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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-19891
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SCHULER HOMES, INC.
(Exact name of Registrant as Specified in its Charter)
DELAWARE 99-0293125
(State or Other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) No.)
828 FORT STREET MALL, 4TH FLOOR
HONOLULU, HAWAII 96813
(Address of Principal Executive Offices) (Zip Code)
(808) 521-5661
(Registrant's Telephone Number, Including Area Code)
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Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
Convertible Subordinated Debentures Due 2003
Senior Notes Due 2008
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Common Stock held by non-affiliates of the
Registrant on February 26, 1999, based on the closing price of the Common Stock
as reported by the Nasdaq National Market on such date, was approximately
$74,105,678. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded from this computation in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of February 26, 1999, the Registrant had outstanding 20,053,192 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement relating to the Company's 1999
Annual Meeting to be filed hereafter (incorporated into Part III hereof).
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SCHULER HOMES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
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PAGE
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PART I
Item 1. Business.......................................................... 3
Item 2. Properties........................................................ 13
Item 3. Legal Proceedings................................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............... 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters......................................................... 15
Item 6. Selected Consolidated Financial Data.............................. 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................... 17
Item 7A. Quantitative and Qualitative Disclosure About Market Risk......... 24
Item 8. Financial Statements and Supplementary Data....................... 25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 26
PART III
Item 10. Directors and Executive Officers of the Registrant................
Item 11. Executive Compensation............................................
Item 12. Security Ownership of Certain Beneficial Owners and Management....
Item 13. Certain Relationships and Related Transactions....................
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K............................................................. 27
</TABLE>
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PART I
ITEM 1. BUSINESS.
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
anticipated by such forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those risks discussed herein, and
other risks detailed in this Form 10-K and other documents filed by the Company
with the Securities and Exchange Commission from time to time.
GENERAL
Schuler Homes designs, constructs, markets and sells single-family
residences, townhomes and condominiums primarily to entry-level and first-time
move-up buyers. The Company operates in five geographic markets: Colorado,
Hawaii, Northern California, Oregon and Washington. The Company offers a variety
of homes generally at sizes ranging from 520 to 3,100 square feet and prices
ranging from approximately $84,000 to over $400,000, with an average sales price
of $189,000 for units closed in 1998. For the year ended December 31, 1998, the
Company reported revenues and unit closings of $282.9 million and 1,827 units,
respectively.
Schuler Homes is one of the two largest builders of single-family
residences, townhomes and condominiums in Hawaii. Since inception in March 1988
through December 31, 1998, the Company closed the sales of 5,502 homes and lots,
of which 340 home and lot sales were closed during 1998. As of December 31,
1998, the Company had land zoned and entitled for 2,824 homes in Hawaii.
Schuler Homes entered the Denver, Colorado homebuilding market in January
1997 through the purchase of Melody Homes, Inc. ("Melody"), one of the largest
builders in the Denver market, and Melody Mortgage Co. ("Melody Mortgage"), a
mortgage brokerage firm for Melody home buyers. The Company believes it is
well-positioned to benefit from the future growth in the Denver housing market
as a result of its strong land position (approximately 6,975 lots owned or
controlled as of December 31, 1998) and its local market knowledge. Since its
inception in 1953, Melody Homes has closed the sales of 16,180 homes and lots.
During 1998, Melody's deliveries of homes increased by 14.7% to 1,090 homes and
its revenues increased by 21.8% to $172.0 million. In addition, at December 31,
1998, Melody's backlog was 457 units, or $78.1 million, compared to 267 units,
or $41.3 million at December 31, 1997. In addition, the Company owns a 50%
interest in a joint venture, The Ranch-Southpointe II LLC, for the development
of 116 townhomes in Lafayette, Colorado.
The Company also established two new homebuilding operations in Northern
California and Oregon / Vancouver, Washington in late 1996. In 1998, the Company
delivered 146 new homes in these markets. The Company further expanded its
Oregon operations in October 1998 through the acquisition of certain assets
(principally options to purchase land) of Keys Homes, Inc. ("Keys"), a Portland,
Oregon homebuilder, engaged in the building of single-family, duplex and cottage
homes targeted for the entry-level market. During the twelve months ended
September 30, 1998, Keys delivered 193 homes generating revenues of
approximately $23.8 million. As of December 31, 1998, the Company's Northern
California and Oregon divisions owned or controlled 2,388 lots.
The Company entered the Puget Sound, Washington market in July 1997 by
acquiring a 49% interest in Stafford Homes ("Stafford"), a homebuilder for over
30 years in the greater Puget Sound area of Washington. During 1998, Stafford
delivered 251 homes, generating revenues of $61.3 million and as of December 31,
1998, owned or controlled 1,137 zoned lots. In January 1999, Schuler Homes
exercised its option to purchase an additional 40% ownership interest in
Stafford, increasing Schuler Homes' total ownership to 89%. The Company expects
to purchase the remaining 11% ownership interest in January 2001.
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HOMEBUILDING INDUSTRY
The homebuilding industry is cyclical and affected by changes in general and
local economic and other conditions including employment levels, demographic
considerations, availability of financing, interest rate levels, consumer
confidence and housing demand. The risks inherent to homebuilders in purchasing
and developing land increase as consumer demand for housing decreases. Because
of the long-term financial commitment involved in purchasing a home, general
economic uncertainties tend to result in more caution on the part of home
buyers, which, in turn, tends to result in fewer home purchases. In addition,
homebuilders are subject to various risks, many of them outside the control of
the homebuilder including competitive overbuilding, availability and cost of
building lots, availability and cost of materials and labor, adverse weather
conditions which can cause delays in construction schedules, cost overruns,
changes in government regulations, and increases in real estate taxes and other
local government fees and the level of interest rates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." In
addition, the recent downturn and continued uncertainty in Asian and other
foreign financial markets, including the devaluation of various foreign
currencies, could have an adverse impact on the Colorado, Hawaii, California,
Oregon or Washington economies and the demand for homes in those states.
The development, construction and sale of homes are subject to various risks
including, among others, the continued availability of suitable undeveloped land
at reasonable prices. The homebuilding industry is also subject to the potential
for significant variability and fluctuations in real estate values. Although the
Company believes that its projects are currently reflected on the Company's
balance sheet at or below the fair value, no assurances can be given that, in
the future, write-downs will not be material in amount.
MARKETS
The Company operates in five geographic markets: Colorado, Hawaii, Northern
California, Oregon and Washington, four of which are among the strongest housing
markets in the United States.
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YEAR
GEOGRAPHIC AREA (MARKET) MARKETS ENTERED
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Hawaii........................................... Maui 1988
Oahu 1990
Kauai 1992
Northern California.............................. Bay Area 1996
Oregon(1)........................................ Portland, Oregon 1996
Vancouver, Washington 1996
Colorado(2)...................................... Denver 1997
Fort Collins 1997
Colorado Springs 1998
Washington(3).................................... Greater Puget Sound 1997
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(1) In October 1998, the Company expanded its presence in the Oregon market
through the acquisition of certain assets of Keys.
(2) Entrance into the Colorado markets was a result of the acquisition of Melody
Homes in January 1997.
(3) Entrance into the Washington market was a result of the acquisition of a 49%
interest in Stafford in July 1997. In January 1999, the Company increased
its ownership interest in Stafford Homes to 89%.
The Company's operations are situated in Colorado, Hawaii, Northern
California, Oregon and Washington. Adverse general economic conditions in the
markets in which the Company operates could have a material adverse impact on
the operations of the Company. In 1998, approximately 61% of the
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Company's revenues and a significant portion of the Company's operating income
were derived from operations in its Colorado market. In addition, at December
31, 1998, approximately 58% of the Company's total inventories were located in
Hawaii. The Company's performance could be significantly affected by changes in
the Colorado and Hawaii markets.
In 1997, the Company significantly expanded its operations, moving into the
Colorado, Northern California, Oregon and Washington markets, thus exposing the
Company to risks inherent in those markets. New markets may prove to be less
stable and may involve delays, problems and expenses, including construction
issues and risks such as expansive soils and extreme seasonal weather
conditions, not typically found by the Company in the Hawaii market, with which
it is most familiar. No assurances can be given that the Company will be able to
successfully establish operations outside of its existing markets or that such
expansion will not adversely affect its results of operations.
Since inception, the Company has experienced substantial sales growth. While
the Company has recently expanded its management and administrative personnel in
the land acquisition, construction management, financial and administrative
areas, the Company anticipates hiring additional personnel and enhancing its
management information systems to meet anticipated future growth. There can be
no assurance that such expansion or enhancement can be accomplished on a timely
and cost-effective basis without disrupting the Company's operations. Further,
there can be no assurance that such growth will continue.
The climates and geology of many of the states in which the Company operates
present special risks of natural disasters. To the extent that hurricanes,
severe storms, earthquakes, droughts, floods, wildfires or other natural
disasters or similar events occur, the homebuilding industry in general, and the
Company's business in particular, in such states may be adversely affected.
Demand in certain of the Company's markets is significantly influenced by
weather, particularly weekend weather, which is when the majority of the
Company's sales are initiated. In addition, adverse weather conditions may delay
the timing of site improvements and foundation work, among other construction
processes. The Company's results of operations could be materially adversely
affected by weather patterns which result in unseasonably cool temperatures,
rain or snow, water shortages or floods.
PROJECT AND PRODUCT DESCRIPTIONS
The Company has focused, and intends to continue to focus, its business
primarily on entry-level and first-time move-up housing in the form of
single-family residences, and, to a lesser extent, townhomes and condominiums.
The Company attempts to maximize efficiency by using standardized design plans
whenever possible and sharing design plans among markets. However, the Company
maintains the flexibility to alter its product mix within a given market
depending on market conditions and, in determining its product mix, considers
demographic trends, demand for a particular type of product, margins, timing and
the economic strength of the market. As a result of the Company's expansion into
new markets, the number and location of its active projects increased and its
home designs and product mix expanded and changed.
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The following table presents information relating to the Company's home and
lot closings and land position as of and for the year ended December 31, 1998:
<TABLE>
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YEAR ENDED DECEMBER 31,
1998 AS OF DECEMBER 31, 1998
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AVERAGE TOTAL NUMBER OF BUILDING SITES
NUMBER OF SALES SALES PROJECTS FOR NUMBER OF PROJECTS OWNED OR HOMES UNDER
MARKET CLOSED PRICE DEVELOPMENT(1) IN SALES STAGE(2) CONTROLLED(3)(4) CONSTRUCTION(5)
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Consolidated:
Colorado.............. 1,090 $ 158,000 22 10 6,975 256
Hawaii(7)............. 320 268,000 13 10 2,689 145
Northern California... 83 154,000 10 3 921 92
Oregon................ 63 198,000 27 9 1,467 158
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Total Consolidated.... 1,556 182,000 72 32 12,052 651
Unconsolidated Joint
Ventures:
Hawaii(8)........... 20 121,000 2 2 135 0
Washington(9)....... 251 240,000 18 9 1,137 88
Colorado(10)........ -- -- 1 1 116 8
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Total................. 1,827 189,000 93 44 13,440 747
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MARKET BACKLOG(6)
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Consolidated:
Colorado.............. 457
Hawaii(7)............. 47
Northern California... 35
Oregon................ 76
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Total Consolidated.... 615
Unconsolidated Joint
Ventures:
Hawaii(8)........... 5
Washington(9)....... 41
Colorado(10)........ 20
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Total................. 681
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</TABLE>
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(1) Reflects the total number of projects owned or under option or similar
contract and includes projects with homes in the sales stage, under
construction and projects in various stages of planning.
(2) Represents the number of active projects in which home or lot sales closed
or standard sales contracts were entered into with homebuyers.
(3) Represents the estimated number of homes/lots relating to land owned or
under option or similar contracts. The amounts are based on current
management estimates, which are subject to change. Although the Company
currently intends to consummate the purchase of the parcels under purchase
options or similar contracts, no assurances can be given that the purchase
will be completed or that the land under purchase option will be acquired.
In addition, this category includes Homes Under Construction and Backlog.
(4) For consolidated projects, includes 64 model homes and 5 completed and
unsold homes in the Colorado, Northern California and Oregon markets, and 32
model homes and 195 completed and unsold homes in the Hawaii market,
including approximately 51 homes rented and 78 homes held for sale in the
Company's high-rise condominium project in Oahu. For unconsolidated joint
ventures, includes 7 model homes and 90 completed and unsold homes and lots
in Hawaii, and 12 model homes and 30 completed and unsold homes in
Washington.
(5) Includes certain homes reflected in Backlog.
(6) Represents homes/lots subject to pending sales contracts that have not yet
closed. As such contracts are subject to certain conditions being satisfied
and may be canceled by the buyer at any time, no assurances can be given
that homes/lots subject to pending sales contracts will result in closings.
(7) Includes homes and lots sold pursuant to the Company's "zero-down" sales
program in Hawaii. Approximately $0.3 million of revenues associated with 2
zero-down closings were deferred in 1998 until the related notes receivables
are paid in full.
(8) Reflects 100% of the information with respect to the Company's two 50% owned
joint ventures in Hawaii, Iao Partners and Waiakoa Estates Subdivision Joint
Venture.
(9) Reflects 100% of the information with respect to Stafford Homes in which the
Company acquired a 49% interest in July 1997, and an additional 40% interest
in January 1999.
(10) Reflects 100% of the information with respect to the Company's 50%-owned
joint venture in Colorado, The Ranch-Southpointe II LLC, which was entered
into in July, 1998.
LAND ACQUISITION AND DEVELOPMENT
GENERAL. The Company selects its land for development based upon a variety
of factors, including: (i) internal and external demographic and marketing
studies; (ii) financial and legal reviews as to the feasibility of the proposed
project; (iii) the ability to secure necessary financing and required government
approvals and entitlements; (iv) environmental due diligence and management's
judgment as to the real estate market economic trends; and (v) the Company's
experience in a particular market. As part of the
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Company's ongoing land acquisition policy, it actively seeks to purchase land
that is already zoned for residential development.
The Company generally utilizes options or land purchase agreements to obtain
control of desired parcels of land. The Company's purchase and option agreements
are typically subject to numerous conditions, including, but not limited to, the
Company's ability to obtain any necessary governmental approvals. During the
contingency period, the Company also confirms the availability of utilities,
completes its marketing feasibility studies, verifies site and construction
costs, reviews and approves soil and environmental reports and arranges for
project financing, if necessary.
The Company also enters into partnerships or joint ventures to purchase land
and develop its communities where such arrangements are necessary to acquire the
land or appear to be otherwise economically advantageous to the Company. The
Company generally has not used partnerships or joint venture arrangements as a
method of raising capital for the development of projects, although such
arrangements may be used for purposes of expansion into other geographic areas
or other related businesses.
Although the Company's principal focus is the construction and sale of
single-family and townhome residential housing, from time to time the Company
offers residential lots for sale where it perceives an attractive market
opportunity. The Company does not anticipate that residential lot sales will
constitute a significant amount of revenues in the future.
MAINLAND U.S. The Company's home building projects in the mainland United
States have typically taken one to four years to develop, depending on the
project's size, the Company's strategy with respect to the particular project,
regulatory approvals, economic conditions, and geological conditions at the
site. Larger projects are divided into phases, with each phase generally taking
six months to one year to complete. The Company has typically acquired interests
in tracts of land that require site improvements prior to construction and are
suitable for a subdivision comprised of between 50 and 500 buildable units.
However, from time to time, the Company has acquired finished lots from land
developers, and anticipates that it will periodically acquire finished lots from
land developers in the future.
HAWAII. The Company's strategy in Hawaii is to develop projects of a
similar size and of the same general profile as in the mainland U.S. However,
certain of the Company's currently planned projects in Hawaii are anticipated to
be longer term in nature and to include a larger number of buildable units than
those in the mainland United States. These larger projects generally will have
offsite and infrastructure requirements to be fulfilled prior to the
construction of homes, which increase the amount of cash expended at the
beginning of the project. The increased length and size of such projects further
exposes the Company to risks inherent in the homebuilding industry, including
reductions in the value of land inventory. In addition, certain of the Company's
land purchase agreements in Hawaii require the Company to make additional
payments to the seller if the average sales price or the final number of all
homes exceeds an amount stated in such agreements. The Company also has
occasionally granted a profit participation interest in certain of its projects
to individuals involved in locating, structuring and assisting in the management
of the particular project.
CONSTRUCTION
The Company primarily acts as its own general contractor with its
supervisory employees coordinating all work on its projects. From time to time
the Company will hire independent general contractors on its projects in Hawaii,
particularly for its townhome and condominium projects. The general contractors
are responsible for the general management of the construction process,
coordinating the activities of all subcontractors, suppliers and building
inspectors and following design plans generally prepared by consulting
architects and engineers who are retained by the Company and whose designs are
geared to the local market. Company employees monitor the construction of each
project, participate in all material design and building decisions, subject the
contractors' and subcontractors' work to quality and cost controls
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and monitor compliance with zoning and building codes. In addition, the Company
works closely with contractors and subcontractors on engineering, site
preparation, environmental impact analysis, purchasing, architectural design,
site planning, coordinating governmental approvals, contract management and
closings. The Company will sometimes require its general contractors and/or
subcontractors to post lien-free completion and performance construction bonds.
The Company believes that its relations with its contractors are good.
The Company's homes include single-family residences, townhomes and
condominiums, which have ranged in size from approximately 520 to 3,100 square
feet. The Company typically completes the construction of a home within two to
four months from commencement of building construction. Construction time for
the Company's homes depends on the time of year, availability of labor,
materials and supplies and other factors. The Company seeks to utilize
standardized home designs and pre-fabricated components wherever feasible. This
standardization facilitates efficiencies in the on-site construction of homes
and helps permit on-site mass production and bulk purchasing of materials by the
contractors and subcontractors engaged by the Company, thus reducing costs and
expensive change orders. However, from time to time the Company develops new
designs to replace or augment existing ones as part of its continuing efforts to
assure that its homes are responsive to current consumer preferences. For new
designs, the Company has engaged a number of unaffiliated architectural firms in
addition to its in-house architect. Where it is believed to be cost-effective
and efficient, the Company has used steel building components in certain of its
projects, which represents a departure from the traditional wood-frame method of
construction.
The residential construction industry has, from time to time, experienced
serious material and labor shortages, including shortages in insulation,
drywall, certain carpentry work and cement supply. Delays in construction of
homes and higher costs due to these shortages and fluctuating lumber prices
could have an adverse effect upon the Company's operations. The Company is also
susceptible to delays caused by strikes affecting shipping and transportation of
building materials necessary for the Company's business, particularly in Hawaii
because of its remote location. In addition, many of the Company's contractors
in Hawaii are represented by labor unions or collective bargaining agreements.
No assurances can be given that the renegotiation of such agreements would not
lead to a disruption of the Company's operations and an increase in its
construction costs.
SALES AND MARKETING
The Company sells its homes primarily through commissioned employees who
typically work from a sales office located at each project, as well as through
cooperating independent brokers. In all instances, Company personnel are
available to assist prospective buyers by providing them with floor plans,
pricing information, financing options, tours of model homes and the selection
of options and upgrades. The Company generally does not permit changes in home
design, but home buyers are afforded the opportunity to select, at additional
cost, various optional amenities such as prewiring options, upgraded carpet
quality, varied interior and exterior color schemes and finishes and
occasionally expanded rooms and varied room configurations. The Company focuses
on increasing customer satisfaction through the use of its own design centers in
the majority of its markets to help customers select features and options on
their homes. Sales personnel are also trained by the Company and attend periodic
meetings to be updated on the availability of financing, construction schedules,
marketing and advertising plans, which the Company believes results in a sales
force with extensive knowledge of the Company's operating policies and housing
products. The Company also makes extensive use of advertising to market its
homes, including print, radio and television, in addition to other promotional
activities such as direct mail, its web sites on the Internet and the placement
of strategically located sign boards in the immediate areas of its developments.
The Company's objective is to price its homes very competitively and to
market its homes in advance of construction, in an effort to minimize levels of
unsold inventory upon completion of a project. The Company accomplishes
pre-sales by entering into pre-construction sales contracts with its customers.
The
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sales contracts generally provide for requisite mortgage approval within a
specified period, and the Company attempts to minimize cancellations by
requiring a cash deposit of approximately $500 to $10,000 and by training its
sales force to assess the qualifications of potential home buyers.
The Company generally does not use sales incentives in order to attract home
buyers. However, the use of sales incentives (such as landscaping and certain
interior home options and upgrades) has been used in Hawaii, and may, from time
to time, be used in certain other markets, depending largely on prevailing
economic and competitive market conditions.
The Company normally builds, decorates, furnishes and landscapes between one
to five model homes for each project and maintains on-site sales offices. At
December 31, 1998, the Company owned and maintained approximately 115 model
homes. The Company believes that model homes play a particularly important role
in the Company's marketing efforts. Consequently, the Company expends a
significant effort to create an attractive atmosphere at its model homes. The
Company also uses a cross-referral program that encourages sales personnel to
direct customers to other Company projects based on the customer's needs.
In addition, the Company maintains a customer service department which is
responsible for pre-closing and post-closing customer needs. Prior to closing, a
Company employee accompanies the buyer on a home orientation and inspection
tour. Post-closing, a Company employee follows up with the customer, to ensure
satisfaction, to answer questions and to help resolve any problems, including
responding to warranty requests.
CUSTOMER FINANCING
The Company assists its home buyers in obtaining financing from mortgage
lenders offering qualified home buyers a variety of financing options, including
a wide variety of conventional and Federal Housing Administration ("FHA")
financing programs. The Company also provides customer financing in the Colorado
market through Melody Mortgage. Melody Mortgage provides mortgage originations
only, and does not retain or service the mortgages that it originates. The
mortgages are funded by one of a number of mortgage lenders arranged by Melody
Mortgage. All of Melody Mortgage's revenues are derived from mortgages on homes
built by the Company and no third party loans are arranged for homes not built
by the Company.
In certain limited circumstances, the Company may attempt to minimize
potential risks relating to the availability of customer financing by purchasing
mortgage financing commitments that lock in the availability of funds and
interest rates at specified levels for a certain period of time. Also, the
Company has occasionally provided financing pursuant to agreements of sale and
second mortgages to purchasers of its homes and residential lots in Hawaii. The
Company had notes receivable of $2.0 million at December 31, 1998 primarily
comprised of second mortgages provided by the Company to home buyers who
purchased homes as part of the Company's "zero-down" sales incentive program in
Hawaii. To the extent the Company provides financing to its customers, it
becomes subject to the risks inherent with such practices, including possible
defaults by the purchasers. The Company believes that it has established
adequate reserves to cover these risks and the Company does not record the
related revenue and profit until the second mortgage is fully paid.
Virtually all purchasers of the Company's homes finance their purchases with
mortgage financing from lenders. In general, housing demand is adversely
affected by increases in interest rates, unavailability of mortgage financing,
increasing housing costs and unemployment. If mortgage interest rates increase
and the ability of prospective buyers to finance home purchases is adversely
affected, the Company's residential real estate sales, gross margins and net
income and the market prices of the Company's securities may be adversely
impacted. The Company's homebuilding activities are also dependent upon the
availability and cost of mortgage financing for buyers of homes owned by
potential customers so those customers ("move-up buyers") can sell their homes
and purchase a home from the Company. In addition, the
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Company believes that the availability of FHA mortgage financing is an important
factor in marketing many of its homes. Any limitations or restrictions on the
availability of such financing could adversely affect the Company's residential
real estate sales. Furthermore, changes in Federal income tax laws may affect
demand for new homes. Enactment of such proposals may have an adverse effect on
the homebuilding industry in general, and demand for the Company's products in
particular. No prediction can be made whether any such proposals will be enacted
and, if enacted, the particular form such laws would take.
WARRANTY PROGRAM
The Company generally provides limited warranties of at least one to two
years for workmanship and materials and for longer periods with respect to
structural components. Because the Company contracts its homebuilding work to
qualified contractors or subcontractors who provide the Company with an
indemnity and a lien release prior to receiving payment from the Company for
their work, claims relating to workmanship and materials are generally the
primary responsibility of the Company's contractors or subcontractors. However,
to the extent that warranty claims are not covered by the Company's contractors
or subcontractors, the Company has established a reserve to cover warranty
expenses. The Company's historical experience is that such warranty expenses
generally fall within the reserve established although no assurances can be
given that this will be the experience in the future. From time to time, where
deemed appropriate, the Company purchases structural warranty coverage from
third party insurers.
For homes closed from early 1990 until October 7, 1994, Melody's structural
warranty coverage was with the Home Owners Warranty Corporation ("HOW"). On
October 7, 1994, the Commonwealth of Virginia placed HOW under temporary
receivership, and a permanent injunction followed on October 17, 1994. Terms of
the injunction allowed policies that were effective prior to October 7, 1994, to
be honored for their full term. It is Melody's understanding that HOW is
currently paying approximately 50% of the costs associated with claims made
under the HOW policies. Concurrent with the above, Melody entered into an
agreement with Residential Warranty Corporation to provide its home buyers with
equally suitable coverage for homes closed subsequent to October 7, 1994. The
Company, based upon its due diligence in connection with the acquisition of
Melody, believes that claims under Melody's warranty programs are substantially
covered by Melody's warranty accruals or insurance. However, no assurances can
be given that the Company will not incur future claims in any of its markets in
excess of warranty accruals or insurance coverage.
ACQUISITIONS AND JOINT VENTURES
Prior to 1997, the Company operated solely in the Hawaii market, one of the
country's strongest residential housing markets in the late 1980's and early
1990's. Due to a decline in the Hawaiian economy which negatively impacted the
Hawaiian residential housing market in the mid-1990's, the Company adopted a
strategic expansion plan late in 1996 and early 1997 designed to geographically
diversify the Company's operations outside of the Hawaii market in order to
improve the Company's overall return on invested capital. The expansion plan
provided for the redeployment of capital generated by the Hawaii division to
housing markets in the Western United States that have experienced significant
population and employment growth in recent years. As a result of its
diversification efforts, the Company reported improved financial results in 1997
and 1998 with revenues of $229.6 million and $282.9 million, respectively, as
compared to $93.6 million in 1996. In addition, since 1996 the Company (i)
reduced its completed and unsold housing inventory in Hawaii by 53%, (ii)
generated approximately $32 million and $28.5 million in cash flow in Hawaii, in
1997 and 1998, respectively, and (iii) derived approximately 63% and 70% of its
revenues from sales in markets outside of Hawaii in 1997 and 1998, respectively.
10
<PAGE>
In January 1997, the Company acquired Melody, one of the largest
homebuilders in Denver, Colorado for over 40 years, and Melody Mortgage, a
mortgage brokerage firm for Melody homebuyers.
On July 31, 1997, the Company acquired a 49% interest in Stafford Homes, a
30-year-old homebuilder in the greater Seattle/Puget Sound area of Washington
State. The Company increased its interest to 89% in January 1999, and expects to
acquire the remaining 11% interest in January 2001. The Company believes that
the joint venture arrangement provided an opportunity for the Company to
strategically expand into the Seattle/Puget Sound area, an attractive housing
market, through a company with a good reputation, a strong management team and a
significant land base.
In July 1998, the Company acquired a 50% interest in a joint venture, The
Ranch-Southpointe II LLC, to build 116 townhomes in Lafayette, Colorado.
In October 1998, the Company expanded its presence in the Oregon market with
its acquisition of certain assets (principally options to purchase land) and the
employment of the former management team of Keys, a Portland, Oregon
homebuilder. Keys was engaged in the construction and sale of high quality
single-family, duplex and cottage homes targeted for the entry-level market. In
the twelve months ended September 30, 1998, Keys closed the sales of 193 homes
generating revenues of approximately $23.8 million. The Company believes that by
adding the Keys management team to its existing Oregon division, the Company
will benefit as a result of their experience and track record of profitability,
together with their strong land position of approximately 733 lots under control
at the time of acquisition.
In addition, the Company has a 50% interest in Waiakoa Estates Subdivision
Joint Venture, an unincorporated joint venture which is engaged in the
development and sale of residential lots on the island of Maui and has a 50%
interest in Iao Partners, a general partnership which is engaged in the
development and sale of an "affordable" townhome residential project on the
island of Maui.
As part of its strategy to further diversify geographically and facilitate
its expansion within its current markets and into new markets, the Company
expects to continue to evaluate potential acquisitions of homebuilding
companies, strategic investments and joint ventures.
COMPETITION
The development and sale of residential properties is highly competitive and
fragmented. The Company competes for residential sales on the basis of a number
of interrelated factors, including location, reputation, amenities, design,
quality and price, with numerous national, regional and local builders,
including some builders with greater financial resources. The Company also
competes for residential sales with individual resales of existing homes and
available rental housing. The Company believes that it compares favorably to
other builders in the markets in which it operates, due primarily to (i) its
experience within its geographic markets, (ii) its responsiveness to market
conditions, and (iii) its reputation for quality design, construction and
service. Competition is particularly intense when the Company enters or starts
operations in a new market area until its reputation becomes firmly established
in that area.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
GENERAL. In developing a project, the Company must obtain the approval of
numerous governmental authorities regulating such matters as permitted land uses
and levels of density and the installation of utility services such as
electricity, water and waste disposal. Several governmental authorities have
imposed fees as a means of defraying the cost of providing certain governmental
services to developing areas. The Company has historically, for the most part,
purchased land which is fully entitled and zoned for residential development.
Because the Company historically has generally purchased land that has already
been zoned for residential development, restrictive zoning issues have not had a
material adverse effect on the Company's development activities. The Company is
also subject to local, state and federal statutes and rules regulating
environmental matters, protection and preservation of archeological finds,
zoning, building design and density requirements which limit the number of homes
that can be built within a particular
11
<PAGE>
project, and fees imposed to defray the cost of providing certain governmental
services to developing areas. These laws may result in delays, cause the Company
to incur substantial compliance costs and prohibit or severely restrict
development in certain environmentally or archaeologically sensitive regions or
areas.
The Company may be subject to additional costs, delays or may be precluded
entirely from developing its projects because of government regulations that
could be imposed in the future due to unforeseen health, safety, welfare,
archeological or environmental concerns. Environmental regulations can also have
an adverse impact on the availability and price of certain raw materials such as
lumber. Hawaii, in particular, has some of the strictest land use, environmental
and agricultural laws in the United States, and the rezoning of land for urban
development is a difficult and time-consuming process.
To varying degrees, certain permits and approvals will be required to
complete the residential developments in progress or currently being planned by
the Company. The ability of the Company to obtain necessary approvals and
permits for these projects is often beyond the Company's control and could
restrict or prevent the development of otherwise desirable property. The length
of time necessary to obtain permits and approvals increases the carrying costs
of unimproved property acquired for the purpose of development and construction
and could delay the timing of the closing of its sales. In addition, the
continued effectiveness of permits already granted is subject to factors such as
changes in policies, rules and regulations and their interpretation and
application.
HAWAII'S AFFORDABLE HOUSING REQUIREMENTS. To promote affordable housing,
governmental agencies in Hawaii have implemented various formal and informal
policies at both the state and county level. As a condition to rezoning land for
urban development, it is the current practice of certain County governments to
negotiate agreements with residential land developers for the provision of
affordable housing. Generally, these conditions require developers of
residential projects to offer for sale to eligible buyers a portion typically
from 10% to 60%, of the total number of units in the project at affordable
prices usually determined as a price at which a purchaser earning up to 120% of
the local median income is able to satisfy specified mortgage criteria. For
purposes of determining whether a home is affordable, the Counties generally
assume a 33% income-to-loan ratio, a monthly amount for common area expenses and
taxes, a 30-year loan with an interest rate reflecting then current market
conditions and various other factors. To ensure that homes sold pursuant to a
governmentally imposed affordable housing requirement in Hawaii remain
affordable to other eligible buyers and to prevent speculation, Counties
typically impose transfer restrictions on purchasers of the Company's affordable
homes. Agreements entered into between developers and County agencies may also
provide for a shared appreciation arrangement whereby the County shares with the
owner in the appreciation of the affordable home. Based upon this affordability
criterion, specific price limitations are generally imposed on the homes that
may satisfy a developer's affordable housing requirement. Increases in mortgage
interest rates may decrease the sales price at which affordable homes may be
sold thereby potentially reducing the profitability of affordable housing
projects.
Because a portion of the Company's focus is on Hawaii's affordable housing
market, any material changes in the current policies of the Hawaii Land Use
Commission and the various county authorities with regard to affordable housing
conditions or related policies could adversely affect the Company's operations
and financial results.
EMPLOYEES
At December 31, 1998, the Company employed 269 persons, of whom 135 were
executive, project management and administrative personnel, 113 were sales and
marketing, escrow, and customer service/ warranty personnel and 21 were
construction workers, who assist with punchlist clearing and other miscellaneous
tasks. Although none of the Company's employees are covered by collective
bargaining agreements, certain of the employees of contractors which the Company
engages are represented by labor unions or are subject to collective bargaining
arrangements. The Company believes that it has good relationships with its
employees and contractors.
12
<PAGE>
The Company's success is highly dependent upon the continuing services of
its President and Chief Executive Officer, James K. Schuler. The loss of the
services of James K. Schuler would have a material adverse effect on the
Company.
At December 31, 1998, James K. Schuler owned approximately 54% of the
Company's Common Stock. Due to this ownership position, Mr. Schuler has the
ability to control the affairs and policies of the Company and has the ability
to elect a sufficient number of directors to control the Board and to approve or
disapprove any matter submitted to a vote of stockholders. Furthermore, Mr.
Schuler may have conflicts of interest with other stockholders with respect to
the affairs and policies of the Company. Mr. Schuler's ownership position,
together with the anti-takeover effects of certain provisions contained in the
Company's Certificate of Incorporation and Bylaws and the repurchase option of
the holders of the Company's Convertible Subordinated Debentures due 2003 (the
"Debentures"), may have the effect of delaying, deferring or preventing a change
in control of the Company. These factors could have a depressant effect on the
market price of the Company's Debentures, Senior Notes and Common Stock.
EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to executive officers who are also directors of the Company, the
following executive officers are not directors and are elected by and serve at
the discretion of the Board of Directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Harvey L Goth.............................. 66 Senior Vice President of Acquisition and
Development
David L. Oyler............................. 49 Vice President/Division President-- Melody
Homes, Inc.
Douglas M. Tonokawa........................ 40 Vice President of Finance and Chief
Accounting Officer
</TABLE>
HARVEY L. GOTH. Mr. Goth has been the Company's Senior Vice President of
Acquisition and Development since May 1992. Prior to joining the Company, Mr.
Goth was President of Malama Pacific Corporation from October 1991 to May 1992
and Executive Vice President of Blackfield Hawaii Corporation from April 1983 to
May 1988. Mr. Goth was a development consultant from May 1988 to October 1991 in
Hawaii and Nevada. Malama Pacific Corporation is a real estate development
company and subsidiary of Hawaiian Electric Industries. Blackfield Hawaii
Corporation, also a real estate developer, was a subsidiary of Pacific
Enterprises.
DAVID L. OYLER. Mr. Oyler has served as the Vice President/Division
President of Melody Homes, Inc. since 1994. He joined Melody Homes, Inc. in
August, 1974 and has held the positions of Assistant Manager of Land
Development, Vice President of Land Development, Company Safety Officer and
Executive Vice President.
DOUGLAS M. TONOKAWA. Mr. Tonokawa joined the Company as Vice President of
Finance in September 1992 and has also served as Chief Accounting Officer since
1996. From 1982 to September 1992, Mr. Tonokawa was employed at Ernst & Young
LLP, a national accounting firm, where he reached the level of Senior Manager.
Mr. Tonokawa is a member of the Hawaii Society of Certified Public Accountants
and the American Institute of Certified Public Accountants.
ITEM 2. PROPERTIES.
The Company leases approximately 7,300 square feet of office space for its
corporate headquarters in Honolulu, Hawaii, pursuant to a lease expiring in
October, 2000. The Company believes that its office space for its corporate
headquarters in Hawaii is suitable and adequate for its needs for the
foreseeable future or that adequate space will be readily available. The Company
also leases approximately 4,800 square feet of space for its other offices in
Hawaii, Northern California and Vancouver, Washington under
13
<PAGE>
leases expiring in 2001. However, the Company currently anticipates that as the
Northern California and Pacific Northwest divisions expand, additional office
space will be required.
The Company owns an 11,225 square foot building in Colorado where Melody
operates and has its corporate headquarters. In addition, the Company leases
1,938 square feet under a lease expiring in 1999 for its design center in
Colorado. Melody Mortgage also leases 2,470 square feet of office space for its
mortgage operations, under a lease which expires in 1999. The Company also
leases approximately 5,100 square feet of space for its other offices in
Colorado under leases expiring between 2001 and 2002. The Company currently
anticipates that as the Colorado homebuilding operations expand, office
expansion will also be necessary.
ITEM 3. LEGAL PROCEEDINGS.
In April 1996, the Company was served with a purported class action
complaint by owners of units and the Association of Owners of Fairway Village at
Waikele alleging, among other things, material construction defects and
deficiencies, misrepresentations regarding the cost of insurance and breach of a
covenant of good faith and fair dealing. Following the Courts' denial of a class
certification request, a second action involving other homeowners at Fairway
Village advancing the same claims was initiated. The complaints do not specify
an amount of damages, but include a claim for punitive damages. Based on its
current understanding of the lawsuits, the Company believes the claims to be
largely without merit and that potential third party defendants and insurance
coverage exist to offset a material portion of any damages from the alleged
claims. The litigation continues to be vigorously defended. A court date has
been set for April 1999 for the initial suit. Trial of the first action may
proceed at that time. No trial date has been set in the second action. If these
lawsuits were decided adversely to the Company in all material respects, they
collectively could have a material adverse effect on the Company's business,
financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted during the fourth quarter of 1998 to a vote of
security-holders, through the solicitation of proxies or otherwise.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been quoted on the Nasdaq National Market
under the symbol "SHLR" since March 20, 1992. The following table shows the high
and low closing sales prices for the Common Stock of the Company for the periods
indicated, as reported by the Nasdaq National Market. These prices do not
include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1997
Quarter ended March 31, 1997........................................... $ 6.875 $ 5.375
Quarter ended June 30, 1997............................................ 6.000 4.875
Quarter ended September 30, 1997....................................... 7.500 5.625
Quarter ended December 31, 1997........................................ 8.125 6.000
1998
Quarter ended March 31, 1998........................................... $ 9.000 $ 6.281
Quarter ended June 30, 1998............................................ 10.063 7.250
Quarter ended September 30, 1998....................................... 9.125 6.875
Quarter ended December 31, 1998........................................ 7.875 6.375
1999
Quarter ended March 31, 1999 (February 26, 1999)....................... $ 6.750 $ 8.938
</TABLE>
The closing sale price of the Company's Common Stock as reported on the
Nasdaq National Market on February 26, 1999 was $8.063 per share. As of February
26, 1999, there were 208 holders of record of the Company's Common Stock. The
Company estimates that as of February 26, 1999, there were approximately 1,000
beneficial holders of the Company's Common Stock.
DIVIDENDS
The Company anticipates that all future earnings will be retained to finance
the continuing development of its business and does not anticipate paying cash
dividends on its Common Stock in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, future earnings, the success of the
Company's development activities, capital requirements, the general financial
condition of the Company and general business conditions. Payment of dividends
is also restricted by the Company's credit facility.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data of the Company are
qualified by reference to and should be read in conjunction with the
consolidated financial statements, related notes thereto and other financial
data included elsewhere herein. These historical results are not necessarily
indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Residential real estate sales(1).............. $ 282,902 $ 229,624 $ 93,645 $ 132,897 $ 217,266
Cost and expenses:
Residential real estate sales............... 225,370 184,843 76,612 101,356 159,568
Inventory impairment loss(2)................ -- -- 23,910 9,405 --
Selling and commissions..................... 19,124 17,268 7,767 7,333 7,912
General and administrative.................. 16,008 13,596 4,179 4,167 3,510
----------- ----------- ----------- ----------- -----------
Total costs and expenses.................. 260,502 215,707 112,468 122,261 170,990
Income (loss) from unconsolidated joint
ventures.................................... 2,435 (136) 157 967 3,307
----------- ----------- ----------- ----------- -----------
Operating income (loss)................... 24,835 13,781 (18,666) 11,603 49,583
Other income (expense)........................ (4,243) (4,261) (9) 462 502
----------- ----------- ----------- ----------- -----------
Income (loss) before provision for income
taxes................................... 20,592 9,520 (18,675) 12,065 50,085
Provision (credit) for income taxes........... 7,876 3,634 (7,289) 4,703 19,336
----------- ----------- ----------- ----------- -----------
Net income (loss)......................... $ 12,716 $ 5,886 $ (11,386) $ 7,362 $ 30,749
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per share (basic)........... $ 0.63 $ 0.29 $ (0.55) $ 0.35 $ 1.47
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average shares outstanding (basic)... 20,102,922 20,100,267 20,583,860 20,874,177 20,867,215
Net income (loss) per share (diluted)(3)...... $ 0.63 $ 0.29 $ (0.55) $ 0.35 $ 1.37
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average shares outstanding
(diluted)................................... N/A N/A N/A N/A 23,501,205
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash............................................................. $ 4,915 $ 3,842 $ 1,619 $ 6,147 $ 7,855
Inventories...................................................... 325,166 291,081 238,358 247,506 209,123
Total assets..................................................... 385,543 340,571 268,947 273,370 279,678
Revolving Credit Facility........................................ 17,365 91,077 44,690 36,781 27,717
9% Senior Notes due 2008......................................... 98,512 -- -- -- --
6.50% Convertible Subordinated Debentures due 2003............... 57,500 57,500 57,500 57,500 57,500
Other indebtedness............................................... 3,954 2,627 -- -- 14,583
Total debt....................................................... 177,331 151,204 102,190 94,281 99,800
Total stockholders' equity....................................... 175,555 163,355 157,465 173,851 166,489
</TABLE>
- --------------------------
(1) Revenue from a sale is recognized upon the closing of the sale and when the
down payment requirement has been met. See Notes 1 and 2 of Notes to
Consolidated Financial Statements.
(2) Represents a non-cash charge pursuant to Financial Accounting Standards
Board Statement No. 121. See Notes 1 and 3 of Notes to Consolidated
Financial Statements.
(3) Net Income (loss) per share (diluted) is computed by adding interest charged
to cost of residential real estate sold which is applicable to the
Convertible Subordinated Debentures (net of related income taxes) to net
income and dividing by the weighted average number of shares outstanding,
assuming conversion of all Convertible Subordinated Debentures. The
computation of diluted earnings per share for 1998, 1997, 1996 and 1995
excludes the impact of the Convertible Subordinated Debentures, since the
effect would be antidilutive.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Except for historical information contained herein, the matters discussed in
this report contain forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those risks discussed herein,
and other risks detailed in this Form 10-K and other documents filed by the
Company with the Securities and Exchange Commission from time to time.
OVERVIEW
Schuler Homes designs, constructs, markets and sells single-family
residences, townhomes and condominiums primarily to entry level and first-time
move-up buyers. The Company operates in five geographic markets: Hawaii,
Colorado, Northern California, Oregon and Washington.
Schuler Homes' 1998 financial results reflected higher operating margins
than in 1997, coupled with increased unit closings and sales volumes. From 1997
to 1998 revenues grew 23.2% from $229.6 million to $282.9 million, the number of
units closed increased from 1,427 to 1,827. Net income increased 116.1% from
$5.9 million in 1997 to $12.7 million in 1998.
On May 6, 1998, the Company consummated its offering of $100 million
aggregate principal amount of 9% Senior Notes due 2008. The Company received net
proceeds from the offering of approximately $97.2 million (net of discounts and
estimated offering costs of approximately $2.8 million). The Company used such
net proceeds to repay a portion of the Company's borrowings under its line of
credit.
In July 1998, SHLR of Colorado, Inc. (a wholly-owned subsidiary of the
Company) was formed to purchase a 50% ownership interest in The
Ranch-Southpointe II LLC for the development and sale of a residential townhouse
project in Lafayette, Colorado.
In January 1999, the Company exercised its option to purchase an additional
40% ownership interest in Stafford, increasing its total ownership to 89%.
In October 1998, the Company acquired certain assets (principally options to
purchase land) of Keys, a Portland, Oregon homebuilder. Keys was engaged in the
construction and sale of single-family, duplex and cottage homes targeted for
the entry-level market. During the twelve months ended September 30, 1998, Keys
closed the sales of 193 homes generating revenues of approximately $23.8
million.
RESULTS OF OPERATIONS
SELECTED FINANCIAL INFORMATION
The table below shows certain items in the Company's statements of
operations data expressed as a percentage of total residential real estate
sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Residential real estate sales........................................ 100.0% 100.0% 100.0%
Costs and expenses:
Residential real estate sales...................................... 79.7 80.5 81.8
Inventory impairment loss.......................................... -- -- 25.5
Selling and commissions............................................ 6.8 7.5 8.3
General and administrative......................................... 5.6 5.9 4.5
--------- --------- ---------
Total costs and expenses............................................. 92.1 93.9 120.1
Income (loss) from unconsolidated joint ventures..................... 0.9 (0.1) 0.2
--------- --------- ---------
Operating income (loss)............................................ 8.8% 6.0% (19.9)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
17
<PAGE>
OPERATING DATA
The operating data shown below shows certain data regarding units closed,
average sales prices of units closed, and backlog.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
-------------- ------------- -------------
<S> <C> <C> <C>
SELECTED OPERATING DATA:
Unit closings
Colorado....................................................... 1,090 950 --
Hawaii(1)...................................................... 320 343 460
Northern California............................................ 83 15 --
Oregon......................................................... 63 9 --
-------------- ------------- -------------
Total Consolidated........................................... 1,556 1,317 460
Unconsolidated Joint Ventures:
Hawaii(2).................................................... 20 28 52
Washington(3)................................................ 251 82 --
Colorado(4).................................................. -- -- --
-------------- ------------- -------------
Total............................................................ 1,827 1,427 512
-------------- ------------- -------------
-------------- ------------- -------------
Average sales price
Colorado....................................................... $ 158,000 $ 149,000 $ --
Hawaii(1)...................................................... 268,000 228,000 234,000
Northern California............................................ 154,000 141,000 --
Oregon......................................................... 198,000 179,000 --
Total Consolidated........................................... 182,000 169,000 234,000
Unconsolidated Joint Ventures:
Hawaii(2).................................................... 121,000 130,000 126,000
Washington(3)................................................ 240,000 223,000 --
Colorado(4).................................................. -- -- --
Total.......................................................... 189,000 172,000 225,000
Backlog at period end, units(5).................................... 681 408 78
Backlog at period end, aggregate sales value(5).................... $ 123,886,000 $ 76,125,000 $ 18,277,000
</TABLE>
- ------------------------
(1) Includes homes and lots sold pursuant to the Company's "zero-down" sales
program in Hawaii. Approximately $0.3 million, $3.4 million and $14.7
million of revenues associated with 2, 18 and 70 zero-down closings were
deferred in 1998, 1997 and 1996, respectively, until the related notes
receivables are paid in full.
(2) Reflects 100% of the information with respect to the Company's two 50% owned
joint ventures in Hawaii, Iao Partners and Waiakoa Kai Estates Subdivision
Joint Venture.
(3) Reflects 100% of the information with respect to Stafford Homes in which the
Company acquired a 49% interest in July, 1997. The number of sales closed
for the year ended December 31, 1997 would have been 160 had the Company had
an ownership interest in Stafford Homes for the entire year.
(4) Reflects 100% of the information with respect to the Company's 50%-owned
joint venture in Colorado, The Ranch-Southpointe II LLC, which was entered
into in July, 1998.
(5) Represents homes/lots subject to pending sales contracts that have not yet
closed. As such contracts are subject to certain conditions being satisfied
and may be canceled by the buyer at any time, no assurances can be given
that homes/lots subject to pending sales contracts will result in closings.
18
<PAGE>
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
RESIDENTIAL REAL ESTATE SALES
The Company's sales of residential real estate (revenues) in 1998 were
$282.9 million, an increase of 23.2% as compared to 1997 sales of $229.6
million. The increase in revenues reflects a larger number of and higher average
sales price of unit sales closed in 1998 relative to 1997. The Company's average
sales price per unit increased in 1998 to $189,000, a 9.9% increase from an
average sales price per unit of $172,000 in 1997. The increase in the average
sales price per unit was attributable to increased sales prices in the Company's
mainland markets resulting from strong market conditions, in combination with a
different mix of homes delivered in 1998 as compared to 1997.
The Company's revenues in 1997 were $229.6 million, an increase of 145.2% as
compared to 1996 revenues of $93.6 million. The increase in revenues reflects a
larger number of unit sales closed in 1997 relative to 1996, partially offset by
lower average sales prices in 1997 than in 1996. During 1997, the Company
recognized $10.1 million of deferred revenue related to 53 of the 70 sales that
closed in 1996 pursuant to the Company's zero-down sales program, in which the
Company provided new home buyers with second mortgages of up to 20% of the
purchase price. Revenue and profit recognition on these zero-down sales was
deferred until the requirements for revenue and profit recognition were
satisfied, which occurred during the first quarter of 1997 when the second
mortgages were sold.
COSTS AND EXPENSES--RESIDENTIAL REAL ESTATE SALES
Cost of residential real estate sales represents the acquisition and
development costs of a project attributable to the homes closed. Acquisition and
development costs include primarily land acquisition costs, sitework and
construction payments to contractors, engineering and architectural costs, loan
fees, interest and other indirect costs attributable to development and project
management activities and miscellaneous construction costs.
Cost of residential real estate sales in 1998 were $225.4 million, an
increase of 21.9% as compared to cost of residential real estate sales in 1997
of $184.8 million. This increase reflects a larger number of unit sales in 1998
relative to 1997. As a percentage of revenues, cost of residential real estate
sold decreased in 1998 to 79.7% from 80.5% in 1997. This decrease reflects
higher margins realized by the Colorado division primarily due to an increase in
average sales prices and higher margins in the Company's Hawaii operation
primarily as a result of the impact in 1997 of the recognition of costs related
to the sales of second mortgages associated with zero-down sales deferred in
1996.
Cost of residential real estate sales in 1997 were $184.8 million, an
increase of 141.3% as compared to cost of residential real estate sales in 1996
of $76.6 million. This increase reflects a higher level of unit and dollar sales
closed in 1997 relative to 1996. As a percentage of revenues, cost of
residential real estate sold decreased in 1997 to 80.5% from 81.8% in 1996. This
decrease reflects higher gross margin realized by the Colorado division,
partially offset by lower gross margins realized by the Hawaii division,
including the impact of the recognition of costs related to zero-down sales
deferred in 1996 and recognized in 1997 as a result of the sale of the related
second mortgages.
COSTS AND EXPENSES--INVENTORY IMPAIRMENT LOSS
Financial Accounting Standards Board ("FASB") Statement No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," requires that inventories which are substantially completed are carried at
the lower of cost or fair value less selling cost, determined by applying a risk
adjusted discount rate to estimates of future cash flows. In addition, land held
for future development or inventories under current development are adjusted to
fair value, only if an impairment to their value is indicated.
The estimates of future cash flows require significant judgment relating to
the level of sales prices, rate of new home sales, amount of marketing costs and
price discounts needed in order to stimulate sales, rate of increase in the cost
of building materials and labor, introduction of building code modifications,
and the level of consumer confidence, among other items. While the Company did
not recognize a FASB
19
<PAGE>
121 charge in 1998 or 1997, no assurances can be given that changes in estimates
will not occur in subsequent periods.
During 1996, the Company recognized an impairment loss in its Hawaii
division of $23.9 million, ($14.6 million after-tax) primarily related to (i) an
increase in completed inventories due to the substantial completion of the
second high-rise building at the Company's Country Club Village project located
in Salt Lake on Oahu and (ii) the decline experienced by the Company in the rate
of new home sales contracts entered into, which resulted in a more conservative
outlook with respect to the estimate of future cash flows for certain other
completed projects on some of which impairment losses were recognized in 1995.
The Company's completed and unsold inventories in its wholly owned projects in
Hawaii have declined by 53% at December 31, 1998 as compared to December 31,
1996. In addition, the Company postponed the construction of the third and last
high-rise building at Country Club Village in order to reduce completed
inventories in this project in the future.
COSTS AND EXPENSES--SELLING AND COMMISSIONS
Selling and commissions expense represents the selling and marketing costs
associated with the sale of homes. Such costs include commissions, sales
incentives offered to buyers, advertising costs, model and sales office costs
and other general sales and marketing costs.
Selling and commissions expense in 1998 was $19.1 million, an increase of
10.7% as compared to selling and commissions expense in 1997 of $17.3 million.
As a percentage of revenues, selling and commissions decreased to 6.8% in 1998
from 7.5% in 1997. This decrease is a result of the selling costs and
commissions increasing at a lower rate than revenues.
Selling and commissions expense in 1997 was $17.3 million, an increase of
122.3% as compared to selling and commissions expense in 1996 of $7.8 million.
The increase in selling and commissions expense reflects a higher level of unit
and dollar sales closed in 1997 than in 1996, primarily due to the acquisition
of the Colorado division. As a percentage of revenues, selling and commissions
expense decreased to 7.5% in 1997 from 8.3% in 1996. This decrease is primarily
the result of the lower level of selling and commissions costs incurred by the
Colorado division relative to the Hawaii division, partially offset by increases
in the selling and commissions costs in Hawaii.
COSTS AND EXPENSES--GENERAL AND ADMINISTRATIVE
General and administrative expense includes salaries, office and other
administrative costs. Indirect costs attributable to specific projects are
capitalized and deducted as part of the cost of residential real estate sales.
General and administrative expenses in 1998 were $16.0 million, an increase
of 17.7% as compared to general and administrative expenses of $13.6 million in
1997. As a percentage of revenues, general and administrative expenses decreased
to 5.6% in 1998 from 5.9% in 1997. This decrease is a result of general and
administrative expenses increasing at a lower rate than revenues.
General and administrative expenses in 1997 were $13.6 million, an increase
of 225.3% as compared to general and administrative expenses in 1996 of $4.2
million. The increase in general and administrative expenses reflect the
addition of the Colorado division in 1997 and the start-up of operations in
Northern California and Washington. As a percentage of revenues, general and
administrative expenses increased to 5.9% in 1997 from 4.5% in 1996. This
increase reflects the above-mentioned increases and higher costs relative to
revenues in the Hawaii division.
INCOME FROM UNCONSOLIDATED JOINT VENTURES
Income from unconsolidated joint ventures represents the Company's 49%
interest in the operations of Stafford and its 50% interest in the operations of
two joint ventures in Hawaii. The increase in this income from 1997 to 1998 is
primarily the result of the growth in income from the Company's 49% interest in
Stafford of $1.9 million. The decrease in this income in 1997 relative to 1996
is primarily the result of the
20
<PAGE>
Company's share of a loss recognized by one of its Hawaii joint ventures in
1997, Iao Partners, of $397,000, which was driven by the Company's share of a
FASB 121 charge of $522,000. This 1997 loss was offset in part by the Company's
share of income since the date of acquisition (July 1997) of $329,000 in
Stafford.
In January 1999, the Company increased its ownership interest in Stafford
Homes to 89%. In 1999, the Company anticipates the results of operations of
Stafford to be consolidated with the Company's financial statements and not
treated as income from unconsolidated joint ventures.
OTHER INCOME (EXPENSE)
Other income (expense) represents (i) interest incurred less interest
capitalized to inventory (interest expense), (ii) amortization of financing
fees, net of amounts capitalized to inventory, and (iii) amortization of
goodwill and a covenant-not-to-compete related to the Melody acquisition; less
interest income. The increase from 1997 to 1998 is primarily the result of an
increase in the amount of interest and financing fees expensed. The increase
from 1996 to 1997 relates primarily to the acquisition of Melody in January
1997, and the associated amortization of goodwill and covenant not-to-compete.
PROVISION (CREDIT) FOR INCOME TAXES
The effective combined tax rates were approximately 38.2%, 38.2% and 39.0%
in 1998, 1997 and 1996, respectively. The lower effective income tax rate for
1998 and 1997 primarily reflects lower Colorado state income tax rate as
compared to Hawaii's state income tax rate.
BACKLOG
The Company's homes are generally offered for sale in advance of their
construction upon applicable regulatory approval and sold pursuant to standard
sales contracts. The Company's standard sales contract may be canceled by the
buyer at any time prior to closing. The Company does not recognize revenues on
homes covered by such contracts until the sales are closed. Homes covered by
such sales contracts are considered by the Company as its backlog.
The following table sets forth the Company's backlog, for both homes and
residential lots, at December 31, 1998, 1997, and 1996, which includes homes and
lots sold pursuant to the Company's zero-down sales program and 100% of the
backlog related to projects developed by the Company's joint ventures in Hawaii
and Washington.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
--------------------------- -------------------------- --------------------------
AGGREGATE AGGREGATE AGGREGATE
NUMBER SALES VALUE NUMBER SALES VALUE NUMBER SALES VALUE
----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated:
Colorado(1)............................ 457 $ 78,075,000 267 $ 41,284,000 -- $ --
Hawaii................................. 47 11,903,000 67 19,774,000 71 17,204,000
Northern California.................... 35 6,508,000 14 1,905,000 -- --
Oregon................................. 76 13,397,000 14 2,676,000 -- --
--- -------------- --- ------------- --- -------------
Total Consolidated....................... 615 109,883,000 362 65,639,000 71 17,204,000
Unconsolidated Joint Ventures:
Hawaii................................. 5 620,000 3 398,000 7 1,073,000
Washington(2).......................... 41 10,272,000 43 10,088,000 -- --
Colorado(3)............................ 20 3,111,000 -- -- -- --
--- -------------- --- ------------- --- -------------
Total.................................... 681 $ 123,886,000 408 $ 76,125,000 78 $ 18,277,000
--- -------------- --- ------------- --- -------------
--- -------------- --- ------------- --- -------------
</TABLE>
- ------------------------
(1) The Colorado market was added in 1997 as a result of the acquisition of
Melody in January 1997. Colorado backlog at December 31, 1996 approximated
219 units with an aggregate sales value of $32.2 million.
21
<PAGE>
(2) The Washington market was added in 1997 as a result of the Company's
acquisition of a 49% interest in Stafford in July 1997. Washington backlog
at December 31, 1996 approximated 39 units with an aggregate sales value of
$9.3 million.
(3) Reflects the backlog of the Company's 50%-owned joint venture in Colorado,
The Ranch-Southpointe II LLC, which was entered into in July 1998.
The average sales prices of the homes and lots comprising backlog for
consolidated projects at December 31, 1998, 1997 and 1996 were $179,000,
$181,000 and $242,000, respectively. The lower average sales prices in 1998 and
1997 relative to 1996 primarily reflects an increase in the number of homes sold
in the Company's mainland U.S. divisions as a result of the strength of the
housing markets in those areas, where the average sales prices are lower than in
Hawaii, which made up 100% of the backlog in 1996.
The increase in backlog in Colorado from 1997 to 1998 reflects a higher rate
of new home sales. These improvements are related to a greater number of
projects under development and a strong overall housing market in the Denver
metropolitan area. The California and Oregon divisions backlog increased as a
result of a greater number of projects under development in 1998 as compared to
1997.
Due to the ability of buyers to cancel their sales contracts, no assurance
can be given that homes in backlog will result in actual closings.
VARIABILITY OF RESULTS; OTHER FACTORS
The Company has experienced, and expects to continue to experience,
significant variability in sales and net income. Factors that contribute to
variability of the Company's results include: the timing of home closings, a
substantial portion of which historically have occurred in the last month of
each quarter; the Company's ability to continue to acquire additional land on
favorable terms for future developments; the condition of the real estate
markets and economies in which the Company operates; the cyclical nature of the
homebuilding industry and changes in prevailing interest rates; costs of
material and labor; and delays in construction schedules caused by timing of
inspections and approval by regulatory agencies, including zoning approvals,
building permits and receipt of entitlements, the timing of completion of
necessary public infrastructure, the timing of utility hookups and adverse
weather conditions. The Company's historical financial performance is not
necessarily a meaningful indicator of future results and, in general, the
Company's financial results will vary from development to development, and from
fiscal quarter to fiscal quarter.
In addition, the Company believes that the market price of its common stock
may at times be adversely affected due to the Company's relatively small size
when compared to certain other publicly traded national homebuilding firms. The
Company further believes that the price of its common stock may be adversely
affected due to the relatively low trading volume for its shares.
YEAR 2000 COMPLIANCE
The Company has developed and is currently executing a plan designed to make
its computer systems Year 2000 compliant. The plan covers four stages including
(i) inventory, (ii) assessment, (iii) remediation, and (iv) testing. The Company
has substantially completed the inventory, assessment and remediation stages for
its systems and applications. The Company has started its testing of these
systems and applications, and expects to complete such testing by mid-1999.
The Company currently estimates that approximately $80,000 will be incurred
to address Year 2000 issues. As of December 31, 1998, approximately $50,000 has
been incurred and expensed. The Company anticipates that its Year 2000 costs
will be funded from operations, and does not expect to defer any other
information technology projects as a result of its Year 2000 efforts. The
Company does not anticipate the Year 2000 issue will have material adverse
effects on the business operations or financial performance of the Company.
However, the failure of any internal system to achieve Year 2000 readiness could
result in material disruption to the Company's operations.
22
<PAGE>
The Company has also initiated discussions with parties with whom it does
business to ensure that those parties have appropriate plans to remediate Year
2000 issues where their systems impact the Company's operations. The Company is
assessing the extent to which its operations are vulnerable should these
organizations fail to properly remediate the computer systems. Although the
Company believes that alternative sources of labor and materials will be
available, there can be no assurance that the inability of the Company's key
subcontractors and suppliers to attain Year 2000 compliance will not have a
material adverse effect on the business operations and financial performance of
the Company. Even where assurances are received from third parties there remains
a risk that failure of systems and products of other companies on which the
Company relies could have a material adverse effect on the Company.
In addition, the Company is materially reliant on third parties with respect
to its ability to collect sales proceeds and pay its vendors and employees. Such
third parties include governmental agencies in various jurisdictions that record
the conveyance of property, title and escrow companies, banks and payroll
processing firms. The Company intends to create a contingency plan once
responses from such third parties to questionnaires have been received and
evaluated.
The costs of Year 2000 compliance and the foregoing statements are based
upon management's best estimates at the present time, which were derived
utilizing numerous assumptions of future events, including the continued
availability of certain resources, third party modification plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could differ materially from those anticipated. Specific factors
that might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, the nature and amount of programming
required to upgrade or replace each of the affected programs, the rate and
magnitude of related labor and consulting costs and the success of the Company's
external customers and suppliers in addressing the Year 2000 issue. The
Company's evaluation is on-going and it expects that new and different
information will become available to it as that evaluation continues.
Consequently, there is no guarantee that all material elements will be Year 2000
ready in time.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses its liquidity and capital resources to, among other things,
(i) support its operations including its inventories of homes, home sites and
land; (ii) provide working capital; (iii) fund market expansion, including
acquisitions, investments in and advances to joint ventures, and start-up
operations; and (iv) make interest payments on outstanding debt.
