UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 3, 1999
Commission File No. 0-25121
--------------------
SELECT COMFORT CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1597886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10400 VIKING DRIVE, SUITE 400
MINNEAPOLIS, MINNESOTA 55344
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (612) 918-3000
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. |X| YES | | NO
As of July 3, 1999, 18,192,975 shares of Common Stock of the Registrant
were outstanding.
<PAGE>
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
INDEX
Page No.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
July 3, 1999 and January 2, 1999................................. 3
Consolidated Statements of Operations
for the Three Months and Six Months ended July 3, 1999
and July 4, 1998................................................. 4
Consolidated Statements of Cash Flows
for the Six Months ended July 3, 1999
and July 4, 1998................................................. 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 14
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 15
Item 2. Changes in Securities and Use of Proceeds...................... 15
Item 3. Defaults Upon Senior Securities................................ 15
Item 4. Submission of Matters to a Vote of Security Holders............ 15
Item 5. Other Information.............................................. 16
Item 6. Exhibits and Reports on Form 8-K............................... 17
<PAGE>
PART I: FINANCIAL INFORMATION
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
July 3, January 2,
Assets 1999 1999
---------- ----------
Current assets:
Cash and cash equivalents $22,737 $45,561
Marketable securities 9,127 -
Accounts receivable, net of allowance for
doubtful accounts of $1,286, and
$2,750, respectively (note 3) 12,010 10,624
Inventories (note 4) 11,688 10,136
Prepaid expenses 3,667 4,048
Income taxes 1,346 -
Deferred tax assets 5,818 5,448
---------- ----------
Total current assets 66,393 75,817
---------- ----------
Property and equipment, net 33,039 29,125
Deferred tax assets 551 440
Other assets 2,843 852
---------- ----------
Total assets $102,826 $106,234
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Current maturities of long-term debt $418 $930
Accounts payable 14,496 12,079
Accruals:
Sales returns 5,233 6,021
Warranty costs 5,385 4,486
Compensation, taxes and benefits 4,445 4,843
Income taxes - 648
Other 4,149 4,561
---------- ----------
Total current liabilities 34,126 33,568
Long-term debt, less current maturities - 29
Other liabilities 2,352 1,946
---------- ----------
Total liabilities 36,478 35,543
---------- ----------
Shareholders' equity:
Undesignated preferred stock; 5,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $.01 par value; 95,000,000 shares
authorized, 18,192,975 and 18,435,687 shares
issued and outstanding, respectively 182 184
Additional paid-in capital 81,741 87,619
Accumulated deficit (15,575) (17,112)
---------- ----------
Total shareholders' equity 66,348 70,691
---------- ----------
Total liabilities and shareholders' equity $102,826 $106,234
========== ==========
See accompanying notes to consolidated financial statements.
3
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net sales $65,750 $60,129 $137,382 $118,800
Cost of sales 22,562 20,466 47,109 41,546
---------- ---------- ---------- ----------
Gross margin 43,188 39,663 90,273 77,254
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing 37,400 31,695 77,889 63,956
General and administrative 5,588 4,302 10,806 8,595
---------- ---------- ---------- ----------
Total operating expenses 42,988 35,997 88,695 72,551
---------- ---------- ---------- ----------
Operating income 200 3,666 1,578 4,703
---------- ---------- ---------- ----------
Other income (expense):
Interest income 420 156 959 382
Interest expense (16) (1,204) (51) (2,736)
Other, net (51) (2) (47) (2)
---------- ---------- ---------- ----------
Other income (expense), net 353 ( 1,050) 861 ( 2,356)
---------- ---------- ---------- ----------
Income before income taxes 553 2,616 2,439 2,347
Income tax expense 205 706 902 855
---------- ---------- ---------- ----------
Net income $348 $1,910 $1,537 $1,492
========== ========== ========== ==========
Net income per share (note 3) -
Basic $0.02 $0.60 $0.08 $0.39
Diluted $0.02 $0.11 $0.08 $0.07
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
<PAGE>
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months Ended
----------------------
July 3, July 4,
1999 1998
---------- ----------
Cash flows from operating activities:
Net income $1,537 $1,492
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,833 2,520
Deferred tax assets (481) (245)
Interest expense from put warrant valuation - 1,540
Change in operating assets and liabilities:
Accounts receivable, net (1,386) (2,351)
Inventories (1,552) (2,097)
Prepaid expenses 381 566
Income taxes (1,994) 696
Accounts payable 2,417 (1,503)
Accrued sales returns (788) 3
Accrued warranty costs 899 482
Accrued compensation, taxes and benefits (398) (277)
Other accrued liabilities (412) (1,398)
Other assets (3) (493)
Other liabilities 406 292
---------- ----------
Net cash provided by (used in)
operating activities 1,459 (773)
---------- ----------
Cash flows used in investing activities:
Purchases of property and equipment (6,735) (3,993)
Investment in marketable securities (9,127) -
Investment in affiliate (2,000) -
---------- ----------
Net cash used in investing activities (17,862) (3,993)
---------- ----------
Cash flows from financing activities:
Principal payments on debt (541) (487)
Repurchase of common stock (8,506) -
Proceeds from issuance of common stock 2,626 1,315
---------- ----------
Net cash provided by (used in)
financing activities (6,421) 828
---------- ----------
Decrease in cash and cash equivalents (22,824) (3,938)
Cash and cash equivalents, at beginning of period 45,561 12,670
---------- ----------
Cash and cash equivalents, at end of period $22,737 $8,732
========== ==========
See accompanying notes to consolidated financial statements.
5
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SELECT COMFORT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements for the three months and six months ended
July 3, 1999 and July 4, 1998 of Select Comfort Corporation and subsidiaries
("Select Comfort" or the "Company"), have been prepared by the Company, without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission and reflect, in the opinion of management, all normal recurring
adjustments necessary to present fairly the financial position of the Company as
of July 3, 1999 and January 2, 1999 and the results of operations and cash flow
for the periods presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
management believes the disclosures are adequate to make the information
presented not misleading. These consolidated financial statements should be read
in conjunction with the Company's most recent audited financial statements and
related notes included in the Company's Annual Report to Shareholders and its
Form 10-K for the fiscal year ended January 2, 1999. Operating results for the
Company on a quarterly basis may not be indicative of operating results for the
full year.
(2) INVESTMENT
In July 1999, the Company invested $2.0 million in a less than 20% owned
affiliate which will be the provider of the Company's sofa sleeper product.
(3) ACCOUNTS RECEIVABLE
In July 1999, the Company terminated its revolving third-party credit
arrangement with Monogram Bank, an affiliate of General Electric Capital
Corporation ("GE") and entered into a third-party credit arrangement with Green
Tree Financial Corporation ("Green Tree"). These arrangements have been used to
provide financing for customers' use in purchasing products. In connection with
all purchases financed under these arrangements, the provider pays an amount
equal to the total amount of purchases net of promotional discounts. The
provider sets the rate, annual fees and all other terms and conditions relating
to the customers' accounts, including collection policies and procedures, and is
the owner of the receivables. There are no retainage requirements as part of
this new agreement.
(4) INVENTORIES
Inventories consist of the following (in thousands):
JULY 3, 1999 JANUARY 2, 1999
--------------- ---------------
Raw materials $7,197 $6,533
Work in progress 133 67
Finished goods 4,358 3,536
--------------- ---------------
$11,688 $10,136
=============== ===============
6
<PAGE>
SELECT COMFORT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) NET INCOME PER COMMON SHARE
The following computations reconcile net income with net income per common
share-basic and diluted (dollars in thousands, except per share amounts).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- ---------------------------------
NET PER SHARE NET PER SHARE
JULY 3, 1999 INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income $348 $1,537
BASIC EPS
Net income available to common shareholders 348 18,370 $0.06 1,537 18,448 $0.08
---------- ---------- ========== ---------- ---------- ==========
EFFECT OF DILUTIVE SECURITIES
Warrants - 649 - 764
Options - 601 - 879
---------- ---------- ---------- ----------
DILUTED EPS
Net income available to common shareholders
plus assumed conversions $348 19,620 $0.02 $1,537 20,091 $0.08
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- ---------------------------------
NET PER SHARE NET PER SHARE
JULY 4, 1998 INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------------ ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income $1,910 $1,492
Less: Cumulative preferred dividend (225) (450)
---------- ----------
BASIC EPS
Net income available to common shareholders 1,685 2,821 $0.60 1,042 2,649 $0.39
---------- ---------- ========== ---------- ---------- ==========
EFFECT OF DILUTIVE SECURITIES
Warrants - 668 - 485
Convertible preferred stock - 11,235 - 11,235
Options - 877 - 963
---------- ---------- ---------- ----------
DILUTED EPS
Net income available to common shareholders
plus assumed conversions $1,685 15,600 $0.11 $1,042 15,332 $0.07
========== ========== ========== ========== ========== ==========
</TABLE>
7
<PAGE>
(6) STOCK REPURCHASE
In May 1999, the Board of Directors authorized management to repurchase up to
$10 million in shares of the Company's common stock in the open market. The
Company subsequently repurchased 575,000 shares for approximately $8.5 million.
In August 1999, the Board of Directors authorized management to repurchase up to
$4 million in shares of the Company's common stock. We believe cash generated
from operations, together with existing cash balances, will be sufficient to
satisfy anticipated short-term working capital requirements and long-term
liquidity needs.
(7) LITIGATION
The Company and certain of its current and former officers and directors have
been named as defendants in seven essentially identical lawsuits seeking class
action status filed on behalf of Company shareholders in U.S. District Court in
Minnesota. The named plaintiffs, who purport to act on behalf of a class of
purchasers of the Company's common stock during the period from January 25, 1999
to June 7, 1999, charge the defendants with violations of federal securities
laws. The suits allege that the Company and the named directors and officers
failed to disclose or misrepresented financial information concerning the
Company during the class period. The complaints do not specify an amount of
damages claimed. The Company believes that the complaints are without merit and
intends to vigorously defend the claims.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included herein. This
quarterly report on Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. The statements
regarding Select Comfort Corporation contained in this report that are not
historical in nature, particularly those that utilize terminology such as "may,"
"will," "should," "expects," "anticipates," "estimates," "believes" or "plans,"
or comparable terminology, are forward-looking statements based on current
expectations and assumptions, and entail various risks and uncertainties that
could cause actual results to differ materially from those expressed in such
forward-looking statements. Important factors known to Select Comfort that could
cause such material differences are identified and discussed in Part I, Item 1
of our Annual Report on Form 10-K for the fiscal year ended January 2, 1999,
which discussion is incorporated herein by reference. Such important factors
include our ability to create product and brand name awareness, the
effectiveness and efficiency of our advertising, the level of consumer
acceptance of our products, the number and timing of new retail store openings,
the performance of our existing and new retail stores, our ability to manage our
planned rapid store expansion, our ability to successfully identify and respond
to emerging trends in the mattress industry, the level of competition in the
mattress industry, general economic conditions and consumer confidence, and our
ability to maintain cost-effective production and delivery of products.
OVERVIEW
Select Comfort is the leading vertically integrated manufacturer, specialty
retailer and direct marketer of innovative air beds and sleep-related products.
Since the introduction of our first air bed product in 1987, management has
focused on improving our product, expanding our product line, building
manufacturing and distribution systems and growing our four sales channels:
retail, direct marketing, event marketing and e-commerce. Vertically integrated
operations and control over four separate but complementary sales channels
enable us to develop and maintain direct customer relationships as well as
leverage advertising dollars. Sales generation is driven primarily by targeted
print, radio and television media that generate customer inquiries, as well as
by our multiple, complementary distribution channels, which are designed to
provide multiple opportunities for customers to purchase our products.
Retail operations included 302 stores at July 3, 1999, including 27 leased
departments within larger retail stores (26 in Bed Bath & Beyond stores) and 264
stores at January 2, 1999, including 14 leased departments. The Company plans to
open a minimum of 48 retail stores during the remainder of 1999, including
expansion of the leased department concept. Seven of the 27 retail store
openings in the second quarter of 1999 were in new markets. We have closed a
total of five stores since inception.
Historically, the Company has experienced strong comparable store sales growth,
reporting an increase of 7.6% for the three months ended July 3, 1999 and 16.7%
for the three months ended July 4, 1998. Comparable store sales increased by
10.2% for the six months ended July 3, 1999 and 25.5% for the six months ended
July 4, 1998. The Company believes this performance is due to increased
awareness of our brand and product benefits, the relatively young age of the
store base and increased emphasis by the Company on the retail distribution
channel. This emphasis has resulted in (i) increased retail advertising in
certain multiple store markets, (ii) the evolution of retail store operations,
including improvements in store design, and (iii) the closer integration of
direct marketing and retail distribution channels. Comparable store sales
results in the future will be influenced by a variety of factors, including our
ability to create product and brand name awareness, the effectiveness and
efficiency of our advertising, our ability to drive consumer traffic to retail
stores and the level of consumer acceptance of our products.
Quarterly and annual operating results may fluctuate significantly as a result
of a variety of factors, including increases or decreases in comparable store
sales, the timing, amount and effectiveness of advertising expenditures, any
changes in return rates, the timing of new store openings and related expenses,
net sales contributed by new stores, any disruptions in third-party delivery
services, competitive factors and general economic conditions and consumer
confidence. Our business is also subject to some seasonal influences, with
heavier concentrations of sales during the fourth quarter holiday season due to
increased mall traffic.
9
<PAGE>
A substantial portion of operating expenses is related to sales and marketing
expenses, including costs associated with opening new stores, operating existing
stores, and advertising and marketing expenditures. The level of such spending
cannot be adjusted quickly and is based, in significant part, on expectations of
future customer inquiries and net sales. Furthermore, a substantial portion of
net sales is often realized in the last month of a quarter, with such net sales
frequently concentrated in the last weeks or days of a quarter, due in part to
our promotional schedule. Should the Company experience a shortfall in expected
net sales or in the conversion rate of customer inquiries, we may be unable to
adjust spending in a timely manner and our business, financial condition and
operating results may be materially adversely affected. Our historical results
of operations may not be indicative of the results that may be achieved for any
future fiscal period.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, our results of
operations expressed as percentages of net sales. Percentage amounts may not
total due to rounding.
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------- ---------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 34.3 34.0 34.3 35.0
---------- ---------- ---------- ----------
Gross margin 65.7 66.0 65.7 65.0
---------- ---------- ---------- ----------
Operating expenses:
Sales and marketing 56.9 52.7 56.7 53.8
General and administrative 8.5 7.2 7.9 7.2
---------- ---------- ---------- ----------
Total operating expenses 65.4 59.9 64.6 61.1
---------- ---------- ---------- ----------
Operating income 0.3 6.1 1.1 4.0
Other income (expense), net 0.5 (1.7) 0.6 (2.0)
---------- ---------- ---------- ----------
Income before income taxes 0.8 4.4 1.8 2.0
Income tax expense 0.3 1.2 0.7 0.7
---------- ---------- ---------- ----------
Net income 0.5% 3.2% 1.1% 1.3%
========== ========== ========== ==========
The overall decrease in operating earnings for 1999 as compared to 1998 relates
to increases in operating expenses, as a percentage of net sales, to support
long-term growth plans. Direct marketing sales declined by $4.9 million in the
second quarter of 1999 compared to the second quarter of 1998. Retail sales,
which were positively influenced in those markets in which retail advertising
has been expanded, were lower than expected in those markets without increased
advertising. A substantial portion of the Company's operating expenses is
relatively fixed on a short-term basis and is necessary for long term growth,
including increased retail advertising, certain selling expenses associated with
retail store operations, direct marketing selling expenses, and increased
general and administrative costs.
COMPARISON OF THREE MONTHS ENDED JULY 3, 1999 WITH THREE MONTHS ENDED JULY 4,
1998
NET SALES
Net sales increased 9.3% to $65.8 million for the three months ended July 3,
1999 from $60.1 million for the three months ended July 4, 1998 primarily due to
an increase in unit sales. The components of the increase in net sales for the
three month period were (i) an $8.2 million increase associated with the opening
of 78 new retail stores during the past 12 months and (ii) a $2.5 million
increase associated with an increase of 7.6% in comparable store sales resulting
primarily from the continuing maturation of stores, which were offset by a $4.9
million decrease in direct marketing sales.
10
<PAGE>
GROSS MARGIN
Gross margin decreased to 65.7% for the three months ended July 3, 1999 from
66.0% for the three months ended July 4, 1998 primarily due to an increase in
promotional programs, offset by improved purchasing through volume discounts and
better relationships with key suppliers, and improved leverage of fixed
manufacturing costs over higher unit volumes.
SALES AND MARKETING
Sales and marketing expenses increased 18.0% to $37.4 million for the three
months ended July 3, 1999 from $31.7 million for the three months ended July 4,
1998, and increased as a percentage of net sales to 56.9% from 52.7% for the
comparable prior year period. The increase in the dollar amount of sales and
marketing expenses for the three month period was primarily due to (i) the
opening of 78 new retail stores during the last 12 months, (ii) increased
advertising expenditures to support the Company's growth and (iii) higher
commissions, percentage rents and freight expense related to the higher net
sales. Sales and marketing expenses increased as a percentage of net sales
primarily due to (i) increased advertising focused on longer term sales growth
through brand and retail store awareness, (ii) lower direct marketing sales and
(iii) selling expenses in new stores increasing at a greater rate than net
sales.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 29.9% to $5.6 million for the
three months ended July 3, 1999 from $4.3 million for the three months ended
July 4, 1998. The increase in general and administrative expenses was primarily
due to increased spending on research and development and to provide retail and
information technology infrastructure to support long-term growth plans.
OTHER INCOME (EXPENSE), NET
Other income increased $1.4 million to approximately $353,000 for the three
months ended July 3, 1999 from ($1.0) million expense for the three months ended
July 4, 1998. The increase was primarily due to (i) the inclusion of $600,000 of
non-cash interest expense in the three months ended July 4, 1998 relating to the
change in the fair value of an outstanding put warrant and (ii) an increase in
interest income due to the increase in cash obtained from the completion of our
initial public offering in December 1998. The put provision associated with the
warrant was eliminated effective on completion of the initial public offering.
Future periods will not require the recording of non-cash interest expense
associated with the put warrant.
INCOME TAX EXPENSE
Income tax expense decreased to $205,000 for the three months ended July 3, 1999
from $706,000 for the three months ended July 4, 1998 due to a decrease in
taxable income in 1999, partially offset by the use of available net operating
loss carryforwards in 1998.
COMPARISON OF SIX MONTHS ENDED JULY 3, 1999 WITH SIX MONTHS ENDED JULY 4, 1998
NET SALES
Net sales increased 15.6% to $137.4 million for the six months ended July 3,
1999 from $118.8 million for the six months ended July 4, 1998. The increase in
net sales for the six month period was attributable to (i) a $16.6 million
increase associated with the opening of 78 new retail stores during the past 12
months, (ii) a $6.7 million increase associated with an increase of 10.2% in
comparable store sales resulting primarily from the continuing maturation of
stores and (iii) a $5.3 million decrease in direct marketing sales.
GROSS MARGIN
Gross margin increased to 65.7% for the six months ended July 3, 1999 from 65.0%
for the six months ended July 4, 1998 due to (i) improved purchasing through
volume discounts and better relationships with key suppliers and (ii) improved
leverage of fixed manufacturing costs over higher unit volumes.
11
<PAGE>
SALES AND MARKETING
Sales and marketing expenses increased 21.8% to $77.9 million for the six months
ended July 3, 1999 from $64.0 million for the six months ended July 4, 1998, and
increased as a percentage of net sales to 56.7% from 53.8% for the comparable
prior year period. The increase in the dollar amount of sales and marketing
expenses for the six month period was primarily due to (i) the opening of 78 new
retail stores during the last 12 months, (ii) increased advertising expenditures
to support the Company's growth and (iii) higher commissions, percentage rents
and freight expense related to higher net sales. Sales and marketing expenses
increased as a percentage of net sales primarily due to (i) increased
advertising focused on longer term sales growth through brand and retail store
awareness, (ii) lower direct marketing sales and (iii) selling expenses in new
stores increasing at a greater rate than net sales.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 25.7% to $10.8 million for the six
months ended July 3, 1999 from $8.6 million for the six months ended July 4,
1998. The increase in general and administrative expenses was primarily due to
increased spending on research and development and to provide retail and
information technology infrastructure to support long-term growth plans.
OTHER INCOME (EXPENSE), NET
Other income increased $3.2 million to approximately $861,000 for the six months
ended July 3, 1999 from ($2.4) million expense for the six months ended July 4,
1998. The increase for the six month period was primarily due to (i) the
inclusion of $1.5 million of non-cash interest expense in the six months ended
July 4, 1998 relating to the change in the fair value of an outstanding put
warrant and (ii) an increase in interest income due to the increase in cash
obtained from the completion of our initial public offering in December 1998.
The put provision associated with the warrant was eliminated effective on
completion of the initial public offering. Future periods will not require the
recording of non-cash interest expense associated with the put warrant.
INCOME TAX EXPENSE
Income tax expense increased to $902,000 for the six months ended July 3, 1999
from $855,000 for the six months ended July 4, 1998 due to an increase in
taxable income in 1999 and the use of available net operating loss carryforwards
in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our primary source of liquidity has been the sale of equity securities. We
completed our initial public offering in December 1998, resulting in net
proceeds of $44.6 million, which have been partially used for (i) the repayment
of $15.0 million of debt, (ii) expansion of retail stores, (iii) the build-out
of our third manufacturing plant and (iv) the repurchase of 575,000 shares of
Company common stock for $8.5 million in May 1999. The Company had working
capital of approximately $32.3 million at July 3, 1999 and $40.3 million at
January 2, 1999.
Net cash provided by operating activities for the six months ended July 3, 1999
was approximately $1.5 million and consisted primarily of net income adjusted
for non-cash expenses and increases in accounts payable and accrued liabilities,
partially offset by increases in accounts receivable and inventories. Net cash
used in operating activities for the six months ended July 4, 1998 was
approximately $800,000 and consisted primarily of increases in accounts
receivable, inventory and prepaid expenses and decreases in accounts payable and
accrued liabilities, partially offset by cash flows from operations before
non-cash expenses.
In July 1999, we terminated our revolving third-party credit arrangement with
Monogram Bank, an affiliate of General Electric Capital Corporation ("GE") and
entered into a third-party credit arrangement with Green Tree Financial
Corporation ("Green Tree"). These arrangements have been used to provide
financing for our customers' use in purchasing our products. In connection with
all purchases financed under these arrangements, the provider pays an amount
equal to the total amount of purchases net of promotional discounts. The
provider sets the rate, annual fees and all other terms and conditions relating
to the customers' accounts, including collection policies and procedures, and is
the owner of the receivables. In July 1999, Green Tree purchased substantially
all of the outstanding receivables from GE. As a result of this transaction, the
Company received $9.8 million that had been retained by GE and had been recorded
as accounts receivable in periods prior to July 1999. There are no retainage
requirements as part of this new agreement.
12
<PAGE>
Net cash used in investing activities was approximately $17.9 million for the
six months ended July 3, 1999 and $4.0 million for the six months ended July 4,
1998. Investing activities consisted of purchases of property and equipment for
new retail stores in both periods. During the second quarter of 1999, we began
investing excess cash in short-term marketable securities. In addition, we
invested $2.0 million in a less than 20% owned affiliate which will be the
provider of our sofa sleeper product.
Net cash used in financing activities was approximately $6.4 million for the six
months ended July 3, 1999 and consisted of $8.5 million used to repurchase
Company common stock and $0.5 million used to repay debt, offset by stock option
exercises. Net cash provided by financing activities was approximately $800,000
for the six months ended July 4, 1998 which consisted of stock option exercises
net of debt repayments.
In August 1999, the Board of Directors authorized management to repurchase up to
$4 million in shares of the Company's common stock due to the availability of
excess cash and the valuation of the Company's shares in the market. We believe
that cash flow generated from operations and existing cash resources will be
sufficient to meet working capital and liquidity requirements for the
foreseeable future as we pursue our long-term growth strategy, described in
greater detail below.
LOOKING FORWARD
We have completed the initial evaluation of factors that have impacted our
recent sales and earnings performance and have outlined several strategic
initiatives that we believe will accelerate sales growth and improve operating
results. These initiatives include (i) developing a more integrated marketing
approach that will concentrate a higher percentage of advertising expenditures
in our retail and e-commerce channels, (ii) increasing the number of retail
distribution points for our products and (iii) expanding our product line. The
integrated marketing approach will focus on broadening our product and brand
awareness to a larger consumer group. Our shift in advertising focus indicates
our belief that sales growth will occur most significantly in our retail and
e-commerce channels. While direct marketing will remain a significant
contributor to our business, we will focus on optimizing the direct marketing
channel profit contribution while evaluating other direct marketing sales
opportunities, including affinity marketing programs and catalogs. The continued
increase in the number of distribution points will be achieved through
aggressive retail store growth, including expansion of the Company's leased
department concept, possibly with one or more partnerships in addition to our
partnership with Bed Bath & Beyond. Initial product line expansions will include
introduction of an adjustable bed frame and a sofa sleeper product, each with
fully adjustable air mattresses.
The success of our strategy will depend on many factors including (i) the
effectiveness and efficiency of our advertising in creating awareness of our
products and brand name, (ii) our ability to successfully open additional stores
and leased departments in new and existing markets, as well as in new and
existing formats, (iii) the level of consumer acceptance of our existing and new
products, (iv) our ability to generate consumer inquiries and drive consumer
traffic to retail stores, (v) competition in the mattress industry and (vi)
general economic factors and consumer confidence.
We continue to expand our analysis of the business, including consumer
segmentation and distribution studies to be initiated in the third quarter of
1999. The strategic initiatives and additional business analyses are directed
toward improving our long-term performance and are not expected to contribute
significantly to growth in sales and earnings for the remainder of 1999, and may
negatively impact earnings in the remainder of 1999.
IMPACT OF YEAR 2000
STATE OF READINESS Beginning in early 1996, we included certain Year 2000
initiatives and remediation plans in our broader information systems strategic
plan. In early 1998 we retained an independent consultant to assess the adequacy
of Year 2000 initiatives and remediation plans. All essential information
technology ("IT") systems have been inventoried and remediation plans for any
Year 2000 issues have been implemented. Remediation plans included the
development of Year 2000 compliant applications for order entry, customer
service and point of sale systems in fall 1996. In the third quarter of 1997, we
purchased and implemented an enterprise information system used in manufacturing
operations,
13
<PAGE>
material planning, inventory management, order processing, financial management
and human resources applications, which was upgraded to be Year 2000 compliant
in February 1999. We purchased Year 2000 compliant upgrades to our payroll
applications in 1997 and our telephone system in 1998. Year 2000 compliant
upgrades for software applications for customer inquiries and for processing and
tracking warranty claims and returns have been developed and will be completed
in the third quarter of 1999. With the implementation of these applications and
upgrades, we expect that all core applications and IT systems will be Year 2000
compliant by the end of the third quarter of 1999.
In August 1998, we formed a Year 2000 project team ("Year 2000 Project Team") to
identify and address Year 2000 compliance matters, including significant non-IT
systems which are comprised of the embedded technology used in our buildings,
plant, equipment and other infrastructure. All material Year 2000 issues in
non-IT systems have been inventoried and remedial action has been completed.
During the first quarter of 1998, we initiated discussions with significant
suppliers regarding their plans to remediate Year 2000 issues. We sent each of
the significant suppliers a questionnaire inquiring as to the magnitude of their
Year 2000 issues and the status of their readiness. We have received assurances
from a majority of these suppliers that they will become Year 2000 compliant in
a timely manner. We have not received responses from all of the third parties
with which we do business. In addition to the questionnaires, a supplier
certification program has been established under which suppliers must meet
rigorous standards relating to quality, service, the ability to deliver
materials on a timely basis and Year 2000 compliance. To date, 12 key suppliers
have been certified and other authorized suppliers are in the process of seeking
certification. All key suppliers, including our Eastern European supplier of air
chambers, have notified us that they are or will be Year 2000 compliant during
1999.
In addition to suppliers, we also rely upon governmental agencies, utility
companies, telecommunication service companies and other service providers
outside of our control. There can be no assurance that such governmental
agencies or other third parties will not suffer a Year 2000 business disruption
that could have a material adverse effect on our business, financial condition
or operating results.
COSTS TO ADDRESS THE YEAR 2000 ISSUE
We estimate that approximately $165,000 has been incurred, through July 3, 1999,
to address Year 2000 issues. We estimate that an additional $100,000 will be
incurred in 1999 to complete our remediation plans required for IT systems,
including systems software costs and consulting fees.
RISKS PRESENTED BY THE YEAR 2000 ISSUE
If any third party who provides goods or services essential to our business
activities fails to appropriately address Year 2000 issues, such failure could
have a material adverse effect on our business, financial condition or operating
results. For example, a Year 2000 related disruption on the part of the
financial institutions which process our credit card sales could have a material
adverse effect on our business, financial condition or operating results.
CONTINGENCY PLANS
The Year 2000 Project Team's initiatives include the development of contingency
plans in the event we have not completed all remediation plans in a timely
manner. In addition, the Year 2000 Project Team is in the process of developing
contingency plans in the event that any third party who provides goods or
services essential to our business fails to appropriately address Year 2000
issues. The Year 2000 Project Team expects to conclude the development of these
contingency plans by the end of the third quarter of 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes.
14
<PAGE>
PART II: OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In June 1999 the Company and certain of its current or former officers
and directors were named as defendants in seven essentially identical
lawsuits seeking class action status filed on behalf of Company
shareholders in U.S. District Court in Minnesota. The named
plaintiffs, who purport to act on behalf of a class of purchasers of
the Company's common stock during the period from January 25, 1999 to
June 7, 1999, charge the defendants with violations of federal
securities laws. The suits allege that the Company and the named
directors and officers failed to disclose or misrepresented financial
information concerning the Company during the class period. The
complaints do not specify an amount of damages claimed. The Company
believes that the allegations of the complaints are without merit and
intends to vigorously defend the claims.
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS
In May 1999, the Board of Directors authorized management to
repurchase up to $10 million in shares of the Company's common stock
in the open market due to the availability of excess cash and the
valuation of the Company's shares in the market. During the second
quarter, the Company repurchased 575,000 shares for approximately $8.5
million. In August 1999, the Board authorized management to repurchase
up to $4 million in shares of the Company's common stock due to the
availability of excess cash and the valuation of the Company's shares
in the market.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Shareholders was held on June 8, 1999.
Shareholders authorized and approved an amendment of the Company's
Articles of Incorporation to increase the maximum number of directors
from nine to twelve, with shares voted as follows:
Shares For 16,541,656
Shares Against 38,767
Shares Abstaining 65,170
The following individuals were elected at the Annual Meeting as
Directors of the Company to serve for terms of three years expiring at
the 2002 Annual Meeting of Shareholders or until their successors are
elected and qualified. Shares voted in favor of these Directors and
shares withheld were as follows:
Christopher P. Kirchen
Shares For 16,525,088
Shares Withheld 120,505
Lawrence P. Murphy
Shares For 16,524,588
Shares Withheld 121,005
Jean-Michel Valette
Shares For 16,516,186
Shares Withheld 129,407
15
<PAGE>
The following individual was elected at the Annual Meeting as a
Director of the Company to serve for a term of one year expiring at
the 2000 Annual Meeting of Shareholders or until his successor is
elected and qualified. Shares voted in favor of this Director and
shares withheld were as follows:
William J. Lansing
Shares For 16,556,188
Shares Withheld 89,405
In addition to the Directors named above, the following Directors'
terms continued after the Annual Meeting and will expire at the Annual
Meeting of Shareholders in the year indicated below:
Name Term Expires
---------------- ------------
Patrick A. Hopf 2000
Ervin R. Shames 2000
Thomas J. Albani 2001
David T. Kollat 2001
In addition, H. Robert Hawthorne and Daniel J. McAthie served as
Directors and their respective terms continued after the Annual
Meeting of Shareholders, but each of them subsequently resigned from
the Board of Directors in July 1999.
Shareholders ratified the appointment of KPMG Peat Marwick LLP as the
Company's independent auditor for the fiscal year ending January 1,
2000, with shares voted as follows:
Shares For 16,377,317
Shares Against 206,558
Shares Abstaining 61,718
Shareholders approved an amendment of the Company's 1997 Stock
Incentive Plan to increase the number of shares of common stock
reserved for issuance under the plan by 1,000,000 shares from
1,500,000 shares to 2,500,000 shares, with shares voted as follows:
Shares For 13,216,598
Shares Against 2,942,530
Shares Abstaining 7,145
Broker Non-Vote 479,320
ITEM 5 - OTHER INFORMATION
In July 1999, the Company disclosed that Daniel J. McAthie resigned as
President and Chief Executive Officer of the Company. Patrick A. Hopf
has been appointed interim Chief Executive Officer. The Company has
begun a search for a new Chief Executive Officer.
16
<PAGE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit
Number Description
10.1 Consulting Agreement between Select Comfort
Corporation and Lawrence P. Murphy
10.2 Employment and Consulting Agreement by and
between Select Comfort Corporation and
H. Robert Hawthorne
10.3 Revolving Credit Program Agreement by and
between Green Tree Financial Corporation and
Select Comfort Corporation (1)
10.4 Letter of Agreement by and between Bed, Bath
& Beyond Inc. and Select Comfort Retail
Corporation (1)
10.5 Select Comfort Profit Sharing and 401(K) Plan
10.6 Select Comfort Corporation 1999 Employee
Stock Purchase Plan
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
(1) Confidential treatment has been requested with respect to
designated portions contained within this exhibit. Such portions have
been omitted and filed separately with the Commission pursuant to Rule
406 under the Securities Act.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELECT COMFORT CORPORATION
/s/Patrick A. Hopf
-------------------------------------
August 16, 1999 Patrick A. Hopf
Chairman and Interim President and Chief
Executive Officer (principal executive officer)
/s/James C. Raabe
-------------------------------------
James C. Raabe
Chief Financial Officer (principal financial
and accounting officer)
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description Location
-------------- ----------------------------------- -----------------------------
<S> <C> <C>
10.1 Consulting Agreement between Select Filed herewith electronically
Comfort Corporation and Lawrence P.
Murphy
10.2 Employment and Consulting Agreement Filed herewith electronically
by and between Select Comfort
Corporation and H. Robert Hawthorne
10.3 Revolving Credit Program Agreement Filed herewith electronically
by and between Green Tree Financial
Corporation and Select Comfort
Corporation
10.4 Letter of Agreement by and between Filed herewith electronically
Bed, Bath & Beyond Inc. and Select
Comfort Retail Corporation
10.5 Select Comfort Profit Sharing and Filed herewith electronically
401(K) Plan
10.6 Select Comfort Corporation 1999 Filed herewith electronically
Employee Stock Purchase Plan
27.1 Financial Data Schedule Filed herewith electronically
</TABLE>
(1) Confidential treatment has been requested with respect to
designated portions contained within this exhibit. Such portions have
been omitted and filed separately with the Commission pursuant to Rule
406 under the Securities Act.
19
<PAGE>
EXHIBIT 10.1
CONSULTING AGREEMENT
THIS AGREEMENT is effective as of May 4, 1999 between Select Comfort
Corporation, a Minnesota corporation (the "Company"), and Lawrence P. Murphy
(the "Consultant").
WHEREAS, the Consultant has been nominated for election to serve as a
member of the Board of Directors of the Company (the "Board") with a term
expiring at the 2002 annual shareholders' meeting; and
WHEREAS, the Company also desires to engage the Consultant to perform
certain consulting and strategic advisory services in order to benefit from the
Consultant's management experience and abilities, and the Consultant desires to
accept such engagement, all upon the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the Company and the Consultant, each intending to be legally bound, agree as
follows:
1. ENGAGEMENT AND DUTIES.
(a) BOARD SERVICE. The Consultant agrees to serve as a member of the Board
for an initial term commencing at the 1999 annual shareholders' meeting and
expiring at the 2002 annual shareholders' meeting or until his successor
shall have been duly elected and qualified, subject to the earlier
resignation of the Consultant at his discretion. The Company anticipates
that the Board will have four regularly scheduled meetings per year, one or
two of which per year will be held in California.
(b) CONSULTING AND STRATEGIC ADVISORY SERVICES. Subject to all of the terms
and conditions of this Agreement, the Company agrees to engage the
Consultant to provide the Company with various consulting and strategic
advisory services as described herein and the Consultant agrees to accept
such engagement. During the term of this Agreement, the Consultant agrees
to consult with the Board and the Company, and to provide such consulting
and strategic advisory services to the Board and the Company as are
consistent with the Consultant's expertise and experience, including
without limitation, consulting and strategic advisory services with respect
to: (i) overall strategic direction, (ii) acquisitions and new business
development, (iii) corporate marketing and brand development and (iv)
organizational structure and development, all as may be reasonably
requested and further defined by the Board and agreed to by the Consultant.
(c) TERM. The term of this Agreement will commence on the date of execution
and delivery of this Agreement by each of the parties hereto and continue
through the Company's annual shareholders' meeting in 2001.
(d) TIME COMMITMENT. During the first year of the term of this Agreement
expiring at the Company's annual shareholders' meeting in 2000, the
Consultant agrees to devote up to twelve (12) days per semester, including
reasonable travel time, to the performance
<PAGE>
of the services provided for in this Agreement. During the second year of
the term of this Agreement expiring at the Company's annual shareholders'
meeting in 2001, the Consultant agrees to devote up to six (6) days per
semester, including reasonable travel time, to the performance of the
services provided for in this Agreement. Time spent in performance of
duties as a director shall be deemed to be time devoted to the Consultant's
duties hereunder. Time in excess of the foregoing base time commitment, as
requested by the Company and on an as available basis for the Consultant,
will be compensated at $7,500 per day. Meeting and travel times are subject
to reasonable advance notice. Participation in Board meetings by telephone
conference will be allowed when necessary.
(e) NATURE OF RELATIONSHIP; AUTHORITY. The services to be rendered by the
Consultant to the Company pursuant to this Agreement will be as an
independent contractor, and this Agreement does not make the Consultant an
employee, agent or legal representative of the Company for any purpose
whatsoever, including without limitation participation in any benefits or
privileges given or extended by the Company to its employees. No right or
authority is granted to the Consultant to assume or create any obligation
or responsibility, express or implied, on behalf of or in the name of the
Company. The Company will not withhold from the amounts paid to the
Consultant under this Agreement for any federal or state taxes, and the
Consultant agrees that he will pay all taxes due on such amounts paid.
(f) OTHER ENGAGEMENTS. Notwithstanding anything to the contrary contained
in this Agreement, other than Section 5 hereof, nothing shall be construed
to limit the ability of the Consultant to consult for or serve on the Board
of Directors of such other corporations, trade associations, charitable
organizations or other entities as the Consultant shall from time to time
deem appropriate and to engage in such other activities as the Consultant
shall reasonably deem not to be in conflict with his duties to the Company.
2. TERMINATION. Subject to the respective continuing obligations of the
Company and the Consultant under Sections 4, 5 and 6 of this Agreement:
(a) This Agreement may be terminated by the Company immediately upon
written notice to the Consultant "for cause," with the basis for
termination specified in such notice. For purposes of this Agreement, "for
cause" will mean (i) dishonesty, fraud, gross misrepresentation,
embezzlement or material and deliberate injury or attempted injury, in each
case related to the Company or its business, (ii) any unlawful or criminal
activity of a serious nature, (iii) any willful breach of duty, habitual
neglect of duty or unreasonable job performance, or (iv) a material breach
of any provision of this Agreement.
(b) This Agreement may be terminated by the Company or the Consultant upon
not less than ninety (90) days prior written notice without cause.
(c) This Agreement will be automatically terminated upon the death of the
Consultant.
2
<PAGE>
3. COMPENSATION.
(a) CASH COMPENSATION FOR BOARD AND COMMITTEE MEETINGS. The Consultant will
receive the cash compensation per Board meeting attended in person and per
Board Committee meeting attended in person as is fixed from time to time by
the Board of Directors for payment to non-employee directors of the
Company, which compensation is currently $3,500 per Board meeting and $500
per Board Committee meeting.
(b) MONTHLY RETAINER. In consideration of the Consultant's services under
this Agreement, the Company will pay the Consultant a retainer of $8,333
per month payable on the 15th day of each month commencing May 15, 1999.
(c) STOCK OPTIONS. In addition to the cash compensation and monthly
retainer described above, and subject to the terms and conditions set forth
below, the Consultant will be entitled to receive non-qualified stock
options (i.e., options that are not intended to be incentive stock options
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended) as follows:
(i) BOARD SERVICE OPTIONS. In consideration of the Consultant's
service on the Board, the Consultant will receive non-qualified stock
options to purchase fifteen thousand (15,000) shares of the Common
Stock of the Company at an exercise price equal to the average of the
high and low trading prices of the Company's Common Stock on the date
of the Consultant's election to the Board of Directors, which options
will become exercisable in equal increments of one-twenty-fourth
(1/24) of such number of options at the end of each of the first
twenty-four (24) months of the Consultant's term of service on the
Board of Directors so long as the Consultant continues to serve on the
Board. The options provided under this Section 3(c)(i) that become
exercisable will remain exercisable for a minimum period of five (5)
years from the date hereof, regardless of continuing service on the
Board, and thereafter, if the Consultant continues to serve on the
Board beyond such 5-year period, will remain exercisable until the
earlier of (A) ninety (90) days after the Consultant ceases to serve
on the Board or (B) ten (10) years from the date hereof.
(ii) CONSULTING SERVICES OPTIONS. In consideration of the consulting
services to be provided by the Consultant hereunder, the Consultant
will receive non-qualified stock options to purchase sixty thousand
(60,000) shares of the Common Stock of the Company at an exercise
price of $15.38 per share, which options will become exercisable in
equal increments of one-twenty-fourth (1/24) of such number of options
at the end of each of the first twenty-four (24) months of the term of
this Agreement so long as the Consultant continues to serve as a
consultant to the Company. The options provided under this Section
3(c)(ii) that become exercisable will remain exercisable for a minimum
period of five (5) years from the date hereof, regardless of
continuing service as a consultant to the
3
<PAGE>
Company, and thereafter, if the Consultant continues to serve as a
consultant to the Company beyond such 5-year period, will remain
exercisable until the earlier of (A) ninety (90) days after the
Consultant ceases to serve as a consultant to the Company or (B) ten
(10) years from the date hereof.
(iii) ACCELERATION OF VESTING UPON A CHANGE IN CONTROL. Upon a "Change
in Control," as defined in the Company's 1997 Stock Incentive Plan, if
the Consultant remains engaged as a director (in the case of the
options provided under Section 3(c)(i) above) or consultant to the
Company (in the case of the options provided under Section 3(c)(ii)
above) immediately prior to such Change in Control, all of the
foregoing options that have been provided under Sections 3(c)(i) or
Section 3(c)(ii) above, as the case may be, and remain outstanding as
of the date of such Change in Control will become immediately
exercisable and will remain exercisable until the end of the 10-year
term of such options, regardless of whether the Consultant continues
to serve on the Board or as a consultant to the Company.
(iv) DOCUMENTATION OF STOCK OPTIONS. All of the foregoing options will
be evidenced by the Company's standard form of non-statutory stock
option agreement, except as modified by the terms set forth above,
including standard protection against dilution in the event of any
stock split, stock dividend or similar recapitalization of the
Company.
(c) TRAVEL EXPENSES. The Company will pay or reimburse the Consultant for
first class travel expenses for travel required for the performance of the
Consultant's duties under this Agreement, whether as a member of the Board
or as a consultant, provided that such expenses are incurred and properly
accounted for in accordance with the Company's policies regarding
reimbursement of travel expenses as may be in effect from time to time.
4. CONFIDENTIAL INFORMATION.
(a) "Confidential Information," as used in this Section 6, means
information that is not generally known and that is proprietary to the
Company or that the Company is obligated to treat as proprietary. This
information includes, without limitation:
(i) trade secret or other proprietary information about the Company
and its products; and
(ii) proprietary information concerning any of the Company's past,
current, or possible future products, including (without limitation)
proprietary information about the Company's research, development,
engineering, purchasing, manufacturing, accounting, marketing, selling
or leasing.
