UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2007
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ...................to ...........................
Commission File Number: 814-61
CAPITAL SOUTHWEST CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1072796
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
12900 Preston Road, Suite 700, Dallas, Texas 75230
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 233-8242
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock, $1.00
par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes No X
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
One):
Large accelerated filer ____ Accelerated filer X Non-accelerated filer ____
-----
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes No X
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of September 30, 2006 was $332,548,127, based on the last sale
price of such stock as quoted by Nasdaq on such date (officers, directors and 5%
shareholders are considered affiliates for purposes of this calculation).
The number of shares of common stock outstanding as of May 15, 2007 was
3,888,151.
Documents Incorporated by Reference Part of Form 10-K
----------------------------------- -----------------
(1) Annual Report to Shareholders for the Year Parts I and II; and
Ended March 31, 2007 Part IV, Item 15(a)(1) and (2)
(2) Proxy Statement for Annual Meeting of Part III
Shareholders to be held July 16, 2007
TABLE OF CONTENTS
Page
PART I
Item 1. Business......................................................1
Item 1A. Risk Factors..................................................1
Item 1B. Unresolved Staff Comments.....................................4
Item 2. Properties....................................................4
Item 3. Legal Proceedings.............................................4
Item 4. Submission of Matters to a Vote of Security Holders...........4
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities..........4
Item 6. Selected Financial Data.......................................5
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................5
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk................................................5
Item 8. Financial Statements and Supplementary Data...................6
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure........................6
Item 9A. Controls and Procedures.......................................6
Item 9B. Other Information.............................................7
PART III
Item 10. Directors, Executive Officers and Corporate Governance........7
Item 11. Executive Compensation........................................8
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................8
Item 13. Certain Relationships and Related Transactions, and
Director Independence......................................9
Item 14. Principal Accountant Fees and Services........................9
PART IV
Item 15. Exhibits and Financial Statement Schedules....................9
Signatures ...................................................................10
PART I
Item 1. Business
We were organized as a Texas corporation on April 19, 1961. Until September
1969, we operated as a licensee under the Small Business Investment Act of 1958.
At that time, we transferred to our wholly-owned subsidiary, Capital Southwest
Venture Corporation ("CSVC"), certain assets and our license as a small business
investment company ("SBIC"). CSVC is a closed-end, non-diversified investment
company of the management type registered under the Investment Company Act of
1940 (the "1940 Act"). Prior to March 30, 1988, we were registered as a
closed-end, non-diversified investment company under the 1940 Act. On that date,
we elected to become a business development company subject to the provisions of
the 1940 Act, as amended by the Small Business Incentive Act of 1980. Because we
wholly own CSVC, the portfolios of both entities are referred to collectively as
"our", "we" and "us".
We are a venture capital investment company whose objective is to achieve
capital appreciation through long-term investments in businesses believed to
have favorable growth potential. Our investment interests are focused on
expansion financings, management buyouts, recapitalizations, industry
consolidations and early-stage financings in a broad range of industry segments.
Our portfolio is a composite of companies in which we have major interests as
well as a number of developing companies and marketable securities of
established publicly-owned companies. We make available significant managerial
assistance to the companies in which we invest and believe that providing
material assistance to such investee companies is critical to their business
development activities.
The 12 largest investments we own had a combined cost of $38,566,269 and a
value of $638,196,845, representing 93.7% of the value of our consolidated
investment portfolio at March 31, 2007. For a narrative description of the 12
largest investments, see "Twelve Largest Investments - March 31, 2007" on pages
8 through 10 of our Annual Report to Shareholders for the Year Ended March 31,
2007 (our "2007 Annual Report") which is herein incorporated by reference.
Certain of the information presented on the 12 largest investments has been
obtained from the respective companies and, in certain cases, from public
filings of such companies. The financial information presented on each of the
respective companies is from such companies' audited financial statements.
We compete for attractive investment opportunities with venture capital
partnerships and corporations, venture capital affiliates of industrial and
financial companies, SBICs and wealthy individuals.
The number of persons employed by us at March 31, 2007 was seven.
Our internet website address is www.capitalsouthwest.com. You can review
the filings we have made with the U.S. Securities and Exchange Commission, free
of charge by linking directly from our website to NASDAQ, a database that links
to EDGAR, the Electronic Data Gathering, Analysis, and Retrieval System of the
SEC. You should be able to access our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934. The charters adopted by the committees of our board of
directors are also available on our website.
Item 1A. Risk Factors
You should carefully consider the risks described below and all other
information contained in this annual report on Form 10-K, including our
consolidated financial statements and the related notes thereto. The risks and
uncertainties described below are not the only ones facing us. Additional risks
and uncertainties not presently known to us, or not presently deemed material by
us, may also impair our operations and performance. If any of the following
risks actually occur, our business, financial condition or results of operations
could be materially adversely affected. If that happens, the trading price of
our common stock could decline, and you may lose all or part of your investment.
1
There is uncertainty regarding the value of our investments in restricted
securities.
Our net asset value is based on the values assigned to the various
investments in our portfolio, determined in good faith by our board of
directors. Because of the inherent uncertainty of the valuation of portfolio
securities which do not have readily ascertainable market values, our fair value
determinations may differ materially from the values which would be applicable
to unrestricted securities having a public market.
The lack of liquidity of our restricted securities may adversely affect our
business.
Our portfolio contains many securities which are subject to restrictions on
sale because they were acquired from issuers in "private placement" transactions
or because we are deemed to be an affiliate of the issuer. Unless an exemption
from the registration requirements of the Securities Act of 1933 is available,
we will not be able to sell these securities publicly without the expense and
time required to register the securities under applicable federal and state
securities laws. In addition, contractual or practical limitations may restrict
our ability to liquidate our securities in portfolio companies, because we may
own a relatively large percentage of the issuer's outstanding securities. Sales
may also be limited by unfavorable market conditions. The illiquidity of our
investments may preclude or delay the disposition of such securities, which may
make it difficult for us to obtain cash equal to the value at which we record
our investments.
There is limited publicly available information regarding the companies in which
we invest.
Many of the securities in our portfolio are issued by privately held
companies. There is generally little or no publicly available information about
such companies, and we must rely on the diligence of our management to obtain
the information necessary for our decision to invest. There can be no assurance
that such diligence efforts will uncover all material information necessary to
make fully informed investment decisions.
Certain of our portfolio companies are highly leveraged.
Many of our portfolio companies have incurred substantial indebtedness in
relation to their overall capital base. Such indebtedness often has a term that
will require the balance of the loan to be refinanced when it matures. If
portfolio companies cannot generate adequate cash flow to meet the principal and
interest payments on their indebtedness, the value of our investments could be
reduced or eliminated through foreclosure on the portfolio company's assets or
by the portfolio company's reorganization or bankruptcy.
Fluctuations may occur in our quarterly results.
Our quarterly operating results may fluctuate materially due to a number of
factors including, among others, variations in and the timing of the recognition
of realized and unrealized gains or losses, the degree to which we encounter
competition in our portfolio companies' markets, the ability to find and close
suitable investments, and general economic conditions. As a result of these
factors, results for any period should not be relied upon as being indicative of
performance in future periods. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
We may not continue to qualify for pass-through tax treatment.
We may not qualify for conduit tax treatment as a Regulated Investment
Company ("RIC") if we are unable to comply with the requirements of Subchapter M
of the Internal Revenue Code. If we fail to satisfy such requirements and cease
to qualify for conduit tax treatment, we will be subject to federal taxes on our
net investment income. The loss of this pass-through tax treatment could have a
material adverse effect on the total return, if any, obtainable from an
investment in our common stock.
Historically, we have distributed net investment income semi-annually. Our
current intention is to continue these distributions of ordinary income to our
shareholders. Also, historically, we have retained net realized capital gains,
paid the resulting tax at the corporate level and retained the after-tax gains
2
to supplement our equity capital and support continuing additions to our
portfolio. Our shareholders then report such capital gains on their tax returns,
receive credit for the tax we paid and are deemed to have reinvested the amount
of the retained after-tax gain. We cannot assure you that we will achieve
investment results or maintain a RIC tax status that will allow any specified
level of cash distributions or our shareholders' current tax treatment of
realized and retained capital gains.
Our financial condition and results of operations will depend on our ability to
effectively manage any future growth.
Sustaining growth depends on our ability to identify, evaluate, finance,
and invest in companies that meet our investment criteria. Accomplishing such
results on a cost-effective basis is a function of our marketing capabilities
and skillful management of the investment process. Failure to achieve future
growth could have a material adverse effect on our business, financial
condition, and results of operations.
We are dependent upon management for our future success.
Selection, structuring and closing our investments depends upon the
diligence and skill of our management, which is responsible for identifying,
evaluating, negotiating, monitoring and disposing of our investments. Our
management's capabilities may significantly impact our results of operations. If
we lose any member of our management team and he/she cannot be promptly replaced
with an equally capable team member, our results of operations could be
significantly impacted.
We operate in a highly competitive market for investment opportunities.
We compete with a number of private equity funds, other investment entities
and individuals for investment opportunities. Some of these competitors are
substantially larger and have greater financial resources, and some are subject
to different and frequently less stringent regulation. As a result of this
competition, we may not be able to take advantage of attractive investment
opportunities from time to time and there can be no assurance that we will be
able to identify and make investments that satisfy our objectives.
Changes in laws or regulations governing our operations or our failure to comply
with those laws or regulations may adversely affect our business.
We and our portfolio companies are subject to regulation by laws at the
local, state and federal level. These laws and regulations, as well as their
interpretation, may be changed from time to time. Accordingly, any changes in
these laws and regulations or failure to comply with them could have a material
adverse effect on our business. Certain of these laws and regulations pertain
specifically to business development companies such as ours.
Failure to deploy new capital may reduce our return on equity.
If we fail to invest our capital effectively, our return on equity may be
decreased, which could reduce the price of the shares of our common stock.
Investment in shares of our common stock should not be considered a complete
investment program.
Our stock is intended for investors seeking long-term capital appreciation.
Our investments in portfolio securities generally require many years to reach
maturity, and such investments generally are illiquid. An investment in our
shares should not be considered a complete investment program. Each prospective
purchaser should take into account his or her investment objectives as well as
his or her other investments when considering the purchase of our shares.
3
Our common stock often trades at a discount from net asset value.
Our common stock is listed on The Nasdaq Global Market ("NASDAQ").
Shareholders desiring liquidity may sell their shares on NASDAQ at current
market value, which has often been below net asset value. Shares of closed-end
investment companies frequently trade at discounts from net asset value, which
is a risk separate and distinct from the risk that a fund's performance will
cause its net asset value to decrease.
The market price of our common stock may fluctuate significantly.
The market price and marketability of shares of our common stock may from
time to time be significantly affected by numerous factors, including our
investment results, market conditions, and other influences and events over
which we have no control and that may not be directly related to us.
Item 1B. Unresolved Staff Comments
We have no unresolved staff comments to report pursuant to Item 1B.
Item 2. Properties
We maintain our offices at 12900 Preston Road, Suite 700, Dallas, Texas,
75230, where we rent approximately 3,700 square feet of office space pursuant to
a lease agreement expiring in February 2008. We believe that our offices are
adequate to meet our current and expected future needs.
Item 3. Legal Proceedings
We have no material pending legal proceedings to which we are a party or to
which any of our property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the quarter
ended March 31, 2007.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Information set forth under the captions "Shareholder Information -
Shareholders, Market Prices and Dividends" on page 37 of our 2007 Annual Report
is herein incorporated by reference.
Performance Graph
The following graph compares our cumulative total shareholder return during
the last five years (based on the market price of our common stock and assuming
reinvestment of all dividends and tax credits on retained long-term capital
gains) with the Total Return Index for NASDAQ (U.S. Companies) and with the
Total Return Index for Nasdaq Financial Stocks, both of which indices have been
prepared by the Center for Research in Security Prices at the University of
Chicago.
4
Comparison of Five Year Cumulative Total Returns
[GRAPH OMITTED]
Nasdaq Total Nasdaq Financial Capital Southwest
Return (U.S.) Stocks Corporation
2002 100.000 100.000 100.000
2003 73.397 92.777 70.744
2004 108.335 133.387 112.003
2005 109.059 138.745 118.299
2006 128.607 162.999 143.785
2007 133.404 170.643 241.089
Item 6. Selected Financial Data
"Selected Consolidated Financial Data" on page 36 of our 2007 Annual Report
is herein incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Pages 33 through 35 of our 2007 Annual Report are herein incorporated by
reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in marketable
equity security prices. We do not use derivative financial instruments to
mitigate any of these risks.
Our investment performance is a function of our portfolio companies'
profitability, which may be affected by economic cycles, competitive forces,
foreign currency fluctuations and production costs including labor rates, raw
material prices and certain basic commodity prices. Most of the companies in our
investment portfolio do not hedge their exposure to raw material and commodity
price fluctuations. However, the portfolio company with the greatest exposure to
foreign currency fluctuations generally hedges its exposure. All of these
factors may have an adverse effect on the value of our investments and on our
net asset value.
Our investment in portfolio securities includes fixed-rate debt securities
which totaled $6,109,238 at March 31, 2007, equivalent to 0.9% of the value of
our total investments. Generally, these debt securities are below investment
grade and have relatively high fixed rates of interest, therefore; minor changes
in market yields of publicly-traded debt securities have little or no effect on
the values of debt securities in our portfolio and no effect on interest income.
Our investments in debt securities are generally held to maturity and their fair
values are determined on the basis of the terms of the debt security and the
financial condition of the issuer.
5
A portion of our investment portfolio consists of debt and equity
securities of private companies. We anticipate little or no effect on the values
of these investments from modest changes in public market equity valuations.
Should significant changes in market valuations of comparable publicly-owned
companies occur, there may be a corresponding effect on valuations of private
companies, which would affect the value and the amount and timing of proceeds
eventually realized from these investments. A portion of our investment
portfolio also consists of restricted common stocks of publicly-owned companies.
The fair values of these restricted securities are influenced by the nature of
applicable resale restrictions, the underlying earnings and financial condition
of the issuers of such restricted securities and the market valuations of
comparable publicly-owned companies. A portion of our investment portfolio also
consists of unrestricted, freely marketable common stocks of publicly-owned
companies. These freely marketable investments, which are valued at the public
market price, are directly exposed to equity price risks, in that a change in an
issuer's public market equity price would result in an identical change in the
value of our investment in such security.
Item 8. Financial Statements and Supplementary Data
Pages 11 through 32 of our 2007 Annual Report are herein incorporated by
reference. See also Item 15 of this Form 10-K - "Exhibits and Financial
Statement Schedules".
Selected Quarterly Financial Data (Unaudited)
---------------------------------
The following presents a summary of the unaudited quarterly consolidated
financial information for the years ended March 31, 2007 and 2006.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -----
(In thousands, except per share amounts)
2007
- ----
Net investment income $ 492 $ 1,170 $ 1,617 $ 954 $ 4,233
Net realized gain (loss) on investments 258 5,986 12,805 (2,715) 16,334
Net increase (decrease) in unrealized
appreciation of investments (3,023) (2,120) 86,187 15,300 96,344
Net increase (decrease) in net assets
from operations (2,273) 5,036 100,609 13,539 116,911
Net increase (decrease) in net assets
from operations per share (0.59) 1.30 25.89 3.48 30.08
2006
- ----
Net investment income $ 574 $ 666 $ 893 $ 256 $ 2,389
Net realized gain on investments 3,409 3,772 4,132 1,803 13,116
Net increase in unrealized
appreciation of investments 2,692 17,436 9,755 46,521 80,685
Net increase in net assets
from operations 6,675 21,874 14,780 48,580 96,190
Net increase in net assets
from operations per share 1.73 5.67 3.83 12.58 24.92
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
(i) Disclosure Controls and Procedures.
