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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-9548
THE TIMBERLAND COMPANY
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C>
DELAWARE 02-0312554
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 DOMAIN DRIVE
STRATHAM, NEW HAMPSHIRE 03885
(Address of principal executive office) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE, IS (603) 772-9500
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Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
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Class A Common Stock, par value $.01 per share New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of Class A Common Stock of the Registrant held
by non-affiliates of the Registrant was approximately $169,421,492 on March 1,
1996. For purposes of the foregoing sentence the term "affiliate" includes each
director and executive officer of the Registrant. See Item 12 of this Form 10-K.
8,306,239 shares of Class A Common Stock and 2,734,451 shares of Class B
Common Stock of the Registrant were outstanding on March 1, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's Annual Report to security holders for the
fiscal year ended December 31, 1995 are incorporated by reference in Part I,
Item 1 regarding foreign and domestic sales and Part II, Items 5, 6, 7 and 8 of
this report. Portions of the Registrant's definitive Proxy Statement for the
1995 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are
incorporated by reference in Part III of this report.
The Exhibits Index appears on page 10 of this report.
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PART I
ITEM 1. BUSINESS
OVERVIEW
The Timberland Company was incorporated in Delaware on December 20, 1978,
and is the successor to Abington Shoe Company, which was incorporated in
Massachusetts in 1933 (The Timberland Company, together with its subsidiaries,
is referred to herein as "Timberland" or the "Company," unless the context
indicates otherwise). The Company designs, develops, engineers, markets and
distributes men's and women's premium-quality footwear, apparel and accessories
under the Timberland(R) brand. Timberland(R) products are sold primarily through
better-grade department stores, independent retailers, athletic stores and other
retail stores in the United States and in more than 60 countries worldwide.
Timberland products are also sold through Timberland(R) specialty stores and
factory outlet stores devoted exclusively to Timberland products. These two
types of stores are operated by the Company in the United States and in parts of
Europe and by certain of the Company's distributors in parts of Europe, South
America, Mexico, the Middle East and the Asia/Pacific region.
The Company offers high-quality products that provide durability,
functional performance, comfort, classic styling and lasting protection from the
elements. The Company believes that the combination of these features
distinguishes the Timberland brand from competing brands and makes Timberland
products an outstanding value.
During 1995, the Company focused on improving its balance sheet through
better working capital management. As part of this focus, the Company enhanced
its business controls and exercised greater discipline in the day-to-day
operation of its business. The Company reorganized into profit centers for its
footwear, apparel and accessories, retail and international divisions. The
Company also realigned the structure of its domestic wholesale sales
organization from a structure organized by geographic regions to a structure
organized by distribution channels. In addition, the Company strengthened its
credit and cash collection procedures and policies. The Company closed two of
its manufacturing facilities, downsized a third facility, and reorganized and
consolidated the management of its remaining manufacturing facilities. The
Company shifted the production which was performed formerly by these facilities
to third party manufacturers. As a result of these actions, at the end of 1995,
the Company reported a reduction in inventory, debt levels and days sales
outstanding and an improvement in its cash position compared to the end of 1994.
In 1995, the Company also developed a marketing and merchandising strategy
that defines its footwear and apparel and accessories products within the dress
casual, rugged casual and performance categories. This strategy is designed to
further integrate the Timberland brand and make it easier for wholesale
customers to sell Timberland products to consumers based on end-user needs.
CURRENT PRODUCTS
The Company's products fall into two broad categories -- footwear (shoes,
boots and sandals) and apparel and accessories. The Company's footwear sales
represented 74.9%, 80.5% and 83.4% of total product sales for 1995, 1994 and
1993, respectively. Sales of apparel and accessories represented 25.1%, 19.5%
and 16.6% of total product sales for 1995, 1994 and 1993, respectively.
Footwear
In 1973, the first pair of waterproof leather boots under the Timberland
brand were produced. The Company currently offers a broad variety of footwear
products for men and women featuring premium waterproof or water resistant
leathers, fabric uppers, selected use of waterproof fabric linings and, in
certain models, hand-sewn construction.
The Company's footwear lines included over 240 models and colors for Spring
1995 and over 250 models and colors for Fall 1995. New footwear product
introductions in 1995 included a dressier line of waterproof Pinnacle
Weatherbucks, Gore-Tex(R) chukka boots, canvas boots and shoes, performance
sandals and the Treeline(TM) Aggressive Series of multi-purpose outdoor
footwear, which will be available at retail in Spring
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1996. The Company also expanded the number and levels of products featuring the
Active Comfort Technology(TM) (ACT(TM)) system, a moisture management and
climate control system developed by the Company.
In 1995, the Company focused the design and development of its footwear
lines for Fall 1996 into the dress casual, rugged casual and performance
categories. The dress casual category has been expanded from the classic
Weatherbuck collection and loafers to include cap toes, wing tips, tassel
slip-ons and oxfords for men and more fashion-focused hand-sewn wovens, pumps,
slip-ons and loafers for women. The rugged casual category includes rugged
hand-sewn shoes, Bush Hikers, classic work boots and boat shoes. Timberland(R)
performance footwear products include hiking boots, field boots and
multi-purpose outdoor footwear featuring the ACT system and other advanced
technologies.
The Company also designs, develops, engineers, markets and distributes,
under the Timberland(R) Work Division, a line of boots designed to fit the needs
of construction workers, carpenters, assembly-line workers and skilled workers
in other crafts and trades. These boots are sold in the United States and Italy
through leading consumer product and independent retail stores. The Company
expects to market these products under the name Timberland Mill River(TM)
beginning in Fall 1996.
Apparel and Accessories
Timberland(R) apparel products consist primarily of rugged outerwear,
sweaters, shirts, pants, shorts and skirts. These products feature, in certain
models, premium waterproof leathers, waterproof and water resistant fabric,
rust-proof hardware, canvas, denim, high-quality specialty cotton, wool and
other quality performance materials. During 1995, the Company implemented a
forecasting and delivery system designed specifically for its apparel products.
The Company's men's apparel offerings for 1995 were coordinated and merchandised
into apparel collections to compete in the collection sportswear market. The
Company targeted its women's apparel offerings for 1995 to focus on classic
items distributed principally through Timberland(R) specialty stores and several
premium retailers. For 1996, the Company plans to expand its Men's Collection
Sportswear line and to continue the limited focus of its women's line. The
Company plans to promote its apparel products in a manner consistent with its
dress casual, rugged casual and performance product categories.
Timberland(R) accessories products for 1995 focused principally on leather
goods -- luggage, briefcases, handbags, wardrobe accessories and other small
leather goods -- with a lesser focus on caps, hats and leather care products
and, through Timberland specialty stores only, gloves and socks. Beginning in
the second half of 1996, many Timberland accessories, including day packs,
travel gear, socks, legwear, gloves and leather care products, will be more
widely distributed through licensing arrangements with third parties, as further
described in the "Licensing" section of this report.
In 1995, the Company introduced City Year Gear(TM), a limited line of
T-shirts, caps and bags. City Year Gear products are sold exclusively through
Timberland specialty stores. Any profits from the sale of these products will
help support City Year(R), an urban youth corps sponsored partially by the
Company, and other Company-sponsored community service activities.
DISTRIBUTION
The Company's strategy is to distribute its products through its specialty
stores and through better-grade department stores, independent retailers and
athletic stores which reinforce the Timberland image of quality, performance and
service. For 1996, the Company plans to continue the integrated presentation of
the Timberland(R) brand, which will be based on showcasing Timberland(R)
footwear, apparel and accessories within the dress casual, rugged casual and
performance categories. The Company also plans to expand the presentation of its
Men's Collection Sportswear apparel offerings in selected collection sportswear
locations during 1996.
United States Operations
In 1995, 1994 and 1993, 70.2%, 73.5% and 70.8%, respectively, of the
Company's revenues were generated in the United States. The Company's wholesale
customer accounts within the United States range
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from better-grade department stores and retail stores to athletic and sporting
goods stores, marinas and specialty retailers. These accounts are serviced
through a combination of field and corporate-based sales teams and through the
Company's six showrooms. The Company's principal showroom is located on Fifth
Avenue in New York City. The Company's regional showrooms are located in
Chicago, Dallas, Atlanta, Denver and Seattle.
At the end of 1995, the Company had 157 concept shops featuring
Timberland(R) footwear and apparel, including 82 apparel shops in men's
collection sportswear departments. Concept shops are areas of third-party stores
dedicated exclusively to the presentation, merchandising and sale of
Timberland(R) products. Some existing concept shops were also expanded during
1995.
The Company operates footwear distribution facilities in Danville, Kentucky
and Hampton, New Hampshire. The Company also fills footwear orders from a
third-party operated distribution facility in Industry, California. All apparel
and accessories orders are centrally distributed from the Company's facility in
Grove City, Ohio. In 1995 and early 1996, the Company closed its Portsmouth, New
Hampshire and Wilmington, Massachusetts distribution facilities, as part of the
consolidation of its domestic distribution operations.
International Operations
In 1995, international revenues accounted for 29.8% of the Company's
revenues, compared to 26.5% in 1994 and 29.2% in 1993. Timberland products are
sold internationally through distributors and commission agents and by the
Company through its operating divisions in England, France, Germany, Italy,
Spain and Austria. The Company's European operating divisions provide sales,
administrative and, in some cases, warehousing support for the sale of
Timberland products to wholesale customers in their respective countries, and in
certain instances, to distributors and commission agents in other countries.
Additionally, certain of the Company's international distributors operate
specialty stores and concept shops devoted exclusively to Timberland products in
Europe, South America and the Asia/Pacific region. The Company's international
distributors opened nine such specialty stores and 24 such concept shops in
1995.
Reference is made to the information set forth in Note 13 to the Company's
consolidated financial statements, entitled "Industry Segment and Geographical
Area Information," appearing in the Company's 1995 Annual Report to security
holders, which information is incorporated herein by reference.
RETAIL
In 1995, revenues from the specialty and outlet stores operated by the
Company accounted for 19.6% of the Company's revenues, compared to 11.3% in 1994
and 10.2% in 1993. This increase reflects the expansion of the Company's retail
operations. In 1995, the Company opened six specialty stores, bringing to 29 the
total number of specialty stores operated by the Company worldwide. In addition
to providing an environment to showcase the Timberland(R) brand as an integrated
source of footwear, apparel and accessories, these specialty stores provide
sales and consumer-trend information which assists the Company in developing its
marketing strategies, including point-of-purchase marketing materials. The
training and customer service programs established in the Company's specialty
stores also serve as a model which may be adopted by the Company's other retail
accounts. In 1995, the Company opened fifteen outlet stores, bringing to 33 the
total number of outlet stores operated by the Company worldwide. These outlet
stores serve as the primary channel for the sale of factory-second and close-out
product offerings, and enable the Company to protect and control the integrity
of the Timberland brand and maximize the return associated with the sale of such
products.
LICENSING
In 1995, the Company sought to broaden the reach of the Timberland brand by
capitalizing on several licensing opportunities. These licensing agreements
enable the Company to expand the Timberland brand to appropriate and
well-defined product categories and geographical territories in which the
Company has not had an appreciable presence, in a manner designed to reduce the
risk and investment associated with pursuing such opportunities.
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Product Licensing
Under a licensing agreement with Timex Nederland B.V., Timberland offers a
line of outdoor watches which were available for distribution in late 1995.
During 1995 and early 1996, the Company entered into licensing agreements with
other industry leaders for the manufacture and distribution of several new
product categories, including: The Coleman Company for fabric and
leather-accented day packs and travel gear, Kayser-Roth Corporation for socks
and legwear and SWANY America for gloves. The Company anticipates that products
under each of these new licensing agreements will be available for distribution
beginning in late 1996.
Territory Licensing
In 1995, the Company entered into two license agreements with distributors
to expand the reach of the Timberland(R) brand. The Company appointed Inchcape
plc as the exclusive distributor and retailer of Timberland(R) products
throughout most of the Asia/Pacific region. The transaction also included
Inchcape's acquisition of the Company's Australian and New Zealand subsidiaries
and the operation of existing Timberland(R) specialty stores and concept shops
in these countries. In 1995, the Company also appointed Sao Paulo Alpargatas
S.A. as the exclusive distributor and retailer, as well as a non-exclusive
manufacturer, of Timberland products throughout much of South America. Both of
these agreements provide for the opening of new specialty stores and concept
shops devoted exclusively to Timberland products and require the licensee to
exceed minimum purchases of Timberland products during each year. The license
agreement with Sao Paulo Alpargatas S.A. also requires the licensee to achieve
specified annual minimum sales increases.
ADVERTISING AND MARKETING
The Company's advertising campaigns are designed to increase brand
awareness among consumers and to emphasize the features that distinguish the
Timberland brand from competing brands and make Timberland products an
outstanding value. During 1995, the Company's national and regional advertising
campaigns appeared mainly in various trade press outlets and active-lifestyle,
fashion and sports-focused consumer periodicals. The Company reinforced these
advertising campaigns with a variety of in-store promotions, point-of-purchase
marketing materials and a cooperative advertising program with its retailers, as
well as retail sales clerk training and other sales incentive programs and
promotional campaigns. Timberland's product and territory licensing arrangements
also require licensees to fund marketing campaigns, over which Timberland
maintains approval and design rights to ensure consistent and effective brand
presentation.
During 1995, the Company expanded its internal creative resource staff to
enhance the Company's corporate and promotional communication capabilities and
to better manage the presentation of the Timberland brand. The Company plans to
produce internally all advertising, product catalogs and point-of-purchase
marketing materials and all packaging and hang-tag designs for its 1996 product
offerings.
SEASONALITY
In 1995, as has traditionally been the case, the Company's revenues were
higher in the last two quarters of the year than in the first two quarters. The
Company expects this seasonality to continue in 1996.
BACKLOG
At December 31, 1995, Timberland's backlog of orders from its customers was
approximately $102 million, compared to $132 million at December 31, 1994 and
$69 million at December 31, 1993. While all orders in the backlog are subject to
cancellation by customers, the Company expects that the majority of such orders
will be filled in 1996. The Company does not believe that its backlog of orders
at year-end is representative of the orders which will be filled during 1996,
due to the shift towards "at-once orders" being adopted by many retailers.
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MANUFACTURING
During 1995, approximately 40% of the unit volume of the Company's footwear
products was manufactured by the Company, compared to approximately 60% during
1994. The remainder of the Company's footwear products and all of its apparel
and accessories were produced by independent manufacturers in Asia, Europe and
the Americas. Over 20% and 15% of the unit volume of the Company's footwear
products was produced in Thailand and Taiwan, respectively.
During 1995, the Company closed its footwear manufacturing facilities
located in Boone, North Carolina and Mountain City, Tennessee, and downsized its
footwear manufacturing facility in the Dominican Republic. The Company increased
its use of independent manufacturers to replace most of the manufacturing
operations conducted formerly at its manufacturing facilities. This
restructuring was a result of the Company's overall effort to improve product
quality, to reduce manufacturing overhead and product costs, and to increase the
Company's flexibility to meet consumer demand for particular product lines. The
Company currently plans to retain its internal manufacturing capability in order
to continue benefiting from expertise the Company has gained with respect to the
footwear manufacturing methods and from the research and development activities
conducted at its manufacturing facilities.
As part of the Company's efforts to improve the reliability and quality of
the manufacturing operations conducted by the Company and its independent
manufacturers, the Company in 1995 reorganized and consolidated the management
of these functions and expanded its quality control group. The Company's quality
and production standards were reviewed and updated, and product quality audits
were conducted at the factories and distribution centers to ensure such
standards were being met. In 1995, the Company also opened offices in Bangkok,
Thailand and Taichung, Taiwan in order to more closely supervise the Company's
sourcing activities conducted in the Asia/Pacific region. In addition, the
Company enhanced and expanded the data available through its information systems
to enable the Company to better match product supply and demand.
To the extent the Company manufactures its products outside the United
States or is dependent upon foreign operations with unaffiliated parties, the
Company is subject to the usual risks of doing business abroad. These risks
potentially include, among other risks, import restrictions, anti-dumping
investigations, political or labor disturbances, expropriation and acts of war.
RAW MATERIALS
During 1995, the Company consolidated its base of raw materials suppliers;
however, only two suppliers provided more than 10% each of the Company's leather
purchases for 1995. The Company has no reason to believe that leather will not
continue to be available from these or alternative sources. The Company also
began to establish a central network of suppliers through which the Company's
manufacturing facilities and independent manufacturers could purchase raw
materials. The Company believes that this approach will reduce the cost and
provide greater consistency of the raw materials procured to produce
Timberland(R) products, and increase compliance with the Company's production
standards.
TRADEMARKS AND TRADE NAMES; PATENTS; RESEARCH & DEVELOPMENT
The Company's principal trade name is The Timberland Company and the
Company's principal trademarks are Timberland and [TIMBERLAND LOGO], which have
been registered in the United States and in certain foreign countries. Other
Company trademarks or registered trademarks are Treeline; Weathergear;
[WORK LOGO]; [MILL RIVER LOGO]; More Quality Than You May Ever Need;
Active Comfort Technology; ACT; Mountain to River; Toporelief; Topozoic; Boots,
Shoes, Clothing, Wind, Water, Earth & Sky; Wind, Water, Earth & Sky; Elements;
The Elements of Design are the Elements themselves, Wind, Water, Earth and Sky;
Nothing Can Stop You; Blackridge Mountain; Blackridge Mountain Logo Design;
Mill River; Mill River Logo Design; TBL 30; Timberland 1049; Trail Grip; and
Tims. The Company regards its trade name and trademarks as valuable assets and
believes that they are important factors in marketing its products,
particularly in the case of the Timberland(R) brand. It is the policy of the
Company to protect and defend vigorously its trade name and
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trademarks against infringement under the laws of the United States and other
countries. In addition, the Company seeks to protect and defend vigorously its
patents, designs, copyrights and all other of its proprietary rights under
applicable laws.
The Company conducts research, design and development efforts for its
footwear, apparel and accessories. The Company tests a number of its products
under actual field conditions to evaluate and improve product performance. The
Company's expenses relating to research, design and development, however, have
not represented a material expenditure relative to its other expenses.
COMPETITION
The Company does not believe any of its principal competitors offers a
complete line of products that provide the same quality and performance as the
complete line of Timberland(R) footwear, apparel and accessories products. The
Company does, however, have a variety of major competitors in each of its
separate footwear, apparel and accessories product offerings.
The Company's footwear and apparel and accessories products are marketed in
highly competitive environments which are subject to rapid changes in consumer
preference. Although the footwear industry is fragmented to a great degree, many
of the Company's competitors are larger and have substantially greater resources
than the Company, including athletic shoe companies, many of which compete
directly with some of the Company's products. In addition, the Company faces
competition from retailers that are establishing products under private labels
which compete with the Company's products.
The Company has at least nine major competitors in classic work boot sales,
at least seven major competitors in sales of rugged casual footwear sales, at
least twelve major competitors in sales of performance boots and sandals, and at
least thirteen major competitors in sales of dress casual footwear. The
Company's major competitors for its footwear products are located principally in
the United States. The Company also faces competition from many international
footwear manufacturers.
The Company's line of men's and women's apparel faces competition from at
least ten major apparel companies in the United States and from a variety of
major apparel companies internationally. The Company's men's and women's lines
of footwear and apparel face competition from at least two direct mail companies
in the United States.
The Company's accessories products line faces competition from at least
seven major companies in the United States and from several major accessories
companies internationally.
Product quality, performance, design, styling and pricing, as well as
consumer awareness, are all important elements of competition in the footwear,
apparel and accessories markets served by the Company. Although changing fashion
trends generally affect demand for particular footwear, apparel and accessories
products, the Company believes that, because Timberland(R) products are designed
primarily for functionality and performance, demand for Timberland products
(except for the new, more fashion-focused models introduced under Timberland's
Fall 1996 dress casual footwear line) is less sensitive to changing trends in
fashion than other products that are designed specifically to meet such trends.
ENVIRONMENTAL MATTERS
Compliance with federal, state and local environmental regulations have not
had, nor are they expected to have, any material effect on the capital
expenditures, earnings or competitive position of the Company, based on
information and circumstances currently known to the Company.
EMPLOYEES
As of December 31, 1995, the Company had approximately 5,500 employees
worldwide. Management considers its employee relations to be good. None of the
Company's employees is represented by a labor union, and the Company has never
suffered a material interruption of business caused by labor disputes.
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ITEM 2. PROPERTIES
The Company owns a facility in Hampton, New Hampshire, which served as the
Company's headquarters until November 1994 and currently is used for warehousing
and distribution of certain of the Company's products. In connection with the
purchase financing for such property, industrial revenue bonds are outstanding
in the principal amount of $5,345,000, which are due in 2014. These bonds bear
interest at 6.20% through 1999 and thereafter at rates adjusted every five
years, through maturity. These bonds are secured by a mortgage on such real
estate and by a security interest on assets located there.
The Company also leases distribution facilities in Grove City, Ohio and
Wilmington, Massachusetts, for the distribution of certain products, under lease
agreements which expire in May 1998 and April 1996, respectively. In February
1996, the Company acquired its distribution facility in Danville, Kentucky.
Since April 1994, the Company has leased property in Stratham, New
Hampshire that serves as its worldwide headquarters, under a lease which expires
in July 1999, with options to extend the expiration. The Company considers its
current headquarters facilities adequate and suitable for its present needs. The
Company leases its manufacturing facilities which are located in Isabela, Puerto
Rico and Santiago, Dominican Republic. These manufacturing facilities are
occupied under 11 leasing arrangements which expire at various times through
February 1998.
The Company leases 19 domestic specialty stores, ten international
specialty stores, six domestic showrooms, 29 domestic factory outlet stores, and
four international factory outlet stores. The Company's subsidiaries also lease
office and warehouse space to meet their individual requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various litigation and legal matters which have
arisen in the ordinary course of business. Management believes that the ultimate
resolution of any existing matter will not have a material adverse effect on the
Company's consolidated financial statements.
The Company and two of its officers and directors have been named as
defendants in two actions filed in the United States District Court for the
District of New Hampshire, one filed by Jerrold Schaffer on December 12, 1994,
and the other filed by Gershon Kreuser on January 4, 1995. On April 24, 1995,
the District Court granted plaintiffs' motion, assented to by defendants, to
consolidate the two actions. On June 23, 1995, plaintiffs filed a consolidated
amended complaint (the "Amended Complaint") with the District Court. The Amended
Complaint alleges that defendants violated the federal securities laws by making
material misstatements and omissions in certain of the Company's public filings
and statements in 1994. Specifically, the Amended Complaint alleges that such
statements and omissions had the effect of artificially inflating the market
price for the Company's Class A Common Stock until the disclosure by the Company
on December 9, 1994 of its expectation that results for the fourth quarter were
not likely to meet analysts' anticipated levels. Damages are unspecified. On
March 18, 1996, the Court denied defendants' motion to dismiss the Amended
Complaint. On March 19, 1996, the Court granted plaintiffs' motion for class
certification for all purchasers of the Company's Class A Common Stock between
May 12, 1994 and December 9, 1994. Management believes this action is without
merit and intends to defend it vigorously. Accordingly, at this time, management
does not expect the outcome of such litigation to have a material adverse effect
on the Company's consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matter was submitted to a vote of security holders through the solicitation of
proxies or otherwise.
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ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
The following information is submitted as to the executive officers of the
Company:
<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
Sidney W. Swartz..................... 60 Chairman of the Board, President, Chief Executive
Officer and Director
Jeffrey B. Swartz.................... 36 Executive Vice President, Chief Operating Officer
and Director
Keith D. Monda....................... 49 Senior Vice President-Finance and Administration
and Chief Financial Officer
Gregory W. VanWormer................. 40 Senior Vice President-General Manager
Apparel/Retail
Dennis W. Hagele..................... 52 Vice President-Finance and Corporate Controller
(Chief Accounting Officer)
Jane E. Owens........................ 42 Vice President and General Counsel
</TABLE>
All executive officers serve at the discretion of the Board of Directors.
Sidney W. Swartz has served the Company as Chairman of the Board, Chief
Executive Officer and President since June 1986 when he and his family trust
became the then sole security holders of the Company. During the prior 20 years,
Mr. Swartz, as the owner of 50% of the Company, was responsible for the
manufacturing, marketing, distribution and financial aspects of the Company.
Jeffrey B. Swartz has served the Company as Executive Vice President since
March 1990 and as Chief Operating Officer since May 1991. From June 1986 to
February 1990, Mr. Swartz served the Company in a variety of positions,
including Senior Vice President of International Operations, Vice
President-Operations/Manufacturing, Vice President-International and General
Manager of International Business. Jeffrey Swartz is the son of Sidney W.
Swartz.
Keith D. Monda joined the Company in December 1993 as Senior Vice
President-Finance and Administration and Chief Financial Officer. From May 1990
to December 1993, Mr. Monda was Executive Vice President of Finance and
Administration of J. Crew Group, Inc.; from July 1989 to May 1990, he was Senior
Vice President and Chief Financial Officer of Bunge Corporation (an integrated
food company); and from April 1986 to July 1989, he was Vice President of
Finance and Chief Financial Officer of the chemical division of Pfizer, Inc.
Gregory W. VanWormer joined the Company in May 1994 as Senior Vice
President-Retail. Effective January 1, 1995, Mr. VanWormer's title was changed
to Senior Vice President-General Manager Apparel/Retail. From August 1991 to
April 1994, Mr. VanWormer was the Vice President-General Merchandise Manager of
G.H. Bass & Co.; and from June 1988 to June 1991, he held the following
positions with C.M.L. Inc.: Vice President-General Merchandise Manager of
Carroll Reed (a retail company) and President of The Gokey Company (a retail,
catalog and manufacturing company).
Dennis W. Hagele joined the Company in October 1994 as Vice
President-Finance and Corporate Controller. From July 1993 to September 1994,
Mr. Hagele was an independent financial consultant; and from August 1981 to June
1993, he was Assistant Controller of Sara Lee Corporation.
Jane E. Owens joined the Company in September 1992 as Vice President and
General Counsel. From June 1990 to August 1992, Ms. Owens was Counsel for Reebok
International Ltd.; and from March 1988 to June 1990, she was a partner in the
law firm of Gaston & Snow.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this item is included in the Registrant's 1995
Annual Report to security holders under the caption "Quarterly Market
Information and Related Matters" and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is included in the Registrant's 1995
Annual Report to security holders under the caption "Five Year Summary of
Selected Financial Data" and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is included in the Registrant's 1995
Annual Report to security holders under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in the Registrant's 1995
Annual Report to security holders and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information set forth under the caption,
"Executive Officers of the Registrant," in Item 4A of Part I of this report and
to information under the caption, "Information with Respect to Nominees" in the
Registrant's definitive proxy statement (the "Registrant's 1996 Proxy
Statement") relating to its 1996 Annual Meeting of Stockholders, to be filed
with the Commission within 120 days after the close of the Registrant's fiscal
year ended December 31, 1995, which information is incorporated herein by
reference. Reference is also made to the information set forth in the
Registrant's 1996 Proxy Statement with respect to compliance with Section 16(a)
of the Exchange Act, which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information set forth under the caption "Executive
Compensation," in the Registrant's 1996 Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information set forth under the caption, "Security
Ownership of Certain Beneficial Owners and Management," in the Registrant's 1996
Proxy Statement, which information is incorporated herein by reference. For
purposes of calculating the aggregate market value of the Class A Common Stock
on March 1, 1996, the shares owned by The Sidney W. Swartz 1982 Family Trust,
The Swartz Foundation and The Sidney and Judith Swartz Charitable Remainder
Unitrust have not been considered owned by an affiliate.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information set forth under the caption, "Certain
Relationships and Related Transactions," in the Registrant's 1996 Proxy
Statement, which information is incorporated herein by reference.
9
<PAGE> 11
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
List of Financial Statements and Financial Statement Schedules.
<TABLE>
(a)(1) Financial Statements. The following financial statements appearing
in the Company's 1995 Annual Report to security holders are incorporated by
reference in this report:
<CAPTION>
PAGE
----
<S> <C>
ANNUAL REPORT
Consolidated Balance Sheets as of December 31, 1995 and December 31,
1994.................................................................. 18
For the years ended December 31, 1995, 1994 and 1993:
Consolidated Statements of Operations.............................. 19
Consolidated Statements of Changes in Stockholders' Equity......... 20
Consolidated Statements of Cash Flows.............................. 21
Notes to Consolidated Financial Statements......................... 22
Independent Auditors' Report............................................ 35
</TABLE>
<TABLE>
(a)(2) Financial Statement Schedule. The following additional financial
data should be read in conjunction with the Consolidated Financial Statements in
the Registrant's 1995 Annual Report to security holders:
<CAPTION>
FORM 10-K
PAGE
---------
<S> <C>
Report of Independent Public Accountants on Schedule................ F-1
Schedule VIII -- Valuation and Qualifying Accounts.................. F-2
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and have therefore
been omitted.
(b) No reports on Form 8-K were filed by the Company during the fourth
quarter of 1995.
<TABLE>
(c) Listed below are all the Exhibits filed as part of this report, some of
which are incorporated by reference from documents previously filed by the
Company with the Securities and Exchange Commission in accordance with the
provisions of Rule 12b-32 of the Securities Exchange Act of 1934, as amended.
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ------------ --------
<C> <S> <C>
(3) Articles of incorporation and by-laws
3.1 Restated Certificate of Incorporation (1)
3.2 By-Laws, as amended May 19, 1993 (5)
(4) Instruments defining the rights of security holders, including indentures
(See also Exhibits 3.1 and 3.2)
4.1 Specimen stock certificate for shares of the Company's Class A Common
Stock(3)
(10) Material Contracts
10.1 Agreement dated as of August 29, 1979 between The Timberland Company and
Sidney W. Swartz(1)
10.2 The Company's 1987 Stock Option Plan, as amended(8)
10.3 The Company's 1991 Employee Stock Purchase Plan, as amended(2)
10.4 The Company's 1991 Stock Option Plan for Non-Employee Directors(3)
10.5 The Timberland Company Long Term Incentive Plan for Senior Management(5)
10.6 The Timberland Company Annual Bonus Plan for Exempt Employees(5)
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
<C> <S> <C>
10.7 The Timberland Company Retirement Earnings 401(k) Plan and Trust
Agreements, filed herewith
10.8 The Timberland Company Profit Sharing Plan and Trust Agreements, filed
herewith
10.9 (a) Lease dated March 23, 1987 between The Outdoor Footwear Company and
Corporacion Sublistatica, S.A.(1)
(b) Lease dated November 21, 1988 between 745 Associates and The
Timberland Company(4)
(c) (i) Lease dated July 20, 1992 among Louise Minges, Mitchell Minges and
The Timberland Company(4)
(ii) Amendment dated July 16, 1993 to Lease(5)
(d) Lease dated March 31, 1981 between the Puerto Rico Industrial
Development and The Timberland Company(4)
(e) Lease dated September 7, 1992 between Corporacion Zona Franca
Industrial De Santiago, Inc. and The Recreational Footwear Company(4)
(f) Lease dated December 2, 1992 between Corporacion Zona Franca
Industrial De Santiago, Inc. and The Recreational Footwear Company(4)
(g) Lease dated as of June 29, 1993 between Timberland Dominicana, S.A.
and Santiago Norte, S.A. (Pisano) Industrial Park(5)
(h) Lease dated as of November 30, 1993 between Timberland Dominicana,
S.A. and Santiago Norte, S.A. (Pisano) Industrial Park(5)
(i) Lease dated as of December 16, 1993 between Timberland Dominicana,
S.A. and Santiago Norte, S.A. (Pisano) Industrial Park(5)
(j) Lease dated as of March 31, 1993 between Talbot Operations, Inc. and
The Timberland Company(5)
(k) (i) Sublease dated March 31, 1994 between Hewlett-Packard Company and
The Timberland Company(6)
(ii) Amendment No. 1 dated July 15, 1994 to Sublease(7)
10.10 (a) Amended and Restated Note Agreements dated as of April 1, 1994
regarding $35,000,000 9.70% Senior Notes due December 1, 1999(6)
(b) Amendment No. 1 dated as of April 1, 1995 to Amended and Restated Note
Agreements(9)
(c) Amendment No. 2 dated as of June 28, 1995 to Amended and Restated Note
Agreements(9)
10.11 Termination of Credit Agreement among The Timberland Company, certain
banks and Chase Manhattan Bank, N.A. as Agent, dated as of December 15,
1994(7)
10.12 (a) Note Agreements dated as of April 1, 1994 regarding $65,000,000 7.16%
Senior Notes due April 15, 2000(6)
(b) Amendment No. 1 dated as of April 1, 1995 to Note Agreements(9)
(c) Amendment No. 2 dated as of June 28, 1995 to Note Agreements(9)
10.13 (a) Amended and Restated Credit Agreement dated as of March 14, 1995 among
The Timberland Company, certain banks listed therein and Morgan
Guaranty Trust Company of New York, as Agent(7)
(b) Amendment No. 3 dated as of July 21, 1995 to the Amended and Restated
Credit Agreement, which also incorporates Amendment No. 1 dated as of
April 19, 1995 and Amendment No. 2 dated as of June 28, 1995(9)
10.14 (a) Note Agreements dated as of December 15, 1994 regarding $106,000,000
8.94% Senior Notes due December 15, 2001(7)
(b) Amendment No. 1 dated as of April 1, 1995 to Note Agreements(9)
(c) Amendment No. 2 dated as of June 28, 1995 to Note Agreements(9)
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE NO.
- ------- ----------- --------
<C> <S> <C>
(13) Annual Report to security holders
13. Portions of 1995 Annual Report to security holders as incorporated herein
by reference, filed herewith
(21) Subsidiaries
21. List of subsidiaries of the Registrant, filed herewith
(23) Consent of experts and counsel
23. Consent of Deloitte & Touche LLP to the incorporation by reference of
their report included in the Registrant's 1995 Annual Report to security
holders
(27) Financial Data Schedule
27. Financial Data Schedules, filed herewith
(99) Additional Exhibit
99. Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
<FN>
- ---------------
(1) Filed as exhibits to Registration Statement on Form S-1, numbered 33-14319,
and incorporated herein by reference.
(2) Filed on June 21, 1995, as an exhibit to Registration Statement on Form S-8,
numbered 33-60459, and incorporated herein by reference.
(3) Filed as exhibits to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1991, and incorporated herein by reference.
(4) Filed as exhibits to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1992, and incorporated herein by reference.
(5) Filed as exhibits to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, and incorporated herein by reference.
(6) Filed as exhibits to the Quarterly Report on Form 10-Q for the fiscal period
ended July 1, 1994, and incorporated herein by reference.
(7) Filed as exhibits to the Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, and incorporated herein by reference.
(8) Filed on June 21, 1995, as an exhibit to Registration Statement on Form S-8,
numbered 33-60457, and incorporated herein by reference.
(9) Filed as exhibits to the Quarterly Report on Form 10-Q for the fiscal period
ended June 30, 1995, and incorporated herein by reference.
</TABLE>
Pursuant to paragraph 4(iii) of Item 601, Regulation S-K, the Registrant
has filed as Exhibits only the instruments defining the rights of holders of
long-term debt of the Registrant and its consolidated subsidiaries with respect
to which the total amount of securities authorized thereunder exceeds 10% of the
total assets of the Registrant and its subsidiaries on a consolidated basis. The
Registrant agrees to furnish to the Commission upon its request copies of other
instruments defining the rights of holders of long-term debt of the Registrant
and its subsidiaries, with respect to which the total amount does not exceed 10%
of such assets. The Registrant also agrees to furnish to the Commission upon its
request copies of any omitted schedule or exhibit to any Exhibit filed herewith.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE TIMBERLAND COMPANY
/S/ SIDNEY W. SWARTZ
By:.................................
SIDNEY W. SWARTZ, PRESIDENT
March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ ---------------
<S> <C> <C>
SIDNEY W. SWARTZ Chairman of the Board, March 28, 1996
........................................ President and Chief
(SIDNEY W. SWARTZ) Executive Officer (Principal
Executive Officer)
JEFFREY B. SWARTZ Executive Vice President, March 28, 1996
........................................ Chief Operating Officer and
(JEFFREY B. SWARTZ) Director
KEITH D. MONDA Senior Vice President-Finance March 28, 1996
........................................ and Administration and Chief
(KEITH D. MONDA) Financial Officer
DENNIS W. HAGELE Vice President-Finance and March 28, 1996
........................................ Corporate Controller (Chief
(DENNIS W. HAGELE) Accounting Officer)
ROBERT M. AGATE Director March 28, 1996
........................................
(ROBERT M. AGATE)
JOHN F. BRENNAN Director March 28, 1996
........................................
(JOHN F. BRENNAN)
ABRAHAM ZALEZNIK Director March 28, 1996
........................................
(ABRAHAM ZALEZNIK)
</TABLE>
13
<PAGE> 15
ITEM 14(d)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of The Timberland Company:
We have audited the consolidated financial statements of The Timberland
Company as of December 31, 1995 and 1994 and for the three years in the period
ended December 31, 1995, and have issued our report thereon dated February 7,
1996; such consolidated financial statements and report are included in your
1995 Annual Report to security holders and are incorporated herein by reference.
Our audits also included the consolidated financial statement schedule of The
Timberland Company, listed in Item 14. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, such consolidated financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 7, 1996
F-1
<PAGE> 16
SCHEDULE VIII
THE TIMBERLAND COMPANY
<TABLE>
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<CAPTION>
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND OTHER NET OF END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
----------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended
December 31, 1995............... $2,704 $3,697 -- $3,743 $2,658
December 31, 1994............... 1,014 1,938 -- 248 2,704
December 31, 1993............... 1,821 1,131 -- 1,938 1,014
Group insurance reserve:
Year ended
December 31, 1995............... $1,810 $5,467 -- $4,503 $2,774
December 31, 1994............... 1,319 7,983 -- 7,492 1,810
December 31, 1993............... 1,401 5,752 -- 5,834 1,319
</TABLE>
F-2
<PAGE> 17
Timberland; [TIMBERLAND LOGO]; Treeline; Weathergear; [WORK LOGO];
[MILL RIVER LOGO]; More Quality Than You May Ever Need; Active Comfort
Technology; ACT; Mountain to River; Toporelief; Topozoic; Boots, Shoes,
Clothing, Wind, Water, Earth & Sky; Wind, Water, Earth & Sky; Elements; The
Elements of Design are the Elements themselves, Wind, Water, Earth and Sky;
Nothing Can Stop You; Blackridge Mountain; Blackridge Mountain Logo Design;
Mill River; Mill River Logo Design; TBL 30; Timberland 1049; Trail Grip; and
Tims are trademarks or registered trademarks of The Timberland Company.
Gore-Tex is a registered trademark of W.L. Gore & Associates, Inc.
(C) The Timberland Company 1996
All Rights Reserved.