4
<PAGE>
Notwithstanding anything to the contrary contained herein, the term
"Confidential Information" does not include information which (i) is or
becomes available to the public other than as a result of a disclosure by
the Consultant, (ii) was within the Consultant's possession prior to its
being furnished to the Consultant by or on behalf of the Company pursuant
to this Agreement, or (iii) becomes available to the Consultant on a
non-confidential basis from a source other than the Company or its
representatives.
(b) The Consultant will not, either during or after his engagement by the
Company, use or disclose Confidential Information to any person not
authorized by the Company to receive it, except (i) as required in the
performance of the Consultant's duties to the Company, (ii) as required to
enforce this Agreement, or (iii) as otherwise required by law. When the
Consultant's engagement with the Company ends, he will, upon the Company's
request, promptly turn over to the Company all records and any
compositions, articles, devices, apparatus and other items that disclose,
describe or embody Confidential Information, including all copies,
reproductions and specimens of the Confidential Information in his
possession, regardless of who prepared them.
5. COMPETITIVE ACTIVITIES. The Consultant agrees that during the term of
this Agreement and for a period of two (2) years after termination of this
Agreement, regardless of the reason for such termination, he will not alone, or
in any capacity with another firm:
(a) directly or indirectly compete with the Company's business, as the
Company has conducted it during the Consultant's engagement with the
Company, within any state in the United States or any country in which the
Company directly or indirectly markets or services products or provides
services or reasonably plans or intends during Consultant's engagement
period to market or service products or provide services; or
(b) employ or attempt to employ any of the Company's then employees on
behalf of any other entity competing with the Company.
6. NO ADEQUATE REMEDY. The Consultant understands that if he fails to
fulfill his obligations under Sections 4 and 5 of this Agreement, the damages to
the Company would be very difficult to determine. Therefore, in addition to any
other rights or remedies available to the Company at law, in equity or by
statute, the Consultant hereby consents to the specific enforcement by the
Company of Sections 4 and 5 of this Agreement through an injunction or
restraining order issued by an appropriate court.
7. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by either
party without the other party's prior written consent.
(b) MODIFICATION. This Agreement may be modified or amended only by a
writing signed by each of the parties hereto.
5
<PAGE>
(c) GOVERNING LAW. The laws of the State of Minnesota will govern the
validity, construction, and performance of this Agreement, without regard
to the conflict of laws provisions of any jurisdictions. Any legal
proceeding related to this Agreement will be brought in an appropriate
Minnesota court, and each of the parties hereto hereby consents to the
exclusive jurisdiction of such courts for this purpose.
(d) CONSTRUCTION. Wherever possible, each provision of this Agreement will
be interpreted so that it is valid under applicable law. If any provision
of this Agreement is to any extent invalid under applicable law in any
jurisdiction, that provision will still be effective to the extent it
remains valid. The remainder of this Agreement also will continue to be
valid, and the entire Agreement will continue to be valid in other
jurisdictions.
(e) NON-WAIVER. No failure or delay by either the Company or the Consultant
in exercising any right or remedy under this Agreement will waive any
provision of the Agreement. Nor will any single or partial exercise by
either the Company or the Consultant of any right or remedy under this
Agreement preclude either of them from otherwise or further exercising
these rights or remedies, or any other rights or remedies granted by any
law or any related document.
(f) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will constitute an original, but all of which,
when taken together, will constitute one and the same instrument.
(g) ENTIRE AGREEMENT. This Agreement supersedes all previous and
contemporaneous oral negotiations, commitments, writings and understandings
between the parties hereto concerning the matters in this Agreement,
including, without limitation, any policy or personnel manuals of the
Company or any of its subsidiaries or affiliates.
(h) NOTICES. All notices and other communications required or permitted
under this Agreement will be in writing and hand delivered or sent by
registered first-class mail, postage prepaid, and will be effective upon
receipt, if sent to the following address or such other address as either
party will have notified the other party:
If to the Company: Select Comfort Corporation
6105 Trenton Lane North
Minneapolis, Minnesota 55442
Attn: Chief Executive Officer
If to the Consultant: Lawrence P. Murphy
1176 Loma Linda Drive
Beverly Hills, CA 90210
6
<PAGE>
IN WITNESS WHEREOF, the Company and the Consultant have executed this
Agreement as of the date first above written.
SELECT COMFORT CORPORATION
By: /s/Daniel J. McAthie
Its: President and Chief Executive Officer
/s/Lawrence P. Murphy
Lawrence P. Murphy
7
EXHIBIT 10.2
EMPLOYMENT AND CONSULTING AGREEMENT
THIS AGREEMENT, dated as of April 19, 1999, is entered into by and between
Select Comfort Corporation, a Minnesota corporation (the "Company"), and H.
Robert Hawthorne, an individual resident of the State of Minnesota (the
"Employee").
RECITALS
A. The Company and the Employee have agreed to certain terms and conditions
relating to the Employee's employment with the Company as set forth herein.
B. All of the terms and conditions relating to the Employee's employment with
the Company are set forth herein and this Agreement supersedes and replaces
in its entirety any previous agreement, letter or understanding relating
thereto between the Company and the Employee.
In consideration of the foregoing and the mutual agreements set forth below the
parties hereto agree as follows:
1. TERM OF SERVICE; DUTIES. The Company and the Employee agree that the
Employee's employment with the Company will continue through July 31, 1999.
Effective as of April 19, 1999, the Employee agrees to resign as President
and Chief Executive Officer and to assume the role of Vice Chairman of the
Board of Directors. From and after April 19, 1999 and through July 31,
1999, the Employee will remain as an employee of the Company and continue
to perform services for the Company on a special project basis in areas of
external corporate development and corporate marketing as directed by the
President and Chief Executive Officer or the Chairman of the Board of the
Company. The Company agrees that it will not terminate the Employee's
employment with the Company without cause prior to July 31, 1999. "Cause"
shall mean a material breach by the Employee of the provisions of Section
6, 7 or 8 of this Agreement or other conduct of a serious nature that could
result in damage to the reputation or image of the Company. In addition,
after April 19, 1999, the Employee will continue to serve as a director of
the Company for an indefinite period. The Employee acknowledges and agrees
that from and after April 19, 1999, he will not have authority to bind the
Company, contractually or otherwise, except as expressly authorized by the
President and Chief Executive Officer, the Chairman of the Board or the
Board of Directors of the Company.
2. CONSULTING SERVICES. From and after August 1, 1999 and through April 30,
2001, the Employee will serve as an independent contractor to the Company
and continue to perform consulting services for the Company on a special
project basis in areas of external corporate development and corporate
marketing as directed by the President and Chief Executive Officer or the
Chairman of the Board of the Company.
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3. COMPENSATION. Subject to reasonable compliance by the Employee with the
terms and conditions of this Agreement, and subject to the execution and
delivery by the Employee of the release in the form of Exhibit A attached
hereto (the "Release") and the effectiveness of the Release following the
passage of any applicable period of time during which the Release may be
revoked by the Employee, and in consideration for the obligations of the
Employee under Section 6 below, the Company agrees to pay, and the Employee
agrees to accept, in lieu of all other severance or other compensation set
forth in any other agreement, letter or understanding between the Company
and the Employee, the following compensation:
A. Through April 30, 1999, the Employee will continue to receive his
salary at the current rate of pay.
B. For the period from May 1, 1999 through July 31, 1999, the Employee
will receive a salary equal to $10,000 per month, paid in accordance
with the Company's standard payroll practices, including timing and
manner of payment, and the Company will be entitled to deduct and
withhold any amounts necessary to satisfy any income or
employment-related tax requirements.
C. For the period from August 1, 1999 through April 30, 2001 the Employee
will receive consulting fees equal to $8,250 per month, paid on a
monthly basis.
4. BENEFITS. For the period from May 1, 1999 through April 30, 2001 (or until
such earlier date as the Employee may obtain comparable or similar coverage
from another employer), the Employee will continue to receive health,
dental and life insurance coverage, including family coverage as has been
provided by the Company to the Employee in the past and consistent with the
Company's standard employee benefit plans as in effect from time to time,
and the Employee will continue to pay the Employee's pro rata share for
such coverage consistent with what other employees pay for such coverage.
The provision of such coverage by the Company as described above over the
period after the Employee ceases to be an Employee of the Company shall be
deemed to fully satisfy the Company's COBRA obligations. Stock options
previously granted to the Employee by the Company that are currently
outstanding will continue to vest in accordance with the existing terms of
such options through the remaining term of the Employee's service with the
Company as an employee. All options that vest during the term of the
Employee's employment with the Company will remain exercisable after the
termination of such employment only in accordance with the terms of the
stock option agreement and the stock option plan governing such options,
which provide for the right to exercise such options for up to three (3)
months after termination of employment without cause.
5. NO OTHER COMPENSATION. The Employee agrees and understands that he is
entitled to no other compensation other than as expressly provided in this
Agreement and will not accrue or become entitled to any benefits other than
as expressly provided herein. The Employee also understands that payments
made pursuant to this Agreement may be subject to withholding of applicable
income and other employment-related taxes (as well
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as FICA and Medicare) and consents to the Company's right to withhold from
such payments as required by applicable tax laws.
6. NON-COMPETITION AND NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. The
Employee agrees that from and after the date hereof and through the period
ended April 30, 2001, the Employee will not alone or in any capacity with
any other person or entity:
A. Directly or indirectly engage in any commercial activity that competes
with the Company's business, as it exists on July 31, 1999, anywhere
in the world; or
B. In any way interfere or attempt to interfere with the Company's
relationships with any of its current or potential vendors, suppliers,
distributors or customers; or
C. Employ or attempt to employ any of the Company's employees so long as
they remain employees of the Company.
The Employee further agrees that, except as required in the performance of
the Employee's duties for and on behalf of the Company, the Employee will
not at any time use or disclose to any party any of the Company's
proprietary or confidential information.
7. NON-DISPARAGEMENT. The Employee agrees that he will not at any time
disparage, demean or criticize, or do or say anything to cause injury to,
the business, reputation, management, employees or products of the Company.
The Company agrees that it will not at any time disparage, demean or
criticize, or do or say anything to cause injury to the reputation or
career development of the Employee. In addition to any other damages or
remedies that may be available to a non-breaching party for any breach of
this Section 7, any breaching party shall further be obligated to the
non-breaching party for any reasonable attorneys' fees and costs incurred
by the non-breaching party to enforce the provisions of this Section 7.
8. CONFIDENTIALITY. The Company and the Employee each agree that they will
hold the facts and circumstances of this Agreement in strict confidence and
will not reveal the existence or the terms of this Agreement to anyone
except as may be required by law. The Employee acknowledges that the
Company may be required to file a copy of this Agreement with the
Securities and Exchange Commission in which event this Agreement would be
publicly available. Notwithstanding the foregoing, each of the parties
hereto will be entitled to advise their respective professional advisors of
the terms hereof, and the Employee will be entitled to discuss the terms
hereof with immediate family members.
9. KNOWING AND WILLFUL AGREEMENT. The Employee hereby acknowledges he fully
understands and accepts the terms of this Agreement, that his signature is
freely, voluntarily and knowingly given, and that he has been provided a
full opportunity to review and reflect on the terms of this Agreement and
to obtain the advice of legal counsel of his choice, which advice the
Company has encouraged him to obtain.
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10. RESCISSION PERIOD. After executing this Agreement, the Employee understands
that he may rescind this Agreement by delivering written notice of such
rescission within fifteen (15) days of this date of such execution by
certified mail, return receipt requested, to Select Comfort Corporation,
6105 Trenton Lane North, Minneapolis, Minnesota 55442, Attn.: Chairman of
the Board. The Employee understands that this Agreement will not become
effective until the end of such 15-day period and only if the Employee does
not rescind this Agreement.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between
the parties and supersedes all previous negotiations, representations and
agreements heretofore made by the parities with respect to the subject
matter hereof. No amendment waiver or discharge hereof shall be valid
unless in writing and executed by both parties hereto.
12. GOVERNING LAW. The laws of the State of Minnesota will govern the validity,
construction and performance of this Agreement, without regard to the
conflict of law provisions of any jurisdictions. Any legal proceeding
related to this Agreement, will be brought in a Minnesota court of
competent jurisdiction, and both the Company and the Employee hereby
consent to the exclusive jurisdiction of any such court for this purpose.
13. SEVERABILITY. Whenever possible, each provision of this Agreement will be
interpreted so that it is valid under applicable law. If any provision of
the Agreement is to any extent rendered invalid under applicable law, that
provision will still be effective to the extent it remains valid. The
remainder of this Agreement also will continue to be valid, and the entire
Agreement will continue to be valid in other jurisdictions.
14. NO ASSIGNMENT. The Employee may not assign this Agreement to any third
party for whatever purpose without the express written consent of the
Company. The Company may not assign this Agreement to any third party,
except by operation of law through merger, consolidation, liquidation or
recapitalization, or by sale of all or substantially all of the assets of
the Company, without the express written consent of the Employee.
15. REMEDIES. The parties hereto agree that the rights granted by this
Agreement are both unique and special, and the parties contemplate that
enforcement of this Agreement may be had by recourse to the equitable
remedies available in courts of competent jurisdiction in addition to any
other remedies which may be or may become available at law.
16. BINDING EFFECT. This Agreement and the obligations of the respective
parties hereunder shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto. In furtherance of, and not in
limitation of, the foregoing, the Company agrees that the provisions of
this Agreement shall be binding upon any successor to the business and
assets of the Company and the provisions of this Agreement for the benefit
of the Employee shall inure to the benefit of the Employee's estate in the
event of the Employee's death, including all benefits and payments due
hereunder.
17. RELEASE BY THE COMPANY. Subject to the execution and delivery by the
Employee of the Release, as defined above, and the effectiveness of the
Release following the passage of
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any applicable period of time during which the Release may be revoked by
the Employee, the Company hereby agrees to release and discharge the
Employee from any and all claims that the Company may now have against the
Employee, provided, however, that this release shall not extend to any
claims based on conduct, facts or circumstances that the Company is not
aware of at this time and does not extend to any conduct, facts or
circumstances described by clauses (a) through (d) of Section 302A.251,
Subdivision 4, which sets forth the items for which a Minnesota corporation
may not eliminate or limit the liability of a director.
The parties have duly executed this Agreement as of the date set forth above.
SELECT COMFORT CORPORATION
By: /s/Daniel J. McAthie
Its: President and Chief Executive Officer
H. ROBERT HAWTHORNE
/s/H. Robert Hawthorne
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RELEASE
DEFINITIONS. I intend all words used in this Release to have their plain
meanings in ordinary English. Specific terms I use in this Release have the
following meanings:
A. "I", "ME", "MY" and "YOU" include both me, H. Robert Hawthorne, and
anyone who has or obtains any legal rights or claims through me.
B. EMPLOYER, as used herein, shall at all times mean Select Comfort
Corporation and any of its related corporations, affiliates,
associated entities, Board Members, subsidiaries, successors and
assigns, present or former officers, directors, agents, employees,
attorneys, whether in their individual or official capacities, and the
current and former trustees or administrators of any pension or other
benefit plan applicable to the employees or former employees of
Employer, in their official and individual capacities.
C. MY CLAIMS mean all of the claims of any kind whatsoever I have now
against Employer, regardless of whether I now know about those claims,
in any way related to my employment with or separation from Employer,
including, but not limited to, claims for invasion of privacy; breach
of contract; fraud or misrepresentation; violation of the Minnesota
Human Rights Act, Title VII of the 1964 Civil Rights Act, the Fair
Labor Standards Act, the Americans With Disabilities Act, the National
Labor Relations Act, the Age Discrimination in Employment Act, the
Family Medical Leave Act, all as amended, Minn. Stat. Section 181.932,
or any other federal, state, or local statutes, laws, rules,
regulations, ordinances or orders, including but not limited to those
civil rights laws based on protected class status; assault, battery,
defamation, intentional or negligent infliction of emotional distress;
breach of the covenant of good faith and fair dealing; promissory
estoppel; negligence; and all other claims for unlawful employment
practices, and all other common law or statutory claims. I understand
that I am not releasing claims under the Age Discrimination in
Employment Act which arise after the date on which I sign this Release
and the Employment and Consulting Agreement to which it is attached
(the "Agreement"). The term "My Claims" also does not include any
claims I may have against Employer for performance of its obligations
under the Agreement.
AGREEMENT TO RELEASE MY CLAIMS. I am receiving satisfactory consideration from
Employer to which I am not otherwise entitled by law, contract or under any
policy of Employer. I agree to give up all My Claims and withdraw any and all of
my charges and lawsuits against Employer in exchange for that consideration. I
will not bring any lawsuits, file any charges, complaints or notices or make any
other demands against Employer based on My Claims. The consideration I am
receiving is a full and fair payment for the release of all My Claims. Employer
does not owe me anything in addition to what I will be receiving.
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ADDITIONAL AGREEMENTS AND UNDERSTANDINGS. Even though Employer is paying me to
release My Claims, I understand and acknowledge that Employer does not admit
that it may be responsible or legally obligated to me. In fact, Employer
expressly denies that it is responsible or legally obligated for My Claims or
that it has engaged in any wrongdoing. I am also hereby advised to consult with
an attorney before I sign this Release and the Agreement.
Nothing contained herein, however, shall be construed to prohibit me from filing
a charge with the Equal Employment Opportunity Commission, but my release
includes a release of my right to file a court action or to seek individual
remedies or damages in any Equal Employment Opportunity Commission-filed court
action, and my release of these rights shall apply with full force and effect to
any proceedings arising from or relating to such a charge.
ACCEPTANCE PERIOD. I understand that the terms of the Agreement and this Release
shall be open for acceptance by me for a period of at least twenty-one (21) days
after the date set forth above, during which time I may consider whether or not
to accept the Agreement and this Release and seek counsel to advise me regarding
the same.
RIGHT TO RESCIND AND/OR REVOKE. I understand that I have the right to revoke the
Agreement and this Release only insofar as it extends to potential claims under
the Age Discrimination in Employment Act by informing Employer's Counsel
(identified below) of my intent to revoke the Agreement and this Release within
seven (7) calendar days following my execution of it.
I understand that I likewise have the right to rescind the Agreement and this
Release only insofar as it extends to potential claims under the Minnesota Human
Rights Act by written notice to Employer within fifteen (15) calendar days
following my execution of the Agreement and this Release. Any such rescission
must be in writing and hand-delivered to Employer or, if sent by mail,
postmarked within the applicable time period, sent by certified mail, return
receipt requested, and addressed as follows: Select Comfort Corporation, 6105
Trenton Lane North, Minneapolis, Minnesota 55442, Attn.: Chairman of the Board.
I agree that if I exercise any right of rescission or revocation, Employer may
at its option either nullify the Agreement in its entirety or keep it in effect
as to all claims not rescinded or revoked in accordance with the rescission or
revocation provisions of this Release Agreement. In the event Employer opts to
nullify the entire Agreement, neither I nor Employer will have any rights or
obligations whatsoever under the Agreement and this Release.
I have read this Release carefully and understand all its terms. I have reviewed
this Release with my own attorney or have knowingly and voluntarily chosen not
to do so. In agreeing to sign this Release, I have not relied on any statements
or explanations made by Employer or their attorneys.
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<PAGE>
I understand and agree that this Release and the Agreement pursuant to which it
is given contain all the agreements between Employer and me. We have no other
written nor oral agreements.
Dated: April 22, 1999 /s/H. Robert Hawthorne
H. Robert Hawthorne
Subscribed and sworn to before
me this 22 day of April, 1999.
/s/Bernadette S. Ammons
Notary Public
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EXHIBIT 10.3
REVOLVING CREDIT PROGRAM AGREEMENT
[Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit with the portions intact has been filed
separately with the Securities and Exchange Commission]
This Program Agreement ("Agreement") is made as of the 17th day of May,
1999, by and between GREEN TREE FINANCIAL CORPORATION, a Delaware corporation,
its successors and assigns ("Green Tree"), with its executive offices at 1100
Landmark Towers, 345 Saint Peter Street, St. Paul, Minnesota 55102, and SELECT
COMFORT CORPORATION, a Minnesota corporation and its subsidiaries ("Select
Comfort"), with its executive offices at 6105 Trenton Lane North, Minneapolis,
Minnesota 55442.
WHEREAS, Select Comfort conducts business through its retail locations
and direct marketing and desires to have Green Tree provide revolving credit
financing to its qualified customers, and
WHEREAS, Green Tree is willing to provide revolving credit financing
(including the issuance of Credit Cards) to qualified Select Comfort customers
as set forth herein during the term of this Agreement,
NOW THEREFORE, in consideration of the terms and conditions stated herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Green Tree and Select Comfort agree as follows:
SECTION 1. DEFINITIONS
The following words shall have the following meanings when used in this
Agreement:
"Account" means all of the accounts, receivables and contract rights
created between an Accountholder and Green Tree pursuant to the Program.
"Accountholder" means any person to whom Green Tree has extended credit
under the Program.
"Authorization" means permission from Green Tree to make a sale of
services, products, or goods to a cardholder pursuant to the Credit Agreement
that is charged to an Account.
"Chargeback" means the refusal of Green Tree to pay Select Comfort for a
Sales Slip or the return to Select Comfort and reimbursement to Green Tree of a
Sales Slip for which Select Comfort was previously paid.
"Consumer Direct Program" means Purchases made by Accountholders through
Select Comfort's direct marketing activities.
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"Credit Agreement" means the open-end revolving credit agreement between
Green Tree and each Accountholder, together with any modifications or amendments
which may be made to such agreement.
"Credit Card" means a plastic card issued and owned by Green Tree under the
Program that may be used exclusively for the purchase of Products from Select
Comfort.
"Default" means any Event of Default or the occurrence of any event which
would be an Event of Default with the giving of notice or lapse of any
applicable grace period.
"Event of Default" has the meaning given in Section 7.01.
"Loss Rate" means the total annual dollar amount of charged-off Accounts,
net of recoveries, divided by the average annual amount of outstandings.
"Presentment Warranty" means each of the warranties set forth in this
Agreement made by Select Comfort each time a Purchase is presented to Green Tree
for approval and settlement.
"Products" means all products and services which may be purchased by an
Accountholder from Select Comfort including sales or use tax, transportation and
other miscellaneous charges.
"Program" means the program, including both the Consumer Direct Program and
the Retail Program established by Green Tree on the terms and conditions
outlined in this Agreement pursuant to which Green Tree will offer to qualified
Select Comfort customers the revolving credit facility described in Section 2.02
hereof. The term includes the extension of credit by Green Tree, billings,
collections, accounting between Green Tree and Select Comfort, and all aspects
of the customized revolving credit plan contemplated herein.
"Program Documents" has the meaning given in Section 3.01.
"Purchase" means a purchase of Products from Select Comfort for which Green
Tree has extended credit to an Accountholder.
"Retail Program" means Purchases made by Accountholders through retail
stores and road show events.
"Sales Slip" means information regarding a sale including Accountholder
name, Account number, Authorization, amount of sale, description of Products
sold, and other similar information created at the time of sale to document such
sales transaction either in printed or electronic format.
"Vision 21 System" means Green Tree's data and application processing
system.
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SECTION 2. ESTABLISHMENT OF PROGRAM
SECTION 2.01 COMMENCEMENT OF PROGRAM. The Program shall commence at such
date and time as is mutually agreed to by Green Tree and Select Comfort.
SECTION 2.02 REVOLVING CREDIT FACILITY. Under the Program, Green Tree
agrees to offer qualified Select Comfort customers an unsecured revolving line
of credit that will include (i) a Credit Card that may be used exclusively for
Purchases, and (ii) a cash advance feature that will enable Accountholders to
obtain cash advances from Green Tree by requesting a specific cash advance
utilizing personalized convenience checks furnished by Green Tree.
SECTION 2.03 CREDIT TERMS. (i) Green Tree shall establish all of the terms
and conditions of the Credit Agreement and the terms and conditions under which
credit is extended to Accountholders, including without limitation the interest
rate and fees and charges applicable to Purchases. Green Tree shall establish a
variable rate of interest which will yield an interest rate for Purchases of
Prime plus 14.15%. (Prime will be the Prime Rate as listed on the last business
day of the month in the Wall Street Journal.) Green Tree may from time to time
in its sole discretion modify such terms and conditions of the Credit Agreement
to the extent it deems necessary. (ii) Green Tree agrees to offer special credit
promotions on Purchases in accordance with the terms and conditions as may be
mutually agreed to by the parties. (iii) Green Tree's financing of the Purchases
is amortized over the life of the Account with a payment factor of 3.0% of the
high balance after the most recent purchase or $15.00, whichever is greater.
Convenience checks will be added to the balance and amortized over the life of
the Account.
SECTION 2.04 SELECT COMFORT TO HONOR CREDIT CARD. Select Comfort hereby
agrees to participate in the Program and to honor the Credit Card for Purchases.
Select Comfort shall honor the Credit Card only in accordance with the
procedures outlined in Section 4 hereof, as the same may be amended from time to
time in accordance with the terms of Section 4.01.
SECTION 2.05 GREEN TREE TO EXTEND CREDIT. Subject to (i) the terms of this
Agreement, (ii) the credit limits applicable to each Account, and (iii) the
terms and conditions in the Credit Agreement, Green Tree shall extend credit to
Accountholders in accordance with Section 4.
SECTION 2.06 CONFIDENTIAL INFORMATION. In connection with the performance
of this Agreement, Green Tree and Select Comfort may disclose to the other, in
writing or orally, information concerning its business, marketing techniques and
methods of operation including financial statements, if any are provided (the
"Confidential Information"). Each shall treat the Confidential Information of
the other as confidential and shall not disclose the same to any other person,
or use the same except in connection with the performance of this Agreement.
Green Tree and Select Comfort each agrees that it will limit access to the
Confidential Information of the other to those of its employees, agents or
subcontractors who reasonably require the same to carry out the purposes of this
Agreement. The obligations set out in this Section shall not apply to any
Confidential Information that the recipient can establish by documentary
evidence that: (a) was known to the recipient at the time it was disclosed to
the recipient; (b) was in the public domain at the time it was disclosed to the
recipient; or (c) had entered into the public domain subsequent to disclosure to
the recipient through no unlawful act of the recipient. Green Tree and Select
Comfort acknowledge that the Confidential Information of the other constitutes a
unique and valuable asset of the other, and that any disclosure or use of the
Confidential Information except as specifically authorized herein would be
wrongful and would cause
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irreparable harm, and that it would be difficult to compensate fully with
damages for a violation of this Section. Accordingly, each agrees that the other
shall be entitled to temporary and permanent injunctive relief to enforce this
Section; this provision shall not however be deemed to diminish or supplant the
right of Green Tree and Select Comfort to claim and recover money damages for
any breach hereof in addition to obtaining equitable relief therefor.
SECTION 2.07. SELECT COMFORT'S CUSTOMER LIST AND PROGRAM ACTIVITY. The
names of Select Comfort customers who make application to become Accountholders
and credit and other information relating to them does not constitute
"Confidential Information." Information relating to Program activity does not
constitute "Confidential Information."
SECTION 2.08. SELECT COMFORT COMMITMENT. Select Comfort agrees to give
Green Tree the right of first refusal of all private label financed business.
Select Comfort guarantees to Green Tree a minimum of $xxxxxxxxxx in net
Purchases shall be generated each year under the Program. If a minimum of
$xxxxxxxxxx in net Purchases is not generated in any year under the Program,
Green Tree may, as its sole remedy for failure to reach such minimum: (i)
propose an adjustment to the discount fees and participation fees in Section
2.09, and, (ii) if such proposed adjustment is not accepted by Select Comfort,
terminate the Program with 150 days written notice.
Notwithstanding other provisions within this Agreement, following the thirty
sixth month of the Program, Select Comfort may terminate this Agreement with a
minimum of 150 days notice, at any time following the month in which net
Purchases under this Agreement first exceed $xxxxxxxxxx in a consecutive 12
month period. Net Purchases shall mean Purchases less amounts refunded for
Chargebacks, returned merchandise and other credits to Accounts.
[Portions of this section have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit with the portions intact has been filed
separately with the Securities and Exchange Commission]
SECTION 2.09. FEES, DISCOUNTS AND CHARGES - Fees, discounts and charges are
identified in Exhibit A.
SECTION 2.10 MARKETING FUND. Green Tree will form a jointly managed
marketing fund ("Fund"). The Fund will be jointly managed by Green Tree and
Select Comfort to be utilized for promotion of the Program. Green Tree will
allocate $xxxxxxxxxx to the Fund as of the commencement of the Program. Green
Tree will allocate xxxxxxxxxx to the Fund in each subsequent Program month if
the Program generates a minimum of $xxxxxxxxxx in annual net Purchases during
the previous twelve months. If the Program generates net Purchases that are less
than $xxxxxxxxxx, the Fund will be reduced at Green Tree's discretion. Select
Comfort will match the Green Tree allocation to the Fund as of the commencement
of the Program and on each subsequent Program anniversary. Upon termination of
the Program, any allocation remaining in the Fund will be allocated
proportionately to the contributing party. Expenditures from the Fund shall be
as mutually agreed to by both Green Tree and Select Comfort. The Fund will not
require cash payments until such time as expenditures are required. Green Tree
will maintain a record of net allocations made to the Fund.
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Notwithstanding provisions to the contrary, Select Comfort will have full
discretion of the uses of xx% of the Fund the first year subject to (ii) below.
Select Comfort shall have full discretion of the uses of xx% of the fund for
each year thereafter as long as: (i) Select Comfort's volume requirement in
Section 2.08 was met in the first 12 months of the Program and volume increases
by xx% each year thereafter, and (ii) cost incurred are designed to encourage
and can be directly related to Purchases under the Program. It is anticipated
that the following activities are examples of costs which would be funded under
this Agreement; (a) pro rata share of the cost (based on proportionate amount of
print space relating to the financing offer, applications, etc.) of printing and
mailing brochures which reference financing offered under this Agreement, (b)
cost associated with preapproved credit offers, (c) employee contests relating
to credit offers, or (d) retail signage.
[Portions of this section have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit with the portions intact has been filed
separately with the Securities and Exchange Commission]
SECTION 3. ADMINISTRATION OF PROGRAM
SECTION 3.01 PREPARATION OF DOCUMENTS. Green Tree and Select Comfort shall
cooperate and assist each other in the preparation of all documents to be used
in connection with the Program. Green Tree shall provide Select Comfort with the
form and content of credit applications, Credit Agreements, Credit Cards, and
other forms used in connection with the Program and using the name Green Tree or
any of its subsidiaries or affiliated companies (hereinafter referred to as
"Program Documents"), as well as all necessary instructions to complete such
forms in compliance with all applicable laws. All Program Documents shall
clearly disclose that Green Tree is the creditor. Select Comfort shall not use
any Program Document unless Green Tree has expressly approved its form and
content. Select Comfort shall not refer to Green Tree, except in approved
Program Documents.
SECTION 3.02 CREDIT DECISIONS. Green Tree, in its sole discretion, shall
determine the creditworthiness of individual applicants under the Program and
the range of credit limits to be made available to individual Accountholders.
Green Tree may suspend or terminate the credit privileges of any Accountholder
at any time.
At any time during the term of this Agreement, Select Comfort may request
that Green Tree modify the Program to allow additional approval options. Within
30 days of this request, Green Tree shall provide pricing and conditions for
such modifications. Terms and discounts will be mutually agreed to prior to
modifications and implemented within 15 days of such agreement . The mutually
agreed upon changes will be reduced to written agreements which shall be signed
by Select Comfort and Green Tree.
SECTION 3.03 OWNERSHIP OF ACCOUNTS. Green Tree shall be the sole and
exclusive owner of all Accounts, Credit Cards, Credit Agreements, Accountholder
data (including Accountholder lists), Sales Slips, credit slips and receipts or
evidences of payment or Purchases by Accountholders and other Program Documents,
and shall be entitled to receive all payments made by Accountholders on
Accounts, and Select Comfort acknowledges and agrees that it has no right, title
or interest in the Accounts, Credit Cards, Credit Agreements, Accountholder
data, Sales Slips, credit slips, receipts or evidence of payments or Purchases
by Accountholders and
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other Program Documents and has no right to any payments made by Accountholder
on Accounts. Green Tree shall be identified to Accountholders as the creditor
for all purposes.
Notwithstanding the foregoing, Green Tree agrees that to the extent permitted by
applicable law, during the term of this Agreement, Select Comfort may utilize
the Accountholder List at no charge for promotion of this Program and its goods
and services. Nothing in this Section 3.03 shall preclude Select Comfort's use
of any list of its customers maintained by it provided, that no information on
such list was obtained solely through the operation of the Program.
SECTION 3.04 PERIODIC STATEMENTS. Green Tree shall be responsible for
mailing periodic statements to Accountholders and collecting all amounts due on
the Accounts. Select Comfort shall not have any responsibilities regarding
billing or collections on Accounts and, except as otherwise provided herein,
shall not be responsible for uncollectible Accounts. Select Comfort authorizes
and empowers Green Tree to sign and endorse Select Comfort's name on all checks,
drafts, money orders, or other forms of payment with regard to the Accounts.
SECTION 3.05 ENHANCEMENTS. Green Tree and its affiliates may from time to
time make other products and services available to Accountholders that enhance
the features of the Program or the Accounts, including without limitation,
credit insurance and a credit card protection plan. Legal services and auto
clubs may be offered with Select Comforts reasonable approval. With respect to
credit insurance, Select Comfort may offer credit insurance as a customer option
in connection with each Account. Optional credit insurance enrollment forms will
be provided by Green Tree.
SECTION 3.06 PROMOTIONS. Select Comfort and Green Tree may from time to
time, upon mutual agreement, develop marketing programs pursuant to which Green
Tree will offer revolving lines of credit to Select Comfort customers. The
mutually agreed upon marketing programs will be reduced to written agreements
which shall be signed by Select Comfort and Green Tree.
SECTION 3.07 MARKETING. Select Comfort may not, in any advertisement or
promotion of its products or services, advertise the availability of financing
through Green Tree without the prior written approval of Green Tree.
SECTION 4. OPERATING PROCEDURES
SECTION 4.01 GENERAL. Green Tree and Select Comfort shall follow the
operating procedures outlined in this Section 4 for Accounts booked under the
Program. Green Tree may amend or supplement such operating procedures from time
to time in its sole discretion to the extent it deems necessary or desirable to
comply with applicable law.
SECTION 4.02 SOLICITATION OF ACCOUNTS. The following procedures shall be
followed for the solicitation of Accounts and the processing of credit
applications:
(a) In connection with the sale of Products, Select Comfort may take credit
applications on behalf of Green Tree using the credit application and disclosure
forms provided or approved by Green Tree.
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(b) Select Comfort shall forward promptly to Green Tree, by mail,
telephone, facsimile transmission, or electronically via the Vision 21 System,
completed credit applications.
(c) All credit applications will be reviewed by Green Tree for approval and
establishment of the applicable credit limit. Green Tree will communicate credit
approvals and denials to both the customer and Select Comfort.
SECTION 4.03 NEW ACCOUNT FULFILLMENT. Green Tree shall be solely
responsible for Account fulfillment, including the mailing of Accountholder
welcome letters, Credit Cards, Credit Agreements and convenience checks.
SECTION 4.04 PROCEDURES FOR PURCHASES AND CREDITS.
(a) Consumer Direct Program
(i)Select Comfort shall deliver copies of the Sales Slip to Green
Tree, if requested by Green Tree, within ten (10) business days of
Green Tree's request.
(ii) Select Comfort shall obtain the Accountholder's approval of the
Sales Slip once all of the Purchase information is complete. Select
Comfort warrants the identity of the Accountholder in all cases. The
only recourse regarding this warranty of identity shall be Chargebacks
under Section 5.
(iii) Select Comfort shall obtain the Accountholders name, Account
number and the appropriate authorization as described below. Select
Comfort shall obtain prior authorization for all Purchases and record
the authorization code on the Sales Slip. Authorization may be
obtained electronically through the Vision 21 System or by contacting
Green Tree at a designated telephone number established for the
purpose of issuing authorization under the Program.
(b) Retail Program.
(i) Select Comfort shall complete a Sales Slip for each Purchase and
imprint or write the Accountholder's name and Account number on the
Sales Slip.
(ii) Select Comfort shall obtain the Accountholder's signature on the
Sales Slip once all of the Purchase information is complete. If the
Accountholder does not have his/her Credit Card, the signature on the
Sales Slip must be reasonably similar to the signature on one form of
identification, one with a photograph, provided by the Accountholder.
A valid driver's license, military or state identification is required
as identification. Select Comfort warrants the identity of the
Accountholder in all cases. The only recourse regarding this warranty
of identity shall be Chargebacks under Section 5.
(iii) Select Comfort shall obtain prior authorization for all
Purchases and record the authorization code on the Sales Slip.
Authorization may be obtained electronically through the Vision 21
System or by contacting Green Tree at a designated telephone number
established for the purpose of issuing authorization under the
Program.
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SECTION 4.05 SETTLEMENT PROCEDURES.
(a) All sales data as outlined herein will be transmitted by Select Comfort
to Green Tree through daily reports ("Daily Reports"). Daily Reports shall
include the following: (i) the account number, authorization number, amount and
date of each Purchase, (ii) the account number, amount and date for each credit
slip issued with respect to the Accounts, and (iii) such other information that
Green Tree may reasonably request.
(b) Green Tree shall pay to Select Comfort the amount of each Purchase for
which all of the proper supporting documentation, as mutually agreed to, has
been provided less any applicable standard, promotional and returned merchandise
discounts. Green Tree shall be entitled to set off against amounts due to Select
Comfort for Purchases the amount of any credit slips issued for Purchases and
any Chargebacks pursuant to Section 5 hereof. Funds due to Select Comfort for
Purchases hereunder shall be forwarded to Select Comfort via the Automated
Clearing House System no later than the next business day after all of the
conditions to funding described herein have been met.
(c) Green Tree and Select Comfort shall cooperate in resolving any disputes
regarding amounts set forth in the Daily Reports or the supporting
documentation. Green Tree shall be entitled to withhold payment for the disputed
portion of any Daily Report, or for any Purchase for which the supporting
documentation, in Green Tree's reasonable opinion, is incomplete or
unsatisfactory.
SECTION 4.06 DISPUTE RESOLUTION PROCEDURES. Select Comfort shall cooperate
with Green Tree to promptly resolve any Accountholder Product related dispute.
Green Tree will notify Select Comfort via fax upon receipt of the Accountholder
dispute. Select Comfort will have twenty calendar days to settle or resolve the
dispute. Failure to resolve or settle the dispute based on a bona fide claim or
defense to the total satisfaction of the Accountholder will result in a
Chargeback pursuant to Section 5 hereof after consideration of Select Comfort's
published return and warranty policies.
SECTION 5. CHARGEBACK
SECTION 5.01 CHARGEBACK RIGHTS. Green Tree shall have the right, at its
option, to Chargeback to Select Comfort the amount of any Purchase if:
(a) Any Presentment Warranty made by Select Comfort pursuant to Section
6.01 proves to be false or inaccurate in any respect, after a reasonable
investigation by Green Tree;
(b) The Accountholder asserts any claim or defense against Green Tree as a
result of any act or omission of Select Comfort that violates any applicable
law, statute, ordinance, rule or regulation, after a reasonable investigation by
Green Tree;
(c) The Accountholder disputes the amount or existence of such Account with
respect to such Purchase or the Accountholder refuses to pay (including by
exercise of its right under the Fair Credit Billing Act or other similar law to
require Green Tree to credit its Account), alleging dissatisfaction with the
Products received, a breach of any warranty or representation by Select Comfort
in connection with the transaction, or an offset or counterclaim against Green
Tree
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based on an act or omission of Select Comfort, after a reasonable investigation
by Green Tree and after consideration of Select Comfort's published return and
warranty policies; or
(d) Select Comfort did not materially comply with the operating procedures
outlined in Section 4 herein.
SECTION 5.02 LIMITATION OF CHARGEBACK RIGHTS. In its reasonable discretion
Green Tree may compromise and settle any claim made by any Accountholder if such
claim may give Green Tree a right to Chargeback up to the face amount of any
Sales Slip. In the event of any such compromise or settlement, Green Tree shall
adjust the Accountholder's Account and Green Tree's right to Chargeback shall be
limited to the actual amount so compromised.
SECTION 5.03 EXERCISE OF CHARGEBACK. If Green Tree exercises its right of
Chargeback, Green Tree shall have the right to off set the amount of the
Chargeback against any amounts due Select Comfort under this Agreement or, if
Chargebacks exceed sums due Select Comfort, Green Tree may demand immediate
payment from Select Comfort for the full amount of such excess. If any Purchase
is charged back, Green Tree shall assign, without recourse, all right to payment
for such Purchase to Select Comfort upon the request of Select Comfort free and
clear of right, claim of title or lien. Green Tree will provide reasonable
documentation in connection with all Chargebacks.
SECTION 5.04 FRAUD LOSSES. Chargebacks to Select Comfort due to fraud shall
be limited to xx% of the Chargeback amount. Select Comfort shall be responsible
for xx% of all Chargebacks due to fraud for those Chargebacks which are in
excess of xxxxxxxxxx of the average annual outstanding portfolio balance in any
program year, calculated on an annual basis.
[Portions of this section have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit with the portions intact has been filed
separately with the Securities and Exchange Commission]
SECTION 6. WARRANTIES AND COVENANTS
SECTION 6.01 PRESENTMENT WARRANTIES. Select Comfort represents and warrants
to Green Tree with respect to each Purchase (the following shall be deemed
restated, renewed and reaffirmed with respect to each Purchase presented to
Green Tree for approval and settlement):
(a)that the Sales Slip represents a bona fide sale and was actually
executed by the person named therein as Accountholder;
(b)that the signature on the Sales Slip for sales on the Retail Program
appears reasonably similar to the signature of the Accountholder on Credit Card
or the signature on other valid identification examined by Select Comfort;
(c)that the Sales Slip for sales on the Retail Program has not been
materially altered;
(d)that the Accountholder is of legal age and competent to open an Account;
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(e)that the Products are accurately described on the Sales Slip and any
Products described therein have been delivered into the possession of the
Accountholder and any Products described therein have been fully performed to
the Accountholder's satisfaction;
(f)that the transaction, including prior authorization, was conducted by
Select Comfort in accordance with the operating procedures set forth in Section
4 above (as same may be revised from time to time in accordance with Section 4
or Section 10.04);
(g)that the account number, name of Accountholder and authorization number
have been printed on each Sales Slip;
(h)that Select Comfort has not received, directly or indirectly, and will
refuse to accept, any reimbursement, payment or trade-in for the charges listed
on such Sales Slip (other than from Green Tree) and has not and will not, either
directly or indirectly, take or grant any right or security interest in any
Sales Slip or credit slip (other than to Green Tree) which is the subject of the
transaction;
(i)that the transaction was conducted by Select Comfort in accordance with
all applicable laws and regulations that pertain to the sale of Products by
Select Comfort;
(j)there is no fact nor any claim or defense of any Accountholder that
would impair the validity, enforceability, or collectability of the obligation
of the Accountholder evidenced by the Sales Slip except to the extent that such
claim or defense was the result of any act or omission of Green Tree as outlined
in Section 9.01;
(k)that Select Comfort has full and complete title to the Products subject
only to the rights of the Accountholder which exist by virtue of the Account;
(l)that there have been no representations or warranties made to the
Accountholder which are not contained in the Sales Slip other than Select
Comfort's standard warranties and return policies; and in the event Select
Comfort breaches a standard warranty, Select Comfort will cure the breach within
twenty (20) calendar days of notice of the breach;
(m) Select Comfort shall, within five (5) business days of its receipt,
provide Green Tree with a copy of any written complaint from any customer
relating to any Sales Slip;
(n)Except as provided below, or unless Green Tree is obligated to Select
Comfort under section 9.01, Select Comfort shall indemnify Green Tree and hold
it harmless from and against all losses, cost, damage, and expense, including
reasonable attorney's fees, at any time incurred by Green Tree because of any
violation of state or Federal law or regulation or other illegal or actionable
conduct; (i) resulting from acts or omissions by Select Comfort, its employees
or its agents in connection with the sale of any Products, or (ii) resulting
from the documents used in connection with the transaction, including but not
limited to documents given to Accountholder pertaining to warranties, service
agreements, credit disclosures, insurance, and sales, application and contracts
forms, or (iii) resulting from any liability Green Tree incurs by reason of the
Notice included on the Credit Agreement which is required by FTC Trade
Regulation Rule regarding Buyer's Claims and Defenses. However, Select Comfort
liability for sufficiency of document contents does not apply to any document
provided by Green Tree, but shall apply to any other failures or omissions by
Select Comfort or its agents related to any such document
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furnished by Green Tree, including, but not limited to Select Comfort's failure
in completing any such document, or properly delivering copies to Accountholders
as instructed by Green Tree;
(o)Select Comfort owns the Sales Slip free from any claims, liens, security
interest or other encumbrances.
