<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
------------------------------
FORM 10-Q
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996.
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from: to: .
--------------- --------------
COMMISSION FILE NUMBER 0-22534-LA
MONTEREY PASTA COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 77-0227341
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
353 SACRAMENTO STREET, SUITE 500
SAN FRANCISCO, CALIFORNIA 94111
(Address of principal executive offices)
TELEPHONE: (415) 397-7782
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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
------ -------
At July 31, 1996, 8,713,911 shares of common stock, no par value, of the
registrant were outstanding.
This report on Form 10-Q contains XX pages. The exhibit index is on page 15
of this report.
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MONTEREY PASTA COMPANY
FORM 10-Q
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets (unaudited)
June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations (unaudited)
Second quarter ended June 30, 1996 and July 2, 1995
and the Six months ended June 30, 1996 and July 2, 1995 4
Condensed Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30, 1996 and July 2, 1995 5
Notes to Unaudited Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1.Legal Proceedings 13
Item 2.Changes in Securities 13
Item 3.Defaults Upon Senior Securities 13
Item 4.Submission of Matters to a Vote of Security Holders 13
Item 5.Other Information 13
Item 6.Exhibits and Reports on Form 8-K 13
Signature Page 14
Exhibit Index 15
2
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PART I. FINANCIAL INFORMATION
MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 506,534 $ 1,937,884
Accounts receivable, net 3,083,269 1,241,248
Inventories 1,538,494 1,094,976
Prepaid expenses and other 2,239,306 1,652,381
------------ ------------
Total current assets 7,367,603 5,926,489
Note receivable 300,000 -
Property and equipment, net 6,243,718 5,338,968
Intangible assets, net 171,172 295,320
Deposits and other 215,451 130,240
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TOTAL ASSETS $ 14,297,944 $ 11,691,017
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,123,985 $ 1,511,592
Accrued liabilities 848,894 852,815
Current portion of long-term debt 361,200 -
Net liability from discontinued
operations 680,000 2,964,415
------------ ------------
Total current liabilities 3,014,079 5,328,822
Long-term debt 1,508,821 4,130,599
Commitments and contingencies - -
Stockholders' equity:
Preferred Stock - -
Common Stock 35,134,639 27,268,263
Accumulated deficit (25,359,595) (25,036,667)
------------ ------------
Total stockholders' equity 9,775,044 2,231,596
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 14,297,944 $ 11,691,017
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
-------------------- ----------------
JUNE 30, 1996 JULY 2, 1995 JUNE 30, 1996 JULY 2, 1995
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net revenues from continuing operations $ 6,716,498 $ 3,948,334 $ 13,000,018 $ 7,788,869
Cost of sales 3,521,549 2,109,253 7,237,295 4,151,092
------------- ------------ ------------- ------------
Gross profit 3,194,949 1,839,081 5,762,723 3,637,777
Selling, general and administration 2,966,652 2,018,606 5,549,463 3,422,771
Depreciation and amortization 244,540 87,757 440,958 284,175
------------- ------------ ------------- ------------
Operating loss (16,243) (267,282) (227,698) (69,169)
Loss on sale of assets (13,425) - (13,425)
Interest income (expense), net (53,271) 24,479 (81,805) 24,479
------------- ------------ ------------- ------------
Loss from continuing operations
before provision for income taxes (82,939) (242,803) (322,928) (44,690)
Provision for income taxes - - - -
------------- ------------ ------------- ------------
Net loss from continuing operations (82,939) (242,803) (322,928) (44,690)
Net loss from discontinued
operations - (8,961,918) - (10,948,835)
------------- ------------ ------------- ------------
Net loss $ (82,939) $ (9,204,721) $ (322,928) $(10,993,525)
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Net loss per share - Primary
and fully diluted:
Continuing operations $ (0.01) $ (0.04) $ (0.04) $ (0.01)
Discontinued operations $ - $ (1.47) $ - $ (1.80)
------------- ------------ ------------- ------------
Total net loss per share $ (0.01) $ (1.51) $ (0.04) $ (1.80)
------------- ------------ ------------- ------------
------------- ------------ ------------- ------------
Weighted average common shares
outstanding 8,342,752 6,112,127 8,199,498 6,091,468
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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MONTEREY PASTA COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------
JUNE 30, 1996 JULY 2, 1995
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (322,928) $ (44,690)
Adjustments to reconcile net loss to net cash
from operating activities:
Depreciation and amortization 440,958 284,175
Loss on sale of assets 13,425 -
Effect of changes in operating working capital:
Accounts receivable (1,842,021) (253,037)
Inventories (443,518) (124,634)
Prepaid expenses and other (586,925) (438,122)
Accounts payable (387,607) 850,265
Accrued liabilities 16,535 (299,355)
------------- -------------
Net cash used in continuing operations (3,112,081) (25,398)
Net cash used in discontinued operations (2,249,415) (3,050,197)
Cash flows from investing activities:
Proceeds from the sale of assets 31,383 -
Purchase of intangibles and other assets (105,986) (64,526)
Purchase of property and equipment (1,007,051) (880,458)
Note receivable advances (300,000) -
------------- -------------
Net cash used in investing activities (1,381,654) (944,984)
------------- -------------
Cash flows from financing activities:
Repayment of long-term debt and capital
lease obligations (5,690) (29,379)
Net proceeds from issuance of common stock 3,930,970 1,486,686
Credit facility borrowings 4,127,220 -
Credit facility repayments (2,740,700) -
------------- -------------
Net cash used in financing activities 5,311,800 1,457,307
------------- -------------
Net decrease in cash (1,431,350) (2,563,272)
Cash and cash equivalents at beginning of the period 1,937,884 3,195,395
------------- -------------
Cash and cash equivalents at end of the period $ 506,534 $ 632,123
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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MONTEREY PASTA COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared by
Monterey Pasta Company (the "Company") and are unaudited. Certain amounts
shown in the 1995 financial statements have been reclassified to conform with
the current presentation. The financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, do not
necessarily include all information and footnotes required by generally
accepted accounting principles and should be read in conjunction with the
Company's 1995 Annual Report on Form 10-K, as amended by Form 10-K/A. In the
opinion of the Company, all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's consolidated financial
position, results of operations and cash flows as of June 30, 1996, and for
all periods presented have been recorded. A description of the Company's
accounting policies and other financial information is included in the
audited consolidated financial statements as filed with the Securities and
Exchange Commission in the Company's Form 10-K for the year ended December
31, 1995, as amended by Form 10-K/A. The consolidated results of operations
for the interim quarterly periods are not necessarily indicative of the
results expected for the full year.
2. STATEMENT OF CASH FLOWS
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Additions to property, plant and equipment during the six months ended June
30, 1996, included $141,722 that were financed by advances from the equipment
revolving line of credit and an additional $216,870 that was acquired through
a capital lease agreement. Also, during the six months ended June 30, 1996,
debt and accrued interest totaling $3,900,406, net of expenses, were
converted into common stock (refer to Footnote 6) and early settlement of a
lease obligation was partially paid by the issuance of $35,000 of common
stock.
3. NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995. The new standard
defines a fair value method of accounting for stock options and other equity
instruments. Under the fair value method, compensation is measured at the
grant date based on the fair value of the award and is recognized over the
service period, which is usually the vesting period.
Pursuant to the new standard, companies are encouraged, but are not required,
to adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for
employee stock-based transactions under Accounting Principles Board Opinion
("APBO") No. 25, "Accounting for Stock Issued to Employees", but would be
required to disclose in a note to the financial statements pro forma net
income and, if presented, earnings per share as if the Company had applied
the new method of accounting.
The accounting requirements of the new standard are effective for all
employee awards granted after the beginning of the fiscal year of adoption.
The Company has elected to continue to account for stock-based compensation
under APBO No. 25 and will adopt the disclosure requirements of SFAS No. 123
in 1996.
4. INVENTORIES
Inventories consist of the following:
June 30, 1996 December 31, 1995
-------------- ------------------
Product ingredients $ 532,398 $ 530,511
Finished goods 623,211 353,484
Paper and packaging materials 382,885 210,981
-------------- ------------------
$ 1,538,494 $ 1,094,976
-------------- ------------------
-------------- ------------------
6
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5. PROPERTY AND EQUIPMENT
Investments in property, plant and equipment are comprised of the following;
June 30, 1996 December 31, 1995
--------------- -----------------
Machinery and equipment $ 3,985,874 $ 3,398,749
Leasehold imnprovements 1,618,178 1,550,963
Office furniture and equipment 789,564 522,902
Vehicles 695,950 732,424
--------------- -----------------
7,089,566 6,205,038
Less accumulated depreciation
and amortization (1,436,190) (1,049,380)
--------------- -----------------
5,653,376 5,155,658
Construction in progress 590,342 183,310
--------------- -----------------
$ 6,243,718 $ 5,338,968
--------------- -----------------
--------------- -----------------
Supplemental information:
Depreciation and amortization
expense on:
Assets Purchased $ 380,511 $ 251,912
Assets leased 35,574 -
Accumulated depreciation on leased
assets 35,574 -
6. LONG-TERM DEBT
Components of long-term debt included the following:
June 30, 1996 December 31, 1995
--------------- -----------------
Credit facility:
Receivable and inventory
revolver $ 771,372 $ 52,375
Equipment revolver 141,722 63,178
Equipment term loan 708,333 -
7% Convertible note, due
October, 1997 - 4,000,000
Other 248,594 15,046
--------------- -----------------
1,870,021 4,130,599
Less current portion of long-term
debt (361,200) -
--------------- -----------------
$ 1,508,821 $ 4,130,599
--------------- -----------------
--------------- -----------------
During the first six months of 1996, the 7% convertible note payable and
accrued interest of $20,456 were converted into 973,476 shares of common
stock of the Company. The average conversion price was $4.13 per share.
7. INCOME TAXES
The net operating loss carryforward generated for the six months ended June
30, 1996, was fully offset with a valuation allowance due to uncertainties
about its realization.
8. DISCONTINUED OPERATIONS
Subsequent to year-end 1995, the Company decided to discontinue the
operations of its restaurant and franchise subsidiaries. As a result of this
decision the Company wrote off its entire investment in its restaurant and
franchise subsidiaries.
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Net revenues for the restaurant and franchise subsidiaries were $648,184 and
$1,893,494 for the first quarters of 1996 and 1995 respectively and $740,546
and $1,796,430 for the six months ended June 30, 1996, and July 2, 1995,
respectively.
On April 19, 1996, the Company closed a transaction pursuant to a Stock
Purchase Agreement between itself and Upscale Acquisitions, Inc., a
California corporation ("Upscale"), dated as of April 1, 1996 (the
"Agreement"). Pursuant to the Agreement, the Company sold its shares in a
wholly-owned subsidiary, Upscale Food Outlets, Inc., a California corporation,
which owns and operates restaurants in California, Colorado and
Washington that feature pasta products under the name of "Monterey Pasta
Company". The purchase price of the shares was $1,000 in cash and a note
executed by Upscale in the principal amount of $2,500,000 ("Note"). The
Company has elected to use the "cost recovery method" to account for the
transaction, which defers recognition of income until payments are received.
Mr. Lance H. Mortensen is the sole shareholder, Chief Executive Officer,
President and a director of Upscale. Mr. Mortensen is also a director of the
Company, and former Chairman of the Board, Chief Executive Officer and
President of the Company.
The Agreement also provided for advances by the Company to Upscale to be added
to the principal amount of the Note. Advances totaling $300,000 have been
added to the Note during the quarter ended June 30, 1996. These advances are
not accounted for using the "cost recovery method".
9. STOCKHOLDERS' EQUITY
In April, 1996, the Company sold approximately $4,000,000 of its common stock
in a private offering to accredited investors at $4.375 per share. The
shares of common stock are restricted securities with registration rights.
Purchasers of the common stock agreed not to sell such shares for one year
from the date of purchase without the consent of the placement agent.
Spelman & Co. acted as placement agent (the "Placement Agent") on a "best
efforts", "any or all" basis. The Placement Agent received no cash
commissions in the offering but received warrants to purchase one share of
common stock for each $10 in shares sold, exercisable at a price of $6.50 per
share, for a term of seven years. The net proceeds from the offering are
being used by the Company for advertising, marketing, promotion, capital
equipment and working capital. In May, 1996, the Board of Directors of the
Company adopted a shareholders rights plan, a copy of which was mailed to
shareholders on May 31, 1996. In August, 1996, the Company sold 3,500 shares
of the Company's preferred stock for approximately $3,500,000 (See Footnote
12 - Subsequent Events).
10. EMPLOYEE BENEFITS PLANS
The Company established a voluntary defined contribution 401(k) plan in 1996
that covers all employees that are not covered by a collective bargaining
agreement beginning on the first day of the calendar quarter after having
completed six months of service. The plan allows for employer matching
contributions. The Company is currently matching fifty percent of the first
6% contributed by employees. Employee and employer matching contributions
are always 100% vested. The plan also provides for a voluntary profit
sharing contribution by the Company at its election based on the eligible
employees salary as a percent of total eligible salaries. Profit sharing
contributions vest over five years at 20% per year.
11. CONTINGENCIES
See Footnote 10 of the Company's audited consolidated financial statements
which are included in the Company's Annual Report filed on Form 10-K for the
year ended December 31, 1995, as amended by Form 10-K/A, for a description of
such items.
12. SUBSEQUENT EVENTS
On August 1, 1996 at a Special Meeting of Shareholders of Monterey Pasta
Company, a California corporation, the shareholders approved the following
proposals:
1. To authorize the Company to change the Company's state of incorporation
from California to Delaware,
2. To amend the authorized shares of the Company's common stock from
20,000,000 to 70,000,000, an increase of 50,000,000 shares, and
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3. To amend the Company's First Amended and Restated 1993 Stock Option Plan
to increase the number of shares of common stock reserved for
issuance thereunder from 1,200,000 to 1,740,000, an increase of 540,000
shares.
On August 7, 1996, the Company was reincorporated in Delaware.
In August, 1996, the Company sold approximately $3,500,000 of convertible
preferred stock. This preferred stock is convertible into common stock at
80% of the market value of the Company's common stock as defined in the
subscription agreement. The Company anticipates using the proceeds for
capital expenditures, working capital and other general corporate purposes.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion should be read in conjunction with the
financial statements and related notes and other information included in this
report. The financial results reported herein do not indicate the financial
results that may be achieved by the Company in any future period.
Other than the historical facts contained herein, this Quarterly Report
contains forward-looking statements that involve substantial risks and
uncertainties. For a discussion of such risks and uncertainties, please see the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, as
amended by Form 10-K/A. In addition to the risks and uncertainties discussed in
the Annual Report, the following factors should be considered. As the Company
has continued to expand its retail distribution, it has expended substantial
resources on slotting allowances and other incentives in order to attract new
customers. There can be no assurance that such expenditures will generate
sufficient revenues to cover costs or that such new customers will be retained.
The Company's business continues to be dominated by several very large
competitors which have significantly greater resources than the Company; such
competitors can outspend the Company and negatively affect the Company's market
share and results of operations. The Company also continues to be dependent on
common carriers to distribute its products. Any disruption in the Company's
distribution system or increase in the costs thereof could have a material
adverse impact on the Company's business.
BACKGROUND
Monterey Pasta Company (the "Company") produces and markets premium
quality refrigerated and frozen gourmet pasta and pasta sauces. The
Company seeks to build national brand recognition and customer loyalty by
employing targeted marketing and advertising programs that focus on
developing complementary channels of distribution and multiple points of sale
for the Company's products. The Company markets and sells its products
through grocery and club stores, national food service distributors/contract
feeders and nontraditional venues such as sports coliseums and universities.
The Company sells its pasta and pasta sauces through leading grocery
store chains, including A & P, Kroger, Winn-Dixie, Safeway, Vons, Albertsons,
Giant Foods, Stop & Shop, Hannaford Bros., QFC, Harris-Teeter Super, Cala/Bell,
Pathmark, Smitty's, Nob Hill and Petrini's; and club store
chains such as Price/Costco and BJ's. As of June 30, 1996, more than
6,000 grocery and club stores offered the Company's products.
The Company currently offers over 30 unique and delicious varieties of
pasta and sauce products that are produced using the Company's proprietary
recipes, including refrigerated cut pasta, ravioli, tortelloni, tortellini
and pasta sauces. The Company believes its pasta products appeal to
value-conscious consumers who are seeking excellent quality and convenience.
As part of the Company's efforts to build national brand recognition and
loyalty, the Company introduced new product labels and promotional materials
during the quarter. The Company also continued its capital investment program
at its Monterey County manufacturing facility. The expenditures include the
completion of a new production line to increase manufacturing capacity.
Subsequent to the year ended December 31, 1995, the Company decided to
discontinue the business of its restaurant and franchise subsidiaries. In
1995, the Company wrote off its entire investment in its restaurant and
franchise subsidiaries and reclassified these subsidiaries as discontinued
operations. On April 19, 1996, the Company closed the sale of its subsidiary
pursuant to a Stock Purchase Agreement between itself and Upscale
Acquisitions, Inc., a California corporation ("Upscale"), dated as of April
1, 1996 (the "Agreement"). The purchase price of the shares was $1,000 in
cash and a note executed by Upscale in the principal amount of $2,500,000
("Note"). Mr. Lance H. Mortensen is the sole shareholder, Chief Executive
Officer, President and a director of Upscale. Mr. Mortensen is also a
director of the Company, and former Chairman of the Board, Chief Executive
Officer and President of the Company. The Company has elected to use the
"cost recovery method" to account for the transaction, which defers
recognition of income until payments are received.
The Agreement also provided for advances by the Company to be added to
the principal amount of the Note. Advances totaling $300,000 have been added
to the Note during the quarter ended June 30, 1996. These advances are not
accounted for using the "cost recovery method".
While most discontinued operational issues have been resolved, some
issues are not expected to be fully settled until year-end, and therefore the
Company continues to carry a net liability of $680,000 for discontinued
operations.
There can be no assurance that these changes and the sale to Upscale
will lead to improved operating results for the Company. The future success
of the Company's efforts will depend on a number of factors, including
whether grocery and club store chains will continue to expand the number of
their individual stores offering the Company's products and whether the
Company can continue to increase the number of grocery and club store chains
offering its products. During the second quarter of 1996, the Company added
seven major customers. The Company remains dependent on the use of slotting
allowances and other incentives to expand retail distribution. New markets
increase the risk of significant product returns resulting from slower selling
product than expected. In addition, grocery and club store chains continually
re-evaluate the products carried in their stores and no assurances can be given
that the chains currently
10
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offering the Company's products will continue to do so in the future. Should
these channels choose to reduce or eliminate products, the Company could
experience a significant reduction in product sales.
RESULTS OF OPERATIONS
Net revenues increased 70% to $6,716,498 for the quarter ended June 30,
1996 as compared to $3,948,334 for the quarter ended July 2, 1995. For the
six months ended June 30, net revenues increased 67% to $13,000,018 from
$7,788,869 for the six months ended July 2, 1995. The increase in sales is
the result of distribution to approximately 6,000 individual grocery and club
stores at June 30, 1996, compared to approximately 1,700 in the same periods
during 1995.
Gross profit was $3,194,949, or 48% of net revenues for the second
quarter of 1996, compared to $1,839,081, or 47% for the second quarter of
1995. The improvement is in part due to increases in sales, improved product
manufacturing efficiency, partially offset by higher allowances in entering
new markets and changes in product mix. For the six months ending June 30,
1996, gross profit was $5,762,723 or 44% of net revenues, as compared to
$3,637,777 or 47% for the equivalent period in 1995. The lower gross margin
is associated with a significant marketing effort during the first quarter of
1996, which resulted in reducing net sales and related gross profit.
Selling, general and administrative expenses increased 47%, to
$2,963,834 for the quarter ended June 30, 1996, compared to $2,018,606 for the
second quarter of 1995. For the six months ending June 30, selling, general
and administrative expenses increased 62%, to $5,546,645 compared to
$3,422,771 for the six months of 1995. Selling costs, particularly costs
related to grocery store trade promotions and club store demonstrations, were
higher as a result of the Company's efforts to obtain new customers and enter
new geographic markets. Additionally, cost increases are attributable to the
expansion of the Company's infrastructure which has required additional costs
such as administrative and management salaries, recruiting and training of
new personnel, modifying computer systems and related indirect costs.
Depreciation and amortization was $244,540, or 4% of net revenues for
the quarter ended June 30, 1996 compared to $87,757, or 2% of net revenues
for the first quarter of 1995. For the six months ending June 30, 1996,
depreciation and amortization was $440,958, or 3% of net revenues, compared
to $284,175, or 4% of net revenues for the first half of 1995. These
expenses relate primarily to capital expenditures in the Monterey County
production facility. The Company anticipates increases in depreciation and
amortization in future periods as additional equipment to expand production
capability is purchased and placed into service.
IMPACT OF INFLATION
The Company believes that inflation has not had a material impact on its
operations to date. Substantial increases in labor, employee benefits,
ingredients and packaging, rents and other operating expenses could adversely
affect the operations of the Company's business in future periods. The
Company cannot predict whether such increases will occur.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ending June 30, 1996, the Company used $6,743,150 in
its operations. Cashflow used by continuing operations included $3,243,536
for working capital requirements and $1,007,051 for capital equipment
acquisitions. Cashflow used by discontinued operations totaling $2,249,415
were related to the funding of wind down activities associated with the
Company's discontinued restaurant and franchise subsidiaries.
During the first six months of 1996, the Company raised $3,930,970, net
of expenses, from private placement of 916,000 shares at an average net price
of $4.29 per share.
In August, 1996, the Company sold approximately $3,500,000 of
convertible preferred stock. This preferred stock is convertible
into common stock at 80% of the market value of the Company's common stock as
defined in the subscription agreement. The Company anticipates using the
proceeds for capital expenditures, working capital and other general
corporate purposes.
11
<PAGE>
There is no assurance that the additional capital raised by the Company
during 1996 will be sufficient to meet its future needs. As the Company
continues to grow it may require additional capital to fund expansion and
operating requirements, including but not limited to advertising and customer
promotional expenses and capital equipment.
12
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
See Note 12 to Unaudited Condensed Consolidated Financial Statements.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
See Note 12 to Unaudited Condensed Consolidated Financial Statements.
Pursuant to a Notice dated April 19, 1996, the Company held its
Annual Meeting of Shareholders on May 7, 1996, and the shareholders
voted on the following two proposals:
1. To elect eight directors to serve until the next Annual Meeting
of Shareholders or until their successors are elected and
qualified, and
2. To ratify the appointment of Deloitte & Touche LLP as the
Company's independent certified public accountants for the
fiscal year ending December 29, 1996.
(1) Election of directors:
Charles B. Bonner For 4,006,514 Against 0 Abstain 8,377
Norman E. Dean For 4,006,514 Against 0 Abstain 8,377
Daniel J. Gallery For 4,006,514 Against 0 Abstain 8,377
Christopher G. Gilliam For 4,006,514 Against 0 Abstain 8,377
Floyd R. Hill For 4,006,514 Against 0 Abstain 8,377
E. Michael Moone For 4,006,514 Against 0 Abstain 8,377
Lance H. Mortensen For 4,006,344 Against 0 Abstain 8,547
Timothy J. Ryan For 4,006,514 Against 0 Abstain 8,377
(2) Ratification of Independent Public Accountants - Deloitte & Touche
LLP
For 3,985,546 Against 4,395 Abstain 24,950
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The exhibits listed in the accompanying exhibit index on
page 15 are sequentially numbered and are filed or incorporated by
reference as part of this report.