CAPITAL RESOURCES
The Company anticipates continuing to acquire land for use in its future
homebuilding operations, including finished lots and partially developed land.
The Company currently intends to acquire a portion of the land inventories
required in future periods through takedowns of lots subject to option contracts
entered into in prior periods and under new option contracts. The use of option
contracts lessens the Company's land-related risk and improves liquidity.
Because of increased demand for partially developed and finished lots in certain
of the markets where the Company builds homes, the Company's ability to acquire
lots using option contracts has been reduced or has become more expensive.
In connection with the purchase of its 49% interest in Stafford 1997, the
Company entered into an agreement to make loans available to Stafford in an
aggregate principal amount of up to $10.0 million (increased from $5.0 million
as of June 1, 1998). In addition, the Company had an option to purchase the
remaining 51% interest in Stafford based on a pre-determined formula, subject to
certain contingencies. In January 1999, the Company increased its ownership
interest in Stafford to 89% and refinanced Stafford's existing debt. As of
December 31, 1998, Stafford's total assets were approximately $54.4 million and
notes payable were approximately $38.2 million, of which $9.5 million was
outstanding to the Company. The Company anticipates that it will acquire the
remaining 11% interest in Stafford in January 2001.
23
<PAGE>
The Company anticipates that it has adequate financial resources to satisfy
its current and near-term capital requirements based on its current capital
resources and additional liquidity available under existing credit agreements.
The Company believes that it can meet its long-term capital needs (including,
among other things, meeting future debt payments and refinancing or paying off
other long-term debt as it becomes due) from operations and external financing
sources, assuming that no significant adverse changes in the Company's business,
or general economic conditions, occur as a result of the various risk factors
described elsewhere herein, in particular, increases in interest rates.
LINES OF CREDIT AND NOTES PAYABLE
On May 6, 1998, the Company consummated its offering of $100 million
aggregate principal amount of 9% Senior Notes, which are due April 15, 2008. The
Company received net proceeds from the offering of approximately $97.2 million
(net of discounts and estimated offering costs of approximately $2.8 million).
The Company used such proceeds to repay a portion of the Company's borrowings
under its line of credit. The offering costs will be amortized over the term of
the notes using the interest method. In April 1998, the Company amended certain
provisions of its Revolving Credit Facility to provide for the issuance of the
Senior Notes.
Effective September 30, 1998, the Company reduced the amount of its
Revolving Credit Facility from $97.6 million to $90 million. The Company has a
one-time option to increase the amount of the facility to $120 million. In
addition, the Company has a one-time option to reduce the amount of the facility
by $30 million on an irrevocable basis, provided the facility has been increased
to $120 million for at least six months. The Revolving Credit Facility expires
on July 1, 2001 and includes an option for the lenders to extend the term for an
additional year as of July 1 of each year. The Company can select an interest
rate based on either LIBOR (1, 2, 3 or 6-month term) or prime for each
borrowing. Based on the Company's leverage ratio, as defined, the interest rate
may vary from LIBOR plus 1.5% to 2% or prime plus 0% to 0.25%. The Revolving
Credit Facility contains covenants, including certain financial covenants and
also contains provisions which may, in certain circumstances, limit the amount
the Company may borrow. At December 31, 1998, $72.6 million of the Company's
line of credit was unused, of which $5.4 million is restricted to withdrawal for
specific project costs and letters of credit.
The Company has no material commitments or off-balance sheet financing
arrangements that would tend to affect future liquidity. The Company believes
that cash flow from operations and borrowings under its credit facilities will
provide adequate cash to fund the Company's operations at least through 1999.
However, there can be no assurance that the Company will not require additional
financing within this time frame. The Company may need to raise additional funds
in order to support more rapid expansion, respond to competitive pressures,
acquire complementary businesses or respond to unanticipated requirements. The
Company may seek to raise additional funds through private or public sales of
debt or equity securities, bank debt, or otherwise. There can be no assurance
that such additional funding, if needed, will be available on terms attractive
to the Company, or at all.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company has limited its market risk on $30 million of its Revolving
Credit Facility by entering into an interest rate swap agreement, which converts
floating rate debt to a fixed rate basis. This derivative financial instrument
is used for hedging purposes rather than speculation. The Company does not enter
into financial instruments for trading purposes.
As an example, based upon the Company's average bank borrowings of $49.2
million during 1998, if the interest rate indexes on which the Company's bank
borrowing rates are based were to increase 100 basis points in 1999, interest
incurred would increase and cash flows would decrease in 1999 by $192,000, which
amount reflects the effect on interest on the portion of the bank borrowings in
excess of the $30 million under the interest rate swap agreement. A portion of
the increased interest would be expensed as a period cost in 1999, while the
balance would be capitalized to real estate inventories and be expensed as a
component of the cost of residential real estate sales in 1999 and future years.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors........................................................ 32
Consolidated Balance Sheets, December 31, 1998 and 1997............................... 33
Consolidated Statements of Operations for years ended December 31, 1998, 1997 and
1996................................................................................ 34
Consolidated Statements of Stockholders' Equity for years ended December 31, 1998,
1997 and 1996....................................................................... 35
Consolidated Statements of Cash Flows for years ended December 31, 1998, 1997 and
1996................................................................................ 36
Notes to Consolidated Financial Statements............................................ 37
</TABLE>
SCHEDULES
All schedules have been omitted as the required information is inapplicable
or the information is presented in the financial statements or related notes.
25
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The Company's Proxy Statement for its 1999 Annual Meeting of Stockholders,
which, when filed pursuant to Regulation 14A under the Securities Exchange Act
of 1934, will be incorporated by reference in this Annual Report on Form 10-K
pursuant to General Instruction G(3) of Form 10-K, provides the information
required under Part III (Items 10, 11, 12 and 13), except for the information
with respect to the Company's executive officers who are not directors, which is
included in "Item 1. Business--Executive Officers of the Registrant."
26
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES.
See "Item 8. Financial Statements and Supplementary Data."
(B) REPORTS ON FORM 8-K.
None.
(C) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
2.1 Stock Purchase Agreement among the Company, Falcon Development
Corporation, Madison B. Graves, Jacob D. Bingham, Fred L. Ahlstrom and
Mark S. Doppe, dated January 8, 1997. (Incorporated by reference to the
Company's Current Report on Form 8-K dated January 8, 1997; Commission
file number 0-19891.)
3.1 Certificate of Incorporation of the Company. (Incorporated by reference to
Exhibit 3.1 of the Company's registration statement under the Securities
Act on Form S-1, Registration Statement No. 33-45485.)
3.2 Bylaws of the Company. (Incorporated by reference to Exhibit 3.2 of the
Company's registration statement under the Securities Act on Form S-1,
Registration Statement No. 33-55858.)
4.1 Indenture between the Company and Bishop Trust Company, Limited, as
Trustee, dated as of January 15, 1993. (Incorporated by reference to
Exhibit 4.1 of the Company's Current Report on Form 8-K dated January 21,
1993; Commission file number 0-19891.)
4.2 Form of Debenture (included in Exhibit 4.1).
4.3 Specimen of Common Stock certificate. (Incorporated by reference to
Exhibit 4.1 of the Company' registration statement under the Securities
Act on Form S-1, Registration No. 33-45485.)
4.4 Indenture between the Company and U.S. Trust Company of California, N.A.,
as Trustee, dated May 6, 1998. (Incorporated by reference to the Company's
Quarterly Report on Form 10-Q dated March 31, 1998; Commission file number
0-19891.)
4.5 Form of Senior Notes (included in Exhibit 4.4). (Incorporated by reference
to the Company's Quarterly Report on Form 10-Q dated March 31, 1998;
Commission file number 0-19891.)
4.6 Registration Rights Agreement dated as of April 30, 1998 between the
Company and the Initial Purchasers. (Incorporated by reference to Exhibit
4.5 of the Company's Registration Statement under Securities Act on Form
S-4, Registration No. 333-57723.)
10.1 Form of Indemnification Agreement between the Company and its directors
and certain officers. (Incorporated by reference to Exhibit 10.1 of the
Company's registration statement under the Securities Act on Form S-1,
Registration No. 33-45485.)
+10.2 1992 Stock Option Plan, as amended. (Incorporated by reference to Exhibit
10.2 of the Company's 1992 Annual Report on Form 10-K; Commission file
number 0-19891.)
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
+10.3 Form of Stock Option Agreement. (Incorporated by reference to Exhibit 28.2
of the Company's registration statement under the Securities Act on Form
S-8, Registration No. 33-53044.)
+10.4 Form of Non-Employee Director Automatic Option Grant Agreement.
(Incorporated by reference to Exhibit 28.3 of the Company's registration
statement under the Securities Act on Form S-8, Registration No.
33-53044.)
+10.5 Management Agreement dated as of January 31, 1992 between the Company and
James K. Schuler & Associates, Inc. (Incorporated by reference to Exhibit
10.8 of the Company's registration statement under the Securities Act on
Form S-1, Registration No. 33-45485.)
+10.6 Employment Agreement dated as of January 31, 1992 between the Company and
James K. Schuler. (Incorporated by reference to Exhibit 10.10 of the
Company's registration statement under the Securities Act on Form S-1,
Registration No. 33-45485.)
10.7 Joint Venture Agreement between the Company and United Realty, Inc. dated
as of August 26, 1989. (Incorporated by reference to Exhibit 10.54 of the
Company's registration statement under the Securities Act on Form S-1,
Registration No. 33-45485.)
10.8 Partnership Agreement between the Company and C. Brewer Properties, Inc.
dated as of October 15, 1992. (Incorporated by reference to Exhibit 10.75
of the Company's registration statement under the Securities Act on Form
S-1, Registration No. 33-55858.)
10.9 Purchase Agreement between the Company and Itoman Hawaii, Inc. dated
October 13, 1992. (Incorporated by reference to Exhibit 10.78 of the
Company's registration statement under the Securities Act on Form S-1,
Registration No. 33-55858.)
10.10 Agreement among the Company, Palailai Holdings, Inc. and Malama Mohala
Corp. dated November 4, 1992. (Incorporated by reference to Exhibit 10.79
of the Company's registration statement under the Securities Act on Form
S-1, Registration No. 33-55858.)
10.11 Purchase Agreement (Parcel 15) between the Company and AMFAC Property
Development Corp. dated July 14, 1992. (Incorporated by reference to
Exhibit 10.82 of the Company's registration statement under the Securities
Act on Form S-1, Registration No. 33-55858.)
10.12 Purchase Agreement (Parcel 20) between the Company and AMFAC Property
Development Corp. dated July 14, 1992. (Incorporated by reference to
Exhibit 10.83 of the Company's registration statement under the Securities
Act on Form S-1, Registration No. 33-55858.)
10.13 Lease between the Company and AALL Hawaii Holdings dated May 14, 1993
(i.e., lease of premises located at 828 Fort Street Mall, 4th Floor,
Honolulu, Hawaii). (Incorporated by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q dated June 30, 1993; Commission
file number 0-19891.)
10.14 Amendment dated April 9, 1993 to Purchase Agreement (Parcel 15) between
the Company and AMFAC Property Development Corp., a Hawaii Corporation.
(Incorporated by reference to Exhibit 10.2 of the Company's Current Report
on Form 8-K dated April 30, 1993; Commission file number 0-19891.)
10.15 Amendment dated April 9, 1993 to Purchase Agreement (Parcel 20) between
the Company and AMFAC Property Development Corp., a Hawaii Corporation.
(Incorporated by reference to Exhibit 10.4 of the Company's Current Report
on Form 8-K dated April 30, 1993; Commission file number 0-19891.)
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.16 Purchase Agreement (Parcel 9) dated July 30, 1993 between the Company and
AMFAC Property Development Corp., a Hawaii Corporation. (Incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form 10-Q
dated September 30, 1993; Commission file number 0-19891.)
+10.17 Schuler Homes, Inc. 401(k) Retirement Savings Plan (005) dated July 20,
1993, which amends in full the Schuler Homes, Inc. Profit Sharing Plan
(005), originally effective November 1, 1989. (Incorporated by reference
to Exhibit 10.6 of the Company's Quarterly Report on Form 10-Q dated
September 30, 1993; Commission file number 0-19891.)
+10.18 Amendment to the Schuler Homes, Inc. 401(k) Retirement Savings Plan (005)
(Sections 2.1 and 2.2) effective September 1, 1993. (Incorporated by
reference to Exhibit 10.7 of the Company's Quarterly Report on Form 10-Q
dated September 30, 1993; Commission file number 0-19891.)
10.19 Letter Agreement between the Company and Lokelani Ma'ili Kai, Ltd. and
P.H. Property Development Company, dated January 24, 1994. (Incorporated
by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K
dated March 2, 1994; Commission file number 0-19891.)
10.20 Addendum to Letter Agreement dated January 24, 1994 between the Company
and Lokelani Ma'ili Kai, Ltd. and P.H. Property Development Company, dated
February 18, 1994. (Incorporated by reference to Exhibit 10.2 of the
Company's Current Report on Form 8-K dated March 2, 1994; Commission file
number 0-19891.)
10.21 Campbell Square Office Lease dated April 11, 1994 between the Company and
the Trustees Under the Will and of the Estate of James Campbell, Deceased.
(Incorporated by reference to the Company's Quarterly Report on Form
10-Q/A dated June 30, 1994; Commission file number 0-19891.)
+10.22 Amendment to the Schuler Homes, Inc. 401(k) Retirement Savings Plan (005)
(Sections 1.5(a) and 1.11, effective January 1, 1994; and Sections 2.1 and
2.2, effective September 16, 1994). (Incorporated by reference to Exhibit
10.1 of the Company's Quarterly Report on Form 10-Q dated September 30,
1994; Commission file number 0-19891.)
10.23 Agreement for Increased Density on Parcels 10, 15, 16 and 20 between the
Company and AMFAC Property Development Corp. dated December 12, 1994.
(Incorporated by reference to Exhibit 10.82 of the Company's 1994 Annual
Report on Form 10-K; Commission file number 0-19891.)
10.24 Agreement (Kapolei Knolls) between the Company and Finance Realty, Ltd.
dated September 11, 1995. (Incorporated by reference to the Company's
Quarterly Report on Form 10-Q dated September 30, 1995; Commission file
number 0-19891.)
10.25 Agreement between Waiakoa Estates Subdivision Joint Venture and Betsill
Brothers Construction, Inc. dated September 16, 1995. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q dated September
30, 1995; Commission file number 0-19891.)
10.26 Amended and Restated Purchase and Sale Agreement between the Company and
Gentry Development Company and Gentry Homes, Ltd., dated November 20,
1995. (Incorporated by reference to the Company's 1995 Annual Report on
Form 10-K; Commission file number 0-19891.)
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
10.27 Contract for Purchase and Sale of Real Property between the Company and
Investek Properties Company, LLC, dated June 19, 1996. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q dated June 30,
1996; Commission file number 0-19891.)
10.28 Real Estate Purchase Agreement between Schuler Homes of California, Inc.
and Frank J. Andrews, Jr., dated August 20, 1996. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q dated September
30, 1996; Commission file number 0-19891.)
10.29 Option Agreement between Schuler Homes of California, Inc. and Frank J.
Andrews, Jr., dated August 20, 1996. (Incorporated by reference to the
Company's Quarterly Report on Form 10-Q dated September 30, 1996;
Commission file number 0-19891.)
10.30 Real Estate Purchase and Sale Agreement between the Company and Coop
Family Limited Partnership, dated September 20, 1996. (Incorporated by
reference to the Company's Quarterly Report on Form 10-Q dated September
30, 1996; Commission file number 0-19891.)
10.31 Supplement No. 1 to Credit Agreement between the Company, certain Banks
and First Hawaiian Bank, dated January 8, 1997. (Incorporated by reference
to the Company's Current Report on Form 8-K dated January 8, 1997;
Commission file number 0-19891.)
10.32 Security Agreement between Melody Homes, Inc. and Melody Mortgage Company,
and First Hawaiian Bank, dated January 8, 1997. (Incorporated by reference
to the Company's Current Report on Form 8-K dated January 8, 1997;
Commission file number 0-19891.)
10.33 Amended and Restated Loan Agreement between Melody Homes, Inc. and Bank
One, dated November 25, 1996. (Incorporated by reference to the Company's
Current Report on Form 8-K dated January 8, 1997; Commission file number
0-19891.)
10.34 Modification Agreement between Melody Homes, Inc. and Bank One, dated
January 8, 1997. (Incorporated by reference to the Company's Current
Report on Form 8-K dated January 8, 1997; Commission file number 0-19891.)
10.35 News release dated January 8, 1997 regarding the completion of the
acquisition of Melody Homes and Mortgage. (Incorporated by reference to
the Company's Current Report on Form 8-K dated January 8, 1997; Commission
number 0-19891.)
10.36 Second Amendment to Loan Documents between the Company, certain Banks,
First Hawaiian Bank and Bank of America NT & SA, dated April 29, 1998.
(Incorporated by reference to the Company's Quarterly Report on Form 10-Q
dated March 31, 1998; Commission file number 0-19891.)
10.37 Guaranty between the Company, certain Banks, First Hawaiian Bank and Bank
of America NT & SA, dated April 29, 1998. (Incorporated by reference to
the Company's Quarterly Report on Form 10-Q dated March 31, 1998;
Commission file number 0-19891.)
10.38 Release of Negative Pledge Agreement between the Company, certain Banks
and First Hawaiian Bank, dated April 29, 1998. (Incorporated by reference
to the Company's Quarterly Report on Form 10-Q dated March 31, 1998;
Commission file number 0-19891.)
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
- ------ --------------------------------------------------------------------------
<C> <S>
+10.39 Schuler Homes, Inc. 1998 Employee Stock Purchase Plan. (Incorporated by
reference to Exhibit 99.1 of the Company's registration statement under
the Securities Act on Form S-8, Registration No. 333-60305.)
10.40 Second Amended and Restated Credit Agreement between the Company, certain
Banks, First Hawaiian Bank and Bank of America NT & SA, dated September
30, 1998. (Incorporated by reference to the Company's Quarterly Report on
Form 10-Q dated September 0, 1998; Commission file number 0-19891.)
10.41 Guaranty by wholly-owned subsidiaries of the Company, dated September 30,
1998, relating to Second Amended and Restated Credit Agreement dated
September 30, 1998. (Incorporated by reference to the Company's Quarterly
Report on Form 10-Q dated September 30, 1998; Commission file number
0-19891.)
+*10.42 Restated Schuler Homes, Inc. 401(k) Retirement Savings Plan, effective
April 1, 1998.
*10.43 First Amendment to Second Amended and Restated Credit Agreement between
the Company, certain Banks, First Hawaiian Bank and Bank of America NT &
SA, dated January 21, 1999.
*10.44 Guaranty by wholly-owned subsidiaries of the Company to certain Banks,
First Hawaiian Bank and Bank of America NT & SA, dated January 21, 1999.
21 Subsidiaries of the Registrant. (Incorporated by reference to Note 1 of
Notes to Consolidated Financial Statements included in Item 8 of this Form
10-K.)
*23.1 Consent of Independent Auditors.
*27 Financial Data Schedule
</TABLE>
- ------------------------
* Filed herewith
+ Management contract, compensatory plan or arrangement
(D) SEE ITEM 14(1c).
31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Schuler Homes, Inc.
We have audited the accompanying consolidated balance sheets of Schuler
Homes, Inc. as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Schuler Homes,
Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Honolulu, Hawaii
March 15, 1999
32
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents (restricted--Note 2).............. $ 4,915,000 $ 3,842,000
Receivables................................................. 1,932,000 880,000
Prepaid income taxes........................................ 381,000 1,682,000
Real estate inventories (Note 3)............................ 325,166,000 291,081,000
Investments in unconsolidated joint ventures (Note 4)....... 23,998,000 16,026,000
Deposits.................................................... 2,705,000 1,691,000
Deferred offering costs, net (Notes 9 and 10)............... 1,976,000 1,171,000
Notes receivable (Note 2)................................... 1,956,000 2,406,000
Deferred income taxes (Note 6).............................. 3,957,000 4,002,000
Intangibles, net (Note 1)................................... 13,879,000 13,742,000
Other assets................................................ 4,678,000 4,048,000
------------ ------------
Total assets................................................ $385,543,000 $340,571,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable............................................ $ 15,954,000 $ 12,805,000
Accrued expenses............................................ 16,703,000 13,207,000
Notes payable to bank (Note 5).............................. 17,365,000 91,077,000
Notes payable to others..................................... 3,954,000 2,627,000
Senior notes (Note 9)....................................... 98,512,000 --
Convertible subordinated debentures (Note 10)............... 57,500,000 57,500,000
------------ ------------
Total liabilities........................................... 209,988,000 177,216,000
Commitments and contingencies (Notes 5 and 11)
Stockholders' equity (Notes 1, 8 and 10):
Common stock, $.01 par value; 30,000,000 shares
authorized; 20,892,465 and 20,874,927 shares issued at
December 31, 1998 and 1997, respectively................ 209,000 209,000
Additional paid-in capital................................ 93,201,000 93,100,000
Retained earnings......................................... 87,762,000 75,046,000
Treasury stock, at cost; 869,000 and 774,000 shares at
December 31, 1998 and 1997, respectively................ (5,617,000) (5,000,000)
------------ ------------
Total stockholders' equity.................................. 175,555,000 163,355,000
------------ ------------
Total liabilities and stockholders' equity.................. $385,543,000 $340,571,000
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
33
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Residential real estate sales....................... $282,902,000 $229,624,000 $93,645,000
Costs and expenses:
Residential real estate sales..................... 225,370,000 184,843,000 76,612,000
Inventory impairment loss (Note 3)................ -- -- 23,910,000
Selling and commissions........................... 19,124,000 17,268,000 7,767,000
General and administrative (Note 7)............... 16,008,000 13,596,000 4,179,000
----------- ----------- -----------
Total costs and expenses............................ 260,502,000 215,707,000 112,468,000
Income (loss) from unconsolidated joint ventures
(Note 4).......................................... 2,435,000 (136,000) 157,000
----------- ----------- -----------
Operating income (loss)............................. 24,835,000 13,781,000 (18,666,000)
Other income (expense).............................. (4,243,000) (4,261,000) (9,000)
----------- ----------- -----------
Income (loss) before provision for income taxes..... 20,592,000 9,520,000 (18,675,000)
Provision (credit) for income taxes (Note 6)........ 7,876,000 3,634,000 (7,289,000)
----------- ----------- -----------
Net income (loss)................................... $12,716,000 $ 5,886,000 $(11,386,000)
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per share (Note 12):
Basic and diluted................................. $ 0.63 $ 0.29 $ (0.55)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
34
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
--------- --------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995.......... 20,874,177 $ 209,000 $93,096,000 $80,546,000 $ -- $173,851,000
Reacquisition of the Company's common
stock............................... (774,000) -- -- -- (5,000,000) (5,000,000)
Net loss.............................. -- -- -- (11,386,000) -- (11,386,000)
--------- --------- ---------- ----------- ---------- -----------
Balance at December 31, 1996.......... 20,100,177 209,000 93,096,000 69,160,000 (5,000,000) 157,465,000
Issuance of common stock from exercise
of stock options (Note 8)........... 750 -- 4,000 -- -- 4,000
Net income............................ -- -- -- 5,886,000 -- 5,886,000
--------- --------- ---------- ----------- ---------- -----------
Balance at December 31, 1997.......... 20,100,927 209,000 93,100,000 75,046,000 (5,000,000) $163,355,000
Issuance of common stock from exercise
of stock options (Note 8)........... 17,538 -- 101,000 -- -- 101,000
Reacquisition of the Company's common
stock............................... (95,000) -- -- -- (617,000) (617,000)
Net income............................ -- -- -- 12,716,000 -- 12,716,000
--------- --------- ---------- ----------- ---------- -----------
Balance at December 31, 1998.......... 20,023,465 $ 209,000 $93,201,000 $87,762,000 $(5,617,000) $175,555,000
--------- --------- ---------- ----------- ---------- -----------
--------- --------- ---------- ----------- ---------- -----------
</TABLE>
See accompanying notes.
35
<PAGE>
SCHULER HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss).................................. $ 12,716,000 $ 5,886,000 $(11,386,000)
Adjustment to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization expense............ 3,162,000 2,883,000 814,000
(Income) loss from unconsolidated joint
ventures....................................... (2,360,000) 143,000 (72,000)
Sales financed by Company........................ -- -- (152,000)
Principal payments of notes receivable........... 207,000 2,303,000 190,000
Increase in allowance for doubtful accounts...... 96,000 -- --
Changes in assets and liabilities:
(Increase) decrease in receivables............... (1,052,000) 654,000 92,000
(Increase) decrease in prepaid income taxes...... 1,301,000 922,000 (2,047,000)
(Increase) decrease in deposits.................. (1,014,000) (1,208,000) 518,000
(Increase) decrease in real estate inventories... (34,375,000) (12,775,000) 10,358,000
(Increase) decrease in other assets.............. (711,000) (1,294,000) (262,000)
Increase (decrease) in accounts payable.......... 3,149,000 7,438,000 (420,000)
Increase (decrease) in accrued expenses.......... 2,473,000 3,696,000 (16,000)
Change in deferred income taxes.................. 45,000 3,354,000 (5,538,000)
------------ ------------ ------------
Net cash provided by (used in) operating
activities................................... (16,363,000) 12,002,000 (7,921,000)
INVESTING ACTIVITIES:
Payment for purchase of Melody Homes and Mortgage,
net of cash acquired............................. -- (29,508,000) --
Investments in unconsolidated joint ventures....... (1,000,000) (2,980,000) --
Advances to unconsolidated joint ventures.......... (8,431,000) (1,724,000) (4,082,000)
Repayments of advances to unconsolidated joint
ventures......................................... 263,000 145,000 4,248,000
Capital distributions from unconsolidated joint
venture.......................................... 3,557,000 -- 128,000
Purchase of property and equipment................. (432,000) (664,000) (39,000)
------------ ------------ ------------
Net cash provided by (used in) investing
activities..................................... (6,043,000) (34,731,000) 255,000
FINANCING ACTIVITIES:
Proceeds from bank borrowings...................... 294,064,000 223,147,000 115,723,000
Principal payments on bank borrowings.............. (367,776,000) (198,427,000) (107,814,000)
Net (increase) decrease in deferred offering
costs............................................ (805,000) 228,000 229,000
Proceeds from issuance of senior notes, net of
discount......................................... 98,408,000 -- --
Net decrease in discount on issuance of senior
notes............................................ 104,000 -- --
Proceeds from issuance of common stock from
exercise of stock options........................ 101,000 4,000 --
Reacquisition of the Company's common stock........ (617,000) -- (5,000,000)
------------ ------------ ------------
Net cash provided by (used in) financing
activities..................................... 23,479,000 24,952,000 3,138,000
------------ ------------ ------------
Increase (decrease) in cash........................ 1,073,000 2,223,000 (4,528,000)
Cash and cash equivalents (restricted) at beginning
of period........................................ 3,842,000 1,619,000 6,147,000
------------ ------------ ------------
Cash and cash equivalents (restricted) at end of
period........................................... $ 4,915,000 $ 3,842,000 $ 1,619,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes.
36
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Schuler Homes, Inc. (the Company) was incorporated in Hawaii in March 1988
and, during January 1992, was reincorporated in Delaware. The Company is engaged
in the development and sale of residential real estate in the following
geographic markets: Colorado, Hawaii, Northern California, Oregon and
Washington.
The Company has ownership interests in the following entities:
- Melody Homes, Inc., a wholly-owned subsidiary incorporated in
Delaware--This entity is engaged in the development and sale of residential real
estate in Colorado. This entity was acquired by the Company in January 1997.
- Melody Mortgage Co., a wholly-owned subsidiary incorporated in
Colorado--This entity is a mortgage brokerage firm for Melody home buyers. This
entity was acquired by the Company in January 1997.
- Schuler Homes of California, Inc., a wholly-owned subsidiary incorporated
in California--This entity is engaged in the development and sale of residential
real estate in California. This entity was formed in June, 1996.
- Schuler Homes of Washington, Inc., a wholly-owned subsidiary incorporated
in the state of Washington--This entity is engaged in the development and sale
of residential real estate in the state of Washington. This entity was formed in
August 1996.
- Schuler Homes of Oregon, Inc., a wholly-owned subsidiary incorporated in
Oregon--This entity is engaged in the development and sale of residential real
estate in Oregon. This entity was formed in October 1996. The Company further
expanded its Oregon operations in October 1998 through the acquisition of
certain assets of Keys Homes, Inc., a Portland, Oregon homebuilder.
- SHLR of Washington, Inc., a wholly-owned subsidiary incorporated in the
state of Washington-- This entity owns a 49% interest in SSHI LLC (dba Stafford
Homes), which is engaged in the development and sale of residential real estate
in the state of Washington. This entity was formed in July 1997. In January
1999, the Company exercised its option to purchase an additional 40% ownership
interest in SSHI LLC, increasing the Company's ownership to 89%.
- SHLR of Colorado, Inc., a wholly-owned subsidiary incorporated in
Colorado--This entity owns a 50% interest in The Ranch-Southpointe II LLC, which
is engaged in the development and sale of residential real estate in Colorado.
This entity was formed in July 1998.
- Schuler Realty/Maui, Inc., a wholly-owned subsidiary incorporated in
Hawaii--This entity provides sales services in connection with the Company's
projects on the island of Maui.
- Schuler Realty/Oahu, Inc., a wholly-owned subsidiary incorporated in
Hawaii--This entity provides sales services in connection with the Company's
projects on the island of Oahu.
- Lokelani Construction Corporation, a wholly-owned subsidiary incorporated
in Delaware--This entity serves as the general contractor on certain of the
Company's projects.
- Waiakoa Estates Subdivision Joint Venture (WESJV), an unincorporated
joint venture--The Company has a 50% interest in WESJV, which is engaged in the
development and sale of residential lots on the island of Maui.
- Iao Partners (Iao), a general partnership--The Company has a 50% interest
in Iao, which is engaged in the development and sale of residential projects on
the island of Maui.
37
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments and other
short-term investments (less than 3 months) to be cash equivalents.
REAL ESTATE INVENTORIES
Real estate inventories consist of raw land, lots under development, houses
under construction and completed homes. Pursuant to FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," inventories which are substantially completed are carried at
the lower of cost or fair value less cost to sell. Fair value is determined by
applying a risk adjusted discount rate to estimates of future cash flows,
resulting in a lower value than under the net realizable value method previously
required. In addition, land held for future development or inventories under
current development are adjusted to fair value, only if an impairment to their
value is indicated.
The estimates of future cash flows require significant judgment relating to
level of sales prices, rate of new home sales, amount of marketing costs and
price discounts needed in order to stimulate sales, rate of increase in the cost
of building materials and labor, introduction of building code modifications,
and economic and real estate market conditions in general. Accordingly, there
exists at any date, a reasonable possibility that changes in estimates will
occur in subsequent periods.
All direct and indirect land costs, all development and construction costs,
and applicable carrying charges (primarily interest) are capitalized to real
estate projects during the development period. The capitalized costs are
assigned to individual components of projects based on specific identification,
if practicable, or allotted based on relative sales value (in accordance with
FASB Statement No. 67, "Accounting for Costs and Initial Rental Operations of
Real Estate Projects"). Selling expenses and other marketing costs are expensed
in the period incurred and are included in cost of residential real estate sold
in the accompanying consolidated statements of operations.
UNCONSOLIDATED JOINT VENTURES
Investments in unconsolidated joint ventures consist of the Company's
interest in real estate ventures, and are accounted for using the equity method.
DEPOSITS
Deposits consist of amounts paid relating to potential purchases of land.
38
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLES
Intangibles consist of goodwill and covenants not-to-compete, which resulted
from the Company's past acquisitions. The intangibles are being amortized on a
straight-line basis over periods ranging from 15 to 20 years. Accumulated
amortization at December 31, 1998 is approximately $1,461,000.
SALES AND PROFIT RECOGNITION
A sale is generally recorded and profit recognized when closings have
occurred and a buyer has met down payment and continuing investment criteria
required by generally accepted accounting principles.
INTEREST RATE SWAP
The Company entered into an interest-rate swap agreement to modify the
interest characteristics of its outstanding debt. This agreement involves the
exchange of amounts based on a fixed interest rate for amounts based on variable
interest rates over the life of the agreement without an exchange of the
notional amount upon which the payments are based. The differential to be paid
or received as interest rates change is accrued and recognized as an adjustment
of interest incurred related to the debt (the accrual accounting method). The
fair value of the swap agreement is not recognized in the financial statements.
In the event of the termination of the interest-rate swap agreement, gains and
losses would be deferred as an adjustment to the carrying amount of the
outstanding debt and amortized as an adjustment to interest incurred related to
the debt over the remaining term of the original contract life of the terminated
swap agreement. In the event of the early extinguishment of a designated debt
obligation, any realized or unrealized gain or loss from the swap would be
recognized in income coincident with the extinguishment.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
required to be adopted in years beginning after June 15, 1999. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
2. NOTES RECEIVABLE
Notes receivable consist primarily of notes receivable on seller financed
sales of residential units and residential lots in Hawaii. The notes provide for
terms and conditions similar to those offered by financial institutions and are
collateralized by the residential units and residential lots sold. Certain of
the notes are collateralized by second mortgages relating to home buyers who
purchased homes as part of the Company's "zero-down" sales program. Revenue and
profit recognition on such transactions are deferred until the down payment
requirement for revenue and profit recognition is met. The collection reserve
relating to the sale of certain second mortgage notes in 1997 results in a
restriction on the Company's cash in the amount of approximately $506,000.
39
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. REAL ESTATE INVENTORIES
Real estate inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
Unimproved land held for future development...... $34,472,000 $42,955,000
Development projects in progress................. 251,821,000 205,060,000
Completed inventory (including lots held for
sale).......................................... 38,873,000 43,066,000
----------- -----------
$325,166,000 $291,081,000
----------- -----------
----------- -----------
</TABLE>
Completed inventory includes residential units which are substantially ready
for occupancy.
Pursuant to the adoption of FASB Statement No. 121, the Company recognized
an impairment loss of $23,910,000 in 1996, primarily related to a) an increase
in completed inventories due to the substantial completion of a high-rise
project and b) the decline experienced by the Company in the rate of new home
sales contracts entered into, which resulted in a more conservative outlook with
respect to the estimate of future cash flows for certain other completed
projects, on some of which, impairment losses were recognized in 1995. No losses
were recognized on land held for future development or inventories under current
development.
The Company has notes payable to land sellers with a principal balance of
$3,954,000 at December 31, 1998, which relate to land purchased for future
residential development. The notes are secured by mortgages on the purchased
land.
4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Condensed combined financial information as of December 31, 1998, 1997 and
1996 and for the years then ended are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Assets (primarily real estate inventories)...... $ 71,910,000 $ 53,298,000 $ 17,074,000
Liabilities..................................... 46,953,000 30,452,000 155,000
------------- ------------- -------------
Equity.......................................... $ 24,957,000 $ 22,846,000 $ 16,919,000
------------- ------------- -------------
------------- ------------- -------------
Revenues........................................ $ 63,933,000 $ 22,011,000 $ 6,657,000
Expenses........................................ 59,090,000 22,071,000 6,166,000
------------- ------------- -------------
Net income (loss)............................... $ 4,843,000 $ (60,000) $ 491,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
On July 31, 1997, the Company (through a new wholly-owned subsidiary, SHLR
of Washington, Inc., incorporated in the state of Washington) acquired a 49%
interest in Stafford, with an option to purchase the remaining 51% interest,
subject to certain contingencies. In connection with this acquisition, the
Company entered into an agreement to make revolving loans to the acquiree in an
aggregate principal amount of up to $5,000,000 (increased to $10,000,000 in
1998). At December 31, 1998, outstanding loans pursuant to this agreement
totaled $9,500,000. The Company accounts for this investment as an
unconsolidated joint venture under the equity method of accounting. The increase
in amounts on the above table
40
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES (CONTINUED)
from 1996 to 1997 is due primarily to the acquisition of a 49% interest in
Stafford. In January 1999, the Company increased its interest in Stafford to 89%
and refinanced Stafford's debt with the Company's line of credit facility.
The Company's investment in WESJV includes $400,000 paid to the other
venturer under an option agreement, which gave the Company the right for a
certain period, as defined, to require the other venturer to contribute the land
to WESJV for its project. A portion of the option payment is amortized as sales
occur. In addition, the Company earns management fees from WESJV and Iao. The
option fee amortization and management fees are included in income from
unconsolidated joint ventures in the accompanying consolidated statements of
operations.
Investment in unconsolidated joint ventures includes accrued but unpaid
partnership management fees due from the Company's 50% general partner in Iao of
$612,000 and $583,000 at December 31, 1998 and 1997, respectively. The Iao
partnership agreement provides for the payment of the partnership management
fees to the Company from the cash flow of Iao.
The Company's loss from unconsolidated joint ventures in 1997 is primarily
the result of the Company's share of the loss recognized by Iao of $397,000,
offset in part by the Company's share of the income of Stafford of $329,000. As
of December 31, 1998, the Company's cumulative share of the undistributed
profits of its joint ventures is $9,117,000.
Included in the investments in unconsolidated joint ventures of the Company,
and in the liabilities of the joint ventures are advances from the Company to
its unconsolidated joint ventures of $9,611,000, $1,521,000, and $0 at December
31, 1998, 1997 and 1996, respectively.
5. NOTES PAYABLE TO BANK
In April 1998, the Company amended certain provisions of its Revolving
Credit Facility to provide for the issuance of the Senior Notes (see Note 9).
Effective September 30, 1998, the Company reduced the amount of its Revolving
Credit Facility from $97,600,000 to $90,000,000. The Company has a one-time
option to increase the amount of the facility to $120,000,000. In addition, the
Company has a one-time option to reduce the amount of the facility by
$30,000,000 on an irrevocable basis, provided the facility has been increased to
$120,000,000 for at least six months. The facility expires on July 1, 2001 and
includes an option for the lenders to extend the term for an additional year as
of July 1 of each year. The Company can select an interest rate based on either
LIBOR (1, 2, 3 or 6 month term) or prime for each borrowing. Based on the
Company's leverage ratio, as defined, the interest rate may vary from LIBOR plus
1.5% to 2% or prime plus 0% to 0.25%. The Company's ability to draw upon its
line of credit is dependent upon meeting certain financial ratios and covenants.
As of December 31, 1998, the Company met such financial ratios and covenants.
The Company has an interest rate swap to pay LIBOR (currently fixed at
5.75%) on $30,000,000, while receiving in return an interest payment at a
floating one-month LIBOR. However, if the one-month LIBOR resets at or above 7%,
the swap reverses for that payment period and no interest payments are
exchanged. The interest rate differential to be received or paid is recognized
during the period as an adjustment to interest incurred. The interest rate swap
terminates on August 1, 2003.
The Company's notes payable at December 31, 1998 consist of borrowings under
its credit facilities. At December 31, 1998, the Company's bank borrowings were
at interest rates of prime (7.75%) and
41
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE TO BANK (CONTINUED)
LIBOR plus 1.5% (6.69%). At December 31, 1998, $72,635,000 of the Company's line
of credit is unused, of which $5,393,000 is restricted for outstanding but
unused letters of credit.
The interest amounts in this paragraph relate to notes payable to bank and
others, senior notes and the convertible subordinated debentures. The Company
paid interest of approximately $11,818,000, $11,644,000, and $7,972,000 during
the years ended December 31, 1998, 1997 and 1996, respectively. Interest
incurred during 1998, 1997 and 1996 was approximately $13,789,000, $11,845,000,
and $7,865,000, respectively. All of such interest was capitalized to real
estate inventories except for $3,096,000, $2,985,000 and $270,000 in 1998, 1997
and 1996, respectively, which was expensed and not capitalized, as such interest
related to assets which did not meet the requirements for capitalization. The
difference between the amount of interest paid and the amount incurred is
comprised of accrued interest payable. Interest, previously capitalized to real
estate inventories, expensed as a component of cost of residential real estate
sales during 1998, 1997 and 1996 totaled $9,554,000, $6,666,000, and $3,247,000,
respectively.
The following information relates to notes payable to bank at December 31,
1998 and 1997 and interest thereon during the years then ended:
<TABLE>
<CAPTION>
AVERAGE DAILY
WEIGHTED AVERAGE MAXIMUM AMOUNT AMOUNT WEIGHTED AVERAGE
INTEREST RATE AT OUTSTANDING OUTSTANDING INTEREST RATE
END OF THE YEAR DURING THE YEAR DURING THE YEAR DURING THE YEAR*
--------------------- ----------------- --------------- ---------------------
<S> <C> <C> <C> <C>
1998..................................... 7.2% $ 112,157,000 $ 49,199,000 7.8%
-- --
-- --
----------------- ---------------
----------------- ---------------
1997..................................... 7.9% $ 113,600,000 $ 104,739,000 7.7%
-- --
-- --
----------------- ---------------
----------------- ---------------
</TABLE>
*Computed by dividing related interest charged by the average daily amount
outstanding during the year.
6. INCOME TAXES
The following summarizes the provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Currently payable:
Federal.......................................... $ 6,857,000 $ 343,000 $ (1,480,000)
State............................................ 974,000 (61,000) (271,000)
------------ ------------ -------------
7,831,000 282,000 (1,751,000)
Deferred:
Federal.......................................... 28,000 2,843,000 (4,687,000)
State............................................ 17,000 509,000 (851,000)
------------ ------------ -------------
45,000 3,352,000 (5,538,000)
------------ ------------ -------------
Provision (credit) for income taxes................ $ 7,876,000 $ 3,634,000 $ (7,289,000)
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
42
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
The provision for income taxes on adjusted historical income differs from
the amounts computed by applying the applicable Federal statutory rates due to
the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Provision (credit) for federal income taxes at the
statutory rate................................... $ 7,207,000 $ 3,343,000 $ (6,559,000)
Provision (credit) for state income taxes, net of
federal income tax benefits...................... 669,000 290,000 (727,000)
Other.............................................. -- 1,000 (3,000)
------------ ------------ -------------
Provision (credit) for income taxes................ $ 7,876,000 $ 3,634,000 $ (7,289,000)
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
Deferred income taxes are the result of provisions of the tax laws that
either require or permit certain items of income or expense to be reported for
tax purposes in different periods than they are reported for financial reporting
purposes. The primary components of the Company's deferred income taxes relate
to capitalized interest and inventory impairment losses (Note 3). At December
31, 1998, the total deferred tax liabilities (primarily resulting from
capitalized interest) and total deferred tax assets (primarily resulting from
inventory impairment losses) are $3,574,000 and $7,531,000, respectively.
Income tax payments of $7,118,000, $455,000, and $585,000 were made during
1998, 1997 and 1996, respectively.
7. RELATED PARTY TRANSACTIONS
James K. Schuler, the Company's chief executive officer, owns a majority of
the common shares outstanding as of December 31, 1998 and 1997.
The Company and an affiliate wholly-owned by Mr. Schuler, have a management
agreement pursuant to which certain management and administrative personnel of
the Company perform certain functions for the affiliate. The affiliate
reimburses the Company on a quarterly basis for its cost of providing such
services. During 1998, 1997 and 1996, $100,000, $97,000 and $116,000 was charged
to the affiliate by the Company pursuant to this agreement.
From time to time, the Company engages the law firms in which directors of
the Company are partners. During 1998, 1997 and 1996, legal fees of
approximately $322,000, $322,000 and $60,000, respectively, to such firms were
incurred by the Company.
8. EMPLOYEE BENEFIT AND STOCK OPTION PLANS
The Company sponsors a 401(k) defined contribution retirement savings plan
that covers substantially all employees of the Company after completion of one
year of service. Company contributions to this plan, which include amounts based
on a percentage of employee contributions as well as discretionary
contributions, were $130,000, $89,000, and $116,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
In January 1992, the Company adopted a stock option plan (the "Plan"). Under
the Plan, options to purchase an aggregate of not more than 1,000,000 shares of
common stock may be granted from time to
43
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT AND STOCK OPTION PLANS (CONTINUED)
time to employees, officers and directors of the Company. The options vest 25%
one year after being granted. Thereafter, vesting occurs pro rata each month
until 100% vesting is attained four years after the grant date. The maximum term
of the options granted is 10 years.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1998, 1997 and 1996, respectively: risk-free interest rates of
5.6%, 6.4% and 6.0%; dividend yields of 0%, 0% and 0%; volatility factors of the
expected market price of the Company's common stock of 0.37, 0.32 and 0.33; and
a weighted-average expected life of the option of 4, 3.25 years and 4 years.
The Black-Scholes option valuation model used was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The effect of
applying FASB Statement No. 123 on pro forma net income (loss) for 1998, 1997
and 1996 are not likely to be representative of the effects for future years,
since the 1998, 1997 and 1996 pro forma net income (loss) amounts reflect
expense for only one, two and three years vesting, respectively. The Company's
pro forma information follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ --------------
<S> <C> <C> <C>
Pro forma net income (loss)..................... $ 11,806,000 $ 5,122,000 $ (11,508,000)
Pro forma net income (loss) per share:
Basic......................................... $ 0.59 $ 0.25 $ (0.56)
Diluted....................................... 0.59 0.25 (0.56)
</TABLE>
44
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT AND STOCK OPTION PLANS (CONTINUED)
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- ------------- ---------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding--beginning of year................. 611,085 $ 6 369,885 $ 12 325,489 $ 14
Granted........................................ 198,850 7 523,501 6 88,500 6
Exercised...................................... (17,538) 6 (750) 6 -- --
Forfeited...................................... (20,739) 7 (281,551) 13 (44,104) 12
--
--------- ---------- --- --------- ---
Outstanding-end of year........................ 771,658 $ 6 611,085 $ 6 369,885 $ 12
--
--
--------- ---------- --- --------- ---
--------- ---------- --- --------- ---
Exercisable at end of year..................... 277,446 $ 7 39,889 $ 10 202,126 $ 15
Weighted-average fair value of options granted
during the year.............................. $ 2.59 $ 1.80 $ 2.15
</TABLE>
Exercise prices for options outstanding as of December 31, 1998 ranged from
$6 to $26.
In 1997, option holders were permitted to receive new options in exchange
for certain of their existing outstanding options (covering up to an aggregate
of approximately 271,000 shares of Common Stock). Options for 256,000 shares
were exchanged in 1997 at a new exercise price of $5.625. The new options became
subject to a new vesting schedule and the existing options were canceled.
On July 31, 1998, the Company filed a Form S-8 Registration Statement with
U.S. Securities and Exchange Commission to register 500,000 shares of the
Company's common stock for issuance under the Company's Employee Stock Purchase
Plan. On February 26, 1999, approximately 24,000 shares of the Company's common
stock were issued under the Plan.
9. SENIOR NOTES
On May 6, 1998, the Company consummated its offering of $100,000,000
aggregate principal amount of 9% Senior Notes, which are due April 15, 2008. The
Company received net proceeds from the offering of approximately $97,200,000
(net of discounts and offering costs of approximately $2,800,000). The Company
used such proceeds to repay a portion of the Company's borrowings under its line
of credit. The offering costs will be amortized over the term of the notes using
the interest method. The Company offered to exchange its Senior Notes for new
notes evidencing the same debt as the Senior Notes, which were registered
pursuant to a Form S-4 Registration Statement filed with the U.S. Securities and
Exchange Commission on July 6, 1998. Pursuant to such exchange offer, all of the
Senior Notes were exchanged for new notes.
10. CONVERTIBLE SUBORDINATED DEBENTURES
On January 28, 1993, the Company issued $50,000,000 principal amount of
6 1/2% Convertible Subordinated Debentures, which are due January 15, 2003. On
February 25, 1993, the related over-allotment option for an additional
$7,500,000 was exercised in full. The Debentures are convertible at any time
prior to maturity into shares of the Company's common stock at a conversion
price of $21.83 per share, subject to adjustment under certain conditions. The
Company received net proceeds from the
45
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. CONVERTIBLE SUBORDINATED DEBENTURES (CONTINUED)
offering of approximately $55,200,000 (net of offering costs of approximately
$2,300,000). The Company used a portion of such proceeds to purchase $51,500,000
of additional land inventory for residential development, using the balance of
$3,700,000 to repay a portion of the Company's borrowings under its line of
credit. The offering costs are being amortized over the term of the debentures
using the interest method.
11. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company had under contract to purchase for
approximately $4,000,000, land for future residential development.
Certain of the Company's land purchase agreements require the Company to
make additional payments to the seller if the average sales price or number of
homes built on such land exceeds an amount stated in such purchase agreements.
Amounts paid pursuant to these agreements have not been significant.
One of the agreements for land purchased during early 1993 includes a
provision for the Company to pay the previous owner of the land additional
amounts if the number of units developed exceeds 580. The Company may develop up
to 832 units for sale. The Company is obligated to pay an additional $20,000 for
each residential unit in excess of 580 residences. Accordingly, the Company may
be obligated to pay the previous owner of the land an additional $5,040,000. The
additional payments are earned by the previous owners upon the issuance of a
certificate of occupancy for each excess unit. Such payments are payable at the
closing of the sale of each excess unit. The payments are secured by a
subordinated mortgage on a portion of the purchased land. As of December 31,
1998, the Company has paid $1,160,000 and accrued $700,000, for a total of
$1,860,000 related to the construction of 93 units in excess of 580.
In April 1996, the Company was served with a purported class action
complaint by owners of units and the Association of Owners of Fairway Village at
Waikele alleging, among other things, material construction defects and
deficiencies, misrepresentations regarding the cost of insurance and breach of a
covenant of good faith and fair dealing. Following the Courts' denial of a class
certification request, a second action involving other homeowners at Fairway
Village advancing the same claims was initiated. The complaints do not specify
an amount of damages, but include a claim for punitive damages. Based on its
current understanding of the lawsuits, the Company believes the claims to be
largely without merit and that potential third party defendants and insurance
coverage exist to offset a material portion of any damages from the alleged
claims. The litigation continues to be vigorously defended. A court date has
been set for April 1999 for the initial suit. Trial of the first action may
proceed at that time. No trial date has been set in the second action. If these
lawsuits were decided adversely to the Company in all material respects, they
collectively could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company is also from time to time involved in routine litigation or
threatened litigation arising in the ordinary course of its business. Such
matters, if decided adversely to the Company, would not, in the opinion of
management, have a material adverse effect on the financial condition of the
Company.
12. NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share for the years ended December 31, 1998,
1997 and 1996 were computed using the weighted average number of common shares
outstanding during the period of 20,102,922, 20,100,267 and 20,583,860,
respectively.
46
<PAGE>
SCHULER HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
12. NET INCOME (LOSS) PER SHARE (CONTINUED)
The computation of diluted net income(loss) per share for the years ended
December 31, 1998, 1997 and 1996 resulted in amounts greater than the basic net
income (loss) per share. Accordingly, the basic net income (loss) per share is
also presented as the diluted net income (loss) per share.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Notes receivable: The carrying amount of the Company's notes receivable
approximate their fair value, since the interest rate currently being offered on
new notes is similar to the interest rates on existing notes.
Accrued interest payable (included in accrued expenses) and notes payable to
bank: The carrying amounts of the Company's accrued interest payable and notes
payable to bank approximate their fair value.
Convertible subordinated debentures: The fair value of $48,300,000 for the
Company's convertible subordinated debentures is based on the quoted market
price of $84 at December 31, 1998.
Interest rate swap: The estimated fair value at December 31, 1998 is a
liability of approximately $1,138,000 and is based on a bank quote. Credit loss
from counterparty nonperformance is not anticipated.
Senior notes: The fair value of $96,500,000 for the Company's senior notes
is based on the quoted market price of $96.50 at December 31, 1998.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended December 31, 1998 and
1997 are presented in the following summary:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- --------- ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1998
Sales...................................... $ 55,512 $ 67,433 $ 79,186 $ 80,771
Operating income (loss).................... 4,293 5,478 7,385 7,679
Pre-tax income (loss)...................... 3,257 4,640 5,767 6,928
Net income (loss).......................... 2,001 2,852 3,583 4,280
Earnings (loss) per share (diluted)........ 0.10 0.14 0.18 0.21
1997
Sales...................................... $ 49,958 $ 52,457 $ 61,057 $ 66,152
Operating income (loss).................... 2,155 2,763 3,963 4,900
Pre-tax income (loss)...................... 1,256 1,865 2,833 3,566
Net income (loss).......................... 777 1,159 1,758 2,192
Earnings (loss) per share (diluted)........ 0.04 0.06 0.09 0.11
</TABLE>
Quarterly and year-to-date computations of per share amounts are made
independently. Therefore, the sum of per share amounts for the quarters may not
agree with per share amounts for the year.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C> <C>
SCHULER HOMES, INC.
By: /s/ JAMES K. SCHULER
-----------------------------------------
James K. Schuler
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Dated: March 26, 1999
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board,
/s/ JAMES K. SCHULER President and Chief
- ------------------------------ Executive Officer March 26, 1999
James K. Schuler (principal executive
officer)
/s/ MICHAEL T. JONES Executive Vice President
- ------------------------------ of Operations and March 26, 1999
Michael T. Jones Director
Senior Vice President of
/s/ PAMELA S. JONES Finance, Chief Financial
- ------------------------------ Officer and Director March 26, 1999
Pamela S. Jones (principal financial
officer)
Vice President of Finance,
/s/ DOUGLAS M. TONOKAWA Chief Accounting Officer
- ------------------------------ (principal accounting March 26, 1999
Douglas M. Tonokawa officer)
/s/ MARTIN T. HART
- ------------------------------ Director March 26, 1999
Martin T. Hart
/s/ BERT T. KOBAYASHI, JR.
- ------------------------------ Director March 26, 1999
Bert T. Kobayashi, Jr.
/s/ THOMAS A. BEVILACQUA
- ------------------------------ Director March 26, 1999
Thomas A. Bevilacqua
</TABLE>
48
<PAGE>
ADOPTION AGREEMENT #005
NONSTANDARDIZED CODE Section 401(k) PROFIT SHARING PLAN
The undersigned, SCHULER HOMES, INC. ("Employer"), by executing this
Adoption Agreement, elects to become a participating Employer in the CPI
QUALIFIED PLAN CONSULTANTS, INC. Defined Contribution Prototype Plan (basic plan
document #03) by adopting the accompanying Plan and Trust in full as if the
Employer were a signatory to that Agreement. The Employer makes the following
elections granted under the provisions of the Prototype Plan.
ARTICLE I
DEFINITIONS
1.02 TRUSTEE. The Trustee executing this Adoption Agreement is:
(CHOOSE (a) OR (b))
[N/A] (a) A discretionary Trustee. See Section 10.03[A] of the Plan.
[X] (b) A nondiscretionary Trustee. See Section 10.03[B] of the
Plan. [NOTE: THE EMPLOYER MAY NOT ELECT OPTION
(b) IF A CUSTODIAN EXECUTES THE ADOPTION AGREEMENT.]
1.03 PLAN. The name of the Plan as adopted by the Employer is
SCHULER HOMES, INC. 401(k) RETIREMENT SAVINGS PLAN.
1.07 EMPLOYEE. The following Employees are not eligible to participate
in the Plan: (CHOOSE (a) OR AT LEAST ONE OF (b) THROUGH (g))
[N/A] (a) No exclusions.
[X] (b) Collective bargaining employees (as defined in Section 1.07 of
the Plan). [NOTE: IF THE EMPLOYER EXCLUDES UNION EMPLOYEES FROM THE
PLAN, THE EMPLOYER MUST BE ABLE TO PROVIDE EVIDENCE THAT RETIREMENT
BENEFITS WERE THE SUBJECT OF GOOD FAITH BARGAINING.]
[N/A] (c) Nonresident aliens who do not receive any earned income (as
defined in Code Section 911(d)(2)) from the Employer which
constitutes United States source income (as defined in Code Section
861(a)(3)).
[N/A] (d) Commission Salesmen.
[N/A] (e) Any Employee compensated on a salaried basis.
[N/A] (f) Any Employee compensated on an hourly basis.
[X] (g) (SPECIFY) JAMES K. SCHULER.
LEASED EMPLOYEES. Any Leased Employee treated as an Employee under Section 1.31
of the Plan, is: (CHOOSE (h) OR (i))
[X] (h) Not eligible to participate in the Plan.
[N/A] (i) Eligible to participate in the Plan, unless excluded by reason of
an exclusion classification elected under this Adoption Agreement
Section 1.07.
<PAGE>
RELATED EMPLOYERS. If any member of the Employer's related group (as defined in
Section 1.30 of the Plan) executes a Participation Agreement to this Adoption
Agreement, such member's Employees are eligible to participate in this Plan,
unless excluded by reason of an exclusion classification elected under this
Adoption Agreement Section 1.07. In addition: (CHOOSE (j) OR (k))
[X] (j) No other related group member's Employees are eligible to
participate in the Plan.
[N/A] (k) The following nonparticipating related group member's Employees
are eligible to participate in the Plan unless excluded by reason of
an exclusion classification elected under this Adoption Agreement
Section 1.07: ________________________________.
1.12 COMPENSATION.
TREATMENT OF ELECTIVE CONTRIBUTIONS. (CHOOSE (a) OR (b))
[X] (a) "Compensation" includes elective contributions made by the
Employer on the Employee's behalf.
[N/A] (b) "Compensation" does not include elective contributions.
MODIFICATIONS TO COMPENSATION DEFINITION. (CHOOSE (c) OR AT LEAST ONE OF (d)
THROUGH (j))
[N/A] (c) No modifications other than as elected under Options (a) or (b).
[X] (d) The Plan excludes Compensation in excess of $X, WHERE X EQUALS THE
DOLLAR AMOUNT NOT TREATED AS REIMBURSEMENTS OR OTHER EXPENSE
ALLOWANCES, FRINGE BENEFITS (CASH AND NONCASH), MOVING EXPENSES,
DEFERRED COMPENSATION AND WELFARE BENEFITS.
[X] (e) In lieu of the definition in Section 1.12 of the Plan,
Compensation means any earnings reportable as W-2 wages for Federal
income tax withholding purposes, subject to any other election under
this Adoption Agreement Section 1.12.
[N/A] (f) The Plan excludes bonuses.
[N/A] (g) The Plan excludes overtime.
[N/A] (h) The Plan excludes Commissions.
[N/A] (i) Compensation will not include Compensation from a related employer
(as defined in Section 1.30 of the Plan) that has not executed a
Participation Agreement in this Plan unless, pursuant to Adoption
Agreement Section 1.07, the Employees of that related employer are
eligible to participate in this Plan.
[N/A] (j) (SPECIFY)______________________________________.
If, for any Plan Year, the Plan uses permitted disparity in the contribution or
allocation formula elected under Article III, any election of Options (f), (g),
(h) or (j) is ineffective for such Plan Year with respect to any Nonhighly
Compensated Employee.
SPECIAL DEFINITION FOR MATCHING CONTRIBUTIONS. "Compensation" for purposes of
any matching contribution formula under Article III means: (CHOOSE (k) OR (l)
ONLY IF APPLICABLE)
[X] (k) Compensation as defined in this Adoption Agreement Section 1.12.
[N/A] (l) (SPECIFY)____________________________________________.
2
<PAGE>
SPECIAL DEFINITION FOR SALARY REDUCTION CONTRIBUTIONS. An Employee's salary
reduction agreement applies to his Compensation determined prior to the
reduction authorized by that salary reduction agreement, with the following
exceptions: (CHOOSE (m) OR AT LEAST ONE OF (n) OR (o), IF APPLICABLE)
[X] (m) No exceptions.
[N/A] (n) If the Employee makes elective contributions to another plan
maintained by the Employer, the Advisory Committee will determine the
amount of the Employee's salary reduction contribution for the
withholding period: (CHOOSE (1) OR (2))
[N/A] (1) After the reduction for such period of elective
contributions to the other plan(s).
[N/A] (2) Prior to the reduction for such period of elective
contributions to the other plan(s).
[N/A] (o) (SPECIFY)___________________________________________.
1.17 PLAN YEAR/LIMITATION YEAR.
PLAN YEAR. Plan Year means: (CHOOSE (a) OR (b))
[X] (a) The 12 consecutive month period ending every December 31.
[N/A] (b) (SPECIFY)___________________________________________.
LIMITATION YEAR. The Limitation Year is: (CHOOSE (c) OR (d))
[X] (c) The Plan Year.
[N/A] (d) The 12 consecutive month period ending every ______.
1.18 EFFECTIVE DATE.
NEW PLAN. The "Effective Date" of the Plan is ____________________.
RESTATED PLAN. The restated Effective Date is APRIL 1, 1998.
This Plan is a substitution and amendment of an existing retirement plan(s)
originally established November 1, 1989. [NOTE: SEE THE EFFECTIVE DATE
ADDENDUM.]
1.27 HOUR OF SERVICE. The crediting method for Hours of Service is:
(CHOOSE (a) OR (b))
[X] (a) The actual method.
[N/A] (b) The N/A equivalency method, except:
[N/A] (1) No exceptions.
[N/A] (2) The actual method applies for purposes of: (CHOOSE AT
LEAST ONE)
[N/A] (i) Participation under Article II.
[N/A] (ii) Vesting under Article V.
[N/A] (iii) Accrual of benefits under Section 3.06.
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[NOTE: ON THE BLANK LINE, INSERT "DAILY," "WEEKLY," "SEMI-MONTHLY PAYROLL
PERIODS" OR "MONTHLY."]
1.29 SERVICE FOR PREDECESSOR EMPLOYER. In addition to the predecessor
service the Plan must credit by reason of Section 1.29 of the Plan, the Plan
credits Service with the following predecessor employer(s): LOKELANI
CONSTRUCTION CORPORATION, MELODY HOMES, INC., MELODY MORTGAGE CO, KEYS HOMES,
INC. AND SSHI LLC. Service with the designated predecessor employer(s) applies:
(CHOOSE AT LEAST ONE OF (a) OR (b); (c) IS AVAILABLE ONLY IN ADDITION TO (a) OR
(b))
[X] (a) For purposes of participation under Article II.
[X] (b) For purposes of vesting under Article V.
[N/A] (c) Except the following Service: _____________________________.
[NOTE: IF THE PLAN DOES NOT CREDIT ANY PREDECESSOR SERVICE UNDER THIS PROVISION,
INSERT "N/A" IN THE FIRST BLANK LINE. THE EMPLOYER MAY ATTACH A SCHEDULE TO THIS
ADOPTION AGREEMENT, IN THE SAME FORMAT AS THIS SECTION 1.29, DESIGNATING
ADDITIONAL PREDECESSOR EMPLOYERS AND THE APPLICABLE SERVICE CREDITING
ELECTIONS.]
1.31 LEASED EMPLOYEES. If a Leased Employee is a Participant in the
Plan and also participates in a plan maintained by the leasing organization:
(CHOOSE (A) OR (B))
[X] (a) The Advisory Committee will determine the Leased Employee's
allocation of Employer contributions under Article III without taking
into account the Leased Employee's allocation, if any, under the
leasing organization's plan.