SECTION 6.02 PROGRAM COVENANTS. Select Comfort covenants to do the
following during the term of this Agreement with respect to the operation of the
Program:
(a)Select Comfort shall cooperate with Green Tree promptly to resolve all
disputes with Accountholders.
(b)Select Comfort shall maintain a fair and equitable policy for the
exchange and return of Products and adjustment for Products rendered or not
rendered and shall promptly deliver a credit to the Accountholder and include
credit for each return in the Daily Reports furnished pursuant to Section 4.05
hereof.
(c)Select Comfort shall not seek or obtain any special agreement or
condition from, nor discriminate in any way against, any Accountholder with
respect to the terms of any transaction.
SECTION 6.03 GENERAL REPRESENTATIONS AND WARRANTIES OF SELECT COMFORT.
Select Comfort makes the following representations and warranties to Green Tree,
each and all of which shall survive the execution and delivery of this
Agreement, and each and all of which shall be deemed to be restated and remade
on each day on which any Account is opened, any Purchase is presented for
settlement pursuant to Section 4.05, or any action is taken with respect to the
Program:
(a)CORPORATE EXISTENCE. Select Comfort (i) is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Minnesota;
(ii) is duly qualified as a corporation and in good standing under the laws of
each jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification; (iii) has the requisite corporate power
and authority and the legal right to own, pledge, mortgage, and operate its
properties, to lease the properties it operates under lease, and to conduct its
business as now conducted and hereafter contemplated to be conducted; (iv) has
all necessary licenses, permits, consents, or approvals required for the conduct
of its business; and (v) is in compliance with its certificate of incorporation
and bylaws.
(b)CORPORATE POWER, AUTHORIZATION; ENFORCEABLE OBLIGATION. The execution,
delivery, and performance of this Agreement and all instruments and documents to
be delivered by Select Comfort hereunder: (i) are within Select Comfort's
corporate power; (ii) have been duly authorized by all necessary or proper
corporate action, including the consent of shareholders where required; (iii) do
not and will not contravene any provisions of Select Comfort's certificate of
incorporation or bylaws; (iv) will not violate any law or regulation or any
order or decree of any court or governmental instrumentality; (v) will not
conflict with or result in the breach of, or constitute a default under any
indenture, mortgage, deed of trust, lease, agreement, or other instrument to
which Select Comfort is a party or by which Select Comfort or any of its assets
or property are bound; and (vi) do not require any filing or registration with,
or the consent or approval of, any governmental body, agency, authority, or any
other person which has not been made or obtained previously, copies of which
have been provided to Green Tree. Green
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Tree consents that Select Comfort may file a copy of this Agreement with the
Security and Exchange Commission if it deems necessary. The Agreement has been
duly executed and delivered by Select Comfort and constitutes a legal, valid,
and binding obligation of Select Comfort enforceable against Select Comfort in
accordance with it terms.
SECTION 6.04 PROGRAM COVENANTS OF GREEN TREE. Green Tree covenants to
provide and maintain the Vision 21 System computer software required for the
Program.
SECTION 6.05 REPRESENTATIONS AND WARRANTIES OF GREEN TREE. Green Tree makes
the following representations and warranties to Select Comfort, each and all of
which shall be deemed to be made on each day on which Accounts are opened,
Purchase documentation is received for settlement pursuant to Section 4.05, or
any action is taken with respect to the Program on or after the Program
commencement date established pursuant to Section 2.01:
(a)CORPORATE EXISTENCE. Green Tree (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware;
(ii) is duly qualified as a corporation and in good standing under the laws of
each jurisdiction where its ownership or lease of property or the conduct of its
business requires such qualification; (iii) has the requisite corporate power
and authority and the legal right to own, pledge, mortgage, and operate its
properties, to lease the properties it operates under lease, and to conduct its
business as now conducted and hereafter contemplated to be conducted; (iv) has
all necessary licenses, permits, consents, or approvals required for the conduct
of its business; and (v) is in compliance with its articles of incorporation and
bylaws.
(b)CORPORATE POWER, AUTHORIZATION; ENFORCEABLE OBLIGATION. The execution,
delivery, and performance of this Agreement and all instruments and documents to
be delivered by Green Tree hereunder; (i) are within Green Tree's corporate
power; (ii) have been duly authorized by all necessary or proper corporate
action, including the consent of shareholders where required; (iii) do not and
will not contravene any provision of Green Tree's certificate of incorporation
or bylaws; (iv) will not violate any law or regulation or an order or decree of
any court or governmental instrumentality; (v) will not conflict with or result
in the breach of, or constitute a default under any indenture, mortgage, deed of
trust, lease, agreement, or other instrument to which Green Tree is a party or
by which any of its assets or property are bound; and (vi) do not require any
filing or registration with or the consent or approval of any governmental body,
agency, authority, or any other person which has not been made or obtained
previously. This Agreement has been duly executed and delivered by Green Tree,
and constitutes the legal, valid, and binding obligation of Green Tree,
enforceable against Green Tree in accordance with its terms.
(c) FORMS AND INSTRUCTIONS. The forms, and instruction for completion of
such forms and for all action to be taken by Select Comfort in connection with
the performance of Green Tree's duties and obligations under this Agreement
comply with all applicable federal, state and local laws, and regulations
(including laws relating to usury, fees and charges, and rights of recission).
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SECTION 7. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
SECTION 7.01 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an "Event of Default" hereunder:
(a)Either Select Comfort or Green Tree shall fail to make any payment of
any amount due pursuant to this Agreement when due and payable or declared due
and payable, and the same shall remain unpaid for a period of fifteen (15) days
following written notice;
(b)Either Select Comfort or Green Tree shall fail or neglect to perform,
keep, or observe any term, provision, condition, or covenant contained in this
Agreement that is required to be performed, kept, or observed by either party,
and the same shall remain uncured for a period of thirty (30) days after the
other party shall have given written notice thereof.
(c)Any representation or warranty made or delivered by either Select
Comfort or Green Tree or any of its respective officers, employees, agents, or
representatives shall not be true and correct in any material respect as of the
date when made or reaffirmed;
(d)Select Comfort shall be acquired (whether by merger, consolidation,
change of control, as defined below, or otherwise) by any person not an
affiliate of Select Comfort. For purposes of this section "change of control"
shall mean any sale of all or substantially all of the assets of an entity
(whether in one or a series of transactions) or an entity is merged or
consolidated into another corporation or the capital stock of an entity is
transferred to a single entity;
(e)Either Select Comfort or Green Tree shall (i) file a petition seeking
relief pursuant to the Bankruptcy Code or any other applicable bankruptcy or
other similar law; (ii) consent to the institution of proceedings pursuant
thereto or to the filing of any such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee, or
sequestrate (or similar official) of either party of any substantial part of its
properties; (iii) fail generally to pay its debts as such debts become due; or
(iv) take corporate action in furtherance of any such action; or,
(f)A material adverse change shall occur in the operations, financial
condition, business or prospects of Select Comfort or Green Tree which has
impaired or is reasonably likely to impair, the ongoing operation or continued
viability of the Program, in each case, as determined by facts in evidence.
SECTION 7.02 REMEDIES. If any Event of Default shall have occurred and be
continuing the non-defaulting party shall have the right to terminate this
Agreement in the manner specified in Section 8 hereof.
SECTION 8. TERM/TERMINATION
SECTION 8.01 TERM. This Agreement shall continue in full force and effect
until the sixtieth month of the Program commencement date (established pursuant
to Section 2.01); thereafter, this Agreement shall renew automatically for
successive one year terms unless and until terminated by either Select Comfort
or Green Tree by written notice to the other party at least 150 days prior to
the end of the original or any renewal term.
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SECTION 8.02 TERMINATION FOR CAUSE. If an Event of Default under Section
7.01 (a), (b), (c) or (e) shall occur, the non-defaulting party shall have the
right immediately to terminate this Agreement upon notice. If an Event of
Default under Section 7.01 (d) or (f) shall occur, the non-defaulting party
shall have the right to terminate this Agreement with 150 days written notice.
SECTION 8.03 EFFECT OF TERMINATION. Upon termination, all of the rights and
obligation of the respective parties hereto shall cease; provided, however, that
the following shall survive the termination of this Agreement: (i) Select
Comfort's obligation to reimburse Green Tree for amounts due to Green Tree in
connection with the offering of special credit promotions and a grace period on
Purchases pursuant to Section 2.03; (ii) Green Tree's obligation to reimburse
Select Comfort for any amounts due and payable; (iii) Green Tree's Chargeback
rights pursuant to Section 5; and, (iv) the obligations of the parties related
to indemnification under Section 9. Upon termination, Green Tree shall cease to
honor Purchases and will terminate all privileges related to the Credit Cards.
Upon termination, Select Comfort may, at its option purchase from Green Tree all
Accounts then outstanding for cash in an amount as mutually agreed to. Upon such
payment, Green Tree will assign all such Accounts to Select Comfort without
recourse, except that Green Tree warrants that any such Account will not be
uncollectable as a result of any act or omission of Green Tree. If this warranty
is breached, Green Tree agrees that it will repurchase any such account which is
affected by the breach. No other consequence shall occur as a result of a breach
of this warranty. Green Tree makes no other warranties regarding these accounts.
At any time Green Tree has the right to sell the Accounts to a third party. If
at any time Green Tree sells the Accounts to a third party, this shall eliminate
Select Comfort's option to purchase the Accounts from Green Tree.
SECTION 9. INDEMNIFICATION
SECTION 9.01 BY GREEN TREE. Green Tree shall be liable to and shall
indemnify and hold harmless Select Comfort and its officers, directors and
employees from and against any Losses, as defined below, arising out of the
intentional or negligent act or omission of Green Tree in the performance of its
duties and obligations under this Agreement or its failure to comply with the
terms of this Agreement or any applicable laws or regulations applicable to it
or as it applies to forms provided to Select Comfort by Green Tree. Green Tree
shall indemnify Select Comfort for any products offered or sold by Green Tree.
SECTION 9.02 BY SELECT COMFORT. Except as limited by section 5 hereto,
Select Comfort shall be liable to and shall indemnify and hold harmless Green
Tree and its officers, directors and employees from and against any Losses, as
defined below, arising out of the intentional or negligent act or omission of
Select Comfort in the performance of its duties or obligations under this
Agreement or its failure to comply with the terms of this Agreement or any
applicable laws or regulations applicable to it. Select Comfort shall not
indemnify Green Tree for any Losses that result from any products or services
offered or sold by Green Tree.
SECTION 9.03 GENERAL. Select Comfort and Green Tree shall promptly notify
the other of any claim, demand, suit or threat of suit of which it becomes aware
(except with respect to a threat of suit either party might institute against
the other) which may give rise to a right of indemnification pursuant to this
Agreement. The indemnifying party will be entitled to participate in the
settlement or defense thereof and, if the indemnifying party elects, to take
over and control the settlement or defense thereof with counsel satisfactory to
the indemnified party.
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In any case, the indemnifying party and the indemnified party shall cooperate
(at no cost to the indemnified party) in the settlement or defense of any such
claim, demand, suit or proceeding. For purposes of this Section 9, the term
"Losses" shall mean any losses, damages, costs and expenses, liabilities,
settlements, including, without limitation, any attorneys' fees and
disbursements and court costs reasonably incurred by Green Tree or Select
Comfort, as the case may be but shall exclude lost business or future business.
SECTION 10. MISCELLANEOUS
SECTION 10.01 INDEPENDENT CONTRACTORS. In performing their respective
responsibilities under this Agreement, Green Tree and Select Comfort are
independent contractors. This Agreement is not intended to create and shall not
be construed to create, a relationship of partner or joint venturer or an
association for profit between Green Tree and Select Comfort.
SECTION 10.02 FINANCIAL STATEMENTS. At least annually or more often if
requested by Green Tree, Select Comfort shall provide Green Tree with audited
balance sheets and profit and loss statements and make available to Green Tree's
representatives such other financial information as may be reasonably requested
by Green Tree. Select Comfort understands and agrees that Green Tree may verify
any financial information provided by Select Comfort and may, from time to time,
seek credit and other information concerning Select Comfort from others. Select
Comfort has the right to reasonably audit records and Account information with
respect to Program at Select Comfort's expense and on Green Trees premises
during normal business hours.
SECTION 10.03 ASSIGNMENT; DELEGATION OF DUTIES. Without the express written
consent of the other party, neither Select Comfort nor Green Tree may assign
this Agreement or delegate any of its duties hereunder except that (a) either
Select Comfort or Green Tree may delegate such duties to any party which is then
a wholly owned subsidiary of the delegating party or a corporation under common
control with the delegating party, (b) Green Tree may assign this Agreement to a
wholly owned subsidiary, and (c) Green Tree may contract with a bank or other
financial institution in structuring the Program and in connection with such
contract may assign this Agreement or delegate duties to such financial
institution to the extent Green Tree deems necessary or desirable, but Green
Tree shall remain primarily obligated to Select Comfort notwithstanding any
assignment or delegation.
SECTION 10.04 AMENDMENT. Subject to the right of Green Tree to amend and
supplement the operating procedures pursuant to Section 4.01 hereof, this
Agreement may not be amended except by written instrument signed by both Green
Tree and Select Comfort.
SECTION 10.05 NON-WAIVER. No delay by Select Comfort or Green Tree hereto
in exercising any of its rights hereunder or partial or single exercise of such
rights, shall operate as a waiver of that or any other right. The exercise of
one or more of Select Comfort's or Green Tree's rights hereunder shall not be a
waiver of, nor preclude the exercise of, any rights or remedies available to
such party under this Agreement or in law or equity.
SECTION 10.06 SEVERABILITY. If any provision of this Agreement is held to
be invalid, void or unenforceable, all other provisions shall remain valid and
be enforced and construed as if such invalid provision were never a part of this
Agreement.
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SECTION 10.07 GOVERNING LAW. This Agreement and all rights and obligations
hereunder shall be governed by and construed in accordance with the substantive
laws of the State of Minnesota.
SECTION 10.08 ENTIRE AGREEMENT. This Agreement, including any addenda or
exhibits, constitutes the entire Agreement between Green Tree and Select Comfort
with respect to the Program and any matters relating thereto and all prior
agreements, negotiations and communications on such subject are hereby
superseded.
SECTION 10.09 CAPTIONS. Captions used in this Agreement are for convenient
reference only and shall not be construed as limiting or defining the
substantial content of this Agreement.
SECTION 10.10 USE OF SELECT COMFORT NAME AND MARK. Select Comfort hereby
expressly gives Green Tree permission to use its name, logo, registered
trademarks and service marks (if any) in connection with the promotion of the
Program.
SECTION 10.11 RECOUPMENT. All financial dealings between the parties
pursuant to this Agreement shall be considered as a single continuing
transaction, and subject to the doctrines of setoff and recoupment.
SECTION 10.12 NOTICES. Except as otherwise provided in this Agreement, all
notices, demands and other communications hereunder shall be in writing and
shall be delivered personally or sent by facsimile, other electronic means or
nationally recognized overnight courier service addressed to the party to whom
such notice or other communication is to be given or made at such party's
address as set forth below, or to such other address as such party may designate
in writing to the other party from time to time in accordance with the
provisions hereof, and shall be deemed given when personally delivered, when
sent electronically or one (1) business day after being sent by overnight
courier.
To Green Tree:
Green Tree Financial Corporation
332 Minnesota Street, Suite 600
St. Paul, Minnesota 55102
Attention: Bruce Crittenden
Facsimile: 800.488.6862
with copies to:
Green Tree Financial Corporation
1100 Landmark Towers
345 Saint Peter Street
St. Paul, Minnesota 55102
Attention: Joel Gottesman, Esq.
Facsimile: 612.293.5746
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To Select Comfort:
Select Comfort
6105 Trenton Lane North
Minneapolis, Minnesota 55442
Attention: Corporate Controller
Facsimile: (612) 551-7826
SECTION 10.12 MULTIPLE COUNTERPARTS. This Agreement may be executed in any
number of multiple counterparts, all of which shall constitute but one and the
same original.
IN WITNESS WHEREOF, Green Tree and Select Comfort have hereunto set their
hands as of the date first written above.
GREEN TREE FINANCIAL CORPORATION SELECT COMFORT CORPORATION
By: /s/Mark A. Shepherd By: /s/Jim Raabe
Its: Executive Vice President Its: Chief Financial Officer
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Exhibit A
Fees, Discounts, Charges and Targets
[Portions of this Exhibit A have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit A with the portions intact has been
filed separately with the Securities and Exchange Commission]
Subject to the provisions of Section 2.02 and Section 2.03 of the Revolving
Credit Program Agreement ("Agreement") to which this Exhibit A is attached, and
applicable law, the following shall be the initial fees, discounts, charges and
targets applicable under the Program. Capitalized terms used but not defined in
this Exhibit A shall have the meaning given such terms in the Agreement.
(a) TARGET LOSS RATE FOR RETAIL PROGRAM: xx%
(b) TARGET LOSS RATE FOR CONSUMER DIRECT PROGRAM: xx%
(c) CONSUMER DIRECT PROGRAM STANDARD DISCOUNT FEE: xx%
(d) RETAIL PROGRAM STANDARD DISCOUNT FEE: xxxxxxxxxx
(e) CONSUMER DIRECT PROGRAM PROMOTIONAL DISCOUNT FEE: For promotional financing
options offered under the Consumer Direct Program, Select Comfort shall pay
Green Tree the following discount fees in addition to the Standard Discount
Fee at the time of settlement for each Purchase:
i. 90 days no payments, no interest, the discount fee is xxxxxxx% of the
Purchase
ii. 120 days no payments, no interest the discount fee is xxxxxxx% of the
Purchase
iii. 150 days no payments, no interest, the discount fee is xxxxxxx% of the
Purchase
iv. 180 days no payments, no interest the discount fee is xxxxxxx% of the
Purchase
v. 210 days no payments, no interest, the discount fee is xxxxxxx% of the
Purchase
vi. 240 days no payments, no interest the discount fee is xxxxxxx% of the
Purchase
vii. 270 days no payments, no interest the discount fee is xxxxxxx% of the
Purchase
(f) RETAIL PROGRAM PROMOTIONAL DISCOUNT FEE: For promotional financing options
offered under the Retail Program, Select Comfort shall pay Green Tree the
following discount fees in addition to the Standard Discount Fee at the
time of settlement for each Purchase:
i. 90 days no payments, no interest, the discount fee is xxxxxxx% of the
Purchase
ii. 120 days no payments, no interest the discount fee is xxxxxxx% of the
Purchase
iii. 150 days no payments, no interest, the discount fee is xxxxxxx% of the
Purchase
iv. 180 days no payments, no interest the discount fee is xxxxxxx% of the
Purchase
v. 210 days no payments, no interest, the discount fee is xxxxxxx% of the
Purchase
vi. 240 days no payments, no interest the discount fee is xxxxxxx% of the
Purchase
vii. 270 days no payments, no interest the discount fee is xxxxxxx% of the
Purchase
18
<PAGE>
(g) CONVENIENCE USAGE CHARGE: xxxxxxxx
(h) RETURNED MERCHANDISE DISCOUNT FEE: In addition to any other fees or
discounts, a discount of xxxxxxx shall be added to all sales under the
Program. Any discounts under paragraphs (c), (d), (e), (f) or (h) shall be
refunded to Select Comfort for all purchases returned under Select
Comfort's return policies. This discount is based on an average return rate
of xxxxxxxx% and an average time from date of Purchase to return of 70
days. This discount may be adjusted quarterly on a pro rata basis based
solely on the changes in the assumptions as outlined above.
(i) FORMS FEE: xxxxxxxx
(j) CHARGEBACK FEE: xxxxxxxx
(k) INSERT FEE: xxxxxxxx
For a Purchase to qualify under a promotional financing option, the Purchase
must be at least $250.00.
Discount fees on the promotional financing options can also be adjusted upward
or downward as the case may be following the first anniversary of the Program
commencement date and on an annual basis thereafter. Any adjustments will be
based on the one year London Interbank Offered Rates ("LIBOR") as of the Program
commencement date. For each 10 basis point increase in the LIBOR, the discount
fee for each 30 day period on promotional financing options will be increased by
xxxxxxx. Decreases to the one year LIBOR will have the opposite effect.
Targeted Loss Rates are advisory only and do not represent a warranty or
covenant of Green Tree. Failure to meet targeted Loss Rates shall not be a
condition of Default under this Agreement. Green Tree warrants that if actual
Loss Rates vary materially from Targeted Loss Rates, it will use best efforts to
adjust credit scoring/approval methods and/or Program discounts accordingly for
future applications/Purchases.
19
EXHIBIT 10.4
[Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit with the portions intact has been filed
separately with the Securities and Exchange Commission]
LETTER OF AGREEMENT
April 20, 1999
Mr. Warren Eisenberg, Co-Chief Executive Officer
Bed Bath & Beyond Inc.
650 Liberty Avenue
Union, New Jersey 07083
Dear Mr. Eisenberg:
The purpose of this letter agreement (the "Agreement") is to set forth our
mutual understanding and agreement by which Select Comfort Retail Corporation, a
Minnesota corporation ("SCRC") will operate licensed departments within stores
owned or leased by Bed Bath & Beyond Inc., a New York corporation, or affiliates
of Bed Bath & Beyond Inc. (with such New York corporation and such affiliates
being hereinafter referred to collectively as "BBB") for the retail sales of
mattresses and related products, all as more specifically set forth in this
Agreement (with each such department being hereinafter referred to as a
"Department", and all of such Departments in the aggregate being hereinafter
referred to as the "Departments").
1. DEPARTMENTS. The basic operations of the Departments shall be governed by the
following terms and conditions:
(a) LOCATIONS. SCRC currently operates Departments in thirteen BBB stores
located in various states. The locations of those existing Departments are
set forth on Exhibit 1(a) attached hereto and are hereinafter referred to
as the "Existing Departments". It is the anticipation of BBB and SCRC that
SCRC will open and operate approximately 50 Departments by December 31,
1999, 150 Departments by December 31, 2001 and that thereafter, eventually,
SCRC will open and operate Departments in most BBB stores (provided
however, that nothing set forth in this Agreement shall be construed as an
obligation on the part of either BBB or SCRC to open specific minimum or
maximum numbers of Departments).
(b) [Intentionally Omitted]
<PAGE>
(c) SIZE OF DEPARTMENTS. SCRC is licensed to use an area of approximately
250 square feet within the pillows and pads department of each of the
applicable BBB stores in order to accommodate two (2) or three (3) SCRC
beds, related SCRC products (subject to the provisions of Section 6 below),
a point of sale terminal and a work area for SCRC employees at each
location, with the precise size and location of the space for each
Department to be determined by mutual agreement between SCRC and BBB.
(d) RENT FOR DEPARTMENTS. SCRC will pay annual rent for each Department as
follows:
XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXX
[Portions of this section have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act
of 1934, as amended. A copy of this Exhibit with the portions intact has
been filed separately with the Securities and Exchange Commission]
(e) MAINTENANCE, UTILITIES AND TAXES. All premises maintenance and
utilities reasonably necessary for the operation of the Department will be
provided and paid for by BBB, except that SCRC shall be responsible for the
cost of the installation and use of the telephone lines, electrical lines,
computer lines and all other services (including, without limitation, one
"internal" telephone which is connected to BBB's communications and paging
lines [so that, for example, a customer calling the BBB store could be
"transferred over" to the SCRC Department]) reasonably required by SCRC for
the operation of the Department. All "internal" telephone services shall be
provided to the Department by BBB in consultation, to the extent reasonably
possible, with SCRC, and SCRC shall reimburse BBB the reasonable costs
thereof (without any mark up or profit being paid to BBB). In the event any
Department is located within states, counties or cities in which (i) it is
customary for retail tenants to pay taxes or fees arising from their
tenancy to the
<PAGE>
applicable taxing or other authority, and (ii) BBB pays such tax or fees to
the applicable taxing or other authority or to its landlord (as collection
agent for such taxing or other authority), then SCRC shall pay a portion of
such tax or other fees in proportion to either the rent payable by SCRC or
the square footage occupied by SCRC, whichever tax or fee calculation
method may be applicable. The provisions of the preceding sentence shall be
applicable, for example, to the state-wide rent tax currently in effect for
any store in the State of Florida (currently at a rate of 6% of all rental
payments), but the provisions of the preceding sentence shall not be
applicable to typical real estate tax pass through charges or personal
property tax pass through charges.
(f) DESIGN AND CONSTRUCTION OF DEPARTMENTS. SCRC will be responsible for
the design and construction of the Departments with the construction plans
and actual construction to be subject to the approval of BBB. All signage
located in the Departments shall be subject to the approval of BBB.
(g) OPERATIONS AT DEPARTMENTS. SCRC will be responsible for the conduct of
all operations within the Departments, including staffing, sales, customer
service and handling of sales proceeds. SCRC agrees to staff each of the
Departments with at least one (1) sales person at all times that the host
BBB store is open for business. Late openings and early closings shall be
treated in the following manner: A "late opening" shall be defined to mean
an opening of the Department which takes place more than 2 hours after the
opening of the host BBB store; an "early closing" shall be defined to mean
a closing of the Department prior to the closing of the host BBB store.
With respect to any such late opening or early closing occurring within a
12 month period; the first offense shall result in a written reprimand from
BBB to both the Department Manager and SCRC corporate headquarters, the
second offense shall result in a written warning to the Department Manager
and SCRC corporate headquarters, the third offense shall result in a $100
fine, and any additional offense shall result in a $200 fine (in addition
to strong disciplinary action from SCRC). SCRC agrees to arrange for
delivery and setup for those customers that desire such service, and shall
inform customers in advance of any additional fees associated with such
service. A poster or counter card indicating that such service is available
[and the cost thereof] shall be posted prominently within the Department
within one month after the date the Department opens for business. SCRC
agrees to conform its operating policies and procedures to the operating
policies and procedures of BBB to the extent reasonably practicable. In the
event a potential customer at a Department requests a phone number to call
to obtain more information and/or to consummate a purchase, the employees
of SCRC shall provide such customer with the phone number of the
Department, not of any other retail store maintained by SCRC or of any
other central or other phone lines maintained by SCRC.
(h) MARKETING AND ADVERTISING PLAN. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX.
[Portions of this section have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act
of 1934, as amended. A copy of this Exhibit with the portions intact has
been filed separately with the Securities and Exchange Commission]
(i) DURATION OF AGREEMENT. The term of this Agreement (the "Term") shall
expire XXXXXXXXXX (the "Expiration Date") subject to earlier termination in
accordance with the terms of this Agreement (including, without limitation,
the provisions of paragraph 2 below) or by mutual agreement of BBB and
SCRC.
[Portions of this section have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act
of 1934, as amended. A copy of this Exhibit with the portions intact has
been filed separately with the Securities and Exchange Commission]
(j) PROCEDURES FOR EXISTING AND NEW DEPARTMENTS. Attached hereto as Exhibit
1 (j) is a prototypical Short Form License Agreement ("SFLA") between SCRC
and the tenant or owner of the store in which the Department is to be
located (either Bed Bath & Beyond Inc. or the applicable affiliate of Bed
Bath & Beyond Inc.). Simultaneously with the execution of this Agreement,
SCRC and BBB have executed and delivered to each other SFLAs for each of
the 13 Existing Departments. As new Departments are agreed to, additional
SFLAs with respect to each such Departments will be executed prior to the
date upon which SCRC enters the applicable store for the commencement of
the construction of the Department.
SCRC agrees to submit its marketing and advertising plan, as described
above, together with its plans for (i) design and construction of the
Department, (ii) opening plans and schedule for future Departments, and (iii)
operating policies and procedures for the Departments, as soon as reasonably
practicable to Martin Lynch, the Vice President of Stores - Midwest and Western
Region for BBB, who will be responsible for reviewing and finalizing the plan
with SCRC and submitting the plan for approval by BBB corporate. It is the
intention of BBB and SCRC to jointly produce an operating manual for the
Departments which will detail the policy and procedures which should be adhered
to by SCRC, BBB and their respective personnel in connection with the
construction, maintenance and operation of the Departments.
2. TERMINATION/EXPIRATION OF TERM. The Term and the respective obligations of
the parties hereto shall be subject to termination (prior to the Expiration Date
set forth in Section 1(i) above) as follows:
<PAGE>
(a) Either party hereto may terminate this Agreement and under the SFLAs
and the respective obligations of the parties hereto in the event of a
material breach by the other party hereto of any of its obligations
hereunder that shall not have been cured within ten (10) days after notice
of such breach from the non-breaching party; and
(b) This Agreement and the respective obligations of the parties hereto may
be terminated (on either a single or multiple store basis, or with respect
to the entire terms of this Agreement) by mutual agreement of BBB and SCRC.
Notwithstanding the foregoing, however, no termination of this Agreement and the
respective obligations of the parties hereto shall operate to relieve any party
hereto of any obligation that is due and owing without any further conditions at
the time of any such termination.
Upon the expiration or earlier termination of this Agreement, the various
Departments shall be removed by SCRC from the applicable BBB stores in
accordance with the applicable provisions of Paragraph 20 below. Such removal
shall be conducted over a 120 day period, with approximately 1/4 of the
Departments removed every 30 days.
3. INSURANCE AND INDEMNIFICATION.
(a) SCRC'S INSURANCE. Throughout the term of this Agreement, SCRC shall
maintain, at its expense, the following insurance policies: (1) property
insurance, insuring the full replacement cost of property owned by SCRC and
located in the Departments; (2) commercial general liability insurance,
contractual liability insurance and property damage insurance with respect
to the Departments, with limits not less than $1,000,000 combined single
limit for personal injury, sickness or death, or for damage to or
destruction of property for any one occurrence (which policy shall name BBB
as an additional insured); (3) workers' compensation insurance in
accordance with statutory limits; and (4) any other insurance required by
law. SCRC shall have the right to satisfy all or any portion of the
foregoing insurance requirements by including the Departments within a
blanket or umbrella policy of insurance including other locations. Any
insurance maintained by SCRC may have deductibles or self-insurance
retention in the amounts generally utilized by SCRC for its insurance with
respect to a majority of its locations, and SCRC may self-insure for SCRC's
personal property. As evidence of the existence of any insurance required
hereunder, SCRC shall provide BBB with a certificate of insurance or other
reasonably satisfactory evidence of such insurance coverage within thirty
(30) days of the date SCRC opens for business to the public in the
Departments.
(b) BBB'S INSURANCE. BBB shall maintain the following insurance during the
term of this Agreement: (1) property insurance covering the full
replacement value of the BBB store and all of BBB's improvements,
merchandise and equipment therein; (2) commercial general liability
insurance, contractual liability insurance and property
<PAGE>
damage insurance with respect to the BBB store, with limits not less than
$1,000,000 combined single limit for personal injury, sickness or death or
for damage to or destruction of property for any one occurrence (which
policy shall name SCRC as an additional insured; (3) workers' compensation
insurance in accordance with statutory limits; and (4) any other insurance
required by law. As evidence of the existence of any insurance required
hereunder, BBB shall provide SCRC with a certificate of insurance or other
reasonably satisfactory evidence of such insurance coverage within thirty
(30) days of the date SCRC opens for business to the public in the
Departments.
(c) INDEMNIFICATION. Subject to Section 3(d) hereof, and except to the
extent resulting from the negligence or willful misconduct of BBB, its
employees, agents or contractors, SCRC hereby agrees to indemnify, defend
and hold BBB harmless from and against all costs, damages, claims and
liabilities based on, arising out of or resulting from (i) SCRC's use and
occupancy of the Departments or the business conducted by SCRC therein
(including without limitation, the use of the products sold by SCRC), (ii)
any breach or default by SCRC in the performance or observance of its
covenants or obligations under this Agreement, (iii) any actual or alleged
infringement of any patent or claim of patent, copyright or non-BBB
trademark, service mark, or trade name by SCRC, or (iv) the omission or
commission of any act, lawful or unlawful, by SCRC or its agents or
employees, whether or not such act is within the scope of employment of
such agents or employees. Subject to Section 3(d) hereof, and except to the
extent resulting from the negligence or willful misconduct of SCRC, its
employees, agents or contractors, BBB hereby agrees to indemnify, defend
and hold SCRC harmless from and against all costs, damages, claims and
liabilities based on, arising out of or resulting from (i) BBB's operation
and management of the BBB store, (ii) any breach or default by BBB in the
performance or observance of its covenants or obligations under this
Agreement, (iii) any actual or alleged infringement of any patent or claim
of patent, copyright or non-SCRC trademark, service mark, or trade name by
BBB, or (iv) the omission or commission of any act, lawful or unlawful, by
BBB or its agents or employees, whether or not such act is within the scope
of employment of such agents or employees.
(d) WAIVER OF SUBROGATION. BBB and SCRC each hereby release the other from
liability for damage or destruction to the BBB store or the Departments and
all improvements and personal property located therein, whether or not
caused by acts or omissions of the other party; provided, however, such
release shall only be in force and effect with respect to damage or
destruction normally covered by standard policies of casualty insurance
with extended coverage (whether or not such coverage is in effect). Each
party shall cause its casualty insurance policies to contain a provision
whereby the insurer either waives any right of subrogation against the
other party or agrees that such a release shall not invalidate the
insurance, whichever is obtainable.
4. CONFIDENTIALITY. Each of the parties hereto agrees to maintain the
confidentiality of any proprietary or confidential information of the other
party hereto that may be disclosed to the
<PAGE>
respective parties hereto in connection with the transactions contemplated
hereby. In that regard, the parties acknowledge that they have previously
executed those certain Confidentially Agreements, dated December 23, 1998, with
respect to various real estate matters. Any information of the respective
parties hereto shall be deemed to be proprietary or confidential, unless
expressly provided to the contrary. Upon the termination of the relationship
between the parties for any reason, each party agrees to promptly return to the
other any confidential information of such other party in such first party's
possession. The provisions of this Section 4 shall survive the termination, for
any reason, of this Agreement.
5. REPRESENTATION TO SCRC. BBB makes no promises or representations whatsoever
as to the potential amount of business SCRC can expect at any time during
operation of the Departments. SCRC is solely responsible for any expenses it
incurs related to this Agreement, including any increase in the number of SCRC's
employees or any expenditures for additional facilities or equipment. BBB shall
clear the respective Departments and provide a broom clean cement floor or
carpeted floor, if it already exists, and BBB shall remove all shelving from the
respective Departments, if necessary.
6. UNAUTHORIZED SALES. SCRC shall use the respective Departments only for the
purpose authorized in this Agreement, and will offer for sale only those
services and merchandise expressly authorized by this Agreement. For purposes of
this Agreement, SCRC is authorized to sell mattresses, foundations and bed
frames only (the "Merchandise") and to provide services in connection with the
sale of the Merchandise. Notwithstanding the foregoing, BBB acknowledges that
SCRC is engaged in an on-going process of developing new product lines to
complement its sale of the Merchandise, and that SCRC may, in the future,
request BBB's consent to market such new product lines within the Departments.
In the event such request is made, BBB, while under no obligation to consent to
such request, agrees that it shall in good faith consider such request.
7. USE OF TRADEMARKS AND TRADE NAMES.
(a) XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX. SCRC will claim no right, title or
interest in any BBB Mark, except the right to use the same pursuant to the
terms and conditions of this Agreement (for example, in advertisements
prepared in accordance with the terms of this Agreement), and will not
register or attempt to register any BBB Mark. SCRC acknowledges that BBBL
may assign its rights in and to the BBB Marks to an affiliated entity, and
that, in the event of such an assignment, such affiliated entity shall
retain and enjoy the same rights in and to the BBB Marks as BBBL.
<PAGE>
[Portions of this section have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act
of 1934, as amended. A copy of this Exhibit with the portions intact has
been filed separately with the Securities and Exchange Commission]
(b) SCRC recognizes and acknowledges that the use of any BBB Mark shall not
confer upon SCRC any proprietary rights to any BBB Mark. Upon termination
of this Agreement, SCRC shall immediately stop using any licensed BBB Mark
(including, without limitation, the name "Bed Bath & Beyond"), and will
execute all necessary or appropriate documents to confirm BBBL's ownership,
or to transfer to BBBL, any rights SCRC may have acquired from BBBL in any
BBB Mark.
(c) Nothing in this Agreement shall be construed to bar BBBL from
protecting its rights to the exclusive use of its trademarks, service marks
or trade names against infringement by any party or parties, including
SCRC.
(d) BBB Marks which may be used by SCRC under this Agreement possess a
special, unique and extraordinary character which makes it difficult to
assess the monetary damage BBBL and BBB would sustain in the event of
unauthorized use. Irreparable injury would be caused to BBBL and BBB by
such unauthorized use, and SCRC agrees that, in addition to all other
remedies at law or in equity, preliminary or permanent injunctive relief
would be appropriate in the event of breach of this Section 7 by SCRC.
(e) If SCRC learns of any manufacture or sale by any third party of
products and/or services similar to those offered by SCRC that would be
confusingly similar to those sold by SCRC in the minds of the public and
which bear or are promoted in association with BBB Marks or any names,
symbols, emblems, or designs or colors which would be confusingly similar
in the minds of the public to BBB Marks, SCRC will promptly notify BBB.
BBB, BBBL or BBB shall, at its sole expense, take such action as it
determines, in its sole discretion, is appropriate. SCRC will cooperate and
assist in such protest or legal action at BBB's expense. SCRC shall not
undertake any protest or legal action relating to the BBB Marks on its own
behalf without first securing BBB's written permission to do so. If BBB
permits SCRC to undertake such protest or legal action, such protest or
legal action shall be at SCRC's sole expense. BBB shall cooperate and
assist SCRC at SCRC's expense. For the purposes of this paragraph, expenses
shall include reasonable attorney's fees. All recovery in the form of legal
damages or settlement shall belong to the party bearing the expense of such
protest or legal action.
(f) SCRC shall not file suit using BBB's name (or BBBL's name or BBB's
name) or commence any legal proceeding against any customer of any of the
Departments without prior written approval of BBB, which approval will not
be unreasonably withheld.
<PAGE>
(g) BBB acknowledges and agrees that it shall not acquire any rights to or
interests in any trademark, trade name or other intellectual property of
SCRC or its affiliates by or under this Agreement. BBB agrees that it will
not use any such intellectual property rights except with the prior written
consent of SCRC.
8. PUBLICITY. The parties agree that they will not make press releases, public
statements or otherwise seek publicity for the respective Departments (other
than advertising described in this Agreement) during the term of this Agreement
without the prior written approval of the other party, unless such release,
statement or other disclosure is required by law (in which event a copy of which
legally required release, etc. shall be promptly delivered to the other party
hereto).
9. RELATIONSHIP. SCRC is an independent contractor. Nothing contained in or done
pursuant to this Agreement shall be construed as creating a partnership, agency
or joint venture; and neither party shall become bound by any representation,
act or omission of the other party.
10.PRICE/WARRANTY. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<PAGE>
[Portions of this section have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit with the portions intact has been filed
separately with the Securities and Exchange Commission]
11. SCRC'S OBLIGATIONS.
(a) SCRC will not make purchases or incur any obligations or expense of any
kind in the name of BBB or BBB. At BBB's request, SCRC shall furnish to BBB
the names of all parties with whom SCRC contracts to provide services or
materials in connection with the build-out or remodeling of the Departments
and BBB will have the right to contact such parties.
(b) SCRC shall promptly pay all its obligations, including those for labor
or material, and will not allow any liens to attach to the real property of
which each respective Department forms a part or any BBB or customer's
property as a result of SCRC's failure to pay such sums.
12. SCRC'S EMPLOYEES/EQUIPMENT.
(a) SCRC has no authority to employ persons on behalf of BBB and no
employees of SCRC shall be deemed to be employed by BBB. SCRC has sole and
exclusive control over its labor and employee relations policies, and its
policies relating to wages, hours, working conditions, or its employees.
SCRC has the sole and exclusive right to hire, transfer, suspend, lay off,
recall, promote, assign, discipline, adjust grievances and discharge its
employees. SCRC agrees that its employees at the Departments shall comply
with all policies applicable to BBB employees that are posted at the
Departments including, without limitation, policies relating to
non-solicitation. BBB and SCRC agree that neither shall solicit the
employees of the other for employment or other opportunities.
(b) SCRC is solely responsible for all salaries and other compensation of
its employees and will make all necessary salary deductions and
withholdings from its employees' salaries and other compensation. SCRC is
solely responsible for the payment of any and all contributions, taxes and
assessments and all other requirements of Federal Social Security, Federal
and state unemployment compensation and Federal, state and local
withholding of income tax laws on all salary and other compensation of its
employees.
(c) SCRC will comply with any other contract, Federal, state or local law,
ordinance, rule, or regulation regarding its employees, including Federal
or state laws or regulations regarding minimum compensation, overtime and
equal opportunities for employment, and, in particular, SCRC will comply
with the terms of the Federal Civil Rights Acts, Age Discrimination in
Employment Act, Occupational Safety and Health Act, and the
<PAGE>
Federal Fair Labor Standards Act, whether or not SCRC may otherwise be
exempt from such acts because of its size or the nature of its business or
for any other reason whatsoever.
(d) Entirely at its own expense, and in accordance with the provisions of
Section 1 above, SCRC shall install furniture, fixtures and equipment as
necessary for the efficient operation of each Department, including a point
of sale terminal or register ("SCRC's Equipment"). SCRC shall not allow any
liens, claims or encumbrances to attach to any of SCRC's Equipment, or,
because of installation of any of SCRC's Equipment, to the real property of
which the Department forms a part. In the event any lien, claim or
encumbrance attaches to any of SCRC's Equipment or to the real property of
which each respective Department forms a part, SCRC shall take all
necessary action to cause such lien, claim or encumbrance to be released,
within thirty (30) days after receipt of notice of such lien, or BBB, at
its option, may take such action and charge SCRC all reasonable expenses,
including attorneys fees, incurred by BBB in removing such liens.
(e) SCRC shall, at its expense, maintain SCRC's Equipment in good order and
repair. Any signage related to SCRC's business shall be located within any
Department and shall be subject to BBB's approval.
13. CHANGE OF LOCATION. Upon at least thirty (30) days prior written notice to
SCRC, BBB shall have the right to change the location, dimensions and size of
any Department from time to time during the Term of this Agreement in accordance
with BBB's judgment as to what arrangements will be most satisfactory for the
general good of each respective BBB store, provided the new Department can
reasonably and adequately accommodate the items set forth in Section 1(c). In
the event BBB desires that the location of any Department be changed, BBB will,
at its expense, move SCRC's Equipment to the new location and prepare the new
space for occupancy by SCRC. In the event that BBB notifies SCRC of its intent
to change the location, dimensions and/or the size of any Department, and SCRC
shall not be satisfied with such change, then SCRC shall have the right to
terminate this Agreement with respect to such Department effective as of the
date of the proposed change.
14. CUSTOMER ADJUSTMENT. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
[Portions of this section have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit with the portions intact has been filed
separately with the Securities and Exchange Commission]
15. AUDIT/REPORTS.
(a) SCRC shall keep and maintain books and records which accurately reflect
the net sales made by SCRC under this Agreement for a minimum of three (3)
years following the end of the calendar year in which the sales occurred
(it being understood and agreed that the obligation to maintain such books
and records would be satisfied by the maintenance of computer systems
data). BBB shall have the right at any reasonable time and with reasonable
prior notice to SCRC to review and audit the books and records of SCRC
regarding this Agreement not more than once per year per Department. Any
review and audit will be conducted at SCRC's headquarters or other location
where the books and records are kept, except that, if such books and
records are equal to or less than fifty (50) pages, then SCRC shall make
them available to BBB at a location reasonably designated by BBB. Such
books and records shall be kept and maintained according to generally
accepted accounting principles. If such an audit reveals a discrepancy of
more than 4%, then SCRC will reimburse BBB for the reasonable and
documented out-of-pocket costs of the audit. In addition, SCRC shall
provide to BBB, from each Department on a monthly basis, a report of sales
by each day of the month.