<PAGE> 1
EXHIBIT 10.7
STATE STREET SOLUTIONS
----------------------
PROTOTYPE DEFINED CONTRIBUTION PLAN
-----------------------------------
(Basic Plan Document 01)
<PAGE> 2
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
PAGE
----
<S> <C>
SECTION 1.....................................................................................................1
- ---------
Introduction................................................................................................1
------------
Purpose...............................................................................................1
-------
Adoption of the Plan..................................................................................1
--------------------
Administration........................................................................................1
--------------
Notices...............................................................................................2
-------
SECTION 2.....................................................................................................3
- ---------
Definitions.................................................................................................3
-----------
Adoption Agreement....................................................................................3
------------------
Code................................................................................................. 3
----
Compensation..........................................................................................3
------------
Disability............................................................................................4
----------
Earned Income.........................................................................................4
-------------
Effective Date........................................................................................4
--------------
Employee..............................................................................................4
--------
Employer..............................................................................................5
--------
Entry Date............................................................................................5
----------
ERISA.................................................................................................5
-----
Fiscal Year...........................................................................................5
-----------
Highly Compensated Employee...........................................................................5
---------------------------
Hour of Service.......................................................................................6
---------------
Leased Employee.......................................................................................8
---------------
Leave of Absence......................................................................................8
----------------
Limitation Year.......................................................................................8
---------------
Maternity or Paternity Absence........................................................................8
------------------------------
One-Year Break in Service.............................................................................9
-------------------------
Participant..........................................................................................10
-----------
Plan................................................................................................ 10
-----
Plan Year............................................................................................10
---------
Predecessor Employer.................................................................................10
--------------------
Related Employer.....................................................................................10
----------------
Self-Employed Individual.............................................................................10
------------------------
Trust................................................................................................11
-----
Trust Fund...........................................................................................11
----------
Trustee..............................................................................................11
-------
Year of Service......................................................................................11
---------------
SECTION 3....................................................................................................12
- ---------
Eligibility and Participation..............................................................................12
-----------------------------
Eligibility..........................................................................................12
-----------
Notice of Participation..............................................................................12
-----------------------
Leave of Absence.....................................................................................13
----------------
Employer Records.....................................................................................13
----------------
SECTION 4....................................................................................................14
- ---------
</TABLE>
-i-
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Compensation Deferral Contributions.........................................................................14
-----------------------------------
Compensation Deferral Contributions..................................................................14
-----------------------------------
Deduction of Compensation Deferral Contributions.....................................................14
------------------------------------------------
Variation, Discontinuance and Resumption of Compensation Deferral Contributions......................14
-------------------------------------------------------------------------------
Calendar Year Dollar Limitation on Compensation Deferral Contributions...............................15
----------------------------------------------------------------------
Limitation on Compensation Deferral Contributions....................................................16
-------------------------------------------------
Limitation on Voluntary and Employer Matching Contributions..........................................18
-----------------------------------------------------------
Prohibition of Contributions by Highly Compensated Employees.........................................20
------------------------------------------------------------
Two or More Plans....................................................................................20
-----------------
Distribution Restrictions............................................................................21
-------------------------
Other Requirements...................................................................................22
------------------
SECTION 5....................................................................................................25
- ---------
Participant Contributions..................................................................................25
-------------------------
Voluntary Participant Contributions..................................................................25
-----------------------------------
Deduction or Payment of Voluntary Contributions......................................................25
-----------------------------------------------
Variation, Discontinuance and Resumption of Voluntary Contributions..................................25
-------------------------------------------------------------------
No Deductible Employee Contributions.................................................................25
------------------------------------
SECTION 6....................................................................................................27
- ---------
Employer Contributions.....................................................................................27
----------------------
Employer Contributions...............................................................................27
----------------------
Compensation Deferral Contributions..................................................................27
-----------------------------------
Employer Matching Contributions......................................................................27
-------------------------------
Payment of Employer Contributions....................................................................28
---------------------------------
Verification of Employer Contributions...............................................................28
--------------------------------------
No Responsibility for Collection or Verification.....................................................28
------------------------------------------------
Limitations on Employer Contributions................................................................28
-------------------------------------
SECTION 7....................................................................................................29
- ---------
Period of Participation....................................................................................29
-----------------------
Settlement Dates.....................................................................................29
----------------
Restricted Participation.............................................................................29
------------------------
SECTION 8....................................................................................................31
- ---------
Accounting.................................................................................................31
----------
Separate Accounts....................................................................................31
-----------------
Accounting Dates.....................................................................................32
----------------
Adjustment of Accounts...............................................................................32
----------------------
Valuation Date.......................................................................................32
--------------
Crediting of Compensation Deferral Contributions and Voluntary Contributions.........................33
----------------------------------------------------------------------------
Allocation and Crediting of Employer Matching Contributions..........................................33
-----------------------------------------------------------
Allocation and Crediting of Employer Contributions...................................................33
--------------------------------------------------
Allocation and Crediting of Forfeitures..............................................................35
---------------------------------------
Charging Withdrawals and Distributions...............................................................36
--------------------------------------
Rollovers............................................................................................36
---------
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statements...........................................................................................36
----------
SECTION 9....................................................................................................38
- ---------
Investments................................................................................................38
-----------
Investment Option Selection..........................................................................38
---------------------------
Investment Option Subaccounts........................................................................38
-----------------------------
Elections to Change Investments......................................................................39
-------------------------------
Accounting for Investments...........................................................................39
--------------------------
Participant Directed Brokerage Accounts..............................................................39
---------------------------------------
Investment Restrictions..............................................................................41
-----------------------
SECTION 10...................................................................................................42
- ----------
Payment of Account Balances................................................................................42
---------------------------
Retirement or Death..................................................................................42
-------------------
Resignation or Dismissal.............................................................................42
------------------------
Manner of Distribution...............................................................................42
----------------------
Death Distribution Provisions........................................................................44
-----------------------------
Commencement of Distributions........................................................................45
-----------------------------
Distribution Requirements............................................................................45
-------------------------
Consent to Distribution..............................................................................46
-----------------------
Beneficiary Designation..............................................................................47
-----------------------
Missing Participants or Beneficiaries................................................................48
-------------------------------------
Facility of Payment..................................................................................49
-------------------
Definitions..........................................................................................49
-----------
Distribution to Alternate Payees.....................................................................52
--------------------------------
SECTION 11...................................................................................................53
- ----------
Joint and Survivor Annuity Requirements....................................................................53
---------------------------------------
Qualified Joint and Survivor Annuity.................................................................53
------------------------------------
Qualified Preretirement Survivor Annuity.............................................................53
----------------------------------------
Definitions..........................................................................................54
-----------
Notice Requirements..................................................................................56
-------------------
Exceptions to Notice Requirements....................................................................57
---------------------------------
Safe Harbor Rules....................................................................................57
-----------------
SECTION 12...................................................................................................59
- ----------
Withdrawals and Distributions During Employment............................................................59
-----------------------------------------------
Withdrawal of Voluntary Participant Contributions....................................................59
-------------------------------------------------
Pre-Termination Distributions........................................................................59
-----------------------------
Charging and Payment of Withdrawals..................................................................59
-----------------------------------
Loans to Participants................................................................................60
---------------------
Hardship Withdrawals.................................................................................63
--------------------
SECTION 13...................................................................................................66
- ----------
No Reversion in Employer...................................................................................66
------------------------
SECTION 14...................................................................................................67
- ----------
Reemployment and Employment With Related Employers.........................................................67
--------------------------------------------------
</TABLE>
-iii-
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reemployment Before Break in Service.................................................................67
------------------------------------
Reemployment After Break in Service..................................................................67
-----------------------------------
Restoration of Forfeitures...........................................................................68
--------------------------
Employment With Related Employers....................................................................68
---------------------------------
SECTION 15...................................................................................................70
- ----------
General Provisions.........................................................................................70
------------------
Information Furnished by Participants................................................................70
-------------------------------------
Information Furnished to Trustee.....................................................................70
--------------------------------
Inalienability of Benefits...........................................................................70
--------------------------
Absence of Guaranty..................................................................................70
-------------------
Employment Rights....................................................................................70
-----------------
Gender and Number....................................................................................70
-----------------
Administrative Decisions Final.......................................................................70
------------------------------
Evidence.............................................................................................71
--------
Action by Employer...................................................................................71
------------------
Uniform Rules........................................................................................71
-------------
Controlling Law......................................................................................71
---------------
Waiver of Notice.....................................................................................71
----------------
Successor to an Employer.............................................................................71
------------------------
Claims Procedure.....................................................................................72
----------------
Litigation by Participants...........................................................................73
--------------------------
Amendments of Vesting Schedule.......................................................................73
------------------------------
Qualification of Plan................................................................................73
---------------------
Compliance with ERISA and Severability...............................................................74
--------------------------------------
Control of Trades or Businesses by Owner-Employee....................................................74
-------------------------------------------------
Portability..........................................................................................75
-----------
SECTION 16...................................................................................................76
- ----------
Amendment and Termination..................................................................................76
-------------------------
Amendment by the Employer............................................................................76
-------------------------
Amendment by Sponsor.................................................................................77
--------------------
Termination..........................................................................................78
-----------
Notice of Amendment or Termination...................................................................79
----------------------------------
Vesting and Distribution on Termination..............................................................79
---------------------------------------
Merger or Consolidation..............................................................................79
-----------------------
SECTION 17...................................................................................................80
- ----------
Benefit Limitations........................................................................................80
-------------------
Single Plan..........................................................................................80
-----------
Estimated Compensation...............................................................................80
----------------------
Actual Compensation..................................................................................80
-------------------
Excess Amount in Single Plan.........................................................................80
----------------------------
Two or More Qualified Plans (Master or Prototype Plans)..............................................82
-------------------------------------------------------
Estimated Compensation (Two or More Plans)...........................................................82
------------------------------------------
Actual Compensation (Two or More Plans)..............................................................82
---------------------------------------
Treatment of Excesses (Two or More Plans)............................................................82
-----------------------------------------
Coincident Allocations (Two or More Plans)...........................................................83
------------------------------------------
Two or More Qualified Plans (Other than Master or Prototype Plans)...................................83
------------------------------------------------------------------
Combined Plan Limitation.............................................................................83
------------------------
</TABLE>
-iv-
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Definitions Relative to Benefit Limitations..........................................................83
-------------------------------------------
SECTION 18...................................................................................................89
- ----------
Predecessor Plan...........................................................................................89
----------------
SECTION 19...................................................................................................90
- ----------
Special Rules Applicable When Plan is Top-Heavy............................................................90
-----------------------------------------------
Purpose and Effect...................................................................................90
------------------
Top-Heavy Plan.......................................................................................90
--------------
Key Employee.........................................................................................91
------------
Aggregation of Plans.................................................................................92
--------------------
Minimum Vesting......................................................................................92
---------------
Minimum Employer Contribution........................................................................93
-----------------------------
Coordination of Benefits.............................................................................93
------------------------
Adjustment of Combined Benefit Limitations...........................................................93
------------------------------------------
Benefit Accrual......................................................................................94
---------------
SECTION 20...................................................................................................95
- ----------
Direct Transfer of Eligible Rollover Distributions.........................................................95
--------------------------------------------------
Purpose..............................................................................................95
-------
Definition of Eligible Rollover Distribution.........................................................95
--------------------------------------------
Definition of Eligible Retirement Plan...............................................................95
--------------------------------------
Definition of Distributee............................................................................95
-------------------------
Definition of Direct Rollover........................................................................96
-----------------------------
</TABLE>
-v-
<PAGE> 7
<TABLE>
DEFINED TERMS
-------------
<CAPTION>
TERMS SECTION PAGE
- ----- ------- ----
<S> <C> <C>
Account 8.1 37
Accounting Date 8.2 37
Actual Deferral Percentage 4.5 19
Administrator 1.3 1
Adoption Agreement 2.1 3
Annual Addition 17.12 97
Code 2.2 3
Compensation 2.3 3
Compensation Deferral Contributions 4.1 16
Compensation Deferral Contribution Account 8.1 36
Disability 2.4 4
Earned Income 2.5 5
Effective Date 2.6 5
Employee 2.7 5
Employer 2.8 5
Employer Contributions 6.1 31
Employer Contribution Account 8.1 36
Employer Matching Contributions 6.3 32
Employer Matching Contribution Account 8.1 36
Entry Date 2.9 5
ERISA 2.10 6
Excess Aggregate Contributions 4.6 23
Fiscal Year 2.11 6
Forfeiture 8.8 41
Highly Compensated Employee 2.12 6
Hour of Service 2.13 7
Key Employee 19.3 106
Leased Employee 2.14 9
Leave of Absence 2.15 9
Limitation Year 2.16 9
Maternity or Paternity Absence 2.17 10
Normal Retirement Age 7.1 34
One-Year Break in Service 2.18 10
Owner-Employee 2.7 5
Participant 2.19 11
Participant Rollover Account 8.1 37
Plan 2.20 11
Plan Year 2.21 11
</TABLE>
-vi-
<PAGE> 8
<TABLE>
DEFINED TERMS
-------------
<CAPTION>
TERMS SECTION PAGE
- ----- ------- ----
<S> <C> <C>
Predecessor Employer 2.22 12
Predecessor Plan 18 104
Qualified Matching Contributions 6.3 32
Qualified Nonelective Contributions 4.5 20
Related Employer 2.23 12
Regular Accounting Date 8.2 37
Self-Employed Individual 2.24 12
Special Accounting Date 8.2 37
Sponsor 1.1 1
Super Top Heavy Plan 19.8 110
Top Heavy Plan 19.2 105
Trust 2.25 12
Trust Fund 2.26 12
Trustee 2.27 13
Valuation Date 8.4 38
Vested Percentage 10.2 49
Vesting Period 10.2 49
Voluntary Contributions 5.1 29
Voluntary Contributions Account 8.1 36
Year of Service 2.28 13
</TABLE>
-vii-
<PAGE> 9
STATE STREET SOLUTIONS
----------------------
PROTOTYPE DEFINED CONTRIBUTION PLAN
-----------------------------------
SECTION 1
---------
Introduction
------------
1.1. PURPOSE. This plan is a prototype defined con-
tribution plan sponsored by State Street Bank and Trust Company
(the "sponsor") which may be adopted as a money purchase pen-
sion plan or a profit sharing plan, including a salary reduc-
tion arrangement under Code Section 401(k). With the consent
of the sponsor, the employer (as defined in subsection 2.8) may
adopt the plan by executing the adoption agreement (as defined
in subsection 2.1) in the form attached hereto. The purpose of
the plan is to enable the eligible employees of the employer to
provide for their future security by accumulating funds and
sharing in the contributions of the employer.
1.2. ADOPTION OF THE PLAN. With the sponsor's con-
sent, the employer may adopt the plan and become a party to the
trust which forms a part of the plan by completing and signing
the adoption agreement in the form attached hereto. The plan
may be adopted by the employer as a single-employer plan, a
plan of a controlled group of corporations, a plan of trades or
business under common control or a plan of an affiliated ser-
vice group, as the employer has specified in its adoption
agreement. The plan contains certain variable features which
the employer has specified in the adoption agreement. Only
those variable features specified by the employer in the adop-
tion agreement will be applicable to the employer.
1.3. ADMINISTRATION. The plan shall be administered
by a plan administrator (the "administrator") designated by the
employer in the adoption agreement and, for purposes of Section
3(16)(A) of the Employee Retirement Income Security Act of
1974, the administrator shall be considered the "plan adminis-
trator." The administrator has the discretionary authority to
construe and interpret the provisions of the plan and make
factual determinations thereunder, including the power to de-
termine the rights or eligibility of employees or participants
and any other persons, and the amounts of their benefits under
the plan, and to remedy ambiguities, inconsistencies or omis-
sions, and such determinations shall be binding on all parties.
The administrator from time to time may adopt such rules and
regulations as may be necessary or desirable for the proper and
-1-
<PAGE> 10
efficient administration of the plan and as are consistent with
the terms of the plan. The administrator may designate other
persons to carry out fiduciary responsibilities (other than
those relating to the management or control of plan assets as
provided in the trust agreement). The employer shall certify
from time to time to the trustee any change in the identity of
the administrator.
1.4. NOTICES. Any notices, documents or forms re-
quired to be given to or filed with an employer may be deliv-
ered or mailed by certified mail, postage prepaid, to the em-
ployer at its principal place of business, as specified in the
adoption agreement.
-2-
<PAGE> 11
SECTION 2
---------
Definitions
-----------
2.1. "ADOPTION AGREEMENT" shall mean the form
designed by the sponsor, executed by the employer and attached
hereto, which agreement shall constitute a part of the plan.
2.2. "CODE" shall mean the Internal Revenue Code of
1986, as amended.
2.3. "COMPENSATION" shall mean a participant's earn-
ings paid to him by the employer for the plan year, as reported
on the participant's Federal Income Tax Withholding Statement
(Form W-2). The employer may elect in the adoption agreement
to modify the foregoing definition of compensation to include
any amount which is not includible in the gross income of the
employee under Code Sections 125, 402(e)(3), 402(h), 457(b),
403(b) or 414(h)(2). The employer may also separately elect in
the adoption agreement to reduce a participant's compensation
for purposes of the plan by such items as the employer may
elect. Notwithstanding the foregoing, the compensation of a
self-employed individual (as defined in subsection 2.24) shall
mean his earned income (as defined in subsection 2.5).
For plan years beginning on or after January 1, 1989 and before
January 1, 1994, the annual compensation of each participant
taken into account under the plan for any plan year shall not
exceed $200,000, as adjusted by the Secretary of Treasury at
the same time and in the same manner as under Section 415(d) of
the Code. For plan years beginning on or after January 1,
1994, the annual compensation of each participant taken into
account under the plan shall not exceed $150,000, as adjusted
for increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code. The cost-of-living adjustment in
effect for a calendar year applies to any period, not exceeding
12 months, over which compensation is determined (determination
period) beginning in such calendar year. If a determination
period consists of fewer than 12 months, the annual compensa-
tion limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, 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 applica-
-3-
<PAGE> 12
tion of such rules, the adjusted annual compensation limitation
is exceeded, then (except for purposes of determining the por-
tion of compensation up to the integration level if this plan
provides for permitted disparity) the limitation shall be pro-
rated among the affected individuals in proportion to each such
individual's compensation, as determined under this subsection
prior to the application of the limitation.
If the compensation for any prior determination period is taken
into account in determining a participant's benefits accruing
in the current plan year, the compensation for that prior
determination period is subject to the applicable annual com-
pensation limit in effect for that prior determination 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; and 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.
2.4. "DISABILITY" shall mean an inability to perform
any of the duties assigned by an employer because of a medical-
ly determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be ex-
pected to last for a continuous period of at least twelve
months. The permanence and degree of such impairment shall be
determined by a qualified physician selected or approved by the
administrator. If a participant is eligible for and receives
Social Security disability benefits, the participant will be
deemed to be disabled for purposes of this subsection 2.4.
2.5. "EARNED INCOME" shall mean 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 includ-
ed 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 Code Section 404.
Net earnings shall be determined with regard to the deduction
allowed to the employer by Section 164(f) of the Code.
2.6. "EFFECTIVE DATE" shall mean the date specified
by the employer in the adoption agreement as the effective date
of the plan.
2.7. "EMPLOYEE" shall mean any person who is employ-
-4-
<PAGE> 13
ed by an employer maintaining the plan in the conduct of the
business to which the plan relates, or by 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 partner of an employer, a sole proprietor who
is an employer, and any leased employee deemed to be an employ-
ee of any employer described in the previous sentence as pro-
vided in Sections 414(n) or (o) of the Code. The term "owner-
employee" shall mean an individual who is a sole proprietor, or
who is a partner owning more than 10 percent of either the
capital or profits interest of the partnership.
2.8. "EMPLOYER" shall mean the employer and any
related employer which adopts the plan and becomes a party to
the trust with the consent of the employer (also referred to
herein collectively as the "employers" or singularly as the
"employer").
2.9. "ENTRY DATE" shall mean the day or dates in
each plan year on which eligible employees become participants
in the plan, as specified by the employer in the adoption
agreement.
2.10. "ERISA" shall mean the Employee Retirement
Income Security Act of 1974.
2.11. "FISCAL YEAR" shall mean the taxable year of
the employer for federal income tax purposes.
2.12. "HIGHLY COMPENSATED EMPLOYEE" shall mean high-
ly compensated active employees and highly compensated former
employees. A highly compensated active employee includes any
employee who performs service for the employer during the de-
termination year and who, during the look-back year: (i) re-
ceived compensation from the employer in excess of $75,000 (as
adjusted pursuant to Section 415(d) of the Code); (ii) received
compensation from the employer in excess of $50,000 (as adjust-
ed pursuant to Section 415(d) of the Code) and was a member of
the top-paid group for such year; or (iii) was an officer of
the employer and received compensation during such year that is
greater than 50 percent of the dollar limitation in effect
under Section 415(b)(1)(A) of the Code. The term highly com-
pensated employee also includes: (i) 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;
-5-
<PAGE> 14
and (ii) employees who are 5-percent owners at any time during
the look-back year or the determination year.
If no officer has satisfied the compensation requirement of
(iii) 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 purposes of this subsec-
tion, the determination year shall be the plan year. The look-
back year shall be the twelve-month period immediately preced-
ing the determination year or, if the administrator so elects,
the calendar year ending with or within 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 determi-
nation 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-percent 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 such family member and the 5-percent owner or top-
ten highly compensated employee shall be aggregated. In such
case, the family member and 5-percent owner or top-ten 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-percent owner or top-ten highly com-
pensated employee. For purposes of this subsection, 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 accor-
dance with Section 414(q) of the Code and the regulations
thereunder.
2.13. "Hour of Service" shall mean:
(a) Each hour for which an employee is paid or
entitled to payment by an employer for the
performance of duties. These hours shall
be credited to the employee for the period
or periods in which such duties are per-
formed;
-6-
<PAGE> 15
(b) Each hour for which an employee is paid or
entitled to payment by an employer for a
period during which no duties are performed
(irrespective of whether the employment
relationship has terminated) due to vaca-
tion, holiday, illness, incapacity (includ-
ing disability), layoff, jury duty, mili-
tary duty or leave of absence, provided
that no more than 501 hours will be credit-
ed for any single continuous period of
absence. Hours under this subparagraph
will be calculated and credited pursuant to
Section 2530.200b-2 of the Department of
Labor Regulations which are incorporated
herein by this reference;
(c) Each hour for which an employee has been
credited with back pay awarded or agreed to
by the employer, irrespective of mitigation
of damages. The same hours of service will
not be credited under both subparagraph (a)
or (b) above, as the case may be, and under
this subparagraph (c). These hours will be
credited to the employee for the period to
which the award or agreement relates rather
than the period in which the award, agree-
ment or payment is made; and
(d) Hours of service will be credited for em-
ployment with other members of an affil-
iated service group (under Code Section
414(m)), a controlled group of corporations
(under Code Section 414(b)), or a group of
trades or businesses under common control
(under Code Section 414(c)) of which an
adopting employer is a member, and any
other entity required to be aggregated with
such employer pursuant to Code Section
414(o) and the regulations thereunder.
Hours of service will also be credited for
any individual considered an employee for
purposes of this plan under Code Section
414(n) or Code Section 414(o) and the regu-
lations thereunder.
In computing hours of service for purposes of this subsection
2.13, each employee shall be credited with (i) his actual hours
of service, (ii) ten hours of service for each day in which the
employee completes at least one hour of service, (iii) 45 hours
of service for each week in which the employee completes at
least one hour of service, or (iv) 190 hours of service for
each month in which the employee completes at least one hour of
-7-
<PAGE> 16
service, whichever the employer specifies in the adoption
agreement.
2.14. "LEASED EMPLOYEE" shall mean any person (other
than an employee of the recipient employer) who pursuant to an
agreement between the recipient employer and any other person
("leasing organization") has performed services for the recipi-
ent employer (or for the recipient and related persons deter-
mined 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 per-
formed for the recipient employer shall be treated as provided
by the recipient employer. A leased employee shall not be con-
sidered an employee of the recipient employer if: (i) such
employee is covered by a money purchase pension plan providing:
(1) a nonintegrated employer contribution rate of at least 10
percent of compensation, as defined in Section 415(c)(3) of the
Code, but including amounts contributed pursuant to a salary
reduction agreement which are excludable from the employee's
gross income under Section 125, Section 402(e)(3), Section
402(h)(1)(B) or Section 403(b) of the Code, (2) immediate par-
ticipation, and (3) full and immediate vesting; and (ii) leased
employees do not constitute more than 20 percent of the recipi-
ent employer's nonhighly compensated workforce.
2.15. "LEAVE OF ABSENCE" shall mean an absence from
work which is not treated by the employer as a termination of
the employee's employment or association with the employer or
an absence from work that is required by law to be treated as a
leave of absence. Leaves of absence will be granted under
rules of the employer applied uniformly to all employees simi-
larly situated.
2.16. "LIMITATION YEAR" shall mean the plan year.
2.17. "MATERNITY OR PATERNITY ABSENCE" shall mean an
employee's absence from work because of the pregnancy of the
employee or birth of a child of the employee, the placement of
a child with the employee in connection with the adoption of
such child by the employee, or for purposes of caring for the
child immediately following such birth or placement. The ad-
ministrator may require the employee to furnish such informa-
tion as the administrator considers necessary to establish that
the employee's absence was for one of the reasons specified
above.
-8-
<PAGE> 17
2.18. "ONE-YEAR BREAK IN SERVICE" shall mean one of
the following, depending on the method of calculating years of
service selected by the employer in its adoption agreement:
(a) If the employer has specified that years of
service will be based upon hours of ser-
vice, then, for purposes of eligibility, a
one-year break in service shall occur at
the end of any twelve consecutive month
period ending on the anniversary of the
date the employee first completes one hour
of service (the employee's employment com-
mencement date) and during which such em-
ployee does not complete more than 500
hours of service; and for purposes of
determining a participant's vesting per-
centage, a one-year break in service shall
occur at the end of any plan year during
which a terminated participant or employee
does not complete more than 500 hours of
service. In the case of a maternity or
paternity absence, an employee shall be
credited, for the first plan year in which
such employee otherwise would have incurred
a one-year break in service (and solely for
purposes of determining whether such a
break in service has occurred), with the
hours of service which normally would have
been credited to him but for such absence
(or, if the administrator is unable to
determine the hours which would have been
so credited, eight hours for each work day
of such absence), but in no event more than
501 hours for any one absence.
(b) If the employer has specified the elapsed
time method of calculating years of service
in the adoption agreement pursuant to sub-
section 2.28, each twelve consecutive month
period commencing on the participant's em-
ployment termination date and each anni-
versary thereof, during which a participant
is not employed by the employer. An em-
ployee's employment termination date shall
be the date the employee retires, quits or
is discharged, or if earlier, the twelve-
month anniversary of the date on which the
employee was otherwise first absent from
service. If an employee is absent from
work by reason of a maternity or paternity
-9-
<PAGE> 18
absence, the twelve consecutive month
period beginning on the first anniversary
of the first date of such absence shall not
constitute a break in service.
2.19. "PARTICIPANT" shall mean an employee covered
under the plan in accordance with subsection 3.1.
2.20. "PLAN" shall mean State Street Solutions
Prototype Defined Contribution Plan and the adoption agreement
forming a part thereof as adopted by the employer. A copy of
the plan (and the trust forming a part of the plan), as amended
from time to time, will be on file at the office of the employ-
er and may be examined by any participant.
2.21. "PLAN YEAR" shall mean a calendar year, the
fiscal year of the employer or some other fiscal year, as spec-
ified by the employer in the adoption agreement.
2.22. "PREDECESSOR EMPLOYER" shall mean any corpora-
tion or other entity, the stock, assets or business of which
was acquired by the employer, whether by merger, consolidation,
purchase of assets or otherwise, and any predecessor thereto.
If the employer has so designated in the adoption agreement, or
if the employer maintains a plan of a predecessor employer,
employment with the predecessor employer will be considered
employment with the employer for all purposes of the plan.
2.23. "RELATED EMPLOYER" shall mean (i) a member of
a controlled group of corporations within the meaning of Sec-
tion 414(b) of the Code of which an employer is also a member,
(ii) an incorporated or unincorporated trade or business under
common control with an employer within the meaning of Section
414(c) of the Code, or (iii) a member of an affiliated service
group within the meaning of Section 414(m) of the Code of which
an employer is also a member, and any other entity required to
be aggregated with the employer pursuant to regulations under
Section 414(o) of the Code.
2.24. "SELF-EMPLOYED INDIVIDUAL" shall mean an indi-
vidual who has earned income for the taxable year from the
trade or business for which the plan is established, as well as
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.
-10-
<PAGE> 19
2.25. "TRUST" shall mean the trust agreement which
forms a part of the plan pursuant to which funds contributed
under the plan are held, invested, managed, controlled and
distributed in accordance with the terms of such trust.
2.26. "TRUST FUND" shall mean the total assets held
in trust as of any date under the trust forming a part of this
plan, including any participating interests in any common, col-
lective or commingled trust fund to which the trustee has made
a deposit.
2.27. "TRUSTEE" shall mean State Street Bank and
Trust Company.
2.28. "YEAR OF SERVICE" shall mean the twelve con-
secutive month periods for eligibility and for vesting, as
specified by the employer in its adoption agreement:
(a) For purposes of eligibility, the twelve
consecutive month period beginning on the
date the employee first completes an hour
of service for the employer (such employ-
ee's "employment commencement date") and
each anniversary of such employment com-
mencement date, during which the employee
completes at least 1,000 hours of service.
For purposes of vesting, a year of service
shall mean each plan year during which the
employee completes 1,000 hours of service.
(b) In lieu of the hours of service method
described in (a) above, for purposes of
eligibility or vesting, each twelve consec-
utive month period of employment with the
employer ending on an anniversary of the
employee's employment commencement date,
with any portion of a month being consid-
ered a whole month for this purpose, in-
cluding any period of employment termina-
tion that does not exceed twelve months.
-11-
<PAGE> 20
SECTION 3
---------
Eligibility and Participation
-----------------------------
3.1. ELIGIBILITY. Each employee of an employer who
is a participant in a predecessor plan (as defined in Section
18) immediately preceding the effective date will continue as a
participant in the plan on and after that date, subject to the
conditions and limitations of the plan. Each other employee of
an employer will become eligible to participate in the plan on
the effective date (if he then satisfies the requirements be-
low) or on the first entry date coincident with or next follow-
ing the date such employee meets the applicable requirements
set forth below:
(a) The employee has attained the minimum age,
if any, specified by the employer for this
purpose in its adoption agreement;
(b) The employee has completed the number of
years of service specified by the employer
for this purpose in its adoption agreement;
and
(c) The employee is a member of a group or
class of employees to whom the plan has
been extended by the employer as specified
for this purpose in its adoption agreement.
For purposes of subparagraph (a) above, the minimum age that
the employer may specify in its adoption agreement shall not
exceed age 21 years. For purposes of subparagraph (b) above,
the number of years of service that the employer may specify in
its adoption agreement shall not exceed one year; except that,
if employer contributions under the plan are fully vested at
all times and the employer adopts this plan as a money purchase
pension plan or specifies in the adoption agreement that par-
ticipants cannot make compensation deferral contributions under
subsection 4.1 of the plan, the number of years of service that
may be specified in the adoption agreement shall not exceed two
years. An employee who would be eligible to participate on an
entry date except for subparagraph 3.1(c) above shall become a
participant on the date such employee satisfies the condition
for participation under subparagraph 3.1(c).
3.2. NOTICE OF PARTICIPATION. The employer will
notify its employees of the date on which they become eligible
to participate in the plan. Each such employee must complete
and file with the administrator one or more of the following
forms:
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<PAGE> 21
(a) An election, if any, to have his compen-
sation reduced and compensation deferral
contributions made to the plan on his
behalf by his employer.
(b) An election, if any, to make voluntary
contributions under the plan.
(c) Such other forms as the administrator may
determine.
3.3. LEAVE OF ABSENCE. Except as provided below, a
leave of absence will not interrupt years of service or partic-
ipation in the plan. If an employee or participant does not
return to work with his employer on or before termination of a
leave of absence, he will be considered to have terminated em-
ployment on the date his leave of absence expires, unless he
actually terminated employment before the expiration of his
leave of absence.
3.4. EMPLOYER RECORDS. The records of an employer
as to an employee's or a participant's employment, years of
service, one-year breaks in service, termination of employment,
reemployment, hours of service, compensation and leaves of
absence will be conclusive on all persons unless demonstrated
to the administrator's satisfaction to be incorrect.
-13-
<PAGE> 22
SECTION 4
---------
Compensation Deferral Contributions
-----------------------------------
4.1. COMPENSATION DEFERRAL CONTRIBUTIONS. No con-
tributions are required of participants. However, if the em-
ployer has so provided in its adoption agreement and subject to
the limitations of this Section, a participant may elect to
make compensation deferral contributions under the plan as of
the beginning of the first pay period coincident with or next
following the date he becomes eligible to participate under
subsection 3.1, in an amount equal to a percentage of his com-
pensation for the plan year which is within the range specified
by the employer in its adoption agreement for this purpose.
Each election by a participant under this subsection 4.1 shall
be made by filing the election form furnished by the adminis-
trator at least 30 days (or such shorter time period as may be
established by the administrator) prior to the beginning of the
pay period or date as of which such election is to be effec-
tive. A participant's compensation deferral contributions
shall be fully vested and nonforfeitable at all times. No
benefit under the plan except employer matching contributions
under subsection 6.3 shall be contingent upon the participant's
election to make (or not to make) compensation deferral contri-
butions.
4.2. DEDUCTION OF COMPENSATION DEFERRAL CONTRIBU-
TIONS. Pursuant to the participant's compensation deferral
election, compensation deferral contributions shall be made by
a reduction of the participant's compensation for each pay
period by the elected percentage, and a contribution by the
employer to the trust fund pursuant to subsection 6.2, in the
amount of such reduction. The administrator may limit the
compensation deferral percentage elected by a participant who
is a highly compensated employee in order to satisfy the limi-
tations of this Section 4, and may limit the type of compensa-
tion from which compensation deferral contributons may be made.
4.3. VARIATION, DISCONTINUANCE AND RESUMPTION OF
COMPENSATION DEFERRAL CONTRIBUTIONS. Except as provided below,
as of the dates specified for this purpose by the employer in
the adoption agreement, a participant may elect to change the
rate of his compensation deferral contributions (but not retro-
actively) within the limits specified by the employer in its
adoption agreement. A participant may elect to discontinue his
compensation deferral contributions (but not retroactively) as
of any pay period and resume making such contributions as of
-14-
<PAGE> 23
any such date. Each election under this subsection 4.3 shall
be made by filing the election form furnished by the adminis-
trator at least 30 days (or such shorter time period as may be
established by the administrator) prior to the beginning of the
period or date as of which such election is to be effective.
Unless the plan specifies otherwise, compensation deferral con-
tributions elected under this Section 4 shall be treated as em-
ployer contributions under the plan.
4.4. CALENDAR YEAR DOLLAR LIMITATION ON COMPENSATION
DEFERRAL CONTRIBUTIONS. In no event may a participant make a
compensation deferral contribution election which would result
in his elective deferrals (as defined below) for any calendar
year exceeding $7,000 (or such greater amount as may be pre-
scribed by the Secretary of Treasury to take into account cost-
of-living increases pursuant to Code Section 402(g)(5)). For
purposes of this subsection 4.4, the term "elective deferral"
means, with respect to any calendar year, the sum of any con-
tribution made by the participant:
(a) pursuant to an election to defer under a
cash or deferred arrangement (as defined in
Code Section 401(k)), to the extent not
includible in the participant's gross in-
come for that calendar year pursuant to
Code Section 402(e)(3) (determined without
regard to Code Section 402(g));
(b) to an individual retirement plan pursuant
to a simplified employee pension, to the
extent not includible in the participant's
gross income for that calendar year under
Code Section 402(h)(1)(B) (determined with-
out regard to Code Section 402(g)); and
(c) applied toward the purchase of an annuity
contract under Code Section 403(b) pursuant
to a salary reduction agreement (within the
meaning of Code Section 3121(a)(5)(D)).
If a participant's elective deferrals with respect to any cal-
endar year exceed the annual dollar limit prescribed above, the
participant may notify the administrator in writing on or be-
fore the March 1 next following the close of such calendar year
of his election to have all or a portion of such excess elec-
tive deferrals (and the income allocated to such deferrals)
assigned to this plan and distributed in accordance with the
following provisions. This assignment must be accompanied by
the participant's written statement that if such amounts are
not distributed, the participant's elective deferrals will
exceed the limit imposed by Code Section 402(g) for the taxable
year in which the deferral occurred. In such an event, the
-15-
<PAGE> 24
administrator, in its sole discretion and without regard to any
other provision of the plan, may direct the trustee to distrib-
ute to the participant on or before the April 15 following
immediately thereafter the participant's excess deferrals (and
the income allocated to such deferrals) so allocated under this
plan. Excess elective deferrals shall be adjusted for any
income or loss up to the date of distribution. The income or
loss allocable to excess elective deferrals is the sum of: (1)
income or loss allocable to the participant's compensation
deferral account for the taxable year multiplied by a fraction,
the numerator of which is such participant's excess elective
deferral for the year, and the denominator of which is the
participant's account balance attributable to elective defer-
rals without regard to any income or loss occurring during such
taxable year; and (2) ten percent 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 distri-
bution occurs after the 15th of such month. The amount of such
excess elective deferrals distributed to a highly compensated
employee in accordance with the preceding sentence shall con-
tinue to be treated as compensation deferral contributions for
purposes of the actual deferral percentage test described in
subsection 4.5 below.
4.5. LIMITATION ON COMPENSATION DEFERRAL CONTRIBU-
TIONS. In no event shall the actual deferral percentage (as
defined below) of the highly compensated employees for any plan
year exceed the greater of:
(a) The actual deferral percentage of all other
eligible employees for such plan year mul-
tiplied by 1.25; or
(b) The actual deferral percentage of all other
eligible employees for such plan year mul-
tiplied by 2.0; provided that the actual
deferral percentage of the highly compen-
sated employees does not exceed that of all
other eligible employees by more than two
percentage points.
The "actual deferral percentage" of a group of participants for
a plan year means the average of the ratios (determined sepa-
rately for each participant in such group) of A to B, where A
equals the sum of:
(c) The compensation deferral contributions
credited to each such participant's ac-
counts for such plan year,
-16-
<PAGE> 25
(d) The qualified nonelective contributions, if
any, credited to each such participant's
accounts for such plan year, and
(e) The qualified matching contributions, if
any, credited to each such participant's
accounts for such plan year,
and B equals the participant's compensation (as defined in
subsection 2.3) for such plan year (whether or not the employee
was a participant for the entire plan year). If the employer
so elects, the administrator may limit the period of time for
which compensation is taken into account to that portion of the
plan year in which the employee was an eligible employee under
the plan; provided that, this limit shall be applied uniformly
to all eligible employees under the plan for the plan year.
From time to time, the administrator shall determine from the
compensation deferral elections then on file whether the fore-
going limitation will be satisfied and, to the extent necessary
to ensure compliance with such limitation, may reduce the ap-
plicable percentages of compensation withheld, or to be with-
held, for the class of highly compensated employees who have
elected to defer the greatest percentage of compensation; pro-
vided that such reduction shall apply to the entire class of
highly compensated employees at each percentage level.
The employer may elect in the adoption agreement to have all or
a part of employer contributions treated as qualified nonelec-
tive contributions. "Qualified nonelective contributions"
means employer contributions that are fully vested at all times
and subject to the restrictions on distribution applicable to
compensation deferral contributions under Code Section 401(k)
and subsection 4.9 of the plan (without regard to subparagraph
(e) thereof).
Each participant with respect to whom a reduction in amounts
previously withheld from his compensation must occur shall have
the excess deferral amounts (and income allocable thereto) dis-
tributed to him in cash. The excess amounts previously with-
held (and any income allocable thereto) shall be distributed
within 2-1/2 months after the close of the plan year for which
they are in excess, but in no event later than the close of the
next following plan year. In the event that excess deferral
amounts (and the income allocable thereto) are not distributed
to participants within 2-1/2 months after the close of the plan
year for which such deferrals are in excess, an excise tax,
payable by the employer, shall be imposed upon the plan in an
amount equal to ten percent of the excess deferral amount, pur-
suant to Section 4979 of the Code. Excess contributions shall
be adjusted for any income or loss up to the date of distribu-
tion. The income or loss allocable to excess deferral contri-
butions is the sum of: (1) income or loss allocable to the par-
ticipant's compensation deferral contribution account (and, if
applicable, the qualified nonelective contribution subaccount,
or the qualified matching contribution subaccount, as appli-
cable, of the employer contribution account) for the plan year
multiplied by a fraction, the numerator of which is such par-
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<PAGE> 26
ticipant's excess contributions for the year, and the denomina-
tor of which is the participant's account balance attributable
to compensation deferral contributions (and employer contribu-
tions, if any of such contributions are included in the actual
deferral percentage test) without regard to any income or loss
occurring during such plan year; and (2) ten percent 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 distri-
bution occurs after the 15th of such month. Excess deferral
contributions shall be treated as annual additions under the
plan.
Amounts distributed under this subsection shall first be treat-
ed as distributions from the participant's compensation defer-
ral contribution account and shall be treated as distributed
from the participant's employer contribution account (if such
contributions are treated as qualified nonelective contribu-
tions or qualified matching contributions) only to the extent
such excess contributions exceed the balance in the partici-
pant's compensation deferral contribution account.
4.6. LIMITATION ON VOLUNTARY AND EMPLOYER MATCHING
CONTRIBUTIONS. In no event shall the contribution percentage
(as defined below) of the highly compensated employees for any
plan year exceed the greater of:
(a) The contribution percentage of all other
eligible employees for such plan year mul-
tiplied by 1.25; or
(b) The contribution percentage of all other
eligible employees for such plan year mul-
tiplied by 2.0; provided that the contribu-
tion percentage of the highly compensated
employees does not exceed that of all other
eligible employees by more than two per-
centage points or such lesser amount as the
Secretary of the Treasury shall prescribe
to prevent the multiple use of this
alternative limitation with respect to any
highly compensated employee.
The "contribution percentage" of a group of participants for a
plan year means the average of the ratios (determined sepa-
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<PAGE> 27
rately for each participant in such group) of A to B, where A
equals the sum of:
(c) The voluntary contributions, if any, cred-
ited to each such participant's account (as
described in subsections 8.3 and 8.5) for
such plan year; and
(d) The matching contributions, if any, credit-
ed to each such participant's account (as
described in subsections 8.3 and 8.6) for
such plan year,
and B equals the participant's compensation (as defined in sub-
section 2.3) for such plan year. If the employer so elects,
the administrator may limit the period of time for which com-
pensation is taken into account to that portion of the plan
year in which the employee was an eligible employee under the
plan; provided that, this limit shall be applied uniformly to
all eligible employees under the plan for the plan year.
Qualified matching contributions and qualified nonelective
contributions used to satisfy the ADP test may not also be used
to satisfy this test. Qualified nonelective contributions may
be used to satisfy this test only if the requirements of Sec-
tion 1.401(m)-1(b)(5) of the Income Tax Regulations are met.
Matching contributions that are forfeited to correct excess
aggregate contributions shall be disregarded for purposes of
the ACP test.
From time to time, the administrator shall determine from the
voluntary contribution elections then on file whether the fore-
going limitation will be satisfied and, to the extent necessary
to ensure compliance with such limitation, may restrict such
contributions for the remainder of the year or reduce the
applicable contribution percentages for the class of highly
compensated employees who have elected to contribute the
greatest percentages of compensation by returning amounts of
their voluntary contributions; provided that such reduction
shall apply to the entire class of highly compensated employees
at each percentage level. The determination of excess
contribution percentage under this subsection 4.6 shall be made
after the determinations under subsections 4.4 and 4.5.
Each participant with respect to whom a reduction is required
under this subsection 4.6 shall have the amount of voluntary
participant or matching contributions involved in such
reduction (and any income or losses allocable thereto) distri-
buted to him in cash within 2-1/2 months after the close of the
plan year, but in no event later than the close of the next
following plan year. "Excess aggregate contributions" shall
mean, with respect to any plan year, the excess of the aggre-
gate contribution percentage amounts taken into account in
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<PAGE> 28
computing the numerator of the contribution percentage actually
made on behalf of highly compensated employees for such plan
year, over the maximum contribution percentage amounts per-
mitted by this 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 deferrals and excess contributions. In the
event that excess aggregate contributions (and the income
allocable thereto) are not distributed to participants within
2-1/2 months after the close of the plan year for which such
contributions are in excess, an excise tax, payable by the
employer, shall be imposed upon the plan in an amount equal to
ten percent of the excess aggregate contribution amount, pur-
suant to Section 4979 of the Code. Excess aggregate contribu-
tions shall be adjusted for any income or loss up to the date
of distribution. The income or loss allocable to excess aggre-
gate contributions is the sum of: (1) income or loss allocable
to the participant's voluntary or employer matching contribu-
tion account (and, if applicable, the qualified nonelective
contribution subaccount of the employer contribution 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 of which is the participant's
account balance attributable to voluntary or employer matching
contributions, whichever is applicable (and qualified nonelec-
tive contributions, if any of such contributions are included
in the actual contribution percentage test) without regard to
any income or loss occurring during such plan year; and (2) ten
percent 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 dis-
tribution if distribution occurs after the 15th of such month.
Excess voluntary contributions shall be returned to the partic-
ipant. Excess matching contributions, if forfeitable, shall be
applied to reduce future employer matching contributions. Non-
forfeitable excess matching contributions shall be distributed
to participants to whose accounts such contributions were allo-
cated as provided in the first sentence of this paragraph.
4.7. PROHIBITION OF CONTRIBUTIONS BY HIGHLY COMPEN-
SATED EMPLOYEES. Notwithstanding the provisions of Sections 4
and 5, the employer may designate in its adoption agreement
that if a participant is deemed to be a highly compensated
employee for the plan year, such participant shall not be per-
mitted to make compensation deferral contributions or voluntary
contributions for that plan year.
4.8. TWO OR MORE PLANS. If two or more plans of the
employers to which employer matching contributions, voluntary
-20-
<PAGE> 29
contributions or compensation deferral contributions are made,
are treated as one plan for purposes of Code Section 410(b),
such plans shall be treated as one plan for purposes of this
Section 4. If a highly compensated employee participates in
two or more plans of the employers to which employer matching,
voluntary or compensation deferral contributions are made, then
such contributions made under the various plans shall be aggre-
gated for purposes of this Section 4 to determine the actual
deferral percentage ("ADP") and actual contribution percentage
("ACP") of such highly compensated employee under subsections
4.5 and 4.6, respectively. In the event that this plan satis-
fies the requirements of Sections 401(k), 401(a)(4), or 410(b)
of the Code only if aggregated with one or more other plans, or
if one or more other plans satisfy the requirements of such
Sections of the Code only if aggregated with this plan, then
this Section shall be applied by determining the ADP and ACP of
employees as if all such plans were a single plan. Plans may
be aggregated in order to satisfy Sections 401(k) and 401(m) of
the Code only if they have the same plan year.
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.
4.9. DISTRIBUTION RESTRICTIONS. Compensation defer-
ral contributions, qualified nonelective contributions, and
qualified matching contributions, and income allocable to each
are not distributable to a participant or his beneficiary or
beneficiaries earlier than upon separation from service, death,
or disability. Such amounts may also be distributed upon:
(a) Termination of the plan without the estab-
lishment of another defined contribution
plan.
(b) The disposition by a corporation to an
unrelated corporation of substantially all
of the assets (within the meaning of Sec-
tion 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 employ-
ment 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 mean-
ing of Section 409(d)(3) of the Code), if
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<PAGE> 30
such corporation continues to maintain this
plan, but only with respect to employees
who continue employment with such subsid-
iary.
(d) The attainment of age 59 1/2 in the case of
a profit-sharing plan.
(e) The hardship of the participant as describ-
ed in subsection 12.5.
4.10. OTHER REQUIREMENTS.
------------------
(a) For purposes of determining the ADP and ACP
of a participant who is a 5-percent owner
or one of the ten most highly-paid highly
compensated employees, the elective defer-
rals, voluntary contributions, employer
matching contributions (and employer con-
tributions if treated as elective deferrals
or employer matching contributions for pur-
poses of the ADP or ACP test, respectively)
and compensation of such participant shall
include the elective deferrals, voluntary
contributions, employer matching contribu-
tions (and, if applicable, employer contri-
butions) 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 and ACP
both for participants who are non-highly
compensated employees and for participants
who are highly compensated employees.
Excess contributions or excess aggregate
contributions, as the case may be, shall be
allocated to participants who are subject
to the family member aggregation rules of
Section 414(q)(6) of the Code in proportion
to the contributions of each family member
that are combined in accordance with the
foregoing rules.
(b) For purposes of determining the ADP and ACP
tests, elective deferrals, voluntary con-
tributions, qualified nonelective contri-
butions and qualified matching contribu-
tions must be made before the last day of
the twelve-month period immediately follow-
ing the plan year to which contributions
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<PAGE> 31
relate.
(c) The employer shall maintain records suffi-
cient to demonstrate satisfaction of the
ADP and ACP tests and the amount of quali-
fied nonelective contributions or qualified
matching contributions, or both, used in
such tests.
(d) The determination and treatment of the ADP
and ACP amounts of any participant shall
satisfy such other requirements as may be
prescribed by the Secretary of the Trea-
sury.
(e) Multiple use: If one or more highly com-
pensated employees participate in both a
Section 401(k) plan 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 (as
defined below), then the ACP of those high-
ly compensated employees who also partici-
pate in a Section 401(k) plan will be re-
duced (beginning with such highly compen-
sated employee whose ACP is the highest) so
that the limit is not exceeded. The amount
by which each highly compensated employee's
contribution percentage is reduced shall be
treated as an excess aggregate contribution
(and distributed in accordance with the
rules of subsection 4.6). The ADP and ACP
of the highly compensated employees are
determined after any corrections required
to meet the ADP and ACP tests. Multiple
use does not occur if both the ADP and ACP
of the highly compensated employees does
not exceed 1.25 multiplied by the ADP and
ACP of the nonhighly compensated employees.
"Aggregate limit" means the sum of (i) 125
percent of the greater of the ADP of the
non-highly compensated employees for the
plan year or the ACP of non-highly compen-
sated employees under the plan subject to
Code Section 401(m) for the plan year be-
ginning with or within the plan year of the
401(k) plan and (ii) the lesser of 200% or
two plus the lesser of such ADP or ACP.
(f) Hardship withdrawal: If a participant re-
ceives a hardship withdrawal from this plan
-23-
<PAGE> 32
in accordance with subsection 12.5, such
participant's compensation deferral contri-
butions and voluntary contributions will be
suspended for the twelve-month period fol-
lowing such withdrawal.
