<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
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 1-11758
DEAN WITTER, DISCOVER & CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 36-3145972
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
TWO WORLD TRADE CENTER 10048
NEW YORK, NY (ZIP CODE)
(ADDRESS OF PRINCIPAL
EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 392-2222
----------------
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 [_]
As of July 31, 1996, there were 164,286,283 shares of Registrant's Common
Stock, par value $.01 per share, outstanding.
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<PAGE>
DEAN WITTER, DISCOVER & CO.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 30, 1996
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income--Three and Six Months
Ended June 30, 1996 and 1995 (unaudited)............................. 1
Consolidated Balance Sheets--June 30, 1996 (unaudited) and December
31, 1995.............................................................. 2
Consolidated Statements of Cash Flows--Six Months
Ended June 30, 1996 and 1995 (unaudited)............................. 3
Notes to Consolidated Financial Statements (unaudited)................ 4
Independent Accountants' Report....................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 10
PART II--OTHER INFORMATION
Item 1. Legal Proceedings............................................... 24
Item 6. Exhibits and Reports on Form 8-K................................ 24
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
DEAN WITTER, DISCOVER & CO.
CONSOLIDATED STATEMENTS OF INCOME
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
1996 1995 1996 1995
--------- --------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Merchant and cardmember fees............ $ 345.6 $ 265.6 $ 666.1 $ 505.9
Commissions............................. 303.8 247.9 604.5 482.5
Asset management and administration
fees................................... 285.8 251.0 560.7 496.5
Servicing fees.......................... 191.5 174.2 391.8 346.5
Principal transactions.................. 114.5 120.8 233.4 246.2
Investment banking...................... 57.6 48.7 122.3 87.6
Other................................... 33.5 26.1 58.3 53.1
--------- --------- -------- --------
Total non-interest revenues........... 1,332.3 1,134.3 2,637.1 2,218.3
--------- --------- -------- --------
Interest revenue........................ 863.3 812.6 1,724.7 1,569.8
Interest expense........................ 379.7 384.4 770.4 737.3
--------- --------- -------- --------
Net interest income................... 483.6 428.2 954.3 832.5
Provision for losses on receivables..... 274.2 137.6 502.2 258.3
--------- --------- -------- --------
Net credit income..................... 209.4 290.6 452.1 574.2
--------- --------- -------- --------
Net operating revenues................ 1,541.7 1,424.9 3,089.2 2,792.5
--------- --------- -------- --------
Employee compensation and benefits...... 552.9 489.5 1,123.2 973.2
Marketing and business development...... 201.4 159.0 393.3 306.7
Information processing and
communications......................... 185.9 171.7 368.0 326.1
Facilities and equipment................ 63.7 58.4 124.9 112.8
Other................................... 149.7 161.0 291.3 326.1
--------- --------- -------- --------
Total non-interest expenses........... 1,153.6 1,039.6 2,300.7 2,044.9
--------- --------- -------- --------
Income before income taxes.............. 388.1 385.3 788.5 747.6
Income tax expense...................... 149.3 147.8 303.9 288.0
--------- --------- -------- --------
Net income.............................. $ 238.8 $ 237.5 $ 484.6 $ 459.6
========= ========= ======== ========
Primary net income per share............ $ 1.39 $ 1.35 $ 2.80 $ 2.63
========= ========= ======== ========
Primary average common shares
outstanding............................ 172.1 175.4 173.1 174.4
========= ========= ======== ========
Fully diluted net income per share...... $ 1.39 $ 1.35 $ 2.79 $ 2.63
========= ========= ======== ========
Fully diluted average common shares
outstanding............................ 172.1 175.5 173.5 175.0
========= ========= ======== ========
</TABLE>
See notes to the consolidated financial statements.
1
<PAGE>
DEAN WITTER, DISCOVER & CO.
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................. $ 998.5 $ 1,464.5
Cash and securities segregated under federal and other
regulations.......................................... 1,915.7 1,926.4
Receivables
Consumer loans (net of allowances of $671.0 in 1996
and $721.8 in 1995)................................. 18,854.9 20,834.6
Securities clients (net of allowances of $15.6 in
1996 and $16.2 in 1995)............................. 2,816.2 2,588.8
Brokers or dealers................................... 3,074.6 2,683.7
Other................................................ 771.6 732.4
Amounts due from asset securitizations................ 814.2 653.4
Securities purchased under agreements to resell....... 2,865.6 3,571.9
Securities owned, at market value..................... 2,048.0 1,848.8
Deferred income taxes................................. 748.1 736.9
Office facilities, at cost (less accumulated
depreciation and amortization of $415.1 in 1996 and
$380.5 in 1995)...................................... 365.3 341.0
Goodwill.............................................. 158.6 161.9
Other assets.......................................... 630.5 663.9
--------- ---------
Total assets....................................... $36,061.8 $38,208.2
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Commercial paper..................................... $ 2,418.7 $ 4,688.5
Other short-term borrowings.......................... 544.3 1,637.0
Deposits............................................. 6,390.3 6,191.1
Payables
Securities clients.................................. 2,794.8 3,183.0
Brokers or dealers.................................. 3,167.8 2,629.7
Drafts.............................................. 402.9 485.5
Income taxes........................................ 98.3 99.3
Securities sold under agreements to repurchase....... 3,463.0 3,813.4
Securities sold but not yet purchased, at market
value............................................... 1,098.2 1,125.2
Other liabilities and accrued expenses............... 2,842.2 2,789.4
Long-term borrowings................................. 7,888.0 6,732.4
--------- ---------
Total liabilities.................................. 31,108.5 33,374.5
--------- ---------
Shareholders' Equity
Preferred stock ($0.01 par value, 10.0 shares
authorized, none issued)............................ -- --
Common stock ($0.01 par value, 500.0 shares
authorized, 171.0 and 171.0 shares issued, 164.7 and
168.8 shares outstanding at June 30, 1996 and
December 31, 1995).................................. 1.7 1.7
Paid-in capital...................................... 2,710.8 2,718.3
Retained earnings.................................... 2,577.0 2,165.7
--------- ---------
5,289.5 4,885.7
--------- ---------
Common stock held in treasury, at cost ($0.01 par
value, 6.3 and 2.2 shares at June 30, 1996 and
December 31, 1995).................................. (330.5) (106.8)
Stock compensation plans............................. 47.5 85.1
Employee stock benefit trust......................... (46.8) (21.5)
Unearned stock compensation.......................... (6.4) (8.8)
--------- ---------
Total shareholders' equity......................... 4,953.3 4,833.7
--------- ---------
Total liabilities and shareholders' equity......... $36,061.8 $38,208.2
========= =========
</TABLE>
See notes to the consolidated financial statements.
2
<PAGE>
DEAN WITTER, DISCOVER & CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------------------
1996 1995
-------- ---------
(UNAUDITED)
<S> <C> <C>
Cash flows provided by (used in) operating activities
Net income............................................... $ 484.6 $ 459.6
Adjustments to reconcile net income to net cash flows
from operating activities
Depreciation and amortization........................... 39.9 31.6
Provision for losses on receivables..................... 502.2 258.3
Deferred income taxes................................... (11.2) (38.0)
Decrease (increase) in operating assets
Cash and securities segregated under federal and other
regulations............................................ 10.7 (245.8)
Receivables
Securities clients..................................... (233.3) 167.6
Brokers or dealers..................................... (390.9) (590.2)
Other.................................................. (39.2) 80.5
Amounts due from asset securitizations.................. (160.8) (125.2)
Matched securities purchased under agreements to resell,
net.................................................... (166.4) 9.0
Securities owned and securities sold but not yet
purchased, at market value, net........................ (226.2) 562.9
Other assets............................................ (2.6) 32.3
Increase (decrease) in operating liabilities
Payables
Securities clients..................................... (388.2) (41.5)
Brokers or dealers..................................... 538.1 782.5
Drafts................................................. (82.6) (96.2)
Income taxes........................................... (1.0) (50.1)
Other liabilities and accrued expenses.................. 122.3 249.8
-------- ---------
Cash provided by (used in) operating activities....... (4.6) 1,447.1
-------- ---------
Cash flows provided by (used in) investing activities
Net principal disbursed on consumer loans............... (2,468.3) (1,127.1)
Purchases of consumer loans............................. (5.1) (296.6)
Sales of consumer loans................................. 3,957.1 629.0
Other................................................... (24.9) (25.6)
-------- ---------
Cash provided by (used in) investing activities....... 1,458.8 (820.3)
-------- ---------
Cash flows provided by (used in) financing activities
Repayments of commercial paper, net..................... (2,335.1) (853.7)
Net decrease in other short-term borrowings............. (1,092.6) (791.0)
Deposits, net........................................... 199.2 374.0
Proceeds from issuance of long-term borrowings, net..... 1,153.8 870.1
Securities sold under agreements to repurchase, net..... 522.2 (721.2)
Dividends paid.......................................... (63.3) (48.4)
Proceeds from issuance of common stock.................. 29.2 21.6
Purchase of treasury stock.............................. (333.6) (14.6)
-------- ---------
Cash used in financing activities..................... (1,920.2) (1,163.2)
-------- ---------
Decrease in cash and cash equivalents.................... (466.0) (536.4)
Cash and cash equivalents, beginning of period........... 1,464.5 1,334.1
-------- ---------
Cash and cash equivalents, end of period................. $ 998.5 $ 797.7
======== =========
</TABLE>
See notes to the consolidated financial statements.
3
<PAGE>
DEAN WITTER, DISCOVER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTRODUCTION AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Dean Witter,
Discover & Co. and subsidiaries (the "Company"). The Company is a financial
services organization that provides a broad range of credit and investment
products, with a primary focus on individual customers. Through its wholly-
owned subsidiary NOVUS Credit Services Inc. ("NCSI"), the Company conducts its
credit services business, including the operation of the NOVUS SM Network, a
proprietary network of merchant and cash access locations, and the issuance of
proprietary general purpose credit cards. The Company's securities business is
conducted primarily through its wholly-owned subsidiaries Dean Witter Reynolds
Inc. ("DWR") and Dean Witter InterCapital Inc.
The interim consolidated financial statements as of June 30, 1996, and for
the three and six months ended June 30, 1996 and 1995, are unaudited; however,
in the opinion of management, all adjustments, consisting only of normal
recurring accruals necessary for fair presentation, have been reflected. All
material intercompany balances and transactions have been eliminated.
The consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
December 31, 1995 incorporated by reference in the Company's 1995 Annual
Report on Form 10-K filed by the Company under the Securities Exchange Act of
1934. The results of operations for interim periods are not necessarily
indicative of results for the entire year. Certain reclassifications have been
made to prior period amounts to conform to the current presentation.
The calculations of earnings per common share were based on the weighted
average number of common shares outstanding during the three and six month
periods ended June 30, 1996 and 1995, adjusted for the dilutive effects of
stock options and unissued stock awards under deferred compensation plans.
2. ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") Nos. 121 and 122. SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of", generally requires that long-lived assets be reported at the lower of
their carrying cost or net realizable value. SFAS No. 122, "Accounting for
Mortgage Servicing Rights, an amendment of SFAS No. 65", requires that rights
to service mortgage loans for others, however acquired, be recorded as
separate assets when the mortgage loans are sold and the servicing rights are
retained. This statement also requires that capitalized mortgage servicing
rights be assessed for impairment based on the fair value of those rights. The
adoption of these statements was not material to the Company's financial
position or results of operations.
The Financial Accounting Standards Board has issued SFAS No. 123,
"Accounting for Stock-Based Compensation", effective for fiscal years
beginning after December 15, 1995. The Company has elected, as permitted by
SFAS No. 123, to adopt the disclosure requirement of that standard but
continue to account for stock-based compensation under APB Opinion No. 25,
"Accounting for Stock Issued to Employees."
The Financial Accounting Standards Board has also issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities," effective for transfers of financial assets
made after December 31, 1996. This statement provides financial reporting
standards for the derecognition and recognition of financial assets, including
the distinction between transfers of financial assets which should be recorded
as sales and those which should be recorded as secured borrowings. SFAS 125
supersedes and incorporates the essential provisions of SFAS 122. The Company
believes that the effect of the adoption of SFAS 125 will not be material to
its financial position or results of operations.
4
<PAGE>
DEAN WITTER, DISCOVER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. RISKS AND UNCERTAINTIES
The preparation of the consolidated financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements.
Actual results could differ from these estimates.
The allowance for consumer loan losses is a significant estimate that is
regularly evaluated by management for adequacy on a portfolio by portfolio
basis. The evaluations take into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality, review of
specific problem loans and current economic conditions that may affect the
borrower's ability to pay.
The Company uses the results of these evaluations to provide an allowance
for loan losses for all loans, making no distinction between consumer loans
that are intended to be securitized and those that are not. The exposure for
credit losses for owned loans is influenced by the performance of the
portfolio and other factors discussed above, with the Company absorbing all
related losses. The exposure for credit losses for securitized loans is
represented by the Company retaining a contingent risk based on the amount of
credit enhancement provided.
Management believes that its estimates have been historically prudent in
light of the need to allow the market for asset securitizations, in particular
those backed by credit card receivables, to mature, and in light of the
uncertainty of accounting standards for asset securitizations. The Company is
now reassessing its estimate of the allowance for losses required for loans
intended to be securitized based on its experience with losses related to such
loans as the market has matured. This reassessment process has also been
affected by the standard-setting initiatives of the Financial Accounting
Standards Board, in particular the recent issuance of SFAS 125, which
eliminates the uncertainty surrounding the appropriate accounting treatment
for asset securitization transactions. Therefore, the Company may revise and
reduce its estimate of the allowance for losses related to loans intended to
be securitized. The effect of this revision in estimate would be to reduce the
provision for consumer loan losses by an amount equal to the allowance that,
absent such revision, would have been provided for loans intended to be
securitized. If the Company implements this revision, it expects that the
provision for consumer loan losses beginning with the third quarter of 1996
would be affected. It is further expected that loss allowances for outstanding
securitizations as of the date of implementation would continue to be
maintained until the related loans are liquidated. Any revision will be made
in light of the facts and circumstances existing at that time and the effect
of any such revision cannot currently be quantified.
4. CONSUMER LOANS
Consumer loans, classified as to type, were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
--------- ------------
(IN MILLIONS)
<S> <C> <C>
Credit card......................................... $18,490.4 $20,440.4
Real estate-secured and other consumer installment.. 1,130.4 1,233.1
--------- ---------
Total............................................... 19,620.8 21,673.5
Less
Unearned finance charges and unamortized loan
discounts and fees............................... 94.9 117.1
Allowance for loan losses......................... 671.0 721.8
--------- ---------
Consumer loans, net................................. $18,854.9 $20,834.6
========= =========
</TABLE>
5
<PAGE>
DEAN WITTER, DISCOVER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Activity in the allowance for consumer loan losses was as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1996 1995 1996 1995
--------- --------- -------- --------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Balance, beginning of period....... $ 663.6 $ 604.8 $ 721.8 $ 565.7
Additions
Provision for loan losses........ 271.3 135.7 496.3 253.2
Purchase of loan portfolios...... -- -- 0.1 29.8
--------- --------- -------- --------
Total additions................ 271.3 135.7 496.4 283.0
--------- --------- -------- --------
Deductions
Charge-offs...................... 282.8 160.1 532.6 295.1
Recoveries....................... (37.5) (33.0) (70.9) (57.8)
--------- --------- -------- --------
Net charge-offs................ 245.3 127.1 461.7 237.3
--------- --------- -------- --------
Other(1)........................... (18.6) (8.8) (85.5) (6.8)
--------- --------- -------- --------
Balance, end of period............. $ 671.0 $ 604.6 $ 671.0 $ 604.6
========= ========= ======== ========
</TABLE>
- --------
(1) Primarily reflects net transfers related to asset securitizations.
Interest accrued on loans subsequently charged-off, recorded as a reduction
of interest revenue, was $40.8 million and $77.6 million in the three and six
months ended June 30, 1996 and $26.1 million and $47.8 million in the three
and six months ended June 30, 1995.
The Company received proceeds from asset securitizations of $1,046.8 million
and $3,666.7 million in the three and six months ended June 30, 1996, and
$629.0 million in the three and six months ended June 30, 1995. The
uncollected balances of consumer loans sold through securitizations were
$12,831.4 million and $10,219.5 million at June 30, 1996 and December 31,
1995. The allowance for loan losses related to securitized consumer loans,
included in other liabilities and accrued expenses, was $431.6 million and
$341.7 million at June 30, 1996 and December 31, 1995. The Company had, under
the provisions of certain securitization transactions, limited recourse
obligations at June 30, 1996 and December 31, 1995 of $135.6 million and
$123.9 million, of which $29.7 million and $30.0 million were included in the
allowance for loan losses related to securitized consumer loans. In the third
quarter of 1996 the Company received proceeds from an asset securitization of
$860.8 million.
6
<PAGE>
DEAN WITTER, DISCOVER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. BORROWINGS
Short-term borrowings
Short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
(IN MILLIONS)
<S> <C> <C>
Commercial paper....................................... $2,418.7 $4,688.5
Other
Bank borrowings...................................... 410.3 385.3
Federal funds purchased.............................. 134.0 720.0
Bank notes........................................... -- 529.6
Note payable to Tandy................................ -- 2.1
-------- --------
Total.................................................. $2,963.0 $6,325.5
======== ========
</TABLE>
The weighted average interest rate on short-term borrowings, including the
effects of interest rate contracts, was 5.62% and 5.97% at June 30, 1996 and
December 31, 1995.
Long-term borrowings
Long-term borrowings outstanding, which consisted of senior long-term notes,
net of unamortized discount, were as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
(IN MILLIONS)
<S> <C> <C>
Floating rate notes.................................... $4,215.3 $3,275.5
Fixed rate notes....................................... 3,672.7 3,456.9
-------- --------
Total................................................ $7,888.0 $6,732.4
======== ========
</TABLE>
The weighted average interest rate on long-term borrowings, including the
effects of interest rate contracts, was 5.94% and 6.28% at June 30, 1996 and
December 31, 1995.
In April 1996, the Company renewed its senior bank credit facility and
increased its amount to $4.0 billion from $3.25 billion. The facility expires
in April 1997 and includes certain extension provisions. This facility
contains covenants that require the Company to maintain minimum net worth
requirements and specified financial ratios. The Company believes that the
covenant restrictions will not impair its ability to pay its current level of
dividends. As of June 30, 1996, the Company had never borrowed from its senior
bank credit facility.
In May 1996, the Company increased its capacity to issue debt securities
under its Euro medium-term note program by $2.0 billion.
In August 1996, the Company registered $2.0 billion of debt securities with
the Securities and Exchange Commission ("SEC").
7
<PAGE>
DEAN WITTER, DISCOVER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6. REGULATORY CAPITAL REQUIREMENTS
Under regulatory net capital requirements adopted by the Federal Deposit
Insurance Corporation ("FDIC") and other regulatory capital guidelines, FDIC-
insured financial institutions must maintain (a) 3% to 5% of Tier 1 capital,
as defined, to total assets ("leverage ratio") and (b) 8% combined Tier 1 and
Tier 2 capital, as defined, to risk-weighted assets ("risk-weighted capital
ratio"). At June 30, 1996, the leverage ratio and risk-weighted capital ratio
of each of the Company's FDIC-insured financial institutions exceeded these
and all other regulatory minimums.
DWR, the Company's primary broker-dealer, is subject to the Uniform Net
Capital Rule of the SEC. Under the alternative method permitted by this Rule,
the required net capital, as defined, shall not be less than the greater of
(a) one million dollars, (b) 2% of aggregate debit balances arising from
client transactions pursuant to Securities Exchange Act of 1934 Rule 15c3-3,
or (c) 4% of the funds required to be segregated pursuant to the Commodity
Exchange Act. The New York Stock Exchange, Inc. may also require a member
organization to reduce its business if its net capital is less than the
greater of (a) 4% of aggregate debit balances or (b) 6% of the funds required
to be segregated, and may prohibit a member organization from expanding its
business and declaring cash dividends if its net capital is less than the
greater of (a) 5% of aggregate debit balances or (b) 7% of the funds required
to be segregated. At June 30, 1996, DWR's net capital was $595.9 million and
net capital in excess of the minimum required was $483.0 million. DWR's net
capital was 20.5% of aggregate debit balances and 21.2% of funds required to
be segregated.
7. CONTINGENT LIABILITIES
In the normal course of business, the Company has been named as a defendant
in various lawsuits. Some of these lawsuits involve claims for substantial
amounts. Although the ultimate outcome of these suits cannot be ascertained at
this time, it is the opinion of management, after consultation with outside
counsel, that the resolution of such suits will not have a material adverse
effect on the consolidated financial condition of the Company, but may be
material to the Company's operating results for any particular period,
depending upon the level of the Company's income for such period.
8
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Directors and Shareholders of Dean Witter, Discover & Co.:
We have reviewed the accompanying consolidated balance sheet of Dean Witter,
Discover & Co. and subsidiaries as of June 30, 1996, and the related
consolidated statements of income for the three and six month periods ended
June 30, 1996 and 1995, and cash flows for the six month periods ended June
30, 1996 and 1995. These financial statements are the responsibility of the
management of Dean Witter, Discover & Co.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Dean Witter, Discover & Co. and
subsidiaries as of December 31, 1995, and the related consolidated statements
of income, cash flows and changes in shareholders' equity for the year then
ended (not presented herein); and in our report dated February 21, 1996, we
expressed an unqualified opinion on those consolidated financial statements.
Deloitte & Touche LLP
New York, New York
August 14, 1996
9
<PAGE>
DEAN WITTER, DISCOVER & CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
RESULTS OF OPERATIONS
The Company's net income was $238.8 million in the second quarter of 1996, a
1% increase over the second quarter of 1995. Net income was $484.6 million in
the first six months of 1996, a 5% increase over the first six months of 1995.
Primary earnings per common share were $1.39 and $2.80 in the second quarter
and first six months of 1996 compared to $1.35 and $2.63 in 1995. Fully
diluted earnings per common share were $1.39 and $2.79 in the second quarter
and first six months of 1996 compared to $1.35 and $2.63 in 1995.
Net operating revenues increased 8% and 11% in the second quarter and first
six months of 1996 from the comparable periods of 1995. The increases in both
periods were due to higher merchant and cardmember fees, commissions revenues
and net interest income partially offset by a higher provision for losses on
receivables.
Non-interest expenses increased 11% and 13% in the second quarter and first
six months of 1996 from the comparable periods of 1995. The increases
reflected higher variable compensation expenses related to increased
Securities revenues and higher marketing and business development and
information processing expenses.
10
<PAGE>
CREDIT SERVICES
STATEMENTS OF INCOME (IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- -----------------
1996 1995 1996 1995
------ ------ -------- --------
<S> <C> <C> <C> <C>
Merchant and cardmember fees................... $345.6 $265.6 $ 666.1 $ 505.9
Servicing fees................................. 191.5 174.2 391.8 346.5
Other.......................................... 1.2 0.4 6.3 0.7
------ ------ -------- --------
Total non-interest revenues.................. 538.3 440.2 1,064.2 853.1
------ ------ -------- --------
Interest revenue............................... 673.4 596.9 1,348.6 1,160.4
Interest expense............................... 257.6 236.4 532.7 462.1
------ ------ -------- --------
Net interest income.......................... 415.8 360.5 815.9 698.3
Provision for loan losses...................... 271.3 135.7 496.3 253.2
------ ------ -------- --------
Net credit income............................ 144.5 224.8 319.6 445.1
------ ------ -------- --------
Net operating revenues....................... 682.8 665.0 1,383.8 1,298.2
------ ------ -------- --------
Employee compensation and benefits............. 119.3 104.8 243.5 207.1
Marketing and business development............. 174.0 132.0 338.4 256.5
Information processing and communications...... 116.9 105.4 231.3 196.3
Facilities and equipment....................... 15.4 12.1 30.2 23.9
Other.......................................... 94.1 85.4 179.9 176.5
------ ------ -------- --------
Total non-interest expenses.................. 519.7 439.7 1,023.3 860.3
------ ------ -------- --------
Income before income taxes..................... 163.1 225.3 360.5 437.9
Income tax expense............................. 59.7 84.7 132.8 165.3
------ ------ -------- --------
Net income..................................... $103.4 $140.6 $ 227.7 $ 272.6
====== ====== ======== ========
</TABLE>
Credit Services net income decreased 26% and 16% to $103.4 million and
$227.7 million in the second quarter and first six months of 1996 from the
comparable periods of 1995. These decreases were due to higher provisions for
loan losses and marketing and business development expenditures partially
offset by increases in merchant and cardmember fees and net interest income.
The Company is announcing additional changes to the terms of its cardmember
agreements in the third quarter of 1996, which will become effective during
the fourth quarter. These changes primarily affect delinquent and overlimit
accounts and are designed to increase interest and fee revenues. The Company
expects that interest and fee revenues in the fourth quarter of 1996 will be
higher than such revenues would have been absent the changes in cardmember
agreement terms.
Non-Interest Revenues. Total non-interest revenues increased 22% and 25% in
the second quarter and first six months of 1996 from the comparable periods of
1995.
Merchant and cardmember fees include revenues from fees charged to merchants
on credit card sales, late payment fees, insurance fees, cash advance fees,
overlimit fees, the administration of credit card programs and transaction
processing services. Merchant and cardmember fees increased 30% and 32% in the
second quarter and first six months of 1996 from the comparable periods of
1995. The increases were due to higher merchant fee revenues, overlimit fees,
late payment fees and insurance fees. The increases in merchant fee revenue
were due to continued growth in credit card transaction volume and the NOVUS
Network merchant base. Overlimit fees were implemented in March 1996. The
increases in late fees were due to a higher incidence of delinquent accounts
and an increase, in March 1996, in the amount of late fees charged. The
increase in insurance fees was due to increased enrollments, higher premium
rates and favorable experience rebates.
11
<PAGE>
Servicing fees are revenues derived from consumer loans that have been sold
to investors through asset securitizations. Cash flows from the interest yield
and cardmember fees generated by securitized loans are used to pay investors
in these loans a predetermined fixed or floating rate of return on their
investment, to reimburse the investors for losses to principal through charged
off loans and to pay the Company a fee for servicing the loans. Any excess net
cash flows remaining are paid to the Company. The servicing fees and excess
net cash flows paid to the Company are reported as servicing fees in the
consolidated statements of income. The sale of consumer loans through asset
securitizations therefore has the effect of converting portions of net credit
income and fee income to servicing fees.
The table below presents the components of servicing fees (in millions).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- ------------------
1996 1995 1996 1995
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Cardmember fees.................... $ 73.9 $ 33.2 $ 120.9 $ 64.5
Interest revenue................... 503.4 428.3 996.6 826.4
Interest expense................... (203.1) (182.5) (392.0) (351.5)
Provision for loan losses.......... (182.7) (104.8) (333.7) (192.9)
--------- --------- -------- --------
Servicing fees.................... $ 191.5 $ 174.2 $ 391.8 $ 346.5
========= ========= ======== ========
</TABLE>
Servicing fees increased 10% and 13% in the second quarter and first six
months of 1996 from the comparable periods of 1995. These increases were due
to higher average levels of securitized loans, which resulted in higher net
interest cash flows partially offset by higher levels of credit losses on
securitized loans.
Net Interest Income. Net interest income is equal to the difference between
interest revenue derived from Credit Services consumer loan and short-term
investment assets and interest expense incurred to finance those assets.
Credit Services assets, primarily consumer loans, earn interest revenue at
both fixed rates and market indexed variable rates. The Company incurs
interest expense at fixed and floating rates to finance Credit Services
assets. Interest expense also includes the effects of interest rate contracts
entered into by the Company as part of its interest rate risk management
program. This program is designed to reduce the volatility of earnings
resulting from changes in interest rates and is accomplished primarily through
matched financing, which entails matching the repricing schedules of consumer
loans and the related financing. Net interest income increased 15% and 17% in
the second quarter and first six months of 1996 from the comparable periods of
1995. These increases were due to higher average levels of consumer loans
outstanding, partially offset by a shift in the mix of consumer loans from
fixed rate loans to lower yielding variable rate loans. The effects of
declining market interest rates on the Company's variable rate consumer loans
were offset by declines in the Company's cost of funds.
12
<PAGE>
The following tables present analyses of Credit Services average balance
sheets and interest rates for the three and six months ended June 30, 1996 and
1995 and changes in net interest income during those periods.
TABLE 1
CREDIT SERVICES AVERAGE BALANCE SHEET ANALYSIS (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------
1996 1995
---------------------------- ---------------------------
AVG. BAL. RATE % INTEREST AVG. BAL. RATE % INTEREST
---------------------------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
General purpose credit
card loans.............. $ 16,343.1 13.97% $567.6 $13,863.3 15.07% $520.9
Other consumer loans..... 2,735.2 12.79 87.0 2,255.1 11.30 63.5
Investment securities.... 235.0 5.32 3.1 168.3 5.99 2.5
Federal funds sold and
securities purchased
under agreements to
resell .................. 42.4 5.35 0.6 63.1 6.00 0.9
Other.................... 1,083.9 5.65 15.1 586.6 6.15 9.1
---------- ------ --------- ------
Total interest earning
assets................. 20,439.6 13.25 673.4 16,936.4 14.14 596.9
Allowance for loan
losses.................. (651.5) (595.1)
Non-interest earning
assets.................. 1,344.4 1,263.4
---------- ---------
Total assets............ $ 21,132.5 $17,604.7
========== =========
LIABILITIES & SHAREHOLDER'S EQUITY
Interest bearing
liabilities:
Interest bearing deposits
Savings................. $ 1,016.0 4.57% $ 11.5 $ 1,055.5 4.80% $ 12.6
Brokered................ 3,285.6 7.05 57.6 3,234.3 7.25 58.5
Other time.............. 1,902.6 6.01 28.4 1,195.7 6.54 19.5
---------- ------ --------- ------
Total interest bearing
deposits............... 6,204.2 6.33 97.5 5,485.5 6.62 90.6
Federal funds purchased
and securities sold under
agreements to repurchase. 66.3 5.38 0.9 42.6 6.16 0.7
Other borrowings......... 10,556.4 6.06 159.2 8,492.1 6.85 145.1
---------- ------ --------- ------
Total interest bearing
liabilities............ 16,826.9 6.16 257.6 14,020.2 6.76 236.4
Shareholder's
equity/other
liabilities............. 4,305.6 3,584.5
---------- ---------
Total liabilities &
shareholder's equity... $ 21,132.5 $17,604.7
========== =========
Net interest income...... $415.8 $360.5
====== ======
Net interest margin...... 8.18% 8.54%
Interest rate spread..... 7.09% 7.38%
</TABLE>
13
<PAGE>
TABLE 2
CREDIT SERVICES AVERAGE BALANCE SHEET ANALYSIS (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------
1996 1995
--------------------------- ---------------------------
AVG. BAL. RATE % INTEREST AVG. BAL. RATE % INTEREST
--------- ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
General purpose credit card loans..... $16,495.6 13.82% $1,133.9 $13,870.6 14.95% $1,028.0
Other consumer loans.................. 2,852.3 12.45 176.6 2,008.8 11.01 109.7
Investment securities................. 281.8 5.35 7.5 158.4 5.97 4.7
Federal funds sold and securities
purchased under agreements to resell.. 59.0 5.38 1.6 65.3 5.93 1.9
Other................................. 1,045.3 5.59 29.0 525.8 6.18 16.1
--------- -------- --------- --------
Total interest earning assets........ 20,734.0 13.08 1,348.6 16,628.9 14.07 1,160.4
Allowance for loan losses............. (662.3) (583.8)
Non-interest earning assets........... 1,349.9 1,234.0
--------- ---------
Total assets......................... $21,421.6 $17,279.1
========= =========
LIABILITIES & SHAREHOLDER'S EQUITY
Interest bearing liabilities:
Interest bearing deposits
Savings.............................. $ 1,008.6 4.57% $ 22.9 $ 1,086.1 4.85% $ 26.1
Brokered............................. 3,221.2 7.09 113.5 3,205.4 7.28 115.7
Other time........................... 1,862.2 6.08 56.3 1,062.3 6.34 33.4
--------- -------- --------- --------
Total interest earning deposits...... 6,092.0 6.36 192.7 5,353.8 6.60 175.2
Federal funds purchased and securities
sold under agreements to repurchase... 163.0 5.75 4.7 56.9 6.04 1.7
Other borrowings...................... 10,939.8 6.16 335.3 8,397.3 6.85 285.2
--------- -------- --------- --------
Total interest bearing liabilities... 17,194.8 6.23 532.7 13,808.0 6.75 462.1
Shareholder's equity/other
liabilities.......................... 4,226.8 3,471.1
--------- ---------
Total liabilities & shareholder's
equity.............................. $21,421.6 $17,279.1
========= =========
Net interest income................... $ 815.9 $ 698.3
======== ========
Net interest margin................... 7.91% 8.47%
Interest rate spread.................. 6.85% 7.32%
</TABLE>
14
<PAGE>
TABLE 3
CREDIT SERVICES RATE/VOLUME ANALYSIS (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 VS 1995 JUNE 30, 1996 VS 1995
------------------------- -----------------------
INCREASE/(DECREASE) INCREASE/(DECREASE)
DUE TO CHANGES IN DUE TO CHANGES IN
------------------------- -----------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
-------- ------- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
INTEREST REVENUE
General purpose credit card
loans..................... $ 92.0 $ (45.3) $ 46.7 $197.3 $ (91.4) $105.9
Other consumer loans....... 13.6 9.9 23.5 46.4 20.5 66.9
Investment securities...... 1.0 (0.4) 0.6 3.7 (0.9) 2.8
Federal funds sold and
securities purchased under
agreements to resell ...... (0.2) (0.1) (0.3) (0.2) (0.1) (0.3)
Other...................... 7.4 (1.4) 6.0 16.0 (3.1) 12.9
------ ------
Total interest revenue.... 123.4 (46.9) 76.5 289.3 (101.1) 188.2
------ ------
INTEREST EXPENSE
Interest bearing deposits
Savings................... (0.5) (0.6) (1.1) (1.8) (1.4) (3.2)
Brokered.................. 0.8 (1.7) (0.9) 0.6 (2.8) (2.2)
Other time................ 11.4 (2.5) 8.9 25.3 (2.4) 22.9
------ ------
Total..................... 11.5 (4.6) 6.9 24.7 (7.2) 17.5
Federal funds purchased and
securities sold under
agreements to repurchase .. 0.3 (0.1) 0.2 3.2 (0.2) 3.0
Other borrowings........... 35.4 (21.3) 14.1 87.2 (37.1) 50.1
------ ------
Total interest expense.... 47.2 (26.0) 21.2 114.6 (44.0) 70.6
------ ------
Net interest income........ $ 76.2 $ (20.9) $ 55.3 $174.7 $ (57.1) $117.6
======= ======= ====== ====== ======= ======
</TABLE>
15
<PAGE>
The supplemental table below provides average managed loan balance and rate
information which takes into effect both owned and securitized loans.
TABLE 4
SUPPLEMENTAL CREDIT SERVICES AVERAGE MANAGED LOAN BALANCE SHEET INFORMATION
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-----------------------------------------------------
1996 1995
-------------------------- --------------------------
AVG. BAL. RATE % INTEREST AVG. BAL. RATE % INTEREST
--------- ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Consumer loans.......... $31,848.6 14.62% $1,158.0 $26,554.6 15.30% $1,012.7
General purpose credit
card loans............. 28,177.0 14.77 1,034.5 23,167.7 15.58 900.0
Total interest earning
assets................. 33,209.9 14.25 1,176.8 27,372.6 15.02 1,025.2
Total interest bearing
liabilities............ 29,597.2 6.26 460.7 24,456.4 6.87 418.9
Consumer loan interest
rate spread............ 8.36 8.43
Interest rate spread.... 7.99 8.15
Net interest margin..... 8.67 8.89
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------------------------------
1996 1995
-------------------------- --------------------------
AVG. BAL. RATE % INTEREST AVG. BAL. RATE % INTEREST
--------- ------ -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Consumer loans.......... $31,627.8 14.67% $2,307.1 $26,032.5 15.21% $1,964.1
General purpose credit
card loans............. 27,816.4 14.83 2,050.8 22,960.5 15.50 1,764.6
Total interest earning
assets................. 33,014.0 14.29 2,345.2 26,782.1 14.96 1,986.8
Total interest bearing
liabilities............ 29,474.8 6.31 924.7 23,961.1 6.85 813.6
Consumer loan interest
rate spread............ 8.36 8.36
Interest rate spread.... 7.98 8.11
Net interest margin..... 8.65 8.83
</TABLE>
Provision for Loan Losses. The provision for loan losses is the amount
necessary to establish the allowance for loan losses at a level the Company
believes is adequate to absorb estimated losses in its consumer loan portfolio
at the balance sheet date. The Company's allowance for loan losses is
regularly evaluated by management for adequacy on a portfolio by portfolio
basis and was $671.0 million and $604.6 million at June 30, 1996 and 1995. The
provision for loan losses is affected by net charge-offs, loan volume and
changes in the amount of consumer loans estimated to be uncollectable. The
provision for loan losses increased 100% and 96% in the second quarter and
first six months of 1996 from the comparable periods of 1995 due to increases
in net charge-off rates and higher levels of consumer loans outstanding. Net
charge-offs as a percentage of average consumer loans outstanding increased to
5.17% in the second quarter of 1996 from 3.16% in the comparable period of
1995 and to 4.80% in the first six months of 1996 from 3.01% in the comparable
period of 1995. The increases in the Company's net charge-off rates were
consistent with the industry-wide trend of increasing credit loss rates. The
Company believes that the current industry-wide trend of increasing credit
loss rates is related, in part, to increased consumer debt levels and
bankruptcy rates. The Company believes that the trend may continue and the
Company may experience a higher net charge-off rate for the full year 1996
compared to 1995. The Company is reassessing its estimate of the allowance for
loan losses related to securitized consumer loans. A change in this estimate
may affect future provisions for consumer loan losses as described in note 3
to the consolidated financial statements on page 5.