As of March 31, 2007, an evaluation was performed under the supervision and
with the participation of our management, including the President and Chairman
6
of the Board and Secretary-Treasurer, of the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Rules 13a-15
and 15d-15 of the Securities Exchange Act of 1934). Based on that evaluation,
the President and Chairman of the Board and Secretary-Treasurer concluded that
our disclosure controls and procedures are effective to ensure that the
information required to be disclosed is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and is accumulated and communicated to management,
including the President and Chairman of the Board and Secretary-Treasurer, as
appropriate, to allow timely decisions regarding such required disclosure.
During the fiscal quarter ended March 31, 2007, there were no changes to
the internal control over financial reporting that have materially affected, or
are reasonably likely to materially affect our internal controls over financial
reporting.
(ii) Internal Control Over Financial Reporting.
(a) Management's annual report on internal control over financial reporting.
The Company's management report on internal control over financial
reporting is set forth in our 2007 Annual Report on page 30 and is incorporated
herein by reference.
(b) Attestation report of the registered public accounting firm
The report of Grant Thornton LLP, the Company's independent registered
public accounting firm, on management's assessment of the effectiveness of the
Company's internal control over financial reporting and the effectiveness of the
Company's internal control over financial reporting is set forth in our 2007
Annual Report on page 31 and is incorporated herein by reference.
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The section of our 2007 Proxy Statement captioned "Nominees for Director"
under "Proposal 1. Election of Directors" identifies members of our board of
directors and nominees, and is incorporated in this Item 10 by reference.
The names and ages of our executive officers as of June 1, 2007, together
with certain biographical information, are as follows:
William M. Ashbaugh, age 52, has served as Senior Vice President since 2005
and Vice President since 2001. He previously served as Managing
Director in the corporate finance departments of Hoak Breedlove
Wesneski & Co. from 1998 to 2001, Principal Financial Securities from
1997 to 1998 and Southwest Securities from 1995 to 1997.
Susan K. Hodgson, age 45, has served as Secretary-Treasurer since 2001 and
was Controller from 1994 to 2001.
Gary L. Martin, age 60, has been a director since July 1988 and has served
as Vice President since 1984. He previously served as Vice President
from 1978 to 1980. Since 1980, Mr. Martin has served as President of
The Whitmore Manufacturing Company, a wholly-owned portfolio company.
7
Jeffrey G. Peterson, age 33, has served as Vice President since 2005 and
was an Investment Associate since 2001. He previously held positions
with the investment banking division of Scott & Stringfellow, Inc. and
the corporate lending division of Bank One.
William R. Thomas, age 78, has served as Chairman of the Board of Directors
since 1982 and President since 1980. In addition, he has been a
director since 1972 and was previously Senior Vice President from 1969
to 1980.
The sections of our 2007 Proxy Statement captioned "Meetings and Committees
of the Board of Directors under "Proposal 1. Election of Directors" and "Report
of the Audit Committee" identifies members of our audit committee of our board
of directors and our audit committee financial expert, and are incorporated in
this Item 10 by reference.
The section of our 2007 Proxy Statement captioned "Section 16(a) Beneficial
Ownership Reporting Compliance" is incorporated in this Item 10 by reference.
Code of Ethics
We have adopted a code of ethics that applies to all our directors,
officers and employees. We have made the Code of Conduct and Ethics available on
our website at www.capitalsouthwest.com.
Item 11. Executive Compensation
The information in the section of our 2007 Proxy Statement captioned
"Compensation Discussion and Analysis" is incorporated in this Item 11 by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The information in the sections of our 2007 Proxy Statement captioned
"Stock Ownership of Certain Beneficial Owners" are incorporated in this Item 12
by reference.
The table below sets forth certain information as of March 31, 2007
regarding the shares of our common stock available for grant or granted under
stock option plans that (i) were approved by our shareholders, and (ii) were not
approved by our shareholders.
Equity Compensation Plan Information
Number of Securities
Number of Securities Remaining Available For
To Be Issued Upon Weighted-Average Exercise Future Issuance Under Equity
Exercise of Price Of Outstanding Compensation Plans
Outstanding Options, Options, (excluding securities reflected
Plan Category Warrants And Rights Warrants And Rights in column (a)
- ------------- ------------------- ------------------- -------------
(a) (b) (c)
Equity 52,500 $86.184 58,500
compensation plans
approved by security
holders(1)
Equity - - -
compensation plans
not approved by
security holders ______ ______ ______
Total 52,500 $86.184 58,500
- ------
(1) Includes the 1999 Stock Option Plan. For a description of this plan, please
refer to Footnote 5 contained in our consolidated financial statements.
8
Item 13. Certain Relationships and Related Transactions, and Director
Independence
The information in the sections of our 2007 Proxy Statement captioned
"Meetings and Committees of the Board of Directors" - "Committee Member
Independence" and "Certain Relationships and Related Party Transactions" are
incorporated in this Item 13 by reference.
Item 14. Principal Accountant Fees and Services
The information in the sections of our 2007 Proxy Statement captioned
"Proposal 2: Ratification of Appointment of Independent Registered Accounting
Firm" and "Audit and Other Fees" are incorporated in this Item 14 by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a)(1) The following information included in pages 11 through 32 of our
2007 Annual Report are herein incorporated by reference:
(A) Portfolio of Investments - March 31, 2007
Consolidated Statements of Financial Condition - March 31, 2007
and 2006
Consolidated Statements of Operations - Years Ended March 31,
2007, 2006 and 2005
Consolidated Statements of Changes in Net Assets - Years Ended
March 31, 2007, 2006 and 2005
Consolidated Statements of Cash Flows - Years Ended March 31,
2007, 2006 and 2005
(B) Notes to Consolidated Financial Statements
(C) Notes to Portfolio of Investments
(D) Selected Per Share Data and Ratios
(E) Management's Report on Internal Control over Financial Reporting
(F) Reports of Independent Registered Public Accounting Firm
(G) Portfolio Changes During the Year
(a)(2) All schedules are omitted because they are not applicable or not
required, or the information is otherwise supplied.
(a)(3) See the Exhibit Index.
9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAPITAL SOUTHWEST CORPORATION
/s/ William R. Thomas
By:___________________________
William R. Thomas, President
and Chairman of the Board
Date: May 25, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ William R. Thomas
____________________ President and Chairman May 25, 2007
William R. Thomas of the Board and Director
(chief executive officer)
/s/ Gary L. Martin
___________________ Director May 25, 2007
Gary L. Martin
/s/ Donald W. Burton
___________________ Director May 25, 2007
Donald W. Burton
/s/ Graeme W. Henderson
___________________ Director May 25, 2007
Graeme W. Henderson
/s/ Samuel B. Ligon
___________________ Director May 25, 2007
Samuel B. Ligon
/s/ John H. Wilson
______________________ Director May 25, 2007
John H. Wilson
/s/ Susan K. Hodgson
___________________ Secretary-Treasurer May 25, 2007
Susan K. Hodgson (chief financial/accounting officer)
10
EXHIBIT INDEX
The following exhibits are filed with this report or are incorporated
herein by reference to a prior filing, in accordance with Rule 12b-32 under the
Securities Exchange Act of 1934. Asterisk denotes exhibits filed with this
report. Double asterick denotes exhibits furnished with this report.
Exhibit No. Description
----------- -----------
3.1(a) Articles of Incorporation and Articles of Amendment to
Articles of Incorporation, dated June 25, 1969 (filed as
Exhibit 1(a) and 1(b) to Amendment No. 3 to Form N-2 for the
fiscal year ended March 31, 1979).
3.1(b) Articles of Amendment to Articles of Incorporation, dated
July 20, 1987 (filed as an exhibit to Form N-SAR for the six
month period ended September 30, 1987).
3.2 * By-Laws of the Company, as amended.
4.1 Specimen of Common Stock certificate (filed as Exhibit 4.1
to Form 10-K for the fiscal year ended March 31, 2002).
10.1 * The RectorSeal Corporation and Jet-Lube, Inc. Employee Stock
Ownership Plan as revised and restated effective April 1,
2007.
10.2 * Retirement Plan for Employees of Capital Southwest
Corporation and Its Affiliates as amended and restated
effective April 1, 2006.
10.3 Capital Southwest Corporation and Its Affiliates Restoration
of Retirement Income Plan for certain highly-compensated
superseded plan participants effective April 1, 1993 (filed
as Exhibit 10.4 to Form 10-K for the fiscal year ended March
31, 1995).
10.4 Amendment One to Capital Southwest Corporation and Its
Affiliates Restoration of Retirement Income Plan for certain
highly-compensated superceded plan participants effective
April 1, 1993 (filed as Exhibit 10.6 to Form 10-K for the
fiscal year ended March 31, 1998).
10.5 Capital Southwest Corporation Retirement Income Restoration
Plan as amended and restated effective April 1, 1989 (filed
as Exhibit 10.5 to Form 10-K for the fiscal year ended March
31, 1995).
10.6 Form of Indemnification Agreement which has been established
with all directors and executive officers of the Company
(filed as Exhibit 10.9 to Form 8-K dated February 10, 1994).
10.7 Capital Southwest Corporation 1999 Stock Option Plan (filed
as Exhibit 10.10 to Form 10-K for the fiscal year ended
March 31, 2000).
10.8 Severance Pay Agreement with William M. Ashbaugh (filed as
Exhibit 10.1 to Form 8-K dated July 18, 2005).
10.9 Severance Pay Agreement with Susan K. Hodgson (filed as
Exhibit 10.3 to Form 8-K dated July 18, 2005).
10.10 Severance Pay Agreement with Jeffrey G. Peterson (filed as
Exhibit 10.4 to Form 8-K dated July 18, 2005).
13.1 * Annual Report to Shareholders for the fiscal year ended
March 31, 2007.
21.1 * List of subsidiaries of the Company.
23.1 * Consent of Independent Registered Public Accounting Firm -
Grant Thornton LLP.
31.1 * Certification of President and Chairman of the Board
required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), filed herewith.
31.2 * Certification of Secretary-Treasurer required by Rule
13a-14(a) or Rule 15d-14(a) of the Exchange Act, filed
herewith.
32.1 ** Certification of President and Chairman of the Board
required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange
Act and Section 1350 of Chapter 63 of Title 18 of the United
States Code, furnished herewith.
32.2 ** Certification of Secretary-Treasurer required by Rule
13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section
1350 of Chapter 63 of Title 18 of the United States Code,
furnished herewith.
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
CAPITAL SOUTHWEST CORPORATION
Exhibit 3.2
TABLE OF CONTENTS
AMENDED AND RESTATED BYLAWS
OF
CAPITAL SOUTHWEST CORPORATION
Page
ARTICLE I OFFICES....................................................1
1.01 Registered Office..........................................1
1.02 Other Offices..............................................1
ARTICLE II MEETINGS OF THE SHAREHOLDERS...............................1
2.01 Place of Meetings..........................................1
2.02 Annual Meeting.............................................1
2.03 Special Meetings...........................................1
2.04 Notice of Annual or Special Meeting........................1
2.05 Notice by Electronic Transmission..........................2
2.06 Business at Special Meeting................................2
2.07 Quorum of Shareholders.....................................2
2.08 Act of Shareholders' Meeting...............................3
2.09 Voting of Shares...........................................3
2.10 Proxies....................................................3
2.11 Voting List................................................4
2.12 Action by Written Consent Without a Meeting................4
2.13 Presence at Meeting........................................4
ARTICLE III BOARD OF DIRECTORS.........................................4
3.01 Powers.....................................................4
3.02 Number of Directors........................................5
3.03 Election and Term..........................................5
3.04 Vacancies..................................................5
3.05 Resignation and Removal....................................5
3.06 Compensation of Directors..................................5
3.07 Chairman of the Board......................................5
ARTICLE IV MEETINGS OF THE BOARD......................................6
4.01 First Meeting..............................................6
4.02 Regular Meetings...........................................6
4.03 Special Meetings...........................................6
4.04 Written Notice.............................................6
4.05 Notice by Electronic Transmission..........................6
4.06 Waiver of Notice...........................................6
4.07 Attendance as Waiver.......................................7
i
Exhibit 3.2
4.08 Business at Regular or Special Meeting.....................7
4.09 Quorum of Directors........................................7
4.10 Interested Directors.......................................7
4.11 Act of Directors' Meeting..................................8
4.12 Action by Written Consent Without a Meeting................8
4.13 Presence at Meeting........................................8
ARTICLE V COMMITTEES.................................................8
5.01 Designation of Committees..................................8
5.02 Authority and Proceedings of Committees....................8
5.03 Employee Director..........................................8
5.04 Regular Meetings...........................................9
5.05 Special Meetings...........................................9
5.06 Quorum; Majority Vote......................................9
5.07 Minutes....................................................9
5.08 Compensation...............................................9
5.09 Responsibility.............................................9
ARTICLE VI MEETING BY USE OF CONFERENCE TELEPHONE
OR SIMILAR COMMUNICATIONS EQUIPMENT........................9
ARTICLE VII OFFICERS..................................................10
7.01 Executive Officers........................................10
7.02 Election and Qualification................................10
7.03 Compensation..............................................10
7.04 Term, Removal, and Vacancies..............................10
7.05 Chief Executive Officer...................................10
7.06 President.................................................10
7.07 Vice Presidents...........................................11
7.08 Secretary.................................................11
7.09 Assistant Secretary.......................................11
7.10 Treasurer.................................................11
7.11 Assistant Treasurer.......................................11
7.12 Officer's Bond............................................11
ARTICLE VIII CERTIFICATES FOR SHARES...................................12
8.01 Certificates Representing Shares..........................12
8.02 Restriction on Transfer of Shares.........................12
8.03 Voting and Shareholder Agreements.........................12
8.04 Transfer of Shares........................................13
8.05 Lost, Stolen or Destroyed Certificates....................13
8.06 Closing of Transfer Books and Record Date.................13
8.07 Registered Shareholders...................................14
ARTICLE IX GENERAL PROVISIONS........................................14
9.01 Dividends.................................................14
9.02 Reserves..................................................14
ii
Exhibit 3.2
9.03 Negotiable Instruments....................................14
9.04 Fiscal Year...............................................14
9.05 Seal......................................................14
9.06 Books and Records.........................................14
ARTICLE X AMENDMENTS................................................15
AMENDED AND RESTATED BYLAWS
OF
CAPITAL SOUTHWEST CORPORATION
ARTICLE I
OFFICES
1.01 Registered Office. The registered office, until changed by action of
the Board of Directors, shall be at 12900 Preston Road, Suite 700, City of
Dallas, County of Dallas, State of Texas.
1.02 Other Offices. The corporation also may have offices at such other
places both within and without the State of Texas as the Board of Directors may
from time to time determine or as the business of the corporation may require.
ARTICLE II
MEETINGS OF THE SHAREHOLDERS
2.01 Place of Meetings. Meetings of shareholders for the election of
directors or for any other proper purpose shall be held at such place within or
without the State of Texas as the Board of Directors may from time to time
designate. At the discretion of the Board of Directors, or as agreed to by all
persons entitled to notice of the meeting, meetings of shareholders may also be
held or shareholders may participate in meetings of shareholders by means of
remote communication authorized under the Texas Business Organizations Code as
stated in the notice of such meeting or a duly executed waiver of notice
thereof.
2.02 Annual Meeting. An annual meeting of shareholders shall be held at
such time and date as the Board of Directors may determine. At such meeting the
shareholders entitled to vote thereat shall elect a Board of Directors and may
transact such other business as may properly be brought before the meeting.
2.03 Special Meetings. Special meetings of shareholders may be called by
the Chairman of the Board of Directors, the President, the Board of Directors,
or the holders of at least 10% of all the shares entitled to vote at the
proposed special meeting. If not otherwise fixed in accordance with these
Bylaws, the record date for determining shareholders entitled to call a special
meeting is the date the first shareholder signs the notice of such meeting.