(b) Reports on Form 8-K:
(1) Report on Form 8-K filed on May 28, 1996, reported the execution
and adoption by the Company of a Rights Agreement with Corporate Stock
Transfer, as the rights agent, dated as of May 15, 1996, including
Form of Rights Certificate.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
MONTEREY PASTA COMPANY
Date: August 9, 1996 By: /s/ NORMAN E. DEAN
----------------------------
Norman E. Dean
President and Chief
Executive Officer
By: /s/ STEPHEN J. KENNEDY
----------------------------
Stephen J. Kennedy
Vice President and
Chief Financial Officer
(As of July 1, 1996)
14
<PAGE>
INDEX TO EXHIBITS
NUMBER EXHIBIT TITLE
- --------------------------------------------------------------------------------
10.43 Shareholder Rights Agreement dated as of May 15, 1996
between the Company and Corporate Stock Transfer, as
rights agent (Previously filed and incorporated by
reference from Item 2 of Form 8-A filed with the Securities
and Exchange Commission on May 28, 1996)
10.44* The Company's 401(k) Plan, established to be effective as of
January 1, 1996, adopted by the Board of Directors on
June 7, 1996
10.45* Directed Employee Benefit Trust Agreement dated June 17, 1996
between the Company and The Charles Schwab Trust Company,
as Trustee of the Company's 401(k) Plan
27 Financial Data Schedule (for electronic filing only)
- ------------
* Management contract or compensatory plan or arrangement covering
executive officers or directors and all employees of the Company
15
<PAGE>
EXHIBIT 10.44
MONTEREY PASTA COMPANY
401(k) PLAN
Established Effective January 1, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS. . . . . . . . . . . . . . . . . . . . 11
2.2 DETERMINATION OF TOP HEAVY STATUS. . . . . . . . . . . . . . . . . 11
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER. . . . . . . . . . . . 13
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY. . . . . . . . . . . . . . 13
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES. . . . . . . . . . . 13
2.6 POWERS AND DUTIES OF THE ADMINISTRATOR . . . . . . . . . . . . . . 14
2.7 RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . . . . . 14
2.8 APPOINTMENT OF ADVISERS. . . . . . . . . . . . . . . . . . . . . . 14
2.9 INFORMATION FROM EMPLOYER. . . . . . . . . . . . . . . . . . . . . 15
2.10 PAYMENT OF EXPENSES. . . . . . . . . . . . . . . . . . . . . . . . 15
2.11 MAJORITY ACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.12 CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.13 CLAIMS REVIEW PROCEDURE. . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . 15
3.2 APPLICATION FOR PARTICIPATION. . . . . . . . . . . . . . . . . . . 16
3.3 EFFECTIVE DATE OF PARTICIPATION. . . . . . . . . . . . . . . . . . 16
3.4 DETERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . 16
3.5 TERMINATION OF ELIGIBILITY . . . . . . . . . . . . . . . . . . . . 16
3.6 OMISSION OF ELIGIBLE EMPLOYEE. . . . . . . . . . . . . . . . . . . 16
3.7 INCLUSION OF INELIGIBLE EMPLOYEE . . . . . . . . . . . . . . . . . 16
3.8 ELECTION NOT TO PARTICIPATE. . . . . . . . . . . . . . . . . . . . 17
<PAGE>
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION. . . . . . . . . . 17
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION. . . . . . . . . . . . . . 17
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION . . . . . . . . . . . . 19
4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS . . . . . . . 20
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . . . . . . . . 22
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS . . . . . . . . . . 24
4.7 MAXIMUM ANNUAL ADDITIONS . . . . . . . . . . . . . . . . . . . . . 25
4.8 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS. . . . . . . . . . . . . 27
4.9 TRANSFERS FROM QUALIFIED PLANS . . . . . . . . . . . . . . . . . . 28
4.10 DIRECTED INVESTMENT ACCOUNT. . . . . . . . . . . . . . . . . . . . 29
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND. . . . . . . . . . . . . . . . . . . . 29
5.2 METHOD OF VALUATION. . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT. . . . . . . . . . . . . 29
6.2 DETERMINATION OF BENEFITS UPON DEATH . . . . . . . . . . . . . . . 30
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY . . . . . . . . . 30
6.4 DETERMINATION OF BENEFITS UPON TERMINATION . . . . . . . . . . . . 31
6.5 DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . 32
6.6 DISTRIBUTION OF BENEFITS UPON DEATH. . . . . . . . . . . . . . . . 34
6.7 TIME OF SEGREGATION OR DISTRIBUTION. . . . . . . . . . . . . . . . 34
6.8 DISTRIBUTION FOR MINOR BENEFICIARY . . . . . . . . . . . . . . . . 34
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN . . . . . . . . . . 34
6.10 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION. . . . . . . . . . 35
6.11 DIRECT ROLLOVER. . . . . . . . . . . . . . . . . . . . . . . . . . 35
<PAGE>
ARTICLE VII
AMENDMENT, TERMINATION, MERGERS AND LOANS
7.1 AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.2 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.3 MERGER OR CONSOLIDATION. . . . . . . . . . . . . . . . . . . . . . 36
7.4 LOANS TO PARTICIPANTS. . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VIII
MISCELLANEOUS
8.1 PARTICIPANT'S RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 37
8.2 ALIENATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.3 CONSTRUCTION OF PLAN . . . . . . . . . . . . . . . . . . . . . . . 38
8.4 GENDER AND NUMBER. . . . . . . . . . . . . . . . . . . . . . . . . 38
8.5 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.6 PROHIBITION AGAINST DIVERSION OF FUNDS . . . . . . . . . . . . . . 38
8.7 BONDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE . . . . . . . . . . . . 39
8.9 INSURER'S PROTECTIVE CLAUSE. . . . . . . . . . . . . . . . . . . . 39
8.10 RECEIPT AND RELEASE FOR PAYMENTS . . . . . . . . . . . . . . . . . 39
8.11 ACTION BY THE EMPLOYER . . . . . . . . . . . . . . . . . . . . . . 39
8.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY . . . . . . . . 39
8.13 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.14 APPROVAL BY INTERNAL REVENUE SERVICE . . . . . . . . . . . . . . . 39
8.15 UNIFORMITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
<PAGE>
MONTEREY PASTA COMPANY
401(K) PLAN
THIS PLAN, hereby adopted this 7th day of June, 1996, by Monterey
Pasta Company (herein referred to as the "Employer").
W I T N E S S E T H:
WHEREAS, the Employer desires to recognize the contribution made to
its successful operation by its employees and to reward such contribution by
means of a 401(k) Profit Sharing Plan for those employees who shall qualify as
Participants hereunder;
NOW, THEREFORE, effective January 1, 1996, (hereinafter called the
"Effective Date"), the Employer hereby establishes a Profit Sharing Plan (the
"Plan") for the exclusive benefit of the Participants and their Beneficiaries,
on the following terms:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
1.2 "Administrator" means the person or entity designated by the Employer
pursuant to Section 2.4 to administer the Plan on behalf of the Employer.
1.3 "Affiliated Employer" means any corporation which is a member of a
controlled group of corporations (as defined in Code Section 414(b)) which
includes the Employer; any trade or business (whether or not incorporated) which
is under common control (as defined in Code Section 414(c)) with the Employer;
any organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in Code Section 414(m)) which includes the
Employer; and any other entity required to be aggregated with the Employer
pursuant to Regulations under Code Section 414(o).
1.4 "Aggregate Account" means, with respect to each Participant, the value
of all accounts maintained on behalf of a Participant, whether attributable to
Employer or Employee contributions, subject to the provisions of Section 2.2.
1.5 "Anniversary Date" means December 31st.
1.6 "Beneficiary" means the person to whom the share of a deceased
Participant's total account is payable, subject to the restrictions of Sections
6.2 and 6.6.
1.7 "Code" means the Internal Revenue Code of 1986, as amended or replaced
from time to time.
1.8 "Compensation" with respect to any Participant means such
Participant's wages, salaries, fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includible in
gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)) for a Plan Year.
Compensation shall exclude (a)(1) contributions made by the Employer
to a plan of deferred compensation to the extent that, the contributions are not
includible in the gross income of the Participant for the taxable year in which
contributed, (2) Employer contributions made on behalf of an Employee to a
simplified employee pension plan described in Code Section 408(k) to the extent
such contributions are excludable from the Employee's gross income, (3) any
distributions from a plan of deferred compensation; (b) amounts realized from
the exercise of a non-qualified stock option, or when restricted stock (or
property) held by an Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture; (c) amounts realized from the sale,
exchange or other disposition of stock acquired under a qualified stock option;
and (d) other amounts which receive special tax benefits, or contributions made
by the Employer (whether or not under a salary reduction agreement) towards the
purchase of any annuity contract described in Code Section 403(b) (whether or
not the contributions are actually excludable from the gross income of the
Employee).
1
<PAGE>
For purposes of this Section, the determination of Compensation shall
be made by:
(a) including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125,
402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee contributions
described in Code Section 414(h)(2) that are treated as Employer
contributions.
For a Participant's initial year of participation, Compensation shall
be recognized for the entire Plan Year.
Compensation in excess of $200,000 shall be disregarded. Such amount
shall be adjusted at the same time and in such manner as permitted under Code
Section 415(d), except that the dollar increase in effect on January 1 of any
calendar year shall be effective for the Plan Year beginning with or within such
calendar year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990. For any short Plan Year the Compensation limit
shall be an amount equal to the Compensation limit for the calendar year in
which the Plan Year begins multiplied by the ratio obtained by dividing the
number of full months in the short Plan Year by twelve (12). In applying this
limitation, the family group of a Highly Compensated Participant who is subject
to the Family Member aggregation rules of Code Section 414(q)(6) because such
Participant is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation" during
the year, shall be treated as a single Participant, except that for this purpose
Family Members shall include only the affected Participant's spouse and any
lineal descendants who have not attained age nineteen (19) before the close of
the year. If, as a result of the application of such rules the adjusted $200,000
limitation is exceeded, then the limitation shall be prorated among the affected
Family Members in proportion to each such Family Member's Compensation prior to
the application of this limitation, or the limitation shall be adjusted in
accordance with any other method permitted by Regulation.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer than 12 months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the denominator
of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in
this Plan to the limitation under Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for 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.
If, as a result of such rules, the maximum "annual addition" limit of
Section 4.7(a) would be exceeded for one or more of the affected Family Members,
the prorated Compensation of all affected Family Members shall be adjusted to
avoid or reduce any excess. The prorated Compensation of any affected Family
Member whose allocation would exceed the limit shall be adjusted downward to the
level needed to provide an allocation equal to such limit. The prorated
Compensation of affected Family Members not affected by such limit shall then be
adjusted upward on a pro rata basis not to exceed each such affected Family
Member's Compensation as determined prior to application of the Family Member
rule. The resulting allocation shall not exceed such individual's maximum
"annual addition" limit. If, after these adjustments, an "excess amount" still
results, such "excess amount" shall be disposed of in the manner described in
Section 4.8(a) pro rata among all affected Family Members.
1.9 "Contract" or "Policy" means any life insurance policy, retirement
income or annuity policy, or annuity contract (group or individual) issued
pursuant to the terms of the Plan.
1.10 "Deferred Compensation" with respect to any Participant means the
amount of the Participant's total Compensation which has been contributed to the
Plan in accordance with the Participant's deferral election pursuant to Section
4.2 excluding any such amounts distributed as excess "annual additions" pursuant
to Section 4.8(a).
1.11 "Early Retirement Date." This Plan does not provide for a retirement
date prior to Normal Retirement Date.
2
<PAGE>
1.12 "Elective Contribution" means the Employer's contributions to the Plan
of Deferred Compensation excluding any such amounts distributed as excess
"annual additions" pursuant to Section 4.8(a). In addition, the Employer's
matching contribution made pursuant to Section 4.1(b) and any Employer Qualified
Non-Elective Contribution made pursuant to Section 4.6 shall be considered an
Elective Contribution for purposes of the Plan. Any such contributions deemed to
be Elective Contributions shall be subject to the requirements of Sections
4.2(b) and 4.2(c) and shall further be required to satisfy the discrimination
requirements of Regulation 1.401(k)-1(b)(5), the provisions of which are
specifically incorporated herein by reference.
1.13 "Eligible Employee" means any Employee.
Employees whose employment is governed by the terms of a collective
bargaining agreement between Employee representatives (within the meaning of
Code Section 7701(a)(46)) and the Employer under which retirement benefits were
the subject of good faith bargaining between the parties will not be eligible to
participate in this Plan unless such agreement expressly provides for coverage
in this Plan or two percent or more of the Employees of the Employer who are
covered pursuant to that agreement are professionals as defined in Regulation
1.410(b)-9.
Employees who are nonresident aliens (within the meaning of Code
Section 7701(b)(1)(B)) and who receive no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer which constitutes income from sources
within the United States (within the meaning of Code Section 861(a)(3)) shall
not be eligible to participate in this Plan.
Employees of Affiliated Employers shall not be eligible to participate
in this Plan unless such Affiliated Employers have specifically adopted this
Plan in writing.
1.14 "Employee" means any person who is employed by the Employer or
Affiliated Employer, but excludes any person who is an independent contractor.
Employee shall include Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) unless such Leased Employees are covered by a plan
described in Code Section 414(n)(5) and such Leased Employees do not constitute
more than 20% of the recipient's non-highly compensated work force.
1.15 "Employer" means Monterey Pasta Company and any successor which shall
maintain this Plan; and any predecessor which has maintained this Plan. The
Employer is a corporation, with principal offices in the State of California.
1.16 "Excess Contributions" means, with respect to a Plan Year, the excess
of Elective Contributions made on behalf of Highly Compensated Participants for
the Plan Year over the maximum amount of such contributions permitted under
Section 4.5(a). Excess Contributions shall be treated as an "annual addition"
pursuant to Section 4.7(b).
1.17 "Excess Deferred Compensation" means, with respect to any taxable year
of a Participant, the excess of the aggregate amount of such Participant's
Deferred Compensation and the elective deferrals pursuant to Section 4.2(f)
actually made on behalf of such Participant for such taxable year, over the
dollar limitation provided for in Code Section 402(g), which is incorporated
herein by reference. Excess Deferred Compensation shall be treated as an "annual
addition" pursuant to Section 4.7(b) when contributed to the Plan unless
distributed to the affected Participant not later than the first April 15th
following the close of the Participant's taxable year. Additionally, for
purposes of Sections 2.2 and 4.4(g), Excess Deferred Compensation shall continue
to be treated as Employer contributions even if distributed pursuant to Section
4.2(f). However, Excess Deferred Compensation of Non-Highly Compensated
Participants is not taken into account for purposes of Section 4.5(a) to the
extent such Excess Deferred Compensation occurs pursuant to Section 4.2(d).
1.18 "Family Member" means, with respect to an affected Participant, such
Participant's spouse and such Participant's lineal descendants and ascendants
and their spouses, all as described in Code Section 414(q)(6)(B).
1.19 "Fiduciary" means any person who (a) exercises any discretionary
authority or discretionary control respecting management of the Plan or
exercises any authority or control respecting management or disposition of its
assets, (b) renders investment advice for a fee or other compensation, direct or
indirect, with respect to any monies or other property of the Plan or has any
authority or responsibility to do so, or (c) has any discretionary authority or
discretionary responsibility in the administration of the Plan, including, but
not limited to, the Trustee, the Employer and its representative body, and the
Administrator.
1.20 "Fiscal Year" means the Employer's accounting year of 12 months
commencing on January 1st of each year and ending the following December 31st.
1.21 "Forfeiture" means that portion of a Participant's Account that is not
Vested, and occurs on the earlier of:
3
<PAGE>
(a) the distribution of the entire Vested portion of a
Terminated Participant's Account, or
(b) the last day of the Plan Year in which the Participant
incurs five (5) consecutive 1-Year Breaks in Service.
Furthermore, for purposes of paragraph (a) above, in the case of a
Terminated Participant whose Vested benefit is zero, such Terminated Participant
shall be deemed to have received a distribution of his Vested benefit upon his
termination of employment. Restoration of such amounts shall occur pursuant to
Section 6.4(e)(2). In addition, the term Forfeiture shall also include amounts
deemed to be Forfeitures pursuant to any other provision of this Plan.
1.22 "Former Participant" means a person who has been a Participant, but
who has ceased to be a Participant for any reason.
1.23 "415 Compensation" with respect to any Participant means such
Participant's wages, salaries, fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includible in
gross income (including, but not limited to, commissions paid salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Regulation
1.62-2(c)) for a Plan Year.
"415 Compensation" shall exclude (a)(1) contributions made by the
Employer to a plan of deferred compensation to the extent that, the
contributions are not includible in the gross income of the Participant for the
taxable year in which contributed, (2) Employer contributions made on behalf of
an Employee to a simplified employee pension plan described in Code Section
408(k) to the extent such contributions are excludable from the Employee's gross
income, (3) any distributions from a plan of deferred compensation; (b) amounts
realized from the exercise of a non-qualified stock option, or when restricted
stock (or property) held by an Employee either becomes freely transferable or is
no longer subject to a substantial risk of forfeiture; (c) amounts realized from
the sale, exchange or other disposition of stock acquired under a qualified
stock option; and (d) other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of any annuity contract described in Code
Section 403(b) (whether or not the contributions are actually excludable from
the gross income of the Employee).
1.24 "414(s) Compensation" with respect to any Participant means such
Participant's "415 Compensation" paid during a Plan Year. The amount of "414(s)
Compensation" with respect to any Participant shall include "414(s)
Compensation" for the entire twelve (12) month period ending on the last day of
such Plan Year.
For purposes of this Section, the determination of "414(s)
Compensation" shall be made by including amounts which are contributed by the
Employer pursuant to a salary reduction agreement and which are not includible
in the gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
"414(s) Compensation" in excess of $200,000 shall be disregarded. Such
amount shall be adjusted at the same time and in such manner as permitted under
Code Section 415(d), except that the dollar increase in effect on January 1 of
any calendar year shall be effective for the Plan Year beginning with or within
such calendar year and the first adjustment to the $200,000 limitation shall be
effective on January 1, 1990. For any short Plan Year the "414(s) Compensation"
limit shall be an amount equal to the "414(s) Compensation" limit for the
calendar year in which the Plan Year begins multiplied by the ratio obtained by
dividing the number of full months in the short Plan Year by twelve (12). In
applying this limitation, the family group of a Highly Compensated Participant
who is subject to the Family Member aggregation rules of Code Section 414(q)(6)
because such Participant is either a "five percent owner" of the Employer or one
of the ten (10) Highly Compensated Employees paid the greatest "415
Compensation" during the year, shall be treated as a single Participant, except
that for this purpose Family Members shall include only the affected
Participant's spouse and any lineal descendants who have not attained age
nineteen (19) before the close of the year.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual Compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a
calendar year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such calendar
year. If a determination period consists of fewer
4
<PAGE>
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 Code Section 401(a)(17) shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If Compensation for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan Year,
the Compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for 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.
1.25 "Highly Compensated Employee" means an Employee described in Code
Section 414(q) and the Regulations thereunder, and generally means an Employee
who performed services for the Employer during the "determination year" and is
in one or more of the following groups:
(a) Employees who at any time during the "determination year" or
"look-back year" were "five percent owners" as defined in Section
1.31(c).
(b) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $75,000.
(c) Employees who received "415 Compensation" during the
"look-back year" from the Employer in excess of $50,000 and were in
the Top Paid Group of Employees for the Plan Year.
(d) Employees who during the "look-back year" were officers of
the Employer (as that term is defined within the meaning of the
Regulations under Code Section 416) and received "415 Compensation"
during the "look-back year" from the Employer greater than 50 percent
of the limit in effect under Code Section 415(b)(1)(A) for any such
Plan Year. The number of officers shall be limited to the lesser of
(i) 50 employees; or (ii) the greater of 3 employees or 10 percent of
all employees. For the purpose of determining the number of officers,
Employees described in Section 1.54(a), (b), (c) and (d) shall be
excluded, but such Employees shall still be considered for the purpose
of identifying the particular Employees who are officers. If the
Employer does not have at least one officer whose annual "415
Compensation" is in excess of 50 percent of the Code Section
415(b)(1)(A) limit, then the highest paid officer of the Employer will
be treated as a Highly Compensated Employee.
(e) Employees who are in the group consisting of the 100
Employees paid the greatest "415 Compensation" during the
"determination year" and are also described in (b), (c) or (d) above
when these paragraphs are modified to substitute "determination year"
for "look-back year."
The "look-back year" shall be the calendar year ending with or within
the Plan Year for which testing is being performed, and the "determination year"
(if applicable) shall be the period of time, if any, which extends beyond the
"look-back year" and ends on the last day of the Plan Year for which testing is
being performed (the "lag period"). If the "lag period" is less than twelve
months long, the dollar threshold amounts specified in (b), (c) and (d) above
shall be prorated based upon the number of months in the "lag period."
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions. Additionally, the
dollar threshold amounts specified in (b) and (c) above shall be adjusted at
such time and in such manner as is provided in Regulations. In the case of such
an adjustment, the dollar limits which shall be applied are those for the
calendar year in which the "determination year" or "look-back year" begins.
In determining who is a Highly Compensated Employee, Employees who are
non-resident aliens and who received no earned income (within the meaning of
Code Section 911(d)(2)) from the Employer constituting United States source
income within the meaning of Code Section 861(a)(3) shall not be treated as
Employees. Additionally, all Affiliated Employers shall be taken into account as
a single employer and Leased Employees within the meaning of Code Sections
414(n)(2) and 414(o)(2) 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 Employer. The exclusion of
Leased Employees for this
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purpose shall be applied on a uniform and consistent basis for all of the
Employer's retirement plans. Highly Compensated Former Employees shall be
treated as Highly Compensated Employees without regard to whether they
performed services during the "determination year."
1.26 "Highly Compensated Former Employee" means a former Employee who had a
separation year prior to the "determination year" and was a Highly Compensated
Employee in the year of separation from service or in any "determination year"
after attaining age 55. Notwithstanding the foregoing, an Employee who separated
from service prior to 1987 will be treated as a Highly Compensated Former
Employee only if during the separation year (or year preceding the separation
year) or any year after the Employee attains age 55 (or the last year ending
before the Employee's 55th birthday), the Employee either received "415
Compensation" in excess of $50,000 or was a "five percent owner." For purposes
of this Section, "determination year," "415 Compensation" and "five percent
owner" shall be determined in accordance with Section 1.25. 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.
1.27 "Highly Compensated Participant" means any Highly Compensated Employee
who is eligible to participate in the Plan.
1.28 "Hour of Service" means (1) each hour for which an Employee is
directly or indirectly compensated or entitled to compensation by the Employer
for the performance of duties during the applicable computation period; (2) each
hour for which an Employee is directly or indirectly compensated or entitled to
compensation by the Employer (irrespective of whether the employment
relationship has terminated) for reasons other than performance of duties (such
as vacation, holidays, sickness, jury duty, disability, lay-off, military duty
or leave of absence) during the applicable computation period; (3) each hour for
which back pay is awarded or agreed to by the Employer without regard to
mitigation of damages. These hours will be credited to the Employee for the
computation period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement or payment is made.
The same Hours of Service shall not be credited both under (1) or (2), as the
case may be, and under (3).
Notwithstanding the above, (i) no more than 501 Hours of Service are
required to be credited to an Employee on account of any single continuous
period during which the Employee performs no duties (whether or not such period
occurs in a single computation period); (ii) an hour for which an Employee is
directly or indirectly paid, or entitled to payment, on account of a period
during which no duties are performed is not required to be credited to the
Employee if such payment is made or due under a plan maintained solely for the
purpose of complying with applicable worker's compensation, or unemployment
compensation or disability insurance laws; and (iii) Hours of Service are not
required to be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee.
For purposes of this Section, a payment shall be deemed to be made by
or due from the Employer regardless of whether such payment is made by or due
from the Employer directly, or indirectly through, among others, a trust fund,
or insurer, to which the Employer contributes or pays premiums and regardless of
whether contributions made or due to the trust fund, insurer, or other entity
are for the benefit of particular Employees or are on behalf of a group of
Employees in the aggregate.
An Hour of Service must be counted for the purpose of determining a
Year of Service, a year of participation for purposes of accrued benefits, a
1-Year Break in Service, and employment commencement date (or reemployment
commencement date). In addition, Hours of Service will be credited for
employment with other Affiliated Employers. The provisions of Department of
Labor regulations 2530.200b-2(b) and (c) are incorporated herein by reference.
1.29 "Income" means the income or losses allocable to "excess amounts"
which shall equal the allocable gain or loss for the "applicable computation
period". The income allocable to "excess amounts" for the "applicable
computation period" is determined by multiplying the income for the "applicable
computation period" by a fraction. The numerator of the fraction is the "excess
amount" for the "applicable computation period." The denominator of the fraction
is the total "account balance" attributable to "Employer contributions" as of
the end of the "applicable computation period", reduced by the gain allocable to
such total amount for the "applicable computation period" and increased by the
loss allocable to such total amount for the "applicable computation period". The
provisions of this Section shall be applied:
(a) For purposes of Section 4.2(f), by substituting:
(1) "Excess Deferred Compensation" for "excess amounts";
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(2) "taxable year of the Participant" for "applicable
computation period";
(3) "Deferred Compensation" for "Employer contributions"; and
(4) "Participant's Elective Account" for "account balance."