Consumer loans are considered delinquent when interest or principal payments
become 30 days past due. Consumer loans are charged off when they become 180
days delinquent, except in the case of bankruptcies, where loans are charged
off after receipt and processing of written notification, and in fraudulent
transactions, where loans are charged off when identified. Loan delinquencies
and charge-offs are primarily affected by
16
<PAGE>
changes in economic conditions and vary throughout the year due to seasonal
consumer spending and payment patterns. The Company believes the increase in
consumer loan delinquency rates was related to the industry-wide credit
conditions discussed previously. The following table presents delinquency and
net charge-off rates with supplemental managed loan information.
CREDIT SERVICES ASSET QUALITY (DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1995 DECEMBER 31, 1995
-------------------- -------------------- --------------------
OWNED MANAGED OWNED MANAGED OWNED MANAGED
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Consumer loans.......... $19,525.9 $32,357.3 $16,802.8 $27,072.0 $21,556.4 $31,775.9
Consumer loans
contractually past due
as a percentage of
consumer loans
30 to 89 days......... 3.84% 3.66% 3.78% 3.53% 4.21% 4.05%
90 to 179 days........ 2.39% 2.18% 1.78% 1.66% 2.18% 2.09%
Net charge-offs as a
percentage of average
consumer loans......... 4.80% 5.06% 3.01% 3.34% 3.50% 3.75%
</TABLE>
Non-Interest Expenses. Non-interest expenses increased 18% and 19% in the
second quarter and first six months of 1996 from the comparable periods of
1995.
Employee compensation and benefits expense increased 14% and 18% in the
second quarter and first six months of 1996 from the comparable periods of
1995. The increases reflect the costs associated with processing increased
transaction volumes, servicing additional NOVUS Network merchants and active
credit card accounts. Marketing and business development expense increased 32%
in the second quarter and first six months of 1996 from the comparable periods
of 1995 due to costs associated with the growth of the Company's new and
existing credit card brands and higher cardmember rewards expense. Cardmember
rewards expense, which includes the Cashback Bonus Award, increased due to
continued growth in credit card transaction volume and increased cardmember
qualification for higher award levels. Information processing and
communications expense increased 11% and 18% in the second quarter and first
six months of 1996 from the comparable periods of 1995. These increases
principally reflect the costs associated with processing increased transaction
volumes, servicing additional NOVUS Network merchants and active credit card
accounts and development costs of the systems supporting the Company's multi-
card strategy.
17
<PAGE>
SECURITIES
STATEMENTS OF INCOME (IN MILLIONS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- -----------------
1996 1995 1996 1995
------ ------ -------- --------
<S> <C> <C> <C> <C>
Commissions.................................... $303.8 $247.9 $ 604.5 $ 482.5
Asset management and administration fees....... 285.8 251.0 560.7 496.5
Principal transactions......................... 114.5 120.8 233.4 246.2
Investment banking............................. 57.6 48.7 122.3 87.6
Other.......................................... 32.3 25.7 52.0 52.4
------ ------ -------- --------
Total non-interest revenues.................. 794.0 694.1 1,572.9 1,365.2
------ ------ -------- --------
Interest revenue............................... 189.9 215.7 376.1 409.4
Interest expense............................... 122.1 148.0 237.7 275.2
------ ------ -------- --------
Net interest income.......................... 67.8 67.7 138.4 134.2
Provision for losses on receivables............ 2.9 1.9 5.9 5.1
------ ------ -------- --------
Net credit income............................ 64.9 65.8 132.5 129.1
------ ------ -------- --------
Net operating revenues....................... 858.9 759.9 1,705.4 1,494.3
------ ------ -------- --------
Employee compensation and benefits............. 433.6 384.7 879.7 766.1
Marketing and business development............. 27.4 27.0 54.9 50.2
Information processing and communications...... 69.0 66.3 136.7 129.8
Facilities and equipment....................... 48.3 46.3 94.7 88.9
Other.......................................... 55.6 75.6 111.4 149.6
------ ------ -------- --------
Total non-interest expenses.................. 633.9 599.9 1,277.4 1,184.6
------ ------ -------- --------
Income before income taxes..................... 225.0 160.0 428.0 309.7
Income tax expense............................. 89.6 63.1 171.1 122.7
------ ------ -------- --------
Net income..................................... $135.4 $ 96.9 $ 256.9 $ 187.0
====== ====== ======== ========
</TABLE>
Securities achieved record net income of $135.4 million in the second
quarter of 1996, a 40% increase over the second quarter of 1995. Net income
increased 37% to $256.9 million in the first six months of 1996 from 1995. The
growth in net income was due to higher revenues resulting from increased
activity in securities markets, higher levels of assets under management and
administration and continued emphasis on cost control.
Commissions. Commission revenues arise from agency transactions in listed
and over-the-counter equity securities, and sales of mutual funds, insurance
products, futures and options. Commission revenues increased 23% and 25% in
the second quarter and first six months of 1996 from the comparable periods of
1995 due to increased over-the-counter and listed agency equity transactions
and mutual fund sales.
Asset Management and Administration Fees. Asset management and
administration fees include fund management fees, distribution-related fees
and other administrative fees. Asset management and administration fees
increased 14% and 13% in the second quarter and first six months of 1996 from
the comparable periods of 1995. In both periods increased revenues from fund
management fees, 12b-1 distribution fees and Investment Consulting Services
("ICS") fees were partially offset by lower redemption fees. Period end assets
under management increased 15% from June 30, 1995, and 6% from December 31,
1995, to a record $84.6 billion at June 30, 1996. The increases in both
periods were due to net sales and market value increases. Average assets under
management were 18% and 19% higher in the second quarter and first six months
of 1996 than the comparable periods of 1995.
18
<PAGE>
Components of assets under management and administration were as follows(1):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, JUNE 30,
1996 1995 1995
-------- ------------ --------
(IN BILLIONS)
<S> <C> <C> <C>
Equity funds................................ $34.7 $29.9 $25.9
Fixed income funds.......................... 24.0 25.4 25.1
Money market funds.......................... 23.1 21.6 20.0
Investment management services.............. 2.8 2.6 2.3
----- ----- -----
Assets under management and
administration........................... $84.6 $79.5 $73.3
===== ===== =====
</TABLE>
- --------
(1) Excludes ICS assets of $9.8 billion and $7.2 billion at June 30, 1996 and
1995, and $8.9 billion at December 31, 1995.
Fund management fees arise from investment management services that the
Company provides to registered investment companies (the "funds") pursuant to
various contractual arrangements. The Company receives management fees based
upon each fund's average net assets. Fund management fees increased 19% and
20% in the second quarter and first six months of 1996 from the comparable
periods of 1995 due to higher average asset levels.
Components of fund management fees were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------
1996 1995 1996 1995
--------- --------- -------- --------
(IN MILLIONS) (IN MILLIONS)
<S> <C> <C> <C> <C>
Equity funds........................... $ 48.1 $ 35.6 $ 92.4 $ 69.2
Fixed income funds..................... 27.8 27.8 56.4 54.7
Money market funds..................... 18.7 15.9 36.9 31.4
--------- --------- -------- --------
Fund management fees................. $ 94.6 $ 79.3 $ 185.7 $ 155.3
========= ========= ======== ========
</TABLE>
The Company receives 12b-1 distribution fees for services it provides in
promoting and distributing certain open-ended Dean Witter Funds. These fees
are based on the lesser of average daily fund asset balances or average daily
aggregate net fund sales and are affected by changes in the overall level and
mix of assets under management and administration. In both the second quarter
and first six months of 1996, 12b-1 distribution fees increased 14% from the
comparable periods of 1995.
ICS fees are derived from private portfolio management services arranged by
the Company for individual investors and are affected by changes in the level
of ICS assets. ICS fees increased 27% and 26% in the second quarter and first
six months of 1996 from the comparable periods of 1995.
The Company receives redemption fees from investors for redemptions of
certain mutual fund shares. The fee is paid from the proceeds of the sale of
shares and is based on the length of time the redeemed shares were held by the
investor. Redemption fees decreased 9% and 20% in the second quarter and first
six months of 1996 from the comparable periods of 1995.
Principal Transactions. Principal transactions include revenues from
customers' purchases and sales of securities in which the Company acts as a
principal and includes gains and losses on securities held for resale. The
Company holds securities for resale primarily to facilitate customer trading
requirements. Principal transaction revenues decreased 5% in both the second
quarter and first six months of 1996 from the comparable periods of 1995. The
decrease in the second quarter resulted from a decline in revenues from fixed
income securities transactions. The decrease in the first six months was due
to a decline in revenues from fixed income securities transactions partially
offset by higher revenues from over-the-counter equity securities which
resulted from increased transaction volume.
19
<PAGE>
Investment Banking Revenues. Investment banking revenues are derived from
the underwriting of public offerings of securities and fees from advisory
services. Investment banking revenues increased 18% and 40% in the second
quarter and first six months of 1996 from the comparable periods of 1995.
These increases were attributable to higher advisory fees and, in the first
six months of 1996, increased underwriting activity.
Net Credit Income. Net credit income consists primarily of interest revenue
from customer margin loans less the cost of financing these loans, and credit
losses. Net credit income is affected by the levels of margin loans,
borrowings that finance these loans and market interest rates. Net credit
income remained level in the second quarter and first six months of 1996 from
the comparable periods of 1995.
Non-Interest Expense. Total non-interest expenses increased 6% and 8% in the
second quarter and first six months of 1996 from the comparable periods of
1995. As a percentage of net operating revenues, total non-interest expenses
decreased to 73.8% and 74.9% in the second quarter and first six months of
1996 from 78.9% and 79.3% in the second quarter and first six months of 1995.
Employee compensation and benefits increased 13% and 15% in the second quarter
and first six months of 1996 from the comparable periods of 1995 due to
increased variable compensation related to increased revenues. As a percentage
of net operating revenues, employee compensation and benefits was 50.5% and
51.6% in the second quarter and first six months of 1996 compared to 50.6% and
51.3% in the second quarter and first six months of 1995. Other non-interest
expenses include legal expenses, other professional fees, stationary and
supplies and other administrative costs. Other non-interest expenses decreased
26% in the second quarter and first six months of 1996 from the comparable
periods of 1995 due to a reduction in legal expenses and other professional
fees.
20
<PAGE>
LIQUIDITY AND CAPITAL
LIQUIDITY
The Company's liquidity policies are designed to provide funding for the
Company's current and future business requirements and to ensure access to
cost effective funding in all business environments. This is accomplished
through diversification of funding sources, extension of funding terms and
staggering of maturities. The Company expects that its future funding and
refinancing requirements will be met through its traditional sources of funds.
In April 1996, the Company renewed its senior bank credit facility and
increased the amount to $4.0 billion from $3.25 billion. The facility expires
in April 1997 and includes certain extension provisions. This facility
contains covenants that require the Company to maintain minimum net worth
requirements and specified financial ratios. The Company believes that the
covenant restrictions will not impair its ability to pay its current level of
dividends. As of June 30, 1996, the Company had never borrowed from its senior
bank credit facility.
In May 1996, the Company increased its capacity to issue debt securities
under its Euro medium-term note program by $2.0 billion.
In August 1996, the Company registered $2.0 billion of debt securities with
the Securities and Exchange Commission.
In the second quarter of 1996, the Company completed an asset securitization
of $1.0 billion with an expected term of 15 years. In the third quarter of
1996, the Company completed an asset securitization of $0.9 billion with an
expected term of 3.0 years.
INTEREST RATE RISK
The Company's interest rate risk policies are designed to reduce the
volatility of earnings resulting from changes in interest rates. This is
accomplished primarily through matched financing. The Company is exposed to
the risk that changes in market interest rates will result in declines in net
interest income and servicing fees. Matched financing reduces this risk by
matching the repricing schedules of consumer loans and the related financing.
When necessary, the Company utilizes interest rate contracts to achieve its
matched financing objectives. Interest rate contracts include interest rate
swap, cost of funds and interest rate cap agreements. Under interest rate
exchange agreements, which include interest rate swap and cost of funds
agreements, the Company effectively exchanges the interest payments on its
financing with those of a counterparty. Interest rate swap and cap agreements
are entered into with institutions that are established dealers in these
instruments and that maintain certain minimum credit criteria established by
the Company. Cost of funds agreements are entered into as part of agreements
pursuant to which the Company provides private label credit card processing
services to certain of its merchant clients.
Notional amounts of interest rate exchange agreements outstanding were as
follows (in millions).
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
Agreements that converted the interest rate on
financing:
From fixed to floating............................ $5,221.9 $4,223.9
From floating to fixed............................ 1,216.8 1,469.0
From floating to floating......................... 464.1 425.0
-------- --------
Total........................................... $6,902.8 $6,117.9
======== ========
</TABLE>
The Company had $40.0 million and $415.0 million of interest rate cap
agreements outstanding at June 30, 1996 and December 31, 1995, of which $40.0
million were in effect at both dates.
21
<PAGE>
CAPITAL
The Company's shareholders' equity increased to $4,953.3 million at June 30,
1996 from $4,833.7 million at December 31, 1995. At June 30, 1996, $3,473.3
million of the Company's shareholders' equity was invested in the equity of
its subsidiaries. The remainder of the Company's shareholders' equity was
advanced to its subsidiaries to finance their operations.
For purposes of evaluating the financial performance of its segments, the
Company's shareholders' equity was allocated as follows at June 30, 1996:
Credit Services, $2,754.2 million; Securities, $1,430.9 million.
The Company purchases shares of its common stock under a general stock
repurchase program and a repurchase program designed specifically for shares
issued in connection with the Company's equity-based compensation plans. In
the first quarter of 1996, the Board of Directors of the Company increased the
Company's authorization to purchase its shares under its general stock
repurchase program by $250.0 million. In the second quarter of 1996, the
Company purchased 3.2 million shares of its common stock of which 2.6 million
were purchased under the general stock repurchase plan.
22
<PAGE>
CAUTIONARY STATEMENTS
The Company from time to time may provide forward-looking statements
relating to anticipated events and the effect of those anticipated events on
the Company's key success variables and operating results. The cautionary
statements provided below are made pursuant to the provisions of the Private
Securities Litigation Reform Act of 1995 (the "Act") and with the intention of
obtaining the benefits of the "safe harbor" provisions of the Act for any such
forward-looking statements. The Company cautions readers that any forward-
looking statements provided are not guarantees of future performance and that
actual results may differ materially from those in the forward-looking
statements as a result of various factors. In particular, with respect to
Credit Services provision for loan losses, factors that may affect forward-
looking statements include, but are not limited to, the following:
Changes in consumer payment patterns and bankruptcy trends that affect
the level and direction of consumer loan delinquencies and write-offs.
The rate and magnitude of changes in the consumer loan portfolio.
Consumer loan portfolio product mix.
The amount of consumer loans intended to be securitized and accessibility
to the securitization markets.
Changes in management's estimates of the adequacy of loan loss
allowances.
Interest rate movements and other general economic conditions.
23
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 1996, in a case not involving Greenwood Trust Company ("Greenwood"),
the United States Supreme Court ruled that state laws limiting late charges
are preempted with respect to national banks by federal law. Also in June
1996, the Court declined to review two lower court decisions (one of which
involved Greenwood) that had reached the same result with respect to federally
insured, state-chartered banks, and it vacated and remanded for
reconsideration the contrary 1995 decision of the New Jersey Supreme Court
against Greenwood. On July 22, 1996, the New Jersey Supreme Court reversed its
1995 decision and reinstated the decision of the court below in Greenwood's
favor.
Twenty-four market makers, including Dean Witter Reynolds Inc., resolved an
investigation by the U.S. Department of Justice of possible anticompetitive
activities in the over-the-counter securities market by agreeing, without
trial or adjudication, to the entry of an Order and Stipulation filed in the
United States District Court for the Southern District of New York on July 17,
1996. The Order and Stipulation requires certain ongoing undertakings
including the appointment of an antitrust compliance officer to monitor
trading practices and assure continued compliance with the antitrust laws. The
Order and Stipulation is awaiting court approval. The court must conduct a
public hearing before approving the Order and Stipulation.
A consolidated putative class action entitled In re NASDAQ Market Makers
Antitrust Litigation was commenced on December 16, 1994 in the United States
District Court for the Southern District of New York against Dean Witter
Reynolds Inc. and 32 other broker-dealers alleging that NASDAQ market makers
conspired to fix the "spread" in certain NASDAQ securities. On August 3, 1995
the court dismissed the complaint and a refiled consolidated complaint was
subsequently filed alleging the same cause of action. The refiled complaint
seeks, among other things, treble damages in an unspecified amount. Dean
Witter Reynolds Inc. answered the refiled complaint denying the allegations of
wrongdoing. A motion for class certification is pending.
Several purported class action lawsuits, which have been consolidated for
pretrial purposes, were instituted in 1995 in the United States District Court
for the Southern District of New York against the TCW/DW North American
Government Income Trust, Dean Witter Reynolds Inc., some of the Fund's
Trustees and officers, its underwriter and distributor, the Fund's Adviser,
the Fund's Manager, and other defendants, by certain shareholders of the Fund.
The consolidated amended complaint asserts claims under the Securities Act of
1933 and generally alleges that the defendants made inadequate and misleading
disclosures in the prospectuses for the Fund, in particular as such
disclosures relate to the nature and risks of the Fund's investments in
mortgage-backed securities and Mexican securities. The plaintiffs also
challenge certain fees paid by the Fund as excessive. Damages are sought in an
unspecified amount. All defendants had moved to dismiss the consolidated
amended complaint, and on May 8, 1996 the motions to dismiss were denied. All
defendants have now moved for reargument. In addition, the plaintiffs' motion
for class certification is pending.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
An exhibit index has been filed as part of this Report on Page E-1.
(b) Reports on Form 8-K
Form 8-K dated April 18, 1996 reporting Items 5 and 7.
24
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Dean Witter, Discover & Co.
(REGISTRANT)
/s/ Robert P. Seass
By: _________________________________
Robert P. Seass
Senior Vice President and
Controller
(Principal Accounting Officer and
duly authorized Officer of
Registrant)
Date: August 14, 1996
25
<PAGE>
EXHIBIT INDEX
DEAN WITTER, DISCOVER & CO.
QUARTER ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 Dean Witter Reynolds Inc. Pension Plan, Amended and Restated January
1, 1995.
10.2 NOVUS Credit Services, Inc. Pension Plan, Amended and Restated April
10, 1996.
11 Computation of earnings per share.
12 Computation of ratio of earnings to fixed charges.
15 Letter of awareness from Deloitte & Touche LLP, dated August 14, 1996,
concerning unaudited interim financial information.
27 Financial Data Schedule.
</TABLE>
E-1
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
================================================================================
DEAN WITTER REYNOLDS INC.
PENSION PLAN
Amended and Restated Effective as of January 1, 1995
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
SECTION 1. INTRODUCTION............................................. 1
SECTION 2. DEFINITIONS.............................................. 2
SECTION 3. PARTICIPATION............................................ 19
SECTION 4. PERIOD OF SERVICE........................................ 20
SECTION 5. RETIREMENT............................................... 24
SECTION 6. RETIREMENT BENEFITS...................................... 26
SECTION 7. VESTED BENEFITS.......................................... 35
SECTION 8. SURVIVING SPOUSE BENEFITS................................ 41
SECTION 9. INCORPORATION OF CERTAIN CODE REQUIREMENTS BY
REFERENCE...................................................... 44
SECTION 10. ESTABLISHMENT OF A FUNDING PROCEDURE; BASIS OF
PAYMENTS; LIMITATION OF OBLIGATION............................. 47
SECTION 11. RESTRICTIONS ON BENEFITS PAID TO HIGHLY COMPENSATED
EMPLOYEES ..................................................... 50
SECTION 12. FIDUCIARY RESPONSIBILITIES AND PLAN ADMINISTRATION...... 52
SECTION 13. CLAIMS PROCEDURE........................................ 54
SECTION 14. REVIEW PROCEDURE........................................ 55
SECTION 15. AMENDMENT; TERMINATION AND NONREVERSION................. 58
SECTION 16. MISCELLANEOUS........................................... 61
SECTION 17. EXECUTION............................................... 66
i
<PAGE>
Page
----
APPENDIX A: ANNUAL PENSION EQUIVALENT PER $1.00
PROFIT SHARING PLAN BENEFIT AS OF
AUGUST 31, 1980...................................AA-1
APPENDIX B: DEAN WITTER REYNOLDS INC. PENSION
PLAN ACTUARIAL EQUIVALENTS........................AB-1
SUPPLEMENT A: TOP-HEAVY PROVISIONS...............................A-1
SUPPLEMENT B: SUPPLEMENTAL BENEFITS..............................B-1
ii
<PAGE>
DEAN WITTER REYNOLDS INC.
PENSION PLAN
Amended and Restated Effective as of January 1, 1995
SECTION 1. INTRODUCTION.
The Dean Witter & Co. Incorporated Pension Plan was adopted and amended
effective September 1, 1975 by Dean Witter & Co. Incorporated. Effective January
3, 1978, upon the merger of Dean Witter & Co. Incorporated and Reynolds
Securities Inc., the Plan was amended and renamed the Dean Witter Reynolds Inc.
Pension Plan. Effective as of September 1, 1980, the Plan was amended and
restated to add a benefit for service prior to September 1, 1975, and to
increase the level of benefits provided for service after August 31, 1975.
Effective as of December 31, 1981, the Plan was amended and restated to reflect
the fact that, on December 31, 1981, Dean Witter Reynolds Organization Inc. was
merged into a wholly-owned subsidiary of Sears, Roebuck and Co., and to increase
the benefit provided to Participants who remain in covered employment beyond
their Normal Retirement Date. Effective January 1, 1985, the Plan was amended
and restated to comply with recent changes in the law and to provide a
supplemental retirement benefit to certain employees who transfer from
employment with Sears or Allstate to employment with the Company. Effective
January 1, 1986, the Plan was amended and restated to provide increased
Retirement Benefits to certain Participants and redefine eligibility for
<PAGE>
2
Early Retirement Benefits. Effective January 1, 1987 the Plan was amended and
restated for the primary purpose of complying with certain requirements of the
Tax Reform Act of 1986, the Technical and Miscellaneous Revenue Act of 1988 and
other applicable changes in the law. Thereafter, the Plan was amended on six
occassions with the most recent amendment taking effect on January 1, 1995.
Except to the extent required by applicable law, the Plan as amended and
restated applies only to Participants who are employees on and after January 1,
1995.
The purpose of the Plan is to provide Eligible Employees with Retirement
Benefits to supplement the benefits provided by Federal Social Security and the
Dean Witter Reynolds Inc. Employee Retirement Investment Plan and the benefits
accrued under the Dean Witter Reynolds Inc. Profit Sharing Plan as of August 31,
1980. The Plan is intended to qualify for the favorable tax treatment provided
under section 401 and related sections of the Internal Revenue Code of 1986, as
amended. Dean Witter Reynolds Inc. retains the right, as provided in Section 15,
to amend or terminate the Plan at any time and for any reason. SECTION 2.
DEFINITIONS.
When used herein, the following capitalized words and phrases shall have
the following meanings:
"Affiliated Group" means the Company and any corporation, trade or business
required to be aggregated with the Company under Code section 414(b), (c), (m),
or (o).
"Allstate" means Allstate Insurance Company, an Illinois corporation.
<PAGE>
3
"Annual Pension Equivalent" means the amount determined by multiplying a
Participant's Profit Sharing Plan Benefit as of August 31, 1980, by the
applicable factor set forth in Appendix A.
"Average Annual Past Service Earnings" means the annual average of an
Employee's Earnings for that portion of the period from January 1, 1984 through
December 31, 1990 during which the Employee was an Eligible Employee provided,
however, that if any such Employee was an employee of a predecessor of any
member of the Affiliated Group during all or any portion of such period, the
Employee's total compensation shall include the total compensation that the
Employee earned for such employment for the portion of such period that
constitutes Years of Past Service.
For purposes of calculating Average Annual Past Service Earnings,
"Earnings" shall be defined as set forth in this Section 2 except that Earnings
in 1990 may not exceed $209,200 and Earnings in each of the years from 1984
through 1989 used to determine Average Annual Past Service Earnings may not
exceed $200,000.
Notwithstanding the foregoing, the Plan Administrator may use a reasonable
estimate of an Employee's Earnings or compensation in determining his Annual
Average Past Service Earnings where records from which a precise determination
could be made are not reasonably available.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Company" means Dean Witter Reynolds Inc., a Delaware corporation.
<PAGE>
4
"Covered Compensation" means, with respect to any Employee, the average of
the Social Security Wage Bases for each calendar year for the 35-year Period of
Service ending with the last day of the calendar year in which the Employee
attains (or will attain) Social Security Retirement Age. In determining an
Employee's Covered Compensation for any particular Plan Year, the Social
Security Wage Base for the current Plan Year and any subsequent Plan Year shall
be assumed to be the same as the Social Security Wage Base in effect as of the
beginning of the Plan Year for which the determination is being made. A
Participant's Covered Compensation for a Plan Year after such 35-year Period of
service is the Participant's Covered Compensation for the Plan Year during which
the Participant attained Social Security Retirement Age. A Participant's Covered
Compensation for a Plan Year before the 35-year Period of Service described
above is the Social Security Wage Base in effect as of the beginning of such
Plan Year.
"DWDC" means Dean Witter, Discover & Co., a Delaware corporation, formerly
known as Dean Witter Financial Services Group Inc., the successor to Dean Witter
Financial Services Inc., the successor to Dean Witter Reynolds Organization Inc.
"Determination Year" means a Plan Year.
"Earnings" means an Employee's total compensation from any Participating
Company, regardless of when paid, including (i) compensation deferred under the
START Plan or the TDEPP, (ii) for any Plan Year commencing prior to January 1,
1987, compensation deferred under a plan of deferred compensation or a
<PAGE>
5
plan intended to qualify under section 125 of the Code, (iii) for any Plan Year
commencing after December 31, 1988, compensation deferred under a plan intended
to qualify under section 125 of the Code and (iv) income realized upon the
exercise of an option to purchase stock of any member of the Affiliated Group or
a predecessor of any such member. For purposes of this definition, the term
"compensation deferred" shall not include any compensation that an Employee
could not have received on a current basis in the absence of an election to
defer receipt of such compensation but shall include compensation deferred
pursuant to an award made under the TDEPP, and the employer of an Employee
described in clause (ii) of the first sentence of this definition shall be
deemed to be a "Participating Company." Notwithstanding the foregoing, Earnings
shall not include (i) any amount unless such amount would be subject to tax
under section 3402 of the Code (or any successor provision thereto) if paid
currently and the Employee were fully subject to Federal income tax with respect
to such amount, (ii) any amount as to which the Employee does not have a
nonforfeitable right, except that amounts of compensation deferred pursuant to a
TDEPP award shall be included in Earnings without regard to forfeitability,
(iii) any employer contribution (other than an elective contribution within the
meaning of section 401(k) of the Code) to a plan which meets the requirements of
section 401(a) and related sections of the Code, and any income, gains or losses
of, or benefits from, any such plan, (iv) any employer contribution to, income,
gains or losses of, or benefits from any plan that is an "excess benefit plan"
within the meaning of section 3(36) of ERISA, (v) any amount which is earned
during a period that the Employee is not an Eligible Employee,
<PAGE>
6
(vi) any amount earned during any Plan Year prior to the Plan Year in which the
Employee becomes a Participant in the Plan, and (vii) any amount with respect to
which the Employee accrues benefits (whether or not vested) under any funded
retirement plan to which contributions have been made by any member of the
Affiliated Group, other than this Plan, the Profit Sharing Plan, the START Plan
or Federal Social Security.
With respect to accrual of benefits for periods after December 31, 1988,
the annual total compensation of a Participant that may be taken into account
under the Plan as Earnings for any Plan Year shall not exceed $200,000, as
adjusted by the secretary at the same time and in the same manner asunder
section 415(d) of the Code.
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 Earnings of each Participant
taken into account under the Plan shall not exceed the OBRA'93 annual
compensation limit. The OBRA'93 compensation limit is $150,000, as adjusted by
the Commissioner of Internal Revenue for increases in the cost-of-living in
accordance with Section 401(a)(17)(D) of the Code. The cost-of-living adjustment
in effect for a calendar year applies to any period not exceeding 12 months over
which compensation is determined (the "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 which is the number of months in the determination period and the
denominator of which is 12.
<PAGE>
7
For Plan Years beginning on or after January 1, 1994, any reference in this
plan under section 401(a)(17) of the Code shall mean the OBRA'93 annual
compensation limit set forth in this provision.
If Earnings for any prior determination period are taken into account in
determining Participants' benefits accruing in the current Plan Year, the
Earnings for that determination period are subject to the OBRA'93 annual
compensation limit in effect for that 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.
Notwithstanding any other provision of the Plan, each section 401(a)(17)
employee's accrued benefit under this Plan will be the sum of: (a) the
employee's accrued benefit as of the last day of the last Plan Year beginning
before January 1, 1994 frozen in accordance with section 1.401(a)(14)-13 of the
regulations; and, (b) the employee's accrued benefit determined under the
benefit formula applicable for the Plan Year beginning on or after January 1,
1994, as applied to the employee's years of service credited to the employee for
Plan Years beginning after January 1, 1994, for purposes of benefit accruals.
A section 401(a)(17) employee means a Participant whose current accrued
benefit as of a date on or after the first day of the first Plan Year beginning
on or after January 1, 1994, is based on Earnings for a year beginning prior to
the first day of the Plan Year beginning on or after January 1, 1994, that
exceeded $150,000.
<PAGE>
8
In determining the compensation of a Participant for purposes of this
limitation the rules of section 414(q)(6) of the Code shall apply, except, in
applying such rules, the term "family" shall include only the spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the close of the Plan Year. If, as a result of the application of
such rules the adjusted limitation under section 401(a)(17) of the Code is
exceeded, then (except for purposes of determining the portion of compensation
up to the integration level if the Plan provides for permitted disparity), the
limitation shall be prorated among the affected individuals in proportion to
each such individual's compensation as determined under this section prior to
the application of this limitation.
Notwithstanding the foregoing, for purposes of determining whether an
individual is a Highly Compensated Employee or a member of the Top Paid Group,
Earnings shall be determined without regard to the limits imposed by Code
section 401(a)(17).
"Eligible Employee" means (i) any Employee of a Participating Company and
(ii) any Employee of a member of the Affiliated Group that is not a
Participating Company who has been designated in writing by the Plan
Administrator as an Eligible Employee. An Employee shall not be an Eligible
Employee with respect to any period (A) after his Normal Retirement Date if such
Employee did not have at least one Hour of Service in any Plan Year beginning on
or after January 1, 1988, (B) during which he is an employee solely by reason of
the application of section 414(m), (n) or (o) of the Code, nor (C) during which
he is covered by a
<PAGE>
9
collective bargaining agreement with respect to which a member of the Affiliated
Group is a party, except to the extent that such agreement provides that
Employees covered thereby shall be considered to be Eligible Employees as to
such period. An individual's status as an Eligible Employee shall be determined
by the Plan Administrator and, subject to the review procedure described in
section 14, such determination shall be conclusive and binding upon all persons.
"Employee" means any individual employed by or providing services to any
member of the Affiliated Group.
"Entry Date" means the first day of January or July.
"Equivalent Actuarial Value" means the sum or sums which are determined by
the use of the actuarial assumptions and mathematical calculations to be equal
to the benefits which would have been payable under the Plan at either a later
or an earlier date. Equivalent Actuarial Value shall be determined on the basis
specified in Appendix B hereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
"Family Member" means a spouse, lineal ascendent, lineal descendent or
spouse of a lineal ascendent or lineal descendent of a Highly Compensated
Employee.
"Federal Social Security" means the Social Security Act, as amended from
time to time.
"Five Percent Owner" means any person who owns (or is considered as owning
within the meaning of Code Section 318) more than five percent of the
<PAGE>
10
outstanding stock of an Affiliated Group member or stock possessing more than
five percent of the total combined voting power of all stock of an Affiliated
Group member or in the case of an unincorporated business, any person who owns
more than five percent of the capital or profits interest in an Affiliated Group
member. In determining percentage of ownership hereunder, Affiliated Group
members that would otherwise be aggregated under Code sections 414(b), (c), (m)
and (o) shall be treated as separate employers.
"Highly Compensated Active Employee" means any individual who is an
Employee during the Determination Year and who, during the Look-back Year:
(1) received Earnings in excess of $75,000 (as adjusted pursuant to Code
section 415(d);
(2) received Earnings in excess of $50,000 (as adjusted pursuant to Code
section 415(d) and was a member of the Top Paid Group; or,
(3) was an officer of any member of the Affiliated Group and received
Earnings greater than 50 percent of the dollar limitation in effect under Code
section 415(b)(l)(A) provided that the number of Employees classified as
officers hereunder shall not exceed the lesser of (i) 50 or (ii) the greater of
3 or 10 percent of all Employees and further provided that if no officer
satisfies the compensation requirement set forth herein during either the
Look-back Year or the Determination Year the highest paid officer for such year
shall be a Highly Compensated Active Employee.
<PAGE>
11
In determining who is a Highly Compensated Active Employee, the Company
may elect to substitute $50,000 for $75,000 in l above and not apply 2 above
provided that the Affiliated Group maintains significant business activities in
at least two significantly separate geographic areas and meets such other
requirements as the Secretary of the Treasury may prescribe.
The term "Highly Compensated Active Employee" shall also include:
(4) An Employee who is both (i) described in 1, 2 or 3 above if the term
"Determination Year" is substituted for the term "Look-back Year" and (ii) one
of the 100 Employees who received the most Earnings during the Determination
Year;
(5) An Employee who is a Five Percent Owner at any time during the
Determination Year or the Look-back Year; or,
(6) An Employee who during a Determination Year or a Look-back Year is a
Family Member of either (i) a Five Percent Owner who is an active or former
employee or (ii) a Highly Compensated Active Employee who is one of the ten
employees who received the most Earnings during such year provided, however,
that the Family Member and the Five Percent Owner or top ten highly compensated
employee shall be treated as a single Highly Compensated Active Employee whose
earnings, benefits and contributions is the sum of such compensation, benefits
and contributions of the Family Member and the Five Percent Owner or top ten
highly compensated employee.
"Highly Compensated Employee" means a Highly Compensated Active Employee or
a Highly Compensated Former Employee.
<PAGE>
12
"Highly Compensated Former Employee" means a former Employee who terminated
employment prior to the Determination Year and was a Highly Compensated Active
Employee in the year of termination of employment or in any Determination Year
after attaining age 55. Notwithstanding the foregoing, an Employee who
terminated employment prior to 1987 will be treated as a Highly Compensated
Former Employee only if during the year (or year preceding the termination) or
any year after the Employee attains age 55 (or the last year ending before the
Employee's 55th birthday), the Employee either received Earnings in excess of
$50,000 (as adjusted pursuant to Code section 415(d)) or was a Five Percent
Owner. Highly Compensated Former Employees shall be treated as Highly
Compensated Employees. The method set forth in this section for determining who
is a Highly Compensated Former Employee shall be applied on a uniform and
consistent basis for all purposes for which the Code section 414(q) definition
is applicable.
"Hour of Service" means each hour for which an Employee is paid or entitled
to parent for the performance of duties for the Employer or for any member of
the Affiliated Group.
"Investment Manager" means a person who is an investment manager within the
meaning of section 3(38) of ERISA and who has been appointed as an Investment
Manager by the Company pursuant to Section 12(b).
"Look-back Year" means twelve month period immediately preceding a
Determination Year.
<PAGE>
13
"NationsSecurities" means NationsSecurities, A Dean Witter/NationsBank
Company, a North Carolina partnership.
"NCSI" means NOVUS Credit Services Inc., a Delaware corporation, formerly
known as Sears Consumer Financial Corporation.
"Normal Retirement Age" means age 65.
"Normal Retirement Date" means the last day of the month in which the
Participant attains age 65.
"Participant" means any Employee who is accruing benefits under the Plan
and any Employee or former Employee who is receiving benefits under the Plan, or
who is entitled to receive such benefits, whether on an immediate or a deferred
basis.
"Participating Company" means the Company and any member of the Affiliated
Group that has been designated in writing as a Participating Company by the Plan
Administrator and that has accepted such designation in writing.
"Period of Service" means the period (or periods) of an Employee's
employment by one or more members of the Affiliated Group, determined in
accordance with Section 4.
"Period of Severance" means a continuous period of time during which the
Employee is not employed by the Employer or any member of the Affiliated Group.
A Period of Severance commences on the date the Employee retires, quits or is
discharged, or if earlier, the twelve-month anniversary of the date on which the
Employee was otherwise first absent from service.
<PAGE>
14
"Plan" means the Dean Witter Reynolds Inc. Pension Plan, as amended from
time to time.
"Plan Administrator" means Dean Witter Reynolds Inc., a Delaware
corporation.