[N/A] (b) The Advisory Committee will reduce a Leased Employee's allocation
of Employer nonelective contributions (other than designated qualified
nonelective contributions) under this Plan by the Leased Employee's
allocation under the leasing organization's plan, but only to the
extent that allocation is attributable to the Leased Employee's
service provided to the Employer. The leasing organization's plan:
[N/A] (1) Must be a money purchase plan which would satisfy the
definition under Section 1.31 of a safe harbor plan,
irrespective of whether the safe harbor exception applies.
[N/A] (2) Must satisfy the features and, if a defined benefit plan,
the method of reduction described in an addendum to this
Adoption Agreement, numbered 1.31.
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY.
ELIGIBILITY CONDITIONS. To become a Participant in the Plan, an Employee must
satisfy the following eligibility conditions: (CHOOSE (A) OR (B) OR BOTH; (C) IS
OPTIONAL AS AN ADDITIONAL ELECTION)
[X] (a) Attainment of age 19 (SPECIFY AGE, NOT EXCEEDING 21).
[X] (b) Service requirement. (CHOOSE ONE OF (1) THROUGH (3))
[X] (1) One Year of Service.
[N/A] (2) __ months (not exceeding 12) following the Employee's
Employment Commencement Date.
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[N/A] (3) One Hour of Service.
[N/A] (c) Special requirements for non-401(k) portion of plan. (MAKE
ELECTIONS UNDER (1) AND UNDER (2))
(1) The requirements of this Option (c) apply to participation in:
(CHOOSE AT LEAST ONE OF (i) THROUGH (iii))
[N/A] (i) The allocation of Employer nonelective
contributions and Participant forfeitures.
[N/A] (ii) The allocation of Employer matching contributions
(including forfeitures allocated as matching
contributions).
[N/A] (iii) The allocation of Employer qualified nonelective
contributions.
(2) For participation in the allocations described in (1), the
eligibility conditions are: (CHOOSE AT LEAST ONE OF (i) THROUGH
(iv))
[N/A] (i) __ (one or two) Year(s) of Service, without an
intervening Break in Service (as described in Section
2.03(A) of the Plan) if the requirement is two Years of
Service.
[N/A] (ii) __ months (not exceeding 24) following the
Employee's Employment Commencement Date.
[N/A] (iii) One Hour of Service.
[N/A] (iv) Attainment of age ___ (SPECIFY AGE, NOT
EXCEEDING 21).
PLAN ENTRY DATE. "Plan Entry Date" means the Effective Date and: (CHOOSE (d),
(e) OR (f))
[X] (d) Semi-annual Entry Dates. The first day of the Plan Year and the
first day of the seventh month of the Plan Year.
[N/A] (e) The first day of the Plan Year.
[N/A] (f) (SPECIFY ENTRY DATES) ______________________________________.
TIME OF PARTICIPATION. An Employee will become a Participant (and, if
applicable, will participate in the allocations described in Option (c)(1)),
unless excluded under Adoption Agreement Section 1.07, on the Plan Entry Date
(if employed on that date): (CHOOSE (g), (h) OR (i))
[X] (g) immediately following
[N/A] (h) immediately preceding
[N/A] (i) nearest
the date the Employee completes the eligibility conditions described in Options
(a) and (b) (or in Option (c)(2) if applicable) of this Adoption Agreement
Section 2.01. [NOTE: THE EMPLOYER MUST COORDINATE THE SELECTION OF (g), (h) OR
(i) WITH THE "PLAN ENTRY DATE" SELECTION IN (d), (e) OR (f). UNLESS OTHERWISE
EXCLUDED UNDER SECTION 1.07, THE EMPLOYEE MUST BECOME A PARTICIPANT BY THE
EARLIER OF: (1) THE FIRST DAY OF THE PLAN YEAR BEGINNING AFTER THE DATE THE
EMPLOYEE COMPLETES THE AGE AND SERVICE REQUIREMENTS OF CODE Section 410(a); OR
(2) 6 MONTHS AFTER THE DATE THE EMPLOYEE COMPLETES THOSE REQUIREMENTS.]
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DUAL ELIGIBILITY. The eligibility conditions of this Section 2.01 apply to:
(CHOOSE (j) OR (k))
[X] (j) All Employees of the Employer, except: (CHOOSE (1) OR (2))
[X] (1) No exceptions.
[N/A] (2) Employees who are Participants in the Plan as of the
Effective Date.
[N/A] (k) Solely to an Employee employed by the Employer after
_________. If the Employee was employed by the Employer on or
before the specified date, the Employee will become a Participant:
(CHOOSE (1), (2) OR (3))
[N/A] (1) On the latest of the Effective Date, his Employment
Commencement Date or the date he attains age _____(not to
exceed 21).
[N/A] (2) Under the eligibility conditions in effect under the
Plan prior to the restated Effective Date. If the restated
Plan required more than one Year of Service to participate,
the eligibility condition under this Option (2) for
participation in the Code Section 401(k) arrangement under
this Plan is one Year of Service for Plan Years beginning
after December 31, 1988. [FOR RESTATED PLANS ONLY]
[N/A] (3) (SPECIFY) _____________________________________________
_____.
2.02 YEAR OF SERVICE - PARTICIPATION.
HOURS OF SERVICE. An Employee must complete: (CHOOSE (A) OR (B))
[X] (a) 1,000 Hours of Service
[N/A] (b) _____ Hours of Service
during an eligibility computation period to receive credit for a Year of
Service. [NOTE: THE HOURS OF SERVICE REQUIREMENT MAY NOT EXCEED 1,000.]
ELIGIBILITY COMPUTATION PERIOD. After the initial eligibility computation
period described in Section 2.02 of the Plan, the Plan measures the
eligibility computation period as: (CHOOSE (C) OR (D))
[N/A] (c) The 12 consecutive month period beginning with each anniversary
of an Employee's Employment Commencement Date.
[X] (d) The Plan Year, beginning with the Plan Year which includes the
first anniversary of the Employee's Employment Commencement Date.
2.03 BREAK IN SERVICE - PARTICIPATION. The Break in Service rule
described in Section 2.03(B) of the Plan: (CHOOSE (A) OR (B))
[X] (a) Does not apply to the Employer's Plan.
[N/A] (b) Applies to the Employer's Plan.
2.06 ELECTION NOT TO PARTICIPATE. The Plan: (CHOOSE (A) OR (B))
[N/A] (a) Does not permit an eligible Employee or a Participant to elect
not to participate.
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[X] (b) Does permit an eligible Employee or a Participant to elect not to
participate in accordance with Section 2.06 and with the following
rules: (COMPLETE (1), (2), (3) AND (4))
(1) An election is effective for a Plan Year if filed no later
than 30 DAYS BEFORE THE PLAN YEAR END.
(2) An election not to participate must be effective for at least
all future Plan Year(s).
(3) Following a re-election to participate, the Employee or
Participant:
[N/A] (i) May not again elect not to participate for any
subsequent Plan Year.
[N/A] (ii) May again elect not to participate, but not earlier than
____________________ the Plan Year following the Plan Year in
which the re-election first was effective.
(4) (SPECIFY) N/A [INSERT "N/A" IF NO OTHER RULES APPLY].
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
3.01 AMOUNT.
PART I. [OPTIONS (A) THROUGH (G)] AMOUNT OF EMPLOYER'S CONTRIBUTION. The
Employer's annual contribution to the Trust will equal the total amount of
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions, as determined under this Section
3.01. (CHOOSE ANY COMBINATION OF (a), (b), (c) AND (d), OR CHOOSE (e))
[X] (a) DEFERRAL CONTRIBUTIONS (CODE Section 401(k) ARRANGEMENT).
(CHOOSE (1) OR (2) OR BOTH)
[X] (1) Salary reduction arrangement. The Employer must contribute
the amount by which the Participants have reduced their
Compensation for the Plan Year, pursuant to their salary
reduction agreements on file with the Advisory Committee. A
reference in the Plan to salary reduction contributions is a
reference to these amounts.
[N/A] (2) Cash or deferred arrangement. The Employer will contribute
on behalf of each Participant the portion of the Participant's
proportionate share of the cash or deferred contribution which
he has not elected to receive in cash. See Section 14.02 of
the Plan. The Employer's cash or deferred contribution is the
amount the Employer may from time to time deem advisable which
the Employer designates as a cash or deferred contribution
prior to making that contribution to the Trust.
[X] (b) MATCHING CONTRIBUTIONS. The Employer will make matching
contributions in accordance with the formula(s) elected in Part II of
this Adoption Agreement Section 3.01.
[X] (c) DESIGNATED QUALIFIED NONELECTIVE CONTRIBUTIONS. The Employer, in
its sole discretion, may contribute an amount which it designates as a
qualified nonelective contribution.
[X] (d) NONELECTIVE CONTRIBUTIONS. (CHOOSE ANY COMBINATION OF (1)
THROUGH (4))
[X] (1) Discretionary contribution. The amount (or additional
amount) the Employer may from time to time deem advisable.
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<PAGE>
[N/A] (2) The amount (or additional amount) the Employer may from
time to time deem advisable, separately determined for each
of the following classifications of Participants: (CHOOSE
(I) OR (II))
[N/A] (i) Nonhighly Compensated Employees and Highly
Compensated Employees.
[N/A] (ii) (SPECIFY CLASSIFICATIONS).
Under this Option (2), the Advisory Committee will allocate the
amount contributed for each Participant classification in
accordance with Part II of Adoption Agreement Section 3.04, as
if the Participants in that classification were the only
Participants in the Plan.
[N/A] (3) ______ % of the Compensation of all Participants under the
Plan, determined for the Employer's taxable year for which
it makes the contribution. [NOTE: THE PERCENTAGE SELECTED
MAY NOT EXCEED 15%.]
[N/A] (4) ______ % of Net Profits but not more than $___________.
[N/A] (e) FROZEN PLAN. This Plan is a frozen Plan effective _____________.
The Employer will not contribute to the Plan with respect to any
period following the stated date.
NET PROFITS. The Employer: (CHOOSE (f) OR (g))
[X] (f) Need not have Net Profits to make its annual contribution
under this Plan.
[N/A] (g) Must have current or accumulated Net Profits exceeding $________
to make the following contributions: -- (CHOOSE AT LEAST ONE)
[N/A] (1) Cash or deferred contributions described in Option
(a)(2).
[N/A] (2) Matching contributions described in Option (b),
except:____________________________.
[N/A] (3) Qualified nonelective contributions described in Option
(c).
[N/A] (4) Nonelective contributions described in Option (d).
The term "Net Profits" means the Employer's net income or profits for any
taxable year determined by the Employer upon the basis of its books of account
in accordance with generally accepted accounting practices consistently applied
without any deductions for Federal and state taxes upon income or for
contributions made by the Employer under this Plan or under any other employee
benefit plan the Employer maintains. The term "Net Profits" specifically
excludes N/A. [NOTE: ENTER "N/A" IF NO EXCLUSIONS APPLY.]
If the Employer requires Net Profits for matching contributions and the
Employer does not have sufficient Net Profits under Option (g), it will
reduce the matching contribution under a fixed formula on a prorata basis for
all Participants. A Participant's share of the reduced contribution will bear
the same ratio as the matching contribution the Participant would have
received if Net Profits were sufficient bears to the total matching
contribution all Participants would have received if Net Profits were
sufficient. If more than one member of a related group (as defined in Section
1.30) execute this Adoption Agreement, each participating member will
determine Net Profits separately but will not apply this reduction unless,
after combining the separately determined Net Profits, the aggregate Net
Profits are insufficient to satisfy the matching contribution liability. "Net
Profits" includes both current and accumulated Net Profits.
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<PAGE>
PART II. [OPTIONS (h) THROUGH (j)] MATCHING CONTRIBUTION FORMULA. [NOTE: IF THE
EMPLOYER ELECTED OPTION (b), COMPLETE OPTIONS (h), (i) AND (j).]
[X] (h) AMOUNT OF MATCHING CONTRIBUTIONS. For each Plan Year, the
Employer's matching contribution is: (CHOOSE ANY COMBINATION OF (1),
(2), (3), (4) AND (5))
[N/A] (1) An amount equal to _____ % of each Participant's
eligible contributions for the Plan Year.
[N/A] (2) An amount equal to _____% of each Participant's first
tier of eligible contributions for the Plan Year, plus the
following matching percentage(s) for the following subsequent
tiers of eligible contributions for the Plan ___________.
[X] (3) Discretionary formula.
[X] (i) An amount (or additional amount) equal to a
matching percentage the Employer from time to time
may deem advisable of the Participant's eligible
contributions for the Plan Year.
[X] (ii) An amount (or additional amount) equal to a
matching percentage the Employer from time to time
may deem advisable of each tier of the
Participant's eligible contributions for the Plan
Year.
[N/A] (4) An amount equal to the following percentage of each
Participant's eligible contributions for the Plan Year, based
on the Participant's Years of Service:
NUMBER OF YEARS OF SERVICE MATCHING PERCENTAGE
____ ____
____ ____
____ ____
____ ____
The Advisory Committee will apply this formula by
determining Years of Service as follows: _____________.
[N/A] (5) A Participant's matching contributions may not:
(CHOOSE (i) OR (ii))
[N/A] (i) Exceed __________________________________.
[N/A] (ii) Be less than ____________________________.
RELATED EMPLOYERS. If two or more related employers (as defined in
Section 1.30) contribute to this Plan, the related employers may elect
different matching contribution formulas by attaching to the Adoption
Agreement a separately completed copy of this Part II. NOTE: SEPARATE
MATCHING CONTRIBUTION FORMULAS CREATE SEPARATE CURRENT BENEFIT
STRUCTURES THAT MUST SATISFY THE MINIMUM PARTICIPATION TEST OF CODE
Section 401(a)(26).]
[X] (i) DEFINITION OF ELIGIBLE CONTRIBUTIONS. Subject to the
requirements of Option (j), the term "eligible contributions"
means: (CHOOSE ANY COMBINATION OF (1) THROUGH (3))
[X] (1) Salary reduction contributions.
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<PAGE>
[N/A] (2) Cash or deferred contributions (including any part of the
Participant's proportionate share of the cash or deferred
contribution which the Employer defers without the
Participant's election).
[N/A] (3) Participant mandatory contributions, as designated in
Adoption Agreement Section 4.01. See Section 14.04 of the
Plan.
[X] (j) AMOUNT OF ELIGIBLE CONTRIBUTIONS TAKEN INTO ACCOUNT. When
determining a Participant's eligible contributions taken into account
under the matching contributions formula(s), the following rules
apply:
(CHOOSE ANY COMBINATION OF (1) THROUGH (4))
[N/A] (1) The Advisory Committee will take into account all eligible
contributions credited for the Plan Year.
[X] (2) The Advisory Committee will disregard eligible
contributions exceeding an AMOUNT TO BE DETERMINED BY THE
ADVISORY COMMITTEE.
[N/A] (3) The Advisory Committee will treat as the first tier of
eligible contributions, an amount not exceeding: ___________.
The subsequent tiers of eligible contributions are: ________.
[N/A] (4) (SPECIFY) ___________________________________________.
PART III. [OPTIONS (k) AND (l)]. SPECIAL RULES FOR CODE Section 401(k)
ARRANGEMENT. (CHOOSE (k) OR (l), OR BOTH, AS APPLICABLE)
[X] (k) SALARY REDUCTION AGREEMENTS. The following rules and
restrictions apply to an Employee's salary reduction agreement: (MAKE
A SELECTION UNDER (1), (2), (3) AND (4))
(1) Limitation on amount. The Employee's salary reduction
contributions: (CHOOSE (i) OR AT LEAST ONE OF (ii) OR (iii))
[N/A] (i) No maximum limitation other than as provided in the
Plan.
[X] (ii) May not exceed 25% of Compensation for the Plan
Year, subject to the annual additions limitation
described in Part 2 of Article III and the 402(g)
limitation described in Section 14.07 of the Plan.
[N/A] (iii) Based on percentages of Compensation must equal at
least ________________________________________________.
(2) An Employee may revoke, on a prospective basis, a salary reduction
agreement: (CHOOSE (i), (ii), (iii) OR (iv))
[N/A] (i) Once during any Plan Year but not later than
____________________ of the Plan Year.
[N/A] (ii) As of any Plan Entry Date.
[N/A] (iii) As of the first day of any month.
[X] (iv) (SPECIFY, BUT MUST BE AT LEAST ONCE PER PLAN YEAR)
EFFECTIVE AS OF THE FIRST DAY OF THE PLAN YEAR FOLLOWING
FILING OR SUCH EARLIER DATE AS THE COMMITTEE MAY PERMIT.
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(3) An Employee who revokes his salary reduction agreement may file a
new salary reduction agreement with an effective date: (CHOOSE (i),
(ii), (iii) OR (iv))
[N/A] (i) No earlier than the first day of the next Plan
Year.
[X] (ii) As of any subsequent Plan Entry Date.
[N/A] (iii) As of the first day of any month subsequent to
the month in which he revoked an Agreement.
[N/A] (iv) (SPECIFY, BUT MUST BE AT LEAST ONCE PER PLAN
YEAR FOLLOWING THE PLAN YEAR OF REVOCATION) .
_______________________________________________________
(4) A Participant may increase or may decrease, on a prospective
basis, his salary reduction percentage or dollar amount: (CHOOSE (i),
(ii), (iii) OR (iv))
[N/A] (i) As of the beginning of each payroll period.
[N/A] (ii) As of the first day of each month.
[N/A] (iii) As of any Plan Entry Date.
[X] (iv) (SPECIFY, BUT MUST PERMIT AN INCREASE OR A DECREASE
AT LEAST ONCE PER PLAN YEAR) EFFECTIVE AS OF THE FIRST
DAY OF THE pLAN yEAR FOLLOWING FILING OR SUCH EARLIER
DATE AS THE cOMMITTEE MAY PERMIT.
[N/A] (l) CASH OR DEFERRED CONTRIBUTIONS. For each Plan Year for which the
Employer makes a designated cash or deferred contribution, a
Participant may elect to receive directly in cash not more than the
following portion (or, if less, the 402(g) limitation described in
Section 14.07 of the Plan) of his proportionate share of that cash or
deferred contribution: (CHOOSE (1) OR (2))
[N/A] (1) All or any portion.
[N/A] (2) _______________________%.
3.04 CONTRIBUTION ALLOCATION. The Advisory Committee will allocate
deferral contributions, matching contributions, qualified nonelective
contributions and nonelective contributions in accordance with Section 14.06 and
the elections under this Adoption Agreement Section 3.04.
PART I. [OPTIONS (A) THROUGH (D)]. SPECIAL ACCOUNTING ELECTIONS. (CHOOSE
WHICHEVER ELECTIONS ARE APPLICABLE TO THE EMPLOYER'S PLAN)
[X] (a) MATCHING CONTRIBUTIONS ACCOUNT. The Advisory Committee will
allocate matching contributions to a Participant's: (CHOOSE (1) OR
(2); (3) IS AVAILABLE ONLY IN ADDITION TO (1))
[X] (1) Regular Matching Contributions Account.
[N/A] (2) Qualified Matching Contributions Account.
[X] (3) Except, matching contributions under Option(s) (h)(3)(ii)
of Adoption Agreement Section 3.01 are allocable to the
Qualified Matching Contributions Account.
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[X] (b) SPECIAL ALLOCATION DATES FOR SALARY REDUCTION CONTRIBUTIONS. The
Advisory Committee will allocate salary reduction contributions as of
the Accounting Date and as of the following additional allocation
dates: Monthly.
[N/A] (c) SPECIAL ALLOCATION DATES FOR MATCHING CONTRIBUTIONS. The
Advisory Committee will allocate matching contributions as of the
Accounting Date and as of the following additional allocation
dates: ____________________________________________________________.
[X] (d) DESIGNATED QUALIFIED NONELECTIVE CONTRIBUTIONS - DEFINITION OF
PARTICIPANT. For purposes of allocating the designated qualified
nonelective contribution, "Participant" means: (CHOOSE (1), (2) OR
(3))
[N/A] (1) All Participants.
[X] (2) Participants who are Nonhighly Compensated Employees for
the Plan Year.
[N/A] (3) (SPECIFY) ______________________________________________
________.
PART II. METHOD OF ALLOCATION - NONELECTIVE CONTRIBUTION. Subject to any
restoration allocation required under Section 5.04, the Advisory Committee will
allocate and credit each annual nonelective contribution (and Participant
forfeitures treated as nonelective contributions) to the Employer Contributions
Account of each Participant who satisfies the conditions of Section 3.06, in
accordance with the allocation method selected under this Section 3.04. If the
Employer elects Option (e)(2), Option (g)(2) or Option (h), for the first 3% of
Compensation allocated to all Participants, "Compensation" does not include any
exclusions elected under Adoption Agreement Section 1.12 (other than the
exclusion of elective contributions), and the Advisory Committee must take into
account the Participant's Compensation for the entire Plan Year. (CHOOSE AN
ALLOCATION METHOD UNDER (e), (f), (g) OR (h); (i) IS MANDATORY IF THE EMPLOYER
ELECTS (f), (g) OR (h); (j) IS OPTIONAL IN ADDITION TO ANY OTHER ELECTION.)
[X] (e) NONINTEGRATED ALLOCATION FORMULA. (CHOOSE (1) OR (2))
[N/A] (1) The Advisory Committee will allocate the annual
nonelective contributions in the same ratio that each
Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for the Plan Year.
[X] (2) The Advisory Committee will allocate the annual
nonelective contributions in the same ratio that each
Participant's Compensation for the Plan Year bears to the
total Compensation of all Participants for the Plan Year. For
purposes of this Option (2), "Participant" means, in addition
to a Participant who satisfies the requirements of Section
3.06 for the Plan Year, any other Participant entitled to a
top heavy minimum allocation under Section 3.04(B), but such
Participant's allocation will not exceed 3% of his
Compensation for the Plan Year.
[N/A] (f) TWO-TIERED INTEGRATED ALLOCATION FORMULA - MAXIMUM DISPARITY.
First, the Advisory Committee will allocate the annual Employer
nonelective contributions in the same ratio that each Participant's
Compensation plus Excess Compensation for the Plan Year bears to the
total Compensation plus Excess Compensation of all Participants for
the Plan Year. The allocation under this paragraph, as a percentage of
each Participant's Compensation plus Excess Compensation, must not
exceed the applicable percentage (5.7%, 5.4% or 4.3%) listed under the
Maximum Disparity Table following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants
for the Plan Year.
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[N/A] (g) THREE-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory
Committee will allocate the annual Employer nonelective contributions
in the same ratio that each Participant's Compensation for the Plan
Year bears to the total Compensation of all Participants for the Plan
Year. The allocation under this paragraph, as a percentage of each
Participant's Compensation may not exceed the applicable percentage
(5.7%, 5.4% or 4.3%) listed under the Maximum Disparity Table
following Option (i). Solely for purposes of the allocation in this
first paragraph, "Participant" means, in addition to a Participant who
satisfies the requirements of Section 3.06 for the Plan Year: (CHOOSE
(1) OR (2))
[N/A] (1) No other Participant.
[N/A] (2) Any other Participant entitled to a top heavy minimum
allocation under Section 3.04(B), but such Participant's
allocation under this Option (g) will not exceed 3% of his
Compensation for the Plan Year.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's
Excess Compensation for the Plan Year bears to the total Excess
Compensation of all Participants for the Plan Year. The allocation
under this paragraph, as a percentage of each Participant's Excess
Compensation, may not exceed the allocation percentage in the first
paragraph.
Finally, the Advisory Committee will allocate any remaining
nonelective contributions in the same ratio that each Participant's
Compensation for the Plan Year bears to the total Compensation of all
Participants for the Plan Year.
[N/A] (h) FOUR-TIERED INTEGRATED ALLOCATION FORMULA. First, the Advisory
Committee will allocate the annual Employer nonelective contributions
in the same ratio that each Participant's Compensation for the Plan
Year bears to the total Compensation of all Participants for the Plan
Year, but not exceeding 3% of each Participant's Compensation. Solely
for purposes of this first tier allocation, a "Participant" means, in
addition to any Participant who satisfies the requirements of Section
3.06 for the Plan Year, any other Participant entitled to a top heavy
minimum allocation under Section 3.04(B) of the Plan.
As a second tier allocation, the Advisory Committee will allocate the
nonelective contributions in the same ratio that each Participant's
Excess Compensation for the Plan Year bears to the total Excess
Compensation of all Participants for the Plan Year, but not exceeding
3% of each Participant's Excess Compensation.
As a third tier allocation, the Advisory Committee will allocate the
annual Employer contributions in the same ratio that each
Participant's Compensation plus Excess Compensation for the Plan Year
bears to the total Compensation plus Excess Compensation of all
Participants for the Plan Year. The allocation under this paragraph,
as a percentage of each Participant's Compensation plus Excess
Compensation, must not exceed the applicable percentage (2.7%, 2.4% or
1.3%) listed under the Maximum Disparity Table following Option (i).
The Advisory Committee then will allocate any remaining nonelective
contributions in the same ratio that each Participant's Compensation
for the Plan Year bears to the total Compensation of all Participants
for the Plan Year.
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<PAGE>
[N/A] (i) EXCESS COMPENSATION. For purposes of Option (f), (g) or (h),
"Excess Compensation" means Compensation in excess of the following
Integration Level: (CHOOSE (1) OR (2))
[N/A] (1) ___% (not exceeding 100%) of the taxable wage base, as
determined under Section 230 of the Social Security Act, in
effect on the first day of the Plan Year: (CHOOSE ANY
COMBINATION OF (i) AND (ii) OR CHOOSE (iii)
[N/A] (i) Rounded to _________________________(but not
exceeding the taxable wage base).
[N/A] (ii) But not greater than $________.
[N/A] (iii) Without any further adjustment or limitation.
[N/A] (2) $_________ [NOTE: NOT EXCEEDING THE TAXABLE WAGE BASE
FOR THE PLAN YEAR IN WHICH THIS ADOPTION AGREEMENT FIRST IS
EFFECTIVE.]
MAXIMUM DISPARITY TABLE. For purposes of Options (f), (g) and (h), the
applicable percentage is:
<TABLE>
<CAPTION>
INTEGRATION LEVEL (AS APPLICABLE PERCENTAGES FOR APPLICABLE PERCENTAGES
PERCENTAGE OF TAXABLE WAGE BASE) OPTION (f) OR OPTION (g) FOR OPTION (h)
- -------------------------------- -------------------------- ----------------------
<S> <C> <C>
100% 5.7% 2.7%
More than 80% but less than 100% 5.4% 2.4%
More than 20% (but not less than $10,001)
and not more than 80% 4.3% 1.3%
20% (or $10,000, if greater) or less 5.7% 2.7%
</TABLE>
[N/A] (j) ALLOCATION OFFSET. The Advisory Committee will reduce a
Participant's allocation otherwise made under Part II of this Section
3.04 by the Participant's allocation under the following qualified
plan(s) maintained by the Employer: ______________________________.
The Advisory Committee will determine this allocation reduction:
(CHOOSE (1) OR (2))
[N/A] (1) By treating the term "nonelective contribution" as
including all amounts paid or accrued by the Employer during
the Plan Year to the qualified plan(s) referenced under this
Option (j). If a Participant under this Plan also
participates in that other plan, the Advisory Committee will
treat the amount the Employer contributes for or during a
Plan Year on behalf of a particular Participant under such
other plan as an amount allocated under this Plan to that
Participant's Account for that Plan Year. The Advisory
Committee will make the computation of allocation required
under the immediately preceding sentence before making any
allocation of nonelective contributions under this Section
3.04.
[N/A] (2) In accordance with the formula provided in an addendum to
this Adoption Agreement, numbered 3.04(j).
TOP HEAVY MINIMUM ALLOCATION - METHOD OF COMPLIANCE. If a Participant's
allocation under this Section 3.04 is less than the top heavy minimum allocation
to which he is entitled under Section 3.04(B): (CHOOSE (k) OR (l))
[X] (k) The Employer will make any necessary additional contribution to
the Participant's Account, as described in Section 3.04(B)(7)(a) of
the Plan.
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<PAGE>
[N/A] (l) The Employer will satisfy the top heavy minimum allocation under
the following plan(s) it maintains:_________________________________.
However, the Employer will make any necessary additional contribution
to satisfy the top heavy minimum allocation for an Employee covered
only under this Plan and not under the other plan(s) designated in
this Option (l). See Section 3.04(B)(7)(b) of the Plan.
If the Employer maintains another plan, the Employer may provide in an addendum
to this Adoption Agreement, numbered Section 3.04, any modifications to the Plan
necessary to satisfy the top heavy requirements under Code Section 416.
RELATED EMPLOYERS. If two or more related employers (as defined in Section 1.30)
contribute to this Plan, the Advisory Committee must allocate all Employer
nonelective contributions (and forfeitures treated as nonelective contributions)
to each Participant in the Plan, in accordance with the elections in this
Adoption Agreement Section 3.04: (CHOOSE (m) OR (n))
[X] (m) Without regard to which contributing related group member employs
the Participant.
[N/A] (n) Only to the Participants directly employed by the contributing
Employer. If a Participant receives Compensation from more than one
contributing Employer, the Advisory Committee will determine the
allocations under this Adoption Agreement Section 3.04 by prorating
among the participating Employers the Participant's Compensation and,
if applicable, the Participant's Integration Level under Option (i).
3.05 FORFEITURE ALLOCATION. Subject to any restoration allocation
required under Sections 5.04 or 9.14, the Advisory Committee will allocate a
Participant forfeiture in accordance with Section 3.04: (CHOOSE (a) OR (b); (c)
AND (d) ARE OPTIONAL IN ADDITION TO (a) OR (b))
[X] (a) As an Employer nonelective contribution for the Plan Year in
which the forfeiture occurs, as if the Participant forfeiture were an
additional nonelective contribution for that Plan Year.
[N/A] (b) To reduce the Employer matching contributions and nonelective
contributions for the Plan Year: (CHOOSE (1) OR (2))
[N/A] (1) in which the forfeiture occurs.
[N/A] (2) immediately following the Plan Year in which the
forfeiture occurs.
[X] (c) To the extent attributable to matching contributions:
(CHOOSE (1), (2) OR (3))
[N/A] (1) In the manner elected under Options (a) or (b).
[N/A] (2) First to reduce Employer matching contributions for the
Plan Year: (CHOOSE (i) OR (ii))
[N/A] (i) in which the forfeiture occurs,
[N/A] (ii) immediately following the Plan Year in which the
forfeiture occurs,
then as elected in Options (a) or (b).
[X] (3) As a discretionary matching contribution for the Plan Year
in which the forfeiture occurs, in lieu of the manner elected
under Options (a) or (b).
15
<PAGE>
[N/A] (d) First to reduce the Plan's ordinary and necessary administrative
expenses for the Plan Year and then will allocate any remaining
forfeitures in the manner described in Options (a), (b) or (c),
whichever applies. If the Employer elects Option (c), the forfeitures
used to reduce Plan expenses: (CHOOSE (1) OR (2))
[N/A] (1) relate proportionately to forfeitures described in Option
(c) and to forfeitures described in Options (a) or (b).
[N/A] (2) relate first to forfeitures described in Option _______.
ALLOCATION OF FORFEITED EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee
will allocate any forfeited excess aggregate contributions (as described in
Section 14.09): (CHOOSE (e), (f) OR (g))
[N/A] (e) To reduce Employer matching contributions for the Plan Year:
(CHOOSE (1) OR (2))
[N/A] (1) in which the forfeiture occurs.
[N/A] (2) immediately following the Plan Year in which the
forfeiture occurs.
[N/A] (f) As Employer discretionary matching contributions for the Plan Year
in which forfeited, except the Advisory Committee will not allocate
these forfeitures to the Highly Compensated Employees who incurred the
forfeitures.
[X] (g) In accordance with Options (a) through (d), whichever applies,
except the Advisory Committee will not allocate these forfeitures
under Option (a) or under Option (c)(3) to the Highly Compensated
Employees who incurred the forfeitures.
3.06 ACCRUAL OF BENEFIT.
COMPENSATION TAKEN INTO ACCOUNT. For the Plan Year in which the Employee first
becomes a Participant, the Advisory Committee will determine the allocation of
any cash or deferred contribution, designated qualified nonelective contribution
or nonelective contribution by taking into account: (CHOOSE (a) OR (b))
[X] (a) The Employee's Compensation for the entire Plan Year.
[N/A] (b) The Employee's Compensation for the portion of the Plan Year in
which the Employee actually is a Participant in the Plan.
ACCRUAL REQUIREMENTS. Subject to the suspension of accrual requirements of
Section 3.06(E) of the Plan, to receive an allocation of cash or deferred
contributions, matching contributions, designated qualified nonelective
contributions, nonelective contributions and Participant forfeitures, if any,
for the Plan Year, a Participant must satisfy the conditions described in the
following elections: (CHOOSE (c) OR AT LEAST ONE OF (d) THROUGH (f))
[N/A] (c) SAFE HARBOR RULE. If the Participant is employed by the Employer
on the last day of the Plan Year, the Participant must complete at
least one Hour of Service for that Plan Year. If the Participant is
not employed by the Employer on the last day of the Plan Year, the
Participant must complete at least 501 Hours of Service during the
Plan Year.
[X] (d) HOURS OF SERVICE CONDITION. The Participant must complete the
following minimum number of Hours of Service during the Plan Year:
(CHOOSE AT LEAST ONE OF (1) THROUGH (5))
[X] (1) 1,000 Hours of Service.
16
<PAGE>
[N/A] (2) (SPECIFY, BUT THE NUMBER OF HOURS OF SERVICE MAY NOT
EXCEED 1,000) __________________________________________.
[X] (3) No Hour of Service requirement if the Participant
terminates employment during the Plan Year on account of:
(CHOOSE (i), (ii) OR (iii))
[X] (i) Death.
[X] (ii) Disability.
[N/A] (iii) Attainment of Normal Retirement Age in the
current Plan Year or in a prior Plan Year.
[N/A] (4) ___ Hours of Service (not exceeding 1,000) if the
Participant terminates employment with the Employer during
the Plan Year, subject to any election in Option (3).
[N/A] (5) No Hour of Service requirement for an allocation of the
following contributions: __________________________________
__________________________________________________________.
[X] (e) EMPLOYMENT CONDITION. The Participant must be employed by the
Employer on the last day of the Plan Year, irrespective of whether he
satisfies any Hours of Service condition under Option (d), with the
following exceptions: (CHOOSE (1) OR AT LEAST ONE OF (2) THROUGH (5))
[N/A] (1) No exceptions.
[X] (2) Termination of employment because of death.
[X] (3) Termination of employment because of disability.
[X] (4) Termination of employment following attainment of Normal
Retirement Age.
[N/A] (5) No employment condition for the following
contributions:______________________________________________.
[N/A] (f) (SPECIFY OTHER CONDITIONS, IF APPLICABLE): ___________________.
SUSPENSION OF ACCRUAL REQUIREMENTS. The suspension of accrual requirements of
Section 3.06(E) of the Plan: (CHOOSE (g), (h) OR (i))
[X] (g) Applies to the Employer's Plan.
[N/A] (h) Does not apply to the Employer's Plan.
[N/A] (i) Applies in modified form to the Employer's Plan, as described in
an addendum to this Adoption Agreement, numbered Section 3.06(E).
17
<PAGE>
SPECIAL ACCRUAL REQUIREMENTS FOR MATCHING CONTRIBUTIONS. If the Plan allocates
matching contributions on two or more allocation dates for a Plan Year, the
Advisory Committee, unless otherwise specified in Option (l), will apply any
Hours of Service condition by dividing the required Hours of Service on a
prorata basis to the allocation periods included in that Plan Year. Furthermore,
a Participant who satisfies the conditions described in this Adoption Agreement
Section 3.06 will receive an allocation of matching contributions (and
forfeitures treated as matching contributions) only if the Participant satisfies
the following additional condition(s): (CHOOSE (j) OR AT LEAST ONE OF (k) OR
(l))
[N/A] (j) No additional conditions.
[N/A] (k) The Participant is not a Highly Compensated Employee for the
Plan Year. This Option (k) applies to: (CHOOSE (1) OR (2))
[N/A] (1) All matching contributions.
[N/A] (2) Matching contributions described in Option(s)_________of
Adoption Agreement Section 3.01.
[X] (l) (SPECIFY) A PARTICIPANT WILL FORFEIT ANY MATCHING CONTRIBUTION
ATTRIBUTABLE TO AN EXCESS CONTRIBUTION OR TO AN EXCESS AGGREGATE
CONTRIBUTION UNLESS DISTRIBUTED PURUSANT TO SECTIONS 14.08 OR 14.09.
3.15 MORE THAN ONE PLAN LIMITATION. If the provisions of Section 3.15
apply, the Excess Amount attributed to this Plan equals: (CHOOSE (a), (b) OR
(c))
[N/A] (a) The product of:
(i) the total Excess Amount allocated as of such date (including
any amount which the Advisory Committee would have allocated but
for the limitations of Code Section 415), times
(ii) the ratio of (1) the amount allocated to the Participant as
of such date under this Plan divided by (2) the total amount
allocated as of such date under all qualified defined
contribution plans (determined without regard to the limitations
of Code Section 415).
[X] (b) The total Excess Amount.
[N/A] (c) None of the Excess Amount.
3.18 DEFINED BENEFIT PLAN LIMITATION.
APPLICATION OF LIMITATION. The limitation under Section 3.18 of the Plan:
(CHOOSE (a) OR (b))
[X] (a) Does not apply to the Employer's Plan because the Employer does
not maintain and never has maintained a defined benefit plan covering
any Participant in this Plan.
[N/A] (b) Applies to the Employer's Plan. To the extent necessary to
satisfy the limitation under Section 3.18, the Employer will reduce:
(CHOOSE (1) OR (2))
[N/A] (1) The Participant's projected annual benefit under the
defined benefit plan under which the Participant participates.
[N/A] (2) Its contribution or allocation on behalf of the
Participant to the defined contribution plan under which the
Participant participates and then, if necessary, the
Participant's projected annual benefit under the defined
benefit plan under which the Participant participates.
18
<PAGE>
[NOTE: IF THE EMPLOYER SELECTS (a), THE REMAINING OPTIONS IN THIS SECTION 3.18
DO NOT APPLY TO THE EMPLOYER'S PLAN.]
COORDINATION WITH TOP HEAVY MINIMUM ALLOCATION. The Advisory Committee will
apply the top heavy minimum allocation provisions of Section 3.04(B) of the Plan
with the following modifications: (CHOOSE (c) OR AT LEAST ONE OF (d) OR (e))
[N/A] (c) No modifications.
[N/A] (d) For Non-Key Employees participating only in this Plan, the top
heavy minimum allocation is the minimum allocation described in
Section 3.04(B) determined by substituting ___% (not less than 4%)
for "3%," except: (CHOOSE (i) OR (ii))
[N/A] (i) No exceptions.
[N/A] (ii) Plan Years in which the top heavy ratio exceeds 90%.
[N/A] (e) For Non-Key Employees also participating in the defined benefit
plan, the top heavy minimum is: (CHOOSE (1) OR (2))
[N/A] (1) 5% of Compensation (as determined under Section 3.04(B)
or the Plan) irrespective of the contribution rate of any
Key Employee, except: (CHOOSE (i) OR (ii))
[N/A] (i) No exceptions.
[N/A] (ii) Substituting "72%" for "5%" if the top heavy ratio
does not exceed 90%.
[N/A] (2) 0%. [NOTE: THE EMPLOYER MAY NOT SELECT THIS OPTION (2)
UNLESS THE DEFINED BENEFIT PLAN SATISFIES THE TOP HEAVY
MINIMUM BENEFIT REQUIREMENTS OF CODE Section 416 FOR THESE
NON-KEY EMPLOYEES.]
ACTUARIAL ASSUMPTIONS FOR TOP HEAVY CALCULATION. To determine the top heavy
ratio, the Advisory Committee will use the following interest rate and mortality
assumptions to value accrued benefits under a defined benefit plan:___________
_____________________________________________________________________________.
If the elections under this Section 3.18 are not appropriate to satisfy the
limitations of Section 3.18, or the top heavy requirements under Code Section
416, the Employer must provide the appropriate provisions in an addendum to
this Adoption Agreement.
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. The Plan: (CHOOSE (a) OR
(b); (c) IS AVAILABLE ONLY WITH (b))
[X] (a) Does not permit Participant nondeductible contributions.
[N/A] (b) Permits Participant nondeductible contributions, pursuant to
Section 14.04 of the Plan.
[N/A] (c) The following portion of the Participant's nondeductible
contributions for the Plan Year are mandatory contributions under
Option (i)(3) of Adoption Agreement Section 3.01: (CHOOSE (1) OR (2))
[N/A] (1) The amount which is not less than: ____________________.
19
<PAGE>
[N/A] (2) The amount which is not greater than: _________________.
ALLOCATION DATES. The Advisory Committee will allocate nondeductible
contributions for each Plan Year as of the Accounting Date and the following
additional allocation dates: (CHOOSE (d) OR (e))
[N/A] (d) No other allocation dates.
[N/A] (e) (SPECIFY) _____________________________________________________.
As of an allocation date, the Advisory Committee will credit all nondeductible
contributions made for the relevant allocation period. Unless otherwise
specified in (e), a nondeductible contribution relates to an allocation period
only if actually made to the Trust no later than 30 days after that allocation
period ends.
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Mandatory Contributions Account, if any, prior to his Separation
from Service: (CHOOSE (a) OR AT LEAST ONE OF (b) THROUGH (d))
[N/A] (a) No distribution options prior to Separation from Service.
[N/A] (b) The same distribution options applicable to the Deferral
Contributions Account prior to the Participant's Separation from
Service, as elected in Adoption Agreement Section 6.03.
[N/A] (c) Until he retires, the Participant has a continuing election to
receive all or any portion of his Mandatory Contributions Account if:
(CHOOSE (1) OR AT LEAST ONE OF (2) THROUGH (4))
[N/A] (1) No conditions.
[N/A] (2) The mandatory contributions have accumulated for at least
__Plan Years since the Plan Year for which contributed.
[N/A] (3) The Participant suspends making nondeductible
contributions for a period of __months.
[N/A] (4) (SPECIFY) _____________________________________________.
[N/A] (d) (SPECIFY) _____________________________________________________.
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT. Normal Retirement Age under the Plan is:
(CHOOSE (A) OR (B))
[N/A] (a) ______ [STATE AGE, BUT MAY NOT EXCEED AGE 65].
[X] (b) The later of the date the Participant attains 65 years of age or
the 5th anniversary of the first day of the Plan Year in which the
Participant commenced participation in the Plan. [THE AGE SELECTED MAY
NOT EXCEED AGE 65 AND THE ANNIVERSARY SELECTED MAY NOT EXCEED THE
5TH.]
5.02 PARTICIPANT DEATH OR DISABILITY. The 100% vesting rule under
Section 5.02 of the Plan: (CHOOSE (a) OR CHOOSE ONE OR BOTH OF (b) AND (c))
[N/A] (a) Does not apply.
20
<PAGE>
[X] (b) Applies to death.
[X] (c) Applies to disability.
5.03 VESTING SCHEDULE.
DEFERRAL CONTRIBUTIONS ACCOUNT/QUALIFIED MATCHING CONTRIBUTIONS
ACCOUNT/QUALIFIED NONELECTIVE CONTRIBUTIONS ACCOUNT/MANDATORY CONTRIBUTIONS
ACCOUNT. A Participant has a 100% Nonforfeitable interest at all times in his
Deferral Contributions Account, his Qualified Matching Contributions Account,
his Qualified Nonelective Contributions Account and in his Mandatory
Contributions Account.
REGULAR MATCHING CONTRIBUTIONS ACCOUNT/EMPLOYER CONTRIBUTIONS ACCOUNT. With
respect to a Participant's Regular Matching Contributions Account and Employer
Contributions Account, the Employer elects the following vesting schedule:
(CHOOSE (a) OR (b); (c) AND (d) ARE AVAILABLE ONLY AS ADDITIONAL OPTIONS)
[N/A] (a) Immediate vesting. 100% Nonforfeitable at all times. [NOTE: THE
EMPLOYER MUST ELECT OPTION (a) IF THE ELIGIBILITY CONDITIONS UNDER
ADOPTION AGREEMENT SECTION 2.01(c) REQUIRE 2 YEARS OF SERVICE OR MORE
THAN 12 MONTHS OF EMPLOYMENT.]
[X] (b) Graduated Vesting Schedules.
<TABLE>
<CAPTION>
TOP HEAVY SCHEDULE NON TOP HEAVY SCHEDULE
(MANDATORY) (OPTIONAL)
YEARS OF NONFORFEITABLE YEARS OF NONFORFEITABLE
SERVICE PERCENTAGE SERVICE PERCENTAGE
----------- -------------- ----------- --------------
<S> <C> <C> <C>
Less than 1................................ 0% Less than 1.................................... 0%
1...................................... 0% 1...................................... 5%
2...................................... 20% 2...................................... 10%
3...................................... 40% 3...................................... 20%
4...................................... 60% 4...................................... 40%
5...................................... 80% 5...................................... 60%
6 or more..............................100% 6...................................... 80%
7 or more .............................100%
</TABLE>
[N/A] (c) Special vesting election for Regular Matching Contributions
Account. In lieu of the election under Options (a) or (b), the
Employer elects the following vesting schedule for a Participant's
Regular Matching Contributions Account: (CHOOSE (1) OR (2))
[N/A] (1) 100% Nonforfeitable at all times.
[N/A] (2) In accordance with the vesting schedule described in the
addendum to this Adoption Agreement, numbered 5.03(c).
[NOTE: IF THE EMPLOYER ELECTS THIS OPTION (C)(2), THE
ADDENDUM MUST DESIGNATE THE APPLICABLE VESTING SCHEDULE(S)
USING THE SAME FORMAT AS USED IN OPTION (b).]
[NOTE: UNDER OPTIONS (b) AND (c)(2), THE EMPLOYER MUST COMPLETE A TOP HEAVY
SCHEDULE WHICH SATISFIES CODE Section 416. THE EMPLOYER, AT ITS OPTION, MAY
COMPLETE A NON TOP HEAVY SCHEDULE. THE NON TOP HEAVY SCHEDULE MUST SATISFY
CODE SECTION 411(A)(2). ALSO SEE SECTION 7.05 OF THE PLAN.]
[X] (d) The Top Heavy Schedule under Option (b) (and, if applicable,
under Option (c)(2)) applies: (CHOOSE (1) OR (2))
[X] (1) Only in a Plan Year for which the Plan is top heavy.
21
<PAGE>
[N/A] (2) In the Plan Year for which the Plan first is top heavy
and then in all subsequent Plan Years. [NOTE: THE EMPLOYER
MAY NOT ELECT OPTION (d) UNLESS IT HAS COMPLETED A NON TOP
HEAVY SCHEDULE.]
MINIMUM VESTING. (CHOOSE (e) OR (f))
[X] (e) The Plan does not apply a minimum vesting rule.
[N/A] (f) A Participant's Nonforfeitable Accrued Benefit will never be less
than the lesser of $______ or his entire Accrued Benefit, even if the
application of a graduated vesting schedule under Options (b) or (c)
would result in a smaller Nonforfeitable Accrued Benefit.
LIFE INSURANCE INVESTMENTS. The Participant's Accrued Benefit attributable to
insurance contracts purchased on his behalf under Article XI is: (CHOOSE (g) OR
(h))
[N/A] (g) Subject to the vesting election under Options (a), (b) or (c).
[N/A] (h) 100% Nonforfeitable at all times, irrespective of the vesting
election under Options (b) or (c)(2).
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/
RESTORATION OF FORFEITED ACCRUED BENEFIT. The deemed cash-out rule described in
Section 5.04(C) of the Plan: (CHOOSE (a) OR (b))
[N/A] (a) Does not apply.
[X] (b) Will apply to determine the timing of forfeitures for 0% vested
Participants. A Participant is not a 0% vested Participant if he has a
Deferral Contributions Account.
5.06 YEAR OF SERVICE - VESTING.
VESTING COMPUTATION PERIOD. The Plan measures a Year of Service on the basis of
the following 12 consecutive month periods: (CHOOSE (a) OR (b))
[X] (a) Plan Years.
[N/A] (b) Employment Years. An Employment Year is the 12 consecutive month
period measured from the Employee's Employment Commencement Date and
each successive 12 consecutive month period measured from each
anniversary of that Employment Commencement Date.
HOURS OF SERVICE. The minimum number of Hours of Service an Employee must
complete during a vesting computation period to receive credit for a Year of
Service is: (CHOOSE (c) OR (d))
[X] (c) 1,000 Hours of Service.
[N/A] (d) _____Hours of Service. [NOTE: THE HOURS OF SERVICE REQUIREMENT
MAY NOT EXCEED 1,000.]
5.08 INCLUDED YEARS OF SERVICE - VESTING. The Employer specifically
excludes the following Years of Service: (CHOOSE (a) OR AT LEAST ONE OF (b)
THROUGH (e))
[X] (a) None other than as specified in Section 5.08(a) of the Plan.
[N/A] (b) Any Year of Service before the Participant attained the age of
_____. Note: The age selected may not exceed age 18.]
22
<PAGE>
[N/A] (c) Any Year of Service during the period the Employer did not
maintain this Plan or a predecessor plan.
[N/A] (d) Any Year of Service before a Break in Service if the number of
consecutive Breaks in Service equals or exceeds the greater of 5 or
the aggregate number of the Years of Service prior to the Break. This
exception applies only if the Participant is 0% vested in his Accrued
Benefit derived from Employer contributions at the time he has a Break
in Service. Furthermore, the aggregate number of Years of Service
before a Break in Service do not include any Years of Service not
required to be taken into account under this exception by reason of
any prior Break in Service.
[N/A] (e) Any Year of Service earned prior to the effective date of ERISA if
the Plan would have disregarded that Year of Service on account of an
Employee's Separation from Service under a Plan provision in effect
and adopted before January 1, 1974.
ARTICLE VI
TIME AND METHOD OF PAYMENTS OF BENEFITS
CODE Section 411(d)(6) PROTECTED BENEFITS. The elections under this Article
VI may not eliminate Code Section 411(d)(6) protected benefits. To the extent
the elections would eliminate a Code Section 411(d)(6) protected benefit, see
Section 13.02 of the Plan. Furthermore, if the elections liberalize the
optional forms of benefit under the Plan, the more liberal options apply on
the later of the adoption date or the Effective Date of this Adoption
Agreement.
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT.
DISTRIBUTION DATE. A distribution date under the Plan means EVERY DAY OF THE
PLAN YEAR. [NOTE: THE EMPLOYER MUST SPECIFY THE APPROPRIATE DATE(S). THE
SPECIFIED DISTRIBUTION DATES PRIMARILY ESTABLISH ANNUITY STARTING DATES AND THE
NOTICE AND CONSENT PERIODS PRESCRIBED BY THE PLAN. THE PLAN ALLOWS THE TRUSTEE
AN ADMINISTRATIVELY PRACTICABLE PERIOD OF TIME TO MAKE THE ACTUAL DISTRIBUTION
RELATING TO A PARTICULAR DISTRIBUTION DATE.]
NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $3,500. Subject to the limitations
of Section 6.01(A)(1), the distribution date for distribution of a
Nonforfeitable Accrued Benefit not exceeding $3,500 is: (CHOOSE (a), (b), (c),
(d) OR (e))
[N/A] (a) ______________________________________________ of the __________
_________________Plan Year beginning after the Participant's
Separation from Service.
[N/A] (b) ___________________________________________________ following the
Participant's Separation from Service.
[N/A] (c) _____________________________________________________ of the Plan
Year after the Participant incurs ____ Break(s) in Service (as
defined in Article V).
[N/A] (d) ___________________________ following the Participant's attainment
of Normal Retirement Age, but not earlier than __________ days
following his Separation from Service.
[X] (e) (SPECIFY) AS SOON AS PRACTICABLE FOLLOWING THE CLOSE OF THE PLAN
YEAR IN WHICH THE PARTICIPANT'S SERVICE WITH THE COMPANY WAS
TERMINATED.
NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,500. See the elections under
Section 6.03.
DISABILITY. The distribution date, subject to Section 6.01(A)(3), is: (CHOOSE
(f), (g) OR (h))
[N/A] (f) _______________________________________________________ after the
Participant terminates employment because of disability.
23
<PAGE>
[X] (g) The same as if the Participant had terminated employment without
disability.
[N/A] (h) (SPECIFY) _____________________________________________________
____________.
HARDSHIP. (CHOOSE (i) OR (j))
[X] (i) The Plan does not permit a hardship distribution to a Participant who
has separated from Service.
[N/A] (j) The Plan permits a hardship distribution to a Participant who has
separated from Service in accordance with the hardship distribution
policy stated in: (CHOOSE (1), (2) OR (3))
[N/A] (1) Section 6.01(A)(4) of the Plan.
[N/A] (2) Section 14.11 of the Plan.
[N/A] (3) The addendum to this Adoption Agreement, numbered
Section 6.01.
DEFAULT ON A LOAN. If a Participant or Beneficiary defaults on a loan made
pursuant to a loan policy adopted by the Advisory Committee pursuant to Section
9.04, the Plan: (CHOOSE (k), (l) OR (m))
[N/A] (k) Treats the default as a distributable event. The Trustee, at the
time of the default, will reduce the Participant's Nonforfeitable
Accrued Benefit by the lesser of the amount in default (plus accrued
interest) or the Plan's security interest in that Nonforfeitable
Accrued Benefit. To the extent the loan is attributable to the
Participant's Deferral Contributions Account, Qualified Matching
Contributions Account or Qualified Nonelective Contributions Account,
the Trustee will not reduce the Participant's Nonforfeitable Accrued
Benefit unless the Participant has separated from Service or unless
the Participant has attained age 59-1/2.
[X] (l) Does not treat the default as a distributable event. When an
otherwise distributable event first occurs pursuant to Section 6.01 or
Section 6.03 of the Plan, the Trustee will reduce the Participant's
Nonforfeitable Accrued Benefit by the lesser of the amount in default
(plus accrued interest) or the Plan's security interest in that
Nonforfeitable Accrued Benefit.
[N/A] (m) (SPECIFY) _____________________________________________________.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. The Advisory Committee will
apply Section 6.02 of the Plan with the following modifications: (CHOOSE (a) OR
AT LEAST ONE OF (b), (c), (d) AND (e))
[X] (a) No modifications.
[N/A] (b) Except as required under Section 6.01 of the Plan, a lump sum
distribution is not available: _____________________________________
____________________________________________________________________.
[N/A] (c) An installment distribution: (CHOOSE (1) OR AT LEAST ONE OF
(2) OR (3))
[N/A] (1) Is not available under the Plan.
[N/A] (2) May not exceed the lesser of ______________ years or the
maximum period permitted under Section 6.02.
[N/A] (3) (SPECIFY) _____________________________________________.
24
<PAGE>
[N/A] (d) The Plan permits the following annuity options: ________________
_____________________________.
Any Participant who elects a life annuity option is subject to the
requirements of Sections 6.04(A), (B), (C) and (D) of the Plan. See
Section 6.04(E). [NOTE: THE EMPLOYER MAY SPECIFY ADDITIONAL ANNUITY
OPTIONS IN AN ADDENDUM TO THIS ADOPTION AGREEMENT, NUMBERED 6.02(d).]
[N/A] (e) If the Plan invests in qualifying Employer securities, as
described in Section 10.03(F), a Participant eligible to elect
distribution under Section 6.03 may elect to receive that distribution
in Employer securities only in accordance with the provisions of the
addendum to this Adoption Agreement, numbered 6.02(e).
6.03 BENEFIT PAYMENT ELECTIONS.
PARTICIPANT ELECTIONS AFTER SEPARATION FROM SERVICE. A Participant who is
eligible to make distribution elections under Section 6.03 of the Plan may elect
to commence distribution of his Nonforfeitable Accrued Benefit: (CHOOSE AT LEAST
ONE OF (a) THROUGH (c))
[N/A] (a) As of any distribution date, but not earlier than _____________
of the __________ Plan Year beginning after the Participant's
Separation from Service.
[X] (b) As of the following date(s): (CHOOSE AT LEAST ONE OF OPTIONS (1)
THROUGH (6))
[N/A] (1) Any distribution date after the close of the Plan Year in
which the Participant attains Normal Retirement Age.
[X] (2) Any distribution date following his Separation from
Service with the Employer.
[N/A] (3) Any distribution date in the _________ Plan Year(s)
beginning after his Separation from Service.
[N/A] (4) Any distribution date in the Plan Year after the
Participant incurs _________ Break(s) in Service (as defined
in Article V).
[N/A] (5) Any distribution date following attainment of age ______
and completion of at least ______ Years of Service (as
defined in Article V).
[N/A] (6) (SPECIFY) _____________________________________________.
[N/A] (c) (SPECIFY) _____________________________________________________
____________________________________________________________________.
The distribution events described in the election(s) made under
Options (a), (b) or (c) apply equally to all Accounts maintained for the
Participant unless otherwise specified in Option (c).
PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE - REGULAR MATCHING
CONTRIBUTIONS ACCOUNT AND EMPLOYER CONTRIBUTIONS ACCOUNT. Subject to the
restrictions of Article VI, the following distribution options apply to a
Participant's Regular Matching Contributions Account and Employer
Contributions Account prior to his Separation from Service: (CHOOSE (d) OR AT
LEAST ONE OF (e) THROUGH (h))
[N/A] (d) No distribution options prior to Separation from Service.
25
<PAGE>
[X] (e) Attainment of Specified Age. Until he retires, the Participant
has a continuing election to receive all or any portion of his
Nonforfeitable interest in these Accounts after he attains: (CHOOSE
(1) OR (2))
[N/A] (1) Normal Retirement Age.
[X] (2) 59 1/2 years of age and is at least 100% vested in these
Accounts. [NOTE: IF THE PERCENTAGE IS LESS THAN 100%, SEE
THE SPECIAL VESTING FORMULA IN SECTION 5.03.]
[X] (f) After a Participant has participated in the Plan for a period
of not less than 5 years and he is 100% vested in these Accounts,
until he retires, the Participant has a continuing election to
receive all or any portion of the Accounts. [NOTE: THE NUMBER IN THE
BLANK SPACE MAY NOT BE LESS THAN 5.]
[N/A] (g) Hardship. A Participant may elect a hardship distribution prior
to his Separation from Service in accordance with the hardship
distribution policy: (CHOOSE (1), (2) OR (3); (4) IS AVAILABLE ONLY
AS AN ADDITIONAL OPTION)
[N/A] (1) Under Section 6.01(A)(4) of the Plan.
[N/A] (2) Under Section 14.11 of the Plan.
[N/A] (3) Provided in the addendum to this Adoption Agreement,
numbered Section 6.03.
[N/A] (4) In no event may a Participant receive a hardship
distribution before he is at least _____% vested in these
Accounts. [NOTE: IF THE PERCENTAGE IN THE BLANK IS LESS THAN
100%, SEE THE SPECIAL VESTING FORMULA IN SECTION 5.03.]
[N/A] (h) (SPECIFY) _____________________________________________________
__.
[NOTE: THE EMPLOYER MAY USE AN ADDENDUM, NUMBERED 6.03, TO PROVIDE ADDITIONAL
LANGUAGE AUTHORIZED BY OPTIONS (b)(6), (c), (g)(3) OR (h) OF THIS ADOPTION
AGREEMENT SECTION 6.03.]
PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE - DEFERRAL
CONTRIBUTIONS ACCOUNT, QUALIFIED MATCHING CONTRIBUTIONS ACCOUNT AND QUALIFIED
NONELECTIVE CONTRIBUTIONS ACCOUNT. Subject to the restrictions of Article VI,
the following distribution options apply to a Participant's Deferral
Contributions Account, Qualified Matching Contributions Account and Qualified
Nonelective Contributions Account prior to his Separation from Service:
(CHOOSE (i) OR AT LEAST ONE OF (j) THROUGH (l))
[N/A] (i) No distribution options prior to Separation from Service.
[N/A] (j) Until he retires, the Participant has a continuing election to
receive all or any portion of these Accounts after he attains: (CHOOSE
(1) OR (2))
[N/A] (1) The later of Normal Retirement Age or age 59-1/2.
[N/A] (2) Age ______ (at least 59-1/2).
[X] (k) Hardship. A Participant, prior to his Separation from Service,
may elect a hardship distribution from his Deferral Contributions
Account in accordance with the hardship distribution policy under
Section 14.11 of the Plan.
[N/A] (l) (SPECIFY) _____________________________________________________
___. [NOTE: OPTION (L) MAY NOT PERMIT IN SERVICE DISTRIBUTIONS PRIOR
TO AGE 592 (OTHER THAN HARDSHIP) AND MAY NOT MODIFY THE HARDSHIP
POLICY DESCRIBED IN SECTION 14.11.]
26
<PAGE>
SALE OF TRADE OR BUSINESS/SUBSIDIARY. If the Employer sells substantially
all of the assets (within the meaning of Code Section 409(d)(2)) used in a
trade or business or sells a subsidiary (within the meaning of Code
Section 409(d)(3)), a Participant who continues employment with the
acquiring corporation is eligible for distribution from his Deferral
Contributions Account, Qualified Matching Contributions Account and
Qualified Nonelective Contributions Account: (CHOOSE (m) OR (n))
[X] (m) Only as described in this Adoption Agreement Section 6.03 for
distributions prior to Separation from Service.
[N/A] (n) As if he has a Separation from Service. After March 31, 1988, a
distribution authorized solely by reason of this Option (n) must
constitute a lump sum distribution, determined in a manner consistent
with Code Section 401(k)(10) and the applicable Treasury regulations.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES.
The annuity distribution requirements of Section 6.04: (CHOOSE (a) OR (b))
[X] (a) Apply only to a Participant described in Section 6.04(E) of the
Plan (relating to the profit sharing exception to the joint and
survivor requirements).
[N/A] (b) Apply to all Participants.
ARTICLE IX
ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. If a distribution (other
than a distribution from a segregated Account and other than a corrective
distribution described in Sections 14.07, 14.08, 14.09 or 14.10 of the Plan)
occurs more than 90 days after the most recent valuation date, the
distribution will include interest at: (CHOOSE (a), (b) OR (c))
[X] (a) 0% per annum. [NOTE: THE PERCENTAGE MAY EQUAL 0%.]
[N/A] (b) The 90 day Treasury bill rate in effect at the beginning of the
current valuation period.
[N/A] (c) (SPECIFY) _______________________________________________.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. Pursuant
to Section 14.12, to determine the allocation of net income, gain or loss:
(COMPLETE ONLY THOSE ITEMS, IF ANY, WHICH ARE APPLICABLE TO THE EMPLOYER'S
PLAN)
[X] (a) For salary reduction contributions, the Advisory Committee will:
(CHOOSE (1), (2), (3), (4) OR (5))
[N/A] (1) Apply Section 9.11 without modification.
[N/A] (2) Use the segregated account approach described in
Section 14.12.
[N/A] (3) Use the weighted average method described in Section
14.12, based on a ________ weighting period.