-24-
<PAGE> 33
SECTION 5
---------
Participant Contributions
-------------------------
5.1. VOLUNTARY PARTICIPANT CONTRIBUTIONS. If the
employer has so specified in the adoption agreement, a partici-
pant may elect to make voluntary contributions under the plan
as of the beginning of the first pay period coincident with or
next following the date he becomes eligible to participate
under subsection 3.1, in an amount equal to a percentage of his
compensation for the plan year which is within the range speci-
fied by the employer in its adoption agreement for this pur-
pose. Each election by a participant under this subsection 5.1
shall be made by filing the election form furnished by the
administrator at least 30 days (or such shorter time period as
may be established by the administrator) prior to the beginning
of the pay period or date on which such election is to be
effective. A participant's voluntary contributions shall be
fully vested and nonforfeitable at all times.
5.2. DEDUCTION OR PAYMENT OF VOLUNTARY CONTRIBU-
TIONS. A participant's voluntary contributions must be made by
regular payroll deductions (in multiples of one percent) or in
one or more lump sum cash payments. Voluntary participant con-
tributions deducted by the employer will be paid to the trustee
as soon as practicable after the date the contributions were
made. The administrator may limit the voluntary contribution
percentage elected by a participant who is a highly compensated
employee in order to satisfy the limitations of Section 4, and
may limit the type of compensation from which voluntary contri-
butions may be made.
5.3. VARIATION, DISCONTINUANCE AND RESUMPTION OF
VOLUNTARY CONTRIBUTIONS. Except as provided below, as of the
dates specified for this purpose by the employer in the adop-
tion agreement, a participant may elect to change his voluntary
contribution rate (but not retroactively) within the limits
specified by the employer in its adoption agreement. A partic-
ipant may elect to discontinue making voluntary contributions
(but not retroactively) as of any pay period and resume making
such contributions as of any such date. Each election under
this subsection 5.3 shall be made by filing the election form
furnished by the administrator at least 30 days (or such
shorter time period as may be established by the administrator)
prior to the beginning of the period or date as of which such
election is to be effective.
5.4. NO DEDUCTIBLE EMPLOYEE CONTRIBUTIONS. The
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<PAGE> 34
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
trust in the same manner as described in Section 8 of the plan.
No part of the deductible employee contribution account will be
used to purchase life insurance. Subject to the Section 11
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
administrator.
-26-
<PAGE> 35
SECTION 6
---------
Employer Contributions
----------------------
6.1. EMPLOYER CONTRIBUTIONS. Subject to the limita-
tions of this Section 6 and Section 17, for each plan year of
an employer, beginning with the first plan year in which the
plan is in effect as to the employer, the employer will con-
tribute to the trustee an annual amount required by (a) or (b)
below, as has been selected by the employer in the adoption
agreement:
(A) PENSION PLAN: an amount which is equal to
the percentage of participants' compensa-
tion for the plan year specified in the
adoption agreement.
(B) PROFIT SHARING PLAN: such amount as the
employer, in its discretion, shall deter-
mine. The employer shall designate the
plan year on account of which the contribu-
tion is made and shall specify the amount
of the contribution or a definite basis or
formula by which the contribution can be
determined within a reasonable time after
the end of that plan year. The employer
may specify in the adoption agreement that
all or part of employer contributions shall
be treated as qualified nonelective contri-
butions, pursuant to subsection 4.5 or 4.6,
as the case may be.
Employer contributions made under this subsection 6.1 shall be
allocated in accordance with subsection 8.7.
6.2. COMPENSATION DEFERRAL CONTRIBUTIONS. Subject
to the limitations of this Section 6, Section 4 and Section 17,
the employer will contribute to the trustee on behalf of each
participant the amount of such participant's compensation
deferral contributions elected under subsection 4.1. Such com-
pensation deferral contributions shall be paid by the employer
to the trustee as soon as practicable after being withheld, but
not later than 30 days (or such later date as is permitted by
law or regulation) following the end of the month in which such
amounts are withheld.
6.3. EMPLOYER MATCHING CONTRIBUTIONS. Subject to
the limitations of this Section 6, Section 4 and Section 17, if
the employer has so specified in its adoption agreement, in
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<PAGE> 36
addition to the compensation deferral contributions made under
subsection 6.2, the employer shall contribute the amount which
is specified by the employer in the adoption agreement. Such
"employer matching contributions" shall be paid to the trustee
as of the last day of each plan year, unless the employer pays
them to the trustee more frequently. If the employer so elects
in the adoption agreement, all or part of employer matching
contributions shall be qualified matching contributions.
"Qualified matching contributions" means employer matching con-
tributions which are nonforfeitable at all times and subject to
the restrictions on distribution applicable to compensation
deferral contributions under Code Section 401(k) and subsection
4.9 of the plan (without regard to subparagraph (e) thereof).
6.4. PAYMENT OF EMPLOYER CONTRIBUTIONS. An employ-
er's total contribution under this Section 6 for a plan year
shall be due on the last day of the plan year and, if not paid
by the end of that year, shall be payable to the trustee as
soon as practicable thereafter, without interest, but not later
than the time prescribed by law for filing the employer's fed-
eral income tax return for the taxable year with or within with
such plan year ends, including extensions thereof.
6.5. VERIFICATION OF EMPLOYER CONTRIBUTIONS. If for
any reason the employer decides to verify the correctness of
any amount or calculation relating to an employer contribution
for any plan year, the certificate of an independent accountant
selected by the employer shall be conclusive as to all persons.
6.6. NO RESPONSIBILITY FOR COLLECTION OR VERIFICA-
TION. The trustee shall have no responsibility or obligation
to collect any contributions under the plan or to verify the
correctness of the amount of any contributions under the plan.
6.7. LIMITATIONS ON EMPLOYER CONTRIBUTIONS. An em-
ployer's total contribution for any plan year under this Sec-
tion 6 is conditioned on its deductibility under Section 404 of
the Code in that year, shall comply with the contribution limi-
tations set forth in Section 17, and shall not exceed an amount
equal to the maximum amount deductible on account thereof by
the employer for that year for purposes of federal taxes on
income. Employer contributions to the plan may be made without
regard to profits.
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<PAGE> 37
SECTION 7
---------
Period of Participation
-----------------------
7.1. SETTLEMENT DATES. A participant's "settlement
date" will be the date on which his employment with the employ-
er is terminated because of the first to occur of the following
events:
(A) NORMAL OR LATE RETIREMENT. The participant
retires on and after attaining the normal
retirement age specified by the employer in
the adoption agreement. A participant's
right to his account balances shall be non-
forfeitable on and after his normal retire-
ment age.
(B) EARLY OR DISABILITY RETIREMENT. The par-
ticipant retires at or after attaining the
early retirement age and service, if any,
specified by the employer in the adoption
agreement, or at any age because of dis-
ability.
(c) DEATH. The participant's death.
(d) RESIGNATION OR DISMISSAL. The participant
resigns or is dismissed from the employ of
the employer before his retirement under
subparagraph (a) or (b) of this subsection.
A participant who is transferred to employment with a related
employer which has not adopted the plan will not be deemed to
have terminated employment with the employer, but his partici-
pation in the plan will be restricted in accordance with the
provisions of subsection 7.2.
7.2. RESTRICTED PARTICIPATION. In the event payment
of part or all of a participant's account balances cannot be
made at his settlement date or in the event a participant is
transferred to a related employer which is not an employer
under the plan or no longer meets the requirements designated
by the employer under subparagraph 3.1(c), the participant or
his beneficiary will be considered as a participant for all
purposes of the plan, except as follows:
(a) No share of employer contributions or em-
ployer matching contributions or forfei-
tures will be credited to his account after
his settlement date (except as otherwise
-29-
<PAGE> 38
provided in Section 8), the date he is
transferred to employment with such related
employer or the date he no longer meets the
requirements of subparagraph 3.1(c).
(b) He will not be permitted to make compensa-
tion deferral contributions or voluntary
contributions under the plan.
(c) The beneficiary of a deceased participant
cannot designate a beneficiary under sub-
section 10.8.
-30-
<PAGE> 39
SECTION 8
---------
Accounting
----------
8.1. SEPARATE ACCOUNTS. The administrator shall
maintain the following separate accounts in the name of each
participant:
(a) A "compensation deferral contribution ac-
count" to reflect the compensation deferral
contributions made by the employer pursuant
to the participant's election under subsec-
tion 4.1, and the income, losses, apprecia-
tion and depreciation attributable thereto.
(b) An "employer matching contribution account"
to reflect the participant's allocable
share of employer matching contributions,
if any, made pursuant to subsection 6.3,
and the income, losses, appreciation and
depreciation attributable thereto.
(c) An "employer contribution account" to re-
flect the participant's allocable share of
the employer contributions, if any, made
pursuant to subsection 6.1, and the income,
losses, appreciation and depreciation
attributable thereto.
(d) A "voluntary contribution account" to re-
flect the participant's voluntary contribu-
tions, if any, made pursuant to subsection
5.1 of the plan, which shall consist of two
subaccounts: one to reflect the partici-
pant's voluntary contributions made prior
to January 1, 1987 and the earnings and
market value adjustments thereon; and the
other to reflect his voluntary contribu-
tions made on and after that date and the
income, losses, appreciation and deprecia-
tion attributable thereto.
(e) A "participant rollover account" to reflect
each transfer to the trust fund pursuant to
subsection 8.10 of rollover amounts, roll-
over contributions or benefits under any
plan which meets the requirements of Sec-
tion 401(a) of the Code that are attribut-
able to the participant, and the income,
losses, appreciation and depreciation at-
tributable thereto.
-31-
<PAGE> 40
If the employer has authorized the establishment of investment
options in its adoption agreement, each account maintained for
a participant will consist of separate subaccounts which will
reflect the portion of each participant's account invested in
each of the investment options in accordance with subsection
9.2. The administrator or the trustee also may maintain such
other accounts or subaccounts in the names of participants or
otherwise as it considers necessary or advisable. Unless the
context indicates otherwise, the term "account" shall include
all accounts (and subaccounts) maintained for a participant.
8.2. ACCOUNTING DATES. A "regular accounting date"
is the date specified for this purpose by the employer in the
adoption agreement. A "special accounting date" will be any
accounting date specified as such by the employer subject to
the provisions of subsection 16.5. The term "accounting date"
shall include both a regular accounting date and a special
accounting date. If an accounting date is not a day on which
the trustee is open for the transaction of business, the next
preceding business day or other date designated by the trustee
shall be the accounting date.
8.3. ADJUSTMENT OF ACCOUNTS. The income, losses,
appreciation and depreciation of the trust fund and each in-
vestment option will be allocated as they arise to the accounts
of each participant with an interest therein, pro rata, accord-
ing to the portion of the participant's account balance in-
vested in the trust fund or that investment option.
8.4. VALUATION DATE. Adjustments under subsection
8.3 shall be made as of each valuation date, based on the fair
market value of the assets of the trust fund and each invest-
ment option as of that date. A "valuation date" means each
business day of the sponsor. In determining the fair market
value of securities held in the trust fund which are listed on
a registered stock exchange, the trustee shall value the same
at the prices they were last traded on such exchange preceding
the close of business on the valuation date. If such securi-
ties were not traded on the valuation date, or if the exchange
on which they are traded was not open for business on the valu-
ation date, then the securities shall be valued at the prices
they were last traded prior to the valuation date. Any un-
listed security held in the trust fund shall be valued at it's
bid price as of or next preceding the close of business on the
valuation date. In detrmining the fair market value of assets
other than securities for which trading or bid prices can be
obtained, the trustee may appraise such assets itself, or in
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its discretion, employ one or more appraisers for that purpose
and rely on the values established by such appraiser or
appraisers.
8.5. CREDITING OF COMPENSATION DEFERRAL CONTRIBU-
TIONS AND VOLUNTARY CONTRIBUTIONS. COMPENSATION deferral con-
tributions made on behalf of a participant shall be credited to
his compensation deferral contribution account. Each partici-
pant's voluntary contributions, if any, will be credited to his
voluntary contribution account.
8.6. ALLOCATION AND CREDITING OF EMPLOYER MATCHING
CONTRIBUTIONS. The employer's matching contributions under
subsection 6.3 of the plan shall be allocated and credited to
the employer matching contribution accounts of such partici-
pants as the employer has specified in its adoption agreement
in the manner specified by the employer in the adoption agree-
ment. However, if the participant has elected any withdrawal
from his compensation deferral contribution account during the
applicable period, then, for purposes of determining the allo-
cation of employer matching contributions for the period, such
withdrawal shall be deemed to have occurred first from any com-
pensation deferral contributions which the participant made
during that period. In no event, however, shall employer
matching contributions be credited to a participant's employer
matching contribution account which would exceed the limita-
tions specified in subsection 4.6 or Section 17 of the plan.
8.7. ALLOCATION AND CREDITING OF EMPLOYER CONTRIBU-
TIONS. As of the accounting date coincident with the last day
of the plan year, the employer's contribution for the plan year
ending on that date shall be allocated and credited to the
employer contribution accounts of such participants as the em-
ployer has specified in its adoption agreement, based upon such
participants' compensation (calculated as specified by the em-
ployer in the adoption agreement), according to (a) or (b)
below, as specified by the employer in the adoption agreement:
(a) COMPENSATION ALLOCATION. To the employer
contribution accounts of all participants,
PRO RATA, according to the compensation
paid to them by the employer during that
plan year.
(b) PERMITTED DISPARITY ALLOCATION. To the
employer contribution accounts of all par-
ticipants as follows:
(i) FIRST, PRO RATA, according to
the compensation paid to them
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by the employer during that
plan year, but not in excess of
three percent of compensation.
(ii) SECOND, any employer contribu-
tions remaining after the allo-
cation in (i) above will be
allocated to each participant's
account, PRO RATA, according to
the compensation paid to them
by the employer during that
plan year in excess of the
integration level (as specified
by the employer in the adoption
agreement), but not in excess
of three percent of such excess
compensation.
(iii) THIRD, any employer contribu-
tions remaining after the allo-
cations in (i) and (ii) above
will be allocated to each par-
ticipant's account, PRO RATA,
according to the sum of the
total compensation and the
compensation in excess of the
integration level paid to them
by the employer while they were
participants during that plan
year, but not in excess of the
maximum disparity rate (as de-
fined below) multiplied by the
sum of such compensation and
excess compensation.
(iv) FINALLY, any employer contribu-
tions remaining after the allo-
cations above will be allocated
to each participant's account,
PRO RATA, according to the com-
pensation paid to them by the
employer during that plan year.
If the employer has adopted this plan as a paired defined con-
tribution plan, only one of the plans may elect to allocate
employer contributions in accordance with subparagraph (b)
above. The maximum disparity rate shall be:
(i) 2.7% if the integration level is either:
(A) the taxable wage base under
Section 3121(a) of the Code as
in effect at the beginning of
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the plan year (the "TWB"); or
(B) not more than the greater of
$10,000 or 20% of the TWB;
(ii) 2.4% if the integration level is more
than 80% of the TWB but less than the
TWB; and
(iii) 1.3% if the integration level is:
(A) more than the greater of
$10,000 or 20% of the TWB; but
(B) not more than 80% of the TWB.
The integration level shall be equal to the taxable wage base
or such lesser amount elected by the employer in the adoption
agreement. The taxable wage base is the contribution and bene-
fit base in effect under Section 230 of the Social Security Act
at the beginning of the plan year. This plan may not provide
for permitted disparity if the employer maintains any other
plan that provides for permitted disparity and benefits any of
the same participants. A participant is treated as benefitting
under the plan for any plan year during which the participant
received or is deemed to receive an allocation in accordance
with Section 1.410(b)-3(a) of the Income Tax Regulations.
8.8. ALLOCATION AND CREDITING OF FORFEITURES. As of
the accounting date coincident with the end of the plan year in
which distribution of the participant's benefits occurs (or in
which the participant incurs five consecutive one-year breaks
in service, if earlier), the amount by which a participant's
accounts are reduced under subsection 10.2 (or subsection 19.5,
if applicable) on account of such participant's resignation or
dismissal from employment with the employer prior to becoming
fully vested in his accounts shall be a "forfeiture". Prior to
that date, all of a participant's accounts shall be subject to
adjustment under subsection 8.3. Forfeitures shall be applied
in one of the following methods, as specified by the employer
in the adoption agreement:
(a) Forfeitures shall be allocated and credited
to the employer contribution accounts of
participants as though they were additional
employer contributions (but not in excess
of the limitations of Section 415 of the
Code); or
(b) Forfeitures shall be applied first, to
reduce the amount of employer matching
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<PAGE> 44
contributions, if any, which are made pur-
suant to subsection 6.3 of the plan, and
then to reduce the employer contributions,
if any, which are made pursuant to subsec-
tion 6.1 of the plan.
In the event a participant is reemployed by an employer after
distribution of his benefits but before incurring five consecu-
tive one-year breaks in service, the provisions of subsection
14.3 shall apply.
8.9. CHARGING WITHDRAWALS AND DISTRIBUTIONS. All
withdrawals, payments, loan disbursements and distributions
made under the plan to or for the benefit of a participant or
his beneficiary shall be charged to the proper accounts of such
participant.
8.10. ROLLOVERS. At the direction of the adminis-
trator, and in accordance with such rules as the administrator
may establish from time to time, rollovers described in Section
402(c) of the Code, rollover contributions described in Section
408(d)(3) of the Code and benefits under another plan which
meets the requirements of Section 401(a) of the Code that are
attributable to an employee covered under subsection 3.1(c) of
the plan may be transferred to the trust fund and received by
the trustee. A rollover account will be established in the
name of each such employee in accordance with subparagraph
8.1(e) for rollovers or transfers made with respect to that em-
ployee. Except to the extent otherwise provided in the plan or
determined by the administrator, such rollover accounts shall
be subject to the same investment elections and the same ac-
counting, withdrawal, distribution and other provisions of this
plan as the other accounts of the employee, but no participant
or employer contributions made under this plan nor forfeitures
that arise under this plan shall be credited to such rollover
accounts. Rollovers, rollover contributions and benefits under
other qualified plans that are transferred to the trust fund
pursuant to this subsection shall be credited to the appropri-
ate participant rollover accounts. If the administrator deter-
mines to accept a direct or indirect transfer on behalf of an
employee from any defined benefit plan, any defined contribu-
tion plan subject to the funding standards of Section 412 of
the Code or any defined contribution plan that would require a
joint and survivor annuity or pre-retirement annuity under Sec-
tions 401(a)(11) and 417 of the Code with respect to that em-
ployee, the provisions of Section 11 shall apply.
8.11. STATEMENTS. At least once each year, the
administrator will furnish to each participant a statement
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<PAGE> 45
reflecting the condition of the participant's accounts in the
trust fund.
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<PAGE> 46
SECTION 9
---------
Investments
-----------
9.1. INVESTMENT OPTION SELECTION. If the employer
has specified in its adoption agreement that each participant
may select the investment options offered under the plan in
which his account balances and the contributions to be made by
him or on his behalf under the plan will be invested, the pro-
visions of this Section 9 shall be applicable. The employer
shall designate in the adoption agreement whether each partici-
pant in the plan may direct the investment option selection for
all accounts maintained on his behalf (and the contributions
made to such accounts) or only for those accounts specified by
the employer in the adoption agreement. Each participant, by
writing filed with the administrator at least 30 days (or such
shorter time period as may be established by the administrator)
prior to the first day as of which this Section is applicable,
may specify the percentage (in whole multiples of such percent-
ages as the employer specifies in its adoption agreement for
this purpose and not exceeding 100 percent) of the future con-
tributions to be made by him or on his behalf to be invested in
each of the investment options established under the trust, as
described in subsection 9.2. Each participant, by writing
filed with the administrator also may specify the percentage
(in whole multiples of such percentages as the employer speci-
fies in its adoption agreement and not exceeding 100 percent)
of his current account balances to be invested in each of the
investment options. Unless the administrator (with the consent
of the trustee) specifies otherwise, a participant may execute
separate investment elections with respect to his current ac-
count balances under the plan and the future contributions to
be made to the plan by him or on his behalf.
9.2. INVESTMENT OPTION SUBACCOUNTS. The administra-
tor will maintain subaccounts reflecting the portion of each
participant's compensation deferral contribution account, vol-
untary contribution account, participant rollover contribution
account, employer matching contribution account and employer
contribution account invested in one or more of the investment
options established under the trust, as agreed to by the em-
ployer and the trustee. If the employer so directs, an invest-
ment fund may be invested entirely in "qualifying employer
securities," as that term is defined in Section 407(d)(5) of
ERISA. The trustee shall invest such contributions and each
participant's account balances in an investment option or
options in accordance with the directions given the trustee by
the administrator, but shall have no obligation or duty to
verify the correctness of any such directions.
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<PAGE> 47
9.3. ELECTIONS TO CHANGE INVESTMENTS. As of each
valuation date (or such other date or dates as may be estab-
lished by the administrator with the consent of the trustee), a
participant may elect by writing filed with the administrator
at least 30 days (or such shorter time period as may be estab-
lished by the administrator) prior to the date as of which such
election is to be effective, and within the limits specified in
subsection 9.1:
(a) To select, based upon a percentage, total-
ling 100%, the investment option or options
in which the aggregate credit balance of
his subaccounts are to be redistributed;
and
(b) Except as provided in the last sentence of
subsection 9.1, to change his direction
with respect to the investment of any con-
tributions made by him or for his benefit
after such date.
Unless a participant elects to change his investment direction
with respect to his account balances and contributions made to
him or on his behalf, such contributions and account balances
will be invested in accordance with the investment directions
last filed with the administrator. During any period in which
no direction as to the investment of contributions made by a
participant or for his benefit, or the participant's account
balances, is in effect with respect to the participant, such
contributions and the participant's account balances will be
invested in such manner as the administrator may determine.
9.4. ACCOUNTING FOR INVESTMENTS. In the event a
participant directs the transfer of his account balances from
one investment option to another investment option, the partic-
ipant's subaccount invested in the investment option from which
such transfer is made will be charged with the amount trans-
ferred, and the subaccount invested in the investment option to
which such transfer is made shall be credited with the amount
so transferred as of the effective date of such transfer. Any
forfeiture allocated to a participant's employer matching or
contribution account in accordance with subsection 8.8 will be
invested in the same manner as specified in the participant's
current investment election as to future contributions.
9.5. PARTICIPANT DIRECTED BROKERAGE ACCOUNTS. If
one of the investment options established under the plan is a
participant directed brokerage account, the trustee shall make
purchases or sales of property for a participant directed
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<PAGE> 48
brokerage account as the participant directs in writing. How-
ever, pending investment of his account, the trustee may invest
any portion of the assets in a participant's account which is
held in cash or cash equivalents in short term fixed income
investments. A participant shall be entitled to give orders
directly to a broker for the purchases and sale of securities.
A participant may not require the trustee to:
(a) enter into a general partnership or a joint
venture;
(b) engage in a transaction with respect to
commodities;
(c) acquire any property that will be subject
to acquisition or other indebtedness;
(d) acquire any securities other than those
listed on a recognized national exchange or
quoted by the National Association of Secu-
rities Dealers automatic quotation system;
(e) write or acquire any option with respect to
property of any kind;
(f) acquire any real property in violation of
local laws on the holding of such property
or acquire any non-commercial real
property;
(g) acquire any franchise or similar right or
property; or
(h) engage in any transaction that the trustee
in good faith believes to be a transaction
prohibited by ERISA.
Each participant shall indemnify and hold the employer, the
administrator and the trustee harmless from and against any and
all claims, obligations, liabilities, costs and expenses (in-
cluding reasonable attorneys' fees) arising from any investment
direction given by the participant in accordance with this sub-
section 9.5. Notwithstanding the provisions of the trust, all
expenses incurred in connection with the sale, investment and
reinvestment of assets in accordance with this subsection 9.5
(including, but not limited to custodial, maintenance, invest-
ment management, brokerage, postage, express and insurance
charges, and transfer taxes) shall be charged to the appropri-
ate accounts of participants who elect to direct investment of
their accounts. By writing filed with the trustee, a partici-
pant may direct the trustee to liquidate all the assets held
subject to his individual direction at fair market value (as
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<PAGE> 49
determined by the trustee after consulting with the partici-
pant). The amount realized by the trustee shall be credited to
the participant's accounts under the plan and shall thereafter
be invested and reinvested by the trustee in accordance with
the applicable provisions of the trust agreement.
9.6. INVESTMENT RESTRICTIONS. No assets of the
trust may be invested in "collectibles" as that term is defined
in Section 408(m) of the Code. If the sponsor consents, life
insurance contracts may be held for a participant, subject to
the following provisions of this subsection 9.6. For purposes
of this subsection, ordinary life insurance contracts are con-
tracts with both nondecreasing death benefits and nonincreasing
premiums. If such contracts are held, less than of the
aggregate employer contributions allocated to any participant
will be used to pay the premiums attributable to them. No more
than of the aggregate employer contributions allocated to any
participant 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.
The sum of the ordinary life insurance premiums and all
other life insurance premiums will not exceed of the aggre-
gate employer contributions allocated to any participant. Sub-
ject to the survivor annuity requirements of Section 11, the
contracts on a participant's life will be converted to cash or
an annuity or distributed to the participant upon commencement
of benefits. The trustee shall apply for and will be the owner
of any insurance contract held under the terms of this plan.
The insurance contract(s) must provide that proceeds will be
payable to the trustee; however, the trustee shall be required
to pay over all proceeds of the contract(s) to the partici-
pant's designated beneficiary in accordance with the distribu-
tion 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 11, if applicable. Under no circumstances shall the
trust 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. Any dividends or credits earned on insurance
contracts will be allocated to the participant's account
derived from employer contributions for whose benefit the
contract is held.
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<PAGE> 50
SECTION 10
----------
Payment of Account Balances
---------------------------
10.1. RETIREMENT OR DEATH. If a participant's set-
tlement date occurs under subparagraph 7.1(a), (b) or (c) on
account of his retirement, disability or death, his entire ac-
count balance will be fully vested and nonforfeitable and will
be payable under subsection 10.3 or 10.4.
10.2. RESIGNATION OR DISMISSAL. If a participant's
settlement date occurs under subparagraph 7.1(d) on account of
his resignation or dismissal, his account balances, reduced in
certain cases as required below, will be payable under subsec-
tion 10.3 (or 10.4 if the participant dies before the commence-
ment of his benefits). If at the date the participant's em-
ployment terminates the participant has not been a participant
in the plan for his applicable "vesting period" (as defined
below), the participant's employer matching contribution ac-
count balance and employer contribution account balance as of
his settlement date (after any adjustments then required) will
be reduced to an amount equal to the "vested percentage" (as
defined below) of such balances, except as otherwise provided
in the next sentence. A participant's applicable "vesting
period" is the applicable vesting period as specified by the
employer in the adoption agreement, based on his years of ser-
vice with his employer. Except as may be required under sub-
section 19.5, of the plan, the "vested percentage" of a partic-
ipant in his employer contribution and employer matching con-
tribution account balances will be the percentage specified by
the employer in the adoption agreement for this purpose. A
participant's interests in his compensation deferral contribu-
tion account, voluntary contribution account and participant
rollover account (and employer contribution account, to the
extent employer contributions are utilized to satisfy the ADP
test under subsection 4.5 or the ACP test under subsection 4.6)
shall be fully vested and nonforfeitable at all times. If the
employer has specified under subsection 3.1 that two years of
service are required for eligibility purposes, the vested per-
centage of all participant accounts shall be one hundred per-
cent.
10.3. MANNER OF DISTRIBUTION. Subject to the provi-
sions of this Section 10 and Section 11, after each partici-
pant's settlement date, distribution of the net credit balances
in the participant's accounts, after all required adjustments
have been completed, will be made to the participant by payment
in a lump sum, unless the employer has specified in the adop-
tion agreement that a participant may elect to receive payment
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<PAGE> 51
in a series of substantially equal annual, semi-annual, quar-
terly or monthly installments, or unless the joint and survivor
provisions of Section 11 apply because the employer has adopted
this plan as a money purchase pension plan or because the em-
ployer has adopted this plan as a profit sharing plan and has
elected in the adoption agreement to provide a joint and sur-
vivor annuity form of payment. If the participant may elect
the form of payment, then his account balances will be paid to
him (or, in the event of his death, to his spouse or designated
beneficiary) in accordance with such election. If the partici-
pant has not filed the appropriate election with the adminis-
trator (or if such election is not permitted), his account bal-
ance will be paid in a lump sum, subject to the provisions of
Section 11, if applicable. If the participant's interest is to
be distributed in other than single sum, the following minimum
distribution rules shall apply on or after the required begin-
ning date to determine the amount to be distributed each year:
(a) If a participant's benefit is to be dis-
tributed over (i) a period not extending
beyond the life expectancy of the partici-
pant or the joint life and last survivor
expectancy of the participant and the par-
ticipant's designated beneficiary or (ii) a
period not extending beyond the life
expectancy of the designated beneficiary,
the amount required to be distributed for
each calendar year, beginning with distri-
butions 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) The amount to be distributed each year,
beginning with distributions for the first
distribution calendar year shall not be
less than the quotient obtained by dividing
the participant's benefit by the lesser of
(i) the applicable life expectancy, or (ii)
if the participant's spouse is not the
designated beneficiary, the applicable
divisor determined from the table set forth
in Q&A-4 of Section 1.401(a)(9)-2 of the
Income Tax Regulations. Distributions
after the death of the participant shall be
distributed using the applicable life ex-
pectancy in (a) above as the relevant divi-
sor without regard to Regulations Section
1.401(a)(9)-2.
(c) The minimum distribution required for the
participant's first distribution calendar
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<PAGE> 52
year must be made on or before the partici-
pant's required beginning date. The mini-
mum distribution for other calendar years,
including the minimum distribution for the
distribution calendar year in which the
participant's required beginning date
occurs, must be made on or before December
31 of that distribution calendar year.
10.4. DEATH DISTRIBUTION PROVISIONS. If the partic-
ipant dies after distribution of the participant's interest has
begun, the remaining portion of such interest will continue to
be distributed at least as rapidly as under the method of dis-
tribution being used prior to the participant's death. If a
participant dies prior to the commencement of his benefit pay-
ments under the plan, his account balances will be distributed
in a lump sum, unless the employer has specified in the adop-
tion agreement that distributions may be made by installment
payments and the participant has elected payment in that form
to his spouse or other beneficiary, as provided in subsection
10.8, or unless the provisions of Section 11 apply. If the
participant dies before distribution of his or her interest
begins, 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, except that, if
installment payments may be elected, as specified by the em-
ployer in the adoption agreement, an election may be made to
receive distributions in accordance with (a) or (b) below:
(a) if any portion of the participant's inter-
est is payable to a designated beneficiary,
distributions may be made over the life of,
or over a period certain not greater than
the life expectancy of, the designated ben-
eficiary, 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 par-
ticipant's surviving spouse, the date dis-
tributions are required to begin in accor-
dance 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 died
and (2) December 31 of the calendar year in
which the participant would have attained
age 70-1/2.
If elections are permitted, but the participant has not made an
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election pursuant to this subsection by the time of his 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 subsection, 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 bene-
ficiary, or if the designated beneficiary does not elect a
method of distribution (or the adoption agreement does not per-
mit elections), distribution of the participant's entire inter-
est must be completed by December 31 of the calendar year con-
taining the fifth anniversary of the participant's death. If
the surviving spouse dies after the participant, but before
payments to such spouse begin, the provisions of (a) above
shall be applied as if the surviving spouse were the partici-
pant. For purposes of this subsection, 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.
For purposes of this subsection, distribution of a partici-
pant's interest is considered to begin on the participant's
required beginning date (or the date distribution is required
to begin to the surviving spouse pursuant to (b) above).
10.5. COMMENCEMENT OF DISTRIBUTIONS. Except as
provided below in this subsection, payment of a participant's
benefits will be made (or installment payments will commence)
within a reasonable time after his settlement date, but not
later than 60 days after the latest of (a) the end of the plan
year in which a participant attains normal retirement age, (b)
the end of the plan year in which the participant terminates
his employment with the employer, or (c) such later date on
which the amount of the payment can be ascertained by the
administrator. Distribution of a participant's benefits shall
be made (or installment payments shall commence) no later than
the participant's required beginning date as defined in sub-
paragraph 10.11(d). Notwithstanding the foregoing, if a par-
ticipant has elected, by filing a written designation with the
administrator prior to January 1, 1984, to have distribution of
his benefits commence in accordance with the terms of a pre-
decessor plan as in effect immediately preceding January 1,
1984, then distribution of such participant's benefits will be
made in accordance with that designation, unless revoked by the
participant, except that, 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 Income Tax Regulations.
10.6. DISTRIBUTION REQUIREMENTS. All distributions
required under this Section shall be determined and made in
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<PAGE> 54
accordance with the Income Tax Regulations under Section
401(a)(9), including the minimum distribution incidental bene-
fit requirement of Section 1.401(a)(9)-2 of the regulations.
The entire interest of a participant must be distributed or
begin to be distributed no later than the participant's requir-
ed beginning date. As of the first distribution calendar year,
distributions, if not made in a single-sum, may only be made
over one of the following periods (or a combination thereof):
(a) the life of the participant,
(b) the life of the participant and a desig-
nated beneficiary,
(c) a period certain not extending beyond the
life expectancy of the participant, or
(d) a period certain not extending beyond the
joint and last survivor expectancy of the
participant and a designated beneficiary.
10.7. CONSENT TO DISTRIBUTION. If a participant's
settlement date occurs and the value of the participant's vest-
ed account balance derived from employer and employee contribu-
tions is not greater than $3,500, the participant will receive
a distribution of the value of the entire vested portion of
such account balance and the nonvested portion will be treated
as a forfeiture. For purposes of this subsection, if the value
of a participant's vested account balance is zero, the partici-
pant shall be deemed to have received a distribution of such
vested account balance. If a participant's settlement date
occurs and the participant elects, in accordance with the re-
quirements below, to receive the value of his vested account
balance, the nonvested portion will be treated as a forfeiture.
If a participant receives or is deemed to receive a distribu-
tion pursuant to this subsection and the participant resumes
employment covered under this plan, the participant's employer-
derived account balance may be restored pursuant to subsection
14.3.
If the value of participant's vested account balance derived
from employer and employee contributions exceeds (or at the
time of any prior distribution exceeded) $3,500, and the ac-
count balance is immediately distributable, the participant
must consent to any distribution of such account balance. The
consent of the participant shall be obtained in writing within
the 90-day period ending on the date proposed for distribution.
An account balance is immediately distributable if any part of
the account balance could be distributed to the participant
before the participant attains age 65. The administrator shall
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notify the participant of the right to defer any distribution
until the participant's account balance is no longer immedi-
ately 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 re-
quirements of Code Section 417(a)(3), and shall be provided no
less than 30 days and no more than 90 days prior to the date
proposed for distribution.
The consent of the participant shall not be required to the
extent that a distribution is required to satisfy Section
401(a)(9) or Section 415 of the Code. In addition, upon termi-
nation of this plan, the participant's account balance may,
without the participant's consent, be distributed to the par-
ticipant 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. Notwithstanding the foregoing, the failure of a partic-
ipant to consent to a distribution while a benefit is immedi-
ately distributable, within the meaning of this subsection,
shall be deemed to be an election to defer commencement of
payment of any benefit sufficient to satisfy this subsection.
If a distribution is one to which Sections 401(a)(11) and 417
of the Code do not apply, such distribution may commence less
than 30 days after the notice required under Section
1.411(a)-11(c) of the Income Tax Regulations is given, provided
that:
(a) The administrator clearly informs the par-
ticipant that the participant has a right
to a period of at least 30 days after re-
ceiving the notice to consider whether or
not to elect a distribution (and, if appli-
cable, a particular distribution option),
and
(b) the participant, after receiving the no-
tice, affirmatively elects a distribution.
10.8. BENEFICIARY DESIGNATION. Each participant
from time to time, by signing a form furnished by the adminis-
trator, may designate any person or persons (who may be desig-
nated contingently or successively) to whom his account balanc-
es under the plan are to be paid if he dies before he receives
all of such account balances. Each beneficiary designation
form signed by a participant will be effective only when filed
with the administrator and when so filed will cancel all such
beneficiary designation forms signed earlier. Notwithstanding
the foregoing, if a deceased participant is survived by his
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spouse, such spouse automatically shall be his sole primary
beneficiary unless the participant has designated another per-
son or persons as his primary, sole or co-beneficiary and the
surviving spouse has consented thereto. Such consent by a sur-
viving spouse shall be in writing filed with the administrator,
shall acknowledge the effect of such designation and shall be
witnessed by the administrator or a notary public. If a par-
ticipant dies without leaving a surviving spouse or having
failed to designate a beneficiary as provided above or if his
spouse or designated beneficiary dies before him or before com-
plete distribution of his account balances, the administrator
in its discretion may direct the trustee to pay the partici-
pant's account balances to either:
(a) one or more of the participant's relatives
by blood or marriage and in such propor-
tions as the administrator determines; or
(b) the legal representative or representatives
of the estate of the last to die of the
participant and his designated beneficiary.
The phrase "designated beneficiary" means the person or persons
designated by a participant as his beneficiary in the last
effective beneficiary designation form filed with the adminis-
trator under this subsection and to whom a deceased partici-
pant's account balances are payable under the plan. The term
"beneficiary" means the natural or legal person or persons to
whom a deceased participant's account balances are payable
under this subsection. No beneficiary may designate another
beneficiary.
10.9. MISSING PARTICIPANTS OR BENEFICIARIES. Each
participant must file with the administrator from time to time
in writing his and his designated beneficiary's post office
address and each change of any such address. If a participant
dies before he receives all of his benefits under the plan, his
beneficiary must file any change in his post office address
with the administrator. A communication, statement or notice
addressed to a participant or beneficiary at his last post
office address filed with the administrator or shown on his
employer's records, will be binding on the participant and his
beneficiary for all purposes of the plan. If the administrator
notifies the participant or his beneficiary that he is entitled
to a payment and also notifies him of this subsection, and the
participant or beneficiary fails to claim his benefits or make
his whereabouts known to the administrator within three years
after the notification, the account of the participant or bene-
ficiary will be disposed of as follows:
(a) If the whereabouts of the participant's
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designated beneficiary then is known to the
administrator, payment or distribution will
be made to the designated beneficiary;
(b) If the whereabouts of his designated bene-
ficiary then is unknown to the administra-
tor but the whereabouts of one or more
relatives by blood, marriage or adoption of
the participant is known to the adminis-
trator, payment or distribution will be
made to one or more of such relatives and
in such proportions as the administrator
decides; or
(c) If the whereabouts of all of such relatives
and the participant's designated beneficia-
ry then is unknown to the administrator,
the accounts of the participant or benefi-
ciary will become a forfeiture and will be
allocated and credited in accordance with
subsection 8.8; provided that, if the
whereabouts of the participant or desig-
nated beneficiary later becomes known to
the administrator, the amount of the ac-
counts shall be restored to such partici-
pant or beneficiary. The amount to be
restored shall come first from forfeitures,
then from a special employer contribution
and finally from income and gains of the
trust fund in the manner described in sub-
section 14.3 of the plan.
10.10. FACILITY OF PAYMENT. When, in the opinion of
the administrator, a participant or beneficiary is under a
legal disability or is incapacitated in any way so as to be
unable to manage his financial affairs, the administrator may
direct the trustee to make payments to the participant or his
beneficiary or his legal representative.
10.11. DEFINITIONS. For purposes of this Section
10, the following terms shall have the following meanings:
(a) Applicable life expectancy. The life ex-
pectancy (or joint and last survivor expec-
tancy) calculated using the attained age of
the participant (or designated beneficiary)
as of the participant's (or designated ben-
eficiary's) birthday in the applicable cal-
endar year reduced by one for each calendar
year which has elapsed since the date life
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expectancy was first calculated. The
applicable calendar year shall be the first
distribution calendar year. If payments
commence before the required beginning
date, the applicable calendar year is the
year such payments commence.
(b) 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 sub-
section 10.4 above) by the time distribu-
tions are required to begin, life expec-
tancies shall not be recalculated annually.
Such election shall be irrevocable and
shall apply to all subsequent years. The
life expectancy of a nonspouse beneficiary
may not be recalculated.
(c) Distribution calendar year. A calendar
year for which a minimum distribution is
required. For distributions beginning
before the participant's death, the first
distribution calendar year is the calendar
year immediately preceding the calendar
year which contains the participant's re-
quired 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 subsec-
tion 10.5.
(d) Required beginning date. 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. The re-
quired beginning date of a participant who
attains age 70-1/2 before January 1988,
shall be determined in accordance with (1)
or (2) below:
(i) Non-5-percent-owners. The
required beginning date of a
participant who is not a 5-per-
cent owner is the first day of
April of the calendar year fol-
lowing the calendar year in
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which the later of retirement
or attainment of age 70-1/2
occurs.
(ii) 5-percent owners. The required
beginning date of a participant
who is a 5-percent owner during
any year beginning after Decem-
ber 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 be-
comes a 5-percent owner, or the
calendar year in which the par-
ticipant retires.
The required beginning date of a partici-
pant who is not a 5-percent owner who
attains age 70-1/2 during 1988 and who has
not retired as of January 1, 1989 is April
1, 1990. A participant is treated as a
5-percent owner for purposes of this sub-
section if such participant is a 5-percent
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. Once distri-
butions have begun to a 5-percent owner
under this subsection, they must continue
to be distributed, even if the participant
ceases to be a 5-percent owner in a subse-
quent year.
(e) Participant's benefit. The account balance
as of the last valuation date in the calen-
dar year immediately preceding the distri-
bution calendar year (valuation calendar
year) increased by the amount of any con-
tributions or forfeitures allocated to the
account balance as of dates in the valua-
tion calendar year after the valuation date
and decreased by distributions made in the
valuation calendar year after the valuation
date. However, if any portion of the mini-
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mum distribution for the first distribution
calendar year is made in the second distri-
bution calendar year on or before the re-
quired 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.
10.12. DISTRIBUTION TO ALTERNATE PAYEES. The admin-
istrator may direct the trustee to distribute benefits to an
alternate payee on the earliest date specified in a qualified
domestic relations order, without regard to whether such dis-
tribution is made or commences prior to the participant's ear-
liest retirement age (as defined in Section 414(p)(4)(B) of the
Code) or the earliest date that the participant could commence
receiving benefits under the plan.
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SECTION 11
----------
Joint and Survivor Annuity Requirements
---------------------------------------
11.1. QUALIFIED JOINT AND SURVIVOR ANNUITY. The
provisions of this Section shall apply to any participant who
is credited with at least one hour of service with the employer
on or after August 23, 1984, and such other participants as
provided in subsection 11.6. Unless the participant selects an
optional form of benefit 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 re-
tirement age under the plan. A "qualified joint and survivor
annuity" is an immediate annuity for the life of the partici-
pant with a survivor annuity for the life of the spouse which
is not less than 50 percent and not more than 100 percent 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%. A "life annuity" is an immediate annu-
ity payable in equal installments for the life of the partici-
pant that terminates upon the participant's death. Any annuity
contract distributed from the plan must be nontransferable.
The terms of any annuity contract purchased and distributed by
the plan to a participant or spouse shall comply with the
requirements of the plan.
11.2. QUALIFIED PRERETIREMENT SURVIVOR ANNUITY.
Unless the participant selects an optional form of benefit
within the election period pursuant to a qualified election, if
a participant dies before the annuity starting date, the par-
ticipant'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.
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<PAGE> 62
11.3. DEFINITIONS.
-----------
(a) 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.
(b) Pre-age 35 waiver: A participant who will
not yet attain age 35 as of the end of any
current plan year may make a special quali-
fied election to waive the qualified prere-
tirement 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 subsection
11.4. 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.
(c) Qualified election: A waiver of a quali-
fied joint and survivor annuity or a quali-
fied preretirement survivor annuity. Any
waiver of a qualified joint and survivor
annuity or a qualified preretirement survi-
vor annuity shall not be effective unless:
(i) the participant's spouse consents in
writing to the election; (ii) the election
designates a specific beneficiary, includ-
ing any class of beneficiaries or any con-
tingent beneficiaries, which may not be
changed without spousal consent (or the
spouse expressly permits designations by
the participant without any further spousal
consent); (iii) the spouse's consent
acknowledges the effect of the election;
and (iv) the spouse's consent is witnessed
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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 desig-
nates 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 con-
sent of a spouse may not be obtained) shall
be effective only with respect to such
spouse. A consent that permits designa-
tions by the participant without any re-
quirement of further consent by such spouse
must acknowledge that the spouse has the
right to limit consent to a specific bene-
ficiary, and a specific form of benefit
where applicable, and that the spouse vol-
untarily 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 partic-
ipant has received notice as provided in
subsection 11.4 below.