"Plan Year" means: with respect to periods prior to September 1, 1981, the
twelve-month period ending August 31; and with respect to periods after December
31, 1981, the twelve-month period ending December 31. The four-month period from
September 1, 1981 through December 31, 1981 shall be treated as a "short" Plan
Year in accordance with applicable rules and regulations of the Internal Revenue
Service.
"Profit Sharing Plan" means the Dean Witter Reynolds Inc. Profit Sharing
Plan, as amended from time to time.
"Profit Sharing Plan Benefit as of August 31, 1980" means the sum of:
(i) The balance, if any, in a Participant's Company Contribution
Accounts under the Profit Sharing Plan as of August 31, 1980; and
(ii) Any amount distributed to such Participant after December 31,
1966, and prior to August 31, 1980, from his or her Company Contribution
Account(s) under the Profit Sharing Plan, the Reynolds Securities Inc.
Employees Profit Sharing Plan, the Profit Sharing Plan of J. Barth & Co.,
the Retirement Plan Trust of J. Barth & Co., the Standard and
Poor's/Intercapital Profit Sharing and Retirement Plan, the Profit Sharing
Plan of Laird, Bissell, and Meeds, Inc., the Profit Sharing Plan for
Salesmen of Laird, Bissell, and
<PAGE>
15
Meeds, Inc., or the Baker Weeks & Co. Inc. Employees' Deferred Profit
Sharing Plan, plus interest on any such amount compounded at an annual rate
of 6% from the date of the termination or other event (such as becoming a
partner in any partnership that was a predecessor of any member of the
Affiliated Group) that gave rise to such distribution, through August 31,
1980.
Notwithstanding the foregoing, in the case of an Employee who had attained
age 65 before September 1, 1980, "Profit Sharing Plan Benefit as of August 31,
1980" shall mean the balance in his or her Company Contribution Account(s) under
the Profit Sharing Plan, the Reynolds Securities Inc. Employees Profit Sharing
Plan, the Profit Sharing Trust of J. Barth & Co., the Retirement Plan Trust of
J. Barth & Co., the Standard and Poor's/Intercapital Profit Sharing and
Retirement Plan, the Profit Sharing Plan of Laird, Bissell, and Meeds, Inc., the
Profit Sharing Plan for Salesmen of Laird, Bissell, and Meeds, Inc., or the
Baker Weeks & Co. Inc. Employees' Deferred Profit Sharing Plan, as of the last
day of the plan year of such Plan that ended immediately prior to (or coincident
with) the Employee's Normal Retirement Date.
"Quarter" means: with respect to periods prior to December 1, 1981, a
fiscal quarter ending November 30, February 28(29), May 31 or August 31; and,
with respect to periods after December 31, 1981, a calendar quarter ending March
31, June 30, September 30 or December 31.
<PAGE>
16
"Retirement Benefit" means the benefit payable under Section 6 to a
Participant who meets the requirements of Section 5(a) (Normal Retirement),
Section 5(b) (Early Retirement) or Section 5(c) (Disability Retirement).
"Reynolds" means Reynolds Securities International Inc., a Delaware
corporation.
"Sears" means Sears, Roebuck and Co., a New York corporation.
"Sears Affiliated Group" means Sears and any corporation, trade or business
required to be aggregated with Sears under Code section 414(b), (c), (m) or (o).
"Social Security Retirement Age" means, with respect to any Employee, the
social security retirement age as defined under section 415(b)(8) of the Code.
"Social Security Wage Base" for any calendar year means the amount that
constitutes "wages" for such calendar year under section 3121(a) of the Code.
"Spin-off" means the distribution by Sears of all of the shares of common
stock of DWDC owned by Sears to shareholders of Sears.
"Spouse" or "Surviving Spouse" means the lawfully married Spouse or
Surviving Spouse of the Participant, provided that a former Spouse will be
treated as the Spouse or Surviving Spouse and a current Spouse will not be
treated as the Spouse or Surviving Spouse to the extent provided under a
qualified domestic relations order as described in section 414(p) of the Code.
"SPS" means SPS Transaction Services, Inc., a Delaware corporation and its
subsidiaries.
<PAGE>
17
"START Plan" means the Dean Witter START Plan (Saving Today Affords
Retirement Tomorrow) (formerly, from January 1, 1984 to May 31, 1994, the Dean
Witter Reynolds Inc. Employee Retirement Investment Plan and, from September 1,
1971 to December 31, 1983, the Dean Witter Reynolds Inc. Stock Accumulation
Plan) as amended from time to time, or any successor plan of a Participating
Company intended to qualify under sections 401(a) and 401(k) of the Code.
"Subsidiary" means any corporation trade or business with respect to which
DWDC, directly or indirectly, owns not less than 80% of the voting power of all
classes of stock entitled to vote, the total value of all shares of stock or the
ownership interest.
"Surviving Spouse Benefit" means the benefit payable under Section 8 to the
Surviving Spouse of a deceased Participant.
"Suspendible Month" means a month with respect to which the Plan
Administrator gives timely notice of benefit suspension in accordance with
Department of Labor Regulation Section 2530.203-3 (suspension of benefits upon
reemployment of retirees) and during which there are eight or more days with
respect to which the Participant receives payment from the Company or any
Subsidiary for one or more Hours of Employment. Solely for purposes of this
definition, "Hours of Employment" means:
(i) Each hour for which an Employee is paid, or entitled to payment,
by the Company or any Subsidiary for the performance of duties. These hours
<PAGE>
18
shall be credited to the Employees for the day or days on which the duties
are performed.
(ii) Each hour for which an Employee is paid, or entitled to payment,
by the Company or any Subsidiary on account of a period of time during
which no duties are performed due to vacation, holiday, sickness,
incapacity (including disability), leaves of absence, layoff, jury duty, or
military service. The number of hours and the days to which an Employee
shall be credited under this definition shall be determined in accordance
with Department of Labor Regulation sections 2530.200b-2(b) and (c).
"TDEPP" means the Dean Witter, Discover & Co. Tax Deferred Equity
Participation Plan, the SPS Transaction Services, Inc. Tax Deferred Equity
Participation Plan or any successor plan pursuant to which a portion of an
Employee's Earnings are deferred at the election of a Participating Company or
member of the Affiliated Group.
"Termination of Employment" and similar phrases mean the termination of an
Employee's employment, whether voluntary or involuntary, with all members of the
Affiliated Group.
"Top Paid Group" means the top twenty percent of employees who performed
services for the Affiliated Group during the applicable year ranked according to
the amount of Earnings received from the Affiliated Group during such year. For
purposes of this definition Leased Employees shall be considered Employees
unless such Leased Employees are covered by a plan described in Code section
<PAGE>
19
414(n)(5) and are not covered in any qualified plan maintained by the Affiliated
Group. Employees who are nonresident aliens and who received no earned income
within the meaning of Code section 911(d)(2) from the Affiliated Group
constituting United Stated source income within the meaning of Code section
861(a)(3) shall not be treated as Employees. Additionally, for the purpose of
determining the number of active Employees in any year the following additional
Employees shall also be excluded; however such Employees shall still be
considered for the purpose of identifying the particular Employees in the Top
Paid Group:
(1) Employees with less than 6 months of service;
(2) Employees who normally work less than 17 1/2 hours per week;
(3) Employees who normally work less than 6 months per year;
(4) Employees who have not yet attained 21; and,
(5) except to the extend provided in regulations, Employees who are
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 any member of the Affiliated Group.
"Trust" means the trust or trusts created by the Trust Agreement.
"Trust Agreement" means that certain trust agreement dated as of August 20,
1982, between the Company and the United States Trust Company of New York, as
amended from time to time.
<PAGE>
20
"Trustee" means the United States Trust Company of New York and any
additional or successor trustee or trustees appointed from time to time under
the Trust Agreement.
"Trust Fund" means the fund or funds established pursuant to the Trust
Agreement.
"Vested Benefit" means the benefit payable under Section 7 to a Participant
who meets the requirements of Section 7.
"Year of Service" means a Period (or Periods) of Service, whether or not
consecutive, equal to twelve months.
"Years of Past Service" means:
(i) with respect to an individual who was an Employee on March 2,
1981, January 1, 1986 or January 1, 1991, Years of Service with a
Participating Company completed prior to January 1, 1991; or
(ii) with respect to any Employee who was not an Employee on March 2,
1981, January 1, 1986 or January 1, 1991, Years of Service with a
Participating Company, if any, completed during the period September 1,
1975 through December 31, 1990, excluding any such Years of Service
completed prior to the Plan Year in which the Employee first became a
Participant in the Plan
Notwithstanding the foregoing, an individual's Years of Past Service shall
not include any period during which he or she was a partner in any partnership
that was a predecessor of any member of the Affiliated Group.
SECTION 3. PARTICIPATION.
<PAGE>
21
(a) Commencement of Participation. An Eligible Employee shall automatically
become a Participant in the Plan on the Entry Date coincident with or next
following the earlier of the date he (i) attains age 21 and completes one Year
of Service or (ii) completes two years of continuous full-time employment with
one or more members of the Affiliated Group.
(b) Commencement of Participation - Prior Employees. Notwithstanding the
provisions of Section 3(a), an Eligible Employee who commenced employment with
the Company prior to January 1, 1987 will automatically become a Participant in
the Plan on the last day of the Quarter in which falls the earliest of (i) the
date the Employee completes two years of continuous full-time employment with
one or more members of the Affiliated Group, (ii) the date the Employee has
attained age 21 and completed three continuous months of employment with one or
more members of the Affiliated Group or (iii) the date the Employee has attained
age 21 and completed one Year of Service. An Employee who is not an Eligible
Employee on the last day of the Quarter described in the preceding sentence but
who becomes an Eligible Employee after having satisfied the requirements of
Section 3(b)(i), (ii) or (iii) shall automatically become a Participant in the
Plan on the last day of the Quarter in which he becomes an Eligible Employee.
(c) Reemployed and Transferred Employees. If an Employee is not employed as
an Eligible Employee on the first Entry Date after he has met the age and
service requirements, he shall become a Participant on the next date he becomes
an Eligible Employee. If a Participant's employment terminates or if he is
transferred to
<PAGE>
22
employment in a status other than that of an Eligible Employee, and he is later
rehired as an Eligible Employee or transferred back to such status by any member
of the Affiliated Group, he shall resume participation in the Plan immediately
upon such rehire or resumption in status.
(d) Termination of Participation. A Participant's participation shall
terminate as of the date he ceases to be an Employee, unless the Participant is
entitled to benefits hereunder, in which event participation shall terminate on
the earlier of the date of the Participant's death or the date no amount is
payable to the Participant hereunder.
SECTION 4. PERIOD OF SERVICE.
An Employee's Period of Service shall be determined under the following
rules:
(a) Period of Employment Relationship. An Employee's Period of Service
shall include any period during which he maintains an employment relationship
with any member of the Affiliated Group. An Employee's employment relationship
with a member of the Affiliated Group commences on the date the Employee first
performs an Hour of Service for any member of the Affiliated Group for which he
receives or is entitled to receive Earnings and, subject to Section 4(b) below,
ends on the beginning of a Period of Severance. An Employee shall not be
considered to have "quit" and commenced a Period of Severance under the
following circumstances:
(i) When the Employee is laid-off or takes a leave of absence without
pay approved by
<PAGE>
23
the appropriate member of the Affiliated Group. In the case
of an approved leave of absence without pay for a period in excess of
twelve months, the Employee shall be deemed to have quit as of the end of
such twelve-month period if he fails to abide by the terms and conditions
of such leave, which may include a requirement to return to active
employment.
(ii) When the Employee enters the military service of the United
States, provided the Employee returns to active employment with any member
of the Affiliated Group within the time the Employee's reemployment rights
are protected under applicable law. If the Employee does not so return, he
shall be deemed to have quit as of the date of entry into military service.
(iii) When the Employee is unable to work due to disability or
sickness.
(iv) When the Employee is on jury duty, a leave of absence with pay,
an approved vacation or a holiday.
Notwithstanding the foregoing, if an Employee quits, is discharged, dies or
retires while on leave, vacation, holiday or jury duty, or while laid-off,
disabled or sick, then, subject to Section 4(b) below, his Period of Service
with the Affiliated Group shall terminate on the earlier of the date of such
quit, discharge, death or retirement, or twelve months after the commencement of
such leave, vacation, holiday, jury duty, lay-off, disability or sickness. An
Employee shall be deemed to have been discharged as of the earlier of the date
he receives oral or written notice of discharge or
<PAGE>
24
the date a written notice is deposited in the United States mail (on a
registered or certified basis) to the Employee's last known address.
(b) Period Following Termination. An Employee's Period of service shall
include any period following the termination of his employment relationship with
a member of the Affiliated Group (determined pursuant to Section 4(a) above) if
the Employee is rehired by any member of the Affiliated Group within the
twelve-month period following such termination.
(c) Service with Reynolds. In the case of any individual who was an
employee of Reynolds Securities International Inc. or any subsidiary thereof at
any time prior to the merger of Reynolds Securities International Inc. with
DWFS, Years of Service for periods prior to January 3, 1978, shall be determined
by applying the rules of this Section 4 to that period of employment. The Years
of Service so determined shall be added to such individual's Years of Service
determined under this Plan, computed as though the individual became an Employee
on the later of January 1, 1978, or the date he is actually employed by a member
of the Affiliated Group.
(d) Other Periods. An Employee's Period of Service also includes any other
period that constitutes a "Period of Service" under written rules or regulations
adopted from time to time by the Plan Administrator.
(e) Aggregation of Periods of Service. All of an Employee's Periods of
Service determined pursuant to this Section 4 shall be aggregated on the basis
of complete months, whether or not such Periods of Service are consecutive,
except that if an Employee's Period of Service commences on other than the first
day of a calendar
<PAGE>
25
month and ends on other than the last day of a calendar month, the days in such
months shall be aggregated and one additional month of service shall be credited
if the number of such days is at least 30 but less than 60, and two additional
months shall be credited if the number of such days equals 60.
(f) One Year Period of Severance. Anything in the Plan to the contrary
notwithstanding, if an Employee has a Period of Severance of more than twelve
months, all his Periods of Service prior to his Period of Severance shall be
disregarded until he is credited with one Hour of Service subsequent thereto.
(g) Service with Sears. Solely for purposes of vesting, the Period of
Service of any person who was employed by a member of the Sears Affiliated Group
immediately following the Spin-off and who had an accrued benefit under the Plan
as of the Spin-off shall include, to the extent consistent with the requirements
of the Code and ERISA, the lesser of: The number of years such employee
continues to work for the Sears Affiliated Group after the Spin-off and the
number of years necessary to fully vest such person in an accrued benefit under
the plan.
(h) If, on or after February 25, 1992, a Participant transfers employment
to SPS, or if, on or after June 7, 1993, a Participant transfers employment to
NationsSecurities then for purposes of Sections 5(b) and 7, such transferred
Participant's Period of Service shall include service with SPS or
NationsSecurities but not more than the lesser of such transferred Participant's
service with SPS or NationsSecurities or the service necessary for such
transferred Participant to fully vest
<PAGE>
26
in the Participant's accrued Plan benefit, such post-transfer service to be
determined in accordance with this Section 4.
SECTION 5. RETIREMENT.
(a) Normal Retirement. If a Participant's employment by the Affiliated
Group terminates on or after his Normal Retirement Age, he shall be entitled to
a Normal Retirement Benefit, determined under Section 6, commencing as of the
first day of the month next following the date his employment terminates.
(b) Early Retirement. If a Participant's employment by the Affiliated Group
terminates before his Normal Retirement Age and on or after the earlier of the
date he attains age 55, if at such time he has completed ten Years of Service,
or if he commenced employment with the Affiliated Group prior to January 1,
1986, the date he has attained at least age 55 and the sum of his age and Years
of Service totals at least 70, he shall be entitled to an Early Retirement
Benefit determined in the same manner as a Normal Retirement Benefit under
Section 6, commencing as of the first day of the month next following his Normal
Retirement Date.
(c) Disability Retirement. If it is determined that a Participant is
"totally and permanently disabled" on or after attaining age 55, and he has
completed ten Years of Service or, if he commenced employment with the
Affiliated Group prior to January 1, 1986 the sum of his age and Years of
Service equal or exceed 70, he must retire and shall be entitled to a Disability
Retirement Benefit, determined in the same manner as a Normal Retirement Benefit
under Section 6, commencing as of his Normal Retirement Date. A Participant
shall be considered "totally and permanently disabled"
<PAGE>
27
only if he is able to establish (to the satisfaction of the Plan Administrator)
that he is entitled to receive disability benefits under Federal Social
Security.
(d) Election of Early Commencement of Benefits. If a Participant makes a
proper election under this Section 5(d), his Early or Disability Retirement
Benefit (as applicable) may commence as of the first day of any month that
follows the Plan Administrator's receipt of the election and precedes his Normal
Retirement Date. That election shall be filed with and shall be made on the
form(s) prescribed by the Plan Administrator. By filing the prescribed form(s)
with the Plan Administrator prior to the date as of which payments are to
commence, a Participant may change or revoke a previous election as to the
commencement of Early or Disability Retirement Benefits. If an election (or a
change or revocation of a previous election) is filed with the Plan
Administrator less than 90 days before the date as of which Early or Disability
Retirement Benefit payments are to commence, the actual commencement of payments
may be delayed for administrative reasons. If any such delay occurs, the first
payment made shall include all amounts due from the date as of which the
Participant elected to have payments commence.
(e) Mandatory Retirement. Notwithstanding anything to the contrary herein,
a Participating Company may require a Participant in its employ to retire and to
receive a Retirement Benefit so long as the Participant (i) has attained Normal
Retirement Age; (ii) has been employed during the two-year period prior to
retirement in a bona fide executive or a high policy-making position; and (iii)
is entitled to an immediate nonforfeitable annual retirement benefit from all
pension, profit-sharing,
<PAGE>
28
savings and deferred compensation plans of any member of the Affiliated Group
which equals, in the aggregate, at least $44,000.
SECTION 6. RETIREMENT BENEFITS.
(a) Normal Retirement Benefit. A Participant's Normal Retirement Benefit
shall be an annual amount equal to the sum of his Future Service Benefit as
provided in Section 6(b) plus his Past Service Benefit as provided in Section
6(c) (if any), adjusted for continued employment after attaining his Normal
Retirement Date as provided in Section 6(d).
(b) Future Service Benefit. A Participant's "Future Service Benefit" shall
be an amount equal to the sum of:
(i) 1% of the Participant's Earnings after December 31, 1990; plus,
(ii) 1/2% of the amount, if any, by which the Participant's Earnings
for each Plan Year, during such period, but not in excess of 42.7 years
minus the Participant's Years of Past Service, exceed the Participant's
Covered Compensation for that Plan Year. After a Participant has reached an
aggregate amount of Years of Service and Years of Past Service equal to or
greater than 42.7, no additional Future Service Benefit shall accrue under
this Section 6(b)(ii).
In no event shall an increase in Covered Compensation decrease a
Participant's accrued benefit under the Plan.
(c) Past Service Benefit. A Participant's "Past Service Benefit" shall be
an amount equal to the greater of:
<PAGE>
29
(i) the benefit the Participant had accrued under the Plan as of
December 31, 1990 under the terms of the Plan in effect on that date; or
(ii) the sum of (A) 1% of the Participants Average Annual Past Service
Earnings multiplied by the Participant's Years of Past Service; plus, (B)
plus 1/2% of the amount, if any, of the Participant's Average Annual Past
Service Earnings in excess of the Participant's Covered Compensation for
1990, multiplied by the Participant's Years of Past Service but not in
excess of 42.7 years; reduced by, (C) the Annual Pension Equivalent.
(d) Deferred Retirement Benefit. A Participant who continues to be an
Employee after attaining Normal Retirement Date shall not be entitled to payment
of his Retirement Benefit until he ceases to be an Employee. The Normal
Retirement Benefit payable to him shall be:
(i) With respect to any Participant who is credited with at least one
Hour of Service in any Plan Year beginning on or after January 1, 1988, the
greater of
(A) His Normal Retirement Benefit determined under Section 6(b)
and (c) (if any).
(B) His Normal Retirement Benefit determined under Section 6(b)
and (c) (if any) without regard to any increase in such benefit for
the period after his Normal Retirement Date and prior to January 1,
1988, and instead increased for that period by 1/2% for each full
month prior to January 1, 1988 that he remained employed by a
<PAGE>
30
Participating Company after his Normal Retirement Date and that is a
Suspendible Month.
(C) His Normal Retirement Benefit determined under Section 6(b)
and (c) (if any) without regard to any increase in such benefit for
the period after his Normal Retirement Date and instead increased (i)
by 1/2% for each full month prior to January 1, 1988 that he remained
employed by a Participating Company after his Normal Retirement Date
and (ii) to the extent required by Section 16(f).
(ii) With respect to any Participant who is not credited with at least
one Hour of Service in any Plan Year beginning on or after January 1, 1988,
his Normal Retirement Benefit as determined under Section 6(b) and (c)
increased (i) by 1/2% for each full month prior to January 1, 1988 that he
remained employed by a Participating Company after his Normal Retirement
Date that is a Suspendible Month and (ii) to the extent required by Section
16(f).
(e) Reduction for Early Commencement. If a Participant begins receiving his
Early or Disability Retirement Benefit prior to his Normal Retirement Date, the
amount otherwise payable to him shall be reduced as provided in Appendix B.
(f) Reduction for Prior Benefit. Notwithstanding any other provision hereof
to the contrary, the amount of any Retirement Benefit payable to a Participant
shall be reduced by the Equivalent Actuarial Value (as determined under the
applicable
<PAGE>
31
provisions of Appendix B) of any benefit previously paid in the form of a lump
sum distribution to such Participant hereunder.
(g) Optional Forms of Retirement Benefits. A Participant may elect to have
the Participant's Retirement Benefit paid in any of the following forms:
(i) An individual life annuity, providing an annual benefit to the
Participant for life;
(ii) A joint and survivor annuity, providing a reduced annual benefit
to the Participant for life and, upon the Participant's death after the
date as of which payments begin, an annual benefit continued to the
Participant's joint annuitant (if then living) for the joint annuitant's
life equal to 50%, 75%, or 100% of the reduced benefit payable to the
Participant;
(iii) A term certain and life annuity, providing a reduced annual
benefit to the Participant for life, with payments guaranteed for a minimum
of five or ten years, as the Participant may elect; provided, that
guaranteed payments may not be paid over a period exceeding the joint life
expectancy of the Participant and his joint annuitant, if any; or
(iv) A lump sum payment, in cash, of 100%, 75%, 50% or 25% of the
value of the Participant's Retirement Benefit. In the event a lump sum
payment of less than 100% of the Participant's Retirement Benefit is
elected, the Participant may elect to receive the remaining portion of his
or her benefit in one of the forms set forth in Sections 6(g)(i), (ii) or
(iii) above.
<PAGE>
32
The benefit payable to an alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, may be all or a
portion of the Participant's benefit payable as either a lump sum or an annuity
paid for the life of the alternate payee. A benefit paid as an annuity for the
life of the alternate payee shall be actuarially equivalent to the same benefit
paid as an annuity for the life of the Participant.
(h) Election of Form of Retirement Benefit.
(i) Each Participant may elect a form of Retirement Benefit, or change
or revoke a previous election, by filing the prescribed form(s) with the
Plan Administrator. Any such election (or a change or revocation of a
previous election) may be made at any time up to the date as of which the
Participant's Retirement Benefit is to commence.
(ii) Unless an optional form of benefit is selected pursuant to a
qualified election within the 90-day period ending on the date his
Retirement Benefit is to commence,
(A) A married Participant's Retirement Benefit will be paid in
the form of a 50% qualified joint and survivor annuity providing a
monthly annuity to the Participant for life and, upon the
Participant's death after monthly payments begin, a monthly amount
equal to 1/2 of the Participant's monthly Retirement Benefit continued
to the Participant's Surviving Spouse (if then living) for such
Spouse's life, provided that the Participant and the Participant's
Surviving Spouse were
<PAGE>
33
lawfully married on the date that annuity payments commenced to the
Participant (the amount of such joint and survivor annuity shall be
determined in the manner provided in Section 6(g) with respect to
joint and 50% survivor annuities), and
(B) An unmarried Participants Retirement Benefit will be paid in
the form of an individual life annuity providing a monthly benefit to
the Participant for life equal to 1/12 of the Participant's annual
retirement benefit.
(iii) Qualified election. Any waiver of a qualified joint and survivor
annuity by a Participant shall not be effective unless: (i) the
Participant's Spouse consents in writing to the election; (ii) the election
designates (where applicable) a specific alternate joint annuitant or
beneficiary, including any class of beneficiaries or any contingent
beneficiaries, which may not be changed without spousal consent (or the
Spouse expressly permits designations by the participant without any
further spousal consent); (iii) the Spouse's consent acknowledges the
effect of the election; and (iv) the Spouse's consent is witnessed by a
notary public. Additionally, a Participant's waiver of the qualified joint
and survivor annuity will not be effective unless the election designates a
form of benefit payment which may not be changed without spousal consent
(or the Spouse expressly permits designations by the Participant without
any further spousal consent). If it is established to the satisfaction of a
Plan representative that such written consent may not be obtained because
there is no
<PAGE>
34
Spouse or the Spouse cannot be located, a waiver will be deemed a qualified
election. Any consent by a Spouse obtained under this provision (or
establishment that the consent of a Spouse may not be obtained) shall be
effective only with respect to such Spouse. A consent that permits
designations by the Participant without any requirement of further consent
by such Spouse must acknowledge that the Spouse has the right to limit
consent to a specific beneficiary, and a specific form of benefit where
applicable, and that the Spouse voluntarily elects to relinquish either or
both of such rights. A revocation of a prior waiver may be made by a
Participant without the consent of the Spouse at any time prior to the
commencement of benefits. The number of revocations shall not be limited.
No consent obtained under this provision shall be valid unless the
Participant has received notice as provided below.
(iv) Notice Requirement. The Plan Administrator shall provide each
Participant no less than 30 days and no more than 90 days prior to the date
his Retirement Benefit is to commence a written explanation of the terms
and conditions of a qualified joint and survivor annuity; the Participant's
right to make and the effect of an election to waive the qualified joint
and survivor annuity form of benefit; the rights of a Participant's Spouse;
and the right to make, and the effect of, a revocation of a previous
election to waive the qualified joint and survivor annuity.
(i) Claim for Benefits; Required Information. No Retirement Benefit will be
paid to or on behalf of a Participant under the Plan until the Participant (or
the
<PAGE>
35
Participant's Spouse, joint annuitant or beneficiary, as appropriate) has
filed a claim for benefits with the Plan Administrator in accordance with
Section 13 and has provided the Plan Administrator with all information that it
may need to determine the amount payable to such person hereunder. Such
information shall include, without limitation, the Participant's date of birth,
the Participant's marital status and, if the Participant is married, the name,
address and birthdate of his Spouse. Such information shall be on the form(s)
prescribed by the Plan Administrator and shall include copies of such proof of
age or marital status as the Plan Administrator may request. If a Participant
has not filed a complete claim for benefits by the date as of which the
Participant's Retirement Benefit is to commence, the first payment made
following the Plan Administrator's receipt of a complete claim shall include all
amounts due from the date as of which such Benefit was to commence.
(j) Commencement of Retirement Benefits. Subject to Section 6(i), the
actual payment of a Participant's Retirement Benefit shall begin as soon as is
reasonably practicable following the date as of which such Retirement Benefit is
to commence. In no event, however, shall payment begin later than 60 days after
the latest of (i) the end of the Plan Year in which the Participant attains
Normal Retirement Age, (ii) the end of the Plan Year in which the Participant's
employment by the Affiliated Group terminates, or (iii) the date the Plan
Administrator is able to determine the amount of such Retirement Benefit. If the
actual payment of a Participant's Retirement Benefit begins after the date as of
which such Retirement Benefit is to
<PAGE>
36
commence, the first payment made shall include all amounts due from such date to
the date payment is made.
(k) Joint Annuitants. A Participant may designate the Participant's Spouse
or any other person as the Participant's joint annuitant. Any such designation
shall be made on the form(s) prescribed by the Plan Administrator. If a married
Participant designates anyone other than the Participant's Spouse as joint
annuitant, the Plan Administrator shall require the spouse's written consent as
set forth in Section 6(h) above, and shall require proof that the Participant is
in good health as a condition to the election of a nonspouse joint and survivor
annuity. For purposes of the preceding sentence, "proof" shall be a certificate
issued by a Participant's physician attesting to the Participant's health, which
could be used by the Participant to obtain private health, life or disability
insurance. A Participant may not change a previous designation of a joint
annuitant after the date as of which the Participant's Retirement Benefit is to
commence.
(l) Effect of Death on Election of Form of Retirement Benefits.
(i) If a Participant has elected (or is entitled) to receive
Retirement Benefits in the form of a joint and survivor annuity and the
Participant's joint annuitant dies before the date as of which the
Participant's Retirement Benefit is to commence, the Participant shall be
deemed to have elected a single life annuity and any previous election to
the contrary shall be void. In such a case, the Participant may elect a
different form of Retirement Benefit (in accordance
with Section 6(h)) and/or may designate a new joint annuitant (in
accordance
<PAGE>
37
with Section 6(k)) at any time prior to the date as of which the
Participant's Retirement Benefit is to commence.
(ii) If a Participant has elected (or is entitled) to receive
Retirement Benefits in the form of a joint and survivor annuity and the
Participant's joint annuitant dies on or after the date as of which the
Participant's Retirement Benefit is to commence, the Participant shall
continue to receive a reduced annuity.
(iii) If a Participant who has elected to receive Retirement Benefits
in the form of a term certain and life annuity dies within the five-year or
ten-year period specified in the Participant's election and after the date
as of which benefit payments commence, the monthly benefit provided under
the Participant's annuity will be continued for the remainder of such
period to the person (or persons) the Participant has designated as his
beneficiary. Any such designation must be made in writing and must be filed
with the Plan Administrator.
(iv) If the Participant and the Participant's beneficiary die after
the date as of which payments under a term certain and life annuity are to
commence but before the guaranteed number of payments have been made
thereunder, the Equivalent Actuarial Value of the balance of the amount
payable with respect to the Participant (as determined by the Plan
Administrator) shall be paid in a lump sum to the estate of the last to die
of the Participant or the Participant's beneficiary. If the Participant and
the Participant's beneficiary die
<PAGE>
38
simultaneously, the beneficiary shall be deemed to have died after the
Participant.
(m) Form of Annuity Payment. Notwithstanding anything to the contrary
herein, a Participant's Retirement Benefit paid in one of the forms described in
clauses (i), (ii) or (iii) of Section 6(g) shall be payable to such Participant
on a monthly basis.
SECTION 7. VESTED BENEFITS.
(a) Participants Who Do Not Have One Hour of Service in Any Plan Year
Beginning After December 31, 1988. The following rules apply in calculating the
Vested Benefit of any Participant who does not have at least one Hour of Service
in any Plan Year beginning after December 31, 1988.
(i) Participants Who Were Employees on March 2, 1981.
(A) If a Participant was an Employee on March 2, 1981, and his
employment by the Affiliated Group terminates upon or after the date
he completes three Years of Service and at a time when he is not
entitled to a Retirement Benefit under Section 5, the Participant
shall be entitled to a Vested Benefit, commencing as of the first day
of the month following his Normal Retirement Date.
(B) The annual Vested Benefit of a Participant described in
Section 7(a)(i)(A) shall be equal to the Participant's Annual Normal
Retirement Benefit (determined as of the date his employment
<PAGE>
39
terminates) multiplied by the applicable percentage determined under
the following Vesting Schedule:
VESTING SCHEDULE
Nonforfeitable Percentage
Years of Service of Accrued Benefit to Which
At Termination Participant Is Entitled
- -------------- -----------------------
Less than 3 0%
3 but less than 4 15%
4 but less than 5 20%
5 but less than 6 25%
6 but less than 7 30%
7 but less than 8 40%
8 but less than 9 50%
9 but less than 10 60%
10 or more 100%
(ii) Participants Who Were Not Employees On March 2, 1981.
(A) If a Participant who was not an Employee on March 2, 1981 is
hired or rehired as an Employee after that date and his employment by
the Affiliated Group terminates prior to the date he has completed ten
Years of Service and at a time when he is not entitled to a Retirement
Benefit under Section 5, the Participant shall only be entitled to the
Vested Benefit, if any, to which he was entitled at the time his
employment terminated under and in accordance with the terms of the
Plan as in effect at the time of such termination.
(B) If a Participant who was not an Employee on March 2, 1981 is
hired or rehired as an Employee after that date and his
<PAGE>
40
employment by the Affiliated Group terminates upon or after the date
he has completed ten Years of Service and at a time when he is not
entitled to a Retirement Benefit under Section 5, the Participant
shall be entitled to a Vested Benefit, commencing as of the first day
of the month following his Normal Retirement Date.
(C) The annual Vested Benefit of a Participant described in
Section 7(a)(ii)(B) shall be equal to his annual Normal Retirement
Benefit (determined as of the date his employment terminates).
(b) Participants Who Have At Least One Hour of Service In Any Plan Year
Beginning After December 31, 1988. The following rules apply in calculating the
Vested Benefits of any Participant who has at least one Hour of Service in any
Plan Year beginning after December 31, 1988.
(i) If the Participant's employment by the Affiliated Group terminates
upon or after the date he completes five Years of Service, the Participant
shall be entitled to a Vested Benefit commencing as of the first day of the
month following his Normal Retirement Date equal to 100 percent of his
accrued Normal Retirement Benefits, determined as of the date his
employment terminates.
(ii) If the Participant was an Employee on March 2, 1981 and his
employment by the Affiliated Group terminate upon or after the date he
completes three Years of Service and prior to the date he completes five
Years of Service, he shall be entitled to a Vested Benefit commencing as of
the first day of the month following his Normal Retirement Date equal to
the percentage of his accrued Normal
<PAGE>
41
Retirement Benefit set forth below, determined as of the date his
employment terminates:
VESTING SCHEDULE
Nonforfeitable Percentage
Years of Service of Accrued Benefit to Which
At Termination Participant Is Entitled
-------------- -----------------------
Less than 3 0%
3 but less than 4 15%
4 but less than 5 20%
5 or more 100%
(c) Reduction for Prior Benefit. Notwithstanding any other provision hereof
to the contrary, the amount of any Vested Benefit payable to a Participant under
Section 7(a) or (b) above shall be reduced by the Equivalent Actuarial Value of
any benefit previously paid in the form of a lump sum distribution to such
Participant hereunder.
(d) Election of Early Commencement of Benefits; Reduction in Amount
Payable. If a Participant makes a proper election under this Section 7(d), his
Vested Benefit may commence as of the first day of any month that follows the
Plan Administrator's receipt of the election and precedes the Participant's
Normal Retirement Date; provided, that the Participant has attained at least age
55 and completed ten Years of Service or, in the case of a Participant who
commenced employment with a member of the Affiliated Group prior to January 1,
1986, has attained at least age 55 and the sum of his age and Years of Service
equals or exceeds 70. A Participant's election to have his Vested Benefit
commence prior to his Normal Retirement Date shall be filed with and shall be
made on the form(s) prescribed by the
<PAGE>
42
Plan Administrator. By filing the prescribed form(s) with the Plan Administrator
prior to the date as of which payments are to commence, a Participant may change
or revoke a previous election as to the commencement of Vested Benefits. If an
election (or a change or revocation of a previous election) is filed with the
Plan Administrator less than 90 days before the date as of which Vested Benefit
payments are to commence, the actual commencement of payments may be delayed for
administrative reasons. If any such delay occurs, the first payment made shall
include all amounts due from the date as of which the Participant elected to
have payments commence. If a Participant begins receiving his Vested Benefit
prior to his Normal Retirement Date, the amount otherwise payable to him shall
be reduced as provided in Appendix B.
<PAGE>
43
(e) Forfeiture of Non-Vested Benefit. On the date a Participant ceases to
be an Employee, the portion of the benefit payable as to him which is not vested
shall be forfeited and his Period of Service and Earnings to that date shall
thereafter be disregarded. If, after that date, he again performs an Hour of
Service, the non-vested benefit payable as to him and his prior Period of
Service and Earnings shall, subject to the terms of the Plan, be reinstated.
(f) Provisions of Section 6 Apply; Special Rule for Immediate
Distributions.
(i) General Requirements. The provisions of Section 6(g) (Optional
Forms of Retirement Benefit), 6(i) (Claim for Benefits; Required
Information), 6(j) (Commencement of Retirement Benefits), 6(k) (Joint
Annuitants), 6(l) (Effect of Death on Election of Form of Retirement
Benefits) and 6(m) (Form of Annuity Payment) shall apply to Vested Benefits
in the same manner as to Retirement Benefits.
(ii) Special Rule for Immediate Distributions. If a Participant is
entitled to a Vested Benefit under this Section 7 the value of which is
greater than $3,500 and makes a proper election under this Section
7(f)(ii), his Vested Benefit may be immediately distributed to him in the
form provided in Section 6(h)(ii) or, pursuant to a qualified election
described in Section 6(h)(iii), in the form provided in Section 6(g)(iv).