2.04 Notice of Annual or Special Meeting. Written or printed notice stating
the place, if any, day and hour of the meeting, the means of any remote
communications by which shareholders may be considered present and may vote at
the meeting and the means of accessing the remote communications system, and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called shall be delivered not less than 10 nor more than 60 days before the date
of the meeting, personally, by electronic transmission, or by mail, or by any
other method permitted by applicable law, by or at the direction of the
President, the Secretary, or the officer or person calling the meeting, to each
shareholder entitled to vote at such meeting except as otherwise provided in the
Texas Business Organizations Code. If the meeting is held by means of remote
communications, the notice of meeting shall include information on how to access
the list of shareholders entitled to vote at the meeting required by Section
2.11. If mailed, such notice shall be deemed to be delivered when deposited in
the United States mail, addressed to the shareholder at his address as it
appears on the share transfer records of the corporation, with postage thereon
prepaid. Whenever any notice is required to be given to any shareholder under
the provisions of any law, the Articles of Incorporation, or these Bylaws, a
waiver thereof in writing signed by the person or persons entitled to such
notice, or a waiver by electronic transmission by the person or persons entitled
to notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
2.05 Notice by Electronic Transmission. On consent of a shareholder, notice
from the corporation under any applicable law, the Articles of Incorporation, or
these Bylaws may be given to the shareholder by electronic transmission. The
shareholder may specify the form of electronic transmission to be used to
communicate notice. The shareholder may revoke this consent by written notice to
the corporation. The consent of a shareholder is considered revoked if the
corporation is unable to deliver by electronic transmission two consecutive
notices, and the secretary, assistant secretary or transfer agent of the
corporation, or another person responsible for delivering notice on behalf of
the corporation, knows that delivery of these two electronic transmissions was
unsuccessful. Inadvertent failure to treat the unsuccessful transmissions as a
revocation of the shareholder's consent does not affect the validity of a
meeting or other action. Notice by electronic transmission shall be deemed given
when the notice is: (1) transmitted to a facsimile number provided by the
shareholder for the purpose of receiving notice; (2) transmitted to an
electronic mail address provided by the shareholder for the purpose of receiving
notice; (3) posted on an electronic network and a message is sent to the
shareholder at the address provided by the shareholder for the purpose of
alerting the shareholder of a posting; or (4) communicated to the shareholder by
any other form of electronic transmission consented to by the shareholder.
2.06 Business at Special Meeting. The business transacted at any special
meeting of shareholders shall be limited to the purposes stated in the notice
thereof.
2.07 Quorum of Shareholders. Unless otherwise provided in the Articles of
Incorporation, the holders of a majority of the shares entitled to vote at a
meeting of shareholders, represented in person or by proxy, shall constitute a
quorum for any matter to be presented at that meeting. If, however, a quorum
shall not be present or represented at any meeting of the shareholders, unless
otherwise provided in the Articles of Incorporation, the holders of a majority
of the shares represented in person or by proxy at the meeting shall have the
power to adjourn the meeting until such time and to such place as they shall
determine, without notice other than announcement at the meeting. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted that might have been transacted at the meeting as
originally notified. Unless otherwise provided in the Articles of Incorporation,
the shareholders present at a duly organized meeting may continue to transact
2
business until adjournment, and the subsequent withdrawal of any shareholder or
the refusal of any shareholder to vote shall not affect the presence of a quorum
at the meeting.
2.08 Act of Shareholders' Meeting. With respect to any matter, other than
the election of directors, a vote on a "fundamental action" as defined in the
Texas Business Organizations Code (a "Fundamental Action"), a vote on a
"fundamental business transaction" as defined in the Texas Business Organization
Code (a "Fundamental Business Transaction"), or another matter for which the
affirmative vote of the holders of a specified portion of the shares entitled to
vote is required by law or the Articles of Incorporation, the affirmative vote
of the holders of a majority of the shares entitled to vote on, and that voted
for or against or expressly abstained with respect to, that matter at a meeting
of shareholders at which a quorum is present shall be the act of shareholders.
Unless otherwise provided in the Articles of Incorporation, directors shall be
elected by a plurality of the votes cast by the holders of shares entitled to
vote in the election of directors at a meeting of shareholders at which a quorum
is present. Unless otherwise provided in the Texas Business Organizations Code
or the Articles of Incorporation, the vote required for approval of a
Fundamental Action or a Fundamental Business Transaction by the shareholders is
the affirmative vote of the holders of at least two-thirds of the outstanding
shares entitled to vote on the Fundamental Action or Fundamental Business
Transaction.
2.09 Voting of Shares. Each outstanding share, regardless of class, shall
be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except to the extent otherwise provided by law or the Articles of
Incorporation. At each election for directors, every shareholder entitled to
vote at such election shall have the right to vote the number of shares owned by
him for as many persons as there are directors to be elected and for whose
election he has the right to vote. Unless expressly permitted by the Articles of
Incorporation, no shareholder shall be entitled to cumulate his votes by giving
one candidate as many votes as the number of such directors to be elected
multiplied by the number of shares owned by such shareholder or by distributing
such votes on the same principle among any number of such candidates.
2.10 Proxies. At any meeting of the shareholders, each shareholder having
the right to vote shall be entitled to vote either in person or by proxy
executed in writing by the shareholder. A telegram, telex, cablegram, or other
form of electronic transmission, including telephone transmission, by the
shareholder, or a photographic, photostatic, facsimile, or similar reproduction
of a writing executed by the shareholder, shall be treated as an execution in
writing for purposes of this section. Any electronic transmission must contain
or be accompanied by information from which it can be determined that the
transmission was authorized by the shareholder. No proxy shall be valid after 11
months from the date of its execution unless otherwise provided in the proxy.
Each proxy shall be revocable unless the proxy form conspicuously states that
the proxy is irrevocable and the proxy is coupled with an interest. An
irrevocable proxy, if noted conspicuously on the certificate representing the
shares that are subject to the irrevocable proxy, shall be specifically
enforceable against the holder of those shares or any successor or transferee of
the holder. Unless noted conspicuously on the certificate representing the
shares that are subject to the irrevocable proxy, an irrevocable proxy, even
though otherwise enforceable, is ineffective against a transferee for value
without actual knowledge of the existence of the irrevocable proxy at the time
of the transfer or against any subsequent transferee (whether or not for value),
but such an irrevocable proxy shall be specifically enforceable against any
3
other person who is not a transferee for value from and after the time that the
person acquires actual knowledge of the existence of the irrevocable proxy.
2.11 Voting List. The officer or agent having charge of the share transfer
records for shares of the corporation shall make, not later than the 11th day
before the date of each meeting of shareholders, a complete list of the
shareholders entitled to vote at such meeting or any adjournment thereof,
arranged in alphabetical order, with the address of and number and type of
shares held by each shareholder, which list, for a period of ten days prior to
such meeting, shall be kept on file at the registered office or principal
executive office of the corporation and shall be subject to inspection by any
shareholder at any time during usual business hours. Such list also shall be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original share transfer records shall be prima-facie evidence as to who are the
shareholders entitled to examine such list or transfer records or to vote at any
such meeting of shareholders. Instead of being kept on file, the list may be
kept on a reasonably accessible electronic network if the information required
to gain access to the list is provided with notice of the meeting. If the list
is made available on an electronic network, the corporation shall take
reasonable measures to ensure the information is available only to shareholders
of the corporation. If a meeting of shareholders is held by means of remote
communication, the list must be open to inspection by a shareholder during the
meeting on a reasonably accessible electronic network.
2.12 Action by Written Consent Without a Meeting. Any action required or
permitted to be taken at any annual or special meeting of the shareholders may
be taken without a meeting, without prior notice, and without a vote, if a
consent or consents in writing, setting forth the action so taken, is signed by
the holder or holders of all the shares entitled to vote with respect to the
action that is the subject of the consent or consents. A telegram, telex,
cablegram, or other electronic transmission by a shareholder consenting to an
action to be taken is considered to be written, signed, and dated for the
purposes of this section if the transmission sets forth or is delivered with
information from which the corporation can determine that the transmission was
transmitted by the shareholder and the date on which the shareholder transmitted
the transmission. Any photographic, photostatic, facsimile, or similarly
reliable reproduction of a consent in writing signed by a shareholder may be
substituted or used instead of the original writing for any purpose for which
the original writing could be used, if the reproduction is a complete
reproduction of the entire original writing.
2.13 Presence at Meeting. Participation in a meeting shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
ARTICLE III
BOARD OF DIRECTORS
3.01 Powers. The powers of the corporation shall be exercised by or under
the authority of, and the business and affairs of the corporation shall be
4
managed under the direction of, the Board of Directors, which may exercise all
such powers of the corporation and do all such lawful acts and things as are not
by law, the Articles of Incorporation, or these Bylaws directed or required to
be exercised and done by the shareholders.
3.02 Number of Directors. The Board of Directors shall consist of one or
more directors. The initial Board of Directors shall be fixed by the Articles of
Incorporation; thereafter, the number of directors shall be determined by
resolution of the Board of Directors, but no decrease in the number of directors
shall have the effect of shortening the term of any incumbent director.
3.03 Election and Term. The directors, other than the initial Board of
Directors, shall be elected at each annual meeting of the shareholders, except
as provided in Section 3.04 of this Article, and each director elected shall
hold office until the next succeeding annual meeting and until his successor is
elected and qualified or until his death, resignation, or removal in accordance
with these Bylaws. Directors need not be residents of the State of Texas or
shareholders of the corporation.
3.04 Vacancies. Any vacancy occurring in the Board of Directors may be
filled by an election at an annual or special meeting of the shareholders called
for that purpose or by the affirmative vote of a majority of the remaining
directors though less than a quorum of the Board of Directors. A director
elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Any directorship to be filled by reason of an increase in
the number of directors may be filled by election at an annual or special
meeting of the shareholders called for that purpose or may be filled by the
Board of Directors for a term of office continuing only until the next election
of one or more directors by the shareholders; provided that the Board of
Directors may not fill more than two such directorships during the period
between any two successive annual meetings of shareholders.
3.05 Resignation and Removal. Any director may resign at any time by giving
notice in writing or by electronic transmission to the corporation. At any
meeting of shareholders called expressly for the purpose of removing a director
or directors, any director or the entire Board of Directors may be removed, with
or without cause, by a vote of the holders of a majority of the shares then
entitled to vote at an election of directors.
3.06 Compensation of Directors. As specifically prescribed from time to
time by resolution of the Board of Directors, the directors of the corporation
may be paid their expenses of attendance at each meeting of the Board and may be
paid a fixed sum for attendance at each meeting of the Board or a stated salary
in their capacity as directors. This provision shall not preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for service on any such committee.
3.07 Chairman of the Board. The Board of Directors, at its first meeting
after each annual meeting of shareholders, may elect one of its members Chairman
of the Board. Subject to the authority of the Board of Directors, the Chairman
of the Board shall preside at all meetings of the Board of Directors and shall
have such other powers and duties as usually pertain to such position or as may
be delegated by the Board of Directors.
5
ARTICLE IV
MEETINGS OF THE BOARD
4.01 First Meeting. The first meeting of each newly elected Board of
Directors shall be held without notice immediately following the shareholders'
annual meeting at which such directors were elected, at the same place as such
shareholders' meeting or at such other time and place either within or without
the State of Texas as shall be designated by the Secretary upon the written
request of a majority of the directors then elected.
4.02 Regular Meetings. Regular meetings of the Board of Directors may be
held with or without notice at such time and at such place either within or
without the State of Texas as from time to time shall be prescribed by
resolution of the Board of Directors.
4.03 Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board of Directors or the President, and shall be
called by the Chairman of the Board of Directors, the President, or the
Secretary on the written request of two directors. Notice of special meetings of
the Board of Directors, either in writing or by electronic transmission, shall
be given to each director at least 24 hours prior to the time of the meeting.
4.04 Written Notice. Whenever any notice is required to be given to any
director under the provisions of any law, the Articles of Incorporation, or
these Bylaws, and the director has not consented to notice by electronic
transmission, it shall be given in writing and delivered personally or mailed,
or delivered by any other method permitted under applicable law, to such
director at such address as appears on the records of the corporation, and, if
mailed, such notice shall be deemed to be delivered at the time when the same
shall be deposited in the United States mail with sufficient postage thereon
prepaid.
4.05 Notice by Electronic Transmission. On consent of a director, notice of
the date, time, place, or purpose of a regular or special meeting of the Board
of Directors may be given to the director by electronic transmission. The
director may specify the form of electronic transmission to be used to
communicate notice. Notice by electronic transmission shall be deemed given when
the notice is: (1) transmitted to a facsimile number provided by the director
for the purpose of receiving notice; (2) transmitted to an electronic mail
address provided by the director for the purpose of receiving notice; (3) posted
on an electronic network and a message is sent to the director at the address
provided by the director for the purpose of alerting the director of a posting;
or (4) communicated to the director by any other form of electronic transmission
consented to by the director. The director may revoke this consent by written
notice to the corporation. The director's consent under this Section is
considered revoked if the corporation is unable to deliver by electronic
transmission two consecutive notices, and the secretary, assistant secretary, or
transfer agent of the corporation, or another person responsible for delivering
notice on behalf of the corporation, knows that delivery of those two electronic
transmissions was unsuccessful. Inadvertent failure to treat the unsuccessful
transmissions as a revocation of the director's consent does not affect the
validity of a meeting or other action.
4.06 Waiver of Notice. Whenever any notice is required to be given to any
director under the provisions of any law, the Articles of Incorporation, or
these Bylaws, a waiver thereof in writing signed by the director or directors
6
entitled to such notice, or a waiver by electronic transmission by the director
or directors entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice.
4.07 Attendance as Waiver. Attendance of a director at a meeting of the
Board of Directors or a committee thereof shall constitute a waiver of notice of
such meeting, except when a director attends a meeting for the express purpose
of objecting to the transaction of any business on the ground that the meeting
is not lawfully called or convened.
4.08 Business at Regular or Special Meeting. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the Board
of Directors need be specified in the notice, or waiver of notice, whether in
writing or by electronic transmission, of such meeting.
4.09 Quorum of Directors. A majority of the Board of Directors shall
constitute a quorum for the transaction of business. If a quorum shall not be
participating at any meeting of the Board of Directors, the directors
participating thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be participating.
4.10 Interested Directors. An otherwise valid contract or transaction
between the corporation and one or more of its directors or officers, or between
the corporation and any other corporation or other entity in which one or more
of its directors or officers are directors, officers or other managerial
officials or have a financial interest, shall be valid notwithstanding that the
director or officer is present at or participates in the meeting of the Board of
Directors or committee thereof that authorizes the contract or transaction, and
notwithstanding whether his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed to or are known by the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested directors or committee members, even though
the disinterested directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed to or are known by the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the corporation as of the time it
is authorized, approved, or ratified by the Board of Directors, a committee
thereof, or the shareholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee that authorizes
the contract or transaction.
7
4.11 Act of Directors' Meeting. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors unless the act of a greater number is required by the Articles of
Incorporation, by these Bylaws or by law.
4.12 Action by Written Consent Without a Meeting. Any action required or
permitted to be taken at a meeting of the Board of Directors or any committee
thereof may be taken without a meeting if a consent in writing, setting forth
the action so taken, is signed by all members of the Board of Directors or
committee, as the case may be. A telegram, telex, cablegram, or other electronic
transmission by a director is considered written, signed, and dated for the
purposes of this section if the transmission sets forth or is delivered with
information from which the corporation can determine that the transmission was
transmitted by the director and the date on which the director transmitted the
transmission. Such consent shall be filed with the minutes of the proceedings of
the Board of Directors or committee, as the case may be. Such consent shall have
the same force and effect as a unanimous vote at a meeting.