(d) Spouse (surviving spouse): The spouse or
surviving spouse of the participant, pro-
vided 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 rela-
tions order as described in Section 414(p)
of the Code.
(e) Annuity starting date: The first day of
the first period for which an amount is
paid as an annuity or in any other form.
(f) Vested account balance: The aggregate
value of the participant's vested account
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<PAGE> 64
balances derived from employer and employee
contributions (including rollovers), wheth-
er vested before or upon death, including
the proceeds of insurance contracts, if
any, on the participant's life. The provi-
sions of this Section shall apply to a par-
ticipant who is vested in amounts attrib-
utable to employer contributions, employee
contributions (or both) at the time of
death or distribution.
11.4. NOTICE REQUIREMENTS. In the case of a quali-
fied joint and survivor annuity, the administrator shall pro-
vide each participant, no less than 30 days and no more than 90
days prior to the annuity starting date, a written explanation
of: (i) the terms and conditions of a qualified joint and sur-
vivor annuity; (ii) the participant's right to make and the
effect of an election to waive the qualified joint and survivor
annuity form of benefit; (iii) the rights of a participant's
spouse; and (iv) the right to make, and the effect of, a revo-
cation of a previous election to waive the qualified joint and
survivor annuity.
In the case of a qualified preretirement survivor annuity as
described in subsection 11.2, the administrator shall provide
each participant, within the applicable period for such partic-
ipant, 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 require-
ments of the preceding paragraph applicable to a qualified
joint and survivor annuity. The applicable period for a par-
ticipant is whichever of the following periods ends last: (i)
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 partici-
pant attains age 35; (ii) a reasonable period ending after the
individual becomes a participant; (iii) a reasonable period
ending after subsection 11.5 ceases to apply to the partici-
pant; or (iv) a reasonable period ending after this subsection
first applies to the participant. Notwithstanding the forego-
ing, 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 (ii),
(iii) and (iv) 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 he attains
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<PAGE> 65
age 35, 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.
11.5. EXCEPTIONS TO NOTICE REQUIREMENTS. Notwith-
standing the provisions of subsection 11.4, the respective
notices prescribed by that subsection need not be given to a
participant if the plan (1) "fully subsidizes" the costs of a
qualified joint and survivor annuity or qualified preretirement
survivor annuity, (2) does not allow the participant to waive
the qualified joint and survivor annuity or qualified prere-
tirement survivor annuity, and (3) does not allow a married
participant to designate a nonspouse beneficiary. For purposes
of this subsection 11.5, 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.
11.6. SAFE HARBOR RULES. This subsection 11.6,
which provides an exception to the joint and survivor annuity
requirement for certain profit sharing plans, shall apply to a
participant in a profit sharing plan, and to any distribution,
made on or after the first day of the first plan year beginning
after December 31, 1988, from or under a separate account at-
tributable solely to accumulated deductible employee contribu-
tions, as defined in Section 72(o)(5)(B) of the Code, and main-
tained on behalf of a participant in a money purchase pension
plan, (including a target benefit plan) if the following condi-
tions are satisfied: (i) the participant does not or cannot
elect payments in the form of a life annuity; and (ii) on the
death of a participant, the participant's vested account bal-
ance 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 Section 8 of the plan. This
subsection 11.6 shall not be operative with respect to a par-
ticipant 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, or if the em-
ployer has specified in the adoption agreement that the joint
and survivor annuity shall be the normal form of payment under
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the plan. If this subsection 11.6 is operative, then the pro-
visions of this Section 11, other than this subsection 11.6,
shall be inoperative. Notwithstanding the foregoing:
(a) The participant may waive the spousal death
benefit described in this subsection at any
time provided that no such waiver shall be
effective unless it satisfies the condi-
tions of subsection 11.3 (other than the
notification requirement referred to there-
in) that would apply to the participant's
waiver of the qualified preretirement sur-
vivor annuity.
(b) For purposes of this subsection 11.6, vest-
ed account balances shall mean, in the case
of a money purchase pension plan or a tar-
get benefit plan, the participant's sepa-
rate account balance attributable solely to
accumulated deductible employee contribu-
tions 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
subsection 11.3.
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SECTION 12
----------
Withdrawals and Distributions During Employment
-----------------------------------------------
12.1. WITHDRAWAL OF VOLUNTARY PARTICIPANT CONTRIBU-
TIONS. A participant may elect to withdraw all or any portion
of the net credit balance in his voluntary contribution ac-
count. Each election by a participant under this subsection
12.1 shall be made by filing the election form furnished by the
administrator at least 30 days (or such shorter time period as
may be established by the administrator) prior to the date as
of which such withdrawal is to be effective. If the provisions
of Section 11 are applicable to a participant, then such par-
ticipant's election to withdraw his voluntary contributions
shall not be effective unless the participant's spouse consents
to the withdrawal in writing in the manner described in subsec-
tion 11.3. Such consent shall acknowledge the form of payment,
the effect of the withdrawal and be witnessed by a plan repre-
sentative or a notary public.
12.2. PRE-TERMINATION DISTRIBUTIONS. If the employ-
er has adopted this plan as a profit sharing plan and specified
in its adoption agreement that pre-termination distributions
may be made from the plan, this subsection shall be applicable.
Subject to the provisions of Section 11, as of any accounting
date, a participant who has attained age 59-1/2 (or has met
such other requirements as are specified by the employer in the
adoption agreement) and is fully vested in all of his account
balances may irrevocably elect to withdraw all or any portion
of such account balances (after any adjustments required under
the plan have been made), except that, a participant who has
not attained age 59 1/2 may not withdraw amounts from his compen-
sation deferral contribution accounts nor any employer contri-
butions (and earnings thereon) that are treated as qualified
matching contributions or qualified nonelective contributions
under the plan. Each election under this subsection 12.2 shall
be made by filing the election form furnished by the adminis-
trator at least 30 days (or such shorter time period as may be
established by the administrator) before the date as of which
such withdrawal is to be effective. All pre-termination dis-
tributions under this subsection shall be distributed in a
single payment (including amounts, if any, which are withdrawn
from an investment fund investing in employer securities), and
if the participant's accounts are invested in various invest-
ment options pursuant to Section 9, withdrawal shall be made
pro rata, from all investment option subaccounts.
12.3. CHARGING AND PAYMENT OF WITHDRAWALS. All
withdrawals by a participant under this Section 12 shall be
charged to the appropriate account of the participant, and to
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his interest in the investment options designated by the par-
ticipant if the participant is allowed to select investment
options, in accordance with such rules as the administrator may
establish. In the absence of investment option designations by
a participant, withdrawals shall be charged in accordance with
such rules as shall be established by the administrator. In
determining the amount any participant may withdraw under this
Section 12, any unpaid loan or loans theretofore made to the
participant under subsection 12.4 shall be taken into account.
Withdrawals under this Section 12 shall be paid to the partici-
pant as soon as practicable after all plan accounting required
on or before such withdrawal is completed. Withdrawals from a
participant's accounts must occur in the following order:
(a) FIRST, the participant's voluntary contri-
butions made prior to January 1, 1987 from
the subaccount under the participant's
voluntary contribution account which is
attributable to such contributions;
(b) NEXT, the participant's voluntary contribu-
tions made on and after January 1, 1987 and
the interest, earnings and appreciation
thereon, from the subaccount under the par-
ticipant's voluntary contribution account
which is attributable to such contribu-
tions;
(c) NEXT, the interest, earnings and apprecia-
tion on the participant's voluntary contri-
butions made prior to January 1, 1987 from
the remainder of the subaccount attribut-
able to such contributions; and
(d) FINALLY, the participant's remaining ac-
counts under the plan, subject to the limi-
tations of subsections 12.2 and 12.5.
No forfeitures will occur solely as a result of a participant's
withdrawal of compensation deferral or voluntary contributions.
12.4. LOANS TO PARTICIPANTS. While it is the pri-
mary purpose of the plan to accumulate funds for participants
when they retire, it is recognized that under some circum-
stances it is in the best interests of participants to permit
loans to be made to them while they continue in the active ser-
vice of the employer. Accordingly, if the employer has so
specified in its adoption agreement, the administrator, pursu-
ant to such rules and procedures as it may from time to time
establish, and upon written application by a participant sup-
ported by such evidence as the administrator requests, may
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direct the trustee to make a loan to a participant from his
accounts in the trust fund. Loans shall be made available to
all participants on a reasonably equivalent basis and shall be
subject to the following rules:
(a) Subject to the limitations below, the prin-
cipal amount of any loan made to a partici-
pant, when added to the outstanding balance
of all other loans made to the participant
from all qualified plans maintained by the
employer or a related employer, shall not
exceed the lesser of:
(i) $50,000, reduced by the excess
(if any) of the highest out-
standing balance during the
one-year period ending
immediately preceding the date
of the loan, over the outstand-
ing balance on the date of the
loan, of all such loans from
all such plans; or
(ii) 50 percent of the participant's
vested account balances under
the plan.
(b) Each loan must be evidenced by a written
note in a form approved by the administra-
tor, and shall bear interest at a reason-
able rate. If the administrator does not
specify a procedure for determining a rea-
sonable rate of interest, the applicable
rate will be the reference rate in effect
at the sponsor on the date the loan is
made.
(c) Each loan shall specify a repayment period
determined by the administrator in a uni-
form and nondiscriminatory manner, but not
in excess of five years. However, the five
year limit shall not apply to any loan used
to acquire any dwelling unit which within a
reasonable time is to be used (determined
at the time the loan is made) as the prin-
cipal residence of the participant.
(d) In the event of default, foreclosure on the
note and attachment of security will not
occur until a distributable event occurs
under the plan.
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(e) No loans will be made to a shareholder-
employee, or to an owner-employee (as
defined in subsection 2.7). 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 five percent of the outstanding stock
of the corporation.
(f) Principal and interest on each loan shall
be repaid on a substantially level basis
(no less frequently than quarterly) by
payroll withholding or in a single lump sum
prepayment, and shall be credited to the
accounts and investment option subaccounts
of the participant in accordance with his
current investment election as to future
contributions. Except as provided in the
preceding sentence, partial repayments will
not be permitted.
(g) Loans shall not be made available to highly
compensated employees (as defined in sub-
section 2.12) in an amount greater than the
amount made available to other employees.
Loans will be approved or denied based on
the credit worthiness of the
participant/applicant and the liquidity of
the trust fund.
(h) The employer or administrator shall adopt
and publish a procedure governing the
application for and processing of partic-
ipant loans.
(i) If the provisions of Section 11 are appli-
cable to any participant in this plan, then
the consent of such participant's spouse
must be obtained as to any loan, in the
manner described in subsection 11.3.
Spousal consent shall be obtained no ear-
lier than the beginning of the 90-day
period ending on the date of the loan, 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
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subsequent spouse with respect to that
loan; but a new consent shall be required
if the account balances are used for rene-
gotiation, extension, renewal or other
revisions of the loan.
The employer or administrator shall specify the accounts from
which a loan to a participant can be made; and also shall spec-
ify whether any such loan shall be drawn, PRO RATA, from the
vested portion of each of the participant's specified accounts
(and subaccounts, if any) or the hierarchy of accounts from
which such loans will be drawn. No loan shall exceed the pres-
ent value of a participant's nonforfeitable account balances.
Any loan made under the plan or a predecessor plan on or before
December 31, 1986 shall be governed by the terms of the plan or
the predecessor plan in effect on or before that date. Any
loan made under the plan or a predecessor plan after December
31, 1986 (including any renegotiation, extension, revision or
renewal after that date of a loan made on or before that date)
shall be subject to the foregoing limitations of this subsec-
tion 12.4. If on a participant's settlement date (including
for this purpose the date a distribution is to be made to a
participant under subsection 12.2), any loan or portion of a
loan made to him under the plan, together with the accrued
interest thereon, remains unpaid, an amount equal to such loan
or any part thereof, together with the accrued interest there-
on, shall be charged to the participant's accounts after all
other adjustments required under the plan, but before any dis-
tribution pursuant to subsections 10.3, 10.4, and 12.2 and such
amount shall be deemed distributed to the participant at that
time, subject to applicable law. In the event of a default by
the participant prior to the participant's settlement date
(e.g., a failure to make timely repayments), the amount of the
loan, together with any accrued interest thereon, may be deemed
distributed. In no event shall a loan to a participant be
secured by an interest in the participant's residence.
12.5. HARDSHIP WITHDRAWALS. If the employer has so
provided in the adoption agreement, a participant, in accor-
dance with such rules and procedures as the administrator may
from time to time establish, may elect to withdraw all or any
portion of the sum of (a) the lesser of the compensation defer-
ral contributions in his compensation deferral contribution
account (including investment earnings credited to such account
before 1989), or his total compensation deferral contribution
account balance (determined as of the preceding accounting
date), plus (b) the compensation deferral contributions with-
held by the employer but not yet credited to the participant's
compensation deferral contribution account. A participant may
not withdraw any portion of the investment earnings on his com-
pensation deferral contribution account that are credited to
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such account after 1988. Such a withdrawal must be necessary
because of a hardship causing immediate and heavy financial
needs on the participant, and the participant previously must
have withdrawn the entire net credit balance, if any, in his
voluntary contribution account. Such a withdrawal shall not
exceed the amount required to meet such immediate financial
need and not reasonably available from other resources of the
participant, and shall not exceed the balance of such account
as of the valuation date coincident with or next preceding the
date of withdrawal (reduced by the remaining principal and
interest of any outstanding loan made to the participant under
subsection 12.4 above). Each election under this subsection
12.5 shall be made by filing the election form furnished by the
administrator at such time and in such manner as the adminis-
trator shall determine, and shall be effective in accordance
with such rules as may be required by Internal Revenue Service
regulations and as the administrator may establish from time to
time. The following are the only financial needs considered
immediate and heavy: expenses incurred or necessary for medi-
cal care (within the meaning of Section 213(d) of the Code) of
the participant, the participant's spouse, or dependents; the
purchase (excluding mortgage payments) of a principal residence
for the participant; payment of tuition and related educational
fees for the next twelve months of post-secondary education for
the participant, the participant's spouse, children, or depen-
dents; or the need to prevent the eviction of the participant
from, or a foreclosure on the mortgage of, the participant's
principal residence; and amounts reasonably determined by the
administrator to be necessary to pay any federal, state, or
local income taxes or penalties resulting from any such hard-
ship withdrawal. A distribution will be considered as neces-
sary to satisfy an immediate and heavy financial need of the
participant only if: (a) the participant has obtained all dis-
tributions, other than hardship distributions, and all nontax-
able loans under all plans maintained by the employer; (b) all
plans maintained by the employer provide that the participant's
elective deferrals (and participant contributions) will be sus-
pended for twelve months after the receipt of the hardship dis-
tribution; (c) the distribution is not in excess of the amount
of an immediate and heavy financial need; and (d) all plans
maintained by the employer provide that the participant may not
make elective deferrals for the participant's taxable year
immediately following the taxable year of the hardship distri-
bution in excess of the applicable limit under Section 402(g)
of the Code for such taxable year less the amount of such par-
ticipant's elective deferrals for the taxable year of the
hardship distribution.
If the provisions of Section 11 are applicable to any partici-
pant in this plan, then the consent of such participant's
spouse must be obtained as to any hardship withdrawal, in the
manner described in subsection 11.3. Spousal consent shall be
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obtained no earlier than the beginning of the 90-day period
ending on the date of the hardship withdrawal, must be in writ-
ing, must acknowledge the effect of the hardship withdrawal,
and must be witnessed by a plan representative or notary
public.
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SECTION 13
----------
No Reversion in Employer
------------------------
The employer shall have no right, title or interest
in the trust fund, and no part of the trust fund shall revert
or be repaid to the employer, directly or indirectly, unless:
(a) the Internal Revenue Service initially
determines that the plan does not meet the
requirements of Section 401(a) of the Code,
in which event the contributions made to
the plan by the employer shall be returned
to it within one year after such adverse
determination;
(b) a contribution is made by the employer by
mistake of fact and such contribution is
returned to the employer within one year
after payment to the trustee; or
(c) a contribution conditioned on the deduct-
ibility thereof is disallowed as an expense
for federal income tax purposes and such
contribution (to the extent disallowed) is
returned to the employer within one year
after the disallowance of the deduction.
Contributions may be returned to the employer pursuant to sub-
paragraph (a) above only if they are conditioned upon initial
qualification of the plan, and an application for determination
was made by the time prescribed by law for filing the employ-
er's Federal income tax return for the taxable year in which
the plan was adopted (or such later date as the Secretary of
the Treasury may prescribe). The amount of any contribution
that may be returned to the employer pursuant to subparagraph
(b) or (c) above must be reduced by any portion thereof previ-
ously distributed from the trust fund and by any losses of the
trust fund allocable thereto, and in no event may the return of
such contribution cause any participant's account balances to
be less than the amount of such balances had the contribution
not been made under the plan.
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SECTION 14
----------
Reemployment and Employment With Related Employers
--------------------------------------------------
14.1. REEMPLOYMENT BEFORE BREAK IN SERVICE. If an
employee's employment with his employer terminates and he is
reemployed before he incurs a one-year break in service, his
years of service will not be deemed to have been interrupted
during such year and, if he was a participant in the plan, he
will continue as such upon his reemployment if he then meets
the requirements of subparagraph 3.1(c); provided that, such
participant must refile the forms required under subsection 3.2
with the administrator and he may resume making compensation
deferral contributions and voluntary contributions as of the
beginning of the first pay period coincident with or next fol-
lowing the date of his reemployment.
14.2. REEMPLOYMENT AFTER BREAK IN SERVICE. If a
former participant who incurs a one-year break in service is
reemployed, he will again become a participant in the plan as
of his date of reemployment if he then meets the requirements
of subparagraph 3.1(c). If an employee who is not partici-
pating in the plan should terminate employment and then subse-
quently be reemployed by an employer, his eligibility for par-
ticipation shall be determined in accordance with subsection
3.1, and he shall become a participant on the date of his reem-
ployment if he then meets the requirements of subparagraph
3.1(c) and he had met the requirements of subparagraphs 3.1(a)
and (b) prior to his termination. The years of service accrued
prior to termination by a non-vested participant or by an em-
ployee who was not a participant shall be disregarded for pur-
poses of subsection 10.2 only if his number of consecutive one-
year breaks in service occurring after his termination equal or
exceed the greater of (i) five, or (ii) his years of service
prior to his termination. Each such reemployed employee or
participant must file (or refile) the forms required by subsec-
tion 3.2 with the administrator, and compensation deferral
contributions and voluntary contributions by a reemployed par-
ticipant will not resume under the plan until the beginning of
the first pay period coincident with or next following the date
of his reemployment. A "non-vested participant" is a partici-
pant who, at his prior termination of employment, had no non-
forfeitable right under subsection 10.2 to any part of his em-
ployer matching or employer contribution accounts. In the case
of a participant who has 5 consecutive 1-year breaks in ser-
vice, all years of service after such breaks in service will be
disregarded for the purpose of vesting the employer-derived
account balance that accrued before such breaks, but both pre-
break and post-break service will count for the purposes of
vesting the employer-derived account balance that accrues after
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such breaks. Both accounts will share in the earnings and
losses of the fund. In the case of a participant who does not
have 5 consecutive 1-year breaks in service, both the pre-break
and post-break service will count in vesting both the pre-break
and post-break employer-derived account balance.
14.3. RESTORATION OF FORFEITURES. If a participant
whose employment with the employer terminated because of resig-
nation or dismissal before he was 100 percent vested in his em-
ployer matching or contribution accounts is reemployed by the
employer or a related employer after distribution of his em-
ployer contribution or employer matching contribution accounts
has commenced (or was deemed to commence under subsection 10.7)
but before he incurs five consecutive one-year breaks in ser-
vice, he may repay to the trustee the total amount distributed
to him from such accounts as a result of his earlier termina-
tion of employment. Such repayment must be made before the
earlier of five years after the first date on which the partic-
ipant is subsequently reemployed by an employer, or the date
the participant incurs five consecutive one-year breaks in ser-
vice commencing after the distribution. If a participant makes
such a repayment to the trustee, both the amount of the repay-
ment and the forfeiture which resulted from his earlier termi-
nation of employment (without interest) shall be credited to
his employer matching and contribution accounts, as appropri-
ate, as of the regular accounting date coincident with or next
following the date of repayment (after all other adjustments
required under the plan as of that date have been made), but
the amount of the repayment shall be separately accounted for
by the administrator or trustee, inasmuch as such amount was
previously the subject of a taxable distribution. Forfeitures
which are restored to participants' accounts as of a regular
accounting date under this subsection 14.3 shall reduce:
first, forfeitures to be allocated as of that date under sub-
section 8.8; and then, to the extent that the forfeitures to be
allocated as of that date are insufficient to fully restore a
reemployed participant's accounts, the employer will make a
special contribution in the amount necessary to restore such
forfeitures.
14.4. EMPLOYMENT WITH RELATED EMPLOYERS. Employment
of an employee or a participant with a related employer will be
considered as employment with the employer for purposes of
determining the employee's or participant's years of service,
hours of service, leaves of absence, breaks in service and dis-
tribution date. Termination of an employee's or participant's
employment with his employer will not be considered a termina-
tion of employment for purposes of the plan if, concurrently
with or immediately following such termination of employment,
such employee or participant is employed by a related employer.
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No contribution to be made by an employer under the plan on
behalf of a participant, however, will be based on any earnings
paid to such employee or participant by such related employer,
and no employee of a related employer may become a participant
in the plan solely as a result of such employment.
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SECTION 15
----------
General Provisions
------------------
15.1. INFORMATION FURNISHED BY PARTICIPANTS. Par-
ticipants and their beneficiaries must furnish to the adminis-
trator and the trustee such evidence, data or information as
the administrator and the trustee consider desirable to carry
out the plan. No participant, except one authorized by the
administrator, shall have the right to inspect plan records.
15.2. INFORMATION FURNISHED TO TRUSTEE. Each em-
ployer and the administrator shall furnish the trustee such
data and information as it may require to perform its functions
under the plan and trust.
15.3. INALIENABILITY OF BENEFITS. The interests of
participants and their beneficiaries under the plan are not
subject to the claims of their creditors and, except as may be
required by a domestic relations order which the administrator
determines to be a qualified domestic relations order under
Section 414(p) of the Code, may not be voluntarily or involun-
tarily assigned or alienated.
15.4. ABSENCE OF GUARANTY. Neither the administra-
tor, the trustee nor the employers in any way guarantee the
trust fund from loss or depreciation. The liability of the
trustee and the administrator to make any payment under the
plan will be limited to the assets held by the trustee which
are available for that purpose.
15.5. EMPLOYMENT RIGHTS. The plan does not consti-
tute a contract of employment. The plan shall not be construed
as giving a participant a right to be retained in the employ of
the employers or a right or claim to any benefit under the plan
unless the right or claim has specifically accrued under the
plan.
15.6. GENDER AND NUMBER. Words in the masculine
include the feminine and neuter genders, words in the neuter
include the masculine and feminine genders, the singular in-
cludes the plural and the plural includes the singular, unless
qualified by the context.
15.7. ADMINISTRATIVE DECISIONS FINAL. Any interpre-
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tation of the plan and any decision on a matter within the
administrator's discretion made in good faith shall be binding
on all persons, and shall not be overturned unless held to be
arbitrary and capricious. A misstatement or other mistake of
fact shall be corrected when it becomes known, and the adminis-
trator shall make such adjustment on account thereof as it
considers equitable and practicable.
15.8. EVIDENCE. Evidence required of anyone under
the plan may be by certificate, affidavit, document, or other
information which the person acting on it considers pertinent
and reliable and signed, made or presented by the proper party
or parties.
15.9. ACTION BY EMPLOYER. Any action required or
permitted to be taken by an employer under the plan shall be by
resolution of its Board of Directors, by resolution of a duly
authorized committee of its Board of Directors, or by a person
or persons authorized by resolution of its Board of Directors
or such committee, if the employer is a corporation; by written
instrument signed by its managing partner or partners, or by a
person or persons authorized by such managing partner or part-
ners, if the employer is a partnership; and by written instru-
ment signed by the employer, if the employer is a sole propri-
etor.
15.10. UNIFORM RULES. In managing the plan, the
administrator will apply uniform rules to all participants
similarly situated.
15.11. CONTROLLING LAW. Except to the extent super-
seded by the laws of the United States, the laws of the state
of the employer's principal place of business shall govern,
control and determine all questions arising with respect to the
plan and the trust agreement and the validity of their provi-
sions.
15.12. WAIVER OF NOTICE. Any notice required under
the plan or the trust agreement may be waived by the person
entitled thereto.
15.13. SUCCESSOR TO AN EMPLOYER. The term "employ-
er" also includes any entity that is a successor to an employer
or a purchaser of all or substantially all of the assets of an
employer and which agrees to continue the plan as provided in
subparagraph 16.3(d).
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<PAGE> 80
15.14. CLAIMS PROCEDURE. A participant or bene-
ficiary who believes that he is entitled to a benefit under the
plan may file a written claim for such benefit with the admin-
istrator. The administrator shall notify in writing any par-
ticipant or beneficiary whose claim for benefits under the plan
has been denied in whole or part within 90 days after receipt
of the claim for benefits by the administrator, or within 180
days of receipt of such claim if the participant is notified in
writing by the administrator that an extension of time is re-
quired for processing the claim. If a claim is neither granted
nor denied within 90 days or 180 days, as the case may be, the
claim will be considered denied and the claimant may pursue the
review procedure set forth below. Each notice of denial of a
claim shall be in writing and shall contain the following
information:
(a) The specific reason or reasons for the
denial;
(b) Specific reference to pertinent plan provi-
sions upon which the denial is based;
(c) A description of any additional material or
information necessary for the applicant to
perfect the claim and an explanation of why
such material or information is necessary;
and
(d) An explanation of the plan's review proce-
dure (as described below).
In the event a claim for benefits is denied in whole or in
part, the claimant or the claimant's duly authorized represen-
tative may request a review of such denial by the administra-
tor. Each such request for review must be in writing signed by
the claimant or the claimant's duly authorized representative,
must specify that it is a request for review of a denied claim
and must be filed with the administrator no later than 60 days
after receipt by the claimant of the denial of the claim. The
decision of the administrator upon a claimant's request for
review shall be made within 60 days after the request for re-
view is received by the administrator unless special circum-
stances require an extension of time for processing such re-
view, in which event the claimant shall be notified in writing
prior to the expiration of such 60 days, and the decision of
the administrator shall be rendered within 120 days of the
receipt of the request for review. In connection with a
request for review, the claimant or the claimant's duly autho-
rized representative may submit issues and comments in writing
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to the administrator. All communications between the adminis-
trator and the claimant or the claimant's duly authorized rep-
resentative shall be in writing unless the claimant or the
claimant's duly authorized representative requests otherwise
and the administrator consents thereto. Each decision of the
administrator on a request for review shall be in writing,
shall include the specific reason or reasons for the decision
and shall contain specific reference to the plan provisions
upon which the decision is based.
15.15. LITIGATION BY PARTICIPANTS. If a legal action
begun against the trustee, the employer or the administrator by
or on behalf of any person results adversely to that person, or
if a legal action arises because of conflicting claims to a
participant's or beneficiary's benefits, the cost to the trust-
ee, the employer or the administrator of defending the action
will be charged to the extent legally permitted under ERISA
against the sums, if any, involved in the action or payable to
the participant or beneficiary concerned.
15.16. AMENDMENTS OF VESTING SCHEDULE. If the em-
ployer amends the vesting schedule contained in the adoption
agreement: for every employee who is a participant on the
later of the amendment adoption date or the amendment effective
date, the vested percentage of such participant shall not be
less than the vested percentage of such participant without
regard to the amendment; and each participant with three or
more years of service may elect, within a reasonable period of
time after the adoption of such amendment, to have his vested
percentage determined under the plan without regard to such
amendment. For participants who do not have at least one hour
of service in any plan year beginning after December 31, 1988,
the preceding sentence shall be applied by substituting "five"
for "three" years of service where such language appears. The
period during which such election may be made will end on the
latest of (i) 60 days after the amendment is adopted; (ii) 60
days after the effective date of the amendment, and (iii) 60
days after the participant is issued written notice of the
amendment by the administrator. For purposes of this subsec-
tion, an amendment of the vesting schedule is any plan amend-
ment which directly or indirectly affects the computation of
the vested percentage of participants' rights to their employer
matching and contribution account balances.
15.17. QUALIFICATION OF PLAN. Adoption of the plan
and trust by the employer is conditioned, unless the plan is
adopted as a standardized plan, upon the employer's securing a
determination letter from the Internal Revenue Service to the
effect that the plan, as adopted by the employer, meets the
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applicable requirements of Section 401(a) of the Code. In the
event the employer fails to secure such determination letter
or, after having secured such determination letter, is notified
that the plan no longer meets the applicable requirements of
Section 401(a), any assets of the plan held in the trust will
be considered as held by a nonqualified plan and treated ac-
cordingly. If the employer's plan fails to attain or retain
qualification, such plan will no longer participate in this
prototype plan and will be considered an individually designed
plan. As a condition to adopting this plan, the employer
agrees to notify the trustee and provide the trustee with a
copy of the determination letter issued by the Internal Revenue
Service in connection with the plan within a reasonable period
of time after such letter is received.
15.18. COMPLIANCE WITH ERISA AND SEVERABILITY. The
plan is intended to comply with the applicable requirements of
ERISA. The provisions of the plan shall be interpreted to con-
form to ERISA and any regulations and rules promulgated or
issued under ERISA. If any provision of the plan is found to
be illegal or invalid, such illegality or invalidity shall not
affect the remaining provisions of the plan and the plan shall
be construed and enforced as if such illegal or invalid provi-
sion had never been incorporated herein.
15.19. CONTROL OF TRADES OR BUSINESSES BY OWNER-
EMPLOYEE. 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 such other
trades or businesses must, when looked at as a single plan,
satisfy Code Sections 401(a) and (d) for the employees of this
and all other trades or businesses.
If the plan provides contributions or benefits for one or more
owner-employees who control one or more other trades or busi-
nesses, the employees of the other trades or businesses must be
included in a plan which satisfies Sections 401(a) and (d) and
which provides contributions and benefits not less favorable
than provided for owner-employees under this plan.
If an individual is covered as an owner-employee under the
plans of two or more trades or businesses which are not con-
trolled and the individual controls a trade or business, then
the contributions or benefits of the employees under the plan
of the trades or businesses which are controlled must be as
favorable as those provided for him under the most favorable
plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, an owner-employee, or
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two or more owner-employees, will be considered to control a
trade or business if the owner-employee, or two or more owner-
employees together:
(a) own the entire interest in an unincorpo-
rated trade or business, or
(b) in the case of a partnership, own more than
50 percent of either the capital interest
or the profits interest in the partnership.
For purposes of the preceding sentence, an owner-employee, or
two or more owner-employees, shall be treated as owning any
interest in a partnership which is owned, directly or indi-
rectly, 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.
15.20. PORTABILITY. Except as provided below, an
employer may direct the trustee, with the consent of the trust-
ee, to receive and hold for the benefit of a participant under
this plan any assets (i) held for the benefit of such partici-
pant under any other plan or trust qualified under Section
401(a) of the Code or (ii) held in a trust or custodial account
qualified under Section 408 of the Code and attributable to
such participant's prior participation in a plan or trust qual-
ified under Section 401(a) of the Code. Any such assets trans-
ferred to this plan shall be held in a separate, nonforfeitable
account established for the benefit of such participant, which
shall be adjusted as any other participant account under the
plan until distributed in accordance with Section 10.
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SECTION 16
----------
Amendment and Termination
-------------------------
16.1. AMENDMENT BY THE EMPLOYER. While the employer
expects and intends to continue the plan, the employer reserves
the right, subject to Section 13, to amend the plan (in accor-
dance with the procedures set forth in subsection 15.9) from
time to time, subject to the following:
(a) 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 accrued benefit may be
reduced to the extent permitted under
Section 412(c)(8) of the Code. For pur-
poses of this subparagraph, a plan amend-
ment which has the effect of decreasing a
participant's account balance or elimi-
nating an optional form of benefit, with
respect to benefits attributable to service
before the amendment shall be treated as
reducing an accrued benefit. Furthermore,
no amendment to the plan shall have the
effect of decreasing a participant's vested
interest determined without regard to such
amendment as of the later of the date such
amendment is adopted or the date it becomes
effective.
(b) The employer, by filing an amended adoption
agreement with the sponsor, may amend the
plan to specify which of the plan's vari-
able features will be included in the plan
after the effective date of the amended
adoption agreement and to specify, to the
extent permitted under the plan, how these
variable features will be applied.
(c) The employer, by continuing the plan in the
form of a newly-established and individ-
ually designed plan and trust, may amend
the plan in any manner it considers desir-
able, provided that the accounts of par-
ticipants will not be transferred to such
newly-established trust until it has been
determined that the plan, as amended and
continued in the form of such newly-estab-
lished plan and trust, continues to meet
the requirements of a qualified plan under
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<PAGE> 85
the Code. If the employer amends the plan
in this fashion (not including an amendment
under (b) above) it shall no longer be con-
sidered to have adopted this plan, and the
plan, as adopted by the employer, will no
longer be considered to be a prototype
plan. Participants' accounts will be
transferred to such newly-established trust
as soon as practicable after the accounting
date coincident with or next following the
date of a favorable Internal Revenue Ser-
vice determination as to the plan's quali-
fication. If the employer amends the plan
because of a waiver of the minimum funding
requirements of Code Section 412, the plan
will be considered an individually designed
plan and no longer part of the prototype
plan.
(d) The employer may amend the plan by adding
overriding plan language to the adoption
agreement where such language is necessary
to satisfy Sections 415 and 416 of the Code
because of the required aggregation of
multiple plans under Sections 415 and 416.
(e) The employer may add certain model amend-
ments published by the Internal Revenue
Service which specifically provide that
their adoption will not cause the plan to
be treated as individually designed.
16.2. AMENDMENT BY SPONSOR. Each employer, by fil-
ing its adoption agreement with the sponsor and thus adopting
the plan, authorizes and empowers the sponsor to amend the plan
from time to time subject to Section 13 and the following:
(a) Except as provided in subparagraphs (b) and
(c) next below, no such amendment shall
become effective until at least 30 days'
prior written notice thereof has been given
to the employer, nor shall any such amend-
ment reduce participants' benefits to less
than the benefits to which they would have
been entitled to receive if they had re-
signed from the employ of their respective
employers on the day of the amendment or
eliminate any optional form of distribution
under the plan.
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<PAGE> 86
(b) An amendment of the plan made under this
subsection which the sponsor deems neces-
sary or appropriate to enable the plan to
meet the requirements of Section 401(a) of
the Code, or any future legislation amend-
ing, supplementing or superseding said
section, may be made effective as of the
date the plan was established by the spon-
sor or as of any subsequent date.
(c) An amendment of the plan made under this
subsection to conform the plan to any
change in the law of the United States, the
state of the employer's principal place of
business or any political subdivision
thereof, or to any rule or regulation
thereunder, may take effect as of the date
such amendment is required to be effective
under such law, rule or regulation.
16.3. TERMINATION. The plan will terminate as to an
individual employer on the first to occur of the following:
(a) The date the plan is terminated by the em-
ployer (in accordance with the procedures
set forth in subsection 15.9) if thirty
days' advance written notice of the termi-
nation is given to the administrator, the
trustee and other employers, if any.
(b) The date the employer is judicially dis-
charged in bankruptcy or is insolvent.
(c) The date the employer permanently discon-
tinues making contributions under the plan.
(d) The dissolution, merger, consolidation or
reorganization of the employer, or the sale
by the employer of all or substantially all
of its assets except that: (i) in such
event arrangements may be made with the
consent of the employer whereby the plan
will be continued by a successor to, or
purchaser of all or substantially all of
the employer's assets, in which case the
successor or purchaser will be substituted
for the employer under the plan; and (ii)
if an employer is merged, dissolved or in
any way reorganized into, or consolidated
with, any other employer, the plan, as
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applied to the former employer automat-
ically will continue in effect without a
termination thereof. If the employer is a
partnership, the withdrawal of partners and
the admission of new partners will not in
itself be considered as affecting the
identity of the employer.
16.4. NOTICE OF AMENDMENT OR TERMINATION. The
administrator shall notify participants of an amendment or ter-
mination of the plan within a reasonable time.
16.5. VESTING AND DISTRIBUTION ON TERMINATION. On
termination or partial termination of the plan [including com-
plete discontinuance of contributions under subparagraph
16.3(c)], the date of termination shall be a special accounting
date and after all adjustments then required have been made,
the account balances of each participant will be fully vested
and nonforfeitable and will be distributable in accordance with
subsections 10.3 or 10.4. Until the entire trust fund has been
distributed, all appropriate accounting provisions of the plan
shall continue to apply, the trust shall continue in effect,
and the trustee shall have all the powers, rights, discretions,
duties and liabilities provided for in the trust and the plan.
16.6. MERGER OR CONSOLIDATION. In the event of a
merger or consolidation of this plan with, or transfer of
assets or liabilities of the plan to, any other plan, each par-
ticipant's or beneficiary's benefits under such other plan
immediately after such merger, consolidation or transfer (if
the plan terminated immediately after such merger, consolida-
tion or transfer) at least shall equal the benefit he would
have received under this plan immediately before the merger,
consolidation or transfer (if this plan had terminated).
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SECTION 17
----------
Benefit Limitations
-------------------
17.1. SINGLE PLAN. If the participant does not par-
ticipate in, and has never participated in, another qualified
plan, a welfare benefit fund (as defined in Section 419(e) of
the Code), an individual medical account (as defined in Section
415(l)(2) of the Code), or a simplified employee pension (as
defined in Section 408(k) of the Code), maintained by the
employer, which provides an annual addition as defined in sub-
section 17.12, the amount of annual addition which may be allo-
cated under this plan to the participant's accounts for any
limitation year shall not exceed the lesser of the maximum per-
missible amount or any other limitation contained in this plan.
If the employer contribution that would otherwise be contri-
buted or allocated to the participant's employer contribution
account would cause the annual additions for that limitation
year to exceed the maximum permissible amount, the amount con-
tributed or allocated will be reduced so that the annual addi-
tions for the limitation year will equal the maximum permis-
sible amount.
17.2. ESTIMATED COMPENSATION. Prior to the deter-
mination of the participant's actual compensation for a limi-
tation year, the maximum permissible amount may be determined
on the basis of the participant's estimated annual compensation
for such limitation year. Such estimated annual compensation
shall be determined on a reasonable basis and shall be uni-
formly determined for all participants similarly situated.
17.3. ACTUAL COMPENSATION. As soon as is adminis-
tratively feasible after the end of the limitation year, the
maximum permissible amount for such limitation year shall be
determined on the basis of the actual compensation for such
participant for such limitation year.
17.4. EXCESS AMOUNT IN SINGLE PLAN. If, pursuant to
subsection 17.3 or as a result of the allocation of forfei-
tures, there is an excess amount with respect to a participant
for a limitation year, such excess amount shall be disposed of
as follows:
(a) Any voluntary contributions, to the extent
they would reduce the excess amount, will
be returned to the participant.
(b) If after the application of subparagraph
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(a) an excess amount still exists, and the
participant is covered by the plan at the
end of the limitation year, then such
excess amount shall not be distributed to
the participant, but shall be reapplied to
reduce future employer contributions or
matching contributions under the plan for
the next limitation year (and for each suc-
ceeding limitation year, if necessary) for
such participant, so that in each such
year, the sum of actual employer contri-
butions and matching employer contributions
plus the reapplied amount shall equal the
amount of employer matching or contribu-
tions which would otherwise be allocated to
such participant's employer contribution
and employer matching contribution ac-
counts.
(c) If after the application of subparagraph
(a) an excess amount still exists, and the
participant is not covered by the plan at
the end of the limitation year, or in the
event that the participant is not entitled
to have an employer contribution allocated
to his account for the next limitation
year, then such excess amount shall not be
distributed to the participant, but shall
be held unallocated in a suspense account.
The suspense account will be applied to
reduce future employer contributions or
employer matching contributions for all
remaining participants in the next limita-
tion year, and each succeeding limitation
year if necessary.
(d) If a suspense account is in existence at
any time during the limitation year pursu-
ant to this subsection, it will not partic-
ipate in the allocation of the trust'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' accounts
before any employer or employee contribu-
tions may be made to the plan for that
limitation year. Excess amounts may not be
distributed to participants or former par-
ticipants.
17.5. TWO OR MORE QUALIFIED PLANS (MASTER OR PROTO-
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<PAGE> 90
TYPE PLANS). 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, which provides an annual addition
as defined in subsection 17.12 during any limitation year, the
amount of annual additions which may be allocated under this
plan on a participant's behalf for a limitation year shall not
exceed the maximum permissible amount reduced by the annual
additions credited to a participant's account under the other
plans and welfare benefit funds for the same limitation year.
If the annual additions with respect to the participant under
other defined contribution plans and welfare benefit funds
maintained by the employer are less than the maximum permissi-
ble amount and the employer contribution that otherwise would
be contributed or allocated to the participant's account under
this plan would cause the annual additions for the limitation
year to exceed this limitation, the amount contributed or allo-
cated 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 a participant's annual addi-
tions under such other plans result in an excess amount for a
limitation year, no participant or employer contributions will
be contributed or allocated to the participant's accounts under
this plan for the limitation year.
17.6. ESTIMATED COMPENSATION (TWO OR MORE PLANS).
Prior to the determination of the participant's actual compen-
sation for a limitation year, the amounts referred to in sub-
section 17.5 above may be determined on the basis of the par-
ticipant's estimated annual compensation for such limitation
year. Such estimated annual compensation shall be determined
on a reasonable basis and shall be uniformly determined for all
participants similarly situated.
17.7. ACTUAL COMPENSATION (TWO OR MORE PLANS). As
soon as is administratively feasible after the end of the limi-
tation year, the amounts referred to in subsection 17.6 shall
be determined on the basis of the actual compensation paid to
such participant for such limitation year.
17.8. TREATMENT OF EXCESSES (TWO OR MORE PLANS). IF
pursuant to subsection 17.7 or as a result of the allocation of
forfeitures, a participant's annual additions under this plan
and all such other plans result in an excess amount for a limi-
tation year, such excess amount shall be deemed to consist of
the amounts last allocated under the plans, except that annual
additions attributable to a simplified employee pension will be
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<PAGE> 91
deemed to have been allocated first, followed by annual addi-
tions to a welfare benefit fund or individual medical account,
regardless of the actual allocation date. Any excess amounts
attributable to this plan shall be disposed of as provided in
subsection 17.4.
17.9. COINCIDENT ALLOCATIONS (TWO OR MORE PLANS).
If an excess amount was allocated to a participant's accounts
on an allocation date of this plan which coincides with an
allocation date of another plan, the excess amount attributable
to this plan will be the product of:
(a) the total excess amount allocated as of
such date, and
(b) the ratio of (i) the annual additions allo-
cated 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 all qualified master
or prototype defined contribution plans.
17.10. TWO OR MORE QUALIFIED PLANS (OTHER THAN MAS-
TER OR PROTOTYPE PLANS). If the employer also maintains anoth-
er plan which is a qualified defined contribution plan other
than a master or prototype plan and a participant is covered
under such other plan, annual additions allocated to accounts
under this plan on behalf of any participant shall be limited
in accordance with the provisions of subsections 17.5 through
17.10, as though the other plan were a master or prototype
plan, unless the employer provides other limitations in the
adoption agreement.
17.11. COMBINED PLAN LIMITATION. If the employer
maintains or at any time maintained a qualified defined benefit
plan covering any of its employees who are participants in this
plan, the sum of the participant's defined benefit plan frac-
tion and defined contribution plan fraction will not exceed 1.0
in any limitation year. The benefits provided for the partici-
pant under the defined benefit plan will be adjusted to the
extent necessary so that the sum of such fractions determined
with respect to the participant does not exceed 1.0, unless the
employer has specified otherwise in the adoption agreement.
17.12. DEFINITIONS RELATIVE TO BENEFIT LIMITATIONS.
For purposes of this Section 17, the following terms shall have
the following meanings:
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<PAGE> 92
(a) "Annual addition" means the sum of the
following amounts allocated or credited to
a participant's account for a limitation
year:
(i) all employer contributions made
on his behalf;
(ii) all forfeitures; and
(iii) all of the participant's volun-
tary contributions.
In addition, 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 de-
fined in Section 419(e) of the Code, main-
tained by the employer, are treated as
annual additions to a defined contribution
plan.