The Plan Administrator shall, in the next calendar year following the
Participant's employment termination, provide the Participant with a
statement as to the value of his Vested Benefit and
<PAGE>
44
election forms to be used in connection with an immediate distribution
hereunder. The Participant shall have 90 days from the date such
information and election forms were mailed (or otherwise transmitted) by
the Plan Administrator to elect to make his elections under this Section
7(f)(ii). If the Participant elects to receive such Vested Benefit under
this Section 7(f)(ii), payment shall commence as of the end of such 90-day
period. If payment of an immediate distribution hereunder is made to the
form of an annuity, the amount otherwise payable to the Participant shall
be reduced as provided in Appendix B with respect to payment of Vested
Benefits prior to Normal Retirement Date. If such payment is in the form of
a lump sum, the amount so payable shall be determined as provided in
Appendix B with respect to lump sums. Whether the value of the
Participant's Vested Benefit is greater than $3,500 shall be determined in
the manner provided in Appendix B with respect to lump sums. All
determinations under this Section 7(f)(ii) shall be made as of the end of
the 90-day election period described above, and payment shall be made (or
commence) as of that date. If for any reason the Participant does not elect
to receive an immediate distribution of his Vested Benefit during the
90-day election period as provided in this Section 7(f)(ii), he may elect
to receive his Vested Benefit only as of the date as of which it would
otherwise be payable without regard to this Section 7(f)(ii).
<PAGE>
45
SECTION 8. SURVIVING SPOUSE BENEFITS.
(a) Eligibility Requirements. The Surviving Spouse of a married Participant
shall be entitled to a Surviving Spouse Benefit, determined under Section 8(b),
if:
(i) The Participant dies (A) after he is eligible for Normal, Early,
or Disability Retirement, or (B) after he has completed the service
requirement for a Vested Benefit as set forth under Section 7(a) or (b);
(ii) The Participant's death occurs before the date as of which his
Retirement or Vested Benefit is to commence; and
(iii) The Participant and his Surviving Spouse had been married
throughout the twelve-month period ending on the date of the Participant's
death.
(b) Amount of Surviving Spouse Benefit. In the case of a Participant who
dies after becoming eligible for Normal, Early or Disability Retirement Benefit,
the Surviving Spouse Benefit shall be equal to the benefit that the
Participant's Surviving Spouse would have received if the Participant had
retired and commenced receiving Retirement Benefits in the form of a 50% joint
and survivor annuity (with the Participant's Spouse as joint annuitant) as of
the day before the Participant died. In the case of a Participant who dies after
becoming eligible for a Normal Retirement Benefit but before either terminating
employment with the Affiliated Group or commencing benefits pursuant to Section
9(a), the Surviving Spouse Benefit shall be equal to the lump sum value of the
Participant's benefit as if the Participant had retired on his or
<PAGE>
46
her date of death and, notwithstanding any provisions of the Plan to the
contrary, shall be payable to the Surviving Spouse, at his or her election, as a
lump sum or as a single life annuity actuarially equivalent to the lump sum,
said actuarial equivalence to be determined using the same assumptions
applicable to the determination of lump sum benefits under the Plan. In the case
of a Participant who dies before becoming eligible for Normal, Early or
Disability Retirement, the Surviving Spouse Benefit shall be equal to the
benefit that the Participant's Spouse would have received if the Participant (i)
had ceased to be an Employee on the date of his death; (ii) had survived until
the day after the earlier of the day on which he would have attained age 65 or
the day after the day on which he would have attained age 55 (or older) and (a)
would have completed ten Years of Service, or (b) the sum of his age and Years
of Service would have equalled or exceeded 70 (if the Participant commenced
employment with the Company prior to January 1, 1986), whichever would have been
earlier; and (iii) had commenced receiving Retirement Benefits in the form of a
50% joint and survivor annuity (with the Participant's Spouse as joint
annuitant) as of the day before the earlier of the days described in clause
(ii).
(c) Commencement of Benefit. Unless a Participant's Surviving Spouse elects
to defer the commencement of the Surviving Spouse Benefit, such Surviving Spouse
Benefit shall commence (i) in the case of a Participant who dies after becoming
eligible for Normal, Early or Disability Retirement Benefit, as of the first day
of the month following the month in which the Participant dies; and (ii) in the
case of a Participant who dies before becoming eligible for Normal, Early or
Disability
<PAGE>
47
Retirement Benefit, as of the earliest of the days described in clause (ii) of
Section 8(b) above. By written notice to the Plan Administrator within 30 days
of the date of the Participant's death, a Participant's Surviving Spouse may
elect to defer the commencement of his Surviving Spouse Benefit. If the
Surviving Spouse makes such an election, the amount of his monthly Surviving
Spouse Benefit shall be increased by 1/2% for each full month after the date
such Surviving Spouse Benefit is otherwise payable under the first sentence of
this Section 8(c).
(d) Change of Commencement Date. By written notice to the Plan
Administrator prior to the date as of which a Surviving Spouse has elected to
have his Surviving Spouse Benefit commence, the Surviving Spouse may change the
date Surviving Spouse Benefit payments are to commence to the first day of any
month from the month after the month the Plan Administrator receives the notice.
<PAGE>
48
Election of Lump Sum. If the present value of a Surviving Spouse Benefit is
reater than $3,500, the Spouse may elect to have such present value paid in a
lump sum payment of cash. The Plan Administrator, upon receipt of notification
of the Participant's death, shall provide the Surviving Spouse with a statement
as to the value of the Surviving Spouse Benefit and election forms to be used in
connection with a lump sum distribution. The Spouse shall have 60 days from the
date such information and election forms are mailed (or otherwise transmitted)
by the Plan Administrator to elect to receive a lump sum payment. The Plan
Administrator, upon receipt of a proper election to receive a lump sum payment
by the Spouse, shall direct the lump sum payment to be made to the Spouse as
soon as practicable thereafter. For purposes of this Section 8(e), the value of
the Surviving Spouse Benefit, and the lump sum payment in lieu thereof, shall be
determined on the basis provided in Appendix B with respect to lump sums, as of
the date the notice described in the preceding sentence is sent.
SECTI N 9. INCORPORATION BY REFERENCE. CERTAIN CODE REQUIREMENTS BY REFERENCE.
<PAGE>
49
(a) Incorporation of Section 401(a)(9). Anything in the Plan to the
contrary notwithstanding, distributions under this Plan shall meet the
requirements of section 401(a)(9) of the Code, which requirements are
incorporated herein by reference; provided, that distributions with respect to a
Participant who attained age 70 1/2 during 1988 shall begin (and be calculated
as if they were required to begin) as of April 1, 1989, distributions with
respect to a Participant who attained age 70 1/2 prior to 1988 shall begin (and
be calculated as if they were required to begin) as of April 1, 1989 if the
Participant so elects, and after the commencement of distributions to the
Participant the payment form elected may not be changed or reduced by the
Participant.
(b) Incorporation of Section 415. Anything in the Plan to the contrary
notwithstanding, benefits under the Plan shall be subject to the limitations on
contributions and benefits under section 415 of the Code, which limitations are
incorporated herein by reference. For purposes of applying section 415 of the
Code: compensation shall mean compensation actually paid to Participant and
included in his gross income for the year; the limitation year shall be the Plan
Year; to the extent that section 415(e) of the Code requires of reduction in
contributions or benefits under this or another plan, reduction shall be made
under this Plan; adjustments to the dollar limitation of section 415(b)(l)(A) of
the Code for benefits which begin before or after the Social Security Retirement
Age shall be made by using the basis provided in Appendix B with respect to
Retirement Benefits which commence before Normal Retirement Date and a 6 percent
per year factor for periods after age 65 or by using an
<PAGE>
50
interest rate of 5 percent per annum and the UP - 84 Mortality Table, whichever
produces the smaller adjusted dollar limitation; and actuarial adjustment for
payment in other than the normal form shall be made in accordance with the
provisions of Appendix B applicable to adjustments for such other forms of
payment. Effective January 1, 1990, in applying the limitations on contributions
and benefits under section 415 of the Code, increases in the dollar limits under
section 415(b)(l)(A) and (c)(l)(A) of the Code, which take effect after a
Participant's employment by the Affiliated Group terminates, shall not be taken
into account. For all other purposes, the limitations of section 415 of the Code
shall be applied so as to provide the largest benefit payable thereunder.
(c) Optional Direct Rollover of Eligible Rollover Distributions.
(i) This section 9(c) applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section, a distributee may
elect at the time and in the manner prescribed by the Plan Administrator to have
any portion of an eligible rollover distribution paid directly to an eligible
retirement plan specified by the distributee in a direct rollover.
(ii) For purposes of this Section 9(c) the following definitions shall
apply:
(A) "Eligible rollover distribution" means any distribution of all or
any portion of the balance to the credit of the distributee other than any
distribution that is one of a series of substantially equal periodic
payments (not less
<PAGE>
51
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 10 years or more; any distribution to the extent such
distribution is required under Code section 401(a)(9); and the portion of
any distribution that is not includible in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to
employer securities).
(B) "Eligible retirement plan" means an individual retirement account
described in Code section 408(a), an individual retirement annuity
described in Code section 408(b), an annuity plan described in Code section
403(a), or a qualified trust described in Code section 401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of
an eligible rollover distribution to a Surviving Spouse or a Former Spouse,
an eligible retirement plan is an individual retirement account or an
individual retirement annuity.
(C) "Distributee" means an Employee or former Employee. In addition,
the Employee's or former Employee's Surviving Spouse and the Employee's or
former Employee's Spouse or former Spouse who is the alternate payee under
a qualified domestic relations order as defined in Code section 414(p) are
distributees with regard to the interest of the Surviving Spouse or former
Spouse.
SECTION 10. ESTABLISHMENT OF A FUNDING PROCEDURE; BASIS OF
<PAGE>
52
PAYMENTS; LIMITATION OF OBLIGATION.
(a) Funding Procedure.
(i) The Company shall engage an actuary, enrolled pursuant to section
3042 of ERISA, to determine the normal cost of the Plan for each Plan Year
and the amount (if any) of the Plan's unfunded past-service liability on
the basis of the funding method established for the Plan, to prepare the
actuarial statement described in section 103(d) of ERISA and to render the
opinion described in section 103(a)(4) of ERISA. Such actuary shall use
actuarial assumptions that in the aggregate are reasonable. Based upon the
determination of such actuary, the Company shall determine the
contributions required to be made for each Plan Year by the Participating
Companies in order to satisfy the minimum funding standard (or alternative
minimum funding standard) for such Plan Year determined pursuant to
sections 302 through 305 of ERISA and section 412 of the Code. The Company
may remove and discharge the actuary so engaged, but in such case it shall
engage a successor enrolled actuary to make the determinations, to prepare
the actuarial statement and to render the opinion described in this Section
10(a)(i).
(ii) After consultation with the actuary engaged pursuant to
Section 10(a)(i), the Company shall determine the funding method
(i.e., the actuarial cost method) to be used in determining costs and
liabilities under the Plan pursuant to section 301 et seq. of ERISA
and section 412 of the Code. With the advice of the actuary, the
Company shall review such funding method from time to time and, if the
Company determines that it is no longer
<PAGE>
53
appropriate, the Company shall then petition the secretary of the
Treasury for approval of a change in the funding method.
(iii) The Participating Companies shall contribute to the Plan
for each Plan Year at least the amount necessary to satisfy the
minimum funding standard (or alternative minimum funding standard) for
such Plan Year.
(iv) From time to time the Company shall estimate the benefits
and administrative expenses to be paid out of the Trust Fund during
the period for which such estimate is made and the contributions to be
made to the Plan by the Participating Companies during such period.
The Company shall inform the Trustee of the estimated cash needs of
the Plan for each period with respect to which such estimates are
made. Such estimates shall be made on an annual, quarterly, monthly or
other basis as the Company may determine.
<PAGE>
54
(v) The Company shall engage an independent qualified public
accountant to conduct such examinations and to render such opinions as
may be required under section 103(a)(3)(A) of ERISA. The Company in
its discretion may remove and discharge the person so engaged, but in
such case the Company shall engage a successor independent qualified
public accountant to perform such examinations and to render such
opinions.
(b) Basis of Payments to and from Plan.
(i) No contributions shall be required or permitted of
Participants.
(ii) From time to time the Participating Companies shall make
such contributions to the Plan as the Company determines to be
necessary or appropriate to fund the benefits provided by the Plan and
any expenses thereof that are to be paid out of the Trust Fund and to
carry out its obligations under this Section.
(iii) All contributions to the Plan shall be invested and
reinvested by the Trustee in accordance with the Trust Agreement.
(iv) Any amount forfeited by a Participant pursuant to Section 7
shall not be used to increase the Retirement or Vested Benefit of any
other Participant, but shall be used, as appropriate, to reduce the
contributions that would otherwise be made by the Participating
Companies.
(v) All benefits payable under the Plan shall be paid out of the
Trust Fund by the Trustee pursuant to the directions of the Company
and the terms of the Trust Agreement.
<PAGE>
55
(vi) Expenses of the Plan and Trust shall be paid out of the
Trust Fund only to the extent provided by the terms of the Trust
Agreement.
(c) Limitation of Obligation. Notwithstanding any other provision hereof,
the Participating Companies shall have no obligation to continue to make
contributions to the Plan after the Plan's termination or partial termination.
Except as otherwise provided by ERISA, none of the Participating Companies, nor
the Trustee, nor any other person shall have any liability or obligation to
provide benefits hereunder after the termination or partial termination of the
Plan (other than the Participating Companies' obligations under (a) and (b)
above as to periods before such termination). After the termination or partial
termination of the Plan, the Participants, joint annuitants and beneficiaries
shall look solely to the Trust Fund for their benefits. In the event of a
partial termination of the Plan, this Section 10(c) shall apply only with
respect to those persons who are affected by such partial termination.
SECTION 11. RESTRICTIONS ON BENEFITS PAID TO HIGHLY COMPENSATED EMPLOYEES
(a) In the event of a Plan termination, the benefit of any Highly
Compensated Employee shall be limited to a benefit that is nondiscriminatory
under Code section 401(a)(4).
(b) In any Plan Year, the payment of benefits to or on behalf of a Highly
Compensated Employee who is one of the twenty-five (25) highest paid Highly
Compensated Employees shall not exceed an amount equal to the payments that
would
<PAGE>
56
be made to or on behalf of such Highly Compensated Employee in that Plan
Year under:
(i) a straight life annuity that is the actuarial equivalent of the
accrued benefit and other benefits, if any, to which such Highly
Compensated Employee is entitled under the Plan (other than a social
security supplement); and
(ii) the amount of the payments that such Highly Compensated Employee
is entitled to receive under a social security supplement, if any.
(c) The restrictions set forth in Section 11(b) shall not apply if:
(i) after payment of all benefits payable to or on behalf of a Highly
Compensated Employee described in Section 11(b), the value of Plan assets
equals or exceeds 110 percent of the value of current liabilities, as
defined under Code section 412(l)(7) and determined under any reasonable
and consistent method; or
(ii) the value of the benefits payable to or on behalf of such Highly
Compensated Employee is less than 1 percent of the value of current
liabilities before distribution, as defined under Code section 412(l)(7)
and determined under any reasonable and consistent method; or
(iii) the value of the benefits payable to or on behalf of such Highly
Compensated Employee does not exceed $3,500 and has never exceeded $3,500
at the time of any prior distribution.
(d) For purposes of this Section 11, the term "benefit" includes any
benefit described in Sections 6,7,8 and Supplements A and B of the Plan, loans,
if any, in
<PAGE>
57
excess of the amount set forth in Code section 72(p)(2)(A), any
periodic income, any withdrawal values payable to a living Employee and any
death benefits not provided for by insurance on a Participant's life.
(e) A benefit which is otherwise restricted under Section 11(b) may
nevertheless be distributed in full to an affected Highly Compensated Employee
if, prior to receipt of the restricted amount, the Highly Compensated Employee
enters into a written agreement with the Plan Administrator, in a form
satisfactory to the Plan Administrator to secure repayment of the restricted
amount. The restricted amount is the excess of the amounts distributed to the
Highly Compensated Employee (accumulated with reasonable interest) over the
amounts that could have been distributed to such Highly Compensated Employee
under the straight life annuity described in Subsection 11(b)(i) (accumulated
with reasonable interest).
SECTION 12. FIDUCIARY RESPONSIBILITIES AND PLAN ADMINISTRATION.
(a) Named Fiduciary/Plan Administration. The Company is the named fiduciary
that has the authority to control and manage the operation and administration of
the Plan, and is the "plan sponsor" as that term is used in ERISA. The Company,
as Plan Administrator, shall make such rules, regulations, interpretations and
computations, and shall take such other action to administer the Plan, as it may
deem appropriate. In administering the Plan, the Company shall act in a
nondiscriminatory manner to the extent required by section 401 and related
sections of the Code and shall at all times discharge its duties with respect to
the Plan in accordance with the standards set forth in section 404(a)(1) of
ERISA.
<PAGE>
58
(b) Named Fiduciary/Management of Plan Assets. The Company is the named
fiduciary with respect to the control and management of the assets of the Plan
only to the extent of (i) having the duty to appoint one or more trustees to
hold the assets of the Plan in trust and to enter into a trust agreement with
each such trustee with respect to the assets held in trust thereunder, (ii)
having the authority to appoint one or more Investment Managers and to enter
into a contract with each such Investment Manager with respect to the management
of such assets as are to be subject to the management of such Investment Manager
and (iii) having the duty to establish a funding policy and method as provided
in Section 10(a). Each trustee so appointed shall have the exclusive authority
and discretion to manage and control the assets of the Plan that it holds in
trust, except to the extent that the authority to manage, acquire and dispose of
such assets is delegated by the Company to one or more Investment Managers. Each
Investment Manager shall have the power to manage, including the power to
acquire and dispose of, those assets held in trust pursuant to the Plan that are
assigned to it by the Company.
(c) Service in Several Fiduciary Capacities. Nothing herein shall prohibit
any person or group of persons from serving in more than one fiduciary capacity
with respect to the Plan (including service both as plan administrator and
trustee).
(d) Duties and Responsibilities of the Plan Administrator. The
responsibilities of the Company under the Plan shall be carried out on its
behalf by its directors, officers, employees and agents, none of whom shall be
fiduciaries unless
<PAGE>
59
appointed to the Hearing Panel. The Company may engage the services of such
persons or organizations to render advice or perform services with respect to
its responsibilities under the Plan as it shall determine to be necessary or
appropriate. Such persons or organizations may include (but shall not be limited
to) actuaries, attorneys, accountants and consultants.
(e) Delegation of Fiduciary Responsibilities. In lieu of carrying out any
of its fiduciary responsibilities under the Plan (pursuant to Section 12(d)),
the Company may delegate its fiduciary responsibilities (except "trustee
responsibilities" as defined in section 405(c)(3) of ERISA) to any person or
persons pursuant to a written contract with such other person that specifies the
fiduciary responsibilities so delegated.
SECTION 13. CLAIMS PROCEDURE.
(a) Claims and Inquiries. All claims for benefits and all inquiries
concerning the Plan shall be submitted to the Plan Administrator addressed as
follows: "Dean Witter Reynolds Inc., Plan Administrator under the Dean Witter
Reynolds Inc. Pension Plan, 5 World Trade Center, New York, New York 10048."
Claims for benefits must be in writing on the form(s) prescribed by the Plan
Administrator and must be signed by the person or persons indicated on such
form(s).
(b) Denial of Claims. In the event any claim for benefits is denied, in
whole or in part, the Plan Administrator shall notify the claimant of such
denial in writing and shall advise the claimant of his right to a review
thereof. Such written notice shall set forth, in a manner calculated to be
understood by the claimant, the specific reason or reasons for the denial,
specific reference(s) to the pertinent Plan
<PAGE>
60
provision(s) upon which the denial is based, a description of any additional
information or material that is necessary for the claimant to perfect his claim
for benefits, an explanation of why such information or material is necessary
and an explanation of the Plan's review procedure. Such written notice shall be
furnished to the claimant within 90 days after the Plan Administrator receives
the claim, unless special circumstances require an extension of time for
processing the claim. In no event shall such an extension exceed a period of 90
days from the end of the initial 90-day period; If such an extension is
required, written notice thereof shall be furnished to the claimant before the
end of the initial 90-day period. Such notice shall indicate the special
circumstances requiring an extension of time and the date by which the Plan
Administrator expects to render a decision. If written notice of the denial of
the claim for benefits is not furnished within the time specified in this
Section 13(b), the claim shall be deemed denied and the claimant shall be
permitted to appeal such denial in accordance with the review procedure
described in Section 14 below.
SECTION 14. REVIEW PROCEDURE.
(a) The Hearing Panel. The Company shall appoint a "Hearing Panel," which
shall consist of three or more individuals who may (but need not) be employees
of the Company. The Hearing Panel shall be the named fiduciary that shall have
the authority to act with respect to any appeal from the denial of a claim for
benefits under the Plan. The Hearing Panel may adopt such rules and procedures,
consistent with ERISA and the Plan, as it deems necessary or appropriate in
carrying out its responsibilities under this Section 14.
<PAGE>
61
(b) Appeals from Claim Denials. Any person whose claim for benefits is
denied, in whole or in part, or such person's duly authorized representative,
may appeal from such denial by submitting a request for review of the claim to
the Hearing Panel within six months after receiving the written notice of denial
from the Plan Administrator (or, in the case of a deemed denial, within six
months after the claim is deemed denied). The Plan Administrator shall give the
claimant (or his representative) an opportunity to review pertinent documents
(except legally privileged materials) and to submit issues and comments in
writing. A request for review shall be in writing and shall be addressed as
follows: "Hearing Panel under the Dean Witter Reynolds Inc. Pension Plan, 5
World Trade Center, New York, New York 10048." The request for review shall set
forth all of the grounds on which it is based, all facts in support thereof and
any other matters that the claimant deems pertinent. The Hearing Panel may
require the claimant (or his representative) to submit such additional facts,
documents or other material as it deems necessary or appropriate in making its
review.
(c) Decision on Review. The Hearing Panel shall act upon a request for
review within 60 days after receipt thereof, unless special circumstances
require an extension of time for processing, in which event a decision shall be
rendered not more than 120 days after the receipt of the request for review. If
such an extension is required, written notice thereof shall be furnished to the
claimant (or his representative) before the end of the initial 60-day period.
The Hearing Panel shall give written notice of its decision to the claimant (or
his representative) and to the Plan Administrator. In
<PAGE>
62
the event that the Hearing Panel confirms the denial of the claim for benefits
in whole or in part, such notice shall set forth, in a manner calculated to be
understood by the claimant, the specific reason or reasons for the denial and
specific reference(s) to the pertinent Plan provision(s) upon which such denial
is based. If written notice of the Hearing Panel's decision is not given to the
claimant (or his representative) within the time prescribed in this Section
14(c), the claim shall be deemed denied on review.
(d) Exhaustion of Administrative Remedies. No legal or equitable action for
benefits under the Plan shall be brought unless and until the claimant (i) has
submitted a written claim for benefits in accordance with Section 13(a), (ii)
has been notified that the claim has been denied (or the claim is deemed denied
as provided in Section 13(b) above), (iii) has filed a written request for a
review of the claim in accordance with Section 14(b) above and (iv) has been
notified in writing that the Hearing Panel has affirmed the denial of the claim
(or the claim is deemed denied on review as provided in Section 14(c) above).
(e) The Hearing Panel, in its capacity as "named fiduciary," as defined
under section 402(a)(1) of ERISA, shall have the discretionary authority to
interpret and construe the terms of the Plan and to determine eligibility for
and entitlement to Plan benefits in accordance with the terms of the Plan. Any
reasonable construction or interpretation of the Plan's terms or determination
made by the Hearing Panel as to eligibility or entitlements, adopted in good
faith, shall be final and binding upon the Company, all Participating Companies,
Employees, Participants, Spouses, Surviving Spouses and their heirs, successors
and assigns.
<PAGE>
63
SECTION 15. AMENDMENT; TERMINATION AND NONREVERSION.
(a) Amendment of Plan - The Company reserves the right to make, from time
to time, any amendment or amendments to all or any part of the Plan including
amendments which are retroactive in effect. Such amendment or amendments may be
effected by action of the Company's Board of Directors (the "Board"). Also, the
board has specifically authorized the Compensation Committee of the Board to
take such actions. Notwithstanding the foregoing (i) no amendment shall reduce
the benefits of any Participant accrued under the Plan to the date the amendment
is adopted, except to the extent that a reduction in accrued benefits may be
permitted by ERISA; and, (ii) except to the extent provided in Section 15(c)
below, no amendment shall divert any part of the assets of the Trust fund for
purposes other than the exclusive purpose of providing benefits to the
Participants, Spouses, joint annuitants or beneficiaries who have an interest in
the Plan and defraying the reasonable expenses of administering the Plan.
<PAGE>
64
(b) Termination of Plan - The Plan is intended to be permanent, but the
Company reserves the right to terminate the plan, in whole or in part at any
time. Such termination may be effected by action of the Board. Also, the Board
has specifically authorized the Compensation Committee of the Board to take such
action. No such action shall have the effect of: (i) reducing benefits of any
Participant accrued under the Plan to the date the amendment is adopted except
to the extent that a reduction in accrued benefits may be permitted by ERISA;
nor, (ii) except to the extent provided in Section 15(c) below, diverting any
part of the assets of the Trust Fund for purposes other than the exclusive
purpose of providing benefits to the Participants, Spouses, joint annuitants or
beneficiaries who have an interest in the Plan and defraying the reasonable
expenses of administering the Plan.
(c) No Reversion of Funds. No part of the Trust Fund shall revert to any
Participating Company nor be used for or diverted to purposes other than the
exclusive purpose of providing benefits to Participants, Spouses, joint
annuitants and beneficiaries who have an interest in the Plan and defraying the
reasonable expenses of administering the Plan; provided, however, that funds may
be returned to Participating Companies under the following circumstances:
(i) Any contribution made as a result of a mistake of fact may be
refunded to the appropriate Participating Company, provided such refund
occurs within one year after the date of such contribution;
(ii) In the event that the Commissioner of Internal Revenue determines
that the Plan is not initially qualified under the Internal Revenue
<PAGE>
65
Code, any contribution made incident to that initial qualification by the
employer must be returned to the employer within one year after the date
the initial qualification is denied, but only if the application for the
qualification is made by the time prescribed by law for filing the
employer's return for the taxable year in which the Plan is adopted, or
such later date as the secretary of the Treasury may prescribe.
(iii) Any contribution conditioned upon its deductibility under
section 404 of the Code may be refunded to the appropriate Participating
Company to the extent that it is disallowed as a deduction, provided the
refund is made within one year after the date of disallowance; and
(iv) Upon termination of the Plan, any assets remaining after the
allocation described in Section 15(d) may be returned to the appropriate
Participating Company if (i) all liabilities of the Plan to the
Participants, Spouses, joint annuitants and beneficiaries have been
satisfied and (ii) such return does not contravene any provision of ERISA
or other applicable law.
(d) Full Vesting Upon Termination. Upon termination of the Plan, the right
of each Participant to his benefit accrued under the Plan shall be 100% vested
and nonforfeitable to the extent funded. Upon partial termination of the Plan,
the right of each affected Participant to his benefit accrued under the Plan
shall, to the extent funded, be 100% vested and nonforfeitable. Upon termination
or partial termination of the Plan, the Trust shall continue until the Trust
Fund has been distributed as provided in Section 15(d) below.
<PAGE>
66
(e) Allocation of Trust Fund Upon Termination of the Plan. Upon termination
of the Plan, the Trust Fund shall be allocated by the Plan Administrator on an
actuarial basis among Participants, Spouses, joint annuitants and beneficiaries
pursuant to section 4044 of ERISA. In the case of a partial termination, such
allocation shall be limited to the affected Participants.
SECTION 16. MISCELLANEOUS.
(a) Inalienability of Rights. Except as otherwise provided in Section 16(b)
below, the interest and property rights of any person in the Plan, in the Trust
Fund or in any distribution to be made under the Plan shall not be subject to
option nor be assignable, either by voluntary or involuntary assignment or by
operation of law, including (without limitation) bankruptcy, garnishment,
attachment or other creditor's process, and any act in violation hereof shall be
void. Notwithstanding the foregoing, the creation, assignment or recognition of
a right to all or any portion of a Participant's Plan benefit made pursuant to a
state domestic relations order shall not constitute a violation of this Section
16(a), provided that such order is determined to be a "qualified domestic
relations order" (as defined in section 414(p) of the Code) under written
procedures adopted by the Plan Administrator.
(b) Overpayments and Underpayments. If any person has received a payment
from the Plan in excess of the amount (if any) to which he was entitled under
the Plan, then the excess shall be withheld from one or more subsequent payments
to such person (or to any person who derives his rights under the Plan from the
person who received the overpayment); provided that no single periodic payment
under the
<PAGE>
67
Plan shall be reduced by more than twenty-five percent (25%) on account of one
or more prior overpayments. In addition, the Company may employ any other lawful
means to recover overpayments on behalf of the Plan. If any person has received
less than the amount to which he is entitled under the Plan, then the entire
amount of the deficiency shall be paid to him (or to his representative) as soon
as reasonably practicable after the discovery of the underpayment.
(c) Plan Mergers. The Plan shall not merge or consolidate with nor transfer
assets or liabilities to any other plan unless each Participant would receive a
Retirement or Vested Benefit immediately after the merger, consolidation or
transfer (if the Plan then terminated) that is equal to or greater than the
Retirement or Vested Benefit such Participant would have been entitled to
receive immediately before the merger, consolidation or transfer (if the Plan
had then terminated).
(d) Information to Participants. Each Participant shall be given a general
explanation of the Plan and, not more than once in any twelve-month period, upon
written request addressed to the Plan Administrator, shall be furnished with
reasonable information regarding such Participant's rights under the Plan and
all information required by law.
<PAGE>
68
(e) No Right in Trust Fund or to Employment. No person shall have any
rights in or to the Trust Fund, or any part thereof, or under the Plan, except
as, and only to the extent, expressly provided for in the Plan. The
establishment of the Plan, the granting of benefits and any action of any member
of the Affiliated Group or any other person shall not be held or construed to
confer upon any person any right to be continued as an Employee nor, upon
dismissal, to confer any right or interest in the Trust Fund other than as
provided herein. No provision of the Plan shall restrict the right of many
member of the Affiliated Group to discharge any Employee at any time, with or
without cause.
(f) Cessation of Benefit on Reemployment; Suspension of Benefits.
(i) If any Participant is receiving benefits under the Plan and
returns to service as an Employee, payment of his benefits shall cease. The
Years of Service credited to the Participant at the date of his retirement
shall be restored and, on subsequent retirement, the Participant's benefits
shall be paid in accordance with Section 6 or 7, whichever is applicable,
and shall be based on such Participant's Earnings and Years of Service both
before and after the prior retirement; provided, that the Retirement
Benefits payable to the Participant on subsequent retirement shall be
reduced by an amount that reflects the Equivalent Actuarial Value of the
Retirement Benefits previously paid to such Participant.
(ii) Subject to the requirements of Section 9(a), no payment of a
Retirement Benefit shall be made to a Participant during any period of
<PAGE>
69
employment as an Employee on or after his Normal Retirement Date. To the
extent provided in Section 6(d), such a Participant's Retirement Benefit
shall be increased by the Equivalent Actuarial Value of the monthly benefit
payments for each month after the Participant's Normal Retirement Date and
before actual retirement that was not a Suspendible Month, that the
Participant would have received had he retired on his Normal Retirement
Date and commenced receipt of benefits in the form of an individual life
annuity.
(g) Competency to Handle Benefits. If, in the opinion of the Plan
Administrator, any person becomes unable to handle properly any property
distributable to such person under the Plan, the Plan Administrator may make any
reasonable arrangement for distribution on such person's behalf as it deems
appropriate.
(h) False or Erroneous Statements. If any person makes any statement which
is false or erroneous, fails to state or furnish any material fact or
information or fails to correct any such information that has been previously
furnished to the Plan Administrator or any other Participating Company, the
benefits payable with respect to such person shall be adjusted upon the
discovery of the accurate facts, the amount of any payments theretofore made in
reliance on incorrect facts shall be recalculated and the amount of any
overpayment made to any Participant, Spouse, joint annuitant or beneficiary
shall be deducted from succeeding payments or legal action shall be taken to
recover such overpayments, as the Plan Administrator shall determine.
(i) Small Benefits.
<PAGE>
70
(i) If the monthly benefit payable under this Plan would be less than
$50, the Plan Administrator may pay benefits of Equivalent Actuarial Value
on a quarterly, semi-annual or annual basis.
(ii) If an Employee terminates service, and the present value of the
Employee's vested accrued benefit derived from employer contributions is
not greater than $3,500, or, if an Employee dies prior to the date payments
to him have commenced and the present value of any Surviving Spouse
Benefits payable with respect to him is no greater than $3,500, the
Employee or Surviving Spouse (as applicable) will receive a lump sum
distribution of such present value and the nonvested portion of such
benefit will be treated as a forfeiture in the next calendar year following
the date the Participant terminates employment or dies. If the present
value of an Employee's vested accrued benefit is zero, the Employee shall
be deemed to have received a distribution of such vested accrued benefit.
For purposes of this Section 16(i)(ii), the present value of a
Participant's vested accrued benefit and the present value of a Surviving
Spouse Benefit shall be determined on the basis provided in Appendix B with
respect to lump sums as of the date such benefit is a to be paid or, with
respect to a Surviving Spouse Benefit, as of the date the notice by the
Plan Administrator (as described in Section 8(e)) is sent.
(j) Payee's Location Not Ascertainable or Payee Fails To File Claim. In the
event any benefit has been due and payable under this Plan for a period
<PAGE>
71
of more than 60 months and cannot be paid because the location of the payee
cannot be ascertained, or in the event more than 60 months has elapsed since the
date an application for a benefit could have been filed with the Plan
Administrator that would have caused a benefit to be due and payable hereunder,
then the entire amount of any benefit that is or may become payable hereunder
shall constitute a forfeiture; provided, however, in the event the location of
such payee is ascertained, or a claim for benefits is filed, the benefit
forfeited shall be reinstated. In the case of a benefit for which a claim was
filed but the location of the payee could not be ascertained, all back payments,
if any, shall be made in a single lump sum without interest and without any
actuarial adjustment in the amount of the benefit theretofore or thereafter
payable.
(k) Governing Law. This Plan shall be construed in accordance with ERISA
and, to the extent permissible under ERISA, the laws of the State of New York.
(l) Gender and Number. Except where otherwise indicated by the context: (i)
the use of masculine and neuter terminology herein shall also include the
feminine and vice versa; and (ii) the use of singular terminology shall also
include the plural.
<PAGE>
72
SECTION 17. EXECUTION.
To record the amendment and restatement of the Plan to read as set forth
herein, the Company has caused its authorized officers to affix the corporate
name and seal hereto effective as of January 1, 1995.
DEAN WITTER REYNOLDS INC.
By____________________________
<PAGE>
APPENDIX A
Annual Pension Equivalent Per $1.00 Profit Sharing Plan
Benefit As of August 31, 1980
Years From 8/30/80 To
Normal Retirement Date
(To Nearest Year)
-----------------
45 $1.4729
44 1.3895
43 1.3109
42 1.2367
41 1.1667
40 1.1006
39 1.0383
38 .9796
37 .9241
36 .8718
35 .8225
34 .7759
33 .7320
32 .6906
31 .6515
30 .6146
29 .5798
28 .5470
27 .5160
26 .4868
25 .4593
24 .4333
23 .4087
22 .3856
21 .3638
20 .3432
19 .3238
18 .3054
17 .2881
16 .2718
15 .2564
14 .2419
13 .2282
12 .2153
11 .2031
10 .1916
AA-1
<PAGE>
9 .1808
8 .1706
7 .1609
6 .1518
5 .1432
4 .1351
3 .1274
2 .1202
1 .1134
0 .1070
AA-2
<PAGE>
APPENDIX B
DEAN WITTER REYNOLDS INC. PENSION PLAN
ACTUARIAL EQUIVALENTS
a. OPTIONAL FORMS OF ANNUITY - REDUCTION FACTORS
1 Joint and Survivor Annuities
The amount of single life annuity otherwise payable to a Participant shall
be reduced by multiplying it by the factor specified below to determine the
amount payable under an optional form of benefits.
Percentage of Single Life
Benefit Payable to
Participant
-----------
Percentage Continued
to Surviving Spouse 50% 75% 100%
-------------------- --- --- ----
Basic Factor if Spouse is the 90.0% 85.0% 80.0%
same age as Participant
Amount to add for each year that .4% .6% .8%
Spouse is older than Participant
or to subtract for each year that
Spouse is younger than Participant
Maximum Factor 98.0% 97.0% 96.0%
Minimum Factor 80.0% 70.0% 60.0%
2 10 Year Certain and Life
Percentage of Single Life Benefit
Payable: 94%
3 5 Year Certain and Life
Percentage of Single Life Benefit
Payable: 98%
AB-1
<PAGE>
b. LUMP SUMS
Lump sums will be determined on the basis of the following assumptions:
Mortality: Participants - UP-1984 Table.
Spouses or Beneficiaries - UP-1984 Table with ages set back 3
years.
Interest:
The interest rates specified by the Pension Benefit Guaranty
Corporation ("PBGC") in Appendix B of PBGC Regulation
Section 2619, 29 C.F.R. 2619, for determining the present
value of benefits under a terminated pension plan as of the
first day of the Plan Year in which the lump sum payment is
to be made, provided, however, that if the lump sum benefit
so calculated exceeds $25,000 then the interest assumption
used to determine the lump sum benefit shall be 120% of the
above described PBGC interest rates, provided further,
however that no lump sum benefit determined by using an
interest assumption equal to 120% of the PBGC interest rates
shall be less than $25,000.