[N/A] (4) Treat as part of the relevant Account at the beginning
of the valuation period ___% of the salary reduction
contributions: (CHOOSE (i) OR (ii))
[N/A] (i) made during that valuation period.
27
<PAGE>
[N/A] (ii) made by the following specified time: ______.
[X] (5) Apply the allocation method described in the addendum to
this Adoption Agreement numbered 9.11(a).
[X] (b) For matching contributions, the Advisory Committee will:
(CHOOSE (1), (2), (3) OR (4))
[N/A] (1) Apply Section 9.11 without modification.
[N/A] (2) Use the weighted average method described in Section
14.12, based on a _________ weighting period.
[N/A] (3) Treat as part of the relevant Account at the beginning of
the valuation period ____% of the matching contributions
allocated during the valuation period.
[X] (4) Apply the allocation method described in the addendum to
this Adoption Agreement numbered 9.11(b).
[N/A] (c) For Participant nondeductible contributions, the Advisory
Committee will: (CHOOSE (1), (2), (3), (4) OR (5))
[N/A] (1) Apply Section 9.11 without modification.
[N/A] (2) Use the segregated account approach described in
Section 14.12.
[N/A] (3) Use the weighted average method described in Section
14.12, based on a _________ weighting period.
[N/A] (4) Treat as part of the relevant Account at the beginning
of the valuation period ____% of the Participant nondeductible
contributions: (CHOOSE (i) OR (ii))
[N/A] (i) made during that valuation period.
[N/A] (ii) made by the following specified time: _______.
[N/A] (5) Apply the allocation method described in the addendum to
this Adoption Agreement numbered 9.11(c).
ARTICLE X
TRUSTEE AND CUSTODIAN, POWERS AND DUTIES
10.03 INVESTMENT POWERS. Pursuant to Section 10.03[F] of the Plan, the
aggregate investments in qualifying Employer securities and in qualifying
Employer real property: (CHOOSE (a) OR (b))
[N/A] (a) May not exceed 10% of Plan assets.
[X] (b) May not exceed 100% of Plan assets. [NOTE: THE PERCENTAGE MAY
NOT EXCEED 100%.]
28
<PAGE>
10.14 VALUATION OF TRUST. In addition to each Accounting Date, the
Trustee must value the Trust Fund on the following valuation date(s): (CHOOSE
(A) OR (B))
[N/A] (a) No other mandatory valuation dates.
[X] (b) (SPECIFY) SUCH VALUATION DATES AS INSTRUCTED IN WRITING BY THE
PLAN ADMINISTRATOR.
29
<PAGE>
EFFECTIVE DATE ADDENDUM
(RESTATED PLANS ONLY)
The Employer must complete this addendum only if the restated Effective
Date specified in Adoption Agreement Section 1.18 is different than the restated
effective date for at least one of the provisions listed in this addendum. In
lieu of the restated Effective Date in Adoption Agreement Section 1.18, the
following special effective dates apply:
(CHOOSE WHICHEVER ELECTIONS APPLY)
[N/A] (a) COMPENSATION DEFINITION. The Compensation definition of Section
1.12 (other than the $200,000 limitation) is effective for Plan Years
beginning after _______. [NOTE: MAY NOT BE EFFECTIVE LATER THAN THE
FIRST DAY OF THE FIRST PLAN YEAR BEGINNING AFTER THE EMPLOYER EXECUTES
THIS ADOPTION AGREEMENT TO RESTATE THE PLAN FOR THE TAX REFORM ACT OF
1986, IF APPLICABLE.]
[N/A] (b) ELIGIBILITY CONDITIONS. The eligibility conditions specified in
Adoption Agreement Section 2.01 are effective for Plan Years beginning
after _______________.
[N/A] (c) SUSPENSION OF YEARS OF SERVICE. The suspension of Years of Service
rule elected under Adoption Agreement Section 2.03 is effective for
Plan Years beginning after _______________.
[N/A] (d) CONTRIBUTION/ALLOCATION FORMULA. The contribution formula elected
under Adoption Agreement Section 3.01 and the method of allocation
elected under Adoption Agreement Section 3.04 is effective for Plan
Years beginning after _______________.
[N/A] (e) ACCRUAL REQUIREMENTS. The accrual requirements of Section 3.06
are effective for Plan Years beginning after _______________.
[N/A] (f) EMPLOYMENT CONDITION. The employment condition of Section 3.06 is
effective for Plan Years beginning after _______________.
[N/A] (g) ELIMINATION OF NET PROFITS. The requirement for the Employer not
to have net profits to contribute to this Plan is effective for Plan
Years beginning after _______________. [NOTE: THE DATE SPECIFIED MAY
NOT BE EARLIER THAN DECEMBER 31, 1985.]
[N/A] (h) VESTING SCHEDULE. The vesting schedule elected under Adoption
Agreement Section 5.03 is effective for Plan Years beginning
after _______________.
[N/A] (i) ALLOCATION OF EARNINGS. The special allocation provisions
elected under Adoption Agreement Section 9.11 are effective for Plan
Years beginning after _______________.
[N/A] (j) (SPECIFY) ____________________________________________________
_________________________________________.
For Plan Years prior to the special Effective Date, the terms of the
Plan prior to its restatement under this Adoption Agreement will control for
purposes of the designated provisions. A special Effective Date may not result
in the delay of a Plan provision beyond the permissible Effective Date under any
applicable law requirements.
30
<PAGE>
EXECUTION PAGE
The Trustee (and Custodian, if applicable), by executing this Adoption
Agreement, accepts its position and agrees to all of the obligations,
responsibilities and duties imposed upon the Trustee (or Custodian) under the
Prototype Plan and Trust. The Employer hereby agrees to the provisions of this
Plan and Trust, and in witness of its agreement, the Employer by its duly
authorized officers, has executed this Adoption Agreement, and the Trustee (and
Custodian, if applicable) signified its acceptance, on this 14th day
of August, 98.
Name and EIN of Employer: Schuler Homes, Inc. 99-0293125
Signed: /s/ Douglas M. Tonokawa
----------------------------
Douglas M. Tonokawa
Name(s) of Trustee: CENTRAL BANK AND TRUST
Signed: /s/ Richard B. Chambers
----------------------------
Richard B. Chambers
Senior Vice President & Trust Officer
Name of Custodian: N/A
Signed: __________________________________________________
[NOTE: A TRUSTEE IS MANDATORY, BUT A CUSTODIAN IS OPTIONAL. SEE SECTION 10.03 OF
THE PLAN.]
PLAN NUMBER. The 3-digit plan number the Employer assigns to this Plan for ERISA
reporting purposes (Form 5500 Series) is: 005.
USE OF ADOPTION AGREEMENT. Failure to complete properly the elections in this
Adoption Agreement may result in disqualification of the Employer's Plan. The
3-digit number assigned to this Adoption Agreement (see page 1) is solely for
the Regional Prototype Plan Sponsor's recordkeeping purposes and does not
necessarily correspond to the plan number the Employer designated in the prior
paragraph.
RELIANCE ON NOTIFICATION LETTER. The Employer may not rely on the Regional
Prototype Plan Sponsor's notification letter covering this Adoption Agreement.
For reliance on the Plan's qualification, the Employer must obtain a
determination letter from the applicable IRS Key District office.
31
<PAGE>
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement,
elects to become a Participating Employer in the Plan identified in Section
1.03 of the accompanying Adoption Agreement, as if the Participating Employer
were a signatory to that Agreement. The Participating Employer accepts, and
agrees to be bound by, all of the elections granted under the provisions of
the Prototype Plan as made by Schuler Homes, Inc., the Signatory Employer to
the Execution Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation in
the designated Plan is: APRIL 1, 1998.
2. The undersigned Employer's adoption of this Plan constitutes:
[ ] (a) The adoption of a new plan by the Participating Employer.
[X] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as SCHULER HOMES, INC. 401(k)
RETIREMENT SAVINGS PLAN, and having an original effective date of
November 1, 1989.
Dated this 14th day of August, 1998.
Name of Participating Employer: SCHULER HOMES OF WASHINGTON, INC.
Signed: /s/ Douglas M. Tonokawa
---------------------------------
Douglas M. Tonokawa, V.P. Finance
Participating Employer's EIN: 99-0329483
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE ADOPTION
AGREEMENT AND BY THE TRUSTEE.
Name of Signatory Employer: SCHULER HOMES, INC.
Accepted: 8/14/98
-----------
[Date] Signed: /s/ Douglas M. Tonokawa
----------------------------------
Name(s) of Trustee: CENTRAL BANK AND TRUST
Accepted:___________________
[Date] Signed: /s/ Richard B. Chambers
----------------------------------
[NOTE: EACH PARTICIPATING EMPLOYER MUST EXECUTE A SEPARATE PARTICIPATION
AGREEMENT. SEE THE EXECUTION PAGE OF THE ADOPTION AGREEMENT FOR IMPORTANT
PROTOTYPE PLAN INFORMATION.]
32
<PAGE>
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement,
elects to become a Participating Employer in the Plan identified in Section 1.03
of the accompanying Adoption Agreement, as if the Participating Employer were a
signatory to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the Prototype
Plan as made by Schuler Homes, Inc., the Signatory Employer to the Execution
Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation in the
designated Plan is: April 1, 1998.
2. The undersigned Employer's adoption of this Plan constitutes:
[ ] (a) The adoption of a new plan by the Participating Employer.
[X] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as SCHULER HOMES, INC. 401(k)
RETIREMENT SAVINGS PLAN, and having an original effective date of
NOVEMBER 1, 1989.
Dated this 14th day of August, 1998.
Name of Participating Employer: MELODY HOMES, INC.
Signed: /s/ Douglas M. Tonokawa
---------------------------------
Douglas M. Tonokawa, VP Finance
Participating Employer's EIN: 88-0309544
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE ADOPTION
AGREEMENT AND BY THE TRUSTEE.
Name of Signatory Employer: SCHULER HOMES, INC.
Accepted: 8/14/98
-----------
[Date] Signed: /s/ Douglas M. Tonokawa
--------------------------------
Name(s) of Trustee: CENTRAL BANK AND TRUST
Accepted:___________________
[Date] Signed: /s/ Richard B. Chambers
--------------------------------
[NOTE: EACH PARTICIPATING EMPLOYER MUST EXECUTE A SEPARATE PARTICIPATION
AGREEMENT. SEE THE EXECUTION PAGE OF THE ADOPTION AGREEMENT FOR IMPORTANT
PROTOTYPE PLAN INFORMATION.]
33
<PAGE>
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement,
elects to become a Participating Employer in the Plan identified in Section 1.03
of the accompanying Adoption Agreement, as if the Participating Employer were a
signatory to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the Prototype
Plan as made by SCHULER HOMES, INC., the Signatory Employer to the Execution
Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation in the
designated Plan is: APRIL 1, 1998.
2. The undersigned Employer's adoption of this Plan constitutes:
[ ] (a) The adoption of a new plan by the Participating Employer.
[X] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as SCHULER HOMES, INC. 401(k)
RETIREMENT SAVINGS PLAN, and having an original effective date of
November 1, 1989.
Dated this 14th day of August, 1998
Name of Participating Employer: MELODY MORTGAGE COMPANY
Signed: /s/ Douglas M. Tonokawa
--------------------------------
Douglas M. Tonokawa, VP Finance
Participating Employer's EIN: 84-1261600
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE ADOPTION
AGREEMENT AND BY THE TRUSTEE.
Name of Signatory Employer: SCHULER HOMES, INC.
Accepted: 8/14/98
---------
[Date] Signed: /s/ Douglas M. Tonokawa
--------------------------------
Name(s) of Trustee: CENTRAL BANK AND TRUST
Accepted:___________________
[Date] Signed: /s/ Richard B. Chambers
---------------------------------
[NOTE: EACH PARTICIPATING EMPLOYER MUST EXECUTE A SEPARATE PARTICIPATION
AGREEMENT. SEE THE EXECUTION PAGE OF THE ADOPTION AGREEMENT FOR IMPORTANT
PROTOTYPE PLAN INFORMATION.]
34
<PAGE>
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement,
elects to become a Participating Employer in the Plan identified in Section 1.03
of the accompanying Adoption Agreement, as if the Participating Employer were a
signatory to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the Prototype
Plan as made by SCHULER HOMES, INC., the Signatory Employer to the Execution
Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation in the
designated Plan is: APRIL 1, 1998.
2. The undersigned Employer's adoption of this Plan constitutes:
[ ] (a) The adoption of a new plan by the Participating Employer.
[X] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as SCHULER HOMES, INC. 401(k)
RETIREMENT SAVINGS PLAN, and having an original effective date of
November 1, 1989.
Dated this 14th day of August, 1998.
Name of Participating Employer: SCHULER HOMES OF CALIFORNIA, INC.
Signed: /s/ Douglas M. Tonokawa
--------------------------------
Douglas M. Tonokawa, VP Finance
Participating Employer's EIN: 99-0328127
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE ADOPTION
AGREEMENT AND BY THE TRUSTEE.
Name of Signatory Employer: SCHULER HOMES, INC.
Accepted: 8/14/98
---------
[Date] Signed: /s/ Douglas M. Tonokawa
-----------------------------------
Name(s) of Trustee: CENTRAL BANK AND TRUST
Accepted:__________
[Date] Signed: /s/ Richard B. Chambers
---------------------------------
[NOTE: EACH PARTICIPATING EMPLOYER MUST EXECUTE A SEPARATE PARTICIPATION
AGREEMENT. SEE THE EXECUTION PAGE OF THE ADOPTION AGREEMENT FOR IMPORTANT
PROTOTYPE PLAN INFORMATION.]
35
<PAGE>
PARTICIPATION AGREEMENT
FOR PARTICIPATION BY RELATED GROUP MEMBERS (PLAN SECTION 1.30)
The undersigned Employer, by executing this Participation Agreement,
elects to become a Participating Employer in the Plan identified in Section 1.03
of the accompanying Adoption Agreement, as if the Participating Employer were a
signatory to that Agreement. The Participating Employer accepts, and agrees to
be bound by, all of the elections granted under the provisions of the Prototype
Plan as made by SCHULER HOMES, INC., the Signatory Employer to the Execution
Page of the Adoption Agreement.
1. The Effective Date of the undersigned Employer's participation in the
designated Plan is: APRIL 1, 1998.
2. The undersigned Employer's adoption of this Plan constitutes:
[ ] (a) The adoption of a new plan by the Participating Employer.
[X] (b) The adoption of an amendment and restatement of a plan currently
maintained by the Employer, identified as SCHULER HOMES, INC. 401(k)
RETIREMENT SAVINGS PLAN, and having an original effective date of
November 1, 1989.
Dated this 17th day of August, 98
Name of Participating Employer: JAMES K. SCHULER & ASSOCIATES, INC.
Signed: /s/ Joanne Halsey
---------------------------------
Joanne Halsey, Vice President
Participating Employer's EIN: 99-0154569
ACCEPTANCE BY THE SIGNATORY EMPLOYER TO THE EXECUTION PAGE OF THE ADOPTION
AGREEMENT AND BY THE TRUSTEE.
Name of Signatory Employer: SCHULER HOMES, INC.
Accepted: 8/17/98
----------
[Date] Signed: /s/ Joanne Halsey
----------------------------------
Name(s) of Trustee: CENTRAL BANK AND TRUST
Accepted:___________________
[Date] Signed: /s/ Richard B. Chambers
---------------------------------
[NOTE: EACH PARTICIPATING EMPLOYER MUST EXECUTE A SEPARATE PARTICIPATION
AGREEMENT. SEE THE EXECUTION PAGE OF THE ADOPTION AGREEMENT FOR IMPORTANT
PROTOTYPE PLAN INFORMATION.]
36
<PAGE>
CPI QUALIFIED PLAN CONSULTANTS, INC.
DEFINED CONTRIBUTION PROTOTYPE PLAN
AND
TRUST AGREEMENT
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DEFINED CONTRIBUTION PROTOTYPE PLAN
TABLE OF CONTENTS
ALPHABETICAL LISTING OF DEFINITIONS. . . . . . . . . . . . . . . . . . iii
ARTICLE I, DEFINITIONS
1.01 Employer. . . . . . . . . . . . . . . . . . . . . . . . . . 1.01
1.02 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 1.01
1.03 Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.01
1.04 Adoption Agreement. . . . . . . . . . . . . . . . . . . . . 1.01
1.05 Plan Administrator. . . . . . . . . . . . . . . . . . . . . 1.01
1.06 Advisory Committee. . . . . . . . . . . . . . . . . . . . . 1.02
1.07 Employee. . . . . . . . . . . . . . . . . . . . . . . . . . 1.02
1.08 Self-Employed Individual/
Owner-Employee. . . . . . . . . . . . . . . . . . . . . . . 1.02
1.09 Highly Compensated Employee . . . . . . . . . . . . . . . . 1.02
1.10 Participant . . . . . . . . . . . . . . . . . . . . . . . . 1.03
1.11 Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . 1.03
1.12 Compensation. . . . . . . . . . . . . . . . . . . . . . . . 1.03
1.13 Earned Income . . . . . . . . . . . . . . . . . . . . . . . 1.05
1.14 Account . . . . . . . . . . . . . . . . . . . . . . . . . . 1.05
1.15 Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . 1.05
1.16 Nonforfeitable. . . . . . . . . . . . . . . . . . . . . . . 1.05
1.17 Plan Year/Limitation Year . . . . . . . . . . . . . . . . . 1.05
1.18 Effective Date. . . . . . . . . . . . . . . . . . . . . . . 1.05
1.19 Plan Entry Date . . . . . . . . . . . . . . . . . . . . . . 1.05
1.20 Accounting Date . . . . . . . . . . . . . . . . . . . . . . 1.05
1.21 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.05
1.22 Trust Fund. . . . . . . . . . . . . . . . . . . . . . . . . 1.05
1.23 Nontransferable Annuity . . . . . . . . . . . . . . . . . . 1.06
1.24 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.06
1.25 Code. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.06
1.26 Service . . . . . . . . . . . . . . . . . . . . . . . . . . 1.06
1.27 Hour of Service . . . . . . . . . . . . . . . . . . . . . . 1.06
1.28 Disability. . . . . . . . . . . . . . . . . . . . . . . . . 1.07
1.29 Service for Predecessor Employer. . . . . . . . . . . . . . 1.07
1.30 Related Employers . . . . . . . . . . . . . . . . . . . . . 1.07
1.31 Leased Employees. . . . . . . . . . . . . . . . . . . . . . 1.08
1.32 Special Rules for Owner-Employees . . . . . . . . . . . . . 1.08
1.33 Determination Of Top Heavy Status . . . . . . . . . . . . . 1.09
1.34 Paired Plans. . . . . . . . . . . . . . . . . . . . . . . . 1.11
ARTICLE II, EMPLOYEE PARTICIPANTS
2.01 Eligibility . . . . . . . . . . . . . . . . . . . . . . . . 2.01
2.02 Year Of Service - Participation . . . . . . . . . . . . . . 2.01
2.03 Break In Service - Participation. . . . . . . . . . . . . . 2.01
2.04 Participation Upon Re-employment. . . . . . . . . . . . . . 2.02
2.05 Change In Employee Status . . . . . . . . . . . . . . . . . 2.02
2.06 Election Not To Participate . . . . . . . . . . . . . . . . 2.02
ARTICLE III, EMPLOYER CONTRIBUTIONS AND
FOREITURES
3.01 Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . 3.01
3.02 Determination Of Contribution . . . . . . . . . . . . . . . 3.01
3.03 Time Of Payment Of Contribution . . . . . . . . . . . . . . 3.01
3.04 Contribution Allocation . . . . . . . . . . . . . . . . . . 3.01
3.05 Forfeiture Allocation . . . . . . . . . . . . . . . . . . . 3.03
3.06 Accrual of Benefit. . . . . . . . . . . . . . . . . . . . . 3.04
3.07-3.16 Limitations on Allocations . . . . . . . . . . . . . . 3.05
3.17 Special Allocation Limitation . . . . . . . . . . . . . . . 3.08
3.18 Defined Benefit Plan Limitation . . . . . . . . . . . . . . 3.08
3.19 Definitions-Article III . . . . . . . . . . . . . . . . . . 3.08
ARTICLE IV, PARTICIPANT CONTRIBUTIONS
4.01 Participant Nondeductible Contributions . . . . . . . . . . 4.01
4.02 Participant Deductible Contributions. . . . . . . . . . . . 4.01
4.03 Participant Rollover Contributions. . . . . . . . . . . . . 4.01
4.04 Participant Contribution - Forfeitability . . . . . . . . . 4.02
4.05 Participant Contribution -
Withdrawal/Distribution . . . . . . . . . . . . . . . . . . 4.02
4.06 Participant Contribution -
Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . 4.02
ARTICLE V, TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 Normal Retirement Age . . . . . . . . . . . . . . . . . . . 5.01
5.02 Participant Disability or Death . . . . . . . . . . . . . . 5.01
5.03 Vesting Schedule. . . . . . . . . . . . . . . . . . . . . . 5.01
5.04 Cash-out Distributions to Partially-
Vested Participants/Restoration of
Forfeited Accrued Benefit . . . . . . . . . . . . . . . . . 5.01
5.05 Segregated Account for Repaid Amount. . . . . . . . . . . . 5.03
5.06 Year of Service - Vesting . . . . . . . . . . . . . . . . . 5.03
5.07 Break in Service - Vesting. . . . . . . . . . . . . . . . . 5.03
5.08 Included Years of Service - Vesting . . . . . . . . . . . . 5.03
5.09 Forfeiture Occurs . . . . . . . . . . . . . . . . . . . . . 5.04
ARTICLE VI, TIME AND METHOD OF PAYMENT
OF BENEFITS
6.01 Time of Payment of Accrued Benefit. . . . . . . . . . . . . 6.01
6.02 Method of Payment Of Accrued Benefit. . . . . . . . . . . . 6.02
6.03 Benefit Payment Elections . . . . . . . . . . . . . . . . . 6.05
6.04 Annuity Distributions to Participants
and Surviving Spouses . . . . . . . . . . . . . . . . . . . 6.06
6.05 Waiver Election - Qualified Joint and
Survivor Annuity. . . . . . . . . . . . . . . . . . . . . . 6.08
6.06 Waiver Election - Preretirement Survivor
Annuity . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09
6.07 Distributions Under Domestic
Relations Orders. . . . . . . . . . . . . . . . . . . . . . 6.09
ARTICLE VII, EMPLOYER ADMINISTRATIVE
PROVISIONS
7.01 Information to Committee. . . . . . . . . . . . . . . . . . 7.01
7.02 No Liability. . . . . . . . . . . . . . . . . . . . . . . . 7.01
7.03 Indemnity of Certain Fiduciaries. . . . . . . . . . . . . . 7.01
7.04 Employer Direction of Investment. . . . . . . . . . . . . . 7.01
7.05 Amendment to Vesting Schedule . . . . . . . . . . . . . . . 7.01
ARTICLE VIII, PARTICIPANT ADMINISTRATIVE
PROVISIONS
8.01 Beneficiary Designation . . . . . . . . . . . . . . . . . . 8.01
8.02 No Beneficiary Designation/Death
of Beneficiary. . . . . . . . . . . . . . . . . . . . . . . 8.01
8.03 Personal Data to Committee. . . . . . . . . . . . . . . . . 8.02
8.04 Address for Notification. . . . . . . . . . . . . . . . . . 8.02
8.05 Assignment or Alienation. . . . . . . . . . . . . . . . . . 8.02
8.06 Notice of Change in Terms . . . . . . . . . . . . . . . . . 8.02
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8.07 Litigation Against the Trust. . . . . . . . . . . . . . . . 8.02
8.08 Information Available . . . . . . . . . . . . . . . . . . . 8.02
8.09 Appeal Procedure for Denial
of Benefits . . . . . . . . . . . . . . . . . . . . . . . . 8.03
8.10 Participant Direction of Investment . . . . . . . . . . . . 8.03
ARTICLE IX, ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS'
ACCOUNTS
9.01 Members' Compensation, Expenses . . . . . . . . . . . . . . 9.01
9.02 Term. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.01
9.03 Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . 9.01
9.04 General . . . . . . . . . . . . . . . . . . . . . . . . . . 9.01
9.05 Funding Policy. . . . . . . . . . . . . . . . . . . . . . . 9.02
9.06 Manner of Action. . . . . . . . . . . . . . . . . . . . . . 9.02
9.07 Authorized Representative . . . . . . . . . . . . . . . . . 9.02
9.08 Interested Member . . . . . . . . . . . . . . . . . . . . . 9.02
9.09 Individual Accounts . . . . . . . . . . . . . . . . . . . . 9.02
9.10 Value of Participant's Accrued Benefit. . . . . . . . . . . 9.03
9.11 Allocation and Distribution of
Net Income Gain or Loss . . . . . . . . . . . . . . . . . . 9.03
9.12 Individual Statement. . . . . . . . . . . . . . . . . . . . 9.04
9.13 Account Charged . . . . . . . . . . . . . . . . . . . . . . 9.04
9.14 Unclaimed Account Procedure . . . . . . . . . . . . . . . . 9.04
ARTICLE X, TRUSTEE AND CUSTODIAN, POWERS
AND DUTIES
10.01 Acceptance. . . . . . . . . . . . . . . . . . . . . . . . . 10.01
10.02 Receipt of Contributions. . . . . . . . . . . . . . . . . . 10.01
10.03 Investment Powers . . . . . . . . . . . . . . . . . . . . . 10.01
10.04 Records and Statements. . . . . . . . . . . . . . . . . . . 10.06
10.05 Fees and Expenses from Fund . . . . . . . . . . . . . . . . 10.06
10.06 Parties to Litigation . . . . . . . . . . . . . . . . . . . 10.06
10.07 Professional Agents . . . . . . . . . . . . . . . . . . . . 10.06
10.08 Distribution of Cash or Property. . . . . . . . . . . . . . 10.07
10.09 Distribution Directions . . . . . . . . . . . . . . . . . . 10.07
10.10 Third Party/Multiple Trustees . . . . . . . . . . . . . . . 10.07
10.11 Resignation . . . . . . . . . . . . . . . . . . . . . . . . 10.07
10.12 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . 10.07
10.13 Interim Duties and Successor Trustee. . . . . . . . . . . . 10.07
10.14 Valuation of Trust. . . . . . . . . . . . . . . . . . . . . 10.08
10.15 Limitation on Liability - If
Investment Manager, Ancillary Trustee
or Independent Fiduciary Appointed. . . . . . . . . . . . . 10.08
10.16 Investment in Group Trust Fund. . . . . . . . . . . . . . . 10.08
10.17 Appointment of Ancillary Trustee or
Independent Fiduciary . . . . . . . . . . . . . . . . . . . 10.09
ARTICLE XI, PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY
11.01 Insurance Benefit . . . . . . . . . . . . . . . . . . . . . 11.01
11.02 Limitation on Life Insurance
Protection. . . . . . . . . . . . . . . . . . . . . . . . . 11.01
11.03 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 11.02
11.04 Dividend Plan . . . . . . . . . . . . . . . . . . . . . . . 11.03
11.05 Insurance Company Not a Party
to Agreement. . . . . . . . . . . . . . . . . . . . . . . . 11.03
11.06 Insurance Company Not Responsible
for Trustee's Actions . . . . . . . . . . . . . . . . . . . 11.03
11.07 Insurance Company Reliance on
Trustee's Signature . . . . . . . . . . . . . . . . . . . . 11.03
11.08 Acquittance . . . . . . . . . . . . . . . . . . . . . . . . 11.03
11.09 Duties of Insurance Company . . . . . . . . . . . . . . . . 11.03
ARTICLE XII, MISCELLANEOUS
12.01 Evidence. . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
12.02 No Responsibility For Employer
Action. . . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
12.03 Fiduciaries Not Insurers. . . . . . . . . . . . . . . . . . 12.01
12.04 Waiver Of Notice. . . . . . . . . . . . . . . . . . . . . . 12.01
12.05 Successors. . . . . . . . . . . . . . . . . . . . . . . . . 12.01
12.06 Word Usage. . . . . . . . . . . . . . . . . . . . . . . . . 12.01
12.07 State Law . . . . . . . . . . . . . . . . . . . . . . . . . 12.01
12.08 Employer's Right To Participate . . . . . . . . . . . . . . 12.01
12.09 Employment Not Guaranteed . . . . . . . . . . . . . . . . . 12.02
ARTICLE XIII, EXCLUSIVE BENEFIT,AMENDMENT, TERMINATION
13.01 Exclusive Benefit . . . . . . . . . . . . . . . . . . . . . 13.01
13.02 Amendment By Employer . . . . . . . . . . . . . . . . . . . 13.01
13.03 Amendment By Regional Prototype
Plan Sponsor. . . . . . . . . . . . . . . . . . . . . . . . 13.02
13.04 Discontinuance. . . . . . . . . . . . . . . . . . . . . . . 13.02
13.05 Full Vesting On Termination . . . . . . . . . . . . . . . . 13.02
13.06 Merger/Direct Transfer. . . . . . . . . . . . . . . . . . . 13.02
13.07 Termination . . . . . . . . . . . . . . . . . . . . . . . . 13.03
ARTICLE XIV, CODE Section 401(k) AND CODE Section 401(m) ARRANGEMENTS
14.01 Application . . . . . . . . . . . . . . . . . . . . . . . . 14.01
14.02 Code Section 401(k) Arrangement . . . . . . . . . . . . . . 14.01
14.03 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 14.02
14.04 Matching Contributions/
Employee Contributions. . . . . . . . . . . . . . . . . . . 14.04
14.05 Time of Payment of
Contributions . . . . . . . . . . . . . . . . . . . . . . . 14.04
14.06 Special Allocation Provisions -
Deferral Contributions, Matching
Contributions and Qualified
Nonelective Contributions . . . . . . . . . . . . . . . . . 14.04
14.07 Annual Elective Deferral
Limitation. . . . . . . . . . . . . . . . . . . . . . . . . 14.06
14.08 Actual Deferral Percentage
("ADP") Test. . . . . . . . . . . . . . . . . . . . . . . . 14.07
14.09 Nondiscrimination Rules for Employer
Matching Contributions/Participant
Nondeductible Contributions . . . . . . . . . . . . . . . . 14.09
14.10 Multiple Use Limitation . . . . . . . . . . . . . . . . . . 14.11
14.11 Distribution Restrictions . . . . . . . . . . . . . . . . . 14.11
14.12 Special Allocation Rules. . . . . . . . . . . . . . . . . . 14.13
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ALPHABETICAL LISTING OF DEFINITIONS
SECTION REFERENCE
PLAN DEFINITION (PAGE NUMBER)
100% Limitation . . . . . . . . . . . . . . . . . . . . . . 3.19(l) (3.11)
Account . . . . . . . . . . . . . . . . . . . . . . . . . . 1.14 (1.05)
Accounting Date . . . . . . . . . . . . . . . . . . . . . . 1.20 (1.05)
Accrued Benefit . . . . . . . . . . . . . . . . . . . . . . 1.15 (1.05)
Actual Deferral Percentage ("ADP") Test . . . . . . . . . . 14.08 (14.07)
Adoption Agreement. . . . . . . . . . . . . . . . . . . . . 1.04 (1.01)
Advisory Committee. . . . . . . . . . . . . . . . . . . . . 1.06 (1.02)
Annual Addition . . . . . . . . . . . . . . . . . . . . . . 3.19(a) (3.08)
Average Contribution Percentage Test. . . . . . . . . . . . 14.09 (14.09)
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . 1.11 (1.03)
Break in Service for Eligibility Purposes . . . . . . . . . 2.03 (2.01)
Break in Service for Vesting Purposes . . . . . . . . . . . 5.07 (5.03)
Cash-out Distribution . . . . . . . . . . . . . . . . . . . 5.04 (5.01)
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.25 (1.06)
Code Section 411(d)(6) Protected Benefits . . . . . . . . . 13.02 (13.01)
Compensation. . . . . . . . . . . . . . . . . . . . . . . . 1.12 (1.03)
Compensation for Code Section 401(k) Purposes . . . . . . . 14.03 (14.02)
Compensation for Code Section 415 Purposes. . . . . . . . . 3.19(b) (3.08)
Compensation for Top Heavy Purposes . . . . . . . . . . . 1.33(B)(3) (1.10)
Contract(s) . . . . . . . . . . . . . . . . . . . . . . . .11.03(c) (11.02)
Custodian Designation . . . . . . . . . . . . . . . . . . .10.03[B] (10.03)
Deemed Cash-out Rule. . . . . . . . . . . . . . . . . . . . 5.04(C) (5.02)
Deferral Contributions. . . . . . . . . . . . . . . . . . .14.03(g) (14.02)
Deferral Contributions Account. . . . . . . . . . . . . . .14.06(A) (14.04)
Defined Benefit Plan. . . . . . . . . . . . . . . . . . . . 3.19(i) (3.09)
Defined Benefit Plan Fraction . . . . . . . . . . . . . . . 3.19(j) (3.09)
Defined Contribution Plan . . . . . . . . . . . . . . . . . 3.19(h) (3.09)
Defined Contribution Plan Fraction. . . . . . . . . . . . . 3.19(k) (3.10)
Determination Date. . . . . . . . . . . . . . . . . . . . 1.33(B)(7) (1.10)
Disability. . . . . . . . . . . . . . . . . . . . . . . . . 1.28 (1.07)
Distribution Date . . . . . . . . . . . . . . . . . . . . . 6.01 (6.01)
Distribution Restrictions . . . . . . . . . . . . . . . . .14.03(m) (14.03)
Earned Income . . . . . . . . . . . . . . . . . . . . . . . 1.13 (1.05)
Effective Date. . . . . . . . . . . . . . . . . . . . . . . 1.18 (1.05)
Elective Deferrals. . . . . . . . . . . . . . . . . . . . .14.03(h) (14.03)
Elective Transfer . . . . . . . . . . . . . . . . . . . . .13.06(A) (13.03)
Eligible Employee . . . . . . . . . . . . . . . . . . . . .14.03(c) (14.02)
Employee. . . . . . . . . . . . . . . . . . . . . . . . . . 1.07 (1.02)
Employee Contributions. . . . . . . . . . . . . . . . . . .14.03(n) (14.04)
Employer. . . . . . . . . . . . . . . . . . . . . . . . . . 1.01 (1.01)
Employer Contribution Account . . . . . . . . . . . . . . . 14.06 (14.04)
Employer for Code Section 415 Purposes. . . . . . . . . . . 3.19(c) (3.08)
Employer for Top Heavy Purposes . . . . . . . . . . . . . 1.33(B)(6) (1.10)
Employment Commencement Date. . . . . . . . . . . . . . . . 2.02 (2.01)
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.24 (1.06)
Excess Aggregate Contributions. . . . . . . . . . . . . . .14.09(D) (14.10)
Excess Amount . . . . . . . . . . . . . . . . . . . . . . . 3.19(d) (3.08)
Excess Contributions. . . . . . . . . . . . . . . . . . . . 14.08 (14.07)
Exempt Participant. . . . . . . . . . . . . . . . . . . . . 8.01 (8.01)
SECTION REFERENCE
PLAN DEFINITION (PAGE NUMBER)
Forfeiture Break in Service . . . . . . . . . . . . . . . . 5.08 (5.03)
Group Trust Fund. . . . . . . . . . . . . . . . . . . . . . 10.16 (10.08)
Hardship. . . . . . . . . . . . . . . . . . . . . . . . . 6.01(A)(4) (6.02)
Hardship for Section 401(k) Purposes. . . . . . . . . . . .14.11(A) (14.12)
Highly Compensated Employee . . . . . . . . . . . . . . . . 1.09 (1.02)
Highly Compensated Group. . . . . . . . . . . . . . . . . .14.03(d) (14.02)
Hour of Service . . . . . . . . . . . . . . . . . . . . . . 1.27 (1.06)
Incidental Insurance Benefits . . . . . . . . . . . . . . .11.01(A) (11.01)
Insurable Participant . . . . . . . . . . . . . . . . . . .11.03(d) (11.02)
Investment Manager. . . . . . . . . . . . . . . . . . . . . 9.04(i) (9.01)
Issuing Insurance Company . . . . . . . . . . . . . . . . .11.03(b) (11.02)
Joint and Survivor Annuity. . . . . . . . . . . . . . . . . 6.04(A) (6.06)
Key Employee. . . . . . . . . . . . . . . . . . . . . . . 1.33(B)(1) (1.10)
Leased Employees. . . . . . . . . . . . . . . . . . . . . . 1.31 (1.08)
Limitation Year . . . . . . . . . . . . . . 1.17 and 3.19(e)(1.05 and 3.08)
Loan Policy . . . . . . . . . . . . . . . . . . . . . . . . 9.04(A) (9.02)
Mandatory Contributions . . . . . . . . . . . . . . . . . .14.04(A) (14.04)
Mandatory Contributions Account . . . . . . . . . . . . . .14.04(A) (14.04)
Master or Prototype Plan. . . . . . . . . . . . . . . . . . 3.19(f) (3.09)
Matching Contributions. . . . . . . . . . . . . . . . . . .14.03(i) (14.03)
Maximum Permissible Amount. . . . . . . . . . . . . . . . . 3.19(g) (3.09)
Minimum Distribution Incidental Benefit . . . . . . . . . . 6.02(A) (6.03)
Multiple Use Limitation . . . . . . . . . . . . . . . . . . 14.10 (14.11)
Named Fiduciary . . . . . . . . . . . . . . . . . . . . . .10.03[D] (10.05)
Nonelective Contributions . . . . . . . . . . . . . . . . 14.03(j) (14.03)
Nonforfeitable. . . . . . . . . . . . . . . . . . . . . . . 1.16 (1.05)
Nonhighly Compensated Employee. . . . . . . . . . . . . . .14.03(b) (14.02)
Nonhighly Compensated Group . . . . . . . . . . . . . . . .14.03(e) (14.02)
Non-Key Employee. . . . . . . . . . . . . . . . . . . . . 1.33(B)(2) (1.10)
Nontransferable Annuity . . . . . . . . . . . . . . . . . . 1.23 (1.06)
Normal Retirement Age . . . . . . . . . . . . . . . . . . . 5.01 (5.01)
Owner-Employee. . . . . . . . . . . . . . . . . . . . . . . 1.08 (1.02)
Paired Plans. . . . . . . . . . . . . . . . . . . . . . . . 1.34 (1.11)
Participant . . . . . . . . . . . . . . . . . . . . . . . . 1.10 (1.03)
Participant Deductible Contributions. . . . . . . . . . . . 4.02 (4.01)
Participant Forfeiture. . . . . . . . . . . . . . . . . . . 3.05 (3.03)
Participant Loans . . . . . . . . . . . . . . . . . . . . .10.03[E] (10.05)
Participant Nondeductible Contributions . . . . . . . . . . 4.01 (4.01)
Permissive Aggregation Group. . . . . . . . . . . . . . . 1.33(B)(5) (1.10)
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.03 (1.01)
Plan Administrator. . . . . . . . . . . . . . . . . . . . . 1.05 (1.01)
Plan Entry Date . . . . . . . . . . . . . . . . . . . . . . 1.19 (1.05)
Plan Year . . . . . . . . . . . . . . . . . . . . . . . . . 1.17 (1.05)
Policy. . . . . . . . . . . . . . . . . . . . . . . . . . .11.03(a) (11.02)
Predecessor Employer. . . . . . . . . . . . . . . . . . . . 1.29 (1.07)
Preretirement Survivor Annuity. . . . . . . . . . . . . . . 6.04(B) (6.07)
Qualified Domestic Relations Order. . . . . . . . . . . . . 6.07 (6.09)
Qualified Matching Contributions. . . . . . . . . . . . . .14.03(k) (14.03)
Qualified Nonelective Contributions . . . . . . . . . . . .14.03(l) (14.03)
Qualifying Employer Real Property . . . . . . . . . . . . .10.03[F] (10.06)
Qualifying Employer Securities. . . . . . . . . . . . . . .10.03[F] (10.06)
iii
<PAGE>
Related Employers . . . . . . . . . . . . . . . . . . . . . 1.30 (1.07)
Required Aggregation Group. . . . . . . . . . . . . . . . 1.33(B)(4) (1.10)
Required Beginning Date . . . . . . . . . . . . . . . . . . 6.01(B) (6.02)
Rollover Contributions. . . . . . . . . . . . . . . . . . . 4.03 (4.01)
Self-Employed Individual. . . . . . . . . . . . . . . . . . 1.08 (1.02)
Service . . . . . . . . . . . . . . . . . . . . . . . . . . 1.26 (1.06)
Term Life Insurance Contract. . . . . . . . . . . . . . . . 11.03 (11.02)
Top Heavy Minimum Allocation. . . . . . . . . . . . . . . . 3.04(B) (3.01)
Top Heavy Ratio . . . . . . . . . . . . . . . . . . . . . . 1.33 (1.09)
Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.21 (1.05)
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 1.02 (1.01)
Trustee Designation . . . . . . . . . . . . . . . . . . . .10.03[A] (10.01)
Trust Fund. . . . . . . . . . . . . . . . . . . . . . . . . 1.22 (1.05)
Weighted Average Allocation Method. . . . . . . . . . . . . 14.12 (14.13)
Year of Service for Eligibility Purposes. . . . . . . . . . 2.02 (2.01)
Year of Service for Vesting Purposes. . . . . . . . . . . . 5.06 (5.03)
* * * * * * * * * * * * * * * *
iv
<PAGE>
CPI QUALIFIED PLAN CONSULTANTS, INC.
DEFINED CONTRIBUTION PROTOTYPE PLAN AND TRUST AGREEMENT
BASIC PLAN DOCUMENT #03
CPI Qualified Plan Consultants, Inc., in its capacity as Regional
Prototype Plan Sponsor, establishes this Prototype Plan intended to conform to
and qualify under Section 401 and Section 501 of the Internal Revenue Code of
1986, as amended. An Employer establishes a Plan and Trust under this Prototype
Plan by executing an Adoption Agreement. If the Employer adopts this Plan as a
restated Plan in substitution for, and in amendment of, an existing plan, the
provisions of this Plan, as a restated Plan, apply solely to an Employee whose
employment with the Employer terminates on or after the restated Effective Date
of the Employer's Plan. If an Employee's employment with the Employer terminates
prior to the restated Effective Date, that Employee is entitled to benefits
under the Plan as the Plan existed on the date of the Employee's termination of
employment.
ARTICLE I
DEFINITIONS
1.01 "Employer" means each employer who adopts this Plan by executing
an Adoption Agreement.
1.02 "Trustee" means the person or persons who as Trustee execute the
Employer's Adoption Agreement, or any successor in office who in writing accepts
the position of Trustee. The Employer must designate in its Adoption Agreement
whether the Trustee will administer the Trust as a discretionary Trustee or as a
nondiscretionary Trustee. If a person acts as a discretionary Trustee, the
Employer also may appoint a Custodian. See Article X.
1.03 "Plan" means the retirement plan established or continued by the
Employer in the form of this Agreement, including the Adoption Agreement under
which the Employer has elected to participate in this Prototype Plan. The
Employer must designate the name of the Plan in its Adoption Agreement. An
Employer may execute more than one Adoption Agreement offered under this
Prototype Plan, each of which will constitute a separate Plan and Trust
established or continued by that Employer. The Plan and the Trust created by
each adopting Employer is a separate Plan and a separate Trust, independent from
the plan and the trust of any other employer adopting this Prototype Plan. All
section references within the Plan are Plan section references unless the
context clearly indicates otherwise.
1.04 "Adoption Agreement" means the document executed by each Employer
adopting this Prototype Plan. The terms of this Prototype Plan as modified by
the terms of an adopting Employer's Adoption Agreement constitute a separate
Plan and Trust to be construed as a single Agreement. Each elective provision of
the Adoption Agreement corresponds by section reference to the section of the
Plan which grants the election. Each Adoption Agreement offered under this
Prototype Plan is either a Nonstandardized Plan or a Standardized Plan, as
identified in the preamble to that Adoption Agreement. The provisions of this
Prototype Plan apply equally to Nonstandardized Plans and to Standardized Plans
unless otherwise specified.
1.05 "Plan Administrator" is the Employer unless the Employer
designates another person to hold the position of Plan Administrator. In
addition to his other duties, the Plan Administrator has full responsibility for
compliance with the reporting and disclosure rules under ERISA as respects this
Agreement.
1.06 "Advisory Committee" means the Employer's Advisory Committee as
from time to time constituted.
1.07 "Employee" means any employee (including a Self-Employed
Individual) of the Employer. The
1.01
<PAGE>
Employer must specify in its Adoption Agreement any Employee, or class of
Employees, not eligible to participate in the Plan. If the Employer elects to
exclude collective bargaining employees, the exclusion applies to any
employee of the Employer included in a unit of employees covered by an
agreement which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one or more employers unless
the collective bargaining agreement requires the employee to be included
within the Plan. The term "employee representatives" does not include any
organization more than half the members of which are owners, officers, or
executives of the Employer.
1.08 "Self-Employed Individual/Owner-Employee." "Self-Employed
Individual" means an individual who has Earned Income (or who would have had
Earned Income but for the fact that the trade or business did not have net
earnings) for the taxable year from the trade or business for which the Plan is
established. "Owner-Employee" means a Self-Employed Individual who is the sole
proprietor in the case of a sole proprietorship. If the Employer is a
partnership, "Owner-Employee" means a Self-Employed Individual who is a partner
and owns more than 10% of either the capital or profits interest of the
partnership.
1.09 "Highly Compensated Employee" means an Employee who, during the
Plan Year or during the preceding 12-month period:
(a) is a more than 5% owner of the Employer (applying the constructive
ownership rules of Code Section 318, and applying the principles of Code
Section 318, for an unincorporated entity);
(b) has Compensation in excess of $75,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year);
(c) has Compensation in excess of $50,000 (as adjusted by the
Commissioner of Internal Revenue for the relevant year) and is part of
the top-paid 20% group of employees (based on Compensation for the
relevant year); or
(d) has Compensation in excess of 50% of the dollar amount prescribed in
Code Section 415(b)(1)(A) (relating to defined benefit plans) and is an
officer of the Employer.
If the Employee satisfies the definition in clause (b), (c) or (d) in
the Plan Year but does not satisfy clause (b), (c) or (d) during the
preceding 12-month period and does not satisfy clause (a) in either period,
the Employee is a Highly Compensated Employee only if he is one of the 100
most highly compensated Employees for the Plan Year. The number of officers
taken into account under clause (d) will not exceed the greater of 3 or 10%
of the total number (after application of the Code Section 414(q) exclusions)
of Employees, but no more than 50 officers. If no Employee satisfies the
Compensation requirement in clause (d) for the relevant year, the Advisory
Committee will treat the highest paid officer as satisfying clause (d) for
that year.
For purposes of this Section 1.09, "Compensation" means Compensation as
defined in Section 1.12, except any exclusions from Compensation elected in the
Employer's Adoption Agreement Section 1.12 do not apply, and Compensation must
include "elective contributions" (as defined in Section 1.12). The Advisory
Committee must make the determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of the top paid 20%
group, the top 100 paid Employees, the number of officers includible in clause
(d) and the relevant Compensation, consistent with Code Section 414(q) and
regulations issued under that Code section. The Employer may make a calendar
year election to determine the Highly Compensated Employees for the Plan Year,
as prescribed by Treasury regulations. A calendar year election must apply to
all plans and arrangements of the Employer. For purposes of applying any
nondiscrimination test required under the Plan or under the Code, in a manner
consistent with applicable Treasury regulations, the Advisory Committee will
treat a Highly Compensated Employee and all family members (a spouse, a lineal
ascendant or descendant, or a spouse of a lineal ascendant or
1.02
<PAGE>
descendant) as a single Highly Compensated Employee, but only if the Highly
Compensated Employee is a more than 5% owner or is one of the 10 Highly
Compensated Employees with the greatest Compensation for the Plan Year. This
aggregation rule applies to a family member even if that family member is a
Highly Compensated Employee without family aggregation.
The term "Highly Compensated Employee" also includes any former Employee
who separated from Service (or has a deemed Separation from Service, as
determined under Treasury regulations) prior to the Plan Year, performs no
Service for the Employer during the Plan Year, and was a Highly Compensated
Employee either for the separation year or any Plan Year ending on or after his
55th birthday. If the former Employee's Separation from Service occurred prior
to January 1, 1987, he is a Highly Compensated Employee only if he satisfied
clause (a) of this Section 1.09 or received Compensation in excess of $50,000
during: (1) the year of his Separation from Service (or the prior year); or (2)
any year ending after his 54th birthday.
1.10 "Participant" is an Employee who is eligible to be and becomes a
Participant in accordance with the provisions of Section 2.01.
1.11 "Beneficiary" is a person designated by a Participant who is or
may become entitled to a benefit under the Plan. A Beneficiary who becomes
entitled to a benefit under the Plan remains a Beneficiary under the Plan until
the Trustee has fully distributed his benefit to him. A Beneficiary's right to
(and the Plan Administrator's, the Advisory Committee's or a Trustee's duty to
provide to the Beneficiary) information or data concerning the Plan does not
arise until he first becomes entitled to receive a benefit under the Plan.
1.12 "Compensation" means, except as provided in the Employer's
Adoption Agreement, the Participant's Earned Income, wages, salaries, fees for
professional service and other amounts received for personal services actually
rendered in the course of employment with the Employer maintaining the plan
(including, but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses). The Employer must elect in its Adoption Agreement
whether to include elective contributions in the definition of Compensation.
"Elective contributions" are amounts excludible from the Employee's gross income
under Code Sections 125, 402(a)(8), 402(h) or 403(b), and contributed by the
Employer, at the Employee's election, to a Code Section 401(k) arrangement, a
Simplified Employee Pension, cafeteria plan or tax-sheltered annuity. The term
"Compensation" does not include:
(a) Employer contributions (other than "elective contributions," if
includible in the definition of Compensation under Section 1.12 of the
Employer's Adoption Agreement) to a plan of deferred compensation to the
extent the contributions are not included in the gross income of the
Employee for the taxable year in which contributed, on behalf of an
Employee to a Simplified Employee Pension Plan to the extent such
contributions are excludible from the Employee's gross income, and any
distributions from a plan of deferred compensation, regardless of whether
such amounts are includible in the gross income of the Employee when
distributed.
(b) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an Employee either
becomes freely transferable or is no longer subject to a substantial risk
of forfeiture.
(c) Amounts realized from the sale, exchange or other disposition of
stock acquired under a stock option described in Part II, Subchapter D,
Chapter 1 of the Code.
(d) Other amounts which receive special tax benefits, such as premiums
for group term life insurance (but only to the extent that the premiums
are not includible in the gross income of the Employee), or
1.03
<PAGE>
contributions made by an Employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity contract
described in Code Section 403(b) (whether or not the contributions
are excludible from the gross income of the Employee), other than
"elective contributions," if elected in the Employer's Adoption
Agreement.
Any reference in this Plan to Compensation is a reference to the
definition in this Section 1.12, unless the Plan reference specifies a
modification to this definition. The Advisory Committee will take into account
only Compensation actually paid for the relevant period. A Compensation payment
includes Compensation by the Employer through another person under the common
paymaster provisions in Code Sections 3121 and 3306.
(A) LIMITATIONS ON COMPENSATION.
(1) COMPENSATION DOLLAR LIMITATION. For any Plan Year beginning after
December 31, 1988, the Advisory Committee must take into account only the first
$200,000 (or beginning January 1, 1990, such larger amount as the Commissioner
of Internal Revenue may prescribe) of any Participant's Compensation. For any
Plan Year beginning prior to January 1, 1989, this $200,000 limitation (but not
the family aggregation requirement described in the next paragraph) applies only
if the Plan is top heavy for such Plan Year or operates as a deemed top heavy
plan for such Plan Year.
(2) APPLICATION OF COMPENSATION LIMITATION TO CERTAIN FAMILY MEMBERS.
The $200,000 Compensation limitation applies to the combined Compensation of the
Employee and of any family member aggregated with the Employee under Section
1.09 who is either (i) the Employee's spouse; or (ii) the Employee's lineal
descendant under the age of 19. If, for a Plan Year, the combined Compensation
of the Employee and such family members who are Participants entitled to an
allocation for that Plan Year exceeds the $200,000 (or adjusted) limitation,
"Compensation" for each such Participant, for purposes of the contribution and
allocation provisions of Article III, means his Adjusted Compensation. Adjusted
Compensation is the amount which bears the same ratio to the $200,000 (or
adjusted) limitation as the affected Participant's Compensation (without regard
to the $200,000 Compensation limitation) bears to the combined Compensation of
all the affected Participants in the family unit. If the Plan uses permitted
disparity, the Advisory Committee must determine the integration level of each
affected family member Participant prior to the proration of the $200,000
Compensation limitation, but the combined integration level of the affected
Participants may not exceed $200,000 (or the adjusted limitation). The combined
Excess Compensation of the affected Participants in the family unit may not
exceed $200,000 (or the adjusted limitation) minus the affected Participants'
combined integration level (as determined under the preceding sentence). If the
combined Excess Compensation exceeds this limitation, the Advisory Committee
will prorate the Excess Compensation limitation among the affected Participants
in the family unit in proportion to each such individual's Adjusted Compensation
minus his integration level. If the Employer's Plan is a Nonstandardized Plan,
the Employer may elect to use a different method in determining the Adjusted
Compensation of the affected Participants by specifying that method in an
addendum to the Adoption Agreement, numbered Section 1.12.
(B) NONDISCRIMINATION. For purposes of determining whether the Plan
discriminates in favor of Highly Compensated Employees, Compensation means
Compensation as defined in this Section 1.12, except: (1) the Employer may elect
to include or to exclude elective contributions, irrespective of the Employer's
election in its Adoption Agreement regarding elective contributions; and (2) the
Employer will not give effect to any elections made in the "modifications to
Compensation definition" section of Adoption Agreement Section 1.12. The
Employer's election described in clause (1) must be consistent and uniform with
respect to all Employees and all plans of the Employer for any particular Plan
Year. If the Employer's Plan is a Nonstandardized Plan, the Employer,
irrespective of clause (2), may elect to exclude from this nondiscrimination
definition of Compensation any items of Compensation excludible under Code
Section 414(s) and the applicable Treasury regulations, provided such
1.04
<PAGE>
adjusted definition conforms to the nondiscrimination requirements of those
regulations.
1.13 "Earned Income" means net earnings from self-employment in the
trade or business with respect to which the Employer has established the Plan,
provided personal services of the individual are a material income producing
factor. The Advisory Committee will determine net earnings without regard to
items excluded from gross income and the deductions allocable to those items.
The Advisory Committee will determine net earnings after the deduction allowed
to the Self-Employed Individual for all contributions made by the Employer to a
qualified plan and, for Plan Years beginning after December 31, 1989, the
deduction allowed to the Self-Employed under Code Section 164(f) for
self-employment taxes.
1.14 "Account" means the separate account(s) which the Advisory
Committee or the Trustee maintains for a Participant under the Employer's Plan.
1.15 "Accrued Benefit" means the amount standing in a Participant's
Account(s) as of any date derived from both Employer contributions and Employee
contributions, if any.
1.16 "Nonforfeitable" means a Participant's or Beneficiary's
unconditional claim, legally enforceable against the Plan, to the Participant's
Accrued Benefit.
1.17 "Plan Year" means the fiscal year of the Plan, the consecutive
month period specified in the Employer's Adoption Agreement. The Employer's
Adoption Agreement also must specify the "Limitation Year" applicable to the
limitations on allocations described in Article III. If the Employer maintains
Paired Plans, each Plan must have the same Plan Year.
1.18 "Effective Date" of this Plan is the date specified in the
Employer's Adoption Agreement.
1.19 "Plan Entry Date" means the date(s) specified in Section 2.01 of
the Employer's Adoption Agreement.
1.20 "Accounting Date" is the last day of an Employer's Plan Year.
Unless otherwise specified in the Plan, the Advisory Committee will make all
Plan allocations for a particular Plan Year as of the Accounting Date of that
Plan Year.
1.21 "Trust" means the separate Trust created under the Employer's
Plan.
1.22 "Trust Fund" means all property of every kind held or acquired by
the Employer's Plan, other than incidental benefit insurance contracts.
1.23 "Nontransferable Annuity" means an annuity which by its terms
provides that it may not be sold, assigned, discounted, pledged as collateral
for a loan or security for the performance of an obligation or for any purpose
to any person other than the insurance company. If the Plan distributes an
annuity contract, the contract must be a Nontransferable Annuity.
1.24 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.25 "Code" means the Internal Revenue Code of 1986, as amended.
1.26 "Service" means any period of time the Employee is in the employ
of the Employer, including any period the Employee is on an unpaid leave of
absence authorized by the Employer under a uniform, nondiscriminatory policy
applicable to all Employees. "Separation from Service" means the Employee no
longer
1.05
<PAGE>
has an employment relationship with the Employer maintaining this Plan.
1.27 "Hour of Service" means:
(a) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties. The Advisory Committee credits
Hours of Service under this paragraph (a) to the Employee for the
computation period in which the Employee performs the duties,
irrespective of when paid;
(b) Each Hour of Service for back pay, irrespective of mitigation of
damages, to which the Employer has agreed or for which the Employee has
received an award. The Advisory Committee credits Hours of Service under
this paragraph (b) to the Employee for the computation period(s) to which
the award or the agreement pertains rather than for the computation
period in which the award, agreement or payment is made; and
(c) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment (irrespective of whether the employment relationship is
terminated), for reasons other than for the performance of duties during
a computation period, such as leave of absence, vacation, holiday, sick
leave, illness, incapacity (including disability), layoff, jury duty or
military duty. The Advisory Committee will credit no more than 501 Hours
of Service under this paragraph (c) to an Employee on account of any
single continuous period during which the Employee does not perform any
duties (whether or not such period occurs during a single computation
period). The Advisory Committee credits Hours of Service under this
paragraph (c) in accordance with the rules of paragraphs (b) and (c) of
Labor Reg. Section 2530.200b-2, which the Plan, by this reference,
specifically incorporates in full within this paragraph (c).
The Advisory Committee will not credit an Hour of Service under more than
one of the above paragraphs. A computation period for purposes of this Section
1.27 is the Plan Year, Year of Service period, Break in Service period or other
period, as determined under the Plan provision for which the Advisory Committee
is measuring an Employee's Hours of Service. The Advisory Committee will resolve
any ambiguity with respect to the crediting of an Hour of Service in favor of
the Employee.
(A) METHOD OF CREDITING HOURS OF SERVICE. The Employer must elect in its
Adoption Agreement the method the Advisory Committee will use in crediting an
Employee with Hours of Service. For purposes of the Plan, "actual" method means
the determination of Hours of Service from records of hours worked and hours for
which the Employer makes payment or for which payment is due from the Employer.
If the Employer elects to apply an "equivalency" method, for each equivalency
period for which the Advisory Committee would credit the Employee with at least
one Hour of Service, the Advisory Committee will credit the Employee with: (i)
10 Hours of Service for a daily equivalency; (ii) 45 Hours of Service for a
weekly equivalency; (iii) 95 Hours of Service for a semimonthly payroll period
equivalency; and (iv) 190 Hours of Service for a monthly equivalency.
(B) MATERNITY/PATERNITY LEAVE. Solely for purposes of determining whether the
Employee incurs a Break in Service under any provision of this Plan, the
Advisory Committee must credit Hours of Service during an Employee's unpaid
absence period due to maternity or paternity leave. The Advisory Committee
considers an Employee on maternity or paternity leave if the Employee's absence
is due to the Employee's pregnancy, the birth of the Employee's child, the
placement with the Employee of an adopted child, or the care of the Employee's
child immediately following the child's birth or placement. The Advisory
Committee credits Hours of Service under this paragraph on the basis of the
number of Hours of Service the Employee would receive if he were paid during the
absence period or, if the Advisory Committee cannot determine the number of
Hours of Service the Employee would receive, on the basis of 8 hours per day
during the absence period. The Advisory Committee will credit only
1.06
<PAGE>
the number (not exceeding 501) of Hours of Service necessary to prevent an
Employee's Break in Service. The Advisory Committee credits all Hours of
Service described in this paragraph to the computation period in which the
absence period begins or, if the Employee does not need these Hours of
Service to prevent a Break in Service in the computation period in which his
absence period begins, the Advisory Committee credits these Hours of Service
to the immediately following computation period.
1.28 "Disability" means the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for an
indefinite period which the Advisory Committee considers will be of long
continued duration. A Participant also is disabled if he incurs the permanent
loss or loss of use of a member or function of the body, or is permanently
disfigured, and incurs a Separation from Service. The Plan considers a
Participant disabled on the date the Advisory Committee determines the
Participant satisfies the definition of disability. The Advisory Committee may
require a Participant to submit to a physical examination in order to confirm
disability. The Advisory Committee will apply the provisions of this Section
1.28 in a nondiscriminatory, consistent and uniform manner. If the Employer's
Plan is a Nonstandardized Plan, the Employer may provide an alternate definition
of disability in an addendum to its Adoption Agreement, numbered Section 1.28.
1.29 SERVICE FOR PREDECESSOR EMPLOYER. If the Employer maintains the
plan of a predecessor employer, the Plan treats service of the Employee with the
predecessor employer as service with the Employer. If the Employer does not
maintain the plan of a predecessor employer, the Plan does not credit service
with the predecessor employer, unless the Employer identifies the predecessor in
its Adoption Agreement and specifies the purposes for which the Plan will credit
service with that predecessor employer.
1.30 RELATED EMPLOYERS. A related group is a controlled group of
corporations (as defined in Code Section 414(b)), trades or businesses (whether
or not incorporated) which are under common control (as defined in Code Section
414(c)) or an affiliated service group (as defined in Code Section 414(m) or in
Code Section 414(o)). If the Employer is a member of a related group, the term
"Employer" includes the related group members for purposes of crediting Hours of
Service, determining Years of Service and Breaks in Service under Articles II
and V, applying the Participation Test and the Coverage Test under Section
3.06(E), applying the limitations on allocations in Part 2 of Article III,
applying the top heavy rules and the minimum allocation requirements of Article
III, the definitions of Employee, Highly Compensated Employee, Compensation and
Leased Employee, and for any other purpose required by the applicable Code
section or by a Plan provision. However, an Employer may contribute to the Plan
only by being a signatory to the Execution Page of the Adoption Agreement or to
a Participation Agreement to the Employer's Adoption Agreement. If one or more
of the Employer's related group members become Participating Employers by
executing a Participation Agreement to the Employer's Adoption Agreement, the
term "Employer" includes the participating related group members for all
purposes of the Plan, and "Plan Administrator" means the Employer that is the
signatory to the Execution Page of the Adoption Agreement.
If the Employer's Plan is a Standardized Plan, all Employees of the
Employer or of any member of the Employer's related group, are eligible to
participate in the Plan, irrespective of whether the related group member
directly employing the Employee is a Participating Employer. If the Employer's
Plan is a Nonstandardized Plan, the Employer must specify in Section 1.07 of its
Adoption Agreement, whether the Employees of related group members that are not
Participating Employers are eligible to participate in the Plan. Under a
Nonstandardized Plan, the Employer may elect to exclude from the definition of
"Compensation" for allocation purposes any Compensation received from a related
employer that has not executed a Participation Agreement and whose Employees are
not eligible to participate in the Plan.