4.13 Presence at Meeting. Participation in a meeting shall constitute
presence in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
ARTICLE V
COMMITTEES
5.01 Designation of Committees. The Board of Directors, by resolution, may
designate from among its members one or more committees; provided, however, the
Board of Directors shall establish all committees required by the Securities and
Exchange Commission or the principal securities exchange on which the
corporation's securities are listed for trading. No director who is employed by
the corporation may serve on the audit, nominating or compensation committees.
Each committee shall be comprised of one or more directors, and the Board may
designate one or more of its members as alternate members of any committee, who
may, subject to any limitations imposed by the Board of Directors, replace
absent or disqualified members at any meeting of that committee. The Board of
Directors may remove a member of a committee appointed by the Board if the Board
determines the removal is in the best interests of the corporation. The removal
shall be without prejudice to any contract rights of the person removed.
Appointment of a committee member shall not of itself create contract rights.
5.02 Authority and Proceedings of Committees. Any such committee, to the
extent provided in the resolution of the Board of Directors, shall have and may
exercise all of the authority of the Board of Directors, subject to the
limitations imposed by applicable law. Each committee shall keep regular minutes
of its proceedings and report the same to the Board of Directors when required.
To the extent applicable, the provisions of Article IV of these Bylaws governing
the meetings of the Board of Directors shall likewise govern the meetings of any
committee thereof.
5.03 Employee Director. No director who is also employed by the corporation
shall serve on any audit, nominating or compensation committee.
8
5.04 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
5.05 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
5.06 Quorum; Majority Vote. At meetings of any committee, a majority of the
number of members designated by the Board of Directors shall constitute a quorum
for the transaction of business. If a quorum is not present at a meeting of any
committee, a majority of the members present may adjourn the meeting from time
to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the Articles of Incorporation, or
these Bylaws. If any committee shall consist of two members, the presence of
both directors shall be necessary to constitute a quorum, and the consent of
both members shall be necessary to approve any action.
5.07 Minutes. Each committee shall cause minutes of its proceedings to be
prepared and shall report the same to the Board of Directors upon the request of
the Board of Directors. The minutes of the proceedings of each committee shall
be delivered to the Secretary of the Corporation for placement in the minute
books of the corporation.
5.08 Compensation. Committee members may, by resolution of the Board of
Directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
5.09 Responsibility. The designation of any committee and the delegation of
authority to it shall not operate to relieve the Board of Directors or any
director of any responsibility imposed upon it or such director by law.
ARTICLE VI
MEETING BY USE OF CONFERENCE TELEPHONE
OR SIMILAR COMMUNICATIONS EQUIPMENT
The shareholders, members of the Board of Directors, or members of any
committee designated by the Board of Directors may participate in and hold a
meeting of such shareholders, Board of Directors, or committee by means of
conference telephone or similar communications equipment or another suitable
electronic communications system, including videoconferencing technology or the
Internet, or any combination if the telephone or other equipment or system
permits each person participating in the meeting to communicate with all other
persons participating in the meeting and, if voting is to take place at the
meeting, to vote. If voting is to take place at the meeting, the corporation
must implement reasonable measures to verify that each person voting at the
9
meeting by means of remote communications is sufficiently identified and
entitled to vote and must keep a record of any vote or other action taken.
ARTICLE VII
OFFICERS
7.01 Executive Officers. The officers of the corporation shall consist of a
President and a Secretary, and may also include one or more Vice Presidents, a
Treasurer, and such other officers as are provided for in this Article. Each
officer of the corporation shall be elected by the Board of Directors as
provided in Section 7.02 of this Article. Any two or more offices may be held by
the same person.
7.02 Election and Qualification. The Board of Directors, at its first
meeting after each annual meeting of shareholders, shall elect a President and a
Secretary. The Board of Directors also may elect one or more Vice Presidents, a
Treasurer, and such other officers, including assistant officers and agents, as
may be deemed necessary, who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors.
7.03 Compensation. The compensation of all officers and agents of the
corporation shall be determined by or determined in a manner specified by the
Board of Directors.
7.04 Term, Removal, and Vacancies. Each officer of the corporation shall
hold office until his successor is chosen and qualified or until his death,
resignation, or removal. Any officer may resign at any time upon giving written
notice to the corporation, but such resignation shall be without prejudice to
the contract rights, if any, of the corporation. Any officer or agent may be
removed by the Board of Directors for or without cause whenever in its judgment
the best interests of the corporation will be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer shall not of itself create
contract rights. Any vacancy occurring in any office of the corporation by
death, resignation, removal, or otherwise shall be filled by the Board of
Directors.
7.05 Chief Executive Officer. Unless the Board of Directors designates
otherwise, the President shall be the chief executive officer of the
corporation. The Chief Executive Officer shall preside at all meetings of the
shareholders. The Chief Executive Officer shall have such other powers and
duties as usually pertain to such office or as may be delegated by the Board of
Directors.
7.06 President. Unless the Board of Directors shall otherwise delegate such
duties, the President shall have general powers of oversight, supervision, and
management of the business and affairs of the corporation, and shall see that
all orders and resolutions of the Board of Directors are carried into effect.
The President shall have such powers and duties as usually pertain to such
office, except as the same may be modified by the Board of Directors. He shall
execute bonds, mortgages, instruments, contracts, agreements, and other
documentation, except when the signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or agent of the
corporation.
10
7.07 Vice Presidents. Unless otherwise determined by the Board of
Directors, the Vice Presidents in order of their seniority as such seniority may
from time to time be designated by the Board of Directors, shall perform the
duties and exercise the powers of the President in absence or disability of the
President. They shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
7.08 Secretary. The Secretary shall attend all meetings of the Board of
Directors and of the shareholders, record all the proceedings of the meetings of
the Board of Directors and of the shareholders in a book to be kept for that
purpose, and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the Board of Directors as may be prescribed
by the Board of Directors or the President. He shall keep in safe custody the
seal of the corporation, and, when authorized by the Board of Directors, affix
the same to any instrument requiring it. When so affixed, such seal shall be
attested by his signature or by the signature of the Treasurer or an Assistant
Secretary. He shall perform all duties incident to the office of the Secretary
and such other duties as may from time to time be assigned to him by the Board
of Directors.
7.09 Assistant Secretary. An Assistant Secretary, unless otherwise
determined by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary. An
Assistant Secretary shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
7.10 Treasurer. The Treasurer shall have the custody of the corporate funds
and securities, shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall deposit all
moneys and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the Board of Directors.
He shall disburse the funds of the corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Treasurer,
and of the financial condition of the corporation. The Treasurer shall perform
all the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the Board of Directors.
7.11 Assistant Treasurer. An Assistant Treasurer, unless otherwise
determined by the Board of Directors, shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the Treasurer. An
Assistant Treasurer shall perform such other duties and have such other powers
as the Board of Directors may from time to time prescribe.
7.12 Officer's Bond. If required by the Board of Directors, any officer so
required shall give the corporation a bond (which shall be renewed as the Board
of Directors may require) in such sum and with such surety or sureties as shall
be satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement, or removal from office, of any and all books,
papers, vouchers, money, and other property of whatever kind in his possession
or under his control belonging to the corporation.
11
ARTICLE VIII
CERTIFICATES FOR SHARES
8.01 Certificates Representing Shares. The corporation shall deliver
certificates representing shares to which shareholders are entitled, provided
that the Board of Directors may provide by resolution that some or all of any
class or series of the corporation's stock may be uncertificated shares. Any
such resolution shall not apply to shares represented by a certificate until
such certificate is surrendered to the corporation (or the transfer agent or
registrar, as the case may be). Notwithstanding the adoption of such resolution
by the Board of Directors, every holder of stock represented by certificates
and, upon request, a holder of uncertificated shares shall be entitled to have a
certificate signed in the name of the corporation by the Chairman of the Board,
if any, or the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or any Assistant Secretary, certifying the
number of shares and the class or series of shares of the corporation owned by
the stockholder. Any or all of the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if such
person were an officer, transfer agent or registrar at the date of issue. If a
holder of uncertificated shares elects to receive a certificate for shares of
the corporation's stock, the corporation (or the transfer agent or registrar, as
the case may be) shall (to the extent permitted under applicable law and rules,
regulations and listing requirements of any stock exchange or stock market on
which the corporation's shares are listed or traded), cease providing annual
statements indicating such holder's holdings of shares in the corporation.. Such
certificates shall be numbered and shall be entered in the books of the
corporation as they are issued, and shall be signed by the President or any Vice
President and the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the corporation, and may be sealed with the seal of the
corporation or a facsimile thereof. The signatures of such officers upon a
certificate may be facsimiles. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer at the date of its
issuance. Each certificate representing shares issued by the corporation shall
conspicuously set forth such provisions as are required by applicable law. Each
certificate representing shares shall state upon the face thereof that the
corporation is organized under the laws of the State of Texas, the name of the
person to whom issued, the number and class of shares and the designation of the
series, if any, that such certificate represents and the par value of each share
represented by such certificate or a statement that the shares are without par
value. No certificate shall be issued for any share until the full amount of the
consideration therefor, fixed as provided by law, has been paid or delivered.
8.02 Restriction on Transfer of Shares. Any restriction on the transfer, or
registration of the transfer, of shares shall be noted conspicuously on each
certificate representing shares that are subject to the restriction in
accordance with applicable law.
8.03 Voting and Shareholder Agreements. Any voting or shareholder agreement
shall be noted conspicuously on each certificate representing the shares that
are subject to the agreement in accordance with applicable law.
12
8.04 Transfer of Shares. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment, or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction upon its books.
8.05 Lost, Stolen or Destroyed Certificates. The Board of Directors, or
such officer or officers of the corporation as the Board of Directors may from
time to time designate, may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed upon the making of
an affidavit of that fact by the person claiming the certificate or certificates
of stock to be lost, stolen, or destroyed. When authorizing the issuance of a
new certificate or certificates, the Board of Directors, or such officer or
officers, in its or his discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it or he shall require or to give the corporation a bond in such form, in
such sum, and with such surety or sureties as it or he may direct as indemnity
against any claim that may be made against the corporation on account of the
certificate or certificates alleged to have been lost, stolen, or destroyed or
the issuance of the new certificate or certificates.
8.06 Closing of Transfer Books and Record Date. For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive a distribution
by the corporation (other than a distribution involving a purchase or redemption
by the corporation of any of its own shares) (a "Distribution") or a share
dividend, or in order to make a determination of shareholders for any other
proper purpose (other than determining shareholders entitled to consent to
action taken by shareholders that is proposed to be taken without a meeting of
shareholders), the Board of Directors may provide that the share transfer
records shall be closed for a stated period but not to exceed, in any case, 60
days. If the share transfer records shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a meeting of
shareholders, such records shall be closed for at least 10 days immediately
preceding such meeting. In lieu of closing the share transfer records, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than 60 days
and, in case of a meeting of shareholders, not less than 10 days, prior to the
date on which the particular action requiring such determination of shareholders
is to be taken. If the share transfer records are not closed and no record date
is fixed for the determination of shareholders entitled to notice of or to vote
at a meeting of shareholders, or shareholders entitled to receive a Distribution
or a share dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such
Distribution or share dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this Section 9.06, such determination shall apply to any adjournment
thereof, except when the determination has been made through the closing of the
share transfer records and the stated period of closing has expired. Unless a
record date shall have previously been fixed or determined pursuant to this
Section 9.06, whenever action by shareholders is proposed to be taken by consent
in writing without a meeting of shareholders, the Board of Directors may fix a
record date for the purpose of determining shareholders entitled to consent to
13
that action, which record date shall not precede, and shall not be more than ten
days after, the date upon which the resolution fixing the record date is adopted
by the Board of Directors. If no record date has been fixed by the Board of
Directors and the prior action of the Board of Directors is not required by law,
the record date for determining shareholders entitled to consent to action in
writing without a meeting shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation. If no record date shall have been fixed by the Board of
Directors and prior action of the Board of Directors is required by law, the
record date for determining shareholders entitled to consent to action in
writing without a meeting shall be at the close of business on the date on which
the Board of Directors adopts a resolution taking such prior action.
8.07 Registered Shareholders. The corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE IX
GENERAL PROVISIONS
9.01 Dividends. The Board of Directors from time to time may authorize and
declare, and the corporation may pay, dividends or other distributions on its
outstanding shares in cash, property, or its own shares pursuant to law and
subject to the provisions of the Articles of Incorporation and these Bylaws.
9.02 Reserves. The Board of Directors may by resolution create a reserve or
reserves out of surplus for any proper purpose or purposes, and may abolish any
such reserve in the same manner.
9.03 Negotiable Instruments. All bills, notes, checks, or other instruments
for the payment of money shall be signed or countersigned by such officer or
officers or such other person or persons and in such manner as are permitted by
these Bylaws or in such manner as the Board of Directors from time to time may
designate.
9.04 Fiscal Year. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
9.05 Seal. The corporation may have a corporate seal and, if the Board of
Directors adopts a corporate seal, the corporate seal shall have inscribed
thereon the name of the corporation and may be used by causing it or a facsimile
thereof to be impressed or affixed or in any other manner reproduced.
9.06 Books and Records. The corporation shall keep books and records of
account and shall keep minutes of the proceedings of the shareholders, the Board
of Directors, and each committee of the Board of Directors. The corporation
shall keep at its registered office or principal place of business, or at the
14
office of its transfer agent or registrar, a record of the original issuance of
shares issued by the corporation and a record of each transfer of those shares
that have been presented to the corporation for registration of transfer. Such
records shall contain the names and addresses of all past and current
shareholders of the corporation and the number and class or series of shares
issued by the corporation held by each of them. Any books, records, minutes, and
share transfer records may be in written form or in any other form capable of
being converted into written paper form within a reasonable time.
ARTICLE X
AMENDMENTS
These Bylaws may be amended or repealed or new Bylaws may be adopted by the
Board of Directors at any regular or special meeting of the Board, unless the
Articles of Incorporation or applicable law reserves the power exclusively to
the shareholders in whole or part or the shareholders in amending, repealing or
adopting a particular bylaw expressly provide that the Board may not amend or
repeal that bylaw. In addition, unless the Articles of Incorporation or a Bylaw
adopted by the shareholders provides otherwise as to all or a part of the
corporation's Bylaws, the shareholders may amend or repeal the corporation's
Bylaws.
15
CERTIFICATE OF SECRETARY
The undersigned does hereby certify that (i) she is the duly elected and
qualified Secretary of Capital Southwest Corporation, a Texas corporation and
(ii) the foregoing is a true and correct copy of the Bylaws of the corporation
as of April __, 2007.