(b) Each party shall submit its parent company's consolidated financial
report to the other party annually within one hundred twenty (120) days
after the close of such party's fiscal year. Such report shall be certified
by an independent third party CPA. If such party's parent company is a
publicly held corporation, this requirement may be fulfilled by submission
of the parent company's Annual Report. The receiving party shall not
disclose any such information which is not available to the public to any
third parties without the disclosing party's prior written consent (except
that such information may be disclosed to the receiving party's landlord if
required pursuant to the receiving party's lease).
16. WAIVER. In no event shall BBB be responsible for any interruption to SCRC's
business if such interruption resulted from an act or omission of BBB's Landlord
or from any other matter beyond BBB's control. SCRC waives (on behalf itself and
any insurance company which provides insurance to SCRC) any and all claims it
may have against BBB for damage to SCRC
<PAGE>
(including all consequential losses such as loss of earnings, etc.), for the
safekeeping or safe delivery or damage to any property whatsoever of SCRC in or
about any Department, because of the actual or alleged negligence, act or
omission of any tenant, licensee or occupant of the premises at the Department;
or because of any damage caused by any casualty from any cause whatsoever
(excluding events arising solely from BBB's gross negligence), including, but
not limited to, fire, water, snow, steam, gas or odors in or from the because of
the leaking of any plumbing, or because of any accident or event which may occur
in the Department or because of the actual or alleged acts or omissions of any
janitors or other persons in or about the Department or from any other such
cause whatsoever, provided, however, that SCRC shall not be obligated to pay any
rent or similar compensation to BBB hereunder for or with respect to any
Department for any period in which such Concession Area is rendered
uninhibitable or unusable due to any such cause.
17. SUBJECT TO STORE LEASES. BBB represents to SCRC that, unless SCRC is
informed by BBB otherwise, each BBB store is a retail store which is leased to
BBB, and SCRC agrees that this Agreement shall be subject and subordinate to all
of the terms, agreements and conditions contained in each respective lease. In
the event of the termination of such lease by expiration of time or otherwise,
this Agreement shall immediately terminate with respect to any affected
Department. In the event BBB executes an agreement to assign its lease or
sublease more than 25% of the floor area of the store in which the Department is
located, this Agreement shall immediately become terminable by BBB with respect
to any affected Department. BBB represents and warrants to SCRC that this
Agreement does not violate any provision of any such lease. Notwithstanding the
foregoing, in the event any landlord of a BBB store (or a co-tenant in the
shopping center in which the BBB store is located) delivers a notice of default
(or other notice threatening legal action) to BBB as a result of the operation
of the Department in such store, and in the event BBB reasonably determines that
such notice could result in either (i) a termination of the applicable lease, or
(ii) the commencement of litigation against BBB, then BBB shall have the right
to immediately terminate this Agreement with respect to the applicable SFLA on
fifteen (15) days notice to SCRC (or such shorter time period as may be required
to avoid such termination or litigation), in which event SCRC shall vacate the
Department in accordance with the provisions of Paragraph 20 below, and the sole
liability of BBB with respect to such termination shall be to reimburse SCRC for
the reasonable costs incurred in physically vacating such Department (which
reimbursement shall not, in any event, exceed $10,000 per Department).
18. EXCLUSIVITY. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
<PAGE>
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
[Portions of this section have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit with the portions intact has been filed
separately with the Securities and Exchange Commission]
19. DATA. In connection with its activities under this Agreement, SCRC may
develop customer lists and other purchase related customer information. SCRC
shall not use or permit the use of such customer information for any purpose
except the performance of this Agreement and other purposes consistent with the
ordinary business practices of SCRC. SCRC shall not reproduce, release or in any
way make available or furnish, either directly or indirectly, to any person,
firm, corporation, association or organization at any time, any such customer
information which will or may be used to solicit sales or business from such
customers without the consent of BBB, which consent shall not be unreasonably
withheld. SCRC will send to BBB a diskette of the customer and transaction
information from the Departments within thirty (30) days of written request by
BBB. Except as otherwise provided herein, SCRC will hold confidential all
customer and other information regarding BBB and its affiliates, and BBB will
hold confidential all customer and other information regarding SCRC and its
affiliates.
20. REMOVAL OF SCRC'S EQUIPMENT. Upon the termination of this Agreement by
expiration of time or otherwise, SCRC shall, at its expense, remove all of
SCRC's Equipment from each respective Departments within the time period
described in Paragraph 2 above and shall, without delay and at SCRC's expense,
repair any damage to BBB's premises caused by such removal, and shall leave such
premises in a "broom clean" condition. In the event SCRC's equipment is not so
removed within such time periods, then the same shall be deemed abandoned and
may be disposed of by BBB, at the expense of SCRC, without liability. The
removal of the SCRC equipment shall be subject to the provisions of Paragraph 2
above.
21. LICENSES, LAWS, ORDINANCES. SCRC shall, at its expense, obtain all permits
and licenses which may be required under any applicable Federal, state or local
law, ordinance, rule or regulation by virtue of any act performed in connection
with the operation of each Department. SCRC shall comply fully with all
applicable Federal, state and local laws, ordinances, rules and regulations,
including all rules and regulations of the Federal Trade Commission.
<PAGE>
22. FEES, TAXES. SCRC shall, at its expense, pay and discharge all license fees,
business, use, sales, gross receipts, income, property or other applicable taxes
or assessments which may be charged or levied by reason of any act performed in
connection with the operation of each Department. SCRC will immediately
reimburse BBB for any assessment of sales, use or other non-income tax assessed
upon BBB specifically related to the existence and operation of each Department.
23. TERMINATION OF EXISTING LETTER AGREEMENT. Upon execution of this Agreement,
that certain Agreement, dated November 1, 1998, between SCRC and BBB with
respect to the Existing Departments shall be deemed null and void, except for
(i) the obligations set forth therein which, by their terms, survive the
termination of such Agreements, and (ii) those provisions set forth in Paragraph
23 thereof. Any monetary obligations arising from such provisions shall be
promptly determined and satisfied.
24. RADIUS RESTRICTIONS. SCRC agrees that it shall use all reasonable efforts to
assure that any leases or other agreements it may execute from and after the
date hereof shall not contain radius or other non-competitive clauses which
would impose restrictions on the opening of a Department in any existing or
future BBB store.
25. TELEPHONE CALLS TO CENTRAL PHONE LINES. It is acknowledged that SCRC intends
to include in its general advertisements a reference to a central phone line
which interested customers could call to receive information regarding product
specifications and/or store locations. SCRC agrees that, in the event such
customer requests the location of the "nearest" or "most convenient" store, such
customer shall be provided with either the SCRC retail store, the SCRC
concession within a larger store or the Department which is geographically
closest to such customer (based upon the zip code of such customers' residence).
In the event it is not reasonably possible to ascertain which such location is
actually closest, then such customer shall be provided with the address of all
of the nearby locations (including the Departments), and no attempt shall be
made by SCRC to "steer" or otherwise suggest that such customer visit one or
more of such particular locations in preference to the Department.
<PAGE>
26. NOTICE PROVISION. Whenever it is provided herein that any notice, demand,
request, consent, approval or other communication ("Notice") shall or may be
given to either of the parties by the other, it shall be in writing and, any law
or statute to the contrary notwithstanding, shall not be effective for any
purpose unless same shall be given or served by registered or certified mail,
postage prepaid, return receipt requested, or by any recognized overnight
carrier, with proof of delivery slip (public or private) addressed to Bed Bath &
Beyond at 650 Liberty Avenue, Union, New Jersey 07083, Attention: Allan N.
Rauch, Esq., or to SCRC at 6105 Trenton Lane North, Minneapolis, Minnesota
55442, Attention: Mr. Tom Duffey, or to such other person or other address as
may, from time to time, be specified by either party in a written notice to the
other party. All notices given in accordance with the provisions of this Section
shall be effective upon receipt (or refusal of receipt) at the address of the
addressee.
If the foregoing correctly states your understanding of our mutual intention as
to the transactions contemplated hereby, please execute the enclosed copy of
this letter and return it to us at your earliest convenience.
SELECT COMFORT RETAIL CORPORATION
By: /s/Daniel J. McAthie
Its:President and CEO
The undersigned has reviewed the foregoing Agreement and agrees to all of the
terms and conditions set forth therein.
BED BATH & BEYOND INC., a New York corporation
By: /s/Warren Eisenberg
Warren Eisenberg, Co-Chief Executive Officer
<PAGE>
EXHIBIT 1(a)
Huntington Station, New York
West Los Angeles, California
San Diego, California
Sunrise, Florida
Dallas, Texas
Overland Park, Illinois
Houston, Texas
Indianapolis, Indiana
Orlando, Florida
Roseville, Michigan
Geneva, Illinois
Milford, Connecticut
Columbus, Ohio
<PAGE>
EXHIBIT 1(h)
Bed Bath & Beyond
Marketing/Advertising Test Plan
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXX
[Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit with the portions intact has been filed
separately with the Securities and Exchange Commission]
<PAGE>
EXHIBIT 1(j)
Short Form License Agreement
BED BATH & BEYOND [OF ___________] INC.
650 Liberty Avenue
Union, New Jersey 07083
____________, 1999
Select Comfort Retail Corporation
6105 Trenton Lane North
Minneapolis, MN 55442
Re: Licensed Department (the "Department") in Bed Bath & Beyond store
located in ____________, _________ (the "Store")
Gentlemen:
This short form license agreement, when executed by the parties hereto,
shall confirm that Bed Bath & Beyond [of ___________] Inc. ("Licensor") has
agreed to license a portion of the Store to Select Comfort Retail Corporation
("Licensee"). Licensor and Licensee agree that the terms and provisions of that
certain letter agreement (the "Agreement"), dated April 20, 1999, between Bed
Bath & Beyond Inc. and Licensee, shall be incorporated herein by reference, and
the Department shall be operated in strict accordance with the terms of the
Agreement, as if the Agreement were fully set forth herein (including, without
limitation, in accordance with those provisions of the Agreement regarding
length of license term and rental payments).
BED BATH & BEYOND [OF ___________] INC.
By:_____________________________________
Warren Eisenberg, [President]
[Co-Chief Executive Officer]
ACCEPTED AND AGREED TO:
SELECT COMFORT RETAIL CORPORATION
By:______________________________
<PAGE>
EXHIBIT 7(a)
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXX
[Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment under Rule 24b-2 under the Securities Exchange Act of
1934, as amended. A copy of this Exhibit with the portions intact has been filed
separately with the Securities and Exchange Commission]
EXHIBIT 10.5
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY
FLEXINVEST(R)-PLUS PROTOTYPE PROFIT-SHARING/401(k) PLAN
PART I DEFINITIONS
PART II CREDITING SERVICE
PART III ELIGIBILITY AND PARTICIPATION
PART IV CONTRIBUTIONS
PART V LIMITATION ON ALLOCATIONS
PART VI PLAN INVESTMENT - CONTRACT
PART VII PLAN INVESTMENT - POLICIES
PART VIII PARTICIPANT'S ACCOUNT
PART IX VESTING
PART X IN-SERVICE WITHDRAWALS
PART XI PARTICIPANT LOANS
PART XII TERMINATION OF EMPLOYMENT
PART XIII FORFEITURES
PART XIV RETIREMENT BENEFITS
PART XV DEATH BENEFITS
PART XVI TOP-HEAVY REQUIREMENTS
PART XVII INSURANCE COMPANY
PART XVIII AMENDMENT, TERMINATION, MERGER, ETC. OF PLAN
PART XIX ADMINISTRATION OF PLAN
PART XX MISCELLANEOUS
PART XXI TRANSITIONAL RULE-RETIREMENT DISTRIBUTIONS
PART XXII TRANSITIONAL RULE-SURVIVOR ANNUITIES
(C)Copyright 1996 by Massachusetts Mutual Life Insurance Company.
All Rights Reserved. No reproduction of provisions in this document are
permitted without the express written consent of Massachusetts Mutual Life
Insurance Company, Springfield, Massachusetts 01111-0001.
<PAGE>
MASSACHUSETTS MUTUAL FLEXINVEST(R)-PLUS PROTOTYPE
PROFIT-SHARING/401(k) PLAN
Table of Contents
INTRODUCTION PAGE
Prototype Profit-Sharing 401(k) Plan and Adoption 1
Agreement
Purpose of Plan 1
PART I - DEFINITIONS
1.1 Administrator 2
1.2 Anniversary Date 2
1.3 Annual Additions 2
1.4 Automatic Joint and Survivor Annuity 2
1.5 Beneficiary 3
1.6 Benefiting 3
1.7 Business Day 3
1.8 Code 3
1.9 Company 3
1.10 Company Matching Contributions 3
1.11 Company Profit-Sharing Contributions 3
1.12 Company Qualified Matching Contributions 3
1.13 Company Qualified Nonelective Contributions 3
1.14 Compensation 4
1.15 Contract 6
1.16 Deferred Salary Agreement 6
1.17 Direct Rollover 6
1.18 Effective Date 6
1.19 Election Period 6
1.20 Elective Deferrals 6
1.21 Eligible Retirement Plan 6
1.22 Eligible Rollover Distribution 7
1.23 Employee 7
1.24 Employer 7
1.25 Entry Date 7
1.26 Excess Aggregate Contributions 7
1.27 Excess Annual Additions 8
1.28 Excess Contributions 8
1.29 Excess Deferrals 8
1.30 Highly Compensated Employee 8
1.31 Hour of Service 10
1.32 Insurance Company 11
1.33 Leased Employee 11
1.34 Limitation Year 11
<PAGE>
1.35 Maximum Permissible Amount 12
1.36 One-Year Break in Service 12
1.37 Participant 12
1.38 Participant Matched Contributions 12
1.39 Participant Nondeductible
Voluntary Contributions 12
1.40 Plan 13
1.41 Plan Year 13
1.42 Policy 13
1.43 Prototype Plan 13
1.44 Qualified Election 13
1.45 Spouse 13
1.46 Straight Life Annuity 13
1.47 Termination of Employment 14
1.48 Valuation Date 14
1.49 Year of Service 14
PART II - CREDITING SERVICE
2.1 General Method of Crediting Service 14
2.2 Equivalency Methods Based Upon Periods
of Employment 14
2.3 One Method of Crediting Service
for All Employees 14
2.4 Service With a Predecessor Employer 14
PART III - ELIGIBILITY AND PARTICIPATION
3.1 Eligibility 15
3.2 Eligibility Computation Period 15
3.3 Break in Service/Return to Service 15
3.4 Notification of Eligible Employees 16
3.5 Conditions of Continued Participation 16
PART IV - CONTRIBUTIONS
4.1 Contributions to the Plan 16
4.2 Limitations on Elective Deferrals 17
4.3 Excess Contributions 20
4.4 Limitations on Company and Participant
Contributions 21
4.5 Excess Aggregate Contributions 23
4.6 Multiple Use of Alternative Test 25
4.7 Permitted Disparity 25
4.8 Collection of Participant Contributions 26
ii
<PAGE>
4.9 Company Contributions - Timing 26
4.10 Company Contributions - Profits 27
4.11 Return of Company Contributions 27
4.12 Rollover Contributions 27
4.13 Transfers of Amounts From Other Plans 28
4.14 Participant Deductible
Voluntary Contributions 28
4.15 Additional Requirements for Owner-Employees 28
PART V - LIMITATION ON ALLOCATIONS
5.1 Maximum Permissible Amount 29
5.2 Estimate of Maximum 29
5.3 Reconciliation 30
5.4 Excess Annual Additions 30
5.5 If Company Maintains Other
Defined Contribution Plans 31
5.6 If Company Maintains Other Plans 32
5.7 Controlled Group of Employers, Etc. 32
5.8 Definitions 32
PART VI - PLAN INVESTMENT - CONTRACT
6.1 Funding Policy 34
6.2 Contract 35
6.3 Insurance Company's Authority
to Direct Investments 35
6.4 Participant-Directed Investments 36
6.5 Combining Assets of More Than One Plan
in a Single Contract 36
PART VII - PLAN INVESTMENT - POLICIES
7.1 Request of Participant 37
7.2 Limitations on Purchase 37
7.3 Company is Owner 37
7.4 Premium Payments 37
7.5 Dividends 37
7.6 Distribution of Policies 38
7.7 Change in Amount of Insurance 38
7.8 Policies upon Termination of Employment 38
iii
<PAGE>
PART VIII - PARTICIPANT'S ACCOUNTS
8.1 Participant's Account 38
8.2 Valuation of Accounts 39
PART IX - VESTING
9.1 Full Vesting in Certain Separate Accounts 40
9.2 Vesting in Participant's Accounts
Attributable to Company Matching
and Profit-Sharing Contributions 40
9.3 Vesting Years of Service/Breaks in Service 41
PART X - IN-SERVICE WITHDRAWALS
10.1 In General 41
10.2 Sequence and Conditions for Withdrawal 41
10.3 Financial Hardship 42
10.4 No Forfeiture of Participant's Account
Attributable to Participant Contributions 43
PART XI - PARTICIPANT LOANS
11.1 In General 43
11.2 Application for Loans 44
11.3 Amount of Loan 44
11.4 Interest Rate 45
11.5 Repayments 45
11.6 Default and/or Acceleration 45
PART XII - TERMINATION OF EMPLOYMENT
12.1 Notice of Termination of Employment 46
12.2 Amount of Participant's Benefit 46
12.3 Participant's Election of a Form of Benefit 46
12.4 Forfeiture of Nonvested Portion of
Participant's Account 47
12.5 Repayment 48
PART XIII - FORFEITURES
13.1 Occurrence of Forfeiture 49
13.2 Application of Forfeitures 49
iv
<PAGE>
PART XIV - RETIREMENT BENEFITS
14.1 Normal Form of Retirement Benefit 49
14.2 Optional Forms of Benefit 50
14.3 Special Rule 50
14.4 Waiver of Thirty-Day Period for Consent 50
14.5 Amount of Retirement Benefit 51
14.6 Participant Election of a Retirement Date 51
14.7 Participant's Right to Defer Retirement 51
14.8 Distribution of Retirement Benefits 52
14.9 Minimum Amounts to be Distributed from
Participant Account 53
PART XV - DEATH BENEFITS
15.1 Preretirement Death of a Participant 53
15.2 Preretirement Survivor Annuity 55
15.3 Post-retirement Death of a Participant 55
15.4 Designation of a Beneficiary 56
PART XVI - TOP-HEAVY REQUIREMENTS
16.1 In General 56
16.2 Minimum Contribution Under a Top-Heavy Plan 56
16.3 Nonforfeitability of Minimum Contribution 57
16.4 Top-Heavy Vesting 57
16.5 Top-Heavy Definitions 57
PART XVII - INSURANCE COMPANY
17.1 Not a Party 60
17.2 Not Responsible for the Acts of
the Company or Administrator 60
17.3 Reliance on Signatures 60
17.4 Acquittance 60
17.5 Duties of the Insurance Company 60
17.6 Plan Controls 61
PART XVIII - AMENDMENT, TERMINATION, MERGER, ETC. OF PLAN
18.1 Permanency 61
18.2 Amendment by Insurance Company 61
18.3 Permissible Amendments by Company 61
18.4 Restrictions on Amendments 62
v
<PAGE>
18.5 Termination of Plan 62
18.6 Full Vesting Upon Termination 63
18.7 Merger, Consolidation or
Transfer of Plan Assets 63
PART XIX- ADMINISTRATION OF PLAN
19.1 Appointment of Administrator 64
19.2 Administrator's Powers and Duties 64
19.3 Delegation of Administrative
Responsibilities 65
19.4 Bonding 66
19.5 Fiduciary Liability Insurance
and Indemnification 66
19.6 Compensation of Administrator 66
19.7 Service of Legal Process 66
19.8 Company Census Report 66
19.9 Information About Plan 66
19.10 Information About Participants
and Beneficiaries 67
19.11 Claim for Benefits 67
19.12 Claims Review Procedure 67
19.13 Missing Participants or Beneficiaries 68
PART XX - MISCELLANEOUS
20.1 Assignment or Alienation 68
20.2 Responsibility for Qualification of Plan 68
20.3 Original Document 69
20.4 State Law 69
20.5 Not an Employment Contract 69
20.6 Word Usage 69
20.7 Interpretation of Plan 69
20.8 Headings 69
PART XXI - TRANSITIONAL RULE - Retirement Distributions 70
PART XXII - TRANSITIONAL RULE - Survivor Annuities 72
vi
<PAGE>
ADOPTION AGREEMENT
A. Plan Name
B. Contract
C. Dates
D. Eligibility Requirements
E. Compensation
F. Retirement
G. Elective Deferrals
H. Company Qualified Nonelective Contributions
I. Company Matching and Company Qualified
Matching Contributions
J. Participant Contributions
K. Company Profit-Sharing Contributions
L. Forfeitures
M. Investment Allocation And Profit Requirement
N. Policies
O. In-Service Withdrawals
P. Loans
Q. Special Top-Heavy Elections
R. Vesting
S. Termination of Employment
T. Limitation on Allocating Contributions
U. Present Value of Accrued Benefits
V. Adoption Conditional Upon IRS Approval
vii
<PAGE>
Massachusetts Mutual Life Insurance Company
FLEXINVEST(R) PROTOTYPE PROFIT-SHARING/401(k)
PLAN
Established Under Revenue Procedure 89-9
IRS Serial No. D265755a (Standardized) and D365756a (Non-standardized)
Massachusetts Mutual Life Insurance Company of Springfield, Massachusetts
(MassMutual) has prepared this Profit-Sharing/401(k) Plan for Employers
interested in providing retirement benefits for their Employees. Any Company may
adopt this Plan, provided that it executes an agreement, hereinafter referred to
as the Adoption Agreement, delivers a copy of the executed Adoption Agreement to
MassMutual and agrees to conform to and abide by all of the terms and provisions
of this Plan. The Company must also apply for and have issued to it a group
annuity contract to fund the Plan and to provide benefits under the Plan. The
Company may also apply for and have issued to it individual life insurance
Policies.
MassMutual has received a favorable Opinion Letter for this Prototype plan from
the Internal Revenue Service in accordance with Revenue Procedure 89-9. A copy
of that Opinion Letter is contained in the Adoption Agreement. MassMutual
strongly suggests that the Company adopting the non-standardized Plan file with
the appropriate Internal Revenue Service Key District Office for a Determination
Letter. If the Company adopting the standardized Plan maintains or later adopts
another Plan in addition to this Plan, MassMutual strongly suggests that the
adopting Company file with the appropriate Internal Revenue Service Key District
Office for a Determination Letter.
PURPOSE OF PLAN
The Company establishes this Plan to provide funds for its Employees' retirement
and to provide funds for their Beneficiaries in the event of death. The benefits
provided in this Plan shall be paid from a Group Annuity Contract and individual
life insurance policies issued to the Company. The Plan is established and shall
be maintained for the exclusive benefit of eligible Employees and their
Beneficiaries. If the Company adopts this Plan as an amendment to an existing
plan, the existing plan shall be superseded by this Plan.
This Plan and any related documents are instruments having IMPORTANT FINANCIAL,
LEGAL AND TAX IMPLICATIONS. Neither MassMutual nor its representatives can give
assurances that the adoption of this Plan shall create a qualified Plan for a
particular Company. Each Company must assume responsibility for the tax or legal
aspects pertaining to its Plan. EACH COMPANY SHOULD CONSULT ITS OWN ATTORNEY FOR
LEGAL ADVICE.
References to Parts and to numbered Paragraphs relate to the Plan document and
those made to Sections relate to the Adoption Agreement.
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PART I - DEFINITIONS
1.1 ADMINISTRATOR - The person or persons designated by the Company in
accordance with Paragraph 19.1 to manage the Plan. If no person is
appointed, the Administrator shall be the Company.
1.2 ANNIVERSARY DATE - The first day of each Plan Year designated in Section
(C) by the Company.
1.3 ANNUAL ADDITIONS - The sum of the following amounts credited to a
Participant's Account for the Limitation Year:
(a) Company contributions,
(b) Participant contributions,
(c) Forfeitures,
(d) Amounts allocated, after March 31, 1984, to an individual medical
account, as defined in Code Section 415(l)(2), which is part of a
pension or annuity plan maintained by the Company, 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 Code Section 419A(d)(3), under a welfare
benefit fund, as defined in Code Section 419(e), maintained by the
Company, are treated as Annual Additions to a defined contribution
plan, and
(e) Allocations under a simplified employee pension plan.
For this purpose, any Excess Annual Additions applied under Paragraphs 5.4
or 5.5 in the Limitation Year to reduce Company contributions shall be
considered Annual Additions for such Limitation Year.
The Annual Addition for any Limitation Year beginning before January 1,
1987 shall not be recomputed to treat all Participant contributions as an
Annual Addition.
1.4 AUTOMATIC JOINT AND SURVIVOR ANNUITY - An immediate annuity for the life of
the Participant with a survivor annuity for the life of the Participant's
Spouse which is 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 his 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 percent unless a different
percentage is elected by a Participant.
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1.5 BENEFICIARY - The person or persons designated under Paragraph 15.4 in
accordance with Code Section 401(a)(9) (and the Regulations thereunder), to
receive any benefits under the Plan on account of the death of the
Participant. If any Policy is issued hereunder on the life of a
Participant, the Beneficiary thereunder shall be designated separately
under such Policy.
1.6 BENEFITING - A Participant is treated as benefiting under the Plan for any
Plan Year during which the Participant received or is deemed to receive an
allocation in accordance with Code Section 1.410(b)-3(a).
1.7 BUSINESS DAY- A day on which the New York Stock Exchange is open for
business.
1.8 CODE - The Internal Revenue Code of 1986, as amended.
1.9 COMPANY - The employer adopting this Plan.
1.10 COMPANY MATCHING CONTRIBUTIONS - If elected in Section (I), the Company may
contribute money to match the Participant's Elective Deferrals and/or
Participant Matched Contributions. The amount of the contribution shall be
determined in accordance with the formula elected in Section (I).
1.11 COMPANY PROFIT-SHARING CONTRIBUTIONS - If elected in Section (K), the
Company may make an extra contribution to the Plan. The amount of the
contribution is determined at the sole discretion of the Company. The
Administrator shall allocate Company Profit-Sharing Contributions to
Participants' Accounts in accordance with the allocation formula elected in
Section (K). Company Profit-Sharing Contributions shall be allocated to the
Account of each Participant who has completed the requirements elected in
Section (K). In the case of a Participant whose Entry Date is other than
the first day of the Plan Year, all Hours of Service during the Plan Year
in which participation commenced (or recommenced), including Hours of
Service credited to a Participant prior to his Entry Date, shall be taken
into account when determining whether or not the Participant has met the
Hours of Service requirement during the Plan Year.
1.12 COMPANY QUALIFIED MATCHING CONTRIBUTIONS - If elected in Section (I), the
Company may contribute money to match the Participant's Elective Deferrals
and/or Participant Matched Contributions. These contributions are subject
to the distribution and nonforfeitability requirements under Code Section
401(k) when made. The amount of the contribution shall be determined in
accordance with the formula elected in Section (I).
1.13 COMPANY QUALIFIED NONELECTIVE CONTRIBUTIONS - If elected in Section (H),
the Company may elect to make an extra annual contribution to the Plan.
These contributions are nonforfeitable when made; and are distributable
only in accordance with the distribution provisions of Code Section 401(k).
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In addition, in accordance with Paragraphs 4.3(a) and 4.5(a), a Company may
make Qualified Nonelective Contributions on behalf of non-Highly
Compensated Employees that are sufficient to satisfy either the Actual
Deferral Percentage test or the Actual Contribution Percentage test, or
both, pursuant to Regulations under the Code.
1.14 COMPENSATION - As elected by the Company in Section (E), for all purposes
of this Plan other than Part V, LIMITATION ON ALLOCATIONS, Compensation
shall mean all of each Participant's:
(a) Information Required to be Reported under Code Sections 6041 and 6051
(Wages, Tips and Other Compensation as reported on Form W-2). Compensation
is defined as wages within the meaning of Code Section 3401(a) and all
other payments of compensation to an Employee by the Company (in the course
of the Company's trade or business) for which the Company is required to
furnish the Employee with a written statement under Code Sections 6041(d),
6051(a)(3) and 6052. Compensation must be determined without regard to any
rules under Code Section 3401(a) that limit the remuneration included in
wages based on the nature or location of the employment or the services
performed (such as the exception for agricultural labor in Code Section
3401(a)(2)).
(b) Code Section 3401(a) Wages. Compensation is defined as wages as defined
in Code Section 3401(a) for the purposes of income tax withholding at the
source, but determined without regard to any rules that limit the
remuneration included in wages based on the nature or location of the
employment or the services performed (such as the exception for
agricultural labor in Code Section 3401(a)(2)).
(c) Code Section 415 Safe-Harbor Compensation under IRS Reg.
ss.415-2(d)(10). Compensation is defined as wages, salaries, and fees for
professional services and other amounts received (without regard to whether
or not an amount is paid in cash) for personal services actually rendered
in the course of employment with the Company to the extent that the amounts
are includible in gross income (including, but not limited to, commissions
paid to salesmen, compensation for services on the basis of a percentage of
profits, commissions on insurance premiums, tips, bonuses, fringe benefits,
and reimbursements and expense allowances under a nonaccountable plan as
described in IRS Reg. ss.1.62-2(c)), and excluding all other amounts
including the following: (1) Company contributions to a plan of deferred
compensation which are not includible in the Employee's gross income for
the taxable year in which contributed, or Company contributions under a
simplified Employee pension plan to the extent such contributions are
deductible by the Employee, or any distributions from a plan or deferred
compensation; (2) Amounts realized from the exercise of a non-qualified
stock option, or when restricted stock (or property) held by the Employee
either becomes freely transferable or is no longer subject to a substantial
risk of forfeiture; (3) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and (4) Other
amounts which received special tax benefits, or contributions made by the
Company (whether or not under a salary reduction agreement) towards the
purchase of an annuity contract
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described in Code Section 403(b) (whether or not the contributions are
actually excludable from the gross income of the Employee).
(d) Total Compensation as Defined under IRS Reg. ss.1.415-2(d)(1) and (2).
Compensation is defined as immediately above in Subparagraph 1.14(c), but
also including the following: (1) In the case of a Participant who is an
Employee within the meaning of Code Section 401(c)(1) and the regulations
thereunder, the Participant's earned income (as described in Code Section
401(c)(2) and the regulations thereunder). (2) Amounts described in Code
Sections 104(a)(3), 105(a) and 105(h), but only to the extent that these
amounts are includible in the gross income of the Employee. (3) Amounts
paid or reimbursed by the Company for moving expenses incurred by an
Employee, but only to the extent that these amounts are not deductible by
the Employee under Code Section 217. (4) The value of a non-qualified stock
option granted to an Employee by the Company, but only to the extent that
the value of the option is includible in the gross income of the Employee
for the taxable year in which granted. (5) The amount includible in the
gross income of an Employee upon making the election described in Code
Section 83(b).
The Compensation of each Participant taken into account annually for
determining all benefits provided under the Plan for any Plan Year shall
not exceed $150,000, as adjusted for increases in the cost-of-living in
accordance with Code Section 401(a)(17)(B). The cost-of-living adjustment
in effect for a calendar year applies to the plan year beginning in such
calendar year. If a plan year consists of fewer than 12 months, the
Compensation limit is an amount equal to the otherwise applicable annual
compensation limit multiplied by a fraction, the numerator of which is the
number of months in the short plan year, and the denominator of which is
12.
In determining the Compensation of a Participant for purposes of this
limitation, the rules of Code Section 414(q)(6) shall apply, except in
applying such rules, the term "family" shall include only the Spouse of the
Participant and any lineal descendants of the Participant who have not
attained age 19 before the close of the year. If, as a result of the
application of such rules, the adjusted $150,000 limitation is exceeded,
then (except for the purposes of determining the portion of Compensation up
to the integration level if this Plan provides for permitted disparity),
the limitation shall be prorated among the affected individuals in
proportion to each such individual's Compensation as determined under this
Paragraph prior to the application of this limitation.
For any self-employed individual covered under the Plan, Compensation shall
mean earned income. Earned income means the net earnings from
self-employment in the trade or business with respect to which the Plan is
established, for which personal services of the individual are a material
income-producing factor. Net earnings shall be determined without regard to
items not included in gross income and the deductions allocable to such
items. Net earnings are reduced by contributions by the Company 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
Company by Code Section 164(f) for taxable years beginning after December
31, 1989.
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1.15 CONTRACT - The group annuity contract issued by the Insurance Company to
the Company or as specified in Section (B).
1.16 DEFERRED SALARY AGREEMENT - The agreement entered into by a Participant
with the Company to reduce his Compensation pursuant to Paragraph 1.20. Any
Deferred Salary Agreement or other deferral mechanism cannot be adopted
retroactively.
1.17 DIRECT ROLLOVER - A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributee.
1.18 EFFECTIVE DATE - The date elected in Section (C) as the first day of the
first Plan Year.
1.19 ELECTION PERIOD - The period during which a Participant may waive the
Preretirement Survivor Annuity under Paragraph 15.2. If Paragraph 14.3 is
operative, this period 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. In addition, a Participant who has not yet attained
age 35 as of the end of any current Plan Year may make a special Qualified
Election to waive the Preretirement Survivor Annuity for the period
beginning on the date of such election and ending on the first day of the
Plan Year in which the Participant attains age 35. Such election shall not
be valid unless the Participant receives a written explanation of the
Preretirement Survivor Annuity in such terms as are comparable to the
explanation required under Paragraph 14.3. Preretirement Survivor Annuity
coverage shall 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 Paragraphs 1.44 and
15.2.
1.20 ELECTIVE DEFERRALS - If elected in Section (G), the Company may make
contributions to the Plan at the election of the Participant, in lieu of
cash Compensation. Elective Deferrals shall include contributions made
pursuant to a Deferred Salary Agreement or other deferral mechanism.
Elective Deferrals shall not include any deferrals properly distributed as
Excess Annual Additions.
1.21 ELIGIBLE RETIREMENT PLAN - An eligible retirement plan is an individual
retirement account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan
described in Code Section 403(a), or a qualified trust described in Code
Section 401(a), that accepts the Participant's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover Distribution to
the surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity. For purposes of this
definition, a former spouse who is the alternate payee under a qualified
domestic relations order, as defined in section 414(p) of the Code may make
an Eligible
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Rollover Distribution to an Eligible Retirement Plan described in Code
Section 402(c)(8)(B).
1.22 ELIGIBLE ROLLOVER DISTRIBUTION - An eligible rollover distribution is any
distribution of all or any portion of the balance to the credit of the
Participant or Spousal Beneficiary, 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 Participant or Spousal
Beneficiary or the joint lives (or joint life expectancies) of the
Participant and the Participant's designated beneficiary (if permitted in
the Plan), or for a specified period of ten years or more; any distribution
to the extent such distribution is required under Code Section 401(a)(9);
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).
1.23 EMPLOYEE - Any person employed by the Company or any other Company required
to be aggregated under Paragraph 1.24. The term Employee shall also include
an individual who is self-employed, an owner-Employee, or a Leased
Employee.
Self-employed individual means a person who has earned income for the
taxable year from the trade or business for which the Plan is established;
also, a person who would have had earned income but for the fact that the
trade or business had no net profits for the taxable year.
Owner-Employee means a person who is sole proprietor, or who is a partner
owning more than 10 percent of either the capital or profits interest in
the partnership.
1.24 EMPLOYER - The entity that establishes or maintains this Plan; any
organization which has adopted this Plan with the consent of such
establishing Employer; and any successor of such Employer. Except as
provided for purposes of LIMITATION ON ALLOCATIONS in Paragraph 5.7, and
for separate lines of business in Code Section 414(r), all Employees of all
corporations which are members of a controlled group of corporations (as
defined in Code Section 414(b)), all trades or businesses (whether or not
incorporated) which are under common control (as defined in Code Section
414(c)), all members of an affiliated service group (as defined in Code
Section 414(m)) and any other entity required to be aggregated pursuant to
Regulations under Code Section 414(o) shall be treated as employed by a
single Employer.
1.25 ENTRY DATE - The date on which an Employee becomes a Participant as
designated in Section (D) after satisfying the eligibility requirements of
Section (D).
1.26 EXCESS AGGREGATE CONTRIBUTIONS - With respect to any Plan Year, the excess
of:
(a) The aggregate Actual Contribution Percentage amounts taken into
account in computing the numerator of the ACP actually made on behalf
of Highly Compensated Employees for such Plan Year, over
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(b) The maximum Actual Contribution Percentage amounts permitted by the
ACP test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of their ACP, beginning with the
highest of such percentages).
Such determination shall be made after first determining Excess Deferrals
pursuant to Paragraph 4.2(a) and then determining Excess Contributions
pursuant to Paragraph 4.2(b).
1.27 EXCESS ANNUAL ADDITIONS - The excess of the Participant's Annual Additions
for the Limitation Year over the Maximum Permissible Amount.
1.28 EXCESS CONTRIBUTIONS - With respect to any Plan Year, the excess of:
(a) The aggregate amount of Company contributions actually taken into
account in computing the ADP of Highly Compensated Employees for such
Plan Year, over
(b) The maximum amount of such contributions permitted by the ADP test
(determined by reducing contributions made on behalf of Highly
Compensated Employees in order of their ADPs, beginning with the
highest of such percentages).
1.29 EXCESS DEFERRALS - A Participant's Elective Deferrals that are includible
in the Participant's gross income under Code Section 402(g) to the extent
such Participant's Elective Deferrals for a taxable year exceed the dollar
limitation under such Code Section. Excess Deferrals shall be treated as
Annual Additions under the Plan, unless such amounts are distributed no
later than the first April 15 following the close of the Participant's
taxable year.
1.30 HIGHLY COMPENSATED EMPLOYEE - The group of Highly Compensated Employees
("HCEs") includes any Employee who is employed by the Employer on the
snapshot day and who (i) is a 5-percent owner on the snapshot day, (ii)
receives compensation for the Plan Year in excess of the Code Section
414(q)(1)(B) amount for the Plan Year, (iii) receives compensation for the
Plan Year in excess of the Code Section 414(q)(1)(C) amount for the Plan
Year and is a member of the top paid group of Employees within the meaning
of Code Section 414(q)(4), or (iv) is an officer on the snapshot day and
receives compensation during the Plan Year that is greater than 50 percent
of the dollar limitation in effect under Code Section 415(b)(1)(A). If no
officer satisfies the compensation requirement of (iv) above, the highest
paid officer for such Plan Year shall be treated as a HCE.
For purposes of determining who is a HCE, compensation means compensation
within the meaning of Code Section 415(c)(3) as set forth in the Plan for
purposes of determining the Code Section 415 limits, except that amounts
excluded pursuant to Code Sections 125, 402(e)(3), 402(h)(1)(B) and 403(b)
are included. If compensation used for purposes of determining the Code
Section 415 limits under the Plan is not defined as total compensation as
provided under Code Section
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415(c)(3) and the regulations thereunder, then for purposes of determining
who is a HCE, compensation means compensation within the meaning of Code
Section 1.415-2(d)(11)(i) of the Income Tax Regulations, except that
amounts excluded pursuant to Code Sections 125, 402(e)(3), 402(h)(1)(B) and
403(b) are included.
If, as of the snapshot day, an Employee is a family member of either a
5-percent owner (whether active or former) or a HCE who is one of the 10
most HCEs ranked on the basis of compensation paid by the Employer during
such year, then the family member and the 5-percent owner or top-ten HCE
shall be aggregated. In such case, the family member and 5-percent owner or
top-ten HCE shall be treated as a single Employee receiving compensation
and Plan contributions or benefits equal to the sum of the compensation and
contributions and benefits of the family member and 5-percent owner or
top-ten HCE. For purposes of this Section, family member includes the
spouse, lineal ascendants and descendants of the Employee or former
Employee, and the spouses of such ascendants and descendants.
The snapshot day selected in Section (C)(5) must be a single day during the
Plan Year that is reasonably representative of the Employer's workforce and
the Plan's coverage throughout the Plan Year. In addition, if the Employer
uses a snapshot day in substantiating compliance with the nondiscrimination
requirements of Code Sections 401(a)(4), 410(b), or 414(s), the same
snapshot day must be used for purposes of determining the HCEs.)
The group of HCEs will also include any Employee who during the Plan Year:
(a) terminated employment prior to the snapshot day and was a HCE in the
prior Plan Year;
(b) terminated employment prior to the snapshot day and (i) was a
5-percent owner, or (ii) has compensation for the Plan Year which is
greater than or equal to the compensation of any Employee who is
treated as a HCE on the snapshot day (except for Employees who are
HCEs solely because they are 5-percent owners or officers), or (iii)
was an officer and has compensation greater than or equal to the
compensation of any other officer who is a HCE on the snapshot day
solely because that person is an officer; or
(c) becomes employed subsequent to the snapshot day during the Plan Year
and (i) is a 5-percent owner, or (ii) has compensation for the Plan
Year that is greater than or equal to the compensation of any Employee
who is treated as a HCE on the snapshot day (except Employees who are
HCEs solely because they are 5-percent owners or officers), or (iii)
is an officer and has compensation that is greater than or equal to
the compensation of any other officer who is a HCE on the snapshot day
solely because that person is an officer.
The determination of who is a HCE, including the determinations of the
number and identity of Employees in the top paid group, the number of
Employees treated as officers and the compensation that is taken into
account, will be made in accordance
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with Code Section 414(q) and Code Section 1.414(q)-1T of the temporary
Income Tax Regulations to the extent they are not inconsistent with the
method established above.
1.31 HOUR OF SERVICE -
(a) Each hour for which an Employee is paid, or entitled to payment, for
the performance of duties for the Company. These hours shall be
credited to the Employee for the computation period in which the
duties are performed;
(b) Each hour for which an Employee is paid, or entitled to payment, by
the Company on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty or leave of absence. No
more than 501 Hours of Service shall be credited under this Paragraph
for any single continuous period (whether or not such period occurs in
a single computation period). Hours under this Paragraph shall be
calculated and credited pursuant to Section 2530.200b-2 of the
Department of Labor Regulations which is incorporated herein by this
reference; and
(c) Each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Company. The same Hours of
Service shall not be credited both under Subparagraph (a) or
Subparagraph (b), as the case may be, and under this Subparagraph (c).
These Hours shall be credited to the Employee for the computation
period or periods to which the award or agreement pertains rather than
the computation period in which the award, agreement or payment is
made.
(d) Where an Employee leaves a non-temporary position with the Company to
enter the United States military service and receives an honorable
discharge upon completion of military service, application for
reemployment must be made within the following time periods: if the
military service is less than 31 days, the employee must report for
reemployment on the first full working day; if the service is from 31
to 181 days, the employee must apply to the company within 14 days;
and if service is over 180 days, the employee must apply to the
Company within 90 days. If the employee is hospitalized or injured,
the time to apply to the Company is extended for two years.
(e) Hours of Service shall be credited for employment with other members
of an affiliated service group (under Code Section 414(m)), a
controlled group of corporations (under Code Section 414(b)), a group
of trades or businesses under common control (under Code Section
414(c)), of which the adopting Company is a member, and any other
entity required to be aggregated with the Company pursuant to Code
Section 414(o) and the Regulations thereunder. Hours of Service shall
also be credited for any individual considered an Employee for
purposes of this Plan under Code Section 414(n) or Section 414(o) and
the Regulations thereunder.
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(f) Hours of Service shall be determined on the basis of the method
selected in Section (D).
(g) Solely for purposes of determining whether a Break in Service, as
defined in Paragraph 1.36, for participation and vesting purposes has
occurred in a computation period, an individual who is absent from
work for maternity or paternity reasons shall receive credit for the
Hours of Service which would otherwise have been credited to such
individual but for such absence, or in any case in which such hours
cannot be determined, 8 Hours of Service per day of such absence. For
purposes of this Subparagraph, an absence from work for maternity or
paternity reasons means an absence (1) by reason of the pregnancy of
the individual, (2) by reason of a birth of a child of the individual,
(3) by reason of the placement of a child with the individual in
connection with the adoption of such child by such individual, or (4)
for purposes of caring for such child for a period beginning
immediately following such birth or placement.
