Year, the excess of:
A. The aggregate amount of Employer Contributions actually
taken into account in computing the ADP of Highly
Compensated Employees for such Plan Year, over
B. The maximum amount of such contributions permitted by the
ADP test (determined by reducing contributions made on
behalf of Highly Compensated Employees in order of the ADPs,
beginning with the highest of such percentages).
11.111 EXCESS ELECTIVE DEFERRALS
Means those Elective Deferrals that are includible in a
Participant's gross income under Section 402(g) of the Code to
the extent such Participant's Elective Deferrals for a taxable
year exceed the dollar limitation under such Code section. Excess
Elective Deferrals shall be treated as annual additions under the
Plan, unless such amounts are distributed no later than the first
April 15 following the close of the Participant's taxable year.
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11.112 MATCHING CONTRIBUTION
Means an Employer Contribution made to this or any other defined
contribution plan on behalf of a Participant on account of an
Elective Deferral or a Nondeductible Employee Contribution made
by such Participant under a plan maintained by the Employer.
Matching Contributions may not be taken into account for purposes
of satisfying the minimum allocation requirement applicable to
Top-Heavy Plans described in Section 3.01(E).
11.113 QUALIFIED NONELECTIVE CONTRIBUTIONS
Means contributions (other than Matching Contributions or
Qualified Matching Contributions) made by the Employer and
allocated to Participants' Individual Accounts that the
Participants may not elect to receive in cash until distributed
from the Plan; that are nonforfeitable when made; and that are
distributable only in accordance with the distribution provisions
that are applicable to Elective Deferrals and Qualified Matching
Contributions.
Qualified Nonelective Contribution may be taken into account for
purposes of satisfying the minimum allocation requirement
applicable to Top-Heavy Plans described in Section 3.01(E).
11.114 QUALIFIED MATCHING CONTRIBUTIONS
Means Matching Contributions which are subject to the
distribution and nonforfeitability requirements under Section
401(k) of the Code when made.
11.115 QUALIFYING CONTRIBUTING PARTICIPANT
Means a Contributing Participant who satisfies the requirements
described in Section 11.302 to be entitled to receive a Matching
Contribution (and Forfeitures, if applicable) for a Plan Year.
11.200 CONTRIBUTING PARTICIPANT
11.201 REQUIREMENTS TO ENROLL AS A CONTRIBUTING PARTICIPANT
A. Each Employee who satisfies the eligibility requirements
specified in the Adoption Agreement may enroll as a
Contributing Participant as of any subsequent Entry Date (or
earlier if required by Section 2.03) specified in the
Adoption Agreement for this purpose. A Participant who
wishes to enroll as a Contributing Participant must
complete, sign and file a salary reduction agreement (or
agreement to make Nondeductible Employee Contributions) with
the Plan Administrator.
B. Notwithstanding the times set forth in Section 11.201(A) as
of which a Participant may enroll as a Contributing
Participant, the Plan Administrator shall have the authority
to designate, in a nondiscriminatory manner, additional
enrollment times during the 12 month period beginning on the
Effective Date (or the date that Elective Deferrals may
commence, if later) in order that an orderly first
enrollment might be completed. In addition, if the Employer
has indicated in the Adoption Agreement that Elective
Deferrals may be based on bonuses, then Participants shall
be afforded a reasonable period of time prior to the
issuance of such bonuses to elect to defer them into the
Plan.
11.202 CHANGING ELECTIVE DEFERRAL AMOUNTS
A Contributing Participant may modify his or her salary reduction
agreement (or agreement to make Nondeductible Employee
Contributions) to increase or decrease (within the limits placed
on Elective Deferrals (or Nondeductible Employee Contributions)
in the Adoption Agreement) the amount of his or her Compensation
deferred into the Plan. Such modification may only be made as of
the dates specified in the Adoption Agreement for this purpose,
or as of any other more frequent date(s) if the Plan
Administrator permits in a uniform and nondiscriminatory manner.
A Contributing Participant who desires to make such a
modification shall complete, sign and file a new salary reduction
agreement (or agreement to make Nondeductible Employee
Contribution) with the Plan Administrator. The Plan Administrator
may prescribe such uniform and nondiscriminatory rules it deems
appropriate to carry out the terms of this Section.
11.203 CEASING ELECTIVE DEFERRALS
A Participant may cease Elective Deferrals (or Nondeductible
Employee Contributions) and thus withdraw as a Contributing
Participant as of the dates specified in the Adoption Agreement
for this purpose (or as of any other date if the Plan
Administrator so permits in a uniform and nondiscriminatory
manner) by revoking the authorization to the Employer to make
Elective Deferrals (or Nondeductible Employee Contributions) on
his or her behalf. A Participant who desires to withdraw as a
Contributing Participant shall give written notice of withdrawal
to the Plan Administrator at least thirty days (or such lesser
period of days as the Plan Administrator shall permit in a
uniform and nondiscriminatory manner) before the effective date
of withdrawal. A Participant shall cease to be a Contributing
Participant upon his or her Termination of Employment, or an
account of termination of the Plan.
11.204 RETURN AS A CONTRIBUTING PARTICIPANT AFTER CEASING ELECTIVE
DEFERRALS
A Participant who has withdrawn as a Contributing Participant
under Section 11.203 (or because the Participant has taken a
hardship withdrawal pursuant to Section 11.503) may not again
become a Contributing Participant until the dates set forth in
the Adoption Agreement for this purpose, unless the Plan
Administrator, in a uniform and nondiscriminatory manner, permits
withdrawing Participants to resume their status as Contributing
Participants sooner.
11.205 CERTAIN ONE-TIME IRREVOCABLE ELECTIONS
This Section 11.205 applies where the Employer has indicated in
the Adoption Agreement that an Employee may make a one-time
irrevocable election to have the Employer make contributions to
the Plan on such Employee's behalf. In such event, an Employee
may elect, upon the Employee's first becoming eligible to
participate in the Plan, to have contributions equal to a
specified amount or percentage of the Employee's Compensation
(including no amount of Compensation) made by the Employer on the
Employee's behalf to the Plan (and to any other plan of the
Employer) for the duration of the Employee's employment with the
Employer. Any contributions made pursuant to a one-time
irrevocable election described in this Section are not treated as
made pursuant to a cash or deferred election, are not Elective
Deferrals and are not includible in an Employee's gross income.
The Plan Administrator shall establish such uniform and
nondiscriminatory procedures as it deems necessary or advisable
to administer this provision.
11.300 CONTRIBUTIONS
11.301 CONTRIBUTIONS BY EMPLOYER
The Employer shall make contributions to the Plan in accordance
with the contribution formulas specified in the Adoption
Agreement.
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11.302 MATCHING CONTRIBUTIONS
The Employer may elect to make Matching Contributions under the
Plan on behalf of Qualifying Contributing Participants as
provided in the Adoption Agreement. To be a Qualifying
Contributing Participant for a Plan Year, the Participant must
make Elective Deferrals (or Nondeductible Employee Contributions,
if the Employer has agreed to match such contributions) for the
Plan Year, satisfy any age and Years of Eligibility Service
requirements that are specified for Matching Contributions in the
Adoption Agreement and also satisfy any additional conditions set
forth in the Adoption Agreement for this purpose. In a uniform
and nondiscriminatory manner, the Employer may make Matching
Contributions at the same time as it contributes Elective
Deferrals or at any other time as permitted by laws and
regulations.
11.303 QUALIFIED NONELECTIVE CONTRIBUTIONS
The Employer may elect to make Qualified Nonelective
Contributions under the Plan on behalf of Participants as
provided in the Adoption Agreement.
In addition, in lieu of distributing Excess Contributions as
provided in Section 11.505 of the Plan, or Excess Aggregate
Contributions as provided in Section 11.506 of the Plan, and to
the extent elected by the Employer in the Adoption Agreement, the
Employer may make Qualified Nonelective Contributions on behalf
of Participants who are not Highly Compensated Employees that are
sufficient to satisfy either the Actual Deferral Percentage test
or the Average Contribution Percentage test, or both, pursuant to
regulations under the Code.
11.304 QUALIFIED MATCHING CONTRIBUTIONS
The Employer may elect to make Qualified Matching Contributions
under the Plan on behalf of Participants as provided in the
Adoption Agreement.
11.305 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
Notwithstanding Section 3.02, if the Employer so allows in the
Adoption Agreement, a Participant may contribute Nondeductible
Employee Contributions to the Plan.
If the Employer has indicated in the Adoption Agreement that
Nondeductible Employee Contributions will be mandatory, then the
Employer shall establish uniform and nondiscriminatory rules and
procedures for Nondeductible Employee Contributions as it deems
necessary and advisable including, but not limited to, rules
describing in amounts or percentages of Compensation Participants
may or must contribute to the Plan.
A separate account will be maintained by the Plan Administrator
for the Nondeductible Employee Contributions for each
Participant.
A Participant may, upon a written request submitted to the Plan
Administrator, withdraw the lesser of the portion of his or her
Individual Account attributable to his or her Nondeductible
Employee Contributions or the amount he or she contributed as
Nondeductible Employee Contributions.
Nondeductible Employee Contributions and earnings thereon will be
nonforfeitable at all times. No Forfeiture will occur solely as a
result of an Employee's withdrawal of Nondeductible Employee
Contributions.
11.400 NONDISCRIMINATION TESTING
11.401 ACTUAL DEFERRAL PERCENTAGE TEST (ADP)
A. LIMITS ON HIGHLY COMPENSATED EMPLOYEES - The Actual Deferral
Percentage (hereinafter "ADP") for Participants who are
Highly Compensated Employees for each Plan Year and the ADP
for Participants who are not Highly Compensated Employees
for the same Plan Year must satisfy one of the following
tests:
1. The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP
for Participants who are not Highly Compensated
Employees for the same Plan Year multiplied by 1.25; or
2. The ADP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ADP
for Participants who are not Highly Compensated
Employees for the same Plan Year multiplied by 2.0
provided that the ADP for Participants who are Highly
Compensated Employees does not exceed the ADP for
Participants who are not Highly Compensated Employees
by more than 2 percentage points.
B. SPECIAL RULES
1. The ADP for any Participant who is a Highly Compensated
Employee for the Plan Year and who is eligible to have
Elective Deferrals (and Qualified Nonelective
Contributions or Qualified Matching Contributions, or
both, if treated as Elective Deferrals for purposes of
the ADP test) allocated to his or her Individual
Accounts under two or more arrangements described in
Section 401(k) of the Code, that are maintained by the
Employer, shall be determined as if such Elective
Deferrals (and, if applicable, such Qualified
Nonelective Contributions or Qualified Matching
Contributions, or both) were made under a single
arrangement. If a Highly Compensated Employee
participates in two or more cash or deferred
arrangements that have different Plan Years, all cash
or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be
treated as separate if mandatorily disaggregated under
regulations under Section 401(k) of the Code.
2. In the event that this Plan satisfies the requirements
of Sections 401(k), 401(a)(4), or 410(b) of the Code
only if aggregated with one or more other plans, or if
one or more other plans satisfy the requirements of
such sections of the Code only if aggregated with this
Plan, then this Section 11.401 shall be applied by
determining the ADP of Employees as if all such plans
were a single plan. For Plan Years beginning after
December 31, 1989, plans may be aggregated in order to
satisfy Section 401(k) of the Code only if they have
the same Plan Year.
3. For purposes of determining the ADP of a Participant
who is a 5% owner or one of the 10 most highly paid
Highly Compensated Employees, the Elective Deferrals
(and Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, if treated as Elective
Deferrals for purposes of the ADP test) and
Compensation of such Participant shall include the
Elective Deferrals (and, if applicable, Qualified
Nonelective Contributions and Qualified Matching
Contributions, or both) and Compensation for the Plan
Year of family members (as defined in Section 414(q)(6)
of the Code). Family members, with respect to such
Highly Compensated Employees, shall be disregarded as
separate Employees in determining the ADP both for
Participants who are not Highly Compensated Employees
and for Participants who are Highly Compensated
Employees.
4. For purposes of determining the ADP test, Elective
Deferrals, Qualified Nonelective Contributions and
Qualified Matching Contributions must be made before
the last day of the 12 month period immediately
following the Plan Year to which contributions relate.
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5. The Employer shall maintain records sufficient to
demonstrate satisfaction of the ADP test and the amount
of Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, used in such test.
6. The determination and treatment of the ADP amounts of
any Participant shall satisfy such other requirements
as may be prescribed by the Secretary of the Treasury.
7. If the Employer elects to take Qualified Matching
Contributions into account as Elective Deferrals for
purposes of the ADP test, then (subject to such other
requirements as may be prescribed by the Secretary of
the Treasury) unless otherwise indicated in the
Adoption Agreement, only the amount of such Qualified
Matching Contributions that are needed to meet the ADP
test shall be taken into account.