(b) For purposes of Section 4.6(a), by substituting:
(1) "Excess Contributions" for "excess amounts";
(2) "Plan Year" for "applicable computation period";
(3) "Elective Contributions" for "Employer contributions"; and
(4) "Participant's Elective Account" for "account balance."
Income allocable to any distribution of Excess Deferred Compensation
on or before the last day of the taxable year of the Participant shall be
calculated from the first day of the taxable year of the Participant to the date
on which the distribution is made pursuant to either the "fractional method" or
the "safe harbor method." Under such "safe harbor method," allocable Income for
such period shall be deemed to equal ten percent (10%) of the Income allocable
to such Excess Deferred Compensation multiplied by the number of calendar months
in such period. For purposes of determining the number of calendar months in
such period, a distribution occurring on or before the fifteenth day of the
month shall be treated as having been made on the last day of the preceding
month and a distribution occurring after such fifteenth day shall be treated as
having been made on the first day of the next subsequent month.
1.30 "Investment Manager" means an entity that (a) has the power to manage,
acquire, or dispose of Plan assets and (b) acknowledges fiduciary responsibility
to the Plan in writing. Such entity must be a person, firm, or corporation
registered as an investment adviser under the Investment Advisers Act of 1940, a
bank, or an insurance company.
1.31 "Key Employee" means an Employee as defined in Code Section 416(i) and
the Regulations thereunder. Generally, any Employee or former Employee (as well
as each of his Beneficiaries) is considered a Key Employee if he, at any time
during the Plan Year that contains the "Determination Date" or any of the
preceding four (4) Plan Years, has been included in one of the following
categories:
(a) an officer of the Employer (as that term is defined within
the meaning of the Regulations under Code Section 416) having annual
"415 Compensation" greater than 50 percent of the amount in effect
under Code Section 415(b)(1)(A) for any such Plan Year.
(b) one of the ten employees having annual "415 Compensation"
from the Employer for a Plan Year greater than the dollar limitation
in effect under Code Section 415(c)(1)(A) for the calendar year in
which such Plan Year ends and owning (or considered as owning within
the meaning of Code Section 318) both more than one-half percent
interest and the largest interests in the Employer.
(c) a "five percent owner" of the Employer. "Five percent owner"
means any person who owns (or is considered as owning within the
meaning of Code Section 318) more than five percent (5%) of the
outstanding stock of the Employer or stock possessing more than five
percent (5%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than five percent (5%) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder, employers
that would otherwise be aggregated under Code Sections 414(b), (c),
(m) and (o) shall be treated as separate employers.
(d) a "one percent owner" of the Employer having an annual "415
Compensation" from the Employer of more than $150,000. "One percent
owner" means any person who owns (or is considered as owning within
the meaning of Code Section 318) more than one percent (1%) of the
outstanding stock of the Employer or stock possessing more than one
percent (1%) of the total combined voting power of all stock of the
Employer or, in the case of an unincorporated business, any person who
owns more than one percent (1%) of the capital or profits interest in
the Employer. In determining percentage ownership hereunder, employers
that would otherwise be aggregated under Code Sections 414(b), (c),
(m) and (o) shall be treated as separate employers. However, in
determining whether an individual has "415 Compensation" of more than
7
<PAGE>
$150,000, "415 Compensation" from each employer required to be
aggregated under Code Sections 414(b), (c), (m) and (o) shall be taken
into account.
For purposes of this Section, the determination of "415 Compensation"
shall be made by including amounts which are contributed by the Employer
pursuant to a salary reduction agreement and which are not includible in the
gross income of the Participant under Code Sections 125, 402(e)(3),
402(h)(1)(B), 403(b) or 457, and Employee contributions described in Code
Section 414(h)(2) that are treated as Employer contributions.
1.32 "Late Retirement Date" means the first day of the month coinciding
with or next following a Participant's actual Retirement Date after having
reached his Normal Retirement Date.
1.33 "Leased Employee" means any person (other than an Employee of the
recipient) who pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the recipient (or for
the recipient and related persons determined in accordance with Code Section
414(n)(6)) on a substantially full time basis for a period of at least one year,
and such services are of a type historically performed by employees in the
business field of the recipient employer. Contributions or benefits provided a
Leased Employee by the leasing organization which are attributable to services
performed for the recipient employer shall be treated as provided by the
recipient employer. A Leased Employee shall not be considered an Employee of the
recipient:
(a) if such employee is covered by a money purchase pension plan
providing:
(1) a non-integrated employer contribution rate of at least 10%
of compensation, as defined in Code Section 415(c)(3), but
including amounts which are contributed by the Employer pursuant
to a salary reduction agreement and which are not includible in
the gross income of the Participant under Code Sections 125,
402(e)(3), 402(h)(1)(B), 403(b) or 457, and Employee
contributions described in Code Section 414(h)(2) that are
treated as Employer contributions.
(2) immediate participation; and
(3) full and immediate vesting; and
(b) if Leased Employees do not constitute more than 20% of the
recipient's non-highly compensated work force.
1.34 "Non-Elective Contribution" means the Employer's contributions to the
Plan excluding, however, contributions made pursuant to the Participant's
deferral election provided for in Section 4.2, matching contributions made
pursuant to Section 4.1(b) and any Qualified Non-Elective Contribution.
1.35 "Non-Highly Compensated Participant" means any Participant who is
neither a Highly Compensated Employee nor a Family Member.
1.36 "Non-Key Employee" means any Employee or former Employee (and his
Beneficiaries) who is not a Key Employee.
1.37 "Normal Retirement Age" means the Participant's 65th birthday. A
Participant shall become fully Vested in his Participant's Account upon
attaining his Normal Retirement Age.
1.38 "Normal Retirement Date" means the first day of the month coinciding
with or next following the Participant's Normal Retirement Age.
1.39 "1-Year Break in Service" means the applicable computation period
during which an Employee has not completed more than 500 Hours of Service with
the Employer. Further, solely for the purpose of determining whether a
Participant has incurred a 1-Year Break in Service, Hours of Service shall be
recognized for "authorized leaves of absence" and "maternity and paternity
leaves of absence." Years of Service and 1-Year Breaks in Service shall be
measured on the same computation period.
"Authorized leave of absence" means an unpaid, temporary cessation
from active employment with the Employer pursuant to an established
nondiscriminatory policy, whether occasioned by illness, military service, or
any other reason.
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A "maternity or paternity leave of absence" means, for Plan Years
beginning after December 31, 1984, an absence from work for any period by reason
of the Employee's pregnancy, birth of the Employee's child, placement of a child
with the Employee in connection with the adoption of such child, or any absence
for the purpose of caring for such child for a period immediately following such
birth or placement. For this purpose, Hours of Service shall be credited for the
computation period in which the absence from work begins, only if credit
therefore is necessary to prevent the Employee from incurring a 1-Year Break in
Service, or, in any other case, in the immediately following computation period.
The Hours of Service credited for a "maternity or paternity leave of absence"
shall be those which would normally have been credited but for such absence, or,
in any case in which the Administrator is unable to determine such hours
normally credited, eight (8) Hours of Service per day. The total Hours of
Service required to be credited for a "maternity or paternity leave of absence"
shall not exceed 501.
1.40 "Participant" means any Eligible Employee who participates in the Plan
as provided in Sections 3.2 and 3.3, and has not for any reason become
ineligible to participate further in the Plan.
1.41 "Participant's Account" means the account established and maintained
by the Administrator for each Participant with respect to his total interest in
the Plan and Trust resulting from the Employer's Non-Elective Contributions.
1.42 "Participant's Combined Account" means the total aggregate amount of
each Participant's Elective Account and Participant's Account.
1.43 "Participant's Elective Account" means the account established and
maintained by the Administrator for each Participant with respect to his total
interest in the Plan and Trust resulting from the Employer's Elective
Contributions. A separate accounting shall be maintained with respect to that
portion of the Participant's Elective Account attributable to Elective
Contributions pursuant to Section 4.2, Employer matching contributions pursuant
to Section 4.1(b) and any Employer Qualified Non-Elective Contributions.
1.44 "Plan" means this instrument, including all amendments thereto.
1.45 "Plan Year" means the Plan's accounting year of twelve (12) months
commencing on January 1st of each year and ending the following December 31st.
1.46 "Qualified Non-Elective Contribution" means the Employer's
contributions to the Plan that are made pursuant to Section 4.6. Such
contributions shall be considered an Elective Contribution for the purposes of
the Plan and used to satisfy the "Actual Deferral Percentage" tests.
1.47 "Regulation" means the Income Tax Regulations as promulgated by the
Secretary of the Treasury or his delegate, and as amended from time to time.
1.48 "Retired Participant" means a person who has been a Participant, but
who has become entitled to retirement benefits under the Plan.
1.49 "Retirement Date" means the date as of which a Participant retires for
reasons other than Total and Permanent Disability, whether such retirement
occurs on a Participant's Normal Retirement Date or Late Retirement Date (see
Section 6.1).
1.50 "Super Top Heavy Plan" means a plan described in Section 2.2(b).
1.51 "Terminated Participant" means a person who has been a Participant,
but whose employment has been terminated other than by death, Total and
Permanent Disability or retirement.
1.52 "Top Heavy Plan" means a plan described in Section 2.2(a).
1.53 "Top Heavy Plan Year" means a Plan Year during which the Plan is a Top
Heavy Plan.
1.54 "Top Paid Group" means the top 20 percent of Employees who performed
services for the Employer during the applicable year, ranked according to the
amount of "415 Compensation" (determined for this purpose in accordance with
Section 1.25) received from the Employer during such year. All Affiliated
Employers shall be taken into account as a single employer, and Leased Employees
within the meaning of Code Sections 414(n)(2) and 414(o)(2) 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
Employer. Employees who are non-resident aliens and who received no earned
income (within the meaning of Code Section 911(d)(2)) from the Employer
constituting United States source income within the meaning of Code Section
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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:
(a) Employees with less than six (6) months of service;
(b) Employees who normally work less than 17 1/2 hours per week;
(c) Employees who normally work less than six (6) months during
a year; and
(d) Employees who have not yet attained age 21.
In addition, if 90 percent or more of the Employees of the Employer
are covered under agreements the Secretary of Labor finds to be collective
bargaining agreements between Employee representatives and the Employer, and the
Plan covers only Employees who are not covered under such agreements, then
Employees covered by such agreements shall be excluded from both the total
number of active Employees as well as from the identification of particular
Employees in the Top Paid Group.
The foregoing exclusions set forth in this Section shall be applied on
a uniform and consistent basis for all purposes for which the Code Section
414(q) definition is applicable.
1.55 "Total and Permanent Disability" means a physical or mental condition
of a Participant resulting from bodily injury, disease, or mental disorder which
renders him incapable of continuing his usual and customary employment with the
Employer. The disability of a Participant shall be determined by a licensed
physician chosen by the Administrator. The determination shall be applied
uniformly to all Participants.
1.56 "Trustee" means the person or entity named as trustee herein or in any
separate trust forming a part of this Plan, and any successors.
1.57 "Trust Fund" means the assets of the Plan and Trust as the same shall
exist from time to time.
1.58 "Vested" means the nonforfeitable portion of any account maintained on
behalf of a Participant.
1.59 "Year of Service" means the computation period of twelve (12)
consecutive months, herein set forth, during which an Employee has at least 1000
Hours of Service.
For purposes of eligibility for participation, the initial computation
period shall begin with the date on which the Employee first performs an Hour of
Service. The participation computation period beginning after a 1-Year Break in
Service shall be measured from the date on which an Employee again performs an
Hour of Service. The participation computation period shall shift to the Plan
Year which includes the anniversary of the date on which the Employee first
performed an Hour of Service. An Employee who is credited with the required
Hours of Service in both the initial computation period (or the computation
period beginning after a 1-Year Break in Service) and the Plan Year which
includes the anniversary of the date on which the Employee first performed an
Hour of Service, shall be credited with two (2) Years of Service for purposes of
eligibility to participate.
For vesting purposes, the computation period shall be the Plan Year,
including periods prior to the Effective Date of the Plan.
For all other purposes, the computation period shall be the Plan Year.
Notwithstanding the foregoing, for any short Plan Year, the
determination of whether an Employee has completed a Year of Service shall be
made in accordance with Department of Labor regulation 2530.203-2(c). However,
in determining whether an Employee has completed a Year of Service for benefit
accrual purposes in the short Plan Year, the number of the Hours of Service
required shall be proportionately reduced based on the number of full months in
the short Plan Year.
Years of Service with any Affiliated Employer shall be recognized.
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ARTICLE II
TOP HEAVY AND ADMINISTRATION
2.1 TOP HEAVY PLAN REQUIREMENTS
For any Top Heavy Plan Year, the Plan shall provide the special
vesting requirements of Code Section 416(b) pursuant to Section 6.4 of the Plan
and the special minimum allocation requirements of Code Section 416(c) pursuant
to Section 4.4 of the Plan.
2.2 DETERMINATION OF TOP HEAVY STATUS
(a) This Plan shall be a Top Heavy Plan for any Plan Year in
which, as of the Determination Date, (1) the Present Value of Accrued
Benefits of Key Employees and (2) the sum of the Aggregate Accounts of
Key Employees under this Plan and all plans of an Aggregation Group,
exceeds sixty percent (60%) of the Present Value of Accrued Benefits
and the Aggregate Accounts of all Key and Non-Key Employees under this
Plan and all plans of an Aggregation Group.
If any Participant is a Non-Key Employee for any Plan Year,
but such Participant was a Key Employee for any prior Plan Year, such
Participant's Present Value of Accrued Benefit and/or Aggregate
Account balance shall not be taken into account for purposes of
determining whether this Plan is a Top Heavy or Super Top Heavy Plan
(or whether any Aggregation Group which includes this Plan is a Top
Heavy Group). In addition, if a Participant or Former Participant has
not performed any services for any Employer maintaining the Plan at
any time during the five year period ending on the Determination Date,
any accrued benefit for such Participant or Former Participant shall
not be taken into account for the purposes of determining whether this
Plan is a Top Heavy or Super Top Heavy Plan.
(b) This Plan shall be a Super Top Heavy Plan for any Plan Year
in which, as of the Determination Date, (1) the Present Value of
Accrued Benefits of Key Employees and (2) the sum of the Aggregate
Accounts of Key Employees under this Plan and all plans of an
Aggregation Group, exceeds ninety percent (90%) of the Present Value
of Accrued Benefits and the Aggregate Accounts of all Key and Non-Key
Employees under this Plan and all plans of an Aggregation Group.
(c) Aggregate Account: A Participant's Aggregate Account as of
the Determination Date is the sum of:
(1) his Participant's Combined Account balance as of the most
recent valuation occurring within a twelve (12) month period
ending on the Determination Date;
(2) an adjustment for any contributions due as of the
Determination Date. Such adjustment shall be the amount of any
contributions actually made after the valuation date but due on
or before the Determination Date, except for the first Plan Year
when such adjustment shall also reflect the amount of any
contributions made after the Determination Date that are
allocated as of a date in that first Plan Year.
(3) any Plan distributions made within the Plan Year that
includes the Determination Date or within the four (4) preceding
Plan Years. However, in the case of distributions made after the
valuation date and prior to the Determination Date, such
distributions are not included as distributions for top heavy
purposes to the extent that such distributions are already
included in the Participant's Aggregate Account balance as of the
valuation date. Notwithstanding anything herein to the contrary,
all distributions, including distributions made prior to
January 1, 1984, and distributions under a terminated plan which
if it had not been terminated would have been required to be
included in an Aggregation Group, will be counted. Further,
distributions from the Plan (including the cash value of life
insurance policies) of a Participant's account balance because of
death shall be treated as a distribution for the purposes of this
paragraph.
(4) any Employee contributions, whether voluntary or mandatory.
However, amounts attributable to tax deductible qualified
voluntary employee contributions shall not be considered to be a
part of the Participant's Aggregate Account balance.
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<PAGE>
(5) with respect to unrelated rollovers and plan-to-plan
transfers (ones which are both initiated by the Employee and made
from a plan maintained by one employer to a plan maintained by
another employer), if this Plan provides the rollovers or
plan-to-plan transfers, it shall always consider such rollovers
or plan-to-plan transfers as a distribution for the purposes of
this Section. If this Plan is the plan accepting such rollovers
or plan-to-plan transfers, it shall not consider such rollovers
or plan-to-plan transfers as part of the Participant's Aggregate
Account balance.
(6) with respect to related rollovers and plan-to-plan transfers
(ones either not initiated by the Employee or made to a plan
maintained by the same employer), if this Plan provides the
rollover or plan-to-plan transfer, it shall not be counted as a
distribution for purposes of this Section. If this Plan is the
plan accepting such rollover or plan-to-plan transfer, it shall
consider such rollover or plan-to-plan transfer as part of the
Participant's Aggregate Account balance, irrespective of the date
on which such rollover or plan-to-plan transfer is accepted.
(7) For the purposes of determining whether two employers are to
be treated as the same employer in (5) and (6) above, all
employers aggregated under Code Section 414(b), (c), (m) and (o)
are treated as the same employer.
(d) "Aggregation Group" means either a Required Aggregation
Group or a Permissive Aggregation Group as hereinafter determined.
(1) Required Aggregation Group: In determining a Required
Aggregation Group hereunder, each plan of the Employer in which a
Key Employee is a participant in the Plan Year containing the
Determination Date or any of the four preceding Plan Years, and
each other plan of the Employer which enables any plan in which a
Key Employee participates to meet the requirements of Code
Sections 401(a)(4) or 410, will be required to be aggregated.
Such group shall be known as a Required Aggregation Group.
In the case of a Required Aggregation Group, each plan in the
group will be considered a Top Heavy Plan if the Required
Aggregation Group is a Top Heavy Group. No plan in the Required
Aggregation Group will be considered a Top Heavy Plan if the
Required Aggregation Group is not a Top Heavy Group.
(2) Permissive Aggregation Group: The Employer may also include
any other plan not required to be included in the Required
Aggregation Group, provided the resulting group, taken as a
whole, would continue to satisfy the provisions of Code Sections
401(a)(4) and 410. Such group shall be known as a Permissive
Aggregation Group.
In the case of a Permissive Aggregation Group, only a plan that
is part of the Required Aggregation Group will be considered a
Top Heavy Plan if the Permissive Aggregation Group is a Top Heavy
Group. No plan in the Permissive Aggregation Group will be
considered a Top Heavy Plan if the Permissive Aggregation Group
is not a Top Heavy Group.
(3) Only those plans of the Employer in which the Determination
Dates fall within the same calendar year shall be aggregated in
order to determine whether such plans are Top Heavy Plans.
(4) An Aggregation Group shall include any terminated plan of
the Employer if it was maintained within the last five (5) years
ending on the Determination Date.
(e) "Determination Date" means (a) the last day of the preceding
Plan Year, or (b) in the case of the first Plan Year, the last day of
such Plan Year.
(f) Present Value of Accrued Benefit: In the case of a defined
benefit plan, the Present Value of Accrued Benefit for a Participant
other than a Key Employee, shall be as determined using the single
accrual method used for all plans of the Employer and Affiliated
Employers, or if no such single method exists, using a method which
results in benefits accruing not more rapidly than the slowest accrual
rate permitted under Code Section 411(b)(1)(C). The determination of
the Present Value of Accrued Benefit shall be determined as of the
most recent valuation date that falls within or ends with the 12-month
period
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ending on the Determination Date except as provided in Code
Section 416 and the Regulations thereunder for the first and second
plan years of a defined benefit plan.
(g) "Top Heavy Group" means an Aggregation Group in which, as of
the Determination Date, the sum of:
(1) the Present Value of Accrued Benefits of Key Employees under
all defined benefit plans included in the group, and
(2) the Aggregate Accounts of Key Employees under all defined
contribution plans included in the group,
exceeds sixty percent (60%) of a similar sum determined for
all Participants.
2.3 POWERS AND RESPONSIBILITIES OF THE EMPLOYER
(a) The Employer shall be empowered to appoint and remove the
Trustee and the Administrator from time to time as it deems necessary
for the proper administration of the Plan to assure that the Plan is
being operated for the exclusive benefit of the Participants and their
Beneficiaries in accordance with the terms of the Plan, the Code, and
the Act.
(b) The Employer shall establish a "funding policy and method,"
i.e., it shall determine whether the Plan has a short run need for
liquidity (e.g., to pay benefits) or whether liquidity is a long run
goal and investment growth (and stability of same) is a more current
need, or shall appoint a qualified person to do so. The Employer or
its delegate shall communicate such needs and goals to the Trustee,
who shall coordinate such Plan needs with its investment policy. The
communication of such a "funding policy and method" shall not,
however, constitute a directive to the Trustee as to investment of the
Trust Funds. Such "funding policy and method" shall be consistent with
the objectives of this Plan and with the requirements of Title I of
the Act.
(c) The Employer shall periodically review the performance of
any Fiduciary or other person to whom duties have been delegated or
allocated by it under the provisions of this Plan or pursuant to
procedures established hereunder. This requirement may be satisfied by
formal periodic review by the Employer or by a qualified person
specifically designated by the Employer, through day-to-day conduct
and evaluation, or through other appropriate ways.
2.4 DESIGNATION OF ADMINISTRATIVE AUTHORITY
The Employer shall appoint one or more Administrators. Any person,
including, but not limited to, the Employees of the Employer, shall be eligible
to serve as an Administrator. Any person so appointed shall signify his
acceptance by filing written acceptance with the Employer. An Administrator may
resign by delivering his written resignation to the Employer or be removed by
the Employer by delivery of written notice of removal, to take effect at a date
specified therein, or upon delivery to the Administrator if no date is
specified.
The Employer, upon the resignation or removal of an Administrator,
shall promptly designate in writing a successor to this position. If the
Employer does not appoint an Administrator, the Employer will function as the
Administrator.
2.5 ALLOCATION AND DELEGATION OF RESPONSIBILITIES
If more than one person is appointed as Administrator, the
responsibilities of each Administrator may be specified by the Employer and
accepted in writing by each Administrator. In the event that no such delegation
is made by the Employer, the Administrators may allocate the responsibilities
among themselves, in which event the Administrators shall notify the Employer
and the Trustee in writing of such action and specify the responsibilities of
each Administrator. The Trustee thereafter shall accept and rely upon any
documents executed by the appropriate Administrator until such time as the
Employer or the Administrators file with the Trustee a written revocation of
such designation.
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2.6 POWERS AND DUTIES OF THE ADMINISTRATOR
The primary responsibility of the Administrator is to administer the
Plan for the exclusive benefit of the Participants and their Beneficiaries,
subject to the specific terms of the Plan. The Administrator shall administer
the Plan in accordance with its terms and shall have the power and discretion to
construe the terms of the Plan and to determine all questions arising in
connection with the administration, interpretation, and application of the Plan.
Any such determination by the Administrator shall be conclusive and binding upon
all persons. The Administrator may establish procedures, correct any defect,
supply any information, or reconcile any inconsistency in such manner and to
such extent as shall be deemed necessary or advisable to carry out the purpose
of the Plan; provided, however, that any procedure, discretionary act,
interpretation or construction shall be done in a nondiscriminatory manner based
upon uniform principles consistently applied and shall be consistent with the
intent that the Plan shall continue to be deemed a qualified plan under the
terms of Code Section 401(a), and shall comply with the terms of the Act and all
regulations issued pursuant thereto. The Administrator shall have all powers
necessary or appropriate to accomplish his duties under this Plan.
The Administrator shall be charged with the duties of the general
administration of the Plan, including, but not limited to, the following:
(a) the discretion to determine all questions relating to the
eligibility of Employees to participate or remain a Participant
hereunder and to receive benefits under the Plan;
(b) to compute, certify, and direct the Trustee with respect to
the amount and the kind of benefits to which any Participant shall be
entitled hereunder;
(c) to authorize and direct the Trustee with respect to all
nondiscretionary or otherwise directed disbursements from the Trust;
(d) to maintain all necessary records for the administration of
the Plan;
(e) to interpret the provisions of the Plan and to make and
publish such rules for regulation of the Plan as are consistent with
the terms hereof;
(f) to determine the size and type of any Contract to be
purchased from any insurer, and to designate the insurer from which
such Contract shall be purchased;
(g) to compute and certify to the Employer and to the Trustee
from time to time the sums of money necessary or desirable to be
contributed to the Plan;
(h) to consult with the Employer and the Trustee regarding the
short and long-term liquidity needs of the Plan in order that the
Trustee can exercise any investment discretion in a manner designed to
accomplish specific objectives;
(i) to prepare and implement a procedure to notify Eligible
Employees that they may elect to have a portion of their Compensation
deferred or paid to them in cash;
(j) to assist any Participant regarding his rights, benefits, or
elections available under the Plan.