The Hours of Service credited under this Subparagraph shall be
credited (1) in the computation period in which the absence begins if
the crediting is necessary to prevent a Break in Service in that
period, or (2) in all other cases, in the following computation
period.
1.32 INSURANCE COMPANY - Massachusetts Mutual Life Insurance Company or MML
Pension Insurance Company, or with respect to Policies, any other legal
reserve life insurance company authorized to do business in the state of
policy issue.
1.33 LEASED EMPLOYEE - Any person (other than an Employee of the recipient) who
pursuant to an agreement between the recipient and any other person
("leasing organization"), has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code
Section 414(n)(6)) on a substantially full-time basis for a period of at
least one year, and such services are of a type historically performed by
Employees in the business field of the recipient Company. Contributions or
benefits provided a leased Employee by the leasing organization which are
attributable to services performed for the recipient Company shall be
treated as provided by the recipient Company.
A leased Employee shall not be considered an Employee of the recipient if:
(1) such Employee is covered by a money purchase pension plan providing:
(i) a non-integrated Company contribution rate of at least 10 percent of
Compensation, as defined in Code Section 415(c)(3) but including amounts
contributed by the Company pursuant to a Deferred Salary Agreement which
are excludable from the Employee's gross income under Code Sections 125,
402(e)(3), 402(h)(1)(B) or 403(b), (ii) immediate participation, and (iii)
full and immediate vesting; and (2) leased Employees do not constitute more
than 20 percent of the recipient's non-Highly Compensated workforce.
1.34 LIMITATION YEAR - A calendar year or any other 12-consecutive month period
elected by the Company in Section (C). All qualified plans maintained by
the
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Company must use the same Limitation Year. If the Limitation Year is
amended to a different 12-consecutive month period, the new Limitation Year
must begin on a date within the Limitation Year in which the amendment is
made.
1.35 MAXIMUM PERMISSIBLE AMOUNT - The maximum Annual Addition that may be
contributed or allocated to a Participant's Account under the Plan for any
Limitation Year shall not exceed the lesser of: (a) the defined
contribution dollar limitation, or (b) 25 percent of the Participant's
Compensation for the Limitation Year.
The Compensation limit referred to in (b), shall not apply to any
contribution for medical benefits (within the meaning of Code Sections
401(h) or 419A(f)(2)) which is otherwise treated as an Annual Addition,
under Code Sections 415(l)(1) or 419A(d)(2).
The defined contribution dollar limitation is $30,000 or if greater,
one-fourth of the defined benefit dollar limitation set forth in Code
Section 415(b)(1) as in effect for the Limitation Year.
If a short Limitation Year is created because of an amendment changing the
Limitation Year to a different 12-consecutive month period, the Maximum
Permissible Amount shall not exceed the defined contribution dollar
limitation multiplied by the following fraction:
NUMBER OF MONTHS IN THE SHORT LIMITATION YEAR
12
1.36 ONE-YEAR BREAK IN SERVICE - A 12-consecutive month period (computation
period) during which the Participant does not complete more than 500 Hours
of Service with the Company.
1.37 PARTICIPANT - Any eligible active Employee of the Company who became a
member of this Plan on an Entry Date.
1.38 PARTICIPANT MATCHED CONTRIBUTIONS - The Company may elect in Section (J) to
allow Participants to contribute amounts to the Plan based on nondeferred
(after-tax) Compensation. Participants may or may not be required to make
the contribution to the Plan. However, if the contribution is made, it
shall cause the Company to contribute amounts to the Plan on behalf of the
Participant known as Company Matching Contributions or Company Qualified
Matching Contributions.
1.39 PARTICIPANT NONDEDUCTIBLE VOLUNTARY CONTRIBUTIONS - The Company may elect
in Section (J) to allow the Participant to contribute amounts to the Plan
based on non-deferred (after-tax) Compensation. The Participant is not
required to contribute to the Plan and the contributions shall not cause
the Company to contribute additional amounts to the Plan on behalf of a
Participant, but they provide additional benefits for the Participant under
the Plan.
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1.40 PLAN - The MassMutual FLEXINVEST(R) Prototype Profit-Sharing/401(k) Plan as
applied separately to the Company.
1.41 PLAN YEAR - The 12-consecutive month period designated by the Company in
Section (C).
1.42 POLICY - An individual life insurance policy issued by the Insurance
Company to the Company on the life of a Participant.
1.43 PROTOTYPE PLAN - A plan, the form of which is the subject of a favorable
opinion letter from the Internal Revenue Service.
1.44 QUALIFIED ELECTION - A waiver of an Automatic Joint and Survivor Annuity or
a Preretirement Survivor Annuity. A waiver shall not be effective unless:
(a) the Participant's Spouse consents in writing to the election; (b) the
election designates a specific Beneficiary, including any class of
Beneficiaries or any contingent Beneficiary, which may not be changed
without spousal consent (or the Spouse expressly permits designations by
the Participant without any further spousal consent); (c) the Spouse's
consent acknowledges the effect of the election; and (d) the Spouse's
consent is witnessed by a plan representative or notary public.
Additionally, a Participant's waiver of the Automatic Joint and Survivor
Annuity shall not be effective unless the election designates a form of
benefit payment which may not be changed without spousal consent (or the
Spouse expressly permits designations by the Participant without any
further spousal consent). If it is established to the satisfaction of a
plan representative that there is no Spouse or that the Spouse cannot be
located, a waiver shall be deemed a Qualified Election.
Any consent by a Spouse obtained under this provision (or establishment
that the consent of a Spouse may not be obtained) shall be effective only
with respect to such Spouse. A consent that permits designations by the
Participant without any requirement of further consent by such Spouse must
acknowledge that the Spouse has the right to limit consent to a specific
Beneficiary, and a specific form of benefit where applicable, and that the
Spouse voluntarily elects to relinquish either or both of such rights. A
revocation of a prior waiver may be made by a Participant without the
consent of the Spouse at any time before the commencement of benefits. The
number of revocations shall not be limited. No consent obtained under this
provision shall be valid unless the Participant has received notice as
provided in Paragraph 14.3.
1.45 SPOUSE - The Spouse or surviving spouse of the Participant, provided that a
former spouse shall be treated as the Spouse or surviving spouse and a
current spouse shall not be treated as the Spouse or surviving spouse to
the extent provided under a qualified domestic relations order as described
in Code Section 414(p).
1.46 STRAIGHT LIFE ANNUITY - An annuity payable in equal installments for the
life of the Participant that terminates upon the Participant's death.
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1.47 TERMINATION OF EMPLOYMENT - The separation from service of the Participant
before Normal Retirement Date other than by reason of death, disability as
determined under Section (F)or early retirement, if elected in Section (F).
1.48 VALUATION DATE - Each Business Day.
1.49 YEAR OF SERVICE - A 12-consecutive month period (computation period) during
which the Employee completes at least 1,000 Hours of Service. The
applicable 12-consecutive month period for eligibility and participation
purposes can be found in Part III, and for vesting in Part IX.
PART II - CREDITING SERVICE
2.1 GENERAL METHOD OF CREDITING SERVICE. The Administrator shall count actual
Hours of Service during the applicable 12-consecutive month computation
period as elected under Section (D). The Employee shall receive credit for
a Year of Service if the Employee is credited with 1000 or more Hours of
Service during the computation period and shall incur a One-Year Break in
Service if the Participant is not credited with more than 500 Hours of
Service during the computation period. In general, the Employee's
entitlement with respect to participation and vesting shall be determined
by totaling the number of Years of Service credited to the Employee.
2.2 EQUIVALENCY METHODS BASED UPON PERIODS OF EMPLOYMENT. The Administrator
shall credit the Employee with a specified number of Hours of Service for
each period of employment if the Employee would receive credit for at least
one Hour of Service in that period of employment as elected under Section
(D). The periods of employment on which equivalency may be based, if
applicable and subject to this election, are: days worked, weeks worked,
semi-monthly payroll period and months worked. The Employee shall receive
credit for a Year of Service if the Employee is credited with 1000 or more
equivalency Hours of Service during a computation period and shall incur a
One-Year Break in Service if the Participant does not complete more than
500 equivalency Hours of Service during the computation period. In general,
the Employee's entitlement with respect to participation and vesting shall
be determined by totaling the number of Years of Service credited to the
Employee.
2.3 ONE METHOD OF CREDITING SERVICE FOR ALL EMPLOYEES. The Administrator shall
credit Service for all classifications of Employees under the Plan using
the same method of crediting service set forth in Section (D).
2.4 SERVICE WITH A PREDECESSOR EMPLOYER. Where the Company maintains the plan
of a predecessor employer, service for such predecessor employer shall be
treated as service for the Company for purposes of determining an
Employee's eligibility to participate in the Plan and vesting. Where a
Company establishes the Plan which was not maintained by a predecessor
employer, service with the
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predecessor employer, including a sole proprietorship or partnership, shall
be treated as service with the Company for eligibility to participate and
vesting only if elected by the Company in Section (D).
PART III - ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBILITY. Each present and future Employee of the Company shall be
entitled to participate in this Plan on the Effective Date or on an Entry
Date coincident with or immediately following the date on which he
satisfies the classification, service, and age requirements set forth in
Section (D). If this Plan amends and restates a former plan that was
qualified under Code Sections 401(a) or 403(a), each Employee who was a
Participant (or entitled to participate) in the former plan on the day
before the Effective Date of this restated Plan shall continue as a
Participant (or continue to be entitled to participate) in the Plan.
3.2 ELIGIBILITY COMPUTATION PERIOD. Years of Service and Breaks in Service
shall be measured on the same eligibility computation period. The initial
eligibility computation period is the 12-consecutive month period beginning
on the date the Employee first performs an Hour of Service for the Company
(employment commencement date).
The succeeding 12-consecutive month periods commence with the first Plan
Year which commences prior to the first anniversary of the Employee's
employment commencement date regardless of whether the Employee is entitled
to be credited with 1,000 Hours of Service during the initial eligibility
computation period. An Employee who is credited with 1,000 Hours of Service
in both the initial eligibility computation period and the first Plan Year
which commences prior to the first anniversary of the Employee's initial
eligibility computation period shall be credited with two Years of Service
for purposes of eligibility to participate.
3.3 BREAK IN SERVICE/RETURN TO SERVICE. A former Participant shall become a
Participant immediately upon his return to the employ of the Company if
such former Participant had a nonforfeitable right to all or a portion of
his account balance derived from Company contributions at the time of his
termination.
For a former Participant who did not have any nonforfeitable right to the
account balance derived from Company contributions, Years of Service before
a period of consecutive One-Year Breaks in Service shall not be taken into
account in computing eligibility service if the number of consecutive
One-Year Breaks in Service in such period equals or exceeds the greater of
5 or the aggregate number of Years of Service. Such aggregate number of
Years of Service shall not include any Years of Service disregarded under
the preceding sentence by reason of prior Breaks in Service.
If a Participant's Years of Service are disregarded pursuant to the
preceding paragraph, such Participant shall be treated as a new Employee
for eligibility purposes. If a Participant's Years of Service may not be
disregarded pursuant to the
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preceding paragraph, such Participant shall continue to participate in the
Plan, or, if terminated, shall participate immediately upon reemployment.
In the event a Participant is no longer a member of an eligible class of
Employees and becomes ineligible to participate but has not incurred a
Break in Service, such Employee shall participate immediately upon
returning to an eligible class of Employees. If such Participant incurs a
Break in Service, eligibility shall be determined pursuant to the three
preceding paragraphs.
In the event an Employee who is not a member of the eligible class of
Employees becomes a member of the eligible class, such Employee shall
participate immediately if such Employee has satisfied the minimum age and
service requirements and would have otherwise previously become a
Participant.
3.4 NOTIFICATION OF ELIGIBLE EMPLOYEES. The Administrator shall notify each
Employee of his right to participate in the Plan prior to the Entry Date he
first becomes entitled to participate. On the date of such notification,
the Administrator shall furnish such Employee with a summary plan
description of the Plan, the options available to him under the Plan and an
enrollment form. If a Participant requests to have a Policy purchased on
his behalf, the Participant shall also complete an application for the
Policy. To become a Participant as of the Entry Date provided in Section
(D), the Employee must complete the form and file it with the Administrator
not later than one week after his Entry Date. If the Employee files the
form later than one week after his Entry Date, he shall become a
Participant on the first day of the second calendar month next following
the date he files the form.
3.5 CONDITIONS OF CONTINUED PARTICIPATION. As a condition of continued
participation under the Plan, each Participant agrees to:
(a) Limit his recourse for payment of any benefits to which he is entitled
to the assets of the Plan;
(b) Complete and file with the Administrator an enrollment form, a
Deferred Salary Agreement and such other forms as required by the
Administrator or Insurance Company;
(c) Submit such evidence of insurability as may be required; and
(d) Provide the Administrator with such information about himself and his
Beneficiary as required by Paragraph 19.10.
PART IV - CONTRIBUTIONS
4.1 CONTRIBUTIONS TO THE PLAN. The Company shall contribute to the Plan, for
each Plan Year:
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(a) Elective Deferrals (if elected in Section (G));
(b) Company Matching Contributions (if elected in Section (I));
(c) Company Qualified Matching Contributions (if elected in Section (I));
(d) Company Profit-Sharing Contributions (if elected in Section (K)); and
(e) Company Qualified Nonelective Contributions (if elected in Section
(H)).
Each Participant may, by written direction to the Administrator, elect to
make to the Plan:
(a) Participant Matched Contributions (if permitted by Section (J));
(b) Participant Nondeductible Voluntary Contributions (if permitted by
Section (J)).
The Participant may suspend his contributions, if allowed, during any time
period by filing a written notice with the Administrator.
4.2 LIMITATIONS ON ELECTIVE DEFERRALS.
(a) MAXIMUM AMOUNT OF ELECTIVE DEFERRALS: No Participant shall be
permitted to have Elective Deferrals made under this Plan, or any
other qualified plan maintained by the Company, during the
Participant's taxable year, in excess of the dollar limitations
contained in Code Section 402(g) in effect at the beginning of such
taxable year. With respect to any taxable year, a Participant's
elective deferrals are the sum of all Company contributions made on
behalf of such Participant pursuant to an election to defer under any
qualified CODA as described in Code Section 401(k), a simplified
employee pension cash or deferred arrangement as described in Code
Section 402(h)(1)(B), any eligible deferred compensation plan under
Code Section 457, any plan as described under Code Section 501(c)(18),
and any Company contributions made on behalf of a Participant for the
purchase of an annuity contract under Code Section 403(b) pursuant to
a Deferred Salary Agreement.
A Participant may assign to this Plan any Excess Deferrals made during
a taxable year by notifying the Administrator in writing on or before
March 1st of the amount of the Excess Deferrals to be designated to
the Plan. A Participant is deemed to notify the Administrator of any
Excess Deferrals that arise by taking into account only those Elective
Deferrals made to this Plan and any other plans of this Employer.
Notwithstanding any other provision of the Plan, Excess Deferrals,
plus any income and minus any loss allocable thereto, shall be
distributed no later than April 15 to any Participant to whose account
Excess Deferrals were assigned for the preceding year and who claims
Excess Deferrals for such taxable year.
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Excess Deferrals shall be adjusted for any income or loss. The income
or loss allocable to Excess Deferrals is the sum of income or loss
allocable to the Participant's Elective Deferral account for the
taxable year multiplied by a fraction, the numerator of which is such
Participant's Excess Deferrals for the year and the denominator is the
Participant's account balance attributable to Elective Deferrals plus
any withdrawals of Elective Deferrals without regard to any income or
loss occurring during such taxable year. In the event that any Excess
Deferrals returned under this Paragraph were matched by Company
Matching Contributions, those Company Matching Contributions, together
with earnings, shall be forfeited and applied under Paragraph 4.5(b).
(b) ACTUAL DEFERRAL PERCENTAGE: The Actual Deferral Percentage
(hereinafter "ADP") for Participants who are Highly Compensated
Employees for each Plan Year and the ADP for Participants who are
non-Highly Compensated Employees for the same Plan Year must satisfy
one of the following tests:
(1) The ADP for the Participants who are Highly Compensated Employees
for the Plan Year shall not exceed the ADP for Participants who are
non-Highly Compensated Employees for the same Plan Year multiplied by
1.25; or
(2) The ADP for the Participants who are Highly Compensated Employees
for the Plan Year shall not exceed the ADP for Participants who are
non-Highly Compensated Employees for the same Plan Year multiplied by
2.0, provided that the ADP for Participants who are Highly Compensated
Employees does not exceed the ADP for Participants who are non-Highly
Compensated Employees by more than two (2) percentage points.
"Actual Deferral Percentage" shall mean, for a specified group of
Participants for a Plan Year, the average of the ratios (calculated
separately for each Participant in such group) of (1) the amount of
Company contributions actually paid over to the Plan on behalf of such
Participant for the Plan Year to (2) the Participant's Compensation
for such Plan Year. Compensation taken into account for this purpose
may be limited to Compensation received by an employee while the
employee is a Participant. Company contributions on behalf of any
Participant shall include: (1) any Elective Deferrals made pursuant to
the Participant's deferral election, including Excess Deferrals of the
Highly Compensated Employees, but excluding Excess Deferrals of
Non-Highly Compensated Employees that arise solely from Elective
Deferrals made under the Plan or plans of this Employer and Elective
Deferrals that are taken into account in the Actual Contribution
Percentage test (provided the ADP test is satisfied both with and
without exclusion of these Elective Deferrals); and (2) at the
election of the Company, Company Qualified Nonelective Contributions
and Company Qualified Matching Contributions. For purposes of
computing ADP's, an Employee who would be a Participant but for the
failure to make Elective Deferrals shall be treated as a Participant
on whose behalf no Elective Deferrals are made.
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The ADP for any Participant who is a Highly Compensated Employee for
the Plan Year and who is eligible to have Elective Deferrals (and
Company Qualified Nonelective Contributions or Company Qualified
Matching Contributions, or both, if treated as Elective Deferrals for
purposes of the ADP test) allocated to his accounts under two or more
arrangements described in Code Section 401(k) that are maintained by
the Company, shall be determined as if such Elective Deferrals (and,
if applicable, such Company Qualified Nonelective Contributions or
Company Qualified Matching Contributions, or both) were made under a
single arrangement. If a Highly Compensated Employee participates in
two or more cash or deferred arrangements that have different Plan
years, all cash or deferred arrangements ending with or within the
same calendar year shall be treated as a single arrangement.
In the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b) only if aggregated with one or
more other plans, or if one or more other plans satisfy the
requirements of such Code Sections only if aggregated with this Plan,
then this Paragraph shall be applied by determining the ADP of
Employees as if all such plans were a single plan. Plans may be
aggregated to satisfy Code Section 401(k) only if they have the same
Plan Year.
For purposes of determining the ADP of a Participant who is a 5
percent owner or one of the ten most highly-paid Highly Compensated
Employees, the Elective Deferrals (and Company Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, if treated
as Elective Deferrals for purposes of the ADP test) and Compensation
of such Participant shall include the Elective Deferrals (and, if
applicable, Company Qualified Nonelective Contributions and Qualified
Matching Contributions, or both) and Compensation for the Plan Year of
the family members (as defined in Code Section 414(q)(6)). The
combined actual deferral ratio for the family group shall be the
actual deferral ratio determined by combining the Elective Deferrals,
Compensation and amounts treated as Elective Deferrals of all the
eligible family members. Family members with respect to such Highly
Compensated Employees, shall be disregarded as separate Employees in
determining the ADP both for Participants who are non-Highly
Compensated Employees and for Participants who are Highly Compensated
Employees.
For purposes of determining the ADP test, Elective Deferrals,
Qualified Nonelective Contributions, and Qualified Matching
Contributions must be made before the last day of the twelve-month
period immediately following the Plan Year to which contributions
relate.
The Company shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Company Qualified
Nonelective Contributions or Company Qualified Matching Contributions,
or both, used in such test. The determination and treatment of the ADP
amounts of any
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Participant shall satisfy such other requirements as may be prescribed
by the Secretary of the Treasury.
4.3 EXCESS CONTRIBUTIONS.
(a) EXTRA CONTRIBUTION: If the ADP limitation in Paragraph 4.2(b) is not
met, the Company may elect to make an extra Company Qualified
Nonelective Contribution to eligible non-Highly Compensated Employees
sufficient to satisfy the ADP limit. The contribution shall be subject
to the distribution and nonforfeitability requirements of Code Section
401(k).
If the Company does not make such a contribution, a corrective
distribution of Excess Contributions will be made in accordance with
Section 4.3(b) below.
(b) CORRECTIVE DISTRIBUTIONS OF EXCESS: The Company may also satisfy
Paragraph 4.2(b) by distributing the Excess Contributions in
accordance with this Paragraph. Excess Contributions, plus any income
and minus any loss allocable thereto, shall be distributed no later
than the last day of each Plan Year to Participants to whose accounts
such Excess Contributions were allocated for the preceding Plan Year.
If such excess amounts are distributed more than 2 1/2months after the
last day of the Plan Year in which such excess amounts arose, a ten
(10) percent excise tax shall be imposed on the Company maintaining
the Plan with respect to such amounts. Such distributions shall be
made to Highly Compensated Employees on the basis of the respective
portions of the Excess Contributions attributable to each of such
Employees. Excess Contributions shall be allocated among Participants
who are subject to the family member aggregation rules of Code Section
414(q)(6) in proportion to the Elective Deferrals of each family
member that are combined to determine the actual deferral ratio.
Excess Contributions (including the amounts recharacterized) shall be
treated as Annual Additions under the Plan.
Excess Contributions shall be adjusted for any income or loss up to
the date of distribution. The income or loss allocable to Excess
Contributions is the income or loss allocable to the Participant's
Elective Deferral account (and, if applicable, the Company Qualified
Nonelective Contribution account or the Company Qualified Matching
Contribution account or both) for the Plan Year multiplied by a
fraction, the numerator of which is such Participant's Excess
Contributions for the year and the denominator is the Participant's
account balance attributable to Elective Deferrals (and Company
Qualified Nonelective Contributions or Company Qualified Matching
Contributions, or both, if any of such contributions are included in
the ADP test) plus any withdrawals of these contributions and without
regard to any income or loss occurring during such Plan Year.
Excess Contributions shall be distributed from the Participant's
Elective Deferral account and Company Qualified Matching Contribution
account (if
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applicable) in proportion to the Participant's Elective Deferrals and
Company Qualified Matching Contributions (to the extent used in the
ADP test) for the Plan Year. Excess Contributions shall be distributed
from the Participant's Company Qualified Nonelective Contribution
account only to the extent that such Excess Contributions exceed the
balance in the Participant's Elective Deferral account and Company
Qualified Matching Contribution account. In the event that any Excess
Contributions returned under this Paragraph were matched by Company
Matching Contributions, those Company Matching Contributions, together
with earnings, shall be forfeited and applied under Paragraph 4.5(b).
(c) RECHARACTERIZATION: If all Participants are eligible to make
Participant contributions under the Plan, the Company may also satisfy
Paragraph 4.2(b) by recharacterizing the Excess Contributions. A
Participant may treat his Excess Contributions as an amount
distributed to him and then contributed by him to the Plan. Excess
Contributions may only be recharacterized in the Plan from which they
arose. Recharacterized amounts shall remain nonforfeitable and subject
to the same distribution requirements as Elective Deferrals. Amounts
may not be recharacterized by a Highly Compensated Employee to the
extent that such amount in combination with other Participant
contributions made by that Employee would exceed any stated limit
under the Plan on Participant contributions.
Recharacterization must occur no later than 2 1/2 months after the
last day of the Plan Year in which such Excess Contributions arose and
is deemed to occur no earlier than the date the last Highly
Compensated Employee is informed in writing of the amount
recharacterized and the consequences thereof. Recharacterized amounts
shall be taxable to the Participant for the Participant's tax year in
which the Participant would have received them in cash.
4.4 LIMITATIONS ON COMPANY AND PARTICIPANT CONTRIBUTIONS. The Actual
Contribution Percentage ("hereinafter ACP") for Participants who are Highly
Compensated Employees for each Plan Year and the ACP for Participants who
are non-Highly Compensated Employees for the same Plan Year must satisfy
one of the following tests:
(a) The ACP for Participants who are Highly Compensated Employees for the
Plan Year shall not exceed the ACP for Participants who are non-Highly
Compensated Employees for the same Plan Year multiplied by 1.25; or
(b) The ACP for Participants who are Highly Compensated Employees for the
Plan Year shall not exceed the ACP for Participants who are non-Highly
Compensated Employees for the same Plan Year multiplied by 2.0,
provided that the ACP for Participants who are Highly Compensated
Employees does not exceed the ACP for Participants who are non-Highly
Compensated Employees by more than two (2) percentage points.
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"Actual Contribution Percentage" shall mean, for a specified group of
Participants for a Plan Year, the average of the ratios (calculated
separately for each Participant in such group) of (1) the Participant's
Actual Contribution Percentage amounts to (2) the Participant's
Compensation for the Plan Year. Compensation taken into account for this
purpose may be limited to Compensation received by an Employee while the
Employee is a Participant. Actual Contribution Percentage amounts are the
sum of the Participant Nondeductible Voluntary Contributions,
recharacterized Elective Deferrals (Paragraph 4.3(c)), Participant Matched
Contributions, Company Matching Contributions, and Company Qualified
Matching Contributions (to the extent not taken into account for purposes
of the ADP test) made under the Plan on behalf of the Participant for the
Plan Year. Such Actual Contribution Percentage amounts shall not include
Matching Contributions that are forfeited either to correct Excess
Aggregate Contributions or because the contributions to which they relate
are forfeited due to Excess Deferrals, Excess Contributions, or Excess
Aggregate Contributions. Such Actual Contribution Percentage amounts shall
include forfeitures of Excess Aggregate Contributions or Company Matching
Contributions allocated to the Participant's Company Match Account, which
shall be taken into account in the year in which such forfeiture is
allocated.
The Company may include in the ACP amounts, Elective Deferrals or Company
Qualified Nonelective Contributions, or both, so long as the ADP test is
met before the Elective Deferrals and Company Qualified Nonelective
Contributions are used in the ACP test and continues to be met following
the exclusion of these contributions that are used to meet the ACP test.
The inclusion of Company Qualified Nonelective Contributions and Elective
Contributions in the ACP amounts shall be performed in a manner consistent
with the provisions of Reg. ss.1.401(m)-1(b)(5).
For purposes of computing the ACP, any Employee is eligible if he can make
a Participant contribution, or an Elective Deferral (if the Company takes
such contributions into account in the calculation of the Actual
Contribution Percentage), or can receive a Company Matching Contribution
(including forfeitures) or a Company Qualified Matching Contribution. If a
Participant contribution is required as a condition of participation in the
Plan, any Employee who would be a Participant in the Plan if such Employee
made such a contribution shall be treated as an eligible Participant on
behalf of whom no Participant contributions are made.
The ACP for any Participant who is a Highly Compensated Employee for the
Plan Year and who is eligible to have Actual Contribution Percentage
amounts allocated to his accounts under two or more plans described in Code
Section 401(a), or arrangements described in Code Section 401(k) that are
maintained by the Company, shall be determined as if such Actual
Contribution Percentage amounts were made under a single plan. If a Highly
Compensated Employee participates in two or more plans described in Code
Section 401(a) or arrangements described in Code Section 401(m) that have
different Plan Years, all such plans or arrangements ending with or within
the same calendar year shall be treated as a single plan.
In the event that this Plan satisfies the requirements of Code Sections
401(m), 401(a)(4) or 410(b) only if aggregated with one or more other
plans, or if one or
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more other plans satisfy the requirements of such Code Sections only if
aggregated with this Plan, then this Paragraph shall be applied by
determining the ACP of Employees as if all such plans were a single plan.
Plans may be aggregated to satisfy Code Section 401(m) only if they have
the same Plan Year.
For purposes of determining the ACP of a Participant who is a 5 percent
owner or one of the ten most highly-paid Highly Compensated Employees, the
Actual Contribution Percentage amounts and Compensation of such Participant
shall include the Actual Contribution Percentage amounts and Compensation
for the Plan Year of family members (as defined in Code Section 414(q)(6).
The combined actual contribution ratio for the family group shall be the
actual contribution ratio determined by combining the Participant
contributions, Compensation, matching contributions and amounts treated as
matching contributions of all the eligible family members. Family members,
with respect to Highly Compensated Employees, shall be disregarded as
separate Employees in determining the ACP both for Participants who are
non-Highly Compensated Employees and for Participants who are Highly
Compensated Employees.
For purposes of determining the ACP test, Participant contributions are
considered to have been made in the Plan Year in which contributed to the
Plan. Company Matching and Qualified Matching Contributions and Company
Qualified Nonelective Contributions shall be considered made for a Plan
Year if made no later than the end of the twelve-month period beginning on
the day after the close of the Plan Year.
The Company shall maintain records sufficient to demonstrate satisfaction
of the ACP test and the amount of Company Qualified Nonelective
Contributions or Qualified Matching Contributions, or both, used in such
test. The determination and treatment of the ACP amounts of any Participant
shall satisfy such other requirements as may be prescribed by the Secretary
of the Treasury.
In addition, a Company shall not allocate contributions to a Participant's
Account which would result in an Excess Annual Addition under Part V,
LIMITATION ON ALLOCATIONS. The aggregate Company contributions for any Plan
Year may also be limited to the amount deductible by the Company under Code
Section 404 with reductions made, in order, to Company Profit-Sharing,
Company Matching, Company Qualified Matching, Company Qualified Nonelective
and Elective Deferral Contributions.
4.5 EXCESS AGGREGATE CONTRIBUTIONS.
(a) EXTRA CONTRIBUTION: If the ACP limitation in Paragraph 4.4 is not met,
the Company may elect to make an extra Company Qualified Nonelective
Contribution to eligible non-Highly Compensated Employees sufficient
to satisfy the ACP limit. The contribution shall be subject to the
distribution and nonforfeitability requirements of Code Section
401(k).
(b) CORRECTIVE DISTRIBUTION OF EXCESS: The Company may also satisfy
Paragraph 4.4 by distributing or forfeiting the Excess Aggregate
Contributions in
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accordance with this Paragraph. Excess Aggregate Contributions, plus
any income and minus any loss allocable thereto, shall be forfeited,
if forfeitable, or if not forfeitable, distributed no later than the
last day of each Plan Year to Participants to whose accounts such
Excess Aggregate Contributions were allocated for the preceding Plan
Year. If such Excess Aggregate Contributions are distributed more than
2 1/2 months after the last day of the Plan year in which such excess
amounts arose, a ten (10) percent excise tax shall be imposed on the
Company maintaining the Plan with respect to such amounts. Any
distribution or forfeiture of Excess Aggregate Contributions for any
Plan Year shall be made on the basis of the respective portions of
such amounts attributable to each Highly Compensated Employee. Excess
Aggregate Contributions shall be allocated to Participants who are
subject to the family member aggregation rules of Code Section
414(q)(6) in proportion to the Participant contributions and matching
contributions of each family member that are combined to determine the
actual contribution ratio. Excess Aggregate Contributions shall be
treated as Annual Additions under the Plan. In the event that any
Excess Aggregate Contributions returned under this Paragraph were
matched by Company Matching Contributions, those Company Matching
Contributions, together with earnings, shall be forfeited and applied
under this Paragraph.
Excess Aggregate Contributions shall be adjusted for any income or
loss. The income or loss allocable to Excess Aggregate Contributions
is the income or loss allocable to the Participant's Participant
Contribution account, Company Matching Contribution account (if any,
and if all amounts therein are not used in the ADP test) and, if
applicable, Company Qualified Nonelective Contribution account and
Elective Deferral account for the Plan Year multiplied by a fraction,
the numerator of which is such Participant's Excess Aggregate
Contributions for the year and the denominator is the Participant's
account balance(s) attributable to Actual Contribution Percentage
amounts plus any withdrawals of these amounts and without regard to
any income or loss occurring during such Plan Year.
Forfeitures of Excess Aggregate Contributions shall be applied to
reduce Company contributions. Excess Aggregate Contributions
attributable to amounts other than Participant contributions,
including forfeited matching contributions, shall be treated as
Company contributions for purposes of Code Sections 404 and 415, even
if distributed from the Plan.
Excess Aggregate Contributions shall first be distributed from the
Participant Nondeductible Voluntary Contributions Account. To the
extent that Excess Aggregate Contributions exceed the balance in the
Participant Nondeductible Voluntary Contribution Account, the Excess
Aggregate Contributions shall be forfeited, if forfeitable, or
distributed on a pro rata basis from the Participant Matched
Contribution accounts and Company Matching Contribution accounts.
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4.6 MULTIPLE USE OF ALTERNATIVE TEST. If one or more Highly Compensated
Employees participate in both a CODA and a plan subject to the ACP test
maintained by the Company and the sum of the ADP and ACP of those Highly
Compensated Employees subject to either or both tests exceeds the Aggregate
Limit, then the ADP or ACP of those Highly Compensated Employees who also
participate in a CODA shall be reduced (beginning with such Highly
Compensated Employee whose ACP is the highest) so that the limit is not
exceeded. The amount by which each Highly Compensated Employee's Actual
Contribution Percentage Amounts is reduced shall be treated as an Excess
Aggregate Contribution. The ADP and ACP of the Highly Compensated Employees
are determined after any corrections required to meet the ADP and ACP
tests. Multiple use does not occur if both the ADP and ACP of the Highly
Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP of
the non-Highly Compensated Employees.
The "Aggregate Limit" shall mean the greater of:
(a) 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
Compensated Employees under the Plan subject to Code Section 401(m) for the
Plan Year beginning with or within the Plan Year of the CODA and (ii) two
percentage points plus the lesser of the relevant ADP or the relevant ACP.
In no event, however, shall this amount exceed twice the lesser of the
relevant ADP or the relevant ACP; or
(b) (i) 125 percent of the lesser of the ADP of the non-Highly Compensated
Employees for the Plan Year or the ACP of non-Highly Compensated Employees
under the Plan subject to Code Section 401(m) for the Plan Year beginning
with or within the Plan Year of the CODA and (ii) two percentage points
plus the greater of the relevant ADP or the relevant ACP. In no event,
however, shall this amount exceed twice the greater of the relevant ADP or
the relevant ACP.
4.7 PERMITTED DISPARITY. Unless elected otherwise in Section (K), the Company
Profit-Sharing Contribution for the Plan Year shall be allocated to each
Participant's account:
First, in the ratio that each Participant's Compensation not in excess of
the integration level bears to all Participants' Compensation not in excess
of the integration level, but such allocation percentage shall not be in
excess of the profit-sharing maximum disparity rate.
Second, any remaining contribution shall be allocated to each Participant's
account in the ratio that each Participant's Compensation for the Plan Year
in excess of the integration level bears to the excess Compensation of all
Participants. This excess contribution, as a percentage of excess
Compensation, cannot exceed two times the allocation percentage of the
above paragraph.
Third, any remaining Company Profit-Sharing contribution shall be allocated
to each Participant's account in the ratio that each Participant's total
Compensation bears to the sum of all Participants' total Compensation.
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The integration level shall be equal to the taxable wage base or such
lesser amount elected by the Company in Section (K). The taxable wage base
is the maximum amount of earnings which may be considered wages for a year
under Code Section 3121(a)(1) in effect as of the beginning of the Plan
Year.
The profit-sharing maximum disparity rate shall be as follows:
If the integration level is more than $0 but not more than 20 percent
of the taxable wage base, the rate shall be 5.7 percent.
If the integration level is more than 20 percent of the taxable wage
base but not more than 80 percent of the taxable wage base, the rate
shall be 4.3 percent.
If the integration level is more than 80 percent of the taxable wage
base, but less than 100 percent of the taxable wage base, the rate
shall be 5.4 percent. If the integration level used is equal to the
taxable wage base, the rate shall be 5.7 percent.
The Company Profit-Sharing Contribution for top-heavy plans shall be
allocated in accordance with Paragraph 16.2, MINIMUM CONTRIBUTION UNDER A
TOP-HEAVY PLAN.
Notwithstanding the preceding paragraphs, for any Plan Year this Plan
benefits any Participant who benefits under another qualified plan or
simplified employee pension plan, as defined in Code Section 408(k),
maintained by the Company that provides for permitted disparity (or imputes
disparity), Company contributions and forfeitures will be allocated to the
account of each Participant in the ratio that such Participant's
Compensation bears to the Compensation of all Participants.
Effective for Plan Years beginning on or after January 1, 1995, the
cumulative permitted disparity limit for a Participant is 35 total
cumulative permitted disparity years. Total cumulative permitted years
means the number of years credited to the Participant for allocation or
accrual purposes under this Plan, any other qualified plan or simplified
employee pension plan (whether or not terminated) ever maintained by the
Company. For purposes of determining the Participant's cumulative permitted
disparity limit, all years ending in the same calendar year are treated as
the same year. If the Participant has not benefited under a defined benefit
or target benefit plan for any year beginning on or after January 1, 1994,
the Participant has no cumulative disparity limit.
4.8 COLLECTION OF PARTICIPANT CONTRIBUTIONS. Participant contributions shall be
collected by the Company through payroll deduction or otherwise within the
limits set forth in this Part. All such contributions shall be paid over to
the Insurance Company.
4.9 COMPANY CONTRIBUTIONS - TIMING. The Company shall pay its Contributions for
each Plan Year on or before the time required by law for filing the
Company's federal income tax return (including extensions) for the taxable
year with respect to which the contributions are made.
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4.10 COMPANY CONTRIBUTIONS - PROFITS. If the Company elects in Section (M),
Company contributions, including Elective Deferrals, may be made without
regard to profits. The Plan shall continue to qualify as a profit-sharing
plan for purposes of Code Sections 401(a), 402, 412 and 417.
4.11 RETURN OF COMPANY CONTRIBUTIONS. Except as provided below, no part of the
Plan's assets shall revert to the Company or be diverted for purposes other
than the exclusive benefit of the Employees or their Beneficiaries:
(a) Any contribution made by the Company because of a mistake of fact
shall be returned to the Company upon written notice to the Insurance
Company. A contribution shall not be refunded more than one year after
the payment of the contribution.
(b) In the event that the Commissioner of Internal Revenue determines that
the Plan is not initially qualified under the Code, any contribution
made incident to that initial qualification by the Company must be
returned to the Company within one year of the date the initial
qualification is denied but only if the application for the
qualification is made by the time prescribed by law for filing the
Company's return for the taxable year in which the Plan is adopted, or
such later date as the Secretary of the Treasury may prescribe. After
the denial of qualification and upon receipt of evidence thereof, the
Contract, and Policies shall be canceled and an amount equal to the
value of all Participants' Accounts as determined in accordance with
the terms of the Contract or Policies shall be paid to the Company.
(c) Any contribution made by the Company is conditioned on the
deductibility of such contribution, and shall be refunded to the
Company, to the extent disallowed, upon written notice to the
Insurance Company. A contribution shall not be returned more than one
year after the disallowance of the contribution. If the Internal
Revenue Service determines that the Plan is not qualified, the amount
returned shall be determined under Paragraph 20.2.
4.12 ROLLOVER CONTRIBUTIONS. Subject to approval by the Administrator and
Insurance Company and if permitted in Section (M), an Employee who
satisfies the classification requirements of Section (D) may contribute to
the Plan an amount which qualifies as a rollover contribution within the
meaning of Code Sections 402(a)(5), 403(a)(4), or 408(d)(3)(A)(ii). As
such, the rollover contribution must have been distributed to the Employee
from a qualified employee trust or qualified annuity plan or must be a
directed rollover from such trust or plan to this Plan as specified by the
Employee; or from an individual retirement arrangement ("IRA"), but only if
such funds originated from a qualified employee trust or qualified annuity
plan. The amount distributed to the Employee from the qualified employee
trust, qualified annuity plan or IRA must be transferred to the Plan in
cash within 60 days after the Employee receives it. The maximum amount
which the Employee may rollover is the amount distributed to him less the
sum of nondeductible employee contributions made to the prior qualified
employee trust or qualified annuity plan. A
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lesser amount may be rolled over and the difference retained by the
Employee. The amount retained shall be subject to tax.
The Rollover Contribution shall be paid to the Contract, and invested as
selected in Section (M). Rollover contributions shall be accounted for
separately and shall be fully vested at all times. The separate account
established for Rollover Contributions shall be withdrawn in accordance
with Section (O).
4.13 TRANSFERS OF AMOUNTS FROM OTHER PLANS. If the Plan amends and restates, or
replaces a former plan that was qualified under Code Sections 401(a) or
403(a), the Company may cause amounts from such former plan to be
transferred into the Contract subject to consent of the Insurance Company.
At the discretion of the Administrator and subject to the consent of the
Insurance Company, the Plan may also accept other plan-to-plan transfers.
The amounts so transferred shall be accompanied by written instructions
from the Administrator identifying: the former plan; this Plan; the name of
each Participant; the amount of any account balance transferred to the Plan
from the former plan attributable to the contributions of each Participant
and of the Company on his behalf; the vesting percentage for amounts
attributable to Company contributions; and any other information that may
be required by the Insurance Company.
The Administrator shall advise the Insurance Company in writing of the
allocation of such amounts within the Contract. The amounts so transferred
may be deposited in the Participant's Account in accordance with the most
recent allocation instructions or with special allocation instructions. The
amounts transferred shall be distributed to Participants in accordance with
the terms of the Plan.
4.14 PARTICIPANT DEDUCTIBLE VOLUNTARY CONTRIBUTIONS. The Administrator shall not
accept Participant Deductible Voluntary Contributions which are made for a
taxable year beginning after December 31, 1986. Contributions made prior to
that date shall be maintained in a separate account which shall be
nonforfeitable at all times. The account shall share in the gains and
losses of the Plan in the same manner as described in Paragraph 8.1. No
part of the Participant Deductible Voluntary Contribution account shall be
used to purchase life insurance. Subject to Paragraphs 14.3 and 14.4, the
Participant may withdraw any part of the Deductible Voluntary Contribution
account by making a written application to the Administrator.
4.15 ADDITIONAL REQUIREMENTS FOR OWNER-EMPLOYEES. If this Plan provides
contributions for one or more owner-Employees who control both the business
for which this Plan is established and one or more other trades or
businesses, this Plan and the plan established for other trades or
businesses must, when looked at as a single plan, satisfy Code Sections
401(a) and (d) for the Employees of this and all other trades or
businesses.
If this Plan provides contributions for one or more owner-Employees who
control one or more trades or businesses, the Employees of the other trades
or businesses
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must be included in a plan which satisfies Code Sections 401(a) and (d) and
which provides contributions not less favorable than provided for
owner-Employees under this Plan.
If an individual is covered as an owner-Employee under the plans of two or
more trades or businesses which are not controlled and the individual
controls a trade or business, then the contributions 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 two or more
owner-Employees shall be considered to control a trade or business if such
owner-Employee, or such two or more owner-Employees together:
(a) own the entire interest in an unincorporated trade or business, or
(b) in the case of a partnership, own more than 50 percent of either the
capital interest or the profits interest in such partnership.
For purposes of the preceding sentence, an owner-Employee, or two or more
owner-Employees shall be treated as owning any interest in a partnership
which is owned, directly or indirectly, by a partnership which the
owner-Employee, or such two or more owner-Employees, are considered to
control within the meaning of the preceding sentence.
PART V - LIMITATION ON ALLOCATIONS
5.1 MAXIMUM PERMISSIBLE AMOUNT. If the Participant does not participate in, and
has never participated in another qualified plan maintained by the Company,
a welfare benefit fund, as defined in Code Section 419(e), maintained by
the adopting Company, or an individual medical account as defined in Code
Section 415(l)(2), maintained by the Company, which provides an Annual
Addition as defined in Paragraph 1.3, the amount of Annual Additions which
may be credited to the Participant's Account for any Limitation Year shall
not exceed the lesser of the Maximum Permissible Amount or any other
limitation contained in this Plan. If the Company contribution that would
otherwise be contributed or allocated to the Participant's Account would
cause the Annual Additions for the Limitation Year to exceed the Maximum
Permissible Amount, the amount contributed or allocated shall be reduced so
that the Annual Additions for the Limitation Year shall equal the Maximum
Permissible Amount.