8. In the event that the Plan Administrator determines
that it is not likely that the ADP test will be
satisfied for a particular Plan Year unless certain
steps are taken prior to the end of such Plan Year, the
Plan Administrator may require Contributing
Participants who are Highly Compensated Employees to
reduce their Elective Deferrals for such Plan Year in
order to satisfy that requirement. Said reduction shall
also be required by the Plan Administrator in the event
that the Plan Administrator anticipates that the
Employer will not be able to deduct all Employer
Contributions from its income for Federal income tax
purposes.
11.402 LIMITS ON NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS AND MATCHING
CONTRIBUTIONS
A. LIMITS ON HIGHLY COMPENSATED EMPLOYEES - The Average
Contribution Percentage (hereinafter "ACP") for Participants
who are Highly Compensated Employees for each Plan Year and
the ACP for Participants who are not Highly Compensated
Employees for the same Plan Year must satisfy one of the
following tests:
1. The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP
for Participants who are not Highly Compensated
Employees for the same Plan Year multiplied by 1.25; or
2. The ACP for Participants who are Highly Compensated
Employees for the Plan Year shall not exceed the ACP
for Participants who are not Highly Compensated
Employees for the same Plan Year multiplied by 2,
provided that the ACP for the Participants who are
Highly Compensated Employees does not exceed the ACP
for Participants who are not Highly Compensated
Employees by more than 2 percentage points.
B. SPECIAL RULES
1. Multiple Use - If one or more Highly Compensated
Employees participate in both a CODA and a plan subject
to the ACP test maintained by the Employer and the sum
of the ADP and ACP of those Highly Compensated
Employees subject to either or both tests exceeds the
Aggregate Limit, then, as elected in the Adoption
Agreement, the ACP or the ADP of those Highly
Compensated Employees who also participate in a CODA
will be reduced (beginning with such Highly Compensated
Employee whose ACP (or ADP, if elected) is the highest)
so that the limit is not exceeded. The amount by which
each Highly Compensated Employee's Contribution
Percentage Amounts (or ADP, if elected) is reduced
shall be treated as an Excess Aggregate Contribution
(or Excess Contribution, if elected). The ADP and ACP
of the Highly Compensated Employees are determined
after any corrections required to meet the ADP and ACP
tests. Multiple use does not occur if the ADP and ACP
of the Highly Compensated Employees does not exceed
1.25 multiplied by the ADP and ACP of the Participants
who are not Highly Compensated Employees.
2. For purposes of this Section 11.402, the Contribution
Percentage for any Participant who is a Highly
Compensated Employee and who is eligible to have
Contribution Percentage Amounts allocated to his or her
Individual Account under two or more plans described in
Section 401(a) of the Code, or arrangements described
in Section 401(k) of the Code that are maintained by
the Employer, shall be determined as if the total of
such Contribution Percentage Amounts was made under
each plan. If a Highly Compensated Employee
participates in two or more cash or deferred
arrangements that have different plan years, all cash
or deferred arrangements ending with or within the same
calendar year shall be treated as a single arrangement.
Notwithstanding the foregoing, certain plans shall be
treated as separate if mandatorily disaggregated under
regulations under Section 401(m) of the Code.
3. In the event that this Plan satisfies the requirements
of Sections 401(m), 401(a)(4) or 410(b) of the Code
only if aggregated with one or more other plans, or if
one or more other plans satisfy the requirements of
such Sections of the Code only if aggregated with this
Plan, then this Section shall be applied by determining
the Contribution Percentage of Employees as if all such
plans were a single plan. For Plan Years beginning
after December 31, 1989, plans may be aggregated in
order to satisfy Section 401(m) of the Code only if
they have the same Plan Year.
4. For purposes of determining the Contribution Percentage
of a Participant who is a 5% owner or one of the 10
most highly paid Highly Compensated Employees, the
Contribution Percentage Amounts and Compensation of
such Participant shall include the Contribution
Percentage Amounts and Compensation for the Plan Year
of family members, (as defined in Section 414(q)(6) of
the Code). Family members, with respect to Highly
Compensated Employees, shall be disregarded as separate
Employees in determining the Contribution Percentage
both for Participants who are not Highly Compensated
Employees and for Participants who are Highly
Compensated Employees.
5. For purposes of determining the Contribution Percentage
test, Nondeductible Employee Contributions are
considered to have been made in the Plan Year in which
contributed to the Fund. Matching Contributions and
Qualified Nonelective Contributions will be considered
made for a Plan Year if made no later than the end of
the 12 month period beginning on the day after the
close of the Plan Year.
6. The Employer shall maintain records sufficient to
demonstrate satisfaction of the ACP test and the amount
of Qualified Nonelective Contributions or Qualified
Matching Contributions, or both, used in such test.
7. The determination and treatment of the Contribution
Percentage of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of
the Treasury.
8. If the Employer elects to take Qualified Nonelective
Contributions into account as Contribution Percentage
Amounts for purposes of the ACP test, then (subject to
such other requirements as may be prescribed by the
Secretary of the Treasury) unless otherwise indicated
in the Adoption Agreement, only the amount of such
Qualified Nonelective Contributions that are needed to
meet the ACP test shall be taken into account.
9. If the Employer elects to take Elective Deferrals into
account as Contribution Percentage Amounts for purposes
of the ACP test, then (subject to such other
requirements as may be prescribed by the Secretary of
the Treasury) unless otherwise indicated in the
Adoption Agreement, only the amount of such Elective
Deferrals that are needed to meet the ACP test shall be
taken into account.
<PAGE> 39
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35
11.500 DISTRIBUTION PROVISIONS
11.501 GENERAL RULE
Distributions from the Plan are subject to the provisions of
Section 6 and the provisions of this Section 11. In the event of
a conflict between the provisions of Section 6 and Section 11,
the provisions of Section 11 shall control.
11.502 DISTRIBUTION REQUIREMENTS
Elective Deferrals, Qualified Nonelective Contributions, and
Qualified Matching Contributions, and income allocable to each
are not distributable to a Participant or his or her Beneficiary
or Beneficiaries, in accordance with such Participant's or
Beneficiary or Beneficiaries' election, earlier than upon
separation from service, death or disability.
Such amounts may also be distributed upon:
A. Termination of the Plan without the establishment of another
defined contribution plan, other than an employee stock
ownership plan (as defined in Section 4975(e) or Section 409
of the Code) or a simplified employee pension plan as
defined in Section 408(k).
B. The disposition by a corporation to an unrelated corporation
of substantially all of the assets (within the meaning of
Section 409(d)(2) of the Code used in a trade or business of
such corporation if such corporation continues to maintain
this Plan after the disposition, but only with respect to
Employees who continue employment with the corporation
acquiring such assets.
C. The disposition by a corporation to an unrelated entity of
such corporation's interest in a subsidiary (within the
meaning of Section 409(d)(3) of the Code) if such
corporation continues to maintain this Plan, but only with
respect to Employees who continue employment with such
subsidiary.
D. The attainment of age 59 1/2 in the case of a profit sharing
plan.
E. If the Employer has so elected in the Adoption Agreement,
the hardship of the Participant as described in Section
11.503.
All distributions that may be made pursuant to one or more
of the foregoing distributable events are subject to the
spousal and Participant consent requirements (if applicable)
contained in Section 401(a)(11) and 417 of the Code. In
addition, distributions after March 31, 1988, that are
triggered by any of the first three events enumerated above
must be made in a lump sum.
11.503 HARDSHIP DISTRIBUTION
A. GENERAL - If the Employer has so elected in the Adoption
Agreement, distribution of Elective Deferrals (and any
earnings credited to a Participant's account as of the end
of the last Plan Year, ending before July 1, 1989) may be
made to a Participant in the event of hardship. For the
purposes of this Section, hardship is defined as an
immediate and heavy financial need of the Employee where
such Employee lacks other available resources. Hardship
distributions are subject to the spousal consent
requirements contained in Sections 401(a)(11) and 417 of the
Code.
B. SPECIAL RULES
1. The following are the only financial needs considered
immediate and heavy: expenses incurred or necessary for
medical care, described in Section 213(d) of the Code,
of the Employee, the Employee's spouse or dependents;
the purchase (excluding mortgage payments) of a
principal residence for the Employee; payment of
tuition and related educational fees for the next 12
months of post-secondary education for the Employee,
the Employee's spouse, children or dependents; or the
need to prevent the eviction of the Employee from, or a
foreclosure on the mortgage of, the Employee's
principal residence.
2. A distribution will be considered as necessary to
satisfy an immediate and heavy financial need of the
Employee only if:
a. The Employee has obtained all distributions, other
than hardship distributions, and all nontaxable
loans under all plans maintained by the Employer;
b. All plans maintained by the Employer provide that
the Employee's Elective Deferrals (and
Nondeductible Employee Contributions) will be
suspended for 12 months after the receipt of the
hardship distribution;
c. The distribution is not in excess of the amount of
an immediate and heavy financial need (including
amounts necessary to pay any Federal, state or
local income taxes or penalties reasonably
anticipated to result from the distribution); and
d. All plans maintained by the Employer provide that
the Employee may not make Elective Deferrals for
the Employee's taxable year immediately following
the taxable year of the hardship distribution in
excess of the applicable limit under Section
402(g) of the Code for such taxable year less the
amount of such Employee's Elective Deferrals for
the taxable year of the hardship distribution.
11.504 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
A. GENERAL RULE - A Participant may assign to this Plan any
Excess Elective Deferrals made during a taxable year of the
Participant by notifying the Plan Administrator on or before
the date specified in the Adoption Agreement of the amount
of the Excess Elective Deferrals to be assigned to the Plan.
A Participant is deemed to notify the Plan Administrator of
any Excess Elective Deferrals that arise by taking into
account only those Elective Deferrals made to this Plan and
any other plans of the Employer.
Notwithstanding any other provision of the Plan, Excess
Elective Deferrals, plus any income and minus any loss
allocable thereto, shall be distributed no later than April
15 to any Participant to whose Individual Account Excess
Elective Deferrals were assigned for the preceding year and
who claims Excess Elective Deferrals for such taxable year.
B. DETERMINATION OF INCOME OR LOSS - Excess Elective Deferrals
shall be adjusted for any income or loss up to the date of
distribution. The income of loss allocable to Excess
Elective Deferrals is the sum of: (1) income or loss
allocable to the Participant's Elective Deferral account for
the taxable year multiplied by a fraction, the numerator of
which is such Participant's Elective Deferrals for the year
and the denominator is the Participant's Individual Account
balance attributable to Elective Deferrals without regard to
any income or loss occurring during such taxable year; and
(2) 10% of the amount determined under (1) multiplied by the
number of whole calendar months between the end of the
Participant's taxable year and the date of distribution,
counting the month of distribution if distribution occurs
after the 15th of such month. Notwithstanding the preceding
sentence, the Plan Administrator may compute the income or
loss allocable to
<PAGE> 40
================================================================================
36
Excess Elective Deferrals in the manner described in Section
4 (i.e., the usual manner used by the Plan for allocating
income or loss to Participants' Individual Accounts),
provided such method is used consistently for all
Participants and for all corrective distributions under the
Plan for the Plan Year.
11.505 DISTRIBUTION OF EXCESS CONTRIBUTIONS
A. GENERAL RULE - Notwithstanding any other provision of this
Plan, Excess Contributions, plus any income and minus any
loss allocable thereto, shall be distributed no later than
the last day of each Plan Year to Participants to whose
Individual Accounts such Excess Contributions were allocated
for the preceding Plan Year. If such excess amounts are
distributed more than 2 1/2 months after the last day of the
Plan Year in which such excess amounts arose, a 10% excise
tax will be imposed on the Employer maintaining the Plan
with respect to such amounts. Such distributions shall be
made to Highly Compensated Employees on the basis of the
respective portions of the Excess Contributions attributable
to each of such Employees. Excess Contributions of
Participants who are subject to the family member
aggregation rules shall be allocated among the family
members in proportion to the Elective Deferrals (and amounts
treated as Elective Deferrals) of each family member that is
combined to determine the combined ADP.
Excess Contributions (including the amounts recharacterized)
shall be treated as annual additions under the Plan.
B. DETERMINATION OF INCOME OR LOSS - Excess Contributions shall
be adjusted for any income or loss up to the date of
distribution. The income or loss allocable to Excess
Contributions is the sum of: (1) income or loss allocable to
Participant's Elective Deferral account (and, if applicable,
the Qualified Nonelective Contribution account or the
Qualified Matching Contributions account or both) for the
Plan Year multiplied by a fraction, the numerator of which
is such Participant's Excess Contributions for the year and
the denominator is the Participant's Individual Account
balance attributable to Elective Deferrals (and Qualified
Nonelective Contributions or Qualified Matching
Contributions, or both, if any of such contributions are
included in the ADP test) without regard to any income or
loss occurring during such Plan Year; and (2) 10% of the
amount determined under (1) multiplied by the number of
whole calendar months between the end of the Plan Year and
the date of distribution, counting the month of distribution
if distribution occurs after the 15th of such month.