2.7 RECORDS AND REPORTS
The Administrator shall keep a record of all actions taken and shall
keep all other books of account, records, and other data that may be necessary
for proper administration of the Plan and shall be responsible for supplying all
information and reports to the Internal Revenue Service, Department of Labor,
Participants, Beneficiaries and others as required by law.
2.8 APPOINTMENT OF ADVISERS
The Administrator, or the Trustee with the consent of the
Administrator, may appoint counsel, specialists, advisers, and other persons as
the Administrator or the Trustee deems necessary or desirable in connection with
the administration of this Plan.
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2.9 INFORMATION FROM EMPLOYER
To enable the Administrator to perform his functions, the Employer
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their Hours of Service, their
Years of Service, their retirement, death, disability, or termination of
employment, and such other pertinent facts as the Administrator may require; and
the Administrator shall advise the Trustee of such of the foregoing facts as may
be pertinent to the Trustee's duties under the Plan. The Administrator may rely
upon such information as is supplied by the Employer and shall have no duty or
responsibility to verify such information.
2.10 PAYMENT OF EXPENSES
All expenses of administration may be paid out of the Trust Fund
unless paid by the Employer. Such expenses shall include any expenses incident
to the functioning of the Administrator, including, but not limited to, fees of
accountants, counsel, and other specialists and their agents, and other costs of
administering the Plan. Until paid, the expenses shall constitute a liability of
the Trust Fund. However, the Employer may reimburse the Trust Fund for any
administration expense incurred.
2.11 MAJORITY ACTIONS
Except where there has been an allocation and delegation of
administrative authority pursuant to Section 2.5, if there shall be more than
one Administrator, they shall act by a majority of their number, but may
authorize one or more of them to sign all papers on their behalf.
2.12 CLAIMS PROCEDURE
Claims for benefits under the Plan may be filed in writing with the
Administrator. Written notice of the disposition of a claim shall be furnished
to the claimant within 90 days after the application is filed. In the event the
claim is denied, the reasons for the denial shall be specifically set forth in
the notice in language calculated to be understood by the claimant, pertinent
provisions of the Plan shall be cited, and, where appropriate, an explanation as
to how the claimant can perfect the claim will be provided. In addition, the
claimant shall be furnished with an explanation of the Plan's claims review
procedure.
2.13 CLAIMS REVIEW PROCEDURE
Any Employee, former Employee, or Beneficiary of either, who has been
denied a benefit by a decision of the Administrator pursuant to Section 2.12
shall be entitled to request the Administrator to give further consideration to
his claim by filing with the Administrator (on a form which may be obtained from
the Administrator) a request for a hearing. Such request, together with a
written statement of the reasons why the claimant believes his claim should be
allowed, shall be filed with the Administrator no later than 60 days after
receipt of the written notification provided for in Section 2.12. The
Administrator shall then conduct a hearing within the next 60 days, at which the
claimant may be represented by an attorney or any other representative of his
choosing and at which the claimant shall have an opportunity to submit written
and oral evidence and arguments in support of his claim. At the hearing (or
prior thereto upon 5 business days written notice to the Administrator) the
claimant or his representative shall have an opportunity to review all documents
in the possession of the Administrator which are pertinent to the claim at issue
and its disallowance. Either the claimant or the Administrator may cause a court
reporter to attend the hearing and record the proceedings. In such event, a
complete written transcript of the proceedings shall be furnished to both
parties by the court reporter. The full expense of any such court reporter and
such transcripts shall be borne by the party causing the court reporter to
attend the hearing. A final decision as to the allowance of the claim shall be
made by the Administrator within 60 days of receipt of the appeal (unless there
has been an extension of 60 days due to special circumstances, provided the
delay and the special circumstances occasioning it are communicated to the
claimant within the 60 day period). Such communication shall be written in a
manner calculated to be understood by the claimant and shall include specific
reasons for the decision and specific references to the pertinent Plan
provisions on which the decision is based.
ARTICLE III
ELIGIBILITY
3.1 CONDITIONS OF ELIGIBILITY
Any Eligible Employee who has completed six (6) Months of Service
shall be eligible to participate hereunder as of the date he has satisfied such
requirements. The Employer shall give each prospective Eligible Employee written
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notice of his eligibility to participate in the Plan prior to the close of the
Plan Year in which he first becomes an Eligible Employee.
For purposes of this Section, an Eligible Employee will be deemed to
have completed six (6) Months of Service if he is in the employ of the Employer
at any time six (6) months after his employment commencement date. Employment
commencement date shall be the first day that he is entitled to be credited with
an Hour of Service for the performance of duty.
3.2 APPLICATION FOR PARTICIPATION
In order to become a Participant hereunder, each Eligible Employee
shall make application to the Employer for participation in the Plan and agree
to the terms hereof. Upon the acceptance of any benefits under this Plan, such
Employee shall automatically be deemed to have made application and shall be
bound by the terms and conditions of the Plan and all amendments hereto.
3.3 EFFECTIVE DATE OF PARTICIPATION
An Eligible Employee shall become a Participant effective as of the
first day of the quarter (January 1st, April 1st, July 1st, or October 1st)
coinciding with or next following the date on which such Employee met the
eligibility requirements of Section 3.1, provided said Employee was still
employed as of such date (or if not employed on such date, as of the date of
rehire if a 1-Year Break in Service has not occurred).
In the event an Employee who is not a member of an eligible class of
Employees becomes a member of an eligible class, such Employee will participate
immediately if such Employee has satisfied the minimum age and service
requirements and would have otherwise previously become a Participant.
3.4 DETERMINATION OF ELIGIBILITY
The Administrator shall determine the eligibility of each Employee for
participation in the Plan based upon information furnished by the Employer. Such
determination shall be conclusive and binding upon all persons, as long as the
same is made pursuant to the Plan and the Act. Such determination shall be
subject to review per Section 2.13.
3.5 TERMINATION OF ELIGIBILITY
(a) In the event a Participant shall go from a classification of
an Eligible Employee to an ineligible Employee, such Former
Participant shall continue to vest in his interest in the Plan for
each Year of Service completed while a noneligible Employee, until
such time as his Participant's Account shall be forfeited or
distributed pursuant to the terms of the Plan. Additionally, his
interest in the Plan shall continue to share in the earnings of the
Trust Fund.
(b) In the event a Participant is no longer a member of an
eligible class of Employees and becomes ineligible to participate but
has not incurred a 1-Year Break in Service, such Employee will
participate immediately upon returning to an eligible class of
Employees. If such Participant incurs a 1-Year Break in Service,
eligibility will be determined under the break in service rules of the
Plan.
3.6 OMISSION OF ELIGIBLE EMPLOYEE
If, in any Plan Year, any Employee who should be included as a
Participant in the Plan is erroneously omitted and discovery of such omission is
not made until after a contribution by his Employer for the year has been made,
the Employer shall make a subsequent contribution with respect to the omitted
Employee in the amount which the said Employer would have contributed with
respect to him had he not been omitted. Such contribution shall be made
regardless of whether or not it is deductible in whole or in part in any taxable
year under applicable provisions of the Code.
3.7 INCLUSION OF INELIGIBLE EMPLOYEE
If, in any Plan Year, any person who should not have been included as
a Participant in the Plan is erroneously included and discovery of such
incorrect inclusion is not made until after a contribution for the year has been
made, the Employer shall not be entitled to recover the contribution made with
respect to the ineligible person regardless of whether or not a deduction is
allowable with respect to such contribution. In such event, the amount
contributed with respect to the
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ineligible person shall constitute a Forfeiture (except for Deferred
Compensation which shall be distributed to the ineligible person) for the
Plan Year in which the discovery is made.
3.8 ELECTION NOT TO PARTICIPATE
An Employee may, subject to the approval of the Employer, elect
voluntarily not to participate in the Plan. The election not to participate must
be communicated to the Employer, in writing, at least thirty (30) days before
the beginning of a Plan Year.
ARTICLE IV
CONTRIBUTION AND ALLOCATION
4.1 FORMULA FOR DETERMINING EMPLOYER'S CONTRIBUTION
For each Plan Year, the Employer shall contribute to the Plan:
(a) The amount of the total salary reduction elections of all
Participants made pursuant to Section 4.2(a), which amount shall be
deemed an Employer's Elective Contribution.
(b) On behalf of each Participant who is eligible to share in
matching contributions for the Plan Year, a matching contribution
equal to 50% of each such Participant's Deferred Compensation, which
amount shall be deemed an Employer's Elective Contribution.
Except, however, in applying the matching percentage
specified above, only salary reductions up to 6% of Compensation shall
be considered.
(c) A discretionary amount, which amount shall be deemed an
Employer's Non-Elective Contribution.
(d) Notwithstanding the foregoing, however, the Employer's
contributions for any Plan Year shall not exceed the maximum amount
allowable as a deduction to the Employer under the provisions of Code
Section 404. All contributions by the Employer shall be made in cash
or in such property as is acceptable to the Trustee.
(e) Except, however, to the extent necessary to provide the top
heavy minimum allocations, the Employer shall make a contribution even
if it exceeds the amount which is deductible under Code Section 404.
4.2 PARTICIPANT'S SALARY REDUCTION ELECTION
(a) Each Participant may elect to defer his Compensation which
would have been received in the Plan Year, but for the deferral
election, by up to 15%. A deferral election (or modification of an
earlier election) may not be made with respect to Compensation which
is currently available on or before the date the Participant executed
such election or, if later, the latest of the date the Employer adopts
this cash or deferred arrangement, or the date such arrangement first
became effective.
The amount by which Compensation is reduced shall be that
Participant's Deferred Compensation and be treated as an Employer
Elective Contribution and allocated to that Participant's Elective
Account.
(b) The balance in each Participant's Elective Account shall be
fully Vested at all times and shall not be subject to Forfeiture for
any reason except as provided for in Sections 4.2(f) and 4.6(a)(1).
(c) Amounts held in the Participant's Elective Account may not
be distributable earlier than:
(1) a Participant's termination of employment, Total and
Permanent Disability, or death;
(2) a Participant's attainment of age 59 1/2;
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(3) the termination of the Plan without the establishment or
existence of a "successor plan," as that term is described in
Regulation 1.401(k)-1(d)(3);
(4) the date of disposition by the Employer to an entity that is
not an Affiliated Employer of substantially all of the assets
(within the meaning of Code Section 409(d)(2)) used in a trade or
business of such corporation if such corporation continues to
maintain this Plan after the disposition with respect to a
Participant who continues employment with the corporation
acquiring such assets; or
(5) the date of disposition by the Employer or an Affiliated
Employer who maintains the Plan of its interest in a subsidiary
(within the meaning of Code Section 409(d)(3)) to an entity which
is not an Affiliated Employer but only with respect to a
Participant who continues employment with such subsidiary.
(d) For each Plan Year, a Participant's Deferred Compensation
made under this Plan and all other plans, contracts or arrangements of
the Employer maintaining this Plan shall not exceed, during any
taxable year of the Participant, the limitation imposed by Code
Section 402(g), as in effect at the beginning of such taxable year. If
such dollar limitation is exceeded, a Participant will be deemed to
have notified the Administrator of such excess amount which shall be
distributed in a manner consistent with Section 4.2(f). The dollar
limitation shall be adjusted annually pursuant to the method provided
in Code Section 415(d) in accordance with Regulations.
(e) In the event a Participant has received a hardship
distribution pursuant to Regulation 1.401(k)-1(d)(2)(iv)(B) from any
other plan maintained by the Employer, then such Participant shall not
be permitted to elect to have Deferred Compensation contributed to the
Plan on his behalf for a period of twelve (12) months following the
receipt of the distribution. Furthermore, the dollar limitation under
Code Section 402(g) shall be reduced, with respect to the
Participant's taxable year following the taxable year in which the
hardship distribution was made, by the amount of such Participant's
Deferred Compensation, if any, pursuant to this Plan (and any other
plan maintained by the Employer) for the taxable year of the hardship
distribution.
(f) If a Participant's Deferred Compensation under this Plan
together with any elective deferrals (as defined in Regulation
1.402(g)-1(b)) under another qualified cash or deferred arrangement
(as defined in Code Section 401(k)), a simplified employee pension (as
defined in Code Section 408(k)), a salary reduction arrangement
(within the meaning of Code Section 3121(a)(5)(D)), a deferred
compensation plan under Code Section 457, or a trust described in Code
Section 501(c)(18) cumulatively exceed the limitation imposed by Code
Section 402(g) (as adjusted annually in accordance with the method
provided in Code Section 415(d) pursuant to Regulations) for such
Participant's taxable year, the Participant may, not later than
March 1 following the close of the Participant's taxable year, notify
the Administrator in writing of such excess and request that his
Deferred Compensation under this Plan be reduced by an amount
specified by the Participant. In such event, the Administrator may
direct the Trustee to distribute such excess amount (and any Income
allocable to such excess amount) to the Participant not later than the
first April 15th following the close of the Participant's taxable
year. Any distribution of less than the entire amount of Excess
Deferred Compensation and Income shall be treated as a pro rata
distribution of Excess Deferred Compensation and Income. The amount
distributed shall not exceed the Participant's Deferred Compensation
under the Plan for the taxable year. Any distribution on or before the
last day of the Participant's taxable year must satisfy each of the
following conditions:
(1) the distribution must be made after the date on which the
Plan received the Excess Deferred Compensation;
(2) the Participant shall designate the distribution as Excess
Deferred Compensation; and
(3) the Plan must designate the distribution as a distribution
of Excess Deferred Compensation.
Any distribution made pursuant to this Section 4.2(f) shall
be made first from unmatched Deferred Compensation and, thereafter,
from Deferred Compensation which is matched. Matching contributions
which relate to such Deferred Compensation shall be forfeited.
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(g) Notwithstanding Section 4.2(f) above, a Participant's Excess
Deferred Compensation shall be reduced, but not below zero, by any
distribution of Excess Contributions pursuant to Section 4.6(a) for
the Plan Year beginning with or within the taxable year of the
Participant.
(h) At Normal Retirement Date, or such other date when the
Participant shall be entitled to receive benefits, the fair market
value of the Participant's Elective Account shall be used to provide
additional benefits to the Participant or his Beneficiary.
(i) All amounts allocated to a Participant's Elective Account
may be treated as a Directed Investment Account pursuant to Section
4.10.
(j) Employer Elective Contributions made pursuant to this
Section may be segregated into a separate account for each Participant
in a federally insured savings account, certificate of deposit in a
bank or savings and loan association, money market certificate, or
other short-term debt security acceptable to the Trustee until such
time as the allocations pursuant to Section 4.4 have been made.
(k) The Employer and the Administrator shall implement the
salary reduction elections provided for herein in accordance with the
following:
(1) A Participant may commence making elective deferrals to the
Plan only after first satisfying the eligibility and
participation requirements specified in Article III. However, the
Participant must make his initial salary deferral election within
a reasonable time, not to exceed thirty (30) days, after entering
the Plan pursuant to Section 3.3. If the Participant fails to
make an initial salary deferral election within such time, then
such Participant may thereafter make an election in accordance
with the rules governing modifications. The Participant shall
make such an election by entering into a written salary reduction
agreement with the Employer and filing such agreement with the
Administrator. Such election shall initially be effective
beginning with the pay period following the acceptance of the
salary reduction agreement by the Administrator, shall not have
retroactive effect and shall remain in force until revoked.
(2) A Participant may modify a prior election during the Plan
Year and concurrently make a new election by filing a written
notice with the Administrator within a reasonable time before the
pay period for which such modification is to be effective.
However, modifications to a salary deferral election shall only
be permitted quarterly, during election periods established by
the Administrator prior to the first day of each Plan Year
quarter. Any modification shall not have retroactive effect and
shall remain in force until revoked.
(3) A Participant may elect to prospectively revoke his salary
reduction agreement in its entirety at any time during the Plan
Year by providing the Administrator with thirty (30) days written
notice of such revocation (or upon such shorter notice period as
may be acceptable to the Administrator). Such revocation shall
become effective as of the beginning of the first pay period
coincident with or next following the expiration of the notice
period. Furthermore, the termination of the Participant's
employment, or the cessation of participation for any reason,
shall be deemed to revoke any salary reduction agreement then in
effect, effective immediately following the close of the pay
period within which such termination or cessation occurs.
4.3 TIME OF PAYMENT OF EMPLOYER'S CONTRIBUTION
The Employer shall generally pay to the Trustee its contribution to
the Plan for each Plan Year within the time prescribed by law, including
extensions of time, for the filing of the Employer's federal income tax return
for the Fiscal Year.
However, Employer Elective Contributions accumulated through payroll
deductions shall be paid to the Trustee as of the earliest date on which such
contributions can reasonably be segregated from the Employer's general assets,
but in any event within ninety (90) days from the date on which such amounts
would otherwise have been payable to the Participant in cash. The provisions of
Department of Labor regulations 2510.3-102 are incorporated herein by reference.
Furthermore, any additional Employer contributions which are allocable to the
Participant's Elective Account for a Plan Year shall be paid to the Plan no
later than the twelve-month period immediately following the close of such Plan
Year.
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4.4 ALLOCATION OF CONTRIBUTION, FORFEITURES AND EARNINGS
(a) The Administrator shall establish and maintain an account in
the name of each Participant to which the Administrator shall credit
as of each Anniversary Date all amounts allocated to each such
Participant as set forth herein.
(b) The Employer shall provide the Administrator with all
information required by the Administrator to make a proper allocation
of the Employer's contributions for each Plan Year. Within a
reasonable period of time after the date of receipt by the
Administrator of such information, the Administrator shall allocate
such contribution as follows:
(1) With respect to the Employer's Elective Contribution made
pursuant to Section 4.1(a), to each Participant's Elective
Account in an amount equal to each such Participant's Deferred
Compensation for the year.
(2) With respect to the Employer's Elective Contribution made
pursuant to Section 4.1(b), to each Participant's Elective
Account in accordance with Section 4.1(b).
Any Participant actively employed during the Plan Year shall be
eligible to share in the matching contribution for the Plan Year.
(3) With respect to the Employer's Non-Elective Contribution
made pursuant to Section 4.1(c), to each Participant's Account in
the same proportion that each such Participant's Compensation for
the year bears to the total Compensation of all Participants for
such year.
Only Participants who have completed a Year of Service during the
Plan Year and are actively employed on the last day of the Plan
Year shall be eligible to share in the discretionary contribution
for the year.
(c) As of each Anniversary Date any amounts which became
Forfeitures since the last Anniversary Date shall first be made
available to reinstate previously forfeited account balances of Former
Participants, if any, in accordance with Section 6.4(e)(2). After
reinstatement of such previously forfeited account balances of Former
Participants, remaining Forfeitures, if any, shall be added to the
Employer's discretionary contribution pursuant to Section 4.1(c) and
for the Plan Year in which such Forfeitures occur allocated among the
Participants' Accounts in the same manner as the Employer's
discretionary contribution for the current year.
Provided, however, that in the event the allocation of
Forfeitures provided herein shall cause the "annual addition" (as
defined in Section 4.7) to any Participant's Account to exceed the
amount allowable by the Code, the excess shall be reallocated in
accordance with Section 4.8.
(d) For any Top Heavy Plan Year, Non-Key Employees not otherwise
eligible to share in the allocation of contributions and Forfeitures
as provided above, shall receive the minimum allocation provided for
in Section 4.4(g) if eligible pursuant to the provisions of Section
4.4(i).
(e) Participants who are not actively employed on the last day
of the Plan Year due to Retirement (Normal or Late), Total and
Permanent Disability or death shall share in the allocation of
contributions and Forfeitures for that Plan Year only if otherwise
eligible in accordance with this Section.
(f) As of each Anniversary Date or other valuation date, before
the current valuation period allocation of Employer contributions and
Forfeitures, any earnings or losses (net appreciation or net
depreciation) of the Trust Fund shall be allocated in the same
proportion that each Participant's and Former Participant's
nonsegregated accounts bear to the total of all Participants' and
Former Participants' nonsegregated accounts as of such date.
Participants' transfers from other qualified plans deposited
in the general Trust Fund shall share in any earnings and losses (net
appreciation or net depreciation) of the Trust Fund in the same manner
provided above. Each segregated account maintained on behalf of a
Participant shall be credited or charged with its separate earnings
and losses.
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(g) Minimum Allocations Required for Top Heavy Plan Years:
Notwithstanding the foregoing, for any Top Heavy Plan Year, the sum of
the Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Non-Key Employee shall be equal
to at least three percent (3%) of such Non-Key Employee's "415
Compensation" (reduced by contributions and forfeitures, if any,
allocated to each Non-Key Employee in any defined contribution plan
included with this plan in a Required Aggregation Group). However, if
(1) the sum of the Employer's contributions and Forfeitures allocated
to the Participant's Combined Account of each Key Employee for such
Top Heavy Plan Year is less than three percent (3%) of each Key
Employee's "415 Compensation" and (2) this Plan is not required to be
included in an Aggregation Group to enable a defined benefit plan to
meet the requirements of Code Section 401(a)(4) or 410, the sum of the
Employer's contributions and Forfeitures allocated to the
Participant's Combined Account of each Non-Key Employee shall be equal
to the largest percentage allocated to the Participant's Combined
Account of any Key Employee. However, in determining whether a Non-Key
Employee has received the required minimum allocation, such Non-Key
Employee's Deferred Compensation and matching contributions needed to
satisfy the "Actual Deferral Percentage" tests pursuant to Section
4.5(a) shall not be taken into account.
However, no such minimum allocation shall be required in
this Plan for any Non-Key Employee who participates in another defined
contribution plan subject to Code Section 412 providing such benefits
included with this Plan in a Required Aggregation Group.
(h) For purposes of the minimum allocations set forth above, the
percentage allocated to the Participant's Combined Account of any Key
Employee shall be equal to the ratio of the sum of the Employer's
contributions and Forfeitures allocated on behalf of such Key Employee
divided by the "415 Compensation" for such Key Employee.
(i) For any Top Heavy Plan Year, the minimum allocations set
forth above shall be allocated to the Participant's Combined Account
of all Non-Key Employees who are Participants and who are employed by
the Employer on the last day of the Plan Year, including Non-Key
Employees who have (1) failed to complete a Year of Service; and
(2) declined to make mandatory contributions (if required) or, in the
case of a cash or deferred arrangement, elective contributions to the
Plan.
(j) For the purposes of this Section, "415 Compensation" shall
be limited to $200,000. Such amount shall be adjusted at the same time
and in the same manner as permitted under Code Section 415(d), except
that the dollar increase in effect on January 1 of any calendar year
shall be effective for the Plan Year beginning with or within such
calendar year and the first adjustment to the $200,000 limitation
shall be effective on January 1, 1990. For any short Plan Year the
"415 Compensation" limit shall be an amount equal to the "415
Compensation" limit for the calendar year in which the Plan Year
begins multiplied by the ratio obtained by dividing the number of full
months in the short Plan Year by twelve (12).
In addition to other applicable limitations set forth in the
Plan, and notwithstanding any other provision of the Plan to the
contrary, for Plan Years beginning on or after January 1, 1994, the
annual Compensation of each Employee taken into account under the Plan
shall not exceed the OBRA '93 annual compensation limit. The OBRA '93
annual compensation limit is $150,000, as adjusted by the Commissioner
for increases in the cost of living in accordance with Code Section
401(a)(17)(B). The cost of living adjustment in effect for a calendar
year applies to any period, not exceeding 12 months, over which
Compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any
reference in this Plan to the limitation under Code Section 401(a)(17)
shall mean the OBRA '93 annual compensation limit set forth in this
provision.
If Compensation for any prior determination period is taken
into account in determining an Employee's benefits accruing in the
current Plan Year, the Compensation for that prior determination
period is subject to the OBRA '93 annual compensation limit in effect
for 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.
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(k) Notwithstanding anything herein to the contrary,
Participants who terminated employment for any reason during the Plan
Year shall share in the salary reduction contributions made by the
Employer for the year of termination without regard to the Hours of
Service credited.
(l) If a Former Participant is reemployed after five (5)
consecutive 1-Year Breaks in Service, then separate accounts shall be
maintained as follows:
(1) one account for nonforfeitable benefits attributable to
pre-break service; and
(2) one account representing his status in the Plan attributable
to post-break service.