If the Participant is eligible for a Retirement Benefit, the lump sum will be
the present value of a Retirement Benefit paid in the form of an immediate
annuity commencing as of the date on which the lump sum will be paid. If the
Participant is not eligible for a Retirement Benefit, the lump sum will be the
present value of the Vested Benefit commencing on the Participant's Normal
Retirement Date.
c. REDUCTION FACTORS FOR DISTRIBUTIONS PRIOR TO NORMAL RETIREMENT AGE
A Retirement or Vested Benefit, distribution of which begins prior to
Normal Retirement Date, shall be reduced by multiplying it by the factor
specified below.
Age at Beginning
of Distribution Early Commencement Factor
--------------- -------------------------
60 70%
55 40%
50 25%
45 20%
AB-2
<PAGE>
40 15%
35 10%
30 7%
25 4%
20 3%
15 2%
Reductions are
6% per year from age 55 to age 65
3% per year from age 50 to age 55
1% per year from age 35 to age 50
.6% per year from age 25 to age 35
.2% per year prior to age 25
Minimum Reduction Factor 2%
d. OTHER
For any purpose for which an Equivalent Actuarial Value is not otherwise
specified under the Plan, Equivalent Actuarial Value shall be determined
on the basis of the following assumptions:
Interest: 7%
Mortality: Participants - UP-1984 Table.
Spouse or Beneficiaries - UP-1984 Table with ages set back 3
years.
AB-3
<PAGE>
SUPPLEMENT A
TO THE
DEAN WITTER REYNOLDS INC.
PENSION PLAN
SECTION 1. TOP-HEAVY PROVISIONS.
(a) Determination of Top-Heavy Status. Notwithstanding any other provision
of the Plan to the contrary, the following provisions shall become effective for
any Plan Year after the Plan Year ending December 31, 1983 in which the Plan is
a Top-Heavy Plan.
(b) Minimum Benefit.
(i) Notwithstanding any other provision of the Plan to the contrary
except (ii) and (iii) below, for any Plan Year in which this Plan is a
Top-Heavy Plan, each Participant who is not a Key Employee and who has
completed a Year of Service shall accrue a benefit (to be provided solely
by Participating Company contributions and expressed as a life annuity
commencing at Normal Retirement Age) of not less than two percent of his
highest average Compensation for the five consecutive years for which the
Participant had the highest Compensation. The aggregate Compensation for
the years during such five year period in which the Participant was
credited with a Year of Service will be divided by the number of such years
in order to determine average annual Compensation. The minimum accrual
shall be determined without regard to any contributions made or benefits
available under the Social Security Act, and shall be granted even though,
under other Plan provisions, the Participant would not be entitled to
receive an accrual, or would have received a lesser accrual for the Plan
Year because (A) he failed to make mandatory contributions to the Plan, (B)
he received Compensation in an amount less than the minimum required by the
Plan for a Participant to qualify for a benefit accrual, (C) he was not
employed on the last day of the accrual computation period, or (D) the Plan
is integrated with Social Security.
(ii) No additional benefit accruals shall be provided pursuant to (i)
above to the extent that the total accruals on behalf of the Participant
attributable to Participating Company contributions will provide a benefit
expressed as a life annuity commencing at Normal Retirement Age that equals
or exceeds 20
<PAGE>
percent of the Participant's highest average compensation for the five
consecutive years for which the Participant had the highest compensation.
All accruals of participating Company benefits, whether or not attributable
to years for which the Plan is a Top-Heavy Plan, may be used in computing
whether the minimum accrual requirements of this subsection are satisfied.
(iii) No benefit accruals shall be provided pursuant to (i) above for
any Plan Year in which company contributions and allocable Forfeitures
(and, for any Plan Year commencing on or after January 1, 1985, Basic
Pre-Tax Contributions) equal to five percent or more of the Participant's
Compensation are allocated to the Participant under the Dean Witter
Reynolds Inc. Employee Retirement Investment Plan.
If the form of benefit is other than a single life annuity, the Employee must
receive an amount that is the Equivalent Actuarial Value of the minimum single
life annuity benefit. If the benefit commences at a date other than at Normal
Retirement Age, the Employee must receive at least an amount that is the
Equivalent Actuarial Value of the minimum single life annuity benefit that
commences at Normal Retirement Age. The minimum accrued benefit required (to the
extent required to be nonforfeitable under section 416(b) of the Code) may not
be forfeited under sections 411(a)(3)(B) or 411(a)(3)(D) of the Code.
(c) Minimum Vesting. Notwithstanding any provision of Section 7 of the Plan
to the contrary, if a Participant (other than a Participant who did not complete
any Period of Service after the Plan became a Top-Heavy Plan) terminates
employment with the Affiliated Group before his death or retirement but after he
has completed three or more Years of Service and if such termination occurs
while the Plan is a Top-Heavy Plan, such participant shall be eligible for a
Vested Benefit. The amount of such Vested Benefit on a single-life basis,
commencing as of such Participant's Normal Retirement Date shall be equal to 100
percent of his accrued benefit. If a Participant terminates employment with the
Affiliated Group before his death or retirement, while the Plan is a Top-Heavy
Plan, and before the Participant has completed three Years of Service, such
Participant's vested interest in his accrued benefit shall be the percentage
determined in accordance with Section 7 of the Plan.
(d) Effect of Change in Top-Heavy Status on Vesting. If the Plan is a
Top-Heavy Plan at any time and thereafter ceases to be a Top-Heavy Plan, each
Participant who is credited with three or more Years of Service as of December
31 of the last Plan Year in which the Plan is a Top-Heavy Plan shall thereafter
continue to be 100 percent vested in his accrued benefit. Each Participant who
is credited with fewer than three Years of Service as of December 31 of the last
Plan Year in which the Plan is a Top-Heavy Plan shall have his vested percentage
determined under Section 7 of the Plan (unless and until the Plan again becomes
a Top-Heavy Plan) provided that, as long as such Participant had an Hour of
Service after the Plan became a Top-Heavy Plan, no decrease in a Participant's
nonforfeitable percentage may occur in the event the Plan's status as a
Top-Heavy Plan alters during any Plan Year.
(e) Impact on Maximum Benefits. For any Plan Year in which the Plan is a
Top-Heavy Plan or Super Top-Heavy Plan, the number "1.00" shall be
-A-2-
<PAGE>
substituted for the number "1.25" wherever it appears in section 415(e)(2) and
(3) of the Code; provided, however, that such substitution shall not have the
effect of reducing any benefit accrued under the Plan or any other defined
benefit plan maintained by any member of the Affiliated Group prior to the first
day of the Plan Year in which this provision becomes applicable.
SECTION 2. PLAN DISTRIBUTIONS.
Notwithstanding any other provision of the Plan to the contrary, the
Retirement Benefit of a Participant who is a five percent owner of the Company
(as defined in section 416(i) of the Code) shall commence, recommence or be paid
no later than April l of the Plan Year following the Plan Year in which he
attains age 70-1/2, whether or not he is still an Employee.
-A-3-
<PAGE>
SECTION 3. DEFINITIONS.
For purposes of this Supplement A, the following definitions shall apply:
(a) "Aggregation Group" means a group of qualified plans consisting of:
(i) Each Plan of the Affiliated Group in which a Key Employee
participates, and each other plan of any member of the Affiliated Group
that enables any plan in which a Key Employee participates to meet the
requirements of sections 401(a)(4) and 410 of the Code; or
(ii) All plans of the Affiliated Group included under (i), above,
plus, at the election of the Company, one or more additional plans of the
Affiliated Group that satisfy the requirements of sections 401(a)(4) and
410 of the Code when considered together with the plans included under (i)
above.
(b) "Compensation" means the total compensation actually paid to the
Participant by the Affiliated Group member that employs such Participant, as
reported on the Internal Revenue Service Form W-2 (or its equivalent) issued
with respect to such Participant.
(c)"Determination Date" means, for any Plan Year subsequent to the first
Plan Year, the last day of the preceding Plan Year, and for the first Plan Year
of the Plan, the last day of such year.
(d)"Key Employee" means any Employee or former Employee (and the
beneficiaries of such Employee) who at any time during the Determination Period
was an officer of the Company or Participating Company if such individual's
average Compensation exceeds 50% of the dollar limitation under section
415(b)(1)(A) of the Code, an owner (or considered an owner under section 318 of
the Code) of one of the ten largest interests in the Company or Participating
Company if such individual's Compensation exceeds 100% of the dollar limitation
under section 415(c)(1)(A) of the Code, a 5% owner of the Company or
Participating Company, or a 1% owner of the Company or Participating Company who
has an Annual Compensation of more than $150,000. "Annual Compensation" means
Compensation as defined in section 415(c)(3) of the Code, but including amounts
contributed by the Company or Participating Company pursuant to a salary
reduction agreement which are excludible from the Employee's gross income under
sections 125, 402(a)(8), 402(h) or 403(b) of the Code. The "Determination
Period" is the Plan Year containing the Determination Date and the four
preceding Plan Years. The determination of who is a Key Employee will be made in
accordance with section 416(i) of the Code and the regulations thereunder.
(e) "Permissive Aggregation Group" means the Required Aggregation Group of
plans plus any other plan or plans of the Company or Participating Company
which, when considered as a group.with the Required Aggregation Group, would
continue to satisfy the requirements of sections 401(a)(4) and 410 of the Code.
-A-4-
<PAGE>
(f) "Present Value" shall be specified only using the interest and
mortality rates specified in Appendices A and B.
(g) "Required Aggregation Group" means (1) each qualified plan of the
Company or Participating Company in which at least one Key Employee participates
or participated at any time during the Determination Period (regardless of
whether the plan has terminated), and (2) any other qualified plan of the
Company or Participating Company which enables a plan described in (1) to meet
the requirements of sections 401(a)(4) and 410 of the Code.
(h) "Super Top-Heavy Plan" means a Top-Heavy Plan for which the Top-Heavy
Ratio exceeds 90%.
(i) "Top-Heavy Plan" means, for any Plan Year beginning after December 31,
1983, the Plan if any of the following conditions exist:
(i) If the Top-Heavy Ratio for the Plan exceeds 60% and the Plan is
not part of any Required Aggregation Group or Permissive Aggregation Group
of plans;
(ii) If the Plan is part of a Required Aggregation Group of plans but
not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the
group of plans exceeds 60%; or
(iii) If the Plan is a part of a Required Aggregation Group and part
of a Permissive Aggregation Group of plans and the Top-Heavy Ratio for the
Permissive Aggregation Group exceeds 60%.
(j) "Top-Heavy Ratio" means as follows:
(i) If the Company or Participating Company maintains one or more
defined contribution plans (including any simplified employee pension
plans) and the Company or Participating Company has not maintained any
defined benefit plan which, during the five-year period ending on the
Determination Date(s) has or has had Vested Benefits, the Top-Heavy Ratio
for the Plan alone or for the Required Aggregation Groups or Permissive
Aggregation Groups as appropriate is a fraction, the numerator of which is
the sum of the account balance of all Key Employees as of the Determination
Date(s) (including any part of any account balance distributed in the
five-year period ending on the Determination Date(s)), and the denominator
of which is the sum of all account balances (including any part of any
account balance distributed in the five-year period ending on the
Determination Date(s)), both computed in accordance with section 416 of the
Code and the regulations thereunder. Both the numerator and the denominator
of the Top-Heavy Ratio are increased to reflect any contribution not
actually made as of the Determination Date, but which is required to be
taken into account on that date under section 416 of the Code and the
regulations thereunder.
-A-5-
<PAGE>
(ii) If the Company or Participating Company maintains one or more
defined contribution plans (including any simplified employee pension
plans) and the Company or Participating Company maintains or has maintained
one or more defined benefit plans which, during the five-year period ending
on the Determination Date(s) has or has had any Vested Benefits, the
Top-Heavy Ratio for any Required Aggregation Groups or Permissive
Aggregation Groups as appropriate is a fraction, the numerator of which is
the sum of the account balances under the aggregated defined contribution
plan or plans for all Key Employees, determined in accordance with (i)
above, and the Present Value of accrued benefits under the aggregated
defined benefit plan or plans for all Key Employees as of the Determination
Date(s), and the denominator of which is the sum of the account balances
under the aggregated defined contribution plan or plans for all
Participants, determined in accordance with (i) above, and the Present
Value of accrued benefits under the defined benefit plan or plans for all
Participants as of the Determination Date(s), all determined in accordance
with section 416 of the Code and the regulations thereunder. The accrued
benefits under a defined benefit plan in both the numerator and denominator
of the Top-Heavy Ratio are increased for any distribution of an accrued
benefit made in the five-year period ending on the Determination Date.
(iii) For purposes of (i) and (ii) above, the value of account
balances and the Present Value of accrued benefits will be determined as of
the most recent valuation date that falls within or ends with the
twelve-month period ending on the Determination Date, except as provided in
section 416 of the Code and the regulations thereunder for the first and
second plan years of a defined benefit plan. The account balances and
accrued benefits of a Participant (1) who is not a Key Employee but who was
a Key Employee in a prior year, or (2) who has not been credited with at
least one hour of service with any Company or Participating Company
maintaining the Plan at any time during the five-year period ending on the
Determination Date will be disregarded. The calculation of the Top-Heavy
Ratio, and the extent to which distributions, rollovers, and transfers are
taken into account will be made in accordance with section 416 of the Code
and the regulations thereunder. Deductible Employee contributions will not
be taken into account for purposes of computing the Top-Heavy Ratio. When
aggregating plans the value of account balances and accrued benefits will
be calculated with reference to the Determination Dates that fall within
the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall be
determined under (x) the method, if any, that uniformly applies for accrual
purposes under all defined benefit plans maintained by the Company or
Participating Company, or (y) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under the
fractional rule of section 411(b)(1)(C) of the Code.
(k) "Valuation Date" means the date elected by the Company or Participating
Company as of which account balances or Vested Benefits are valued for purposes
of calculating the Top-Heavy Ratio, which is December 31 of each year.
-A-6-
<PAGE>
SUPPLEMENT B
TO THE
DEAN WITTER REYNOLDS INC.
PENSION PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
Supplement B to the Dean Witter Reynolds Inc. Pension Plan ("Supplement B")
is hereby established effective as of January 1, 1984. The purpose of Supplement
B is to provide supplemental retirement benefits to certain employees who are
transferred from employment with an employer participating in the Sears Pension
Plan, the Allstate Retirement Plan or the NCSI Pension Plan to employment with
the Company. Supplement B is a part of the Plan and shall be administered in
accordance with the provisions thereof, except as expressly provided below.
Capitalized terms used in Supplement B and not defined herein shall have the
same meanings given to such terms in the Plan.
SECTION 2. DEFINITIONS.
(a) "Allstate Retirement Plan" means the Allstate Retirement Plan, as
amended from time to time.
(b) "Sears Pension Plan" means the Sears Pension Plan, as amended from time
to time.
(c) "NCSI Pension Plan" means the NCSI Pension Plan, as amended from time
to time.
(d) "Supplement B Participant" means a Participant described in Section 3
of this Supplement B.
(e) "Supplement B Retirement Benefit" means the benefit payable pursuant to
Section 4 of this Supplement B.
(f) "Sears Employee" means a participant in the Sears Pension Plan.
(g) "Allstate Employee" means a participant in the Allstate Retirement
Plan.
<PAGE>
SECTION 3. ELIGIBILITY.
Each individual who is (or was) a Sears Employee or an Allstate Employee
for at least one calendar year and who is transferred from employment with an
employer participating in the Sears Pension Plan or the Allstate Retirement Plan
to employment for at least one full year with the Company after December 31,
1983, shall be a Supplement B Participant.
SECTION 4. AMOUNT OF SUPPLEMENT B BENEFIT.
(a) Former Sears Employees. Each Supplement B Participant who was a Sears
Employee shall be entitled to an annual Supplement B Retirement Benefit that is
equal to (i) the product of (A) the annual benefit that such Supplement B
Participant would have been entitled to under the Sears Pension Plan, as of the
date of his termination of employment with the Company, if his Years of Service
with the Company constituted "service" and his Earnings constituted
"compensation" for all purposes under such Plan, multiplied by (B) the ratio of
such Supplement B Participant's Years of Service credited for benefit purposes
under the Sears Pension Plan divided by the total Years of Service that would
have been credited for benefit purposes under the Sears Pension Plan if service
with the Company had been counted as service with Sears, minus (ii) the benefit
payable to the Supplement B Participant from the Sears Pension Plan.
(b) Former Allstate Employees. Each Supplement B Participant who was an
Allstate Employee shall be entitled to an annual Supplement B Retirement Benefit
that is equal to (i) the product of (A) the annual benefit that such Supplement
B Participant would have been entitled to under the Allstate Retirement Plan, as
of the date of his termination of employment with the Company, if his Years of
Service with the Company constituted "service" and his Earnings constituted
"compensation" for all purposes under such Plan, multiplied by (B) the ratio of
such Supplement B Participant's Years of Service credited for benefit purposes
under the Allstate Retirement Plan divided by the total Years of Service that
would have been credited for benefit purposes under the Allstate Retirement Plan
if service with the Company had been counted as service with Allstate, minus
(ii) the benefit payable to the Supplement B Participant from the Allstate
Retirement Plan.
(c) Former NCSI Employees. Each Supplement B Participant who was an SCFC
Employee shall be entitled to an annual Supplement B Retirement Benefit that is
equal to (i) the product of (A) the annual benefit that such Supplement B
participant would have been entitled to under the NCSI Pension Plan, as of the
date of his termination of employment with the Company, if his Years of Service
with the Company constituted "service" and his Earnings constituted
"compensation" for all purposes under such Plan, multiplied by (B) the ratio of
such Supplement B Participant's Years of Service credited for benefit purposes
under the NCSI Pension Plan divided by the total Years of Service that would
have been credited for benefit purposes under the NCSI Pension Plan if service
with the Company had been counted as service with NCSI, minus (ii) the benefit
payable to the Supplement B participant from the NCSI Pension Plan.
-B-2-
<PAGE>
SECTION 5. TIME AND FORM OF PAYMENT.
A Participant's Supplement B Retirement Benefit shall be payable at the
same time and in the same form as his Normal, Early or Disability Retirement
Benefit or Vested Benefit under the Plan.
SECTION 6. SURVIVING SPOUSE BENEFITS.
Any Surviving Spouse Benefit that may be payable to the surviving spouse of
a married Participant pursuant to Section 8 of the Plan shall be calculated by
taking into account any Supplement B Retirement Benefit payable with respect to
such Participant.
-B-3-
<PAGE>
EXHIBIT 10.2
EXECUTION COPY
NOVUS CREDIT SERVICES INC. PENSION PLAN
Effective January 1, 1986
Amended and Restated as of April 10, 1996
<PAGE>
NOVUS CREDIT SERVICES INC. PENSION PLAN
ARTICLE I
SECTION I-1
Introduction
I-1.1. The Plan. NOVUS Credit Services Inc. Pension Plan (formerly known as
the Sears Consumer Financial Corporation Pension Plan) (the "Plan") is
established by NOVUS Credit Services Inc. (formerly known as Sears Consumer
Financial Corporation) (the "company") to provide retirement and other benefits
for eligible employees. The provisions of Articles I and II of the plan apply to
the employees described in subsection II-I.1 of the plan. The provisions of
Articles I and III of the plan apply to the employees described in subsection
III-1.1 of the plan, and constitute an amendment, restatement and continuation
of the Allstate Retirement Plan (the "Allstate plan") as applied to certain of
such employees. The plan was initially adopted as of January 1, 1986 and amended
on ten occasions thereafter, the most recent such amendment having been adopted
on April 10, 1996. This document fully sets forth the terms and conditions of
the plan as of April 10, 1996.
2
<PAGE>
I-1.2. Effective Date, Plan Year. The effective date of the plan is January
1, 1986. A "plan year" is the 12-month period beginning on January 1, and ending
on the next following December 31.
I-1.3. Employers. Any corporation or other entity may adopt the plan with
the company's consent, as described in subsection I-3.1. The company and any
other entity which adopts the plan are referred to below collectively as the
"employers" and sometimes individually as an "employer".
I-1.4. Administration of the Plan. The plan is administered by a plan
committee (the "committee") consisting of three or more persons appointed by the
company, as described in Section 1-2. Any notice or document required to be
given to or filed with the committee will be properly given or filed if
delivered or mailed, by registered mail, postage prepaid, to the committee, in
care of the company, at Riverwoods, Illinois.
I-1.5. Funding of Benefits. Funds contributed under the plan will be held
and invested, until distribution, by a trustee (the "trustee") in accordance
with the terms of a trust agreement between the company and the trustee which
implements and forms a part of the plan. Copies of the plan and trust agreement,
and any amendments thereto, will be on file at the office of the company and of
each other employer which adopts the plan where they may be
3
<PAGE>
examined by any participant or other person entitled to benefits under the
plan. The provisions of and benefits under the plan are subject to the terms and
provisions of the trust agreement.
I-1.6. Plan Supplements. The provisions of the plan may be modified by
supplements to the plan. The terms and provisions of each supplement are a part
of the plan and supersede the provisions of the plan to the extent necessary to
eliminate inconsistencies between the plan and the supplement.
4
<PAGE>
SECTION I-2
The Committee
I-2.1. Membership. A committee consisting of three or more persons (who may
but need not be employees of the employers) shall be appointed by the company.
The company shall certify to the trustee from time to time the appointment to
(and termination of) office of each member of the committee and the person who
is selected as secretary of the committee.
I-2.2. Committee's General Powers, Rights and Duties. Except as otherwise
specifically provided and in addition to the powers, rights and duties
specifically given to the committee elsewhere in the plan and the trust
agreement, the committee shall have the following powers, rights and duties: (a)
To select a secretary, if it believes it advisable, who may but need not be a
committee member.
(b) To construe and interpret the provisions of the plan and make factual
determinations thereunder, including the discretionary power to
determine the rights or eligibility of employees or participants and
any other persons, and the amounts of their benefits under the plan,
and to remedy ambiguities, inconsistencies or omissions, and such
determinations shall be binding on all parties.
(c) To adopt such rules of procedure and regulations as in its opinion may
be necessary for the proper and efficient administration of the plan
as are consistent with the plan and trust agreement.
(d) To enforce the plan in accordance with the terms of the plan and the
trust agreement and
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<PAGE>
the rules and regulations adopted by the committee as above.
(e) To direct the trustee as respects payments or distributions from the
trust fund in accordance with the provisions of the plan.
(f) To furnish the employers with such information as may be required by
them for tax or other purposes in connection with the plan.
(g) To employ agents, attorneys, accountants, actuaries or other persons
(who also may be employed by the employers) and to allocate or
delegate to them such powers, rights and duties as the committee may
consider necessary or advisable to properly carry out administration
of the plan, provided that such allocation or delegation and the
acceptance thereof by such agents, attorneys, accountants, actuaries
or other persons, shall be in writing.
I-2.3. Manner of Action. During a period in which two or more committee
members are acting, the following provisions apply where the context admits:
(a) A committee member by writing may delegate any or all of his rights,
powers, duties and discretions to any other member, with the consent
of the latter.
(b) The committee members may act by meeting or by writing signed without
meeting, and may sign any document by signing one document or
concurrent documents.
(c) An action or a decision of a majority of the members of the committee
as to a matter shall be as effective as if taken or made by all
members of the committee.
(d) If, because of the number qualified to act, there is an even division
of opinion among the committee members as to a matter, a disinterested
party selected by the committee shall decide the matter and his
decision shall control.
(e) Except as otherwise provided by law, no member of the committee shall
be liable or responsible
6
<PAGE>
for an act or omission of the other committee members in which the
former has not concurred.
(f) The certificate of the secretary of the committee or of a majority of
the committee members that the committee has taken or authorized any
action shall be conclusive in favor of any person relying on the
certificate.
I-2.4. Interested Committee Member. If a member of the committee also is a
participant in the plan, he may not decide or determine any matter or question
concerning distributions of any kind to be made to him or the nature or mode of
settlement of his benefits unless such decision or determination could be made
by him under the plan if he were not serving on the committee.
I-2.5. Resignation or Removal of Committee Members. A member of the
committee may be removed by the company at any time by ten days' prior written
notice to him and the other members of the committee. A member of the committee
may resign at any time by giving ten days' prior written notice to the company
and the other members of the committee. The company may fill any vacancy in the
membership of the committee; provided, however, that if a vacancy reduces the
membership of the committee to less than three, such vacancy shall be filled as
soon as practicable. The company shall give prompt written notice thereof to the
other members of the committee. Until any such vacancy is filled, the remaining
members may exercise all of the powers, rights and duties conferred on the
committee.
7
<PAGE>
I-2.6. Committee Expenses. All costs, charges and expenses reasonably
incurred by the committee will be paid by the employers in such proportions as
the company may direct. No compensation will be paid to a committee member as
such.
I-2.7. Information Required by Committee. Each person entitled to benefits
under the plan must file with the committee from time to time in writing such
person's post office address and each change of post office address. Any
communication, statement or notice addressed to any person at the last post
office address filed with the committee will be binding upon such person for all
purposes of the plan. Each person entitled to benefits under the plan also shall
furnish the committee with such documents, evidence, data or information as the
committee considers necessary or desirable for the purpose of administering the
plan. The employers shall furnish the committee with such data and information
as the committee may deem necessary or desirable in order to administer the
plan. The records of the employers as to an employee's or participant's period
of employment, hours of service, termination of employment and the reason
therefor, leave of absence, reemployment and earnings will be conclusive on all
persons unless determined to the committee's satisfaction to be incorrect.
I-2.8. Uniform Rules. The committee shall administer the plan on a
reasonable and nondiscriminatory basis and shall apply uniform rules to all
persons similarly situated.
8
<PAGE>
I-2.9. Review of Benefit Determinations. The employers will provide notice
in writing to any participant or beneficiary whose claim for benefits under the
plan is denied and the committee shall afford such participant or beneficiary a
full and fair review of its decision if so requested.
I-2.10. Committee's Decision Final. Subject to applicable law, any
interpretation of the provisions of the plan and any decisions on any matter
within the discretion of the committee made by the committee in good faith shall
be binding on all persons. A misstatement or other mistake of fact shall be
corrected when it becomes known and the committee shall make such adjustment on
account thereof as it considers equitable and practicable.
SECTION I-3
General Provisions
I-3.1. Additional Employers. Any corporation or other entity may adopt the
plan and become a party to the trust agreement by:
(a) Filing with the committee a written instrument to that effect; and
(b) Filing with the committee a written instrument executed by the company
consenting to such action.
I-3.2. Action by Employers. Any action required or permitted to be taken by
an employer under the plan shall be by resolution of its Board of Directors, by
resolution of a duly
9
<PAGE>
authorized committee of its Board of Directors, or by a person or persons
authorized by resolution of its Board of Directors or such committee.
I-3.3. Waiver of Notice. Any notice required under the plan may be waived
by the person entitled to such notice.
I-3.4. Gender and Number. Where the context admits, words in the masculine
gender shall include the feminine and neuter genders, the singular shall include
the plural, and the plural shall include the singular.
I-3.5. Controlling Law. Except to the extent superseded by laws of the
United States, the laws of Illinois shall be controlling in all matters relating
to the plan.
I-3.6. Employment Rights. The plan does not constitute a contract of
employment, and participation in the plan will not give any employee the right
to be retained in the employ of any employer, nor any right or claim to any
benefit under the plan, unless such right or claim has specifically accrued
under the terms of the plan.
I-3.7. Litigation by Participants. If a legal action begun against the
trustee, an employer or the committee or any member thereof by or on behalf of
any person results adversely to that person, or if a legal action arises because
of conflicting claims to a participant's or other person's benefits, the cost to
the trustee, the employers or the committee or any member thereof of defending
the action will be charged to the
10
<PAGE>
extent permitted by law to the sums, if any, which were involved in the action
or were payable to the person concerned.
I-3.8. Interests Not Transferable. The interests of persons entitled to
benefits under the plan are not subject to their debts or other obligations and,
except as may be required by the tax withholding provisions of the Internal
Revenue Code or any state's income tax act or pursuant to a qualified domestic
relations order as defined in Section 414(p) of the Internal Revenue Code, may
not be voluntarily or involuntarily sold, transferred, alienated, assigned or
encumbered.
I-3.9. Absence of Guaranty. Neither the committee nor the employers in any
way guarantee the trust fund from loss or depreciation. Except as required by
applicable law, the employers do not guarantee any payment to any person. The
liability of the trustee, the employers or the committee to make any payment
pursuant to the plan is limited to the assets held by the trustee which are
available for that purpose.
I-3.10. Evidence. Evidence required of anyone under the plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
I-3.11. Actuarial Equivalent. Except as otherwise provided by law, a
benefit shall be actuarially equivalent to any other benefit if the actuarial
reserve required to provide the same is equal to the actuarial reserve required
to provide such
11
<PAGE>
other benefit, computed on the basis of the actuarial rates, tables and
procedures specified in Supplement A. No adjustment in a determination of an
actuarially equivalent value or amount shall be made if such tables, rates and
procedures are changed subsequent to such determination.
I-3.12. Indemnification. To the extent permitted by law, neither any
present or former committee member nor any person who is or was a director,
officer, or employee of an employer, shall be personally liable for any act done
or omitted to be done in good faith in the administration of the plan. Any
employee of an employer to whom the committee or the company has delegated any
portion of its responsibilities under the plan, any person who is or was a
director or officer of an employer, members and former members of the committee,
and each of them, shall, to the extent permitted by law, be indemnified and
saved harmless by the employers (to the extent not indemnified or saved harmless
under any liability insurance or other indemnification arrangement with respect
to the plan or this trust) from and against any and all liability or claim of
liability to which they may be subjected by reason of any act done or omitted to
be done in good faith in connection with the administration of the plan,
including all expenses reasonably incurred in their defense if the employers
fail to provide such defense after having been requested to do so in writing.
I-3.13. Successors. The term "employer" as used in the plan includes any
entity that continues the plan in effect;
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<PAGE>
and, if the employer concerned is the company, the term "company" also shall
include such entity.
I-3.14. Severability. If any provision of the plan is held to be illegal or
invalid, such illegality or invalidity shall not affect the remaining provisions
of the plan, and they shall be construed and enforced as if such illegal or
invalid provision had never been inserted therein.
I-3.15. Statutory References. Any references in the plan to a Section of
the Internal Revenue Code of 1954 (the "Code"), the Employee Retirement Income
Security Act of 1974 ("ERISA") or the Tax Equity and Fiscal Responsibility Act
of 1982 ("TEFRA") shall include any comparable section or sections of any future
legislation which amends, supplements or supersedes said Section.
13
<PAGE>
SECTION I-4
Contributions
I-4.1. Employer Contributions. Subject to the provisions of Section I-5,
the employers expect and intend to contribute to the plan from time to time such
amounts as shall be required under accepted actuarial principles to maintain the
plan in a sound condition. Notwithstanding the foregoing, each employer's
contribution for a plan year is conditioned on its deductibility under Section
404 of the Internal Revenue Code in that year.
I-4.2. Participant Contributions. No participant will be required or
permitted to make any contributions under the plan.
I-4.3. Minimum Funding Standards. The employers shall maintain a funding
standard account which shall be credited with contributions and gains and
charged with costs and losses for each plan year in accordance with Sections 412
and 413(c)(4) of the Internal Revenue Code of 1986. Employer contributions to
the plan for each plan year shall be made by such times and in such amounts as
are required by said Sections 412 and 413(c)(4).
I-4.4. Application of Forfeitures. Forfeitures arising under the plan for
any reason shall not be used to increase the benefit any person otherwise would
be entitled to receive under the plan at any time prior to termination of the
plan or prior to the complete discontinuance of contributions by
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<PAGE>
his employer. The amounts so forfeited with respect to any employer shall be
used to reduce the employer's contributions under the plan.
I-4.5. No Interest in Employers. The employers shall have no right, title
or interest in the trust fund, nor shall any part of the trust fund revert or be
repaid to an employer, directly or indirectly, unless: (a) the Internal Revenue
Service initially determines that the plan, as applied to such employer, does
not meet the requirements of Section 401(a) of the Internal Revenue Code of
1954, in which event the contributions made to the plan by such employer shall
be returned to it;
(b) all liabilities under the plan shall have been paid or provided for in
full and assets remain in the trust fund that are attributable to
contributions made by an employer because of erroneous actuarial
computations, in which event such remaining assets shall revert and be
repaid to that employer;
(c) a contribution is made by such employer by mistake of fact and such
contribution is returned to the employer within one year after payment
to the trustee; or
(d) a contribution conditioned on the deductibility thereof is disallowed
as an expense for federal income tax purposes and such contribution
(to the extent disallowed) is returned to the employer within one year
after the disallowance of the deduction.
The amount of any contribution that may be returned to an employer pursuant
to subparagraph (c) or (d) above must be reduced by any losses of the trust fund
allocable thereto.
SECTION I-5
Amendment and Termination
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I-5.1. Amendment. While the employers expect and intend to continue the
plan, the company reserves the right to make, from time to time, any amendment
or amendments to all or any part of the plan, including amendments which are
retroactive in effect. Such amendment or amendments may be effected by action of
the company's Board of Directors (the "Board"). Also, the Board has specifically
authorized the Compensation Committee of the Board to take such actions.
Notwithstanding the foregoing: (a) The duties and liabilities of the committee
cannot be changed substantially without its consent;
(b) No amendment shall reduce the value of a participant's benefits to
less than the amount he would be entitled to receive if he had
resigned from the employ of all of the employers on the day of the
amendment;
(c) Except as provided in subsection I-4.5, under no condition shall an
amendment result in the return or repayment to any employer of any
part of the trust fund or the income from it or result in the
distribution of the trust fund for the benefit of anyone other than
persons entitled to benefits under the plan; and
(d) If an amendment changes the plan's vesting schedule, then each
participant whose nonforfeitable percentage of the participant's
accrued benefit is determined under such schedule and who has
completed at least three years of service, may elect, within 60 days
after the latest of the date the amendment is adopted, the date the
amendment takes effect or the date the participant receives written
notice of the amendment from the company or the plan administrator, to
have the nonforfeitable percentage of the participant's accrued
benefit determined without regard to the amendment, provided however,
that no such election shall be provided for any participant whose
nonforfeitable percentage of the participant's accrued benefit under
the plan as amended, at
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any time, cannot be less than such percentage determined without
regard to such amendment.
I-5.2. Termination.The plan is intended to be permanent, but the company
reserves the right to terminate the plan, in whole or in part, at any time. Such
termination may be effected by action of the Board. Also the Board has
specifically authorized the Compensation Committee of the Board to take such
action. (a) The date it is terminated by that employer if 30 days' advance
written notice of the termination is given to the committee, the trustee and the
other employers.
(b) The date that employer is judicially declared bankrupt or insolvent.
(c) The date that employer completely discontinues its contributions under
the plan (a mere failure of the employer to make a contribution for
any year shall not be considered as a discontinuance so long as the
plan does not have an accumulated funding deficiency under Section 412
of the Internal Revenue Code as applied to that employer at the end of
such year).
(d) The dissolution, merger, consolidation or reorganization of that
employer, or the sale by that employer of all or substantially all of
its assets, except that:
(i) in any such event arrangements may be made, at the discretion of
the committee, whereby the plan, as applied to the employees of
that employer, may be continued by any successor to that employer
or any purchaser of all or substantially all of its assets, in
the form of a separate plan maintained by such successor or
purchaser; and
(ii) if an employer is merged, dissolved or in any other way
reorganized into, or consolidated with, any other
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employer, the plan as applied to the former employer will
automatically continue in effect without a termination thereof.
I-5.3. Nonforfeitability on Termination. On termination or partial
termination of the plan, the rights of all affected participants to benefits
accrued to the date of such termination or partial termination shall be
nonforfeitable; but each such participant's recourse toward satisfaction of his
benefits shall be limited, and shall be payable only to the extent his benefits
are funded as of such date or from the Pension Benefit Guaranty Corporation
("PBGC"). The committee, in its discretion, may provide for full vesting in such
other circumstances as it shall deem appropriate.
I-5.4. Notice of Amendment or Termination. Participants will be notified of
an amendment or termination of the plan within a reasonable time. If the plan is
to be terminated by an employer, the committee shall file appropriate notice
with the PBGC.
I-5.5. Plan Merger, Consolidation, etc. In the case of any merger or
consolidation with, or transfer of assets or liabilities to, any other plan,
each participant's benefit if the plan terminated immediately after such merger,
consolidation or transfer shall be equal to or greater than the benefit he would
have been entitled to receive if the plan had terminated immediately before the
merger, consolidation or transfer.
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I-5.6. Allocation and Distribution of Assets on Termination. On termination
of the plan as respects all employers, the committee will direct the allocation
and distribution of the trust fund. After payment of any expenses of
administration and liquidation, the assets remaining in the trust fund shall be
allocated and distributed to participants; retired or terminated participants,
and other persons entitled to benefits under the plan, to the extent of the
sufficiency of such assets, in accordance with the provisions of Section 4044 of
the Employee Retirement Income Security Act of 1974 ("ERISA"), as it may be
amended from time to time; and any assets remaining after all benefits have been
paid or provided for in full shall revert to the employers. Distribution may be
made in cash or property or partly in each, provided property is distributed at
its fair market value as of the date of distribution as determined by the
trustee. If the committee so determines, and with the consent of the company,
the benefits distributable to any participant under this subsection I-5.6 who is
employed by an employer may be retained in the trust fund until the
participant's employment with the employers is terminated. Distributions made
under this subsection I-5.6 shall be subject to the provisions of subsection
II-5.1, II-5.2, II-5.5, III-5.1, III-5.2 or III-5.5, whichever is applicable.