1.31 LEASED EMPLOYEES. The Plan treats a Leased Employee as an Employee
of the Employer. A Leased Employee is an individual (who otherwise is not an
Employee of the Employer) who, pursuant to a leasing agreement between the
Employer and any other person, has performed services for the Employer (or for
the
1.07
<PAGE>
Employer and any persons related to the Employer within the meaning of Code
Section 144(a)(3)) on a substantially full time basis for at least one year and
who performs services historically performed by employees in the Employer's
business field. If a Leased Employee is treated as an Employee by reason of this
Section 1.31 of the Plan, "Compensation" includes Compensation from the leasing
organization which is attributable to services performed for the Employer.
(A) SAFE HARBOR PLAN EXCEPTION. The Plan does not treat a Leased Employee as
an Employee if the leasing organization covers the employee in a safe harbor
plan and, prior to application of this safe harbor plan exception, 20% or less
of the Employer's Employees (other than Highly Compensated Employees) are Leased
Employees. A safe harbor plan is a money purchase pension plan providing
immediate participation, full and immediate vesting, and a nonintegrated
contribution formula equal to at least 10% of the employee's compensation
without regard to employment by the leasing organization on a specified date.
The safe harbor plan must determine the 10% contribution on the basis of
compensation as defined in Code Section 415(c)(3) plus elective contributions
(as defined in Section 1.12).
(B) OTHER REQUIREMENTS. The Advisory Committee must apply this Section 1.31
in a manner consistent with Code Sections 414(n) and 414(o) and the regulations
issued under those Code sections. The Employer must specify in the Adoption
Agreement the manner in which the Plan will determine the allocation of Employer
contributions and Participant forfeitures on behalf of a Participant if the
Participant is a Leased Employee covered by a plan maintained by the leasing
organization.
1.32 SPECIAL RULES FOR OWNER-EMPLOYEES. The following special provisions
and restrictions apply to Owner-Employees:
(a) If the Plan provides contributions or benefits for an
Owner-Employee or for a group of Owner-Employees who controls the trade
or business with respect to which this Plan is established and the
Owner-Employee or Owner-Employees also control as Owner-Employees one or
more other trades or businesses, plans must exist or be established with
respect to all the controlled trades or businesses so that when the plans
are combined they form a single plan which satisfies the requirements of
Code Section 401(a) and Code Section 401(d) with respect to the employees
of the controlled trades or businesses.
(b) The Plan excludes an Owner-Employee or group of Owner-Employees
if the Owner-Employee or group of Owner-Employees controls any other
trade or business, unless the employees of the other controlled trade or
business participate in a plan which satisfies the requirements of Code
Section 401(a) and Code Section 401(d). The other qualified plan must
provide contributions and benefits which are not less favorable than the
contributions and benefits provided for the Owner-Employee or group of
Owner-Employees under this plan, or if an Owner-Employee is covered under
another qualified plan as an Owner-Employee, then the plan established
with respect to the trade or business he does control must provide
contributions or benefits as favorable as those provided under the most
favorable plan of the trade or business he does not control. If the
exclusion of this paragraph (b) applies and the Employer's Plan is a
Standardized Plan, the Employer may not participate or continue to
participate in this Prototype Plan and the Employer's Plan becomes an
individually-designed plan for purposes of qualification reliance.
(c) For purposes of paragraphs (a) and (b) of this Section 1.32, an
Owner-Employee or group of Owner-Employees controls a trade or business
if the Owner-Employee or Owner-Employees together (1) own the entire
interest in an unincorporated trade or business, or (2) in the case of a
partnership, own more than 50% of either the capital interest or the
profits interest in the partnership.
1.33 DETERMINATION OF TOP HEAVY STATUS. If this Plan is the only
qualified plan maintained by the Employer, the Plan is top heavy for a Plan Year
if the top heavy ratio as of the Determination Date exceeds 60%. The top heavy
ratio is a fraction, the numerator of which is the sum of the present value of
Accrued Benefits of all Key Employees as of the Determination Date and the
denominator of which is a similar sum determined for
1.08
<PAGE>
all Employees. The Advisory Committee must include in the top heavy ratio, as
part of the present value of Accrued Benefits, any contribution not made as
of the Determination Date but includible under Code Section 416 and the
applicable Treasury regulations, and distributions made within the
Determination Period. The Advisory Committee must calculate the top heavy
ratio by disregarding the Accrued Benefit (and distributions, if any, of the
Accrued Benefit) of any Non-Key Employee who was formerly a Key Employee, and
by disregarding the Accrued Benefit (including distributions, if any, of the
Accrued Benefit) of an individual who has not received credit for at least
one Hour of Service with the Employer during the Determination Period. The
Advisory Committee must calculate the top heavy ratio, including the extent
to which it must take into account distributions, rollovers and transfers, in
accordance with Code Section 416 and the regulations under that Code section.
If the Employer maintains other qualified plans (including a
simplified employee pension plan), or maintained another such plan which now
is terminated, this Plan is top heavy only if it is part of the Required
Aggregation Group, and the top heavy ratio for the Required Aggregation Group
and for the Permissive Aggregation Group, if any, each exceeds 60%. The
Advisory Committee will calculate the top heavy ratio in the same manner as
required by the first paragraph of this Section 1.33, taking into account all
plans within the Aggregation Group. To the extent the Advisory Committee must
take into account distributions to a Participant, the Advisory Committee must
include distributions from a terminated plan which would have been part of
the Required Aggregation Group if it were in existence on the Determination
Date. The Advisory Committee will calculate the present value of accrued
benefits under defined benefit plans or simplified employee pension plans
included within the group in accordance with the terms of those plans, Code
Section 416 and the regulations under that Code section. If a Participant in
a defined benefit plan is a Non-Key Employee, the Advisory Committee will
determine his accrued benefit under the accrual method, if any, which is
applicable uniformly to all defined benefit plans maintained by the Employer
or, if there is no uniform method, in accordance with the slowest accrual
rate permitted under the fractional rule accrual method described in Code
Section 411(b)(1)(C). If the Employer maintains a defined benefit plan, the
Employer must specify in Adoption Agreement Section 3.18 the actuarial
assumptions (interest and mortality only) the Advisory Committee will use to
calculate the present value of benefits from a defined benefit plan. If an
aggregated plan does not have a valuation date coinciding with the
Determination Date, the Advisory Committee must value the Accrued Benefits in
the aggregated plan as of the most recent valuation date falling within the
twelve-month period ending on the Determination Date, except as Code Section
416 and applicable Treasury regulations require for the first and second plan
year of a defined benefit plan. The Advisory Committee will calculate the top
heavy ratio with reference to the Determination Dates that fall within the
same calendar year.
(A) STANDARDIZED PLAN. If the Employer's Plan is a Standardized Plan, the
Plan operates as a deemed top heavy plan in all Plan Years, except, if the
Standardized Plan includes a Code Section 401(k) arrangement, the Employer may
elect to apply the top heavy requirements only in Plan Years for which the Plan
actually is top heavy. Under a deemed top heavy plan, the Advisory Committee
need not determine whether the Plan actually is top heavy. However, if the
Employer, in Adoption Agreement Section 3.18, elects to override the 100%
limitation, the Advisory Committee will need to determine whether a deemed top
heavy Plan's top heavy ratio for a Plan Year exceeds 90%.
(B) DEFINITIONS. For purposes of applying the provisions of this Section
1.33:
(1) "Key Employee" means, as of any Determination Date, any Employee
or former Employee (or Beneficiary of such Employee) who, for any Plan
Year in the Determination Period: (i) has Compensation in excess of 50%
of the dollar amount prescribed in Code Section 415(b)(1)(A) (relating to
defined benefit plans) and is an officer of the Employer; (ii) has
Compensation in excess of the dollar amount prescribed in Code Section
415(c)(1)(A) (relating to defined contribution plans) and is one of the
Employees owning the ten largest interests in the Employer; (iii) is a
more than 5% owner of the Employer; or (iv) is a more than 1% owner of
the Employer and has Compensation of more than $150,000. The constructive
ownership rules of Code Section 318 (or the principles of that section,
in the case of an unincorporated Employer,) will apply to determine
1.09
<PAGE>
ownership in the Employer. The number of officers taken into account
under clause (i) will not exceed the greater of 3 or 10% of the total
number (after application of the Code Section 414(q) exclusions) of
Employees, but no more than 50 officers. The Advisory Committee will make
the determination of who is a Key Employee in accordance with Code
Section 416(i)(1) and the regulations under that Code section.
(2) "Non-Key Employee" is an employee who does not meet the definition
of Key Employee.
(3) "Compensation" means Compensation as determined under Section 1.09
for purposes of identifying Highly Compensated Employees.
(4) "Required Aggregation Group" means: (i) each qualified plan of the
Employer in which at least one Key Employee participates at any time
during the Determination Period; and (ii) any other qualified plan of the
Employer which enables a plan described in clause (i) to meet the
requirements of Code Section 401(a)(4) or of Code Section 410.
(5) "Permissive Aggregation Group" is the Required Aggregation Group
plus any other qualified plans maintained by the Employer, but only if
such group would satisfy in the aggregate the requirements of Code
Section 401(a)(4) and of Code Section 410. The Advisory Committee will
determine the Permissive Aggregation Group.
(6) "Employer" means the Employer that adopts this Plan and any
related employers described in Section 1.30.
(7) "Determination Date" for any Plan Year is the Accounting Date of
the preceding Plan Year or, in the case of the first Plan Year of the
Plan, the Accounting Date of that Plan Year. The "Determination Period"
is the 5 year period ending on the Determination Date.
1.34 "Paired Plans" means the Employer has adopted two Standardized
Plan Adoption Agreements offered with this Prototype Plan, one Adoption
Agreement being a Paired Profit Sharing Plan and one Adoption Agreement being a
Paired Pension Plan. A Paired Profit Sharing Plan may include a Code Section
401(k) arrangement. A Paired Pension Plan must be a money purchase pension plan
or a target benefit pension plan. Paired Plans must be the subject of a
favorable opinion letter issued by the National Office of the Internal Revenue
Service. This Prototype Plan does not pair any of its Standardized Plan Adoption
Agreements with Standardized Plan Adoption Agreements under a defined benefit
prototype plan.
* * * * * * * * * * * * * * *
1.11
<PAGE>
ARTICLE II
EMPLOYEE PARTICIPANTS
2.01 ELIGIBILITY. Each Employee becomes a Participant in the Plan in
accordance with the participation option selected by the Employer in its
Adoption Agreement. If this Plan is a restated Plan, each Employee who was a
Participant in the Plan on the day before the Effective Date continues as a
Participant in the Plan, irrespective of whether he satisfies the participation
conditions in the restated Plan, unless otherwise provided in the Employer's
Adoption Agreement.
2.02 YEAR OF SERVICE - PARTICIPATION. For purposes of an Employee's
participation in the Plan under Adoption Agreement Section 2.01, the Plan takes
into account all of his Years of Service with the Employer, except as provided
in Section 2.03. "Year of Service" means an eligibility computation period
during which the Employee completes not less than the number of Hours of Service
specified in the Employer's Adoption Agreement. The initial eligibility
computation period is the first 12 consecutive month period measured from the
Employment Commencement Date. The Plan measures succeeding eligibility
computation periods in accordance with the option selected by the Employer in
its Adoption Agreement. If the Employer elects to measure subsequent periods on
a Plan Year basis, an Employee who receives credit for the required number of
Hours of Service during the initial eligibility computation period and during
the first applicable Plan Year will receive credit for two Years of Service
under Article II. "Employment Commencement Date" means the date on which the
Employee first performs an Hour of Service for the Employer. If the Employer
elects a service condition under Adoption Agreement Section 2.01 based on
months, the Plan does not apply any Hour of Service requirement after the
completion of the first Hour of Service.
2.03 BREAK IN SERVICE - PARTICIPATION. An Employee incurs a "Break in
Service" if during any 12 consecutive month period he does not complete more
than 500 Hours of Service with the Employer. The "12 consecutive month period"
under this Section 2.03 is the same 12 consecutive month period for which the
Plan measures "Years of Service" under Section 2.02.
(A) 2-YEAR ELIGIBILITY. If the Employer elects a 2 years of service condition
for eligibility purposes under Adoption Agreement Section 2.01, the Plan treats
an Employee who incurs a one year Break in Service and who has never become a
Participant as a new Employee on the date he first performs an Hour of Service
for the Employer after the Break in Service.
(B) SUSPENSION OF YEARS OF SERVICE. The Employer must elect in its Adoption
Agreement whether a Participant will incur a suspension of Years of Service
after incurring a one year Break in Service. If this rule applies under the
Employer's Plan, the Plan disregards a Participant's Years of Service (as
defined in Section 2.02) earned prior to a Break in Service until the
Participant completes another Year of Service and the Plan suspends the
Participant's participation in the Plan. If the Participant completes a Year of
Service following his Break in Service, the Plan restores that Participant's
pre-Break Years of Service (and the Participant resumes active participation in
the Plan) retroactively to the first day of the computation period in which the
Participant earns the first post-Break Year of Service. The initial computation
period under this Section 2.03(B) is the 12 consecutive month period measured
from the date the Participant first receives credit for an Hour of Service
following the one year Break in Service period. The Plan measures any subsequent
periods, if necessary, in a manner consistent with the computation period
selection in Adoption Agreement Section 2.02. This Section 2.03(B) does not
affect a Participant's vesting credit under Article V and, during a suspension
period, the Participant's Account continues to share fully in Trust Fund
allocations under Section 9.11. Furthermore, this Section 2.03(B) will not
result in the restoration of any Year of Service disregarded under the Break in
Service rule of Section 2.03(A).
2.04 PARTICIPATION UPON RE-EMPLOYMENT. A Participant whose employment
with the Employer terminates will re-enter the Plan as a Participant on the date
of his re-employment, subject to the
2.01
<PAGE>
Break in Service rule, if applicable, under Section 2.03(B). An Employee who
satisfies the Plan's eligibility conditions but who terminates employment
with the Employer prior to becoming a Participant will become a Participant
on the later of the Plan Entry Date on which he would have entered the Plan
had he not terminated employment or the date of his re-employment, subject to
the Break in Service rule, if applicable, under Section 2.03(B). Any Employee
who terminates employment prior to satisfying the Plan's eligibility
conditions becomes a Participant in accordance with Adoption Agreement
Section 2.01.
2.05 CHANGE IN EMPLOYEE STATUS. If a Participant has not incurred a
Separation from Service but ceases to be eligible to participate in the Plan, by
reason of employment within an employment classification excluded by the
Employer under Adoption Agreement Section 1.07, the Advisory Committee must
treat the Participant as an Excluded Employee during the period such a
Participant is subject to the Adoption Agreement exclusion. The Advisory
Committee determines a Participant's sharing in the allocation of Employer
contributions and Participant forfeitures, if applicable, by disregarding his
Compensation paid by the Employer for services rendered in his capacity as an
Excluded Employee. However, during such period of exclusion, the Participant,
without regard to employment classification, continues to receive credit for
vesting under Article V for each included Year of Service and the Participant's
Account continues to share fully in Trust Fund allocations under Section 9.11.
If an Excluded Employee who is not a Participant becomes eligible to
participate in the Plan by reason of a change in employment classification, he
will participate in the Plan immediately if he has satisfied the eligibility
conditions of Section 2.01 and would have been a Participant had he not been an
Excluded Employee during his period of Service. Furthermore, the Plan takes into
account all of the Participant's included Years of Service with the Employer as
an Excluded Employee for purposes of vesting credit under Article V.
2.06 ELECTION NOT TO PARTICIPATE. If the Employer's Plan is a
Standardized Plan, the Plan does not permit an otherwise eligible Employee
nor any Participant to elect not to participate in the Plan. If the
Employer's Plan is a Nonstandardized Plan, the Employer must specify in its
Adoption Agreement whether an Employee eligible to participate, or any
present Participant, may elect not to participate in the Plan. For an
election to be effective for a particular Plan Year, the Employee or
Participant must file the election in writing with the Plan Administrator not
later than the time specified in the Employer's Adoption Agreement. The
Employer may not make a contribution under the Plan for the Employee or for
the Participant for the Plan Year for which the election is effective, nor
for any succeeding Plan Year, unless the Employee or Participant re-elects to
participate in the Plan. After an Employee's or Participant's election not to
participate has been effective for at least the minimum period prescribed by
the Employer's Adoption Agreement, the Employee or Participant may re-elect
to participate in the Plan for any Plan Year and subsequent Plan Years. An
Employee or Participant may re-elect to participate in the Plan by filing his
election in writing with the Plan Administrator not later than the time
specified in the Employer's Adoption Agreement. An Employee or Participant
who re-elects to participate may again elect not to participate only as
permitted in the Employer's Adoption Agreement. If an Employee is a
Self-Employed Individual, the Employee's election (except as permitted by
Treasury regulations without creating a Code Section 401(k) arrangement with
respect to that Self-Employed Individual) must be effective no later than the
date the Employee first would become a Participant in the Plan and the
election is irrevocable. The Plan Administrator must furnish an Employee or a
Participant any form required for purposes of an election under this Section
2.06. An election timely filed is effective for the entire Plan Year.
A Participant who elects not to participate may not receive a
distribution of his Accrued Benefit attributable either to Employer or to
Participant contributions except as provided under Article IV or under Article
VI. However, for each Plan Year for which a Participant's election not to
participate is effective, the Participant's Account, if any, continues to share
in Trust Fund allocations under Article IX. Furthermore, the Employee or the
Participant receives vesting credit under Article V for each included Year of
Service during the period the election not to participate is effective.
* * * * * * * * * * * * * * *
2.02
<PAGE>
ARTICLE III
EMPLOYER CONTRIBUTIONS AND FORFEITURES
PART 1. AMOUNT OF EMPLOYER CONTRIBUTIONS AND PLAN ALLOCATIONS: SECTIONS
3.01 THROUGH 3.06
3.01 AMOUNT. For each Plan Year, the Employer contributes to the Trust
the amount determined by application of the contribution option selected by the
Employer in its Adoption Agreement. The Employer may not make a contribution to
the Trust for any Plan Year to the extent the contribution would exceed the
Participants' Maximum Permissible Amounts.
The Employer contributes to this Plan on the condition its contribution
is not due to a mistake of fact and the Revenue Service will not disallow the
deduction for its contribution. The Trustee, upon written request from the
Employer, must return to the Employer the amount of the Employer's contribution
made by the Employer by mistake of fact or the amount of the Employer's
contribution disallowed as a deduction under Code Section 404. The Trustee will
not return any portion of the Employer's contribution under the provisions of
this paragraph more than one year after:
(a) The Employer made the contribution by mistake of fact; or
(b) The disallowance of the contribution as a deduction, and then,
only to the extent of the disallowance.
The Trustee will not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee will decrease the Employer contribution returnable
for any losses attributable to it. The Trustee may require the Employer to
furnish it whatever evidence the Trustee deems necessary to enable the Trustee
to confirm the amount the Employer has requested be returned is properly
returnable under ERISA.
3.02 DETERMINATION OF CONTRIBUTION. The Employer, from its records,
determines the amount of any contributions to be made by it to the Trust under
the terms of the Plan.
3.03 TIME OF PAYMENT OF CONTRIBUTION. The Employer may pay its
contribution for each Plan Year in one or more installments without interest.
The Employer must make its contribution to the Plan within the time prescribed
by the Code or applicable Treasury regulations. Subject to the consent of the
Trustee, the Employer may make its contribution in property rather than in cash,
provided the contribution of property is not a prohibited transaction under the
Code or under ERISA.
3.04 CONTRIBUTION ALLOCATION.
(A) METHOD OF ALLOCATION. The Employer must specify in its Adoption Agreement
the manner of allocating each annual Employer contribution to this Trust.
(B) TOP HEAVY MINIMUM ALLOCATION. The Plan must comply with the provisions of
this Section 3.04(B), subject to the elections in the Employer's Adoption
Agreement.
(1) TOP HEAVY MINIMUM ALLOCATION UNDER STANDARDIZED PLAN. Subject to the
Employer's election under Section 3.04(B)(3), the top heavy minimum
allocation requirement applies to a Standardized Plan for each Plan Year,
irrespective of whether the Plan is top heavy.
3.01
<PAGE>
(a) Each Participant employed by the Employer on the last day of
the Plan Year will receive a top heavy minimum allocation for that
Plan Year. The Employer may elect in Section 3.04 of its Adoption
Agreement to apply this paragraph (a) only to a Participant who is
a Non-Key Employee.
(b) Subject to any overriding elections in Section 3.18 of the
Employer's Adoption Agreement, the top heavy minimum allocation is
the lesser of 3% of the Participant's Compensation for the Plan
Year or the highest contribution rate for the Plan Year made on
behalf of any Participant for the Plan Year. However, if the
Employee participates in Paired Plans, the top heavy minimum
allocation is 3% of his Compensation. If, under Adoption Agreement
Section 3.04, the Employer elects to apply paragraph (a) only to a
Participant who is a Non-Key Employee, the Advisory Committee will
determine the "highest contribution rate" described in the first
sentence of this paragraph (b) by reference only to the
contribution rates of Participants who are Key Employees for the
Plan Year.
(2) TOP HEAVY MINIMUM ALLOCATION UNDER NONSTANDARDIZED PLAN. The top
heavy minimum allocation requirement applies to a Nonstandardized Plan only in
Plan Years for which the Plan is top heavy. Except as provided in the Employer's
Adoption Agreement, if the Plan is top heavy in any Plan Year:
(a) Each Non-Key Employee who is a Participant and is employed by
the Employer on the last day of the Plan Year will receive a top
heavy minimum allocation for that Plan Year, irrespective of
whether he satisfies the Hours of Service condition under Section
3.06 of the Employer's Adoption Agreement; and
(b) The top heavy minimum allocation is the lesser of 3% of the
Non-Key Employee's Compensation for the Plan Year or the highest
contribution rate for the Plan Year made on behalf of any Key
Employee. However, if a defined benefit plan maintained by the
Employer which benefits a Key Employee depends on this Plan to
satisfy the antidiscrimination rules of Code Section 401(a)(4) or
the coverage rules of Code Section 410 (or another plan benefiting
the Key Employee so depends on such defined benefit plan), the top
heavy minimum allocation is 3% of the Non-Key Employee's
Compensation regardless of the contribution rate for the Key
Employees.
(3) SPECIAL ELECTION FOR STANDARDIZED CODE Section 401(k) PLAN. If the
Employer's Plan is a Standardized Code Section 401(k) Plan, the Employer may
elect in Adoption Agreement Section 3.04 to apply the top heavy minimum
allocation requirements of Section 3.04(B)(1) only for Plan Years in which the
Plan actually is a top heavy plan.
(4) SPECIAL DEFINITIONS. For purposes of this Section 3.04(B), the
term "Participant" includes any Employee otherwise eligible to participate in
the Plan but who is not a Participant because of his Compensation level or
because of his failure to make elective deferrals under a Code Section 401(k)
arrangement or because of his failure to make mandatory contributions. For
purposes of subparagraph (1)(b) or (2)(b), "Compensation" means Compensation as
defined in Section 1.12, except Compensation does not include elective
contributions, irrespective of whether the Employer has elected to include these
amounts in Section 1.12 of its Adoption Agreement, any exclusion selected in
Section 1.12 of the Adoption Agreement (other than the exclusion of elective
contributions) does not apply, and any modification to the definition of
Compensation in Section 3.06 does not apply.
(5) DETERMINING CONTRIBUTION RATES. For purposes of this Section
3.04(B), a Participant's
3.02
<PAGE>
contribution rate is the sum of all Employer contributions (not including
Employer contributions to Social Security) and forfeitures allocated to the
Participant's Account for the Plan Year divided by his Compensation for the
entire Plan Year. However, for purposes of satisfying a Participant's top
heavy minimum allocation in Plan Years beginning after December 31, 1988, the
Participant's contribution rate does not include any elective contributions
under a Code Section 401(k) arrangement nor any Employer matching
contributions allocated on the basis of those elective contributions or on
the basis of employee contributions, except a Nonstandardized Plan may
include in the contribution rate any matching contributions not necessary to
satisfy the nondiscrimination requirements of Code Section 401(k) or of Code
Section 401(m).
If the Employee is a Participant in Paired Plans, the Advisory Committee
will consider the Paired Plans as a single Plan to determine a Participant's
contribution rate and to determine whether the Plans satisfy this top heavy
minimum allocation requirement. To determine a Participant's contribution rate
under a Nonstandardized Plan, the Advisory Committee must treat all qualified
top heavy defined contribution plans maintained by the Employer (or by any
related Employers described in Section 1.30) as a single plan.
(6) NO ALLOCATIONS. If, for a Plan Year, there are no allocations of
Employer contributions or forfeitures for any Participant (for purposes of
Section 3.04 (B)(1)(b)) or for any Key Employee (for purposes of Section
3.04(B)(2)(b)), the Plan does not require any top heavy minimum allocation for
the Plan Year, unless a top heavy minimum allocation applies because of the
maintenance by the Employer of more than one plan.
(7) ELECTION OF METHOD. The Employer must specify in its Adoption
Agreement the manner in which the Plan will satisfy the top heavy minimum
allocation requirement.
(a) If the Employer elects to make any necessary additional
contribution to this Plan, the Advisory Committee first will allocate
the Employer contributions (and Participant forfeitures, if any) for
the Plan Year in accordance with the provisions of Adoption Agreement
Section 3.04. The Employer then will contribute an additional amount
for the Account of any Participant entitled under this Section 3.04(B)
to a top heavy minimum allocation and whose contribution rate for the
Plan Year, under this Plan and any other plan aggregated under paragraph
(5), is less than the top heavy minimum allocation. The additional
amount is the amount necessary to increase the Participant's contribution
rate to the top heavy minimum allocation. The Advisory Committee will
allocate the additional contribution to the Account of the Participant
on whose behalf the Employer makes the contribution.
(b) If the Employer elects to guarantee the top heavy minimum
allocation under another plan, this Plan does not provide the top heavy
minimum allocation and the Advisory Committee will allocate the annual
Employer contributions (and Participant forfeitures) under the Plan
solely in accordance with the allocation method selected under Adoption
Agreement Section 3.04.
3.05 FORFEITURE ALLOCATION. The amount of a Participant's Accrued
Benefit forfeited under the Plan is a Participant forfeiture. The Advisory
Committee will allocate Participant forfeitures in the manner specified by the
Employer in its Adoption Agreement. The Advisory Committee will continue to hold
the undistributed, non-vested portion of a terminated Participant's Accrued
Benefit in his Account solely for his benefit until a forfeiture occurs at the
time specified in Section 5.09 or if applicable, until the time specified in
Section 9.14. Except as provided under Section 5.04, a Participant will not
share in the allocation of a forfeiture of any portion of his Accrued Benefit.
3.06 ACCRUAL OF BENEFIT. The Advisory Committee will determine the
accrual of benefit (Employer contributions and Participant forfeitures) on the
basis of the Plan Year in accordance with the
3.03
<PAGE>
Employer's elections in its Adoption Agreement.
(A) COMPENSATION TAKEN INTO ACCOUNT. The Employer must specify in its
Adoption Agreement the Compensation the Advisory Committee is to take into
account in allocating an Employer contribution to a Participant's Account for
the Plan Year in which the Employee first becomes a Participant. For all other
Plan Years, the Advisory Committee will take into account only the Compensation
determined for the portion of the Plan Year in which the Employee actually is a
Participant. The Advisory Committee must take into account the Employee's entire
Compensation for the Plan Year to determine whether the Plan satisfies the top
heavy minimum allocation requirement of Section 3.04(B). The Employer, in an
addendum to its Adoption Agreement numbered 3.06(A), may elect to measure
Compensation for the Plan Year for allocation purposes on the basis of a
specified period other than the Plan Year.
(B) HOURS OF SERVICE REQUIREMENT. Subject to the applicable minimum
allocation requirement of Section 3.04, the Advisory Committee will not allocate
any portion of an Employer contribution for a Plan Year to any Participant's
Account if the Participant does not complete the applicable minimum Hours of
Service requirement specified in the Employer's Adoption Agreement.
(C) EMPLOYMENT REQUIREMENT. If the Employer's Plan is a Standardized Plan, a
Participant who, during a particular Plan Year, completes the accrual
requirements of Adoption Agreement Section 3.06 will share in the allocation of
Employer contributions for that Plan Year without regard to whether he is
employed by the Employer on the Accounting Date of that Plan Year. If the
Employer's Plan is a Nonstandardized Plan, the Employer must specify in its
Adoption Agreement whether the Participant will accrue a benefit if he is not
employed by the Employer on the Accounting Date of the Plan Year. If the
Employer's Plan is a money purchase plan or a target benefit plan, whether
Nonstandardized or Standardized, the Plan conditions benefit accrual on
employment with the Employer on the last day of the Plan Year for the Plan Year
in which the Employer terminates the Plan.
(D) OTHER REQUIREMENTS. If the Employer's Adoption Agreement includes options
for other requirements affecting the Participant's accrual of benefits under the
Plan, the Advisory Committee will apply this Section 3.06 in accordance with the
Employer's Adoption Agreement selections.
(E) SUSPENSION OF ACCRUAL REQUIREMENTS UNDER NONSTANDARDIZED PLAN. If the
Employer's Plan is a Nonstandardized Plan, the Employer may elect in its
Adoption Agreement to suspend the accrual requirements elected under Adoption
Agreement Section 3.06 if, for any Plan Year beginning after December 31, 1989,
the Plan fails to satisfy the Participation Test or the Coverage Test. A Plan
satisfies the Participation Test if, on each day of the Plan Year, the number of
Employees who benefit under the Plan is at least equal to the lesser of 50 or
40% of the total number of Includible Employees as of such day. A Plan satisfies
the Coverage Test if, on the last day of each quarter of the Plan Year, the
number of Nonhighly Compensated Employees who benefit under the Plan is at least
equal to 70% of the total number of Includible Nonhighly Compensated Employees
as of such day. "Includible" Employees are all Employees other than: (1) those
Employees excluded from participating in the Plan for the entire Plan Year by
reason of the collective bargaining unit exclusion or the nonresident alien
exclusion under Adoption Agreement Section 1.07 or by reason of the
participation requirements of Sections 2.01 and 2.03; and (2) any Employee who
incurs a Separation from Service during the Plan Year and fails to complete at
least 501 Hours of Service for the Plan Year. A "Nonhighly Compensated Employee"
is an Employee who is not a Highly Compensated Employee and who is not a family
member aggregated with a Highly Compensated Employee pursuant to Section 1.09 of
the Plan.
For purposes of the Participation Test and the Coverage Test, an Employee
is benefiting under the Plan on a particular date if, under Adoption Agreement
Section 3.04, he is entitled to an allocation for the Plan Year. Under
3.04
<PAGE>
the Participation Test, when determining whether an Employee is entitled to
an allocation under Adoption Agreement Section 3.04, the Advisory Committee
will disregard any allocation required solely by reason of the top heavy
minimum allocation, unless the top heavy minimum allocation is the only
allocation made under the Plan for the Plan Year.
If this Section 3.06(E) applies for a Plan Year, the Advisory Committee
will suspend the accrual requirements for the Includible Employees who are
Participants, beginning first with the Includible Employee(s) employed with the
Employer on the last day of the Plan Year, then the Includible Employee(s) who
have the latest Separation from Service during the Plan Year, and continuing to
suspend in descending order the accrual requirements for each Includible
Employee who incurred an earlier Separation from Service, from the latest to the
earliest Separation from Service date, until the Plan satisfies both the
Participation Test and the Coverage Test for the Plan Year. If two or more
Includible Employees have a Separation from Service on the same day, the
Advisory Committee will suspend the accrual requirements for all such Includible
Employees, irrespective of whether the Plan can satisfy the Participation Test
and the Coverage Test by accruing benefits for fewer than all such Includible
Employees. If the Plan suspends the accrual requirements for an Includible
Employee, that Employee will share in the allocation of Employer contributions
and Participant forfeitures, if any, without regard to the number of Hours of
Service he has earned for the Plan Year and without regard to whether he is
employed by the Employer on the last day of the Plan Year. If the Employer's
Plan includes Employer matching contributions subject to Code Section 401(m),
this suspension of accrual requirements applies separately to the Code Section
401(m) portion of the Plan, and the Advisory Committee will treat an Employee as
benefiting under that portion of the Plan if he is an Eligible Employee for
purposes of the Code Section 401(m) nondiscrimination test. The Employer may
modify the operation of this Section 3.06(E) by electing appropriate
modifications in Section 3.06 of its Adoption Agreement.
PART 2. LIMITATIONS ON ALLOCATIONS: SECTIONS 3.07 THROUGH 3.19
[NOTE: Sections 3.07 through 3.10 apply only to Participants in this Plan
who do not participate, and who have never participated, in another qualified
plan or in a welfare benefit fund (as defined in Code Section 419(e)) maintained
by the Employer.]
3.07 The amount of Annual Additions which the Advisory Committee may
allocate under this Plan on a Participant's behalf for a Limitation Year may not
exceed the Maximum Permissible Amount. If the amount the Employer otherwise
would contribute to the Participant's Account would cause the Annual Additions
for the Limitation Year to exceed the Maximum Permissible Amount, the Employer
will reduce the amount of its contribution so the Annual Additions for the
Limitation Year will equal the Maximum Permissible Amount. If an allocation of
Employer contributions, pursuant to Section 3.04, would result in an Excess
Amount (other than an Excess Amount resulting from the circumstances described
in Section 3.10) to the Participant's Account, the Advisory Committee will
reallocate the Excess Amount to the remaining Participants who are eligible for
an allocation of Employer contributions for the Plan Year in which the
Limitation Year ends. The Advisory Committee will make this reallocation on the
basis of the allocation method under the Plan as if the Participant whose
Account otherwise would receive the Excess Amount is not eligible for an
allocation of Employer contributions.
3.08 Prior to the determination of the Participant's actual
Compensation for a Limitation Year, the Advisory Committee may determine the
Maximum Permissible Amount on the basis of the Participant's estimated annual
Compensation for such Limitation Year. The Advisory Committee must make this
determination on a reasonable and uniform basis for all Participants similarly
situated. The Advisory Committee must reduce any Employer contributions
(including any allocation of forfeitures) based on estimated annual Compensation
by any Excess Amounts carried over from prior years.
3.05
<PAGE>
3.09 As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the Maximum Permissible
Amount for such Limitation Year on the basis of the Participant's actual
Compensation for such Limitation Year.
3.10 If, pursuant to Section 3.09, or because of the allocation of
forfeitures, there is an Excess Amount with respect to a Participant for a
Limitation Year, the Advisory Committee will dispose of such Excess Amount as
follows:
(a) The Advisory Committee will return any nondeductible voluntary
Employee contributions to the Participant to the extent the return would
reduce the Excess Amount.
(b) If, after the application of paragraph (a), an Excess Amount still
exists, and the Plan covers the Participant at the end of the Limitation
Year, then the Advisory Committee will use the Excess Amount(s) to reduce
future Employer contributions (including any allocation of forfeitures)
under the Plan for the next Limitation Year and for each succeeding
Limitation Year, as is necessary, for the Participant. If the Employer's
Plan is a profit sharing plan, the Participant may elect to limit his
Compensation for allocation purposes to the extent necessary to reduce
his allocation for the Limitation Year to the Maximum Permissible Amount
and eliminate the Excess Amount.
(c) If, after the application of paragraph (a), an Excess Amount still
exists, and the Plan does not cover the Participant at the end of the
Limitation Year, then the Advisory Committee will hold the Excess Amount
unallocated in a suspense account. The Advisory Committee will apply the
suspense account to reduce Employer Contributions (including allocation
of forfeitures) for all remaining Participants in the next Limitation
Year, and in each succeeding Limitation Year if necessary. Neither the
Employer nor any Employee may contribute to the Plan for any Limitation
Year in which the Plan is unable to allocate fully a suspense account
maintained pursuant to this paragraph (c).
(d) The Advisory Committee will not distribute any Excess Amount(s) to
Participants or to former Participants.
[NOTE: Sections 3.11 through 3.16 apply only to Participants who, in
addition to this Plan, participate in one or more plans (including Paired
Plans), all of which are qualified Master or Prototype defined contribution
plans or welfare benefit funds (as defined in Code Section 419(e)) maintained by
the Employer during the Limitation Year.]
3.11 The amount of Annual Additions which the Advisory Committee may
allocate under this Plan on a Participant's behalf for a Limitation Year may not
exceed the Maximum Permissible Amount, reduced by the sum of any Annual
Additions allocated to the Participant's Accounts for the same Limitation Year
under this Plan and such other defined contribution plan. If the amount the
Employer otherwise would contribute to the Participant's Account under this Plan
would cause the Annual Additions for the Limitation Year to exceed this
limitation, the Employer will reduce the amount of its contribution so the
Annual Additions under all such plans for the Limitation Year will equal the
Maximum Permissible Amount. If an allocation of Employer contributions, pursuant
to Section 3.04, would result in an Excess Amount (other than an Excess Amount
resulting from the circumstances described in Section 3.10) to the Participant's
Account, the Advisory Committee will reallocate the Excess Amount to the
remaining Participants who are eligible for an allocation of Employer
contributions for the Plan Year in which the Limitation Year ends. The Advisory
Committee will make this reallocation on the basis of the allocation method
under the Plan as if the Participant whose Account otherwise would receive the
Excess Amount is not eligible for
3.06
<PAGE>
an allocation of Employer contributions.
3.12 Prior to the determination of the Participant's actual
Compensation for the Limitation Year, the Advisory Committee may determine the
amounts referred to in 3.11 above on the basis of the Participant's estimated
annual Compensation for such Limitation Year. The Advisory Committee will make
this determination on a reasonable and uniform basis for all Participants
similarly situated. The Advisory Committee must reduce any Employer contribution
(including allocation of forfeitures) based on estimated annual Compensation by
any Excess Amounts carried over from prior years.
3.13 As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the amounts referred to
in 3.11 on the basis of the Participant's actual Compensation for such
Limitation Year.
3.14 If pursuant to Section 3.13, or because of the allocation of
forfeitures, a Participant's Annual Additions under this Plan and all such other
plans result in an Excess Amount, such Excess Amount will consist of the Amounts
last allocated. The Advisory Committee will determine the Amounts last allocated
by treating the Annual Additions attributable to a welfare benefit fund as
allocated first, irrespective of the actual allocation date under the welfare
benefit fund.
3.15 The Employer must specify in its Adoption Agreement the Excess
Amount attributed to this Plan, if the Advisory Committee allocates an Excess
Amount to a Participant on an allocation date of this Plan which coincides with
an allocation date of another plan.
3.16 The Advisory Committee will dispose of any Excess Amounts
attributed to this Plan as provided in Section 3.10.
[NOTE: Section 3.17 applies only to Participants who, in addition to this
Plan, participate in one or more qualified plans which are qualified defined
contribution plans other than a Master or Prototype plan maintained by the
Employer during the Limitation Year.]
3.17 SPECIAL ALLOCATION LIMITATION. The amount of Annual Additions
which the Advisory Committee may allocate under this Plan on behalf of any
Participant are limited in accordance with the provisions of Section 3.11
through 3.16, as though the other plan were a Master or Prototype plan, unless
the Employer provides other limitations in an addendum to the Adoption
Agreement, numbered Section 3.17.
3.18 DEFINED BENEFIT PLAN LIMITATION. If the Employer maintains a
defined benefit plan, or has ever maintained a defined benefit plan which the
Employer has terminated, then the sum of the defined benefit plan fraction and
the defined contribution plan fraction for any Participant for any Limitation
Year must not exceed 1.0. The Employer must provide in Adoption Agreement
Section 3.18 the manner in which the Plan will satisfy this limitation. The
Employer also must provide in its Adoption Agreement Section 3.18 the manner in
which the Plan will satisfy the top heavy requirements of Code Section 416 after
taking into account the existence (or prior maintenance) of the defined benefit
plan.
3.19 DEFINITIONS - ARTICLE III. For purposes of Article III, the
following terms mean:
(a) "Annual Addition" - The sum of the following amounts allocated on
behalf of a Participant for a Limitation Year, of (i) all Employer
contributions; (ii) all forfeitures; and (iii) all Employee
contributions. Except to the extent provided in Treasury regulations,
Annual Additions include excess contributions
3.07
<PAGE>
described in Code Section 401(k), excess aggregate contributions
described in Code Section 401(m) and excess deferrals described in
Code Section 402(g), irrespective of whether the plan distributes or
forfeits such excess amounts. Annual Additions also include Excess
Amounts reapplied to reduce Employer contributions under Section 3.10.
Amounts allocated after March 31, 1984, to an individual medical
account (as defined in Code Section 415(l)(2)) included as part of a
defined benefit plan maintained by the Employer are Annual Additions.
Furthermore, Annual Additions include contributions paid or accrued
after December 31, 1985, for taxable years ending after
December 31, 1985, 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 Employer.
(b) "Compensation" - For purposes of applying the limitations of Part
2 of this Article III, "Compensation" means Compensation as defined in
Section 1.12, except Compensation does not include elective
contributions, irrespective of whether the Employer has elected to
include these amounts as Compensation under Section 1.12 of its Adoption
Agreement, and any exclusion selected in Section 1.12 of the Adoption
Agreement (other than the exclusion of elective contributions) does not
apply.
(c) "Employer" - The Employer that adopts this Plan and any related
employers described in Section 1.30. Solely for purposes of applying the
limitations of Part 2 of this Article III, the Advisory Committee will
determine related employers described in Section 1.30 by modifying Code
Sections 414(b) and (c) in accordance with Code Section 415(h).
(d) "Excess Amount" - The excess of the Participant's Annual Additions
for the Limitation Year over the Maximum Permissible Amount.
(e) "Limitation Year" - The period selected by the Employer under
Adoption Agreement Section 1.17. All qualified plans of the Employer must
use the same Limitation Year. If the Employer amends the Limitation Year
to a different 12 consecutive month period, the new Limitation Year must
begin on a date within the Limitation Year for which the Employer makes
the amendment, creating a short Limitation Year.
(f) "Master or Prototype Plan" - A plan the form of which is the
subject of a favorable notification letter or a favorable opinion letter
from the Internal Revenue Service.
(g) "Maximum Permissible Amount" - The lesser of (i) $30,000 (or, if
greater, one-fourth of the defined benefit dollar limitation under Code
Section 415(b)(1)(A)), or (ii) 25% of the Participant's Compensation for
the Limitation Year. If there is a short Limitation Year because of a
change in Limitation Year, the Advisory Committee will multiply the
$30,000 (or adjusted) limitation by the following fraction:
Number of Months in the Short Limitation Year
---------------------------------------------
12
(h) "Defined contribution plan" - A retirement plan which provides for
an individual account for each participant and for benefits based solely
on the amount contributed to the participant's account, and any income,
expenses, gains and losses, and any forfeitures of accounts of other
participants which the plan may allocate to such participant's account.
The Advisory Committee must treat all defined contribution plans (whether
or not terminated) maintained by the Employer as a single plan. Solely
for purposes of the limitations of Part 2 of this Article III, the
Advisory Committee will treat employee contributions made to a defined
benefit plan maintained by the Employer as a separate defined
contribution plan. The Advisory
3.08
<PAGE>
Committee also will treat as a defined contribution plan an individual
medical account (as defined in Code Section 415(l)(2)) included as part
of a defined benefit plan maintained by the Employer and, for taxable
years ending after December 31, 1985, a welfare benefit fund under Code
Section 419(e) maintained by the Employer to the extent there are
post-retirement medical benefits allocated to the separate account of a
key employee (as defined in Code Section 419A(d)(3)).
(i) "Defined benefit plan" - A retirement plan which does not provide
for individual accounts for Employer contributions. The Advisory
Committee must treat all defined benefit plans (whether or not
terminated) maintained by the Employer as a single plan.
[NOTE: The definitions in paragraphs (j), (k) and (l) apply only if the
limitation described in Section 3.18 applies to the Employer's Plan.]
(j) "Defined benefit plan fraction" -
Projected Annual Benefit of the Participant Under
the Defined Benefit Plan(s)
-----------------------------------------------------
The lesser of (i) 125% (subject to the "100% limitation"
in paragraph (l)) of the dollar limitation in effect under
Code Section 415(b)(1)(A) for the Limitation Year, or
(ii) 140% of the Participant's average Compensation for his
high three (3) consecutive Years of Service
To determine the denominator of this fraction, the Advisory
Committee will make any adjustment required under Code Section 415(b) and
will determine a Year of Service, unless otherwise provided in an
addendum to Adoption Agreement Section 3.18, as a Plan Year in which the
Employee completed at least 1,000 Hours of Service. The "projected annual
benefit" is the annual retirement benefit (adjusted to an actuarially
equivalent straight life annuity if the plan expresses such benefit in a
form other than a straight life annuity or qualified joint and survivor
annuity) of the Participant under the terms of the defined benefit plan
on the assumptions he continues employment until his normal retirement
age (or current age, if later) as stated in the defined benefit plan, his
compensation continues at the same rate as in effect in the Limitation
Year under consideration until the date of his normal retirement age and
all other relevant factors used to determine benefits under the defined
benefit plan remain constant as of the current Limitation Year for all
future Limitation Years.
CURRENT ACCRUED BENEFIT. If the Participant accrued benefits in
one or more defined benefit plans maintained by the Employer which were
in existence on May 6, 1986, the dollar limitation used in the
denominator of this fraction will not be less than the Participant's
Current Accrued Benefit. A Participant's Current Accrued Benefit is the
sum of the annual benefits under such defined benefit plans which the
Participant had accrued as of the end of the 1986 Limitation Year (the
last Limitation Year beginning before January 1, 1987), determined
without regard to any change in the terms or conditions of the Plan made
after May 5, 1986, and without regard to any cost of living adjustment
occurring after May 5, 1986. This Current Accrued Benefit rule applies
only if the defined benefit plans individually and in the aggregate
satisfied the requirements of Code Section 415 as in effect at the end of
the 1986 Limitation Year.
(k) "Defined contribution plan fraction" -
The Sum, as of the Close of the Limitation Year, of the Annual Additions
to the Participant's Account Under the Defined Contribution Plan(s)
------------------------------------------------------------------------
The sum of the lesser of the following amounts determined
3.09
<PAGE>
for the Limitation Year and for each prior Year of Service with the
Employer:(i) 125%
(subject to the "100% limitation" in paragraph (l)) of the dollar limitation
in effect under Code Section 415(c)(1)(A) for the Limitation Year (determined
without regard to the special dollar limitations for employee stock
ownership plans), or (ii) 35% of the Participant's Compensation for the
Limitation Year
For purposes of determining the defined contribution plan
fraction, the Advisory Committee will not recompute Annual Additions in
Limitation Years beginning prior to January 1, 1987, to treat all
Employee contributions as Annual Additions. If the Plan satisfied Code
Section 415 for Limitation Years beginning prior to January 1, 1987, the
Advisory Committee will redetermine the defined contribution plan
fraction and the defined benefit plan fraction as of the end of the 1986
Limitation Year, in accordance with this Section 3.19. If the sum of the
redetermined fractions exceeds 1.0, the Advisory Committee will subtract
permanently from the numerator of the defined contribution plan fraction
an amount equal to the product of (1) the excess of the sum of the
fractions over 1.0, times (2) the denominator of the defined contribution
plan fraction. In making the adjustment, the Advisory Committee must
disregard any accrued benefit under the defined benefit plan which is in
excess of the Current Accrued Benefit. This Plan continues any
transitional rules applicable to the determination of the defined
contribution plan fraction under the Employer's Plan as of the end of the
1986 Limitation Year.
(l) "100% limitation." If the 100% limitation applies, the Advisory
Committee must determine the denominator of the defined benefit plan
fraction and the denominator of the defined contribution plan fraction by
substituting 100% for 125%. If the Employer's Plan is a Standardized
Plan, the 100% limitation applies in all Limitation Years, subject to any
override provisions under Section 3.18 of the Employer's Adoption
Agreement. If the Employer overrides the 100% limitation under a
Standardized Plan, the Employer must specify in its Adoption Agreement
the manner in which the Plan satisfies the extra minimum benefit
requirement of Code Section 416(h) and the 100% limitation must continue
to apply if the Plan's top heavy ratio exceeds 90%. If the Employer's
Plan is a Nonstandardized Plan, the 100% limitation applies only if: (i)
the Plan's top heavy ratio exceeds 90%; or (ii) the Plan's top heavy
ratio is greater than 60%, and the Employer does not elect in its
Adoption Agreement Section 3.18 to provide extra minimum benefits which
satisfy Code Section 416(h)(2).
* * * * * * * * * * * * * * *
3.10
<PAGE>
ARTICLE IV
PARTICIPANT CONTRIBUTIONS
4.01 PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. This Plan does not permit
Participant nondeductible contributions unless the Employer maintains its Plan
under a Code Section 401(k) Adoption Agreement. If the Employer does not
maintain its Plan under a Code Section 401(k) Adoption Agreement and, prior to
the adoption of this Prototype Plan, the Plan accepted Participant nondeductible
contributions for a Plan Year beginning after December 31, 1986, those
contributions must satisfy the requirements of Code Section 401(m). This Section
4.01 does not prohibit the Plan's acceptance of Participant nondeductible
contributions prior to the first Plan Year commencing after the Plan Year in
which the Employer adopts this Prototype Plan.
4.02 PARTICIPANT DEDUCTIBLE CONTRIBUTIONS. A qualified Plan may not
accept Participant deductible contributions after April 15, 1987. If the
Employer's Plan includes Participant deductible contributions ("DECs") made
prior to April 16, 1987, the Advisory Committee must maintain a separate
accounting for the Participant's Accrued Benefit attributable to DECs, including
DECs which are part of a rollover contribution described in Section 4.03. The
Advisory Committee will treat the accumulated DECs as part of the Participant's
Accrued Benefit for all purposes of the Plan, except for purposes of determining
the top heavy ratio under Section 1.33. The Advisory Committee may not use DECs
to purchase life insurance on the Participant's behalf.
4.03 PARTICIPANT ROLLOVER CONTRIBUTIONS. Any Participant, with the
Employer's written consent and after filing with the Trustee the form
prescribed by the Advisory Committee, may contribute cash or other property to
the Trust other than as a voluntary contribution if the contribution is a
"rollover contribution" which the Code permits an employee to transfer either
directly or indirectly from one qualified plan to another qualified plan. Before
accepting a rollover contribution, the Trustee may require an Employee to
furnish satisfactory evidence that the proposed transfer is in fact a "rollover
contribution" which the Code permits an employee to make to a qualified plan. A
rollover contribution is not an Annual Addition under Part 2 of Article III.
The Trustee will invest the rollover contribution in a segregated
investment Account for the Participant's sole benefit unless the Trustee (or the
Named Fiduciary, in the case of a nondiscretionary Trustee designation), in its
sole discretion, agrees to invest the rollover contribution as part of the Trust
Fund. The Trustee will not have any investment responsibility with respect to a
Participant's segregated rollover Account. The Participant, however, from time
to time, may direct the Trustee in writing as to the investment of his
segregated rollover Account in property, or property interests, of any kind,
real, personal or mixed; provided however, the Participant may not direct the
Trustee to make loans to his Employer. A Participant's segregated rollover
Account alone will bear any extraordinary expenses resulting from investments
made at the direction of the Participant. As of the Accounting Date (or other
valuation date) for each Plan Year, the Advisory Committee will allocate and
credit the net income (or net loss) from a Participant's segregated rollover
Account and the increase or decrease in the fair market value of the assets of a
segregated rollover Account solely to that Account. The Trustee is not liable
nor responsible for any loss resulting to any Beneficiary, nor to any
Participant, by reason of any sale or investment made or other action taken
pursuant to and in accordance with the direction of the Participant. In all
other respects, the Trustee will hold, administer and distribute a rollover
contribution in the same manner as any Employer contribution made to the Trust.
An eligible Employee, prior to satisfying the Plan's eligibility
conditions, may make a rollover contribution to the Trust to the same extent and
in the same manner as a Participant. If an Employee makes a rollover
contribution to the Trust prior to satisfying the Plan's eligibility conditions,
the Advisory Committee and Trustee must treat the Employee as a Participant for
all purposes of the Plan except the Employee is not a Participant for purposes
of sharing in Employer contributions or Participant forfeitures under the Plan
until he actually becomes a
4.01
<PAGE>
Participant in the Plan. If the Employee has a Separation from Service prior
to becoming a Participant, the Trustee will distribute his rollover
contribution Account to him as if it were an Employer contribution Account.
4.04 PARTICIPANT CONTRIBUTION - FORFEITABILITY. A Participant's Accrued
Benefit is, at all times, 100% Nonforfeitable to the extent the value of his
Accrued Benefit is derived from his Participant contributions described in this
Article IV.
4.05 PARTICIPANT CONTRIBUTION - WITHDRAWAL/DISTRIBUTION. A Participant,
by giving prior written notice to the Trustee, may withdraw all or any part of
the value of his Accrued Benefit derived from his Participant contributions
described in this Article IV. A distribution of Participant contributions must
comply with the joint and survivor requirements described in Article VI, if
those requirements apply to the Participant. A Participant may not exercise his
right to withdraw the value of his Accrued Benefit derived from his Participant
contributions more than once during any Plan Year. The Trustee, in accordance
with the direction of the Advisory Committee, will distribute a Participant's
unwithdrawn Accrued Benefit attributable to his Participant contributions in
accordance with the provisions of Article VI applicable to the distribution of
the Participant's Nonforfeitable Accrued Benefit.
4.06 PARTICIPANT CONTRIBUTION - ACCRUED BENEFIT. The Advisory Committee
must maintain a separate Account(s) in the name of each Participant to reflect
the Participant's Accrued Benefit under the Plan derived from his Participant
contributions. A Participant's Accrued Benefit derived from his Participant
contributions as of any applicable date is the balance of his separate
Participant contribution Account(s).
* * * * * * * * * * * * * * *
4.02
<PAGE>
ARTICLE V
TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 NORMAL RETIREMENT AGE. The Employer must define Normal Retirement
Age in its Adoption Agreement. A Participant's Accrued Benefit derived from
Employer contributions is 100% Nonforfeitable upon and after his attaining
Normal Retirement Age (if employed by the Employer on or after that date).
5.02 PARTICIPANT DISABILITY OR DEATH. The Employer may elect in its
Adoption Agreement to provide a Participant's Accrued Benefit derived from
Employer contributions will be 100% Nonforfeitable if the Participant's
Separation from Service is a result of his death or his disability.
5.03 VESTING SCHEDULE. Except as provided in Sections 5.01 and 5.02,
for each Year of Service, a Participant's Nonforfeitable percentage of his
Accrued Benefit derived from Employer contributions equals the percentage in the
vesting schedule completed by the Employer in its Adoption Agreement.
(A) ELECTION OF SPECIAL VESTING FORMULA. If the Trustee makes a
distribution (other than a cash-out distribution described in Section 5.04)
to a partially-vested Participant, and the Participant has not incurred a
Forfeiture Break in Service at the relevant time, the Advisory Committee will
establish a separate Account for the Participant's Accrued Benefit. At any
relevant time following the distribution, the Advisory Committee will
determine the Participant's Nonforfeitable Accrued Benefit derived from
Employer contributions in accordance with the following formula: P(AB
+ (R x D)) - (R x D).
To apply this formula, "P" is the Participant's current vesting
percentage at the relevant time, "AB" is the Participant's Employer-derived
Accrued Benefit at the relevant time, "R" is the ratio of "AB" to the
Participant's Employer-derived Accrued Benefit immediately following the earlier
distribution and "D" is the amount of the earlier distribution. If, under a
restated Plan, the Plan has made distribution to a partially-vested Participant
prior to its restated Effective Date and is unable to apply the cash-out
provisions of Section 5.04 to that prior distribution, this special vesting
formula also applies to that Participant's remaining Account. The Employer, in
an addendum to its Adoption Agreement, numbered Section 5.03, may elect to
modify this formula to read as follows: P(AB + D) - D.
5.04 CASH-OUT DISTRIBUTIONS TO PARTIALLY-VESTED PARTICIPANTS/
RESTORATION OF FORFEITED ACCRUED BENEFIT. If, pursuant to Article VI, a
partially-vested Participant receives a cash-out distribution before he incurs a
Forfeiture Break in Service (as defined in Section 5.08), the cash-out
distribution will result in an immediate forfeiture of the nonvested portion of
the Participant's Accrued Benefit derived from Employer contributions. See
Section 5.09. A partially-vested Participant is a Participant whose
Nonforfeitable Percentage determined under Section 5.03 is less than 100%. A
cash-out distribution is a distribution of the entire present value of the
Participant's Nonforfeitable Accrued Benefit.
(A) RESTORATION AND CONDITIONS UPON RESTORATION. A partially-vested
Participant who is re-employed by the Employer after receiving a cash-out
distribution of the Nonforfeitable percentage of his Accrued Benefit may repay
the Trustee the amount of the cash-out distribution attributable to Employer
contributions, unless the Participant no longer has a right to restoration by
reason of the conditions of this Section 5.04(A). If a partially-vested
Participant makes the cash-out distribution repayment, the Advisory Committee,
subject to the conditions of this Section 5.04(A), must restore his Accrued
Benefit attributable to Employer contributions to the same dollar amount as the
dollar amount of his Accrued Benefit on the Accounting Date,
5.01
<PAGE>
or other valuation date, immediately preceding the date of the cash-out
distribution, unadjusted for any gains or losses occurring subsequent to that
Accounting Date, or other valuation date. Restoration of the Participant's
Accrued Benefit includes restoration of all Code Section 411(d)(6) protected
benefits with respect to that restored Accrued Benefit, in accordance with
applicable Treasury regulations. The Advisory Committee will not restore a
re-employed Participant's Accrued Benefit under this paragraph if:
(1) 5 years have elapsed since the Participant's first re-employment
date with the Employer following the cash-out distribution; or
(2) The Participant incurred a Forfeiture Break in Service (as defined
in Section 5.08). This condition also applies if the Participant makes
repayment within the Plan Year in which he incurs the Forfeiture Break in
Service and that Forfeiture Break in Service would result in a complete
forfeiture of the amount the Advisory Committee otherwise would restore.
(B) TIME AND METHOD OF RESTORATION. If neither of the two conditions
preventing restoration of the Participant's Accrued Benefit applies, the
Advisory Committee will restore the Participant's Accrued Benefit as of the Plan
Year Accounting Date coincident with or immediately following the repayment. To
restore the Participant's Accrued Benefit, the Advisory Committee, to the extent
necessary, will allocate to the Participant's Account:
(1) First, the amount, if any, of Participant forfeitures the Advisory
Committee would otherwise allocate under Section 3.05;
(2) Second, the amount, if any, of the Trust Fund net income or gain
for the Plan Year; and
(3) Third, the Employer contribution for the Plan Year to the extent
made under a discretionary formula.
In an addendum to its Adoption Agreement numbered 5.04(B), the Employer
may eliminate as a means of restoration any of the amounts described in clauses
(1), (2) and (3) or may change the order of priority of these amounts. To the
extent the amounts described in clauses (1), (2) and (3) are insufficient to
enable the Advisory Committee to make the required restoration, the Employer
must contribute, without regard to any requirement or condition of Section 3.01,
the additional amount necessary to enable the Advisory Committee to make the
required restoration. If, for a particular Plan Year, the Advisory Committee
must restore the Accrued Benefit of more than one re-employed Participant, then
the Advisory Committee will make the restoration allocations to each such
Participant's Account in the same proportion that a Participant's restored
amount for the Plan Year bears to the restored amount for the Plan Year of all
re-employed Participants. The Advisory Committee will not take into account any
allocation under this Section 5.04 in applying the limitation on allocations
under Part 2 of Article III.
(C) 0% VESTED PARTICIPANT. The Employer must specify in its Adoption
Agreement whether the deemed cash-out rule applies to a 0% vested
Participant. A 0% vested Participant is a Participant whose Accrued Benefit
derived from Employer contributions is entirely forfeitable at the time of
his Separation from Service. If the Participant's Account is not entitled to
an allocation of Employer contributions for the Plan Year in which he has a
Separation from Service, the Advisory Committee will apply the deemed
cash-out rule as if the 0% vested Participant received a cash-out
distribution on the date of the Participant's Separation from Service. If the
Participant's Account is entitled to an allocation of Employer contributions
or Participant forfeitures for the Plan Year in which he has a Separation
from Service, the Advisory Committee will apply the deemed cash-out rule as
if the 0% vested Participant received a cash-out distribution on the first
day of the first Plan Year beginning after his Separation from Service. For
purposes of applying the restoration provisions of this Section 5.04, the
Advisory
5.02
<PAGE>
Committee will treat the 0% vested Participant as repaying his cash-out
"distribution" on the first date of his re-employment with the Employer. If
the deemed cash-out rule does not apply to the Employer's Plan, a 0% vested
Participant will not incur a forfeiture until he incurs a Forfeiture Break in
Service.
5.05 SEGREGATED ACCOUNT FOR REPAID AMOUNT. Until the Advisory Committee
restores the Participant's Accrued Benefit, as described in Section 5.04, the
Trustee will invest the cash-out amount the Participant has repaid in a
segregated Account maintained solely for that Participant. The Trustee must
invest the amount in the Participant's segregated Account in Federally insured
interest bearing savings account(s) or time deposit(s) (or a combination of
both), or in other fixed income investments. Until commingled with the balance
of the Trust Fund on the date the Advisory Committee restores the Participant's
Accrued Benefit, the Participant's segregated Account remains a part of the
Trust, but it alone shares in any income it earns and it alone bears any expense
or loss it incurs. Unless the repayment qualifies as a rollover contribution,
the Advisory Committee will direct the Trustee to repay to the Participant as
soon as is administratively practicable the full amount of the Participant's
segregated Account if the Advisory Committee determines either of the conditions
of Section 5.04(A) prevents restoration as of the applicable Accounting Date,
notwithstanding the Participant's repayment.
5.06 YEAR OF SERVICE - VESTING. For purposes of vesting under Section
5.03, Year of Service means any 12-consecutive month period designated in the
Employer's Adoption Agreement during which an Employee completes not less than
the number of Hours of Service (not exceeding 1,000) specified in the Employer's
Adoption Agreement. A Year of Service includes any Year of Service earned prior
to the Effective Date of the Plan, except as provided in Section 5.08.
5.07 BREAK IN SERVICE - VESTING. For purposes of this Article V, a
Participant incurs a "Break in Service" if during any vesting computation period
he does not complete more than 500 Hours of Service. If, pursuant to Section
5.06, the Plan does not require more than 500 Hours of Service to receive credit
for a Year of Service, a Participant incurs a Break in Service in a vesting
computation period in which he fails to complete a Year of Service.