(m) Notwithstanding anything to the contrary, if this is a Plan
that would otherwise fail to meet the requirements of Code Sections
401(a)(26), 410(b)(1) or 410(b)(2)(A)(i) and the Regulations
thereunder because Employer contributions would not be allocated to a
sufficient number or percentage of Participants for a Plan Year, then
the following rules shall apply:
(1) The group of Participants eligible to share in the
Employer's contribution and Forfeitures for the Plan Year shall
be expanded to include the minimum number of Participants who
would not otherwise be eligible as are necessary to satisfy the
applicable test specified above. The specific Participants who
shall become eligible under the terms of this paragraph shall be
those who are actively employed on the last day of the Plan Year
and, when compared to similarly situated Participants, have
completed the greatest number of Hours of Service in the Plan
Year.
(2) If after application of paragraph (1) above, the applicable
test is still not satisfied, then the group of Participants
eligible to share in the Employer's contribution and Forfeitures
for the Plan Year shall be further expanded to include the
minimum number of Participants who are not actively employed on
the last day of the Plan Year as are necessary to satisfy the
applicable test. The specific Participants who shall become
eligible to share shall be those Participants, when compared to
similarly situated Participants, who have completed the greatest
number of Hours of Service in the Plan Year before terminating
employment.
(3) Nothing in this Section shall permit the reduction of a
Participant's accrued benefit. Therefore any amounts that have
previously been allocated to Participants may not be reallocated
to satisfy these requirements. In such event, the Employer shall
make an additional contribution equal to the amount such affected
Participants would have received had they been included in the
allocations, even if it exceeds the amount which would be
deductible under Code Section 404. Any adjustment to the
allocations pursuant to this paragraph shall be considered a
retroactive amendment adopted by the last day of the Plan Year.
(4) Notwithstanding the foregoing, for any Top Heavy Plan Year
beginning after December 31, 1992, if the portion of the Plan
which is not a Code Section 401(k) or 401(m) plan would fail to
satisfy Code Section 410(b) if the coverage tests were applied by
treating those Participants whose only allocation (under such
portion of the Plan) would otherwise be provided under the top
heavy formula as if they were not currently benefiting under the
Plan, then, for purposes of this Section 4.4(m), such
Participants shall be treated as not benefiting and shall
therefore be eligible to be included in the expanded class of
Participants who will share in the allocation provided under the
Plan's non top heavy formula.
4.5 ACTUAL DEFERRAL PERCENTAGE TESTS
(a) Maximum Annual Allocation: For each Plan Year, the annual
allocation derived from Employer Elective Contributions to a
Participant's Elective Account shall satisfy one of the following
tests:
(1) The "Actual Deferral Percentage" for the Highly Compensated
Participant group shall not be more than the "Actual Deferral
Percentage" of the Non-Highly Compensated Participant group
multiplied by 1.25, or
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<PAGE>
(2) The excess of the "Actual Deferral Percentage" for the
Highly Compensated Participant group over the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group
shall not be more than two percentage points. Additionally, the
"Actual Deferral Percentage" for the Highly Compensated
Participant group shall not exceed the "Actual Deferral
Percentage" for the Non-Highly Compensated Participant group
multiplied by 2. The provisions of Code Section 401(k)(3) and
Regulation 1.401(k)-1(b) are incorporated herein by reference.
However, in order to prevent the multiple use of the alternative
method described in (2) above and in Code Section 401(m)(9)(A),
any Highly Compensated Participant eligible to make elective
deferrals pursuant to Section 4.2 and to make Employee
contributions or to receive matching contributions under any
other plan maintained by the Employer or an Affiliated Employer
shall have his actual contribution ratio reduced pursuant to
Regulation 1.401(m)-2, the provisions of which are incorporated
herein by reference.
(b) For the purposes of this Section "Actual Deferral
Percentage" means, with respect to the Highly Compensated Participant
group and Non-Highly Compensated Participant group for a Plan Year,
the average of the ratios, calculated separately for each Participant
in such group, of the amount of Employer Elective Contributions
allocated to each Participant's Elective Account for such Plan Year,
to such Participant's "414(s) Compensation" for such Plan Year. The
actual deferral ratio for each Participant and the "Actual Deferral
Percentage" for each group shall be calculated to the nearest
one-hundredth of one percent. Employer Elective Contributions
allocated to each Non-Highly Compensated Participant's Elective
Account shall be reduced by Excess Deferred Compensation to the extent
such excess amounts are made under this Plan or any other plan
maintained by the Employer and any matching contributions which relate
to such Excess Deferred Compensation.
(c) For the purpose of determining the actual deferral ratio of
a Highly Compensated Employee who is subject to the Family Member
aggregation rules of Code Section 414(q)(6) because such Participant
is either a "five percent owner" of the Employer or one of the ten
(10) Highly Compensated Employees paid the greatest "415 Compensation"
during the year, the following shall apply:
(1) The combined actual deferral ratio for the family group
(which shall be treated as one Highly Compensated Participant)
shall be determined by aggregating Employer Elective
Contributions and "414(s) Compensation" of all eligible Family
Members (including Highly Compensated Participants). However, in
applying the $200,000 limit to "414(s) Compensation," Family
Members shall include only the affected Employee's spouse and any
lineal descendants who have not attained age 19 before the close
of the Plan Year.
(2) The Employer Elective Contributions and "414(s)
Compensation" of all Family Members shall be disregarded for
purposes of determining the "Actual Deferral Percentage" of the
Non-Highly Compensated Participant group except to the extent
taken into account in paragraph (1) above.
(3) If a Participant is required to be aggregated as a member of
more than one family group in a plan, all Participants who are
members of those family groups that include the Participant are
aggregated as one family group in accordance with paragraphs (1)
and (2) above.
(d) For the purposes of Sections 4.5(a) and 4.6, a Highly
Compensated Participant and a Non-Highly Compensated Participant shall
include any Employee eligible to make a deferral election pursuant to
Section 4.2, whether or not such deferral election was made or
suspended pursuant to Section 4.2.
(e) For the purposes of this Section and Code Sections
401(a)(4), 410(b) and 401(k), if two or more plans which include cash
or deferred arrangements are considered one plan for the purposes of
Code Section 401(a)(4) or 410(b) (other than Code Section
410(b)(2)(A)(ii)), the cash or deferred arrangements included in such
plans shall be treated as one arrangement. In addition, two or more
cash or deferred arrangements may be considered as a single
arrangement for purposes of determining whether or not such
arrangements satisfy Code Sections 401(a)(4), 410(b) and 401(k). In
such a case, the cash or deferred arrangements included in such plans
and the plans including such arrangements shall be treated as
23
<PAGE>
one arrangement and as one plan for purposes of this Section and Code
Sections 401(a)(4), 410(b) and 401(k). Plans may be aggregated under
this paragraph (e) only if they have the same plan year.
Notwithstanding the above, an employee stock ownership plan
described in Code Section 4975(e)(7) or 409 may not be combined with
this Plan for purposes of determining whether the employee stock
ownership plan or this Plan satisfies this Section and Code Sections
401(a)(4), 410(b) and 401(k).
(f) For the purposes of this Section, if a Highly Compensated
Participant is a Participant under two or more cash or deferred
arrangements (other than a cash or deferred arrangement which is part
of an employee stock ownership plan as defined in Code Section
4975(e)(7) or 409) of the Employer or an Affiliated Employer, all such
cash or deferred arrangements shall be treated as one cash or deferred
arrangement for the purpose of determining the actual deferral ratio
with respect to such Highly Compensated Participant. However, if the
cash or deferred arrangements have different plan years, this
paragraph shall be applied by treating all cash or deferred
arrangements ending with or within the same calendar year as a single
arrangement.
4.6 ADJUSTMENT TO ACTUAL DEFERRAL PERCENTAGE TESTS
In the event that the initial allocations of the Employer's Elective
Contributions made pursuant to Section 4.4 do not satisfy one of the tests set
forth in Section 4.5(a), the Administrator shall adjust Excess Contributions
pursuant to the options set forth below:
(a) On or before the fifteenth day of the third month following
the end of each Plan Year, the Highly Compensated Participant having
the highest actual deferral ratio shall have his portion of Excess
Contributions distributed to him until one of the tests set forth in
Section 4.5(a) is satisfied, or until his actual deferral ratio equals
the actual deferral ratio of the Highly Compensated Participant having
the second highest actual deferral ratio. This process shall continue
until one of the tests set forth in Section 4.5(a) is satisfied. For
each Highly Compensated Participant, the amount of Excess
Contributions is equal to the Elective Contributions on behalf of such
Highly Compensated Participant (determined prior to the application of
this paragraph) minus the amount determined by multiplying the Highly
Compensated Participant's actual deferral ratio (determined after
application of this paragraph) by his "414(s) Compensation." However,
in determining the amount of Excess Contributions to be distributed
with respect to an affected Highly Compensated Participant as
determined herein, such amount shall be reduced by any Excess Deferred
Compensation previously distributed to such affected Highly
Compensated Participant for his taxable year ending with or within
such Plan Year and any matching contributions which relate to such
Excess Deferred Compensation.
(1) With respect to the distribution of Excess Contributions
pursuant to (a) above, such distribution:
(i) may be postponed but not later than the close of the
Plan Year following the Plan Year to which they are
allocable;
(ii) shall be made first from unmatched Deferred
Compensation and, thereafter, from Deferred Compensation
which is matched. Matching contributions which relate to
such Deferred Compensation shall be forfeited;
(iii) shall be adjusted for Income; and
(iv) shall be designated by the Employer as a distribution
of Excess Contributions (and Income).
(2) Any distribution of less than the entire amount of Excess
Contributions shall be treated as a pro rata distribution of
Excess Contributions and Income.
(3) The determination and correction of Excess Contributions of
a Highly Compensated Participant whose actual deferral ratio is
determined under the family aggregation rules shall be
accomplished by reducing the actual deferral ratio as required
herein, and the Excess Contributions for the family unit shall
then be allocated among the Family Members in proportion to the
24
<PAGE>
Elective Contributions of each Family Member that were combined
to determine the group actual deferral ratio.
(b) Within twelve (12) months after the end of the Plan Year,
the Employer may make a special Qualified Non-Elective Contribution on
behalf of Non-Highly Compensated Participants in an amount sufficient
to satisfy one of the tests set forth in Section 4.5(a). Such
contribution shall be allocated to the Participant's Elective Account
of each Non-Highly Compensated Participant in the same proportion that
each Non-Highly Compensated Participant's Compensation for the year
bears to the total Compensation of all Non-Highly Compensated
Participants.
(c) If during a Plan Year the projected aggregate amount of
Elective Contributions to be allocated to all Highly Compensated
Participants under this Plan would, by virtue of the tests set forth
in Section 4.5(a), cause the Plan to fail such tests, then the
Administrator may automatically reduce proportionately or in the order
provided in Section 4.6(a) each affected Highly Compensated
Participant's deferral election made pursuant to Section 4.2 by an
amount necessary to satisfy one of the tests set forth in Section
4.5(a).
4.7 MAXIMUM ANNUAL ADDITIONS
(a) Notwithstanding the foregoing, the maximum "annual
additions" credited to a Participant's accounts for any "limitation
year" shall equal the lesser of: (1) $30,000 adjusted annually as
provided in Code Section 415(d) pursuant to the Regulations, or
(2) twenty-five percent (25%) of the Participant's "415 Compensation"
for such "limitation year." For any short "limitation year," the
dollar limitation in (1) above shall be reduced by a fraction, the
numerator of which is the number of full months in the short
"limitation year" and the denominator of which is twelve (12).
(b) For purposes of applying the limitations of Code Section
415, "annual additions" means the sum credited to a Participant's
accounts for any "limitation year" of (1) Employer contributions,
(2) Employee contributions, (3) forfeitures, (4) amounts allocated,
after March 31, 1984, to an individual medical account, as defined in
Code Section 415(l)(2) which is part of a pension or annuity plan
maintained by the Employer and (5) amounts derived from contributions
paid or accrued after December 31, 1985, in taxable years ending after
such date, which are attributable to post-retirement medical benefits
allocated to the separate account of a key employee (as defined in
Code Section 419A(d)(3)) under a welfare benefit plan (as defined in
Code Section 419(e)) maintained by the Employer. Except, however, the
"415 Compensation" percentage limitation referred to in paragraph
(a)(2) above shall not apply to: (1) any contribution for medical
benefits (within the meaning of Code Section 419A(f)(2)) after
separation from service which is otherwise treated as an "annual
addition," or (2) any amount otherwise treated as an "annual addition"
under Code Section 415(l)(1).
(c) For purposes of applying the limitations of Code Section
415, the transfer of funds from one qualified plan to another is not
an "annual addition." In addition, the following are not Employee
contributions for the purposes of Section 4.7(b)(2): (1) rollover
contributions (as defined in Code Sections 402(a)(5), 403(a)(4),
403(b)(8) and 408(d)(3)); (2) repayments of loans made to a
Participant from the Plan; (3) repayments of distributions received by
an Employee pursuant to Code Section 411(a)(7)(B) (cash-outs);
(4) repayments of distributions received by an Employee pursuant to
Code Section 411(a)(3)(D) (mandatory contributions); and (5) Employee
contributions to a simplified employee pension excludable from gross
income under Code Section 408(k)(6).
(d) For purposes of applying the limitations of Code Section
415, the "limitation year" shall be the Plan Year.
(e) The dollar limitation under Code Section 415(b)(1)(A) stated
in paragraph (a)(1) above shall be adjusted annually as provided in
Code Section 415(d) pursuant to the Regulations. The adjusted
limitation is effective as of January 1st of each calendar year and is
applicable to "limitation years" ending with or within that calendar
year.
(f) For the purpose of this Section, all qualified defined
benefit plans (whether terminated or not) ever maintained by the
Employer shall be treated as one defined benefit plan, and all
qualified
25
<PAGE>
defined contribution plans (whether terminated or not) ever
maintained by the Employer shall be treated as one defined
contribution plan.
(g) For the purpose of this Section, if the Employer is a member
of a controlled group of corporations, trades or businesses under
common control (as defined by Code Section 1563(a) or Code Section
414(b) and (c) as modified by Code Section 415(h)), is a member of an
affiliated service group (as defined by Code Section 414(m)), or is a
member of a group of entities required to be aggregated pursuant to
Regulations under Code Section 414(o), all Employees of such Employers
shall be considered to be employed by a single Employer.
(h) For the purpose of this Section, if this Plan is a Code
Section 413(c) plan, all Employers of a Participant who maintain this
Plan will be considered to be a single Employer.
(i)(1) If a Participant participates in more than one defined
contribution plan maintained by the Employer which have different
Anniversary Dates, the maximum "annual additions" under this Plan
shall equal the maximum "annual additions" for the "limitation year"
minus any "annual additions" previously credited to such Participant's
accounts during the "limitation year."
(2) If a Participant participates in both a defined contribution
plan subject to Code Section 412 and a defined contribution plan
not subject to Code Section 412 maintained by the Employer which
have the same Anniversary Date, "annual additions" will be
credited to the Participant's accounts under the defined
contribution plan subject to Code Section 412 prior to crediting
"annual additions" to the Participant's accounts under the
defined contribution plan not subject to Code Section 412.
(3) If a Participant participates in more than one defined
contribution plan not subject to Code Section 412 maintained by
the Employer which have the same Anniversary Date, the maximum
"annual additions" under this Plan shall equal the product of
(A) the maximum "annual additions" for the "limitation year"
minus any "annual additions" previously credited under
subparagraphs (1) or (2) above, multiplied by (B) a fraction
(i) the numerator of which is the "annual additions" which would
be credited to such Participant's accounts under this Plan
without regard to the limitations of Code Section 415 and
(ii) the denominator of which is such "annual additions" for all
plans described in this subparagraph.
(j) If an Employee is (or has been) a Participant in one or more
defined benefit plans and one or more defined contribution plans
maintained by the Employer, the sum of the defined benefit plan
fraction and the defined contribution plan fraction for any
"limitation year" may not exceed 1.0.
(k) The defined benefit plan fraction for any "limitation year"
is a fraction, the numerator of which is the sum of the Participant's
projected annual benefits under all the defined benefit plans (whether
or not terminated) maintained by the Employer, and the denominator of
which is the lesser of 125 percent of the dollar limitation determined
for the "limitation year" under Code Sections 415(b) and (d) or 140
percent of the highest average compensation, including any adjustments
under Code Section 415(b).
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first "limitation year"
beginning after December 31, 1986, in one or more defined benefit
plans maintained by the Employer which were in existence on May 6,
1986, the denominator of this fraction will not be less than 125
percent of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last "limitation year"
beginning before January 1, 1987, disregarding any changes in the
terms and conditions of the plan after May 5, 1986. The preceding
sentence applies only if the defined benefit plans individually and in
the aggregate satisfied the requirements of Code Section 415 for all
"limitation years" beginning before January 1, 1987.
(l) The defined contribution plan fraction for any "limitation
year" is a fraction, the numerator of which is the sum of the annual
additions to the Participant's Account under all the defined
contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior "limitation years" (including
the annual additions attributable to the Participant's nondeductible
Employee contributions to all defined benefit plans, whether or not
terminated, maintained by the Employer, and the annual additions
attributable to all welfare benefit funds, as defined in Code Section
419(e), and individual
26
<PAGE>
medical accounts, as defined in Code Section 415(l)(2), maintained
by the Employer), and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior "limitation
years" of service with the Employer (regardless of whether a
defined contribution plan was maintained by the Employer). The
maximum aggregate amount in any "limitation year" is the lesser of
125 percent of the dollar limitation determined under Code Sections
415(b) and (d) in effect under Code Section 415(c)(1)(A) or 35
percent of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first
day of the first "limitation year" beginning after December 31, 1986,
in one or more defined contribution plans maintained by the Employer
which were in existence on May 6, 1986, the numerator of this fraction
will be adjusted if the sum of this fraction and the defined benefit
fraction would otherwise exceed 1.0 under the terms of this Plan.
Under the adjustment, an amount equal to the product of (1) the excess
of the sum of the fractions over 1.0 times (2) the denominator of this
fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they
would be computed as of the end of the last "limitation year"
beginning before January 1, 1987, and disregarding any changes in the
terms and conditions of the Plan made after May 5, 1986, but using the
Code Section 415 limitation applicable to the first "limitation year"
beginning on or after January 1, 1987. The annual addition for any
"limitation year" beginning before January 1, 1987 shall not be
recomputed to treat all Employee contributions as annual additions.
(m) Notwithstanding the foregoing, for any "limitation year" in
which the Plan is a Top Heavy Plan, 100 percent shall be substituted
for 125 percent in Sections 4.7(k) and 4.7(l) unless the extra minimum
allocation is being provided pursuant to Section 4.4. However, for any
"limitation year" in which the Plan is a Super Top Heavy Plan, 100
percent shall be substituted for 125 percent in any event.
(n) Notwithstanding anything contained in this Section to the
contrary, the limitations, adjustments and other requirements
prescribed in this Section shall at all times comply with the
provisions of Code Section 415 and the Regulations thereunder, the
terms of which are specifically incorporated herein by reference.
4.8 ADJUSTMENT FOR EXCESSIVE ANNUAL ADDITIONS
(a) If, as a result of the allocation of Forfeitures, a
reasonable error in estimating a Participant's Compensation, a
reasonable error in determining the amount of elective deferrals
(within the meaning of Code Section 402(g)(3)) that may be made with
respect to any Participant under the limits of Section 4.7 or other
facts and circumstances to which Regulation 1.415-6(b)(6) shall be
applicable, the "annual additions" under this Plan would cause the
maximum "annual additions" to be exceeded for any Participant, the
Administrator shall (1) distribute any elective deferrals (within the
meaning of Code Section 402(g)(3)) or return any voluntary Employee
contributions credited for the "limitation year" to the extent that
the return would reduce the "excess amount" in the Participant's
accounts (2) hold any "excess amount" remaining after the return of
any elective deferrals or voluntary Employee contributions in a
"Section 415 suspense account" (3) use the "Section 415 suspense
account" in the next "limitation year" (and succeeding "limitation
years" if necessary) to reduce Employer contributions for that
Participant if that Participant is covered by the Plan as of the end
of the "limitation year," or if the Participant is not so covered,
allocate and reallocate the "Section 415 suspense account" in the next
"limitation year" (and succeeding "limitation years" if necessary) to
all Participants in the Plan before any Employer or Employee
contributions which would constitute "annual additions" are made to
the Plan for such "limitation year" (4) reduce Employer contributions
to the Plan for such "limitation year" by the amount of the "Section
415 suspense account" allocated and reallocated during such
"limitation year."
(b) For purposes of this Article, "excess amount" for any
Participant for a "limitation year" shall mean the excess, if any, of
(1) the "annual additions" which would be credited to his account
under the terms of the Plan without regard to the limitations of Code
Section 415 over (2) the maximum "annual additions" determined
pursuant to Section 4.7.
(c) For purposes of this Section, "Section 415 suspense account"
shall mean an unallocated account equal to the sum of "excess amounts"
for all Participants in the Plan during the "limitation year." The
"Section 415 suspense account" shall not share in any earnings or
losses of the Trust Fund.
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<PAGE>
4.9 TRANSFERS FROM QUALIFIED PLANS
(a) With the consent of the Administrator, amounts may be
transferred from other qualified plans by Participants, provided that
the trust from which such funds are transferred permits the transfer
to be made and the transfer will not jeopardize the tax exempt status
of the Plan or Trust or create adverse tax consequences for the
Employer. The amounts transferred shall be set up in a separate
account herein referred to as a "Participant's Rollover Account." Such
account shall be fully Vested at all times and shall not be subject to
Forfeiture for any reason.
(b) Amounts in a Participant's Rollover Account shall be held by
the Trustee pursuant to the provisions of this Plan and may not be
withdrawn by, or distributed to the Participant, in whole or in part,
except as provided in paragraphs (c) and (d) of this Section.
(c) Except as permitted by Regulations (including Regulation
1.411(d)-4), amounts attributable to elective contributions (as
defined in Regulation 1.401(k)-1(g)(3)), including amounts treated as
elective contributions, which are transferred from another qualified
plan in a plan-to-plan transfer shall be subject to the distribution
limitations provided for in Regulation 1.401(k)-1(d).
(d) At Normal Retirement Date, or such other date when the
Participant or his Beneficiary shall be entitled to receive benefits,
the fair market value of the Participant's Rollover Account shall be
used to provide additional benefits to the Participant or his
Beneficiary. Any distributions of amounts held in a Participant's
Rollover Account shall be made in a manner which is consistent with
and satisfies the provisions of Section 6.5, including, but not
limited to, all notice and consent requirements of Code Section
411(a)(11) and the Regulations thereunder. Furthermore, such amounts
shall be considered as part of a Participant's benefit in determining
whether an involuntary cash-out of benefits without Participant
consent may be made.
(e) The Administrator may direct that employee transfers made
after a valuation date be segregated into a separate account for each
Participant in a federally insured savings account, certificate of
deposit in a bank or savings and loan association, money market
certificate, or other short term debt security acceptable to the
Trustee until such time as the allocations pursuant to this Plan have
been made, at which time they may remain segregated or be invested as
part of the general Trust Fund, to be determined by the Administrator.
(f) All amounts allocated to a Participant's Rollover Account
may be treated as a Directed Investment Account pursuant to Section
4.10.
(g) For purposes of this Section, the term "qualified plan"
shall mean any tax qualified plan under Code Section 401(a). The term
"amounts transferred from other qualified plans" shall mean:
(i) amounts transferred to this Plan directly from another qualified
plan; (ii) distributions from another qualified plan which are
eligible rollover distributions and which are either transferred by
the Employee to this Plan within sixty (60) days following his receipt
thereof or are transferred pursuant to a direct rollover;
(iii) amounts transferred to this Plan from a conduit individual
retirement account provided that the conduit individual retirement
account has no assets other than assets which (A) were previously
distributed to the Employee by another qualified plan as a lump-sum
distribution (B) were eligible for tax-free rollover to a qualified
plan and (C) were deposited in such conduit individual retirement
account within sixty (60) days of receipt thereof and other than
earnings on said assets; and (iv) amounts distributed to the Employee
from a conduit individual retirement account meeting the requirements
of clause (iii) above, and transferred by the Employee to this Plan
within sixty (60) days of his receipt thereof from such conduit
individual retirement account.
(h) Prior to accepting any transfers to which this Section
applies, the Administrator may require the Employee to establish that
the amounts to be transferred to this Plan meet the requirements of
this Section and may also require the Employee to provide an opinion
of counsel satisfactory to the Employer that the amounts to be
transferred meet the requirements of this Section.