Notwithstanding the preceding sentence, the Plan
Administrator may compute the income or loss allocable to
Excess Contributions in the manner described in Section 4
(i.e., the usual manner used by the Plan for allocating
income or loss to Participants' Individual Accounts),
provided such method is used consistently for all
Participants and for all corrective distributions under the
Plan for the Plan Year.
C. ACCOUNTING FOR EXCESS CONTRIBUTIONS - Excess Contributions
shall be distributed from the Participant's Elective
Deferral account and Qualified Matching Contribution account
(if applicable) in proportion to the Participant's Elective
Deferrals and Qualified Matching Contributions (to the
extent used in the ADP test) for the Plan Year. Excess
Contributions shall be distributed from the Participant's
Qualified Nonelective Contribution account only to the
extent that such Excess Contributions exceed the balance in
the Participant's Elective Deferral account and Qualified
Matching Contribution account.
11.506 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
A. GENERAL RULE - Notwithstanding any other provision of this
Plan, Excess Aggregate Contributions, plus any income and
minus any loss allocable thereto, shall be forfeited, if
forfeitable, or if not forfeitable, distributed no later
than the last day of each Plan Year to Participants to whose
accounts such Excess Aggregate Contributions were allocated
for the preceding Plan Year. Excess Aggregate Contributions
of Participants who are subject to the family member
aggregation rules shall be allocated among the family
members in proportion to the Employee and Matching
Contributions (or amounts treated as Matching Contributions)
of each family member that is combined to determine the
combined ACP. If such Excess Aggregate Contributions are
distributed more than 2 1/2 months after the last day of the
Plan Year in which such excess amounts arose, a 10% excise
tax will be imposed on the Employer maintaining the Plan
with respect to those amounts.
Excess Aggregate Contributions shall be treated as annual
additions under the Plan.
B. DETERMINATION OF INCOME OR LOSS - Excess Aggregate
Contributions shall be adjusted for any income or loss up to
the date of distribution. The income or loss allocable to
Excess Aggregate Contributions is the sum of: (1) income or
loss allocable to the Participant's Nondeductible Employee
Contribution account, Matching Contribution account (if any,
and if all amounts therein are not used in the ADP test)
and, if applicable, Qualified Nonelective Contribution
account and Elective Deferral account for the Plan Year
multiplied by a fraction, the numerator of which is such
Participant's Excess Aggregate Contributions for the year
and the denominator is the Participant's Individual Account
balance(s) attributable to Contribution Percentage Amounts
without regard to any income or loss occurring during such
Plan Year; and (2) 10% of the amount determined under (1)
multiplied by the number of whole calendar months between
the end of the Plan Year and the date of distribution,
counting the month of distribution if distribution occurs
after the 15th of such month. Notwithstanding the preceding
sentence, the Plan Administrator may compute the income or
loss allocable to Excess Aggregate Contributions in the
manner described in Section 4 (i.e., the usual manner used
by the Plan for allocating income or loss to Participants'
Individual Accounts), provided such method is used
consistently for all Participants and for all corrective
distributions under the Plan for the Plan Year.
C. FORFEITURES OF EXCESS AGGREGATE CONTRIBUTIONS - Forfeitures
of Excess Aggregate Contributions may either be reallocated
to the accounts of Contributing Participants who are not
Highly Compensated Employees or applied to reduce Employer
Contributions, as elected by the Employer in the Adoption
Agreement.
D. ACCOUNTING FOR EXCESS AGGREGATE CONTRIBUTIONS - Excess
Aggregate Contributions shall be forfeited, if forfeitable
or distributed on a pro rata basis from the Participant's
Nondeductible Employee Contribution account, Matching
Contribution account, and Qualified Matching Contribution
account (and, if applicable, the Participant's Qualified
Nonelective Contribution account or Elective Deferral
account, or both).
11.507 RECHARACTERIZATION
A Participant may treat his or her Excess Contributions as an
amount distributed to the Participant and then contributed by the
Participant to the Plan. Recharacterized amounts will remain
nonforfeitable and subject to the same distribution requirements
as Elective Deferrals. Amounts may not be recharacterized by a
Highly Compensated Employee to the extent that such amount in
combination with other Nondeductible Employee Contributions made
by that Employee would exceed any stated limit under the Plan on
Nondeductible Employee Contributions.
Recharacterization must occur no later than two and one-half
months after the last day of the Plan Year in which such Excess
Contributions arose and is deemed to occur no earlier than the
date the last Highly Compensated Employee is informed in writing
of the amount recharacterized and the consequences thereof.
Recharacterized amounts will be taxable to the Participant for
the Participant's tax year in which the Participant would have
received them in cash.
<PAGE> 41
================================================================================
37
11.508 DISTRIBUTION OF ELECTIVE DEFERRALS IF EXCESS ANNUAL ADDITIONS
Notwithstanding any other provision of the Plan, a Participant's
Elective Deferrals shall be distributed to him or her to the
extent that the distribution will reduce an excess annual
addition (as that term is described in Section 3.05 of the Plan).
11.600 VESTING
11.601 100% VESTING ON CERTAIN CONTRIBUTIONS
The Participant's accrued benefit derived from Elective
Deferrals, Qualified Nonelective Contributions, Nondeductible
Employee Contributions , and Qualified Matching Contributions is
nonforfeitable. Separate accounts for Elective Deferrals,
Qualified Nonelective Contributions, Nondeductible Employee
Contributions, Matching Contributions, and Qualified Matching
Contributions will be maintained for each Participant. Each
account will be credited with the applicable contributions and
earnings thereon.
11.602 FORFEITURES AND VESTING OF MATCHING CONTRIBUTIONS
Matching Contributions shall be Vested in accordance with the
vesting schedule for Matching Contributions in the Adoption
Agreement. In any event, Matching Contributions shall be fully
Vested at Normal Retirement Age, upon the complete or partial
termination of the profit sharing plan, or upon the complete
discontinuance of Employer Contributions. Notwithstanding any
other provisions of the Plan, Matching Contributions or Qualified
Matching Contributions must be forfeited if the contributions to
which they relate are Excess Elective Deferrals, Excess
Contributions, Excess Aggregate Contributions or excess annual
additions which are distributed pursuant to Section 11.508. Such
Forfeitures shall be allocated in accordance with Section
3.01(C).
When a Participant incurs a Termination of Employment, whether a
Forfeiture arises with respect to Matching Contributions shall be
determined in accordance with Section 6.01(D).
<PAGE> 42
COMPREHENSIVE NONSTANDARDIZED SAFE HARBOR 401(k) PROFIT SHARING PLAN
ADOPTION AGREEMENT
- --------------------------------------------------------------------------------
SECTION 1. EMPLOYER INFORMATION
- --------------------------------------------------------------------------------
Name of Employer: MERITAGE HOSPITALITY GROUP INC.
-------------------------------------------------------------
Address 40 PEARL STREET, NW, SUITE 900
---------------------------------------------------------------------
City: GRAND RAPIDS State: MI Zip: 49503
------------------------- -------------- --------------
Telephone: 616-776-2600 Employer's Federal Tax
---------------------- Identification Number: 38-2730460
-------------------
Type of Business (Check only one) [ ] Sole Proprietorship [ ] Partnership
[X] C Corporation
[ ] S Corporation [ ] Other (Specify):_________________________________
[X] Check here if Related Employers may participate in this Plan and attach a
Related Employer Participation Agreement for each Related Employer who will
participate in this Plan.
Business Code__________________________________________________________________
Name of Plan: MERITAGE HOSPITALITY GROUP 401(k) PLAN
----------------------------------------------------------------
Name of Trust (if different from Plan name):___________________________________
Plan Sequence Number: 001 (Enter 001 if this is the first qualified plan the
--- Employer has ever maintained, Enter 002 if it is
the second, etc.)
Trust Identification Number: (If applicable)__________________________________
Account Number: (Optional)____________________________________________________
- -------------------------------------------------------------------------------
SECTION 2. EFFECTIVE DATES
Complete parts A and B
- --------------------------------------------------------------------------------
PART A. GENERAL EFFECTIVE DATES (Check and Complete Option 1 or 2):
OPTION 1: [ ] This is the initial adoption of a
profit sharing plan by the Employer.
The Effective Date of this Plan is
_____________, 19____.
NOTE: The effective date is usually the first day of the Plan Year
in which this Adoption Agreement is signed.
OPTION 2: [X] This is an amendment and restatement of an
existing profit sharing plan (a Prior Plan).
The Prior Plan was initially effective on
01-01, 1994. The Effective Date of this
----- ----
amendment and restatement is 03-01, 1997.
----- ----
NOTE: The effective date is usually the first day of the Plan Year
in which this Adoption Agreement is signed.
<PAGE> 43
PART B. SPECIFIC EFFECTIVE DATES:
The provisions of the Plan will generally be effective as of the
Effective Date specified in Section 2, Part A. However, the following
provisions will be effective on the dates indicated below. (Specify
effective date only if later than the general Effective Date
described in Section 2, Part A):
<TABLE>
<CAPTION>
Provision Effective Date
--------- --------------
<S> <C> <C>
1. Commencement of Elective Deferrals* ______________
2. Matching Contributions (Section 7) ______________
3. Qualified Nonelective Contributions (Section 8) ______________
4. Qualified Matching Contributions (Section 9) ______________
5. In-Service Withdrawals (Section 15, Part A, Item 6) ______________
6. Hardship Withdrawals of Elective Deferrals (Section ______________
15, Part A, Item 5)
7. Hardship Withdrawals (Section 15, Part A, Item 8) ______________
8. Loans (Section 17, Item A)
9. Participant Direction of Investments (Section 18) ______________
</TABLE>
*NOTE: Elective Deferrals may commence no earlier than the
date this Adoption Agreement is signed because
Elective Deferrals cannot be made retroactively.
- --------------------------------------------------------------------------------
SECTION 3. RELEVANT TIME PERIODS
Complete Parts A through D
- --------------------------------------------------------------------------------
PART A. EMPLOYER'S FISCAL YEAR:
The Employer's Fiscal year ends (Specify month and day): 11-30
-----
PART B. PLAN YEAR MEANS:
OPTION 1: [X] The 12-consecutive month period
which coincides with the Employer's
fiscal year.
OPTION 2: [ ] The calendar year.
OPTION 3: [ ] Other (Specify):__________________________
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
If the initial Plan Year is less than 12 months (a short Plan
Year) specify such Plan Year's beginning and ending dates:
PART C. LIMITATION YEAR MEANS:
OPTION 1: [X] The Plan Year.
OPTION 2: [ ] The calendar year.
OPTION 3: [ ] Other (Specify):__________________________
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
2
<PAGE> 44
PART D. MEASURING PERIOD FOR VESTING:
Years of Vesting Service shall be measured over the following 12 -
consecutive month period:
OPTION 1: [X] The Plan Year.
OPTION 2: [ ] The 12 - consecutive month period
commencing with the Employee's
Employment Commencement Date and
each successive 12-month period
commencing on the anniversaries of
the Employee's Employment
Commencement Date.
OPTION 3: [ ] Other (Specify):_________________________
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
- --------------------------------------------------------------------------------
SECTION 4. ELIGIBILITY REQUIREMENTS
Complete Parts A through G
- --------------------------------------------------------------------------------
PART A. YEARS OF ELIGIBILITY SERVICE REQUIREMENT:
1. ELECTIVE DEFERRALS
An Employee will be eligible to become a Contributing
Participant in the Plan (and thus be eligible to make Elective
Deferrals) after completing 1 (enter 0, 1 or any fraction less
than 1) Years of Eligibility Service.
2. MATCHING CONTRIBUTIONS.
If Matching Contributions (or Qualified Matching Contributions,
if applicable) will be made to the Plan, a Contributing
Participant will be eligible to receive Matching Contributions
(or Qualified Matching Contributions, if applicable) after
completing 1 (enter 0,1,2 or any fraction less than 2) Years of
Eligibility Service.
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
An Employee will be eligible to become a Participant in the Plan
for purposes of receiving an allocation of Any Employer Profit
Sharing Contribution made pursuant to Section 11 of the Adoption
Agreement after completing 1 (enter 0,1,2 or any fraction less
than 2) Years of Eligibility Service.
NOTE: If more Than 1 year is selected for Item 2 or Item 3,
the immediate 100% vesting schedule of Section 13 will
automatically apply for contributions described in such
item. If any item is left blank, the Years of
Eligibility Service required for such item will be
deemed to be 0. If a fraction is selected, an Employee
will not be required to complete any specified number of
Hours of Service to receive credit for a fractional
year. If a single Entry Date is selected in Section 4,
Part G for an item, the Years of Eligibility Service
required for such item cannot exceed 1 1/2 (1/2 for
Elective Deferrals).
3
<PAGE> 45
PART B. AGE REQUIREMENT:
1. ELECTIVE DEFERRALS.
An Employee will be eligible to become a Contributing
Participant (and thus be eligible to make Elective Deferrals)
after attaining age 21.0 (no more than 21).