I-5.7. Application of Certain Plan Provisions. In the event that the plan
is a multiple employer plan within the meaning of Section 413(c) of the Internal
Revenue Code of 1986,
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the provisions of the plan shall be applied consistently with said Section
413(c) and the regulations thereunder.
SECTION I-6
Restrictions On Benefits Paid To
Highly Compensated Employees
I-6.1. In the event of a plan termination, the benefit of any highly
compensated employee shall be limited to a benefit that is nondiscriminatory
under Code section 401(a)(4).
I-6.2. In any plan year, the payment of benefits to or on behalf of a
highly compensated employee who is one of the 25 highest paid highly compensated
employees shall not exceed an amount equal to the payments that would be made to
or on behalf of such highly compensated employee in that plan year under:
(a) a straight life annuity that is the actuarial equivalent of the
accrued benefit and other benefits, if any, to which such highly
compensated employee is entitled under the plan (other than a social
security supplement); and
(b) the amount of the payments that such highly compensated employee is
entitled to receive under a social security supplement, if any.
I-6.3. The restrictions set forth in Section I-6.2 shall not apply if:
(a) after payment of all benefits payable to or on behalf of a highly
compensated employee described
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in Section I-6.2, the value of plan assets equals or exceeds 110% of
the value of current liabilities, as defined under Code section
412(l)(7) and determined under any reasonable and consistent method;
or
(b) the value of the benefits payable to or on behalf of such highly
compensated employee is less than 1% of the value of current
liabilities before distribution, as defined under Code section
412(l)(7) and determined under any reasonable and consistent method;
or
(c) the value of the benefits payable to or on behalf of such highly
compensated employee does not exceed $3,500 and has never exceeded
$3,500 at the time of any prior distribution.
I-6.4. For purposes of this Section I-6, the term "benefit" includes any
benefit described in the plan, loans, if any, in excess of the amount set forth
in Code section 72(p)(2)(A), any periodic income, any withdrawal values payable
to a living employee and any death benefits not provided for by insurance on a
participant's life.
I-6.5. A benefit which is otherwise restricted under Section I-6.2 may
nevertheless be distributed in full to an affected highly compensated employee
if, prior to receipt of the restricted amount, the highly compensated employee
enters into a written agreement with the plan administrator, in a form
satisfactory to the plan administrator to secure repayment of the restricted
amount. The restricted amount is the excess of the
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amounts distributed to the highly compensated employee (accumulated with
reasonable interest) over the amounts that could have been distributed to such
highly compensated employee under the straight life annuity described in
Subsection I-6.2(a) (accumulated with reasonable interest).
I-6.6. The following definitions shall apply to this Section I-6 of the
plan:
"Determination year" means a plan year.
"Family member" means a spouse, lineal ascendent, lineal descendent or
spouse of a lineal ascendent or lineal descendent of a highly compensated
employee.
"Five percent owner" means any person who owns (or is considered as owning
within the meaning of Code sectionE318) more than five percent of the
outstanding stock of a controlled group member or stock possessing more than
five percent of the total combined voting power of all stock of a controlled
group member or, in the case of an unincorporated business, any person who owns
more than five percent of the capital or profits interest in a controlled group
member. In determining percentage of ownership hereunder, controlled group
members that would otherwise be aggregated under Code sections 414(b), (c), (m)
and (o) shall be treated as separate employers.
"Highly compensated active employee" means any individual who is an
employee during the determination year and who, during the look-back year:
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(1) received earnings in excess of $75,000 (as adjusted pursuant to Code
section 415(d));
(2) received earnings in excess of $50,000 (as adjusted pursuant to Code
section 415(d)) and was a member of the top paid group; or
(3) was an officer of any member of the controlled group and received
earnings greater than 50% of the dollar limitation in effect under Code section
415(b)(l)(A) provided that the number of employees classified as officers
hereunder shall not exceed the lesser of (i) 50 or (ii) the greater of three or
10% of all employees and further provided that if no officer satisfies the
compensation requirement set forth herein during either the look-back year or
the determination year the highest paid officer for such year shall be a highly
compensated active employee.
In determining who is a highly compensated active employee, the company may
elect to substitute $50,000 for $75,000 in (1) above and not apply (2) above
provided that the controlled group maintains significant business activities in
at least two significantly separate geographic areas and meets such other
requirements as the Secretary of the Treasury may prescribe.
The term "highly compensated active employee" shall also include:
(4) An employee who is both (i) described in 1, 2 or 3 above if the term
"determination year" is substituted for
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the term "look-back year" and (ii) one of the 100 employees who received the
most earnings during the determination year;
(5) An employee who is a five percent owner at any time during the
determination year or the look-back year; or
(6) An employee who during a determination year or a look-back year is a
family member of either (i) a five percent owner who is an active or former
employee or (ii) a highly compensated active employee who is one of the ten
employees who received the most earnings during such year provided, however,
that the family member and the five percent owner or top ten highly compensated
employee shall be treated as a single highly compensated active employee whose
earnings, benefits and contributions is the sum of such compensation, benefits
and contributions of the family member and the five percent owner or top ten
highly compensated employee.
"Highly compensated employee" means a highly compensated active employee or
a highly compensated former employee.
"Highly compensated former employee" means a former employee who terminated
employment prior to the determination year and was a highly compensated active
employee in the year of termination of employment or in any Determination Year
after attaining age 55. Notwithstanding the foregoing, an employee who
terminated employment prior to 1987 will be treated as a highly compensated
former employee only if during the year (or year preceding the termination) or
any year after the employee attains
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<PAGE>
age 55 (or the last year ending before the employee's 55th birthday), the
employee either received earnings in excess of $50,000 (as adjusted pursuant to
Code section 415(d)) or was a five percent owner. Highly compensated former
employees shall be treated as highly compensated employees. The method set forth
in this section for determining who is a highly compensated former employee
shall be applied on a uniform and consistent basis for all purposes for which
the Code section 414(q) definition is applicable.
"Look-back year" means the 12 month period immediately preceding a
determination year.
"Top paid group" means the top 20% percent of employees who performed
services for the controlled group during the applicable year ranked according to
the amount of earnings received from the controlled group during such year. For
purposes of this definition leased employees shall be considered employees
unless such leased employees are covered by a plan described in Code section
414(n)(5) and are not covered in any qualified plan maintained by the controlled
group. Employees who are nonresident aliens and who received no earned income
within the meaning of Code section 911(d)2) from the controlled group
constituting United States source income within the meaning of Code section
861(a)(3) shall not be treated as employees. Additionally, for the purpose of
determining the number of active employees in any year the following additional
employees shall also be excluded; however, such employees shall still be
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considered for the purpose of identifying the particular employees in the top
paid group:
(1) Employees with less than six months of service;
(2) Employees who normally work less than 17 1/2 hours per week;
(3) Employees who normally work less than six months during a year;
(4) Employees who have not yet attained age 21 years; and
(5) except to the extent provided in regulations, employees who are
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 any member of the controlled group. Notwithstanding the
foregoing, for purposes of determining whether an individual is a highly
compensated employee or a member of the top paid group, earnings shall be
determined without regard to the limits imposed by Code section 401(a)(17).
SECTION I-7
Leased Employees
A leased employee (as defined below) shall not be eligible to participate
in the plan. A "leased employee" means any person who is not an employee of an
employer but who has provided services to an employer of a type which have
historically (within the business field of the employers) been provided by
employees, on a substantially full time basis for a
26
<PAGE>
period of at least one year, pursuant to an agreement between an employer and a
leasing organization. The period during which a leased employee performs
services for an employer shall be taken into account for purposes of
participation and vesting under the plan if such leased employee becomes an
employee of an employer, unless (i)such leased employee is a participant in a
money purchase pension plan maintained by the leasing organization which
provides a non-integrated employer contribution rate of at least 10 percent of
compensation, immediate participation for all employees and full and immediate
vesting, and (ii) leased employees do not constitute more than 20 percent of the
employers' nonhighly compensated work force.
SECTION I-8
Plan Benefits for Participants who
Terminated Employment Prior to
January 1, 1989
The benefits provided under this plan with respect to any participant who
retired or whose employment with the employers otherwise terminated prior to
January 1, 1989 will, except as otherwise specifically provided herein, be
governed in all respects by the terms of the plan as in effect as of the date of
the participant's retirement or other termination of employment.
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ARTICLE II
SECTION II-1
Participation and Retirement Dates
II-1.1. Employee. For purposes of this Article II, the term "employee"
shall mean an employee of an employer or controlled group member who: (a) is
employed in the United States of America; and (b) was either (i) hired after
January 1, 1985, or (ii) hired on or before that date but not employed by an
employer on January 1, 1986.
II-1.2. Participation. Subject to the conditions and limitations of the
plan, each employee of an employer who is a participant in the plan immediately
preceding January 1, 1988 will continue as a participant on and after that date.
Beginning January 1, 1988 and subject to the provisions of Supplement F, each
other employee of an employer will become a participant in the plan on the first
day of the plan year during which he meets both of the following requirements:
(a) He has attained age 21 years; and
(b) He has completed a year of service (as defined below).
An employee shall be entitled to a "year of service" if he has completed 1,000
hours of service during the 12-month period ending on his employment anniversary
date. An "employment anniversary date" means any anniversary of the employee's
date of hire by an employer or controlled group member.
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II-1.3. Hour of Service. An "hour of service" means each hour for which an
employee is directly or indirectly paid or entitled to payment by an employer or
controlled group member for the performance of duties and for reasons other than
the performance of duties, including each hour for which back pay, irrespective
of mitigation of damages, has been either awarded or agreed to by an employer or
controlled group member, determined and credited in accordance with Department
of Labor Reg. Sec. 2530.200b-2.
II-1.4. Normal Retirement Date. A participant's "normal retirement date"
will be the first day of the month coincident with or next following the date he
attains age 65 years (his "normal retirement age"). A participant's right to his
normal retirement benefit shall be nonforfeitable on and after his normal
retirement age.
II-1.5. Early Retirement Date. The "early retirement date" of a participant
who was first hired on or before January 1, 1991 will be the first day of the
month coincident with or next following the date of his retirement from the
employ of all of the employers before his normal retirement date but after he
has both attained age 55 years and completed 20 or more years of vesting
service. The "early retirement date" of a participant who was first hired after
January 1, 1991 will be the first day of the month coincident with or next
following the date of his retirement from the employ of all of the employers
29
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before his normal retirement date but after he has both attained age 55 years
and completed 10 or more years of vesting service.
II-1.6. Deferred Retirement Date. A participant's "deferred retirement
date" will be the first day of the month coincident with or next following the
date of his retirement from the employ of all of the employers after his normal
retirement date.
II-1.7. Retirement Date. A participant's "retirement date" will be one of
the dates described above as of which his retirement from the employ of the
employers occurs.
II-1.8. Leave of Absence. A "leave of absence" for plan purposes means an
absence from work which is not treated by the employers as a termination of
employment or which is required by law to be treated as a leave of absence.
Leaves of absence will be granted under employer rules applied uniformly to all
employees similarly situated.
II-1.9. Controlled Group Member. A "controlled group member" means:
(a) any corporation which is not an employer but is a member of a
controlled group of corporations (within the meaning of Section
1563(a) of the Internal Revenue Code, determined without regard to
Sections 1563(a)(4) and 1563(e)(3)(C) thereof) which contains an
employer; or
(b) any trade or business (whether or not incorporated) which is under
common control with an employer (within the meaning of Section 414(c)
of the Internal Revenue Code).
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II-1.10. Employment with Controlled Group Member. If a participant is
transferred from employment with an employer to employment with a controlled
group member then, for the purpose of determining when his retirement date
occurs under this Section II-1 or when his date of termination of employment
with the employers occurs under Section II-4, his employment with such
controlled group member (or any controlled group member to which he is
subsequently transferred) shall be considered as employment with the employers.
SECTION II-2 Bases of Benefits II-2.1. General. Vesting service shall be applied
to determine a participant's eligibility for benefits under the plan, but not
for the purpose of computing the amount of such benefits. Benefit service shall
be applied to compute the amount of a participant's benefits under the plan. A
participant's retirement income or deferred vested benefit will be based on his
benefit service and his final average earnings, both as determined in accordance
with the provisions hereof.
II-2.2. Vesting Service. A participant's "vesting service" means the total
of his years of service computed in accordance with the following rules:
(a) A participant will be entitled to 1/12th of a year of vesting service
for each calendar month (or portion thereof) during which he is
employed by an employer or controlled group member.
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(b) All periods of employment (whether or not continuous) will be
aggregated in computing a participant's vesting service.
(c) A period of leave of absence will be included in determining a
participant's vesting service.
(d) In no event will a participant be entitled to more than 1/12th of a
year of vesting service for any calendar month.
II-2.3. Benefit Service. A participant's "benefit service" shall be
determined in accordance with the following rules: (a) A participant who was a
participant in the plan on December 31, 1987 will be entitled to a full or
fractional year of benefit service for each full or fractional year of benefit
service to which he was entitled under the plan prior to January 1, 1988, in
accordance with the terms of the plan in effect prior to that date, but
including service after the participant's normal retirement date.
(b) Beginning January 1, 1988, a participant who was first hired on or
before January 1, 1991 shall be entitled to 1/12th of a year of
benefit service for each calendar month (or portion thereof) after
December, 1987 during which he is employed by an employer.
(c) A participant who was first hired after January 1, 1991 shall be
entitled to 1/12th of a year of benefit service for each calendar
month (or portion thereof) after he has completed one year of vesting
service during which he is employed by an employer.
(d) Except as required by law or provided by the committee in a
nondiscriminatory manner, any period of unpaid leave of absence in
excess of twelve months will be disregarded in computing a
participant's benefit service.
II-2.4. Earnings. A participant's "earnings" means the total cash
compensation paid to the participant for services
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rendered to the employers as an employee, including pre-tax employee deposits
under any qualified profit sharing or stock bonus plan maintained by an
employer, and, beginning January 1, 1995, compensation deferred under the Dean
Witter, Discover & Co. Tax Deferred Equity Participation Plan, the SPS
Transaction Services, Inc. Tax Deferred Equity Participation Plan (the "TDEPPs")
or the Dean Witter, Discover & Co. Capital Accumulation Plan ("CAP") in the year
such deferrals are made, but excluding such items as awards and prizes, lump sum
payments for vacations earned but not taken, supper money, foreign allowances,
service allowances, retainers, special geographic differentials, medical expense
reimbursements, retirement or profit sharing benefits, long-term disability
benefit payments, payments or reimbursements in connection with moving expenses,
awards under any long-term executive compensation plans other than the TDEPPS or
CAP, one-time annual awards for special merit or achievement, performance units
or restricted share awards under any incentive compensation plans, dividends
paid on such restricted shares, the value of stock options or stock appreciation
rights and cash payments received pursuant to stock options, any incremental
increases or earnings under deferred compensation plans including but not
limited to the TDEPPs and CAP, payments or withdrawals from any deferred
compensation plan including but not limited to the TDEPPs and CAP, amounts paid
after death, disability or retirement, employer-paid premiums on any insurance
plan, employer contributions under any profit sharing, profit
33
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participation or stock plans, or any other similar types of compensation which
may be specifically excluded by action of the committee.
Effective January 1, 1989, compensation for any year in excess of $200,000
(or such greater amount as may be determined by the Commissioner of Internal
Revenue for that year) shall be disregarded in determining the amount of a
participant's earnings; provided, that the limitations of this sentence shall
not reduce the benefit accrued as of December 31, 1988, determined under the
terms of the plan as then in effect as though the participant had terminated
employment on that date.
In addition to other applicable limitations set forth in the plan and
notwithstanding any other provisions of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual earnings of each participant
taken into account under the plan shall not exceed the OBRA `93 annual
compensation limit. The OBRA `93 compensation limit is $150,000, as adjusted by
the Commissioner of Internal Revenue for increases in the cost-of-living in
accordance with section 401(a)(17)(D) of the Code. The cost-of-living adjustment
in effect for a calendar year applies to any period not exceeding 12 months over
which compensation is determined (the 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
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<PAGE>
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 earnings for any prior determination period are taken into account in
determining a participant's benefits accruing in the current plan year, the
earnings for that prior determination period are subject to the OBRA `93 annual
compensation limit in effect for that 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.
Unless otherwise provided under the plan, each section 401(a)(17)
employee's accrued benefit under this plan will be the greater of the accrued
benefit determined for the employee under (a) or (b) below:
(a) the employee's accrued benefit determined with respect to the benefit
formula applicable for the plan year beginning on or after January 1, 1994, as
applied to the employee's total years of service taken into account under the
Plan for the purposes of benefit accruals, or
(b) the sum of:
(i) the employee's accrued benefit as of the last day of the last plan
year beginning before January 1, 1994,
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<PAGE>
frozen in accordance with section 1.401(a)(4)-13 of the regulations and
(ii) the employee's accrued benefit determined under the benefit
formula applicable for the plan year beginning on or after January 1, 1994,
as applied to the employee's years of service credited to the employee for
plan years beginning on or after January 1, 1994, for purposes of benefit
accruals.
A section 401(a)(17) employee means a participant whose current accrued
benefit as of a date on or after the first day of the first plan year beginning
on or after January 1, 1994, is based on earnings for a year beginning prior to
the first day of the first plan year beginning on or after January 1, 1994, that
exceeded $150,000.
II-2.5. Final Average Earnings. The "final average earnings" of a
participant shall be the monthly average of the earnings paid to him during the
5 consecutive calendar years for which his earnings were highest within the last
10 consecutive calendar years immediately preceding his retirement date or
earlier termination of employment (or the monthly average of earnings for the
entire period of his employment if such period is less than 5 calendar years).
Such average shall be computed by dividing the total of the participant's
earnings for such 5 calendar year period (or shorter total period of employment
if applicable) by the number of months within that period for which he had
earnings.
SECTION II-3
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Amount of Retirement Income
II-3.1. Accrued Benefit. Subject to the provisions of subsection II-3.9 and
Supplement F, a participant's accrued benefit under the plan is a monthly
retirement income, commencing on the participant's normal retirement date and
payable during his lifetime, in an amount equal to the sum of:
(a) a "Base Benefit" equal to 1.10% of the participant's final average
earnings (as defined in subsection II-2.5) multiplied by his number of
years of benefit service; plus
(b) an "Additional Benefit" equal to 0.65% of the participant's excess
earnings (as defined in subsection II-3.6) multiplied by his number of
years of benefit service (not exceeding 35 years).
The amount of monthly retirement income determined under this subsection II-3.1
will be subject to reduction if the participant is to receive a joint and
survivor annuity under subsection II-5.1. In no event shall the amount of a
participant's monthly retirement income be less than his accrued benefit as of
December 31, 1988 (determined under the terms of the plan as then in effect as
though the participant had terminated employment on that date).
II-3.2. Normal Retirement. A participant who retires on his normal
retirement date will be entitled to a monthly retirement income computed in
accordance with subsection II-3.1, commencing on his normal retirement date and
payable in accordance with subsection II-5.1.
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II-3.3. Deferred Retirement. A participant who retires on a deferred
retirement date will be entitled to a monthly retirement income, commencing on
the earlier of his deferred retirement date or his required commencement date
(as defined in subsection II-5.6), and payable in accordance with subsection
II-5.1. The amount of his monthly retirement income will be computed in
accordance with subsection II-3.1, but shall be actuarially increased to reflect
the aggregate amount of monthly retirement income payments which were not paid
to such participant for those calendar months (if any) beginning on or after his
normal retirement date during which he completed less than 40 hours of service.
If payment of a participant's monthly retirement income begins prior to
retirement on his required commencement date, then: (a) the amount of any
additional retirement income that otherwise would be accrued by the participant
after that date shall be reduced (but not below zero) by the actuarial
equivalent of the retirement income payments made to the participant after that
date; and (b) the amount of retirement income payable to the participant shall
be adjusted, as of each subsequent January 1, to reflect the additional
benefits, if any, accrued by the participant during the immediately preceding
calendar year. In no event shall the amount of monthly retirement income payable
to a participant under this subsection II-3.3 be less than the monthly
retirement income the participant would have received had he retired on his
normal retirement date.
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II-3.4. Early Retirement - Deferred Payment. A participant who retires on
an early retirement date will be entitled to a monthly retirement income,
commencing on his normal retirement date and payable in accordance with
subsection II-5.1, computed in accordance with subsection II-3.1 (as in effect
as of his early retirement date) and based on his final average earnings at his
early retirement date.
II-3.5. Early Retirement - Immediate Payment. In lieu of receiving the
monthly retirement income otherwise payable under subsection II-3.4 commencing
on his normal retirement date, a participant who retires on an early retirement
date may elect a monthly retirement income commencing on his early retirement
date, or on the first day of any calendar month thereafter before his normal
retirement date. Such monthly retirement income will be computed in accordance
with subsection II-3.4, but shall be reduced as follows: (a) the Base Benefit
shall be reduced: (i) by 0.4% thereof for each month by which commencement
precedes the first day of the month coincident with or next following the date
the participant would have attained age 63 years, if the participant was first
hired on or before January 1, 1991; or (ii) by 5/12ths of 1% thereof for each
month by which commencement precedes the participant's normal retirement date,
if the participant was first hired after January 1, 1991; and (b) the Additional
Benefit shall be reduced by 2/3rds of 1% thereof for each of the first 36 months
and by 1/3rd of 1% thereof for each
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month in excess of 36 by which commencement precedes the participant's normal
retirement date. Each election under this subsection II-3.5 must be in writing
and filed with the committee at such time prior to the date earlier payment of
the participant's retirement income is to begin as the committee shall
determine. In no event shall the monthly retirement income payable to a
participant who retires on an early retirement date be less than the amount that
would have been payable under the terms of the plan in effect on December 31,
1988 if the participant had retired on that date.
II-3.6. Excess Earnings. A participant's "excess earnings" means the
excess, if any, of his final average earnings over his covered compensation (as
defined below). A participant's "covered compensation" is the monthly average of
the Social Security taxable wage bases in effect for each of the 35 calendar
years ending with the year the participant attains (or would attain) Social
Security retirement age, assuming that the Social Security taxable wage base for
future years is the same as the Social Security taxable wage base in effect for
the current year.
II-3.7. Benefit Limitations, Notwithstanding any other provisions of the
plan, a participant's monthly retirement income or monthly deferred vested
benefit as of the end of any plan year may not exceed an amount which is
equivalent to a retirement income or deferred vested benefit payable for life
only (not taking into account that portion of any joint and
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survivor annuity which constitutes a qualified joint and survivor annuity under
the Internal Revenue Code), equal to $7,500 per month (or such greater amount as
may be determined by the Commissioner of Internal Revenue for calendar years
ending after December 31, 1987 which begin with or within that plan year). If
payment of a participant's monthly retirement income or deferred vested benefit
begins before he attains the social security retirement age, such limitation
shall be reduced so that it is equivalent to a monthly benefit of $7,500
commencing at the social security retirement age. If payment of a participant's
monthly retirement income begins after he attains the social security retirement
age, such limitation shall be increased so that it is equivalent to a monthly
benefit of $7,500 commencing at the social security retirement age. For purposes
of adjusting amounts under this subsection II-3.7, the interest rate assumption
shall be the greater (or the lesser, in the case of benefits beginning after the
social security retirement age) of 5% or the rate specified in Supplement A for
determining actuarial equivalence. In the case of a participant with less than
10 years of participation in the plan, the foregoing limitation shall be
multiplied by a fraction, the numerator of which shall be the participant's
number of full and fractional years of participation in the plan (but not less
than 1) and the denominator of which shall be 10. The preceding sentence shall
be applied separately with respect to each change in the benefit structure of
the plan. In no event shall a participant's monthly
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retirement income as of the end of any plan year exceed 100% of his average
compensation for his high three years. A participant's "average compensation for
his high three years" means his average monthly compensation during that period
of three consecutive calendar years of his service with the employers (or during
his actual number of years of service if less than three such years) in which
his aggregate compensation from the employers was the greatest. For purposes of
this subsection II-3.7, a participant's "compensation" means his total cash
compensation for services rendered to the employers as an employee, determined
in accordance with Section 415(c)(3) of the Internal Revenue Code and the
regulations thereunder. The provisions of this subsection II-3.7 shall not
reduce the monthly retirement income or deferred vested benefit of any
participant below such participant's accrued benefit as of December 31, 1986
(determined under the terms of the plan as in effect on May 5, 1986 as though
the participant had terminated employment on December 31, 1986).
II-3.8. Combined Benefit Limitations. If a participant in this plan also is
a participant in a defined contribution plan maintained by an employer, the
aggregate benefits payable to, or on account of, him under both plans will be
determined in a manner consistent with Section 415 of the Internal Revenue Code
and Section 1106 of the Tax Reform Act of 1986. Accordingly, there will be
determined with respect to the participant a defined benefit plan fraction and a
defined
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contribution plan fraction in accordance with said Sections 415 and 1106. The
benefits provided for the participant under this plan will be adjusted to the
extent necessary so that the sum of such fractions determined with respect to
the participant does not exceed 1.0.
II-3.9. Minimum Benefit for Transferred Participants. In no event shall the
monthly retirement income or deferred vested benefit payable under this Article
II of the plan to (or on account of) a transferred participant (as defined in
subsection II-3.10) be less than the amount determined as follows:
(a) First, the amount of retirement income that would be payable to
(or on account of) such transferred participant under the plan and
each related plan (as defined below) will be calculated using the
transferred participant's period of continuous service with all
employers and controlled group members (disregarding any period his
employer was not an employer or controlled group member), rather than
his benefit service (or such other denominated service which is used
in calculating benefits under any related plan), and using his
compensation from all employers and controlled group members in
determining his final average earnings;
(b) Next, the respective amounts calculated for the plan and each
related plan under subparagraph (a) next above will be multiplied by a
fraction, the numerator of which shall be that portion of the
transferred participant's continuous service which consisted of
employment covered by the plan, or such related plan, as the case may
be, and the denominator of which shall be his total period of
continuous service; and
(c) Finally, the amount of retirement income payable under the plan to (or
on account of) a
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transferred participant shall not be less than the excess of:
(i) the sum of the amounts calculated under subparagraph (b) next
above; minus
(ii) the sum of the amounts of retirement income that are payable to
(or on account of) such transferred participant under all related
plans.
If a transferred participant dies while employed by an employer, death benefits
will be payable in accordance with the provisions of Section 11-6 of the plan.
The amount of such death benefit will be based upon the amount of retirement
income that would have been payable to the deceased transferred participant in
accordance with the provisions of this subsection II-3.9. A "related plan" means
a defined benefit pension plan maintained by a controlled group member under
which retirement benefits are based upon final average (rather than career
average) earnings. For purposes of this subsection II-3.9, a transferred
participant who, prior to January 1, 1989, participated in the Allstate plan,
shall have the amount of retirement income payable under the Allstate plan
calculated by reducing the base benefit portion of such transferred
participant's post-1988 Allstate plan benefit by 0.4% thereof for each month by
which the commencement of such transferred participant's benefit payments
precedes the first day of the month coincident with or next following the date
such transferred participant would have attained age 60 years. For purposes of
this subsection II-3.9, a transferred participant who, either on October 1, 1995
or, if later, the participant's
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retirement date, is a highly compensated employee and who participated in the
Sears plan prior to such participant's transfer shall have the amount of
retirement income payable under the Sears plan calculated by reducing the
pre-1978 benefit portion of such transferred participant's Sears plan benefit by
5/12ths of 1% for each month by which the commencement of such transferred
participant's benefit payments precedes the first day of the month coincident
with or next following the date such transferred participant would have attained
age 63 years. For purposes of this subsection II-3.9, the amount of retirement
income payable to a transferred participant under the Allstate or Sears plans
shall be calculated without regard to any exclusion of the portion of a prior
service element based upon earnings in years after 1988, provided, however, that
the amount of such post-1988 earnings taken into account for purposes of this
sentence shall not exceed the OBRA `93 annual compensation limit, as defined in
subsection II-2.4, applied to all years after 1988 with the OBRA `93 annual
compensation limit in effect for 1995 deemed to have been in effect for the
years 1989 through 1993, inclusive.
II-3.10. Transferred Participant. For purposes of this Article II, a
"transferred participant" is a participant: (a) who, after January 1, 1986,
either:
(i) is employed by an employer within twelve months after his
termination of employment with all employers and controlled group
members, or
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(ii) is transferred directly to employment with an employer, at the
request of a controlled group member or by mutual agreement, and
without any termination of employment with all employers and
controlled group members; and
(b) who, prior to such employment or transfer, was employed by a
controlled group member and, while so employed, was a participant in a
related plan; and
(c) who, with respect to any such employment or transfer occurring after
December 31, 1987, completes at least twelve months of continuous
service with an employer immediately following such employment or
transfer; and
(d) who again terminates employment with all employers and controlled
group members for any reason (including death) and under conditions
entitling him (or his spouse or any other person) to a retirement
income under the plan; and
(e) whose last period of continuous service was with an employer; and
(f) who is not receiving (and has not received) retirement benefits from a
related plan.
II.3.11. Minimum Normal or Deferred Retirement Benefit. In no event shall a
participant's normal or deferred retirement benefit be less than the largest
early retirement benefit the participant could have received under subsection
II-3.5 if he had retired on an early retirement date.
SECTION II-4
Termination of Employment Before Retirement
II-4.1. Monthly Deferred Vested Benefit. A participant whose employment
with all of the employers is terminated for any reason other than his death
before he
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qualified for retirement on an early retirement date, but after he has completed
five or more years of vesting service, will be entitled to a monthly deferred
vested benefit commencing on his normal retirement date and payable in
accordance with subsection II-5.1. The amount of his monthly deferred vested
benefit will be computed in accordance with subsection II-3.1 (as in effect at
the date that his employment with the employers terminated) and will be based on
the participant's final average earnings at the date his employment with the
employers terminated.
II-4.2. Early Commencement of Benefit. A participant who is entitled to a
monthly deferred vested benefit under subsection II-4.1, who was first hired on
or before January 1, 1991 and who has completed 20 or more years of vesting
service may elect to have such benefit commence as of the first day of any month
after he attains age 55 years but before his normal retirement date. Such
deferred vested benefit shall be computed in accordance with subsection II-4.1,
but shall be reduced as follows: the Base Benefit shall be reduced by 0.4%
thereof for each month by which commencement precedes the participant's normal
retirement date, and the Additional Benefit shall be reduced by 2/3rds of 1%
thereof for each of the first 36 months and by 1/3rd of 1% thereof for each
month in excess of 36 by which commencement precedes the participant's normal
retirement date. A participant who is entitled to a monthly deferred vested
benefit under subsection II-4.1 and who was first hired after January 1, 1991
may elect to have such benefit commence as of the
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first day of any month after he attains age 55 years but before his normal
retirement date. Such deferred vested benefit shall be computed in accordance
with subsection II-4.1, but shall be reduced to the percentage thereof
determined under the following table:
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Age at Percentage
Commencement of Benefits
of Benefits Payable
65 100.00%
64 88.83
63 79.11
62 70.62
61 63.19
60 56.67
59 50.92
58 45.84
57 41.34
56 37.34
55 33.78
The foregoing percentages will be adjusted proportionately for fractional parts
of a year. Each election under this subsection II-4.2 must be in writing and
filed with the committee at such time prior to the date earlier payment of the
participant's monthly deferred vested benefit is to begin as the committee shall
determine.
SECTION II-5
Payment of Benefits
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II-5.1. Form of Payment. Except as otherwise specifically provided, payment
of monthly retirement income and monthly deferred vested benefits shall be made
to a participant as follows:
(a) Life Annuity. A participant who is not legally married on the
date as of which such payments commence, or a participant who
prior to that date elects under subparagraph (c) below not to
receive his monthly retirement income or monthly deferred vested
benefit in the form of a joint and survivor annuity, shall
receive a monthly retirement income or monthly deferred vested
benefit in accordance with the plan payable during his lifetime,
with the last payment to be made for the month in which his death
occurs.
(b) Joint and Survivor Annuity. A participant who is legally married
on the date as of which such payments commence and who had not
made an election in accordance with subparagraph (c) below shall
receive a joint and survivor annuity which is actuarially
equivalent to the amount of monthly retirement income or monthly
deferred vested benefit otherwise payable to him in accordance
with the plan on a life annuity basis. Such joint and survivor
annuity shall consist of a reduced monthly retirement income or
monthly deferred vested benefit continuing during the
participant's lifetime, and if the participant's spouse is living
at the date of the participant's death, payment of one-half of
such reduced monthly retirement income or monthly deferred vested
benefit to such spouse until the spouse's death occurs, with the
last payment to be made for the month of the death of the last to
die of the participant and his spouse.
(c) Election to Waive Joint and Survivor Annuity. A Participant may
make a written election to waive the joint and survivor annuity
at any time during the 90-day period ending on the date payment
of his benefits commences. Such an election will be effective
only if the participant's spouse consents to the election in
writing, and such consent acknowledges the effect of the waiver
and is witnessed by a
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notary public. Within a reasonable period of time prior to the
date a participant begins to receive benefits under the plan, the
committee shall furnish him with a written explanation of the
terms and conditions of the joint and survivor annuity under
subparagraph (b) above; the participant's right to make, and the
effect of, an election to waive the joint and survivor annuity;
the requirement of spousal consent to such a waiver; and the
participant's right to make, and the effect of, a revocation of
such a waiver. An election under this subparagraph may be revoked
by a participant at any time prior to the date payment of his
benefits commences.
For purposes of this subsection II-5.1, a participant's spouse means the spouse
to whom the participant was married at the date payment of his benefits
commenced. II-5.2. Optional Forms of Payment. In lieu of the form and amount of
retirement income specified in subsection
II-5.1, a participant before his retirement date may elect a retirement
benefit in one of the following forms which is actuarially equivalent to the
form of payment specified in subparagraph II-5.1(a): (a) A retirement benefit
payable for 10 years certain and for the lifetime thereafter of the retired
participant entitled thereto.
(b) In the case of a participant first hired on or before January 1,
1991, a retirement benefit payable during the joint lifetime of
the retired participant and his spouse, with the provision that
upon the death of either the participant or his spouse, payments
equal to 50% of such benefit shall be continued during the
lifetime of the survivor.
(c) A retirement benefit payable during the retired participant's
lifetime, with the provision that after his death, payments equal
to 100% of such benefit shall be continued during the lifetime
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of the participant's spouse, if such spouse survives him.
(d) In the case of a participant first hired on or before January 1,
1991, a retirement benefit payable during the retired
participant's lifetime; provided that if the participant dies
within 10 years after payments commence, payment of such benefit
will continue to his spouse (or to his beneficiary if his spouse
is not then living) for the balance of such 10-year period; and
provided further that if the participant's spouse is living at
the end of such 10-year period (or the date of the participant's
death, if later), payment of 50% of such benefit will continue to
such spouse until the spouse's death occurs.
(e) In the case of a participant first hired after January l, 1991, a
retirement benefit payable during the retired participant's
lifetime; provided that after his death, payments equal to 100%
of such benefit shall be continued during the lifetime of the
participant's primary beneficiary, if such primary beneficiary
survives him; and provided further that if the participant and
his primary beneficiary both die within 10 years after payments
commence, payment of such benefit will continue to his secondary
beneficiary for the balance of such 10-year period.
(f) In the case of a participant first hired after January 1, 1991, a
retirement benefit payable during the retired participant's
lifetime; provided that: (i) if the participant's beneficiary is
living at the date of the participant's death, payment of 50% or
100% (as the participant has elected) of such benefit will
continue to such beneficiary until the beneficiary's death
occurs; or (ii) if the participant is living at the date of his
beneficiary's death, the participant's benefit will thereafter be
increased to the amount he would have received had his benefits
been payable in the form specified in subparagraph II-5.1(a).
(g) A lump sum payment; provided that the participant met one of the
following requirements at the time of his termination of
employment with the employers:
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(i) He was first hired on or before January 1, 1991;
(ii) His retirement income payable as a life annuity commencing
at age 65 was less than $150 per month;
(iii) He had both attained age 55 years and completed 20 or more
years of vesting service; or
(iv) He had both attained age 60 years and either (A) completed
10 or more years of vesting service, or (B) was born prior
to January 1, 1930.
(h) A retirement benefit in such other form as shall be established
by the committee which meets the requirements of Section
401(a)(9) of the Internal Revenue Code and is offered to
participants on a nondiscriminatory basis. An election of an
option under this subsection II-5.2 must be in writing, signed by
the participant, and filed with the committee at such time and in
such manner as the committee shall determine; and will be
effective only if the participant's spouse, if any, consents to
an election under subparagraphs (a), (e), (f), (g) or (h) above
in writing, and such consent acknowledges the effect of the
election and is witnessed by a notary public. Payment of an
optional form of retirement income will commence no later than
the date on which the participant's monthly retirement income
would otherwise commence, and shall comply with the requirements
of Section 401(a)(9) of the Internal Revenue Code and the
regulations thereunder.
II-5.3. Facility of Payment. When a person entitled to benefits under the
plan is under legal disability, or, in the committee's opinion, is in any way
incapacitated so as to be unable to manage his financial affairs, the committee
may direct the trustee to pay the benefits to such person's legal
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representative, or to a relative or friend of such person for such person's
benefit, or the committee may direct the application of such benefits for the
benefit of such person. Any payment made in accordance with the preceding
sentence shall be a full and complete discharge of any liability for such
payment under the plan.