5.08 INCLUDED YEARS OF SERVICE - VESTING. For purposes of determining
"Years of Service" under Section 5.06, the Plan takes into account all Years of
Service an Employee completes with the Employer except:
(a) For the sole purpose of determining a Participant's Nonforfeitable
percentage of his Accrued Benefit derived from Employer contributions
which accrued for his benefit prior to a Forfeiture Break in Service, the
Plan disregards any Year of Service after the Participant first incurs a
Forfeiture Break in Service. The Participant incurs a Forfeiture Break in
Service when he incurs 5 consecutive Breaks in Service.
(b) The Plan disregards any Year of Service excluded under the
Employer's Adoption Agreement.
The Plan does not apply the Break in Service rule under Code Section
411(a)(6)(B). Therefore, an Employee need not complete a Year of Service after a
Break in Service before the Plan takes into account the Employee's otherwise
includible Years of Service under this Article V.
5.09 FORFEITURE OCCURS. A Participant's forfeiture, if any, of his
Accrued Benefit derived from Employer contributions occurs under the Plan on the
earlier of:
5.03
<PAGE>
(a) The last day of the vesting computation period in which the
Participant first incurs a Forfeiture Break in Service; or
(b) The date the Participant receives a cash-out distribution.
The Advisory Committee determines the percentage of a Participant's
Accrued Benefit forfeiture, if any, under this Section 5.09 solely by reference
to the vesting schedule of Section 5.03. A Participant does not forfeit any
portion of his Accrued Benefit for any other reason or cause except as expressly
provided by this Section 5.09 or as provided under Section 9.14.
* * * * * * * * * * * * * * *
5.04
<PAGE>
ARTICLE VI
TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 TIME OF PAYMENT OF ACCRUED BENEFIT. Unless, pursuant to Section
6.03, the Participant or the Beneficiary elects in writing to a different time
or method of payment, the Advisory Committee will direct the Trustee to commence
distribution of a Participant's Nonforfeitable Accrued Benefit in accordance
with this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of the
Participant's Nonforfeitable Accrued Benefit, at the time of the distribution to
the Participant, exceeds $3,500 and the Participant has not attained the later
of Normal Retirement Age or age 62. Furthermore, the Participant's spouse also
must consent, in writing, to any distribution, for which Section 6.04 requires
the spouse's consent. For all purposes of this Article VI, the term "annuity
starting date" means the first day of the first period for which the Plan pays
an amount as an annuity or in any other form. A distribution date under this
Article VI, unless otherwise specified within the Plan, is the date or dates the
Employer specifies in the Adoption Agreement, or as soon as administratively
practicable following that distribution date. For purposes of the consent
requirements under this Article VI, if the present value of the Participant's
Nonforfeitable Accrued Benefit, at the time of any distribution, exceeds $3,500,
the Advisory Committee must treat that present value as exceeding $3,500 for
purposes of all subsequent Plan distributions to the Participant.
(A) SEPARATION FROM SERVICE FOR A REASON OTHER THAN DEATH.
(1) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT NOT EXCEEDING $3,500.
If the Participant's Separation from Service is for any reason other than death,
the Advisory Committee will direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit in a lump sum, on the distribution date the
Employer specifies in the Adoption Agreement, but in no event later than the
60th day following the close of the Plan Year in which the Participant attains
Normal Retirement Age. If the Participant has attained Normal Retirement Age at
the time of his Separation from Service, the distribution under this paragraph
will occur no later than the 60th day following the close of the Plan Year in
which the Participant's Separation from Service occurs.
(2) PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS $3,500. If
the Participant's Separation from Service is for any reason other than death,
the Advisory Committee will direct the Trustee to commence distribution of the
Participant's Nonforfeitable Accrued Benefit in a form and at the time elected
by the Participant, pursuant to Section 6.03. In the absence of an election by
the Participant, the Advisory Committee will direct the Trustee to distribute
the Participant's Nonforfeitable Accrued Benefit in a lump sum (or, if
applicable, the normal annuity form of distribution required under Section
6.04), on the 60th day following the close of the Plan Year in which the latest
of the following events occurs: (a) the Participant attains Normal Retirement
Age; (b) the Participant attains age 62; or (c) the Participant's Separation
from Service.
(3) DISABILITY. If the Participant's Separation from Service is
because of his disability, the Advisory Committee will direct the Trustee to pay
the Participant's Nonforfeitable Accrued Benefit in lump sum, on the
distribution date the Employer specifies in the Adoption Agreement, subject to
the notice and consent requirements of this Article VI and subject to the
applicable mandatory commencement dates described in Paragraphs (1) and (2).
(4) HARDSHIP. Prior to the time at which the Participant may receive
distribution under Paragraphs (1), (2) or (3), the Participant may request a
distribution from his Nonforfeitable Accrued Benefit in an amount necessary to
satisfy a hardship, if the Employer elects in the Adoption Agreement to permit
hardship distributions. Unless the Employer elects otherwise in the Adoption
Agreement, a hardship distribution must be on account of
6.01
<PAGE>
any of the following: (a) medical expenses; (b) the purchase (excluding
mortgage payments) of the Participant's principal residence; (c)
post-secondary education tuition, for the next semester or quarter, for the
Participant or for the Participant's spouse, children or dependents; (d) to
prevent the eviction of the Participant from his principal residence or the
foreclosure on the mortgage of the Participant's principal residence; (e)
funeral expenses of the Participant's family member; or (f) the Participant's
disability. A partially-vested Participant may not receive a hardship
distribution described in this Paragraph (A)(4) prior to incurring a
Forfeiture Break in Service, unless the hardship distribution is a cash-out
distribution (as defined in Article V). The Advisory Committee will direct
the Trustee to make the hardship distribution as soon as administratively
practicable after the Participant makes a valid request for the hardship
distribution.
(B) REQUIRED BEGINNING DATE. If any distribution commencement date described
under Paragraph (A) of this Section 6.01, either by Plan provision or by
Participant election (or nonelection), is later than the Participant's Required
Beginning Date, the Advisory Committee instead must direct the Trustee to make
distribution on the Participant's Required Beginning Date, subject to the
transitional election, if applicable, under Section 6.03(D). A Participant's
Required Beginning Date is the April 1 following the close of the calendar year
in which the Participant attains age 701/2. However, if the Participant, prior
to incurring a Separation from Service, attained age 701/2 by January 1, 1988,
and, for the five Plan Year period ending in the calendar year in which he
attained age 701/2 and for all subsequent years, the Participant was not a more
than 5% owner, the Required Beginning Date is the April 1 following the close of
the calendar year in which the Participant separates from Service or, if
earlier, the April 1 following the close of the calendar year in which the
Participant becomes a more than 5% owner. Furthermore, if a Participant who was
not a more than 5% owner attained age 701/2 during 1988 and did not incur a
Separation from Service prior to January 1, 1989, his Required Beginning Date is
April 1, 1990. A mandatory distribution at the Participant's Required Beginning
Date will be in lump sum (or, if applicable, the normal annuity form of
distribution required under Section 6.04) unless the Participant, pursuant to
the provisions of this Article VI, makes a valid election to receive an
alternative form of payment.
(C) DEATH OF THE PARTICIPANT. The Advisory Committee will direct the Trustee,
in accordance with this Section 6.01(C), to distribute to the Participant's
Beneficiary the Participant's Nonforfeitable Accrued Benefit remaining in the
Trust at the time of the Participant's death. Subject to the requirements of
Section 6.04, the Advisory Committee will determine the death benefit by
reducing the Participant's Nonforfeitable Accrued Benefit by any security
interest the Plan has against that Nonforfeitable Accrued Benefit by reason of
an outstanding Participant loan.
(1) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT DOES NOT
EXCEED $3,500. The Advisory Committee, subject to the requirements of Section
6.04, must direct the Trustee to distribute the deceased Participant's
Nonforfeitable Accrued Benefit in a single sum, as soon as administratively
practicable following the Participant's death or, if later, the date on which
the Advisory Committee receives notification of or otherwise confirms the
Participant's death.
(2) DECEASED PARTICIPANT'S NONFORFEITABLE ACCRUED BENEFIT EXCEEDS
$3,500. The Advisory Committee will direct the Trustee to distribute the
deceased Participant's Nonforfeitable Accrued Benefit at the time and in the
form elected by the Participant or, if applicable by the Beneficiary, as
permitted under this Article VI. In the absence of an election, subject to the
requirements of Section 6.04, the Advisory Committee will direct the Trustee to
distribute the Participant's undistributed Nonforfeitable Accrued Benefit in a
lump sum on the first distribution date following the close of the Plan Year in
which the Participant's death occurs or, if later, the first distribution date
following the date the Advisory Committee receives notification of or otherwise
confirms the Participant's death.
6.02
<PAGE>
If the death benefit is payable in full to the Participant's surviving
spouse, the surviving spouse, in addition to the distribution options provided
in this Section 6.01(C), may elect distribution at any time or in any form
(other than a joint and survivor annuity) this Article VI would permit for a
Participant.
6.02 METHOD OF PAYMENT OF ACCRUED BENEFIT. Subject to the annuity
distribution requirements, if any, prescribed by Section 6.04, and any
restrictions prescribed by Section 6.03, a Participant or Beneficiary may elect
distribution under one, or any combination, of the following methods: (a) by
payment in a lump sum; or (b) by payment in monthly, quarterly or annual
installments over a fixed reasonable period of time, not exceeding the life
expectancy of the Participant, or the joint life and last survivor expectancy of
the Participant and his Beneficiary. The Employer may elect in its Adoption
Agreement to modify the methods of payment available under this Section 6.02.
The distribution options permitted under this Section 6.02 are available
only if the present value of the Participant Nonforfeitable Accrued Benefit, at
the time of the distribution to the Participant, exceeds $3,500. To facilitate
installment payments under this Article VI, the Advisory Committee may direct
the Trustee to segregate all or any part of the Participant's Accrued Benefit in
a separate Account. The Trustee will invest the Participant's segregated Account
in Federally insured interest bearing savings account(s) or time deposit(s) (or
a combination of both), or in other fixed income investments. A segregated
Account remains a part of the Trust, but it alone shares in any income it earns,
and it alone bears any expense or loss it incurs. A Participant or Beneficiary
may elect to receive an installment distribution in the form of a
Nontransferable Annuity Contract. Under an installment distribution, the
Participant or Beneficiary, at any time, may elect to accelerate the payment of
all, or any portion, of the Participant's unpaid Nonforfeitable Accrued Benefit,
subject to the requirements of Section 6.04.
(A) MINIMUM DISTRIBUTION REQUIREMENTS FOR PARTICIPANTS. The Advisory
Committee may not direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit, nor may the Participant elect to have the
Trustee distribute his Nonforfeitable Accrued Benefit, under a method of payment
which, as of the Required Beginning Date, does not satisfy the minimum
distribution requirements under Code Section 401(a)(9) and the applicable
Treasury regulations. The minimum distribution for a calendar year equals the
Participant's Nonforfeitable Accrued Benefit as of the latest valuation date
preceding the beginning of the calendar year divided by the Participant's life
expectancy or, if applicable, the joint and last survivor expectancy of the
Participant and his designated Beneficiary (as determined under Article VIII,
subject to the requirements of the Code Section 401(a)(9) regulations). The
Advisory Committee will increase the Participant's Nonforfeitable Accrued
Benefit, as determined on the relevant valuation date, for contributions or
forfeitures allocated after the valuation date and by December 31 of the
valuation calendar year, and will decrease the valuation by distributions made
after the valuation date and by December 31 of the valuation calendar year. For
purposes of this valuation, the Advisory Committee will treat any portion of the
minimum distribution for the first distribution calendar year made after the
close of that year as a distribution occurring in that first distribution
calendar year. In computing a minimum distribution, the Advisory Committee must
use the unisex life expectancy multiples under Treas. Reg. Section 1.72-9. The
Advisory Committee, only upon the Participant's written request, will compute
the minimum distribution for a calendar year subsequent to the first calendar
year for which the Plan requires a minimum distribution by redetermining the
applicable life expectancy. However, the Advisory Committee may not redetermine
the joint life and last survivor expectancy of the Participant and a nonspouse
designated Beneficiary in a manner which takes into account any adjustment to a
life expectancy other than the Participant's life expectancy.
If the Participant's spouse is not his designated Beneficiary, a method
of payment to the Participant (whether by Participant election or by Advisory
Committee direction) may not provide more than incidental benefits to the
Beneficiary. For Plan Years beginning after December 31, 1988, the Plan must
satisfy the minimum distribution incidental benefit ("MDIB") requirement in the
Treasury regulations issued under Code Section 401(a)(9) for
6.03
<PAGE>
distributions made on or after the Participant's Required Beginning Date and
before the Participant's death. To satisfy the MDIB requirement, the Advisory
Committee will compute the minimum distribution required by this Section
6.02(A) by substituting the applicable MDIB divisor for the applicable life
expectancy factor, if the MDIB divisor is a lesser number. Following the
Participant's death, the Advisory Committee will compute the minimum
distribution required by this Section 6.02(A) solely on the basis of the
applicable life expectancy factor and will disregard the MDIB factor. For
Plan Years beginning prior to January 1, 1989, the Plan satisfies the
incidental benefits requirement if the distributions to the Participant
satisfied the MDIB requirement or if the present value of the retirement
benefits payable solely to the Participant is greater than 50% of the present
value of the total benefits payable to the Participant and his Beneficiaries.
The Advisory Committee must determine whether benefits to the Beneficiary are
incidental as of the date the Trustee is to commence payment of the
retirement benefits to the Participant, or as of any date the Trustee
redetermines the payment period to the Participant.
The minimum distribution for the first distribution calendar year is due
by the Participant's Required Beginning Date. The minimum distribution for each
subsequent distribution calendar year, including the calendar year in which the
Participant's Required Beginning Date occurs, is due by December 31 of that
year. If the Participant receives distribution in the form of a Nontransferable
Annuity Contract, the distribution satisfies this Section 6.02(A) if the
contract complies with the requirements of Code Section 401(a)(9) and the
applicable Treasury regulations.
(B) MINIMUM DISTRIBUTION REQUIREMENTS FOR BENEFICIARIES. The method of
distribution to the Participant's Beneficiary must satisfy Code Section
401(a)(9) and the applicable Treasury regulations. If the Participant's death
occurs after his Required Beginning Date or, if earlier, the date the
Participant commences an irrevocable annuity pursuant to Section 6.04, the
method of payment to the Beneficiary must provide for completion of payment over
a period which does not exceed the payment period which had commenced for the
Participant. If the Participant's death occurs prior to his Required Beginning
Date, and the Participant had not commenced an irrevocable annuity pursuant to
Section 6.04, the method of payment to the Beneficiary, subject to Section 6.04,
must provide for completion of payment to the Beneficiary over a period not
exceeding: (i) 5 years after the date of the Participant's death; or (ii) if the
Beneficiary is a designated Beneficiary, the designated Beneficiary's life
expectancy. The Advisory Committee may not direct payment of the Participant's
Nonforfeitable Accrued Benefit over a period described in clause (ii) unless the
Trustee will commence payment to the designated Beneficiary no later than the
December 31 following the close of the calendar year in which the Participant's
death occurred or, if later, and the designated Beneficiary is the Participant's
surviving spouse, December 31 of the calendar year in which the Participant
would have attained age 701/2. If the Trustee will make distribution in
accordance with clause (ii), the minimum distribution for a calendar year equals
the Participant's Nonforfeitable Accrued Benefit as of the latest valuation date
preceding the beginning of the calendar year divided by the designated
Beneficiary's life expectancy. The Advisory Committee must use the unisex life
expectancy multiples under Treas. Reg. Section 1.72-9 for purposes of applying
this paragraph. The Advisory Committee, only upon the written request of the
Participant or of the Participant's surviving spouse, will recalculate the life
expectancy of the Participant's surviving spouse not more frequently than
annually, but may not recalculate the life expectancy of a nonspouse designated
Beneficiary after the Trustee commences payment to the designated Beneficiary.
The Advisory Committee will apply this paragraph by treating any amount paid to
the Participant's child, which becomes payable to the Participant's surviving
spouse upon the child's attaining the age of majority, as paid to the
Participant's surviving spouse. Upon the Beneficiary's written request, the
Advisory Committee must direct the Trustee to accelerate payment of all, or any
portion, of the Participant's unpaid Accrued Benefit, as soon as
administratively practicable following the effective date of that request.
6.03 BENEFIT PAYMENT ELECTIONS. Not earlier than 90 days, but not
later than 30 days, before the Participant's annuity starting date, the Advisory
Committee must provide a benefit notice to a Participant who is
6.04
<PAGE>
eligible to make an election under this Section 6.03. The benefit notice must
explain the optional forms of benefit in the Plan, including the material
features and relative values of those options, and the Participant's right to
defer distribution until he attains the later of Normal Retirement Age or age
62.
If a Participant or Beneficiary makes an election prescribed by this
Section 6.03, the Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that election.
Any election under this Section 6.03 is subject to the requirements of Section
6.02 and of Section 6.04. The Participant or Beneficiary must make an election
under this Section 6.03 by filing his election with the Advisory Committee at
any time before the Trustee otherwise would commence to pay a Participant's
Accrued Benefit in accordance with the requirements of Article VI.
(A) PARTICIPANT ELECTIONS AFTER SEPARATION FROM SERVICE. If the present
value of a Participant's Nonforfeitable Accrued Benefit exceeds $3,500, he
may elect to have the Trustee commence distribution as of any distribution
date permitted under the Employer's Adoption Agreement Section 6.03. The
Participant may reconsider an election at any time prior to the annuity
starting date and elect to commence distribution as of any other distribution
date permitted under the Employer's Adoption Agreement Section 6.03. If the
Participant is partially-vested in his Accrued Benefit, an election under
this Paragraph (A) to distribute prior to the Participant's incurring a
Forfeiture Break in Service (as defined in Section 5.08), must be in the form
of a cash-out distribution (as defined in Article V). A Participant may not
receive a cash-out distribution if, prior to the time the Trustee actually
makes the cash-out distribution, the Participant returns to employment with
the Employer. Following his attainment of Normal Retirement Age, a
Participant who has separated from Service may elect distribution as of any
distribution date, irrespective of the elections under Adoption Agreement
Section 6.03.
(B) PARTICIPANT ELECTIONS PRIOR TO SEPARATION FROM SERVICE. The Employer must
specify in its Adoption Agreement the distribution election rights, if any, a
Participant has prior to his Separation from Service. A Participant must make an
election under this Section 6.03(B) on a form prescribed by the Advisory
Committee at any time during the Plan Year for which his election is to be
effective. In his written election, the Participant must specify the percentage
or dollar amount he wishes the Trustee to distribute to him. The Participant's
election relates solely to the percentage or dollar amount specified in his
election form and his right to elect to receive an amount, if any, for a
particular Plan Year greater than the dollar amount or percentage specified in
his election form terminates on the Accounting Date. The Trustee must make a
distribution to a Participant in accordance with his election under this Section
6.03(B) within the 90 day period (or as soon as administratively practicable)
after the Participant files his written election with the Trustee. The Trustee
will distribute the balance of the Participant's Accrued Benefit not distributed
pursuant to his election(s) in accordance with the other distribution provisions
of this Plan.
(C) DEATH BENEFIT ELECTIONS. If the present value of the deceased
Participant's Nonforfeitable Accrued Benefit exceeds $3,500, the Participant's
Beneficiary may elect to have the Trustee distribute the Participant's
Nonforfeitable Accrued Benefit in a form and within a period permitted under
Section 6.02. The Beneficiary's election is subject to any restrictions
designated in writing by the Participant and not revoked as of his date of
death.
(D) TRANSITIONAL ELECTIONS. Notwithstanding the provisions of Sections 6.01
and 6.02, if the Participant (or Beneficiary) signed a written distribution
designation prior to January 1, 1984, the Advisory Committee must distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that
designation, subject however, to the survivor requirements, if applicable, of
Sections 6.04, 6.05 and 6.06. This Section 6.03(D) does not apply to a pre-1984
distribution designation, and the Advisory Committee will not comply with that
designation, if any of the following applies: (1) the method of distribution
would have disqualified the Plan under Code Section 401(a)(9) as in
6.05
<PAGE>
effect on December 31, 1983; (2) the Participant did not have an Accrued
Benefit as of December 31, 1983; (3) the distribution designation does not
specify the timing and form of the distribution and the death Beneficiaries
(in order of priority); (4) the substitution of a Beneficiary modifies the
payment period of the distribution; or, (5) the Participant (or Beneficiary)
modifies or revokes the distribution designation. In the event of a
revocation, the Plan must distribute, no later than December 31 of the
calendar year following the year of revocation, the amount which the
Participant would have received under Section 6.02(A) if the distribution
designation had not been in effect or, if the Beneficiary revokes the
distribution designation, the amount which the Beneficiary would have
received under Section 6.02(B) if the distribution designation had not been
in effect. The Advisory Committee will apply this Section 6.03(D) to
rollovers and transfers in accordance with Part J of the Code Section
401(a)(9) Treasury regulations.
6.04 ANNUITY DISTRIBUTIONS TO PARTICIPANTS AND SURVIVING SPOUSES.
(A) JOINT AND SURVIVOR ANNUITY. The Advisory Committee must direct the
Trustee to distribute a married or unmarried Participant's Nonforfeitable
Accrued Benefit in the form of a qualified joint and survivor annuity, unless
the Participant makes a valid waiver election (described in Section 6.05) within
the 90 day period ending on the annuity starting date. If, as of the annuity
starting date, the Participant is married, a qualified joint and survivor
annuity is an immediate annuity which is purchasable with the Participant's
Nonforfeitable Accrued Benefit and which provides a life annuity for the
Participant and a survivor annuity payable for the remaining life of the
Participant's surviving spouse equal to 50% of the amount of the annuity payable
during the life of the Participant. If, as of the annuity starting date, the
Participant is not married, a qualified joint and survivor annuity is an
immediate life annuity for the Participant which is purchasable with the
Participant's Nonforfeitable Accrued Benefit. On or before the annuity starting
date, the Advisory Committee, without Participant or spousal consent, must
direct the Trustee to pay the Participant's Nonforfeitable Accrued Benefit in a
lump sum, in lieu of a qualified joint and survivor annuity, in accordance with
Section 6.01, if the Participant's Nonforfeitable Accrued Benefit is not greater
than $3,500. This Section 6.04(A) applies only to a Participant who has
completed at least one Hour of Service with the Employer after August 22, 1984.
(B) PRERETIREMENT SURVIVOR ANNUITY. If a married Participant dies prior to
his annuity starting date, the Advisory Committee will direct the Trustee to
distribute a portion of the Participant's Nonforfeitable Accrued Benefit to the
Participant's surviving spouse in the form of a preretirement survivor annuity,
unless the Participant has a valid waiver election (as described in Section
6.06) in effect, or unless the Participant and his spouse were not married
throughout the one year period ending on the date of his death. A preretirement
survivor annuity is an annuity which is purchasable with 50% of the
Participant's Nonforfeitable Accrued Benefit (determined as of the date of the
Participant's death) and which is payable for the life of the Participant's
surviving spouse. The value of the preretirement survivor annuity is
attributable to Employer contributions and to Employee contributions in the same
proportion as the Participant's Nonforfeitable Accrued Benefit is attributable
to those contributions. The portion of the Participant's Nonforfeitable Accrued
Benefit not payable under this paragraph is payable to the Participant's
Beneficiary, in accordance with the other provisions of this Article VI. If the
present value of the preretirement survivor annuity does not exceed $3,500, the
Advisory Committee, on or before the annuity starting date, must direct the
Trustee to make a lump sum distribution to the Participant's surviving spouse,
in lieu of a preretirement survivor annuity. This Section 6.04(B) applies only
to a Participant who dies after August 22, 1984, and either (i) completes at
least one Hour of Service with the Employer after August 22, 1984, or (ii)
separated from Service with at least 10 Years of Service (as defined in Section
5.06) and completed at least one Hour of Service with the Employer in a Plan
Year beginning after December 31, 1975.
(C) SURVIVING SPOUSE ELECTIONS. If the present value of the preretirement
survivor annuity exceeds $3,500, the
6.06
<PAGE>
Participant's surviving spouse may elect to have the Trustee commence payment
of the preretirement survivor annuity at any time following the date of the
Participant's death, but not later than the mandatory distribution periods
described in Section 6.02, and may elect any of the forms of payment
described in Section 6.02, in lieu of the preretirement survivor annuity. In
the absence of an election by the surviving spouse, the Advisory Committee
must direct the Trustee to distribute the preretirement survivor annuity on
the first distribution date following the close of the Plan Year in which the
latest of the following events occurs: (i) the Participant's death; (ii) the
date the Advisory Committee receives notification of or otherwise confirms
the Participant's death; (iii) the date the Participant would have attained
Normal Retirement Age; or (iv) the date the Participant would have attained
age 62.
(D) SPECIAL RULES. If the Participant has in effect a valid waiver election
regarding the qualified joint and survivor annuity or the preretirement survivor
annuity, the Advisory Committee must direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with Sections 6.01,
6.02 and 6.03. The Advisory Committee will reduce the Participant's
Nonforfeitable Accrued Benefit by any security interest (pursuant to any offset
rights authorized by Section 10.03[E]) held by the Plan by reason of a
Participant loan to determine the value of the Participant's Nonforfeitable
Accrued Benefit distributable in the form of a qualified joint and survivor
annuity or preretirement survivor annuity, provided any post-August 18, 1985,
loan satisfied the spousal consent requirement described in Section 10.03[E] of
the Plan. For purposes of applying this Article VI, the Advisory Committee
treats a former spouse as the Participant's spouse or surviving spouse to the
extent provided under a qualified domestic relations order described in Section
6.07. The provisions of this Section 6.04, and of Sections 6.05 and 6.06, apply
separately to the portion of the Participant's Nonforfeitable Accrued Benefit
subject to the qualified domestic relations order and to the portion of the
Participant's Nonforfeitable Accrued Benefit not subject to that order.
(E) PROFIT SHARING PLAN ELECTION. If this Plan is a profit sharing plan, the
Employer must elect the extent to which the preceding provisions of Section 6.04
apply. If the Employer elects to apply this Section 6.04 only to a Participant
described in this Section 6.04(E), the preceding provisions of this Section 6.04
apply only to the following Participants: (1) a Participant as respects whom the
Plan is a direct or indirect transferee from a plan subject to the Code Section
417 requirements and the Plan received the transfer after December 31, 1984,
unless the transfer is an elective transfer described in Section 13.06; (2) a
Participant who elects a life annuity distribution (if Section 6.02 or Section
13.02 of the Plan requires the Plan to provide a life annuity distribution
option); and (3) a Participant whose benefits under a defined benefit plan
maintained by the Employer are offset by benefits provided under this Plan. If
the Employer elects to apply this Section 6.04 to all Participants, the
preceding provisions of this Section 6.04 apply to all Participants described in
the first two paragraphs of this Section 6.04, without regard to the limitations
of this Section 6.04(E). Sections 6.05 and 6.06 only apply to Participants to
whom the preceding provisions of this Section 6.04 apply.
6.05 WAIVER ELECTION - QUALIFIED JOINT AND SURVIVOR ANNUITY. Not
earlier than 90 days, but not later than 30 days, before the Participant's
annuity starting date, the Advisory Committee must provide the Participant a
written explanation of the terms and conditions of the qualified joint and
survivor annuity, the Participant's right to make, and the effect of, an
election to waive the joint and survivor form of benefit, the rights of the
Participant's spouse regarding the waiver election and the Participant's right
to make, and the effect of, a revocation of a waiver election. The Plan does not
limit the number of times the Participant may revoke a waiver of the qualified
joint and survivor annuity or make a new waiver during the election period.
A married Participant's waiver election is not valid unless (a) the
Participant's spouse (to whom the
6.07
<PAGE>
survivor annuity is payable under the qualified joint and survivor annuity),
after the Participant has received the written explanation described in this
Section 6.05, has consented in writing to the waiver election, the spouse's
consent acknowledges the effect of the election, and a notary public or the
Plan Administrator (or his representative) witnesses the spouse's consent,
(b) the spouse consents to the alternate form of payment designated by the
Participant or to any change in that designated form of payment, and (c)
unless the spouse is the Participant's sole primary Beneficiary, the spouse
consents to the Participant's Beneficiary designation or to any change in the
Participant's Beneficiary designation. The spouse's consent to a waiver of
the qualified joint and survivor annuity is irrevocable, unless the
Participant revokes the waiver election. The spouse may execute a blanket
consent to any form of payment designation or to any Beneficiary designation
made by the Participant, if the spouse acknowledges the right to limit that
consent to a specific designation but, in writing, waives that right. The
consent requirements of this Section 6.05 apply to a former spouse of the
Participant, to the extent required under a qualified domestic relations
order described in Section 6.07.
The Advisory Committee will accept as valid a waiver election which does
not satisfy the spousal consent requirements if the Advisory Committee
establishes the Participant does not have a spouse, the Advisory Committee is
not able to locate the Participant's spouse, the Participant is legally
separated or has been abandoned (within the meaning of State law) and the
Participant has a court order to that effect, or other circumstances exist under
which the Secretary of the Treasury will excuse the consent requirement. If the
Participant's spouse is legally incompetent to give consent, the spouse's legal
guardian (even if the guardian is the Participant) may give consent.
6.06 WAIVER ELECTION - PRERETIREMENT SURVIVOR ANNUITY. The
Advisory Committee must provide a written explanation of the preretirement
survivor annuity to each married Participant, within the following period which
ends last: (1) the period beginning on the first day of the Plan Year in which
the Participant attains age 32 and ending on the last day of the Plan Year in
which the Participant attains age 34; (2) a reasonable period after an Employee
becomes a Participant; (3) a reasonable period after the joint and survivor
rules become applicable to the Participant; or (4) a reasonable period after a
fully subsidized preretirement survivor annuity no longer satisfies the
requirements for a fully subsidized benefit. A reasonable period described in
clauses (2), (3) and (4) is the period beginning one year before and ending one
year after the applicable event. If the Participant separates from Service
before attaining age 35, clauses (1), (2), (3) and (4) do not apply and the
Advisory Committee must provide the written explanation within the period
beginning one year before and ending one year after the Separation from Service.
The written explanation must describe, in a manner consistent with Treasury
regulations, the terms and conditions of the preretirement survivor annuity
comparable to the explanation of the qualified joint and survivor annuity
required under Section 6.05. The Plan does not limit the number of times the
Participant may revoke a waiver of the preretirement survivor annuity or make a
new waiver during the election period.
A Participant's waiver election of the preretirement survivor annuity is
not valid unless (a) the Participant makes the waiver election no earlier than
the first day of the Plan Year in which he attains age 35 and (b) the
Participant's spouse (to whom the preretirement survivor annuity is payable)
satisfies the consent requirements described in Section 6.05, except the spouse
need not consent to the form of benefit payable to the designated Beneficiary.
The spouse's consent to the waiver of the preretirement survivor annuity is
irrevocable, unless the Participant revokes the waiver election. Irrespective of
the time of election requirement described in clause (a), if the Participant
separates from Service prior to the first day of the Plan Year in which he
attains age 35, the Advisory Committee will accept a waiver election as respects
the Participant's Accrued Benefit attributable to his Service prior to his
Separation from Service. Furthermore, if a Participant who has not separated
from Service makes a valid waiver election, except for the timing requirement of
clause (a), the Advisory Committee will accept that election as valid, but only
until the first day of the Plan Year in which the Participant attains age 35. A
waiver
6.08
<PAGE>
election described in this paragraph is not valid unless made after the
Participant has received the written explanation described in this Section 6.06.
6.07 DISTRIBUTIONS UNDER DOMESTIC RELATIONS ORDERS. Nothing contained
in this Plan prevents the Trustee, in accordance with the direction of the
Advisory Committee, from complying with the provisions of a qualified domestic
relations order (as defined in Code Section 414(p)). This Plan specifically
permits distribution to an alternate payee under a qualified domestic relations
order at any time, irrespective of whether the Participant has attained his
earliest retirement age (as defined under Code Section 414(p)) under the Plan. A
distribution to an alternate payee prior to the Participant's attainment of
earliest retirement age is available only if: (1) the order specifies
distribution at that time or permits an agreement between the Plan and the
alternate payee to authorize an earlier distribution; and (2) if the present
value of the alternate payee's benefits under the Plan exceeds $3,500, and the
order requires, the alternate payee consents to any distribution occurring prior
to the Participant's attainment of earliest retirement age. The Employer, in an
addendum to its Adoption Agreement numbered 6.07, may elect to limit
distribution to an alternate payee only when the Participant has attained his
earliest retirement age under the Plan. Nothing in this Section 6.07 gives a
Participant a right to receive distribution at a time otherwise not permitted
under the Plan nor does it permit the alternate payee to receive a form of
payment not otherwise permitted under the Plan.
The Advisory Committee must establish reasonable procedures to determine
the qualified status of a domestic relations order. Upon receiving a domestic
relations order, the Advisory Committee promptly will notify the Participant and
any alternate payee named in the order, in writing, of the receipt of the order
and the Plan's procedures for determining the qualified status of the order.
Within a reasonable period of time after receiving the domestic relations order,
the Advisory Committee must determine the qualified status of the order and must
notify the Participant and each alternate payee, in writing, of its
determination. The Advisory Committee must provide notice under this paragraph
by mailing to the individual's address specified in the domestic relations
order, or in a manner consistent with Department of Labor regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Advisory Committee is making its determination of
the qualified status of the domestic relations order, the Advisory Committee
must make a separate accounting of the amounts payable. If the Advisory
Committee determines the order is a qualified domestic relations order within 18
months of the date amounts first are payable following receipt of the order, the
Advisory Committee will direct the Trustee to distribute the payable amounts in
accordance with the order. If the Advisory Committee does not make its
determination of the qualified status of the order within the 18-month
determination period, the Advisory Committee will direct the Trustee to
distribute the payable amounts in the manner the Plan would distribute if the
order did not exist and will apply the order prospectively if the Advisory
Committee later determines the order is a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the qualified
domestic relations order, the Advisory Committee may direct the Trustee to
invest any partitioned amount in a segregated subaccount or separate account and
to invest the account in Federally insured, interest-bearing savings account(s)
or time deposit(s) (or a combination of both), or in other fixed income
investments. A segregated subaccount remains a part of the Trust, but it alone
shares in any income it earns, and it alone bears any expense or loss it incurs.
The Trustee will make any payments or distributions required under this Section
6.07 by separate benefit checks or other separate distribution to the alternate
payee(s).
* * * * * * * * * * * * * * *
6.09
<PAGE>
ARTICLE VII
EMPLOYER ADMINISTRATIVE PROVISIONS
7.01 INFORMATION TO COMMITTEE. The Employer must supply current
information to the Advisory Committee as to the name, date of birth, date of
employment, annual compensation, leaves of absence, Years of Service and date of
termination of employment of each Employee who is, or who will be eligible to
become, a Participant under the Plan, together with any other information which
the Advisory Committee considers necessary. The Employer's records as to the
current information the Employer furnishes to the Advisory Committee are
conclusive as to all persons.
7.02 NO LIABILITY. The Employer assumes no obligation or responsibility
to any of its Employees, Participants or Beneficiaries for any act of, or
failure to act, on the part of its Advisory Committee (unless the Employer is
the Advisory Committee), the Trustee, the Custodian, if any, or the Plan
Administrator (unless the Employer is the Plan Administrator).
7.03 INDEMNITY OF CERTAIN FIDUCIARIES. The Employer indemnifies and
saves harmless the Plan Administrator and the members of the Advisory Committee,
and each of them, from and against any and all loss resulting from liability to
which the Plan Administrator and the Advisory Committee, or the members of the
Advisory Committee, may be subjected by reason of any act or conduct (except
willful misconduct or gross negligence) in their official capacities in the
administration of this Trust or Plan or both, including all expenses reasonably
incurred in their defense, in case the Employer fails to provide such defense.
The indemnification provisions of this Section 7.03 do not relieve the Plan
Administrator or any Advisory Committee member from any liability he may have
under ERISA for breach of a fiduciary duty. Furthermore, the Plan Administrator
and the Advisory Committee members and the Employer may execute a letter
agreement further delineating the indemnification agreement of this Section
7.03, provided the letter agreement must be consistent with and does not violate
ERISA. The indemnification provisions of this Section 7.03 extend to the Trustee
(or to a Custodian, if any) solely to the extent provided by a letter agreement
executed by the Trustee (or Custodian) and the Employer.
7.04 EMPLOYER DIRECTION OF INVESTMENT. The Employer has the right to
direct the Trustee with respect to the investment and re-investment of assets
comprising the Trust Fund only if the Trustee consents in writing to permit such
direction. If the Trustee consents to Employer direction of investment, the
Trustee and the Employer must execute a letter agreement as a part of this Plan
containing such conditions, limitations and other provisions they deem
appropriate before the Trustee will follow any Employer direction as respects
the investment or re-investment of any part of the Trust Fund.
7.05 AMENDMENT TO VESTING SCHEDULE. Though the Employer reserves the
right to amend the vesting schedule at any time, the Advisory Committee will
not apply the amended vesting schedule to reduce the Nonforfeitable percentage
of any Participant's Accrued Benefit derived from Employer contributions
(determined as of the later of the date the Employer adopts the amendment, or
the date the amendment becomes effective) to a percentage less than the
Nonforfeitable percentage computed under the Plan without regard to the
amendment. An amended vesting schedule will apply to a Participant only if the
Participant receives credit for at least one Hour of Service after the new
schedule becomes effective.
If the Employer makes a permissible amendment to the vesting schedule,
each Participant having at least 3 Years of Service with the Employer may elect
to have the percentage of his Nonforfeitable Accrued Benefit computed under the
Plan without regard to the amendment. For Plan Years beginning prior to January
1, 1989, the election described in the preceding sentence applies only to
Participants having at least 5 Years of Service with the
7.01
<PAGE>
Employer. The Participant must file his election with the Advisory Committee
within 60 days of the latest of (a) the Employer's adoption of the amendment;
(b) the effective date of the amendment; or (c) his receipt of a copy of the
amendment. The Advisory Committee, as soon as practicable, must forward a
true copy of any amendment to the vesting schedule to each affected
Participant, together with an explanation of the effect of the amendment, the
appropriate form upon which the Participant may make an election to remain
under the vesting schedule provided under the Plan prior to the amendment and
notice of the time within which the Participant must make an election to
remain under the prior vesting schedule. The election described in this
Section 7.05 does not apply to a Participant if the amended vesting schedule
provides for vesting at least as rapid at all times as the vesting schedule
in effect prior to the amendment. For purposes of this Section 7.05, an
amendment to the vesting schedule includes any Plan amendment which directly
or indirectly affects the computation of the Nonforfeitable percentage of an
Employee's rights to his Employer derived Accrued Benefit. Furthermore, the
Advisory Committee must treat any shift in the vesting schedule, due to a
change in the Plan's top heavy status, as an amendment to the vesting
schedule for purposes of this Section 7.05.
* * * * * * * * * * * * * * *
7.02
<PAGE>
ARTICLE VIII
PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 BENEFICIARY DESIGNATION. Any Participant may from time to time
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee will pay his Nonforfeitable Accrued Benefit (including any life
insurance proceeds payable to the Participant's Account) in the event of his
death and the Participant may designate the form and method of payment. The
Advisory Committee will prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Advisory
Committee, the form effectively revokes all designations filed prior to that
date by the same Participant.
(A) COORDINATION WITH SURVIVOR REQUIREMENTS. If the joint and survivor
requirements of Article VI apply to the Participant, this Section 8.01 does not
impose any special spousal consent requirements on the Participant's Beneficiary
designation. However, in the absence of spousal consent (as required by Article
VI) to the Participant's Beneficiary designation: (1) any waiver of the joint
and survivor annuity or of the preretirement survivor annuity is not valid; and
(2) if the Participant dies prior to his annuity starting date, the
Participant's Beneficiary designation will apply only to the portion of the
death benefit which is not payable as a preretirement survivor annuity.
Regarding clause (2), if the Participant's surviving spouse is a primary
Beneficiary under the Participant's Beneficiary designation, the Trustee will
satisfy the spouse's interest in the Participant's death benefit first from the
portion which is payable as a preretirement survivor annuity.
(B) PROFIT SHARING PLAN EXCEPTION. If the Plan is a profit sharing plan, the
Beneficiary designation of a married Exempt Participant is not valid unless the
Participant's spouse consents (in a manner described in Section 6.05) to the
Beneficiary designation. An "Exempt Participant" is a Participant who is not
subject to the joint and survivor requirements of Article VI. The spousal
consent requirement in this paragraph does not apply if the Exempt Participant
and his spouse are not married throughout the one year period ending on the date
of the Participant's death, or if the Participant's spouse is the Participant's
sole primary Beneficiary.
8.02 NO BENEFICIARY DESIGNATION/DEATH OF BENEFICIARY. If a Participant
fails to name a Beneficiary in accordance with Section 8.01, or if the
Beneficiary named by a Participant predeceases him, then the Trustee will pay
the Participant's Nonforfeitable Accrued Benefit in accordance with Section 6.02
in the following order of priority, unless the Employer specifies a different
order of priority in an addendum to its Adoption Agreement, to:
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including adopted children,
in equal shares;
(c) The Participant's surviving parents, in equal shares; or
(d) The Participant's estate.
If the Beneficiary does not predecease the Participant, but dies prior to
distribution of the Participant's entire Nonforfeitable Accrued Benefit, the
Trustee will pay the remaining Nonforfeitable Accrued Benefit to the
Beneficiary's estate unless the Participant's Beneficiary designation provides
otherwise or unless the Employer provides otherwise in its Adoption Agreement.
If the Plan is a profit sharing plan, and the Plan includes Exempt Participants,
the Employer may not specify a different order of priority in the Adoption
Agreement unless the Participant's surviving spouse will be first in the
different order of priority. The Advisory Committee will direct the Trustee as
to the method and to whom the Trustee will make payment under this Section 8.02.
8.01
<PAGE>
8.03 PERSONAL DATA TO COMMITTEE. Each Participant and each Beneficiary
of a deceased Participant must furnish to the Advisory Committee such evidence,
data or information as the Advisory Committee considers necessary or desirable
for the purpose of administering the Plan. The provisions of this Plan are
effective for the benefit of each Participant upon the condition precedent that
each Participant will furnish promptly full, true and complete evidence, data
and information when requested by the Advisory Committee, provided the Advisory
Committee advises each Participant of the effect of his failure to comply with
its request.
8.04 ADDRESS FOR NOTIFICATION. Each Participant and each Beneficiary of
a deceased Participant must file with the Advisory Committee from time to time,
in writing, his post office address and any change of post office address. Any
communication, statement or notice addressed to a Participant, or Beneficiary,
at his last post office address filed with the Advisory Committee, or as shown
on the records of the Employer, binds the Participant, or Beneficiary, for all
purposes of this Plan.
8.05 ASSIGNMENT OR ALIENATION. Subject to Code Section 414(p) relating
to qualified domestic relations orders, neither a Participant nor a Beneficiary
may anticipate, assign or alienate (either at law or in equity) any benefit
provided under the Plan, and the Trustee will not recognize any such
anticipation, assignment or alienation. Furthermore, a benefit under the Plan is
not subject to attachment, garnishment, levy, execution or other legal or
equitable process.
8.06 NOTICE OF CHANGE IN TERMS. The Plan Administrator, within the
time prescribed by ERISA and the applicable regulations, must furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by ERISA to be furnished without charge.
8.07 LITIGATION AGAINST THE TRUST. A court of competent jurisdiction
may authorize any appropriate equitable relief to redress violations of ERISA or
to enforce any provisions of ERISA or the terms of the Plan. A fiduciary may
receive reimbursement of expenses properly and actually incurred in the
performance of his duties with the Plan.
8.08 INFORMATION AVAILABLE. Any Participant in the Plan or any
Beneficiary may examine copies of the Plan description, latest annual report,
any bargaining agreement, this Plan and Trust, contract or any other instrument
under which the Plan was established or is operated. The Plan Administrator will
maintain all of the items listed in this Section 8.08 in his office, or in such
other place or places as he may designate from time to time in order to comply
with the regulations issued under ERISA, for examination during reasonable
business hours. Upon the written request of a Participant or Beneficiary the
Plan Administrator must furnish him with a copy of any item listed in this
Section 8.08. The Plan Administrator may make a reasonable charge to the
requesting person for the copy so furnished.
8.09 APPEAL PROCEDURE FOR DENIAL OF BENEFITS. A Participant or a
Beneficiary ("Claimant") may file with the Advisory Committee a written claim
for benefits, if the Participant or Beneficiary determines the distribution
procedures of the Plan have not provided him his proper Nonforfeitable Accrued
Benefit. The Advisory Committee must render a decision on the claim within 60
days of the Claimant's written claim for benefits. The Plan Administrator must
provide adequate notice in writing to the Claimant whose claim for benefits
under the Plan the Advisory Committee has denied. The Plan Administrator's
notice to the Claimant must set forth:
8.02
<PAGE>
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the
Advisory Committee based its denial;
(c) A description of any additional material and information needed
for the Claimant to perfect his claim and an explanation of why the
material or information is needed; and
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Advisory Committee within 75 days
after receipt of the Plan Administrator's notice of denial of benefits.
The Plan Administrator's notice must further advise the Claimant that his
failure to appeal the action to the Advisory Committee in writing within
the 75-day period will render the Advisory Committee's determination
final, binding and conclusive.
If the Claimant should appeal to the Advisory Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and comments
he, or his duly authorized representative, feels are pertinent. The Claimant, or
his duly authorized representative, may review pertinent Plan documents. The
Advisory Committee will re-examine all facts related to the appeal and make a
final determination as to whether the denial of benefits is justified under the
circumstances. The Advisory Committee must advise the Claimant of its decision
within 60 days of the Claimant's written request for review, unless special
circumstances (such as a hearing) would make the rendering of a decision within
the 60-day limit unfeasible, but in no event may the Advisory Committee render a
decision respecting a denial for a claim for benefits later than 120 days after
its receipt of a request for review.
The Plan Administrator's notice of denial of benefits must identify the
name of each member of the Advisory Committee and the name and address of the
Advisory Committee member to whom the Claimant may forward his appeal.
8.10 PARTICIPANT DIRECTION OF INVESTMENT. A Participant has the right
to direct the Trustee with respect to the investment or re-investment of the
assets comprising the Participant's individual Account only if the Trustee
consents in writing to permit such direction. If the Trustee consents to
Participant direction of investment, the Trustee will accept direction from each
Participant on a written election form (or other written agreement), as a part
of this Plan, containing such conditions, limitations and other provisions the
parties deem appropriate. The Trustee or, with the Trustee's consent, the
Advisory Committee, may establish written procedures, incorporated specifically
as part of this Plan, relating to Participant direction of investment under this
Section 8.10. The Trustee will maintain a segregated investment Account to the
extent a Participant's Account is subject to Participant self-direction. The
Trustee is not liable for any loss, nor is the Trustee liable for any breach,
resulting from a Participant's direction of the investment of any part of his
directed Account.
The Advisory Committee, to the extent provided in a written loan policy
adopted under Section 9.04, will treat a loan made to a Participant as a
Participant direction of investment under this Section 8.10. To the extent of
the loan outstanding at any time, the borrowing Participant's Account alone
shares in any interest paid on the loan, and it alone bears any expense or loss
it incurs in connection with the loan. The Trustee may retain any principal or
interest paid on the borrowing Participant's loan in an interest bearing
segregated Account on behalf of the borrowing Participant until the Trustee (or
the Named Fiduciary, in the case of a nondiscretionary Trustee) deems it
appropriate to add the amount paid to the Participant's separate Account under
the Plan.
If the Trustee consents to Participant direction of investment of his
Account, the Plan treats any post-
8.03
<PAGE>
December 31, 1981, investment by a Participant's directed Account in
collectibles (as defined by Code Section 408(m)) as a deemed distribution to
the Participant for Federal income tax purposes.
* * * * * * * * * * * * * * *
8.04
<PAGE>
ARTICLE IX
ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS
9.01 MEMBERS' COMPENSATION, EXPENSES. The Employer must appoint an
Advisory Committee to administer the Plan, the members of which may or may not
be Participants in the Plan, or which may be the Plan Administrator acting
alone. In the absence of an Advisory Committee appointment, the Plan
Administrator assumes the powers, duties and responsibilities of the Advisory
Committee. The members of the Advisory Committee will serve without compensation
for services as such, but the Employer will pay all expenses of the Advisory
Committee, except to the extent the Trust properly pays for such expenses,
pursuant to Article X.
9.02 TERM. Each member of the Advisory Committee serves until the
appointment of his successor.
9.03 POWERS. In case of a vacancy in the membership of the Advisory
Committee, the remaining members of the Advisory Committee may exercise any and
all of the powers, authority, duties and discretion conferred upon the Advisory
Committee pending the filling of the vacancy.
9.04 GENERAL. The Advisory Committee has the following powers and
duties:
(a) To select a Secretary, who need not be a member of the Advisory
Committee;
(b) To determine the rights of eligibility of an Employee to
participate in the Plan, the value of a Participant's Accrued Benefit and
the Nonforfeitable percentage of each Participant's Accrued Benefit;
(c) To adopt rules of procedure and regulations necessary for the
proper and efficient administration of the Plan provided the rules are
not inconsistent with the terms of this Agreement;
(d) To construe and enforce the terms of the Plan and the rules and
regulations it adopts, including interpretation of the Plan documents and
documents related to the Plan's operation;
(e) To direct the Trustee as respects the crediting and distribution
of the Trust;
(f) To review and render decisions respecting a claim for (or denial
of a claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may
require for tax or other purposes;
(h) To engage the service of agents whom it may deem advisable to
assist it with the performance of its duties;
(i) To engage the services of an Investment Manager or Managers (as
defined in ERISA Section 3(38)), each of whom will have full power and
authority to manage, acquire or dispose (or direct the Trustee with
respect to acquisition or disposition) of any Plan asset under its
control;
(j) To establish, in its sole discretion, a nondiscriminatory policy
(see Section 9.04(A)) which the Trustee must observe in making loans, if
any, to Participants and Beneficiaries; and
(k) To establish and maintain a funding standard account and to make
credits and charges to the
9.01
<PAGE>
account to the extent required by and in accordance with the provisions
of the Code.
The Advisory Committee must exercise all of its powers, duties and
discretion under the Plan in a uniform and nondiscriminatory manner.
(A) LOAN POLICY. If the Advisory Committee adopts a loan policy, pursuant to
paragraph (j), the loan policy must be a written document and must include: (1)
the identity of the person or positions authorized to administer the participant
loan program; (2) a procedure for applying for the loan; (3) the criteria for
approving or denying a loan; (4) the limitations, if any, on the types and
amounts of loans available; (5) the procedure for determining a reasonable rate
of interest; (6) the types of collateral which may secure the loan; and (7) the
events constituting default and the steps the Plan will take to preserve plan
assets in the event of default. This Section 9.04 specifically incorporates a
written loan policy as part of the Employer's Plan.
9.05 FUNDING POLICY. The Advisory Committee will review, not less often
than annually, all pertinent Employee information and Plan data in order to
establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Advisory Committee must
communicate periodically, as it deems appropriate, to the Trustee and to any
Plan Investment Manager the Plan's short-term and long-term financial needs so
investment policy can be coordinated with Plan financial requirements.
9.06 MANNER OF ACTION. The decision of a majority of the members
appointed and qualified controls.
9.07 AUTHORIZED REPRESENTATIVE. The Advisory Committee may
authorize any one of its members, or its Secretary, to sign on its behalf any
notices, directions, applications, certificates, consents, approvals, waivers,
letters or other documents. The Advisory Committee must evidence this authority
by an instrument signed by all members and filed with the Trustee.
9.08 INTERESTED MEMBER. No member of the Advisory Committee may
decide or determine any matter concerning the distribution, nature or method of
settlement of his own benefits under the Plan, except in exercising an election
available to that member in his capacity as a Participant, unless the Plan
Administrator is acting alone in the capacity of the Advisory Committee.
9.09 INDIVIDUAL ACCOUNTS. The Advisory Committee will maintain, or
direct the Trustee to maintain, a separate Account, or multiple Accounts, in
the name of each Participant to reflect the Participant's Accrued Benefit under
the Plan. If a Participant re-enters the Plan subsequent to his having a
Forfeiture Break in Service, the Advisory Committee, or the Trustee, must
maintain a separate Account for the Participant's pre-Forfeiture Break in
Service Accrued Benefit and a separate Account for his post-Forfeiture Break in
Service Accrued Benefit, unless the Participant's entire Accrued Benefit under
the Plan is 100% Nonforfeitable.
The Advisory Committee will make its allocations, or request the Trustee
to make its allocations, to the Accounts of the Participants in accordance with
the provisions of Section 9.11. The Advisory Committee may direct the Trustee to
maintain a temporary segregated investment Account in the name of a Participant
to prevent a distortion of income, gain or loss allocations under Section 9.11.
The Advisory Committee must maintain records of its activities.
9.10 VALUE OF PARTICIPANT'S ACCRUED BENEFIT. The value of each
Participant's Accrued Benefit consists of that proportion of the net worth (at
fair market value) of the Employer's Trust Fund which the
9.02
<PAGE>
net credit balance in his Account (exclusive of the cash value of incidental
benefit insurance contracts) bears to the total net credit balance in the
Accounts (exclusive of the cash value of the incidental benefit insurance
contracts) of all Participants plus the cash surrender value of any
incidental benefit insurance contracts held by the Trustee on the
Participant's life.
For purposes of a distribution under the Plan, the value of a
Participant's Accrued Benefit is its value as of the valuation date immediately
preceding the date of the distribution. Any distribution (other than a
distribution from a segregated Account) made to a Participant (or to his
Beneficiary) more than 90 days after the most recent valuation date may include
interest on the amount of the distribution as an expense of the Trust Fund. The
interest, if any, accrues from such valuation date to the date of the
distribution at the rate established in the Employer's Adoption Agreement.
9.11 ALLOCATION AND DISTRIBUTION OF NET INCOME GAIN OR LOSS. A
"valuation date" under this Plan is each Accounting Date and each interim
valuation date determined under Section 10.14. As of each valuation date the
Advisory Committee must adjust Accounts to reflect net income, gain or loss
since the last valuation date. The valuation period is the period beginning the
day after the last valuation date and ending on the current valuation date.
(A) TRUST FUND ACCOUNTS. The allocation provisions of this paragraph apply to
all Participant Accounts other than segregated investment Accounts. The Advisory
Committee first will adjust the Participant Accounts, as those Accounts stood at
the beginning of the current valuation period, by reducing the Accounts for any
forfeitures arising under Section 5.09 or under Section 9.14, for amounts
charged during the valuation period to the Accounts in accordance with Section
9.13 (relating to distributions) and Section 11.01 (relating to insurance
premiums), and for the cash value of incidental benefit insurance contracts. The
Advisory Committee then, subject to the restoration allocation requirements of
Section 5.04 or of Section 9.14, will allocate the net income, gain or loss pro
rata to the adjusted Participant Accounts. The allocable net income, gain or
loss is the net income (or net loss), including the increase or decrease in the
fair market value of assets, since the last valuation date.
(B) SEGREGATED INVESTMENT ACCOUNTS. A segregated investment Account receives
all income it earns and bears all expense or loss it incurs. The Advisory
Committee will adopt uniform and nondiscriminatory procedures for determining
income or loss of a segregated investment Account in a manner which reasonably
reflects investment directions relating to pooled investments and investment
directions occurring during a valuation period. As of the valuation date, the
Advisory Committee must reduce a segregated Account for any forfeiture arising
under Section 5.09 after the Advisory Committee has made all other allocations,
changes or adjustments to the Account for the Plan Year.
(C) ADDITIONAL RULES. An Excess Amount or suspense account described in Part
2 of Article III does not share in the allocation of net income, gain or loss
described in this Section 9.11. If the Employer maintains its Plan under a Code
Section 401(k) Adoption Agreement, the Employer may specify in its Adoption
Agreement alternate valuation provisions authorized by that Adoption Agreement.
This Section 9.11 applies solely to the allocation of net income, gain or loss
of the Trust. The Advisory Committee will allocate the Employer contributions
and Participant forfeitures, if any, in accordance with Article III.
9.12 INDIVIDUAL STATEMENT. As soon as practicable after the Accounting
Date of each Plan Year, but within the time prescribed by ERISA and the
regulations under ERISA, the Plan Administrator will deliver to each Participant
(and to each Beneficiary) a statement reflecting the condition of his Accrued
Benefit in
9.03
<PAGE>
the Trust as of that date and such other information ERISA requires be
furnished the Participant or Beneficiary. No Participant, except a member of
the Advisory Committee, has the right to inspect the records reflecting the
Account of any other Participant.
9.13 ACCOUNT CHARGED. The Advisory Committee will charge a
Participant's Account for all distributions made from that Account to the
Participant, to his Beneficiary or to an alternate payee. The Advisory
Committee also will charge a Participant's Account for any administrative
expenses incurred by the Plan directly related to that Account.
9.14 UNCLAIMED ACCOUNT PROCEDURE. The Plan does not require
either the Trustee or the Advisory Committee to search for, or to ascertain
the whereabouts of, any Participant or Beneficiary. At the time the
Participant's or Beneficiary's benefit becomes distributable under Article VI,
the Advisory Committee, by certified or registered mail addressed to his last
known address of record with the Advisory Committee or the Employer, must notify
any Participant, or Beneficiary, that he is entitled to a distribution under
this Plan. The notice must quote the provisions of this Section 9.14 and
otherwise must comply with the notice requirements of Article VI. If the
Participant, or Beneficiary, fails to claim his distributive share or make his
whereabouts known in writing to the Advisory Committee within 6 months from the
date of mailing of the notice, the Advisory Committee will treat the
Participant's or Beneficiary's unclaimed payable Accrued Benefit as forfeited
and will reallocate the unclaimed payable Accrued Benefit in accordance with
Section 3.05. A forfeiture under this paragraph will occur at the end of the
notice period or, if later, the earliest date applicable Treasury regulations
would permit the forfeiture. Pending forfeiture, the Advisory Committee,
following the expiration of the notice period, may direct the Trustee to
segregate the Nonforfeitable Accrued Benefit in a segregated Account and to
invest that segregated Account in Federally insured interest bearing savings
accounts or time deposits (or in a combination of both), or in other fixed
income investments.
If a Participant or Beneficiary who has incurred a forfeiture of his
Accrued Benefit under the provisions of the first paragraph of this Section 9.14
makes a claim, at any time, for his forfeited Accrued Benefit, the Advisory
Committee must restore the Participant's or Beneficiary's forfeited Accrued
Benefit to the same dollar amount as the dollar amount of the Accrued Benefit
forfeited, unadjusted for any gains or losses occurring subsequent to the date
of the forfeiture. The Advisory Committee will make the restoration during the
Plan Year in which the Participant or Beneficiary makes the claim, first from
the amount, if any, of Participant forfeitures the Advisory Committee otherwise
would allocate for the Plan Year, then from the amount, if any, of the Trust
Fund net income or gain for the Plan Year and then from the amount, or
additional amount, the Employer contributes to enable the Advisory Committee to
make the required restoration. The Advisory Committee must direct the Trustee to
distribute the Participant's or Beneficiary's restored Accrued Benefit to him
not later than 60 days after the close of the Plan Year in which the Advisory
Committee restores the forfeited Accrued Benefit. The forfeiture provisions of
this Section 9.14 apply solely to the Participant's or to the Beneficiary's
Accrued Benefit derived from Employer contributions.
* * * * * * * * * * * * * * *
9.04
<PAGE>
ARTICLE X
TRUSTEE AND CUSTODIAN, POWERS AND DUTIES
10.01 ACCEPTANCE. The Trustee accepts the Trust created under the Plan
and agrees to perform the obligations imposed. The Trustee must provide bond for
the faithful performance of its duties under the Trust to the extent required by
ERISA.
10.02 RECEIPT OF CONTRIBUTIONS. The Trustee is accountable to the
Employer for the funds contributed to it by the Employer, but does not have any
duty to see that the contributions received comply with the provisions of the
Plan. The Trustee is not obliged to collect any contributions from the Employer,
nor is obliged to see that funds deposited with it are deposited according to
the provisions of the Plan.
10.03 INVESTMENT POWERS.
[A] DISCRETIONARY TRUSTEE DESIGNATION. If the Employer, in Adoption Agreement
Section 1.02, designates the Trustee to administer the Trust as a discretionary
Trustee, then the Trustee has full discretion and authority with regard to the
investment of the Trust Fund, except with respect to a Plan asset under the
control or direction of a properly appointed Investment Manager or with respect
to a Plan asset properly subject to Employer, Participant or Advisory Committee
direction of investment. The Trustee must coordinate its investment policy with
Plan financial needs as communicated to it by the Advisory Committee. The
Trustee is authorized and empowered, but not by way of limitation, with the
following powers, rights and duties:
(a) To invest any part or all of the Trust Fund in any common or
preferred stocks, open-end or closed-end mutual funds, put and call
options traded on a national exchange, United States retirement plan
bonds, corporate bonds, debentures, convertible debentures, commercial
paper, U.S. Treasury bills, U.S. Treasury notes and other direct or
indirect obligations of the United States Government or its agencies,
improved or unimproved real estate situated in the United States, limited
partnerships, insurance contracts of any type, mortgages, notes or other
property of any kind, real or personal, to buy or sell options on common
stock on a nationally recognized exchange with or without holding the
underlying common stock, to buy and sell commodities, commodity options
and contracts for the future delivery of commodities, and to make any
other investments the Trustee deems appropriate, as a prudent man would
do under like circumstances with due regard for the purposes of this
Plan. Any investment made or retained by the Trustee in good faith is
proper but must be of a kind constituting a diversification considered by
law suitable for trust investments.
(b) To retain in cash so much of the Trust Fund as it may deem
advisable to satisfy liquidity needs of the Plan and to deposit any cash
held in the Trust Fund in a bank account at reasonable interest.
(c) To invest, if the Trustee is a bank or similar financial
institution supervised by the United States or by a State, in any type of
deposit of the Trustee (or of a bank related to the Trustee within the
meaning of Code Section 414(b)) at a reasonable rate of interest or in a
common trust fund, as described in Code Section 584, or in a collective
investment fund, the provisions of which govern the investment of such
assets and which the Plan incorporates by this reference, which the
Trustee (or its affiliate, as defined in Code Section 1504) maintains
exclusively for the collective investment of money contributed by the
bank (or the affiliate) in its capacity as trustee and which conforms to
the rules of the Comptroller of the Currency.
(d) To manage, sell, contract to sell, grant options to purchase,
convey, exchange, transfer, abandon, improve, repair, insure, lease for
any term even though commencing in the future or extending beyond the
10.01
<PAGE>
term of the Trust, and otherwise deal with all property, real or
personal, in such manner, for such considerations and on such terms and
conditions as the Trustee decides.
(e) To credit and distribute the Trust as directed by the Advisory
Committee. The Trustee is not obliged to inquire as to whether any
payee or distributee is entitled to any payment or whether the
distribution is proper or within the terms of the Plan, or as to the
manner of making any payment or distribution. The Trustee is
accountable only to the Advisory Committee for any payment or
distribution made by it in good faith on the order or direction of
the Advisory Committee.