2. MATCHING CONTRIBUTIONS.
If Matching Contributions (or Qualified Matching Contributions
if applicable) will be made to the Plan, a Contributing
Participant will be eligible to receive Matching Contributions
(or Qualified Matching Contributions, if applicable) after
attaining age (no more than 21).
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
An Employee will be eligible to become a Participant in the Plan
for purposes of receiving an allocation of any Employer Profit
Sharing Contribution made pursuant to Section 11 of the Adoption
Agreement after attaining age 21.0 (no more than 21).
NOTE: If any of the above items in this Section 4, Part B
is left blank, it will be deemed there is no age
requirement for such item. If a single Entry Date is
selected in Section 4, Part G for an item, no age
requirement can exceed 20 1/2 for such item.
PART C. EMPLOYEES EMPLOYED AS OF EFFECTIVE DATE:
1. ELECTIVE DEFERRALS.
Will all Employees employed as of the date that Elective
Deferrals may commence as specified in Section 2, Part B who
have not otherwise met the Years of Eligibility Service and age
requirements specified above for Elective Deferrals be
considered to have met those requirements as of the Elective
Deferral commencement date? [ ] Yes [X] No
2. MATCHING CONTRIBUTIONS.
If Matching Contributions (or Qualified Matching Contributions,
if applicable) will be made to the Plan, will all Employees
employed as of the date that Elective Deferrals may commence as
specified in Section 2, Part B who have not otherwise met the
Years of Eligibility Service and age requirements specified
above for Matching Contributions be considered to have met those
requirements as of the Elective Deferral commencement date?
[ ] Yes [X] No
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
Will all Employees employed as of the Effective Date of this
Plan who have not otherwise met the Years of Eligibility Service
and age requirements specified above for Employer Profit Sharing
Contributions be considered to have met those requirements as of
the Effective Date? [ ] Yes [X] No
NOTE: If a box is not checked for any item in this Section 4,
Part C, "No" will be deemed to be selected for that
item.
4
<PAGE> 46
PART D. EXCLUSION OF CERTAIN CLASSES OF EMPLOYEES:
1. ELECTIVE DEFERRALS.
All Employees will be eligible to become Contributing
Participants (and thus eligible to make Elective Deferrals
except:
a. [ ] Those Employees included in a unit of Employees
covered by a collective bargaining agreement between
the Employer and Employee representatives, if
retirement benefits were the subject of good faith
bargaining and if two percent or less the Employees
who are covered pursuant to that agreement are
professionals as defined in Section 1.410(b)-9 of
the regulations. For this purpose, the term
"employee representatives" does not include any
organization more than half of whose members are
Employees who are owners, officers, or executives of
the Employer.
b. [X] Those Employees who are non-resident aliens
(within the meaning of Section 7701(b)(1)(B) of the
Code) and who received no earned income (within the
meaning of Section 911(d)(2) of the Code) from the
Employer which constitutes income from sources
within the United States (within the meaning of
Section 861 (a)(3) of the Code).
c. [ ] Those Employees of a Related Employer that has
not executed a Related Employer Participation
Agreement.
d. Other (Define):____________________________________
2. MATCHING CONTRIBUTIONS.
All Contributing Participants will be eligible to receive
Matching Contributions (or Qualified Matching Contributions) if
applicable, except:
a. [ ] Those Employees included in a unit of Employees
covered by a collective bargaining agreement between
the Employer and Employee representatives, if
retirement benefits were the subject of good faith
bargaining and if two percentor less of the
Employees who are covered pursuant to that agreement
are professionals as defined in Section 1.410(b)-9
of the regulations. For the purpose, the term
"employee representatives" does not include any
organization more than half of whose members are
Employees who are owners, officers, or executives of
the Employer.
b. [X] Those Employees who are non-resident aliens
(within the meaning of Section 7701(b)(1)(B) of the
Code) and who received no earned income (within the
meaning of Section 911(d)(2) of the Code) from the
Employer which constitutes income from sources
within the United States (within the meaning of
Section 861(a)(3) of the Code).
c. [ ] Those Employees of a Related Employer that has
not executed a Related Employer Participation
Agreement.
d. Other (Define):____________________________________
5
<PAGE> 47
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
All Employees will be eligible to become a Participant in the
Plan for purposes of receiving an allocation of any Employer
Profit Sharing Contribution made pursuant to Section 11 of the
Adoption Agreement except:
a. [ ] Those Employees include in a unit of Employees
covered by a collective bargaining agreement between
the Employer and Employee representatives, if
retirement benefits were the subject of good faith
bargaining and if two percent or less of the
Employees who are covered pursuant to that agreement
are professionals as defined in Section 1.410(b)-9
of the regulations. For this purpose, the term
"employee representatives" does not include any
organization more than half of whose members are
Employees who are owners, officers, or executives of
the Employer.
b. [X] Those Employees who are non-resident aliens
(within the meaning of Section 7701(b)(1)(B) of the
Code) and who received no earned income (within the
meaning of Section 911(d)(2) of the Code) from the
Employer which constitutes income from sources
within the United States (within the meaning of
Section 861(a)(3) of the Code).
c. [ ] Those Employees of a Related Employer that has
not executed a Related Employer Participation
Agreement.
d. Other (Define):____________________________________
PART E. ELECTION NOT TO PARTICIPATE:
May an Employee or a Participant elect not to participate in this
Plan pursuant to Section 2.08 of the Plan?
OPTION 1: [ ] Yes.
OPTION 2: [X] No.
NOTE: If no option is selected, Option 2 will be deemed to be
selected.
PART F. HOURS REQUIRED FOR ELIGIBILITY PURPOSES:
1. 1000 Hours of Service (no more than 1,000) shall be required to
constitute a Year of Eligibility Service.
2. 500 Hours of Service (no more than 500 but less than the
number specified in Section 4, Part F, Item 1, above) must
be exceeded to avoid a Break in Eligibility Service.
3. For purposes of determining Years of Eligibility Service,
Employees shall be given credit for Hours of Service with
the following predecessor employer(s) (Complete if
applicable):____________________________________________________
6
<PAGE> 48
PART G. ENTRY DATES:
1. ELECTIVE DEFERRALS.
The Entry Dates for purposes of making Elective Deferrals shall be
(Choose one):
OPTION 1: [X] The first day of the Plan Year
and the first day of the seventh
month of the Plan Year.
OPTION 2: [ ] The first day of the Plan Year
and the first day of the fourth,
seventh and tenth months of the Plan
Year.
OPTION 3: [ ] The first day of the Plan Year.
OPTION 4: [ ] Other (Specify):________________________
2. MATCHING CONTRIBUTIONS.
If Matching Contributions (or Qualified Matching Contributions)
will be made to the Plan, the Entry Dates for purposes of
Matching Contributions (or Qualified Matching Contributions, if
applicable) shall be (Choose one):
OPTION 1: [X] The first day of the Plan Year
and the first day of the seventh
month of the Plan Year.
OPTION 2: [ ] The first day of the Plan Year
and the first day of the fourth,
seventh and tenth months of the Plan
Year.
OPTION 3: [ ] The first day of the Plan Year.
OPTION 4: [ ] Other (Specify):____________________
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
The Entry Dates for purposes of Employer Profit Sharing
Contributions shall be (Choose one):
OPTION 1: [X] The first day of the Plan Year
and the first day of the seventh
month of the Plan Year.
OPTION 2: [ ] The first day of the Plan Year
and the first day of the fourth,
seventh and tenth months of the Plan
Year.
OPTION 3: [ ] The first day of the Plan Year.
OPTION 4: [ ] Other (Specify):___________________
NOTE: If no option is selected for an item, Option 1 will
be deemed to be selected for that item. Option 3 or
Option 4 can be selected for an item only if the
eligibility requirements and Entry Dates are
coordinated such that each Employee will become a
Participant in the Plan no later than the earlier of:
(1) the first day of the Plan Year beginning after
the date the Employee satisfies the age and service
requirements of Section 410 (a) of the Code; or (2) 6
months after the date the Employee satisfies such
requirements.
7
<PAGE> 49
- --------------------------------------------------------------------------------
SECTION 5. METHOD OF DETERMINING SERVICE
Complete Part A or B
- --------------------------------------------------------------------------------
PART A. HOURS OF SERVICE EQUIVALENCIES:
Service will be determined on the basis of the method selected below.
Only one may be selected. The method selected will be applied to all
Employees covered under the Plan. (Choose one):
OPTION 1: [X] On the basis of actual hours for
which an Employee is paid or
entitled to payment.
OPTION 2: [ ] On the basis of days worked. An
Employee will be credited with 10
Hours of Service if under Section
1.24 of the Plan such Employee would
be credited with at least 1 hour of
Service during the day.
OPTION 3: [ ] On the basis of weeks worked. An
Employee will be credited with 45
hours of Service if under Section
1.24 of the Plan such Employee would
be credited with at least 1 Hour of
Service during the week.
OPTION 4: [ ] On the basis of months worked. An
Employee will be credited with 190
Hours of Service if under Section
1.24 of the Plan such Employee would
be credited with at least 1 Hour of
Service during the month.
NOTE: If no option is selected, Option 1 will be deemed to
be selected. This Section 5, Part A will not apply if
the Elapsed Time Method of Section 5, Part B is
selected.
PART B. ELAPSED TIME METHOD:
In lieu of tracking Hours of Service of Employees, will the elapsed
time method described in Section 2.07 of the Plan be used? (Choose
one):
OPTION 1: [X] No.
OPTION 2: [ ] Yes.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
- --------------------------------------------------------------------------------
SECTION 6. ELECTIVE DEFERRALS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF ELECTIVE DEFERRALS:
Will Elective Deferrals be permitted under this plan? (Choose one):
OPTION 1: [X] Yes.
OPTION 2: [ ] No.
NOTE: If no option is selected, Option 1 will be deemed to be
selected. Complete the remainder of Section 6 only if
Option 1 is selected.
8
<PAGE> 50
PART B. LIMITS ON ELECTIVE DEFERRALS:
If Elective Deferrals are permitted under the Plan, a Contributing
Participant may elect under a salary reduction agreement to have his
or her Compensation reduced by an amount as described below (Choose
one):
OPTION 1: [X] An amount equal to a percentage
of the Contributing Participant's
Compensation from 2% to 15% in
increments of 1%.
OPTION 2: [ ] An amount of the Contributing
Participant's Compensation not less
than _______ and not more than
_______.
The amount of such reduction shall be contributed to the Plan by the
Employer on behalf of the Contributing Participant. For any taxable
year, a Contributing Participant's Elective Deferrals shall not
exceed the limit contained in Section 402(g) of the Code in effect
at the beginning of such taxable year.
PART C. ELECTIVE DEFERRALS BASED ON BONUSES:
Instead of or in addition to making Elective Deferrals through
payroll deduction, may a Contributing Participant elect to
contribute to the Plan, as an Elective Deferral, part or all of a
bonus rather than receive such bonus in cash? (Choose one)
OPTION 1: [ ] Yes.
OPTION 2: [X] No.
NOTE: If no option is selected, Option 2 will be deemed to be
selected.
PART D. CEASING ELECTIVE DEFERRALS:
A Contributing Participant may prospectively revoke a salary
reduction agreement to cease Elective Deferrals (Choose one):
OPTION 1: [ ] As of the first day of any payroll
period.
OPTION 2: [ ] As of the first day of any month.
OPTION 3: [ ] As of the first day of any quarter.
OPTION 4: [X] As of any Entry Date.
OPTION 5: [ ] As of such times established by
the Plan Administrator in a uniform
and nondiscriminatory manner.
OPTION 6: [ ] Other (Specify. Must be at least
once per year.)_____________________
NOTE: If no option is selected, Option 3 will be deemed to be
selected.
9
<PAGE> 51
PART E. RETURN AS A CONTRIBUTING PARTICIPANT AFTER CEASING ELECTIVE
DEFERRALS:
A Participant who ceases Elective Deferrals by revoking a salary
agreement may return as a Contributing Participant (Choose one):
OPTION 1: [ ] No sooner than as of the first day
of the Plan Year.
OPTION 2: [X] As of any subsequent Entry Date.
OPTION 3: [ ] As of the first day of any
subsequent quarter.
OPTION 4: [ ] As of such times established by
the Plan Administrator in a uniform
and nondiscriminatory manner.
OPTION 5: [ ] Other (Specify. Must be at least
once per year.)_____________________
NOTE: If no option is selected. Option 1 will be deemed to be
selected.
PART F. CHANGING ELECTIVE DEFERRAL AMOUNTS:
A Contributing Participant may modify a salary reduction agreement
to prospectively increase or decrease the amount of his or her
Elective Deferrals (Choose one):
OPTION 1: [ ] As of the first day of any payroll
period.
OPTION 2: [ ] As of the first day of any month.
OPTION 3: [ ] As of the first day of any quarter.
OPTION 4: [X] As of any Entry Date.