II-5.4. Missing Persons. Neither the committee nor any employer is required
to search for or locate any person entitled to benefits under the plan.
II-5.5. Lump Sum Payment of Accrued Benefits. If the present value of (a) a
participant's entire nonforfeitable accrued benefit under the plan, or (b) the
death benefit payable under subsection II-6.1 or II-6.2 of the plan, does not
exceed $3,500, the trustee shall, in accordance with such rules as the committee
may establish, pay such present value to the participant (or in the event of his
death, to his surviving spouse or beneficiary) in a lump sum upon his
termination of employment. For purposes of this subsection II-5.5, if the
present value of a participant's entire nonforfeitable accrued benefit under the
plan is zero, the participant shall be deemed to have received a distribution of
such nonforfeitable accrued benefit. If the present value of a death benefit
payable under subsection II-6.1 or II-6.2 of the plan exceeds $3,500, the
participant's surviving spouse or beneficiary may elect, in accordance with such
rules as the committee may establish, to have such present value paid in a lump
sum. For purposes of this
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subsection II-5.5, a present value shall be determined as of the date of
distribution by using the interest rate specified in Supplement A, but not
greater than: (i) the applicable rate (as defined below) if the present value
(using such rate) does not exceed $25,000; or (ii) 120% of the applicable rate
if the present value (using the applicable rate) exceeds $25,000; provided that
a present value determined by using 120% of the applicable rate may never be
less than $25,000. The term "applicable rate" means the interest rate which
would be used (as of the first day of the plan year that contains the date of
distribution) by the Pension Benefit Guaranty Corporation for purposes of
determining the present value of a lump sum distribution on plan termination.
Notwithstanding the provisions of subsection II-7.1, if a participant who
received a lump sum payment under subsection II-5.2 or II-5.5 is subsequently
reemployed by an employer, his years of employment before his termination of
employment shall be disregarded in determining his benefit service under the
plan.
II-5.6. Commencement of Benefits. Payment of a participant's retirement
income must commence by April 1 of the calendar year next following the calendar
year in which the participant attains age 70-1/2 (his "required commencement
date"); provided, however, that the required commencement date of a participant
who is not a five percent owner and who attained age 70-1/2 prior to January 1,
1988 shall be April 1 of the calendar year next following the later of the
calendar year
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in which he attained age 70-1/2 or the calendar year in which he retires, and
the required commencement date of a participant who attained age 70-1/2 in
calendar year 1988 shall be April 1, 1990.
II-5.7. Optional Direct Rollover of Eligible Rollover Distributions.
(i) This Section II-5.7 applies to distributions made on or after
January 1, 1993. Notwith-standing any provision of the plan to
the contrary that would otherwise limit a distributee's election
under this Section, a distributee may elect, at the time and in
the manner prescribed by the plan administrator, to have any
portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct
rollover.
(ii) For purposes of this Section II-5.7 the following definitions
shall apply:
(A) "Eligible rollover distribution" means any distribution of
all or any portion of the balance to the credit of the
distributee, other than: any distribution that is one of a
series of substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint
life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten
years or more; any distribution to the extent such
distribution is required under Code section 401(a)(9); and
the portion of any distribution that is not includible in
gross income.
(B) "Eligible retirement plan" means an individual retirement
account described in Code section 408(a), an individual
retirement annuity described in Code section 408(b), an
annuity plan described in Code section 403(a), or a
qualified trust described in Code section 401(a), that
accepts the distributee's eligible rollover distribution.
However, in the
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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" means an employee of former employee. In
addition, the employee's or former employee's surviving
spouse and the employee's or former employee's spouse or
former spouse who is the alternate payee under a qualified
domestic relations order, as defined in Code section 414(p),
are distributees with regard to the interest of the spouse
or former spouse.
SECTION II-6
Death Benefits
II-6.1. Spouse's Benefit. A death benefit shall be payable to the spouse of
a participant, subject to and determined in accordance with the following terms
and conditions:
(a) Eligibility. A monthly spouse's benefit shall be payable on
behalf of a participant who, at the date of his death:
(i) was married;
(ii) had either attained age 65 years or was entitled to a
deferred vested benefit under subsection II-4.1; and
(iii) had not begun to receive benefits under the plan.
(b) Amount. The spouse's benefit shall be in an amount
determined as follows:
(i) If, at the date of his death, the participant had
attained age 65 years, the spouse's benefit shall be
equal to the amount of monthly retirement income,
computed pursuant to subsection II-3.2, to which the
participant would have been entitled if the first day
of the month coincident with or next following the date
of his death were his retirement date and his benefits
were payable in the form
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specified in subparagraph II-5.2(c) of the plan.
(ii) If, at the date of his death, the participant either: (A) was
employed by an employer and had met the early retirement
requirements of subsection II-1.5; or (B) had retired on an early
retirement date after both attaining age 55 years and completing
20 years of vesting service, the spouse's benefit shall be equal
to the amount of monthly retirement income, computed pursuant to
subsection II-3.5, to which the participant would have been
entitled if the first day of the month coincident with or next
following the date of his death were his early retirement date
(or his benefit commencement date in the case of a retired
participant) and his benefits were then payable in the form
specified in subparagraph II-5.2(c) of the plan.
(iii)If, at the date of his death, the participant had not met the
requirements set forth in subparagraphs (b)(i) and (ii) above,
the spouse's benefit shall be equal to 50% of the amount of
monthly retirement income computed pursuant to subsection II-3.5
or monthly deferred vested benefit computed pursuant to
subsection II-4.2, whichever is applicable, to which the
participant would have been entitled if his benefits were payable
in the form specified in subparagraph II-5.1(b) of the plan
commencing on the first day of the month coincident with or next
following his date of death.
(c) Payment. Payment of the spouse's benefit shall commence as of the
first day of the month coincident with or next following the date
of the participant's death or, if the participant's spouse so
elects, the date the participant would have attained age 65
years, and shall end with the month in which the participant's
spouse dies.
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II-6.2. Death Benefit for Unmarried Participants. A death benefit shall be
payable to the beneficiary of a participant who is not covered by the spouse's
benefit under subsection II-6.1, subject to and determined in accordance with
the following terms and conditions: (a) Eligibility. A monthly death benefit
shall be payable on behalf of a participant who, at the date of his death:
(i) was not married;
(ii) had either attained age 65 years or was entitled to a
deferred vested benefit under subsection II-4.1; and
(iii) had not begun to receive benefits under the plan.
(b) Amount. The death benefit shall be in an amount determined as
follows:
(i) If, at the date of his death, the participant had attained
age 65 years, the death benefit shall be equal to the amount
of monthly retirement income, computed pursuant to
subsection II-3.2, to which the participant would have been
entitled if the first day of the month coincident with or
next following the date of his death were his retirement
date and his benefits were payable in the form specified in
subparagraph II-5.2(a) of the plan.
(ii) If, at the date of his death, the participant either: (A)
was employed by an employer and had met the early retirement
requirements of subsection II-1.5; or (B) had retired on an
early retirement date after both attaining age 55 years and
completing 20 years of vesting service, the death benefit
shall be equal to the amount of monthly retirement income,
computed pursuant to subsection II-3.5, to which the
participant would have been entitled if the first day of the
month coincident
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with or next following the date of his death were his early
retirement date (or his benefit commencement date in the
case of a retired participant) and his benefits were then
payable in the form specified in subparagraph II-5.2(a) of
the plan.
(iii) If, at the date of his death, the participant had not met
the requirements set forth in subparagraphs (b)(i) and (ii)
above and either: (A) was employed by an employer; or (B)
was first hired on or before January 1, 1991, the death
benefit shall be equal to the amount of monthly retirement
income computed pursuant to subsection II-3.5 or monthly
deferred vested benefit computed pursuant to subsection
II-4.2, whichever is applicable, to which the participant
would have been entitled if his benefits were payable in the
form specified in subparagraph II-5.1(a) of the Plan
commencing on the first day of the month coincident with or
next following his date of death.
(c) Payment. Payment of the death benefit shall commence as of the
first day of the month coincident with or next following the date
of the participant's death or, if the participant's beneficiary
so elects, the date the participant would have attained age 65
years, and shall end: (A) with the 120th monthly payment, in the
case of benefits payable under subparagraphs (b)(i) and (ii)
above; and (B) with the 60th monthly payment, in the case of
benefits payable under subparagraph (b)(iii) above.
II-6.3. Death After Commencement of Benefits. The death benefits, if any,
of a participant who dies after commencement of his benefits under the plan are
those specified under the form in which his benefits were being paid.
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II-6.4. Designation of Beneficiary. Each participant from time to time, by
signing a form furnished by the committee, may designate any person or persons
(who may be designated concurrently, contingently or successively) to whom any
death benefits payable under subsection II-6.2 are to be distributed. A
beneficiary designation form will be effective only when the form is filed with
the committee while the participant is alive and will cancel all beneficiary
designation forms previously filed with the committee. If a deceased participant
failed to designate a beneficiary as provided above, or if the designated
beneficiary dies before the participant or before complete payment of such death
benefits, the participant's benefits shall be paid as follows:
(a) If the participant was employed by an employer at the date of his
death, to the beneficiary or beneficiaries designated by the
participant under his employer's group term life insurance plan
or, if none, to the beneficiary or beneficiaries designated by
the participant under his employer's tax-qualified defined
contribution plan.
(b) If the participant was not employed by an employer at the date of
his death, or if there are no beneficiaries designated under
subparagraph (a) above, to the legal representative or
representatives of the estate of the participant.
SECTION II-7
Reemployment
II-7.1. Breaks in Employment. If an employee's or participant's employment
with the employers should terminate and such employee or participant is
subsequently reemployed by an
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employer, then: (a) the vesting service and benefit service to which he was
entitled at the time of termination shall be reinstated; (b) if such
reemployment occurs within twelve months following his termination of
employment, the period between his date of termination and date of reemployment
shall be included in his vesting service and benefit service; and (c) if he had
met the requirements of subsection II-1.2 at his date of termination, he will
become a participant in the plan upon his date of reemployment.
II-7.2. Subsequent Employment. If a former participant who is receiving a
monthly retirement income or monthly deferred vested benefit is reemployed by an
employer on or after his required commencement date, his benefits shall continue
to be paid to him under the plan during his period of reemployment. Except as
provided in the following sentence, if a former participant who is receiving, or
is entitled to receive, a monthly retirement income or monthly deferred vested
benefit is reemployed by an employer prior to his required commencement date, no
benefits shall be payable to him under the plan during his period of
reemployment (except as required by subsection II-5.6), and any benefits payable
under the plan to him thereafter shall be determined in accordance with the plan
as then in effect, shall take into account the benefits to which he was entitled
prior to reemployment, and shall be actuarially adjusted to reflect any benefits
he previously received. If a former participant who is receiving a monthly
retirement income or
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monthly deferred vested benefit is reemployed by an employer as a part-time
employee, more than 60 days after his earlier termination of employment, and
prior to his required commencement date, his benefits shall continue to be paid
to him under the plan during his period of reemployment; such benefits shall be
recomputed after his period of reemployment ends in accordance with the terms of
the plan as then in effect (taking into account the benefits to which he was
entitled prior to reemployment); and such benefits shall be actuarially adjusted
to reflect the benefits he previously received.
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ARTICLE III
SECTION III-1
Participation and Retirement Dates
III-1.1. Employee. For purposes of this Article III, the term "employee"
shall mean an employee of an employer or controlled group member who: (a) is
employed in the United States of America; and (b) was both (i) hired on or
before January 1, 1985, and (ii) employed by an employer on January 1, 1986.
III-1.2. Participation. Subject to the conditions and limitations of the
plan, each employee of an employer who is a participant in the plan immediately
preceding January 1, 1988 will continue as a participant on and after that date.
Beginning January 1, 1988, each other employee of an employer will become a
participant in the plan on the first day of the plan year during which he meets
both of the following requirements:
(a) He has attained age 21 years; and
(b) He has completed a year of service (as defined below).
An employee shall be entitled to a "year of service" if he has completed 1,000
hours of service during the 12-month period ending on his employment anniversary
date. An "employment anniversary date" means any anniversary of the employee's
date of hire by an employer or controlled group member.
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III-1.3. Hour of Service. An "hour of service" means each hour for which an
employee is directly or indirectly paid or entitled to payment by an employer or
controlled group member for the performance of duties and for reasons other than
the performance of duties, including each hour for which back pay, irrespective
of mitigation of damages, has been either awarded or agreed to by an employer or
controlled group member, determined and credited in accordance with Department
of Labor Reg. Sec. 2530.200b-2.
III-1.4. Normal Retirement Date. A participant's "normal retirement date"
will be the first day of the month coincident with or next following the date he
attains age 65 years. A participant's "normal retirement age" is age 60. A
participant's right to his normal retirement benefit shall be nonforfeitable on
and after his normal retirement age.
III-1.5. Early Retirement Date. A participant's "early retirement date"
will be the first day of the month coincident with or next following the date of
his retirement from the employ of all of the employers before his normal
retirement date but after he has either: (a) attained age 60 years; or (b) both
attained age 55 years and completed 20 or more years of vesting service.
III-1.6. Deferred Retirement Date. A participant's "deferred retirement
date" will be the first day of the month coincident with or next following the
date of his retirement
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from the employ of all of the employers after his normal retirement date.
III-1.7. Retirement Date. A participant's "retirement date" will be one of
the dates described above as of which his retirement from the employ of the
employers occurs.
III-1.8. Leave of Absence. A "leave of absence" for plan purposes means an
absence from work which is not treated by the employers as a termination of
employment or which is required by law to be treated as a leave of absence.
Leaves of absence will be granted under employer rules applied uniformly to all
employees similarly situated.
III-1.9. Controlled Group Member. A "controlled group member" means:
(a) any corporation which is not an employer but is a member of a
controlled group of corporations (within the meaning of Section
1563(a) of the Internal Revenue Code, determined without regard
to Sections 1563(a)(4) and 1563(e)(3)(C) thereof) which contains
an employer; or
(b) any trade or business (whether or not incorporated) which is
under common control with an employer (within the meaning of
Section 414(c) of the Internal Revenue Code).
III-1.10. Employment with Controlled Group Member. If a participant is
transferred from employment with an employer to employment with a controlled
group member then, for the purpose of determining when his retirement date
occurs under this Section III-I or when his date of termination of employment
with the employers occurs under Section III-4, his employment with
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such controlled group member (or any control led group member to which he is
subsequently transferred) shall be considered as employment with the employers.
SECTION III-2
Bases of Benefits
III-2.1. General. Vesting service shall be applied to determine a
participant's eligibility for benefits under the plan, but not for the purpose
of computing the amount of such benefits. Benefit service shall be applied to
compute the amount of a participant's benefits under the plan. A participant's
retirement income or deferred vested benefit will be based on his benefit
service and his final average earnings, both as determined in accordance with
the provisions hereof.
III-2.2. Vesting Service. A participant's "vesting service" means the total
of his years of service computed in accordance with the following rules: (a) A
participant will be entitled to 1/12th of a year of vesting service for each
calendar month (or portion thereof) during which he is employed by an employer
or controlled group member.
(b) All periods of employment (whether or not continuous) will be
aggregated in computing a participant's vesting service.
(c) A period of leave of absence will be included in determining a
participant's vesting service.
(d) In no event will a participant be entitled to more than 1/12th of
a year of vesting service for any calendar month.
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III-2.3. Benefit Service. A participant's "benefit service" shall be
determined in accordance with the following rules:
(a) A participant who was a participant in the plan on December 31,
1987 will be entitled to 1/12th of a year of benefit service for
each calendar month (or portion thereof) of benefit service to
which he was entitled under the plan prior to January 1, 1988, in
accordance with the terms of the plan in effect prior to that
date, but including service prior to January 1, 1986 and after
the participant's 65th birthday.
(b) Beginning January 1, 1988, a participant shall be entitled to
1/12th of a year of benefit service for each calendar month (or
portion thereof) after December 31, 1987 during which he is
employed by an employer.
(c) A participant shall not be entitled to more than 28 years of
benefit service. In the case of a participant who has both
accrued a Prior Service Element of his Pre-1978 Benefit and
completed 28 years of benefit service, each additional year of
his benefit service after 1988 shall replace a year of benefit
service for purposes of such Prior Service Element, until such
participant has zero years of benefit service prior to 1978.
(d) Except as required by law or provided by the committee in a
nondiscriminatory manner, any period of unpaid leave of absence
in excess of twelve months will be disregarded in computing a
participant's benefit service.
III-2.4. Earnings. A participant's "earnings" means the total cash
compensation paid to the participant for services rendered to the employers as
an employee, including pre-tax employee deposits under any qualified profit
sharing or stock bonus plan maintained by an employer and, beginning January 1,
1995, compensation deferred under the Dean Witter, Discover & Co.
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Tax Deferred Equity Participation Plan, the SPS Transaction Services, Inc. Tax
Deferred Equity Participation Plan (the "TDEPPs") or the Dean Witter, Discover &
Co. Capital Accumulation Plan ("CAP") in the year such deferrals are made, but
excluding such items as awards and prizes, lump sum payments for vacations
earned but not taken, supper money, foreign allowances, service allowances,
retainers, special geographic differentials, medical expense reimbursements,
retirement or profit sharing benefits, long-term disability benefit payments,
payments or reimbursements in connection with moving expenses, awards under any
long-term executive compensation plans other than the TDEPPs or CAP, one-time
annual awards for special merit or achievement, performance units or restricted
share awards under any incentive compensation plans, dividends paid on such
restricted shares, the value of stock options or stock appreciation rights and
cash payments received pursuant to stock options, any incremental increases or
earnings under deferred compensation plans including but not limited to the
TDEPPs and CAP, payments or withdrawals from any deferred compensation plan
including but not limited to the TDEPPs and CAP, amounts paid after death,
disability or retirement, employer-paid premiums on any insurance plan, employer
contributions under any profit sharing, profit participation or stock plans, or
any other similar types of compensation which may be specifically excluded by
action of the committee.
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Effective January 1, 1989, compensation for any year in excess of $200,000
(or such greater amount as may be determined by the Commissioner of Internal
Revenue for that year) shall be disregarded in determining the amount of a
participant's earnings; provided, that the limitations of this sentence shall
not reduce the benefit accrued as of December 31, 1988, determined under the
terms of the plan as then in effect as though the participant had terminated
employment on that date.
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 earnings of each participant
taken into account under the plan shall not exceed the OBRA `93 annual
compensation limit. The OBRA `93 compensation limit is $150,000, as adjusted by
the Commissioner of Internal Revenue for increases in the cost-of-living in
accordance with section 401(a)(17)(D) of the Code. The cost-of-living adjustment
in effect for a calendar year applies to any period not exceeding 12 months over
which compensation is determined (the 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)
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of the Code shall mean the OBRA `93 annual compensation limit set forth in this
provision.
If earnings for any prior determination period are taken into account in
determining a participant's benefits accruing in the current plan year, the
earnings for that prior determination period are subject to the OBRA `93 annual
compensation limit in effect for that 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.
Unless otherwise provided under the plan, each section 401(a)(17)
employee's accrued benefit under this plan will be the greater of the accrued
benefit determined for the employee under (a) or (b) below:
(a) the employee's accrued benefit determined with respect to the benefit
formula applicable for the plan year beginning on or after January 1, 1994,
as applied to the employee's total years of service taken into account
under the Plan for the purposes of benefit accruals, or
(b) the sum of:
(i) the employee's accrued benefit as of the last day of the last plan year
beginning before January 1, 1994, frozen in accordance with section
1.401(a)(4)-13 of the regulations, and
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(ii) the employee's accrued benefit determined under the benefit formula
applicable for the plan year beginning on or after Janaury 1, 1994, as
applied to the employee's years of service credited to the employee for
plan years beginning on or after January 1, 1994, for purposes of benefit
accruals.
A section 401(a)(17) employee means a participant whose current accrued
benefit as of a date on or after the first day of the first plan year beginning
on or after January 1, 1994, is based on earnings for a year beginning prior to
the first day of the first plan year beginning on or after January 1, 1994, that
exceeded $150,000.
III-2.5. Final Average Earnings. The "final average earnings" of a
participant shall be the monthly average of the earnings paid to him during the
5 consecutive calendar years for which his earnings were highest within the last
10 consecutive calendar years immediately preceding his retirement date or
earlier termination of employment (or the monthly average of earnings for the
entire period of his employment if such period is less than 5 calendar years).
Such average shall be computed by dividing the total of the participant's
earnings for such 5 calendar year period (or shorter total period of employment
if applicable) by the number of months within that period for which he had
earnings.
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SECTION III-3
Amount of Retirement Income
III-3.1. Normal Retirement. Subject to the provisions of subsections
III-3.8 and III-3.9, a participant who retires on a normal retirement date will
be entitled to a monthly retirement income, commencing on the participant's
normal retirement date and payable during his lifetime, in an amount equal to
the sum of:
(a) a Post-1988 Benefit equal to the sum of:
(i) a Base Benefit equal to 1.55% of the participant's final
average earnings (as defined in subsection III-2.5)
multiplied by his number of years of benefit service after
December 31, 1988; and
(ii) an Additional Benefit equal to 0.65% of the participant's
excess earnings (as defined in subsection III-3.5)
multiplied by his number of years of benefit service after
December 31 1988;
(b) a 1978-1988 Benefit equal to the sum of:
(i) the Future Service Element of the participant's monthly
retirement income determined under the terms of the Allstate
Retirement Plan as in effect on December 31, 1988, based on
his final average earnings at that date (calculated as
provided in subsection III-3.3) and his benefit service from
January 1, 1978 through December 31, 1988;
(ii) 18% of the amount determined under subparagraph (b)(i)
above; and
(iii) the product of:
(A) the amount determined under subparagraph (b)(i) above,
multiplied by
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(B) a fraction, the numerator of which is the excess, if
any, of the participant's final average earnings at his
retirement date over his final average earnings at
December 31, 1988 (calculated as provided in subsection
III-3.3), and the denominator of which is the
participant's final average earnings at December 31,
1988 (calculated as provided in subsection III-3.3);
plus
(c) a Pre-1978 Benefit equal to the sum of:
(i) A Prior Service Element equal to the sum of:
(A) the Prior Service Element of the participant's monthly
retirement income determined under the terms of the
Allstate Retirement Plan as in effect on December 31,
1988, based on his average participating compensation
(as defined in the Allstate Retirement Plan) at that
date (calculated as provided in subsection III-3.3) and
his benefit service prior to January 1, 1978;
(B) 18% of the amount determined under subparagraph
(c)(i)(A) above; and
(C) an amount equal to 2-1/8% of the excess, if any, of the
participant's final average earnings over his final
average earnings at December 31, 1988 (calculated as
provided in subsection III-3.3), multiplied by his
number of full and fractional years of benefit service
prior to January 1, 1978 (up to 20 years); provided,
however, that in no event shall a participant who is a
"highly compensated employee" within the meaning of
Section 414(q) of the
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Internal Revenue Code be entitled to the portion of the
Prior Service Element calculated under this
subparagraph (c)(1)(C); and
(ii) a Past Service Element equal to 118% of (A) 0.2% for each
full year of benefit service through December 31, 1978 (not
limited to 28 years), times (B) the participant's earnings
in 1978 up to a maximum of $15,000.
The amount of monthly retirement income determined under this subsection
III-3.1 will be subject to reduction if the participant is to receive a
joint and survivor annuity under subsection III-5.1. In no event shall the
amount of a participant's monthly retirement income be less than an amount
equal to 118% of his accrued benefit as of December 31, 1988 (determined
under the terms of the plan as then in effect as though the participant
had terminated employment on that date); and in no event shall a
participant's 1978-1988 Benefit be less than an amount equal to 118% of
the participant's Future Service Element at December 31, 1988 calculated
under the provisions of Section 3.4 of the Allstate Retirement Plan as in
effect on that date.
III-3.2. Deferred Retirement. A participant who retires on a deferred
retirement date will be entitled to a monthly retirement income, commencing on
the earlier of his deferred retirement date or his required commencement date
(as defined in subsection III-5.6), and payable in accordance with
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subsection III-5.1. The amount of his monthly retirement income will be computed
in accordance with subsection III-3.1, but shall be actuarially increased to
reflect the aggregate amount of monthly retirement income payments which were
not paid to such participant for those calendar months (if any) beginning on or
after his normal retirement date during which he completed less than 40 hours of
service. If payment of a participant's monthly retirement income begins prior to
retirement on his required commencement date, then: (a) the amount of any
additional retirement income that otherwise would be accrued by the participant
after that date shall be reduced (but not below zero) by the actuarial
equivalent of the retirement income payments made to the participant after that
date; and (b) the amount of retirement income payable to the participant shall
be adjusted, as of each subsequent January 1, to reflect the additional
benefits, if any, accrued by the participant during the immediately preceding
calendar year. In no event shall the amount of monthly retirement income payable
to a participant under this subsection III-3.2 be less than the monthly
retirement income the participant would have received had he retired on his
normal retirement date.
III-3.3. Early Retirement - Deferred Payment. A participant who retires on an
early retirement date will be entitled to a monthly retirement income,
commencing on his normal retirement date and payable in accordance with
subsectionEIII-5.1. Such retirement income will be computed in accordance with
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subsection III-3.1 (as in effect as of the participant's early retirement date),
but based on: (i) his number of years of benefit service at his early retirement
date; and (ii) the final average earnings he would have had at the earlier of:
(A) the last day of the month in which his 60th birthday occurs, or (B) December
31, 1999, if he had continued in the employ of the employers to that date at the
same level of earnings he had in the calendar year preceding his early
retirement date. The projection of final average earnings described in the
preceding sentence shall not serve to increase the participant's number of years
of benefit service; but any years of projection which occur after December 31,
1988 shall be considered as Post-1988 Benefit years for purposes of apportioning
a participant's retirement income among the Post-1988 Benefit, 1978-1988 Benefit
and Pre-1978 Benefit. In no event shall the amount of a participant's monthly
retirement income computed under this subsection III-3.3 be less than an amount
equal to 118% of the participant's early retirement benefit calculated under the
terms of the plan as in effect on December 31, 1988 as though the participant
had retired on that date.
III-3.4. Early Retirement - Immediate Payment. In lieu of receiving the
monthly retirement income otherwise payable under subsection III-3.3 commencing
on his normal retirement date, a participant who retires on an early retirement
date may elect a monthly retirement income commencing on his early retirement
date, or on the first day of any calendar month
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thereafter before his normal retirement date. Such monthly retirement income
will be computed in accordance with subsection III-3.3, but shall be reduced as
follows: (a) the participant's Pre-1978 Benefit, 1978-1988 Benefit and Base
Benefit shall be reduced by 0.4% thereof for each month by which commencement
precedes the first day of the month coincident with or next following the date
the participant would have attained age 60 years; and, (b) the participant's
Additional Benefit shall be reduced by 2/3rds of 1% thereof for each of the
first 36 months and by 1/3rd of 1% for each month in excess of 36 by which
commencement precedes the participant's normal retirement date. In no event
shall the monthly retirement income payable to a participant who retires on an
early retirement date be less than an amount equal to 118% of the monthly
retirement income that would have been payable under the terms of the plan in
effect on December 31, 1988 if the participant had retired and commenced payment
on that date.
III-3.5. Excess Earnings. A participant's "excess earnings" means the
excess, if any, of his final average earnings over his covered compensation (as
defined below). A participant's "covered compensation" is the monthly average of
the Social Security taxable wage bases in effect for each of the 35 calendar
years ending with the year the participant attains (or would attain) Social
Security retirement age, assuming that the Social Security taxable wage base for
future years is the
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same as the Social Security taxable wage base in effect for the current year.
III-3.6. Benefit Limitations. Notwithstanding any other provisions of the
plan, a participant's monthly retirement income or monthly deferred vested
benefit as of the end of any plan year may not exceed an amount which is
equivalent to a retirement income or deferred vested benefit payable for life
only (not taking into account that portion of any joint and survivor annuity
which constitutes a qualified joint and survivor annuity under the Internal
Revenue Code), equal to $7,500 per month (or such greater amount as may be
determined by the Commissioner of Internal Revenue for calendar years ending
after December 31, 1987 which begin with or within that plan year). If payment
of a participant's monthly retirement income or deferred vested benefit begins
before he attains the social security retirement age, such limitation shall be
reduced so that it is equivalent to a monthly benefit of $7,500 commencing at
the social security retirement age. If payment of a participant's monthly
retirement income begins after he attains the social security retirement age,
such limitation shall be increased so that it is equivalent to a monthly benefit
of $7,500 commencing at the social security retirement age. For purposes of
adjusting amounts under this subsection III-3.6, the interest rate assumption
shall be the greater (or the lesser, in the case of benefits beginning after the
social security retirement age) of 5% or the rate specified in Supplement A for
determining
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actuarial equivalence. In the case of a participant with less than 10 years of
participation in the plan, the foregoing limitation shall be multiplied by a
fraction, the numerator of which shall be the participant's number of full and
fractional years of participation in the plan (but not less than 1) and the
denominator of which shall be 10. The preceding sentence shall be applied
separately with respect to each change in the benefit structure of the plan. In
no event shall a participant's monthly retirement income as of the end of any
plan year exceed 100% of his average compensation for his high three years. A
participant's "average compensation for his high three years" means his average
monthly compensation during that period of three consecutive calendar years of
his service with the employers (or during his actual number of years of service
if less than three such years) in which his aggregate compensation from the
employers was the greatest. For purposes of this subsection III-3.6, a
participant's "compensation" means his total cash compensation for services
rendered to the employers as an employee, determined in accordance with Section
415(c)(3) of the Internal Revenue Code and the regulations thereunder. The
provisions of this subsection III-3.6 shall not reduce the monthly retirement
income or deferred vested benefit of any participant below such participant's
accrued benefit as of December 31, 1986 (determined under the terms of the plan
as in effect on May 5, 1986 as though the participant had terminated employment
on December 31, 1986).
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III-3.7. Combined Benefit Limitations. If a participant in this plan also
is a participant in a defined contribution plan maintained by an employer, the
aggregate benefits payable to, or on account of, him under both plans will be
determined in a manner consistent with Section 415 of the Internal Revenue Code
and Section 1106 of the Tax Reform Act of 1986. Accordingly, there will be
determined with respect to the participant a defined benefit plan fraction and a
defined contribution plan fraction in accordance with said Sections 415 and
1106. The benefits provided for the participant under this plan will be adjusted
to the extent necessary so that the sum of such fractions determined with
respect to the participant does not exceed 1.0.
III-3.8. Special Rule for Participants Who Terminate Employment After
December 31, 1999. Notwithstanding any other provision of the plan, the monthly
retirement income or deferred vested benefit payable under the plan to (or on
account of) a participant in this Article III who retires or otherwise
terminates employment with the employers after December 31, 1999 shall be
determined as follows:
(a) First the amount of retirement income that would be payable to (or on
account of) such participant under Article III of the plan will be
calculated, using all of the participant's earnings and benefit
service.
(b) Next, the amount determined under subparagraphE(a) above will be
multiplied by a fraction, the numerator of which is the portion of the
participant's benefit service which occurred prior to January 1, 2000
(not limited to 28 years) and the denominator of which is
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the participant's total period of benefit service (not limited to 28
years).
(c) Next, the amount of retirement income that would be payable to (or on
account of) such participant under Article II of the plan will be
calculated, using all of the participant's earnings and benefit
service as determined under Article II.
(d) Next, the amount determined under subparagraph (c) above will be
multiplied by a fraction, the numerator of which is the portion of the
participant's benefit service which occurred after December 31, 1999
(not limited to 28 years) and the denominator of which is the
participant's total period of benefit service (not limited to 28
years).
(e) Finally, the amount of retirement income payable under the plan to (or
on account of) such participant shall be equal to the sum of the
amounts determined under subparagraphsE(b) and (d) above.
III-3.9. Minimum Benefit for Former Sears Participants. In no event shall
the monthly retirement income or deferred vested benefit payable under this
Article III of the plan to (or on account of) a participant who was an active
participant in the Sears plan on December 31, 1985 (a "Sears participant") be
less than the amount determined as follows:
(a) First, the amount of retirement income that would be payable to (or
on account of) such Sears participant under this plan and the Sears Pension
Plan (the "Sears plan") will be calculated using the Sears participant's
period of continuous service with all employers and controlled group
members (disregarding any period his employer was not an employer or
controlled group member), rather than his benefit service (or such other
denominated service which is used in calculating benefits under the Sears
plan), and using his compensation from all employers and controlled
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group members in determining his final average earnings;
(b) Next, the respective amounts calculated for this plan ---- and the
Sears plan under subparagraph (a) next above will be multiplied by a
fraction, the numerator of which shall be that portion of the Sears
participant's continuous service which consisted of employment covered
by this plan, or the Sears plan, as the case may be, and the
denominator of which shall be his total period of continuous service;
and
(c) Finally, the amount of retirement income payable under this plan to
(or on account of) a Sears participant shall not be less than the
excess of:
(i) the sum of the amounts calculated under subparagraph (b) next
above; minus
(ii) the amount of retirement income that is payable to (or on account
of) such Sears participant under the Sears plan.
If a Sears participant dies while employed by an employer, death benefits will
be payable in accordance with the provisions of Section III-6 of the plan. The
amount of such death benefit will be based upon the amount of retirement income
that would have been payable to the deceased Sears participant in accordance
with the provisions of this subsection III-3.9. For purposes of this subsection
III-3.9, the amount of retirement income payable to a Sears participant under
the Sears plan shall be calculated without regard to any exclusion of the
portion of a prior service element based upon earnings in years after 1988,
provided, however, that the amount of such post-1988 earnings taken into account
for purposes of this sentence shall not exceed the OBRA
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`93 annual compensation limit, as defined in subsection III-2.4, applied to all
years after 1988 with the OBRA `93 annual compensation limit in effect for 1995
deemed to have been in effect for the years 1989 through 1993, inclusive.
III-3.10. Minimum Normal or Deferred Retirement Benefit. In no event shall
a participant's normal or deferred retirement benefit be less than the largest
early retirement benefit the participant could have received under subsection
III-3.4 if he had retired on an early retirement date.
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SECTION III-4
Termination of Employment Before Retirement
III-4.1. Monthly Deferred Vested Benefit. A participant whose employment
with all of the employers is terminated for any reason other than his death
before he qualified for retirement on an early retirement date, but after he has
completed five or more years of vesting service, will be entitled to a monthly
deferred vested benefit commencing on his normal retirement date and payable in
accordance with subsectionEIII-5.1.
III-4.2. Amount of Deferred Vested Benefit. A participant's deferred vested
benefit will be an amount computed in accordance with subsection III-3.1 (as in
effect as of the date the participant's employment with the employers
terminated), and will be based on the participant's final average earnings at
the date the participant's employment with the employers terminated.
III-4.3. Early Commencement of Benefit. A participant entitled to a monthly
deferred vested benefit under subparagraph III-4.1 who has completed 20 or more
years of vesting service may elect to have such benefit commence as of the first
day of any month after he attains age 55 years but before his normal retirement
date. A participant entitled to a monthly deferred vested benefit under
subsection III-4.1 who is or becomes disabled after he has attained age 50 years
may elect to
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have such benefit commence as of the first day of any month before his normal
retirement date. Any other participant entitled to a monthly deferred vested
benefit under subsection III-4.1 may elect to have such benefit commence as of
the first day of any month after he attains age 60 years but before his normal
retirement date. Such deferred vested benefit shall be computed in accordance
with subsection III-4.2, but reduced by the applicable percentages set forth in
subsection III-3.4 as though it were payment of early retirement income. Each
election under this subsection III-4.3 must be in writing, must be filed with
the committee at such time prior to the date earlier payment of the
participant's monthly deferred vested benefit is to begin as the committee shall
determine and, in the case of a participant described in the second sentence of
this subsection, must be approved by the committee.
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SECTION III-5
Payment of Benefits
III-5.1. Form of Payment. Except as otherwise specifically provided,
payment of monthly retirement income and monthly deferred vested benefits shall
be made to a participant as follows:
(a) Life Annuity. A participant who is not legally married on the
date as of which such payments commence, or a participant who
prior to that date elects under subparagraph (c) below not to
receive his monthly retirement income or monthly deferred vested
benefit in the form of a joint and survivor annuity, shall
receive a monthly retirement income or monthly deferred vested
benefit in accordance with the plan payable during his lifetime,
with the last payment to be made for the month in which his death
occurs.
(b) Joint and Survivor Annuity. A participant who is legally married
on the date as of which such payments commence and who had not
made an election in accordance with subparagraphE(c) below shall
receive a joint and survivor annuity which is actuarially
equivalent to the amount of monthly retirement income or monthly
deferred vested benefit otherwise payable to him in accordance
with the plan on a life annuity basis. Such joint and survivor
annuity shall consist of a reduced monthly retirement income or
monthly deferred vested benefit continuing during the
participant's lifetime, and if the participant's spouse is living
at the date of the participant's death, payment of one-half of
such reduced monthly retirement income or monthly deferred vested
benefit to such spouse until the spouse's death occurs, with the
last payment to be made for the month of the death of the last to
die of the participant and his spouse.