For purposes of applying Part V, LIMITATIONS ON ALLOCATIONS, compensation
for a Limitation Year is the compensation actually paid or includible in
gross income during such Limitation Year as defined in Paragraph 1.14 only.
5.2 ESTIMATE OF MAXIMUM. Prior to determining the Participant's actual
Compensation for the Limitation Year, the Company may determine the Maximum
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Permissible Amount for the Participant on the basis of a reasonable
estimation of the Participant's Compensation for the Limitation Year,
uniformly determined for all Participants similarly situated.
5.3 RECONCILIATION. As soon as is administratively feasible after the end of
the Limitation Year, the Maximum Permissible Amount for the Limitation Year
shall be determined on the basis of the Participant's actual Compensation
for the Limitation Year.
5.4 EXCESS ANNUAL ADDITIONS. If, pursuant to Paragraph 5.3 or as a result of
the allocation of Forfeitures, there is an Excess Annual Addition, the
excess shall be disposed of as follows:
(a) First, any Participant Nondeductible Voluntary Contributions, and any
earnings thereon, to the extent they reduce the Excess Annual
Additions, shall be returned to the Participant.
Second, any Participant Matched Contributions, and any earnings
thereon, shall be returned to the Participant.
(b) If after the application of Paragraph (a) Excess Annual Additions
still exist, any Elective Deferrals and any earnings thereon shall be
returned to the Participant.
(c) If after the application of Paragraphs (a) and (b) Excess Annual
Additions still exist and the Participant is covered by the Plan at
the end of the Limitation Year, the Excess Annual Additions in the
Participant's Account shall be held unallocated in a suspense account
and used to reduce Company contributions (including any allocation of
forfeitures) for such Participant in the next Limitation Year, and
each succeeding Limitation Year if necessary.
If after the application of Paragraphs (a) and (b) Excess Annual
Additions still exist, and the Participant is not covered by the Plan
at the end of the Limitation Year, the Excess Annual Additions shall
be held unallocated in a suspense account. The suspense account shall
be applied to reduce future Company contributions (including
allocation of any forfeitures) for all remaining Participants in the
next Limitation Year, and each succeeding Limitation Year if
necessary.
The Excess Annual Additions in a Participant's Account shall be
determined as being first from Company Profit-Sharing Contributions,
then from Company Nonelective Contributions, then from Company
Qualified Matching Contributions, and finally from Company Matching
Contributions. Neither the consent of the Participant nor the
Participant's Spouse shall be required to the extent that the
distribution is required to satisfy Code Section 415.
If a suspense account is in existence at any time during the
Limitation Year pursuant to this Paragraph 5.4, it shall participate
in the allocation of the
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gains and losses. All amounts in a suspense account must be allocated
to Participants accounts before any Company or any Participant
contributions may be made to the Plan for that Limitation year. Excess
Annual Additions held in the suspense account may not be distributed
to Participants or Former Participants.
5.5 IF COMPANY MAINTAINS OTHER DEFINED CONTRIBUTION PLANS. Prior to determining
the Participant's actual Compensation for the Limitation Year, the Company
may determine the Maximum Permissible Amount for a Participant in the
manner described in Paragraph 5.2. This Paragraph applies if, in addition
to this Plan, the Participant is covered under another qualified master or
Prototype defined contribution plan maintained by the Company, a welfare
benefit fund, as defined in Code Section 419(e), maintained by the Company,
or an individual medical account, as defined in Code Section 415(l)(2),
maintained by the Company, which provides an Annual Addition as defined in
Paragraph 1.3, during any Limitation Year. The Annual Additions which may
be credited to the Participant's Account under this Plan for any such
Limitation Year shall be limited in accordance with this Paragraph, unless
the Company provides other limitations in Section (U). Annual Additions
shall not exceed the Maximum Permissible Amount reduced by the Annual
Additions credited to the 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 Company are less than the Maximum
Permissible Amount and the Company contribution that would otherwise be
contributed or allocated to the Participant's Account under this Plan would
cause the Annual Additions for the Limitation Year to exceed this
limitation, the amount contributed or allocated shall be reduced so that
the Annual Additions under all such plans and funds for the Limitation Year
shall equal the Maximum Permissible Amount.
If the Annual Additions with respect to the Participant under such other
defined contribution plans and welfare benefit funds in the aggregate are
equal to or greater than the Maximum Permissible Amount, no amount shall be
contributed or allocated to the Participant's Account under this Plan for
the Limitation Year.
As soon as is administratively feasible after the end of the Limitation
Year, the Maximum Permissible Amount for the Limitation Year shall be
determined on the basis of the Participant's actual Compensation for the
Limitation Year. If, pursuant to the preceding sentence or as a result of
the allocation of forfeitures, a Participant's Annual Additions under this
Plan and such other plans would result in Excess Annual Additions for a
Limitation Year, the Excess Annual Additions shall be deemed to consist of
the Annual Additions last allocated, except that Annual Additions
attributable to a welfare benefit fund or individual medical account shall
be deemed to have been allocated first regardless of the actual allocation
date.
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If an Excess Annual Addition was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date of
another plan, the Excess Annual Additions attributed to this Plan shall be
the product of:
(a) The total Excess Annual Additions allocated as of such date, times
(b) The ratio of (i) the Annual Additions allocated to the Participant for
the Limitation Year as of such date under this Plan to (ii) the total
Annual Additions allocated to the Participant for the Limitation Year
as of such date under this and all the other qualified Master or
Prototype defined contribution plans.
Any Excess Annual Additions attributed to the Plan shall be disposed of in
the manner described in Paragraph 5.4.
5.6 IF COMPANY MAINTAINS OTHER PLANS. If the Participant is covered under
another qualified defined contribution plan maintained by the Company which
is not a master or Prototype Plan, Annual Additions which may be credited
to the Participant's Account under this Plan for any Limitation Year shall
be limited in accordance with Paragraphs 5.1 through 5.6 as though the
other plan were a master or Prototype Plan unless the Company provides
other limitations in Section (T).
If the Company maintains, or at any time maintained, a qualified defined
benefit plan covering any Participant in this Plan, the sum of the
Participant's Defined Benefit Plan Fraction and Defined Contribution Plan
Fraction shall not exceed 1.0 in any Limitation Year. The Annual Additions
which may be credited to the Participant's Account under this Plan for any
Limitation Year shall be limited in accordance with Section (T).
5.7 CONTROLLED GROUP OF EMPLOYERS, ETC. For purposes of this Part, Employer
shall mean the Company that adopts this Plan, and all members of a
controlled group of corporations (as defined in Code Section 414(b) as
modified by Code Section 415(h)), all commonly controlled trades or
businesses (as defined in Code Section 414(c) as modified by Code Section
415(h)), or affiliated service groups (as defined in Code Section 414(m)),
of which the adopting Company is a part, and any other entity required to
be aggregated with the Company pursuant to Regulations under Code Section
414(o).
5.8 DEFINITIONS.
(a) DEFINED BENEFIT FRACTION - A fraction, the numerator of which is the
sum of a Participant's Projected Annual Benefit under all the defined
benefit plans (whether or not terminated) maintained by the Company,
and the denominator of which is the lesser of: 125 percent of the
dollar limitation determined for the Limitation Year under Code
Section 415(b) and (d) or 140 percent of the highest average
Compensation, including any adjustments under Code Section 415(b).
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The highest average Compensation is the Participant's average
Compensation for the three consecutive Years of Service with the
Company that produces the highest average. A Year of Service with the
Company is the 12-consecutive month period defined in Paragraph 1.49.
Notwithstanding the above, if the Participant was a Participant as of
the first day of the first Limitation Year beginning after December
31, 1986, in one or more defined benefit plans maintained by the
Company which were in existence on May 6, 1986, the denominator of
this fraction shall not be less than 125 percent of the sum of the
annual benefits under such plans which the Participant had accrued as
of the close of the last Limitation Year beginning before 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 Code Section 415 for all Limitation Years beginning
before January 1, 1987.
(b) PROJECTED ANNUAL BENEFIT - The annual retirement benefit (adjusted to
an actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life annuity or qualified
joint and survivor annuity) to which the Participant would be entitled
under the terms of the Plan assuming:
(i) the Participant shall continue employment until normal
retirement date 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 shall remain constant for all future
Limitation Years.
(c) DEFINED CONTRIBUTION FRACTION - A fraction, the numerator of which is
the sum of the Annual Additions to the Participant's Accounts under
all the defined contribution plans (whether or not terminated)
maintained by the Company for the current and all prior Limitation
Years (including the Annual Additions attributable to the
Participant's Nondeductible Voluntary Contributions to all defined
benefit plans, whether or not terminated, maintained by the Company
and the Annual Additions attributable to all welfare benefit funds, as
defined in Code Section 419(e), and individual medical accounts, as
defined in Code Section 415(l)(2), maintained by the Company), and the
denominator of which is the sum of the maximum aggregate amounts for
the current and all prior Limitation Years of Service with the Company
(regardless of whether a defined contribution plan was maintained by
the Company). The maximum aggregate amount in any Limitation Year is
the lesser of: 125 percent of the dollar limitation determined under
Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A)
or 35 percent of the Participant's Compensation for such year.
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If the Employee was a Participant as of the end of the first day of
the first Limitation Year beginning after December 31, 1986, in one or
more defined contribution plans maintained by the Company which were
in existence on May 6, 1986, the numerator of this fraction shall be
adjusted if the sum of this fraction and the defined benefit fraction
would otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the excess of the
sum of the fractions over 1.0 times (2) the denominator of this
fraction, shall 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 6, 1986, but using the Code
Section 415 limitation applicable to the first Limitation Year
beginning on or after January 1, 1987.
PART VI - PLAN INVESTMENT - CONTRACT
6.1 FUNDING POLICY. Plan benefits shall be provided under a Contract owned by
the Company and any Policies purchased under Paragraph 7.1. The Company
shall have the duty to establish attending policy to carry out the
objectives of the Plan. The funding policy is intended to establish a
desired ratio of fixed income to equity risk for the Plan taking into
account plan liquidity and diversification needs, the type of qualified
plan and the financial stability of the Company. The funding policy shall
include the selection of investment funds offered by the Insurance Company
and a determination of the portion of contributions and funds held under
the Contract to be invested in the investment funds selected. The general
funding policy of the Plan shall be at all times to maintain a balance
between safety in capital investment and investment return. The funding
policy should consider anticipated future contributions and rates of return
on investments and should be designed to meet the short and long-term
financial needs of the Plan. Once the Company has directed the investment
of Plan assets under the Contract to achieve the basic assets mix
objective, the Company shall monitor the Plan's participation in investment
funds under the Contract. The Company shall meet periodically for the
purpose of reviewing and, if necessary, revising the funding policy of the
Plan.
The Company may request the Insurance Company to amend the Contract to
change the investment funds offered under the Contract. Any actions taken
by the Company shall be communicated in writing to the Administrator and
shall be recorded in the official records of the Company. The Company may
delegate the responsibility for allocation of Plan assets among investment
funds maintained by the Insurance Company to an investment manager by
entering into an agreement for discretionary asset management services. An
investment manager named by the Company shall serve at the pleasure of the
Company, but may resign by a written resignation to the Company. The
Company shall periodically review the performance of the investment
manager.
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6.2 CONTRACT. The Plan shall be funded by a Contract issued by the Insurance
Company. The Company shall execute the application for the Contract and
shall be the owner of such Contract. The Contract shall provide for
investment of contributions in the general investment account and/or
separate investment accounts offered by the Insurance Company. The Contract
shall provide for the valuation of assets and Participants' Accounts as of
each Valuation Date. The Contract shall provide the terms and conditions by
which sums may be transferred between such investment funds or withdrawn
from the Contract.
6.3 INSURANCE COMPANY'S AUTHORITY TO DIRECT INVESTMENTS. The Insurance Company
shall be the fiduciary with authority to carry out the funding policy of
the Plan subject to the following limitations:
(a) All contributions made under the Plan by and for a Participant, less
applicable Plan and Contract expenses, and premiums to provide
Policies shall be invested, as directed by the Company (or investment
manager, if appointed) in written allocation instructions to the
Insurance Company in the general investment account and/or separate
investment accounts of the Insurance Company to the extent permissible
under the Contract.
(b) The Insurance Company shall follow directions of the Company (or
investment manager, if appointed) concerning the exercise or
non-exercise of any power or options concerning the Contract and any
Policies held under the Plan. However, if sums under the Contract are
invested in the separate investment accounts of the Insurance Company,
the Insurance Company retains the right to, in its sole discretion,
exercise any of the powers of an owner with respect to stocks, bonds,
securities or other property held in the separate investment accounts.
Sums held under the Contract may be transferred in accordance with its
terms among investment funds within the Contract by direction of the
Company (or investment manager, if appointed).
(c) The Insurance Company shall follow the directions of each Participant
to the extent provided in Paragraph 6.4.
(d) The Insurance Company shall invest funds according to the stated
objectives of its various investment funds. The Company may obtain a
description of such stated objectives from the Insurance Company. The
Insurance Company does not make investments with a view to the needs
of a particular plan. The Company (or investment manager, if
appointed) retains the responsibility for allocation of funds between
the investment funds.
(e) For purposes of determining the fiduciary responsibilities of the
Insurance Company, the Contract is the Plan asset with respect to
contributions invested in the general investment account. To the
extent the Contract also invests in separate investment accounts of
the Insurance Company, the Plan assets shall be the assets held by the
separate investment accounts.
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6.4 PARTICIPANT-DIRECTED INVESTMENTS. If permitted in Section (M)(1), each
Participant shall designate in writing the investment funds under the
Contract in which his Participant contributions and Company contributions
on his behalf are to be invested. The investment funds which shall be
available shall be stated in the Contract. Subject to the terms of the
Contract, such Participant direction may be to allocate 100 percent of such
contributions to one of the investment funds or to allocate such
contributions among more than one investment fund, provided that such
allocation shall be integral percentages. The Administrator may establish
minimum percentages for any contribution on account of any Participant that
may be allocated to each investment fund. If permitted in Section L,
forfeitures shall be reallocated in the same percentages and in the same
investment funds allocable to Company contributions. A Participant may
elect in writing to change his allocation of future contributions. Such
election shall become effective upon receipt by the Insurance Company.
Subject to any restrictions in the Contract, a Participant may elect in
writing to transfer all or a portion of his Participant's Account between
investment funds as often as permitted by the Contract. If a Participant
fails to make an initial written election, his Participant's Account shall
be allocated to an investment fund designated by the Company and if none is
designated, to the Guaranteed Interest Account under the Contract.
6.5 COMBINING ASSETS OF MORE THAN ONE PLAN IN A SINGLE CONTRACT. With the
consent of the Insurance Company, the assets of the Plan may be combined
with the assets of any other qualified retirement plan of the Company, or
an affiliated Employer which is a member of the same controlled group of
corporations (as defined in Code Section 414(b)), the same controlled group
of trades or businesses (as defined in Code Section 414(c)) or the same
affiliated service group (as defined in Code Section 414(m)) as the
Company; in a single Contract for investment purposes without terminating
the separateness of such Plan; provided that, in such event:
(a) Accounting records shall be maintained so that the assets of each Plan
can be separately determined.
(b) All contributions to the Contract shall be accompanied by written
instructions from the Company designating the amount or amounts
allocable to each Plan in which such Company participates.
(c) None of the contributions and assets attributable to one Plan shall be
used to pay benefits or expenses under any other plan.
So long as the foregoing provisions are complied with, the provisions
of Paragraph 18.7 shall not be deemed to apply to such combining of
assets in one Contract.
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PART VII - PLAN INVESTMENT - POLICIES
7.1 REQUEST OF PARTICIPANT. At the Participant's request and if permitted by
Section (N), the Company shall purchase life insurance Policies from the
Insurance Company for the benefit of a Participant and his Beneficiary and
charged against the Participant's Account. The premiums for the Policies
shall be paid with Company contributions as elected in Section (N).
7.2 LIMITATIONS ON PURCHASE. In the event a Participant directs the Company to
purchase a Policy or Policies on the Participant's life, the Company shall
limit the amount of Company contributions to be invested in the Policies as
follows:
(a) Ordinary life - For purposes of these incidental insurance provisions,
ordinary life insurance policies are policies with both nondecreasing
death benefits and nonincreasing premiums. If such policies are
purchased, less than 1/2 of the aggregate Company contributions
allocated to any Participant shall be used to pay the premiums
attributable to them.
(b) Term and universal life - No more than 1/4 of the aggregate Company
contributions allocated to any Participant shall be used to pay the
premiums on term life insurance policies, universal life insurance
policies, and all other life insurance policies which are not ordinary
life.
(c) Combination - The sum of 1/2 of the ordinary life insurance premiums
and all other life insurance premiums shall not exceed 1/4 of the
aggregate Company contributions allocated to any Participant.
7.3 COMPANY IS OWNER. The Company shall apply for and shall be the owner of any
Policies purchased under the terms of this Plan. The Policies must provide
that proceeds shall be payable to the Company, however the Company shall be
required to pay over all proceeds of the policies to the Participant's
designated Beneficiary in accordance with the distribution provisions of
this Plan. A Participant's Spouse shall be the designated Beneficiary of
the proceeds in all circumstances unless a Qualified Election has been made
in accordance with Paragraph 1.44. Under no circumstances shall the Plan
retain any part of the proceeds. In the event of any conflict between the
terms of this Plan and the terms of any Policy purchased hereunder, the
Plan provisions shall control.
7.4 PREMIUM PAYMENTS. All Policies shall, as far as is practical, have a common
premium due date. The Company shall pay the initial and renewal premiums
under the Policies on any Participant's life. If no contribution is to be
made at the time a policy premium is due, the Company may pay the premium
by a policy loan or by withdrawing the amount from the Participant's
Account under the Contract if the limits set forth in Paragraph 7.2 are not
exceeded.
7.5 DIVIDENDS. At the discretion of the Company, a Policy may provide that: (i)
dividends be applied to accumulate with interest, or to purchase annual
additions, in which case dividends shall be added to the proceeds of the
Policy for the benefit of
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the Participant or his Beneficiary, or (ii) dividends shall be used to
reduce premiums. Any dividends paid after retirement, however, shall be
paid to the Participant; and any dividends paid after the Participant's
death shall be added to and become a part of the proceeds of the Policy.
7.6 DISTRIBUTION OF POLICIES. Subject to Paragraph 14.3, if applicable, the
Policies on the Participant's life shall be converted to cash or an annuity
or distributed to the Participant upon commencement of benefits.
7.7 CHANGE IN AMOUNT OF INSURANCE. When an increase or decrease of the amount
of insurance is required because of a change in the amount of contributions
allocated to the Participant or because the aggregate Policy premiums would
exceed the limits in Paragraph 7.2, the Company shall advise the Insurance
Company to adjust the amount of the Participant's Policies.
7.8 POLICIES UPON TERMINATION OF EMPLOYMENT. In the event a terminated
Participant is entitled to the full value of a Policy on his life, the
Participant may request the Administrator to transfer and distribute the
Policy to him. In the event a terminating Participant is not entitled to
the full value of the Policy, the Administrator after consulting with the
Participant, may:
(a) Surrender the Participant's Policy and pay the Participant's vested
portion to him;
(b) Obtain a policy loan equal to the nonvested portion of its value and
distribute the Policy to him; or
(c) Sell the Policy to the Participant for an amount equal to its cash
surrender value. The proceeds of the sale shall be credited to the
Participant's Account. If the Participant declines to purchase the
Policy, the Policy may also be sold to: (i) a relative of the
Participant who is a Beneficiary under the Policy, (ii) the Company,
or (iii) to another employee benefit plan in which he is a
Participant.
PART VIII - PARTICIPANT'S ACCOUNT
8.1 PARTICIPANT'S ACCOUNT. A separate account shall be maintained for each
Participant to which shall be credited the Company contributions and
earnings thereon. At any time, a Participant's Account shall equal: (i) the
sum of the value of accounts established and maintained under the Contract
on behalf of the Participant as of the latest Valuation Date, and (ii) the
value of any Policies on the life of the Participant.
Contributions of a Participant shall be accounted for separately from the
Company's contributions. The Insurance Company shall maintain appropriate
contribution
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accounts for each type of contribution referred to in Part IV and made to
the Plan, including accounts for:
(a) Elective Deferrals (if elected in Section (G));
(b) Company Matching Contributions (if elected in Section (I)) and
reallocated Matching Contribution forfeitures;
(c) Company Profit-Sharing Contributions (if elected in Section (K)) and
reallocated Profit-Sharing Contribution forfeitures;
(d) Company Qualified Nonelective Contributions (if elected in Section
(H));
(e) Company Qualified Matching Contributions (if elected in Section (I));
(f) Participant Matched Contributions (if elected in Section (J));
(g) Participant Nondeductible Voluntary Contributions (if elected in
Section (J));
(h) Rollover Contributions, if permitted under Section (M); and
(i) Direct transfers from other plans.
Contributions made by or for a Participant shall be credited to the
Participant's Account as of the date such contributions are applied under
the Contract. The amount of any premium for Policies purchased by the
Company shall be charged against the value of the Participant's separate
accounts under this Plan. Administrative expenses shall be charged against
the value of the Participants' accounts, unless the Company agrees to pay
them. Such administrative expenses, if charged against the value of the
Participants' accounts, shall be allocated on a pro rata basis among the
investment funds under the Contract.
Premiums for Policies on the life of the Participant shall be paid for with
Company contributions as elected in Section (N). If premiums for Policies
are paid for with both Elective Deferrals and other Company contributions,
then the cash surrender value of the Policies derived from Elective
Deferrals shall equal the value which bears the same ratio to the cash
surrender value of the Policies as the total amount of Elective Deferrals
used to pay Policy premiums bears to the total amount of premiums paid. The
value of the Policies derived from Company Matching and/or Company
Profit-Sharing Contributions is the cash surrender value of the Policies on
the Participant's life less the cash surrender value of the Policies
derived from Elective Deferrals.
8.2 VALUATION OF ACCOUNTS. The Administrator shall determine the value of each
Participant's Account at least annually as of the last Valuation Date on or
prior to the last day of the Plan Year.
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PART IX - VESTING
9.1 FULL VESTING IN CERTAIN SEPARATE ACCOUNTS. Each Participant shall at all
times have a 100 percent vested interest in the following accounts:
(a) Elective Deferral account (if elected in Section (G));
(b) Participant Matched Contribution account (if elected in Section (J));
(c) Participant Nondeductible Voluntary Contribution account (if elected
in Section (J));
(d) Company Qualified Nonelective Contribution account (if elected in
Section (H));
(e) Company Qualified Matching Contribution account (if elected in Section
(I));
(f) Rollover Contributions account if permitted under Section (M); and
(g) Account for direct transfers from other plans.
In addition, each Participant shall be fully vested in the cash surrender
value of any Policy on his life derived from Elective Deferrals.
9.2 VESTING IN PARTICIPANT'S ACCOUNTS ATTRIBUTABLE TO COMPANY MATCHING AND
PROFIT-SHARING CONTRIBUTIONS. Each Participant shall be vested in the value
of his: (i) Company Matching Contribution account, if any; (ii) Company
Profit-Sharing Contribution account, if any; and reallocated forfeitures
(if reallocated under Section (L)); and (iii) the cash surrender value of
any Policy on his life derived from Company Profit-Sharing and/or Matching
Contributions as follows:
(a) 100 percent upon attainment of Participant's Normal Retirement Date
(as elected in Section (F));
(b) 100 percent upon retirement on or after Participant's Early Retirement
Date (if elected in Section (F));
(c) 100 percent upon Participant's death prior to the date an annuity
becomes effective;
(d) 100 percent upon Participant's Disability Retirement Date (if elected
in Section (F)); and
(e) at any other time, including Termination of Employment, the percentage
determined in accordance with the vesting schedule specified in
Section (R).
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9.3 VESTING YEARS OF SERVICE/BREAKS IN SERVICE. All Years of Service with the
Company shall be included for purposes of determining the Participant's
vested interest under Paragraph 9.2(e), except that Years of Service shall
not include Service disregarded in Section (R). For purposes of computing a
Participant's nonforfeitable right to the Account balance derived from
Company contributions, the Years of Service and Breaks in Service shall be
the Plan Year.
In the case of a Participant who incurred a One-Year Break in Service,
Years of Service before such Break shall not be taken into account until
the Participant has completed a Year of Service after such Break in
Service.
In the case of a Participant who has 5 or more consecutive One-Year Breaks
in Service, all service after such Breaks in Service shall be disregarded
for the purpose of vesting the Company-derived account balance that accrued
before such Breaks in Service. Such Participant's pre-break service shall
count in vesting the post-break Company-derived account balance only if
either:
(a) such Participant has any nonforfeitable interest in the account
balance attributable to Company contributions at the time of
separation from service; or
(b) upon returning to service the number of consecutive One-Year Breaks In
Service is less than the number of Years Of Service.
Separate accounts shall be maintained for the Participant's pre-break and
post-break Company-derived account balance. Both accounts shall share in
the earnings and losses of the fund.
PART X - IN-SERVICE WITHDRAWALS
10.1 IN GENERAL. A Participant or former Participant may request cash
withdrawals or a Direct Rollover of an Eligible Rollover Distribution,
under the Plan in accordance with Paragraph 14.4, if operative, and
procedures established by the Administrator, subject to the sequence and
conditions for withdrawal set forth in Paragraph 10.2. The minimum amount
of withdrawal shall be set by the Administrator. If Paragraph 14.3 is
operative, withdrawals that may be made are subject to the spousal and
Participant consent requirements contained in Code Sections 401(a)(11) and
417.
10.2 SEQUENCE AND CONDITIONS FOR WITHDRAWAL. A Participant shall request the
Administrator to effect a cash withdrawal and such amounts shall be debited
from his Participant's Account. The Administrator shall withdraw amounts in
the following sequence and upon the following conditions:
(a) First (if permitted by Section (O)), a Participant may withdraw all or
part of the value from his contribution accounts for Participant
Nondeductible Voluntary Contributions and for Participant Matched
Contributions.
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(b) Second (if permitted by Section (O)), a Participant may withdraw all
or part of the value of his contribution account for Rollover
Contributions.
(c) Third (if permitted by Section (O)), a Participant may withdraw all or
part of the full value of his vested interest determined under Section
(R) in his contribution accounts for: Company Matching Contributions;
Company Profit-Sharing Contributions; and transfers from
Employer-provided benefits from other plans.
If a Participant receives a withdrawal attributable to Company
contributions, the Participant's future vested interest after the
distribution shall be equal to an amount ("X") determined by the
formula:
X = P(AB + D) - D
For purposes of applying the formula: P is the nonforfeitable
percentage at the relevant time, AB is the account balance at the
relevant time, and D is the amount of the withdrawal.
(d) Fourth (if permitted by Section (O)), a Participant may withdraw all
or part of the value of his account for Elective Deferrals, Company
Qualified Matching Contributions and Company Qualified Nonelective
Contributions if the Participant is age 59 1/2 or older. If a
Participant is less than age 59 1/2, a Participant may withdraw upon
written request to the Administrator all or part of his Elective
Deferrals (and earnings thereon accrued as of December 31, 1988) due
to financial hardship.
10.3 FINANCIAL HARDSHIP. A withdrawal shall be on account of financial hardship
if it is based on an immediate and heavy financial need of the Participant
where such Participant lacks other available resources. The following are
the only financial needs considered immediate and heavy: (1) expenses
incurred or necessary for medical care, described in Code Section 213(d) of
the Participant, his Spouse, children or dependents; (2) the purchase
(excluding mortgage payments) of a principal residence for the Participant;
(3) payment of tuition and related educational fees and room and board
expenses for the next 12 months of post-secondary education for the
Participant, his Spouse, children or dependents; or (4) the need to prevent
eviction of the Participant from, or a foreclosure on the mortgage of, the
Participant's principal residence.
A withdrawal shall be considered necessary to satisfy an immediate and
heavy financial need of the Participant only if:
a. The Participant has obtained all distributions other than hardship
distributions, and all non-taxable loans under all plans maintained by
the Company;
b. All plans maintained by the Company provide that the Participant's
Elective Deferrals (and Participant contributions) shall be suspended
for twelve months after receipt of the hardship distribution;
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c. The distribution is not in excess of the amount of an immediate and
heavy financial need (including amounts necessary to pay any Federal,
state, or local income taxes or penalties reasonably anticipated to
result from the distribution); and
d. All plans maintained by the Company provide that the Participant may
not make Elective Deferrals for the Participant's taxable year
immediately following the taxable year of the hardship distribution in
excess of the applicable limit under Code Section 402(g) for such
taxable year less the amount of such Participant's Elective Deferrals
for the taxable year of the hardship distribution.
10.4 NO FORFEITURE OF PARTICIPANT'S ACCOUNT ATTRIBUTABLE TO PARTICIPANT
CONTRIBUTIONS. No forfeiture of the Participant's account shall occur
solely as a result of the withdrawal of Participant contributions.
PART XI - PARTICIPANT LOANS
11.1 IN GENERAL. If permitted in Section (P) and if the Company has designated
Trustees for this loan program pursuant to the Trust, a Participant or
beneficiary who is a party-in-interest with respect to the Plan may request
a loan under the Plan. All loans made by the Trustees shall be subject to
the terms and conditions set forth in this Part and the Trust. A loan to a
Participant is considered a Participant-directed investment.
The Trustee shall have the responsibility to develop rules regarding the
financial ability of the Participant to repay the amount he seeks to borrow
and the authority to adopt additional terms and conditions, provided that
all such rules, terms and conditions shall apply to all Participants
uniformly. Loans shall be made available to all Participants on a
reasonably equivalent basis and such availability shall be communicated to
all Participants. The amount available to Highly Compensated Employees
shall not be in an amount greater than the amount made available to other
Employees.
No loan shall be made to any owner-Employee or shareholder-Employee unless
such Participant has applied for and received a prohibited transaction
exemption. 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 Code
Section 318(a)(1), on any day during the taxable year of such corporation,
more than 5 percent of the outstanding stock of the corporation.
The order of withdrawal from contribution accounts for loans are: Deferred
Salary/Deferred Bonus, Qualified Nonelective/Qualified Elective,
Rollover/Transfer, Company Profit-Sharing, Company Matching and Participant
Nondeductible Voluntary Contributions, to the extent there are assets in
the contribution accounts.
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The amount withdrawn from the Participant's accounts shall be prorated
across all funds in which the accounts are invested.
11.2 APPLICATION FOR LOANS. The Participant shall make written application for a
loan to the Trustee, on a form provided by the Administrator and executed
by the Participant. The Participant shall execute a promissory note in the
amount of the loan including interest, payable to the Trustee, which
indicates the repayment period, the amount of loan, the rate of interest
and other provisions pertaining to repayment of the loan.
Loans must be adequately secured. At the time each new loan is made, in no
event shall the sum of the new loan and remaining principal balance of any
loan outstanding be secured by less than one-half of the Participant's
current vested account balance under the Plan. Additionally, no more than
50 percent of the Participant's vested account balance will be considered
by the Plan as security for the outstanding loan balance of all Plan loans
made to that Participant.
If Paragraph 14.3 is operative, a Participant must obtain the consent of
his Spouse, if any, to use the account balance as security for the loan.
Spousal consent shall be obtained no earlier than the beginning of the
90-day period that ends on the date on which the loan is to be so secured.
The consent must be in writing, must acknowledge the effect of the loan,
and must be witnessed by a plan representative or notary public. Such
consent shall thereafter be binding with respect to the consenting Spouse
or any subsequent Spouse with respect to that loan. A new consent shall be
required if the account balance is used for renegotiation, extension,
renewal, or other revision of the loan.
If valid spousal consent has been obtained in accordance with the prior
Paragraph, then, notwithstanding any other provision of this Plan, the
portion of the Participant's vested account balance used as a security
interest held by the Plan by reason of a loan outstanding to the
Participant shall be taken into account for purposes of determining the
amount of the account balance payable at the time of death or distribution,
but only if the reduction is used as repayment of the loan.
11.3 AMOUNT OF LOAN. The minimum loan shall be $1,000. The aggregate amount of
any new loan and of all other outstanding loans made to the Participant
shall be limited to the lesser of:
(a) $50,000 reduced by the excess (if any) of the highest outstanding
balance of loans during the 1-year period ending on the day before the
loan application is approved by the Trustee over the outstanding
balance of loans from the Plan on the date the loan application is
approved, or
(b) One-half the present value of the nonforfeitable accrued benefit of
the Participant.
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For the purpose of the above limitation, all loans from all plans of the
Company and other members of a group of Employers described in Code
Sections 414(b), 414(c) and 414(m) are aggregated.
11.4 INTEREST RATE. Loans must bear a reasonable rate of interest. The rate of
interest shall be the prevailing rate used by commercial lending
institutions.
11.5 REPAYMENTS. The loan repayment period shall not exceed five years. If
elected in Section (P), this 5-year requirement shall not apply to any loan
used to acquire a principal residence for the Participant. The maximum
repayment period for such home loans shall be a reasonable number of years.
Repayment of loans (principal and interest) shall be by payroll deduction,
on a level amortization basis over the term of the loan. All loan
repayments shall be transmitted monthly to the Insurance Company, and
invested in accordance with Section (M). Subject to approval by the
Insurance Company, a Participant may prepay all or a portion of the loan
principal prior to separation from service.
Loan repayments returned to the Participant's account(s) shall be prorated
based on the amount of the loan withdrawn from the account(s). The money
shall be placed in the Contract's funds and/or invested in Shares of the
Fund based on the Participant's and/or Company's current investment
selections, unless otherwise stipulated in a prepayment agreement with the
Insurance Company and/or Fund. In no event shall any part of a
Participant's loan repayment be allocated to an alternate payee's account.
As of such valuation dates as the Trustee may set from time to time, but
not less frequently than once every twelve months, the Trustee shall report
to the Company the outstanding balance of such loans and the fair market
value of the other assets held in the Trust.
11.6 DEFAULT AND/OR ACCELERATION. Default shall be defined in the Participant's
promissory note or other loan documents. The Trustee must notify the
Insurance Company when a Participant defaults on a loan repayment. In the
event the Participant defaults on a loan repayment, the Trustee shall
notify the Participant that the loan is immediately due and payable. The
Trustee may also direct the Administrator to refuse to make any Plan
benefit payment otherwise due to the Participant or Beneficiary until
scheduled loan repayments are made, or to offset overdue loan repayments
against the amount of benefits which otherwise may be due. In the event of
default, attachment of security shall not occur until a distributable event
occurs in the Plan.
The loan must be paid in full upon the Participant's death, disability or
separation from service, upon the Participant's failure to make loan
repayments for three consecutive months or failure to receive Compensation
in an amount at least equivalent to the periodic loan repayment amount for
over three consecutive months, or upon termination of this Plan or the
Trust. The Trustee may also direct the
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Administrator to offset the remaining loan balance against the amount of
benefits which otherwise may be due the Participant or Beneficiary.
PART XII - TERMINATION OF EMPLOYMENT
12.1 NOTICE OF TERMINATION OF EMPLOYMENT. If the Termination of Employment of a
Participant occurs, the Company shall immediately give written notice to
the Administrator of the date of Termination of Employment of such
Participant. Upon receipt of such notice, the Administrator shall determine
the Participant's vested interest in his Participant's Account pursuant to
Part IX, Vesting, or if the Plan is or was top-heavy pursuant to Part XVI.
12.2 AMOUNT OF PARTICIPANT'S BENEFIT. The amount of a Participant's Plan benefit
upon Termination of Employment shall equal his vested Participant's
Account. A Participant whose Termination of Employment occurs prior to the
end of the Plan Year shall share in Company contributions and reallocations
of forfeitures credited prior to his Termination of Employment, but shall
or shall not share in Company contributions and reallocated forfeitures for
such Plan Year credited after the date of his Termination of Employment as
elected in Section (K) and (L).
12.3 PARTICIPANT'S ELECTION OF A FORM OF BENEFIT. If Termination of Employment
occurs, the Participant shall receive his vested Participant's Account in a
form of benefit elected by him, subject to the provisions of Paragraph 14.3
or 14.4, whichever is operative. The Participant's election shall occur
within 60 days after the forms of benefit first become available to him.
Written notice shall be made on such forms provided by the Administrator,
including a form necessary to comply with Paragraph 14.3 or 14.4, whichever
is operative. The forms of benefit are:
(a) OPTION A. The Participant may elect to continue his Account until age
70 1/2 (if elected in Section (S)(1)), his Normal Retirement Date or
earlier, at which time he may elect OPTION B, OPTION C, OPTION D, or
OPTION E (if permitted in Section (S)(1)). If the Participant dies
prior to commencement of retirement benefits, the value of the
Participant's Account shall be paid in one sum to his Beneficiary.
(b) OPTION B. The Participant may elect to receive an annuity in
accordance with Part XIV, RETIREMENT BENEFITS, to commence on his
Early Retirement Date, if permitted in Section (F)(2), or on his
Normal Retirement Date as specified in Section (F)(1). Once made this
election shall be irrevocable.
(c) OPTION C. If permitted in Section (S)(1), the Participant may elect a
one-sum cash payment. Such election is subject to a Qualified Election
if Paragraph 14.3 is operative. One-sum cash payments or a partial
cash payment in addition to any of the other options shall be made
during the Plan Year in which the event which gives rise to the
distribution occurs or as soon thereafter as is reasonably practical.
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(d) OPTION D. If permitted in Section (S)(1), the Participant may elect
installment payments, in accordance with Paragraph 14.2, to commence
upon separation from service. Such election is subject to a Qualified
Election if Paragraph 14.3 is operative.
(e) OPTION E. Subject to the consent of the Administrator and the
Insurance Company, and in accordance with procedures set forth in the
recipient plan, the Participant may elect a plan-to-plan transfer. The
account balance shall be transferred to the Participant's account
under a plan maintained by his new employer that is qualified under
Code Sections 401(a) or 403(a).
(f) A Participant may elect to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan specified by
the Participant in a Direct Rollover.
If the value of the Participant's vested account balance derived from
Company and Participant contributions exceeds (or at the time of any prior
distribution exceeded) $3,500, and the account balance is immediately
distributable, the Participant and the Participant's Spouse (if Paragraph
14.3 is operative), (or where either the Participant or the Spouse has
died, the survivor) must consent to any distributions of such Account
balance. Consent is not valid unless the Administrator notifies the
Participant and the Participant's Spouse of the right to defer any
distribution until the Participant's Account balance is no longer
immediately distributable. The notice shall acknowledge the right, if any,
to defer distributions and must describe the investment features.
Notwithstanding any form of benefit permitted under this Paragraph, if a
distribution from a Participant's Account would cause the remaining account
balance to equal or to be less than $3,500, such distribution will only be
permitted if the entire vested account balance is distributed.
An amount distributed to a Participant prior to his attaining age 59 1/2
(except for amounts distributed due to disability, death, separation from
service on or after attaining age 55 or equal periodic payments made for
the life or life expectancy of the Participant and Spouse) may be deemed to
be a premature distribution made during a taxable year. The distribution is
subject to a 10 percent excise tax on the portion of the amount received
which is includible in his gross income for the taxable year.
12.4 FORFEITURE OF NONVESTED PORTION OF PARTICIPANT'S ACCOUNT. If a Participant
terminates employment, the amounts which were in excess of his vested
interest shall be withdrawn from the appropriate investment funds under the
Contract and under the Funds and any Policies and shall be allocated to the
fixed investment option under the Contract. If the value of the
Participant's vested account balance derived from Company and the
Participant contributions is not greater than $3,500, the Participant shall
receive a distribution of the value of the entire vested portion of such
account balance and the nonvested portion shall be treated as a forfeiture.
For purposes of this Paragraph and Paragraph 12.5, if the value of a
Participant's vested
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account balance is zero, the Participant shall be deemed to have received a
distribution of such vested account balance. A Participant's vested account
balance shall not include accumulated Participant Deductible Voluntary
Contributions within the meaning of Code Section 72(o)(5)(B) for Plan Years
beginning prior to January 1, 1989.
If a Participant terminates service, and elects, in accordance with Section
(T), to receive the value of the Participant's vested account balance, the
nonvested portion shall be treated as a forfeiture. If the Participant
elects to have distributed less than the entire vested portion of the
account balance derived from Company contributions, the part of the
nonvested portion that shall be treated as a forfeiture is the total
nonvested portion multiplied by a fraction, the numerator of which is the
amount of the distribution attributable to Company contributions and the
denominator of which is the total value of the vested Company derived
account balance.
In the case of a Participant who receives a distribution of part of his
Account attributable to Company contributions and does not repay under
Paragraph 12.5, the Participant's future nonforfeitable interest at any
relevant time shall be equal to an amount ("X") determined by the formula:
X = P(AB + D) - D
For purposes of applying the formula: P is the nonforfeitable percentage at
the relevant time, AB is the account balance at the relevant time, and D is
the amount of the distribution.
12.5 REPAYMENT. In accordance with Section (S), a returning Participant may
repay the full amount of any distribution from the Plan attributable to
Company contributions made on account of Termination of Employment. All or
part of the amount of the distribution attributable to Participant
contributions may also be repaid. Such repayment, if any, must be made
before the earlier of:
(a) five years after the first date on which the Participant is
subsequently reemployed by the Company; or
(b) the date the Participant incurs five consecutive One-Year Breaks in
Service following the date of distribution.
If a Participant receives or is deemed to receive a distribution pursuant
to this Part and the Participant resumes employment covered under this Plan
before incurring five consecutive One-Year Breaks in Service, the amount so
forfeited, unadjusted for subsequent gains and losses, shall be restored to
the Participant's Account at the end of the Plan Year, subject to the
repayment requirement if elected in Section (S). Permissible sources for
restoration of the Participant's Account are amounts forfeited from his
Account, other forfeitures, and if necessary an extraordinary Company
contribution sufficient when added to the forfeiture to restore the
Participant's Account.
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Any Policy distributed to the Participant that is still in effect on a
premium-paying basis on the date of repayment may be transferred to the
Plan, and the cash value shall be counted as part of the amount repaid.
PART XIII - FORFEITURES
13.1 OCCURRENCE OF FORFEITURE. In accordance with Paragraph 12.4, a forfeiture
shall occur as of the date a Participant terminates employment with the
Company and receives a distribution. If the Participant does not receive a
distribution, forfeiture shall occur after five (5) consecutive One-Year
Breaks in Service. The forfeiture shall be the Participant's account
attributable to Company Matching and Profit-Sharing Contributions which has
not become vested under Part IX. In addition, a Highly Compensated
Participant shall forfeit his nonvested Company contributions (and earnings
thereon) in excess of the amount permitted under the Actual Contribution
Percentage limits of Paragraph 4.4 and such forfeitures shall be applied
under Paragraph 4.5(b). A Participant shall not forfeit any part of his
nonvested Participant's account attributable to Company contributions
solely as a result of a withdrawal prior to retirement under Part X.
Furthermore, a Participant shall not forfeit any part of his Participant's
account for any other cause.
The nonvested portion of a Company contribution or a forfeiture allocation
credited to a Participant's account in a Plan Year following his
Termination of Employment shall be allocated at the next allocation date.
13.2 APPLICATION OF FORFEITURES. Forfeitures shall first be allocated to the
accounts of Participants whose benefits are entitled to be restored under
Paragraph 12.4. The remaining forfeitures shall then be applied in the
manner elected in Section (L). If forfeitures are reallocated, a
Participant whose employment is terminated before the end of the Plan Year,
but after he has completed 1,000 Hours of Service or more during the Plan
Year shall or shall not share in reallocated forfeitures for the Plan Year
allocated after the date of his Termination of Employment as elected in
Section (L). Forfeitures derived from Company Matching Contributions and
Company Profit-Sharing Contributions shall be reallocated to the account
for Company Profit-Sharing Contributions of each Participant who is
entitled to share in the forfeitures. Forfeitures shall not be reallocated
to a Participant to the extent it would be an Excess Annual Addition under
Part V, Limitation on Allocations. If more than one Company adopts the
Plan, any forfeitures reallocated will be applied in accordance with
Section (L).