OPTION 5: [ ] As of such times established by
the Plan Administrator in a uniform
and nondiscriminatory manner.
OPTION 6: [ ] Other (Specify)_________________________
NOTE: If no option is selected, Option 3 will be deemed to be
selected.
PART G: CLAIMING EXCESS ELECTIVE DEFERRALS:
Participants who claim Excess Elective Deferrals for the preceding
calendar year must submit their claims in writing to the Plan
Administrator by (Choose one):
OPTION 1: [X] March 1.
OPTION 2: [ ] Other (Specify a date not later than
April 15)________________________________
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
10
<PAGE> 52
PART H: ONE-TIME IRREVOCABLE ELECTIONS:
May an Employee make a one-time irrevocable election, as described
in Section 11.205 of the Plan, upon first becoming eligible to
participate in the Plan to have the Employer make contributions to
the Plan on such Employee's behalf? (Choose one)
OPTION 1: [ ] Yes.
OPTION 2: [X] No.
NOTE: If no option is selected, Option 2 will be deemed to be
selected.
- --------------------------------------------------------------------------------
SECTION 7. MATCHING CONTRIBUTIONS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF MATCHING CONTRIBUTIONS:
Will the Employer make Matching Contributions to the Plan on behalf
of Qualifying Contributing Participants? (Choose one)
OPTION 1: [X] Yes, but only with respect to a
Contributing Participant's Elective
Deferrals.
OPTION 2: [ ] Yes, but only with respect to a
Participant's Nondeductible Employee
Contributions.
OPTION 3: [ ] Yes, with respect to both Elective
Deferrals and Nondeductible Employee
Contributions.
OPTION 4: [ ] No.
NOTE: If no option is selected, Option 4 will be deemed to be
selected. Complete the remainder of Section 7 only if
Option 1, 2 or 3 is selected.
PART B. MATCHING CONTRIBUTION FORMULA:
If the Employer will make Matching Contributions, then the amount of
such Matching Contributions made on behalf of a Qualifying
Contributing Participant each Plan Year shall be (Choose one):
OPTION 1: [ ] An amount equal to ___% of such
Contributing Participant's Elective
Deferral (and/or Nondeductible Employee
Contribution, if applicable).
OPTION 2: [ ] An amount equal to the sum of ___%
of the portion of such Contributing
Participant's Elective Deferral (and/or
Nondeductible Employee Contribution, if
applicable) which does not exceed ____% of
the Contributing Participant's
Compensation plus ____% of the portion of
such Contributing Participant's Elective
Deferral (and/or Nondeductible Employee
Contribution, if applicable) which exceeds
____% of the Contributing Participant's
Compensation.
11
<PAGE> 53
OPTION 3: [X] Such amount, if any, equal to that
percentage of each Contributing
Participant's Elective Deferral (and/or
Nondeductible Employee Contribution, if
applicable) which the Employer, in its
sole discretion, determines from year to
year.
OPTION 4: [ ] Other Formula. (Specify):
NOTE: If Option 4 is selected, the formula specified can only
allow Matching Contributions to be made with respect to a
Contributing Participant's Elective Deferrals (and/or
Nondeductible Employee Contribution, if applicable).
PART C. LIMIT ON MATCHING CONTRIBUTIONS:
Notwithstanding the Matching Contribution formula specified above,
no Matching Contribution will be made with respect to a Contributing
Participant's Elective Deferrals (and/or Nondeductible Employee
Contributions, if applicable) in excess of ________ or ________% of
such Contributing Participant's Compensation.
PART D. QUALIFYING CONTRIBUTING PARTICIPANTS:
A Contributing Participant who satisfies the eligibility
requirements described in Section 4 will be a Qualifying
Contributing Participant and thus entitled to share in Matching
Contributions for any Plan Year only if the Participant is a
Contributing Participant and satisfies the following additional
conditions (Check one or more Options):
OPTION 1: [ ] No Additional Conditions.
OPTION 2: [X] Hours of Service Requirement. The
Contributing Participant completes at
least 501 Hours of Service during the Plan
Year. However, this condition will be
waived for the following reasons (Check at
least one):
[ ] The Contributing Participant's Death.
[ ] The Contributing Participant's Termination
of Employment after having incurred a
Disability.
[ ] The Contributing Participant's Termination
of Employment after having reached Normal
Retirement Age.
[X] This condition will not be waived.
OPTION 3: [ ] Last Day Requirement: The
Participant is an Employee of the Employer
on the last day of Plan Year. However,
this condition will be waived for the
following reasons (Check at least one):
[ ] The Contributing Participant's Death.
[ ] The Contributing Participant's Termination
of Employment after having incurred a
Disability.
[ ] The Contributing Participant's Termination
of Employment after having reached Normal
Retirement Age.
12
<PAGE> 54
[ ] This condition will not be waived.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
- --------------------------------------------------------------------------------
SECTION 8. QUALIFIED NONELECTIVE CONTRIBUTIONS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF QUALIFIED NONELECTIVE CONTRIBUTIONS:
Will the Employer make Qualified Nonelective Contributions to the
Plan? (Choose One)
OPTION 1: [X] Yes.
OPTION 2: [ ] No.
If the Employer elects to make Qualified Nonelective Contributions,
then the amount, if any, of such contribution to the Plan for each
Plan Year shall be an amount determined by the Employer.
NOTE: If no option is selected, Option 1 will be deemed to be
selected. Complete the remainder of Section 8 only if
Option 1 is selected.
PART B. PARTICIPANTS ENTITLED TO QUALIFIED NONELECTIVE CONTRIBUTIONS:
Allocation of Qualified Nonelective Contributions shall be made to
the Individual Accounts of (Choose one):
OPTION 1: [X] Only Participants who are not
Highly Compensated Employees.
OPTION 2: [ ] All Participants.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART C. ALLOCATION OF QUALIFIED NONELECTIVE CONTRIBUTIONS:
Allocation of Qualified Nonelective Contributions to Participants
entitled thereto shall be made (Choose one):
OPTION 1: [X] In the ratio which each
Participant's Compensation for the Plan
Year bears to the total Compensation of
all Participants for such Plan Year.
OPTION 2: [ ] In the ratio which each
Participant's Compensation not in excess
of ________ for the Plan Year bears to the
total Compensation of all Participants not
in excess of ___________ for such Plan
Year.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
- --------------------------------------------------------------------------------
SECTION 9. QUALIFIED MATCHING CONTRIBUTIONS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION OF QUALIFIED MATCHING CONTRIBUTIONS:
Will the Employer make Qualified Matching Contributions to the Plan
on behalf of Qualifying Contributing Participants? (Choose one):
13
<PAGE> 55
OPTION 1. [X] Yes, but only with respect to a
Contributing Participant's Elective
Deferrals.
OPTION 2. [ ] Yes, but only with respect to a
Participant's Nondeductible Employee
Contributions.
OPTION 3. [ ] Yes, with respect to both Elective
Deferrals and Nondeductible Employee
Contributions.
OPTION 4. [ ] No.
NOTE: If no option is selected, Option 3 will be deemed to be
selected. Complete the remainder of Section 9 only if
Option 1,2 or 3 is selected.
PART B. QUALIFIED MATCHING CONTRIBUTION FORMULA:
If the Employer will make Qualified Matching Contributions, then the
amount of such Qualified Matching Contributions made on behalf of a
Qualifying Contributing Participant each Plan Year shall be (Choose
one):
OPTION 1. [ ] An amount equal to _____% of such
Contributing Participant's Elective
Deferral (and/or Nondeductible Employee
Contribution, if applicable).
OPTION 2. [ ] An amount equal to the sum of
_____% of the portion of such Contributing
Participant's Elective Deferral (and/or
Nondeductible Employee Contribution, if
applicable) which does not exceed _____%
of the Contributing Participant's
Compensation plus _____% of the portion of
such Contributing Participant's Elective
Deferral (and/or Nondeductible Employee
Contribution, if applicable) which exceeds
_____% of the Contributing Participant's
Compensation.
OPTION 3. [X] Such amount, if any, as determined
by the Employer in its sole discretion,
equal to that percentage of the Elective
Deferrals (and/or Nondeductible Employee
Contribution, if applicable) of each
Contributing Participant entitled thereto
which would be sufficient to cause the
Plan to satisfy the Actual Contribution
Percentage tests (described in Section
11.402 of the Plan) for the Plan Year.
OPTION 4. [ ] Other Formula. (Specify)
____________________________________
NOTE: If no option is selected, Option 3 will be deemed to be
selected.
PART C. PARTICIPANTS ENTITLED TO QUALIFIED MATCHING CONTRIBUTIONS:
Qualified Matching Contributions, if made to the Plan, will be made
on behalf of? (Choose one):
OPTION 1. [X] Only Contributing Participants who
make Elective Deferrals who are not Highly
Compensated Employees.
OPTION 2. [ ] All Contributing Participants who
make Elective Deferrals.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
14
<PAGE> 56
PART D. LIMIT ON QUALIFIED MATCHING CONTRIBUTIONS:
Notwithstanding the Qualified Matching Contribution formula
specified above, the Employer will not match a Contributing
Participant's Elective Deferrals (and/or Nondeductible Employee
Contribution, if applicable) in excess of ___________ or _____% of
such Contributing Participant's Compensation.
- --------------------------------------------------------------------------------
SECTION 10. ADP AND ACP TESTING OPTIONS
- --------------------------------------------------------------------------------
PART A. ACP TEST AND ELECTIVE DEFERRALS:
Will Elective Deferrals under this Plan (and any other plan of the
Employer, as provided by regulations) be taken into account, and
included as Contribution Percentage Amounts for purposes of
performing the Average Contribution percentage (ACP) test? (Choose
one):
OPTION 1. [ ] No.
OPTION 2. [X] Yes, in the following amounts
(Choose one):
SUBOPTION (a): [X] Only such Elective
Deferrals that are needed to
meet the Average Contribution
Percentage test.
SUBOPTION (b): [ ] All Elective Deferrals.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART B. ADP TEST AND QUALIFIED NONELECTIVE CONTRIBUTIONS:
Will Qualified Nonelective Contributions under this Plan (and any
other plan of the Employer, as provided by regulations) be taken
into account, and included as Contribution Percentage Amounts for
purposes of performing the Average Contribution Percentage (ACP)
test? (Choose one):
OPTION 1. [ ] No.
OPTION 2. [X] Yes, in the following amounts
(Choose one):
SUBOPTION (a): [X] Only such Qualified
Nonelective Contributions that
are needed to meet the Average
Contribution Percentage test.
SUBOPTION (b): [ ] All Qualified Nonelective
Contributions.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART C. ACP TEST AND QUALIFIED MATCHING CONTRIBUTIONS:
Will Qualified Matching Contributions under this Plan (and any other
plan of the Employer, as provided by regulations) be taken into
account as Elective Deferrals for purposes of calculating Actual
Deferral Percentages when performing the Actual Deferral Percentage
(ADP) test? (Choose one):
OPTION 1. [ ] No.
15
<PAGE> 57
OPTION 2. [X] Yes, in the following amounts
(Choose one):
SUBOPTION (a): [X] Only such Qualified
Matching Contributions that are
needed to meet the ADP test.
SUBOPTION (b): [ ] All such Qualified
Nonelective Contributions.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART D. CORRECTION OF AGGREGATE LIMIT:
If the Aggregate Limit described in Section 11.102 of the Plan is
exceeded, the following adjustments will be made in accordance with
Section 11.402(B)(1) of the Plan (Choose one):
OPTION 1. [X] The ACP of Highly Compensated
Employees will be reduced.
OPTION 2. [ ] The ADP of Highly Compensated
Employees will be reduced.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
- --------------------------------------------------------------------------------
SECTION 11. EMPLOYER PROFIT SHARING CONTRIBUTIONS
Complete Parts A, B and C
- --------------------------------------------------------------------------------
PART A. CONTRIBUTION FORMULA (Choose one):
OPTION 1. [X] Discretionary Formula. For each
Plan Year the Employer will contribute an
amount to be determined from year to year.
OPTION 2. [ ] Fixed Formula. ______% of the
Compensation of all Qualified Participants
under the Plan for the Plan Year.
OPTION 3. [ ] Fixed Percent of Profits Formula.
_____% of the Employer's profits that are
in excess of _____________.
OPTION 4. [ ] Frozen Plan. This Plan is frozen
effective _____________ and the Employer
will not make additional contributions to
the Plan after such date.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART B. ALLOCATION FORMULA (Choose one):
OPTION 1. [ ] Pro Rata Formula. Employer Profit
Sharing Contributions shall be allocated
to the Individual Accounts of Qualifying
Participants in the ratio that each
Qualifying Participant's Compensation for
the Plan Year bears to total Compensation
of all Qualifying Participants for the
Plan Year.
OPTION 2. [ ] Flat Dollar Formula. Employer
Profit Sharing Contributions allocated to
the Individual Accounts of Qualifying
Participants for each Plan Year shall be
the same dollar amount for each Qualifying
Participant.