(c) Election to Waive Joint and Survivor Annuity. A participant may
make a written election to waive the joint and survivor annuity
at any time during the 90-day period ending on the date payment
of his benefits commences. Such
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an election will be effective only if the participant's spouse
consents to the election in writing, and such consent
acknowledges the effect of the waiver and is witnessed by a
notary public. Within a reasonable period of time prior to the
date a participant begins to receive benefits under the plan, the
committee shall furnish him with a written explanation of the
terms and conditions of the joint and survivor annuity under
subparagraph (b) above; the participant's right to make, and the
effect of, an election to waive the joint and survivor annuity;
the requirement of spousal consent to such a waiver; and the
participant's right to make, and the effect of, a revocation of
such a waiver. An election under this subparagraph may be revoked
by a participant at any time prior to the date payment of his
benefits commences.
For purposes of this subsection III-5.1, a participant's spouse means
the spouse to whom the participant was married at the date payment of his
benefits commenced.
III-5.2. Optional Forms of Payment. In lieu of the form and amount of
retirement income specified in subsection III-5.1, a participant before his
retirement date may elect a retirement benefit in one of the following forms
which is actuarially equivalent to the form of payment specified in subparagraph
111-5.1(b):
(a) A retirement benefit payable for 10 years certain and for the
lifetime thereafter of the retired participant entitled thereto.
(b) A retirement benefit payable during the joint lifetime of the
retired participant and his spouse, with the provision that upon
the death of either the participant or his spouse, payments equal
to 50% of such benefit shall be continued during the lifetime of
the survivor.
(c) A retirement benefit payable during the retired participant's
lifetime, with the provision that after his death, payments equal
to 100% of such
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benefit shall be continued during the lifetime of the
participant's spouse, if such spouse survives him.
(d) A retirement benefit payable during the retired participant's
lifetime; provided that if the participant dies within 10 years
after payments commence, payment of such benefit will continue to
his spouse (or to his beneficiary if his spouse is not then
living) for the balance of such 10-year period; and provided
further that if the participant's spouse is living at the end of
such 10-year period (or the date of the participant's death, if
later), payment of 50% of such benefit will continue to such
spouse until the spouse's death occurs.
(e) A lump sum payment.
(f) A retirement benefit in such other form as shall be established
by the committee which meets the requirements of Section
401(a)(9) of the Internal Revenue Code and is offered to
participants on a non-discriminatory basis.
An election of an option under this subsection III-5.2 must be in writing,
signed by the participant, and filed with the committee at such time and in
such manner as the committee shall determine; and will be effective only if
the participant's spouse, if any, consents to an election under
subparagraphs (a), (e) or (f) above in writing, and such consent
acknowledges the effect of the election and is witnessed by a notary
public. Payment of an optional form of retirement income will commence no
later than the date on which the participant's monthly retirement income
would otherwise commence, and shall comply with the requirements of Section
401(a)(9) of the Internal Revenue Code and the regulations thereunder.
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III-5.3. Facility of Payment. When a person entitled to benefits under the
plan is under legal disability, or, in the committee's opinion, is in any way
incapacitated so as to be unable to manage his financial affairs, the committee
may direct the trustee to pay the benefits to such person's legal
representative, or to a relative or friend of such person for such person's
benefit, or the committee may direct the application of such benefits for the
benefit of such person. Any payment made in accordance with the preceding
sentence shall be a full and complete discharge of any liability for such
payment under the plan.
III-5.4. Missing Persons. Neither the committee nor any employer is
required to search for or locate any person entitled to benefits under the plan.
III-5.5. Lump Sum Payment of Accrued Benefits. If the present value of a
participant's entire nonforfeitable accrued benefit under the plan does not
exceed $3,500, the trustee shall, in accordance with such rules as the committee
may establish, pay such present value to the participant in a lump sum upon his
termination of employment. For purposes of this subsection III-5.5, if the
present value of a participant's entire nonforfeitable accrued benefit under the
plan is zero, the participant shall be deemed to have received a distribution of
such nonforfeitable accrued benefit. A present value shall be determined as of
the date of distribution by using the interest rate specified in Supplement A,
but not greater than the interest
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rate which would be used (as of the first day of the plan year that contains the
date of distribution) by the Pension Benefit Guaranty Corporation for purposes
of determining the present value of a lump sum distribution on plan termination.
Notwithstanding the provisions of subsection III-7.1, if a participant who
received a lump sum payment under subsection III-5.2 or III-5.5 is subsequently
reemployed by an employer, his years of employment before his termination of
employment shall be disregarded in determining his benefit service under the
plan.
III-5.6. Commencement of Benefits. Payment of a participant's retirement
income must commence by April 1 of the calendar year next following the calendar
year in which the participant attains age 70-1/2 (his "required commencement
date"); provided, however, that the required commencement date of a participant
who is not a five percent owner and who attained age 70-1/2 prior to January 1,
1988 shall be April 1 of the calendar year next following the later of the
calendar year in which he attained age 70-1/2 or the calendar year in which he
retires, and the required commencement date of a participant who attained age
70-1/2 in calendar year 1988 shall be April 1, 1990.
III-5.7. Optional Direct Rollover of Eligible Rollover Distributions.
(i) This Section III-5.7 applies to distributions made on or after January
1, 1993. Notwith-standing any provision of the plan to the contrary that would
otherwise limit a distributee's election under this Section, a distributee may
elect, at the time and in the manner prescribed by the plan administrator, to
have any portion of an eligible rollover
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distribution paid directly to an eligible retirement plan
specified by the distributee in a direct rollover.
(ii) For purposes of this Section III-5.7 the following
definitions shall apply:
(A) "Eligible rollover distribution" means any distribution
of all or any portion of the balance to the credit of
the distributee, other than: any distribution that is
one of a series of substantially equal periodic
payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the
joint lives (or joint life expectancies) of the
distributee and the distributee's designated
beneficiary, or for a specified period of ten years or
more; any distribution to the extent such distribution
is required under Code section 401(a)(9); and the
portion of any distribution that is not includible in
gross income.
(B) "Eligible retirement plan" means an individual
retirement account described in Code section 408(a), an
individual retirement annuity described in Code section
408(b), an annuity plan described in Code section
403(a), or a qualified trust described in Code section
401(a), that accepts the 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" means an employee of former employee. In
addition, the employee's or former employee's surviving
spouse and the employee's or former employee's spouse
or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code
section 414(p), are distributees with regard to the
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interest of the spouse or former spouse.
SECTION III-6
Death Benefits
III-6.1. Death Before Commencement of Benefits. A death benefit shall be
payable, as provided below, on behalf of a participant who dies:
(a) while employed by an employer and after his normal retirement date;
(b) while employed by an employer and before his normal retirement date;
(c) after retirement on a retirement date but before commencement of his
benefits under the plan; or
(d) in the case of a terminated participant entitled to receive a monthly
deferred vested benefit under subsection III-4.1, after termination of
employment but before commencement of his benefits under the plan.
The amount of death benefit payable under subparagraph (a) above shall be
the present value of the monthly retirement income, computed pursuant to
subsection III-3.2, accrued for the participant under the plan at the date of
his death. The amount of death benefit under subparagraphs (b) and (d)Eabove
shall be the present value of the monthly deferred vested benefit, computed
pursuant to subsection III-4.2, accrued for the participant under the plan at
the date of his death. The death benefit under subparagraph (c) above shall be
the amount of monthly retirement income payable to the participant's spouse
under subparagraph 111-5.1(b) had the participant's retirement
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income commenced at the date of his death. Subject to the following
provisions of this subsection III-6.1, the death benefits under subparagraphs
(a), (b) and (d) above shall be paid to the participant's beneficiary in a lump
sum as soon as practicable after the date of the participant's death. The death
benefit under subparagraph (c) above shall be paid to the participant's
surviving spouse during her lifetime. If the amount of the death benefit under
subparagraph (a), (b) or (d) above exceeds $3,500 and payment is being made to
the participant's spouse, such death benefit shall be paid in an actuarially
equivalent monthly amount during the spouse's lifetime, unless such spouse
consents in writing to a lump sum payment.
III-6.2. Death After Commencement of Benefits. The death benefits, if any,
of a participant who dies after commencement of his benefits under the plan are
those specified under the form in which his benefits were being paid.
III-6.3. Designation of Beneficiary. Each participant from time to time, by
signing a form furnished by the committee, may designate any person or persons
(who may be designated concurrently, contingently or successively) to whom any
death benefits payable under subsectionEIII-6.1 are to be distributed. A
beneficiary designation form will be effective only when the form is filed with
the committee while the participant is alive and will cancel all beneficiary
designation forms previously filed with the committee. If a participant
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designates someone other than (or in addition to) his spouse as his primary
beneficiary, his spouse must consent in writing to the designation. Such a
consent will be effective only if it acknowledges the effect of the beneficiary
designation, is witnessed by a notary public, and is made on or after the first
day of the plan year in which the participant attains age 35 years (or the date
of his termination of employment, if earlier). If a participant designates
someone other than (or in addition to) his spouse as primary beneficiary, and
his spouse does not (or cannot) consent and is living at his death, the
participant's beneficiary designation shall be ineffective, and his death
benefit shall be distributed to his spouse. Each participant shall be provided
with a written explanation of the foregoing provisions of this subsection
III-6.3 within the three years prior to the plan year he attains age 35 years.
If a deceased participant failed to designate a beneficiary as provided above,
or if the designated beneficiary dies before the participant, the participant's
benefits shall be paid to the participant's spouse or, if none, as follows:
(a) If the participant was employed by an employer at the date of his
death, to the beneficiary or beneficiaries designated by the
participant under his employer's group term life insurance plan or, if
none, to the beneficiary or beneficiaries designated by the
participant under his employer's tax-qualified defined contribution
plan.
(b) If the participant was not employed by an employer at the date of his
death, or if there are no beneficiaries designated under subparagraph
(a) above, to the legal representative or representatives of the
estate of the participant.
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SECTION III-7
Reemployment
III-7.1. Breaks in Employment. If an employee's or participant's employment
with the employers should terminate and such employee or participant is
subsequently reemployed by an employer, then: (a) the vesting service and
benefit service to which he was entitled at the time of termination shall be
reinstated; (b) if such reemployment occurs within twelve months following his
termination of employment, the period between his date of termination and date
of reemployment shall be included in his vesting service and benefit service;
and (c) if he had met the requirements of subsection III-1.2 at his date of
termination, he will become a participant in the plan upon his date of
reemployment.
III-7.2. Subsequent Employment. If a former participant who is receiving a
monthly retirement income or monthly deferred vested benefit is reemployed by an
employer on or after his required commencement date, his benefits shall continue
to be paid to him under the plan during his period of reemployment. Except as
provided in the following sentence, if a former participant who is receiving, or
is entitled to receive, a monthly retirement income or monthly deferred vested
benefit is reemployed by an employer prior to his required commencement date, no
benefits shall be payable to him under the plan during his period of
reemployment (except as required by subsection III-
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5.6), and any benefits payable under the plan to him thereafter shall be
determined in accordance with the plan as then in effect, shall take into
account the benefits to which he was entitled prior to reemployment, and shall
be actuarially adjusted to reflect any benefits he previously received. If a
former participant who is receiving a monthly retirement income or monthly
deferred vested benefit is reemployed by an employer as a part-time employee,
more than 60 days after his earlier termination of employment, and prior to his
required commencement date; his benefits shall continue to be paid to him under
the plan during his period of reemployment; such benefits shall be recomputed
after his period of reemployment ends in accordance with the terms of the plan
as then in effect (taking into account the benefits to which he was entitled
prior to reemployment); and such benefits shall be actuarially adjusted to
reflect the benefits he previously received.
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ARTICLE IV
Execution of Plan
To record the amendment and restatement of the plan to read as set forth
herein, the company has caused its authorized officer to affix the corporate
name and seal hereto, effective as of April 10, 1996.
NOVUS CREDIT SERVICES INC.
By: ____________________________
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SUPPLEMENT A
Actuarial Assumptions
Article II
Percentage to be applied to amounts initially calculated under subsection II-3.1
of the plan for the purpose of determining the amount of the forms of payment
under subsections II-5.1, II-5.2 and II-5.5 for a participant first hired on or
before January 1, 1991:
Plan Percentage of Monthly
Form of Payment Section Retirement Income
Joint and Survivor II-5.1(b) 95%
Life and 10-Year Certain II-5.2(a) 95%
Joint and 50% Survivor 11-5.2(b) 100%
100% Joint and Survivor 11-5.2(c) 85%
Ten Year Certain and
Joint and Contingent 11-5.2(d) 93%
Lump Sum II-5.2(g) With respect to the portion of the
II-5.5 benefit payable under Article II
accrued prior to January 1, 1991,
the percentage determined in
accordance with the UP-1984
Mortality Table set back one year
and the PBGC immediate annuity rate
in effect on the January 1
preceding the date of distribution.
With respect to the portion of the
benefit payable under Article II
accrued after December 31, 1990,
the percentage determined in
accordance with the UP-1984
Mortality Table set back one year
and 110% of the PBGC immediate
annuity rate in effect on the
January 1 preceding the date of
distribution.
Actuarial factors to be applied to amounts initially calculated under subsection
II-3.1 of the plan for the purpose of determining the amount of the forms of
payment under subsections II-5.1, II-5.2 and II-5.5 for a participant first
hired after January 1, 1991:
Forms of payment under subsections II-5.1 and II-5.2 (other than lump sum):
A-1
<PAGE>
1. Rate of interest: 8%
2. Mortality: UP-1984 Mortality Table
Lump sum payments under subsections II-5.2(g) and II-5.5:
1. Rate of interest: 110% of PBGC immediate annuity rate in effect on the
January 1 preceding the date of distribution.
2. Mortality: UP-1984 Mortality Table set back one year.
The amount of any other optional form that may be authorized by the committee
under subsection II-5.2(h) shall be computed using the UP-1984 Mortality Table
at 8% Interest.
<TABLE>
Article III
Percentage to be applied to amounts initially calculated under the plan for the
purpose of determining the amount of the forms of payment under subsections
III-5.1, III-5.2, III-5.5 and III-6.1:
<S> <C> <C>
Plan Percentage of Monthly
Form of Payment Section Retirement Income
Joint and Survivor III-5.1(b) 87.5%
Life and 10-Year Certain III-5.2(a) 93.0%
Joint and 50% Survivor III-5.2(b) 92.5%
100% Joint and Survivor III-5.2(c) In accordance with TableE1
attached
Ten Year Certain and III-5.2(d) In accordance with TableE2
Joint and Contingent attached
Lump Sum III-5.2(e) With respect to the portion of the
III-5.5 benefit payable under Article III
III-6.1 accrued prior to January 1, 1991, the
percentage determined in
accordance with the terms of the
plan as in effect on December 31,
1990. With respect to the portion
of the benefit payable under
Article III accrued after December
31, 1990, the percentage
determined in accordance with the
UP-1984 Mortality Table set back
one year and 110% of the PBGC
immediate annuity rate in effect
on the January 1
</TABLE>
A-2
<PAGE>
preceding the
date of distribution.
The amount of any other optional form that may be authorized by the committee
under subsection III-5.2(f) shall be computed using the 1971 Group Annuity Table
at 6% Interest.
In no event shall the amount of any lump sum calculated under this Supplement A
be less than the amount determined by using an interest rate equal to: (i)Ethe
applicable rate (as defined below) if the lump sum amount (using such rate) does
not exceed $25,000; or (ii) 120% of the applicable rate if the lump sum amount
(using the applicable rate) exceeds $25,000; provided that a lump sum amount
determined by using 120% of the applicable rate may never be less than $25,000.
The term "applicable rate" means the interest rate which would be used (as of
the first day of the plan year that contains the date of distribution) by the
Pension Benefit Guaranty Corporation for purposes of determining the present
value of a lump sum distribution on plan termination.
If the actuarial assumptions in this Supplement A are amended, the actuarial
equivalent of a participant's accrued benefit shall be determined in accordance
with the actuarial assumptions as amended; provided, however, the actuarial
equivalent of a participant's accrued benefit on and after the date of such
amendment shall not be less than the actuarial equivalent of his accrued benefit
determined as of the date immediately before such amendment in accordance with
the actuarial assumptions then in use.
A-3
<PAGE>
SUPPLEMENT B
Special Rules for Top-Heavy Plans
B-1. Purpose and Effect. The purpose of this Supplement B is to comply with
the requirements of Section 416 of the Internal Revenue Code of 1954. The
provisions of this Supplement B shall be effective for each plan year beginning
after December 31, 1983 in which the plan is a "top-heavy plan" within the
meaning of Section 416(g) of the Internal Revenue Code.
B-2. Top-Heavy Plan. In general, the plan will be a top-heavy plan for any
plan year if, as of the last day of the preceding plan year (the "determination
date"), the present value of the cumulative accrued benefits of participants who
are key employees (as defined in Section 416(i)(1) of the Internal Revenue Code)
exceeds 60 percent of the present value of the cumulative accrued benefits of
all participants. In making the foregoing determination, the following special
rules shall apply:
(a) The present value of a participant's accrued benefit shall be
increased by the aggregate distributions, if any, made with
respect to the participant during the 5-year period ending on the
determination date.
(b) The accrued benefit of a participant who was previously a key
employee, but who is no longer a key employee, shall be
disregarded.
(c) The accrued benefit of a beneficiary of a participant shall be
considered an accrued benefit of the participant.
(d) The accrued benefit of a participant who did not perform any
services for an employer during the 5-year period ending on the
determination date shall be disregarded.
(e) The accrued benefit of a participant who is not a key employee
shall be determined under the method used for all plans of the
employers or, if there is no such method, as if such benefit
accrued no faster than the slowest accrual rate permitted under
Section 411(b)(1)(C) of the Internal Revenue Code.
B-1
<PAGE>
B-3. Key Employee. In general, a "key employee" is an employee who, at any
time during the 5-year period ending on the determination date, is:
(a) an officer of an employer receiving annual compensation greater
than 50% of the limitation in effect under Section 415(b)(1)(A) of the
Internal Revenue Code; provided, that for purposes of this
subparagraph (a), no more than 50 employees of the employers (or if
lesser, the greater of 3 employees or 10 percent of the employees)
shall be treated as officers;
(b) one of the ten employees receiving annual compensation -from the
employers of more than the limitation in effect under Section 415(c)
(1) (A) of the Internal Revenue Code and owning both more than a 1/2
percent interest and the largest interests in the employers;
(c) a 5 percent owner of an employer; or
(d) a 1 percent owner of an employer receiving annual compensation
from the employers of more than $150,000.
B-4. Minimum Vesting. For any plan year in which the plan is a top-heavy
plan, a participant's vested percentage in his accrued benefit shall not be less
than the percentage determined under the following table:
<TABLE>
<CAPTION>
Years of Vested
Credited Service Percentage
---------------- ----------
<S> <C>
Less than 2 0
2 20
3 40
4 60
5 80
6 or more 100
</TABLE>
If the foregoing provisions of this paragraph B-4 become effective, and the plan
subsequently ceases to be a top-heavy plan, each participant who has then
completed three or more years of credited service may elect to continue to have
the vested percentage of his accrued benefit determined under the provisions of
this paragraph B-4.
B-5. Minimum Benefit. A participant's monthly retirement income or deferred
vested benefit, commencing at his normal retirement date and payable as a life
annuity,
B-2
<PAGE>
shall not be less than an amount equal to 2 percent of his average compensation
(as defined below), multiplied by the number of years (not to exceed 10) of his
top-heavy service (as defined below). A participant's "average compensation"
means the monthly average of his compensation for the 5 consecutive years for
which his compensation was highest, disregarding any compensation paid after the
last year in which the plan is a top-heavy plan. A Participant shall be entitled
to a year of "top heavy service" for each year of his credited service after
December 31, 1983 during which the plan is a top-heavy plan and he is a
participant thereunder.
B-6. Maximum Earnings. For any plan year in which the plan is a top-heavy
plan, a participant's earnings in excess of $200,000 (or such greater amount as
may be determined by the Commissioner of Internal Revenue for that plan Year)
shall be disregarded for purposes of subsection 4.1 of the plan.
B-7. Aggregation of Plans. In accordance with Section 416(g)(2) of the
Internal Revenue Code, other plans maintained by the employers may be required
or Permitted to be aggregated with this plan for purposes of determining whether
the plan is a top-heavy plan.
B-8. No Duplication of Benefits. If the employers maintain more than one
plan, the minimum benefit otherwise required under paragraph B-5 above may be
reduced in accordance with regulations of the Secretary of the Treasury to
prevent inappropriate duplication of minimum benefits or contributions.
B-9. Adjustment of Combined Benefit Limitations. For any plan year in which
the plan is a top-heavy plan, the determination of the defined benefit plan
fraction and defined contribution plan fraction under subsections II-3.8 and
III-37 of the plan shall be adjusted in accordance with the provisions of
Section 416(h) of the Internal Revenue Code.
B-10. Use of Terms. All terms and provisions of the plan shall apply to
this Supplement B, except that where the terms and provisions of the plan and
this Supplement B conflict, the terms and provisions of this Supplement B shall
govern.
B-3
<PAGE>
SUPPLEMENT C
Special Service Rules
C-1. Employees of Greenwood Trust Company. Notwithstanding the provisions
of subparagraph III-2.3(a) of the plan, if an employee of Greenwood Trust
Company is covered under Article III of the plan, his employment after December
31, 1984 and prior to January 1, 1986 shall be included in determining his
benefit service under the plan.
C-2. Employees of Sears Savings Bank. Notwithstanding the provisions of
subparagraph III-2.2(a) of the plan, when a participant has completed 10 or more
years of vesting service, his last continuous period of employment with a
predecessor to Sears Savings Bank shall be included in determining his vesting
service under the plan. For purposes of this paragraph C-2, a "predecessor to
Sears Savings Bank" means a corporation or other entity designated by the
committee, the stock, assets or business of which was acquired by Sears Savings
Bank prior to JanuaryE1, 1986.
C-3. Service with Sears. Solely for purposes of vesting, the Period of
service of any person who was employed by a member of the Sears affiliated group
immediately following the spin-off and who had an accrued benefit under the plan
as of the spin-off shall include, to the extent consistent with the requirements
of the Internal Revenue Code and ERISA, the lesser of: the number of years of
such employee's continuous service with the Sears affiliated group after the
spin-off and the number of years necessary to fully vest such person in an
accrued benefit under the plan. For purposes of the preceding sentence, the term
"Sears affiliated group" shall mean Sears, Roebuck and Co. ("Sears") and any
corporation, trade or business required to be aggregated with Sears under Code
section 414(b), (c), (m) or (o), and the term "spin-off" shall mean the
distribution by Sears of all of the shares of Dean Witter, Discover & Co. owned
by Sears to shareholders of Sears.
C-4. Service with NationsSecurities. If, on or after June 7, 1993, a
participant transfers employment to NationsSecurities, A Dean Witter/NationsBank
Company, a North Carolina partnership ("NationsSecurities"), then for purposes
of Sections II-1.5, II-2.2, III-1.5 and III-2.2 of
C-1
<PAGE>
the plan, such transferred participant's period of service shall include his
period of service with NationsSecurities.
C-2
<PAGE>
SUPPLEMENT D
Special Rules for Employees of SPS Transaction
Services, Inc. and its Subsidiaries
D-1. Minimum Benefit. Subject to the provisions of Code section 415 (as
herein reflected) and other applicable provisions, the monthly retirement income
or deferred vested benefit otherwise payable under the plan to (or on account
of) an SPS participant (as defined below), commencing at his normal retirement
date and payable during his lifetime or in such other actuarial equivalent form
provided for under the plan, shall not be less than a minimum benefit (the
"minimum benefit") in the amount of $20 multiplied by such SPS participant's
years of benefit service. An "SPS participant" means a participant in the plan
who, at any time on or after February 25, 1992, is an employee of SPS
Transaction Services, Inc. ("SPS") or any employer which is a member of a
controlled group which includes SPS (within the meaning of Section 414(b) or (c)
of the Internal Revenue Code).
D-2. Extension of Benefits, Rights and Features. Effective October 1, 1995,
an SPS participant hired prior to January 1, 1986 who is a non-highly
compensated employee in 1994, 1995 or 1996 and whose retirement benefits are
determined under Article II of the plan (or a beneficiary of such SPS
participant, as applicable), shall have such SPS participant's benefits accrued
up to the earlier of such SPS participant's retirement date or December 31,
1996, calculated as provided in the plan with the following modifications:
(a) such SPS participant's early retirement date under subsection II-1.5,
shall be the first day of the month coincident with or next following the date
of such SPS participant's retirement from the employ of all employers before
such SPS participant's normal retirement date but after such SPS participant has
attained either (i) both age 55 years and completed 20 or more years of vesting
service or (ii) age 60 years (at which time such SPS participant shall be fully
vested).
(b) such SPS participant's Base Benefit calculated under subsection
II-3.5(a)(i) shall be reduced by 0.4% thereof for each month by which
commencement precedes the first day of the month coincident with or next
following the date such SPS participant would have attained age 60 years.
D-1
<PAGE>
(c) if such SPS participant is entitled to a monthly deferred vested
benefit under subsection II-4.2, the Base Benefit portion of such SPS
participant's retirement benefit shall be reduced by 0.4% thereof for each month
by which commencement precedes the first day of the month coincident with or
next following the date of such SPS participant's attaining age 60 years.
(d) if such SPS participant is entitled to a monthly deferred vested
benefit under subsection II-4.1, and such SPS participant is or becomes disabled
after attaining age 50 years, such SPS participant may elect the early
commencement of such monthly deferred vested benefit calculated under Subsection
II-4.2, as modified by subparagraph D-2(c) above.
(e) a death benefit shall be payable as provided below on behalf of such
SPS participant who dies:
(1) while employed by an employer and after such SPS participant's normal
retirement date;
(2) while employed by an employer and before such SPS participant's normal
retirement date;
(3) after retirement on a retirement date but before commencement of such
SPS participant's benefits under the plan; or,
(4) after such SPS participant has terminated employment and is entitled to
receive a monthly deferred vested benefit under subsection II-4.1, but before
commencement of such benefits under the plan.
The amount of death benefit payable under subparagraph (1) above shall be
the present value of the monthly retirement income computed pursuant to
subsection II-3.2, accrued for such SPS participant under the plan at the date
of such SPS participant's death. The amount of death benefit under subparagraphs
(2) and (4) above shall be the present value of the monthly deferred vested
benefit, computed pursuant to subsection II-4.2, accrued for such SPS
participant under the plan at the date of such SPS participant's death. The
death benefit under subparagraph (3) above shall be the amount of monthly
retirement income payable to such SPS participant's spouse under subparagraph
II-5.1(b) had such SPS participant's retirement income commenced at the date of
such SPS participant's death. Subject to the following provisions of this
paragraph D-2(e), the death benefits under subparagraphs (1), (2) and (4) above,
shall be paid to such SPS participant's beneficiary in a lump sum as soon as
practicable after the
D-2
<PAGE>
date of such SPS participant's death. The death benefit under subparagraph (3)
above shall be paid to such SPS participant's surviving spouse during such
spouse's lifetime. If the amount of the death benefit under subparagraphs (1),
(2) or (4) above exceeds $3,500 and payment is being made to such SPS
participant's spouse, such death benefit shall be paid in an actuarially
equivalent monthly amount during such spouse's lifetime, unless such spouse
consents in writing to a lump sum payment.
D-3. Frozen Benefits, Rights and Features. An SPS participant whose
benefits are determined under Article III of the plan and who, either on October
1, 1995 or, if later, on such SPS participant's retirement date, is a highly
compensated employee, shall have the right to receive payments under the plan at
a time, in an amount or in the form determined under one or more of the
benefits, rights or features described in this paragraph D-3 only with respect
to benefits accrued by such SPS participant up to and including the earlier of
such SPS participant's retirement date or September 30, 1995:
(a) early retirement benefits payable at an early retirement date
determined under subparagraph III-1.5(a);
(b) such SPS participant's early retirement benefit determined under
subsection III-3.4, shall be calculated by reducing the Base Benefit from age
60, provided however, that with respect to benefits accrued after September 30,
1995, such SPS participants early retirement benefit shall be determined under
subsection III-3.4, by reducing the Base Benefit from age 63.
(c) if such SPS participant is eligible for a monthly deferred vested
benefit under subsection III-4.1, the early commencement of such benefit under
subsection III-4.3 shall be paid in an amount calculated by reducing the Base
Benefit from age 60, provided, however, that with respect to benefits accrued
after September 30, 1995, such SPS participant's monthly deferred vested benefit
commenced under subsection III-4.3 shall be in an amount calculated by reducing
the Base Benefit from such Participant's normal retirement date.
(d) if such SPS participant is eligible for a monthly deferred vested
benefit under subection III-4.1, the early commencement of such benefit in the
event such SPS participant is or becomes disabled after attaining age 50 years.
(e) death benefits payable under subsection III-6.1 in the form of a
lump sum upon the death of such SPS
D-3
<PAGE>
participant, provided, however, that with respect to benefits accrued after
September 30, 1995, death benefits payable with respect to such SPS participant
under subsection III-6.1, shall be paid to a spouse in a form provided under
subsection II-6.1, or to a nonspouse beneficiary in a form provided under
subsection II-6.2.
D-4
<PAGE>
SUPPLEMENT E
Special Rules for Former Sears Savings Bank Employees
E-1. Sale to American Savings. Each participant who was employed at one of
the sixteen branches of Sears Savings Bank sold to American Savings on August
15, 1986 shall be granted an additional five years of vesting service under the
plan.
E-2. Sale to Citicorp Savings. Each participant whose employment was
terminated solely as a result of the sale of fifty branches of Sears Savings
Bank to Citicorp Savings on June 26, 1987 shall be fully vested under the plan,
and shall be eligible for early retirement if he has both attained age 50Eyears
and completed 10Eyears of vesting service.
E-3. Closure of Sears Financial Centers. Each participant whose employment
was terminated solely as a result of the closure of all Sears Financial Centers
by December 31, 1987 shall be vested under the plan after the completion of five
years of vesting service, and shall be eligible for early retirement if he has
both attained age 50 years and completed 10 years of vesting service.
E-4. Downsizing of Sears Savings Bank. Each participant whose employment
was terminated solely as a result of the reorganization of Sears Savings Bank
announced on September 1, 1988 shall be vested under the plan after the
completion of five years of vesting service, and shall be eligible for early
retirement if he has both attained age 50 years and completed 10 years of
vesting service."
E-1
<PAGE>
SUPPLEMENT F
Special Rules for Sears Mortgage Corporation and Sears Savings Bank
Employees
F-1. Purpose. The purpose of this Supplement F is to set forth special
rules relating to employees of Sears Mortgage Corporation ("SMC") and Sears
Savings Bank ("SSB").
F-2. Participation. Subject to the conditions and limitations of the plan,
each employee of SMC and SSB who is a participant in the plan on January 1, 1991
will continue as a participant on and after that date. Employees of SMC and SSB
who were first hired by an employer on or before January 1, 1991, or who
directly transferred to SMC or SSB on or before January 1, 1991, are eligible to
participate in the plan. Employees who previously participated in a defined
benefit pension plan maintained by a controlled group member or a member of the
Sears affiliated group, as defined on Supplement C, and who are hired by SMC or
SSB after January 1, 1991 but before January 2, 1993, or who directly
transferred to SMC or SSB after January 1, 1991, also are eligible to
participate in the plan. No other employee of SMC or SSB may become a plan
participant. Each employee of SMC or SSB who is a participant in the plan (other
than those who are participants in Article III thereof) is referred to below as
a "Supplement F Participant."
F-3. Benefits. The Base Benefit of a SupplementEF Participant who became a
plan participant after December 31, 1988 shall be equal to 0.85% of his final
average earnings multiplied by his number of years of benefit service. The Base
Benefit of a Supplement F Participant who became a plan participant before
January 1, 1989 shall be equal to the sum of:
(a) 1.0% of his final average earnings multiplied by his number of years of
benefit service before January 1, 1989; plus
(b) the sum of:
(i) 1.0% of his final average earnings multiplied by his number of years of
benefit service after December 31, 1988 (not to exceed the lesser of eleven
years or his number of years of benefit service before January 1, 1989); plus
(ii) 0.85% of his final average earnings multiplied by the excess, if any,
of his number of years of benefit service after December 31, 1988 over the
number of years of
F-1
<PAGE>
benefit service taken into account under subparagraph (i) next above.
F-4. Use of Terms. All terms and provisions of the plan shall apply to this
Supplement F, except that where the terms and provisions of the plan and this
Supplement F conflict, the terms and provisions of this Supplement F shall
govern.
F-5. Cessation of Participation. No additional accruals under the plan will
occur on behalf of SMC and SSB employees and former employers, and no new
participants who are SMC or SSB employees will be admitted to the plan, after
the earlier to occur of the spinoff (as defined in Supplement C), the sale by
any member of the Sears affiliated group (as defined in Supplement C) of SMC or
SSB, as the case may be, or December 31, 1994.
F-2
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
DEAN WITTER, DISCOVER & CO.
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $ 238.8 $ 237.5 $ 484.6 $ 459.6
======== ======= ========= ========
Average common shares outstanding, excluding the dilutive
effects of stock options and unissued stock awards 165.9 170.4 166.8 169.9
======== ======= ========= ========
Earnings per common share:
Primary dilution basis(1)
Earnings per common share $ 1.39 $ 1.35 $ 2.80 $ 2.63
======== ======= ========= ========
Average common shares outstanding 172.1 175.4 173.1 174.4
======== ======= ========= ========
Full dilution basis(2)
Earnings per common share $ 1.39 $ 1.35 $ 2.79 $ 2.63
======== ======= ========= ========
Average common shares outstanding 172.1 175.5 173.5 175.0
======== ======= ========= ========
</TABLE>
(1) Earnings per common share on a primary dilution basis for the three and six
months ended June 30, 1996 and 1995 was calculated using the weighted
average price per share of the Company's common stock during the period,
and included the dilutive effects of stock options and unissued stock
awards under deferred compensation plans.
(2) Earnings per common share on a full dilution basis for the three and six
months ended June 30, 1996 and 1995 was calculated using the greater of the
period-end price per share of the Company's common stock or the weighted
average price per share of the Company's common stock during the period and
included the dilutive effects of stock options and unissued stock awards
under deferred compensation plans.
<PAGE>
EXHIBIT 12
<TABLE>
<CAPTION>
DEAN WITTER, DISCOVER & CO.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
----------- ---------- ---------- ---------
Earnings
<S> <C> <C> <C> <C>
Income before income taxes $ 388.1 $ 385.3 $ 788.5 $ 747.6
Interest expense $ 379.7 $ 384.4 $ 770.4 $ 737.3
Interest factor in rent expense $ 13.4 $ 12.7 $ 26.4 $ 24.9
-------- ------- --------- --------
Total earnings $ 781.2 $ 782.4 $ 1,585.3 $1.509.8
======== ======= ========= ========
Fixed charges
Interest expense $ 379.7 $ 384.4 $ 770.4 $ 737.3
Interest factor in rent expense 13.4 12.7 26.4 24.9
-------- ------- --------- --------
Total fixed charges $ 393.1 $ 397.1 $ 796.8 $762.2
======== ======= ======= ======
Ratio of earning to fixed charges 2.0 2.0 2.0 2.0
======== ======= ======= ======
</TABLE>
"Earnings" consist of income before taxes and "fixed charges". Fixed charges
consist of interest costs, including interest on deposits, and that portion of
rent expense estimated to be representative of the interest factor.
<PAGE>
EXHIBIT 15
To the Directors and Shareholders of Dean Witter, Discover & Co.:
We have made a review, in accordance with standards established by the
American Institute of Certified Public Accountants, of the unaudited interim
consolidated financial information of Dean Witter, Discover & Co. and
subsidiaries as of June 30, 1996 and for the three and six month periods ended
June 30, 1996 and 1995, as indicated in our report dated August 14, 1996;
because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in your
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, is
incorporated by reference in the following Registration Statements of Dean
Witter, Discover & Co.:
Filed on Form S-3:
Registration Statement No. 33-57202
Registration Statement No. 33-60734
Registration Statement No. 33-89748
Registration Statement No. 33-92172
Registration Statement No. 333-7947
Filed on Form S-8:
Registration Statement No. 33-62374
Registration Statement No. 33-63024
Registration Statement No. 33-63026
Registration Statement No. 33-78038
Registration Statement No. 33-79516
Registration Statement No. 33-82240
Registration Statement No. 33-82242
Registration Statement No. 33-82244
Registration Statement No. 333-4212
We are also aware that the aforementioned report, pursuant to Rule 436(c)
under the Securities Act of 1933, is not considered a part of the Registration
Statement prepared or certified by an accountant or a report prepared or
certified by an accountant within the meaning of Sections 7 and 11 of that
Act.
Deloitte & Touche LLP
New York, New York
August 14, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 998
<SECURITIES> 0
<RECEIVABLES> 26,204
<ALLOWANCES> 687
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 780
<DEPRECIATION> 415
<TOTAL-ASSETS> 36,062
<CURRENT-LIABILITIES> 0
<BONDS> 7,888
0
0
<COMMON> 2
<OTHER-SE> 4,953
<TOTAL-LIABILITY-AND-EQUITY> 36,062
<SALES> 0
<TOTAL-REVENUES> 4,362
<CGS> 0
<TOTAL-COSTS> 2,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 502
<INTEREST-EXPENSE> 770
<INCOME-PRETAX> 789
<INCOME-TAX> 304
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 485
<EPS-PRIMARY> 2.80
<EPS-DILUTED> 2.79
</TABLE>