(f) To borrow money, to assume indebtedness, extend mortgages and
encumber by mortgage or pledge.
(g) To compromise, contest, arbitrate or abandon claims and demands,
in its discretion.
(h) To have with respect to the Trust all of the rights of an
individual owner, including the power to give proxies, to participate in
any voting trusts, mergers, consolidations or liquidations, and to
exercise or sell stock subscriptions or conversion rights.
(i) To lease for oil, gas and other mineral purposes and to create
mineral severances by grant or reservation; to pool or unitize interests
in oil, gas and other minerals; and to enter into operating agreements
and to execute division and transfer orders.
(j) To hold any securities or other property in the name of the
Trustee or its nominee, with depositories or agent depositories or in
another form as it may deem best, with or without disclosing the trust
relationship.
(k) To perform any and all other acts in its judgment necessary or
appropriate for the proper and advantageous management, investment and
distribution of the Trust.
(l) To retain any funds or property subject to any dispute without
liability for the payment of interest, and to decline to make payment or
delivery of the funds or property until final adjudication is made by a
court of competent jurisdiction.
(m) To file all tax returns required of the Trustee.
(n) To furnish to the Employer, the Plan Administrator and the
Advisory Committee an annual statement of account showing the condition
of the Trust Fund and all investments, receipts, disbursements and other
transactions effected by the Trustee during the Plan Year covered by the
statement and also stating the assets of the Trust held at the end of the
Plan Year, which accounts are conclusive on all persons, including the
Employer, the Plan Administrator and the Advisory Committee, except as to
any act or transaction concerning which the Employer, the Plan
Administrator or the Advisory Committee files with the Trustee written
exceptions or objections within 90 days after the receipt of the accounts
or for which ERISA authorizes a longer period within which to object.
(o) To begin, maintain or defend any litigation necessary in
connection with the administration of the Plan, except that the Trustee
is not obliged or required to do so unless indemnified to its
satisfaction.
[B] NONDISCRETIONARY TRUSTEE DESIGNATION/APPOINTMENT OF CUSTODIAN. If the
Employer, in its Adoption
10.02
<PAGE>
Agreement Section 1.02, designates the Trustee to administer the Trust as a
nondiscretionary Trustee, then the Trustee will not have any discretion or
authority with regard to the investment of the Trust Fund, but must act
solely as a directed trustee of the funds contributed to it. A
nondiscretionary Trustee, as directed trustee of the funds held by it under
the Employer's Plan, is authorized and empowered, by way of limitation, with
the following powers, rights and duties, each of which the nondiscretionary
Trustee exercises solely as directed trustee in accordance with the written
direction of the Named Fiduciary (except to the extent a Plan asset is
subject to the control and management of a properly appointed Investment
Manager or subject to Advisory Committee or Participant direction of
investment):
(a) To invest any part or all of the Trust Fund in any common or
preferred stocks, open-end or closed-end mutual funds, put and call options
traded on a national exchange, United States retirement plan bonds, corporate
bonds, debentures, convertible debentures, commercial paper, U.S. Treasury
bills, U.S. Treasury notes and other direct or indirect obligations of the
United States Government or its agencies, improved or unimproved real estate
situated in the United States, limited partnerships, insurance contracts of
any type, mortgages, notes or other property of any kind, real or personal,
to buy or sell options on common stock on a nationally recognized options
exchange with or without holding the underlying common stock, to buy and sell
commodities, commodity options and contracts for the future delivery of
commodities, and to make any other investments the Named Fiduciary deems
appropriate.
(b) To retain in cash so much of the Trust Fund as the Named Fiduciary
may direct in writing to satisfy liquidity needs of the Plan and to
deposit any cash held in the Trust Fund in a bank account at reasonable
interest, including, specific authority to invest in any type of deposit
of the Trustee (or of a bank related to the Trustee within the meaning of
Code Section 414(b)) at a reasonable rate of interest.
(c) To sell, contract to sell, grant options to purchase, convey,
exchange, transfer, abandon, improve, repair, insure, lease for any term
even though commencing in the future or extending beyond the term of the
Trust, and otherwise deal with all property, real or personal, in such
manner, for such considerations and on such terms and conditions as the
Named Fiduciary directs in writing.
(d) To credit and distribute the Trust as directed by the Advisory
Committee. The Trustee is not obliged to inquire as to whether any payee
or distributee is entitled to any payment or whether the distribution is
proper or within the terms of the Plan, or as to the manner of making any
payment or distribution. The Trustee is accountable only to the Advisory
Committee for any payment or distribution made by it in good faith on the
order or direction of the Advisory Committee.
(e) To borrow money, to assume indebtedness, extend mortgages and
encumber by mortgage or pledge.
(f) To have with respect to the Trust all of the rights of an
individual owner, including the power to give proxies, to participate in
any voting trusts, mergers, consolidations or liquidations, and to
exercise or sell stock subscriptions or conversion rights, provided the
exercise of any such powers is in accordance with and at the written
direction of the Named Fiduciary.
(g) To lease for oil, gas and other mineral purposes and to create
mineral severances by grant or reservation; to pool or unitize interests
in oil, gas and other minerals; and to enter into operating agreements
and to execute division and transfer orders, provided the exercise of any
such powers is in accordance with and at the written direction of the
Named Fiduciary.
10.03
<PAGE>
(h) To hold any securities or other property in the name of the
nondiscretionary Trustee or its nominee, with depositories or agent
depositories or in another form as the Named Fiduciary may deem best,
with or without disclosing the custodial relationship.
(i) To retain any funds or property subject to any dispute without
liability for the payment of interest, and to decline to make payment or
delivery of the funds or property until a court of competent jurisdiction
makes final adjudication.
(j) To file all tax returns required of the Trustee.
(k) To furnish to the Named Fiduciary, the Employer, the Plan
Administrator and the Advisory Committee an annual statement of account
showing the condition of the Trust Fund and all investments, receipts,
disbursements and other transactions effected by the nondiscretionary
Trustee during the Plan Year covered by the statement and also stating
the assets of the Trust held at the end of the Plan Year, which accounts
are conclusive on all persons, including the Named Fiduciary, the
Employer, the Plan Administrator and the Advisory Committee, except as to
any act or transaction concerning which the Named Fiduciary, the
Employer, the Plan Administrator or the Advisory Committee files with the
nondiscretionary Trustee written exceptions or objections within 90 days
after the receipt of the accounts or for which ERISA authorizes a longer
period within which to object.
(l) To begin, maintain or defend any litigation necessary in
connection with the administration of the Plan, except that the Trustee
is not obliged or required to do so unless indemnified to its
satisfaction.
APPOINTMENT OF CUSTODIAN. The Employer may appoint a Custodian under the
Plan, the acceptance by the Custodian indicated on the execution page of the
Employer's Adoption Agreement. If the Employer appoints a Custodian, the
Employer's Plan must have a discretionary Trustee, as described in Section
10.03[A]. A Custodian has the same powers, rights and duties as a
nondiscretionary Trustee, as described in this Section 10.03[B]. The Custodian
accepts the terms of the Plan and Trust by executing the Employer's Adoption
Agreement. Any reference in the Plan to a Trustee also is a reference to a
Custodian where the context of the Plan dictates. A limitation of the Trustee's
liability by Plan provision also acts as a limitation of the Custodian's
liability. Any action taken by the Custodian at the discretionary Trustee's
direction satisfies any provision in the Plan referring to the Trustee's taking
that action.
MODIFICATION OF POWERS/LIMITED RESPONSIBILITY. The Employer and the
Custodian or nondiscretionary Trustee, by letter agreement, may limit the powers
of the Custodian or nondiscretionary Trustee to any combination of powers listed
within this Section 10.03[B]. If there is a Custodian or a nondiscretionary
Trustee under the Employer's Plan, then the Employer, in adopting this Plan
acknowledges the Custodian or nondiscretionary Trustee has no discretion with
respect to the investment or re-investment of the Trust Fund and that the
Custodian or nondiscretionary Trustee is acting solely as custodian or as
directed trustee with respect to the assets comprising the Trust Fund.
[C] LIMITATION OF POWERS OF CERTAIN CUSTODIANS. If a Custodian is a bank
which, under its governing state law, does not possess trust powers, then
paragraphs (a), (c), (e), (f), (g) of Section 10.03[B], Section 10.16 and
Article XI do not apply to that bank and that bank only has the power and
authority to exercise the remaining powers, rights and duties under Section
10.03[B].
[D] NAMED FIDUCIARY/LIMITATION OF LIABILITY OF NONDISCRETIONARY TRUSTEE OR
CUSTODIAN. Under a
10.04
<PAGE>
nondiscretionary Trustee designation, the Named Fiduciary under the
Employer's Plan has the sole responsibility for the management and control of
the Employer's Trust Fund, except with respect to a Plan asset under the
control or direction of a properly appointed Investment Manager or with
respect to a Plan asset properly subject to Participant or Advisory Committee
direction of investment. If the Employer appoints a Custodian, the Named
Fiduciary is the discretionary Trustee. Under a nondiscretionary Trustee
designation, unless the Employer designates in writing another person or
persons to serve as Named Fiduciary, the Named Fiduciary under the Plan is
the president of a corporate Employer, the managing partner of a partnership
Employer or the sole proprietor, as appropriate. The Named Fiduciary will
exercise its management and control of the Trust Fund through its written
direction to the nondiscretionary Trustee or to the Custodian, whichever
applies to the Employer's Plan.
The nondiscretionary Trustee or Custodian has no duty to review or to
make recommendations regarding investments made at the written direction of the
Named Fiduciary. The nondiscretionary Trustee or Custodian must retain any
investment obtained at the written direction of the Named Fiduciary until
further directed in writing by the Named Fiduciary to dispose of such
investment. The nondiscretionary Trustee or Custodian is not liable in any
manner or for any reason for making, retaining or disposing of any investment
pursuant to any written direction described in this paragraph. Furthermore, the
Employer agrees to indemnify and to hold the nondiscretionary Trustee or
Custodian harmless from any damages, costs or expenses, including reasonable
counsel fees, which the nondiscretionary Trustee or Custodian may incur as a
result of any claim asserted against the nondiscretionary Trustee, the Custodian
or the Trust arising out of the nondiscretionary Trustee's or Custodian's
compliance with any written direction described in this paragraph.
[E] PARTICIPANT LOANS. This Section 10.03[E] specifically authorizes the
Trustee to make loans on a nondiscriminatory basis to a Participant or to a
Beneficiary in accordance with the loan policy established by the Advisory
Committee, provided: (1) the loan policy satisfies the requirements of Section
9.04; (2) loans are available to all Participants and Beneficiaries on a
reasonably equivalent basis and are not available in a greater amount for Highly
Compensated Employees than for other Employees; (3) any loan is adequately
secured and bears a reasonable rate of interest; (4) the loan provides for
repayment within a specified time; (5) the default provisions of the note
prohibit offset of the Participant's Nonforfeitable Accrued Benefit prior to the
time the Trustee otherwise would distribute the Participant's Nonforfeitable
Accrued Benefit; (6) the amount of the loan does not exceed (at the time the
Plan extends the loan) the present value of the Participant's Nonforfeitable
Accrued Benefit; and (7) the loan otherwise conforms to the exemption provided
by Code Section 4975(d)(1). If the joint and survivor requirements of Article VI
apply to the Participant, the Participant may not pledge any portion of his
Accrued Benefit as security for a loan made after August 18, 1985, unless,
within the 90 day period ending on the date the pledge becomes effective, the
Participant's spouse, if any, consents (in a manner described in Section 6.05
other than the requirement relating to the consent of a subsequent spouse) to
the security or, by separate consent, to an increase in the amount of security.
If the Employer is an unincorporated trade or business, a Participant who is an
Owner-Employee may not receive a loan from the Plan, unless he has obtained a
prohibited transaction exemption from the Department of Labor. If the Employer
is an "S Corporation," a Participant who is a shareholder-employee (an employee
or an officer) who, at any time during the Employer's taxable year, owns more
than 5%, either directly or by attribution under Code Section 318(a)(1), of the
Employer's outstanding stock may not receive a loan from the Plan, unless he has
obtained a prohibited transaction exemption from the Department of Labor. If the
Employer is not an unincorporated trade or business nor an "S Corporation," this
Section 10.03[E] does not impose any restrictions on the class of Participants
eligible for a loan from the Plan.
[F] INVESTMENT IN QUALIFYING EMPLOYER SECURITIES AND QUALIFYING EMPLOYER REAL
PROPERTY. The investment options in this Section 10.03[F] include the ability to
invest in qualifying Employer
10.05
<PAGE>
securities or qualifying Employer real property, as defined in and as limited
by ERISA. If the Employer's Plan is a Nonstandardized profit sharing plan, it
may elect in its Adoption Agreement to permit the aggregate investments in
qualifying Employer securities and in qualifying Employer real property to
exceed 10% of the value of Plan assets.
10.04 RECORDS AND STATEMENTS. The records of the Trustee pertaining to
the Plan must be open to the inspection of the Plan Administrator, the Advisory
Committee and the Employer at all reasonable times and may be audited from time
to time by any person or persons as the Employer, Plan Administrator or Advisory
Committee may specify in writing. The Trustee must furnish the Plan
Administrator or Advisory Committee with whatever information relating to the
Trust Fund the Plan Administrator or Advisory Committee considers necessary.
10.05 FEES AND EXPENSES FROM FUND. A Trustee or Custodian will receive
reasonable annual compensation as may be agreed upon from time to time between
the Employer and the Trustee or Custodian. No person who is receiving full pay
from the Employer may receive compensation for services as Trustee or as
Custodian. The Trustee will pay from the Trust Fund all fees and expenses
reasonably incurred by the Plan, to the extent such fees and expenses are for
the ordinary and necessary administration and operation of the Plan, unless the
Employer pays such fees and expenses. Any fee or expense paid, directly or
indirectly, by the Employer is not an Employer contribution to the Plan,
provided the fee or expense relates to the ordinary and necessary administration
of the Fund.
10.06 PARTIES TO LITIGATION. Except as otherwise provided by ERISA, no
Participant or Beneficiary is a necessary party or is required to receive notice
of process in any court proceeding involving the Plan, the Trust Fund or any
fiduciary of the Plan. Any final judgment entered in any proceeding will be
conclusive upon the Employer, the Plan Administrator, the Advisory Committee,
the Trustee, Custodian, Participants and Beneficiaries.
10.07 PROFESSIONAL AGENTS. The Trustee may employ and pay from the
Trust Fund reasonable compensation to agents, attorneys, accountants and other
persons to advise the Trustee as in its opinion may be necessary. The Trustee
may delegate to any agent, attorney, accountant or other person selected by it
any non-Trustee power or duty vested in it by the Plan, and the Trustee may act
or refrain from acting on the advice or opinion of any agent, attorney,
accountant or other person so selected.
10.08 DISTRIBUTION OF CASH OR PROPERTY. The Trustee may make
distribution under the Plan in cash or property, or partly in each, at its fair
market value as determined by the Trustee. For purposes of a distribution to a
Participant or to a Participant's designated Beneficiary or surviving spouse,
"property" includes a Nontransferable Annuity Contract, provided the contract
satisfies the requirements of this Plan.
10.09 DISTRIBUTION DIRECTIONS. If no one claims a payment or
distribution made from the Trust, the Trustee must promptly notify the Advisory
Committee and then dispose of the payment in accordance with the subsequent
direction of the Advisory Committee.
10.10 THIRD PARTY/MULTIPLE TRUSTEES. No person dealing with the Trustee
is obligated to see to the proper application of any money paid or property
delivered to the Trustee, or to inquire whether the Trustee has acted pursuant
to any of the terms of the Plan. Each person dealing with the Trustee may act
upon any notice, request or representation in writing by the Trustee, or by the
Trustee's duly authorized agent, and is not liable to any person in so acting.
The certificate of the Trustee that it is acting in accordance with the Plan
will be conclusive in favor of any person relying on the certificate. If more
than two persons act as Trustee, a decision of the majority of such persons
controls with respect to any decision regarding the administration or investment
of the Trust Fund or of any portion of the Trust Fund with respect to which such
persons act as Trustee. However, the signature of only one Trustee is necessary
to effect any transaction on behalf of the Trust.
10.06
<PAGE>
10.11 RESIGNATION. The Trustee or Custodian may resign its position at
any time by giving 30 days' written notice in advance to the Employer and to the
Advisory Committee. If the Employer fails to appoint a successor Trustee within
60 days of its receipt of the Trustee's written notice of resignation, the
Trustee will treat the Employer as having appointed itself as Trustee and as
having filed its acceptance of appointment with the former Trustee. The
Employer, in its sole discretion, may replace a Custodian. If the Employer does
not replace a Custodian, the discretionary Trustee will assume possession of
Plan assets held by the former Custodian.
10.12 REMOVAL. The Employer, by giving 30 days' written notice in
advance to the Trustee, may remove any Trustee or Custodian. In the event of the
resignation or removal of a Trustee, the Employer must appoint a successor
Trustee if it intends to continue the Plan. If two or more persons hold the
position of Trustee, in the event of the removal of one such person, during any
period the selection of a replacement is pending, or during any period such
person is unable to serve for any reason, the remaining person or persons will
act as the Trustee.
10.13 INTERIM DUTIES AND SUCCESSOR TRUSTEE. Each successor Trustee
succeeds to the title to the Trust vested in his predecessor by accepting in
writing his appointment as successor Trustee and by filing the acceptance with
the former Trustee and the Advisory Committee without the signing or filing of
any further statement. The resigning or removed Trustee, upon receipt of
acceptance in writing of the Trust by the successor Trustee, must execute all
documents and do all acts necessary to vest the title of record in any successor
Trustee. Each successor Trustee has and enjoys all of the powers, both
discretionary and ministerial, conferred under this Agreement upon his
predecessor. A successor Trustee is not personally liable for any act or failure
to act of any predecessor Trustee, except as required under ERISA. With the
approval of the Employer and the Advisory Committee, a successor Trustee, with
respect to the Plan, may accept the account rendered and the property delivered
to it by a predecessor Trustee without incurring any liability or responsibility
for so doing.
10.14 VALUATION OF TRUST. The Trustee must value the Trust Fund as of
each Accounting Date to determine the fair market value of each Participant's
Accrued Benefit in the Trust. The Trustee also must value the Trust Fund on such
other valuation dates as directed in writing by the Advisory Committee or as
required by the Employer's Adoption Agreement.
10.15 LIMITATION ON LIABILITY - IF INVESTMENT MANAGER, ANCILLARY
TRUSTEE OR INDEPENDENT FIDUCIARY APPOINTED. The Trustee is not liable for
the acts or omissions of any Investment Manager the Advisory Committee may
appoint, nor is the Trustee under any obligation to invest or otherwise manage
any asset of the Plan which is subject to the management of a properly appointed
Investment Manager. The Advisory Committee, the Trustee and any properly
appointed Investment Manager may execute a letter agreement as a part of this
Plan delineating the duties, responsibilities and liabilities of the Investment
Manager with respect to any part of the Trust Fund under the control of the
Investment Manager.
The limitation on liability described in this Section 10.15 also applies
to the acts or omissions of any ancillary trustee or independent fiduciary
properly appointed under Section 10.17 of the Plan. However, if a discretionary
Trustee, pursuant to the delegation described in Section 10.17 of the Plan,
appoints an ancillary trustee, the discretionary Trustee is responsible for the
periodic review of the ancillary trustee's actions and must exercise its
delegated authority in accordance with the terms of the Plan and in a manner
consistent with ERISA. The Employer, the discretionary Trustee and an ancillary
trustee may execute a letter agreement as a part of this Plan delineating any
indemnification agreement between the parties.
10.16 INVESTMENT IN GROUP TRUST FUND. The Employer, by adopting this
Plan, specifically authorizes the Trustee to invest all or any portion of the
assets comprising the Trust Fund in any group trust fund
10.07
<PAGE>
which at the time of the investment provides for the pooling of the assets of
plans qualified under Code Section 401(a). This authorization applies solely
to a group trust fund exempt from taxation under Code Section 501(a) and the
trust agreement of which satisfies the requirements of Revenue Ruling 81-100.
The provisions of the group trust fund agreement, as amended from time to
time, are by this reference incorporated within this Plan and Trust. The
provisions of the group trust fund will govern any investment of Plan assets
in that fund. The Employer must specify in an attachment to its adoption
agreement the group trust fund(s) to which this authorization applies. If the
Trustee is acting as a nondiscretionary Trustee, the investment in the group
trust fund is available only in accordance with a proper direction, by the
Named Fiduciary, in accordance with Section 10.03[B]. Pursuant to paragraph
(c) of Section 10.03[A] of the Plan, a Trustee has the authority to invest in
certain common trust funds and collective investment funds without the need
for the authorizing addendum described in this Section 10.16.
Furthermore, at the Employer's direction, the Trustee, for collective
investment purposes, may combine into one trust fund the Trust created under
this Plan with the Trust created under any other qualified retirement plan the
Employer maintains. However, the Trustee must maintain separate records of
account for the assets of each Trust in order to reflect properly each
Participant's Accrued Benefit under the plan(s) in which he is a Participant.
10.17 APPOINTMENT OF ANCILLARY TRUSTEE OR INDEPENDENT FIDUCIARY.
The Employer, in writing, may appoint any person in any State to act as
ancillary trustee with respect to a designated portion of the Trust Fund. An
ancillary trustee must acknowledge in writing its acceptance of the terms and
conditions of its appointment as ancillary trustee and its fiduciary status
under ERISA. The ancillary trustee has the rights, powers, duties and discretion
as the Employer may delegate, subject to any limitations or directions specified
in the instrument evidencing appointment of the ancillary trustee and to the
terms of the Plan or of ERISA. The investment powers delegated to the ancillary
trustee may include any investment powers available under Section 10.03 of the
Plan including the right to invest any portion of the assets of the Trust Fund
in a common trust fund, as described in Code Section 584, or in any collective
investment fund, the provisions of which govern the investment of such assets
and which the Plan incorporates by this reference, but only if the ancillary
trustee is a bank or similar financial institution supervised by the United
States or by a State and the ancillary trustee (or its affiliate, as defined in
Code Section 1504) maintains the common trust fund or collective investment fund
exclusively for the collective investment of money contributed by the ancillary
trustee (or its affiliate) in a trustee capacity and which conforms to the rules
of the Comptroller of the Currency. The Employer also may appoint as an
ancillary trustee, the trustee of any group trust fund designated for investment
pursuant to the provisions of Section 10.16 of the Plan.
The ancillary trustee may resign its position at any time by providing at
least 30 days' advance written notice to the Employer, unless the Employer
waives this notice requirement. The Employer, in writing, may remove an
ancillary trustee at any time. In the event of resignation or removal, the
Employer may appoint another ancillary trustee, return the assets to the control
and management of the Trustee or receive such assets in the capacity of
ancillary trustee. The Employer may delegate its responsibilities under this
Section 10.17 to a discretionary Trustee under the Plan, but not to a
nondiscretionary Trustee or to a Custodian, subject to the acceptance by the
discretionary Trustee of that delegation.
If the U.S. Department of Labor ("the Department") requires engagement of
an independent fiduciary to have control or management of all or a portion of
the Trust Fund, the Employer will appoint such independent fiduciary, as
directed by the Department. The independent fiduciary will have the duties,
responsibilities and powers prescribed by the Department and will exercise those
duties, responsibilities and powers in accordance with the terms, restrictions
and conditions established by the Department and, to the extent not inconsistent
with ERISA, the terms of the Plan. The independent fiduciary must accept its
appointment in writing and must acknowledge its status as a fiduciary of the
Plan.
* * * * * * * * * * * * * * *
10.08
<PAGE>
ARTICLE XI
PROVISIONS RELATING TO INSURANCE AND INSURANCE COMPANY
11.01 INSURANCE BENEFIT. The Employer may elect to provide incidental
life insurance benefits for insurable Participants who consent to life insurance
benefits by signing the appropriate insurance company application form. The
Trustee will not purchase any incidental life insurance benefit for any
Participant prior to an allocation to the Participant's Account. At an insured
Participant's written direction, the Trustee will use all or any portion of the
Participant's nondeductible voluntary contributions, if any, to pay insurance
premiums covering the Participant's life. This Section 11.01 also authorizes the
purchase of life insurance, for the benefit of the Participant, on the life of a
family member of the Participant or on any person in whom the Participant has an
insurable interest. However, if the policy is on the joint lives of the
Participant and another person, the Trustee may not maintain that policy if that
other person predeceases the Participant.
The Employer will direct the Trustee as to the insurance company and
insurance agent through which the Trustee is to purchase the insurance
contracts, the amount of the coverage and the applicable dividend plan. Each
application for a policy, and the policies themselves, must designate the
Trustee as sole owner, with the right reserved to the Trustee to exercise any
right or option contained in the policies, subject to the terms and provisions
of this Agreement. The Trustee must be the named beneficiary for the Account of
the insured Participant. Proceeds of insurance contracts paid to the
Participant's Account under this Article XI are subject to the distribution
requirements of Article V and of Article VI. The Trustee will not retain any
such proceeds for the benefit of the Trust.
The Trustee will charge the premiums on any incidental benefit insurance
contract covering the life of a Participant against the Account of that
Participant. The Trustee will hold all incidental benefit insurance contracts
issued under the Plan as assets of the Trust created under the Plan.
(A) INCIDENTAL INSURANCE BENEFITS. The aggregate of life insurance premiums
paid for the benefit of a Participant, at all times, may not exceed the
following percentages of the aggregate of the Employer's contributions allocated
to any Participant's Account: (i) 49% in the case of the purchase of ordinary
life insurance contracts; or (ii) 25% in the case of the purchase of term life
insurance or universal life insurance contracts. If the Trustee purchases a
combination of ordinary life insurance contract(s) and term life insurance or
universal life insurance contract(s), then the sum of one-half of the premiums
paid for the ordinary life insurance contract(s) and the premiums paid for the
term life insurance or universal life insurance contract(s) may not exceed 25%
of the Employer contributions allocated to any Participant's Account.
(B) EXCEPTION FOR CERTAIN PROFIT SHARING PLANS. If the Employer's Plan is a
profit sharing plan, the incidental insurance benefits requirement does not
apply to the Plan if the Plan purchases life insurance benefits only from
Employer contributions accumulated in the Participant's Account for at least two
years (measured from the allocation date).
11.02 LIMITATION ON LIFE INSURANCE PROTECTION. The Trustee will not
continue any life insurance protection for any Participant beyond his annuity
starting date (as defined in Article VI). If the Trustee holds any incidental
benefit insurance contract(s) for the benefit of a Participant when he
terminates his employment (other than by reason of death), the Trustee must
proceed as follows:
(a) If the entire cash value of the contract(s) is vested in the
terminating Participant, or if the contract(s) will have no cash value at
the end of the policy year in which termination of employment occurs, the
Trustee will transfer the contract(s) to the Participant endorsed so as
to vest in the transferee all
11.01
<PAGE>
right, title and interest to the contract(s), free and clear of the
Trust; subject however, to restrictions as to surrender or payment
of benefits as the issuing insurance company may permit and as the
Advisory Committee directs;
(b) If only part of the cash value of the contract(s) is vested in the
terminating Participant, the Trustee, to the extent the Participant's
interest in the cash value of the contract(s) is not vested, may adjust
the Participant's interest in the value of his Account attributable to
Trust assets other than incidental benefit insurance contracts and
proceed as in (a), or the Trustee must effect a loan from the issuing
insurance company on the sole security of the contract(s) for an amount
equal to the difference between the cash value of the contract(s) at the
end of the policy year in which termination of employment occurs and the
amount of the cash value that is vested in the terminating Participant,
and the Trustee must transfer the contract(s) endorsed so as to vest in
the transferee all right, title and interest to the contract(s), free and
clear of the Trust; subject however, to the restrictions as to surrender
or payment of benefits as the issuing insurance company may permit and
the Advisory Committee directs;
(c) If no part of the cash value of the contract(s) is vested in the
terminating Participant, the Trustee must surrender the contract(s) for
cash proceeds as may be available.
In accordance with the written direction of the Advisory Committee, the
Trustee will make any transfer of contract(s) under this Section 11.02 on the
Participant's annuity starting date (or as soon as administratively practicable
after that date). The Trustee may not transfer any contract under this Section
11.02 which contains a method of payment not specifically authorized by Article
VI or which fails to comply with the joint and survivor annuity requirements, if
applicable, of Article VI. In this regard, the Trustee either must convert such
a contract to cash and distribute the cash instead of the contract, or before
making the transfer, require the issuing company to delete the unauthorized
method of payment option from the contract.
11.03 DEFINITIONS. For purposes of this Article XI:
(a) "Policy" means an ordinary life insurance contract or a term life
insurance contract issued by an insurer on the life of a Participant.
(b) "Issuing insurance company" is any life insurance company which
has issued a policy upon application by the Trustee under the terms of
this Agreement.
(c) "Contract" or "Contracts" means a policy of insurance. In the
event of any conflict between the provisions of this Plan and the terms
of any contract or policy of insurance issued in accordance with this
Article XI, the provisions of the Plan control.
(d) "Insurable Participant" means a Participant to whom an insurance
company, upon an application being submitted in accordance with the Plan,
will issue insurance coverage, either as a standard risk or as a risk in
an extra mortality classification.
11.04 DIVIDEND PLAN. The dividend plan is premium reduction unless the
Advisory Committee directs the Trustee to the contrary. The Trustee must use all
dividends for a contract to purchase insurance benefits or additional insurance
benefits for the Participant on whose life the insurance company has issued the
contract. Furthermore, the Trustee must arrange, where possible, for all
policies issued on the lives of Participants under the Plan to have the same
premium due date and all ordinary life insurance contracts to contain guaranteed
cash values with as uniform basic options as are possible to obtain. The term
"dividends" includes policy dividends, refunds of
11.02
<PAGE>
premiums and other credits.
11.05 INSURANCE COMPANY NOT A PARTY TO AGREEMENT. No insurance
company, solely in its capacity as an issuing insurance company, is a party to
this Agreement nor is the company responsible for its validity.
11.06 INSURANCE COMPANY NOT RESPONSIBLE FOR TRUSTEE'S ACTIONS.
No insurance company, solely in its capacity as an issuing insurance company,
need examine the terms of this Agreement nor is responsible for any action taken
by the Trustee.
11.07 INSURANCE COMPANY RELIANCE ON TRUSTEE'S SIGNATURE. For the
purpose of making application to an insurance company and in the exercise of any
right or option contained in any policy, the insurance company may rely upon the
signature of the Trustee and is saved harmless and completely discharged in
acting at the direction and authorization of the Trustee.
11.08 ACQUITTANCE. An insurance company is discharged from all liability
for any amount paid to the Trustee or paid in accordance with the direction of
the Trustee, and is not obliged to see to the distribution or further
application of any moneys it so pays.
11.09 DUTIES OF INSURANCE COMPANY. Each insurance company must keep
such records, make such identification of contracts, funds and accounts within
funds, and supply such information as may be necessary for the proper
administration of the Plan under which it is carrying insurance benefits.
NOTE: The provisions of this Article XI are not applicable, and the Plan
may not invest in insurance contracts, if a Custodian signatory to the Adoption
Agreement is a bank which has not acquired trust powers from its governing state
banking authority.
* * * * * * * * * * * * * * *
11.03
<PAGE>
ARTICLE XII
MISCELLANEOUS
12.01 EVIDENCE. Anyone required to give evidence under the terms of the
Plan may do so by certificate, affidavit, document or other information which
the person to act in reliance may consider pertinent, reliable and genuine, and
to have been signed, made or presented by the proper party or parties. The
Advisory Committee and the Trustee are fully protected in acting and relying
upon any evidence described under the immediately preceding sentence.
12.02 NO RESPONSIBILITY FOR EMPLOYER ACTION. Neither the Trustee
nor the Advisory Committee has any obligation or responsibility with respect to
any action required by the Plan to be taken by the Employer, any Participant or
eligible Employee, or for the failure of any of the above persons to act or make
any payment or contribution, or to otherwise provide any benefit contemplated
under this Plan. Furthermore, the Plan does not require the Trustee or the
Advisory Committee to collect any contribution required under the Plan, or to
determine the correctness of the amount of any Employer contribution. Neither
the Trustee nor the Advisory Committee need inquire into or be responsible for
any action or failure to act on the part of the others, or on the part of any
other person who has any responsibility regarding the management, administration
or operation of the Plan, whether by the express terms of the Plan or by a
separate agreement authorized by the Plan or by the applicable provisions of
ERISA. Any action required of a corporate Employer must be by its Board of
Directors or its designate.
12.03 FIDUCIARIES NOT INSURERS. The Trustee, the Advisory Committee, the
Plan Administrator and the Employer in no way guarantee the Trust Fund from loss
or depreciation. The Employer does not guarantee the payment of any money which
may be or becomes due to any person from the Trust Fund. The liability of the
Advisory Committee and the Trustee to make any payment from the Trust Fund at
any time and all times is limited to the then available assets of the Trust.
12.04 WAIVER OF NOTICE. Any person entitled to notice under the Plan may
waive the notice, unless the Code or Treasury regulations prescribe the notice
or ERISA specifically or impliedly prohibits such a waiver.
12.05 SUCCESSORS. The Plan is binding upon all persons entitled to
benefits under the Plan, their respective heirs and legal representatives, upon
the Employer, its successors and assigns, and upon the Trustee, the Advisory
Committee, the Plan Administrator and their successors.
12.06 WORD USAGE. Words used in the masculine also apply to the feminine
where applicable, and wherever the context of the Employer's Plan dictates, the
plural includes the singular and the singular includes the plural.
12.07 STATE LAW. The law of the state of the Employer's principal place
of business (unless otherwise designated in an addendum to the Employer's
Adoption Agreement) will determine all questions arising with respect to the
provisions of this Agreement except to the extent superseded by Federal law.
12.08 EMPLOYER'S RIGHT TO PARTICIPATE. If the Employer's Plan fails to
qualify or to maintain qualification or if the Employer makes any amendment or
modification to a provision of this Plan (other than a proper completion of an
elective provision under the Adoption Agreement or the attachment of an addendum
authorized by the Plan or by the Adoption Agreement), the Employer may no longer
participate under this Prototype Plan. Furthermore, if the Employer no longer is
a client of the Regional Prototype Sponsor, pursuant to Section 13.03 of the
Plan, will result in the discontinuance of the Employer's participation in this
Prototype Plan
12.01
<PAGE>
unless it resumes its client relationship with the Regional Prototype
Sponsor. If the Employer is not entitled to participate under this Prototype
Plan, the Employer's Plan is an individually-designed plan and the reliance
procedures specified in the applicable Adoption Agreement no longer will
apply.
12.09 EMPLOYMENT NOT GUARANTEED. Nothing contained in this Plan, or with
respect to the establishment of the Trust, or any modification or amendment to
the Plan or Trust, or in the creation of any Account, or the payment of any
benefit, gives any Employee, Employee-Participant or any Beneficiary any right
to continue employment, any legal or equitable right against the Employer, or
Employee of the Employer, or against the Trustee, or its agents or employees, or
against the Plan Administrator, except as expressly provided by the Plan, the
Trust, ERISA or by a separate agreement.
* * * * * * * * * * * * * * *
12.02
<PAGE>
ARTICLE XIII
EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 EXCLUSIVE BENEFIT. Except as provided under Article III, the
Employer has no beneficial interest in any asset of the Trust and no part of any
asset in the Trust may ever revert to or be repaid to an Employer, either
directly or indirectly; nor, prior to the satisfaction of all liabilities with
respect to the Participants and their Beneficiaries under the Plan, may any part
of the corpus or income of the Trust Fund, or any asset of the Trust, be (at any
time) used for, or diverted to, purposes other than the exclusive benefit of the
Participants or their Beneficiaries. However, if the Commissioner of Internal
Revenue, upon the Employer's request for initial approval of this Plan,
determines the Trust created under the Plan is not a qualified trust exempt from
Federal income tax, then (and only then) the Trustee, upon written notice from
the Employer, will return the Employer's contributions (and increment
attributable to the contributions) to the Employer. The Trustee must make the
return of the Employer contribution under this Section 13.01 within one year of
a final disposition of the Employer's request for initial approval of the Plan.
The Employer's Plan and Trust will terminate upon the Trustee's return of the
Employer's contributions.
13.02 AMENDMENT BY EMPLOYER. The Employer has the right at any time
and from time to time:
(a) To amend the elective provisions of the Adoption Agreement in any
manner it deems necessary or advisable in order to qualify (or maintain
qualification of) this Plan and the Trust created under it under the
provisions of Code Section 401(a);
(b) To amend the Plan to allow the Plan to operate under a waiver of
the minimum funding requirement; and
(c) To amend this Agreement in any other manner.
No amendment may authorize or permit any of the Trust Fund (other than
the part which is required to pay taxes and administration expenses) to be used
for or diverted to purposes other than for the exclusive benefit of the
Participants or their Beneficiaries or estates. No amendment may cause or permit
any portion of the Trust Fund to revert to or become a property of the Employer.
The Employer also may not make any amendment which affects the rights, duties or
responsibilities of the Trustee, the Plan Administrator or the Advisory
Committee without the written consent of the affected Trustee, the Plan
Administrator or the affected member of the Advisory Committee. The Employer
must make all amendments in writing. Each amendment must state the date to which
it is either retroactively or prospectively effective. See Section 12.08 for the
effect of certain amendments adopted by the Employer.
(A) CODE Section 411(d)(6) PROTECTED BENEFITS. An amendment (including the
adoption of this Plan as a restatement of an existing plan) may not decrease a
Participant's Accrued Benefit, except to the extent permitted under Code Section
412(c)(8), and may not reduce or eliminate Code Section 411(d)(6) protected
benefits determined immediately prior to the adoption date (or, if later, the
effective date) of the amendment. An amendment reduces or eliminates Code
Section 411(d)(6) protected benefits if the amendment has the effect of either
(1) eliminating or reducing an early retirement benefit or a retirement-type
subsidy (as defined in Treasury regulations), or (2) except as provided by
Treasury regulations, eliminating an optional form of benefit. The Advisory
Committee must disregard an amendment to the extent application of the amendment
would fail to satisfy this paragraph. If the Advisory Committee must disregard
an amendment because the amendment would violate clause (1) or clause (2), the
Advisory Committee must maintain a schedule of the early retirement option or
other optional forms of benefit the
13.01
<PAGE>
Plan must continue for the affected Participants.
13.03 AMENDMENT BY REGIONAL PROTOTYPE PLAN SPONSOR. The Regional
Prototype Plan Sponsor, without the Employer's consent, may amend the Plan and
Trust, from time to time, in order to conform the Plan and Trust to any
requirement for qualification of the Plan and Trust under the Internal Revenue
Code. The Regional Prototype Plan Sponsor may not amend the Plan in any manner
which would modify any election made by the Employer under the Plan without the
Employer's written consent. Furthermore, the Regional Prototype Plan Sponsor may
not amend the Plan in any manner which would violate the proscription of Section
13.02. A Trustee does not have the power to amend the Plan or Trust.
13.04 DISCONTINUANCE. The Employer has the right, at any time, to
suspend or discontinue its contributions under the Plan, and to terminate, at
any time, this Plan and the Trust created under this Agreement. The Plan will
terminate upon the first to occur of the following:
(a) The date terminated by action of the Employer;
(b) The dissolution or merger of the Employer, unless the successor
makes provision to continue the Plan, in which event the successor must
substitute itself as the Employer under this Plan. Any termination of the
Plan resulting from this paragraph (b) is not effective until compliance
with any applicable notice requirements under ERISA.
13.05 FULL VESTING ON TERMINATION. Upon either full or partial
termination of the Plan, or, if applicable, upon complete discontinuance of
profit sharing plan contributions to the Plan, an affected Participant's right
to his Accrued Benefit is 100% Nonforfeitable, irrespective of the
Nonforfeitable percentage which otherwise would apply under Article V.
13.06 MERGER/DIRECT TRANSFER. The Trustee may not consent to, or be a
party to, any merger or consolidation with another plan, or to a transfer of
assets or liabilities to another plan, unless immediately after the merger,
consolidation or transfer, the surviving Plan provides each Participant a
benefit equal to or greater than the benefit each Participant would have
received had the Plan terminated immediately before the merger or consolidation
or transfer. The Trustee possesses the specific authority to enter into merger
agreements or direct transfer of assets agreements with the trustees of other
retirement plans described in Code Section 401(a), including an elective
transfer, and to accept the direct transfer of plan assets, or to transfer plan
assets, as a party to any such agreement.
The Trustee may accept a direct transfer of plan assets on behalf of an
Employee prior to the date the Employee satisfies the Plan's eligibility
conditions. If the Trustee accepts such a direct transfer of plan assets, the
Advisory Committee and Trustee must treat the Employee as a Participant for all
purposes of the Plan except the Employee is not a Participant for purposes of
sharing in Employer contributions or Participant forfeitures under the Plan
until he actually becomes a Participant in the Plan.
(A) ELECTIVE TRANSFERS. The Trustee, after August 9, 1988, may not consent
to, or be a party to a merger, consolidation or transfer of assets with a
defined benefit plan, except with respect to an elective transfer, or unless the
transferred benefits are in the form of paid-up individual annuity contracts
guaranteeing the payment of the transferred benefits in accordance with the
terms of the transferor plan and in a manner consistent with the Code and with
ERISA. The Trustee will hold, administer and distribute the transferred assets
as a part of the Trust Fund
13.02
<PAGE>
and the Trustee must maintain a separate Employer contribution Account for
the benefit of the Employee on whose behalf the Trustee accepted the transfer
in order to reflect the value of the transferred assets. Unless a transfer of
assets to this Plan is an elective transfer, the Plan will preserve all Code
Section 411(d)(6) protected benefits with respect to those transferred
assets, in the manner described in Section 13.02. A transfer is an elective
transfer if: (1) the transfer satisfies the first paragraph of this Section
13.06; (2) the transfer is voluntary, under a fully informed election by the
Participant; (3) the Participant has an alternative that retains his Code
Section 411(d)(6) protected benefits (including an option to leave his
benefit in the transferor plan, if that plan is not terminating); (4) the
transfer satisfies the applicable spousal consent requirements of the Code;
(5) the transferor plan satisfies the joint and survivor notice requirements
of the Code, if the Participant's transferred benefit is subject to those
requirements; (6) the Participant has a right to immediate distribution from
the transferor plan, in lieu of the elective transfer; (7) the transferred
benefit is at least the greater of the single sum distribution provided by
the transferor plan for which the Participant is eligible or the present
value of the Participant's accrued benefit under the transferor plan payable
at that plan's normal retirement age; (8) the Participant has a 100%
Nonforfeitable interest in the transferred benefit; and (9) the transfer
otherwise satisfies applicable Treasury regulations. An elective transfer may
occur between qualified plans of any type. Any direct transfer of assets from
a defined benefit plan after August 9, 1988, which does not satisfy the
requirements of this paragraph will render the Employer's Plan
individually-designed. See Section 12.08.
(B) DISTRIBUTION RESTRICTIONS UNDER CODE Section 401(k). If the Plan receives
a direct transfer (by merger or otherwise) of elective contributions (or amounts
treated as elective contributions) under a Plan with a Code Section 401(k)
arrangement, the distribution restrictions of Code Sections 401(k)(2) and (10)
continue to apply to those transferred elective contributions.
13.07 TERMINATION.
(A) PROCEDURE. Upon termination of the Plan, the distribution provisions of
Article VI remain operative, with the following exceptions:
(1) if the present value of the Participant's Nonforfeitable Accrued
Benefit does not exceed $3,500, the Advisory Committee will direct the
Trustee to distribute the Participant's Nonforfeitable Accrued Benefit to
him in lump sum as soon as administratively practicable after the Plan
terminates; and
(2) if the present value of the Participant's Nonforfeitable Accrued
Benefit exceeds $3,500, the Participant or the Beneficiary, in addition
to the distribution events permitted under Article VI, may elect to have
the Trustee commence distribution of his Nonforfeitable Accrued Benefit
as soon as administratively practicable after the Plan terminates.
To liquidate the Trust, the Advisory Committee will purchase a deferred
annuity contract for each Participant which protects the Participant's
distribution rights under the Plan, if the Participant's Nonforfeitable Accrued
Benefit exceeds $3,500 and the Participant does not elect an immediate
distribution pursuant to Paragraph (2).
If the Employer's Plan is a profit sharing plan, in lieu of the preceding
provisions of this Section 13.07 and the distribution provisions of Article VI,
the Advisory Committee will direct the Trustee to distribute each Participant's
Nonforfeitable Accrued Benefit, in lump sum, as soon as administratively
practicable after the termination of the Plan, irrespective of the present value
of the Participant's Nonforfeitable Accrued Benefit and whether the Participant
consents to that distribution. This paragraph does not apply if: (1) the Plan
provides an annuity option; or (2) as of the period between the Plan termination
date and the final distribution of assets, the
13.03
<PAGE>
Employer maintains any other defined contribution plan (other than an ESOP).
The Employer, in an addendum to its Adoption Agreement numbered 13.07, may
elect not to have this paragraph apply.
The Trust will continue until the Trustee in accordance with the
direction of the Advisory Committee has distributed all of the benefits under
the Plan. On each valuation date, the Advisory Committee will credit any part of
a Participant's Accrued Benefit retained in the Trust with its proportionate
share of the Trust's income, expenses, gains and losses, both realized and
unrealized. Upon termination of the Plan, the amount, if any, in a suspense
account under Article III will revert to the Employer, subject to the conditions
of the Treasury regulations permitting such a reversion. A resolution or
amendment to freeze all future benefit accrual but otherwise to continue
maintenance of this Plan, is not a termination for purposes of this Section
13.07.
(B) DISTRIBUTION RESTRICTIONS UNDER CODE Section 401(k). If the Employer's
Plan includes a Code Section 401(k) arrangement or if transferred assets
described in Section 13.06 are subject to the distribution restrictions of Code
Sections 401(k)(2) and (10), the special distribution provisions of this Section
13.07 are subject to the restrictions of this paragraph. The portion of the
Participant's Nonforfeitable Accrued Benefit attributable to elective
contributions (or to amounts treated under the Code Section 401(k) arrangement
as elective contributions) is not distributable on account of Plan termination,
as described in this Section 13.07, unless: (a) the Participant otherwise is
entitled under the Plan to a distribution of that portion of his Nonforfeitable
Accrued Benefit; or (b) the Plan termination occurs without the establishment of
a successor plan. A successor plan under clause (b) is a defined contribution
plan (other than an ESOP) maintained by the Employer (or by a related employer)
at the time of the termination of the Plan or within the period ending twelve
months after the final distribution of assets. A distribution made after March
31, 1988, pursuant to clause (b), must be part of a lump sum distribution to the
Participant of his Nonforfeitable Accrued Benefit.
* * * * * * * * * * * * * * *
13.04
<PAGE>
ARTICLE XIV
CODE Section 401(k) AND CODE Section 401(m) ARRANGEMENTS
14.01 APPLICATION. This Article XIV applies to an Employer's Plan only
if the Employer is maintaining its Plan under a Code Section 401(k) Adoption
Agreement.
14.02 CODE Section 401(K) ARRANGEMENT. The Employer will elect in
Section 3.01 of its Adoption Agreement the terms of the Code Section 401(k)
arrangement, if any, under the Plan. If the Employer's Plan is a Standardized
Plan, the Code Section 401(k) arrangement must be a salary reduction
arrangement. If the Employer's Plan is a Nonstandardized Plan, the Code Section
401(k) arrangement may be a salary reduction arrangement or a cash or deferred
arrangement.
(A) SALARY REDUCTION ARRANGEMENT. If the Employer elects a salary reduction
arrangement, any Employee eligible to participate in the Plan may file a salary
reduction agreement with the Advisory Committee. The salary reduction agreement
may not be effective earlier than the following date which occurs last: (i) the
Employee's Plan Entry Date (or, in the case of a reemployed Employee, his
reparticipation date under Article II); (ii) the execution date of the
Employee's salary reduction agreement; (iii) the date the Employer adopts the
Code Section 401(k) arrangement by executing the Adoption Agreement; or (iv) the
effective date of the Code Section 401(k) arrangement, as specified in the
Employer's Adoption Agreement. Regarding clause (i), an Employee subject to the
Break in Service rule of Section 2.03(B) of the Plan may not enter into a salary
reduction agreement until the Employee has completed a sufficient number of
Hours of Service to receive credit for a Year of Service (as defined in Section
2.02) following his reemployment commencement date. A salary reduction agreement
must specify the amount of Compensation (as defined in Section 1.12) or
percentage of Compensation the Employee wishes to defer. The salary reduction
agreement will apply only to Compensation which becomes currently available to
the Employee after the effective date of the salary reduction agreement. The
Employer will apply a reduction election to all Compensation (and to increases
in such Compensation) unless the Employee specifies in his salary reduction
agreement to limit the election to certain Compensation. The Employer will
specify in Adoption Agreement Section 3.01 the rules and restrictions applicable
to the Employees salary reduction agreements.
(B) CASH OR DEFERRED ARRANGEMENT. If the Employer elects a cash or deferred
arrangement, a Participant may elect to make a cash election against his
proportionate share of the Employer's Cash or Deferred Contribution, in
accordance with the Employer's elections in Adoption Agreement Section 3.01. A
Participant's proportionate share of the Employer's Cash or Deferred
Contribution is the percentage of the total Cash or Deferred Contribution which
bears the same ratio that the Participant's Compensation for the Plan Year bears
to the total Compensation of all Participants for the Plan Year. For purposes of
determining each Participant's proportionate share of the Cash or Deferred
Contribution, a Participant's Compensation is his Compensation as determined
under Section 1.12 of the Plan (as modified by Section 3.06 for allocation
purposes), excluding any effect the proportionate share may have on the
Participant's Compensation for the Plan Year. The Advisory Committee will
determine the proportionate share prior to the Employer's actual contribution to
the Trust, to provide the Participants the opportunity to file cash elections.
The Employer will pay directly to the Participant the portion of his
proportionate share the Participant has elected to receive in cash.
(C) ELECTION NOT TO PARTICIPATE. A Participant's or Employee's election not
to participate, pursuant to Section 2.06, includes his right to enter into a
salary reduction agreement or to share in the allocation of a Cash or Deferred
Contribution, unless the Participant or Employee limits the effect of the
election to the non-401(k) portions of the Plan.
14.01
<PAGE>
14.03 DEFINITIONS. For purposes of this Article XIV:
(a) "Highly Compensated Employee" means an Eligible Employee who
satisfies the definition in Section 1.09 of the Plan. Family members
aggregated as a single Employee under Section 1.09 constitute a single
Highly Compensated Employee, whether a particular family member is a
Highly Compensated Employee or a Nonhighly Compensated Employee without
the application of family aggregation.
(b) "Nonhighly Compensated Employee" means an Eligible Employee who is
not a Highly Compensated Employee and who is not a family member treated
as a Highly Compensated Employee.
(c) "Eligible Employee" means, for purposes of the ADP test described
in Section 14.08, an Employee who is eligible to enter into a salary
reduction agreement for the Plan Year, irrespective of whether he
actually enters into such an agreement, and a Participant who is eligible
for an allocation of the Employer's Cash or Deferred Contribution for the
Plan Year. For purposes of the ACP test described in Section 14.09, an
"Eligible Employee" means a Participant who is eligible to receive an
allocation of matching contributions (or would be eligible if he made the
type of contributions necessary to receive an allocation of matching
contributions) and a Participant who is eligible to make nondeductible
contributions, irrespective of whether he actually makes nondeductible
contributions. An Employee continues to be an Eligible Employee during a
period the Plan suspends the Employee's right to make elective deferrals
or nondeductible contributions following a hardship distribution.
(d) "Highly Compensated Group" means the group of Eligible Employees
who are Highly Compensated Employees for the Plan Year.
(e) "Nonhighly Compensated Group" means the group of Eligible
Employees who are Nonhighly Compensated Employees for the Plan Year.
(f) "Compensation" means, except as specifically provided in this
Article XIV, Compensation as defined for nondiscrimination purposes in
Section 1.12(B) of the Plan. To compute an Employee's ADP or ACP, the
Advisory Committee may limit Compensation taken into account to
Compensation received only for the portion of the Plan Year in which the
Employee was an Eligible Employee and only for the portion of the Plan
Year in which the Plan or the Code Section 401(k) arrangement was in
effect.
(g) "Deferral contributions" are Salary Reduction Contributions and
Cash or Deferred Contributions the Employer contributes to the Trust on
behalf of an Eligible Employee, irrespective of whether, in the case of
Cash or Deferred Contributions, the contribution is at the election of
the Employee. For Salary Reduction Contributions, the terms "deferral
contributions" and "elective deferrals" have the same meaning.
(h) "Elective deferrals" are all Salary Reduction Contributions and
that portion of any Cash or Deferred Contribution which the Employer
contributes to the Trust at the election of an Eligible Employee. Any
portion of a Cash or Deferred Contribution contributed to the Trust
because of the Employee's failure to make a cash election is an elective
deferral. However, any portion of a Cash or Deferred Contribution over
which the Employee does not have a cash election is not an elective
deferral. Elective deferrals do not include amounts which have become
currently available to the Employee prior to the election nor amounts
designated as nondeductible contributions at the time of deferral or
contribution.
14.02
<PAGE>
(i) "Matching contributions" are contributions made by the Employer on
account of elective deferrals under a Code Section 401(k) arrangement or
on account of employee contributions. Matching contributions also include
Participant forfeitures allocated on account of such elective deferrals
or employee contributions.
(j) "Nonelective contributions" are contributions made by the Employer
which are not subject to a deferral election by an Employee and which are
not matching contributions.
(k) "Qualified matching contributions" are matching contributions
which are 100% Nonforfeitable at all times and which are subject to the
distribution restrictions described in paragraph (m). Matching
contributions are not 100% Nonforfeitable at all times if the Employee
has a 100% Nonforfeitable interest because of his Years of Service taken
into account under a vesting schedule. Any matching contributions
allocated to a Participant's Qualified Matching Contributions Account
under the Plan automatically satisfy the definition of qualified matching
contributions.
(l) "Qualified nonelective contributions" are nonelective
contributions which are 100% Nonforfeitable at all times and which are
subject to the distribution restrictions described in paragraph (m).
Nonelective contributions are not 100% Nonforfeitable at all times if the
Employee has a 100% Nonforfeitable interest because of his Years of
Service taken into account under a vesting schedule. Any nonelective
contributions allocated to a Participant's Qualified Nonelective
Contributions Account under the Plan automatically satisfy the definition
of qualified nonelective contributions.
(m) "Distribution restrictions" means the Employee may not receive a
distribution of the specified contributions (nor earnings on those
contributions) except in the event of (1) the Participant's death,
disability, termination of employment or attainment of age 591/2, (2)
financial hardship satisfying the requirements of Code Section 401(k) and
the applicable Treasury regulations, (3) a plan termination, without
establishment of a successor defined contribution plan (other than an
ESOP), (4) a sale of substantially all of the assets (within the meaning
of Code Section 409(d)(2)) used in a trade or business, but only to an
employee who continues employment with the corporation acquiring those
assets, or (5) a sale by a corporation of its interest in a subsidiary
(within the meaning of Code Section 409(d)(3)), but only to an employee
who continues employment with the subsidiary. For Plan Years beginning
after December 31, 1988, a distribution on account of financial hardship,
as described in clause (2), may not include earnings on elective
deferrals credited as of a date later than December 31, 1988, and may not
include qualified matching contributions and qualified nonelective
contributions, nor any earnings on such contributions, credited after
December 31, 1988. A Plan does not violate the distribution restrictions,
if instead of the December 31, 1988, date in the preceding sentence the
plan specifies a date not later than the end of the last Plan Year ending
before July 1, 1989. A distribution described in clauses (3), (4) or (5),
if made after March 31, 1988, must be a lump sum distribution, as
required under Code Section 401(k)(10).
(n) "Employee contributions" are contributions made by a Participant
on an after-tax basis, whether voluntary or mandatory, and designated, at
the time of contribution, as an employee (or nondeductible) contribution.
Elective deferrals and deferral contributions are not employee
contributions. Participant nondeductible contributions, made pursuant to
Section 4.01 of the Plan, are employee contributions.
14.04 MATCHING CONTRIBUTIONS/EMPLOYEE CONTRIBUTIONS. The Employer
may elect in Adoption Agreement Section 3.01 to provide matching contributions.
The Employer also may elect in Adoption Agreement Section 4.01 to permit or to
require a Participant to make nondeductible contributions.
(A) MANDATORY CONTRIBUTIONS. Any Participant nondeductible contributions
eligible for matching
14.03
<PAGE>
contributions are mandatory contributions. The Advisory Committee will
maintain a separate accounting, pursuant to Section 4.06 of the Plan, to
reflect the Participant's Accrued Benefit derived from his mandatory
contributions. The Employer, under Adoption Agreement Section 4.05, may
prescribe special distribution restrictions which will apply to the Mandatory
Contributions Account prior to the Participant's Separation from Service.
Following his Separation from Service, the general distribution provisions of
Article VI apply to the distribution of the Participant's Mandatory
Contributions Account.
14.05 TIME OF PAYMENT OF CONTRIBUTIONS. The Employer must make Salary
Reduction Contributions to the Trust within an administratively reasonable
period of time after withholding the corresponding Compensation from the
Participant. Furthermore, the Employer must make Salary Reduction Contributions,
Cash or Deferred Contributions, Employer matching contributions (including
qualified Employer matching contributions) and qualified Employer nonelective
contributions no later than the time prescribed by the Code or by applicable
Treasury regulations. Salary Reduction Contributions and Cash or Deferred
Contributions are Employer contributions for all purposes under this Plan,
except to the extent the Code or Treasury regulations prohibit the use of these
contributions to satisfy the qualification requirements of the Code.
14.06 SPECIAL ALLOCATION PROVISIONS - DEFERRAL CONTRIBUTIONS,
MATCHING CONTRIBUTIONS AND QUALIFIED NONELECTIVE CONTRIBUTIONS. To
make allocations under the Plan, the Advisory Committee must establish a
Deferral Contributions Account, a Qualified Matching Contributions Account, a
Regular Matching Contributions Account, a Qualified Nonelective Contributions
Account and an Employer Contributions Account for each Participant.
(A) DEFERRAL CONTRIBUTIONS. The Advisory Committee will allocate to each
Participant's Deferral Contributions Account the amount of Deferral
Contributions the Employer makes to the Trust on behalf of the Participant. The
Advisory Committee will make this allocation as of the last day of each Plan
Year unless, in Adoption Agreement Section 3.04, the Employer elects more
frequent allocation dates for salary reduction contributions.
(B) MATCHING CONTRIBUTIONS. The Employer must specify in its Adoption
Agreement whether the Advisory Committee will allocate matching contributions to
the Qualified Matching Contributions Account or to the Regular Matching
Contributions Account of each Participant. The Advisory Committee will make this
allocation as of the last day of each Plan Year unless, in Adoption Agreement
Section 3.04, the Employer elects more frequent allocation dates for matching
contributions.
(1) To the extent the Employer makes matching contributions under a
fixed matching contribution formula, the Advisory Committee will allocate
the matching contribution to the Account of the Participant on whose
behalf the Employer makes that contribution. A fixed matching
contribution formula is a formula under which the Employer contributes a
certain percentage or dollar amount on behalf of a Participant based on
that Participant's deferral contributions or nondeductible contributions
eligible for a match, as specified in Section 3.01 of the Employer's
Adoption Agreement. The Employer may contribute on a Participant's behalf
under a specific matching contribution formula only if the Participant
satisfies the accrual requirements for matching contributions specified
in Section 3.06 of the Employer's Adoption Agreement and only to the
extent the matching contribution does not exceed the Participant's annual
additions limitation in Part 2 of Article III.
(2) To the extent the Employer makes matching contributions under a
discretionary formula, the Advisory Committee will allocate the
discretionary matching contributions to the Account of each Participant
who satisfies the accrual requirements for matching contributions
specified in Section 3.06 of
14.04
<PAGE>
the Employer's Adoption Agreement. The allocation of discretionary
matching contributions to a Participant's Account is in the same
proportion that each Participant's eligible contributions bear to
the total eligible contributions of all Participants. If the
discretionary formula is a tiered formula, the Advisory Committee
will make this allocation separately with respect to each tier of
eligible contributions, allocating in such manner the amount of the
matching contributions made with respect to that tier. "Eligible
contributions" are the Participant's deferral contributions or
nondeductible contributions eligible for an allocation of matching
contributions, as specified in Section 3.01 of the Employer's Adoption
Agreement.
If the matching contribution formula applies both to deferral
contributions and to Participant nondeductible contributions, the matching
contributions apply first to deferral contributions. Furthermore, the matching
contribution formula does not apply to deferral contributions that are excess
deferrals under Section 14.07. For this purpose: (a) excess deferrals relate
first to deferral contributions for the Plan Year not otherwise eligible for a
matching contribution; and (2) if the Plan Year is not a calendar year, the
excess deferrals for a Plan Year are the last elective deferrals made for a
calendar year. Under a Standardized Plan, an Employee forfeits any matching
contribution attributable to an excess contribution or to an excess aggregate
contribution, unless distributed pursuant to Sections 14.08 or 14.09. Under a
Nonstandardized Plan, this forfeiture rule applies only if specified in Adoption
Agreement Section 3.06. The provisions of Section 3.05 govern the treatment of
any forfeiture described in this paragraph, and the Advisory Committee will
compute a Participant's ACP under 14.09 by disregarding the forfeiture.
(C) QUALIFIED NONELECTIVE CONTRIBUTIONS. If the Employer, at the time of
contribution, designates a contribution to be a qualified nonelective
contribution for the Plan Year, the Advisory Committee will allocate that
qualified nonelective contribution to the Qualified Nonelective Contributions
Account of each Participant eligible for an allocation of that designated
contribution, as specified in Section 3.04 of the Employer's Adoption Agreement.
The Advisory Committee will make the allocation to each eligible Participant's
Account in the same ratio that the Participant's Compensation for the Plan Year
bears to the total Compensation of all eligible Participants for the Plan Year.
The Advisory Committee will determine a Participant's Compensation in accordance
with the general definition of Compensation under Section 1.12 of the Plan, as
modified by the Employer in Sections 1.12 and 3.06 of its Adoption Agreement.
(D) NONELECTIVE CONTRIBUTIONS. To the extent the Employer makes nonelective
contributions for the Plan Year which, at the time of contribution, it does not
designate as qualified nonelective contributions, the Advisory Committee will
allocate those contributions in accordance with the elections under Section 3.04
of the Employer's Adoption Agreement. For purposes of the special
nondiscrimination tests described in Sections 14.08 and 14.09, the Advisory
Committee may treat nonelective contributions allocated under this paragraph as
qualified nonelective contributions, if the contributions otherwise satisfy the
definition of qualified nonelective contributions.