16
<PAGE> 58
OPTION 3. [X] Integrated Formula. Employer Profit
Sharing Contribution shall be allocated as
follows (Start with Step 3 if this Plan is
not a Top-Heavy Plan):
Step 1. Employer Profit Sharing Contributions shall
first be allocated pro rata to Qualifying
Participants in the manner described in Section 11,
Part B, Option 1. The percent so allocated shall
not exceed 3% of each Qualifying Participant's
Compensation.
Step 2. Any Employer Profit Sharing Contributions
remaining after the allocation in Step 1 shall be
allocated to each Qualifying Participant's
Individual Account in the ratio that each
Qualifying Participant's Compensation for the Plan
Year in excess of the integration level bears to
all Qualifying Participant's Compensation in excess
of the integration level, but not in excess of 3%.
Step 3. Any Employer Profit Sharing Contributions
remaining after the allocation in Step 2 shall be
allocated to each Qualifying Participant's
Individual Account in the ratio that the sum of
each Qualifying Participant's total Compensation
and Compensation in excess of the integration level
bears to the sum of all Qualifying Participants'
total Compensation and Compensation in excess of
the integration level, but not in excess of the
profit sharing maximum disparity rate as described
in Section 3.01 (B)(3) of the Plan.
Step 4. Any Employer Profit Sharing Contributions
remaining after the allocation in Step 3 shall be
allocated pro rata to Qualifying Participants in
the manner described in Section 11, Part B, Option
1.
The integration level shall be (Choose one):
SUBOPTION (a): [X] The Taxable Wage Base.
SUBOPTION (b): [ ] ______ (a dollar amount less
than the Taxable Wage Base).
SUBOPTION (c): [ ] ______% (not more than 100%)
of the Taxable Wage Base.
NOTE: If no option is selected, Suboption (a)
will be deemed to be selected.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART C. QUALIFYING PARTICIPANTS:
A Participant will be a Qualifying Participant and thus entitled to
share in the Employer Profit Sharing Contribution for any Plan Year
only if the Participant is a Participant on at least one day of such
Plan Year and satisfies the following additional conditions (Check
one or more Options):
OPTION 1. [ ] No Additional Conditions.
OPTION 2. [ ] Hours of Service Requirement. The
Participant completes at least _______
Hours of Service during the Plan Year.
However, this condition will be waived for
the following reasons (Check at least
one):
17
<PAGE> 59
[ ] The Participant's Death.
[ ] The Participant's Termination of
Employment after having incurred a
Disability.
[ ] The Participant's Termination of
Employment after having reached Normal
Retirement Age.
[ ] This condition will not be waived.
OPTION 3. [X] Last Day Requirement. The Participant is
an Employee of the Employer on the last
day of the Plan Year. However, this
condition will be waived for the following
reasons (Check at least one):
[X] The Participant's Death.
[X] The Participant's Termination of
Employment after having incurred a
Disability.
[X] The Participant's Termination of
Employment after having reached Normal
Retirement Age.
[ ] This condition will not be waived.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
- --------------------------------------------------------------------------------
SECTION 12. COMPENSATION
Complete Parts A through E
- --------------------------------------------------------------------------------
PART A. BASIC DEFINITION:
1. ELECTIVE DEFERRALS.
For purposes of Elective Deferrals, Compensation will mean all of
each Participant's (Choose one):
OPTION 1: [X] W-2 wages.
OPTION 2: [ ] Section 3401(a) wages.
OPTION 3: [ ] 415 safe-harbor compensation.
2. MATCHING CONTRIBUTIONS.
For purposes of Matching Contributions, Compensation will mean all
of each Participant's (Choose one):
OPTION 1: [X] W-2 wages.
OPTION 2: [ ] Section 3401(a) wages.
18
<PAGE> 60
OPTION 3: [ ] 415 safe-harbor compensation.
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
For purposes of Employer Profit Sharing Contributions, Compensation
will mean all of each Participant's (Choose one):
OPTION 1: [X] W-2 wages.
OPTION 2: [ ] Section 3401(a) wages.
OPTION 3: [ ] 415 safe-harbor compensation.
NOTE: If no option is selected for an item, Option 1 will be
deemed to be selected for that item.
PART B. MEASURING PERIOD FOR COMPENSATION:
1. ELECTIVE DEFERRALS.
For purposes of Elective Deferrals, Compensation shall be determined
over the following applicable period (Choose one):
OPTION 1: [X] The Plan Year.
OPTION 2: [ ] The calendar year ending with or within the
Plan Year.
2. MATCHING CONTRIBUTIONS.
For purposes of Matching Contributions, Compensation shall be
determined over the following applicable period (Choose one):
OPTION 1: [X] The Plan Year.
OPTION 2: [ ] The calendar year ending with or within the
Plan Year.
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
For purposes of Employer Profit Sharing Contributions, Compensation
shall be determined over the following applicable period (Choose
one):
OPTION 1: [X] The Plan Year.
OPTION 2: [ ] The calendar year ending with or within the
Plan Year.
NOTE: If no option is selected for an item, Option 1 will be
deemed to be selected for that item.
PART C. INCLUSION OF ELECTIVE DEFERRALS:
1. ELECTIVE DEFERRALS.
For purposes of Elective Deferrals, does Compensation include
Employer Contributions made pursuant to a salary reduction agreement
which are not includible in the gross income of the
19
<PAGE> 61
Employee under any of the following Sections of the Code? (Answer
"Included" or "Excluded" for each of the following items.):
<TABLE>
<S> <C> <C>
Section 125 (cafeteria plans) [X] Included [ ] Excluded
Section 402(e)(3)(401(k) plans) [X] Included [ ] Excluded
Section 402(h)(1)(B)(salary deferral SEP plans) [X] Included [ ] Excluded
Section 403(b)(tax-sheltered plans) [X] Included [ ] Excluded
</TABLE>
NOTE: If a box is not checked for an item, "Included" will be
deemed to be selected for that item.
2. MATCHING CONTRIBUTIONS.
For purposes of Matching Contributions, does Compensation include
Employer Contributions made pursuant to a salary reduction agreement
which are not includible in the gross income of the Employee under
any of the following Sections of the Code? (Answer "Included" or
"Excluded" for each of the following items.):
<TABLE>
<S> <C> <C>
Section 125 (cafeteria plans) [X] Included [ ] Excluded
Section 402(e)(3)(401(k) plans) [X] Included [ ] Excluded
Section 402(h)(1)(B)(salary deferral SEP plans) [X] Included [ ] Excluded
Section 403(b)(tax-sheltered plans) [X] Included [ ] Excluded
</TABLE>
NOTE: If a box is not checked for an item, "Included" will be
deemed to be selected for that item.
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
For purposes of Employer Profit Sharing Contributions, does
Compensation include Employer Contributions made pursuant to a
salary reduction agreement which are not includible in the gross
income of the Employee under any of the following Sections of the
Code? (Answer "Included" or "Excluded" for each of the following
items.):
<TABLE>
<S> <C> <C>
Section 125 (cafeteria plans) [X] Included [ ] Excluded
Section 402(e)(3)(401(k) plans) [X] Included [ ] Excluded
Section 402(h)(1)(B)(salary deferral SEP plans) [X] Included [ ] Excluded
Section 403(b)(tax-sheltered plans) [X] Included [ ] Excluded
</TABLE>
NOTE: If a box is not checked for an item, "Included" will be
deemed to be selected for that item.
20
<PAGE> 62
PART D. PRE-ENTRY DATE COMPENSATION:
1. ADP AND ACP TESTING PURPOSES.
For the Plan Year in which an Employee enters the Plan, the
Employee's Compensation which shall be taken into account for
purposes of Actual Deferral Percentage (ADP) and Actual Contribution
Percentage (ACP) testing shall be (Choose one):
OPTION 1: [X] The Employee's Compensation only from
the time the Employee became a Participant in
the Plan.
OPTION 2: [ ] The Employee's Compensation for the
whole of such Plan Year.
NOTE: If no option is selected for an item, Option 1 will be
deemed to be selected.
2. OTHER PURPOSES.
For the Plan Year in which an Employee enters the Plan, the
Employee's Compensation which shall be taken into account for
purposes of the Plan (other than ADP or ACP testing) shall be
(Choose one):
OPTION 1: [X] The Employee's Compensation only from
the time the Employee became a Participant in
the Plan.
OPTION 2: [ ] The Employee's Compensation for the
whole of such Plan Year.
NOTE: If no option is selected for an item, Option 1 will be
deemed to be selected.
PART E. EXCLUSIONS FROM COMPENSATION:
1. ELECTIVE DEFERRALS.
For purposes of Elective Deferrals, Compensation shall not include
the following (Check any that apply):
[ ] Bonuses [ ] Commissions
[ ] Overtime [ ] Other (Specify): _____________________________
NOTE: No exclusions from Compensation are permitted if the
integrated allocation formula in Section 11, Part B is
selected.
2. MATCHING CONTRIBUTIONS.
For purposes of Matching Contributions, Compensation shall not
include the following (Check any that apply):
[ ] Bonuses [ ] Commissions
[ ] Overtime [ ] Other (Specify): _____________________________
NOTE: No exclusions from Compensation are permitted if the
integrated allocation formula in Section 11, Part B is
selected.
21
<PAGE> 63
3. EMPLOYER PROFIT SHARING CONTRIBUTIONS.
For purposes of Employer Profit Sharing Contributions, Compensation
shall not include the following (Check any that apply):
[ ] Bonuses [ ] Commissions
[ ] Overtime [ ] Other (Specify): _____________________________
NOTE: No exclusions from Compensation are permitted if the
integrated allocation formula in Section 11, Part B is
selected.
- --------------------------------------------------------------------------------
SECTION 13. VESTING AND FORFEITURES
Complete Parts A through H
- --------------------------------------------------------------------------------
PART A. VESTING SCHEDULE FOR EMPLOYER PROFIT SHARING CONTRIBUTIONS. A
Participant shall become Vested in his or her individual Account
derived from Profit Sharing Contributions made pursuant to Section
11 of the Adoption Agreement as follows (choose one):
- --------------------------------------------------------------------------------
VESTED PERCENTAGE
<TABLE>
<CAPTION>
YEARS OF
VESTING SERVICE
Option 1 [ ] Option 2 [ ] Option 3 [ ] Option 4 [ ] Option 5 [X] (Complete if Chosen)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 0% 0% 100% 0% 50 %
-----------
2 0% 20% 100% 0% 75 %
-----------
3 0% 40% 100% 20% 100 % (not less than 20%)
-----------
4 0% 60% 100% 40% 100 % (not less than 40%)
-----------
5 100% 80% 100% 60% 100 % (not less than 60%)
-----------
6 100% 100% 100% 80% 100 % (not less than 80%)
-----------
7 100% 100% 100% 100% 100 % (not less than 100%)
-----------
<FN>
NOTE: If no option is selected, Option 3 will be deemed to be selected.
</TABLE>
- --------------------------------------------------------------------------------
PART B. Vesting Schedule For Matching Contributions. A Participant shall
become Vested in his or her Individual Account derived from Matching
Contributions made pursuant to Section 7 of the Adoption Agreement
as follows (choose one):
- --------------------------------------------------------------------------------
VESTED PERCENTAGE
<TABLE>
<CAPTION>
YEARS OF
VESTING SERVICE
Option 1 [ ] Option 2 [ ] Option 3 [ ] Option 4 [ ] Option 5 [X] (Complete if Chosen)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 0% 0% 100% 0% 50 %
---------
2 0% 20% 100% 0 75 %
---------
</TABLE>
22
<PAGE> 64
<TABLE>
<S> <C> <C> <C> <C> <C>
3 0% 40% 100% 20% 100 % (not less than 20%)
---------
4 0% 60% 100% 40% 100 % (not less than 40%)
---------
5 100% 80% 100% 60% 100 % (not less than 60%)
---------
6 100% 100% 100% 80% 100 % (not less than 80%)
---------
7 100% 100% 100% 100% 100 % (not less than 100%)
---------
<FN>
NOTE: If no option is selected, Option 3 will be deemed to be selected.
</TABLE>
- --------------------------------------------------------------------------------
PART C. HOURS REQUIRED FOR VESTING PURPOSES:
1. 1000 Hours of Service (no more than 1,000) shall be required to
constitute a Year of Vesting Service.
2. 500 Hours of Service (no more than 500 but less than the number
specified in Section 13, Part C, Item 1, above) must be exceeded
to avoid a Break in Vesting Service.
3. For purpose of determining Years of Vesting Service, Employees
shall be given credit for Hours of Service with the following
predecessor employer(s) (Complete if applicable)
----------------------------------------------------------------
PART D. EXCLUSION OF CERTAIN YEARS OF VESTING SERVICE:
All of an Employee's Years of Vesting Service with the Employer are
counted to determine the vesting percentage in the Participant's
Individual Account except (Check any that apply):
[X] Years of Vesting Service before the Employee reaches age 18.