(i) This Plan shall not accept any direct or indirect transfers
(as that term is defined and interpreted under Code Section 401(a)(11)
and the Regulations thereunder) from a defined benefit plan,
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money purchase plan (including a target benefit plan), stock bonus or
profit sharing plan which would otherwise have provided for a life
annuity form of payment to the Participant.
(j) Notwithstanding anything herein to the contrary, a transfer
directly to this Plan from another qualified plan (or a transaction
having the effect of such a transfer) shall only be permitted if it
will not result in the elimination or reduction of any "Section
411(d)(6) protected benefit" as described in Section 7.1.
4.10 DIRECTED INVESTMENT ACCOUNT
(a) The Administrator, in his sole discretion, may determine
that all Participants be permitted to direct the Trustee as to the
investment of all or a portion of the interest in any one or more of
their individual account balances. If such authorization is given,
Participants may, subject to a procedure established by the
Administrator and applied in a uniform nondiscriminatory manner,
direct the Trustee in writing to invest any portion of their account
in specific assets, specific funds or other investments permitted
under the Plan and the directed investment procedure. That portion of
the account of any Participant so directing will thereupon be
considered a Directed Investment Account, which shall not share in
Trust Fund earnings.
(b) A separate Directed Investment Account shall be established
for each Participant who has directed an investment. Transfers between
the Participant's regular account and his Directed Investment Account
shall be charged and credited as the case may be to each account. The
Directed Investment Account shall not share in Trust Fund earnings,
but it shall be charged or credited as appropriate with the net
earnings, gains, losses and expenses as well as any appreciation or
depreciation in market value during each Plan Year attributable to
such account.
ARTICLE V
VALUATIONS
5.1 VALUATION OF THE TRUST FUND
The Administrator shall direct the Trustee, as of each Anniversary
Date, and at such other date or dates deemed necessary by the Administrator,
herein called "valuation date," to determine the net worth of the assets
comprising the Trust Fund as it exists on the "valuation date." In determining
such net worth, the Trustee shall value the assets comprising the Trust Fund at
their fair market value as of the "valuation date" and shall deduct all expenses
for which the Trustee has not yet obtained reimbursement from the Employer or
the Trust Fund.
5.2 METHOD OF VALUATION
In determining the fair market value of securities held in the Trust
Fund which are listed on a registered stock exchange, the Administrator shall
direct the Trustee to value the same at the prices they were last traded on such
exchange preceding the close of business on the "valuation date." If such
securities were not traded on the "valuation date," or if the exchange on which
they are traded was not open for business on the "valuation date," then the
securities shall be valued at the prices at which they were last traded prior to
the "valuation date." Any unlisted security held in the Trust Fund shall be
valued at its bid price next preceding the close of business on the "valuation
date," which bid price shall be obtained from a registered broker or an
investment banker. In determining the fair market value of assets other than
securities for which trading or bid prices can be obtained, the Trustee may
appraise such assets itself, or in its discretion, employ one or more appraisers
for that purpose and rely on the values established by such appraiser or
appraisers.
ARTICLE VI
DETERMINATION AND DISTRIBUTION OF BENEFITS
6.1 DETERMINATION OF BENEFITS UPON RETIREMENT
Every Participant may terminate his employment with the Employer and
retire for the purposes hereof on his Normal Retirement Date. However, a
Participant may postpone the termination of his employment with the Employer to
a later date, in which event the participation of such Participant in the Plan,
including the right to receive allocations pursuant to Section 4.4, shall
continue until his Late Retirement Date. Upon a Participant's Retirement Date or
attainment of his Normal
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Retirement Date without termination of employment with the Employer, or as
soon thereafter as is practicable, the Trustee shall distribute all amounts
credited to such Participant's Combined Account in accordance with Section
6.5.
6.2 DETERMINATION OF BENEFITS UPON DEATH
(a) Upon the death of a Participant before his Retirement Date
or other termination of his employment, all amounts credited to such
Participant's Combined Account shall become fully Vested. The
Administrator shall direct the Trustee, in accordance with the
provisions of Sections 6.6 and 6.7, to distribute the value of the
deceased Participant's accounts to the Participant's Beneficiary.
(b) Upon the death of a Former Participant, the Administrator
shall direct the Trustee, in accordance with the provisions of
Sections 6.6 and 6.7, to distribute any remaining Vested amounts
credited to the accounts of a deceased Former Participant to such
Former Participant's Beneficiary.
(c) Any security interest held by the Plan by reason of an
outstanding loan to the Participant or Former Participant shall be
taken into account in determining the amount of the death benefit.
(d) The Administrator may require such proper proof of death and
such evidence of the right of any person to receive payment of the
value of the account of a deceased Participant or Former Participant
as the Administrator may deem desirable. The Administrator's
determination of death and of the right of any person to receive
payment shall be conclusive.
(e) The Beneficiary of the death benefit payable pursuant to
this Section shall be the Participant's spouse. Except, however, the
Participant may designate a Beneficiary other than his spouse if:
(1) the spouse has waived the right to be the Participant's
Beneficiary, or
(2) the Participant is legally separated or has been abandoned
(within the meaning of local law) and the Participant has a court
order to such effect (and there is no "qualified domestic
relations order" as defined in Code Section 414(p) which provides
otherwise), or
(3) the Participant has no spouse, or
(4) the spouse cannot be located.
In such event, the designation of a Beneficiary shall be
made on a form satisfactory to the Administrator. A Participant may at
any time revoke his designation of a Beneficiary or change his
Beneficiary by filing written notice of such revocation or change with
the Administrator. However, the Participant's spouse must again
consent in writing to any change in Beneficiary unless the original
consent acknowledged that the spouse had the right to limit consent
only to a specific Beneficiary and that the spouse voluntarily elected
to relinquish such right. In the event no valid designation of
Beneficiary exists at the time of the Participant's death, the death
benefit shall be payable to his estate.
(f) Any consent by the Participant's spouse to waive any rights
to the death benefit must be in writing, must acknowledge the effect
of such waiver, and be witnessed by a Plan representative or a notary
public. Further, the spouse's consent must be irrevocable and must
acknowledge the specific nonspouse Beneficiary.
6.3 DETERMINATION OF BENEFITS IN EVENT OF DISABILITY
In the event of a Participant's Total and Permanent Disability prior
to his Retirement Date or other termination of his employment, all amounts
credited to such Participant's Combined Account shall become fully Vested. In
the event of a Participant's Total and Permanent Disability, the Trustee, in
accordance with the provisions of Sections 6.5 and 6.7, shall distribute to such
Participant all amounts credited to such Participant's Combined Account as
though he had retired.
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6.4 DETERMINATION OF BENEFITS UPON TERMINATION
(a) On or before the Anniversary Date coinciding with or
subsequent to the termination of a Participant's employment for any
reason other than death, Total and Permanent Disability or retirement,
the Administrator may direct the Trustee to segregate the amount of
the Vested portion of such Terminated Participant's Combined Account
and invest the aggregate amount thereof in a separate, federally
insured savings account, certificate of deposit, common or collective
trust fund of a bank or a deferred annuity. In the event the Vested
portion of a Participant's Combined Account is not segregated, the
amount shall remain in a separate account for the Terminated
Participant and share in allocations pursuant to Section 4.4 until
such time as a distribution is made to the Terminated Participant.
Distribution of the funds due to a Terminated Participant
shall be made on the occurrence of an event which would result in the
distribution had the Terminated Participant remained in the employ of
the Employer (upon the Participant's death, Total and Permanent
Disability or Normal Retirement). However, at the election of the
Participant, the Administrator shall direct the Trustee to cause the
entire Vested portion of the Terminated Participant's Combined Account
to be payable to such Terminated Participant. Any distribution under
this paragraph shall be made in a manner which is consistent with and
satisfies the provisions of Section 6.5, including, but not limited
to, all notice and consent requirements of Code Section 411(a)(11) and
the Regulations thereunder.
If the value of a Terminated Participant's Vested benefit
derived from Employer and Employee contributions does not exceed
$3,500 and has never exceeded $3,500 at the time of any prior
distribution, the Administrator shall direct the Trustee to cause the
entire Vested benefit to be paid to such Participant in a single lump
sum.
(b) The Vested portion of any Participant's Account shall be a
percentage of the total amount credited to his Participant's Account
determined on the basis of the Participant's number of Years of
Service according to the following schedule:
Vesting Schedule
Years of Service Percentage
1 20 %
2 40 %
3 60 %
4 80 %
5 100 %
(c) Notwithstanding the vesting schedule above, upon the
complete discontinuance of the Employer's contributions to the Plan or
upon any full or partial termination of the Plan, all amounts credited
to the account of any affected Participant shall become 100% Vested
and shall not thereafter be subject to Forfeiture.
(d) The computation of a Participant's nonforfeitable percentage
of his interest in the Plan shall not be reduced as the result of any
direct or indirect amendment to this Plan. For this purpose, the Plan
shall be treated as having been amended if the Plan provides for an
automatic change in vesting due to a change in top heavy status. In
the event that the Plan is amended to change or modify any vesting
schedule, a Participant with at least three (3) Years of Service as of
the expiration date of the election period may elect to have his
nonforfeitable percentage computed under the Plan without regard to
such amendment. If a Participant fails to make such election, then
such Participant shall be subject to the new vesting schedule. The
Participant's election period shall commence on the adoption date of
the amendment and shall end 60 days after the latest of:
(1) the adoption date of the amendment,
(2) the effective date of the amendment, or
(3) the date the Participant receives written notice of the
amendment from the Employer or Administrator.
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(e)(1) If any Former Participant shall be reemployed by the
Employer before a 1-Year Break in Service occurs, he shall continue to
participate in the Plan in the same manner as if such termination had
not occurred.
(2) If any Former Participant shall be reemployed by the
Employer before five (5) consecutive 1-Year Breaks in Service,
and such Former Participant had received a distribution of his
entire Vested interest prior to his reemployment, his forfeited
account shall be reinstated only if he repays the full amount
distributed to him before the earlier of five (5) years after the
first date on which the Participant is subsequently reemployed by
the Employer or the close of the first period of five (5)
consecutive 1-Year Breaks in Service commencing after the
distribution. In the event the Former Participant does repay the
full amount distributed to him, the undistributed portion of the
Participant's Account must be restored in full, unadjusted by any
gains or losses occurring subsequent to the Anniversary Date or
other valuation date coinciding with or preceding his
termination. The source for such reinstatement shall first be any
Forfeitures occurring during the year. If such source is
insufficient, then the Employer shall contribute an amount which
is sufficient to restore any such forfeited Accounts provided,
however, that if a discretionary contribution is made for such
year pursuant to Section 4.1(c), such contribution shall first be
applied to restore any such Accounts and the remainder shall be
allocated in accordance with Section 4.4.
(3) If any Former Participant is reemployed after a 1-Year Break
in Service has occurred, Years of Service shall include Years of
Service prior to his 1-Year Break in Service subject to the
following rules:
(i) If a Former Participant has a 1-Year Break in Service,
his pre-break and post-break service shall be used for
computing Years of Service for eligibility and for vesting
purposes only after he has been employed for one (1) Year of
Service following the date of his reemployment with the
Employer;
(ii) Any Former Participant who under the Plan does not have
a nonforfeitable right to any interest in the Plan resulting
from Employer contributions shall lose credits otherwise
allowable under (i) above if his consecutive 1-Year Breaks
in Service equal or exceed the greater of (A) five (5) or
(B) the aggregate number of his pre-break Years of Service;
(iii) After five (5) consecutive 1-Year Breaks in
Service, a Former Participant's Vested Account balance
attributable to pre-break service shall not be increased as
a result of post-break service;
(iv) If a Former Participant who has not had his Years of
Service before a 1-Year Break in Service disregarded
pursuant to (ii) above completes one (1) Year of Service for
eligibility purposes following his reemployment with the
Employer, he shall participate in the Plan retroactively
from his date of reemployment;
(v) If a Former Participant who has not had his Years of
Service before a 1-Year Break in Service disregarded
pursuant to (ii) above completes a Year of Service (a 1-Year
Break in Service previously occurred, but employment had not
terminated), he shall participate in the Plan retroactively
from the first day of the Plan Year during which he
completes one (1) Year of Service.
6.5 DISTRIBUTION OF BENEFITS
(a) The Administrator, pursuant to the election of the
Participant, shall direct the Trustee to distribute to a Participant
or his Beneficiary any amount to which he is entitled under the Plan
in one lump-sum payment in cash.
(b) Any distribution to a Participant who has a benefit which
exceeds, or has ever exceeded, $3,500 at the time of any prior
distribution shall require such Participant's consent if such
distribution occurs prior to the later of his Normal Retirement Age or
age 62. With regard to this required consent:
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(1) The Participant must be informed of his right to defer
receipt of the distribution. If a Participant fails to consent,
it shall be deemed an election to defer the distribution of any
benefit. However, any election to defer the receipt of benefits
shall not apply with respect to distributions which are required
under Section 6.5(c).
(2) Notice of the rights specified under this paragraph shall be
provided no less than 30 days and no more than 90 days before the
first day on which all events have occurred which entitle the
Participant to such benefit.
(3) Written consent of the Participant to the distribution must
not be made before the Participant receives the notice and must
not be made more than 90 days before the first day on which all
events have occurred which entitle the Participant to such
benefit.
(4) No consent shall be valid if a significant detriment is
imposed under the Plan on any Participant who does not consent to
the distribution.
If a distribution is one to which Code Sections 401(a)(11) and
417 do not apply, such distribution may commence less than 30
days after the notice required under Regulation 1.411(a)-11(c) is
given, provided that: (1) the Administrator clearly informs the
Participant that the Participant has a right to a period of at
least 30 days after receiving the notice to consider the decision
of whether or not to elect a distribution (and, if applicable, a
particular distribution option), and (2) the Participant, after
receiving the notice, affirmatively elects a distribution.
(c) Notwithstanding any provision in the Plan to the contrary,
the distribution of a Participant's benefits shall be made in
accordance with the following requirements and shall otherwise comply
with Code Section 401(a)(9) and the Regulations thereunder (including
Regulation 1.401(a)(9)-2), the provisions of which are incorporated
herein by reference:
(1) A Participant's benefits shall be distributed to him not
later than April 1st of the calendar year following the later of
(i) the calendar year in which the Participant attains age 70 1/2
or (ii) the calendar year in which the Participant retires,
provided, however, that this clause (ii) shall not apply in the
case of a Participant who is a "five (5) percent owner" at any
time during the five (5) Plan Year period ending in the calendar
year in which he attains age 70 1/2 or, in the case of a
Participant who becomes a "five (5) percent owner" during any
subsequent Plan Year, clause (ii) shall no longer apply and the
required beginning date shall be the April 1st of the calendar
year following the calendar year in which such subsequent Plan
Year ends. Notwithstanding the foregoing, clause (ii) above shall
not apply to any Participant unless the Participant had attained
age 70 1/2 before January 1, 1988 and was not a "five (5) percent
owner" at any time during the Plan Year ending with or within the
calendar year in which the Participant attained age 66 1/2 or any
subsequent Plan Year.
(2) Distributions to a Participant and his Beneficiaries shall
only be made in accordance with the incidental death benefit
requirements of Code Section 401(a)(9)(G) and the Regulations
thereunder.
(d) All annuity Contracts under this Plan shall be
non-transferable when distributed. Furthermore, the terms of any
annuity Contract purchased and distributed to a Participant or spouse
shall comply with all of the requirements of the Plan.
(e) If a distribution is made at a time when a Participant is
not fully Vested in his Participant's Account (employment has not
terminated) and the Participant may increase the Vested percentage in
such account:
(1) a separate account shall be established for the
Participant's interest in the Plan as of the time of the
distribution; and
(2) at any relevant time, the Participant's Vested portion of
the separate account shall be equal to an amount ("X") determined
by the formula:
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X equals P(AB plus (R x D)) - (R x D)
For purposes of applying the formula: P is the Vested percentage
at the relevant time, AB is the account balance at the relevant
time, D is the amount of distribution, and R is the ratio of the
account balance at the relevant time to the account balance after
distribution.
6.6 DISTRIBUTION OF BENEFITS UPON DEATH
(a) The death benefit payable pursuant to Section 6.2 shall be
paid to the Participant's Beneficiary in one lump-sum payment in cash
subject to the rules of Section 6.6(b).
(b) Notwithstanding any provision in the Plan to the contrary,
distributions upon the death of a Participant shall be made in
accordance with the following requirements and shall otherwise comply
with Code Section 401(a)(9) and the Regulations thereunder. If it is
determined pursuant to Regulations that the distribution of a
Participant's interest has begun and the Participant dies before his
entire interest has been distributed to him, the remaining portion of
such interest shall be distributed at least as rapidly as under the
method of distribution selected pursuant to Section 6.5 as of his date
of death. If a Participant dies before he has begun to receive any
distributions of his interest under the Plan or before distributions
are deemed to have begun pursuant to Regulations, then his death
benefit shall be distributed to his Beneficiaries by December 31st of
the calendar year in which the fifth anniversary of his date of death
occurs.
However, the 5-year distribution requirement of the
preceding paragraph shall not apply to any portion of the deceased
Participant's interest which is payable to or for the benefit of a
designated Beneficiary. In such event, such portion shall be
distributed over a period not extending beyond the life expectancy of
such designated Beneficiary provided such distribution begins not
later than December 31st of the calendar year immediately following
the calendar year in which the Participant died. However, in the event
the Participant's spouse (determined as of the date of the
Participant's death) is his Beneficiary, the requirement that
distributions commence within one year of a Participant's death shall
not apply. In lieu thereof, distributions must commence on or before
the later of: (1) December 31st of the calendar year immediately
following the calendar year in which the Participant died; or
(2) December 31st of the calendar year in which the Participant would
have attained age 70 1/2. If the surviving spouse dies before
distributions to such spouse begin, then the 5-year distribution
requirement of this Section shall apply as if the spouse was the
Participant.
6.7 TIME OF SEGREGATION OR DISTRIBUTION
Except as limited by Sections 6.5 and 6.6, whenever the Trustee is to
make a distribution on or as of an Anniversary Date, the distribution may be
made on such date or as soon thereafter as is practicable. However, unless a
Former Participant elects in writing to defer the receipt of benefits (such
election may not result in a death benefit that is more than incidental), the
payment of benefits shall occur not later than the 60th day after the close of
the Plan Year in which the latest of the following events occurs: (a) the date
on which the Participant attains the earlier of age 65 or the Normal Retirement
Age specified herein; (b) the 10th anniversary of the year in which the
Participant commenced participation in the Plan; or (c) the date the Participant
terminates his service with the Employer.
6.8 DISTRIBUTION FOR MINOR BENEFICIARY
In the event a distribution is to be made to a minor, then the
Administrator may direct that such distribution be paid to the legal guardian,
or if none, to a parent of such Beneficiary or a responsible adult with whom the
Beneficiary maintains his residence, or to the custodian for such Beneficiary
under the Uniform Gift to Minors Act or Gift to Minors Act, if such is permitted
by the laws of the state in which said Beneficiary resides. Such a payment to
the legal guardian, custodian or parent of a minor Beneficiary shall fully
discharge the Trustee, Employer, and Plan from further liability on account
thereof.
6.9 LOCATION OF PARTICIPANT OR BENEFICIARY UNKNOWN
In the event that all, or any portion, of the distribution payable to
a Participant or his Beneficiary hereunder shall, at the later of the
Participant's attainment of age 62 or his Normal Retirement Age, remain unpaid
solely by reason of the inability of the Administrator, after sending a
registered letter, return receipt requested, to the last known address, and
after further diligent effort, to ascertain the whereabouts of such Participant
or his Beneficiary, the amount so distributable shall be treated
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as a Forfeiture pursuant to the Plan. In the event a Participant or
Beneficiary is located subsequent to his benefit being reallocated, such
benefit shall be restored.
6.10 QUALIFIED DOMESTIC RELATIONS ORDER DISTRIBUTION
All rights and benefits, including elections, provided to a
Participant in this Plan shall be subject to the rights afforded to any
"alternate payee" under a "qualified domestic relations order." Furthermore, a
distribution to an "alternate payee" shall be permitted if such distribution is
authorized by a "qualified domestic relations order," even if the affected
Participant has not separated from service and has not reached the "earliest
retirement age" under the Plan. For the purposes of this Section, "alternate
payee," "qualified domestic relations order" and "earliest retirement age" shall
have the meaning set forth under Code Section 414(p).
6.11 DIRECT ROLLOVER
(a) 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.
(b) For purposes of this Section the following definitions shall
apply:
(1) An eligible rollover distribution is any distribution of all
or any portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not include:
any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of ten years or more; any distribution to the extent such
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).
(2) An eligible retirement plan is an individual retirement
account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity
plan described in Code Section 403(a), or a qualified trust
described in Code Section 401(a), that accepts the distributee's
eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
(3) A distributee includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse
and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations
order, as defined in Code Section 414(p), are distributees with
regard to the interest of the spouse or former spouse.
(4) A direct rollover is a payment by the plan to the eligible
retirement plan specified by the distributee.
ARTICLE VII
AMENDMENT, TERMINATION, MERGERS AND LOANS
7.1 AMENDMENT
(a) The Employer shall have the right at any time to amend the
Plan, subject to the limitations of this Section. Any such amendment
shall be adopted by formal action of the Employer's board of directors
and executed by an officer authorized to act on behalf of the
Employer. However, any amendment which affects the rights, duties or
responsibilities of the Trustee and Administrator may only be made
with the Trustee's and Administrator's written consent. Any such
amendment shall become effective as provided therein upon its
execution. The Trustee shall not be required to execute any such
amendment unless the Trust provisions contained herein are a part of
the Plan and the amendment affects the duties of the Trustee
hereunder.
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(b) No amendment to the Plan shall be effective if it authorizes
or permits any part of the Trust Fund (other than such part as is
required to pay taxes and administration expenses) to be used for or
diverted to any purpose other than for the exclusive benefit of the
Participants or their Beneficiaries or estates; or causes any
reduction in the amount credited to the account of any Participant; or
causes or permits any portion of the Trust Fund to revert to or become
property of the Employer.
(c) Except as permitted by Regulations, no Plan amendment or
transaction having the effect of a Plan amendment (such as a merger,
plan transfer or similar transaction) shall be effective to the extent
it eliminates or reduces any "Section 411(d)(6) protected benefit" or
adds or modifies conditions relating to "Section 411(d)(6) protected
benefits" the result of which is a further restriction on such benefit
unless such protected benefits are preserved with respect to benefits
accrued as of the later of the adoption date or effective date of the
amendment. "Section 411(d)(6) protected benefits" are benefits
described in Code Section 411(d)(6)(A), early retirement benefits and
retirement-type subsidies, and optional forms of benefit.
7.2 TERMINATION
(a) The Employer shall have the right at any time to terminate
the Plan by delivering to the Trustee and Administrator written notice
of such termination. Upon any full or partial termination, all amounts
credited to the affected Participants' Combined Accounts shall become
100% Vested as provided in Section 6.4 and shall not thereafter be
subject to forfeiture, and all unallocated amounts shall be allocated
to the accounts of all Participants in accordance with the provisions
hereof.
(b) Upon the full termination of the Plan, the Employer shall
direct the distribution of the assets of the Trust Fund to
Participants in a manner which is consistent with and satisfies the
provisions of Section 6.5. Distributions to a Participant shall be
made in cash or through the purchase of irrevocable nontransferable
deferred commitments from an insurer. Except as permitted by
Regulations, the termination of the Plan shall not result in the
reduction of "Section 411(d)(6) protected benefits" in accordance with
Section 7.1(c).
7.3 MERGER OR CONSOLIDATION
This Plan may be merged or consolidated with, or its assets and/or
liabilities may be transferred to any other plan and trust only if the benefits
which would be received by a Participant of this Plan, in the event of a
termination of the plan immediately after such transfer, merger or
consolidation, are at least equal to the benefits the Participant would have
received if the Plan had terminated immediately before the transfer, merger or
consolidation, and such transfer, merger or consolidation does not otherwise
result in the elimination or reduction of any "Section 411(d)(6) protected
benefits" in accordance with Section 7.1(c).
7.4 LOANS TO PARTICIPANTS
(a) The Administrator may make loans to Participants and
Beneficiaries under the following circumstances: (1) loans shall be
made available to all Participants and Beneficiaries on a reasonably
equivalent basis; (2) loans shall not be made available to Highly
Compensated Employees in an amount greater than the amount made
available to other Participants and Beneficiaries; (3) loans shall
bear a reasonable rate of interest; (4) loans shall be adequately
secured; and (5) shall provide for repayment over a reasonable period
of time.