(b) "Maximum permissible amount" means, with
respect to any participant for a limitation
year, the lesser of (i) $30,000 (or if
greater, 1/4 of the dollar amount in effect
under Section 415(b)(1) of the Code for
that limitation year), or (ii) 25 percent
of the participant's actual compensation
for the limitation year. The limitation in
(ii) above shall not apply to any contribu-
tion for medical benefits (within the mean-
ing of Section 401(h) or Section 419A(f)(2)
of the Code) which is otherwise treated as
an annual addition, or any amount 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 plan year to a
different 12-consecutive month period, the
maximum permissible amount will not exceed
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<PAGE> 93
the defined contribution dollar limitation
in (i) above multiplied by the following
fraction:
Number of Months in the short limitation year
---------------------------------------------
12
(c) "Excess amount" means the excess of a par-
ticipant's annual addition for a limitation
year over the participant's maximum permis-
sible amount.
(d) "Defined benefit fraction" means a frac-
tion, the numerator of which is the sum of
the participant's projected annual benefits
under all the defined benefit plans (wheth-
er or not terminated) maintained by the
employer, and the denominator of which is
the lesser of 125 percent of the dollar
limitation determined for the limitation
year under Sections 415(b) and (d) of the
Code or 140 percent of the highest average
compensation, including any adjustments
under Section 415(b) of the Code. Notwith-
standing the above, if the participant was
a participant as of the first day of the
first limitation year beginning after
December 31, 1986, in one or more defined
benefit plans maintained by the employer
which were in existence on May 6, 1986, the
denominator of this fraction will not be
less than 125 percent of the sum of the
annual benefits under such plans which the
participant had accrued as of the end 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 for all
limitation years beginning before January
1, 1987.
(e) "Defined contribution fraction" means a
fraction, the numerator of which is the sum
of the annual additions to the partici-
pant's accounts under all the defined con-
tribution plans (whether or not terminated)
maintained by the employer for the current
and all the prior limitation years (includ-
ing the annual additions attributable to
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<PAGE> 94
the participant's voluntary contributions
to all defined benefit plans, whether or
not terminated, maintained by the employer,
and the annual additions attributable to
all welfare benefit funds, individual medi-
cal accounts, and simplified employee pen-
sions, maintained by the employer) and the
denominator of which is the sum of the
maximum aggregate amount 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 percent of the dollar limita-
tion in effect under Section 415(c)(1)(A)
of the Code or 35 percent of the partici-
pant'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 main-
tained by the employer which were in exis-
tence on May 6, 1986, the numerator of this
fraction will be adjusted if the sum of
this fraction and the defined benefit frac-
tion 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 limita-
tion year beginning on or after January 1,
1987. The annual addition for any limita-
tion year beginning before January 1, 1987
shall not be recomputed to treat all em-
ployee contributions as annual additions.
(f) "Projected annual benefit" means the annual
benefit (adjusted to an actuarially equiva-
lent 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 partici-
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<PAGE> 95
pant would be entitled under the terms of
the plan assuming:
(i) the participant will continue
employment until normal retire-
ment age under the plan (or
current age, if later), and
(ii) the participant's compensation
for the current limitation year
and all other relevant factors
used to determine benefits
under the plan will remain con-
stant for all future limitation
years.
(g) "Compensation". For purposes of this Sec-
tion 17 only, the term "compensation" means
a participant's earned income, wages, sala-
ries, fees for professional service 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 the participant's
gross income (including, but not limited
to, commissions paid salesmen, compensation
for services on the basis of a percentage
of profits, commissions on insurance premi-
ums, tips and bonuses) and excluding the
following:
(i) employer contributions to a
plan of deferred compensation
which are not includible in the
employee's gross income for the
taxable year in which contrib-
uted, or employer contributions
under a simplified employee
pension plan to the extent such
contributions are deductible by
the employee, or any distribu-
tions from a plan of deferred
compensation;
(ii) amounts realized from the exer-
cise of a non-qualified stock
option, or when restricted
stock (or property) held by the
employee either becomes freely
transferable or is no longer
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<PAGE> 96
subject to a substantial risk
of forfeiture;
(iii) amounts realized from the sale,
exchange or other disposition
of stock acquired under a qual-
ified stock option; and
(iv) other amounts which received
special tax benefits, or con-
tributions made by the employer
(whether or not under a salary
reduction agreement) towards
the purchase of an annuity
described in Section 403(b) of
the Code (whether or not the
amounts are actually excludable
from the gross income of the
employee).
Notwithstanding the foregoing, compensation
for a participant in a defined contribution
plan who is permanently and totally dis-
abled (as defined in Section 22(e)(3) of
the Code) is the compensation such partici-
pant would have received for the limitation
year if the participant was paid at the
rate of compensation paid immediately be-
fore becoming permanently and totally dis-
abled; 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 contribu-
tions made on behalf of such participant
are nonforfeitable when made.
(h) "Master or Prototype Plan" means a plan the
form of which is the subject of a favorable
opinion letter from the Internal Revenue
Service.
(i) "Highest Average Compensation" means the
average compensation for the three consecu-
tive years of service with the employer
that produces the highest average. A year
of service with the employer is the 12-con-
secutive month period defined in subsection
2.28 and the adoption agreement.
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<PAGE> 97
SECTION 18
----------
Predecessor Plan
----------------
If the employer so indicates in the adoption agree-
ment, this plan (and the trust which forms a part of the plan)
shall constitute an amendment, continuation and entire restate-
ment of a plan (the "predecessor plan") previously adopted and
maintained by the employer which also was a plan intended to
meet the requirements of Section 401(a) of the Code. If this
plan constitutes a continuation of a predecessor plan, each
employee of the employers who was a participant in the prede-
cessor plan immediately prior to the applicable effective date
of this plan will continue as a participant in this plan, sub-
ject to its terms and conditions. Furthermore, in the case of
a participant in the predecessor plan immediately prior to the
effective date of this plan, the vested or nonforfeitable per-
centage of such participant's benefits under this plan in no
event shall be less than the vested or nonforfeitable percent-
age which he was entitled to receive under such predecessor
plan.
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<PAGE> 98
SECTION 19
----------
Special Rules Applicable When Plan is Top-Heavy
-----------------------------------------------
19.1. PURPOSE AND EFFECT. The purpose of this Sec-
tion 19 is to comply with the requirements of Section 416 of
the Code. The provisions of this Section 19 shall be effective
for each plan year in which the plan is a "top-heavy plan"
within the meaning of Section 416(g) of the Code and shall
supersede any conflicting provisions in the plan or the adop-
tion agreement. The administrator shall have sole responsibil-
ity for determining whether the plan is a top-heavy plan.
19.2. TOP-HEAVY PLAN. In general, the plan will be
a top-heavy plan for any plan year if, (i) as of the last day
of the preceding plan year and (ii) in the case of the first
plan year of a new plan, the last day of such plan year (the
"determination date"), the top-heavy ratio for this plan (and
any other plan which is aggregated in accordance with subsec-
tion 19.4 below including any Simplified Employee Pension Plan)
exceeds 60 percent. The "top-heavy ratio" for this plan (and
such other plans) is equal to the ratio of the sum of the
amounts in (a), (b) and (c) below for key employees (as defined
below and in Section 416(i)(1) of the Code) to the sum of such
amounts for all employees who are covered by a defined contri-
bution plan or defined benefit plan which is aggregated in
accordance with subsection 19.4 below:
(a) The aggregate account balances of partici-
pants under this plan.
(b) The aggregate account balances of partici-
pants under any other defined contribution
plan included in subsection 19.4 below.
(c) The present value (based on the assumptions
specified in the adoption agreement) of the
cumulative accrued benefits of participants
calculated under any defined benefit plan
included in subsection 19.4 below.
The accounting date coincident with the last day of the plan
year shall be the "valuation date" for purposes of determining
the value of account balances and the present value of accrued
benefits. In making the foregoing determination: (A) a par-
ticipant's account balances or cumulative accrued benefits
shall be increased by the aggregate distributions, if any, made
with respect to the participant during the 5-year period ending
on the determination date, including distributions under a ter-
minated plan which, if it had not been terminated, would have
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<PAGE> 99
been required to be included in the aggregation group, (B) the
account balances or cumulative accrued benefits of a partici-
pant who was previously a key employee, but who is no longer a
key employee, shall be disregarded, (C) the account balances or
cumulative accrued benefits of a beneficiary of a participant
shall be considered accounts of the participant, (D) the ac-
count balances or cumulative accrued benefits of a participant
who has not been credited with at least one hour of service
with an employer or related employer at any time during the
five-year period ending on the determination date shall be
disregarded, (E) any rollover contribution (or similar trans-
fer) from a plan maintained by an unrelated employer to this
plan initiated by a participant shall not be taken into account
as part of the participant's aggregate account balances under
this plan and (F) any contribution not actually made as of a
determination date, but which is required to be taken into
account under Section 416 and the regulations thereunder, shall
be taken into account. The accrued benefit of a participant
other than a key employee shall be determined under: (i) the
method, if any, that uniformly applies for accrual purposes
under all defined benefit plans maintained by the employer; or
(ii) 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.
19.3. KEY EMPLOYEE. In general, a "key employee" is
an employee or former employee (and the beneficiaries of such
employee) who, at any time during the 5-year period ending on
the determination date, is:
(a) an officer of an employer or related em-
ployer receiving annual earnings from the
employer and related employers in excess of
50% of the limitation in effect under Sec-
tion 415(b)(1)(A) of the Code for that
year); provided that, for purposes of this
subparagraph (a), no more than 50 employees
of the employer and related employers (or,
if lesser, the greater of 3 employees or 10
percent of the employees) shall be treated
as officers;
(b) one of the ten employees receiving annual
earnings from an employer and related em-
ployers in excess of the dollar limitation
in effect under Section 415(c)(1)(A) of the
Code for that year and owning (or consid-
ered as owning under Section 318 of the
Code) both the largest interests in the
employer or in a related employer and more
than a one-half percent interest; or
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<PAGE> 100
(c) a 5-percent owner of an employer or a re-
lated employer; or
(d) a 1-percent owner of an employer or related
employer receiving annual earnings from the
employer and related employers of more than
$150,000.
The determination of who is a key employee will be made in
accordance with Section 416(i)(l) of the Code and the regula-
tions thereunder. A "non-key employee" is each employee who is
not a key employee, as defined above. Annual earnings 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 em-
ployee's gross income under Section 125, Section 402(c)(3),
Section 402(h) or Section 403(b) of the Code.
19.4. AGGREGATION OF PLANS. Each other defined con-
tribution plan and defined benefit plan maintained by the em-
ployer or related employers which covers a "key employee" as a
participant at any time during the determination period (re-
gardless of whether the plan has terminated), or which is main-
tained by the employer or related employers in order for a plan
covering a key employee to qualify under Section 401(a)(4) and
410 of the Code, shall be aggregated with this plan in deter-
mining whether this plan is top-heavy ("required aggregation").
In addition, any other defined contribution or defined benefit
plan of the employer or related employers may be included if
all such plans which are included when aggregated will continue
to qualify under Section 401(a)(4) and 410 of the Code ("per-
missive aggregation").
<TABLE>
19.5. MINIMUM VESTING. Once the plan has become a
top-heavy plan for any plan year, a participant's vested per-
centage in his employer matching and contribution accounts for
that year and all subsequent years shall not be less than the
vesting percentage specified by the employer in the adoption
agreement or the percentage determined under the following
table (whichever results in a more rapid vesting schedule):
<CAPTION>
Years of Service Vested Percentage
---------------- -----------------
<S> <C>
Less than 2 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 or more years 100%
</TABLE>
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<PAGE> 101
19.6. MINIMUM EMPLOYER CONTRIBUTION. Subject to the
following sentence and subsection 19.8 below, for any plan year
in which the plan is a top-heavy plan, employer contributions
and forfeitures, if any, credited to each participant who is
not a key employee (including participants who were employed on
the last day of the plan year but did not complete 1,000 hours
of service) shall not be less than 3 percent of such partici-
pant's compensation for that year. In no event, however, shall
the employer contributions and forfeitures, if any, credited in
any year to any such participant (expressed as a percentage of
such participant's compensation) exceed the maximum employer
contributions and forfeitures, if any, credited in that year to
a key employee (expressed as a percentage of such key employ-
ee's compensation). The preceding sentence shall not apply if
this plan is required to be included in an aggregation group
for a defined benefit plan in order for such group to meet the
requirements of 401(a)(4) or 410 of the Code. The employer may
specify in the adoption agreement that the minimum employer
contribution provided above will be 4 percent of each partici-
pant's compensation for that year if it desires to preserve the
defined contribution and benefit fractions provided under sub-
paragraph 17.12(d) and (e) and the plan is not super top-heavy
(as defined below). If the employer has adopted this plan as a
paired defined contribution plan, for each plan year in which
the paired plans are top-heavy, the employer will provide a
minimum contribution equal to 3 percent of compensation for
each non-key employee who is entitled to a minimum contribution
under both paired defined contribution plan number 003 and
paired defined contribution plan number 001. Compensation for
purposes of this Section 19 means a participant's earnings paid
to him by the employers for the plan year as reported on the
participant's Federal Income Tax Withholding Statement (Form
W-2).
19.7. COORDINATION OF BENEFITS. If a participant is
covered by another plan maintained by the employer or a related
employer, the minimum contribution otherwise required under
subsection 19.6 above may be reduced to prevent inappropriate
duplication of required minimum contributions or benefits.
Accordingly, the provisions of subsection 19.6 shall not apply
to any participant to the extent the participant is covered by
another plan or plans of the employer and the employer has
provided in the adoption agreement that the minimum contribu-
tion or benefit requirements will be met in the other plan or
plans.
19.8. ADJUSTMENT OF COMBINED BENEFIT LIMITATIONS.
For any plan year in which the plan is a top-heavy plan, the
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determination of the defined contribution plan fraction and
defined benefit plan fraction under subparagraphs 17.12(d) and
(e) of the plan shall be adjusted in accordance with the provi-
sions of Section 416(h) of the Code (by substituting "1.0" for
"1.25" in the determination of such fractions), unless the min-
imum employer contribution specified in subsection 19.6 above
is not less than four rather than three percent and the plan is
not a "super top-heavy plan" (as described below and in Section
416(h) of the Code) for that year. The plan will be a super
top-heavy plan for any plan year if the plan would still be a
top-heavy plan under subsection 19.2 above if the figure "90
percent" was substituted for the figure "60 percent" in that
subsection.
19.9. BENEFIT ACCRUAL. Solely for the purpose of
determining if the plan, or any other plan included in a re-
quired aggregation group of which this plan is a part, is top-
heavy (within the meaning of Section 416(g) of the Code), the
accrued benefit of an employee other than a key employee (with-
in the meaning of Section 416(i)(1) of the Code) shall be de-
termined under (a) the method, if any, that uniformly applies
for accrual purposes under all plans maintained by the employ-
ers, or (b) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permit-
ted under the fractional accrual rule of Section 411(b)(1)(C)
of the Code.
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<PAGE> 103
SECTION 20
----------
Direct Transfer of Eligible Rollover Distributions
--------------------------------------------------
20.1. PURPOSE. This Section 20 applies to distribu-
tions 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 20, a dis-
tributee may elect, at the time and in the manner prescribed by
the administrator, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan spec-
ified by the distributee in a direct rollover.
20.2. DEFINITION OF ELIGIBLE ROLLOVER DISTRIBUTION.
An eligible rollover distribution is any distribution of all or
any portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not include:
any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of ten years or more; any distribution to the extent such dis-
tribution is required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
20.3. DEFINITION OF ELIGIBLE RETIREMENT PLAN. An
eligible retirement plan is an individual retirement account
described in Section 408(a) of the Code, an individual retire-
ment annuity described in Section 408(b) of the Code, an annu-
ity plan described in Section 403(a) of the Code, or a quali-
fied trust described in Section 401(a) of the Code, that
accepts the distributee's eligible rollover distribution. How-
ever, 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.
20.4. DEFINITION OF DISTRIBUTEE. A distributee in-
cludes an employee or former employee. In addition, the em-
ployee's or former employee's surviving spouse and the employ-
ee'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.
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20.5. DEFINITION OF DIRECT ROLLOVER. A direct roll-
over is a payment by the plan to the eligible retirement plan
specified by the distributee.
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<PAGE> 105
STATE STREET SOLUTIONS
------------------------
PROTOTYPE DEFINED CONTRIBUTION TRUST
------------------------------------
<PAGE> 106
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I 1
- ---------
Introduction 1
------------
Name 1
----
Purpose 1
-------
Controlling Law 1
---------------
Use of Terms 1
------------
ARTICLE II 2
- ----------
Fiduciary Responsibility 2
------------------------
ARTICLE III 2
- -----------
The Trust Fund and Its Administration 2
-------------------------------------
The Trust Fund 2
--------------
Plan Administration 2
-------------------
General Powers 2
--------------
Investment Manager Accounts 8
---------------------------
Investment Options 9
------------------
Participant Directed Brokerage Accounts 9
---------------------------------------
Employer Stock Accounts 10
-----------------------
Employer Managed Investment Accounts 10
------------------------------------
Trustee Managed Investment Accounts 10
-----------------------------------
Compensation and Expenses 10
-------------------------
Limit of Trustee's Responsibility 11
---------------------------------
ARTICLE IV 11
- ----------
General Provisions 11
- --------------------
Action by Employer 11
------------------
Warranty 11
--------
Disagreement as to Acts 11
-----------------------
Courts 11
------
Evidence 11
--------
Third Parties 12
-------------
No Reversion in Employer 12
------------------------
Interests Not Transferable 12
--------------------------
Indemnification 13
---------------
Litigation by Participants 13
--------------------------
Liabilities Mutually Exclusive 13
------------------------------
Waiver of Notice 13
----------------
Counterparts 13
------------
Gender and Number 13
-----------------
Successors 13
----------
Severability 14
------------
Statutory References 14
--------------------
Discretion of the Trustee Binding 14
---------------------------------
</TABLE>
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<PAGE> 107
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Duration of Trust 14
-----------------
No Liability for Acts of Predecessor and Successor Trustees 14
-----------------------------------------------------------
ARTICLE V 14
- ---------
Amendment, Termination and Change of Trustee 14
--------------------------------------------
Amendment By Sponsor 14
--------------------
Amendment By Employer 15
---------------------
Termination 15
-----------
Resignation and Removal of Trustee 15
----------------------------------
ARTICLE VI 16
- ----------
Incorporation of Collective Investment Trusts 16
---------------------------------------------
</TABLE>
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<PAGE> 108
STATE STREET SOLUTIONS
----------------------
PROTOTYPE DEFINED CONTRIBUTION TRUST
------------------------------------
ARTICLE I
---------
Introduction
------------
I-1. NAME. The trust set forth herein (the "trust") may be referred
to as "State Street Solutions Prototype Defined Contribution Trust".
I-2. PURPOSE. This trust agreement is intended to implement and form
a part of State Street Solutions Prototype Defined Contribution Plan (the
"plan") as adopted by the employer thereunder and sponsored by State Street
Bank and Trust Company (the "sponsor"). By signing the adoption agreement, the
employer has executed and become a party to this trust agreement, and the
provisions of and benefits under the plan, as so adopted by the employer, are
subject to the terms and conditions of this trust agreement. State Street Bank
and Trust Company shall serve as "trustee" pursuant to this trust agreement.
The trust is established, operated and maintained in the United States of
America exclusively for the investment and reinvestment of funds contributed
under the plan.
I-3. CONTROLLING LAW. Except to the extent superseded by laws of the
United States, the laws of the Commonwealth of Massachusetts shall be
controlling in all matters relating to this agreement.
I-4. USE OF TERMS. The terms "employer," "adoption agreement," and
"administrator," and words and phrases used and defined for purposes of the
plan are similarly used and defined for purposes of this trust. The terms
"trust," "agreement," "herein," "hereunder," and similar terms mean this
agreement and do not include the plan; but, unless qualified by the context or
otherwise defined in this agreement, a word, term or phrase defined in this
agreement is similarly defined for purposes of the plan.
<PAGE> 109
ARTICLE II
----------
Fiduciary Responsibility
-------------------------
The employer, the administrator, the trustee, any investment manager
appointed pursuant to paragraph III-4, and any other fiduciaries with respect
to the plan or trust shall discharge their duties thereunder solely in the
interest of participants and beneficiaries, for the exclusive purpose of
providing their benefits and defraying reasonable expenses of plan and trust
administration, with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims.
ARTICLE III
-----------
The Trust Fund and Its Administration
-------------------------------------
III-1. THE TRUST FUND. The "trust fund" as at any date means all
property then held by the trustee under this agreement.
III-2. PLAN ADMINISTRATION. The plan is administered by the
"administrator", as designated by the employer in its adoption agreement for
the plan. The employer has also engaged the sponsor and its affiliates and
agents (the "recordkeeper") to provide certain administrative services with re-
spect to the plan, including but not limited to maintaining participant
accounts for all contributions, loans and loan repayments, rollovers, and other
deposits made for the purpose of determining how such deposits are to be
allocated to the investment funds of the plan, for determining requirements for
transfers among investment funds in accordance with the terms of the plan, for
maintaining participant records for the purpose of voting or tendering shares
in an investment fund, for distributing information about the investment funds
provided for under the plan, and for distributing participant statements at
periodic intervals. The trustee may rely upon a certification of the
administrator or the recordkeeper with respect to any instruction, direction or
approval of the administrator or the recordkeeper. The trustee shall be fully
protected in acting upon any instrument, certificate, or paper of the employer,
the administrator or the recordkeeper, believed by it to be genuine and to be
signed or presented by any authorized person, and the trustee shall be under no
duty to make any investigation or inquiry as to any statement contained in any
such writing but may accept the same as fully authorized by the employer, the
administrator or the recordkeeper, as the case may be. References in this
agreement to actions by the administrator shall include similar actions by the
recordkeeper.
III-3. GENERAL POWERS. With respect to the management and control of
the assets of the trust fund, the trustee shall have and exercise investment
power and authority (i)
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<PAGE> 110
over Trustee Managed Investment Accounts as provided in paragraph III-9,
(ii) upon the direction of the administrator or named fiduciary with respect to
an Employer Managed Investment Account under paragraph III-8, (iii) upon the
direction of a participant with respect to a Participant Directed Brokerage
Account under paragraph III-6, and (iv) upon the direction of an investment
manager with respect to an Investment Manager Account under paragraph III-4.
Subject to the preceding sentence, the trustee shall have the following powers,
rights and duties in addition to those provided elsewhere in this agreement, the
plan or by law:
(a) To acquire and become the policyholder under group
annuity contracts issued by a legal reserve life insurance company;
and to manage, sell, contract to sell, grant options to purchase,
convey, exchange, transfer, abandon, improve, repair, insure, lease
for any term (although commencing in the future or extending beyond
the term of this trust) and otherwise deal with all property, real
or personal, in such way, for such considerations, and on such
terms and conditions as the trustee decides.
(b) To retain in cash such amounts as the trustee considers
advisable and as are permitted by applicable law; to invest and
reinvest part or all of the balance of the trust fund in stocks,
bonds, notes, mortgages, mutual fund shares or other property of
any kind, real or personal, including one or more group annuity,
deposit administration or separate account contracts issued by a
legal reserve life insurance company; and to diversify such
investments so as to minimize the risk of large losses, unless
under the circumstances it is clearly prudent not to do so.
(c) To deposit cash in any depositary (including the banking
department of the trustee) without liability for interest and,
without limiting the generality of the foregoing, to invest cash in
savings accounts or time certificates of deposit bearing a
reasonable rate of interest in the banking department of the
trustee.
(d) To trade in financial options and futures, including index
options and options on futures and to execute in connection
therewith such account agreements and other agreements including
contracts for the exchange of interest rates, or investment
performance, currencies or other notional principal contracts in
such form and upon such terms as an investment manager or the
administrator shall direct.
(e) To make any payment or distribution from the trust fund as
directed by the administrator without inquiring as to whether a
payee or distributee is entitled thereto or as to whether it is
proper, and the trustee shall not be liable for a payment or
dis-
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<PAGE> 111
tribution made as directed by the administrator without notice
or knowledge that the payment or distribution is not proper under
the terms of the plan or this agreement; and to notify the
administrator if a payment or distribution is returned to the
trustee, and the trustee shall have no obligation to search for or
ascertain the whereabouts of a payee or distributee.
(f) To the extent permitted by law, to borrow from anyone, with
the employer's approval, such sum or sums from time to time as the
trustee considers desirable to carry out this trust, and to
mortgage or pledge all or part of the trust fund as security,
provided that the trustee shall not borrow to acquire employer
securities (as described in paragraph III-7), or pledge employer
securities held under the trust as security for any loan.
(g) To retain any funds or property subject to any dispute
without liability for interest and to decline to make payment or
delivery thereof until final adjudication by a court of competent
jurisdiction or until an appropriate release is obtained.
(h) To begin, maintain or defend any litigation necessary in
connection with the administration of the plan or this trust,
except that, unless otherwise required by law, the trustee shall
not be obliged or required to do so unless indemnified to the
trustee's satisfaction.
(i) To compromise, contest, arbitrate or abandon claims or demands.
(j) Except to the extent otherwise required by the Code or
ERISA or agreed to between the trustee and the employer, or as
provided in paragraph III-7 with respect to employer securities, to
give proxies to vote stocks and other voting securities, to join in
or oppose (alone or jointly with others) voting trusts, mergers,
consolidations, foreclosures, reorganizations, liquidations, or
other changes in the financial structure of any corporation, and to
exercise or sell stock subscription or conversion rights, only as
directed by the person or entity with investment authority over
such stock or security.
(k) To hold securities or other property in the name of a
nominee, in a depositary, or in any other way, with or without
disclosing the trust relationship; provided, however, that except
as authorized by regulations issued by the Secretary of Labor, the
indicia of ownership of the assets of the trust fund shall not be
maintained
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<PAGE> 112
outside the jurisdiction of the district courts of the
United States.
(l) To report to the employer and the administrator on each
accounting date under the plan, or as soon thereafter as
practicable, or at such other times as may be agreed to by the
employer or administrator and the trustee, the then net worth of
the trust fund (that is, the fair market value of all assets com-
prising the trust fund, less liabilities, if any, other than
liabilities to persons entitled to benefits under the plan)
determined on the basis of such evidence, data or information as
the trustee considers pertinent and reliable.
(m) To furnish to the employer and the administrator an annual
account or an account for such other period as may be agreed to by
the employer or the administrator and the trustee, or as may be
required under this agreement or the plan, showing all investments,
receipts, disbursements, and other transactions involving the trust
during the accounting period, and also showing the assets of the
trust fund held at the end of the period, which, to the extent
permitted by law, shall be conclusive on all persons, including the
employer, except as to any act or transaction as to which the
employer or the administrator files with the trustee written
exceptions or objections within sixty days after receipt of the
account.
(n) To pay out of the trust fund all real and personal property
taxes, income taxes and other taxes of any and all kinds levied or
assessed under existing or future laws against the trust fund.
(o) To maintain records and accounts reflecting all receipts
and disbursements under this agreement and such other records and
accounts as may be agreed to by the employer or the administrator
and the trustee, all of which shall be open to the inspection of
the employer or the administrator at all reasonable times, and may
be audited from time to time by anyone named by the employer or the
administrator.
(p) To employ agents, attorneys, accountants or other persons
(who also may be employed by the employer) and to delegate to them
such powers as the trustee considers desirable (except that the
trustee may not delegate its responsibilities as to the management
or control of the assets of the trust fund), provided that such
delegation, and the acceptance thereof, by such agents, attorneys,
accountants or other persons, shall be in writing; and,
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<PAGE> 113
to the extent permitted by law, the trustee shall be protected in
acting or refraining from acting on the advice of persons so
employed without court action.
(q) To appoint a bank, trust company, or broker or dealer
registered under the Securities Exchange Act of 1934 to act as
custodian with respect to any portion of the trust fund; and a
custodian so appointed shall have custody of such assets as are
deposited with it and as custodian such rights, powers and duties
with respect thereto as shall be agreed upon from time to time by
the trustee and such custodian.
(r) To furnish the employer with such information in the
trustee's possession as the employer may need for tax or other
purposes.
(s) At the direction of the employer or the administrator, to
receive, hold and invest any funds or other property transferred to
the trustee from:
(i) any other trust forming a part of a plan intended
to meet the requirements of Section 401(a) of the Code;
(ii) an employee of the employer if such funds or
property qualify as a rollover described in Section 402(c) of
the Code; or
(iii) an individual retirement account or individual
retirement annuity maintained by an employee of the employer,
if such funds or property qualify as a rollover contribution
described in Section 408(d)(3) of the Code; and to allocate,
credit and distribute any such funds and other property so
transferred in accordance with the terms of the plan.
(t) To transfer all or any portion of the trust fund to another
trust or trusts forming a part of a plan or plans that are intended
to meet the requirements of Section 401(a) of the Code, as directed
by the administrator.
(u) To transfer an eligible rollover distribution described in
Section 402(c)(4) of the Code directly to an eligible retirement
plan described in Section 402(c)(8)(B) of the Code, as directed by
the
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<PAGE> 114
administrator.
(v) To perform any and all other acts which in the trustee's
judgment are necessary or appropriate for carrying out its duties
under this agreement.
The trustee shall transmit promptly to the administrator or the
investment manager, as the case may be, all notices of conversion, redemption,
tender, exchange, subscription, class action, claim in insolvency proceedings or
other rights or powers relating to any of the securities in the trust fund,
which notices are received by the trustee from its agents or custodians, from
issuers of the securities in question and from the party (or its agents)
extending such rights. The trustee shall have no obligation to determine the
existence of any conversion, redemption, tender, exchange, subscription, class
action, claim in insolvency proceedings or other right or power relating to any
of the securities in the trust fund of which notice was given prior to the
purchase of such securities by the trust fund, and shall have no obligation to
exercise any such right or power unless the trustee is informed of the existence
of the right or power.
The trustee shall not be liable for any untimely exercise or assertion
of such rights or powers described in the paragraph immediately above in
connection with securities or other property of the trust fund at any time held
by it unless (i) it or its agents or custodians are in actual possession of such
securities or property and (ii) it receives directions to exercise any such
rights or powers from the administrator or an investment manager, as the case
may be, and both (i) and (ii) occur at least three business days prior to the
date on which such rights or powers are to be exercised.
If the trustee is directed by the administrator or an investment manager
to purchase securities issued by any foreign government or agency thereof, or by
any corporation or other entity domiciled outside of the United States, it shall
be the responsibility of the administrator or investment manager, as the case
may be, to advise the trustee in writing with respect to any laws or regulations
of any foreign countries or any United States territory or possession which
shall apply in any manner whatsoever to such securities, including, without
limitation, receipt by the trustee of dividends, interest or other distributions
on such securities.
All Investment Company shares shall be registered in the name of the
trustee or its nominee. Subject to any requirement of applicable law, the
trustee will transmit to the administrator copies of any notices of
shareholders' meetings, proxies and proxy-soliciting materials, prospectuses and
the annual or other reports to shareholders, with respect to Investment Company
shares held in the trust. The trustee shall act in accordance with appropriate
directions received from the administrator with respect to matters to be voted
upon by the shareholders of the Investment Company. Such directions must be in
writing on a form approved by the trustee, signed by the addressee and delivered
to the trustee within the time prescribed by it. The trustee will not vote
Investment Company shares as to which it receives no written directions. For
the purposes of this paragraph, Investment Company means a registered
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<PAGE> 115
investment company provided that its prospectus offers its shares under the
plan.
III-4. INVESTMENT MANAGER ACCOUNTS. The employer may appoint one or
more investment managers to manage the investment of any part or all of the
assets of the trust fund. Except as otherwise provided by law, the trustee
shall have no obligation for investment of any assets of the trust fund which
are subject to management by an investment manager. Appointment of an
investment manager shall be made by written notice to the investment manager and
the trustee, which notice shall specify those powers, rights and duties of the
trustee under this agreement that are allocated to the investment manager and
that portion of the assets of the trust fund subject to investment management.
An investment manager so appointed pursuant to this paragraph shall be either a
registered investment adviser under the Investment Advisers Act of 1940, a bank,
as defined in said Act, or an insurance company qualified to manage, acquire
and dispose of the assets of the plan under the laws of more than one state of
the United States. Any such investment manager shall acknowledge to the
employer in writing that it accepts such appointment and that it is a fiduciary
with respect to the plan and trust. An investment manager may resign at any
time upon written notice to the trustee and the employer. The employer may
remove an investment manager at any time by written notice to the investment
manager and the trustee.
The trustee shall have no liability (i) for the acts or omissions of any
investment manager (except to the extent the trustee itself is serving as
investment manager); (ii) for following directions, including investment
directions of an investment manager (other than the trustee) or the employer or
named fiduciary, which are given in accordance with this trust agreement; (iii)
for failing to act in the absence of investment manager direction; or (iv) for
any loss of any kind which may result by reason of the manner of division of the
trust fund or investment fund into investment accounts.
An investment manager shall certify, at the request of the trustee, the
value of any securities or other property held in any investment account managed
by such investment manager, and such certification shall be regarded as a
direction with regard to such valuation. The trustee shall be entitled to
conclusively rely upon such valuation for all purposes under this trust
agreement.
Except as otherwise provided in this trust agreement, the investment
manager of an investment account shall have the power and authority, to be
exercised in its sole discretion at any time and from time to time, to issue
orders for the purchase or sale of securities directly to a broker. Written
notification of the issuance of each such order shall be given promptly to the
trustee by the investment manager and the confirmation of each such order
shall be confirmed to the trustee by the broker. Unless otherwise directed by
the investment manager, such notification shall be authority for the trustee to
pay for securities purchased or to deliver securities sold as the case may be.
Upon the direction of the investment manager, the trustee will execute and
deliver appropriate trading authorizations, but no such authorization shall be
deemed to increase the liability or responsibility of the trustee under this
trust agreement.
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<PAGE> 116
III-5. INVESTMENT OPTIONS. The employer from time to time and in
accordance with provisions of the plan, may direct the trustee, with the
trustee's consent, to establish one or more separate investment options within
the trust fund, each separate option being hereinafter referred to as an
"investment fund", which may be invested in (i) shares of investment companies
registered under the Investment Company Act of 1940, (ii) collective funds
maintained by a bank or trust company, (iii) various classes of securities of
the employer, (iv) participant directed brokerage accounts, (v) pools of
insurance contracts, (vi) funds managed by a registered investment manager, bank
or insurance company, (vii) accounts managed by named fiduciaries for the plan;
and (viii) other investment options available from time to time under the plan.
The trustee shall have no liability for any loss of any kind which may result by
reason of the manner of division of the trust fund into investment funds, or for
the investment management of these accounts, except as provided in paragraph
III-9 respecting a trustee managed investment account, if any. The trustee
shall transfer to each such investment fund such portion of the assets of the
trust fund as the employer or the administrator directs. The trustee shall not
incur any liability on account of following any direction of the employer or the
administrator, and the trustee shall be under no duty to review the investment
guidelines, objectives and restrictions so established. To the extent that
directions from the employer or the administrator to the trustee represent
investment instructions of the plan's participants, the trustee shall have no
responsibility for such investment elections and shall incur no liability on
account of the direct and necessary results of investing the assets of the trust
fund in accordance with such participant investment instructions.
All interest, dividends and other income received with respect to, and
any proceeds received from the sale or other disposition of, securities or other
property held in an investment fund shall be credited to and reinvested in such
investment fund. All expenses of the trust fund which are allocable to a
particular investment fund shall be so allocated and charged. Subject to the
provisions of the plan, the employer may direct the trustee to eliminate an
investment fund or funds, and the trustee shall thereupon dispose of the assets
of such investment fund and reinvest the proceeds thereof in accordance with the
directions of the administrator.
III-6. PARTICIPANT DIRECTED BROKERAGE ACCOUNTS. The trustee shall, if
so directed by the employer, segregate all or a portion of the trust fund held
by it into one or more separate investment accounts to be known as "Participant
Directed Brokerage Accounts". Whenever a participant is directing the
investment and reinvestment of a Participant Directed Brokerage Account, the
participant shall have the powers and duties which an investment manager would
have under this trust agreement if an investment manager were then serving, and
the trustee shall be protected to the same extent as it would be protected under
this trust agreement as to directions or the absence of directions of an
investment manager. A participant shall be entitled to give orders directly to
a broker for the purchases and sale of securities. The broker shall provide
confirmation of each order to both the participant and to the administrator,
which shall maintain records in such form as to satisfy reporting requirements
of the plan.
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<PAGE> 117
III-7. EMPLOYER STOCK ACCOUNTS. The employer may direct the trustee,
with the trustee's consent, to establish one or more investment funds
substantially all of the assets of which shall be invested in securities which
constitute "qualifying employer securities" within the meaning of Section 407 of
ERISA (an "Employer Stock Account"). It shall be the duty of the employer to
determine that such investment is not prohibited by Sections 406 or 407 of
ERISA. In addition, during any time when there is no investment manager with
respect to an Employer Stock Account (such as before an investment management
agreement takes effect or after it terminates), the administrator shall direct
the investment and reinvestment of such Employer Stock Account. Except to the
extent otherwise required by the Code or ERISA or agreed to between the trustee
and the employer, the trustee shall exercise all voting or tender or exchange
offer rights with respect to all qualifying employer securities held by it in an
Employer Stock Account only as directed by the administrator.
III-8. EMPLOYER MANAGED INVESTMENT ACCOUNTS. The trustee shall, if so
directed in writing by the employer, segregate all or a portion of the trust
fund held by it into one or more separate investment accounts to be known as
"Employer Managed Investment Accounts". The employer, by written notice to the
trustee, may at any time relinquish its powers under this paragraph III-8 and
direct that an Employer Managed Investment Account shall no longer be
maintained. Whenever the administrator or named fiduciary is directing the
investment and reinvestment of an investment account or an Employer Managed
Investment Account, the administrator or named fiduciary shall have the powers
and duties which an investment manager would have under this trust agreement if
an investment manager were then serving, and the trustee shall be protected to
the same extent as it would be protected under this trust agreement as to
directions or the absence of directions of an investment manager.
III-9. TRUSTEE MANAGED INVESTMENT ACCOUNTS. The trustee shall have no
duty or responsibility to direct the investment and reinvestment of the trust
fund, any investment fund or any investment account unless expressly agreed to
in writing between the trustee and the Employer. In the event that the trustee
enters into such an agreement, it shall have the powers and duties of an
investment manager under this trust agreement with regard to such investment
account.
III-10. COMPENSATION AND EXPENSES. Except as otherwise provided below
in this agreement, all reasonable costs, charges, and expenses incurred in the
administration of this trust and the plan, including compensation to the trustee
(as agreed upon between the employer and the trustee), compensation to an
investment manager (as agreed upon between the employer and the investment
manager), and any compensation to agents, attorneys, accountants and other
persons employed by the trustee, will be paid from the trust fund to the
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extent not paid by the employer. Expenses incurred in connection with the sale,
investment and reinvestment of the trust fund (such as brokerage, postage,
express and insurance charges and transfer taxes) shall be paid from the trust
fund.
III-11. LIMIT OF TRUSTEE'S RESPONSIBILITY. No power, duty or
responsibility is imposed upon the trustee under the plan, except as set forth
in this agreement. Until they determine or are advised to the contrary, the
trustee and any investment manager (appointed as provided in paragraph III-4)
may assume that this trust is qualified under Section 401(a), and is entitled to
tax exemption under Section 501(a), of the Code.
ARTICLE IV
----------
General Provisions
------------------
IV-1. ACTION BY EMPLOYER. Any action required or permitted to be taken
by the employer under the trust shall be by resolution of its Board of
Directors, by resolution of a duly authorized committee of its Board of
Directors, or by a person or persons authorized by resolution of its Board of
Directors or such committee, if the employer is a corporation; by written
instrument signed by its managing partner or partners, or by a person or persons
authorized by such managing partner or partners, if the employer is a
partnership; and by written instrument signed by the employer, if the employer
is a sole proprietor.
IV-2. WARRANTY. The employer warrants that all directions or
authorizations by it or by the administrator, whether for the payment of money
or otherwise, will comply with the plan and this trust.
IV-3. DISAGREEMENT AS TO ACTS. If there is a disagreement between the
trustee and anyone as to any act or transaction reported in any accounting, the
trustee shall have the right to a settlement of its account by any proper court.
IV-4. COURTS. Except as otherwise provided by law, in case of any
court proceedings involving the employer, the trustee or the trust fund, only
the employer and the trustee shall be necessary parties to the proceedings, and
no other person shall be entitled to notice of process. A final judgment
entered in any such proceedings shall be conclusive.
IV-5. EVIDENCE. Evidence required of anyone under this agreement may
be by certificate, affidavit, document or other information which the person
acting on it considers pertinent and reliable, and signed, made or presented by
the proper party or parties.
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IV-6. THIRD PARTIES. Except as otherwise provided by law, the
trustee's exercise or non-exercise of its powers and discretions in good faith
shall be conclusive on all persons. No one shall be obliged to see to the
application of any money paid or property delivered to the trustee, except to
the extent such person is acting as an investment manager as respects such money
or property. The certificate of the trustee that it is acting according to this
agreement will fully protect all persons dealing with the trustee. An insurance
company may assume that this agreement and the plan have not been amended or
changed unless notice of such amendment or change is received by the insurance
company at its home office.
IV-7. NO REVERSION IN EMPLOYER. The employer shall have no right,
title or interest in the trust fund, nor shall any part of the trust fund revert
or be repaid to the employer, directly or indirectly, unless:
(a) the Internal Revenue Service initially determines that the
plan does not meet the requirements of Section 401(a) of the Code,
in which event the contributions made to the plan by the employer
shall be returned to it within one year after the adverse
determination;
(b) a contribution is made by the employer by mistake of fact
and such contribution is returned to the employer within one year
after payment to the trustee; or
(c) a contribution conditioned on the deductibility thereof is
disallowed as an expense for federal income tax purposes and such
contribution (to the extent disallowed) is returned to the employer
within one year after the disallowance of the deduction.
Contributions may be returned to the employer pursuant to subparagraph
(a) above only if they are conditioned upon initial qualification of the plan,
and an application for determination was made by the time prescribed by law for
filing the employer's Federal income tax return for the taxable year in which
the plan was adopted (or such later date as the Secretary of the Treasury may
prescribe). The amount of any contribution that may be returned to the employer
pursuant to subparagraph (b) or (c) above must be reduced by any portion thereof
previously distributed from the trust fund and by any losses of the trust fund
allocable thereto, and in no event may the return of such contribution cause any
participant's account balances to be less than the amount of such balances had
the contribution not been made under the plan. The employer shall have sole
responsibility for determining whether any of the conditions for repayment of
contributions under subparagraphs (a) through (c) above have been met.
IV-8. INTERESTS NOT TRANSFERABLE. The interests of persons entitled to
benefits under the plan are not subject to their debts or other obligations and,
except as may be required by a qualified domestic relations order as defined in
Section 414(p) of the Code, may
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<PAGE> 120
not be voluntarily or involuntarily sold, transferred, alienated, assigned or
encumbered.
IV-9. INDEMNIFICATION. To the extent permitted by applicable law, the
employer shall indemnify and save harmless the trustee for and from any loss or
expense (including reasonable attorneys' fees) arising (a) out of an authorized
action hereunder taken in good faith by the trustee or any matter as to which
this agreement provides that the trustee is directed, protected, not liable, or
not responsible, or (b) by reason of any breach of any statutory or other duty
owed to the plan by the employer, the administrator, or any investment manager
or any delegate of any of them (and for the purposes of this sentence the
trustee shall not be considered to be such a delegate), whether or not the
trustee may also be considered liable for that other person's breach under the
provisions of Section 405(a) of ERISA.
IV-10. LITIGATION BY PARTICIPANTS. If a legal action begun against the
trustee or the employer by or on behalf of any person results adversely to that
person, or if a legal action arises because of conflicting claims to a
participant's or other person's benefits, the cost to the trustee or the
employer of defending the action will be charged to the extent permitted by law
to the sums, if any, which were involved in the action or were payable to the
person concerned.
IV-11. LIABILITIES MUTUALLY EXCLUSIVE. To the extent permitted by law,
the trustee, an investment manager and the employer shall be responsible only
for its own acts or omissions and the trustee shall not be required to collect
any contribution from the employer or any other person or to verify that it is
in the proper amount. No insurance company shall be a party to this agreement
for any purpose or be responsible for the validity of this agreement, it being
intended that an insurance company shall be liable only for the obligations set
forth in the contracts issued by it.
IV-12. WAIVER OF NOTICE. Any notice required under this agreement may
be waived by the person entitled to such notice.
IV-13. COUNTERPARTS. This agreement may be executed in two or more
counterparts, any one of which will be an original without reference to the
others.
IV-14. GENDER AND NUMBER. Where the context admits, words in the
masculine gender shall include the feminine and neuter genders, the singular
shall include the plural, and the plural shall include the singular.
IV-15. SUCCESSORS. This agreement shall be binding on all persons
entitled to benefits under the plan and their respective heirs and legal
representatives, on the employer and its successors and assigns and on the
trustee and its successors. The term "employer" as used in the plan and this
agreement includes any entity that continues the plan and this trust in effect,
as provided in the plan.