[ ] Years of Vesting Service before the Employer maintained this
Plan or a predecessor plan.
PART E. FULLY VESTED UNDER CERTAIN CIRCUMSTANCES:
Will a Participant be fully Vested under the following
circumstances? (Answer "Yes" or "No" to each of the following items
by checking the appropriate box)
1. The Participant dies. [X] Yes [ ] No
2. The Participant incurs a Disability. [X] Yes [ ] No
3. The Participant satisfies the conditions for
Early Retirement Age (if applicable). [X] Yes [ ] No
NOTE: If a box is not checked for an item, "Yes" will be deemed
to be selected for that item.
PART F. ALLOCATION OF FORFEITURES OF EMPLOYER PROFIT SHARING CONTRIBUTIONS:
Forfeitures of Employer Profit Sharing Contributions shall be
(Choose one):
OPTION 1: [ ] Allocated to the Individual Accounts on
the Participants specified below in the
manner as described in Section 11, Part B
(for Employer Profit Sharing
Contributions).
23
<PAGE> 65
The Participant entitled to receive
allocations of such Forfeitures shall be
(Choose one):
SUBOPTION (a): [ ] Only Qualifying
Participants.
SUBOPTION (b): [ ] All Participants.
OPTION 2: [X] Applied to reduce Employer Profit
Sharing Contributions (Choose one):
SUBOPTION (a): [X] For the Plan
Year for which the
Forfeitures arises.
SUBOPTION (b): [ ] For any Plan
Year subsequent to the
Plan Year for which the
Forfeiture arises.
OPTION 3: [ ] Applied first to the payment of the
Plan's administrative expenses and any
excess applied to reduce Employer Profit
Sharing Contributions (Choose one):
SUBOPTION (a): [X] For the Plan
Year for which the
Forfeitures arises.
SUBOPTION (b): [ ] For any Plan
Year subsequent to the
Plan Year for which the
Forfeiture arises.
NOTE: If no option is selected, Option 1 and Suboption (a) will
be deemed to be selected.
PART G. ALLOCATION OF FORFEITURES OF MATCHING CONTRIBUTIONS:
Forfeitures of Matching Contributions shall be (Choose one):
OPTION 1: [ ] Allocated, after all other Forfeitures
under the Plan, to each Participant's
Individual Account in the ratio which each
Participant's Compensation for the Plan
Year bears to the total Compensation of
all Participants for such Plan Year.
The Participant entitled to receive
allocations of such Forfeitures shall be
(Choose one):
SUBOPTION (a): [ ] Only Qualifying
Contributing
Participants.
SUBOPTION (b): [ ] Only Qualifying
Participants.
SUBOPTION (c): [ ] All Participants.
OPTION 2: [X] Applied to reduce Matching
Contributions (Choose one):
SUBOPTION (a): [X] For the Plan Year
for which the
Forfeitures arises.
SUBOPTION (b): [ ] For any Plan Year
subsequent to the Plan
Year for which the
Forfeiture arises.
OPTION 3: [ ] Applied first to the payment of the
Plan's administrative expenses and any
excess applied to reduce Matching
Contributions (Choose one):
24
<PAGE> 66
SUBOPTION (a): [ ] For the Plan Year
for which the
Forfeitures arises.
SUBOPTION (b): [ ] For any Plan Year
subsequent to the Plan
Year for which the
Forfeiture arises.
NOTE: If no option is selected, Option 1 and Suboption (a) will
be deemed to be selected.
PART H. ALLOCATION OF FORFEITURES OF EXCESS AGGREGATE CONTRIBUTIONS:
Forfeitures of Excess Aggregate Contributions shall be (Choose one):
OPTION 1: [ ] Allocated, after all other Forfeitures
under the Plan, to each Contributing
Participant's Matching Contribution
account in the ratio which each
Contributing Participant's Compensation
for the Plan Year bears to the total
Compensation of all Contributing
Participants for each such Plan Year. Such
Forfeitures will not be allocated to the
account of any Highly Compensated
Employee.
OPTION 2: [X] Applied to reduce Matching Contributions
(Choose one):
SUBOPTION (a): [X] For the Plan Year
for which the
Forfeitures arises.
SUBOPTION (b): [ ] For any Plan Year
subsequent to the Plan
Year for which the
Forfeiture arises.
OPTION 3: [ ] Applied first to the payment of the
Plan's administrative expenses and any
excess applied to reduce Matching
Contributions (Choose one):
SUBOPTION (a): [ ] For the Plan Year
for which the
Forfeitures arises.
SUBOPTION (b): [ ] For any Plan Year
subsequent to the Plan
Year for which the
Forfeiture arises.
NOTE: If no option is selected, Option 2 and Suboption (a) will
be deemed to be selected.
- --------------------------------------------------------------------------------
SECTION 14. NORMAL RETIREMENT AGE AND EARLY RETIREMENT AGE
- --------------------------------------------------------------------------------
PART A. THE NORMAL RETIREMENT AGE UNDER THE PLAN SHALL BE (Check and
complete one option):
OPTION 1: [X] Age 65.
OPTION 2: [ ] Age __________ (not to exceed 65).
OPTION 3: [ ] The later of age ______ (not to exceed
65) or the ____ (not to exceed 5th)
anniversary of the first day of the first
Plan Year in which the Participant
commenced participation in the Plan.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
25
<PAGE> 67
PART B. EARLY RETIREMENT AGE (Choose one option):
OPTION 1: [ ] An Early Retirement Age is not
applicable under the Plan.
OPTION 2: [ ] Age ______ (not less than 55 nor more
than 65).
OPTION 3: [X] A Participant satisfies the Plan's
Early Retirement Age conditions by
attaining age 55 (note less than 55) and
completing 5 Years of Vesting Service.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
- --------------------------------------------------------------------------------
SECTION 15. DISTRIBUTIONS
Complete Parts A and B
- -------------------------------------------------------------------------------
PART A. DISTRIBUTABLE EVENTS. ANSWER EACH OF THE FOLLOWING ITEMS.
1. Termination of Employment Before Normal Retirement Age. May a
Participant who has not reached Normal Retirement Age request a
distribution from the Plan of that portion of the Participant
Individual Account attributable to the following types of
contributions upon Termination of Employment?
Elective Deferrals [X] Yes [ ] No
Matching Contributions (if made) [X] Yes [ ] No
Employer Profit Sharing Contributions [X] Yes [ ] No
2. Disability. May a Participant who has incurred a Disability
request a distribution from the Plan of that portion of the
Participant's Individual Account attributable to the following
types of contributions?
Elective Deferrals [X] Yes [ ] No
Matching Contributions (if made) [X] Yes [ ] No
Employer Profit Sharing Contributions [X] Yes [ ] No
3. Attainment of Normal Retirement Age. May a Participant who has
attained Normal Retirement Age but has not incurred a
Termination of Employment request a distribution from the Plan
of that portion of the Participant's Individual Account
attributable to the following types of contributions?
Elective Deferrals [X] Yes [ ] No
Matching Contributions (if made) [X] Yes [ ] No
Employer Profit Sharing Contributions [X] Yes [ ] No
4. Attainment of Age 59 1/2. Will Participants who have attained
age 59 1/2 be permitted to withdraw Elective Deferrals wile
still employed by the Employer?
[X] Yes [ ] No
26
<PAGE> 68
5. Hardship Withdrawals of Elective Deferrals: Will Participants be
permitted to withdraw Elective Deferrals on account of hardship
pursuant to Section 11.503 of the Plan?
[X] Yes [ ] No
6. In-Service Withdrawals. Will Participants be permitted to
request a distribution of that portion of the Participant's
Individual Account attributable to the following types of
contributions during service pursuant to Section 6.01(A)(3) of
the Plan?
Matching Contributions (if made) [X] Yes [ ] No
Employer Profit Sharing Contributions [X] Yes [ ] No
7. One-Time In-Service Withdrawal Option. Will the one-time
in-service withdrawal provisions described in Section 6.01
(A)(5) of the Plan apply to the following types of
contributions?
Matching Contributions (if made) [X] Yes [ ] No
Employer Profit Sharing Contributions [X] Yes [ ] No
If the answer is "Yes," specify percentage that a Participant
may withdraw: _________%
8. Hardship Withdrawals. Will Participants be permitted to make
hardship withdrawals of that portion of the Participant's
Individual Account attributable to the following types of
contributions pursuant to Section 6.01(A)(4) of the
Matching Contributions (if made) [X] Yes [ ] No
Employer Profit Sharing Contributions [X] Yes [ ] No
9. Withdrawals of Rollover or Transfer Contributions. Will
Employees be permitted to withdraw their Rollover or Transfer
Contributions at any time?
[X] Yes [ ] No
NOTE: If a box is not checked for an item, "Yes" will be deemed
to be selected for that item. Section 411(d)(6) of the
Code prohibits the elimination of protected benefits. In
general, protected benefits include the forms and timing
of payout options. If the Plan is being adopted to amend
and replace a Prior Plan that permitted a distribution
option described above, you must answer "Yes" to that
item.
PART B. TIMING OF DISTRIBUTIONS:
1. Termination of Employment. Where a Participant who is entitled
to a distribution under the Plan has a Termination of Employment
(for reasons other than death, Disability or attainment of
Normal Retirement Age), distributions shall commence (Check
one):
OPTION (a): [X] As soon as administratively feasible
following the date the Participant
requests a distribution.
OPTION (b): [ ] As soon as administratively feasible
following the close of the Plan Year
within which the Participant requests a
distribution.
27
<PAGE> 69
OPTION (c): [ ] As soon as administratively feasible
following the close of the Plan Year
within which the Participant requests a
distribution or the Participant incurs
____ (not more than 5) consecutive
one-year Breaks in Vesting Service,
whichever is later.
NOTE: If no option is selected, Option (a) will be deemed to
be selected.
2. Death, Disability or Attainment of Normal Retirement Age. Where
a Participant dies, incurs a Disability or attains Normal
Retirement Age, and a distributable event has occurred,
distributions shall commence (Check one):
OPTION (a): [X] As soon as administratively feasible
following the date the Participant (or
Beneficiary of a deceased Participant)
requests a distribution.
OPTION (b): [ ] As soon as administratively feasible
following the close of the Plan Year
within which the Participant (or
Beneficiary of a deceased Participant)
requests a distribution.
OPTION (c): [ ] As soon as administratively feasible
following the close of the Plan Year
within which the Participant (or
Beneficiary of a deceased Participant)
requests a distribution or the Participant
incurs ____ (not more than 5) consecutive
one-year Breaks in Vesting Service,
whichever is later.
NOTE: If no option is selected, Option (a) will be deemed to
be selected.
- --------------------------------------------------------------------------------
SECTION 16. JOINT AND SURVIVOR ANNUITY
- --------------------------------------------------------------------------------
PART A. RETIREMENT EQUITY ACT SAFE HARBOR.
Will the safe harbor provisions of Section 6.05(F) of the Plan
apply? (Choose only one option:)
OPTION 1: [X] Yes.
OPTION 2: [ ] No.
NOTE: You must select "No" if you are adopting this Plan as an
amendment and restatement of a Prior Plan that was subject
to the joint and survivor annuity requirements.
PART B. SURVIVOR ANNUITY PERCENTAGE: (Complete only if your answer in
Section 16, Part A is "No.")
The survivor annuity portion of the Joint and Survivor Annuity
shall be a percentage equal to _____% (at least 50% but no more
than 100%) of the amount paid to the Participant prior to his or
her death.
- --------------------------------------------------------------------------------
SECTION 17. OTHER OPTIONS
Answer "Yes" or "No" to each of the following question by checking the
appropriate box.
If a box is not checked for a question, the answer will be deemed to be "No."
- --------------------------------------------------------------------------------
A. Loans: Will loans to Participants pursuant to Section 6.08 of
the Plan be permitted?
[ ] Yes [X] No
28
<PAGE> 70
B. Insurance: Will the Plan allow for the investment in insurance
policies pursuant to Section 5.13 of the Plan? [ ] Yes [X] No
C. Employer Securities: Will the Plan allow for the investment in
qualifying Employer Securities or qualifying Employer real
property? [X] Yes [ ] No
D. Rollover Contributions: Will Employees be permitted to make
rollover contributions to the Plan pursuant to Section 3.03 of
the Plan? [X] Yes *[ ] No
* As long as consistent with distribution
options in this plan. [ ] Yes, but only
after becoming a
participant.
E. Transfer Contributions: Will Employees be permitted to make
transfer contributions to the Plan pursuant to Section 3.04 of
the Plan? [X] Yes *[ ] No
* As long as consistent with distribution
options in this plan. [ ] Yes, but only
after becoming a
Participant.
F. Nondeductible Employee Contributions: Will Employees be
permitted to make Nondeductible Employee Contributions pursuant
to Section 11.305 of the Plan?