------------------------------------
_________________________, Secretary
16
Exhibit 10.1
THE RECTORSEAL CORPORATION AND JET-LUBE, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(As Revised and Restated Effective April 1, 2007)
THE RECTORSEAL CORPORATION AND JET-LUBE, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(As Revised and Restated Effective April 1, 2007)
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.............................................5
Sec. 1.1 Administrator.........................................5
Sec. 1.2 Affiliated Company....................................6
Sec. 1.3 Allocation Date.......................................6
Sec. 1.4 Alternate Payee.......................................6
Sec. 1.5 Anniversary Date......................................6
Sec. 1.6 Annual Compensation...................................6
Sec. 1.7 Beneficiary...........................................7
Sec. 1.8 Code..................................................9
Sec. 1.9 Committee.............................................9
Sec. 1.10 Company...............................................9
Sec. 1.11 Disability............................................9
Sec. 1.12 Early Retirement Date................................10
Sec. 1.13 Employee.............................................10
Sec. 1.14 Employer.............................................10
Sec. 1.15 Entry Date...........................................11
Sec. 1.16 ERISA................................................11
Sec. 1.17 Five-Year Break in Service...........................11
Sec. 1.18 Former Participant...................................11
Sec. 1.19 Hours of Service.....................................11
Sec. 1.20 Individual Account...................................14
Sec. 1.21 Interactive Electronic Communication.................14
Sec. 1.22 Leased Employee......................................14
Sec. 1.23 Named Fiduciary......................................15
Sec. 1.24 Normal Retirement Date...............................15
Sec. 1.25 Notice...............................................15
Sec. 1.26 One-Year Break in Service............................16
Sec. 1.27 Other Investments Account............................16
Sec. 1.28 Parent Company Stock.................................16
Sec. 1.29 Parent Company Stock Account.........................16
Sec. 1.30 Participant..........................................17
Sec. 1.31 Plan.................................................17
Sec. 1.32 Qualified Domestic Relations Order...................17
Sec. 1.33 Qualified Election Period............................17
i
Sec. 1.34 Qualified Participant................................17
Sec. 1.35 Recordkeeper.........................................17
Sec. 1.36 Trust Agreement......................................17
Sec. 1.37 Trust Fund...........................................18
Sec. 1.38 Trustee..............................................18
Sec. 1.39 Valuation Date.......................................18
Sec. 1.40 Year.................................................18
Sec. 1.41 Year of Service (Participation)......................18
Sec. 1.42 Year of Service (Vesting)............................18
Sec. 1.43 Gender and Number....................................19
ARTICLE II ELIGIBILITY OF EMPLOYEES...............................19
Sec. 2.1 Eligibility..........................................19
Sec. 2.2 Election Not to Participate..........................19
Sec. 2.3 Eligibility upon Reemployment........................19
Sec. 2.4 Reemployment of Participant..........................20
Sec. 2.5 Exclusion of Employees Covered by
Collective Bargaining................................20
Sec. 2.6 Eligibility Upon Entry or Reentry into
Eligible Class of Employees..........................20
ARTICLE III CONTRIBUTIONS..........................................21
Sec. 3.1 Contributions of the Employer........................21
Sec. 3.2 Form of Employer Contributions.......................21
Sec. 3.3 Time of Contributions................................21
Sec. 3.4 Limit on Employer Contributions......................22
Sec. 3.5 Manner of Making Contributions.......................22
Sec. 3.6 Contributions with Respect to Military Leave.........22
ARTICLE IV ACCOUNTS AND VALUATION OF TRUST FUND...................22
Sec. 4.1 Participants' Individual Accounts....................22
Sec. 4.2 Valuation of the Trust Fund and of the
Interest of Each Participant.........................23
Sec. 4.3 Allocations to Individual Accounts...................24
Sec. 4.4 Included Individual Accounts.........................28
Sec. 4.5 Time When Contributions are Allocated................28
ARTICLE V LIMITATION ON ALLOCATIONS..............................28
Sec. 5.1 Limitation on Allocations............................28
Sec. 5.2 Definitions..........................................29
Sec. 5.3 Excess Annual Additions..............................32
ii
Sec. 5.4 Special Rules........................................33
ARTICLE VI INDIVIDUAL ACCOUNTS....................................35
Sec. 6.1 Participant Interest in Individual Accounts..........35
Sec. 6.2 Periodic Statements to Participant...................35
ARTICLE VII RETIREMENT.............................................36
Sec. 7.1 Normal Retirement....................................36
Sec. 7.2 Early Retirement.....................................36
Sec. 7.3 Other Retirement.....................................36
Sec. 7.4 Benefits on Retirement...............................36
Sec. 7.5 Commencement of Benefits.............................36
Sec. 7.6 Final Contribution After Distribution of Benefits....36
ARTICLE VIII DEATH..................................................37
Sec. 8.1 Benefits on Death....................................37
Sec. 8.2 Final Contribution After Payment of Benefits.........37
ARTICLE IX DISABILITY.............................................38
Sec. 9.1 Benefits on Disability...............................38
Sec. 9.2 Final Contribution After Payment of Benefits.........38
ARTICLE X TERMINATION BENEFITS...................................39
Sec. 10.1 Termination of Employment Other than by Reason
of Death, Disability or Retirement...................39
Sec. 10.2 Vested Interest......................................39
Sec. 10.3 Time of Distribution.................................39
Sec. 10.4 Forfeiture and Return to Employment Prior to Complete
Distribution.........................................41
Sec. 10.5 Application of Forfeitures...........................41
ARTICLE XI DISTRIBUTIONS AND WITHDRAWALS..........................42
Sec. 11.1 Form of Payment......................................42
Sec. 11.2 Consent to Distribution..............................42
Sec. 11.3 Minority or Disability of Distributee................43
iii
Sec. 11.4 Additional Requirements Relating to Benefit
Payments and Death Distributions.....................44
Sec. 11.5 Withdrawals..........................................47
Sec. 11.6 Claims Procedure.....................................48
Sec. 11.7 Administrator's Duty to Trustee......................48
Sec. 11.8 Duty to Keep Administrator Informed of
Distributee's Current Address........................48
Sec. 11.9 Failure to Claim Benefits............................49
Sec. 11.10 Distribution Pursuant to Qualified
Domestic Relations Orders............................49
Sec. 11.11 Tax Withholding and Participant's Direct Rollover....50
ARTICLE XII NOTICES................................................53
Sec. 12.1 Notice...............................................53
Sec. 12.2 Modification of Notice...............................53
Sec. 12.3 Reliance on Notice...................................53
ARTICLE XIII AMENDMENT OR TERMINATION OF PLAN.......................54
Sec. 13.1 Amendment or Termination by Company..................54
Sec. 13.2 Effect of Amendment..................................54
Sec. 13.3 Distribution on Termination or
Discontinuance of Contributions......................54
Sec. 13.4 Reversion of Contributions to Employer...............55
Sec. 13.5 Amendment of Vesting Schedule........................55
Sec. 13.6 Merger or Consolidation of Plan......................56
Sec. 13.7 Withdrawal of Employer...............................57
ARTICLE XIV COMMITTEE..............................................57
Sec. 14.1 Committee Composition................................57
Sec. 14.2 Committee Actions....................................57
Sec. 14.3 Committee Procedure..................................58
Sec. 14.4 Delegation to Committee and Company's Duty
to Furnish Information...............................58
Sec. 14.5 Construction of Plan and Trustee's and
Record-keeper's Reliance.............................60
Sec. 14.6 Committee Member's Abstention in Cases
Involving Own Rights.................................60
Sec. 14.7 Counsel to Committee.................................61
Sec. 14.8 Indemnification of Employees and Directors...........61
iv
Sec. 14.9 Action Taken in Good Faith...........................61
ARTICLE XV MISCELLANEOUS..........................................61
Sec. 15.1 No Employment or Compensation Agreement..............61
Sec. 15.2 Spendthrift Provision................................62
Sec. 15.3 Construction.........................................62
Sec. 15.4 Titles...............................................62
Sec. 15.5 Texas Law Applicable.................................62
Sec. 15.6 Successors and Assigns...............................62
Sec. 15.7 Allocation of Fiduciary Responsibility by
Named Fiduciary......................................63
Sec. 15.8 Expenses of Administration...........................63
Sec. 15.9 Plan Controls........................................64
Sec. 15.10 Effect of Mistakes...................................64
Sec. 15.11 Operation of the Plan; Permitted Corrections.........64
ARTICLE XVI ADOPTION BY AFFILIATED COMPANIES.......................65
Sec. 16.1 Transfer of Employment to Another Employer...........65
Sec. 16.2 Contributions and Forfeitures........................65
Sec. 16.3 Transfers of Employment Between Affiliated
Companies............................................65
Sec. 16.4 Action by Company....................................66
Sec. 16.5 Termination of Employer's Status as Affiliated
Company..............................................66
ARTICLE XVII THE TRUSTEE............................................67
Sec. 17.1 Trust Fund...........................................67
Sec. 17.2 Trustee's Duties.....................................67
Sec. 17.3 Benefits Only from Trust Fund........................67
Sec. 17.4 Trust Fund Applicable Only to Payment of Benefits....67
Sec. 17.5 Texas Trust Code.....................................67
Sec. 17.6 Voting Rights........................................67
ARTICLE XVIII INVESTMENTS............................................68
Sec. 18.1 Investment of Contributions and Trust Assets.........68
Sec. 18.2 Diversification of Investments by Qualified
Participants.........................................69
v
ARTICLE XIX TOP HEAVY PROVISIONS...................................70
Sec. 19.1 Minimum Allocation Requirements......................70
Sec. 19.2 Vesting Schedule.....................................70
Sec. 19.3 Definitions..........................................71
vi
Exhibit 10.1
THE RECTORSEAL CORPORATION AND JET-LUBE, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(As Revised and Restated Effective April 1, 2007)
THIS AGREEMENT, executed this ____ day of May, 2007, and effective the
first day of April, 2007 unless specifically provided otherwise in this
Agreement, by The RectorSeal Corporation, a Delaware corporation, having its
principal office in Houston, Texas (hereinafter referred to as the "Company").
W I T N E S S E T H:
WHEREAS, effective June 1, 1976, the Company established The RectorSeal
Corporation Employee Stock Ownership Plan (hereinafter referred to as the
"Plan") in the form of a stock bonus plan designed to constitute a "qualified
plan" within the meaning of the applicable sections of the Internal Revenue
Code, as amended (the "Code") for the benefit of eligible employees and their
beneficiaries;
WHEREAS, the Plan was subsequently amended from time to time and was then
amended and restated effective April 1, 1985, except for specific provisions
which were effective April 1, 1984, to bring the Plan into compliance with the
Tax Equity and Fiscal Responsibility Act of 1982, the Tax Reform Act of 1984 and
the Retirement Equity Act of 1984;
WHEREAS, the Plan was subsequently amended by Amendment No. 1 effective,
with respect to specific provisions, on April 1, 1984 and April 1, 1985;
WHEREAS, Jet-Lube, Inc., a Delaware corporation ("Jet Lube"), and an
Affiliated Company (herein defined), established the Jet-Lube, Inc. Employee
Stock Ownership Plan (the "Jet Lube Plan") effective June 1, 1976;
WHEREAS, the Jet Lube Plan was subsequently amended from time to time prior
to April 1, 1984, was amended and restated effective April 1, 1985, except for
specific provisions which were effective April 1, 1984, to bring the Jet Lube
Plan into compliance with the Tax Equity and Fiscal Responsibility Act of 1982,
the Tax Reform Act of 1984 and the Retirement Equity Act of 1984, and, due to
the merger of the Jet Lube Plan with and into the Plan, was amended to comply
with (i) those provisions of the Tax Reform Act of 1986 that were technical
corrections to the Retirement Equity Act of 1984 and (ii) the temporary Treasury
regulations issued with respect to those provisions in the Code enacted by the
Retirement Equity Act of 1984 or the subsequent technical correction provisions
thereto;
WHEREAS, Jet Lube approved (i) the merger of the Jet Lube Plan, effective
as of April 1, 1989, with and into the Plan and (ii) the transfer of assets from
the Jet Lube Plan to the Plan as soon as practicable after the valuation of
accounts in the Jet Lube Plan at March 31, 1990;
WHEREAS, the Company subsequently amended and restated the Plan (i)
effective April 1, 1989, to bring the Plan into compliance with the Tax Reform
Act of 1986 as well as all other applicable laws, rules and regulations enacted
or promulgated since the prior plan restatement and (ii) effective April 1,
1994, to change the name of the Plan to "The RectorSeal Corporation and
Jet-Lube, Inc. Employee Stock Ownership Plan;"
WHEREAS, the Plan was subsequently amended by Amendment No. I effective
August 15, 1997;
WHEREAS, the Company revised and restated the Plan effective April 1, 1998,
except for certain provisions for which another effective date was subsequently
provided otherwise in the terms of the Plan, to bring the Plan into compliance
with the Code, as modified by the Small Business Job Protection Act of 1996, the
General Agreement on Tariffs and Trade under the Uruguay Round Agreements Act,
the Uniformed Services Employment and Reemployment Rights Act of 1994, the
Taxpayer Relief Act of 1997, the Internal Revenue Service Restructuring and
Reform Act of 1998, and the Community Renewal Tax Relief Act of 2000, as well as
all other applicable rules, regulations and administrative pronouncements
enacted, promulgated or issued since the date the Plan was last restated;
WHEREAS, the Company adopted Amendment No. 1 to the revised and restated
Plan, effective as of April 1, 2002, except as specifically provided otherwise
in Amendment No. 1, to (i) reflect certain provisions of the Economic Growth and
Tax Relief Reconciliation Act of 2001 ("EGTRRA") which generally became
applicable to the Plan effective as of April 1, 2002, and (ii) constitute good
2
faith compliance with the requirements of EGTRRA;
WHEREAS, final Treasury regulations were issued April 17, 2002 under
section 401(a)(9) of the Code relating to distributions under Section 11.4 of
the Plan (the "Final Distribution Regulations");
WHEREAS, the Pension and Welfare Benefits Administration of the Department
of Labor issued final regulations establishing new standards for processing
benefit claims of participants and beneficiaries under Section 11.6 of the Plan
which were subsequently clarified by further guidance from the Pension and
Welfare Benefits Administration (collectively the "Final Claims Procedure
Regulations");
WHEREAS, the Company adopted Amendment No. 2 to the revised and restated
Plan to (i) revise Section 11.4 of the Plan, effective January 1, 2003, to
reflect the Final Distribution Regulations consistent with the Model Amendment
provided by the Internal Revenue Service in Rev. Proc. 2002-29, and (ii) revise
Section 11.6 of the Plan, effective April 1, 2002, to provide that the
administrator of the Plan shall process benefit claims of participants and
beneficiaries pursuant to the claims procedure specified in the summary plan
description for the Plan which shall comply with the Final Claims Procedure
Regulations, as may be amended from time to time;
WHEREAS, the Company adopted Amendment No. 3 to the revised and restated
Plan, effective as of August 1, 2004, to exclude the Director of Business
Development of Cargo Chemical Corporation from participation in the Plan;
WHEREAS, EGTRRA amended Section 401(a)(31)(B) of the Code to require that
mandatory distributions of more than $1,000 from the Plan be paid in a direct
rollover to an individual retirement plan as defined in Sections 408(a) and (b)
if the distributee does not make an affirmative election to have the amount paid
in a direct rollover to an eligible retirement plan or to receive the
distribution directly and I.R.S. Notice 2005-5 provides that this provision
became effective to the Plan for distributions on or after March 28, 2005;
WHEREAS, the Company adopted Amendment No. 4 to the revised and restated
Plan, effective as of March 28, 2005, to reduce the maximum dollar amount of
mandatory distributions under the Plan from $5,000 to $1,000;
3
WHEREAS, pursuant to the guidance issued by the Internal Revenue Service in
Rev. Proc. 2005-66, the Plan has been assigned a five-year remedial amendment
cycle of Cycle A which requires the Plan to be amended no later than January 31,
2007 (except as may be provided otherwise by Rev. Proc. 2005-66 or other
published guidance for certain interim amendments) to bring the Plan into
compliance with the 2005 Cumulative List of Changes in Plan Qualification
published by the Internal Revenue Service in Notice 2005-101 for Cycle A plans
(the "Cycle A Cumulative List"), which identifies all changes in the
qualification requirements applicable to Cycle A plans resulting from statutory,
regulatory and other guidance published in the Internal Revenue Bulletin;
WHEREAS, the Pension Protection Act of 2006 (the "Pension Protection Act")
enacted changes to the Code, certain provisions of which become applicable to
the Plan for Years beginning on or after April 1, 2007;
WHEREAS, the Pension Protection Act enacted Section 401(a)(35) of the Code
which imposes diversification requirements for certain defined contribution
plans within the meaning of Section 401(a)(35)(E) of the Code, excluding an
employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Code which meets the requirements of Section 401(a)(35)(E)(ii) of the Code;
WHEREAS, the Company amended and restated the Plan effective April 1, 2002,
except for certain provisions for which another effective date is subsequently
provided otherwise in the terms of the Plan, to (i) incorporate the provisions
of Amendment Nos. 1-4 to the Plan, as revised as restated effective April 1,
1998, (ii) bring the Plan into compliance with the Code, as modified by the
changes in the qualification requirements applicable to the Plan that are
identified in the Cycle A Cumulative List, including, but not limited to EGTRRA
and the Final Distribution Regulations, (iii) effective April 1, 2007, formally
designate the Plan an employee stock ownership plan within the meaning of
Section 4975(e)(7) of the Code and Treas. Reg. ss.54.4975-11(a), add pass
through voting in accordance with the requirements of Section 409(e) of the
Code, and add a diversification of investment provision applicable to qualified
4
participants in compliance with the requirements of Section 401(a)(28) of the
Code, such that the Plan will be exempt from the requirements of Section
401(a)(35) of the Code, (iv) reflect certain provisions of the Pension
Protection Act and to constitute good faith compliance with the requirements of
the Pension Protection Act, and (v) bring the Plan into compliance with all
other applicable rules, regulations and administrative pronouncements enacted,
promulgated or issued since the Plan was last restated effective April 1, 1998;
WHEREAS, the Company now desires to amend and restate the Plan, effective
as of April 1, 2007, to revise the permissible method of complying with the
diversification of investment provision applicable to qualified participants in
compliance with the requirements of Section 401(a)(28) of the Code; and
WHEREAS, (i) the benefits payable from the Plan are independent of any
benefits an Employee is or may become entitled to under any other funded
pension, profit sharing or savings plan, (ii) the benefits payable to an
Employee or Beneficiary under the Plan shall be determined solely by reference
to the provisions of the Plan in effect on the date of such Employee's
retirement or other termination of employment, except as otherwise specifically
provided herein, and (iii) except as otherwise provided in the Plan or any
amendment to the Plan, the provisions of any amendment to the Plan shall apply
solely to an Employee, former Employee, Participant or Former Participant whose
employment with an Employer terminates on or after the effective date of the
amendment;
NOW, THEREFORE, in consideration of the premises and the covenants herein
contained, the Company hereby adopts the following as the provisions of the
revised and restated Plan:
ARTICLE I
DEFINITIONS
-----------
Unless by the context hereof a different meaning is clearly indicated,
whenever used in this Plan, the following words shall have the meanings
hereinafter set forth:
Sec. 1.1 Administratorfor the purposes of ERISA means the Company;
provided, that the Company, by action of its governing body, may designate
another person or entity, including the Trustee, the Recordkeeper or a
5
Committee, as Administrator of the Plan.