PART XIV - RETIREMENT BENEFITS
14.1 NORMAL FORM OF RETIREMENT BENEFIT. The Normal Form of benefit shall be a
one-sum cash distribution or, at the election of the Participant, the form
of benefit described in Paragraph 14.2.
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14.2 OPTIONAL FORMS OF BENEFIT. The Participant may elect a form of distribution
consisting of installments, any form of annuity provided by the Insurance
Company, a Direct Rollover of an Eligible Rollover Distribution or a
partial cash payment in addition to the optional form of benefits described
in this section, instead of the Normal Form described in Paragraph 14.1.
Installment payments shall be made over a period not to exceed the
Participant's (or the Participant's and Spouse's) life expectancy.
Any annuity contract distributed herefrom must be nontransferable. The
terms of any annuity contract purchased and distributed by the Plan to a
Participant and Spouse shall comply with the requirements of this Plan.
14.3 SPECIAL RULE. This Paragraph shall be operative with respect to the
Participant if it is determined that this Plan is a direct or indirect
transferee of a defined benefit plan, money purchase plan, target benefit
plan, stock bonus or profit-sharing plan which is subject to the survivor
annuity requirements of Code Sections 401(a)(11) and 417. In addition, this
Paragraph applies to the Participant if at least one of the following two
conditions are met: (1) the Participant elects retirement benefits in the
form of a life annuity under Paragraph 14.2, and (2) on the death of the
Participant, the Participant's vested account balance is not paid to the
Participant's surviving Spouse in accordance with Paragraph 15.1.
If this Paragraph is operative, the Normal Form of benefit shall be a life
annuity. The Normal Form shall be paid to a Participant who is not married
and does not elect a one-sum cash payment or an optional form of benefit
under Paragraph 14.2. A married Participant's entire account balance
(attributable to both Company and Participant contributions) shall be paid
in the form of an Automatic Joint and Survivor Annuity, unless a one-sum
cash payment or an optional form of benefit is selected (pursuant to a
Qualified Election) within the 90-day period ending on the annuity starting
date. The annuity starting date is the first day of the first period for
which an amount is paid as an annuity or any other form.
In the case of an Automatic Joint and Survivor Annuity, the Administrator
shall provide 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 an Automatic Joint and Survivor Annuity; (ii) the
Participant's right to make and effect of an election to waive the
Automatic 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
revocation of a previous election to waive the Automatic Joint and Survivor
Annuity.
14.4 WAIVER OF THIRTY-DAY PERIOD FOR CONSENT
If the provisions of Paragraph 14.3 are not operative, a 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, that: (1) the
Administrator clearly informs the Participant that the Participant has a
right to a period of at least 30 days after
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receiving the notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution option); and
(2) the Participant, after receiving the notice, affirmatively elects a
distribution.
14.5 AMOUNT OF RETIREMENT BENEFIT. The amount of a Participant's retirement
benefit shall equal the Participant's vested account balance. The vested
account balance is the aggregate value of the Participant's vested Account
balances derived from Company and Participant contributions (including
rollovers), including the proceeds of insurance contracts, if any, on the
Participant's life.
Upon retirement, contributions by or on behalf of a Participant shall
cease. If a Participant retires prior to the end of a Plan Year, any
contributions credited prior to retirement to his Participant's Account for
the Plan Year shall be applied for him as part of his retirement benefit.
14.6 PARTICIPANT ELECTION OF A RETIREMENT DATE. A Participant shall be entitled
to a retirement benefit upon separation from service:
(a) On or after his Normal Retirement Date as designated in Section (F);
(b) On his Early Retirement Date as permitted in Section (F);
(c) On his Disability Retirement Date as permitted in Section (F).
The Participant's Account shall be paid in a form and on a Retirement Date
elected by the Participant. A Participant shall give the Administrator
written notice of his intention to retire on a Retirement Date within 90
days prior to separation from service. Written notice shall be made on a
form required by the Administrator.
If a Participant separates from service before satisfying the age
requirement for early retirement, if elected in Section (F), but has
satisfied the Service requirement, the Participant shall be entitled to
elect an early retirement benefit upon satisfaction of such age
requirement.
14.7 PARTICIPANT'S RIGHT TO DEFER RETIREMENT. A Participant may defer retirement
without Company approval. If, however, any Participant after the age of 65
is employed in a bona-fide executive or high policymaking position during
the two-year period immediately before his retirement date and if such
Participant is entitled to an immediate nonforfeitable annual retirement
benefit from this Plan and from all other pension, profit-sharing, savings
or deferred compensation plans of the Company, or any combination of such
plans, which equals, in aggregate $44,000 or more, then the Company may
provide for the retirement of such Participant on or after Normal
Retirement Date without such Participant's consent.
In the case of continued employment after Normal Retirement Date, Company
contributions and forfeitures shall continue to be allocated on behalf of
Participants. Investment gains and losses shall continue to be credited to
the Participant's
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Account. A Participant who defers retirement after his Normal Retirement
Date shall defer distribution of his Participant's Account, in accordance
with Paragraph 14.8.
14.8 DISTRIBUTION OF RETIREMENT BENEFITS. If the Participant's Account balance
is $3,500 or less, the entire Participant's Account shall be distributed.
No one-sum cash distribution shall be made under the preceding sentence
after the annuity starting date.
Unless the Participant elects otherwise, distribution of benefits shall
begin the first day of the calendar month coincident with or, otherwise,
next following the later of:
(a) the Participant attaining age 65 (or Normal Retirement Date, if
earlier);
(b) the 10th anniversary of the year in which the Participant commenced
participation in the Plan; or,
(c) the Participant terminates service with the Company; provided,
however, that if the Participant's vested account balance derived from
Company and Participant contributions exceeds $3,500, no distribution
shall be made without the consent of the Participant (and, if
Paragraph 14.3 is operative, surviving Spouse) before the Participant
attains or would have attained, if not deceased, the later of the
Normal Retirement Date or age 62. Failure to consent shall be deemed
an election to defer commencement of payment of any benefit.
If allowed in Section (F), a retired Participant may also elect to defer
payment of any benefit after retirement. However, the entire interest of
the Participant must be distributed or begin to be distributed no later
than the Participant's required beginning date. The required beginning date
of a retired or active Participant is the first day of April following the
calendar year in which such individual attains age 70 1/2, except as
otherwise elected in accordance with Part XXI. Notwithstanding the prior
sentence, if an active Participant attained age 70 1/2 in 1987 or earlier,
and was not a 5 percent owner in any year since attaining age 66 1/2, the
Participant's account balance can be distributed upon retirement. The
minimum distribution for other calendar years, including the minimum
distribution for the distribution calendar year in which the Participant's
required beginning date occurs, must be made on or before December 31 of
that distribution calendar year. A distribution calendar year is a calendar
year for which a minimum distribution is required. The first distribution
calendar year is the calendar year immediately preceding the calendar year
which contains the Participant's required beginning date. Neither the
consent of the Participant nor of the Participant's Spouse shall be
required to the extent that a distribution is required to satisfy this
Paragraph.
All distributions required under this Part shall be determined and made in
accordance with the Income Tax Regulations under Code Section 401(a)(9),
including the minimum distribution incidental benefit requirement of
Section 1.401(a)(9)-2 of the Proposed Regulations.
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14.9 MINIMUM AMOUNTS TO BE DISTRIBUTED FROM PARTICIPANT ACCOUNT. If a
Participant has attained age 70 1/2, benefits to be distributed in
installment payments will not exceed a period beyond the life expectancy of
the Participant or the joint life and last survivor expectancy of the
Participant and the Participant's Spouse. The amount required to be
distributed for each calendar 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 applicable life
expectancy. If elected by the Participant, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the
Participant (or Spouse) and shall apply to all subsequent years.
The Participant's benefit is the account balance as of the last Valuation
Date in the calendar year immediately preceding the distribution calendar
year (valuation calendar year) increased by the amount of any contributions
or forfeitures allocated to the account balance as of dates in the
valuation calendar year after the Valuation Date and decreased by
distributions made in the valuation calendar year after the Valuation Date.
For purposes of this Paragraph, if any portion of the minimum distribution
for the first distribution calendar year is made in the second distribution
calendar year on or before the required beginning date, the amount of the
minimum distribution made in the second distribution calendar year shall be
treated as if it had been made in the immediately preceding distribution
calendar year.
Unless the Administrator directs in writing an alternative method of
determining life expectancy in accordance with IRS Reg. Sections
1.401(a)(9)-1 and 1.401(a)(9)-2, the life expectancy (or joint and last
survivor expectancy) calculated using the attained age of the Participant
(or Participant and Spouse) as of the Participant's (or Participant's and
Spouse's) birthday in the applicable calendar year shall be reduced by one
for each calendar year which has elapsed since the date life expectancy was
first calculated. If life expectancy is being recalculated, the applicable
life expectancy shall be the life expectancy as so recalculated. The
applicable calendar year shall be the first distribution calendar year, and
if life expectancy is being recalculated, such succeeding calendar year. If
installment payments commence before the required beginning date, the date
distribution is considered to begin is the date distribution actually
commences.
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.
PART XV - DEATH BENEFITS
15.1 PRERETIREMENT DEATH OF A PARTICIPANT. If the Participant dies before
distribution of his interest begins, the Participant's account balance
shall become fully vested. The account balance shall be paid to the
Participant's surviving Spouse. The Spouse may elect whether to receive the
Participant's account balance in the form of a Preretirement Survivor
Annuity, installments, a one-sum cash payment, or
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as a Direct Rollover of an Eligible Rollover Distribution. If the surviving
Spouse elects the latter option as the form of benefit, the requirements of
Paragraph 12.3(f) shall apply.
If there is no surviving Spouse, or, if the surviving Spouse has already
consented in a manner conforming to a Qualified Election, the account
balance shall be paid to the Participant's designated Beneficiary. Unless
otherwise elected by the Participant, any portion of the Participant's
interest payable to a designated Beneficiary other than the Participant's
surviving Spouse shall be paid in the form of an annuity, installments, or
a one-sum cash payment. A Qualified Election is not required with respect
to the amount at risk portion of any Policies. For purposes of the
foregoing consent requirements, the Participant's vested account balance
shall not include amounts attributable to accumulated Participant
Deductible Voluntary Contributions within the meaning of Code Section
72(o)(5)(B).
Distribution of the Participant's entire interest shall be completed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death except to the extent that an election is made to
receive distributions in accordance with (a) or (b) below:
(a) If any portion of the Participant's interest is payable to a
designated Beneficiary, distributions may be made over the life or
over a period certain not greater than the life expectancy of the
designated Beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year in which the
Participant died;
(b) If the designated Beneficiary is the Participant's surviving Spouse,
the date distributions are required to begin in accordance with (a)
above shall not be earlier than the later of (1) December 31 of the
calendar year immediately following the calendar year in which the
Participant died and (2) December 31 of the calendar year in which the
Participant would have attained age 70 1/2.
If the Participant has not made an election pursuant to this Paragraph 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 Paragraph, or (2) December 31 of the calendar year which contains the
fifth anniversary of the date of death of the Participant. If the
Participant has no designated Beneficiary, or if the designated Beneficiary
does not elect a method of distribution, distribution of the Participant's
entire interest must be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death.
For purposes of this Paragraph, if the surviving Spouse dies after the
Participant, but before payments to such Spouse begin, the provisions of
this Paragraph, with the exception of Paragraph (b) therein, shall be
applied as if the surviving Spouse were the Participant.
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For the purposes of this Paragraph, distribution of a Participant's
interest is considered to begin on the Participant's required beginning
date (or, if the Spouse dies after the Participant, the date distribution
is required to begin to the surviving Spouse). If distribution in the form
of an annuity irrevocably commences to the Participant before the required
beginning date, the date distribution is considered to begin is the date
distribution actually commences.
The entire Participant's Account shall be distributed if the Participant's
Account is $3,500 or less. No one-sum cash distribution shall be made to
the surviving Spouse under the preceding sentence after the annuity
starting date or if the Account exceeds $3,500 unless the surviving Spouse
consents in writing to such distribution.
15.2 PRERETIREMENT SURVIVOR ANNUITY. The Preretirement Survivor Annuity is 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. If Paragraph 14.3 or 14.4 is operative, the
Administrator shall provide each Participant a written explanation of the
Preretirement Survivor Annuity in such terms and in such manner as would be
comparable to the explanation provided for meeting the requirements
applicable to an Automatic Joint and Survivor Annuity.
The applicable period for a Participant is whichever of the following
periods end last:
(a) The period beginning with the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35;
(b) A reasonable period ending after the Employee becomes a Participant;
(c) A reasonable period ending after Paragraph 14.3 first applies to the
Participant.
Notwithstanding the foregoing, notice must be provided within a reasonable
period ending after Termination of Employment 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 is the end of the two-year period
beginning one year prior to the date of the applicable event occurs, and
ending one year after that date.
In the case of a Participant who separates from service before the Plan
Year in which age 35 is attained, notice shall be provided within the
two-year period beginning one year prior to separation and ending one year
after separation. If such a Participant thereafter returns to employment
with the Company, the applicable period for such Participant shall be
redetermined.
15.3 POST-RETIREMENT DEATH OF A PARTICIPANT. If the Participant dies after
distribution of his interest has begun, the remaining portion of such
interest shall
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continue to be distributed at least as rapidly as under the method of
distribution being used prior the Participant's death. In the case of an
installment payment option, installment payments remaining at the
Participant's death shall be distributed as a one-sum cash payment.
15.4 DESIGNATION OF A BENEFICIARY. Subject to Code Sections 401(a)(11) and 417,
the Participant shall have the right to designate his Beneficiary and to
change his Beneficiary in accordance with the terms of the Contract and
Policy. The Participant shall also have the right to designate or change
the form of death benefit to his Beneficiary in accordance with the terms
of the Contract and Policy. Any such right may be exercised by filing
written notice(s) with the Insurance Company, and the effective date
thereof shall be as provided in the Contract or Policy, whichever is
applicable. If no Beneficiary is named, the payment of death benefits shall
be made in accordance with the terms of the Contract and the Policy. A
designation of a Beneficiary other than the Spouse of a married Participant
may be made only as a Qualified Election.
PART XVI - TOP-HEAVY REQUIREMENTS
16.1 IN GENERAL. If the Plan is or becomes top-heavy in any Plan Year, the
provisions of this Part XVI shall supersede any conflicting provisions in
the Plan or Adoption Agreement. For purposes of this Part, compensation
shall mean Compensation as defined in Section (E)(1) of the Adoption
Agreement, but including amounts contributed by the Company pursuant to a
Deferred Salary Agreement which are excludable from the Employee's gross
income under Code Section 125, 402(e)(3), 402(h)(1)(B) or 403(b).
16.2 MINIMUM CONTRIBUTION UNDER A TOP-HEAVY PLAN. Company contributions and
forfeitures allocated on behalf of any Participant who is a non-Key
Employee shall not be less than the lesser of 3 percent of such
Participant's compensation or in the case where the Company has no defined
benefit plan which designates this Plan to satisfy Code Section 401, the
largest percentage of Company contributions and forfeitures, as a
percentage of the first $150,000 of the Key Employee's compensation,
allocated on behalf of any Key Employee for that year. This minimum
contribution is determined without regard to any Social Security
contribution. The minimum contribution shall be made even though, under
other Plan provisions, the Participant would not otherwise be entitled to
receive a contribution, or would have received a lesser contribution for
the year because of:
(a) the Participant's failure to complete 1,000 Hours of Service (or any
equivalent provided in the Plan),
(b) the Participant's failure to make Elective Deferrals, as described in
Section (G), or
(c) compensation less than a stated amount.
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Notwithstanding the above, the provision contained in the preceding
Subparagraph shall not apply to any Participant who was not employed by the
Company on the last day of the Plan Year. Also, such provision shall not
apply to any Participant to the extent provided by Section (R).
Elective Deferrals, Company Qualified Matching, and Company Matching on
behalf of Key Employees shall be taken into account in determining the
minimum contribution. However, Elective Deferrals on behalf of non-Key
Employees may not be taken into account for the purpose of satisfying the
minimum top-heavy contribution requirements. Further, Company Matching and
Company Qualified Matching Contributions cannot be utilized to satisfy the
minimum contribution requirements for Plan Years beginning after 1988.
16.3 NONFORFEITABILITY OF MINIMUM CONTRIBUTION. The minimum contribution
required (to the extent required to be nonforfeitable under Code Section
416(b)) may not be forfeited under Code Section 411(a)(3)(B) or
411(a)(3)(D).
16.4 TOP-HEAVY VESTING. During and subsequent to the first Plan Year in which
this Plan is top-heavy, one of the minimum vesting schedules as elected by
the Company in Section (R) shall automatically apply to the Plan. The
minimum vesting schedule applies to all benefits within the meaning of Code
Section 411(a)(7) except those attributable to Participant contributions
and Elective Deferrals, including benefits accrued before the effective
date of Code Section 416 and benefits accrued before the Plan became
top-heavy. However, this Paragraph does not apply to the account balances
of any Participant who does not have an Hour of Service after the Plan has
initially become top-heavy and such Participant's account balance
attributable to Company contributions and forfeitures shall be determined
without regard to this Paragraph.
16.5 TOP-HEAVY DEFINITIONS.
(a) KEY EMPLOYEE: Any Employee or former Employee (and the Beneficiaries
of such Employee) who at any time during the determination period was
an officer of the Company if such individual's annual compensation
exceeded 50 percent of the dollar limitation under Code Section
415(b)(1)(A), an owner (or considered an owner under Code Section 318)
of one of the ten largest interests in the Company if such
individual's compensation exceeds 100 percent of the dollar limitation
under Code Section 415(c)(1)(A), a 5 percent owner of the Company, or
a 1 percent owner of the Company who has annual compensation of more
than $150,000.
For purposes of determining the number of officers taken into account,
Employees described in Code Section 414(q)(8) shall be excluded. The
determination period is the Plan Year containing the Determination
Date and the four preceding Plan Years. The determination of who is a
Key Employee shall be made in accordance with Code Section 416(i)(1)
and the Regulations thereunder. For purposes of determining whether a
plan is top-heavy under Code Section 416, Elective Deferrals are
considered Company contributions.
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(b) TOP-HEAVY PLAN: For any Plan Year beginning after December 31, 1983,
this Plan is top-heavy if any of the following conditions exists:
(i) If the top-heavy ratio for this Plan exceeds 60 percent and this
Plan is not part of any required aggregation group or permissive
aggregation group of plans.
(ii) If this Plan is a part of a required aggregation group of plans
but not part of a permissive aggregation group and the top-heavy
ratio for the group of plans exceeds 60 percent.
(iii)If this Plan is a part of a required aggregation group and part
of a permissive aggregation group of plans and the top-heavy
ratio for the permissive aggregation group exceeds 60 percent.
(c) TOP-HEAVY RATIO
(i) Defined Contribution Plan Only:
If the Company maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Company
has never maintained any defined benefit plan which during the
5-year period ending on the Determination Date(s) has or has had
accrued benefits, the top-heavy ratio for this Plan alone or for
the required or permissive aggregation group as appropriate is a
fraction, the numerator of which is the sum of the account
balances of all Key Employees as of the Determination Date(s)
(including any part of any account balance distributed in the
5-year period ending on the Determination Date(s)), and the
denominator of which is the sum of all account balances
(including any part of any account balance distributed in the
5-year period ending on the Determination Date(s)), both computed
in accordance with Code Section 416 and the Regulations
thereunder.
Both the numerator and denominator of the top-heavy ratio are
increased to reflect any contribution not actually made as of the
Determination Date, but which is required to be taken into
account on that date under Code Section 416 and the Regulations
thereunder.
(ii) Defined Contribution and Defined Benefit Plan:
If the Company maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Company
maintains or has maintained one or more defined benefit plans
which during the 5-year period ending on the Determination
Date(s) has or has had any accrued benefits, the top-heavy ratio
for any required or permissive aggregation group as appropriate
is a fraction, the numerator of which is the sum of account
balances under the aggregated defined contribution plan or plans
for all Key Employees determined in
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accordance with (i) above, and the present value of accrued
benefits under the aggregated defined benefit plan or plans for
all Key Employees as of the Determination Date(s), and the
denominator of which is the sum of the account balances under the
aggregated defined contribution plan or plans for all
Participants determined in accordance with (i) above, and the
present value of accrued benefits under the defined benefit plans
for all Participants as of the Determination Date(s), all
determined in accordance with Code Section 416 and the
Regulations thereunder.
The accrued benefits under a defined benefit plan in both the
numerator and denominator of the top-heavy ratio are adjusted for
any distribution of an accrued benefit made in the 5-year period
ending on the Determination Date.
(iii)For purposes of (i) and (ii) above, the value of account balances
and the present value of accrued benefits shall be determined as
of the most recent Valuation Date that falls within or ends with
the 12-month period ending on the Determination Date, except as
provided in Code Section 416 and the Regulations thereunder for
the first and second plan years of a defined benefit plan. The
account balances and accrued benefits of a Participant (1) who is
a non-Key Employee but who was a Key Employee in a prior year or
(2) who has not been credited with at least one Hour of Service
with any Employer maintaining the Plan at any time during the
5-year period ending on the Determination Date shall be
disregarded. The calculation of the top-heavy ratio, and the
extent to which distributions, rollovers, and transfers are taken
into account shall be made in accordance with Code Section
416(g)(4)(A) and the Regulations thereunder. For purposes of
determining whether a plan is top-heavy under Code Section 416,
Elective Deferrals are considered Company contributions.
When aggregating plans, the value of account balances and accrued
benefits shall be calculated with reference to the Determination
Dates that fall within the same calendar year. The accrued
benefit of an Employee other than a Key Employee shall be
determined under (a) the method, if any, that uniformly applies
for accrual purposes under all plans maintained by the Company,
or (b) if there is no such method, as if such benefit accrued not
more rapidly than the slowest accrual rate permitted under the
fractional accrual rate of Code Section 411(b)(1)(C).
(d) PERMISSIVE AGGREGATION GROUP: The required aggregation group of plans
plus any other plan or plans of the Company which, when considered as
a group with the required aggregation group, would continue to satisfy
the requirements of Code Sections 401(a)(4) and 410(b).
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(e) REQUIRED AGGREGATION GROUP:
(i) Each qualified plan of the Company in which at least one Key
Employee participates, or participated at any time during
the determination period (regardless of whether the Plan has
terminated), and
(ii) any other qualified plan of the Company which enables a plan
described in (i) to meet the requirements of Code Sections
401(a)(4) or 410(b).
(f) DETERMINATION DATE: For any Plan Year subsequent to the first Plan
Year, the last day of the preceding Plan Year. For the first Plan Year
of the Plan, the last day of that year.
(g) VALUATION DATE: The date stated in Section (C)(4) as of which account
balances or accrued benefits are valued for purposes of calculating
the top-heavy ratio.
(h) PRESENT VALUE: Present value shall be based only on the interest and
mortality rates specified in Section (U).
PART XVII - INSURANCE COMPANY
17.1 NOT A PARTY. The Insurance Company is not a party to the Plan and is not
responsible for the validity of the Plan as adopted by the Company or the
qualification of the Plan under the tax laws.
17.2 NOT RESPONSIBLE FOR THE ACTS OF THE COMPANY OR ADMINISTRATOR. The Insurance
Company shall not be responsible to look to the terms of the Plan to
determine whether or not any action of the Company or Administrator is
authorized by its terms.
17.3 RELIANCE ON SIGNATURES. Any instruments executed by the Administrator or
officers of the Company may be accepted by the Insurance Company as the
duly authorized act of the Administrator or the Company.
17.4 ACQUITTANCE. The Insurance Company shall be discharged from all liability
for any amount paid to the Company or paid in accordance with the direction
of the Company and shall not be obliged to see to the distribution or
further application of any monies by it.
17.5 DUTIES OF THE INSURANCE COMPANY. The obligations of the Insurance Company
shall be determined solely by the terms of its Contracts, Policies and
other agreements executed by it. The Insurance Company shall maintain
records concerning its Contracts and Policies and shall supply such records
to the Administrator when necessary to assure proper administration of the
Plan. The
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Insurance Company also shall perform such duties as are directed by the
Administrator pursuant to an executed services agreement on behalf of the
Plan.
17.6 PLAN CONTROLS. In the event of any conflict between the provisions of the
Plan and the terms of any Contract or Policy, the provisions of the Plan
shall control, provided that the mutual rights and obligations of the
parties to any Contract, agreement or Policy shall not thereby be altered.
PART XVIII - AMENDMENT, TERMINATION, MERGER, ETC. OF PLAN
18.1 PERMANENCY. The expectation of the Company is that the Plan and the payment
of contributions hereunder, shall be continued indefinitely, but
continuance of the Plan is not assured as a contractual obligation of the
Company. This Plan may be amended or terminated only as provided in this
Part. All Plan amendments, including one to terminate the Plan, shall be
adopted in writing by the Company's board of directors. Any material
modification of the Plan by amendment or termination shall be communicated
to all interested parties, the Department of Labor, and the Internal
Revenue Service in the time and manner prescribed by law.
18.2 AMENDMENT BY INSURANCE COMPANY. The Company hereby delegates to the
Insurance Company, the Sponsoring Organization, the right to amend the Plan
and its Adoption Agreement and the Company and Administrator shall be
deemed to have consented to such amendment. Such delegation shall be
limited to the right to amend and shall not be construed to make the
Insurance Company a party to this Plan or the Adoption Agreement. The
Insurance Company shall, after amendment, contact each Company of record
who has previously adopted the Prototype Plan and give the Company the
opportunity to continue under the amended Prototype Plan.
18.3 PERMISSIBLE AMENDMENTS BY COMPANY. Subject to Paragraph 18.4, the Company,
through its duly authorized management committee or by such persons as the
committee delegates its authority, may (1) change the choice of options in
the Adoption Agreement, (2) add overriding language in the Adoption
Agreement when such language is necessary to satisfy Code Sections 415 or
416 because of the required aggregation of multiple plans, and (3) add
certain model amendments published by the Internal Revenue Service which
specifically provide that their adoption shall not cause the Plan to be
treated as individually designed. A Company that amends the Plan for any
other reason, including a waiver of the minimum funding requirement under
Code Section 412(d), shall no longer participate in this master or
Prototype Plan and shall be considered to have an individually designed
plan.
Any amendment shall be stated by executing an amended Adoption Agreement
and delivering a copy of such amendment to the Administrator and the
Insurance Company. Upon execution and delivery of the executed Adoption
Agreement, the Participants and Beneficiaries shall be bound thereby.
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18.4 RESTRICTIONS ON AMENDMENTS. No amendment:
(a) Shall increase the duties of the Administrator without his written
consent.
(b) To the vesting schedule under Section (R) shall deprive a Participant
of his nonforfeitable rights to benefits accrued to the date of the
amendment. Further, if the vesting schedule of the Plan is amended, if
the Plan is amended in any way that directly or indirectly affects the
computation of a Participant's nonforfeitable percentage, or if the
Plan is deemed amended by an automatic change to a top-heavy vesting
schedule, each Participant with at least 3 Years of Service with the
Company may elect, within a reasonable period after the adoption of
the amendment, to have his nonforfeitable percentage computed under
the Plan without regard to such amendment or changes. The period
during which the election may be made shall commence with the date the
amendment is adopted and shall end on the later of:
(i) 60 days after the amendment is adopted;
(ii) 60 days after the amendment becomes effective; or
(iii)60 days after the Participant is issued written notice of the
amendment by the Company or Administrator.
(c) Shall be effective to the extent that it has the effect of decreasing
a Participant's accrued benefit. Notwithstanding the preceding
sentence, a Participant's account balance may be reduced to the extent
permitted under Code Section 412(c)(8). For purposes of this
Paragraph, a Plan amendment which has the effect of decreasing a
Participant's account balance or eliminating an optional form of
benefit, with respect to benefits attributable to service before the
amendment, shall be treated as reducing an accrued benefit.
Furthermore, if the vesting schedule of the Plan is amended, in the
case of an Employee who is a Participant as of the later of the date
of the date such amendment is adopted or the date it becomes
effective, the nonforfeitable percentage (determined as of such date)
of such Employee's Employer-derived accrued benefit shall not be less
than the percentage computed under the Plan without regard to such
amendment.
(d) Shall change the funding method unless the new funding method has been
approved by the Internal Revenue Service.
(e) Shall change the Plan Year unless the new Plan Year has been approved
by the Internal Revenue Service or is permitted by IRS Revenue
Procedure 87-27.
18.5 TERMINATION OF PLAN. The Company expressly reserves the right to terminate
the Plan in whole or in part at any time without the consent of any
Participant or Beneficiary. The Company shall give written notice of
termination of this Plan to
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the Administrator and the Insurance Company. The Plan shall terminate upon
the first of the following events:
(a) The date terminated by the Company without establishment of another
defined contribution plan;
(b) The date the Company is judicially determined bankrupt or insolvent;
(c) The date of the disposition by a corporation to an unrelated
corporation of substantially all of the assets (within the meaning of
Code Section 409(d)(2)) used in a trade or business of such
corporation if such corporation continues to maintain this Plan after
the disposition, but only with respect to Employees who continue
employment with the corporation acquiring such assets; or
(d) The date of the disposition by a corporation to an unrelated
corporation of such corporation's interest in a subsidiary (within the
meaning of Code Section 409(d)(3)) if such corporation continues to
maintain this Plan after the disposition, but only with respect to
Employees who continue employment with such subsidiary.
18.6 FULL VESTING UPON TERMINATION. If this Plan is terminated or partially
terminated or upon a complete discontinuance of contributions, each
affected Participant shall be fully vested in his Participant's Account.
Upon termination of this Plan, all unallocated forfeitures shall be
reallocated among Participants' Accounts of those Participants then
entitled to share in current allocations, without the restrictions of
Section (L)(2). Following this final allocation, if any forfeiture causes a
Participant's Account to be in excess of the limitation on allocations
provided in Code Section 415, such excess will be disposed of in accordance
with Part V of the Plan.
The value of the Participants' accounts shall be distributed to all
affected Participants as one-sum cash payments. However, if elected by the
Administrator, all affected Participants shall have their benefits
distributed to them in the form of an annuity under the Contract.
If one-sum cash payments are made to the Participants and the Contract
values include allocations to the general investment account of the
Insurance Company, the amounts distributed shall be less any investment
loss charges and other deductions authorized by the Contract. Any
distributions pursuant to this Paragraph are subject to the spousal and
Participant consent requirements (if Paragraph 14.3 is operative) contained
in Code Sections 401(a)(11) and 417.
Notwithstanding the above provision, if any affected Participant had
commenced to receive annuity payments upon separation from service, he
shall continue to receive payments in the form elected.
18.7 MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS. No merger or
consolidation of this Plan with, or transfer of assets or liabilities to
any other plan
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shall become effective until at least 30 days after the Company or
Administrator has filed with the Secretary of the Treasury such statement
as shall be required by law. In the case of any such merger, consolidation
or transfer of assets to any other plan, each Participant shall receive a
benefit immediately after the merger, etc., (as if the plan then
terminated) which is at least equal to the benefit the Participant was
entitled to immediately before such merger, etc., (as if the Plan had
terminated).
PART XIX - ADMINISTRATION OF PLAN
19.1 APPOINTMENT OF ADMINISTRATOR. The Company shall appoint an Administrator. A
written appointment shall be filed in the Company's official records. The
Insurance Company may not be appointed as Administrator. The Administrator
may be a person, organization, or Plan committee. Any person so appointed
shall accept by filing a written acceptance with the Company. The
Administrator shall serve at the discretion of the Company, but may resign
by filing a written resignation with the Company.
The discharge of an Administrator shall be made in writing by the Company,
delivered to the person and filed in the official records of the Company. A
new Administrator shall be appointed as soon as possible after an
Administrator resigns or is discharged. If no appointment is effective at
any time, the Administrator shall be the Company. The Secretary of the
Company shall certify in writing the name and signature of the
Administrator, or person acting on behalf of the Administrator, his address
and telephone number to the Insurance Company. The Insurance Company may
assume that such person continues to hold office until a new certificate is
received from the Company. The Company agrees to fully protect and to
indemnify the Insurance Company in relying upon any authorization or
direction the Insurance Company reasonably believes to be authentic.
19.2 ADMINISTRATOR'S POWERS AND DUTIES. The Administrator shall be responsible
for the day-to-day administration of this Plan and for the exercise of all
fiduciary responsibilities provided for in the Plan that are not assigned
to other parties pursuant to the terms of the Plan. The Administrator's
duties shall include, but not be limited to the following:
(a) To construe and interpret the provisions of the Plan;
(b) To decide all questions of eligibility for Plan participation and for
the payment of benefits;
(c) To provide appropriate parties, including government agencies, with
such returns, reports, schedules, descriptions, and individual
statements as are required by law within the times prescribed by law;
and to furnish to the Company, upon request, copies of any or all such
materials, and further, to make copies of such instruments, reports,
and descriptions as are required by law to be available for
examination by Participants and such of their Beneficiaries who are or
may be entitled to benefits under the Plan in such
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places and in such manner as required by law; (the Administrator may
make a reasonable charge for copies);
(d) To furnish to each Participant and each Beneficiary receiving benefits
under the Plan a copy of a summary plan description and a summary of
any material modifications thereof at the time and in the manner
prescribed by law;
(e) To obtain from the Company, the Employees and the Insurance Company
such information as shall be necessary for the proper administration
of the Plan;
(f) To determine the amount, manner and time of payment of benefits
thereunder;
(g) Subject to the approval of the Company only as to any additional
expense, to appoint and retain such agents, counsel, and accountants
for the purpose of properly administering the Plan;
(h) To take all actions and to communicate to the Insurance Company in
writing all necessary information to carry out the terms of the Plan;
(i) To notify the Insurance Company in writing of a termination, a partial
termination or a complete discontinuance of contributions to the Plan;
(j) To direct the Insurance Company to distribute benefits of the Plan to
each Participant and Beneficiary in accordance with the terms of the
Plan;
(k) To provide each Participant within the time period set forth in
Paragraphs 14.3 and 15.2, if applicable, a written explanation of: the
Automatic Joint and Survivor Annuity and the Preretirement Survivor
Annuity; and
(l) To do such other acts reasonably required to administer the Plan in
accordance with its provisions or as may be provided for or required
by law.
The Administrator and each other fiduciary shall discharge their duties
with respect to the Plan in accordance with the provisions of the Plan,
including the Adoption Agreement.
19.3 DELEGATION OF ADMINISTRATIVE RESPONSIBILITIES. The Administrator may
appoint other persons to perform any of his administrative functions. Such
appointment shall be made in writing and shall be effective upon the
written approval of the Company. The Administrator and any such appointee
may employ advisors and other persons necessary to help the Administrator
carry out his functions, including fiduciary functions. The Administrator
shall monitor the work and review the performance of each such appointee,
and he shall remove any such appointee from his position if the
Administrator determines that his performance is unsatisfactory. Any person
or group of persons may serve in more than one
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fiduciary capacity. The Administrator may delegate one or more of his
responsibilities to the Insurance Company by a written administrative
services agreement entered into with the Insurance Company. The Insurance
Company's administrative responsibilities shall be limited to those
services set forth in such agreement.
19.4 BONDING. The Administrator, and any other fiduciary, officer of the Company
and Employee of the Company who handles funds of the Plan shall be bonded
as required by ERISA. Such bond shall protect the Plan against loss by
reason of acts of fraud or dishonesty by such persons directly or through
the connivance of others. The amount of the bond shall not be less than 10
percent of the value of the Contract at the beginning of the Year nor more
than $500,000. In no event shall the bond be less than $1000. If the
Secretary of the U.S. Department of Labor prescribes an amount in excess of
$500,000, however, a bond in the prescribed amount shall be obtained.
19.5 FIDUCIARY LIABILITY INSURANCE AND INDEMNIFICATION. The Company may purchase
fiduciary liability insurance or agree to indemnify and hold harmless the
Administrator and persons appointed by the Administrator or Company to
carry out fiduciary functions against any and all claims, loss, damage,
expense or liability arising from their official capacities in the
administration of the Plan, unless the same is determined to be due to
gross negligence or willful misconduct.
19.6 COMPENSATION OF ADMINISTRATOR. The Company shall reimburse the
Administrator for any reasonable costs and expenses, including fiduciary
liability insurance, incurred by the Administrator as a result of
performance of his duties or functions. The Company shall compensate the
Administrator for services rendered under this Plan, except that no
Administrator who receives full-time compensation from the Company shall be
so compensated.
19.7 SERVICE OF LEGAL PROCESS. The Administrator is the designated agent to
receive service of legal process on behalf of the Plan, unless the Company
designates some other party in writing in the summary plan description.
19.8 COMPANY CENSUS REPORT. To enable the Administrator to perform his
functions, the Company shall furnish the Administrator full and timely
information on or before each Plan Year (and more frequently, if required)
on all matters relating to classification of Employees, their dates of
employment, ages, Hours of Service, Compensation, dates of retirement,
death, disability or Termination of Employment, causes of Termination of
Employment and such other census data as may be required to administer the
Plan. The Administrator shall advise the Insurance Company in writing of
such information about Participants' and Beneficiaries' status, including
changes in status, pertinent to determining benefit entitlements under the
Contract or Policies.
19.9 INFORMATION ABOUT PLAN. Any Participant in the Plan, or any Beneficiary
receiving benefits under the Plan, may examine copies of the Plan, the
Contract, any Policies on his life, the summary plan description, the
latest annual report, any
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collective bargaining agreement, Contract or any other instrument under
which this Plan is maintained or operated. The Administrator shall maintain
all items listed in this Paragraph in his office, or in other places as he
may designate from time to time to comply with regulations issued under
ERISA, for examination during normal business hours. Upon written request
of a Participant or Beneficiary receiving benefits under this Plan, the
Administrator shall furnish him with a copy of any item listed in this
Paragraph. The Administrator may impose a charge equal to the costs of
reproduction, but in no event shall the costs exceed 25 cents per page.
19.10INFORMATION ABOUT PARTICIPANTS AND BENEFICIARIES. Each Participant and
each Beneficiary of a deceased Participant shall file with the
Administrator from time to time in writing his current post office address.
Any communication, statement, or notice addressed to a Participant or a
Beneficiary at his last post office address filed with the Administrator or
as shown on the Company's records, shall bind the Participant or
Beneficiary for all purposes of this Plan. Each Participant shall file with
the Administrator his name, Social Security number, date of birth, and
marital status. Each married Participant shall file, upon request, with the
Administrator the name, date of birth, and date of marriage to his Spouse.
The Administrator may require satisfactory evidence of any personal
information required to administer the Plan. The information provided by
the Participant concerning his Spouse shall bind the Participant, the
Participant's Spouse and their heirs for all purposes of the Plan. The
Participant shall be required to notify the Administrator of any changes in
information previously filed.
19.11CLAIM FOR BENEFITS. All applications for benefits under the Plan shall be
submitted to the Administrator in writing on forms prescribed by the
Administrator. The application shall be signed by the Participant, and the
Participant's Spouse if required by the Administrator, or in the case of a
death benefit by the Beneficiary or legal representative of the deceased
Participant. Each Participant and each Beneficiary of a deceased
Participant must furnish the Administrator with such evidence, data or
other information as the Administrator or Insurance Company considers
necessary or desirable for purposes of administering the Plan. The
provisions of this Plan are effective for the benefit of each Participant
subject to the condition that each Participant or Beneficiary shall furnish
promptly full, true and complete evidence, data or other information when
requested by the Administrator, provided the Participant or Beneficiary is
advised of the affect of his failure to comply with the request. The
Administrator shall make all determinations as to the right of any person
to a benefit under the Plan. The Administrator shall notify the claimant of
the acceptance or denial of any claim within 90 days, unless special
circumstances are deemed by the Administrator to require an additional
period of no more than 90 days. If an extension is necessary, the
Administrator shall notify the claimant in writing explaining why more time
is needed and indicate a date by which the Administrator expects to render
a decision.
19.12CLAIMS REVIEW PROCEDURE. The Administrator shall provide to any claimant
whose claim for benefits under the Plan has been fully or partially denied
a written notice setting forth the specific reasons for such denial. Such
notice shall state that the claimant is entitled to request a review by the
Administrator of the decision
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denying the claim, the reasons for denial, the Plan provisions upon which
the denial is based, a description and reason for needing any additional
information needed to consider the claim, and an explanation of the review
procedure. The claimant or his authorized representative may within 60 days
of the denial of the claim: request a claim review by the Administrator,
review pertinent documents relating to the denial, and submit issues and
comments in writing to the Administrator. The Administrator must make a
final decision on a claim reviewed within sixty days. The Administrator
shall make a full and fair review of such claim and any written materials
submitted by the claimant and may require the claimant or the Company to
submit such additional evidence as the Administrator deems necessary or
advisable to make a claims review.
On the basis of the review, the Administrator shall make an independent
determination of the claimant's entitlement to benefits under the Plan. The
decision of the Administrator upon review, if supported by substantial
evidence in the record, shall be final and conclusive on all parties to the
Plan. The Administrator shall give the claimant written notice of his
decision upon review which shall include specific reasons and references to
the Plan provision upon which his decision is based. The 60-day review
period may be extended for another 60 days if the Administrator finds that
special circumstances require an extension of time. If after such review
the Administrator concludes that the denial of benefits was erroneous or
contrary to the Plan or to the law, the Administrator shall take such
action as shall be appropriate to provide such benefit.
19.13MISSING PARTICIPANTS OR BENEFICIARIES. In the event a person entitled to a
benefit is unable to be found after a diligent one-year search by the
Administrator, the benefit payable to that person shall be forfeited and
applied to reduce the Company's contributions under the Plan, provided,
however, that the Administrator shall reinstate the benefit in the event
the person entitled thereto is found or makes a claim. The sources for
restoration of the benefit shall be forfeitures or an additional Company
contribution.
PART XX - MISCELLANEOUS
20.1 ASSIGNMENT OR ALIENATION. No benefit or interest available hereunder shall
be subject to assignment or alienation, either voluntarily or
involuntarily. The preceding sentence shall also apply to the creation,
assignment, or recognition of a right to any benefit payable with respect
to a Participant pursuant to a domestic relations order, unless such order
is determined to be a qualified domestic relations order, as defined in
Code Section 414(p), or any domestic relations order entered before January
1, 1985. Notwithstanding any other provision to the Plan and as directed in
writing by the Administrator, a distribution shall be made immediately to
an alternate payee pursuant to such qualified domestic relations order.
20.2 RESPONSIBILITY FOR QUALIFICATION OF PLAN. The Company is solely responsible
for the qualification of the Plan under the Code. Should the Plan fail to
initially attain qualified plan status, the Plan shall terminate and
contributions shall
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be returned to the Company and to Participants in accordance with
Subparagraph 4.11(b). If an initially qualified plan fails to retain
qualified plan status, the Plan shall terminate and the interest of each
Participant shall be distributed in the same manner as provided under
Paragraph 18.6.
20.3 ORIGINAL DOCUMENT. The Plan may be executed in any number of counterparts,
each of which shall be deemed an original, and said counterparts shall
constitute but one and the same instrument and may be sufficiently
evidenced by any one counterpart.
20.4 STATE LAW. The Plan is to be regulated and construed in accordance with the
laws of the State in which the Company maintains its principal office,
except to the extent such laws are preempted by Federal law.
20.5 NOT AN EMPLOYMENT CONTRACT. No Employee of the Company nor anyone else
shall have any rights against the Company as a result of this Plan, except
those expressly granted hereunder. Nothing herein shall be construed to
give any Participant the right to remain in the employ of the Company.
20.6 WORD USAGE. Words when used herein are used irrespective of number or
gender unless the context clearly requires otherwise.
20.7 INTERPRETATION OF PLAN. The intention of the Company is that the Plan shall
comply with the provisions of the Code, the Employee Retirement Income
Security Act, the Tax Equity and Fiscal Responsibility Act, and the
corresponding provisions of any subsequent laws, and the provisions of the
Plan shall be construed to effectuate such intention.