14.07 ANNUAL ELECTIVE DEFERRAL LIMITATION.
(A) ANNUAL ELECTIVE DEFERRAL LIMITATION. An Employee's elective deferrals for
a calendar year beginning after December 31, 1986, may not exceed the 402(g)
limitation. The 402(g) limitation is the greater of $7,000 or the adjusted
amount determined by the Secretary of the Treasury. If, pursuant to a salary
reduction agreement or pursuant to a cash or deferral election, the Employer
determines the Employee's elective deferrals to the Plan for a calendar year
would exceed the 402(g) limitation, the Employer will suspend the Employee's
salary reduction agreement, if any, until the following January 1 and pay in
cash the portion of a cash or deferral election which would result in the
Employee's elective deferrals for the calendar year exceeding the 402(g)
limitation. If the Advisory Committee determines an Employee's elective
deferrals already contributed to the Plan for a calendar year exceed the 402(g)
14.05
<PAGE>
limitation, the Advisory Committee will distribute the amount in excess of the
402(g) limitation (the "excess deferral"), as adjusted for allocable income, no
later than April 15 of the following calendar year. If the Advisory Committee
distributes the excess deferral by the appropriate April 15, it may make the
distribution irrespective of any other provision under this Plan or under the
Code. The Advisory Committee will reduce the amount of excess deferrals for a
calendar year distributable to the Employee by the amount of excess
contributions (as determined in Section 14.08), if any, previously distributed
to the Employee for the Plan Year beginning in that calendar year.
If an Employee participates in another plan under which he makes elective
deferrals pursuant to a Code Section 401(k) arrangement, elective deferrals
under a Simplified Employee Pension, or salary reduction contributions to a
tax-sheltered annuity, irrespective of whether the Employer maintains the other
plan, he may provide the Advisory Committee a written claim for excess deferrals
made for a calendar year. The Employee must submit the claim no later than the
March 1 following the close of the particular calendar year and the claim must
specify the amount of the Employee's elective deferrals under this Plan which
are excess deferrals. If the Advisory Committee receives a timely claim, it will
distribute the excess deferral (as adjusted for allocable income) the Employee
has assigned to this Plan, in accordance with the distribution procedure
described in the immediately preceding paragraph.
(B) ALLOCABLE INCOME. For purposes of making a distribution of excess
deferrals pursuant to this Section 14.07, allocable income means net income or
net loss allocable to the excess deferrals for the calendar year in which the
Employee made the excess deferral, determined in a manner which is uniform,
nondiscriminatory and reasonably reflective of the manner used by the Plan to
allocate income to Participant's Accounts.
14.08 ACTUAL DEFERRAL PERCENTAGE ("ADP") TEST. For each Plan Year, the
Advisory Committee must determine whether the Plan's Code Section 401(k)
arrangement satisfies either of the following ADP tests:
(i) The average ADP for the Highly Compensated Group does not exceed
1.25 times the average ADP of the Nonhighly Compensated Group; or
(ii) The average ADP for the Highly Compensated Group does not exceed
the average ADP for the Nonhighly Compensated Group by more than two
percentage points (or the lesser percentage permitted by the multiple use
limitation in Section 14.10) and the average ADP for the Highly
Compensated Group is not more than twice the average ADP for the
Nonhighly Compensated Group.
(A) CALCULATION OF ADP. The average ADP for a group is the average of the
separate ADPs calculated for each Eligible Employee who is a member of that
group. An Eligible Employee's ADP for a Plan Year is the ratio of the Eligible
Employee's deferral contributions for the Plan Year to the Employee's
Compensation for the Plan Year. For aggregated family members treated as a
single Highly Compensated Employee, the ADP of the family unit is the ADP
determined by combining the deferral contributions and Compensation of the
family members. A Nonhighly Compensated Employee's ADP does not include elective
deferrals made to this Plan or to any other Plan maintained by the Employer, to
the extent such elective deferrals exceed the 402(g) limitation described in
Section 14.07(A).
The Advisory Committee, in a manner consistent with Treasury regulations,
may determine the ADPs of the Eligible Employees by taking into account
qualified nonelective contributions or qualified matching
14.06
<PAGE>
contributions, or both, made to this Plan or to any other qualified Plan
maintained by the Employer. The Advisory Committee may not include qualified
nonelective contributions in the ADP test unless the allocation of
nonelective contributions is nondiscriminatory when the Advisory Committee
takes into account all nonelective contributions (including the qualified
nonelective contributions) and also when the Advisory Committee takes into
account only the nonelective contributions not used in either the ADP test
described in this Section 14.08 or the ACP test described in Section 14.09.
For Plan Years beginning after December 31, 1989, the Advisory Committee may
not include in the ADP test any qualified nonelective contributions or
qualified matching contributions under another qualified plan unless that
plan has the same plan year as this Plan. The Advisory Committee must
maintain records to demonstrate compliance with the ADP test, including the
extent to which the Plan used qualified nonelective contributions or
qualified matching contributions to satisfy the test.
For Plan Years beginning prior to January 1, 1992, the Advisory Committee
may elect to apply a separate ADP test to each component group under the Plan.
Each component group separately must satisfy the commonality requirement of the
Code Section 401(k) regulations and the minimum coverage requirements of Code
Section 410(b). A component group consists of all the allocations and other
benefits, rights and features provided that group of Employees. An Employee may
not be part of more than one component group. The correction rules described in
this Section 14.08 apply separately to each component group.
(B) SPECIAL AGGREGATION RULE FOR HIGHLY COMPENSATED EMPLOYEES. To determine
the ADP of any Highly Compensated Employee, the deferral contributions taken
into account must include any elective deferrals made by the Highly Compensated
Employee under any other Code Section 401(k) arrangement maintained by the
Employer, unless the elective deferrals are to an ESOP. If the plans containing
the Code Section 401(k) arrangements have different plan years, the Advisory
Committee will determine the combined deferral contributions on the basis of the
plan years ending in the same calendar year.
(C) AGGREGATION OF CERTAIN CODE Section 401(k) ARRANGEMENTS. If the Employer
treats two plans as a unit for coverage or nondiscrimination purposes, the
Employer must combine the Code Section 401(k) arrangements under such plans to
determine whether either plan satisfies the ADP test. This aggregation rule
applies to the ADP determination for all Eligible Employees, irrespective of
whether an Eligible Employee is a Highly Compensated Employee or a Nonhighly
Compensated Employee. For Plan Years beginning after December 31, 1989, an
aggregation of Code Section 401(k) arrangements under this paragraph does not
apply to plans which have different plan years and, for Plan Years beginning
after December 31, 1988, the Advisory Committee may not aggregate an ESOP (or
the ESOP portion of a plan) with a non-ESOP plan (or non-ESOP portion of a
plan).
(D) CHARACTERIZATION OF EXCESS CONTRIBUTIONS. If, pursuant to this Section
14.08, the Advisory Committee has elected to include qualified matching
contributions in the average ADP, the Advisory Committee will treat excess
contributions as attributable proportionately to deferral contributions and to
qualified matching contributions allocated on the basis of those deferral
contributions. If the total amount of a Highly Compensated Employee's excess
contributions for the Plan Year exceeds his deferral contributions or qualified
matching contributions for the Plan Year, the Advisory Committee will treat the
remaining portion of his excess contributions as attributable to qualified
nonelective contributions. The Advisory Committee will reduce the amount of
excess contributions for a Plan Year distributable to a Highly Compensated
Employee by the amount of excess deferrals (as determined in Section 14.07), if
any, previously distributed to that Employee for the Employee's taxable year
ending in that Plan Year.
(E) DISTRIBUTION OF EXCESS CONTRIBUTIONS. If the Advisory Committee
determines the Plan fails to satisfy the ADP test for a Plan Year, it must
distribute the excess contributions, as adjusted for allocable income, during
the next Plan Year. However, the Employer will incur an excise tax equal to 10%
of the amount of excess
14.07
<PAGE>
contributions for a Plan Year not distributed to the appropriate Highly
Compensated Employees during the first 2 1/2 months of that next Plan Year.
The excess contributions are the amount of deferral contributions made by the
Highly Compensated Employees which causes the Plan to fail to satisfy the ADP
test. The Advisory Committee will distribute to each Highly Compensated
Employee his respective share of the excess contributions. The Advisory
Committee will determine the respective shares of excess contributions by
starting with the Highly Compensated Employee(s) who has the greatest ADP,
reducing his ADP (but not below the next highest ADP), the, if necessary,
reducing the ADP of the Highly Compensated Employee(s) at the next highest
ADP level (including the ADP of the Highly Compensated Employee(s) whose ADP
the Advisory Committee already has reduced), and continuing in this manner
until the average ADP for the Highly Compensated Group satisfies the ADP
test. If the Highly Compensated Employee is part of an aggregated family
group, the Advisory Committee, in accordance with the applicable Treasury
regulations, will determine each aggregated family member's allocable share
of the excess contributions assigned to the family unit.
(F) ALLOCABLE INCOME. To determine the amount of the corrective distribution
required under this Section 14.08, the Advisory Committee must calculate the
allocable income for the Plan Year in which the excess contributions arose.
"Allocable income" means net income or net loss. To calculate allocable income
for the Plan Year, the Advisory Committee will use a uniform and
nondiscriminatory method which reasonably reflects the manner used by the Plan
to allocate income to Participant's Accounts.
14.09 NONDISCRIMINATION RULES FOR EMPLOYER MATCHING
CONTRIBUTIONS/PARTICIPANT NONDEDUCTIBLE CONTRIBUTIONS. For Plan Years
beginning after December 31, 1986, the Advisory Committee must determine whether
the annual Employer matching contributions (other than qualified matching
contributions used in the ADP under Section 14.08), if any, and the Employee
contributions, if any, satisfy either of the following average contribution
percentage ("ACP") tests:
(i) The ACP for the Highly Compensated Group does not exceed 1.25
times the ACP of the Nonhighly Compensated Group; or
(ii) The ACP for the Highly Compensated Group does not exceed the ACP
for the Nonhighly Compensated Group by more than two percentage points
(or the lesser percentage permitted by the multiple use limitation in
Section 14.10) and the ACP for the Highly Compensated Group is not more
than twice the ACP for the Nonhighly Compensated Group.
(A) CALCULATION OF ACP. The average contribution percentage for a group is
the average of the separate contribution percentages calculated for each
Eligible Employee who is a member of that group. An Eligible Employee's
contribution percentage for a Plan Year is the ratio of the Eligible Employee's
aggregate contributions for the Plan Year to the Employee's Compensation for the
Plan Year. "Aggregate contributions" are Employer matching contributions (other
than qualified matching contributions used in the ADP test under Section 14.08)
and employee contributions (as defined in Section 14.03). For aggregated family
members treated as a single Highly Compensated Employee, the contribution
percentage of the family unit is the contribution percentage determined by
combining the aggregate contributions and Compensation of all aggregated family
members.
The Advisory Committee, in a manner consistent with Treasury regulations,
may determine the contribution percentages of the Eligible Employees by taking
into account qualified nonelective contributions (other than qualified
nonelective contributions used in the ADP test under Section 14.08) or elective
deferrals, or both, made to this Plan or to any other qualified Plan maintained
by the Employer. The Advisory Committee may not include qualified nonelective
contributions in the ACP test unless the allocation of nonelective contributions
is
14.08
<PAGE>
nondiscriminatory when the Advisory Committee takes into account all
nonelective contributions (including the qualified nonelective contributions)
and also when the Advisory Committee takes into account only the nonelective
contributions not used in either the ADP test described in Section 14.08 or
the ACP test described in this Section 14.09. The Advisory Committee may not
include elective deferrals in the ACP test, unless the Plan which includes
the elective deferrals satisfies the ADP test both with and without the
elective deferrals included in this ACP test. For Plan Years beginning after
December 31, 1989, the Advisory Committee may not include in the ACP test any
qualified nonelective contributions or elective deferrals under another
qualified plan unless that plan has the same plan year as this Plan. The
Advisory Committee must maintain records to demonstrate compliance with the
ACP test, including the extent to which the Plan used qualified nonelective
contributions or elective deferrals to satisfy the test. For Plan Years
beginning prior to January 1, 1992, the component group testing rule
permitted under Section 14.08(A) also applies to the ACP test under this
Section 14.09.
(B) SPECIAL AGGREGATION RULE FOR HIGHLY COMPENSATED EMPLOYEES. To
determine the contribution percentage of any Highly Compensated Employee, the
aggregate contributions taken into account must include any matching
contributions (other than qualified matching contributions used in the ADP
test) and any Employee contributions made on his behalf to any other plan
maintained by the Employer, unless the other plan is an ESOP. If the plans
have different plan years, the Advisory Committee will determine the combined
aggregate contributions on the basis of the plan years ending in the same
calendar year.
(C) AGGREGATION OF CERTAIN PLANS. If the Employer treats two plans as a unit
for coverage or nondiscrimination purposes, the Employer must combine the plans
to determine whether either plan satisfies the ACP test. This aggregation rule
applies to the contribution percentage determination for all Eligible Employees,
irrespective of whether an Eligible Employee is a Highly Compensated Employee or
a Nonhighly Compensated Employee. For Plan Years beginning after December 31,
1989, an aggregation of plans under this paragraph does not apply to plans which
have different plan years and, for Plan Years beginning after December 31, 1988,
the Advisory Committee may not aggregate an ESOP (or the ESOP portion of a plan)
with a non-ESOP plan (or non-ESOP portion of a plan).
(D) DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS. The Advisory Committee
will determine excess aggregate contributions after determining excess
deferrals under Section 14.07 and excess contributions under Section 14.08.
If the Advisory Committee determines the Plan fails to satisfy the ACP test
for a Plan Year, it must distribute the excess aggregate contributions, as
adjusted for allocable income, during the next Plan Year. However, the
Employer will incur an excise tax equal to 10% of the amount of excess
aggregate contributions for a Plan Year not distributed to the appropriate
Highly Compensated Employees during the first 2 1/2 months of that next Plan
Year. The excess aggregate contributions are the amount of aggregate
contributions allocated on behalf of the Highly Compensated Employees which
causes the Plan to fail to satisfy the ACP test. The Advisory Committee will
distribute to each Highly Compensated Employee his respective share of the
excess aggregate contributions. The Advisory Committee will determine the
respective shares of excess aggregate contributions by starting with the
Highly Compensated Employee(s) who has the greatest contribution percentage,
reducing his contribution percentage (but not below the next highest
contribution percentage), then, if necessary, reducing the contribution
percentage of the Highly Compensated Employee(s) at the next highest
contribution percentage level (including the contribution percentage of the
Highly Compensated Employee(s) whose contribution percentage the Advisory
Committee already has reduced), and continuing in this manner until the ACP
for the Highly Compensated Group satisfies the ACP test. If the Highly
Compensated Employee is part of an aggregated family group, the Advisory
Committee, in accordance with the applicable Treasury regulations, will
determine each aggregated family member's allocable share of the excess
aggregate contributions assigned to the family unit.
(E) ALLOCABLE INCOME. To determine the amount of the corrective distribution
required under this Section
14.09
<PAGE>
14.09, the Advisory Committee must calculate the
allocable income for the Plan Year in which the excess aggregate contributions
arose. "Allocable income" means net income or net loss. The Advisory Committee
will determine allocable income in the same manner as described in Section
14.08(F) for excess contributions.
(F) CHARACTERIZATION OF EXCESS AGGREGATE CONTRIBUTIONS. The Advisory
Committee will treat a Highly Compensated Employee's allocable share of excess
aggregate contributions in the following priority: (1) first as attributable to
his Employee contributions which are voluntary contributions, if any; (2) then
as matching contributions allocable with respect to excess contributions
determined under the ADP test described in Section 14.08; (3) then on a pro rata
basis to matching contributions and to the deferral contributions relating to
those matching contributions which the Advisory Committee has included in the
ACP test; (4) then on a pro rata basis to Employee contributions which are
mandatory contributions, if any, and to the matching contributions allocated on
the basis of those mandatory contributions; and (5) last to qualified
nonelective contributions used in the ACP test. To the extent the Highly
Compensated Employee's excess aggregate contributions are attributable to
matching contributions, and he is not 100% vested in his Accrued Benefit
attributable to matching contributions, the Advisory Committee will distribute
only the vested portion and forfeit the nonvested portion. The vested portion of
the Highly Compensated Employee's excess aggregate contributions attributable to
Employer matching contributions is the total amount of such excess aggregate
contributions (as adjusted for allocable income) multiplied by his vested
percentage (determined as of the last day of the Plan Year for which the
Employer made the matching contribution). The Employer will specify in Adoption
Agreement Section 3.05 the manner in which the Plan will allocate forfeited
excess aggregate contributions.
14.10 MULTIPLE USE LIMITATION. For Plan Years beginning after December
31, 1988, if at least one Highly Compensated Employee is includible in the ADP
test under Section 14.08 and in the ACP test under Section 14.09, the sum of the
Highly Compensated Group's ADP and ACP may not exceed the multiple use
limitation.
The multiple use limitation is the sum of (i) and (ii):
(i) 125% of the greater of: (a) the ADP of the Nonhighly Compensated
Group under the Code Section 401(k) arrangement; or (b) the ACP of the
Nonhighly Compensated Group for the Plan Year beginning with or within
the Plan Year of the Code Section 401(k) arrangement.
(ii) 2% plus the lesser of (i)(a) or (i)(b), but no more than twice the
lesser of (i)(a) or (i)(b).
The Advisory Committee, in lieu of determining the multiple use
limitation as the sum of (i) and (ii), may elect to determine the multiple use
limitation as the sum of (iii) and (iv):
(iii) 125% of the lesser of: (a) the ADP of the Nonhighly Compensated
Group under the Code Section 401(k) arrangement; or (b) the ACP of the
Nonhighly Compensated Group for the Plan Year beginning with or within
the Plan Year of the Code Section 401(k) arrangement.
(iv) 2% plus the greater of (iii)(a) or (iii)(b), but no more than
twice the greater of (iii)(a) or (iii)(b).
The Advisory Committee will determine whether the Plan satisfies the
multiple use limitation after applying the ADP test under Section 14.08 and the
ACP test under Section 14.09 and after making any corrective distributions
required by those Sections. If, after applying this Section 14.10, the Advisory
Committee determines the Plan has failed to satisfy the multiple use limitation,
the Advisory Committee will correct the failure by treating the excess amount as
excess aggregate contributions under Section 14.09, as it determines in its sole
discretion.
14.11
<PAGE>
This Section 14.10 does not apply unless, prior to application of the
multiple use limitation, the ADP and the ACP of the Highly Compensated Group
each exceeds 125% of the respective percentages for the Nonhighly Compensated
Group.
14.11 DISTRIBUTION RESTRICTIONS. The Employer must elect in Section 6.03
the Adoption Agreement the distribution events permitted under the Plan. The
distribution events applicable to the Participant's Deferral Contributions
Account, Qualified Nonelective Contributions Account and Qualified Matching
Contributions Account must satisfy the distribution restrictions described in
paragraph (m) of Section 14.03.
(A) HARDSHIP DISTRIBUTIONS FROM DEFERRAL CONTRIBUTIONS ACCOUNT. The Employer
must elect in Adoption Agreement Section 6.03 whether a Participant may receive
hardship distributions from his Deferral Contributions Account prior to the
Participant's Separation from Service. Hardship distributions from the Deferral
Contributions Account must satisfy the requirements of this Section 14.11. A
hardship distribution option may not apply to the Participant's Qualified
Nonelective Contributions Account or Qualified Matching Contributions Account,
except as provided in paragraph (3).
(1) DEFINITION OF HARDSHIP. A hardship distribution under this Section
14.11 must be on account of one or more of the following immediate and heavy
financial needs: (1) medical expenses described in Code Section 213(d) incurred
by the Participant, by the Participant's spouse, or by any of the Participant's
dependents, or necessary to obtain such medical care; (2) the purchase
(excluding mortgage payments) of a principal residence for the Participant; (3)
the payment of post-secondary education tuition and related educational fees,
for the next 12-month period, for the Participant, for the Participant's spouse,
or for any of the Participant's dependents (as defined in Code Section 152); (4)
to prevent the eviction of the Participant from his principal residence or the
foreclosure on the mortgage of the Participant's principal residence; or (5) any
need prescribed by the Revenue Service in a revenue ruling, notice or other
document of general applicability which satisfies the safe harbor definition of
hardship.
(2) RESTRICTIONS. The following restrictions apply to a Participant
who receives a hardship distribution: (a) the Participant may not make elective
deferrals or employee contributions to the Plan for the 12-month period
following the date of his hardship distribution; (b) the distribution is not in
excess of the amount of the immediate and heavy financial need (including any
amounts necessary to pay any federal, state or local income taxes or penalties
reasonably anticipated to result from the distribution); (c) the Participant
must have obtained all distributions, other than hardship distributions, and all
nontaxable loans (determined at the time of the loan) currently available under
this Plan and all other qualified plans maintained by the Employer; and (d) the
Participant agrees to limit elective deferrals under this Plan and under any
other qualified Plan maintained by the Employer, for the Participant's taxable
year immediately following the taxable year of the hardship distribution, to the
402(g) limitation (as described in Section 14.07), reduced by the amount of the
Participant's elective deferrals made in the taxable year of the hardship
distribution. The suspension of elective deferrals and employee contributions
described in clause (a) also must apply to all other qualified plans and to all
nonqualified plans of deferred compensation maintained by the Employer, other
than any mandatory employee contribution portion of a defined benefit plan,
including stock option, stock purchase and other similar plans, but not
including health or welfare benefit plans (other than the cash or deferred
arrangement portion of a cafeteria plan).
(3) EARNINGS. For Plan Years beginning after December 31, 1988, a
hardship distribution under this Section 14.11 may not include earnings on an
Employee's elective deferrals credited after December 31, 1988. Qualified
matching contributions and qualified nonelective contributions, and any earnings
on such contributions, credited as of December 31, 1988, are subject to the
hardship withdrawal only if the Employer specifies in an addendum to this
Section 14.11. The addendum may modify the December 31, 1988, date for purposes
of determining credited amounts provided the date is not later than the end of
the last Plan Year ending before July 1,
14.12
<PAGE>
1989.
(B) DISTRIBUTIONS AFTER SEPARATION FROM SERVICE. Following the Participant's
Separation from Service, the distribution events applicable to the Participant
apply equally to all of the Participant's Accounts, except as elected in Section
6.03 of the Employer's Adoption Agreement.
(C) CORRECTION OF ANNUAL ADDITIONS LIMITATION. If, as a result of a
reasonable error in determining the amount of elective deferrals an Employee may
make without violating the limitations of Part 2 of Article III, an Excess
Amount results, the Advisory Committee will return the Excess Amount (as
adjusted for allocable income) attributable to the elective deferrals. The
Advisory Committee will make this distribution before taking any corrective
steps pursuant to Section 3.10 or to Section 3.16. The Advisory Committee will
disregard any elective deferrals returned under this Section 14.11(C) for
purposes of Sections 14.07, 14.08 or 14.09.
14.12 SPECIAL ALLOCATION RULES. If the Code Section 401(k) arrangement
provides for salary reduction contributions, if the Plan accepts Employee
contributions, pursuant to Adoption Agreement Section 4.01, or if the Plan
allocates matching contributions as of any date other than the last day of the
Plan Year, the Employer must elect in Adoption Agreement 9.11 whether any
special allocation provisions will apply under Section 9.11 of the Plan. For
purposes of the elections:
(a) A "segregated Account" direction means the Advisory Committee will
establish a segregated Account for the applicable contributions made on
the Participant's behalf during the Plan Year. The Trustee must invest
the segregated Account in Federally insured interest bearing savings
account(s) or time deposits, or a combination of both, or in any other
fixed income investments, unless otherwise specified in the Employer's
Adoption Agreement. As of the last day of each Plan Year (or, if earlier,
an allocation date coinciding with a valuation date described in Section
9.11), the Advisory Committee will reallocate the segregated Account to
the Participant's appropriate Account, in accordance with Section 3.04 or
Section 4.06, whichever applies to the contributions.
(b) A "weighted average allocation" method will treat a weighted
portion of the applicable contributions as if includible in the
Participant's Account as of the beginning of the valuation period. The
weighted portion is a fraction, the numerator of which is the number of
months in the valuation period, excluding each month in the valuation
period which begins prior to the contribution date of the applicable
contributions, and the denominator of which is the number of months in
the valuation period. The Employer may elect in its Adoption Agreement to
substitute a weighting period other than months for purposes of this
weighted average allocation.
* * * * * * * * * * * * * * *
14.13
<PAGE>
ARTICLE A
APPENDIX TO BASIC PLAN DOCUMENT
This Article is necessary to comply with the Unemployment Compensation
Amendments Act of 1992 and is an integral part of the basic plan document.
Section 12.08 applies to any modification or amendment of this Article.
A-1. APPLICATIONS. This Article applies to distributions made on or
after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this Article,
a distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.
A-2. DEFINITIONS.
(a) "Eligible rollover distribution." An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: and distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Code Section 401(a)(9); and the portion of any
distribution that is not includible in gross income (determined without regard
to the exclusion of net unrealized appreciation with respect to employer
securities).
(b) "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), and annuity plan described
in Code Section 403(a), or a qualified trust described in Code Section 401(a),
that accepts the distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
(c) "Distributee." A distributee includes an Employee or former
Employee. In addition, the Employees or former Employee's surviving spouse and
the employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are distributees with regard to the interest of the spouse or former
spouse.
(d) "Direct rollover." A direct rollover is a payment by the
Plan to the eligible retirement plan specified by the distributee.
<PAGE>
DEFINED CONTRIBUTION PROTOTYPE PLAN
ARTICLE B
APPENDIX TO BASIC PLAN DOCUMENT
This Article is necessary to comply with the Omnibus Budget
Reconciliation Act of 1993 (OBRA '93) and is an integral part of the basic plan
document. Section 12.08 applies to any modification or amendment of this
Article.
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in
this plan to the limitation under Section 401(a)(17) of the Code shall mean the
OBRA '93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into account
in determining an employee's benefits accruing in the current plan year, the
compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for the prior determination period. For this
purpose, for determination periods beginning before the first day of the first
plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
<PAGE>
DEFINED CONTRIBUTION PROTOTYPE PLAN
ARTICLE C
APPENDIX TO BASIC PLAN DOCUMENT
This amendment is effective on the first day of the first Plan Year
beginning on or after December 12, 1994, or if later, March 12, 1995.
Notwithstanding any provision of this Plan to the contrary, to the extent
that any optional form of benefit under this Plan permits a distribution prior
to the Employee's retirement, death, disability, or severance from employment,
and prior to plan termination, the optional form of benefits is not available
with respect to benefits attributable to assets (including the post-transfer
earnings thereon) and liabilities that are transferred, within the meaning of
Code Section 414(l), to this Plan from a money purchase pension plan qualified
under Code Section 401(a) (other that any portion of those assets and
liabilities attributable to voluntary Employee contributions).
ARTICLE D
APPENDIX TO BASIC PLAN DOCUMENT
USERAA MODEL AMENDMENT
This amendment is effective as of December 12, 1994.
Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Code Section 414(u). Loan
repayments will be suspended under this Plan as permitted under Code Section
414(u)(4).
<PAGE>
0200617.01 FIRST AMENDMENT TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDMENT ("Amendment"), dated January 21, 1999, and effective as
of January 4, 1999, is made by and among (i) SCHULER HOMES, INC., a Delaware
corporation (the "Company"); (ii) SCHULER HOMES OF CALIFORNIA, INC., a
California corporation, SCHULER HOMES OF OREGON, INC., an Oregon corporation,
SCHULER HOMES OF WASHINGTON, INC., a Washington corporation, MELODY HOMES,
INC., a Delaware corporation, SCHULER REALTY/MAUI, INC., a Hawaii
corporation, SCHULER REALTY/OAHU, INC., a Hawaii corporation, LOKELANI
CONSTRUCTION CORPORATION, a Delaware corporation, MELODY MORTGAGE CO., a
Colorado corporation, and SHLR OF WASHINGTON, INC., a Washington corporation
("SHLR/Washington"), SHLR OF UTAH, INC., a Utah corporation, and SHLR OF
COLORADO, INC., a Colorado corporation (collectively referred to as the
"Guarantors"), (iii) SSHI LLC, a Delaware limited liability company ("SSHI"),
(iv) the banks from time to time party to this Agreement (collectively
referred to as the "Banks", and individually referred to as a "Bank"), (v)
FIRST HAWAIIAN BANK, a Hawaii corporation, as administrative and
co-syndication agent for the Banks (the "Administrative Agent"), and (vi)
BANK OF AMERICA NT&SA, a national banking association, as documentation and
co-syndication agent for the Banks (the "Documentation Agent", the
Administrative Agent and the Documentation Agent are collectively referred to
as the "Agents").
W I T N E S S E T H T H A T:
WHEREAS, the Company, the Banks and the Administrative Agent entered
into that certain Credit Agreement dated as of March 29, 1996 (the "Original
Credit Agreement"), relating to the establishment of a revolving credit
facility (the "Credit Facility") in the principal amount of US$110,000,000.00
(the "Original Commitment") made available to the Company by the Banks; and
WHEREAS, in connection therewith, the Company, the Banks and the
Administrative Agent executed certain Loan Documents (as defined in the
Original Credit Agreement); and
WHEREAS, the Company, the Banks and the Administrative Agent entered
into that certain Supplement No. 1 to Credit Agreement effective as of
January 8, 1997 (the "Supplement"), relating to the use of certain proceeds
of Advances (as defined in the Original Credit Agreement) during the Waiver
Period (as defined in the Supplement); and
WHEREAS, the Company, the Guarantors, the Banks and the Agents entered
into that certain Amended and Restated Credit Agreement dated March 27, 1997
(the "Amended Credit Agreement"), which amended the terms of the Original
Credit Agreement by, among other things, increasing the Original Commitment
to US $137,600,000.00; and
WHEREAS, the Company, the Guarantors, the Banks and the Agents entered
into that certain Second Amendment to Loan Documents dated April 29, 1998
(the "Second Amendment"), which among other things, provided for the consent
to the Company's issuance of "Senior Notes",
<PAGE>
as defined therein, which would be PARI PASSU with the Credit Facility and
changed the status of the Guarantors from that as "co-borrowers" to
"guarantors" of the Credit Facility; and
WHEREAS, the Company, the Banks and the Agents entered into that certain
Second Amended and Restated Credit Agreement dated September 30, 1998 (the
"Second Amended Credit Agreement), which further amended the terms of the
Original Credit Agreement by, among other things, decreased the Aggregate
Commitment to $90,000,000.00 and extended the Termination Date to July 1,
2001; and
WHEREAS, the Company has requested the Banks and the Agents to further
amend the Loan Documents to permit the Company, through SHLR/Washington, to
acquire the majority interest in SSHI LLC; and
WHEREAS, the Banks and the Agents are willing to comply with such request,
upon and subject to the terms and conditions hereinafter set forth; and
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties hereto hereby agree as follows:
1. DEFINITIONS. All capitalized terms used herein, unless otherwise
defined herein, shall have the same meanings as those ascribed to them in the
Second Amended Credit Agreement.
2. REPRESENTATIONS AND WARRANTIES. As an essential inducement to the
Banks and the Agents to execute this Amendment, the Company hereby repeats,
reaffirms and incorporates herein by reference all of the representations and
warranties contained in Section 5 of the Second Amended Credit Agreement.
3. AMENDMENT OF LOAN DOCUMENTS. The Loan Documents are hereby amended
as follows:
(a) All references in the Loan Documents to "Guarantor" or
"Guarantors" shall include SSHI.
(b) All references in the Loan Documents to "Guaranty" shall
include all agreements in form and substance satisfactory to the Banks and
the Agents, duly executed by the Guarantors, including SSHI, jointly and
severally guaranteeing the due and punctual payment of the Note, and the
observance and performance of the Borrower's obligations under the Loan
Documents.
4. DELIVERY OF RELATED DOCUMENTS. The Company, the Guarantors and
SSHI shall deliver to the Administrative Agent on or before February 1, 1999
the following documents, all of which shall be in form and substance
satisfactory to the Banks and the Agents:
(a) The Guaranty executed by the Guarantors, including SSHI;
- 2 -
<PAGE>
(b) Properly certified resolutions of the respective Boards of
Directors or other governing body, as applicable, of the Borrower, the
Guarantors and SSHI duly authorizing the execution and delivery of this
Amendment and the Guaranty by such applicable party.
(c) A copy of the Certificate of Formation and the Operating
Agreement for SSHI, a copy of the certificate of good standing of SSHI issued
by the applicable state agency, and such authenticated copies of such other
corporate documents as the Administrative Agent may reasonably request.
(d) An opinion from counsel to the Borrower stating that after the
execution and delivery of this Amendment by the Borrower, the Loan Documents
will continue to be enforceable in accordance with their terms and will
continue to constitute the valid and legally binding obligations of the
Borrower.
(e) An opinion from counsel to the Guarantors and SSHI stating
that after the execution and delivery of this Amendment and the Guaranty by
the Guarantors and SSHI, the Loan Documents, including the Guaranty, will
continue to be enforceable in accordance with their terms and the Guaranty
will constitute the valid and legally binding obligations of the Guarantors
and SSHI.
5. CONFORMANCE. The Loan Documents are hereby amended to conform with
this Amendment, but in all other respects such provisions are to be and
continue in full force and effect.
6. CONTINUANCE OF SECURITY. The performance of the obligations of the
Company under the Loan Documents, as herein amended, shall be fully secured
by and entitled to the benefits of the Guaranty and the other Loan Documents,
and any modifications, extensions, renewals or replacements thereof.
7. NO OFFSETS. As of the date hereof, the Company has no claims,
defenses or offsets against the Banks or the Agents, or against the Company's
obligations under the "Loan Documents", as herein amended, whether in
connection with the negotiations for or closing of the Credit Facility, of
any prior amendments, of this Amendment, or otherwise, and if any such
claims, defenses or offsets exist, they are hereby irrevocably waived and
released. As of the date hereof, the Guarantors and SSHI have no claims,
defenses or offsets against the Banks or the Agents, or against the
Guarantors' and SSHI's obligations under the Guaranty, whether in connection
with the negotiations for or closing of the Credit Facility, of any prior
amendments, of this Amendment, or otherwise, and if any such claims, defenses
or offsets exist, they are hereby irrevocably waived and released.
8. NO WAIVER. This Amendment is made on the express condition that
nothing herein contained shall in any way be construed as affecting,
impairing or waiving any rights of the Banks or the Agents under any of the
Loan Documents, as herein amended.
- 3 -
<PAGE>
9. ENTIRE AGREEMENT. This Amendment incorporates all of the
agreements between the parties relating to the amendment of the Loan
Documents and supersedes all other prior or concurrent oral or written
letters, agreements or understandings relating to such amendment.
10. HEADINGS. The headings of paragraphs and subparagraphs herein are
inserted only for convenience and reference, and shall in no way define,
limit or describe the scope or intent of any provisions of this Amendment.
11. GOVERNING LAW; SEVERABILITY. This Amendment is executed and
delivered, and shall be construed and enforced, in accordance with and
governed by the laws of the State of Hawaii. If any provision of this
Amendment is held to be invalid or unenforceable, the validity or
enforceability of the other provisions of this Amendment shall remain
unaffected.
12. SUBMISSION TO JURISDICTION. The Company, the Guarantors and SSHI
hereby irrevocably and unconditionally submit, but only for the purposes of
any action or proceeding which the Banks and/or the Agents may bring to
enforce any of the Loan Documents, as amended herein, to the jurisdiction of
the courts of the State of Hawaii and the United States District Court for
the District of Hawaii. Such submission to such jurisdiction shall not
prevent the Banks and the Agents from commencing any such action or
proceeding in any other court having jurisdiction.
13. COUNTERPARTS. This Amendment may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument, and in making proof of
this Amendment, it shall not be necessary to produce or account for more than
one such counterpart.
14. EXPENSES. The Company shall pay all expenses incurred by the
Administrative Agent in negotiations for and documentation of this Amendment
and the satisfaction of the conditions thereof, including, but not limited
to, fees and expenses of legal counsel for the Administrative Agent, and any
other costs incurred by the Administrative Agent in connection with any of
the matters described in this Amendment.
15. BINDING EFFECT. This Amendment shall bind and inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that the Company shall not assign this Amendment or any of the
rights, duties or obligations of the Company hereunder without the prior
written consent of the Banks and the Agents.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment the
day and year first above written.
SCHULER HOMES, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
"Borrower"
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<PAGE>
SCHULER HOMES OF CALIFORNIA, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER HOMES OF OREGON, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER HOMES OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
MELODY HOMES, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER REALTY/MAUI, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER REALTY/OAHU, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
LOKELANI CONSTRUCTION CORPORATION
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
MELODY MORTGAGE CO.
By /s/ Douglas M. Tonokawa
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<PAGE>
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SHLR OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SHLR OF UTAH, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SHLR OF COLORADO, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
"Guarantors"
SSHI LLC
By SHLR of Washington, Inc.
Its Managing Member
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
"SSHI"
FIRST HAWAIIAN BANK, as Administrative Agent and
Co-Syndication Agent
By /s/ Russell A. Loo
--------------------
Name: Russell A. Loo
Title: Assistant Vice President
"Administrative Agent"
BANK OF AMERICA NT&SA, as Documentation Agent and
Co-Syndication Agent
By /s/ C.K. Hamilton
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<PAGE>
----------------------
Name: Cynthia Hamilton
Title: Vice President
"Documentation Agent"
FIRST HAWAIIAN BANK, as a Bank
By /s/ Russell A. Loo
--------------------
Name: Russell A. Loo
Title: Assistant Vice President
BANK OF AMERICA NT&SA, as a Bank
By /s/ C. K. Hamilton
---------------------
Name: Cynthia Hamilton
Title: Vice President
BANK ONE, ARIZONA, NA
By /s/ R. Williams
------------------------
Name: Rhonda R. Williams
Title: Vice President
BANK BOSTON, NA
By /s/ Nicholas Whiting
----------------------
Name: Nicholas Whiting
Title: Vice President
BANK OF HAWAII
By /s/ Joyce Y. Sakai
----------------------
Name: Joyce Y. Sakai
Title: Vice President
"Banks"
- 7 -
<PAGE>
0200622.01 GUARANTY
This Guaranty is made by SCHULER HOMES OF CALIFORNIA, INC., a California
corporation, SCHULER HOMES OF OREGON, INC., an Oregon corporation, SCHULER HOMES
OF WASHINGTON, INC., a Washington corporation, MELODY HOMES, INC., a Delaware
corporation, SCHULER REALTY/MAUI, INC., a Hawaii corporation, SCHULER
REALTY/OAHU, INC., a Hawaii corporation, LOKELANI CONSTRUCTION CORPORATION, a
Delaware corporation, MELODY MORTGAGE CO., a Colorado corporation, SHLR OF
WASHINGTON, INC., a Washington corporation, SHLR OF COLORADO, INC., a Colorado
corporation, SHLR OF UTAH, INC., a Utah corporation and SSHI LLC, a Delaware
limited liability company (collectively referred to as the "Guarantors", and
individually referred to as a "Guarantor").
WHEREAS, (i) Schuler Homes, Inc., a Delaware corporation (the
"Borrower"), (ii) the banks from time to time party to the Credit Agreement,
as herein defined (collectively referred to as the "Banks", and individually
referred to as a "Bank"), (iii) FIRST HAWAIIAN BANK, a Hawaii corporation, as
administrative and co-syndication agent for the Banks (the "Administrative
Agent"), and (iv) BANK OF AMERICA NT&SA, a national banking association, as
documentation and co-syndication agent for the Banks (the "Documentation
Agent", the Administrative Agent and the Documentation Agent are collectively
referred to as the "Agents"), entered into that certain Second Amended and
Restated Credit Agreement dated September 30, 1998, as amended by that
certain First Amendment to Second Amended and Restated Credit Agreement dated
January 21, 1999 (collectively, the "Credit Agreement"), relating to a
revolving credit facility (the "Credit Facility") in the principal amount of
$90,000,000.00 made available to the Borrower by the Banks; and
WHEREAS, the Guarantors are subsidiaries of the Borrower and deem it to be
to the Guarantors' financial benefit that the Banks make the Credit Facility
available to the Borrower; and
NOW, THEREFORE, as an essential inducement to the Banks and the Agents to
make the Credit Facility available to the Borrower pursuant to the terms of the
Credit Agreement, and as a consideration for so doing, the Guarantors hereby
agree with the Banks and the Agents, and with each holder of the Note evidencing
the Credit Facility and each holder of any interest in the Note (each holder of
the Note and each holder of any interest therein being hereinafter collectively
and individually called the "Holder"), as follows:
1. DEFINITIONS As used herein, the following terms shall have the
following meanings:
(a) "INDEBTEDNESS" shall mean (i) all sums due and payable under the Note,
including, without limitation, principal, interest, fees and charges thereunder;
and (ii) any and all other indebtedness or liability of the Borrower to the
Banks and/or the Agents under or arising out of the Credit Facility or the Loan
Documents, including, as to (i) and (ii) above, any extension, renewal,
reduction, compromise, indulgence, variation or modification thereof.
(b) "OBLIGATIONS" shall mean each and every agreement, covenant and
condition to be observed or performed by the Borrower under the Loan Documents.
<PAGE>
(c) "EXPENSES" shall mean all costs and expenses, including, but not
limited to, attorneys' fees, incurred in connection with the enforcement by the
Banks and the Agents of its rights against the Borrower under the Loan Documents
and against the Guarantors hereunder, following any default in the due and
punctual payment of the Indebtedness, or observance and performance of the
Obligations, by the Borrower.
2. INDEBTEDNESS AND OBLIGATIONS GUARANTEED. The Guarantors hereby jointly
and severally, absolutely, irrevocably and unconditionally guarantee the payment
of the Indebtedness and the observance and performance of the Obligations. In
connection therewith, the Guarantors will pay to the Banks and the Agents, on
demand, all of the Expenses, and will indemnify and hold the Banks and the
Agents harmless from and against any loss, cost, liability or expense which the
Banks and/or the Agents may sustain or incur by reason of the failure of the
Borrower to pay all of the Indebtedness or to observe and perform all of the
Obligations.
3. UNCONDITIONAL AND ABSOLUTE PAYMENT GUARANTY. This is an unconditional
and absolute guaranty of payment and not merely a guaranty of collection, and if
for any reason, any Indebtedness shall not be paid when and as due and payable,
or any Obligation shall not be observed or performed when the same is required
to be observed or performed, the Guarantors undertake promptly to pay all such
Indebtedness, and to observe and perform, or to cause the appropriate party to
observe and perform, each of such Obligations, regardless of any defense or
setoff or counterclaim which the Borrower may have or assert, and regardless of
whether or not any Holder or anyone on behalf of any Holder shall have
instituted any suit, action or proceeding or exhausted its remedies or taken any
steps to enforce any rights against any of such parties or any other person to
collect all or part of any such amounts, or to compel any such performance,
either pursuant to the Loan Documents, or at law or in equity, and regardless of
any other condition or contingency.
4. WAIVER. The Guarantors hereby unconditionally waive any and all
statutory and common law suretyship defenses that now or hereafter may be
available to the Guarantors, including, without limitation (a) any
requirement that any Holder in the event of any default by the Borrower first
make demand upon, or seek to enforce remedies against, the Borrower or any
other guarantor or any security or collateral held by the Banks or the Agents
at any time, or to pursue any other remedy in its power, before being
entitled to payment from the Guarantors of the amounts payable by the
Guarantors hereunder, or before proceeding against the Guarantors; (b) the
defense of the statute of limitations in any action hereunder or for the
collection of any Indebtedness or the performance of any Obligation; (c) any
defense that may arise by reason of (i) the incapacity, lack of authority,
death or disability of the Borrower, any Guarantor or any other person or
entity, (ii) the revocation or repudiation of this Guaranty by the
Guarantors, or the revocation or repudiation of any of the Loan Documents by
the Borrower or any other person or entity, (iii) the failure of the Banks or
the Agents to file or enforce a claim against the estate (either in
administration, bankruptcy or any other proceeding) of the Borrower or any
other person or entity, (iv) the unenforceability in whole or in part of the
Loan Documents or any other document, instrument, or agreement referred to
therein, or any limitation on the liability of the Borrower thereunder, or
any limitation on the method or terms of payment thereunder, which may now or
hereafter be caused or imposed in any manner whatsoever, (v) the election by
the Banks and the Agents, in any proceeding instituted under the federal
Bankruptcy Code, of the application of Section 1111(b)(2) of the federal
Bankruptcy Code,
2
<PAGE>
or (vi) any borrowing or grant of a security interest under Section 364 of
the federal Bankruptcy Code; (d) diligence, presentment, demand for payment,
protest, notice of discharge, notice of acceptance of this Guaranty, and
indulgences and notices of any other kind whatsoever; (e) any defense based
upon an election of remedies (including, if available, an election to proceed
by non-judicial foreclosure) by the Banks and the Agents which destroys or
otherwise impairs any subrogation rights of the Guarantors or the right of
the Guarantors to proceed against the Borrower for reimbursement, or both;
(f) any defense based upon any taking, modification or release of any
collateral or guaranties for the Indebtedness of the Borrower to the Banks
and the Agents, or any failure to perfect any security interest in, or the
taking of any other action or the failure to take any other action with
respect to any collateral securing payment of the Indebtedness or performance
of the Obligations; (g) any rights or defenses based upon an offset by the
Guarantors against any obligation now or hereafter owed to the Guarantors by
the Borrower; or (h) any right of appraisement with regard to the value of
any collateral which the Banks may apply as a credit to the obligations of
the Borrower, through foreclosure or otherwise, and agrees that the
determination by an independent appraiser appointed by the Banks or the
Agents of the value of such collateral shall be binding upon the Guarantors
for all purposes; it being the intention hereof that the Guarantors shall
remain fully liable, as principal, until the full payment of the
Indebtedness, full performance of all the Obligations, and termination of the
obligations of the Banks and the Agents under the Loan Documents,
notwithstanding any act, omission or thing which might otherwise operate as a
legal or equitable discharge of the Guarantors.
5. NO RELEASE OF GUARANTY. The obligations, covenants, agreements and
duties of the Guarantors under this Guaranty shall not be released, affected,
stayed or impaired, except upon the express written consent of the Banks and
the Agents, by (a) any assignment, indorsement or transfer, in whole or in
part, of the Note, although made without notice to or the consent of the
Guarantors; or (b) any alteration, compromise, modification, acceleration,
extension or change to or of the time or manner of payment of any of the
Indebtedness, or the performance or observance of any of the Obligations; or
(c) any increase or reduction in the rate of interest or amount of principal
payable on the Note, or any other Indebtedness; or (d) the voluntary or
involuntary liquidation, sale or other disposition of all or substantially
all of the assets of the Borrower or the Guarantors; or (e) any receivership,
insolvency, bankruptcy, reorganization, dissolution or other similar
proceedings, affecting the Borrower or the Guarantors or any of their assets;
or (f) any release of any property from the lien and security interest
created by any of the Loan Documents, the subordination of any such lien or
security interest, or the acceptance of additional or substitute property as
security under the Loan Documents; or (g) the release or discharge of the
Borrower from the observance or performance of any agreement, covenant, term
or condition contained in the Loan Documents; or (h) the foreclosure of any
lien or security interest on any property securing repayment of the
Indebtedness, or the acceptance of a deed or assignment of any such property
in lieu of foreclosure; or (i) any action which the Holder may take or omit
to take by virtue of the Loan Documents or through any course of dealing with
the Borrower; or (j) the release of any existing guarantor or the addition of
a new guarantor; or (k) the operation of law or any other cause, whether
similar or dissimilar to the foregoing.
6. WAIVER OF SUBROGATION. The Guarantors hereby waive, release and
discharge any claim or right the Guarantors may have to be subrogated to the
rights of the Holder following payment of
3
<PAGE>
the Indebtedness and performance of the Obligations. This waiver, release
and discharge shall continue even after the Indebtedness has been paid in
full, the Obligations performed, and the obligations of the Banks and the
Agents under the Loan Documents terminated.
7. SUBORDINATION OF INDEBTEDNESS. Any indebtedness of the Borrower now
or hereafter held by any Guarantor is hereby subordinated to the Indebtedness
of the Borrower to the Holder; and, upon the request of the Holder, such
indebtedness of the Borrower to the Guarantors shall be collected, enforced
and received by the Guarantors as trustee for the Holder and shall be paid
over to the Holder on account of the Indebtedness of the Borrower to the
Holder without reducing or affecting in any manner the liability of the
Guarantors under the other provisions of this Guaranty.
8. CLAIMS IN BANKRUPTCY. The Guarantors will file all claims against
the Borrower in any bankruptcy or other proceeding in which the filing of
claims is required or permitted by law upon any indebtedness of the Borrower
to any Guarantor or claim against the Borrower by any Guarantor, and the
Guarantors hereby assign to the Banks and the Agents all rights of the
Guarantors thereunder. If the Guarantor does not file any such claim, the
Banks and the Agents, as attorney-in-fact for such Guarantor, is hereby
authorized to do so in the name of the Guarantor or, in the discretion of the
Banks and the Agents, to assign the claim and to cause proof of claim to be
filed in the name of the nominee of the Banks and the Agents. The Banks, the
Agents or their nominee shall have the sole right to accept or reject any
plan proposed in such proceeding and to take any other action which a party
filing a claim is entitled to take. In all such cases, whether in
administration, bankruptcy or otherwise, the person or persons authorized to
pay such claim shall pay to the Banks and the Agents the full amount payable
on such claim up to the amounts due under this Guaranty, and, to the full
extent necessary for that purpose, the Guarantors hereby assign to the Banks
and the Agents all of the Guarantors' rights to any such payments or
distributions to which the Guarantors would otherwise be entitled; provided,
however, that the Guarantors' obligations hereunder shall not be satisfied
except to the extent that the Banks and the Agents receive cash by reason of
any such payment or distribution. If the Banks and the Agents receive
anything hereunder other than cash, the same shall be held as collateral for
the payment of all amounts due under this Guaranty.
9. FINANCIAL CAPACITY.
(a) The Guarantors hereby agree, as a material inducement to the Banks
and the Agents to enter into the Second Amendment, to furnish to the Banks
and the Agents such financial statements, reports and information as required
by Sections 6.01 and 6.02 of the Credit Agreement. The Banks and the Agents
agree to keep confidential all of the financial information which it receives
in connection herewith, except that such information may be provided to any
assignee as provided in Section 17 hereof.
(b) The Guarantors will promptly notify each Bank through the
Administrative Agent of the commencement of, or any material development in,
any litigation or proceeding affecting any Guarantor which, if adversely
determined, would reasonably be expected to have a Material Adverse Effect
(as defined in the Credit Agreement); or in which the relief sought is an
injunction or other stay of the performance of this Guaranty. Such notice
shall be accompanied by a written statement
4
<PAGE>
by the chief executive officer, the president or the chief financial officer
of such Guarantor, or any other officer having substantially the same
authority and responsibility, setting forth details of the occurrence
referred to therein, and stating what action the Guarantors propose to take
with respect thereto and at what time.
10. CONDITION OF BORROWER. The Guarantors are fully aware of the
financial condition of the Borrower and are executing and delivering this
Guaranty based solely upon the Guarantors' own independent investigation of
all matters pertinent hereto, and are not relying in any manner upon any
representation or statement of the Banks or the Agents. The Guarantors
represent and warrant that the Guarantors are in a position to obtain and the
Guarantors hereby assume full responsibility for obtaining, any additional
information concerning the Borrower's financial condition and any other
matter pertinent hereto as the Guarantors may desire, and the Guarantors are
not relying upon or expecting the Banks or the Agents to furnish to the
Guarantors any information now or hereafter in the possession of the Banks or
the Agents concerning the same or any other matter. By executing this
Guaranty, the Guarantors knowingly acknowledge and accept the full range of
risks encompassed within a contract of this type. The Guarantors shall have
no right to require the Banks or the Agents to obtain or disclose any
information with respect to the Indebtedness or the Obligations, the
financial condition or character of the Borrower, the Borrower's ability to
pay the Indebtedness or perform the Obligations, the existence of any
collateral or security for any or all of the Indebtedness or the Obligations,
the existence or non-existence of any other guaranties of all or any part of
the Indebtedness or the Obligations, or any action or non-action on the part
of the Banks, the Agents, the Borrower, or any other person, or any other
matter, fact or occurrence whatsoever.
11. REPRESENTATIONS AND WARRANTIES. Each of the Guarantors represents
and warrants to the Banks and the Agents that:
(a) TAX RETURNS AND PAYMENTS. All material tax returns and reports of
each Guarantor required by law to be filed have been duly filed, and all
taxes, assessments, contributions, fees and other governmental charges the
liability for which could exceed $100,000 (other than those currently payable
without penalty or interest and those currently being contested in good
faith) upon any Guarantor or upon any Guarantor's properties, assets or
income which are due and payable have been paid.
(b) LITIGATION. There is, to the knowledge of the Guarantors, no
action, suit, proceeding or investigation pending at law or in equity or
before any Governmental Authority (as defined in the Credit Agreement), or
threatened against or affecting any Guarantor, an adverse ruling in which
would or might materially impair the ability of the Guarantors to observe and
perform the Guarantors' obligations under this Guaranty or have a material
adverse effect upon the legality, validity, binding effect or enforceability
of this Guaranty.
(c) COMPLIANCE WITH OTHER INSTRUMENTS; NONE BURDENSOME. To the best of
their knowledge, no Guarantor is in violation of or in default with respect
to any provision of any mortgage, indenture, contract, agreement or
instrument applicable to such Guarantor, or by which such Guarantor is bound,
and there is no provision of any mortgage, indenture, contract, agreement or
instrument applicable to any Guarantor or by which any Guarantor is bound
which materially adversely affects,
5
<PAGE>
or in the future (so far as the Guarantors can now foresee) will materially
adversely affect, the business or prospects or condition (financial or other)
of any Guarantor or of any Guarantor's properties or assets.
(d) FINANCIAL STATEMENTS. Any financial statements heretofore
delivered to the Banks and the Agents by the Guarantors are true and correct
in all respects, and fairly represent the respective financial conditions of
the subjects thereof as of the respective dates thereof; and no materially
adverse change has occurred in the financial conditions reflected therein
since the respective dates thereof.
12. BANKRUPTCY. Until all Indebtedness has been paid to the Banks and
the Agents, all Obligations have been performed, and the obligations of the
Banks and the Agents under the Loan Documents have been terminated, the
Guarantors shall not, without the prior written consent of the Banks and the
Agents, commence or join with any other person in commencing any bankruptcy,
reorganization or insolvency proceedings of or against the Borrower. The
obligations of the Guarantors under this Guaranty shall not be altered,
limited or affected by any proceeding, voluntary or involuntary, involving
the bankruptcy, insolvency, receivership, reorganization, liquidation or
arrangement of the Borrower or by any defense which the Borrower may have by
reason of the order, decree or decision of any court or administrative body
resulting from any such proceeding. The Guarantors acknowledge and agree
that any interest on the Indebtedness which accrues after the commencement of
any such proceeding (or, if interest on any portion of the Indebtedness
ceases to accrue by operation of law by reason of the commencement of said
proceeding, such interest as would have accrued on any such portion of the
Indebtedness if said proceeding had not been commenced) shall be included in
the Indebtedness, since it is the intention of the parties that the amount of
the Indebtedness which is guaranteed by the Guarantors pursuant to this
Guaranty should be determined without regard to any rule of law or order
which may relieve the Borrower of any portion of such Indebtedness. The
Guarantors will permit any trustee in bankruptcy, receiver, debtor in
possession, assignee for the benefit of creditors or similar person to pay
the Banks and the Agents, or allow the claim of the Banks and the Agents in
respect of, any such interest accruing after the date on which such
proceeding is commenced. In the event that all or any portion of the
Indebtedness is paid or all or any part of the Obligations are performed by
the Borrower, the obligations of the Guarantors hereunder shall continue and
remain in full force and effect in the event that all or any part of such
payment or performance is avoided or recovered directly or indirectly from
the Banks or the Agents as a preference, fraudulent transfer or otherwise in
such proceeding.
13. REMEDIES CUMULATIVE. The liability of the Guarantors, and all
rights, powers and remedies of the Banks and the Agents hereunder and under
any other agreement now or at any time hereafter in force between the Banks,
the Agents and the Guarantors relating to the Indebtedness or the
Obligations, shall be cumulative and not exclusive or alternative, and such
rights, powers and remedies shall be in addition to all other rights, powers
and remedies given to the Banks and the Agents by law.
14. AMENDMENTS; CONTINUING LIABILITY. The terms of this Guaranty may
not be modified or amended except by a written agreement executed by the
Guarantors with the consent in writing of the Holder. The obligations of the
Guarantors under this Guaranty shall be continuing obligations
6
<PAGE>
and a separate cause of action shall be deemed to arise in respect of each
default hereunder. The Guarantors will from time to time deliver, upon
request of the Holder, satisfactory acknowledgments of the Guarantors'
continued liability hereunder.
15. MERGER OR CONSOLIDATION OF GUARANTORS. No Guarantor will
consolidate or merge with or into another corporation, person or entity,
whether or not affiliated with such Guarantor without the written consent of
the Holder (which consent shall not be unreasonably withheld). No
consolidation or merger (with or without the consent of the Holder) shall
release, affect or impair the continuing liability and obligation of the
Guarantors under this Guaranty.
16. NOTICES. Any notice or demand to be given or served hereunder
shall be in writing and personally delivered, or sent by registered or
certified mail addressed as follows:
To the Banks and
the Agents at: 999 Bishop Street
Honolulu, Hawaii 96813
Attention: Commercial Real Estate Division
To Guarantors at: 828 Fort Street Mall, 4th Floor
Honolulu, Hawaii 96813
Any such address may be changed from time to time by the addressee by serving
notice to the other party as above provided. Service of such notice or
demand shall be deemed complete on the date of actual delivery or at the
expiration of the second day after the date of mailing if mailed in Hawaii,
whichever is earlier.
The Guarantors hereby irrevocably authorize the Agents to accept
facsimile ("FAX") transmissions of such notices, requests, demands and
documents, provided such transmission is signed by an officer of any
Guarantor. The Guarantors shall and do hereby hold the Agents harmless from,
and indemnify the Agents against, any loss, cost, expense, claim or demand
which may be incurred by or asserted against the Agents by virtue of the
Agents acting upon any such notices, requests, demands or documents
transmitted in accordance with the above provisions. Any such FAX
transmission shall, at the Agents' request, be separately confirmed by
telephone conference between the Agents and the authorized officer described
above, and shall be followed by transmission of the actual "hard copy" of the
notice, request, demand or document in question.
17. PARTIES IN INTEREST. All covenants, agreements, terms and
conditions contained in this Guaranty shall be binding on the Guarantors and
the Guarantors' respective successors, successors in trust and assigns, and
shall bind, inure to the benefit of and be enforceable by the Holder from
time to time. This Guaranty is assignable by the Banks and the Agents with
respect to all or any portion of the Indebtedness or the Obligations without
notice to or consent of the Guarantor, and when so assigned, the Guarantors
shall be liable to the assignee as to any such portion, without in any manner
affecting the liability of the Guarantors with respect to any of the
Indebtedness or Obligations retained by the Banks or the Agents.
7
<PAGE>
18. GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS. This Guaranty
shall be construed and interpreted in accordance with and shall be governed
by the laws of the State of Hawaii. The Banks and the Agents may bring any
action or proceeding to enforce this Guaranty, or any action or proceeding
arising out of this Guaranty, in any court or courts of the State of Hawaii
or the United States District Court for the District of Hawaii. If the Banks
and the Agents commence such an action in a court located in the State of
Hawaii, or the United States District Court for the District of Hawaii, the
Guarantors hereby agree that the Guarantors will submit and does hereby
irrevocably submit to the personal jurisdiction of such courts; if served by
mail will acknowledge receipt of a copy of the summons and complaint within
the statutory time limit and in the manner set forth on the notice and
summons; and will not attempt to have such action dismissed, abated, or
transferred on the ground of FORUM NON CONVENIENS or similar grounds;
provided, however, that nothing contained herein shall prohibit the
Guarantors from seeking, by appropriate motion, to remove an action brought
in a Hawaii state court to the United States District Court for the District
of Hawaii. If such action is so removed, however, the Guarantors shall not
seek to transfer such action to any other district nor shall the Guarantors
seek to transfer to any other district any action which the Banks and the
Agents originally commenced in the United States District Court for the
District of Hawaii. Any action or proceeding brought by the Guarantors
arising out of this Guaranty shall be brought solely in a court of competent
jurisdiction located in the State of Hawaii or in the United States District
Court for the District of Hawaii.
19. PARAGRAPH HEADINGS. The headings of paragraphs herein are inserted
only for convenience and shall in no way define, describe or limit the scope
or intent of any provision of the Guaranty.
20. LIABILITY JOINT AND SEVERAL. The obligations of each Guarantor
hereunder shall be joint and several.
21. COUNTERPARTS. This Guaranty may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument, and in making proof of this
Guaranty, it shall not be necessary to produce or account for more than one
such counterpart.
IN WITNESS WHEREOF, the Guarantors have executed this instrument as of
January 21, 1999.
SCHULER HOMES OF CALIFORNIA, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER HOMES OF OREGON, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
8
<PAGE>
Title: Vice President of Finance
SCHULER HOMES OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
MELODY HOMES, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER REALTY/MAUI, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SCHULER REALTY/OAHU, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
LOKELANI CONSTRUCTION CORPORATION
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
MELODY MORTGAGE CO.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SHLR OF WASHINGTON, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SHLR OF COLORADO, INC.
9
<PAGE>
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SHLR OF UTAH, INC.
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
SSHI LLC
By SHLR of Washington, Inc.
Its Managing Member
By /s/ Douglas M. Tonokawa
-------------------------
Name: Douglas M. Tonokawa
Title: Vice President of Finance
10
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements
(Form S-8 Nos. 33-53044 and 333-60305) of Schuler Homes, Inc., of our report
dated March 15, 1999, with respect to the consolidated financial statements of
Schuler Homes, Inc. included in this Form 10-K for the year ended December 31,
1998.
Ernst & Young LLP
Honolulu, Hawaii
March 25, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES FOR SCHULER HOMES, INC.
AS OF 12/31/98 & 97 AND FOR THE YEARS ENDED 12/31/98, 97 & 96 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,915,000
<SECURITIES> 0
<RECEIVABLES> 1,932,000
<ALLOWANCES> 0
<INVENTORY> 325,166,000
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 385,543,000
<CURRENT-LIABILITIES> 0
<BONDS> 57,500,000
0
0
<COMMON> 209,000
<OTHER-SE> 93,201,000
<TOTAL-LIABILITY-AND-EQUITY> 385,543,000
<SALES> 282,902,000
<TOTAL-REVENUES> 282,902,000
<CGS> 225,370,000
<TOTAL-COSTS> 260,502,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 20,592,000
<INCOME-TAX> 7,876,000
<INCOME-CONTINUING> 12,716,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,716,000
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.63
</TABLE>