Sec. 1.2 Affiliated Companymeans the Company and any other entity which is,
along with the Company, a member of a controlled group of corporations or a
controlled group of trades or businesses [as defined in Section 414(b) or (c) of
the Code], any entity which along with the Company is included in an affiliated
service group as defined in Section 414(m) of the Code, and any other entity
which is required to be aggregated with the Company pursuant to Section 414(o)
of the Code.
Sec. 1.3 Allocation Datemeans the Anniversary Date and each additional date
or dates designated by the Administrator from time to time on which allocations
of contributions are made.
Sec. 1.4 Alternate Payeemeans a person defined in Section 414(p)(8) of the
Code who is entitled to benefits under the Plan pursuant to a Qualified Domestic
Relations Order.
Sec. 1.5 Anniversary Datemeans the last day of each Year.
Sec. 1.6 Annual Compensationmeans the sum of (i) the amounts actually paid
to an Employee by the Employer for services rendered, as reported on the
Employee's Federal income tax withholding statement (Form W-2 or its subsequent
equivalent) for the Year, exclusive, however, of reimbursements and other
expense allowances, fringe benefits (cash and noncash), including but not
limited to automobile allowances, taxable group life insurance and amounts that
are paid to the Employee in cash in lieu of being contributed on his behalf to
the Plan or any other qualified defined contribution plan maintained by the
Employer, moving expenses, welfare benefits, and all other extraordinary
compensation, such as income attributable to phantom stock plans, and (ii)
amounts applied to purchase benefits pursuant to a salary reduction agreement
under a cafeteria plan as defined in Section 125 of the Code sponsored by an
Employer, amounts deferred pursuant to a salary reduction agreement under any
other plan described in Sections 401(k) and 408(k) of the Code sponsored by an
Employer, and elective amounts that are not includible in gross income of the
Participant by reason of Section 132(f)(4) of the Code. For each Year only
$225,000 of Annual Compensation shall be taken into account by the Plan with
respect to any Participant [or, for each Year beginning after March 31, 2008,
6
such other amount as may be determined under Section 401(a)(17)(B) of the Code
to reflect cost-of-living increases] (hereinafter referred to as the
"Compensation Limitation"); provided, however, if a Participant's Annual
Compensation for the Year exceeds the maximum amount of Annual Compensation that
can be taken into account for any purpose under the Plan, the Participant may
designate which portion of his total compensation shall be considered for any
such purpose.
Sec. 1.7 Beneficiarymeans any person or fiduciary designated by a
Participant or Former Participant in accordance with the terms hereof and
Section 401(a)(9) of the Code to receive benefits hereunder following the death
of such Participant or Former Participant. Each Participant and Former
Participant may, from time to time, select one or more Beneficiaries to receive
benefits pursuant to Section 8.1 in the event of the death of such Participant
or Former Participant. Such selection shall be made in writing by Notice to the
Administrator. Unless the provisions of the Plan or a Qualified Domestic
Relations Order provide otherwise, the last such selection filed with the
Administrator prior to the date of death of the Participant or Former
Participant shall determine to whom Plan benefits shall be paid.
If the Participant or Former Participant is married at the date of his
death, the Beneficiary shall be the surviving spouse unless the spouse has
consented in writing to the designation of some other Beneficiary, which
designation may not be changed without spousal consent unless the voluntary
consent of the spouse (i) expressly permits designations by the Participant or
Former Participant without any requirement of further consent by the spouse and
(ii) acknowledges that the spouse has the right to limit the consent to a
specific Beneficiary. Such written consent must acknowledge the effect of such
selection and such consent must be witnessed by a Plan representative or a
notary public. Spousal consent is not required if it is established to the
satisfaction of the Plan representative that the consent may not be obtained (i)
because the Participant or Former Participant has no spouse, (ii) because the
spouse cannot be located or (iii) because of such other circumstances as the
Secretary of Treasury may by regulations prescribe. Any consent by a spouse (or
establishment that the consent of the spouse is not required) shall be effective
only with respect to that particular spouse.
7
If the Administrator cannot readily determine whether a Participant or
Former Participant has a spouse under the laws of the state in which the
Participant or Former Participant resides resulting from an individual's claim
to be a "common law" spouse of a Participant or Former Participant or similar
circumstances, the Administrator may request such individual to provide the
Administrator with a legal opinion satisfactory to the Administrator or other
evidence demonstrating the individual's status as a spouse of the Participant or
Former Participant. The Administrator has the sole and absolute authority to
determine an individual's status as a spouse of a Participant or Former
Participant and any such determination shall be final, binding and conclusive on
all parties ever claiming an interest in the Plan. Any consent by a spouse (or
establishment that the consent of the spouse may not be obtained) shall be
effective only with respect to that spouse. If a Participant is divorced and the
Participant's spouse was a Beneficiary named by the Participant, the spouse
shall be deemed to have predeceased the Participant and such designation of the
spouse shall be void and the next successive Beneficiary or Beneficiaries shall
become the Beneficiary(ies) entitled to the benefits under the Plan, unless a
Qualified Domestic Relations Order requires a death benefit be payable to the
spouse.
If a Participant's or Former Participant's selection is not made in
compliance with these provisions or if all designated persons shall predecease
the Participant or Former Participant, or the designation becomes void as
provided in the preceding paragraph, Beneficiary means the first of the
following classes of successive preference beneficiaries then surviving: the
Participant's or Former Participant's:
(a) surviving spouse,
(b) descendants, per stirpes(including adopted children),
(c) parents in equal shares,
(d) brothers and sisters in equal shares, and
(e) estate.
If more than one Beneficiary of a particular class (primary or secondary)
is entitled to benefits, payments shall be made in equal shares to such
Beneficiaries, unless some other specific proportions are clearly designated by
the Participant or Former Participant. If more than one Beneficiary of a
8
particular class (primary or secondary) is named, the interest of any deceased
Beneficiary of that class shall pass to the surviving Beneficiary or
Beneficiaries of that class except to the extent that the designation provides
for payment to any secondary Beneficiary or Beneficiaries upon the death of a
primary Beneficiary. In determining whether any person named as a Beneficiary is
living at the time of a Participant's or Former Participant's death, if such
person and the Participant or Former Participant died in a common disaster and
there is insufficient evidence to determine which person died first, then it
shall be deemed that the Beneficiary died first.
Sec. 1.8 Codemeans the Internal Revenue Code of 1986, as it may be amended
from time to time. Reference to a section of the Code shall include that
section, applicable Treasury regulations promulgated thereunder and any
comparable section of any future legislation that amends, supplements or
supersedes said section, effective as of the date such comparable section is
effective with respect to the Plan.
Sec. 1.9 Committeemeans the committee appointed under Article XIV to
administer the Plan, as from time to time constituted. If no such committee is
appointed, the Company shall constitute the Committee.
Sec. 1.10 Companymeans The RectorSeal Corporation, a Delaware corporation,
or such other organization which, pursuant to a spinoff, merger, consolidation,
reorganization, or similar corporate transaction where a significant portion of
the Company's employees become employees of such organization, adopts and
assumes the Plan and the Trust Agreement as the sponsor with the consent of the
Company and agrees to accept the duties, responsibilities and obligations of the
sponsor of the Plan and the Trust Agreement. Reference in the Plan to the
Company shall refer to any such organization which adopts and assumes the
sponsorship of the Plan and the Trust Agreement.
Sec. 1.11 Disabilitymeans the physical or mental incapacity of a
Participant which, in the opinion of a physician approved by the Administrator,
will permanently prevent such Participant from performing any of the usual
duties of his employment.
9
Sec. 1.12 Early Retirement Datemeans the Anniversary Date of the Year
coinciding with or next following the later of the date a Participant attains
age 55 and has completed at least ten Years of Service (Vesting), provided the
Participant has elected at least 60 days prior to such Anniversary Date to
terminate his employment with all Affiliated Companies.
Sec. 1.13 Employee means any individual in the employ of an Employer who is
included on the Federal Insurance Contribution Act rolls of an Employer (and who
is classified as an Employee of an Employer), excluding (i) any Leased Employee
that Section 414(n) of the Code treats as an Employee of an Employer, unless
classification of such Leased Employee as an Employee is necessary to maintain
the qualification of the Plan, (ii) any employee included in a unit of Employees
covered by a collective bargaining agreement between an Employer and employee
representatives, if retirement benefits were the subject of good faith
bargaining and if two percent or less of the employees who are covered pursuant
to that agreement are professional employees [as defined in Treas. Reg.
ss.1.410(b)-9], (iii) any employee who is a non-resident alien [within the
meaning of Section 7701(b)(1)(B) of the Code] and who received no earned income
[within the meaning of Section 911(d)(2) of the Code] from any Employer which
constitutes income from sources within the United States [within the meaning of
Section 861(a)(3) of the Code], and (iv) those employees of an Affiliated
Employer that has not elected to participate in the Plan. The term "Employee"
shall not include any individual who by contract is not classified by the
Employer as a common law employee of the Employer, even if such individual is
included on the Employer's payroll for Federal income tax withholding purposes
or whether such person is later classified as an employee by the Internal
Revenue Service, the Department of Labor, a court, an administrative agency, or
an Employer.
Sec. 1.14 Employer means the Company and any other Affiliated Company, with
respect to its Employees, provided such Affiliated Company is designated by the
governing body of the Company as an Employer under the Plan and whose
designation as such has become effective and has continued in effect. The
designation shall become effective only when it shall have been accepted by the
governing body of the Employer and shall be effective for the Year determined by
the governing body of the Company and the Employer. An Employer may revoke its
acceptance of such designation at any time, but until such acceptance has been
10
revoked, all of the provisions of the Plan and amendments thereto shall apply to
the Employees of the Employer. In the event the designation of the Employer as
such is revoked by the governing body of the Employer, this will not be deemed a
termination of the Plan.
Sec. 1.15 Entry Datemeans the first day of the Year.
Sec. 1.16 ERISAmeans the Employee Retirement Income Security Act of 1974,
as it may be amended from time to time, and applicable regulations promulgated
thereunder.
Sec. 1.17 Five-Year Break in Servicemeans any five consecutive Years during
each of which the Employee or Participant performs for an Affiliated Company 500
or fewer Hours of Service.
Sec. 1.18 Former Participantmeans any individual who has been a Participant
in the Plan (i) who is no longer in the employ of an Employer and who has not
yet received the entire benefit to which he is entitled under the Plan, or (ii)
who is still in the employ of an Affiliated Company and who has an interest in
the Plan but who is not eligible for Employer contributions and forfeitures.
Sec. 1.19 Hours of Servicemeans each hour credited to an individual in
accordance with the following:
(a) An Hour of Service shall be credited to an individual for each hour for
which he is either directly or indirectly paid, or entitled to payment, by
any Affiliated Company or, to the extent permitted by the governing body of
the Company or the Administrator in accordance with Section 401(a)(4) of
the Code, by the predecessor company. An Employee on a non-hourly payroll
whose Annual Compensation is not determined on the basis of certain amounts
for each hour worked shall be credited with 45 Hours of Service for each
week during which he would otherwise have at least one Hour of Service,
adjusted pro rata on the basis of 10 hours per day when employment or the
Year begins on other than a Monday or ends on other than a Friday.
(b) An Hour of Service shall be credited to an individual for each hour for
which back pay, irrespective of mitigation of damages, has been either
awarded or agreed to by an Affiliated Company or, to the extent permitted
11
by the governing body of the Company or the Administrator in accordance
with Section 401(a)(4) of the Code, by the predecessor company. These Hours
of Service shall be credited to the individual 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.
(c) An Hour of Service shall be credited to an individual for each hour while
on unpaid leave pursuant to the Family and Medical Leave Act of 1993 for
which he would have been paid or entitled to payment by an Affiliated
Company had he been performing services.
(d) In no event shall an individual be given credit for a specific Hour of
Service under more than one of the above subsections (a), (b) or (c) and,
notwithstanding any other provision of the Plan to the contrary, an
individual shall not be credited with Hours of Service more than once with
respect to the same period of time.
(e) Hours of Service for periods during which no duties are performed shall be
calculated and credited pursuant to Section 2530.200b-2(b) and (c) of the
Department of Labor regulations which are incorporated herein by reference.
No more than 501 Hours of Service shall be credited under the preceding
sentence during any computation period.
(f) Notwithstanding any other provisions of this Section 1.19, in the event an
Employee is:
(i) on leave of absence authorized by his Employer in accordance with
standard personnel policies of such Employer applied in a
nondiscriminatory manner to all Employees similarly situated,
including those described in Section 1.19(g) hereof, or
(ii) on military leave while the Employee's reemployment rights are
protected by law,
a Five-Year Break in Service and a One-Year Break in Service shall be
deemed not to have occurred and the Employee shall continue to accrue Hours
of Service under the Plan during the period of leave of absence, at the
same rate he would have had he remained an active Employee throughout such
leave of absence, provided he returns to employment immediately (in the
12
case of military leave, within the 90-day period after his honorable
discharge or release or within the period prescribed by applicable law,
whichever is longer) upon the expiration of such authorized absence. If an
Employee fails to return to the active employment of an Affiliated Company
within the time specified in a written leave of absence, or after such
period of military service, as appropriate, his service will be deemed
terminated as of the end of such permitted period of absence.