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<PAGE> 121
IV-16. SEVERABILITY. If any provision of the plan or this agreement is
held to be illegal or invalid, such illegality or invalidity shall not affect
the remaining provisions of the plan and this agreement, and they shall be
construed and enforced as if such illegal or invalid provision had never been
inserted therein.
IV-17. STATUTORY REFERENCES. Any references in the plan or this
agreement to a Section of the Internal Revenue Code (the "Code"), the Employee
Retirement Income Security Act of 1974 ("ERISA") or the Tax Reform of 1986 shall
include any comparable section or sections of any future legislation which
amends, supplements or supersedes said Section.
IV-18. DISCRETION OF THE TRUSTEE BINDING. Wherever in this trust it is
provided that a power may be exercised or an action taken by the trustee
requiring the exercise of discretion, the exercise of discretion by the trustee
in conformance with Article II of the trust shall be absolute and bind- ing on
the employer and participants under the plan.
IV-19. DURATION OF TRUST. Unless sooner terminated, the trust created
under this trust agreement shall continue for the maximum period of time which
the laws of the Commonwealth of Massachusetts shall permit.
IV-20. NO LIABILITY FOR ACTS OF PREDECESSOR AND SUCCESSOR TRUSTEES.
The trustee shall have no liability for the acts or omissions of any
predecessors or successors in office.
ARTICLE V
---------
Amendment, Termination and Change of Trustee
--------------------------------------------
V-1. AMENDMENT BY SPONSOR. The employer, by signing the adoption
agreement, authorizes and empowers the sponsor to amend the trust from time to
time, subject to the following:
(a) Except as provided in subparagraphs (b) and (c) next below,
no such amendment shall become effective until at least 30 days'
prior written notice thereof has been given to the employer.
(b) An amendment of the trust made under this paragraph, which
the sponsor deems necessary or appropriate to enable the trust to
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meet the requirements of Section 401(a) of the Code, or any future
legislation amending, supplementing or superseding said Section,
may be made effective as of any date the sponsor deems appropriate.
(c) An amendment of the trust made under this paragraph to
conform the trust to any change in any law of the United States,
any state or political subdivision thereof, or to any rule or
regulation thereunder, may take effect as of the date such
amendment is required to be effective under such law, rule or
regulation.
(d) Except as provided in paragraph IV-7, under no condition
shall an amendment result in the return or repayment to the
employer of any part of the trust fund or the income from it or
result in the distribution of the trust fund for the benefit of
anyone other than persons entitled to benefits under the plan.
V-2. AMENDMENT BY EMPLOYER. This trust may not be amended by the
employer, except with the advance written consent of the trustee. Except as
provided in paragraph IV-7, under no condition shall an amendment result in the
return or repayment to the employer of any part of the trust fund or the income
from it or result in the distribution of the trust fund for the benefit of
anyone other than persons entitled to benefits under the plan.
V-3. TERMINATION. If the plan is terminated, this trust, including all
rights, titles, powers, duties, discretions and immunities imposed on or
reserved to the trustee, the administrator and the employer nevertheless shall
continue in effect until all assets have been distributed by the trustee as
directed by the administrator under the plan. Notwithstanding the foregoing,
the trustee shall not be required to pay out any assets of the trust fund upon
termination of the trust until the trustee has received written certification
from the administrator that all provisions of law with respect to such
termination have been complied with. The trustee shall rely conclusively on
such written certification, and shall be under no obligation to investigate or
otherwise determine its propriety.
V-4. RESIGNATION AND REMOVAL OF TRUSTEE. The trustee acting hereunder
may resign at any time by giving thirty days' prior written notice to the
employer, which notice may be waived by the employer. The employer may remove
the trustee at any time upon thirty days' prior written notice to the trustee,
which notice may be waived by the trustee. In case of the resignation or removal
of the trustee, the employer shall promptly appoint a successor trustee, and if
no successor trustee has been appointed by the effective date of the trustee's
resignation, the trustee may petition a court of competent jurisdiction to
appoint a successor trustee at the expense of the trust fund. Any successor
trustee shall have the same powers and duties as those conferred by this
agreement as if originally named trustee. The removal of a trustee and the
appointment of a new trustee shall be by a written instrument delivered to the
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<PAGE> 123
trustee. Upon the appointment of a successor trustee, the resigning or removed
trustee shall transfer or deliver the trust fund to such successor trustee.
ARTICLE VI
----------
Incorporation of Collective Investment Trusts
---------------------------------------------
Notwithstanding any other provisions of this agreement, the trustee or
any investment manager may cause any part or all of the trust assets for which
it has investment responsibility to be invested in any common, collective or
commingled trust fund or pooled investment fund qualified under Section 401(a)
and entitled to tax exemption under Section 501(a) of the Code. To the extent
trust assets are invested in any such common, collective or commingled trust
fund or pooled investment fund, the provisions of the documents under which such
fund is maintained, as amended from time to time, shall govern any investment
therein, and such provisions are hereby incorporated herein and made a part of
this agreement.
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<PAGE> 1
EXHIBIT 10.8
ADOPTION AGREEMENT FOR
----------------------
STATE STREET SOLUTIONS
----------------------
PROTOTYPE DEFINED CONTRIBUTION PLAN
-----------------------------------
(Profit Sharing - Nonstandardized)
(001)
<PAGE> 2
ADOPTION AGREEMENT FOR
----------------------
STATE STREET SOLUTIONS
----------------------
PROTOTYPE DEFINED CONTRIBUTION PLAN
-----------------------------------
(Profit Sharing - Nonstandardized)
ADOPTION OF PLAN
- ----------------
[ ] ADOPTION - With the consent of State Street Bank and Trust Company (the
"sponsor"), the undersigned
(the "employer") hereby adopts as a profit sharing plan for its employees the
form of plan known as State Street Solutions Prototype Defined Contribution
Plan, and hereby agrees to become a party to the Trust Agreement under State
Street Solutions Prototype Defined Contribution Trust (the "trust"), which
forms a part of the plan.
[ ] AMENDMENT OF STATE STREET SOLUTIONS PROTOTYPE DEFINED CONTRIBUTION PLAN
(the "employer") previously has adopted a
profit sharing plan in the form of State Street Solutions Prototype Defined
Contribution Plan and the execution of this adoption agreement constitutes an
amendment of that plan.
[X] RESTATEMENT OF OTHER PROFIT SHARING PLAN - With the consent of State
Street Bank and Trust Company (the "sponsor"), the undersigned THE TIMBERLAND
COMPANY (the "employer") hereby adopts as a profit sharing plan for its
employees the form of plan known as State Street Solutions Prototype Defined
Contribution Plan, and hereby agrees to become a party to the Trust Agreement
under State Street Solutions Prototype Defined Contribution Trust (the
"trust"), which forms a part of the plan.
NAME OF PLAN. The name of this plan as adopted by the employer is the
TIMBERLAND RETIREMENT EARNINGS 401(K) (the "plan").
With respect to the variable features contained in the plan, the employer
hereby makes the following selections granted under the provisions of the
plan:
GENERAL INFORMATION (Sections 1 and 2 of the plan)
- -------------------
1. ADOPTING ENTITY. The employer adopts the plan as: (subsection 1.2)
----------------
[ ] (a) a single employer plan.
[X] (b) a plan of a controlled group of corporations or
trades or businesses under common control.
[ ] (c) a plan of an affiliated service group.
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<PAGE> 3
Item (a) should be selected if the plan is being adopted by the employer
only. If the plan is adopted by one or more related employers in
addition to the employer, item (b) or (c) should be selected and the
related employers adopting the plan should be specified below:
-----------------------------------
-----------------------------------
-----------------------------------
The adopting employers and the employer are referred to herein
collectively as the "employer."
2. EMPLOYER'S ADDRESS. The employer's principal business address is:
------------------
THE TIMBERLAND COMPANY
----------------------
200 DOMAIN DRIVE
----------------------
STRATHAM, NH. 03885
----------------------
(subsection 1.4)
3. EMPLOYER'S NAME AND ID NUMBER. The employer's name and employer
identification number that will be used for filing annual
return/reports is:
THE TIMBERLAND COMPANY / 02-0132554
-------------------------------------------------------------------------
4. EFFECTIVE DATE. The "effective date" of the initial adoption of this
plan or this plan amendment is OCTOBER 1, 1995 (subsection 2.6).
If this is an amendment and restatement of a prior profit sharing
plan, the initial effective date of the prior plan was
FEBRUARY 1, 1991.
5. EMPLOYER'S FISCAL YEAR. The last month and day of the employer's fiscal
year is DECEMBER 31 (subsection 2.11).
6. PLAN YEAR. The "plan year" of the plan shall be (subsection 2.21):
[X] (a) A calendar year.
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<PAGE> 4
[ ] (b) The fiscal year of the employer.
[ ] (c) The fiscal year ending [specify month
and day].
[ ] (d) A short plan year beginning , 19 and
ending , 19 ; and thereafter the
plan year shall be as indicated in (a), (b) or (c)
above.
7. PLAN ADMINISTRATOR. The plan administrator(subsection 1.3)
of the plan is THE TIMBERLAND COMPANY (fill in the name(s) of the
individuals or entity that is responsible for administration of
the plan) and such other persons or entity as the employer shall
appoint from time to time. The employer will notify the trustee of any
change in the administrator.
COMPENSATION
- ------------
8. EXCLUSIONS FROM COMPENSATION. For purposes of subsection 2.3 of the
plan, the definition of compensation:
(a) [X] shall include
[ ] shall not include
---
all employer contributions made pursuant to a compensation
deferral (or reduction) election which are not includible
in the gross income of the employee under Sections
125, 402(e)(3), 402(h), 457(b), 403(b) or 414(h)(2)
of the Code; and
(b) [X] shall
[ ] shall not
exclude the following items from the compensation of an
employee:
BONUSES, OVERTIME PAY, INCENTIVE COMPENSATION, OR ANY OTHER
EXTRA RENUMERATION NOT CONSTITUTING DIRECT COMPENSATION FOR
SERVICES.
[If you exclude items from compensation under (b) above, the plan will
be required to demonstrate that the resulting definition of
compensation is non-discriminatory.]
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<PAGE> 5
ELIGIBILITY TO PARTICIPATE
--------------------------
9. ENTRY DATE. The entry date (subsection 2.9) is: [Select one]
[ ] (a) The first day of each month.
[X] (b) The first day of each plan year quarter.
[ ] (c) The first day of each plan year and the
first day of the seventh month of each
plan year.
[ ] (d) The last day of the sixth month of each
plan year and the last day of each plan
year.
[ ] (e) The first day of each plan year. [If you
select this option, the age requirement
in item 10(a) may not exceed 20-1/2 years
and the service requirement in item
10(b) may not exceed 1/2 year.]
[ ] (f) The date that the employee satisfies the
plan's eligibility requirements.
10. ELIGIBILITY REQUIREMENTS. Subject to the provisions of
subsection 3.1 of the plan, each employee of the employer
will be eligible to participate in the plan if the employee
satisfies all of the following eligibility requirements:
(a) MINIMUM AGE. The employee has attained at least
age 18 years (specify 21 or less - or specify
that "no" age requirement shall apply).
(subparagraph 3.1(a))
(b) MINIMUM SERVICE. The employee has completed at
least .5 year(s) of service (specify 2 or less).
If you permit compensation deferral contributions,
the employee will be eligible to participate
in the compensation deferral (and matching
contribution, if any) arrangement under this plan
if the employee completes at least .5 year of
service (specify 1 or less). (subparagraph 3.1(b))
(c) ELIGIBLE CLASSES. The employee belongs to at
least one of the groups or classes of employees
specified below (subparagraph 3.1(c)):
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<PAGE> 6
[ ] All employees.
[ ] All employees who are not included in a unit of
employees covered by an agreement which the
Secretary of Labor finds to be a collective bargain-
ing agreement between employee representatives and
one or more employers, if there is evidence that
retirement benefits were the subject of good faith
bargaining between the employer and such employee
representatives, and participation in the plan has
not been extended to such unit of employees.
[X] Salary based employees who regularly work in the
United States.
[X] Hourly employees of The Timberland Company.
[ ] Commissioned salesmen
[ ] Other (specify)
.
[If you select any of the last four choices in item (c) above, the
plan must satisfy on a continuing basis the non-discrimination test of
Section 401(a)(4), the participation test of Section 401(a)(26) and
the coverage test of Section 410(b) of the Internal Revenue Code.
These participation and coverage tests will automatically be satisfied
if you select only the first or second choice in (c) above.]
YEAR OF SERVICE
- ---------------
11. ELIGIBILITY SERVICE. A "year of service" (subsection 2.28) for
purposes of determining eligibility to participate in the plan shall be
computed in accordance with: [Select one]
[ ] (a) Hours of service completed in a year, in accordance with
subparagraph 2.28(a) of the plan.
[X] (b) Elapsed time, in accordance with subparagraph 2.28(b) of
the plan.
12. VESTING SERVICE. A "year of service" (subsection 2.28) for purposes
of determining vesting under the plan shall be computed in accordance
with: [Select one]
[ ] (a) Hours of service completed in a plan year, in accordance with
subparagraph 2.28(a)
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<PAGE> 7
of the plan.
[X] (b) Elapsed time, in accordance with subparagraph 2.28(b) of the
plan.
This item must be completed even though the number "0"
has been specified in item 10(b).
13. HOURS OF SERVICE. [Do not complete item 13 if you selected both 11(b)
and 12(b) above]. If item 11(a) or 12(a) has been specified, an
employee shall be credited with hours of service (subsection 2.13), as
follows: [Select one]
[ ] (a) Actual hours of service for which an employee is paid or
entitled to payment.
[ ] (b) 10 hours of service for each day or portion of a day.
[ ] (c) 45 hours of service for each week or portion of a week.
[ ] (d) 190 hours of service for each month or portion of a month.
COMPENSATION DEFERRAL CONTRIBUTIONS
-----------------------------------
14. COMPENSATION DEFERRAL CONTRIBUTIONS PERMITTED. Compensation deferral
contributions by participants under subsection 4.1 of the plan are
permitted.
[X] (a) Yes. A participant's compensation deferral contribution
election: [Select one]
[ ] (i) shall
[X] (ii) shall not apply to cash bonuses.
[ ] (b) No.
15. COMPENSATION DEFERRAL CONTRIBUTION LIMITS. Between 2% and 16%
of a participant's compensation (specify minimum and maximum whole
percentages) may be deferred by a participant and contributed to the plan
as compensation deferral contributions in accordance with subsections 4.1
and 6.2 of the plan. Compensation deferral contributions withheld from
participants' compensation are deemed to be made by the employer.
Compensation deferral contributions may not exceed the dollar limit in
effect under Section 402(g) of the Internal Revenue Code for any taxable
year, and excess deferrals
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<PAGE> 8
under Section 402(g) must be remedied as a matter of plan
qualification. The plan contains limitations on the percentage of
compensation that "highly compensated employees" may elect to defer as
compared to all other participants (subsection 4.5). The plan also
contains a limitation ($9,240 for 1995, and indexed to the
cost-of-living) on the compensation deferral contributions made by any
participant for any calendar year (subsection 4.4). You may wish to
take these limitations into consideration when selecting the maximum
and minimum percentages above. Under no circumstances may a salary
reduction agreement or other deferral mechanism be adopted
retroactively.
16. COMPENSATION DEFERRAL CONTRIBUTION CHANGES. A participant may elect
to change the rate of his compensation deferral contributions under
subsection 4.3 of the plan as of the first payroll period
beginning on or after: [Select one]
[ ] (a) The first day of any plan year.
[ ] (b) The first day of any plan year and the first day of
the seventh month of any plan year.
[X] (c) The first day of any plan year quarter.
[ ] (d) The first day of any month.
VOLUNTARY PARTICIPANT CONTRIBUTIONS
- -----------------------------------
17. VOLUNTARY CONTRIBUTIONS PERMITTED. If the employer has specified that
participants may make compensation deferral contributions under the
plan, participants also may elect to make voluntary contributions under
subsection 5.1 of the plan. Note: If you maintain another qualified
retirement plan that permits voluntary participant contributions, you
must check "No".
[ ] (a) Yes. A participant's voluntary contribution election:
[Select one]
[ ] (i) shall
[ ] (ii) shall not apply to cash bonuses.
[X] (b) No.
18. VOLUNTARY CONTRIBUTION LIMITS. If the employer has specified in item
17 above that participants may elect to make voluntary contributions,
such contributions may be between one and percent of their
compensation (specify a whole number, up to 10 percent).
The plan contains limitations on the percentage of compensation that
"highly compensated employees" may elect to contribute (when added
together with any employer matching contributions allocated to such
participants), as compared to all participants (subsection 4.6). You
may wish to take these limitations into account when setting the
maximum percentage in this item 18, unless you have prohibited highly
compensated employees from
-7-
<PAGE> 9
making contributions by item 29 below.
19. VOLUNTARY CONTRIBUTION CHANGES. If the employer has specified in item
17 above that participants may elect to make voluntary
contributions, a participant may elect to change the rate of his
voluntary contributions under subsection 5.3 of the plan as of the
first payroll period beginning on or after: [select one]
[ ] (a) The first day of any plan year.
[ ] (b) The first day of any plan year and the first day of
the seventh month of any plan year.
[ ] (c) The first day of any plan year quarter.
[ ] (d) The first day of any month.
MATCHING CONTRIBUTIONS
- ----------------------
20. EMPLOYER MATCHING CONTRIBUTIONS PERMITTED. In addition to the
compensation deferral contributions under subsection 6.2 of the plan,
the employer will make a matching contribution on behalf of each
participant under subsection 6.3 of the plan.
[X] Yes.
[ ] No.
21. AMOUNT OF MATCHING CONTRIBUTION. If the employer has specified that
it will make employer matching contributions on behalf of
participants, such matching contributions will be in an amount
determined as follows: [Select one]
[X] (a) 50% of the compensation deferral contributions made by
each participant.
[ ] (b) At a percentage of the compensation deferral
contributions to be determined solely in the discretion
of the employer in a nondiscriminatory manner.
[If (a) or (b) above is selected, the employer will not match
compensation deferral contributions in excess of $___________
or 4% of each participant's compensation --
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<PAGE> 10
specify either a dollar amount or a whole percentage which is between
1% and the highest percentage specified in item 15.]
[ ] (c) $________ for each participant who made compensation
deferral contributions of at least ____% of
compensation.
[ ] (d) ____% of the compensation of each participant who
made compensation deferral contributions of at least
____% of compensation.
[ ] (e) In an amount to be determined solely in the discretion
of the employer in a nondiscriminatory manner, to be
allocated to those participants who made compensation
deferral contributions of at least ____% of
compensation, pro rata, according to the compensation
paid to them by the employer.
[ ] (f) ____% of that portion of the compensation deferral
contributions made by each participant which does
not exceed ____% of the participant's compensation; plus
____% of that portion, if any, of the compensation
deferral contributions made by each participant which
exceeds ____% of the participant's compensation but does
not exceed ____% of the participant's compensation; plus
____% of that portion, if any, of the compensation
deferral contributions made by each participant which
exceeds ____% of the participant's compensation but does
not exceed ____% of the participant's compensation.
Subsection 4.6 of the plan contains limitations on the percentage of
compensation which a highly compensated participant can have credited
to his account through employer matching contributions; and
Section 17 of the plan contains limitations on the total amount
which may be credited to a participant's account for any year.
22. COMPENSATION IN INITIAL YEAR OF PARTICIPATION. A participant's
compensation which is used in the allocation of employer matching
contributions under item 21(d) or (e) shall: [Select one]
[ ] (a) exclude compensation before becoming a participant.
[ ] (b) exclude compensation before meeting the plan's eligibility
requirements.
[ ] (c) include compensation in the first plan year of
participation.
23. EMPLOYEES ELIGIBLE TO RECEIVE MATCHING CONTRIBUTION. Employer
matching contributions made for each plan year shall be allocated and
credited to the employer matching contribution accounts of the
following participants: [Select one]
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<PAGE> 11
[ ] (a) Participants who were employed by the employer during that
plan year, other than participants who resigned or were
dismissed prior to completing ____ (not more
than 1,000) hours of service during that plan year.
[X] (b) Participants who were employed by the employer during that
plan year.
[ ] (c) Participants who were employed by the employer on the last
day of that plan year.
[ ] (d) Participants who both were employed by the employer on the
last day of that plan year and had completed at least ____
(not more than 1,000) hours of service during that plan
year.
[Selection of more than 501 hours in item 23(a) or selection of item
23(c) or 23(d) could result in discrimination in operation and plan
disqualification.]
24. QUALIFIED MATCHING CONTRIBUTIONS. Employer matching contributions
made under item 20 may constitute "qualified matching contributions" or
the employer may make additional matching contributions which constitute
"qualified matching contributions" that are fully vested and subject to
distribution restrictions.
[ ] (a) Yes. The portion of the employer matching
contributions which constitutes
qualified matching contributions shall be:
[ ] (i) All matching contributions.
[ ] (ii) Only the portion of the matching contributions
required to satisfy the ADP test under
subsection 4.5 of the plan.
Qualified matching contributions shall be allocated to:
[ ] (iii) All participants.
[ ] (iv) All participants who are not highly compensated
employees.
[ ] (b) No.
EMPLOYER CONTRIBUTIONS
- ----------------------
25. ALLOCATION FORMULA. Employer contributions shall be allocated to
participants' accounts as follows:
-10-
<PAGE> 12
[ ] (a) COMPENSATION FORMULA: According to participants'
compensation as provided in subparagraph 8.7(a) of
the plan.
[ ] (b) PERMITTED DISPARITY FORMULA: According to a formula
which emphasizes compensation in excess of the
taxable wage base, as provided in subparagraph 8.7(b)
of the plan. The integration level shall be:
[ ] (i) $ (a dollar amount less than the
taxable wage base).
[ ] (ii) % (up to 100%) of the taxable wage base in
effect for the calendar year in which the plan
year begins.
If the employer has adopted this plan as a paired plan with State Street
Solutions Prototype Defined Contribution Plan (Money Purchase -
Nonstandardized), only one of the plans may provide for permitted
disparity under item (b) above.
26. COMPENSATION IN INITIAL YEAR OF PARTICIPATION. A participant's
compensation which is used in the allocation of employer contributions
shall: [Select one]
[ ] (a) exclude compensation before becoming a participant.
[ ] (b) exclude compensation before meeting the plan's
eligibility requirements.
[ ] (c) include all compensation in the first plan year of
participation.
27. EMPLOYEES ELIGIBLE TO RECEIVE EMPLOYER CONTRIBUTION. Employer
contributions made for each plan year (and forfeitures, if
applicable) shall be allocated and credited to the employer
contribution accounts of the following participants: [Select one]
[ ] (a) Participants who were employed by the employer during
that plan year, other than participants who
resigned or were dismissed prior to completing
(not more than 1,000) hours of service during that plan
year.
[ ] (b) Participants who were employed by the employer during
that plan year.
[ ] (c) Participants who were employed by the employer on the
last day of that plan year.
[ ] (d) Participants who both were employed by the employer
on the last day of that plan year and had completed at
least (not more than 1,000)
-11-
<PAGE> 13
hours of service during that plan year.
[Selection of more than 501 hours in item 27(a) or selection of item
27(c) or 27(d) could result in discrimination in operation and plan
disqualification.]
28. QUALIFIED NONELECTIVE CONTRIBUTIONS. Employer contributions made under
subparagraph 6.1(b) of the plan may constitute "qualified
nonelective contributions" or the employer may make additional
contributions which constitute "qualified nonelective contributions
that are fully vested and subject to distribution restrictions.
[X] (a) Yes. The portion of the employer contributions which
constitutes qualified nonelective contributions shall be:
[ ] (i) All employer contributions.
[ ] (ii) Only the portion of the employer contributions
required to satisfy the ADP test under subsection
4.5 of the plan and the ACP test under
subsection 4.6 of the plan.
Qualified nonelective contributions shall be allocated to:
[ ] (iii) All participants.
[X] (iv) All participants who are not highly compensated
employees.
[ ] (b) No.
HIGHLY COMPENSATED EMPLOYEES
- ----------------------------
29. CONTRIBUTIONS BY HIGHLY COMPENSATED EMPLOYEES PROHIBITED
--------------------------------------------------------
[ ] (a) COMPENSATION DEFERRAL CONTRIBUTIONS. Participants
who are deemed to be "highly compensated employees"
under subsection 2.12 of the plan (including certain
family members) shall not be permitted to make
compensation deferral contributions under the plan
(subsection 4.7).
[ ] (b) VOLUNTARY CONTRIBUTIONS. Participants who are deemed
to be "highly compensated employees" under
subsection 2.12 of the plan (including certain family
members) shall not be permitted to make voluntary
contributions under the plan (subsection 4.7).
-12-
<PAGE> 14
ACCOUNTING
- ----------
30. REGULAR ACCOUNTING DATE. A "regular accounting date" (under
subsection 8.2) for purposes of the plan shall mean: [Select one]
[X] (a) The last day of each plan year quarter.
[ ] (b) The last day of the six month of each plan year and
the last day of each plan year.
[ ] (c) The last day of each plan year.
31. APPLICATION OF FORFEITURES. Forfeitures arising during a plan year
(except forfeitures arising under subsection 4.6) under subsection
10.2 of the plan shall be applied as follows:
[ ] (a) Forfeitures shall be allocated to participants, in
accordance with subparagraph 8.8(a), or
[X] (b) Forfeitures shall be applied to reduce employer
matching contributions, if any, and then
employer contributions required under the plan, in
accordance with subparagraph 8.8(b) of the plan.
PLAN INVESTMENTS
- ----------------
32. Investment Options.
------------------
[ ] (a) Investment options shall not be offered.
[X] (b) INVESTMENT OPTIONS - ALL ACCOUNTS. Participants
shall direct the investment of their account balances
under the plan among the various investment options
established by agreement between the employer and the
trustee.
[ ] (c) INVESTMENT OPTIONS - SPECIFIED ACCOUNTS ONLY.
Participants shall direct the investment of the
following accounts under the plan among the various
investment options established by agreement between the
employer and the trustee (select one or more):
[ ] (i) Compensation deferral contribution account.
-13-
<PAGE> 15
[ ] (ii) Voluntary contribution account.
[ ] (iii) Rollover account.
[ ] (iv) Matching contribution account.
[ ] (v) Employer contribution account.
The administrator shall direct the investment among the
investment options of the remaining accounts under the plan.
33. INVESTMENT INCREMENTS. If the employer has specified that
participants may direct the investment of their accounts under item
32(b) or (c) above, such directions must be in increments of:
[Select one]
[ ] (a) 10% and multiples thereof.
[X] (b) 1% (specify a whole number).
VESTING AND DISTRIBUTION OF BENEFITS
- ------------------------------------
34. VESTING OF EMPLOYER CONTRIBUTIONS. A participant's vested percentage
(subsection 10.2) in employer contributions will be determined under
the vesting period selected below: [Select one]
[ ] (a) 100% vested at all times (this box must be checked if
the number "2" has been specified in item 10(b)
or if you elected to treat all employer contributions
as "qualified nonelective contributions" in item
28(a)(i) above for purposes of the anti-discrimination
tests described in subsections 4.5 and 4.6 of the
plan).
[ ] (b) Years of Service Vested Percentage
---------------- -----------------
Less than 1 year %
1 year but less than 2 %
2 years but less than 3 %
-14-
<PAGE> 16
3 years but less than 4 % (20% or more)
4 years but less than 5 % (40% or more)
5 years but less than 6 % (60% or more)
6 years but less than 7 % (80% or more)
7 or more years 100%
[ ] (c) Years of Service Vested Percentage
---------------- -----------------
Less than 1 year %
2 years but less than 3 %
3 years but less than 4 %
4 years but less than 5 %
5 or more year 100%
If the plan becomes top-heavy (as defined in subsection 19.2 of the
plan), the vesting period must meet the requirements of subsection 19.5
of the plan.
35. VESTING OF MATCHING CONTRIBUTIONS. If employer matching contributions
may be made under item 20, a participant's vested percentage in
employer matching contributions will be determined under the vesting
period selected below: [Select one if applicable]
[ ] (a) 100% vested at all times (this box must be checked if
the number "2" has been specified in item 10(b)
or if you elected to treat all employer matching
contributions as "qualified matching contributions" in
item 24(a)(i) above for purposes of the
anti-discrimination test described in subsection 4.5 of
the plan).
[X] (b) Years of Service Vested Percentage
---------------- -----------------
Less than 1 year 0 %
1 year but less than 2 25 %
2 years but less than 3 50 %
3 years but less than 4 75 % (20% or more)
4 years but less than 5 100 % (40% or more)
5 years but less than 6 100 % (60% or more)
6 years but less than 7 100 % (80% or more)
7 or more years 100%
-15-
<PAGE> 17
[ ] (c) Years of Service Vested Percentage
---------------- -----------------
Less than 1 year %
1 year but less than 2 %
2 years but less than 3 %
3 years but less than 4 %
4 years but less than 5 %
5 or more years 100%
36. SERVICE BEFORE PLAN'S ESTABLISHMENT EXCLUDED. Years of service earned
prior to establishment of the plan shall be disregarded for
purposes of determining vesting under the plan:
[ ] Yes.
[X] No.
37. SERVICE BEFORE AGE 18 EXCLUDED. Years of service earned prior to
attaining age 18 years shall be disregarded for purposes of determining
vesting under the plan:
[ ] Yes.
[X] No.
38. NORMAL RETIREMENT AGE. For each participant, normal retirement age is:
[X] (a) Age 65 (not to exceed 65)
[ ] (b) The later of:
(i) age ____ (not to exceed 65)
(ii) the ____ (not to exceed 5th) anniversary of the
participation commencement date.
39. EARLY RETIREMENT. The plan provides for early retirement at or after
age ______ years and after completing ____ years of service.
-16-
<PAGE> 18
[ ] Yes. (If you select this option, you must fill in the early
retirement age and service requirement above.)
[X] No.
40. JOINT AND SURVIVOR ANNUITY. Benefits under the plan are subject to
the joint and survivor annuity requirements. (Once you respond to this
statement and select the optional form(s) of benefit, you cannot later
amend the plan or adoption agreement to change your response or remove
the option as to existing accounts.)
[X] (a) No. Lump sum is normal form of benefit. Optional
form(s) of benefit, if any:
[ ] Installment payment.
[ ] Joint and survivor annuity. (If you select this
option, the joint and survivor annuity requirements of
Section 11 of the plan will apply to this form of
benefit).
[ ] (b) Yes. Joint and survivor annuity is normal form of
benefit. Optional form(s) of benefit:
[ ] (i) Lump sum payment.
[ ] (ii) Installment payment.
41. INSTALLMENTS FOR BENEFICIARIES. Participants may select an
installment method of payment for their beneficiaries.
[ ] Yes.
[X] No.
42. PROTECTED BENEFITS.
------------------
[ ] Benefits under the plan are payable under another
distribution option that is a "protected benefit" under
Section 411(d)(6) of the Internal Revenue Code. [Check this
box if the plan is a restatement, continuation, transferee,
etc. of another plan under which benefits were payable in a
form not selected in items 40 and 41. Attach a separate page
identifying the protected distribution option(s).]
-17-
<PAGE> 19
LOANS AND WITHDRAWALS
- ---------------------
43. LOANS. Loans to participants under subsection 12.4 of the plan are
permitted.
[X] Yes.
[ ] No.
44. HARDSHIP WITHDRAWALS. Hardship withdrawals of participants'
compensation deferral contributions shall be permitted (subsection
12.5).
[X] Yes.
[ ] No.
45. PRE-TERMINATION DISTRIBUTIONS. In addition to withdrawals described
in item 44 and subsection 12.1 of the plan, if any, pre-termination
distributions of account balances that are 100% vested (subsection
12.2) are permitted. [Select one]
[ ] (a) No.
[X] (b) Yes, after attaining age 59-1/2.
[ ] (c) Yes [except for compensation deferral contribution
accounts and employer contributions treated as
qualified matching contributions or qualified nonelective
employer contributions (and earnings thereon), if any]
after both attaining age ____ and completing ____ years
of participation in the plan (specify 5 or more).
LIMITATION ON ALLOCATIONS (Section 17 of the plan)
- -------------------------
46. OTHER QUALIFIED PLANS MAINTAINED. If the employer maintains or ever
maintained another qualified plan in which any participant in this
plan is (or was) a participant or could become a participant, the
employer must complete this item if it desires to apply the Code Section
415 limits in a manner other than as provided in Section 17 of the plan.
The employer must also complete this item if it maintains a welfare
benefit fund, as defined in Section 419(e) of the Code, or an individual
medical account, as defined in Section 415(l)(2) of the Code, under
which amounts are treated as annual additions with respect to any
participant.
[ ] (a) Other Defined Contribution Plan(s) Maintained. If
the employer maintains other qualified defined
contribution plans other than a master or prototype
-18-
<PAGE> 20
plan, any excess amount shall be considered
attributable to amounts last allocated to such other
plans and shall be handled in the manner provided for
in such plans as follows:
[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.]
[ ] (b) DEFINED BENEFIT PLAN(S) MAINTAINED. If the employer
maintains, or at any time maintained, one or more
qualified defined benefit plans and the sum of the
defined contribution fraction and the defined benefit
fraction with respect to any participant for a
limitation year exceeds 1.0, the 1.0 limitation under
subsection 17.11 will be met by limiting the annual
addition to this plan as provided for in subsection
17.4 for the limitation years so that the sum of the
defined contribution fraction and the defined benefit
fraction do not exceed 1.0. If in any limitation year
the 1.0 limitation would be exceeded, the limitation
will be satisfied as follows:
[Provide the method under which the 1.0 limitation will be satisfied, in
a manner that precludes employer discretion.]
PREDECESSOR EMPLOYER
- --------------------
47. EMPLOYMENT WITH PREDECESSOR EMPLOYER.
------------------------------------
[ ] Employment with the following "predecessor employers" (as
described in subsection 2.22) shall be considered employment
with the employer for the periods and purposes of the
plan set forth below:
---------------------------------------
-19-
<PAGE> 21
---------------------------------------
MINIMUM CONTRIBUTION (TOP-HEAVY) (Section 19 of the plan)
- --------------------------------
48. DEFINED BENEFIT PLAN MAINTAINED - 4% MINIMUM. The minimum employer
contribution figure specified under subsections 19.6 and 19.8 of the
plan will be 4 percent in order to preserve the method of calculating
the defined benefit and defined contribution fractions under subsection
17.12 of the plan.
[ ] Yes.
[ ] No.
49. MINIMUM BENEFIT UNDER OTHER EMPLOYER PLAN. The minimum employer
contribution or benefits required under Section 19 of the plan
will be provided to participants under another plan or plans maintained
by the employer.
[ ] Yes.
[ ] No.
The plan provides that, in the event the plan becomes top heavy, a
minimum contribution will be made by the employer, unless you specify
that such contributions (or a minimum benefit) will be provided for all
participants under another plan maintained by the employer.
50. DEFINED BENEFIT PLAN - ACTUARIAL ASSUMPTIONS. If the employer
maintains any defined benefit plan, the actuarial assumptions
utilized under such plan are as follows (subparagraph 19.2(c) of the
plan):
N/A
[Provide the interest rate and mortality factors used to determine the
present value of accrued benefits. If the employer does not
maintain a defined benefit plan, specify "N/A".]
The failure to properly complete the elections in this Adoption Agreement could
result in disqualification of the plan.
Only those elections that are completed shall be considered as provisions
applicable to and forming a part of the plan.
-20-
<PAGE> 22
This Adoption Agreement may only be used in conjunction with basic plan document
01.
Terms used in this Adoption Agreement which are defined in State Street
Solutions Prototype Defined Contribution Plan shall have the meaning given
them therein.
The employer hereby acknowledges that it is adopting this profit sharing plan as
part of State Street Solutions Prototype Defined Contribution Plan Program (the
"program"). To the extent that federal legislation or other changes in the law
relating to employee benefit plans requires that the plan be amended, the
sponsor will amend the plan and furnish amended copies to the employer for
adoption as long as the employer is part of the program. The sponsor will
inform the employer of any amendment made to the plan or of the discontinuance
or abandonment of the plan by the sponsor. If the employer declines to adopt an
amendment furnished by the sponsor to comply with legal changes, the employer
will no longer be considered part of the program. The employer may amend the
plan or trust by giving notice to the sponsor in writing, but such amendment
will remove the employer from the program. The preceding sentence shall not
apply to the employer's addition of overriding plan language to this adoption
agreement, where such language is necessary to satisfy Sections 415 or 416 of
the Internal Revenue Code because of the required aggregation of multiple plans;
provided that the employer must obtain a determination letter in order to
continue reliance on the plan's qualified status. The sponsor reserves the
right to discontinue the Prototype Plan at any time by giving the employer 60
days' prior written notice. The sponsor's address and telephone number are State
Street Bank and Trust Company, Two International Place, Boston, Massachusetts
02110, (617) 654-6008.
The employer may not rely on the notification letter issued to the sponsor by
the Internal Revenue Service with respect to the qualification of the plan
and should apply to the appropriate Key District Director of the Internal
Revenue Service for a determination as to the qualification of the plan as
adopted by the employer.
* * *
The undersigned duly authorized owner, partner, or officer of the
employer hereby executes the plan and trust on behalf of the employer.
Dated this day of , 199 .
-------- ------------------- -------
---------------------------
Employer
By
------------------------
Its
----------------------
-21-
<PAGE> 23
The undersigned hereby consents to the adoption of the plan by the
employer.
Dated this day of , 199 .
-------- ------------------- -------
STATE STREET BANK AND TRUST COMPANY
By
---------------------------
Title
---------------------------
-22-
<PAGE> 24
STATE STREET SOLUTIONS
------------------------
PROTOTYPE DEFINED CONTRIBUTION TRUST
------------------------------------
<PAGE> 25
<TABLE>
TABLE OF CONTENTS
-----------------
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I 1
- ---------
Introduction 1
------------
Name 1
----
Purpose 1
-------
Controlling Law 1
---------------
Use of Terms 1
------------
ARTICLE II 2
- ----------
Fiduciary Responsibility 2
------------------------
ARTICLE III 2
- -----------
The Trust Fund and Its Administration 2
-------------------------------------
The Trust Fund 2
--------------
Plan Administration 2
-------------------
General Powers 2
--------------
Investment Manager Accounts 8
---------------------------
Investment Options 9
------------------
Participant Directed Brokerage Accounts 9
---------------------------------------
Employer Stock Accounts 10
-----------------------
Employer Managed Investment Accounts 10
------------------------------------
Trustee Managed Investment Accounts 10
-----------------------------------
Compensation and Expenses 10
-------------------------
Limit of Trustee's Responsibility 11
---------------------------------
ARTICLE IV 11
- ----------
General Provisions 11
- --------------------
Action by Employer 11
------------------
Warranty 11
--------
Disagreement as to Acts 11
-----------------------
Courts 11
------
Evidence 11
--------
Third Parties 12
-------------
No Reversion in Employer 12
------------------------
Interests Not Transferable 12
--------------------------
Indemnification 13
---------------
Litigation by Participants 13
--------------------------
Liabilities Mutually Exclusive 13
------------------------------
Waiver of Notice 13
----------------
Counterparts 13
------------
Gender and Number 13
-----------------
Successors 13
----------
Severability 14
------------
Statutory References 14
--------------------
Discretion of the Trustee Binding 14
---------------------------------
</TABLE>
-i-
<PAGE> 26
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Duration of Trust 14
-----------------
No Liability for Acts of Predecessor and Successor Trustees 14
-----------------------------------------------------------
ARTICLE V 14
- ---------
Amendment, Termination and Change of Trustee 14
--------------------------------------------
Amendment By Sponsor 14
--------------------
Amendment By Employer 15
---------------------
Termination 15
-----------
Resignation and Removal of Trustee 15
----------------------------------
ARTICLE VI 16
- ----------
Incorporation of Collective Investment Trusts 16
---------------------------------------------
</TABLE>
-ii-
<PAGE> 27
STATE STREET SOLUTIONS
----------------------
PROTOTYPE DEFINED CONTRIBUTION TRUST
------------------------------------
ARTICLE I
---------
Introduction
------------
I-1. NAME. The trust set forth herein (the "trust") may be referred
to as "State Street Solutions Prototype Defined Contribution Trust".
I-2. PURPOSE. This trust agreement is intended to implement and form
a part of State Street Solutions Prototype Defined Contribution Plan (the
"plan") as adopted by the employer thereunder and sponsored by State Street
Bank and Trust Company (the "sponsor"). By signing the adoption agreement, the
employer has executed and become a party to this trust agreement, and the
provisions of and benefits under the plan, as so adopted by the employer, are
subject to the terms and conditions of this trust agreement. State Street Bank
and Trust Company shall serve as "trustee" pursuant to this trust agreement.
The trust is established, operated and maintained in the United States of
America exclusively for the investment and reinvestment of funds contributed
under the plan.
I-3. CONTROLLING LAW. Except to the extent superseded by laws of the
United States, the laws of the Commonwealth of Massachusetts shall be
controlling in all matters relating to this agreement.
I-4. USE OF TERMS. The terms "employer," "adoption agreement," and
"administrator," and words and phrases used and defined for purposes of the
plan are similarly used and defined for purposes of this trust. The terms
"trust," "agreement," "herein," "hereunder," and similar terms mean this
agreement and do not include the plan; but, unless qualified by the context or
otherwise defined in this agreement, a word, term or phrase defined in this
agreement is similarly defined for purposes of the plan.
<PAGE> 28
ARTICLE II
----------
Fiduciary Responsibility
-------------------------
The employer, the administrator, the trustee, any investment manager
appointed pursuant to paragraph III-4, and any other fiduciaries with respect
to the plan or trust shall discharge their duties thereunder solely in the
interest of participants and beneficiaries, for the exclusive purpose of
providing their benefits and defraying reasonable expenses of plan and trust
administration, with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a like
character and with like aims.
ARTICLE III
-----------
The Trust Fund and Its Administration
-------------------------------------
III-1. THE TRUST FUND. The "trust fund" as at any date means all
property then held by the trustee under this agreement.
III-2. PLAN ADMINISTRATION. The plan is administered by the
"administrator", as designated by the employer in its adoption agreement for
the plan. The employer has also engaged the sponsor and its affiliates and
agents (the "recordkeeper") to provide certain administrative services with re-
spect to the plan, including but not limited to maintaining participant
accounts for all contributions, loans and loan repayments, rollovers, and other
deposits made for the purpose of determining how such deposits are to be
allocated to the investment funds of the plan, for determining requirements for
transfers among investment funds in accordance with the terms of the plan, for
maintaining participant records for the purpose of voting or tendering shares
in an investment fund, for distributing information about the investment funds
provided for under the plan, and for distributing participant statements at
periodic intervals. The trustee may rely upon a certification of the
administrator or the recordkeeper with respect to any instruction, direction or
approval of the administrator or the recordkeeper. The trustee shall be fully
protected in acting upon any instrument, certificate, or paper of the employer,
the administrator or the recordkeeper, believed by it to be genuine and to be
signed or presented by any authorized person, and the trustee shall be under no
duty to make any investigation or inquiry as to any statement contained in any
such writing but may accept the same as fully authorized by the employer, the
administrator or the recordkeeper, as the case may be. References in this
agreement to actions by the administrator shall include similar actions by the
recordkeeper.
III-3. GENERAL POWERS. With respect to the management and control of
the assets of the trust fund, the trustee shall have and exercise investment
power and authority (i)
-2-
<PAGE> 29
over Trustee Managed Investment Accounts as provided in paragraph III-9,
(ii) upon the direction of the administrator or named fiduciary with respect to
an Employer Managed Investment Account under paragraph III-8, (iii) upon the
direction of a participant with respect to a Participant Directed Brokerage
Account under paragraph III-6, and (iv) upon the direction of an investment
manager with respect to an Investment Manager Account under paragraph III-4.
Subject to the preceding sentence, the trustee shall have the following powers,
rights and duties in addition to those provided elsewhere in this agreement, the
plan or by law:
(a) To acquire and become the policyholder under group
annuity contracts issued by a legal reserve life insurance company;
and to manage, sell, contract to sell, grant options to purchase,
convey, exchange, transfer, abandon, improve, repair, insure, lease
for any term (although commencing in the future or extending beyond
the term of this trust) and otherwise deal with all property, real
or personal, in such way, for such considerations, and on such
terms and conditions as the trustee decides.
(b) To retain in cash such amounts as the trustee considers
advisable and as are permitted by applicable law; to invest and
reinvest part or all of the balance of the trust fund in stocks,
bonds, notes, mortgages, mutual fund shares or other property of
any kind, real or personal, including one or more group annuity,
deposit administration or separate account contracts issued by a
legal reserve life insurance company; and to diversify such
investments so as to minimize the risk of large losses, unless
under the circumstances it is clearly prudent not to do so.