In the event any provision or provisions shall be determined to be illegal
or invalid for any reason, the illegal or invalid provision shall not
affect the remaining parts of the Plan and the Company, Administrator, or
Trustee may perform such alternative acts which most clearly carry out the
intent and purpose of the Plan.
20.8 HEADINGS. The headings of the Parts, Paragraphs and Sections of this Plan
are for convenience and reference only, and any conflict between such
headings and the text shall be resolved in favor of the text.
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PART XXI
Transitional Rule - Retirement Distributions
Subject to Part XIV and XV, distributions on behalf of any Participant,
including a 5-percent owner, may be made in accordance with all of the following
requirements (regardless of when such distribution commences):
(1) The distribution by the Plan is one which would not have disqualified such
Plan under Code Section 401(a)(9) as in effect prior to amendment by DEFRA.
(2) The distribution is in accordance with a method of distribution designated
by the Participant whose interest in the Plan is being distributed or, if
the Participant is deceased, by a Beneficiary of such Participant.
(3) Such designation was in writing, was signed by the Participant or the
Beneficiary, and was made before January 1, 1984.
(4) The Participant had accrued a benefit under the Plan as of December 31,
1983.
(5) The method of distribution designated by the Participant or the Beneficiary
specifies the time at which distribution shall commence, the period over
which distributions shall be made, and in the case of any distribution upon
the Participant's death, the Beneficiaries of the Participant listed in
order of priority.
A distribution upon death shall not be covered by this transitional rule unless
the information in the designation contains the required information described
above with respect to the distributions to be made upon the death of the
Participant.
For any distribution which commences before January 1, 1984, but continues after
December 31, 1983, the Participant, or the Beneficiary, to whom such
distribution is being made, shall be presumed to have designated the method of
distribution under which the distribution is being made if the method of
distribution was specified in writing and the distribution satisfies the
requirement in Subparagraph (5) above.
If a designation is revoked any subsequent distribution must satisfy the
requirements of Code Section 401(a)(9) and the Regulations thereunder. If a
designation is evoked subsequent to the date distributions are required to
begin, the Plan must distribute by the end of the calendar year following the
calendar year in which the revocation occurs the total amount not yet
distributed which would have been required to have been distributed to satisfy
Code Section 401(a)(9) and the Regulations thereunder, but for the Section
242(b)(2) election. For calendar years beginning after December 31, 1988, such
distributions must meet the minimum distribution incidental benefit requirements
in Section 1.401(a)-2 of the Income Tax Regulations. Any changes in the
designation shall be considered to be a revocation of the
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designation. However, the mere substitution or addition of another Beneficiary
(one not named in the designation) under the designation shall not be considered
to be a revocation of the designation, so long as such substitution or addition
does not alter the period over which distributions are to be made under the
designation, directly or indirectly (for example, by altering the relevant
measuring life). In the case in which an amount is transferred or rolled over
from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 shall apply.
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PART XXII
Transitional Rules - Survivor Annuities
B1. Any living Participant not receiving benefits on August 23, 1984, who would
otherwise not receive the benefits prescribed by Paragraphs 14.3 and 15.2
of the Plan must be given the opportunity to elect to have such Paragraphs
apply if the Participant is credited with at least one Hour Of Service
under this Plan or a predecessor Plan in a Plan Year beginning on or after
January 1, 1976, and such Participant had at least 10 years of vesting
service when he separated from Service.
B2. Any living Participant not receiving benefits on August 23, 1984, who was
credited with at least one Hour Of Service under this Plan or a predecessor
Plan on or after September 2, 1974, and who is not otherwise credited with
any Service in a Plan Year beginning on or after January 1, 1976, must be
given the opportunity to have his benefits paid in accordance with
Paragraph B4.
B3. The respective opportunities to elect (as described in Paragraphs B1 and B2
above) must be afforded to the appropriate Participants during the period
commencing on August 23, 1984, and ending on the date benefits would
otherwise commence to said Participants.
B4. Any Participant who has elected pursuant to Paragraph B2 and any
Participant who does not elect under Paragraph B1 or who meets the
requirements except that such Participant does not have at least 10 years
of vesting Service when he separates from Service, shall have his benefits
distributed in accordance with all of the following requirements if
benefits would have been payable in the form of a life annuity:
(a) Automatic Joint and Survivor Annuity. If benefits in the form of a
life annuity become payable to a married Participant who:
(i) begins to receive payments under the Plan on or after Normal
Retirement Date;
(ii) dies on or after Normal Retirement Date while still working for
the Company;
(iii)begins to receive payments on or after the Qualified Early
Retirement Date; or
(iv) separates from service on or after attaining Normal Retirement
Date (or the Qualified Early Retirement Date) and after
satisfying the eligibility requirements for the payment of
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benefits under the Plan and thereafter dies before beginning to
receive such benefits; then such benefits shall be received under
this Plan in the form of an Automatic Joint and Survivor Annuity,
unless the Participant has elected otherwise during the Election
Period. The Election Period must begin at least 6 months before
the Participant attains Qualified Early Retirement Date and end
not more than 90 days before the commencement of benefits. Any
election hereunder shall be in writing and may be changed by the
Participant at any time.
(b) Election of Early Survivor Annuity. A Participant who is employed
after attaining the Qualified Early Retirement Date shall be given the
opportunity to elect, during the Election Period, to have a survivor
annuity payable on death. If the Participant elects the survivor
annuity, payments under such annuity must not be less than the
payments which would have been made to the Spouse under the Automatic
Joint and Survivor Annuity if the Participant had retired on the day
before his death. Any election under this provision shall be in
writing and may be changed by the Participant at any time. The
election period begins on the later of (1) the 90th day before the
Participant attains the Qualified Early Retirement Date, or (2) the
date on which participation begins, and ends on the date the
Participant terminates employment.
(c) For purposes of this Paragraph B4, Qualified Early Retirement Date is
the latest of:
(i) the earliest date, under the Plan, on which the Participant may
elect to receive retirement benefits,
(ii) the first day of the 120th month beginning before the Participant
reaches Normal Retirement Date, or
(iii)the date the Participant begins participation.
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SELECT COMFORT
PROFIT SHARING AND 401(k) PLAN
(As Restated Effective October 1, 1998)
FIRST AMENDMENT TO THE ADOPTION AGREEMENT
Pursuant to the retained power of amendment contained in Section 18.3 of the
Select Comfort Profit Sharing and 401(k) Plan and to reflect the addition of
company stock as an investment option under the Plan, the undersigned hereby
amends the Plan in the following manner:
1. A new Section 1.44A is added to the Plan to read as follows:
"1.44A SELECT COMFORT STOCK - `Select Comfort Stock' means common stock
issued by Select Comfort Corporation."
2. A new Section 1.44BA is added to the Plan to read as follows:
"1.44B SELECT COMFORT STOCK FUND - `Select Comfort Stock Fund' means the
total of all the assets of every kind and nature, both principal and
income, held in the Select Comfort Stock Fund Trust at any particular
time."
3. A new Section 1.44C is added to the Plan to read as follows:
"1.44C SELECT COMFORT STOCK FUND TRUST - `Select Comfort Stock Fund Trust'
means the trust created for purposes of implementing benefits under
the Plan and may, as from time to time amended, by referred to as the
"Select Comfort Stock Fund Trust."
4. Notwithstanding Section 4.8, contributions may also be paid over to the
Select Comfort Stock Fund Trust.
5. Notwithstanding Section 6.1, Plan benefits may also be provided under the
Select Comfort Stock Fund Trust and Plan assets may be invested in Select
Comfort Stock.
6. Notwithstanding Section 6.2, the Plan will be funded by a Contract issued
by the Insurance Company and by the Select Comfort Stock Fund Trust.
7. Notwithstanding Section 6.3, contributions under the Plan may be invested
in Select Comfort Stock as directed by Participants in accordance with
Section 6.4.
8. Notwithstanding Section 6.4, in addition to the investment funds under the
Contract, a Participant may also designate in writing to have all or a
portion of such Participant's Account invested in the Select Comfort Stock
Fund as provided under Part XXIII.
9. The first paragraph of Section 8.1 is amended to read as follows:
"PARTICIPANT'S ACCOUNT. A separate account shall be maintained for each
Participant to which shall be credited the Company contributions and
earnings thereon. At any time, a Participant's Account shall equal: (i) the
sum of the value of accounts established and maintained under the Contract
on behalf of the Participant as of the latest Valuation Date, (ii) the
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value of any Policies on the life of the Participant, and (iii) the value
of the Participant's interest in the Select Comfort Stock Fund."
10. The first paragraph of Section 12.4 is amended to read as follows:
"12.4 FORFEITURE OF NONVESTED PORTION OF PARTICIPANT'S ACCOUNT. If a
Participant terminates employment, the amounts which were in excess of
his vested interest shall be withdrawn from the appropriate investment
funds under the Contract and under the Funds, any Policies and the
Select Comfort Stock Fund and shall be allocated to the fixed
investment option under the Contract. If the value of the
Participant's vested account balance derived from Company and the
Participant contributions is not greater than $3,500, the Participant
shall receive a distribution of the value of the entire vested portion
of such account balance and the nonvested portion shall be treated as
a forfeiture. For purposes of this Paragraph and Paragraph 12.5, if
the value of a Participant's vested account balance is zero, the
Participant shall be deemed to have received a distribution of such
vested account balance. A Participant's vested account balance shall
not include accumulated Participant Deductible Voluntary Contributions
within the meaning of Code Section 72(o)(5)(B) for Plan Years
beginning prior to January 1, 1989."
11. A new Part XXIII is added to the Plan, which reads as follows:
"PART XXIII - INVESTMENTS IN SELECT COMFORT STOCK
23.1 IN GENERAL. The Company has designated a Select Comfort Stock Fund
Trustee, pursuant to a Select Comfort Stock Fund Trust (the "Stock
Fund Trust"). Pursuant to Section 6.4, a Participant may direct the
investment of the Participant's account balance in the Select Comfort
Stock Fund.
23.2 VOTING AND TENDER RIGHTS. Each Participant will be provided with the
opportunity to direct the manner in which the shares of Select Comfort
Stock represented by the Participant's interest in the Select Comfort
Stock Fund will be voted in connection with any action at which
holders of Select Comfort Stock are entitled to vote. In the event of
a public tender or exchange offer for shares of Select Comfort Stock,
each Participant will be entitled to direct whether or not the shares
of Select Comfort Stock represented by the Participant's interest in
the Select Comfort Stock Fund will be tendered or exchanged. Voting,
tender or exchange decisions will be effected in accordance with the
following rules:
(1) The Administrator shall notify the Select Comfort Stock Fund
Trustee at least thirty (30) days in advance of the intended
record date for any annual or special stockholders' meeting
and shall cause a copy of all proxy solicitation materials
to be sent to the Select Comfort Stock Fund Trustee and
Norwest Shareholder Services, Inc. or any successor
appointed to be the Transfer Agent for Select Comfort Stock
("Select Comfort Stock Transfer Agent"). Based on these
materials, the Select Comfort Stock Transfer Agent, on
behalf of the Select Comfort Stock Fund Trustee, shall
promptly prepare and provide to the Administrator or its
designee a voting instruction form. The Administrator shall
cause
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a copy of the notice of the meeting and all proxy
solicitation materials and voting instruction forms to be
sent to each Plan Participant, together with directions to
return the completed voting instruction form to the Select
Comfort Stock Transfer Agent on behalf of the Select Comfort
Stock Fund Trustee. The form shall show the number of full
and fractional shares of Select Comfort Stock credited to
the Participants' accounts as of the record date for this
meeting.
(2) Each Participant shall have the right to direct the Select
Comfort Stock Fund Trustee as to the manner in which the
Select Comfort Stock Fund Trustee is to vote that number of
shares of Select Comfort Stock credited to the Participant's
accounts (both vested and unvested) as of the record date
for that meeting. Directions from a Participant to the
Select Comfort Stock Transfer Agent on behalf of the Select
Comfort Stock Fund Trustee concerning the voting of Select
Comfort Stock shall be communicated in writing, or by
mailgram or similar acceptable means as is agreed upon by
the Select Comfort Stock Fund Trustee and the Administrator.
These directions shall be held in confidence by the Select
Comfort Stock Fund Trustee and the Select Comfort Stock
Transfer Agent and shall not be divulged by them to the
Administrator, or any officer or employee of the Company, or
any other person, except as required to comply with any
applicable law. Upon its receipt of the tally of Participant
votes as tabulated by the Select Comfort Stock Transfer
Agent, the Select Comfort Stock Fund Trustee shall vote the
shares of Select Comfort Stock as directed by the
Participants and in accordance with the provisions of the
Stock Fund Trust.
(3) The Select Comfort Stock Fund Trustee will vote any Select
Comfort Stock with respect to which it does not receive
timely directions so that the proportion of such stock voted
in any particular manner on any matter is the same as the
proportion of the stock with respect to which the Select
Comfort Stock Fund Trustee has received timely directions
which is so voted.
(4) Upon commencement of a tender or exchange offer for Select
Comfort Stock held in the Stock Fund Trust, including any
tender or exchange offer by the Company, the Administrator
shall notify each Participant of the tender offer and
utilize its best efforts to timely distribute or cause to be
distributed to the Participant the same information that is
distributed to shareholders of Select Comfort Stock in
connection with the tender or exchange offer, and, after
consulting with the Select Comfort Stock Fund Trustee, shall
provide for a means by which notice is given to the
Participant to direct the Select Comfort Stock Fund Trustee
whether or not to tender or exchange the Select Comfort
Stock credited to the Participant's accounts (both vested
and unvested) and the deadline for providing such directions
to the Select Comfort Stock Fund Trustee or the Select
Comfort Stock Transfer Agent as set forth in such notice.
The Administrator shall provide the Select Comfort Stock
Fund Trustee and the Select Comfort Stock Transfer Agent
with a copy of the notice of
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any tender or exchange offer and the Select Comfort Stock
Transfer Agent, on behalf of the Select Comfort Stock Fund
Trustee, will cause a copy of such materials, to be mailed
to the Participants, together with instructions on the
manner to forward the Participant's response to any such
tender or exchange offer.
(5) Each Participant shall have the right to direct the Select
Comfort Stock Fund Trustee to tender or not to tender some
or all of the shares of Select Comfort Stock credited to the
Participant's accounts (both vested and unvested).
Directions from a Participant to the designated Select
Comfort Stock Transfer Agent on behalf of the Select Comfort
Stock Fund Trustee concerning the tender or exchange of
Select Comfort Stock shall be communicated in writing, or by
mailgram or such similar acceptable means as is agreed upon
by the Select Comfort Stock Fund Trustee and the
Administrator. These directions shall be held in confidence
by the Select Comfort Stock Fund Trustee and the Select
Comfort Stock Transfer Agent and shall not be divulged by
them to the Company, or any officer or employee thereof, or
any other person except to the extent that the consequences
of such directions are reflected in reports regularly
communicated to any such persons in the ordinary course of
the performance of the Select Comfort Stock Fund Trustee's
services under the Stock Fund Trust or as required to comply
with any applicable law. The Select Comfort Stock Fund
Trustee shall tender/exchange or not tender/exchange shares
of Select Comfort Stock as directed by the Participant
according to the instructions received by the designated
Select Comfort Stock Transfer Agent and communicated to the
Select Comfort Stock Fund Trustee. The Select Comfort Stock
Fund Trustee shall not tender shares of Select Comfort Stock
credited to a Participant's accounts for which it has not
received timely directions from the Participant.
(6) A Participant who has directed the Select Comfort Stock Fund
Trustee through the Select Comfort Stock Transfer Agent to
tender some or all of the shares of Select Comfort Stock
credited to the Participant's accounts may, at any time
prior to the tender offer withdrawal date, direct the Select
Comfort Stock Fund Trustee through the Select Comfort Stock
Transfer Agent in writing or by mailgram to withdraw some or
all of the tendered shares, and the Select Comfort Stock
Fund Trustee shall withdraw the directed number of shares
from the tender offer prior to the tender offer withdrawal
deadline. A Participant shall not be limited as to the
number of directions to tender or withdraw that the
Participant may give to the Select Comfort Stock Fund
Trustee through the Select Comfort Stock Transfer Agent.
(7) A direction by a Participant to the Select Comfort Stock
Fund Trustee or Select Comfort Stock Transfer Agent to
tender shares of Select Comfort Stock credited to the
Participant's accounts shall not be considered a written
election under the Plan by the Participant to withdraw, or
have distributed, any or all of his withdrawable shares. The
Select Comfort
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Stock Fund Trustee shall credit to each account of the
Participant from which the tendered shares were taken the
proceeds received by the Select Comfort Stock Fund Trustee
in exchange for the shares of Select Comfort Stock tendered
from that account. Pending receipt of directions (through
the Administrator) from the Participant or the Named
Fiduciary as to which of the remaining investment options
the proceeds should be invested in, the Select Comfort Stock
Fund Trustee shall invest the proceeds in the Guaranteed
Interest Fund or such Fund(s) as selected by the Named
Fiduciary."
23.3 SECTION 16 TRANSFERS. A Participant who is subject to the reporting
requirements of section 16 of the Securities Exchange Act of 1934 (the
"Exchange Act") with respect to Select Comfort Stock may elect to make
a transfer pursuant to Section 6.4, a plan loan pursuant to Part XI, a
withdrawal pursuant to Parts X, XII or XIV or any other "discretionary
transaction," as that term is defined under the Exchange Act, from the
portion of his or her Account invested in Select Comfort Stock only if
the following conditions are satisfied.
(1) The election to make such transfer or application for the
withdrawal must be made within the period between the third
and twelfth days, inclusive, following the Company's release
of its quarterly or annual financial data in the manner
described in Rule 16b-3(e)(1)(ii) of the Securities and
Exchange Commission. Such election or application will be
given effect at the same time as would other elections or
applications made at the same time.
(2) Such Participant has not made any election to transfer any
portion of his or her Account balance from Select Comfort
Stock or withdrawal from the portion of his or her Account
invested in Select Comfort Stock within the six month period
immediately preceding the date on which such election is
made."
The amendments set forth above are effective as of June 1, 1999 and apply to all
Participants, including those who terminated employment before June 1, 1999.
IN WITNESS WHEREOF, the undersigned has caused this instrument to be executed by
its duly authorized officer this 1st day of June, 1999.
SELECT COMFORT CORPORATION
By: /s/Mark A. Kimball
Its: Senior Vice President and
Chief Administrative Officer
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EXHIBIT 10.6
SELECT COMFORT CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The purpose of this 1999 Employee Stock Purchase Plan (the "Plan") is to
advance the interests of Select Comfort Corporation (the "Company") and its
shareholders by allowing eligible employees of the Company and its Participating
Subsidiaries to use payroll deductions to acquire shares of the Company's Common
Stock on favorable terms. The Company intends that the Plan qualify as an
"employee stock purchase plan" under Section 423 of the Code. Accordingly,
provisions of the Plan will be construed so as to extend and limit participation
in a manner consistent with the requirements of Section 423 of the Code.
2. DEFINITIONS.
2.1 "BOARD" means the Board of Directors of the Company.
2.2 "CHANGE IN CONTROL" means an event described in Section 9.1 of the
Plan.
2.3 "CODE" means the Internal Revenue Code of 1986, as amended.
2.4 "COMMITTEE" means the group of individuals administering the Plan, as
provided in Section 3 of the Plan.
2.5 "COMMON STOCK" means the common stock, par value $0.01 per share, of
the Company, or the number and kind of shares of stock or other securities into
which such common stock may be changed in accordance with Section 4.3 of the
Plan.
2.6 "COMPENSATION" means all gross cash compensation (including wage,
salary, incentive, bonus and overtime earnings) paid by the Company or any
Participating Subsidiary to a Participant, including amounts that would have
constituted compensation but for a Participant's election to defer or reduce
compensation pursuant to any deferred compensation, cafeteria, capital
accumulation or any other similar plan of the Company; provided, however, that
the Committee, in its sole discretion, may expand or limit the amounts that will
be deemed compensation for purposes of the Plan in such manner as it deems
appropriate.
2.7 "ELIGIBLE EMPLOYEE" means any employee of the Company or a
Participating Subsidiary (other than an employee whose customary employment with
the Company or a Participating Subsidiary is for five months or less per
calendar year) who, with respect to any Offering Period, is employed by the
Company or a Participating Subsidiary prior to the Offering Commencement Date
for such Offering Period.
2.8 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
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2.9 "FAIR MARKET VALUE" means, with respect to the Common Stock, as of any
date (or, if no shares were traded or quoted on such date, as of the next
preceding date on which there was such a trade or quote) (a) the mean between
the reported high and low sale prices of the Common Stock if the Common Stock is
listed, admitted to unlisted trading privileges or reported on any foreign or
national securities exchange or on the Nasdaq National Market or an equivalent
foreign market on which sale prices are reported; (b) if the Common Stock is not
so listed, admitted to unlisted trading privileges or reported, the closing bid
price as reported by the Nasdaq SmallCap Market, OTC Bulletin Board, National
Quotation Bureau, Inc. or other comparable service; or (c) if the Common Stock
is not so listed or reported, such price as the Committee determines in good
faith in the exercise of its reasonable discretion.
2.10 "OFFERING COMMENCEMENT DATE" means the first day of an Offering
Period.
2.11 "OFFERING PERIOD" means any of the offerings to Participants of
Options under the Plan, each continuing for three months, as described in
Section 6 of the Plan.
2.12 "OFFERING TERMINATION DATE" means the last day of an Offering Period.
2.13 "OPTION" means a right to purchase shares of Common Stock granted to a
Participant in connection with an Offering Period pursuant to Section 7 of the
Plan
2.14 "OPTION PRICE" means, with respect to any Offering Period, 85% of the
Fair Market Value of one share of Common Stock on the Offering Termination Date.
2.15 "PARTICIPANT" means an Eligible Employee who elects to participate in
the Plan pursuant to Section 5 of the Plan.
2.16 "PARTICIPATING SUBSIDIARY" means a Subsidiary that has been designated
by the Committee from time to time, in its sole discretion, as a corporation
whose Eligible Employees may participate in the Plan.
2.17 "SECURITIES ACT" means the Securities Act of 1933, as amended.
2.18 "SUBSIDIARY" means any subsidiary corporation of the Company within
the meaning of Section 424(f) of the Code.
2.19 "TERMINATION OF EMPLOYMENT" means a Participant's complete termination
of employment with the Company and all Participating Subsidiaries for any
reason, including without limitation death, disability or retirement. In the
event that a Participant is in the employ of a Participating Subsidiary and the
Participating Subsidiary ceases to be a Participating Subsidiary of the Company
for any reason, such event will be deemed a termination of employment unless the
Participant continues in the employ of the Company or another Participating
Subsidiary.
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3. ADMINISTRATION.
The Plan will be administered by the Board or by a committee of the Board.
So long as the Company has a class of its equity securities registered under
Section 12 of the Exchange Act, any committee administering the Plan will
consist solely of two or more members of the Board who are "non-employee
directors" within the meaning of Rule 16b-3 under the Exchange Act. Such a
committee, if established, will act by majority approval of the members (at a
meeting in person or by telephone conference or by written consent), and a
majority of the members of such a committee will constitute a quorum. As used in
the Plan, "Committee" will refer to the Board or to such a committee, if
established. To the extent consistent with corporate law, the Committee may
delegate to any officers of the Company the duties, power and authority of the
Committee under the Plan pursuant to such conditions or limitations as the
Committee may establish; provided, however, that only the Committee may exercise
such duties, power and authority with respect to Participants who are subject to
Section 16 of the Exchange Act. The Committee may exercise its duties, power and
authority under the Plan in its sole discretion without the consent of any
Participant or other party, unless the Plan specifically provides otherwise.
Each determination, interpretation or other action made or taken by the
Committee pursuant to the provisions of the Plan will be final, conclusive and
binding for all purposes and on all persons, including, without limitation, the
Company, the shareholders of the Company, the participants and their respective
successors-in-interest. No member of the Committee will be liable for any action
or determination made in good faith with respect to the Plan or any Option
granted under the Plan.
4. SHARES AVAILABLE FOR ISSUANCE; ADJUSTMENTS FOR CERTAIN EVENTS.
4.1 MAXIMUM NUMBER OF SHARES AVAILABLE. Subject to adjustment as provided
in Section 4.3 of the Plan, the maximum number of shares of Common Stock
available for issuance under the Plan in each calendar year will be 500,000
shares of Common Stock. Shares of Common Stock available for issuance under the
Plan in any calendar year that are not issued in such calendar year will not be
carried over to any subsequent calendar year. If the total number of shares of
Common Stock that would otherwise be issuable upon the exercise of Options
granted pursuant to Section 7 of the Plan on any Offering Termination Date
exceeds the number of shares then available for issuance under the Plan, the
Committee will make a pro rata allocation of the shares of Common Stock
remaining available for issuance under the Plan in as uniform and equitable a
manner as it deems appropriate.
4.2 ACCOUNTING FOR OPTIONS. Shares of Common Stock that are issued under
the Plan in any calendar year or that are subject to outstanding Options will be
applied to reduce the maximum number of shares of Common Stock remaining
available for issuance under the Plan in such calendar year. Any shares of
Common Stock that are subject to an Option that is terminated unexercised in any
calendar year will automatically again become available for issuance under the
Plan in such calendar year.
4.3 ADJUSTMENTS TO SHARES AND OPTIONS. In the event of any reorganization,
merger, consolidation, recapitalization, liquidation, reclassification, stock
dividend, stock split, combination of shares, rights offering, divestiture or
extraordinary dividend (including a spin-
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off) or any other change in the corporate structure or shares of the Company,
the Committee (or, if the Company is not the surviving corporation in any such
transaction, the board of directors of the surviving corporation) will make
appropriate adjustment (which determination will be conclusive) as to the number
and kind of securities or other property (including cash) available for issuance
or payment under the Plan and, in order to prevent dilution or enlargement of
the rights of Participants, the number and kind of securities or other property
(including cash) subject to, and the exercise price of, outstanding Options.
5. PARTICIPATION; PAYROLL DEDUCTIONS.
5.1 PARTICIPATION. Participation in the Plan is voluntary and is not a
condition of employment. Eligible Employees may elect to participate in the
Plan, beginning with the first Offering Period to commence after such person
becomes an Eligible Employee, by properly completing an enrollment form in the
form provided by the Company and filing the enrollment form with the Company's
Human Resources Department not later than the 15th day of the month immediately
preceding the Offering Commencement Date of the first Offering Period in which
the Participant wishes to participate (or on such later date prior to the first
Offering Period after adoption of the Plan as may be reasonably necessary to
enable Eligible Employees to participate in such first Offering Period). An
Eligible Employee who elects to participate with respect to an Offering Period
will be deemed to have elected to participate in each subsequent Offering
Period, unless such Participant properly withdraws from participation on a
timely basis. An Eligible Employee may withdraw from participation as to any
subsequent Offering Period by properly completing a notice of withdrawal in the
form provided by the Company and filing the notice of withdrawal with the
Company's Human Resources Department not later than 4:30 p.m., Minneapolis,
Minnesota time on the 15th day of the last month of an Offering Period. Any such
notice of withdrawal will be effective for the next Offering Period commencing
after the Offering Period in which such notice of withdrawal is given, all as
further described in Section 8.1 of the Plan.
5.2 LIMITATION ON PARTICIPATION. Notwithstanding any provisions of the Plan
to the contrary, an Eligible Employee may not participate in the Plan and will
not be granted an Option under the Plan if, immediately after the grant of such
Option, such Eligible Employee (or any other person whose stock ownership would
be attributed to such Eligible Employee pursuant to Section 424(d) of the Code)
would own stock or options possessing 5% or more of the total combined voting
power or value of all classes of stock of the Company or of its "parent" or
"subsidiary" corporations (within the meaning of Section 424 of the Code).
5.3 PAYROLL DEDUCTIONS.
(a) By completing and filing an enrollment form, a Participant will
elect to have payroll deductions made from such Participant's total
Compensation in whole percentages from a minimum of 1% to a maximum of 15%,
(or such other minimum or maximum percentages as the Committee may from
time to time establish).
(b) All payroll deductions authorized by a Participant will be
credited as of each payday to an account established under the Plan for the
Participant. Such account
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will be solely for bookkeeping purposes, no separate fund, trust or other
segregation of such amounts will be established or made and the amounts
represented by such account will be held as part of the Company's general
assets, usable for any corporate purpose. A Participant may not make any
separate cash payment or contribution to such Participant's account. No
interest will accrue on amounts held in such accounts under the Plan.
(c) No increases or decreases in the amount of payroll deductions for
a Participant may be made during an Offering Period. A Participant may
increase or decrease the amount of his or her payroll deductions under the
Plan for subsequent Offering Periods by properly completing an amended
enrollment form and filing it with the Company's Human Resources Department
not later than the 15th day of the month immediately preceding the Offering
Commencement Date of the Offering Period for which such change in payroll
deductions is to be effective.
(d) A Participant may withdraw from participation in the Plan as
provided in Section 8.1 of the Plan.
6. OFFERING PERIODS.
Options to purchase shares of Common Stock will be offered to Participants
under the Plan through a continuous series of Offering Periods, each continuing
for three months, and each of which will commence on January 1, April 1, July 1
and October 1 of each year, as the case may be, and will terminate on March 31,
June 30, September 30 and December 31 of such year, as the case may be.
7. OPTIONS.
7.1 GRANT OF OPTIONS. With respect to any Offering Period, each Participant
participating in such Offering Period will be granted, by operation of the Plan
on the Offering Commencement Date for such Offering Period, an Option to
purchase (at the Option Price) as many full shares of Common Stock as such
Participant will be able to purchase with the accumulated payroll deductions
credited to such Participant's account during such Offering Period plus the
balance (if any) carried forward from the Participant's payroll deduction
account from the preceding Offering Period.
7.2 LIMITATIONS ON PURCHASE. Notwithstanding Section 7.1 or any other
provision of the Plan to the contrary, the number of shares of Common Stock that
may be purchased under the Plan will be limited as follows:
(a) No Participant may purchase more than 2,000 shares of Common Stock
under the Plan in any given Offering Period.
(b) No Participant may be granted an Option that permits such
Participant's right to purchase Common Stock under the Plan and any other
"employee stock purchase plans" (within the meaning of Section 423 of the
Code) of the Company and its Subsidiaries to accrue (i.e., become
exercisable) at a rate that exceeds $25,000 of Fair
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Market Value of Common Stock (determined at the time such Option is
granted) for each calendar year in which such Option is outstanding at any
time.
7.3 EXERCISE OF OPTIONS.
(a) Unless a Participant withdraws from the Plan as provided in
Section 8.1 of the Plan, the Participant's Option for the purchase of
shares of Common Stock granted with respect to an Offering Period will be
exercised automatically at the Offering Termination Date of such Offering
Period for the purchase of the number of full shares of Common Stock that
the accumulated payroll deductions in such Participant's account as of such
Offering Termination Date will purchase at the applicable Option Price.
(b) A Participant may only purchase one or more full shares in
connection with the exercise of an Option granted for any Offering Period.
The portion of any balance remaining in a Participant's payroll deduction
account at the close of business on the Offering Termination Date of any
Offering Period that is less than the Option Price of one full share of
Common Stock will be carried forward into the Participant's payroll
deduction account for the following Offering Period. In no event, however,
will the balance carried forward be equal to or greater than the Option
Price of one full share of Common Stock on the Offering Termination Date of
an Offering Period.
(c) No Participant (or any person claiming through such Participant)
will have any interest in any Common Stock subject to an Option under the
Plan until such Option has been exercised, at which point such interest
will be limited to the interest of a purchaser of the Common Stock
purchased upon such exercise pending the delivery of such Common Stock.
(d) Shares of Common Stock acquired by each Participant shall be held
in a general securities brokerage account maintained for the benefit of all
Participants with a registered securities broker/dealer selected by the
Company (the "Agent"). The Agent shall maintain individual subaccounts for
each Participant in such general account to which shall be allocated such
Participant's shares of Common Stock. The Committee, in its discretion, may
direct the Agent to issue and deliver to any Participant a certificate or
certificates for the whole number of shares of Common Stock held in such
Participant's subaccount at any time ninety (90) days or more after the
Participant ceases to be an Eligible Employee, which certificates shall be
registered in the name of the Participant or in the form directed by the
Participant. No certificates for fractional shares will be issued. Instead,
Participants will receive a cash distribution representing any fractional
shares.
(e) Cash dividends with respect to a Participant's shares of Common
Stock held in the general securities brokerage account maintained by the
Agent shall automatically be reinvested in additional shares of Common
Stock. The purchase price of any shares ("Reinvestment Shares") purchased
through the reinvestment of dividends shall be the Fair Market Value of a
share on the date such dividend is paid. There shall
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be allocated to each Participant's individual subaccount such Participant's
Reinvestment Shares purchased with the dividend funds credited to such
Participant.
(f) Each Participant shall be entitled to vote all shares held for the
benefit of such Participant in the general securities brokerage account
maintained by the Agent.
8. WITHDRAWAL FROM PLAN.
8.1 VOLUNTARY WITHDRAWAL.
(a) A Participant may, at any time on or before 4:30 p.m.,
Minneapolis, Minnesota time on the 15th day of the last month of an
Offering Period, terminate his or her participation in the Plan and
withdraw all, but not less than all, of the payroll deductions credited
during the applicable Offering Period to such Participant's account under
the Plan by giving written notice of withdrawal to the Company's Human
Resources Department. Such notice shall be substantially in the form of the
notice of withdrawal provided by the Company and must state that the
Participant wishes to terminate his or her participation in the Plan and
request the withdrawal of all of the Participant's payroll deductions
credited during the applicable Offering Period to such Participant's
account under the Plan. Following the receipt by the Company of a timely
notice of withdrawal, (a) all of the payroll deductions credited during the
applicable Offering Period to such Participant's account under the Plan
will be paid to such Participant as soon as practicable after receipt of
the notice of withdrawal; (b) such Participant's Option for such Offering
Period will automatically be canceled and will no longer be exercisable;
and (c) payroll deductions under the Plan will cease as soon as practicable
after receipt of the notice of withdrawal and until such time, if any, that
a valid and timely enrollment form is subsequently filed by such
Participant.
(b) A Participant's voluntary withdrawal pursuant to this Section 8.1
will not have any effect upon such Participant's eligibility to participate
in a subsequent Offering Period (so long as such Participant completes and
files a new enrollment form pursuant to Section 5 of the Plan) or in any
similar plan that may hereafter be adopted by the Company.
8.2 TERMINATION OF EMPLOYMENT.
(a) Upon the Termination of Employment of a Participant at any time,
(a) all of the payroll deductions credited during the current Offering
Period to such Participant's account under the Plan will be paid to such
Participant (or, in the case of death, to the person or persons entitled
thereto under Sections 10 and 11.3 of the Plan) as soon as practicable
after the effective date of the Termination of Employment; (b) such
Participant's Option for such Offering Period will automatically be
canceled and will no longer be exercisable; and (c) payroll deductions
under the Plan will cease as soon as practicable after the effective date
of the Termination of Employment.
7
<PAGE>
(b) Unless the Committee otherwise determines in its sole discretion,
a Participant's employment will, for purposes of the Plan, be deemed to
have terminated on the date recorded on the personnel or other records of
the Company or the Participating Subsidiary for which the Participant
provides employment, as determined by the Committee in its sole discretion
based upon such records.
9. CHANGE IN CONTROL.
9.1 CHANGE IN CONTROL. For purposes of this Section 9, a "Change in
Control" of the Company will mean the following:
(a) the sale, lease, exchange or other transfer, directly or
indirectly, of substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to any Person (as
defined below);
(b) the approval by the shareholders of the Company of any plan or
proposal for the liquidation or dissolution of the Company;
(c) any Person, other than a Bona Fide Underwriter (as defined below),
becomes after the effective date of the Plan the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
(i) 20% or more, but not more than 50%, of the combined voting power of the
Company's outstanding securities ordinarily having the right to vote at
elections of directors, unless the transaction resulting in such ownership
has been approved in advance by the Continuity Directors (as defined
below), or (ii) more than 50% of the combined voting power of the Company's
outstanding securities ordinarily having the right to vote at elections of
directors (regardless of any approval by the Continuity Directors);
(d) a merger or consolidation to which the Company is a party if the
shareholders of the Company immediately prior to the effective time of such
merger or consolidation have, solely on account of ownership of securities
of the Company at such time, "beneficial ownership" (as defined in Rule
13d-3 under the Exchange Act), immediately following the effective time of
such merger or consolidation, of securities of the surviving corporation
representing (i) 50% or more, but not more than 80%, of the combined voting
power of the surviving corporation's then outstanding securities ordinarily
having the right to vote at elections of directors, unless such merger or
consolidation has been approved in advance by the Continuity Directors, or
(ii) less than 50% of the combined voting power of the surviving
corporation's then outstanding securities ordinarily having the right to
vote at elections of directors (regardless of any approval by the
Continuity Directors); or
(e) the Continuity Directors cease for any reason to constitute at
least a majority of the Board.
8
<PAGE>
9.2 CHANGE IN CONTROL DEFINITIONS. For purposes of this Section 9:
(a) "Continuity Director" means any individual who was a member of the
Board on the effective date of the Plan, while he or she is a member of the
Board, and any individual who subsequently becomes a member of the Board
whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors who are
Continuity Directors (either by a specific vote or by approval of the proxy
statement of the Company in which such individual is named as a nominee for
director without objection to such nomination). For example, assuming that
seven individuals comprise the entire Board as of the effective date of the
Plan, if a majority of such individuals approved a proxy statement in which
two different individuals were nominated to replace two of the individuals
who were members of the Board as of the effective date of the Plan, these
two newly elected directors would join the remaining five directors who
were members of the Board as of the effective date of the Plan as
Continuity Directors. Similarly, if subsequently a majority of these
directors approved a proxy statement in which three different individuals
were nominated to replace three other directors who were members of the
Board as of the effective date of the Plan, these three newly elected
directors would also become, along with the other four directors,
Continuity Directors. Individuals subsequently joining the Board could
become Continuity Directors under the principles reflected in this example.
(b) "Bona Fide Underwriter" means a Person engaged in business as an
underwriter of securities that acquires securities of the Company from the
Company through such Person's participation in good faith in a firm
commitment underwriting until the expiration of 40 days after the date of
such acquisition.
(c) "Person" means any individual, corporation, partnership, group,
association or other "person," as such term is used in Section 13(d) or
Section 14(d) of the Exchange Act, other than the Company, any affiliate or
any benefit plan sponsored by the Company or any affiliate. For this
purpose, an affiliate is (i) any corporation at least a majority of whose
outstanding securities ordinarily having the right to vote at elections of
directors is owned directly or indirectly by the Company or (ii) any other
form of business entity in which the Company, by virtue of a direct or
indirect ownership interest, has the right to elect a majority of the
members of such entity's governing body.
9.3 ADJUSTMENT OF OFFERING PERIOD. Without limiting the authority of the
Committee under Sections 3, 4.3 and 13 of the Plan, if a Change in Control of
the Company occurs, the Committee, in its sole discretion, may (a) accelerate
the Offering Termination Date of the then current Offering Period and provide
for the exercise of Options thereunder by Participants in accordance with
Section 7.3 of the Plan, or (b) accelerate the Offering Termination Date of the
then current Offering Period and provide that all payroll deductions credited to
the accounts of Participants will be paid to Participants as soon as practicable
after such Offering Termination Date and that all Options for such Offering
Period will automatically be canceled and will no longer be exercisable.
9
<PAGE>
10. DESIGNATION OF BENEFICIARY.
A Participant may file with the Company's Human Resources Department a
written designation of a beneficiary who is to receive shares of Common Stock
and cash, if any, under the Plan in the event of such Participant's death prior
to delivery of such shares or cash to such Participant. The Participant may
change such designation of beneficiary at any time by written notice to the
Company's Human Resources Department. In the event of the death of a Participant
in the absence of a valid designation of a beneficiary who is living at the time
of such Participant's death, (a) the Company will deliver such shares of Common
Stock and cash to the executor or administrator of the estate of the
Participant, or (b) if to the Company's knowledge no such executor or
administrator has been appointed, the Company, in its sole discretion, may
deliver such shares of Common Stock and cash to the spouse or to any one or more
dependents or relatives of the Participant or, if no spouse, dependent or
relative is known to the Company, to such other person as the Company may
designate.
11. RIGHTS OF ELIGIBLE EMPLOYEES AND PARTICIPANTS; TRANSFERABILITY.
11.1 NO RIGHT TO EMPLOYMENT. Nothing in the Plan will interfere with or
limit in any way the right of the Company or any Participating Subsidiary to
terminate the employment of any Eligible Employee or Participant at any time,
nor confer upon any Eligible Employee or Participant any right to continue in
the employ of the Company or any Participating Subsidiary.
11.2 RIGHTS AS A SHAREHOLDER. As a holder of an Option under the Plan, a
Participant will have no rights as a shareholder unless and until such Option is
exercised and the Participant becomes the holder of record of shares of Common
Stock. Except as otherwise provided in the Plan, no adjustment will be made for
dividends or distributions with respect to Options as to which there is a record
date preceding the date the Participant becomes the holder of record of such
shares, except as the Committee may determine in its sole discretion.
11.3 RESTRICTIONS ON TRANSFER. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an Option or
to receive shares of Common Stock under the Plan may be assigned, transferred,
pledged or otherwise disposed of in any way (other than by will, the laws of
descent and distribution, or as provided in Section 10 of the Plan) by the
Participant. Any such attempt at assignment, transfer, pledge or other
disposition will be without effect, except that the Company may treat such act
as an election to withdraw from the Plan in accordance with Section 8.1 of the
Plan. During his or her lifetime, a Participant's Option to purchase shares of
Common Stock under the Plan is exercisable only by such Participant.
12. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or any agreements entered
into pursuant to the Plan, the Company will not be required to issue any shares
of Common Stock under the Plan, and a Participant may not sell, assign, transfer
or otherwise dispose of shares of Common Stock issued pursuant to Options
granted under the Plan, unless (a) there is in effect with respect to such
shares a registration statement under the Securities Act and any applicable
state or foreign securities laws or an exemption from such registration under
the Securities Act and
10
<PAGE>
applicable state or foreign securities laws, and (b) there has been obtained any
other consent, approval or permit from any other regulatory body that the
Committee, in its sole discretion, deems necessary or advisable. The Company may
condition such issuance, sale or transfer upon the receipt of any
representations or agreements from the parties involved, and the placement of
any legends on certificates representing shares of Common Stock, as may be
deemed necessary or advisable by the Company in order to comply with such
securities law or other restrictions.
13. AMENDMENT OR TERMINATION.
The Board may suspend or terminate the Plan or any portion thereof at any
time, and may amend the Plan from time to time in such respects as the Board may
deem advisable in order that Options under the Plan will conform to any change
in applicable laws or regulations or in any other respect the Board may deem to
be in the best interests of the Company; provided, however, that no amendments
to the Plan will be effective without approval of the shareholders of the
Company if shareholder approval of the amendment is then required pursuant to
Section 423 of the Code or the rules of any stock exchange or Nasdaq or similar
regulatory body. Upon termination of the Plan, the Committee, in its sole
discretion, may take any of the actions described in Section 9.3 of the Plan.
14. EFFECTIVE DATE OF PLAN.
The Plan will be effective as of June 10, 1999, the date it was adopted by
the Board. The Plan will terminate at midnight on December 31, 2020 and may be
terminated prior to such time by Board action, and no Option will be granted
after such termination. The Plan has been adopted by the Board subject to
shareholder approval.
15. MISCELLANEOUS.
15.1 GOVERNING LAW. The validity, construction, interpretation,
administration and effect of the Plan and any rules, regulations and actions
relating to the Plan will be governed by and construed exclusively in accordance
with the laws of the State of Minnesota, notwithstanding the conflicts of laws
principles of any jurisdictions.
15.2 SUCCESSORS AND ASSIGNS. The Plan will be binding upon and inure to the
benefit of the successors and permitted assigns of the Company and the
Participants.
15.3 WITHHOLDING. Delivery of shares of Common Stock or of cash pursuant to
the Plan shall be subject to any required withholding taxes. A person entitled
to receive shares of Common Stock may, as a condition precedent to receiving
such shares, be required to pay the Company a cash amount equal to the amount of
any required withholdings.
11
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