[ ] Yes [X] No
Check here if such contributions will be mandatory. [ ]
- --------------------------------------------------------------------------------
SECTION 18. PARTICIPANT DIRECTION OF INVESTMENTS
- --------------------------------------------------------------------------------
PART A. AUTHORIZATION.
Will Participants be permitted to direct the investment of their
Plan assets pursuant to Section 5.14 of the Plan? (Choose one)
OPTION 1: [X] Yes.
OPTION 2: [ ] No.
NOTE: If no option is selected, Option 2 will be deemed to be
selected. Complete the remainder of Section 18 only if
Option 1 is selected.
PART B. INVESTMENT OPTIONS.
Participants can direct the investment of their Plan assets among
the following investments (Choose one)
OPTION 1: [X] Only those investment options
designated by the Plan Administrator or
other fiduciary.
OPTION 2: [ ] Any allowable investment.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
29
<PAGE> 71
PART C. ACCOUNTS SUBJECT TO PARTICIPANT DIRECTION.
Participants can direct the following portions of their Individual
Accounts (Choose one):
OPTION 1: [X] Those accounts that the Plan
Administrator may designate from time to
time in a uniform and nondiscriminatory
manner.
OPTION 2: [ ] Entire Individual Account.
OPTION 3: [ ] The following accounts (Check all that
apply):
[ ] Elective Deferral Account.
[ ] Matching Contribution Account.
[ ] Employer Profit Sharing Account.
[ ] Rollover Contribution Account.
[ ] Transfer Contribution Account.
[ ] Other (Specify)____________________
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART D. FREQUENCY OF INVESTMENT CHANGES.
Participants may make changes to the investments within their
Individual Accounts with the following frequency (Choose one):
OPTION 1: [X] In accordance with uniform and
nondiscriminatory rules established by the
Plan Administrator or other fiduciary.
OPTION 2: [ ] Daily.
OPTION 3: [ ] Monthly.
OPTION 4: [ ] Quarterly.
OPTION 5: [ ] Other (Specify)
NOTE: If no option is selected, Option 1 will be deemed to be
selected. Also note that the Plan's Valuation Dates must
be at least as often as the frequency chose here.
- --------------------------------------------------------------------------------
SECTION 19. MISCELLANEOUS DEFINITIONS
Complete Parts A and B
- --------------------------------------------------------------------------------
PART A. VALUATION DATE:
The Plan Valuation Date shall be (Choose one):
30
<PAGE> 72
OPTION 1: [X] The last day of the Plan Year and each
other date designated by the Plan
Administrator which is selected in a
uniform and nondiscriminatory manner.
OPTION 2: [ ] Daily.
OPTION 3: [ ] The last day of the Plan quarter.
OPTION 4: [ ] The last day of each month.
OPTION 5: [ ] Other (Specify)________________________
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART B. DISABILITY:
For purposes of this Plan, Disability shall mean (Choose one):
OPTION 1: [X] The inability to engage in any
substantial, gainful activity by reason of
any medically determinable physical or
mental impairment that can be expected to
result in death or which has lasted or can
be expected to last for a continuous
period of not less than 12 months.
OPTION 2: [ ] The inability to engage in any
substantial, gainful activity in the
Employee's trade or profession for which
the Employee is best qualified through
training or experience.
OPTION 3: [ ] Other (Specify)________________________
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
- --------------------------------------------------------------------------------
SECTION 20. LIMITATION ON ALLOCATIONS
More Than One Plan
- --------------------------------------------------------------------------------
If you maintain or ever maintained another qualified plan in which any
Participant in this Plan is (or was) a Participant or could become a
Participant, you must complete this section. You must also complete
this section if you maintain a welfare benefit fund, as defined in
Section 419(e) of the Code, or an individual medical account, as
defined in Section 415(1)(2) of the Code, under which amounts are
treated as annual additions with respect to any Participant in this
Plan.
PART A. INDIVIDUALLY DESIGNED DEFINED CONTRIBUTION PLAN:
If The Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a master or
prototype plan:
1. [X] The Provisions of Section 3.05 (B)(1) through 3.05(B)(6)
of the Plan will apply as if the other plan were a master
or prototype plan.
2. [ ] Other Method. (Provide the method under which the plans
will limit total annual additions to the maximum
permissible amount, and will properly reduce any excess
amounts, in a manner that precludes Employer discretion.)
______________________________
31
<PAGE> 73
PART B. DEFINED BENEFIT PLAN:
If the Participant is or has ever been a participant in a defined
benefit plan maintained by the Employer, the Employer will provide
below the language which will satisfy the 1.0 limitation of Section
415(e) of the Code.
1.[X] If the projected annual addition to this Plan to the account
of a Participant for any limitation year would cause the 1.0
limitation of Section 415(e) of the Code to be exceeded, the
annual benefit of the defined benefit plan for such limitation
year shall be reduced so that the 1.0 limitation shall be
satisfied.
If it is not possible to reduce the annual benefit of the
defined benefit plan and the projected annual addition to this
Plan to the account of a Participant for a limitation year
would cause the 1.0 limitation to be exceeded, the Employer
shall reduce the Employer Contribution which is to be
allocated to this Plan on behalf of such Participant so that
the 1.0 limitation will be satisfied. (The provisions of
Section 415(e) of the Code are incorporated herein by
reference under the authority of Section 1106(h) of the Tax
Reform Act of 1986.)
2.[ ] Other method. (Provide language describing another method.
Such language must preclude Employer discretion.)_____________
- --------------------------------------------------------------------------------
SECTION 21. TOP-HEAVY ISSUES
Complete Parts A, B, C and D
- --------------------------------------------------------------------------------
PART A. MINIMUM ALLOCATION OR BENEFIT:
For any Plan Year with respect to which this Plan is a Top-Heavy
Plan, any minimum allocation required pursuant to Section 3.01(E) of
the Plan shall be made (Choose one):
OPTION 1: [X] To this Plan.
OPTION 2: [ ] To the following other plan maintained
by the Employer (Specify name and plan
number of plan) _________________________
OPTION 3: [ ] In accordance with the method described
on an attachment to this Adoption
Agreement. (Attach language describing the
method that will be used to specify
Section 416 of the Code. Such method must
preclude Employer discretion.)
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
PART B. PARTICIPANTS ENTITLED TO RECEIVE MINIMUM ALLOCATION:
Any minimum allocation required pursuant to Section 3.01(E) of the
Plan shall be allocated to the Individual Accounts of (Choose one):
OPTION 1: [ ] Only Participants who are not Key
Employees.
OPTION 2: [X] All Participants.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
32
<PAGE> 74
PART C. TOP-HEAVY RATIO:
For purposes of establishing the present value of benefits under a
defined benefit plan to compute the top-heavy ratio as described in
Section 10.08(C) of the Plan, any benefit shall be discounted only
for mortality and interest based on the following (Choose one):
OPTION 1: [X] Not applicable because the Employer has
not maintained a defined benefit plan.
OPTION 2: [ ] The interest rate and mortality table
specified for this purpose of the defined
benefit plan.
OPTION 3: [ ] Interest rate of ________% and the
following mortality table (Specify)
__________________________________________
NOTE: If no option is selected, Option 2 will be deemed to be
selected.
PART D. TOP-HEAVY VESTING SCHEDULE:
Pursuant to Section 6.01(C) of the Plan, the vesting schedule that
will apply when this Plan is a Top-Heavy Plan (unless the Plan's
regular vesting schedule provides for more rapid vesting) shall be
(Choose one):
OPTION 1: [X] 6 Year Graded.
OPTION 2: [ ] 3 Year Cliff.
NOTE: If no option is selected, Option 1 will be deemed to be
selected.
- --------------------------------------------------------------------------------
SECTION 22. PROTOTYPE SPONSOR
- --------------------------------------------------------------------------------
Name of Prototype Sponsor ROBERT W. BAIRD & CO. INC.
------------------------------------------
Address 777 EAST WISCONSIN AVENUE, MILWAUKEE, WI 53202
------------------------------------------------------------
Telephone Number 414-765-3500
------------------------
PERMISSIBLE INVESTMENTS
The assets of the Plan shall be invested only in those investments
described below (To be completed by the Prototype Sponsor):_________
- --------------------------------------------------------------------------------
SECTION 23. TRUSTEE OR CUSTODIAN
- --------------------------------------------------------------------------------
OPTION A: [ ] Financial Organization as Trustee or Custodian
CHECK ONE: [ ] Custodian [ ] Trustee without full trust powers, or
[ ] Trustee with full trust powers
Financial Organization
--------------------------------------------
Signature
----------------------------------------------------------
33
<PAGE> 75
Type Name _________________________________________________________
COLLECTIVE OR COMMINGLED FUNDS
List any collective or commingled funds maintained by the financial
organization Trustee in which assets of the Plan may be invested
(Complete if applicable).___________________________________________
OPTION B: X Individual Trustee(s)
---
<TABLE>
<S> <C>
Signature /s/ William D. Badgerow Signature /s/ James R. Saalfeld
--------------------------- ---------------------------
Type Name William D. Badgerow Type Name James R. Saalfeld
--------------------------- ---------------------------
Signature /s/ Christopher B. Hewett Signature /s/ Robert E. Schermer, Jr.
--------------------------- ---------------------------
Type Name Christopher B. Hewett Type Name Robert E. Schermer, Jr.
--------------------------- ---------------------------
</TABLE>
- --------------------------------------------------------------------------------
SECTION 24. RELIANCE
- --------------------------------------------------------------------------------
The Employer may not rely on an opinion letter issued by the
National Office of the Internal Revenue Service as evidence that the
Plan is qualified under Section 401 of the Internal Revenue Code. In
order to obtain reliance with respect to plan qualification, the
Employer must apply to the appropriate Key District office for a
determination letter.
This Adoption Agreement may be used only in conjunction with Basic
Plan Document No. 04.
- --------------------------------------------------------------------------------
SECTION 25. EMPLOYER SIGNATURE
IMPORTANT: PLEASE READ BEFORE SIGNING
- --------------------------------------------------------------------------------
I am an authorized representative of the Employer named above and I
state the following:
1. I acknowledge that I have relied upon my own advisors regarding
the completion of this Adoption Agreement and the legal tax
implications of adopting this Plan.
2. I understand that my failure to properly complete this Adoption
Agreement may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any
amendments made to the Plan and will notify me should it
discontinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the
corresponding Basic Plan Document.
Signature for Employer /s/ William D. Badgerow Date Signed 1/15/97
----------------------- --------
Type Name William D. Badgerow Title Vice President & Treasurer
---------------------- ----------------------------
34
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS (FOR THE SIX
AND THREE MONTH PERIODS ENDED MAY 31, 1997 AND 1996).
Six month periods ended May 31, Three month periods ended May 31,
------------------------------- --------------------------------
1997 1996 1997 1996
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PRIMARY EARNING (LOSS) PER SHARE:
Net income (loss) $ (1,839,651) $ (371,318) $ (514,716) $ 113,749
Adjustments:
Dividends declared (and paid) on
preferred stock (39,440) -- (26,680) --
--------------------------------- --------------------------------
Income (loss) available to common
shareholders $ (1,879,091) $ (371,318) $ (541,396) $ 113,749
================================= ================================
Weighted average shares outstanding 3,212,097 3,020,150 3,214,447 3,020,150
================================= ================================
Primary earnings (loss) per share $ (0.59) $ (0.12) $ (0.17) $ 0.04
================================= ================================
FULLY DILUTED EARNINGS (LOSS) PER SHARE:
Net earnings (loss) $ (1,839,651) $ (371,318) $ (514,716) $ 113,749
================================= ================================
Weighted average shares outstanding
Average common shares 3,212,097 3,020,150 3,214,447 3,020,150
Preferred stock -
conversion assumed 168,042 -- 197,696 --
--------------------------------- --------------------------------
3,380,139 3,020,150 3,412,143 3,020,150
================================= ================================
FULLY DILUTED EARNINGS (LOSS) PER
SHARE - ANTIDILUTIVE $ (0.54) $ (0.12) $ (0.15) $ 0.04
================================= ================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> MAY-31-1997
<CASH> 1,122,182
<SECURITIES> 0
<RECEIVABLES> 738,497
<ALLOWANCES> 54,000
<INVENTORY> 368,106
<CURRENT-ASSETS> 2,862,551
<PP&E> 43,777,773
<DEPRECIATION> 22,280,040
<TOTAL-ASSETS> 30,809,661
<CURRENT-LIABILITIES> 4,648,240
<BONDS> 23,676,980
<COMMON> 32,164
0
1,384
<OTHER-SE> 191,171
<TOTAL-LIABILITY-AND-EQUITY> 30,809,661
<SALES> 18,998,216
<TOTAL-REVENUES> 18,998,216
<CGS> 4,870,949
<TOTAL-COSTS> 19,654,106
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,431,246
<INCOME-PRETAX> (1,839,651)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,839,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,839,651)
<EPS-PRIMARY> (0.59)
<EPS-DILUTED> (0.59)
</TABLE>