(c) To deposit cash in any depositary (including the banking
department of the trustee) without liability for interest and,
without limiting the generality of the foregoing, to invest cash in
savings accounts or time certificates of deposit bearing a
reasonable rate of interest in the banking department of the
trustee.
(d) To trade in financial options and futures, including index
options and options on futures and to execute in connection
therewith such account agreements and other agreements including
contracts for the exchange of interest rates, or investment
performance, currencies or other notional principal contracts in
such form and upon such terms as an investment manager or the
administrator shall direct.
(e) To make any payment or distribution from the trust fund as
directed by the administrator without inquiring as to whether a
payee or distributee is entitled thereto or as to whether it is
proper, and the trustee shall not be liable for a payment or
dis-
-3-
<PAGE> 30
tribution made as directed by the administrator without notice
or knowledge that the payment or distribution is not proper under
the terms of the plan or this agreement; and to notify the
administrator if a payment or distribution is returned to the
trustee, and the trustee shall have no obligation to search for or
ascertain the whereabouts of a payee or distributee.
(f) To the extent permitted by law, to borrow from anyone, with
the employer's approval, such sum or sums from time to time as the
trustee considers desirable to carry out this trust, and to
mortgage or pledge all or part of the trust fund as security,
provided that the trustee shall not borrow to acquire employer
securities (as described in paragraph III-7), or pledge employer
securities held under the trust as security for any loan.
(g) To retain any funds or property subject to any dispute
without liability for interest and to decline to make payment or
delivery thereof until final adjudication by a court of competent
jurisdiction or until an appropriate release is obtained.
(h) To begin, maintain or defend any litigation necessary in
connection with the administration of the plan or this trust,
except that, unless otherwise required by law, the trustee shall
not be obliged or required to do so unless indemnified to the
trustee's satisfaction.
(i) To compromise, contest, arbitrate or abandon claims or demands.
(j) Except to the extent otherwise required by the Code or
ERISA or agreed to between the trustee and the employer, or as
provided in paragraph III-7 with respect to employer securities, to
give proxies to vote stocks and other voting securities, to join in
or oppose (alone or jointly with others) voting trusts, mergers,
consolidations, foreclosures, reorganizations, liquidations, or
other changes in the financial structure of any corporation, and to
exercise or sell stock subscription or conversion rights, only as
directed by the person or entity with investment authority over
such stock or security.
(k) To hold securities or other property in the name of a
nominee, in a depositary, or in any other way, with or without
disclosing the trust relationship; provided, however, that except
as authorized by regulations issued by the Secretary of Labor, the
indicia of ownership of the assets of the trust fund shall not be
maintained
-4-
<PAGE> 31
outside the jurisdiction of the district courts of the
United States.
(l) To report to the employer and the administrator on each
accounting date under the plan, or as soon thereafter as
practicable, or at such other times as may be agreed to by the
employer or administrator and the trustee, the then net worth of
the trust fund (that is, the fair market value of all assets com-
prising the trust fund, less liabilities, if any, other than
liabilities to persons entitled to benefits under the plan)
determined on the basis of such evidence, data or information as
the trustee considers pertinent and reliable.
(m) To furnish to the employer and the administrator an annual
account or an account for such other period as may be agreed to by
the employer or the administrator and the trustee, or as may be
required under this agreement or the plan, showing all investments,
receipts, disbursements, and other transactions involving the trust
during the accounting period, and also showing the assets of the
trust fund held at the end of the period, which, to the extent
permitted by law, shall be conclusive on all persons, including the
employer, except as to any act or transaction as to which the
employer or the administrator files with the trustee written
exceptions or objections within sixty days after receipt of the
account.
(n) To pay out of the trust fund all real and personal property
taxes, income taxes and other taxes of any and all kinds levied or
assessed under existing or future laws against the trust fund.
(o) To maintain records and accounts reflecting all receipts
and disbursements under this agreement and such other records and
accounts as may be agreed to by the employer or the administrator
and the trustee, all of which shall be open to the inspection of
the employer or the administrator at all reasonable times, and may
be audited from time to time by anyone named by the employer or the
administrator.
(p) To employ agents, attorneys, accountants or other persons
(who also may be employed by the employer) and to delegate to them
such powers as the trustee considers desirable (except that the
trustee may not delegate its responsibilities as to the management
or control of the assets of the trust fund), provided that such
delegation, and the acceptance thereof, by such agents, attorneys,
accountants or other persons, shall be in writing; and,
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<PAGE> 32
to the extent permitted by law, the trustee shall be protected in
acting or refraining from acting on the advice of persons so
employed without court action.
(q) To appoint a bank, trust company, or broker or dealer
registered under the Securities Exchange Act of 1934 to act as
custodian with respect to any portion of the trust fund; and a
custodian so appointed shall have custody of such assets as are
deposited with it and as custodian such rights, powers and duties
with respect thereto as shall be agreed upon from time to time by
the trustee and such custodian.
(r) To furnish the employer with such information in the
trustee's possession as the employer may need for tax or other
purposes.
(s) At the direction of the employer or the administrator, to
receive, hold and invest any funds or other property transferred to
the trustee from:
(i) any other trust forming a part of a plan intended
to meet the requirements of Section 401(a) of the Code;
(ii) an employee of the employer if such funds or
property qualify as a rollover described in Section 402(c) of
the Code; or
(iii) an individual retirement account or individual
retirement annuity maintained by an employee of the employer,
if such funds or property qualify as a rollover contribution
described in Section 408(d)(3) of the Code; and to allocate,
credit and distribute any such funds and other property so
transferred in accordance with the terms of the plan.
(t) To transfer all or any portion of the trust fund to another
trust or trusts forming a part of a plan or plans that are intended
to meet the requirements of Section 401(a) of the Code, as directed
by the administrator.
(u) To transfer an eligible rollover distribution described in
Section 402(c)(4) of the Code directly to an eligible retirement
plan described in Section 402(c)(8)(B) of the Code, as directed by
the
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<PAGE> 33
administrator.
(v) To perform any and all other acts which in the trustee's
judgment are necessary or appropriate for carrying out its duties
under this agreement.
The trustee shall transmit promptly to the administrator or the
investment manager, as the case may be, all notices of conversion, redemption,
tender, exchange, subscription, class action, claim in insolvency proceedings or
other rights or powers relating to any of the securities in the trust fund,
which notices are received by the trustee from its agents or custodians, from
issuers of the securities in question and from the party (or its agents)
extending such rights. The trustee shall have no obligation to determine the
existence of any conversion, redemption, tender, exchange, subscription, class
action, claim in insolvency proceedings or other right or power relating to any
of the securities in the trust fund of which notice was given prior to the
purchase of such securities by the trust fund, and shall have no obligation to
exercise any such right or power unless the trustee is informed of the existence
of the right or power.
The trustee shall not be liable for any untimely exercise or assertion
of such rights or powers described in the paragraph immediately above in
connection with securities or other property of the trust fund at any time held
by it unless (i) it or its agents or custodians are in actual possession of such
securities or property and (ii) it receives directions to exercise any such
rights or powers from the administrator or an investment manager, as the case
may be, and both (i) and (ii) occur at least three business days prior to the
date on which such rights or powers are to be exercised.
If the trustee is directed by the administrator or an investment manager
to purchase securities issued by any foreign government or agency thereof, or by
any corporation or other entity domiciled outside of the United States, it shall
be the responsibility of the administrator or investment manager, as the case
may be, to advise the trustee in writing with respect to any laws or regulations
of any foreign countries or any United States territory or possession which
shall apply in any manner whatsoever to such securities, including, without
limitation, receipt by the trustee of dividends, interest or other distributions
on such securities.
All Investment Company shares shall be registered in the name of the
trustee or its nominee. Subject to any requirement of applicable law, the
trustee will transmit to the administrator copies of any notices of
shareholders' meetings, proxies and proxy-soliciting materials, prospectuses and
the annual or other reports to shareholders, with respect to Investment Company
shares held in the trust. The trustee shall act in accordance with appropriate
directions received from the administrator with respect to matters to be voted
upon by the shareholders of the Investment Company. Such directions must be in
writing on a form approved by the trustee, signed by the addressee and delivered
to the trustee within the time prescribed by it. The trustee will not vote
Investment Company shares as to which it receives no written directions. For
the purposes of this paragraph, Investment Company means a registered
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<PAGE> 34
investment company provided that its prospectus offers its shares under the
plan.
III-4. INVESTMENT MANAGER ACCOUNTS. The employer may appoint one or
more investment managers to manage the investment of any part or all of the
assets of the trust fund. Except as otherwise provided by law, the trustee
shall have no obligation for investment of any assets of the trust fund which
are subject to management by an investment manager. Appointment of an
investment manager shall be made by written notice to the investment manager and
the trustee, which notice shall specify those powers, rights and duties of the
trustee under this agreement that are allocated to the investment manager and
that portion of the assets of the trust fund subject to investment management.
An investment manager so appointed pursuant to this paragraph shall be either a
registered investment adviser under the Investment Advisers Act of 1940, a bank,
as defined in said Act, or an insurance company qualified to manage, acquire
and dispose of the assets of the plan under the laws of more than one state of
the United States. Any such investment manager shall acknowledge to the
employer in writing that it accepts such appointment and that it is a fiduciary
with respect to the plan and trust. An investment manager may resign at any
time upon written notice to the trustee and the employer. The employer may
remove an investment manager at any time by written notice to the investment
manager and the trustee.
The trustee shall have no liability (i) for the acts or omissions of any
investment manager (except to the extent the trustee itself is serving as
investment manager); (ii) for following directions, including investment
directions of an investment manager (other than the trustee) or the employer or
named fiduciary, which are given in accordance with this trust agreement; (iii)
for failing to act in the absence of investment manager direction; or (iv) for
any loss of any kind which may result by reason of the manner of division of the
trust fund or investment fund into investment accounts.
An investment manager shall certify, at the request of the trustee, the
value of any securities or other property held in any investment account managed
by such investment manager, and such certification shall be regarded as a
direction with regard to such valuation. The trustee shall be entitled to
conclusively rely upon such valuation for all purposes under this trust
agreement.
Except as otherwise provided in this trust agreement, the investment
manager of an investment account shall have the power and authority, to be
exercised in its sole discretion at any time and from time to time, to issue
orders for the purchase or sale of securities directly to a broker. Written
notification of the issuance of each such order shall be given promptly to the
trustee by the investment manager and the confirmation of each such order
shall be confirmed to the trustee by the broker. Unless otherwise directed by
the investment manager, such notification shall be authority for the trustee to
pay for securities purchased or to deliver securities sold as the case may be.
Upon the direction of the investment manager, the trustee will execute and
deliver appropriate trading authorizations, but no such authorization shall be
deemed to increase the liability or responsibility of the trustee under this
trust agreement.
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<PAGE> 35
III-5. INVESTMENT OPTIONS. The employer from time to time and in
accordance with provisions of the plan, may direct the trustee, with the
trustee's consent, to establish one or more separate investment options within
the trust fund, each separate option being hereinafter referred to as an
"investment fund", which may be invested in (i) shares of investment companies
registered under the Investment Company Act of 1940, (ii) collective funds
maintained by a bank or trust company, (iii) various classes of securities of
the employer, (iv) participant directed brokerage accounts, (v) pools of
insurance contracts, (vi) funds managed by a registered investment manager, bank
or insurance company, (vii) accounts managed by named fiduciaries for the plan;
and (viii) other investment options available from time to time under the plan.
The trustee shall have no liability for any loss of any kind which may result by
reason of the manner of division of the trust fund into investment funds, or for
the investment management of these accounts, except as provided in paragraph
III-9 respecting a trustee managed investment account, if any. The trustee
shall transfer to each such investment fund such portion of the assets of the
trust fund as the employer or the administrator directs. The trustee shall not
incur any liability on account of following any direction of the employer or the
administrator, and the trustee shall be under no duty to review the investment
guidelines, objectives and restrictions so established. To the extent that
directions from the employer or the administrator to the trustee represent
investment instructions of the plan's participants, the trustee shall have no
responsibility for such investment elections and shall incur no liability on
account of the direct and necessary results of investing the assets of the trust
fund in accordance with such participant investment instructions.
All interest, dividends and other income received with respect to, and
any proceeds received from the sale or other disposition of, securities or other
property held in an investment fund shall be credited to and reinvested in such
investment fund. All expenses of the trust fund which are allocable to a
particular investment fund shall be so allocated and charged. Subject to the
provisions of the plan, the employer may direct the trustee to eliminate an
investment fund or funds, and the trustee shall thereupon dispose of the assets
of such investment fund and reinvest the proceeds thereof in accordance with the
directions of the administrator.
III-6. PARTICIPANT DIRECTED BROKERAGE ACCOUNTS. The trustee shall, if
so directed by the employer, segregate all or a portion of the trust fund held
by it into one or more separate investment accounts to be known as "Participant
Directed Brokerage Accounts". Whenever a participant is directing the
investment and reinvestment of a Participant Directed Brokerage Account, the
participant shall have the powers and duties which an investment manager would
have under this trust agreement if an investment manager were then serving, and
the trustee shall be protected to the same extent as it would be protected under
this trust agreement as to directions or the absence of directions of an
investment manager. A participant shall be entitled to give orders directly to
a broker for the purchases and sale of securities. The broker shall provide
confirmation of each order to both the participant and to the administrator,
which shall maintain records in such form as to satisfy reporting requirements
of the plan.
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<PAGE> 36
III-7. EMPLOYER STOCK ACCOUNTS. The employer may direct the trustee,
with the trustee's consent, to establish one or more investment funds
substantially all of the assets of which shall be invested in securities which
constitute "qualifying employer securities" within the meaning of Section 407 of
ERISA (an "Employer Stock Account"). It shall be the duty of the employer to
determine that such investment is not prohibited by Sections 406 or 407 of
ERISA. In addition, during any time when there is no investment manager with
respect to an Employer Stock Account (such as before an investment management
agreement takes effect or after it terminates), the administrator shall direct
the investment and reinvestment of such Employer Stock Account. Except to the
extent otherwise required by the Code or ERISA or agreed to between the trustee
and the employer, the trustee shall exercise all voting or tender or exchange
offer rights with respect to all qualifying employer securities held by it in an
Employer Stock Account only as directed by the administrator.
III-8. EMPLOYER MANAGED INVESTMENT ACCOUNTS. The trustee shall, if so
directed in writing by the employer, segregate all or a portion of the trust
fund held by it into one or more separate investment accounts to be known as
"Employer Managed Investment Accounts". The employer, by written notice to the
trustee, may at any time relinquish its powers under this paragraph III-8 and
direct that an Employer Managed Investment Account shall no longer be
maintained. Whenever the administrator or named fiduciary is directing the
investment and reinvestment of an investment account or an Employer Managed
Investment Account, the administrator or named fiduciary shall have the powers
and duties which an investment manager would have under this trust agreement if
an investment manager were then serving, and the trustee shall be protected to
the same extent as it would be protected under this trust agreement as to
directions or the absence of directions of an investment manager.
III-9. TRUSTEE MANAGED INVESTMENT ACCOUNTS. The trustee shall have no
duty or responsibility to direct the investment and reinvestment of the trust
fund, any investment fund or any investment account unless expressly agreed to
in writing between the trustee and the Employer. In the event that the trustee
enters into such an agreement, it shall have the powers and duties of an
investment manager under this trust agreement with regard to such investment
account.
III-10. COMPENSATION AND EXPENSES. Except as otherwise provided below
in this agreement, all reasonable costs, charges, and expenses incurred in the
administration of this trust and the plan, including compensation to the trustee
(as agreed upon between the employer and the trustee), compensation to an
investment manager (as agreed upon between the employer and the investment
manager), and any compensation to agents, attorneys, accountants and other
persons employed by the trustee, will be paid from the trust fund to the
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<PAGE> 37
extent not paid by the employer. Expenses incurred in connection with the sale,
investment and reinvestment of the trust fund (such as brokerage, postage,
express and insurance charges and transfer taxes) shall be paid from the trust
fund.
III-11. LIMIT OF TRUSTEE'S RESPONSIBILITY. No power, duty or
responsibility is imposed upon the trustee under the plan, except as set forth
in this agreement. Until they determine or are advised to the contrary, the
trustee and any investment manager (appointed as provided in paragraph III-4)
may assume that this trust is qualified under Section 401(a), and is entitled to
tax exemption under Section 501(a), of the Code.
ARTICLE IV
----------
General Provisions
------------------
IV-1. ACTION BY EMPLOYER. Any action required or permitted to be taken
by the employer under the trust shall be by resolution of its Board of
Directors, by resolution of a duly authorized committee of its Board of
Directors, or by a person or persons authorized by resolution of its Board of
Directors or such committee, if the employer is a corporation; by written
instrument signed by its managing partner or partners, or by a person or persons
authorized by such managing partner or partners, if the employer is a
partnership; and by written instrument signed by the employer, if the employer
is a sole proprietor.
IV-2. WARRANTY. The employer warrants that all directions or
authorizations by it or by the administrator, whether for the payment of money
or otherwise, will comply with the plan and this trust.
IV-3. DISAGREEMENT AS TO ACTS. If there is a disagreement between the
trustee and anyone as to any act or transaction reported in any accounting, the
trustee shall have the right to a settlement of its account by any proper court.
IV-4. COURTS. Except as otherwise provided by law, in case of any
court proceedings involving the employer, the trustee or the trust fund, only
the employer and the trustee shall be necessary parties to the proceedings, and
no other person shall be entitled to notice of process. A final judgment
entered in any such proceedings shall be conclusive.
IV-5. EVIDENCE. Evidence required of anyone under this agreement may
be by certificate, affidavit, document or other information which the person
acting on it considers pertinent and reliable, and signed, made or presented by
the proper party or parties.
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<PAGE> 38
IV-6. THIRD PARTIES. Except as otherwise provided by law, the
trustee's exercise or non-exercise of its powers and discretions in good faith
shall be conclusive on all persons. No one shall be obliged to see to the
application of any money paid or property delivered to the trustee, except to
the extent such person is acting as an investment manager as respects such money
or property. The certificate of the trustee that it is acting according to this
agreement will fully protect all persons dealing with the trustee. An insurance
company may assume that this agreement and the plan have not been amended or
changed unless notice of such amendment or change is received by the insurance
company at its home office.
IV-7. NO REVERSION IN EMPLOYER. The employer shall have no right,
title or interest in the trust fund, nor shall any part of the trust fund revert
or be repaid to the employer, directly or indirectly, unless:
(a) the Internal Revenue Service initially determines that the
plan does not meet the requirements of Section 401(a) of the Code,
in which event the contributions made to the plan by the employer
shall be returned to it within one year after the adverse
determination;
(b) a contribution is made by the employer by mistake of fact
and such contribution is returned to the employer within one year
after payment to the trustee; or
(c) a contribution conditioned on the deductibility thereof is
disallowed as an expense for federal income tax purposes and such
contribution (to the extent disallowed) is returned to the employer
within one year after the disallowance of the deduction.
Contributions may be returned to the employer pursuant to subparagraph
(a) above only if they are conditioned upon initial qualification of the plan,
and an application for determination was made by the time prescribed by law for
filing the employer's Federal income tax return for the taxable year in which
the plan was adopted (or such later date as the Secretary of the Treasury may
prescribe). The amount of any contribution that may be returned to the employer
pursuant to subparagraph (b) or (c) above must be reduced by any portion thereof
previously distributed from the trust fund and by any losses of the trust fund
allocable thereto, and in no event may the return of such contribution cause any
participant's account balances to be less than the amount of such balances had
the contribution not been made under the plan. The employer shall have sole
responsibility for determining whether any of the conditions for repayment of
contributions under subparagraphs (a) through (c) above have been met.
IV-8. INTERESTS NOT TRANSFERABLE. The interests of persons entitled to
benefits under the plan are not subject to their debts or other obligations and,
except as may be required by a qualified domestic relations order as defined in
Section 414(p) of the Code, may
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<PAGE> 39
not be voluntarily or involuntarily sold, transferred, alienated, assigned or
encumbered.
IV-9. INDEMNIFICATION. To the extent permitted by applicable law, the
employer shall indemnify and save harmless the trustee for and from any loss or
expense (including reasonable attorneys' fees) arising (a) out of an authorized
action hereunder taken in good faith by the trustee or any matter as to which
this agreement provides that the trustee is directed, protected, not liable, or
not responsible, or (b) by reason of any breach of any statutory or other duty
owed to the plan by the employer, the administrator, or any investment manager
or any delegate of any of them (and for the purposes of this sentence the
trustee shall not be considered to be such a delegate), whether or not the
trustee may also be considered liable for that other person's breach under the
provisions of Section 405(a) of ERISA.
IV-10. LITIGATION BY PARTICIPANTS. If a legal action begun against the
trustee or the employer by or on behalf of any person results adversely to that
person, or if a legal action arises because of conflicting claims to a
participant's or other person's benefits, the cost to the trustee or the
employer of defending the action will be charged to the extent permitted by law
to the sums, if any, which were involved in the action or were payable to the
person concerned.
IV-11. LIABILITIES MUTUALLY EXCLUSIVE. To the extent permitted by law,
the trustee, an investment manager and the employer shall be responsible only
for its own acts or omissions and the trustee shall not be required to collect
any contribution from the employer or any other person or to verify that it is
in the proper amount. No insurance company shall be a party to this agreement
for any purpose or be responsible for the validity of this agreement, it being
intended that an insurance company shall be liable only for the obligations set
forth in the contracts issued by it.
IV-12. WAIVER OF NOTICE. Any notice required under this agreement may
be waived by the person entitled to such notice.
IV-13. COUNTERPARTS. This agreement may be executed in two or more
counterparts, any one of which will be an original without reference to the
others.
IV-14. GENDER AND NUMBER. Where the context admits, words in the
masculine gender shall include the feminine and neuter genders, the singular
shall include the plural, and the plural shall include the singular.
IV-15. SUCCESSORS. This agreement shall be binding on all persons
entitled to benefits under the plan and their respective heirs and legal
representatives, on the employer and its successors and assigns and on the
trustee and its successors. The term "employer" as used in the plan and this
agreement includes any entity that continues the plan and this trust in effect,
as provided in the plan.
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<PAGE> 40
IV-16. SEVERABILITY. If any provision of the plan or this agreement is
held to be illegal or invalid, such illegality or invalidity shall not affect
the remaining provisions of the plan and this agreement, and they shall be
construed and enforced as if such illegal or invalid provision had never been
inserted therein.
IV-17. STATUTORY REFERENCES. Any references in the plan or this
agreement to a Section of the Internal Revenue Code (the "Code"), the Employee
Retirement Income Security Act of 1974 ("ERISA") or the Tax Reform of 1986 shall
include any comparable section or sections of any future legislation which
amends, supplements or supersedes said Section.
IV-18. DISCRETION OF THE TRUSTEE BINDING. Wherever in this trust it is
provided that a power may be exercised or an action taken by the trustee
requiring the exercise of discretion, the exercise of discretion by the trustee
in conformance with Article II of the trust shall be absolute and bind- ing on
the employer and participants under the plan.
IV-19. DURATION OF TRUST. Unless sooner terminated, the trust created
under this trust agreement shall continue for the maximum period of time which
the laws of the Commonwealth of Massachusetts shall permit.
IV-20. NO LIABILITY FOR ACTS OF PREDECESSOR AND SUCCESSOR TRUSTEES.
The trustee shall have no liability for the acts or omissions of any
predecessors or successors in office.
ARTICLE V
---------
Amendment, Termination and Change of Trustee
--------------------------------------------
V-1. AMENDMENT BY SPONSOR. The employer, by signing the adoption
agreement, authorizes and empowers the sponsor to amend the trust from time to
time, subject to the following:
(a) Except as provided in subparagraphs (b) and (c) next below,
no such amendment shall become effective until at least 30 days'
prior written notice thereof has been given to the employer.
(b) An amendment of the trust made under this paragraph, which
the sponsor deems necessary or appropriate to enable the trust to
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<PAGE> 41
meet the requirements of Section 401(a) of the Code, or any future
legislation amending, supplementing or superseding said Section,
may be made effective as of any date the sponsor deems appropriate.
(c) An amendment of the trust made under this paragraph to
conform the trust to any change in any law of the United States,
any state or political subdivision thereof, or to any rule or
regulation thereunder, may take effect as of the date such
amendment is required to be effective under such law, rule or
regulation.
(d) Except as provided in paragraph IV-7, under no condition
shall an amendment result in the return or repayment to the
employer of any part of the trust fund or the income from it or
result in the distribution of the trust fund for the benefit of
anyone other than persons entitled to benefits under the plan.
V-2. AMENDMENT BY EMPLOYER. This trust may not be amended by the
employer, except with the advance written consent of the trustee. Except as
provided in paragraph IV-7, under no condition shall an amendment result in the
return or repayment to the employer of any part of the trust fund or the income
from it or result in the distribution of the trust fund for the benefit of
anyone other than persons entitled to benefits under the plan.
V-3. TERMINATION. If the plan is terminated, this trust, including all
rights, titles, powers, duties, discretions and immunities imposed on or
reserved to the trustee, the administrator and the employer nevertheless shall
continue in effect until all assets have been distributed by the trustee as
directed by the administrator under the plan. Notwithstanding the foregoing,
the trustee shall not be required to pay out any assets of the trust fund upon
termination of the trust until the trustee has received written certification
from the administrator that all provisions of law with respect to such
termination have been complied with. The trustee shall rely conclusively on
such written certification, and shall be under no obligation to investigate or
otherwise determine its propriety.
V-4. RESIGNATION AND REMOVAL OF TRUSTEE. The trustee acting hereunder
may resign at any time by giving thirty days' prior written notice to the
employer, which notice may be waived by the employer. The employer may remove
the trustee at any time upon thirty days' prior written notice to the trustee,
which notice may be waived by the trustee. In case of the resignation or removal
of the trustee, the employer shall promptly appoint a successor trustee, and if
no successor trustee has been appointed by the effective date of the trustee's
resignation, the trustee may petition a court of competent jurisdiction to
appoint a successor trustee at the expense of the trust fund. Any successor
trustee shall have the same powers and duties as those conferred by this
agreement as if originally named trustee. The removal of a trustee and the
appointment of a new trustee shall be by a written instrument delivered to the
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<PAGE> 42
trustee. Upon the appointment of a successor trustee, the resigning or removed
trustee shall transfer or deliver the trust fund to such successor trustee.
ARTICLE VI
----------
Incorporation of Collective Investment Trusts
---------------------------------------------
Notwithstanding any other provisions of this agreement, the trustee or
any investment manager may cause any part or all of the trust assets for which
it has investment responsibility to be invested in any common, collective or
commingled trust fund or pooled investment fund qualified under Section 401(a)
and entitled to tax exemption under Section 501(a) of the Code. To the extent
trust assets are invested in any such common, collective or commingled trust
fund or pooled investment fund, the provisions of the documents under which such
fund is maintained, as amended from time to time, shall govern any investment
therein, and such provisions are hereby incorporated herein and made a part of
this agreement.
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<PAGE> 1
FINANCIAL REVIEW EXHIBIT 13
<TABLE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
SELECTED INCOME STATEMENT DATA
(Dollars in Thousands Except Per Share Data)
<CAPTION>
Years Ended December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Revenues $ 655,138 $ 638,097 $ 420,062 $ 292,571 $ 227,094
Net income (loss) (11,635) 17,710 22,521 12,919 8,085
Earnings (loss) per share (1.04) 1.58 2.01 1.18 .75
SELECTED BALANCE SHEET DATA
(Dollars in Thousands)
<CAPTION>
December 31, 1995 1994 1993 1992 1991
Cash and equivalents $ 38,389 $ 6,381 $ 3,281 $ 1,220 $ 7,509
Working capital 268,115 266,529 155,660 94,427 87,610
Total assets 421,408 473,264 290,611 194,117 77,470
Notes payable -- 22,513 10,061 6,851 759
Long-term debt 199,454 206,767 90,809 41,533 44,199
Stockholders' equity 142,221 149,090 128,363 104,600 93,412
</TABLE>
<TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discusses the Company's results of operations and liquidity and
capital resources. The discussion should be read in conjunction with the Year in
Review and the consolidated financial statements and related notes.
RESULTS OF OPERATIONS
(Amounts in Thousands Except Per Share Data)
<CAPTION>
Years Ended December 31, 1995 % 1994 % 1993 %
<S> <C> <C> <C> <C> <C> <C>
Revenues $655,138 100.0% $638,097 100.0% $420,062 100.0%
Gross profit 203,397 31.0 209,395 32.8 153,851 36.6
Total operating expenses 210,330 32.1 165,779 26.0 112,315 26.7
Operating income (loss)(1) (6,933) (1.1) 43,616 6.8 41,536 9.9
Interest expense 22,861 3.5 15,052 2.4 6,252 1.5
Net income (loss) (11,635) (1.8) 17,710 2.8 22,521 5.4
Earnings (loss) per share $(1.04) $1.58 $2.01
Weighted average shares outstanding 11,171 11,209 11,206
<FN>
(1) Includes a $16.0 million pre-tax restructuring charge in 1995 which reduced
earnings and earnings per share by $9.9 million and $.89, respectively, and
a $12.1 million non-recurring pre-tax gain in 1995 which increased earnings
and earnings per share by $7.5 million and $.67, respectively.
</TABLE>
14
<PAGE> 2
Revenues increased 2.7% to $655.1 million in 1995 from $638.1 million in 1994
and $420.1 million in 1993. The increase in 1995 was due to unit volume growth
in apparel and accessories offset by a decrease in unit volume in footwear
(shoes, boots and sandals). The increase in 1994 compared to 1993 was the result
of unit volume growth in both footwear and apparel and accessories. Average
selling prices of footwear, apparel and accessories declined in 1995 and 1994
when compared to the preceding year. Footwear revenues were $483.1 million in
1995, $513.5 million in 1994 and $349.5 million in 1993. This represents a
decrease of 5.9% in 1995 and an increase of 46.9% in 1994 from the prior year.
Revenues attributable to apparel and accessories were $162.3 million in 1995,
$124.0 million in 1994 and $69.4 million in 1993. This represents increases of
30.9% and 78.5% in 1995 and 1994 from the prior year, respectively. Domestic
revenues amounted to $459.8 million in 1995, $469.3 million in 1994 and $297.6
million in 1993 or 70.2%, 73.5% and 70.8% of total revenues for each of the
three years. Revenues for 1995, 1994 and 1993 include licensing fees and
royalties of $9.7 million, $.6 million and $1.1 million, respectively. The 1995
amount includes $7.8 million related to licensing fees.
The gross profit margin was 31.0% in 1995, 32.8% in 1994 and 36.6% in 1993. The
decrease in the margin in 1995 was due to a change in product sales mix;
although first quality inventory represented a substantial majority of total
revenues, off-price sales comprised a greater percentage of total revenues in
1995 compared with 1994 and 1993. In addition, lower production levels in the
Company's manufacturing facilities in 1995 had a negative effect on overhead
cost absorption, which further depressed gross profit margins. The decrease in
the margin from 1993 to 1994 was primarily attributable to price reductions
instituted in late 1993 and early 1994 on certain core footwear, to gain market
share.
During the second quarter of 1995, the Company closed its manufacturing
facilities in Boone, North Carolina and Mountain City, Tennessee, and reduced
its manufacturing operations in the Dominican Republic and downsized its
corporate office workforce due to a reorganized management structure. These
actions resulted in a one-time pre-tax charge of $16.0 million and the
elimination of approximately 1,800 positions. The Company has two remaining
manufacturing facilities: one in Puerto Rico and one in the Dominican Republic.
All other product is sourced by the Company from third-party contract
manufacturers.
Of the total charge for restructuring in 1995, $9.9 million relates to
anticipated losses associated with the disposal of assets and is a non-cash
item; $3.9 million relates to payments for contractual lease obligations and
anticipated expenditures to close idle facilities; and $2.2 million relates to
anticipated payments for severance and other employee liabilities.
The Company has substantially completed these restructuring actions with the
exception of the sale of certain manufacturing equipment which is expected to
occur in 1996. Cash expenditures related to the restructuring plan of $3.4
million have been incurred as of December 31, 1995. The Company has funded the
cost of the restructuring plan from internal sources and available borrowing
capacity. The restructuring plan began lowering operating costs in the third
quarter of 1995 and is expected to continue reducing costs going forward. Based
on recent manufacturing plant production levels, annual savings are expected to
approximate $7 million. To the extent that actual production or sourcing levels
change, actual savings could differ from the estimated savings. Savings from the
restructuring will be used for general corporate and working capital purposes.
Operating expenses were $210.3 million or 32.1% of revenues in 1995, $165.8
million or 26.0% of revenues in 1994 and $112.3 million or 26.7% of revenues in
1993. Excluding the one-time pre-tax restructuring charge, operating expenses in
1995 increased $28.6 million to $194.3 million, or 29.7% of revenues in 1995.
The increase in operating expenses in 1995 is principally a result of the
Company's growing retail organization, the inclusion of the Company's Italian
operations for a full year, and the larger core infrastructure which was
designed to support higher revenue levels.
15
<PAGE> 3
The dollar increase from 1993 to 1994 reflected the significant growth in
revenues realized by the Company, its continued investment in infrastructure,
growth in the Company's retail organization and the termination of the Company's
distribution agreement in Italy and acquisition of certain assets of the
distributor during the second quarter of 1994.
Operating income, which is pre-tax earnings before interest and other expenses,
was $9.1 million in 1995 (excluding the $16.0 million restructuring charge),
$43.6 million in 1994 and $41.5 million in 1993. As a percent of revenues,
operating income declined in 1995 to 1.4% (before the restructuring charge),
compared with 6.8% and 9.9% in 1994 and 1993, respectively.
Interest expense increased to $22.9 million in 1995 from $15.1 million in 1994
and $6.3 million in 1993. The increases primarily reflect higher debt levels
attributable to business growth and to support higher than anticipated inventory
levels. The increase in 1994 also reflects higher interest rates.
In January 1995, the Company appointed Inchcape plc as the exclusive distributor
of Timberland [Registered Trademark] products throughout most of the
Asia/Pacific region. The agreement also included Inchcape's acquisition of the
Company's Australian and New Zealand subsidiaries for a total sum of $24
million. During the third quarter of 1995, the agreement was amended to include
South Korea. The agreements resulted in a non-recurring pre-tax gain of
approximately $12.1 million in 1995. The gain is included in other income in
the Consolidated Statements of Operations.
The effective income tax rate was 38.0% in 1995, 37.0% in 1994 and 34.0% in
1993. For an analysis of the changes in the effective tax rate, see the Income
Taxes note to the Company's consolidated financial statements.
The Company believes that inflation has not had a significant impact on the
Company's operations over the past three years.
Liquidity and Capital Resources
Cash generated by operations amounted to $48.1 million in 1995 while operations
absorbed $88.8 million and $26.7 million in 1994 and 1993, respectively. The
significant improvement in operating cash flow in 1995 is primarily attributable
to the reduction in inventory levels and improvement in accounts receivable days
sales outstanding. Net cash used by operations in the prior two years was
primarily the result of the Company's growth, and with respect to inventory, due
to higher inventory positions than anticipated. The improvement in inventory
levels experienced in 1995 was due to strengthening supply chain management
which enhanced reliability and the Company's ability to react faster to
marketplace change. Inventory turns were 1.9 times in 1995, compared with 2.3
times in 1994 and 2.7 times in 1993. Days sales outstanding at December 31, 1995
were 49 days, compared with 64 days at December 31, 1994 and 68 days at December
31, 1993. The improvement in days sales outstanding reflects an increase in
retail sales as a percent of total revenues and also an improvement in and
strengthening of credit and cash collection procedures and policies. Domestic
wholesale days sales outstanding were 63 days, 74 days and 77 days at the end of
1995, 1994 and 1993, respectively.
Net cash provided by investing activities amounted to $11.7 million in 1995 due
primarily to the $24 million of cash proceeds received from the agreement with
Inchcape plc discussed above. Cash used in investing activities amounted to
$45.8 million in 1994 and $23.9 million in 1993. Capital expenditures were $13.5
million in 1995, $31.5 million in 1994 and $21.6 million in 1993. A significant
portion of these expenditures were for manufacturing machinery and equipment,
retail store additions and information systems improvements. Cash used for
investing activities in 1994 included $14.1 million to terminate the Company's
distributorship agreement in Italy and to acquire certain assets of that
distributor.
16
<PAGE> 4
During 1995, cash used for financing activities amounted to $28.2 million. This
amount reflects the repayment of $22.5 million in short-term debt and $8.1
million of long-term debt. During 1994, $137.7 million was provided by financing
activities. In April and December 1994, the Company completed private placements
of senior unsecured notes of $65 million and $106 million, respectively. The
proceeds from these private placements were principally used to repay existing
indebtedness. Financing activities provided $52.5 million of cash in 1993,
primarily from a $50 million long-term financing.
The Company uses unsecured revolving and committed lines of credit as the
primary sources of financing for its seasonal and other working capital
requirements. On July 21, 1995, the Company amended the revolving credit
agreement, which extends through February 1997, to provide for up to $50 million
in letters of credit under the overall $125 million committed facility.
The Company's debt to capital ratio was 59.3% at December 31, 1995, 61.4% at
December 31, 1994 and 44.2% at December 31, 1993.
Management believes that the Company's capital needs for 1996 will be met
through its existing credit facilities and cash flow from operations without the
need for additional permanent financing. However, the Company may need to raise
additional capital through equity and/or debt financing in order to finance its
anticipated growth and capital requirements beyond 1996. The terms and
availability of any such financing would be subject to prevailing market
conditions and other factors at that time.
See the Summary of Significant Accounting Policies note to the Company's
consolidated financial statements for a discussion of the effects of adopting
new accounting pronouncements in 1996 on the Company's financial statements.
QUARTERLY MARKET INFORMATION AND RELATED MATTERS
The Company's Class A Common Stock is traded on the New York Stock Exchange
under the symbol TBL. There is no market for shares of the Company's Class B
Common Stock; however, shares of Class B Common Stock may be converted into
shares of Class A Common Stock on a one-for-one basis and shall automatically be
converted upon any transfer (except for estate planning transfers and any
transfer approved by the Board of Directors).
<TABLE>
The following table presents the high and low closing sales prices of the
Company's Class A Common Stock for the past two years as reported by the New
York Stock Exchange.
<CAPTION>
1995 1994
High Low High Low
<S> <C> <C> <C> <C>
First Quarter $28 1/4 $20 1/2 $60 1/4 $32 3/8
Second Quarter 26 1/8 20 3/4 43 1/4 33 7/8
Third Quarter 35 3/4 25 1/2 46 7/8 35 7/8
Fourth Quarter 31 3/8 18 3/8 36 20 1/4
</TABLE>
As of March 1, 1996, the number of record holders of the Company's Class A
Common Stock was approximately 1,040 and the number of record holders of the
Company's Class B Common Stock was eight. The closing sales price of the
Company's Class A Common Stock on March 1, 1996 was $20 1/2.
No cash dividends have ever been declared on either the Company's Class A or
Class B Common Stock and none are contemplated in the foreseeable future. In
addition, the Company's ability to pay cash dividends is limited pursuant to
various loan agreements. (See Notes to the Consolidated Financial Statements.)
17
<PAGE> 5
FINANCIAL REVIEW
<TABLE>
CONSOLIDATED BALANCE SHEETS
As of December 31, 1995 and 1994
<CAPTION>
(Dollars in Thousands, Except Per Share Data) 1995 1994
ASSETS
<S> <C> <C>
Current assets
Cash and equivalents $ 38,389 $ 6,381
Accounts receivable, net of allowance for doubtful
accounts of $2,658 in 1995 and $2,704 in 1994 95,786 128,435
Inventories 180,636 218,219
Prepaid expenses 12,752 13,504
Deferred and refundable income taxes 10,267 7,112
Total current assets 337,830 373,651
Property, plant and equipment 95,937 110,650
Less-accumulated depreciation and amortization (43,533) (42,417)
Net property, plant and equipment 52,404 68,233
Excess of cost over fair value of net assets acquired, net 24,271 25,956
Other assets, net 6,903 5,424
Total assets $421,408 $473,264
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ -- $ 22,513
Current maturities of long-term obligations 7,733 8,048
Accounts payable 25,207 37,035
Accrued expenses
Payroll and related 7,882 6,038
Interest and other 28,001 24,459
Income taxes payable 892 9,029
Total current liabilities 69,715 107,122
Long-term obligations, less current maturities 199,454 206,767
Deferred income taxes 10,018 10,285
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 2,000,000 shares
authorized; none issued - --
Class A Common Stock, $.01 par value (1 vote per share);
30,000,000 shares authorized; 8,316,554 shares issued
in 1995 and 8,221,615 shares in 1994 83 82
Class B Common Stock, $.01 par value (10 votes per share)
convertible into Class A shares on a one-for-one
basis; 15,000,000 shares authorized; 2,735,381
shares issued in 1995 and 2,737,121 shares
issued in 1994 27 27
Additional paid-in capital 59,716 57,756
Retained earnings 80,181 91,816
Cumulative translation adjustment 2,334 (471)
Less treasury stock at cost, 18,369 shares in 1995 and 1994 (120) (120)
Total stockholders' equity 142,221 149,090
Total liabilities and stockholders' equity $421,408 $473,264
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
18
<PAGE> 6
FINANCIAL REVIEW
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
(Amounts in Thousands Except Per Share Data) 1995 1994 1993
<S> <C> <C> <C>
Revenues $ 655,138 $ 638,097 $ 420,062
Cost of goods sold 451,741 428,702 266,211
Gross profit 203,397 209,395 153,851
Operating expenses
Selling 145,924 124,386 82,585
General and administrative 46,721 40,213 28,956
Amortization of goodwill 1,685 1,180 774
Restructuring charge 16,000 -- --
Total operating expenses 210,330 165,779 112,315
Operating income (loss) (6,933) 43,616 41,536
Other expense (income)
Interest expense 22,861 15,052 6,252
Other, net (11,028) 452 1,161
Total other expense 11,833 15,504 7,413
Income (loss) before income taxes (18,766) 28,112 34,123
Provision (benefit) for income taxes (7,131) 10,402 11,602
Net income (loss) $ (11,635) $ 17,710 $ 22,521
Earnings (loss) per share $ (1.04) $ 1.58 $ 2.01
Weighted average shares outstanding
and share equivalents 11,171 11,209 11,206
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE> 7
FINANCIAL REVIEW
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1995, 1994 and 1993
<CAPTION>
Class A Class B Additional Cumulative Consolidated
Common Common Paid-in Retained Translation Treasury Stockholders'
(Dollars in Thousands) Stock Stock Capital Earnings Adjustment Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $75 $32 $53,758 $51,585 $ (850) $ -- $104,600
Issuance of shares under employee
stock option and stock purchase
plans and other transactions 1 -- 980 -- -- (120) 861
Tax benefit from stock option plans -- -- 1,067 -- -- -- 1,067
Net income -- -- -- 22,521 -- -- 22,521
Translation adjustment -- -- -- -- (686) -- (686)
Balance, December 31, 1993 76 32 55,805 74,106 (1,536) (120) 128,363
Issuance of shares under employee
stock option and stock purchase
plans and other transactions 6 (5) 1,566 -- -- -- 1,567
Tax benefit from stock option plans -- -- 385 -- -- -- 385
Net income -- -- -- 17,710 -- -- 17,710
Translation adjustment -- -- -- -- 1,065 -- 1,065
Balance, December 31, 1994 82 27 57,756 91,816 (471) (120) 149,090
Issuance of shares under employee
stock option and stock purchase
plans and other transactions 1 -- 1,534 -- -- -- 1,535
Tax benefit from stock option plans -- -- 426 -- -- -- 426
Net loss -- -- -- (11,635) -- -- (11,635)
Translation adjustment -- -- -- -- 2,805 -- 2,805
Balance, December 31, 1995 $83 $27 $59,716 $80,181 $ 2,334 $(120) $142,221
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE> 8
FINANCIAL REVIEW
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1994 and 1993
<CAPTION>
(Dollars in Thousands) 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (11,635) $ 17,710 $ 22,521
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Deferred income taxes (2,560) 2,383 2,339
Depreciation and amortization 19,138 15,348 10,279
Gain on distributorship transaction (12,107) -- --
Restructuring charge 9,914 -- --
Increase (decrease) in cash from changes
in working capital items, net of effects of
business acquisition and dispositions:
Accounts receivable 29,186 (36,614) (39,484)
Inventories 31,834 (101,009) (41,560)
Prepaid expenses 884 (4,995) (3,170)
Accounts payable (11,967) 4,270 18,497
Accrued expenses 4,427 8,762 5,084
Income taxes (8,999) 5,381 (1,184)
Net cash provided (used) by operating activities 48,115 (88,764) (26,678)
Cash flows from investing activities:
Proceeds from distributorship transaction 24,000 -- --
Proceeds from sale of equipment 1,756 -- --
Additions to property, plant and equipment, net (13,508) (31,452) (21,645)
Acquisition of Italian distributor -- (14,086) --
Other, net (567) (269) (2,234)
Net cash provided (used) by investing activities 11,681 (45,807) (23,879)
Cash flows from financing activities:
Net borrowings (payments) under short-term
credit facilities (22,513) 12,462 3,257
Proceeds from long-term obligations 525 173,990 50,000
Payments on long-term debt and capital
lease obligations (8,137) (50,682) (2,643)
Issuance of common stock 1,535 1,567 981
Tax benefit from stock option plans 426 385 1,067
Purchase of treasury stock -- -- (120)
Net cash provided (used) by financing activities (28,164) 137,722 52,542
Effect of exchange rate changes on cash 376 (51) 76
Net increase in cash and equivalents 32,008 3,100 2,061
Cash and equivalents at beginning of year 6,381 3,281 1,220
Cash and equivalents at end of year $ 38,389 $ 6,381 $ 3,281
Supplemental disclosures of cash ow information:
Interest paid $ 22,194 $ 13,688 $ 6,020
Income taxes paid 4,428 2,648 9,346
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE> 9
FINANCIAL REVIEW
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of The Timberland
Company and its subsidiaries (the "Company"). All intercompany transactions have
been eliminated in consolidation.