(g) In addition, solely for the purpose of determining a One-Year Break in
Service and a Five-Year Break in Service, the Plan shall credit the
Employee with the Hours of Service which otherwise would normally have been
credited to such individual during the computation period in which an
absence from the service of an Affiliated Company occurs for any period by
reason of (i) pregnancy of the individual, (ii) birth of a child of the
individual, (iii) placement of a child with the individual in connection
with the adoption of such child by such individual, or (iv) for purposes of
caring for such child for a period beginning immediately following such
birth or placement; provided, however, if the Employee has credit for more
than 500 Hours of Service without the application of this sentence in the
computation period in which the absence from the service of an Affiliated
Company occurs for the reasons specified in this sentence, the Plan shall
credit the Employee with such Hours of Service in the following computation
period. The Plan shall not credit any Employee with any Hours of Service
under this subsection (g) unless such Employee timely furnishes the
Administrator information establishing (i) that the absence from the
service of an Affiliated Company was for one or more reasons specified in
the first sentence of this subsection (g) and (ii) the number of days for
which there was an absence.
(h) Effective December 12, 1994, each period of qualified military service
(within the meaning of Chapter 43 of Title 38, United States Code) served
by an Employee who is reemployed under that chapter by an Affiliated
Company following such service shall be considered service with an
Affiliated Company for purposes of determining his Hours of Service.
13
Sec. 1.20 Individual Accountmeans an account or record to be maintained by
the Trustee or the Recordkeeper reflecting the monetary value of the undivided
interest in the Trust Fund of each Participant, each Former Participant and each
Beneficiary and shall include the Other Investments Account and the Parent
Company Stock Account.
Sec. 1.21 Interactive Electronic Communicationmeans, to the extent
available under the Plan, a communication between a Participant, Former
Participant or Beneficiary and the Recordkeeper pursuant to a system maintained
by the Recordkeeper and communicated to each Participant, Former Participant and
Beneficiary in compliance with final Treasury regulations and final Department
of Labor regulations whereby each such individual may initiate actions approved
from time to time by the Administrator, including the options under Section 18.2
if he is a Qualified Participant, with respect to his Individual Account,
through the use of the telephone, internet or such other system and a personal
identification number assigned to the Participant, Former Participant or
Beneficiary by the Recordkeeper or the Administrator. If a Participant, Former
Participant or Beneficiary (i) consents to participate in the Plan's Interactive
Electronic Communication procedures adopted by the Administrator and (ii)
acknowledges that actions taken by such Participant, Former Participant or
Beneficiary, through the use of his personal identification number constitute
his signature, to the extent allowed by the Administrator, for such actions
approved from time to time by the Administrator, the Participant, Former
Participant or Beneficiary, as the case may be, will be deemed to have given his
written consent and authorization to any action resulting from the use of the
Interactive Electronic Communication system by the Participant, Former
Participant or Beneficiary.
Sec. 1.22 Leased Employeemeans an individual who is not in the employ of an
Employer and who, pursuant to a leasing agreement between an Employer and any
other person (including such individual) ("leasing organization"), has performed
services for an Employer [or for an Employer and any other person related to an
Employer within the meaning of Section 144(a)(3) of the Code] on a substantially
full-time basis for at least one year and who performs such services under the
primary direction or control by the Employer. Leased Employee shall also include
any individual who is deemed to be an employee of an Employer under Section
414(o) of the Code. Notwithstanding the preceding sentences, if individuals
14
described in the preceding sentence constitute less than 20% of an Employer's
non-highly compensated work force within the meaning of Section 414(n)(5)(C)(ii)
of the Code, the Plan shall not treat an individual as a Leased Employee if the
leasing organization covers the individual in a money purchase pension plan
providing immediate participation, full and immediate vesting and a
non-integrated contribution formula equal to at least ten percent of the
individual's annual compensation [as defined in Section 415(c)(3) of the Code,
but including amounts contributed by an Employer pursuant to a salary reduction
agreement which are excludable from the individual's gross income under Sections
125, 402(e)(3), 402(h)(1)(B), 403(b) or 132(f)(4) of the Code]. If any Leased
Employee shall be treated as an Employee of an Employer, however, contributions
or benefits provided by the leasing organization which are attributable to
services of the Leased Employee performed for an Employer shall be treated as
provided by the Employer.
Sec. 1.23 Named Fiduciarymeans the Company, except to the extent the
Company has delegated specific functions to the Committee, if any, appointed by
the Company pursuant to Article XIV. If no Committee is appointed, the Company
will perform the functions of the Committee.
Sec. 1.24 Normal Retirement Datemeans a Participant's or Former
Participant's 65th birthday.
Sec. 1.25 Noticemeans, unless otherwise provided specifically in the Plan,
(i) written Notice on an appropriate form provided by the Administrator, which
is properly completed and executed by the party giving such Notice and which is
delivered by hand or by mail to the Administrator or to such other party
designated by the terms of the Plan or by the Administrator to receive the
Notice or (ii) Notice by Interactive Electronic Communication, to the extent
authorized by the Administrator, to the Recordkeeper. Notice to the
Administrator, the Recordkeeper or to any other person as provided herein shall
be deemed to be given when it is actually received (either physically or by
Interactive Electronic Communication, as the case may be) by the party to whom
such Notice is given.
15
Sec. 1.26 One-Year Break in Servicemeans any Year during which the Employee
or Participant performs for an Affiliated Company 500 or fewer Hours of Service.
Sec. 1.27 Other Investments Accountmeans the portion of the Individual
Account maintained by the Trustee or the Recordkeeper for each Participant,
Former Participant or Beneficiary reflecting the monetary value of such person's
individual interest in the Trust Fund attributable to Employer contributions and
forfeitures in cash under the Plan which have not been invested in Parent
Company Stock and are to be invested in other assets; it shall be credited with
the net income (or debited with the loss) of the Trust Fund attributable to
investments in the Other Investments Account.
Sec. 1.28 Parent Company Stockmeans shares of any class of stock, preferred
or common stock which are issued by Capital Southwest Corporation, a Texas
corporation, and are readily tradable on an established securities market. The
shares of Parent Company Stock currently held by the Plan are regularly traded
on the Nasdaq National Market. If there is no common stock which meets the
foregoing requirement, Parent Company Stock means common stock issued by Capital
Southwest Corporation having a combination of voting power and dividend rights
equal to or in excess of (i) that class of common stock of Capital Southwest
Corporation having the greatest voting power, and (ii) that class of common
stock of Capital Southwest Corporation having the greatest dividend rights.
Noncallable preferred stock shall be deemed to be Parent Company Stock if such
stock is convertible at any time into stock which constitutes Parent Company
Stock hereunder and if such conversion is at a conversion price which (as of the
date of the acquisition by the Trust Fund) is reasonable. For purposes of the
preceding sentence, pursuant to applicable Treasury regulations, preferred stock
shall be treated as noncallable if after the call there will be a reasonable
opportunity for a conversion which meets the requirements of the preceding
sentence.
Sec. 1.29 Parent Company Stock Accountmeans the portion of the Individual
Account maintained by the Trustee or the Recordkeeper for each Participant,
Former Participant or Beneficiary to which is credited shares (including
fractional shares) of Parent Company Stock which are attributable to Employer
contributions and forfeitures under the Plan.
16
Sec. 1.30 Participantmeans an Employee who has met the eligibility
requirements of the Plan as provided in Article II hereof and who has begun
participating in the Plan.
Sec. 1.31 Planmeans the stock bonus plan embodied herein, as the same may
be amended from time to time, and shall be known as "The RectorSeal Corporation
and Jet-Lube, Inc. Employee Stock Ownership Plan." Effective April 1, 2007, the
Plan has been formally designated an employee stock ownership plan within the
meaning of Section 4975(e)(7) of the Code and Treas. Reg. ss.54.4975-11(a).
Sec. 1.32 Qualified Domestic Relations Ordermeans any judgment, decree or
order (including approval of a property settlement agreement) which (i) relates
to the provision of child support, alimony payments, or marital property rights
to a spouse, former spouse, child or other dependent of a Participant or Former
Participant, (ii) is made pursuant to a state domestic relations law, (iii)
creates or recognizes the existence of an Alternate Payee's right to, or assigns
to an Alternate Payee the right to, receive all or a portion of the benefits
payable with respect to a Participant or Former Participant under the Plan and
(iv) complies with the requirements of Section 414(p) of the Code.
Sec. 1.33 Qualified Election Periodmeans the six-Year period beginning with
the later of (i) the first Year in which the Participant or Former Participant
first becomes a Qualified Participant, or (ii) the first Year beginning after
March 31, 2007.
Sec. 1.34 Qualified Participantmeans any Participant or Former Participant
who has completed ten Years of Service (Vesting) as a Participant and has
attained age 55.
Sec. 1.35 Recordkeepermeans any person or entity appointed by the Company
or the Committee to perform recordkeeping and other administrative services on
behalf of the Plan. If no Recordkeeper is appointed, the Trustee shall perform
the duties of the Recordkeeper.
Sec. 1.36 Trust Agreementmeans "The RectorSeal Corp-oration and Jet-Lube,
Inc. Employee Stock Ownership Plan Trust Agreement" entered into between the
Company and the Trustee to carry out the purposes of the Plan and under which
the Trust Fund is maintained; provided that if such agreement be amended or
17
supplemented, Trust Agreement, as of a particular date, shall mean such
agreement, as amended and supplemented and in force on such date.
Sec. 1.37 Trust Fundmeans all assets of whatsoever kind and nature from
time to time held by the Trustee pursuant to terms and conditions of the Trust
Agreement out of which benefits of the Plan are provided.
Sec. 1.38 Trusteemeans any institution or individuals designated as Trustee
or Trustees by the governing body of the Company, or any successor trustee or
additional trustee or trustees acting at any time as Trustee under the Trust
Agreement.
Sec. 1.39 Valuation Datemeans any day of the Year the Nasdaq Global Market
is open for trading.
Sec. 1.40 Yearmeans the 12-month period from April 1 of each year to the
next following March 31.
Sec. 1.41 Year of Service (Participation)means the 12- consecutive month
period commencing with the employment commencement date of an Employee by an
Affiliated Company, which is the date the Employee first performs an Hour of
Service for an Affiliated Company, during which the Employee performs at least
1,000 Hours of Service for an Affiliated Company. If an Employee does not
perform at least 1,000 Hours of Service in the 12-month period beginning with
his employment commencement date, Year of Service (Participation) means the Year
commencing with the Year immediately following his employment commencement date
during which the Employee performs at least 1,000 Hours of Service for an
Affiliated Company.
Sec. 1.42 Year of Service (Vesting)means any Year during which the Employee
performs at least 1,000 Hours of Service for an Affiliated Company, subject to
the following:
(a) if an Employee has a One-Year Break in Service, Years of Service
(Vesting) before such break shall not be taken into account until he
has completed a Year of Service (Vesting) after his return to
employment; and
(b) if an Employee has a Five-Year Break in Service, Years of Service
(Vesting) after such break shall not be taken into account for the
purposes of determining the nonforfeitable percentage of his accrued
18
benefit derived from Employer contributions which accrued before such
break.
Sec. 1.43 Gender and Number. Except as otherwise indicated by the context,
any masculine terminology used herein also includes the feminine and neuter, and
vice versa, and the definition of any term herein in a singular shall also
include the plural, and vice versa.
ARTICLE II
ELIGIBILITY OF EMPLOYEES
------------------------
Sec. 2.1 Eligibility. Each eligible Employee shall be deemed to have become
a Participant (unless he elects otherwise pursuant to Section 2.2) as of the
Entry Date which falls within the Employee's completion of one Year of Service
(Participation).
Sec. 2.2 Election Not to Participate. An Employee eligible to participate
or participating in the Plan may elect not to participate (or elect to withdraw
from the Plan if then participating) for a given Year, provided that written
notice of such election is given to the Administrator in satisfactory form
before the end of the Year in question. Upon receipt by the Administrator of
such notice, the Participant shall become a Former Participant retroactively to
the beginning of the particular Year. Such election shall remain in effect
unless and until the Employee ceases to be such or elects to participate again.
An Employee eligible to participate in the Plan who has elected not to
participate (or elected to withdraw) may elect to participate in any Year
thereafter by giving written notice in satisfactory form to the Administrator.
Such election shall be effective immediately, and the Employee shall become an
active Participant as of the date of receipt of such election by the
Administrator or such later date as may be specified in the notice.
Notwithstanding the foregoing provisions of this Section 2.2, William R. Thomas
and the Director of Business Development of Blue Magic, Inc. (formerly Cargo
Chemical Corporation) are excluded from participating in the Plan.
Sec. 2.3 Eligibility upon Reemployment. Notwithstanding Section 2.1, each
Employee who completes a Year of Service (Participation) in either his first 12
19
months of employment or a Year, as required in Section 1.41, but is not employed
at the expiration of such 12-month period or such Year, shall become a
Participant immediately upon his return to the status of Employee, subject to
Section 2.6. An Employee who completes 1,000 Hours of Service in the 12-month
period or the Year while employed by an Affiliated Company which is not an
Employer shall become a Participant as of the Entry Date preceding the date on
which he becomes an Employee of an Employer.
Sec. 2.4 Reemployment of Participant. If the employment of a Participant is
terminated for any reason and he subsequently is reemployed by an Employer, he
shall be eligible to become a Participant (unless he elects otherwise pursuant
to Section 2.2) on the date he resumes employment with an Employer.
Sec. 2.5 Exclusion of Employees Covered by Collective Bargaining.
Notwithstanding Section 2.1, an Employee covered by a collective bargaining
agreement between the Employer and a collective bargaining representative
certified under the Labor Management Relations Act who is otherwise eligible to
become a Participant under this Article shall be excluded if retirement benefits
were the subject of good faith bargaining between the Employee's representative
and the Employer and if the agreement does not require the Employer to include
such Employee in this Plan. An Employee who is a Participant in the Plan when he
is excluded under the provisions of this Section 2.5 shall cease active
participation in the Plan on the effective date of that collective bargaining
agreement and shall not participate in Employer contributions while a member of
the ineligible class but shall not be considered to have terminated employment.
Sec. 2.6 Eligibility Upon Entry or Reentry into Eligible Class of
Employees. In the event a Participant is excluded because he is no longer a
member of an eligible class of Employees as specified in this Article II, such
Employee shall participate as of the Entry Date preceding the date of his return
to an eligible class of Employees. In the event that an Employee who is not a
Former Participant in the Plan becomes a member of the eligible class, such
Employee shall participate as of the Entry Date preceding the date of his
becoming an eligible class member if such Employee has satisfied the eligibility
requirements of Section 2.1 and would have previously become a Participant had
he been in the eligible class.
20
ARTICLE III
CONTRIBUTIONS
-------------
Sec. 3.1 Contributions of the Employer. The governing body of each
Employer, in its discretion, shall determine the amount of, and cause to be
made, its contribution to the Plan. Each Employer's liability for the amount of
its contribution will be established by its governing body, and other actions
taken, within the time required by law so as to permit the contributions for a
particular Year to be deductible for Federal income tax purposes for the
corresponding taxable year, and the amount of such contribution will be
communicated to the Participants as soon as practicable after the amount thereof
has been established.
Sec. 3.2 Form of Employer Contributions. The Employer contribution by each
Employer may be paid in cash or in securities, other property, or shares having
an equivalent value, or any combination thereof, as the governing body of the
Employer may determine. To the extent that the Trust Fund has cash obligations
payable in one year from the date the Employer contribution is due, such
Employer contribution shall be paid in cash in an amount determined by the
Employer or the Administrator.