(b) Loans made pursuant to this Section (when added to the
outstanding balance of all other loans made by the Plan to the
Participant) shall be limited to the lesser of:
(1) $50,000 reduced by the excess (if any) of the highest
outstanding balance of loans from the Plan to the Participant
during the one year period ending on the day before the date on
which such loan is made, over the outstanding balance of loans
from the Plan to the Participant on the date on which such loan
was made, or
(2) one-half (1/2) of the present value of the non-forfeitable
accrued benefit of the Participant under the Plan.
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(c) Loans shall provide for level amortization with payments to
be made not less frequently than quarterly over a period not to exceed
five (5) years. However, loans used to acquire any dwelling unit
which, within a reasonable time, is to be used (determined at the time
the loan is made) as a principal residence of the Participant shall
provide for periodic repayment over a reasonable period of time that
may exceed five (5) years.
(d) Any loans granted or renewed shall be made pursuant to a
Participant loan program. Such loan program shall be established in
writing and must include, but need not be limited to, the following:
(1) the identity of the person or positions authorized to
administer the Participant loan program;
(2) a procedure for applying for loans;
(3) the basis on which loans will be approved or denied;
(4) limitations, if any, on the types and amounts of loans
offered;
(5) the procedure under the program for determining a reasonable
rate of interest;
(6) the types of collateral which may secure a Participant loan;
and
(7) the events constituting default and the steps that will be
taken to preserve Plan assets.
Such Participant loan program shall be contained in a
separate written document which, when properly executed, is hereby
incorporated by reference and made a part of the Plan. Furthermore,
such Participant loan program may be modified or amended in writing
from time to time without the necessity of amending this Section.
ARTICLE VIII
MISCELLANEOUS
8.1 PARTICIPANT'S RIGHTS
This Plan shall not be deemed to constitute a contract between the
Employer and any Participant or to be a consideration or an inducement for the
employment of any Participant or Employee. Nothing contained in this Plan shall
be deemed to give any Participant or Employee the right to be retained in the
service of the Employer or to interfere with the right of the Employer to
discharge any Participant or Employee at any time regardless of the effect which
such discharge shall have upon him as a Participant of this Plan.
8.2 ALIENATION
(a) Subject to the exceptions provided below, no benefit which
shall be payable out of the Trust Fund to any person (including a
Participant or his Beneficiary) shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, or charge, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, or charge the same shall be void;
and no such benefit shall in any manner be liable for, or subject to,
the debts, contracts, liabilities, engagements, or torts of any such
person, nor shall it be subject to attachment or legal process for or
against such person, and the same shall not be recognized by the
Trustee, except to such extent as may be required by law.
(b) This provision shall not apply to the extent a Participant
or Beneficiary is indebted to the Plan, as a result of a loan from the
Plan. At the time a distribution is to be made to or for a
Participant's or Beneficiary's benefit, such proportion of the amount
distributed as shall equal such loan indebtedness shall be paid by the
Trustee to the Trustee or the Administrator, at the direction of the
Administrator, to apply against or discharge such loan indebtedness.
Prior to making a payment, however, the Participant or Beneficiary
must be given written notice by the Administrator that such loan
indebtedness is to be so paid in whole or part from his Participant's
Combined Account. If the Participant or Beneficiary does not agree
that the loan indebtedness is a valid claim against his Vested
Participant's Combined Account, he shall be
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entitled to a review of the validity of the claim in accordance with
procedures provided in Sections 2.12 and 2.13.
(c) This provision shall not apply to a "qualified domestic
relations order" defined in Code Section 414(p), and those other
domestic relations orders permitted to be so treated by the
Administrator under the provisions of the Retirement Equity Act of
1984. The Administrator shall establish a written procedure to
determine the qualified status of domestic relations orders and to
administer distributions under such qualified orders. Further, to the
extent provided under a "qualified domestic relations order," a former
spouse of a Participant shall be treated as the spouse or surviving
spouse for all purposes under the Plan.
8.3 CONSTRUCTION OF PLAN
This Plan shall be construed and enforced according to the Act and the
laws of the State of California, other than its laws respecting choice of law,
to the extent not preempted by the Act.
8.4 GENDER AND NUMBER
Wherever any words are used herein in the masculine, feminine or
neuter gender, they shall be construed as though they were also used in another
gender in all cases where they would so apply, and whenever any words are used
herein in the singular or plural form, they shall be construed as though they
were also used in the other form in all cases where they would so apply.
8.5 LEGAL ACTION
In the event any claim, suit, or proceeding is brought regarding the
Trust and/or Plan established hereunder to which the Trustee or the
Administrator may be a party, and such claim, suit, or proceeding is resolved in
favor of the Trustee or Administrator, they shall be entitled to be reimbursed
from the Trust Fund for any and all costs, attorney's fees, and other expenses
pertaining thereto incurred by them for which they shall have become liable.
8.6 PROHIBITION AGAINST DIVERSION OF FUNDS
(a) Except as provided below and otherwise specifically
permitted by law, it shall be impossible by operation of the Plan or
of the Trust, by termination of either, by power of revocation or
amendment, by the happening of any contingency, by collateral
arrangement or by any other means, for any part of the corpus or
income of any trust fund maintained pursuant to the Plan or any funds
contributed thereto to be used for, or diverted to, purposes other
than the exclusive benefit of Participants, Retired Participants, or
their Beneficiaries.
(b) In the event the Employer shall make an excessive
contribution under a mistake of fact pursuant to Act Section
403(c)(2)(A), the Employer may demand repayment of such excessive
contribution at any time within one (1) year following the time of
payment and the Trustees shall return such amount to the Employer
within the one (1) year period. Earnings of the Plan attributable to
the excess contributions may not be returned to the Employer but any
losses attributable thereto must reduce the amount so returned.
8.7 BONDING
Every Fiduciary, except a bank or an insurance company, unless
exempted by the Act and regulations thereunder, shall be bonded in an amount not
less than 10% of the amount of the funds such Fiduciary handles; provided,
however, that the minimum bond shall be $1,000 and the maximum bond, $500,000.
The amount of funds handled shall be determined at the beginning of each Plan
Year by the amount of funds handled by such person, group, or class to be
covered and their predecessors, if any, during the preceding Plan Year, or if
there is no preceding Plan Year, then by the amount of the funds to be handled
during the then current year. The bond shall provide protection to the Plan
against any loss by reason of acts of fraud or dishonesty by the Fiduciary alone
or in connivance with others. The surety shall be a corporate surety company (as
such term is used in Act Section 412(a)(2)), and the bond shall be in a form
approved by the Secretary of Labor. Notwithstanding anything in the Plan to the
contrary, the cost of such bonds shall be an expense of and may, at the election
of the Administrator, be paid from the Trust Fund or by the Employer.
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8.8 EMPLOYER'S AND TRUSTEE'S PROTECTIVE CLAUSE
Neither the Employer nor the Trustee, nor their successors, shall be
responsible for the validity of any Contract issued hereunder or for the failure
on the part of the insurer to make payments provided by any such Contract, or
for the action of any person which may delay payment or render a Contract null
and void or unenforceable in whole or in part.
8.9 INSURER'S PROTECTIVE CLAUSE
Any insurer who shall issue Contracts hereunder shall not have any
responsibility for the validity of this Plan or for the tax or legal aspects of
this Plan. The insurer shall be protected and held harmless in acting in
accordance with any written direction of the Trustee, and shall have no duty to
see to the application of any funds paid to the Trustee, nor be required to
question any actions directed by the Trustee. Regardless of any provision of
this Plan, the insurer shall not be required to take or permit any action or
allow any benefit or privilege contrary to the terms of any Contract which it
issues hereunder, or the rules of the insurer.
8.10 RECEIPT AND RELEASE FOR PAYMENTS
Any payment to any Participant, his legal representative, Beneficiary,
or to any guardian or committee appointed for such Participant or Beneficiary in
accordance with the provisions of the Plan, shall, to the extent thereof, be in
full satisfaction of all claims hereunder against the Trustee and the Employer,
either of whom may require such Participant, legal representative, Beneficiary,
guardian or committee, as a condition precedent to such payment, to execute a
receipt and release thereof in such form as shall be determined by the Trustee
or Employer.
8.11 ACTION BY THE EMPLOYER
Whenever the Employer under the terms of the Plan is permitted or
required to do or perform any act or matter or thing, it shall be done and
performed by a person duly authorized by its legally constituted authority.
8.12 NAMED FIDUCIARIES AND ALLOCATION OF RESPONSIBILITY
The "named Fiduciaries" of this Plan are (1) the Employer, (2) the
Administrator and (3) the Trustee. The named Fiduciaries shall have only those
specific powers, duties, responsibilities, and obligations as are specifically
given them under the Plan. In general, the Employer shall have the sole
responsibility for making the contributions provided for under Section 4.1; and
shall have the sole authority to appoint and remove the Trustee and the
Administrator; to formulate the Plan's "funding policy and method"; and to amend
or terminate, in whole or in part, the Plan. The Administrator shall have the
sole responsibility for the administration of the Plan, which responsibility is
specifically described in the Plan. The Trustee shall have the sole
responsibility of management of the assets held under the Trust, except those
assets, the management of which has been assigned to an Investment Manager, who
shall be solely responsible for the management of the assets assigned to it, all
as specifically provided in the Plan. Each named Fiduciary warrants that any
directions given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan, authorizing or providing for such
direction, information or action. Furthermore, each named Fiduciary may rely
upon any such direction, information or action of another named Fiduciary as
being proper under the Plan, and is not required under the Plan to inquire into
the propriety of any such direction, information or action. It is intended under
the Plan that each named Fiduciary shall be responsible for the proper exercise
of its own powers, duties, responsibilities and obligations under the Plan. No
named Fiduciary shall guarantee the Trust Fund in any manner against investment
loss or depreciation in asset value. Any person or group may serve in more than
one Fiduciary capacity. In the furtherance of their responsibilities hereunder,
the "named Fiduciaries" shall be empowered to interpret the Plan and Trust and
to resolve ambiguities, inconsistencies and omissions, which findings shall be
binding, final and conclusive.
8.13 HEADINGS
The headings and subheadings of this Plan have been inserted for
convenience of reference and are to be ignored in any construction of the
provisions hereof.
8.14 APPROVAL BY INTERNAL REVENUE SERVICE
(a) Notwithstanding anything herein to the contrary,
contributions to this Plan are conditioned upon the initial
qualification of the Plan under Code Section 401. If the Plan receives
an adverse determination with respect to its initial qualification,
then the Plan may return such contributions to the Employer within one
year after such determination, provided the application for the
determination
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is made by the time prescribed by law for filing the Employer's return
for the taxable year in which the Plan was adopted, or such later date
as the Secretary of the Treasury may prescribe.
(b) Notwithstanding any provisions to the contrary, except
Sections 3.6, 3.7, and 4.1(e), any contribution by the Employer to the
Trust Fund is conditioned upon the deductibility of the contribution
by the Employer under the Code and, to the extent any such deduction
is disallowed, the Employer may, within one (1) year following the
disallowance of the deduction, demand repayment of such disallowed
contribution and the Trustee shall return such contribution within one
(1) year following the disallowance. Earnings of the Plan attributable
to the excess contribution may not be returned to the Employer, but
any losses attributable thereto must reduce the amount so returned.
8.15 UNIFORMITY
All provisions of this Plan shall be interpreted and applied in a
uniform, nondiscriminatory manner. In the event of any conflict between the
terms of this Plan and any Contract purchased hereunder, the Plan provisions
shall control.
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IN WITNESS WHEREOF, this Plan has been executed the day and year first
above written.
EMPLOYER: Monterey Pasta Company
By /s/ Robert J. Otto
----------------------
NAME: ROBERT J. OTTO
ITS: EXECUTIVE VICE PRESIDENT
<PAGE>
DIRECTED EMPLOYEE BENEFIT TRUST AGREEMENT
This TRUST AGREEMENT ("Trust Agreement" or "Agreement"), entered into this
17th day of June, 1996, by and between MONTEREY PASTA COMPANY corporation
(the "Company"), and THE CHARLES SCHWAB TRUST COMPANY (the "Trustee").
PURPOSE
The Company has adopted a plan called MONTEREY PASTA COMPANY 401(k) PLAN
(the "Plan") for the exclusive purpose of providing benefits to certain of its
employees and their beneficiaries and defraying reasonable expenses of
administering the Plan. The Plan provides that, from time to time, cash and
other assets may be paid to the Trustee by the Company to be held and
administered as a trust (the "Trust Fund" or "Trust") for the uses and purposes
of the Plan. The Company intends that the Plan shall qualify under section 401
of the Internal Revenue Code of 1986, as amended (the "Code"), and that the
Trust shall constitute a part of the Plan, as a tax exempt entity within the
meaning of Code section 501(a).
Subject to specific conditions set forth in this Agreement, the Trustee
agrees that it will hold in the Trust and invest cash and other acceptable
property received pursuant to this Agreement and received as contributions from
the Company or transfers from another plan qualified under section 401(a) of the
Code upon the terms and conditions stated below.
ARTICLE 1
TRUST FUND
1.1 The Company's President or other duly authorized official shall
certify in writing to the Trustee the names and specimen signatures of all those
persons who are authorized to act as or on behalf of the Plan's named fiduciary,
which term shall include the administrator of the Plan (the "Administrator") and
these names and specimen signatures shall be updated as necessary by the
President or other duly authorized official.
<PAGE>
1.2 All contributions or transfers shall be received by the Trustee in
cash or in any other property acceptable to the Trustee as determined by the
Trustee under its Investment Guidelines, which are incorporated herein and
made part of the Agreement as amended from time to time. The Trust Fund
shall consist of the contributions and transfers received by the Trustee,
together with the income and earnings from them and any increments to them.
The Trustee shall manage and administer the Trust Fund without distinction
between principal and income. The Trustee shall have no duty to (i) compute
any amount required to be transferred or paid to it by the Company, (ii)
collect any contributions or transfers to the Trust Fund, or (iii) determine
whether any contribution or transfer complies with the terms of the Plan.
If the Company creates or maintains one or more employee benefit plans
qualified under Code section 401(a) in addition to the Plan, the Company may
request the Trustee to hold the assets of the additional plan or plans in the
Trust Fund. The Administrator shall keep records showing the interest of the
Plan and each additional plan in the Trust Fund unless the Trustee enters
into an agreement with the Company to keep separate accounts for each such
plan. The Company and the Administrator shall not permit or cause the assets
of one plan to be used to pay benefits or the administrative expenses of any
other plan with the assets in the Trust Fund.
1.3 The Trustee shall accept a contribution of cash or other property
otherwise acceptable to the Trustee that has been distributed to a
participant (or an eligible employee who is about to become a participant)
from another employee benefit plan qualified under Code section 401(a), or
from an individual retirement account or annuity described in Code section
408, at the direction of the Administrator. The Administrator shall be
solely responsible for determining that such assets represent an eligible
rollover contribution within the meaning of Code section 402(C)(4) or
408(d)(3). The Trustee shall accept a transfer of cash or other property
acceptable to the Trustee on behalf of a participant (or an employee who is
about to become a participant) directly from the trustee of an employee
benefit plan qualified under Code section 401(a) at the direction of the
Administrator.
ARTICLE 2
INVESTMENTS AND DISTRIBUTIONS
2.1 (a) Except as provided below, the Administrator shall have all power
over and responsibility for the management, disposition, and investment of the
Trust assets, and the Trustee shall comply with proper written directions of the
Administrator concerning those assets. The Administrator shall not issue
directions in violation of the terms of the Plan and Trust or prohibited by the
fiduciary responsibility rules of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). Except to the extent
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required by ERISA or otherwise provided in this Agreement, the Trustee shall
have no duty or responsibility to review, initiate action, or make
recommendations regarding Trust assets and shall retain assets until directed
in writing by the Administrator to dispose of them.
The Administrator may delegate to any other person or persons any of the
Administrator's rights, powers or responsibilities with respect to the
operation and administration of the Trust Fund. Any such delegation shall be
made in writing and communicated to the Trustee. The Administrator shall not
be liable for any breach of fiduciary responsibility of a delegee that is not
proximately caused by the Administrator's failure to properly select or
supervise such delegee and in which the Administrator does not participate.
(b) If permissible under the Plan, each participant and/or
beneficiary may have investment power over the account maintained for him or
her, and may direct the investment and reinvestment of assets of the account
among the options authorized by the Administrator. Such direction shall be
furnished to the Trustee in writing under procedures agreed to by the Trustee
and the Administrator. To the extent provided under ERISA section 404(c),
the Trustee shall not be liable for any loss, or by reason of any breach,
which results from such participant's or beneficiary's exercise of control.
If a participant who has investment authority under the terms of the plan
fails to provide such directions, the Administrator shall direct the
investment of the participant's accounts. The Administrator shall maintain
records showing the interest of each participant and/or beneficiary in the
Trust Fund unless the Trustee enters into an agreement with the Company to
keep separate accounts for each such participant and/or beneficiary. The
Trustee shall have no duty or responsibility to review or make
recommendations regarding investments made at the direction of the
Administrator or participant and shall be required to act only upon receipt
of proper written directions. A participant or beneficiary shall not have
authority to direct the investment of assets in his or her account in a loan
to any participant, including himself or herself, or "collectibles" within
the meaning of Code section 408(m)(2).
(c) The Administrator may appoint an investment manager or
managers within the meaning of section 3(38) of ERISA to direct, control or
manage the investment of all or a portion of the Trust assets, as provided in
sections 3(38) and 403(a)(2) of ERISA. The Administrator shall notify the
Trustee in writing of the appointment of each investment manager, and the
assets over which each manager shall exercise control and cause the
investment manager to acknowledge to the Trustee in writing that the
investment manager is a fiduciary with respect to the Plan. If the foregoing
conditions are met, the investment manager shall have the power to manage,
acquire, or dispose of any Trust assets identified as under such manager's
control, and the Trustee shall not be liable for acts or omissions of the
investment manager, or be under an obligation to invest or
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<PAGE>
otherwise manage any asset of the Trust that is subject to the management of
such investment manager. The Trustee shall act only upon receipt of proper
written directions from a duly appointed investment manager, and shall have
no liability to review or question any such directions.
(d) If the Plan authorizes loans to Plan participants, the duties
of the Trustee and Administrator may be covered by a separate agreement to be
incorporated as part of this Agreement.
2.2 (a) Subject to the Investment Guidelines of the Trustee, any
general or specific investment guidelines formulated by the Company or the
Administrator and the provisions of Section 2.1 above, the person with
investment responsibility ("Authorized Person") may cause the Trust Fund to
be invested and reinvested in every kind of investment including, without
limitation, publicly traded equity and debt interests of all kinds issued by
domestic or foreign governments, business organizations, limited
partnerships, investment companies and trusts or other entities, convertible
securities of all kinds, interest-bearing deposits in any depository
institution (including the Trustee or any affiliate of the Trustee), money
market securities of all kinds, collective investments as described in
subsection (b) below and insurance contracts as described in subsection (c)
below. Notwithstanding anything in the Trust Agreement to the contrary, the
Trustee may hold uninvested and without liability for interest such part of
the Trust Fund as may be reasonably necessary for the orderly administration
of the Trust Fund.
(b) Subject to the following provisions, the assets of the Trust
Fund may be invested and reinvested, in whole or in part, in any common or
collective investment fund (referred to as the "fund") maintained by the
Trustee or an investment manager in which the Trust Fund is eligible to
participate. Notwithstanding any other provision of this Agreement, to the
extent Trust Fund assets are invested in any such fund, the terms of the
fund's governing instrument shall govern the investment responsibilities and
powers of the entity responsible for management of the fund (referred to as
"fund manager"), and the terms of such governing instrument shall be
incorporated into the Trust Agreement. The value of any interest in a fund
held by the Trust Fund shall be the fair market value of the interest as
determined by the fund manager in accordance with the fund's governing
instrument. For purposes of valuation of the Trust Fund assets, the Trustee
shall be entitled to rely conclusively on the value reported by the fund
manager.
The Trust Fund may be invested in a pooled investment vehicle funded by
contracts issued by an insurance company qualified to do business in a state
(within the meaning of ERISA section 3(10)) including, without limitation, group
annuity and guaranteed investment contracts. Any such contract may provide for
the allocation of amounts received by the insurance company to its general
account, one or more of its separate accounts (including pooled separate
accounts), or both. To the extent Trust Fund assets are allocated to a separate
account of an insurance company, the Administrator shall appoint the insurance
company as an investment manager as provided above. Notwithstanding any other
provision of the Trust Agreement, the terms of the contract(s)
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<PAGE>
governing the separate account(s) in which the Trust Fund is invested shall
govern the investment responsibilities and powers of the insurance company
and, to the extent required by law, the terms of such contract(s) shall be
incorporated into the Trust Agreement.
(c) To the extent permitted by the Plan, the Authorized Person may
direct the Trustee to apply for and purchase life insurance or annuity
contracts (referred to as "contracts") from an insurance company, subject to
the following provisions:
(i) The Authorized Person shall be responsible for
ensuring that the purchases conform with the requirements of the Plan and any
rules and policies established by the Administrator regarding the form,
value, optional settlement methods and other provisions of the contracts.
The Trustee shall not be responsible for the validity or proper execution of
any contract delivered to it, or any act of any persons which renders the
contract void or voidable. The Trustee shall not be responsible if the
contract held in the Trust Fund fails to meet the requirements of the Plan,
and shall have no duty to inform participants of the terms and conditions of
any such contract.
(ii) The Administrator shall instruct the insurance
company to notify the Administrator of all premiums becoming due under the
contracts. The Plan Administrator shall deliver all premium notices to the
Trustee, together with a direction to the Trustee to pay the premiums out of
the Trust Fund. The Trustee shall have no responsibility for paying the
premium unless sufficient assets of the Trust Fund are available for that
purpose.
(iii) The Administrator shall cause the Trustee to be
designated as the sole owner of any such contract, with sole power to
exercise all rights, privileges, options and other incidents of ownership at
the Administrator's direction. The Administrator from time to time shall
direct the Trustee regarding the designation of a beneficiary of the death
benefit payable under any such contract in accordance with the applicable
provisions of the Plan.
(d) To the extent permitted by the Plan and ERISA and subject to
the applicable federal and state securities laws, the Authorized Person may
direct the Trustee to invest in qualifying employer securities within the
meaning of ERISA section 407(d)(5) ("Employer Securities"). The
Administrator shall have full responsibility for determining that any such
investment, and the voting rights attributable to such investment, complies
with applicable law. Notwithstanding any other provision of the Plan or Trust
Agreement, the Administrator shall have responsibility for voting any shares
or directing that such shares shall be sold, exchange, or otherwise disposed
of except to the extent that such duties are made the responsibility of
another person or persons under the terms of the Plan or other governing
document, and such person performs according to such terms.