Recognition of Revenue
Revenues consist of sales to customers, license fees and royalties. Sales are
recognized upon shipment of product to customers. License fees and royalties are
recognized when earned. License fees and royalties in 1994 and 1993 have been
reclassified from other income to revenue for consistent presentation.
Translation of Foreign Currencies
The Company translates financial statements denominated in foreign currency by
translating balance sheet accounts at the end of period exchange rate and
statement of operations accounts at the average exchange rate for the period.
Translation gains and losses are recorded in stockholders' equity, and
transaction gains and losses are reflected in income.
Financial Instruments and Concentration of Credit Risk
The Company is exposed to foreign exchange risk when the Company sells goods in
local currencies through its foreign subsidiaries. It is the Company's policy to
hedge a portion of this risk through forward sales of foreign currencies,
thereby locking in the future exchange rate.
Cash and Equivalents
Cash equivalents consist of short-term, highly liquid investments which have
original maturities to the Company of three months or less.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment
Property, plant and equipment are depreciated using the straight-line method
over the estimated useful lives of the assets or over the terms of the related
leases, if such periods are shorter. The principal estimated useful lives are:
building and improvements, 4 to 30 years; machinery and equipment, 3 to 10
years; lasts, patterns and dies, 5 years.
Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired is being amortized
on a straight-line basis over periods of 10, 15 and 40 years. Accumulated
amortization amounted to $7,503 and $5,818 at December 31, 1995 and 1994,
respectively.
Accrued Insurance Costs
The Company is self-insured for workers' compensation, healthcare, dental and
short-term disability up to certain specified limits. Expenses associated with
such self-insurance programs are accrued based upon estimates of the amounts
required to cover incurred incidents.
22
<PAGE> 10
FINANCIAL REVIEW
New Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and For Long-Lived Assets to Be Disposed
Of". SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. SFAS No. 121 is required to be adopted for fiscal years
beginning after December 15, 1995. The Company does not expect that the adoption
of SFAS No. 121 will have a material impact on the consolidated financial
statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 requires expanded disclosure of stock-based
compensation arrangements with employees and encourages, but does not require,
application of the "fair value" recognition provisions in the new Statement.
SFAS No. 123 is required to be adopted for fiscal years beginning after December
15, 1995. The Company has not yet determined whether it will change to the
recognition provisions of SFAS No. 123 and has not yet determined the effect
that adopting the new Statement will have on the consolidated financial
statements.
Income Taxes
Income taxes are determined based on the income reported in the Company's
financial statements, regardless of when such taxes are payable. In addition,
tax assets and liabilities are adjusted to reflect changes in U. S. and
applicable foreign income tax laws when enacted. Future tax benefits, such as
net operating loss carry forwards, are recognized to the extent realization of
such benefits is more likely to occur than not.
Accounting for Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires the Company to make assumptions that affect the
estimates reported in these consolidated financial statements. Actual results
may differ from these estimates.
Earnings Per Share
Earnings per share are calculated by dividing net income for each period by the
weighted average number of common shares outstanding and equivalents during each
period. Fully diluted earnings per share are not materially different from
primary earnings per share.
23
<PAGE> 11
FINANCIAL REVIEW
2. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK
<TABLE>
The following table illustrates the U.S. dollar equivalent, including offsetting
positions, of foreign exchange contracts at December 31, 1995 and 1994, along
with maturity dates, net unrealized gain (loss), and net unrealized gain (loss)
deferred.
<CAPTION>
Contract Unrealized Unrealized Net Net Unrealized
Amount Maturity Gross Gross Unrealized Gain (Loss)
December 31, 1995 ($U.S. Equivalent) Date Gain (Loss) Gain (Loss) Deferred
<S> <C> <C> <C> <C> <C> <C>
Pound Sterling $ 5,547 1996 $112 $ -- $ 112 $ 112
Deutsche Marks 5,892 1996 135 (55) 80 17
French Francs 3,355 1996 75 (23) 52 5
Italian Lire 13,555 1996 5 (367) (362) (236)
Spanish Peseta 2,044 1996 -- (9) (9) (9)
Total $30,393 $327 $(454) $(127) $(111)
December 31, 1994
Pound Sterling $15,463 1995 $ 68 $(261) $(193) $(201)
Deutsche Marks 18,141 1995 110 (379) (269) (130)
French Francs 15,948 1995 81 (310) (229) (198)
Italian Lire 12,126 1995 57 (198) (141) (121)
Australian Dollar 8,810 1995 -- (31) (31) --
Spanish Peseta 8,010 1995 -- (103) (103) (103)
New Zealand Dollar 1,596 1995 -- (5) (5) --
Total $80,094 $316 $(1,287) $(971) $(753)
</TABLE>
The unrealized net loss deferred on such contracts as of December 31, 1995 and
1994 were $(111) and $(753), respectively. Unrealized gains or losses are
determined based on the difference between the settlement and year end rates.
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high credit
quality financial institutions, thereby minimizing exposure to concentrations of
credit risk. Credit risk with respect to trade receivables is limited due to the
large number of customers comprising the Company's customer base. The Company
had an allowance for uncollectible accounts receivable of $2,658 and $2,704 at
December 31, 1995 and 1994, respectively.
3. RESTRUCTURING CHARGE
During the second quarter of 1995, the Company closed its manufacturing
facilities in Boone, North Carolina and Mountain City, Tennessee, reduced its
manufacturing operations in the Dominican Republic and downsized its corporate
office work force due to a reorganized management structure. These actions
resulted in a one-time pre-tax charge of $16,000. The Company has two remaining
manufacturing facilities: one in Puerto Rico and one in the Dominican Republic.
All other product is sourced by the Company from third-party contract
manufacturers.
Of the total charge for restructuring, $9,914 relates to anticipated losses
associated with the disposal of assets and is a non-cash item; $3,891 relates to
payments for contractual lease obligations and anticipated expenditures to close
idle facilities; and $2,195 relates to anticipated payments for severance and
other employee liabilities.
24
<PAGE> 12
FINANCIAL REVIEW
The Company has substantially completed these restructuring actions, with the
exception of the sale of certain manufacturing equipment which is expected to
occur in 1996. These assets amounted to $2,097 and are included in property,
plant and equipment. Cash expenditures related to the restructuring plan of
$3,441 have been incurred as of December 31, 1995. The Company has funded the
restructuring plan from internal sources and available borrowing capacity.
4. OTHER INCOME
On January 26, 1995, the Company appointed Inchcape plc ("Inchcape") as the
exclusive distributor of Timberland [Registered Trademark] products throughout
most of the Asia/Pacific region. The agreement included Inchcape's acquisition
of the Company's Australian and New Zealand subsidiaries for the total sum of
$24,000. During the third quarter of 1995, the agreement was amended to include
South Korea. The agreements resulted in a pre-tax gain of approximately $12,107.
In 1994, revenues of the Company's Australian and New Zealand subsidiaries
combined accounted for less than 2% of total consolidated revenues.
5. ACQUISITION OF ITALIAN DISTRIBUTOR
In April 1994, the Company entered into a Distributorship Termination Agreement
(the "Termination Agreement") with its Italian distributor, which terminated all
distribution rights of the distributor on May 31, 1994. In accordance with the
Termination Agreement, the Company also acquired certain assets of the
distributor. Effective on the termination date, the Company assumed the
distribution of its own products in Italy.
This transaction has been accounted for as a purchase and, accordingly, the
results of operations of the Company's Italian business have been included in
the consolidated statements of operations from the acquisition date. The results
of the Italian operations are not significant to the consolidated results of
operations and, accordingly, pro forma data has been omitted. The total purchase
price of $14,086 exceeded the fair value of net assets acquired, consisting
primarily of inventory, by $8,979. This excess is being amortized on a straight
line basis over 10 years.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
The estimated fair values of the Company's financial instruments are as follows:
<CAPTION>
December 31, 1995 1994
Carrying or Carrying or
Contract Amount Fair Value Contract Amount Fair Value
<S> <C> <C> <C> <C>
Cash and equivalents(1) $ 38,389 $ 38,389 $ 6,381 $ 6,381
Notes payable(1) -- -- 22,513 22,513
Long-term obligations(2) 207,187 220,494 214,815 210,543
Foreign currency contracts(3) 30,393 30,520 80,094 81,065
<FN>
1 The carrying amounts of cash and equivalents and notes payable approximate
their fair values.
2 The fair value of the Company's long-term obligations are estimated based
on current rates available to the Company as of December 31, 1995 and 1994
for debt of the same remaining maturities.
3 The fair value of foreign currency contracts are estimated by obtaining the
appropriate year end rates as of December 31, 1995 and 1994, respectively.
</TABLE>
25
<PAGE> 13
FINANCIAL REVIEW
7. INVENTORIES
<TABLE>
Inventories consist of the following:
<CAPTION>
<S> <C> <C>
December 31, 1995 1994
Raw materials $ 10,374 $ 19,806
Work-in-process 5,494 13,137
Finished goods 164,768 185,276
Total $180,636 $218,219
</TABLE>
<TABLE>
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<CAPTION>
December 31, 1995 1994
<S> <C> <C>
Land and improvements $ 649 $ 649
Building and improvements 31,534 29,739
Machinery and equipment 52,788 65,252
Lasts, patterns and dies 8,869 15,010
Assets held for sale 2,097 --
Total $ 95,937 $110,650
</TABLE>
Property, plant and equipment are stated at cost, except for assets held for
sale which are stated at net realizable value.
<TABLE>
9. INCOME TAXES
The components of the provision for income taxes are as follows:
<CAPTION>
Years Ended December 31, 1995 1994 1993
Current Deferred Current Deferred Current Deferred
<S> <C> <C> <C> <C> <C> <C>
Federal $(5,255) $(3,920) $5,713 $1,548 $6,687 $ 935
State (228) 1,046 1,984 713 2,131 1,233
Puerto Rico 195 314 289 122 416 171
Foreign 717 -- 33 -- 29 --
Total $(4,571) $(2,560) $8,019 $2,383 $9,263 $2,339
</TABLE>
<TABLE>
The deferred tax provision consists of the following:
<CAPTION>
Years Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
(Increase) decrease in reserves not currently deductible $(6,058) $(1,111) $ 719
Tax depreciation over (under) book depreciation and amortization (900) 2,624 177
Puerto Rico tollgate taxes 314 122 172
Undistributed foreign earnings 4,159 849 1,355
Other, net (75) (101) (84)
Total $(2,560) $ 2,383 $2,339
</TABLE>
26
<PAGE> 14
FINANCIAL REVIEW
<TABLE>
The provision for income taxes differs from the amount computed using the
statutory federal income tax rate of 35% due to the following:
<CAPTION>
Years Ended December 31, 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at
statutory rate $(6,568) (35.0)% $ 9,839 35.0% $11,943 35.0%
Federal tax exempt operations
in Puerto Rico (1,242) (6.6) (1,834) (6.5) (2,562) (7.5)
State taxes, net of applicable
federal benefit (207) (1.1) 1,753 6.2 2,187 6.4
Other, net 886 4.7 644 2.3 34 .1
Total $(7,131) (38.0)% $10,402 37.0 $11,602 34.0%
</TABLE>
<TABLE>
<CAPTION>
The tax effects of temporary differences and carry forwards that give rise to
significant portions of deferred tax assets and liabilities at December 31,
consist of the following:
1995 1994
Assets Liabilities Assets Liabilities
<S> <C> <C> <C> <C>
Current:
Inventories $ 2,446 $ -- $1,479 $ --
Receivable allowances 3,589 -- 2,216 --
Intercompany profit elimination 1,070 -- 2,355 --
Other 2,300 -- 1,062 --
Total $ 9,405 $ -- $7,112 $ --
Non-current:
Accelerated depreciation and amortization $ -- $ (2,670) $ -- $ (3,570)
Restructuring reserves 2,555 -- -- --
Puerto Rico tollgate taxes -- (1,665) -- (1,351)
Undistributed foreign earnings -- (8,238) -- (5,364)
Net operating loss carry forwards 1,020 -- 2,718 --
Less valuation allowance (1,020) -- (2,718) --
Total $ 2,555 $(12,573) $ -- $(10,285)
</TABLE>
The valuation allowance at December 31, 1995 of $1,020 includes $213 which arose
during the current year. The valuation allowance relates to foreign net
operating loss carry forwards that may not be realized.
The Company's consolidated income (loss) before income taxes included earnings
from its subsidiary in Puerto Rico, which are substantially exempt from Puerto
Rican and federal income taxes under an exemption which expires in 2002.
However, if the earnings were remitted to the Company, they would be subject to
a Puerto Rican tollgate tax not to exceed 10%. Deferred tollgate taxes have been
provided on all of the accumulated earnings of the subsidiary in Puerto Rico.
Deferred income taxes are also provided on the undistributed earnings of the
Company's foreign subsidiaries.
27
<PAGE> 15
FINANCIAL REVIEW
Losses before income taxes from foreign operations were $(3,063), $(1,285) and
$(835) for the years ended December 31, 1995, 1994 and 1993, respectively. At
December 31, 1995, the Company had $2,685 of foreign operating loss carry
forwards available to offset future foreign taxable income. Of these operating
loss carry forwards, $105 will expire in 1997, $252 in 1998, $447 in 1999, $221
in 2000 and $1,660 thereafter.
10. NOTES PAYABLE
The Company has an unsecured committed revolving credit agreement (the "Credit
Agreement") with a group of banks through February 1997, that provides for up to
$50,000 in letters of credit under an overall $125,000 committed facility,
subject to a borrowing base formula. At December 31, 1995, the amount available
under this formula was approximately $42,087, of which none was outstanding at
that date. Under the terms of the Credit Agreement, the Company may borrow at
interest rates which are based upon the lender's cost of funds (5.625% at
December 31, 1995).
The Credit Agreement provides for a facility fee of 3/8% per annum on the daily
average aggregate amount of the commitment and places limitations on the payment
of dividends and the incurrence of additional debt, and also contains certain
other financial and operational covenants.
Additionally, the Company had uncommitted lines of credit available from certain
banks totaling $19,000 at December 31, 1995, of which none was outstanding at
year end. Borrowings under these lines are at prevailing money market rates
(6.25% at December 31, 1995). These arrangements may be terminated at any time
at the option of the banks or the Company.
The balance outstanding under all short-term borrowing arrangements was $22,513
at December 31, 1994; none were outstanding at December 31, 1995.
The maximum short-term borrowings at any month end were $83,000, $119,200 and
$52,679 during 1995, 1994 and 1993, respectively. Average borrowings under all
short-term credit arrangements were $46,270 in 1995, $65,790 in 1994, and
$37,596 in 1993. The weighted average interest rates were 6.55%, 5.38% and 4.16%
in 1995, 1994 and 1993, respectively.
11. LONG-TERM OBLIGATIONS
<TABLE>
Long-term obligations consist of the following:
<CAPTION>
December 31, 1995 1994
<S> <C> <C>
Senior Notes-December 1994 $106,000 $106,000
Senior Notes-April 1994 65,000 65,000
Senior Notes-December 1989 28,000 35,000
Industrial revenue bonds 5,345 5,345
Other 2,842 3,470
Total long-term debt 207,187 214,815
Less-current maturities (7,733) (8,048)
Long-term obligations $199,454 $206,767
</TABLE>
28
<PAGE> 16
FINANCIAL REVIEW
The Company's unsecured senior notes issued in December 1994 in the amount of
$106,000 bear interest at a rate of 8.94% and mature on December 15, 2001. The
unsecured notes issued in April 1994 in the amount of $65,000 bear interest at a
rate of 7.16% and mature on April 15, 2000. Both notes place limitations on the
payment of dividends and the incurrence of additional debt, and also require
maintenance of certain operational and financial covenants.
The unsecured senior notes issued in December 1989 in the amount of $35,000 bear
interest at a rate of 9.70% and mature on December 1, 1999. Commencing December
1, 1995, annual redemption payments of $7,000 are required until maturity. These
notes place limitations on the payment of cash dividends and contain other
financial and operational covenants.
The industrial revenue bonds bear interest at 6.20% through November 30, 1999,
at which time the rate will be reset for another five-year period. The bonds
mature in 2014. According to the terms of the bonds, at every five-year
anniversary date, beginning in 1989 and continuing through to the maturity date,
the Company is required to repurchase any bonds tendered by the bondholders at
face value. The next anniversary date will occur in November 1999 prior to the
1999 rate reset. The bonds are collateralized by a mortgage on certain real
estate and equipment, and contain financial and operational covenants and
limitations similar to the Credit Agreement described in note 10. Additionally,
the Company has obtained an irrevocable standby letter of credit which secures
the outstanding principal of the bonds through 1999.
<TABLE>
The Company's long-term obligations at December 31, 1995 are scheduled to become
due as follows:
<CAPTION>
<S> <C>
1996 $ 7,733
1997 7,778
1998 7,826
1999 7,505
2000 65,000
Thereafter 111,345
Total $207,187
</TABLE>
12. LEASE COMMITMENTS
<TABLE>
The Company leases its corporate headquarters facility, manufacturing
facilities, retail stores, showrooms and certain equipment under noncancellable
operating leases expiring at various dates through 2015. The approximate minimum
rental commitments under all noncancellable operating leases as of December 31,
1995, are as follows:
<S> <C>
1996 $14,237
1997 13,359
1998 12,122
1999 9,449
2000 7,413
Thereafter 33,246
Total $89,826
</TABLE>
29
<PAGE> 17
FINANCIAL REVIEW
Most of the leases for retail space provide for renewal options, contain normal
escalation clauses and require the Company to pay real estate taxes, maintenance
and other expenses. The aggregate base rent obligation for a lease is expensed
on a straight-line basis over the term of the lease.
Rental expense for all operating leases was $16,196, $9,726 and $7,490 for the
years ended December 31, 1995, 1994 and 1993, respectively.
13. INDUSTRY SEGMENT AND GEOGRAPHICAL AREA INFORMATION
<TABLE>
The Company operates in a single industry segment which includes the designing,
engineering and marketing of footwear, apparel and accessories. These products
are sold primarily through better-grade department stores, other retail stores
and specialty stores devoted exclusively to Timberland [Registered Trademark]
products in the United States and in more than 60 countries worldwide. The
following summarizes the Company's operations in different geographical areas
for the years ended December 31, 1995, 1994 and 1993, respectively.
<CAPTION>
Adjustments
United Other and
1995 States Europe Foreign Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers $498,144 $156,098 $ 896 $ -- $655,138
Transfers between geographic areas 56,149 -- 25,865 (82,014) --
Geographic revenues 554,293 156,098 26,761 (82,014) 655,138
Operating income (loss) (16,207) 6,314 220 2,740 (6,933)
Identifiable assets at December 31, 1995 397,643 91,822 7,095 (75,152) 421,408
1994
Revenues from unaffiliated customers $505,182 $123,304 $ 9,611 $ -- $638,097
Transfers between geographic areas 78,195 -- 34,530 (112,725) --
Geographic revenues 583,377 123,304 44,141 (112,725) 638,097
Operating income 41,783 3,008 1,615 (2,790) 43,616
Identifiable assets at December 31, 1994 468,637 132,199 22,140 (149,712) 473,264
1993
Revenues from unaffiliated customers $341,955 $ 71,927 $ 6,180 $ -- $420,062
Transfers between geographic areas 42,388 -- 20,872 (63,260) --
Geographic revenues 384,343 71,927 27,052 (63,260) 420,062
Operating income 36,426 709 1,953 2,448 41,536
Identifiable assets at December 31, 1993 301,949 53,888 15,336 (80,562) 290,611
</TABLE>
Export sales from the United States to unaffiliated customers, principally to
distributors, amounted to 6.1% in 1995 and 1994 and 10.1% in 1993 of
consolidated revenues.
30
<PAGE> 18
FINANCIAL REVIEW
14. STOCKHOLDERS' EQUITY
The Company's Class A and Class B Common Stock are identical in all respects
except that shares of Class A Common Stock carry one vote per share while shares
of Class B Common Stock carry ten votes per share. In addition, holders of Class
A Common Stock have the right, voting separately as a class, to elect 25% of the
directors of the Company and vote together with the holders of Class B Common
Stock for the remaining directors. On February 14, 1995, 1,740 shares of Class B
Common Stock were converted to Class A Common Stock. On December 29, 1994, a
total of 500,477 shares of Class B Common Stock were converted to Class A Common
Stock.
15. STOCK AND EMPLOYEE BENEFIT PLANS
Under its 1987 Stock Option Plan (the "1987 Plan"), as amended, the Company has
reserved 2,100,000 shares of Class A Common Stock for the granting of stock
options to its employees. Pursuant to the terms of the 1987 Plan, grants may be
made by the Board of Directors from time to time, but no grant shall be made ten
years after the adoption of the 1987 Plan. The option price per share shall not
be less than the fair market value of stock at the time such option is granted
in the case of options intended to qualify as "incentive" stock options under
the Internal Revenue Code of 1986, as amended, and shall not be less than 50% of
such fair market value in the case of "non-qualified" stock options for
employees who are subject to Section 16 of the Securities Exchange Act of 1934,
as amended. To date, all stock options have been granted at fair market value.
Stock options which have been granted to date under the 1987 Plan become
exercisable in equal installments over four years beginning one year after the
grant date, except for stock options granted in March 1995 to certain employees
in lieu of cash bonus awards for 1994, which fully vest after one year and which
expire six months after the date of full vesting. In addition to the 1987 Plan,
the Company has, on occasion, granted "non-qualified" stock options at fair
market value to non-employees to purchase Class A Common Stock.
On December 19, 1995, the Board of Directors approved a plan to reprice
outstanding stock options which have been granted under the 1987 Plan. Under the
repricing plan, employees could elect to exchange some or all of their stock
options issued under the 1987 Plan for new stock options repriced at an exercise
price of $20.50, the fair market value on December 19, 1995, covering a reduced
number of shares based on a formula. Repriced stock options will expire on the
same date as the original stock options, and will have an extended vesting
period of one year. Any repriced stock options exercisable as of December 19,
1995, may not be exercised prior to December 19, 1996. Stock options to purchase
up to 609,050 shares (when originally granted) at a per share exercise price of
$21.38-$83.25 were repriced, resulting in stock options to purchase up to
322,120 shares being granted.
Under its 1991 Stock Option Plan for Non-Employee Directors (the "1991 Plan"),
the Company has reserved 100,000 shares of Class A Common Stock for the granting
of stock options to eligible non-employee directors of the Company. Under the
terms of the 1991 Plan, stock option grants are awarded on a predetermined
formula basis, and no grant can be made after November 15, 2001. The exercise
price of stock options granted under the 1991 Plan shall be the fair market
value of the stock on the date of grant, and the stock options become
exercisable in equal installments over four years beginning one year after the
grant date.
Options under the 1987 Plan and the 1991 Plan generally expire 10 years after
the date of grant.
Options for 379,881 and 292,344 shares were exercisable under all option
arrangements at December 31, 1995 and 1994, respectively. Under the existing
Plans there were 1,053,031 and 253,112 shares available for future grants at
December 31, 1995 and 1994, respectively.
31
<PAGE> 19
<TABLE>
The following summarizes transactions under all stock option arrangements for
the years ended December 31, 1995, 1994 and 1993:
<CAPTION>
Number Per Share
of Shares Option Price
<S> <C> <C>
January 1, 1993 442,533 $ 6.38-18.88
Granted 434,655 26.00-83.25
Exercised (56,113) 6.38-15.25
Cancelled (66,389) 6.38-56.00
December 31, 1993 754,686 6.38-83.25
Granted 693,125 21.38-46.63
Exercised (59,551) 6.38-32.00
Cancelled (127,621) 6.38-83.25
December 31, 1994 1,260,639 6.38-83.25
Granted 531,105 19.50-31.13
Exercised (59,784) 6.38-26.00
Cancelled (830,524) 8.75-83.25
December 31, 1995 901,436 6.38-83.25
</TABLE>
Pursuant to the terms of its 1991 Employee Stock Purchase Plan, as amended on
May 18, 1995 (the "Plan"), the Company is authorized to issue up to an aggregate
of 200,000 shares of its Class A Common Stock to eligible employees electing to
participate in the Plan. Eligible employees may contribute, through payroll
withholdings, from 2% to 10% of their regular base compensation during six-month
participation periods beginning January 1 and July 1 of each year. At the end of
each participation period, the accumulated deductions are applied toward the
purchase of Class A Common Stock at a price equal to 85% of the market price at
the beginning or end of the participation period, whichever is lower. Employee
purchases amounted to 33,030 shares in 1995, 31,016 shares in 1994 and 24,340
shares in 1993 at prices ranging from $16.47 to $34.43. At December 31, 1995, a
total of 85,468 shares were available for future purchases.
The Company maintains a contributory 401(k) Retirement Earnings Plan (the
"401(k) Plan") for eligible salaried and hourly employees who are at least 21
years of age with six or more months of service. Under the provisions of the
401(k) Plan, employees may contribute between 2% and 10% of their base salary up
to certain limits. The 401(k) Plan provides for Company matching contributions
not to exceed 2% of the employee's compensation or, if less, 50% of the
employee's contribution. Vesting of the Company contribution begins at 25% after
one year of service and increases by 25% each year until full vesting occurs.
The Company's contribution expense was $499 in 1995, $334 in 1994 and $252 in
1993.
The Company maintains a non-contributory profit sharing plan for eligible hourly
employees not covered by the 401(k) Plan who are at least 21 years of age with
one or more years of service. Contributions are at the discretion of the Company
and fully vest to the employee upon completing three years of service. The
Company's contribution expense was $175 in 1995, $360 in 1994 and $320 in 1993.
32
<PAGE> 20
16. LITIGATION
The Company is involved in litigation and various legal matters, including U.S.
Customs claims, which have arisen in the ordinary course of business. Management
believes that the ultimate resolution of these matters will not have a material
effect on the Company's consolidated financial statements.
The Company and two of its officers and directors have been named as defendants
in two actions led in the United States District Court for the District of New
Hampshire, one filed by Jerrold Schaffer on December 12, 1994, and the other
filed by Gershon Kreuser on January 4, 1995. On April 24, 1995, the District
Court granted plaintiffs' motion, assented to by defendants, to consolidate the
two actions. On June 23, 1995, plaintiffs filed a consolidated amended complaint
(the "Amended Complaint") with the District Court. The Amended Complaint alleges
that defendants violated federal securities laws by making material
misstatements and omissions in certain of the Company's public filings and
statements in 1994. Specifically, the Amended Complaint alleges that such
statements and omissions had the effect of artificially inflating the market
price for the Company's Class A Common Stock until the disclosure by the Company
on December 9, 1994 of its expectation that results for the fourth quarter were
not likely to meet analysts' anticipated levels. Damages are unspecified. The
Amended Complaint seeks class action status for all purchasers of the Company's
Class A Common Stock between May 12, 1994 and December 9, 1994. Currently
pending before the District Court are plaintiffs' motion for class
certification, which defendants have opposed, and defendants' motion to dismiss
the Amended Complaint, which plaintiffs have opposed. Discovery is continuing
during the pendency of these motions. Management believes this action is without
merit and intends to defend it vigorously. Accordingly, at this time, management
does not expect the outcome of such litigation to have a material adverse effect
on the Company's consolidated financial statements.
33
<PAGE> 21
<TABLE>
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the quarterly results of operations for the
years ended December 31, 1995, 1994 and 1993.
<CAPTION>
1995 Quarter Ended March 31(1) June 30(2) September 29(1) December 31
<S> <C> <C> <C> <C>
Revenues $141,583 $125,143 $212,597 $175,815
Gross profit 44,972 36,079 63,556 58,790
Net income (loss) 919 (20,381) 7,068 759
Earnings (loss) per share .08 (1.83) .63 .07
1994 Quarter Ended April 1 July 1 September 30 December 31
Revenues $108,318 $127,254 $222,188 $180,337
Gross profit 32,716 40,459 76,520 59,700
Net income (loss) (1,619) 145 16,329 2,855
Earnings (loss) per share (.14) .01 1.45 .26
1993 Quarter Ended March 31 June 30 October 1 December 31
Revenues $ 71,047 $ 85,003 $140,513 $123,499
Gross profit 27,908 30,740 50,098 45,105
Net income 2,332 1,912 11,241 7,036
Earnings per share .21 .17 1.00 .62
<FN>
1 Includes non-recurring pre-tax gains of $7.4 million and $4.7 million in the first quarter
and third quarter of 1995, respectively.
2 Includes a $16.0 million pre-tax restructuring charge in the second quarter of 1995.
</TABLE>
34
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of The Timberland Company:
We have audited the accompanying consolidated balance sheets of The Timberland
Company and subsidiaries as of December 31, 1995 and 1994 and the related
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the companies at
December 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 7, 1996
35
<PAGE> 23
<TABLE>
CORPORATE INFORMATION
<S> <C>
DIRECTORS CORPORATE COUNSEL
Ropes & Gray
Robert M. Agate Boston, Massachusetts
Senior Executive Vice President and
Chief Financial Officer
Colgate-Palmolive Company INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
John F. Brennan Boston, Massachusetts
Dean of the School of Management
Suffolk University
ANNUAL MEETING OF SHAREHOLDERS
Jeffrey B. Swartz May 16, 1996 at 9:30 a.m.
Executive Vice President and The Timberland Company Headquarters
Chief Operating Officer 200 Domain Drive
Stratham, New Hampshire
Sidney W. Swartz
Chairman, President and
Chief Executive Officer FORM 10-K
This report is available at no charge upon
Abraham Zaleznik written request from the Director of Investor
Professor Emeritus Relations, The Timberland Company, 200
Harvard Business School Domain Drive, Stratham, New Hampshire
03885, telephone 603-772-9500.
CORPORATE OFFICERS
Sidney W. Swartz CLASS A COMMON STOCK LISTING
Chairman, President and New York Stock Exchange: TBL
Chief Executive Officer
Jeffrey B. Swartz STOCK CERTIFICATES, NAME CHANGES OR TRANSFERS
Executive Vice President and The First National Bank of Boston
Chief Operating Officer c/o Boston EquiServe
Mail Stop 45-01-05
Keith D. Monda P.O. Box 644
Senior Vice President-Finance and Boston, Massachusetts 02102-0644
Administration and Chief Financial Officer 617-575-3120
Gregory W. VanWormer
Senior Vice President-General Manager
Apparel/Retail
Dennis W. Hagele
Vice President-Finance and
Corporate Controller (Chief Accounting Officer)
Jane E. Owens
Vice President and
General Counsel and Assistant Secretary
Carden N. Welsh
Treasurer
John E. Beard
Secretary
Partner, Ropes & Gray
Timberland, [LOGO], Active Comfort Technology, ACT, and
Treeline are trademarks or registered trademarks
of The Timberland Company.
[COPYRIGHT] The Timberland Company 1996. All Rights Reserved.
</TABLE>
36
<PAGE> 1
EXHIBIT 21
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
THE OUTDOOR FOOTWEAR COMPANY DELAWARE
THE TIMBERLAND FINANCE COMPANY DELAWARE
THE TIMBERLAND WORLD TRADING COMPANY DELAWARE
TIMBERLAND EUROPE, INC. DELAWARE
TIMBERLAND INTERNATIONAL SALES CORPORATION U.S. VIRGIN ISLANDS
TIMBERLAND DIRECT SALES, INC. DELAWARE
TIMBERLAND RETAIL, INC. DELAWARE
TIMBERLAND MANUFACTURING COMPANY DELAWARE
TIMBERLAND AVIATION, INC. DELAWARE
TIMBERLAND SCANDINAVIA, INC. DELAWARE
TIMBERLAND INTERNATIONAL, INC. DELAWARE
TIMBERLAND S.A.S. FRANCE
THE TIMBERLAND WORLD TRADING GMBH GERMANY
TIMBERLAND (U.K.) LIMITED UNITED KINGDOM
TIMBERLAND GMBH AUSTRIA
TIMBERLAND ESPANA, S.A. SPAIN
THE RECREATIONAL FOOTWEAR COMPANY
(DOMINICANA), S.A. DOMINICAN REPUBLIC
COMPONENT FOOTWEAR DOMINICANA, S.A. DOMINICAN REPUBLIC
TIMBERLAND FOOTWEAR & CLOTHING COMPANY INC.
LES VETEMENTS & CHAUSSURES TIMBERLAND INC. CANADA
THE RECREATIONAL FOOTWEAR COMPANY GRAND CAYMAN ISLANDS
TIMBERLAND NETHERLANDS HOLDING B.V. THE NETHERLANDS
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statement
Nos.33-60457, 33-60459, 33-67128, 33-56913, 33-50998, 33-17552, 33-41660 and
33-19183 of The Timberland Company on Forms S-8 and Registration Statement
No.33-56921 on Form S-3 of our reports dated February 7, 1996, appearing in and
incorporated by reference in this Annual Report on Form 10-K of The Timberland
Company for the year ended December 31, 1995.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995 AND THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31,
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 38,389
<SECURITIES> 0
<RECEIVABLES> 98,444
<ALLOWANCES> 2,658
<INVENTORY> 180,636
<CURRENT-ASSETS> 337,830
<PP&E> 95,937
<DEPRECIATION> 43,533
<TOTAL-ASSETS> 421,408
<CURRENT-LIABILITIES> 69,715
<BONDS> 199,454
<COMMON> 110
0
0
<OTHER-SE> 142,111
<TOTAL-LIABILITY-AND-EQUITY> 421,408
<SALES> 655,138
<TOTAL-REVENUES> 655,138
<CGS> 451,741
<TOTAL-COSTS> 451,741
<OTHER-EXPENSES> 17,685
<LOSS-PROVISION> 3,697
<INTEREST-EXPENSE> 22,861
<INCOME-PRETAX> (18,766)
<INCOME-TAX> (7,131)
<INCOME-CONTINUING> (11,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,635)
<EPS-PRIMARY> (1.04)
<EPS-DILUTED> 0
</TABLE>
<PAGE> 1
Exhibit 99
CAUTIONARY STATEMENTS FOR PURPOSES OF THE
"SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The Timberland Company (the "Company") wishes to take advantage of The Private
Securities Litigation Reform Act of 1995, which provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information. Prospective information is based on management's then current
expectations or forecasts. Such information is subject to the risk that such
expectations or forecasts, or the assumptions used in making such estimates or
forecasts, may become inaccurate. The following discussion identifies important
factors that could affect the Company's actual results and could cause such
results to differ materially from those contained in forward-looking statements
made by or on behalf of the Company:
DEPENDENCE ON SALES FORECASTS. The Company's investments in infrastructure
and product are based on sales forecasts and are necessarily made in advance of
actual sales. The markets in which the Company does business are highly
competitive, and the Company's business is affected by a variety of factors,
including brand awareness, changing consumer preferences, fashion trends, retail
market conditions, weather conditions and economic and other factors. One of
management's principal challenges is to improve its ability to predict these
factors, in order to enable the Company to better match what it produces and
sells. In addition, the Company's rapid growth over the years has created the
need to increase these investments in infrastructure and product and to enhance
the Company's operational systems. To the extent sales forecasts are not
achieved, these investments would represent a higher percentage of net
revenues, and the Company would continue to experience high inventory levels
and associated carrying costs, all of which could adversely affect the
Company's financial performance.
CONSUMER ACCEPTANCE OF NEW AND EXPANDED PRODUCT OFFERINGS. In 1996, the
Company will offer a record number of new footwear products, an expanded men's
apparel collection and a new line of performance apparel. The Company's new
marketing strategy is based on merchandising Timberland[R] products within the
dress casual, rugged casual and performance categories. The success of these
products and marketing strategy will depend on a favorable reception by the
Company's wholesale customers and consumers at retail. The Company's expanded
men's dress casual footwear product line and its more fashion-focused women's
footwear product line are also more susceptible to changing fashion trends and
consumer preferences than are the Company's other product lines. In addition,
any delays in production or delivery of such new products could affect the sales
of such products.
CONSUMER TRENDS AND RETAIL MARKET CONDITIONS. Sales of Timberland products
are subject to consumer trends and economic and other factors affecting the
retail market. For example, the trends in 1995 of decreased consumer spending, a
shift towards discount retailers and continued softness in the retail market, if
they continue, could adversely affect the Company's sales. In addition, warmer
than anticipated weather conditions have, in past fall/winter selling seasons,
reduced sales as a result of decreased consumer
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demand at retail for the Company's higher margin products. Such conditions
could adversely affect the Company's sales in the future, especially as the
Company's business shifts towards "at-once" orders being adopted by many
retailers.
DEPENDENCE UPON INDEPENDENT MANUFACTURERS. In 1995, the Company downsized
and restructured its own manufacturing facilities and increased its use of
independent high quality manufacturers. During 1995, approximately 40% of the
unit volume of the Company's footwear products was manufactured by the Company,
compared to approximately 60% during 1994. The remainder of the Company's
footwear products and all of its apparel and accessories were produced by
independent manufacturers in Asia, Europe and the Americas. (See the
"International" paragraph below for a discussion of the risks of doing business
abroad to which the Company may be subject.)
The Company believes that the shift towards sourcing product from
independent manufacturers will reduce manufacturing overhead and product costs,
increase product quality and increase the Company's flexibility to meet changing
consumer demand for particular product lines. However, the success of these
measures depends on the ability of the Company's independent manufacturers to
provide high quality product at lower cost and to do so with rapid turn-around
times. There can be no assurance that the Company will be able to maintain
current relationships or locate additional manufacturers who can meet the
Company's requirements.
MANUFACTURING. The Company currently plans to retain its internal
manufacturing capability in order to continue benefiting from expertise the
Company has gained with respect to footwear manufacturing methods and from the
research and development activities conducted at its manufacturing facilities.
The Company continues to evaluate its manufacturing facilities and independent
manufacturing alternatives in order to determine the appropriate size and scope
of its manufacturing facilities. There can be no assurance that the costs of
products that continue to be manufactured by the Company can remain competitive
with sourced products.
GROWING RETAIL ORGANIZATION. In 1986, the Company opened the first
Timberland[R] store devoted exclusively to Timberland[R] products. At the end
of 1995, the Company operated 29 specialty stores and 33 factory outlet stores
worldwide, and revenues from these stores represented 19.6% of the Company's
net revenues for 1995. The Company has made a significant capital investment
in opening these stores and incurs significant expenditures in operating these
stores. The performance of the Company's retail organization is subject to the
same retail market conditions as the Company's wholesale customers described
above. The Company's ability to recover the investment in and expenditures of
its retail organization, particularly its specialty stores, could be adversely
affected if sales at its retail stores are lower than anticipated.
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In 1995, the Company's gross profit margin was reduced, due, in part, to
the greater percentage of revenues represented by off-price sales than in
previous years. Although the Company believes its factory outlet stores enable
the Company to control the sale of factory-second and close-out products and
maximize the return associated with such sales, the Company's gross profit
margin could be adversely affected if the off-price sales continue to remain
relatively high or increase as a percentage of revenues.
LICENSING. Since late 1994, the Company has entered into several
licensing agreements which enable the Company to expand the Timberland[R]
brand to product categories and geographic territories in which the Company has
not had an appreciable presence. The rights granted under these agreements are
typically exclusive, and the Company may not terminate these agreements at
will, although the Company has reserved its right to terminate these agreements
for cause. The success of the Timberland brand in these products or territories
will, therefore, largely depend on the efforts of its licensees. Additionally,
these licensing arrangements are too new to evaluate. Most of the products to
be manufactured under the Company's existing product licensing agreements will
not be available at retail until at least late 1996, and the Company's
territorial licensing agreement covering parts of South America was signed in
late 1995. Accordingly, the performance of the licensees under these
agreements has not yet been fully tested.
The Company is pursuing additional licensing opportunities. There can be no
assurance that the Company will be able to locate licensees and negotiate
acceptable terms with licensees for additional products and territories.
PRICING OF PRODUCTS. In late 1993 and early 1994, the Company instituted
price reductions on certain core footwear products, and the average selling
prices of the Company's footwear, apparel and accessories products declined in
1994 and 1995. The prices the Company is able to obtain for its new and expanded
product offerings, and Company's ability to increase prices of its other
products, will depend upon consumer acceptance of such prices, as well as
competitive and other market factors.
COMPETITION. The Company markets its products in highly competitive
environments. Many of the Company's competitors are larger and have
substantially greater resources than the Company for marketing, research and
development and other purposes. These competitors include athletic footwear
companies and private labels established by retailers.
LIMITED MARKETING FOCUS. The Company's marketing strategy is based on
increasing consumer awareness and acceptance of the Timberland brand. To the
extent the Company's marketing efforts are not effective, demand for
Timberland[R] products may be adversely affected.
LIQUIDITY AND CAPITAL RESOURCES. Management believes that the Company's
capital needs for 1996 can be met through its existing credit facilities and
cash flow from operations, without the need for additional permanent financing.
However, the Company may need to raise additional capital in the future in
order to finance its
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anticipated growth and capital requirements beyond 1996. In addition, the
Company's revolving credit facility expires in February 1997. The terms and
availability of any such additional or replacement financing would be subject
to prevailing market conditions and other factors at that time.
The Company's revolving credit facility and senior notes place limitations
on the payment of cash dividends and contain other financial and operational
covenants with which the Company must comply. If the Company does not comply
with such covenants, the Company's ability to use such credit facilities or
to obtain other financing could be adversely affected.
At December 31, 1995, the Company's debt to equity ratio was 59.3%.
Therefore, the Company is subject to the risks associated with relatively high
levels of interest expense and financial leverage.
MANAGEMENT AND CONTROL. Sidney W. Swartz, the Chairman, President and Chief
Executive Officer of the Company, and various trusts established for the benefit
of his family or for charitable purposes, hold approximately 88% of the combined
voting power of the Company's capital stock in the aggregate, enabling Sidney
Swartz to control the Company's affairs and to influence the election of the two
directors entitled to be elected by the holders of Class A Common Stock voting
separately as a class. Jeffrey B. Swartz, Executive Vice President and Chief
Operating Officer of the Company, is the son of Sidney Swartz. The loss or
retirement of these and other key executives could adversely affect the Company.
INTERNATIONAL. The Company manufactures and sources a majority of its
products outside the United States and sells its products in more than 60
countries worldwide through its stores, operating divisions, distributors and
commission agents. Accordingly, the Company is subject to the risks of doing
business abroad, including, among other risks, import restrictions, anti-dumping
investigations, political or labor disturbances, expropriation and acts of war.
In addition, a significant portion of the Company's revenues and expenses are
subject to foreign exchange fluctuations.
RAW MATERIALS. The Company depends on several key sources for leather, its
principal raw material, and other proprietary materials used in its products.
The Company could be adversely affected by unanticipated price increases or
shortages of such materials.
INTELLECTUAL PROPERTY. The Company may be required to spend significant
amounts to protect and defend its trade name, trademarks, patents, designs and
other proprietary rights. The Company is also susceptible to injury from
parallel trade and counterfeiting of its products.
LITIGATION. The Company is involved in various litigation and legal matters
which have arisen and will arise in the ordinary course of business. The costs
of prosecuting or defending these matters or an unfavorable outcome in these
matters could adversely affect the Company's operating results.
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ACCOUNTING STANDARDS. Changes in the accounting standards promulgated by
the Financial Accounting Standards Board or other authoritative bodies,
including currently proposed changes in accounting for the impairment of
long-term assets and in accounting for stock-based compensation arrangements,
could have an adverse affect on the Company's future reported operating results.
ENVIRONMENTAL AND OTHER REGULATION. The Company is subject to various
environmental and other laws and regulations, which may change periodically.
Compliance with such laws or changes therein could have a negative impact on the
Company's future reported operating results.
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