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<PAGE>
2.3 In its administration of the Trust Fund, the Trustee shall have and
exercise whatever powers are necessary to discharge its obligations and
exercise its rights under the Trust Agreement. Subject to the direction of
the Administrator, participants, or an investment manager as provided in
Section 2.1, the Trustee shall have full power and authority with respect to
property held in the Trust Fund to do all such acts, take all proceedings,
and exercise all such rights and privileges, whether specifically referred to
or not in this document, as could be done, taken, or exercised by the
absolute owner, including, without limitation, the following:
(a) To collect income generated by the Trust Fund investments and
proceeds realized on the sale or disposition of assets and to hold the same
pending reinvestment or distribution in accordance with this Agreement;
(b) To register Trust Fund property in the Trustee's own name, in
the name of a nominee or in bearer form, provided the Trustee's records and
accounts show that such property is an asset of the Trust Fund;
(c) To deposit securities in a security depository and permit the
securities so deposited to be held in the name of the depository's nominee,
and to deposit securities issued or guaranteed by the U.S. government or any
agency or instrumentality thereof, including securities evidenced by book
entry rather than by certificate, with the U.S. Department of the Treasury, a
Federal Reserve Bank or other appropriate custodial entity, in the same
account as the Trustee's own property, provided the Trustee's records and
accounts show that such securities are assets of the Trust Fund;
(d) To hold securities issued by a foreign government or business
entity at a foreign office of the Trustee or any of its affiliates, or to
deposit such securities with a foreign securities depository or bank
regulated by a government agency or regulatory authority in the foreign
jurisdiction, and to permit the securities so deposited to be held in the
nominee name of the depository or bank, provided that the Trustee's records
and accounts show that such securities belong to the Trust Fund;
(e) To retain the property in the Trust;
(f) To sell Trust assets, at either public or private sale, at such
time or times and on such terms and conditions as it may deem appropriate;
(g) To consent to or participate in any plan for the
reorganization, consolidation, or merger of any business unit, any security
of which is held in the Trust Fund, to pay calls and assessments imposed upon
the owners of such securities as condition of their participating therein,
and to consent to any contract, lease, mortgage, purchase or sale of
property, by or between such business unit and any other party;
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<PAGE>
(h) To exercise or dispose of any right it may have as the holder
of any security, to convert the same into another security, to acquire any
additional security or securities, to make any payments, to exchange any
security, or to do any other act with reference thereto;
(i) To renew or extend the time of payment of any obligation due
or becoming due;
(j) To grant options to purchase property held in the Trust;
(k) To compromise, arbitrate, or otherwise adjust or settle claims
in favor of or against the Trust and to deliver or accept consideration in
either total or partial satisfaction of any indebtedness or other obligation,
and to continue to hold property so received for the period of time that the
Trustee deems appropriate;
(l) To exchange any property for other property upon such terms
and conditions as the Trustee may deem proper, and to give or receive money
to effect equality in price;
(m) To foreclose any obligation by judicial proceeding or otherwise;
(n) To sue or defend in connection with any and all securities or
property at any time received or held in the Trust Fund and to charge against
the Trust Fund all reasonable expenses and attorney's fees in connection
therewith;
(o) To manage any real property in the same manner as if the
Trustee were the absolute owner thereof, including the power to lease the
same for such term or terms, and upon such conditions including, but without
limitation, agreements for the purchase or disposal of buildings on the
property or options to the tenant to renew such lease from time to time or to
purchase such property as the Trustee deems proper; to make ordinary and
extraordinary repairs and alterations to any property that the Trustee deems
proper; to make ordinary and extraordinary repairs and alterations to any
building, to raze old buildings, to erect new buildings, to insure against
loss by fire or other casualties, and to employ agents and confer upon them
authority with respect to the management of such real property as the Trustee
deems appropriate;
(p) To borrow money from any person other than a party in interest
of the Plan with or without giving security;
(q) To deposit any security with any protective or reorganization
committee, and to delegate to that committee such power and authority as the
Trustee may deem proper, and to agree to pay out of the Trust Fund that
portion of the expenses and compensation of that committee as the Trustee may
deem proper;
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(r) To deliver to the Administrator, or the person or persons
identified by the Administrator, proxies and powers of attorney and related
informational material, for any shares or other property held in the Trust.
The Administrator shall have responsibility for voting such shares, by proxy
or in person, except to the extent such responsibility is delegated to
another person, under the terms of the Plan or Trust Agreement or under an
agreement between the named fiduciary of the Plan and an investment manager,
in which case such persons shall have such responsibility. The Trustee may
use agents to effect such delivery to the Administrator or the person or
persons identified by the Administrator. In no event shall the Trustee be
responsible for the voting of shares of securities held in the Trust or for
ascertaining or monitoring whether, or how, proxies are voted or whether the
proper number of proxies is received.
(s) To appoint agents as necessary or desirable, including legal
counsel who may be counsel for the Company;
(t) To hold that portion of the Trust Fund as the Trustee may deem
necessary for ordinary administration and for the disbursement of funds in
cash, without liability for interest, by depositing the same in any bank
(including deposits which bear a reasonable rate of interest in a bank or
similar financial institution supervised by the United States or a State,
even where a bank or financial institution is the Trustee, or otherwise is a
fiduciary of the Plan, including The Charles Schwab Trust Company), subject
to the rules and regulations governing such deposits, and without regard to
the amount of any such deposit;
(u) To retain group or individual insurance contracts of all kinds
authorized under the Plan;
(v) If directed by the Administrator, participant or investment
manager, to acquire, hold, and administer limited partnership interests, or
interests in other specialized investment vehicles, provided that such
Authorized Person signs any agreement or other necessary documents requested
by the Trustee prior to entering into the transaction;
(w) To write covered call options on securities where appropriate
for the Trust; provided that any such transaction is in conformity with the
Plan and all applicable rules, regulations and laws governing the Trustee,
the Plan, and this Trust;
(x) To the extent permitted under applicable laws, to invest in
deposits, long and short term debt instruments, stocks, and other securities,
including those of the Trustee, The Charles Schwab Corporation (the "Public
Company"), Charles Schwab & Co., Inc. (the "Broker/Dealer"), their affiliates
and subsidiaries.
(y) To lend securities from the Trust on a secured basis in
accordance with a separate written agreement between the Administrator and
the Trustee
8
<PAGE>
2.4 The Trustee is authorized to contract or make other arrangements
with The Charles Schwab Corporation (the "Public Company"), Charles Schwab &
Co., Inc. (the "Broker/Dealer"), their affiliates and subsidiaries,
successors and assigns and any other organizations affiliated with or
subsidiaries of the Trustee or related entities, for the provision of
services to the Trust or Plan, except where such arrangements are prohibited
by law or regulation.
2.5 The Trustee is authorized to place securities orders, settle
securities trades, hold securities in custody, and other related activities
on behalf of the Trust through or by the Broker/Dealer whenever possible,
unless the Authorized Person specifically instructs the use of another
broker/dealer. Trades (and related activities) conducted through the
Broker/Dealer shall be subject to fees and commissions established by the
Broker/Dealer, which may be paid from the Trust or netted from the proceeds
of trades.
Trades shall not be executed through the Broker/Dealer unless the
Administrator and the Authorized Person have received disclosure concerning
the relationship of the Broker/Dealer to the Trustee, and fees and
commissions which may be paid to the Public Company, Broker/Dealer, the
Trustee and/or their affiliates or subsidiaries as a result of using the
Broker/Dealer's execution or other services.
The Trustee is authorized to disclose such information as is necessary
to the operation and administration of the Trust to the Public Company or any
of its affiliates, and to such other persons or organizations that the
Trustee determines have a legitimate business purpose for obtaining such
information.
2.6 At the direction of the Authorized Person, the Trustee may purchase
shares of regulated investment companies (or other investment vehicles)
advised by the Public Company, Broker/Dealer or the Trustee or any affiliate
of them ("Schwab Funds") except to the extent prohibited by law or regulation.
(a) Uninvested cash of the Trust will be invested in Schwab Funds
designated by the Authorized Person for that purpose, unless the Authorized
Person specifically instructs the use of another fund or account, except to
the extent prohibited by law or regulation.
Schwab Fund shares may not be purchased or held by the Trust unless the
Authorized Person has received disclosure concerning the Public Company's,
Broker/Dealer's, the Trustee's and/or their affiliate's or subsidiary's
relationship to the Funds, and any fees which may be paid to the Public
Company, Broker/Dealer, Trustee and/or their affiliates or subsidiaries.
2.7 The Administrator shall have responsibility for establishing and
carrying out a funding policy and method, as specified in section 402(b)(1)
of ERISA, consistent with the objectives of the Plan and the requirements of
ERISA, taking into consideration the Plan's short-term and long-term
financial needs.
9
<PAGE>
The Trustee shall not be responsible for proper diversification of the
assets of the Trust Fund. The Administrator or the person to whom such
responsibility has been properly delegated under the requirements of ERISA
shall be responsible for the funding policy, for diversification of assets
held in trust for the Plan, and for compliance of the Trust Fund with
statutory limitations on the amount of investment in securities or other
property of the Company or its affiliated companies.
2.8 No assets of the Trust Fund shall be invested in the securities of
the Company or its affiliates unless the Administrator determines that the
securities are exempt from registration under the federal Securities Act of
1933, as amended, and are exempt from registration or qualification under the
applicable state law, and of any other applicable blue sky law, or in the
alternative, that the securities have been so registered and/or qualified.
The Administrator shall also specify what restrictive legend on transfer, if
any, is required to be set forth on the certificates for the securities and
the procedure to be followed by the Trustee to effectuate a resale of such
securities. The Administrator shall not direct the investment in "employer
securities" or "employer real property", within the meaning of section 407 of
ERISA, if such investment would be prohibited by ERISA. The Administrator
shall only direct the investment of Trust funds into securities of the
Company or an affiliate (i) if those securities are traded on an exchange
permitting a readily ascertainable fair market value, or (ii) if the
Administrator shall have obtained a current valuation by a qualified
independent appraiser.
2.9 The Trustee shall make distributions or transfers from the Trust as
specified in written directions from the Administrator. The Trustee is
authorized, to the extent required under applicable law, to withhold from
distributions to any payee an amount that the Trustee determines is necessary
to cover federal and state taxes, and the Trustee is required to withhold
such amounts if so directed by the Administrator. The Trustee shall have no
liability for making any distribution or transfer pursuant to the direction
of the Administrator (including amounts withheld pursuant to the previous
sentence) and shall be under no duty to make inquiry whether any distribution
or transfer directed by the Administrator is made pursuant to the provisions
of the Plan. The Administrator shall furnish to the Trustee all information
necessary to carry out such withholding, or, if such information is not
provided to the Trustee, the Administrator shall hold the Trustee harmless
from and indemnify it for any liability and related expenses that arise in
connection with improper withholding.
The Trustee shall not be liable for the proper application of any part
of the Plan or Trust if distributions or transfers are made in accordance
with the written directions of the Administrator including any distribution
made pursuant to a domestic relations order which the Administrator has
determined to be qualified within the meaning of section 414(p) of the Code,
nor shall the Trustee be responsible for the adequacy of the Trust Fund to
discharge any and all payments and liabilities under the Plan.
10
<PAGE>
2.10 The Trustee may make any payment required to it under this
Agreement by mailing its check for the amount specified to the recipient at
such address last furnished to the Trustee by the Administrator, or if the
Trustee has never received an address, to the recipient in care of the
Administrator.
2.11 All persons dealing with the Trustee are released from inquiring
into the decision or authority of the Trustee and from seeing to the proper
application of any monies paid or securities or other property delivered to
the Trustee.
2.12 The Trustee shall bear no liability for acting upon any instruction
or document believed by it to be genuine and to be presented or signed by a
party duly authorized to do so, and the Trustee shall be under no duty to
make any investigation or inquiry about the correctness of such instruction
or document.
2.13 The Trustee may consult with legal counsel of its choice, including
counsel for the Company, upon any question or matter arising hereunder and
the opinion of such counsel when relied upon by the Trustee shall be evidence
the Trustee was acting in good faith.
2.14 If as provided in the Plan, other trustees of separate trusts under
the Plan may be appointed, the Trustee under this Agreement shall have no
duties or responsibilities for Plan assets not held in the Trust by the
Trustee, except as required by applicable law.
ARTICLE 3
SETTLEMENT OF ACCOUNTS
3.1 (a) The Trustee shall maintain accurate records and detailed
accounts of all investments, receipts, disbursements, and other transactions
related to the Trust, and those records shall be available at all reasonable
times to the Administrator, the Company, or their authorized representatives.
(b) The Trustee, at the direction of the Administrator, shall
submit to the Administrator and any other person that the Administrator
designates those valuations, reports, or other information as the
Administrator may reasonably require. In any case, the Trust Fund shall be
valued by the Trustee at the frequency agreed to by the Trustee and the
Company, but in any event not less than annually at the fair market value as
of the close of business at the end of the last business day of the fiscal
year of the Plan. Except as specified below, in the absence of fraud or bad
faith, the Trustee's valuation of the Trust Fund shall be conclusive.
11
<PAGE>
3.2 (a) Within sixty days following the close of each fiscal year of
the Plan or the close of any other period as may be agreed upon by the
Trustee and the Administrator, the Trustee shall file with the Administrator
a written account setting forth a description of all securities and other
property purchased and sold, all receipts, disbursements, and other
transactions effected by it during that fiscal year or other designated
period, and listing the securities and other property held by the Trustee at
the end of such fiscal year or other designated period, together with their
then fair market values.
(b) The Administrator may approve an account by written notice of
approval delivered to the Trustee or by failure to deliver to the Trustee
express objections to the account in writing within sixty days from the date
upon which the account was mailed or otherwise delivered to the Administrator.
(c) The account shall be deemed approved upon receipt by the
Trustee of the Administrator's written approval of the account or upon the
passage of the sixty day period of time, except for any matters covered by
written objections that have been delivered to the Trustee by the
Administrator and for which the Trustee has not given an explanation or made
an adjustment satisfactory to the Administrator.
(d) If the account is not settled as provided above, the Trustee,
the Company or the Administrator shall have the right to apply to a court of
competent jurisdiction at the expense of the Trust Fund for a judicial
settlement of the accounting. Any judgment or decree entered in such
proceedings shall be conclusive on all persons interested in the Trust Fund.
3.3 Notwithstanding any other provision of this Article 3, if the
Trustee shall determine that the Trust Fund consists in whole or in part of
property not traded freely on a recognized market, or that information
necessary to ascertain the fair market value is not readily available, the
Trustee may request instructions from the Administrator on the value of such
property for all purposes under the Plan and this Trust Agreement, and the
Administrator shall comply with that request. The Trustee shall be entitled
to rely upon the value placed upon such property by the Administrator. At
the Trustee's option, it may request that the Administrator hire an
independent appraiser that meets the requirements of Code section
401(a)(28)(C) to value the property. Alternatively, if the Trustee chooses,
or if the Administrator shall fail or refuse to instruct the Trustee on the
value of such property within a reasonable time after receipt of the
Trustee's request, the Trustee at its sole discretion may engage an
independent appraiser to determine the fair market value of such property.
Any expenses with respect to such appraisal shall be paid by the Trustee out
of the Trust Fund or, at the option of the Company, by the Company.
12
<PAGE>
ARTICLE 4
INDEMNIFICATION
4.1 To the extent permitted under ERISA, the Company shall indemnify
and hold harmless the Trustee, its officers, employees, and agents from and
against all liabilities, losses, expenses, and claims (including reasonable
attorney's fees and costs of defense) arising out of (1) the acts or
omissions to act with respect to the Plan or Trust by persons unrelated to
the Trustee ("unrelated persons"), (2) the Trustee's action or inaction with
respect to the Plan or Trust resulting from reliance on the action or
inaction of unrelated persons, including directions to invest or otherwise
deal with Plan assets, or (3) any violation by any unrelated person of the
provisions of ERISA or the regulations thereunder, unless the Trustee commits
a breach of its duties by reason of its negligence or willful misconduct.
Expenses incurred by the Trustee which it believes to be subject to
indemnification under this Agreement shall be paid by the Company upon the
Trustee's request, provided that the Company may delay payment of any amount
in dispute until such dispute is resolved according to the provisions of Sec.
8.5 of the Agreement. Such resolution may include the award of interest on
unpaid amounts determined to be payable to the Trustee under this Section.
ARTICLE 5
TAXES, EXPENSES AND COMPENSATION OF TRUSTEE
5.1 The Trustee shall notify the Plan Administrator of any tax levied
upon or assessed against the Trust Fund of which the Trustee has knowledge.
If the Trustee receives no instructions from the Administrator, the Trustee
may pay the tax from the Trust Fund. If the Plan Administrator wishes to
contest the tax assessment, it shall give appropriate written instructions to
the Trustee. The Trustee shall not be required to bring any legal actions or
proceedings to contest the validity of any tax assessments unless the Trustee
has been indemnified to its satisfaction against loss or expense related to
such actions or proceedings, including reasonable attorney's fees.
5.2 The Company shall quarterly pay the Trustee, its expenses in
administering the Trust Fund and reasonable compensation for its services as
Trustee at a rate set forth in the Fee Schedule, which may be amended from
time to time. The Trustee reserves the right to alter this rate of
compensation at any time by providing the Company with notice of such change
at least sixty days prior to its effective date. Reasonable compensation
shall include compensation for any extraordinary services or computations
required, such as determination of the value of assets when current market
values are not published, and the covering of overdrafts. The Trustee shall
have a lien on the Trust Fund for compensation and for any reasonable
expenses including counsel, appraisal, or accounting fees, and such amounts
may be withdrawn from the Trust Fund unless paid by the Company within thirty
days after mailing of the written billing by the Trustee.
13
<PAGE>
ARTICLE 6
RESIGNATION OR REMOVAL OF TRUSTEE
6.1 The Trustee may resign as Trustee hereunder or may be removed by
the Company. This resignation or removal may be accomplished at any time
upon the giving of sixty days written notice to the Trustee or Company, as
applicable (or less if the other party agrees to waive notice). Upon
resignation or removal, the Company shall appoint a successor trustee who
shall then succeed to all the powers and duties given to the Trustee by this
Agreement. The terminating Trustee shall transfer all property of the Trust
Fund then held by it to such successor Trustee. The terminating Trustee may
require as a condition of making such transfer that the successor Trustee
present evidence that any bonding requirement under ERISA section 412 has
been met and/or may require that the Company provide a writing indemnifying
the Trustee against any losses arising from the replacement of the Trustee.
If either party has given notice of termination as provided under this
Agreement, and upon the expiration of the advance notice period no other
successor Trustee has been appointed and has accepted such appointment, this
provision shall serve as (i) notice of appointment of the Chief Executive
Officer of the Company as Trustee and (ii) as acceptance by that person of
that appointment. The Trustee is authorized to reserve such sum of money as
it may deem advisable for payment of its fees and expenses in connection with
the settlement of its accounts or other proper Trust expenses, and any
balance of such reserve remaining after the payment of such fees and expenses
shall be paid to the successor Trustee.
6.2 Within sixty days of the transfer to the successor Trustee, the
terminating Trustee shall provide the Company with an account in the form and
manner prescribed for the annual account by Article 3. Unless the Company
files with the Trustee written objections within sixty days after such
account has been mailed or otherwise delivered, the account shall be deemed
to have been approved.
ARTICLE 7
AMENDMENT AND TERMINATION OF TRUST
7.1 It is the intention of the Company that this Trust and the Plan of
which it is a part shall be permanently administered for the benefit of the
Plan's participants and their beneficiaries, and defraying reasonable expenses
of administering the Plan. This Trust is, accordingly, irrevocable except with
respect to Section 8.4; however, if changing conditions require, this Trust may
be terminated at any time by the Company, and upon such termination, the Trust
Fund shall be distributed by the Trustee as and when directed by the
Administrator in accordance with the provisions of Section 2.9 and the Plan
document. From the date of termination of the Plan and until the final
distribution of the Trust assets, the Trustee shall continue to have all the
powers provided under this Agreement that are necessary or desirable for the
orderly liquidation and distribution of the Trust Fund. In no instance upon any
termination, or discontinuance, and subsequent
14
<PAGE>
distribution shall the Trust Fund or any part of it be used for, or diverted
to, purposes other than providing benefits to participating employees and
their beneficiaries, and defraying the administrative expenses of the Plan
until all Plan liabilities have been satisfied, except in the instance of the
failure of the Trust initially to qualify for tax-exempt status as set forth
in Section 8.4.
7.2 This Trust Agreement, other than Section 7.1, may be amended at any
time by written agreement of the Company and the Trustee, provided, that such
amendment shall not operate:
(i) to cause any part of the Trust Fund to revert to or be
recoverable by the Company or to be used for or diverted to purposes other
than the exclusive benefit of participants and their beneficiaries, except to
the extent permitted by law and the Plan; or
(ii) to reduce the then accrued benefits or the amounts then held
for the benefit of any participant or beneficiary of the Plan.
7.3 The Trustee may condition the transfer or distribution of any
assets of the Trust Fund upon termination of the Trust on receipt of a
favorable determination letter from the Internal Revenue Service confirming
that the termination of the Plan does not adversely affect the tax-exempt
status of the Trust Fund. Alternatively, the Trustee, in its sole
discretion, may accept the indemnification of the Trustee against any
liability arising from such transfer or distribution that is provided by the
Company or may require the Company to post a bond sufficient to protect the
Trustee against such liability until such time as a favorable determination
letter is received.
ARTICLE 8
MISCELLANEOUS
8.1 The Trust will be administered in the State of California, and its
validity, construction, and all rights hereunder shall be governed by ERISA
and, to the extent not preempted, by the laws of California. If any
provisions of this Agreement shall be invalid or unenforceable, the remaining
provisions shall continue to be fully effective.
8.2 The headings in this instrument have been inserted for convenience
of reference only, and are to be ignored in any construction of the
provisions of this Agreement.
8.3 No person entitled to any benefit under this Trust and the Plan
shall have any right to assign, alienate, hypothecate, or encumber his
interest in any benefits under this Agreement (except as to any loans under
the Plan) and those benefits shall not in any way be subject to claim of his
creditors or liable to attachment, execution, or other process of law except
to the extent required under a qualified domestic relations order within the
meaning of section 414(p) of the Code.
15
<PAGE>
8.4 It is intended that this Trust shall be tax exempt under section
501 of the Code and that the Plan referred to herein shall qualify under
section 401(a) of the Code. However, notwithstanding any other provisions of
the Trust, if the Internal Revenue Service is requested to issue to the
Company a favorable written determination or ruling with respect to the
initial qualification of the Plan and exemption of the Trust from tax and
such request is denied, the Trustee shall, after receiving a written
direction from the Administrator, pay to each participant that portion of the
Trust Fund applicable to said participant's voluntary contributions, if any,
and provided the Plan so states, pay to the Company any part of the Trust
Fund attributable to Company contributions then remaining in the Trustee's
possession. As a condition to such repayment, the Company must execute,
acknowledge, and deliver to the Trustee its written undertaking, in form
satisfactory to the Trustee, to indemnify, defend, and hold the Trustee
harmless from all claims, actions, demands, or liabilities arising in
connection with such repayment, and provided further that such repayment will
occur within one year after the date the request for qualification is denied.
8.5 Any dispute under this Agreement shall be resolved by submission of
the issue to a member of the American Arbitration Association who is chosen
by the Company and the Trustee. If the Company and the Trustee cannot agree
on such a choice, each shall nominate a member of the American Arbitration
Association, and the two nominees will then select an arbitrator. Expenses
of the arbitration shall be paid as decided by the arbitrator.
8.6 This Trust Agreement is incorporated into and is a part of the
Plan. Anything in any other part of the Plan that is inconsistent with this
Trust Agreement is overridden, and in the case of such conflict, the terms of
this Trust Agreement shall govern.
8.7 The duties and responsibilities of the Trustee shall be solely
those set forth in this document. The Trustee shall not be a named fiduciary
under the Plan and shall not have the authority to interpret the Plan.
8.8 To the extent permitted by statutory or administrative exemption,
the Trustee may engage in actions that otherwise would violate section 406 of
ERISA.
8.9 Each fiduciary shall be solely responsible for the fiduciary's own
acts or omissions under the Plan or the Trust. Except to the extent
otherwise provided by ERISA, the parties specifically intend that no
fiduciary shall be liable for any breach of fiduciary responsibility of
another fiduciary.
8.10 The Trustee is authorized to tape record conversations between the
Trustee and persons acting on behalf of the Plan or a participant in the Plan
to verify data on transactions.
16
<PAGE>
IN WITNESS WHEREOF, MONTEREY PASTA COMPANY and THE CHARLES SCHWAB TRUST
COMPANY, have caused this Agreement to be executed by their respective
officers therunto duly authorized as of the day and year first above written.
MONTEREY PASTA COMPANY
By: /s/ Robert J. Otto
------------------------------------------------------------
Printed Name: ROBERT J. OTTO
--------------------------------------------------
Title: EXECUTIVE VICE PRESIDENT
---------------------------------------------------------
THE CHARLES SCHWAB TRUST COMPANY
By:
-----------------------------------------------------------
Printed Name:
--------------------------------------------------
Title:
---------------------------------------------------------
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 506
<SECURITIES> 0
<RECEIVABLES> 3,083
<ALLOWANCES> 0
<INVENTORY> 1,538
<CURRENT-ASSETS> 7,367
<PP&E> 7,090
<DEPRECIATION> 1,436
<TOTAL-ASSETS> 14,298
<CURRENT-LIABILITIES> 2,826
<BONDS> 0
0
0
<COMMON> 35,135
<OTHER-SE> (25,360)
<TOTAL-LIABILITY-AND-EQUITY> 9,775
<SALES> 13,000
<TOTAL-REVENUES> 13,000
<CGS> 7,237
<TOTAL-COSTS> 6,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> (323)
<INCOME-TAX> 0
<INCOME-CONTINUING> (323)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (323)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