Sec. 3.3 Time of Contributions. Contributions made by an Employer pursuant
to Section 3.1 may be made at any time and from time to time, except that the
total contribution for any Year shall be paid in full not later than the time
prescribed by law to enable the Employer to obtain a deduction therefor on its
federal income tax return for said Year. Contributions made after the
Anniversary Date of the Year but within the time for filing an Employer's
federal income tax return (including extensions thereof) shall be deemed made as
of the Anniversary Date of that Year if so directed by the Employer, except such
contributions shall not share in increases, decreases, or income to the Trust
Fund prior to the date actually made. Notwithstanding the foregoing, on an
Employer's request, a contribution which was made upon a mistake of fact or on
deductibility of the contribution shall be returned to the Employer within one
year after payment of the contribution or disallowance of the deduction (to the
extent disallowed), as the case may be; provided, however, the amount returned
21
to an Employer shall not be increased by any earnings thereon and shall be
reduced by any losses attributable to such amount.
Sec. 3.4 Limit on Employer Contributions. Notwithstanding the foregoing
provisions of this Article III, the contribution of an Employer for any Year
shall in no event exceed an amount which will, under the law then in effect, be
deductible by the Employer in computing its federal taxes for the fiscal year of
the Employer in which that Year ends.
Sec. 3.5 Manner of Making Contributions. All contributions to the Trust
Fund shall be paid directly to the Trustee. In connection with each
contribution, the Employer shall provide the Recordkeeper with information that
identifies each Participant on whose behalf the contribution is being made and
the amount thereof. The Recordkeeper shall provide the Trustee with any of the
information received by it which is necessary for the Trustee to perform its
duties and obligations with respect to the Trust Fund.
Sec. 3.6 Contributions with Respect to Military Leave. Notwithstanding any
provision of the Plan to the contrary, contributions with respect to qualified
military service (within the meaning of Chapter 43 of Title 38, United States
Code) shall be permitted in accordance with Section 414(u) of the Code.
ARTICLE IV
ACCOUNTS AND VALUATION OF TRUST FUND
------------------------------------
Sec. 4.1 Participants' Individual Accounts. The assets of the Trust Fund
shall constitute a single fund in which each Participant and Former Participant
shall have his proportionate interest as provided in the Plan. The Administrator
shall maintain, or cause to be maintained, with respect to each Employer, an
Individual Account for each Participant or Former Participant which shall
reflect the credits and charges allocable thereto in accordance with the Plan.
The Administrator shall maintain, or cause to be maintained, records which will
adequately disclose at all times the state of the Trust Fund and of each
separate interest therein. The books, forms and methods of accounting shall be
entirely in the hands of and subject to the supervision of the Administrator.
22
Sec. 4.2 Valuation of the Trust Fund and of the Interest of Each
Participant. Within a reasonable time after each Allocation Date, the
Administrator shall direct the Trustee to prepare a statement of the condition
of the Trust Fund, setting forth all investments, receipts and disbursements,
and other transactions effected by it during the applicable period, and showing
all the assets of the Trust Fund and the cost and fair market value thereof.
This statement shall be delivered to the Administrator. At least annually, the
Administrator shall cause to be prepared, and shall deliver to each Participant,
Former Participant and Beneficiary, a report disclosing the vesting status and
fair market value of his Individual Account in the Trust Fund as of the
applicable Allocation Date.
The value of the Trust Fund shall be determined by the Trustee as of the
close of business on any Valuation Date determined necessary by the Trustee, or
as soon thereafter as practicable, and shall be the cash and the fair market
value of Parent Company Stock and other assets held by the Trust Fund, with
equitable adjustments for pending trades, less all charges, expenses, reserves
and liabilities due which are determined to be properly chargeable to the other
investments of the Trust Fund as of the Valuation Date. For purposes of
determining the market value of securities held by the Trustee, such securities
shall be valued as of the close of business on the Valuation Date or, if
securities shall not have been traded and reported on a national securities
exchange or in the over-the-counter market on such date, then at the last bid
price as of the close of business on the Valuation Date.
Notwithstanding any other provision of this Section 4.2, if the Trustee
shall determine that the Trust Fund assets consist in whole or in part of
property not traded freely on a recognized market, including but not limited to
Parent Company Stock, or that information necessary to ascertain the fair market
value thereof is not readily available to the Trustee, the Trustee shall request
the Administrator to instruct the Trustee as to the value of such property for
all purposes under the Plan, and the Administrator shall comply with such
request. The Administrator may engage a competent appraiser to assist it in this
process. The value placed upon such property by the Administrator in its
instructions to the Trustee shall be conclusive and binding upon the Trustee
subject to the fiduciary provisions of ERISA. If the Administrator shall fail or
refuse to instruct the Trustee as to the value of such property within a
23
reasonable time after receipt of the Trustee's request to do so, the Trustee may
engage a competent appraiser to fix the fair market value of such property for
all purposes hereunder. The determination of any duly retained appraiser as to
the fair market value of such property shall be the value reported hereunder,
and neither the Administrator nor the Trustee shall have any liability in
connection therewith, subject to the fiduciary provisions of ERISA. The
reasonable fees and expenses incurred for any such appraisal shall be deemed an
expense of the Trustee and paid as provided in Section 15.8.
If the Administrator in good faith determines that certain expenses of
administration paid by the Trustee during the Year under consideration are not
general, ordinary and usual and should not equitably be borne by all
Participants, Former Participants and Beneficiaries, but should be borne only by
one or more Participants, Former Participants or Beneficiaries, for whom or
because of whom such specific expenses were incurred, the net earnings and
adjustments in value of the Individual Accounts shall be increased by the
amounts of such expenses, and the Administrator shall make suitable adjustments
by debiting the particular Individual Account or Individual Accounts of such one
or more Participants, Former Participants or Beneficiaries; provided, however,
that any such adjustment must be nondiscriminatory and consistent with the
provisions of Section 401(a) of the Code.
The determination of the fair market value of the assets of the Trust Fund
and the Administrator's charges or credits to the Individual Accounts with
respect to Participants, Former Participants or Beneficiaries shall be final and
conclusive on all persons ever interested hereunder, subject to Section 11.6
hereof.
Sec. 4.3 Allocations to Individual Accounts. In order that each
Participant's interest as provided in the Plan may be determined, the Individual
Account of each Participant [or Former Participant, for purposes of Sections
4.3(c)(iii)] shall be adjusted as follows:
(a) The Parent Company Stock Account of each Participant will be credited
at least once each Year with his allocable share of (i) Parent Company
Stock purchased and paid for by the Trust Fund from contributions or
out of his Other Investments Account or contributed in kind by his
Employer, (ii) forfeitures of Parent Company Stock which are
attributable to his Employer and (iii) stock dividends of Parent
Company Stock on Parent Company Stock held in his Parent Company Stock
Account or acquired in exchange for other assets not yet allocated.
(b) The Other Investments Account of each Participant will be credited
with his remaining allocable share of contributions and forfeitures
not represented by Parent Company Stock which are attributable to his
Employer and with cash dividends on Parent Company Stock in his Parent
Company Stock Account; it will also be credited (or debited) with his
share of the net income (or loss) of the Trust Fund attributable to
24
it. Each Participant's Other Investments Account may also be debited
for any purchases of Parent Company Stock and his Parent Company Stock
Account shall then be credited.
(c) The allocations will be made as follows:
(i) Employer Contributions and Other Items. Employer contributions
and Parent Company Stock attributable thereto will be allocated
as of each Anniversary Date among the Individual Accounts of
Participants who are Employees of each Employer at the end of the
Year and, for any Year in which the Plan is not a Top Heavy Plan
as defined in Section 19.3(f), who completed at least 1,000 Hours
of Service during the Year, and to the Individual Accounts of
Former Participants whose employment was terminated by reason of
death, Disability or retirement under Article VII during the
Year, in the ratio in which the Annual Compensation of each such
Participant and Former Participant bears to the aggregate Annual
Compensation of all such Participants and Former Participants.
(ii) Forfeitures. Forfeitures during a Year attributable to the former
Participants of each Employer, subject to Section 10.5, shall be
allocated as of the Anniversary Date in such Year among the
Individual Accounts of the remaining Participants and Former
Participants employed by the same Employer in the same proportion
that the Employer contributions are (or would be) allocated for
such Year.
25
(iii) Net Income (or Loss) of the Trust Fund. The net income (or loss)
of the Trust Fund shall be determined as of each Anniversary
Date, or more frequently if the Trustee or the Administrator so
desires. Except as provided herein with respect to certain
dividends and tax refunds, the net income (or loss) of the Trust
Fund which is attributable to assets held in a Participant's and
Former Participant's Other Investments Account shall be allocated
to his Other Investments Account in the ratio which the balance
of his Other Investments Account on the preceding Anniversary
Date bears to the sum of such balances as of the preceding
Anniversary Date for all Participants and Former Participants in
the Plan on the subsequent Anniversary Date. Dividends (excluding
dividends of Parent Company Stock) on Parent Company Stock and
tax refunds with respect to Parent Company Stock shall be
allocated to the Other Investments Account of each Participant or
Former Participant in the ratio that the number of shares of
Parent Company Stock held in that Participant's or Former
Participant's Parent Company Stock Account bears to the total
number of shares of Parent Company Stock held in the Parent
Company Stock Accounts of all Participants and Former
Participants. Likewise, dividends declared on any other security
held by the Trust Fund shall be allocated to the Other
Investments Account of each Participant or Former Participant in
the ratio that the number of shares of that security to which the
dividend relates held in that Participant's or Former
Participant's Other Investments Account bears to the total number
of shares of that security held in the Other Investments Accounts
of all Participants and Former Participants. The net income (or
loss) of the Trust Fund includes the increase (or decrease) in
the fair market value of assets of the Trust Fund (other than
Parent Company Stock), interest, dividends, tax refunds, other
income and expenses since the preceding Anniversary Date.
(d) Special Rate for Participants in Qualified Military Service. For
purposes of this Section 4.3, while a Participant is in qualified
military service (within the meaning of chapter 43 of title 38, United
States Code), he shall be considered to be in the service of the
26
Employer and to receive Annual Compensation during any such period of
qualified military service in an amount equal to the Annual
Compensation he would have received during such period if he were not
in such service, determined based on the rate of pay he would have
received from the Employer but for the absence during the period of
such service; provided, however, if the Annual Compensation the
Participant would have received during such period is not reasonably
certain, the Participant's average Annual Compensation from the
Employer during the 12-month period immediately preceding the
qualified military service (or, if shorter, the period of employment
immediately preceding the qualified military service) shall be used.
(e) Equitable Allocation. The Administrator may establish accounting
procedures for the purpose of making the allocations, valuations and
adjustments to Individual Accounts of Participants and Former
Participants provided for in this Article IV. Should the Administrator
determine that the strict application of its accounting procedures
will not result in an equitable and nondiscriminatory allocation among
the Other Investments Accounts and Parent Company Stock Accounts of
Participants and Former Participants, it may modify its procedures for
the purpose of achieving an equitable and nondiscriminatory allocation
in accordance with the general concepts of the Plan and the provisions
of this Article IV; provided, however, that such adjustments to
achieve equity shall not reduce the vested portion of a Participant or
Former Participant and shall be consistent with the provisions of the
Code.
(f) Computations. All of the computations required to be made under the
provisions of this Article IV shall be made in accordance with
generally accepted accounting principles and such computations, when
made, shall be conclusive with respect thereto and shall be binding
upon all the Participants and Former Participants and all other
persons ever having an interest in the Trust Fund, subject to the
provisions of Section 8.1.
(g) Dividends After Anniversary Date. If a Participant or Former
Participant is to receive a distribution or withdrawal from the Plan
based on the immediately preceding Anniversary Date and prior to the
date of such distribution or withdrawal a dividend is declared on any
security held by that Participant's or Former Participant's Individual
27
Account, the amount of the distribution to such Participant or Former
Participant shall be adjusted to reflect such dividend.
Sec. 4.4 Included Individual Accounts. For the purposes of this Article IV,
references to the Individual Accounts of Participants shall include the
Individual Accounts of those who die, become disabled, retire, or whose
employment terminates during the Year in question.
Sec. 4.5 Time When Contributions are Allocated. If directed by the
Administrator, an Employer contribution for a Year may be provisionally
allocated as of any Allocation Date prior to the Anniversary Date, but such
allocation shall be subject to adjustment as of the Anniversary Date.
ARTICLE V
LIMITATION ON ALLOCATIONS
-------------------------
Sec. 5.1 Limitation on Allocations. Notwithstanding any other provision of
the Plan, the following provisions shall be applicable to the Plan:
(a) If this Plan is the only plan maintained by the Employer which covers
the class of Employees eligible to participate hereunder and the
Participant does not participate in and has never participated in a
Related Plan or a welfare benefit fund, as defined in Section 419(e)
of the Code, maintained by the Employer, or an individual medical
account, as defined in Section 415(1)(2) of the Code, maintained by
the Employer, which provides an Annual Addition as defined in Section
5.2(a), the Annual Additions which may be allocated under this Plan to
a Participant's Individual Account for a Limitation Year shall not
exceed the lesser of:
(i) the Maximum Permissible Amount; or
(ii) any other limitation contained in this Plan.
(b) If an Employer maintains, in addition to this Plan, (i) a Related Plan
which covers the same class of Employees eligible to participate
hereunder, (ii) a welfare benefit fund, as defined in Section 419(e)
28
of the Code, or (iii) an individual medical account, as defined in
Section 415(l)(2) of the Code, which provides an Annual Addition, the
Annual Additions which may be allocated under this Plan to a
Participant's Individual Account for a Limitation Year shall not
exceed the lesser of:
(i) the Maximum Permissible Amount, reduced by the sum of any Annual
Additions allocated to the Participant's accounts for the same
Limitation Year under this Plan and such other Related Plan and
the welfare plans described in clauses (ii) and (iii) above; or
(ii) any other limitation contained in this Plan.
Sec. 5.2 Definitions. For purposes of this Article V, the following terms
shall have the meanings set forth below:
(a) "Annual Additions" means the sum of the following amounts allocated to
a Participant's Individual Account for a Limitation Year:
(i) all Employer contributions;
(ii) all forfeitures;
(iii) all Employee contributions other than catch-up contributions
made pursuant to Section 414(v) of the Code; and
(iv) amounts allocated to an individual medical account, as defined in
Section 415(l)(2) of the Code, which is part of a pension or
annuity plan maintained by the Employer and amounts derived from
contributions which are attributable to post-retirement medical
benefits allocated to the separate account of a key employee, as
defined in Section 419A(d)(3) of the Code, under a welfare
benefit fund, as defined in Section 419(e) of the Code,
maintained by the Employer.
For purposes of this Article V, Employee contributions shall be
determined without regard to any (i) rollover contribution within the
meaning of Section 402(c), 403(a)(4), 403(b)(8), 408(d)(3) and
457(e)(16) of the Code, (ii) contribution by the Employee to a
29
simplified employee pension, (iii) contribution by the Employee to an
individual retirement account or individual retirement annuity, and
(iv) direct transfers of Employee contributions from a plan described
in Section 401(a) of the Code to the Plan.
In addition, Annual Additions shall include "excess elective
deferrals" within the meaning of Treas. Reg. ss.1.402(g)-1(e)(1)(iii)
that are not distributed by the defined contribution plan to the
participant before April 15 following the taxable year of deferral,
"excess employee savings contributions" within the meaning of Treas.
Reg. ss.1.401(k)-1(g)(7), and "excess matching contributions" within
the meaning of Treas. Reg. ss.1.401(m)-1(f)(8).
(b) "Excess Amount" means the excess of the Annual Additions allocated to
a Participant's Individual Account for the Limitation Year over the
Maximum Permissible Amount, less loading and other administrative
charges allocable to such excess.
(c) "Limitation Year" means a twelve-consecutive month period ending on
the last day of the Year. All qualified plans maintained by the
Employer must use the same Limitation Year unless different years are
elected as allowed by procedures established by the Internal Revenue
Service. If the Limitation Year is amended to a different
12-consecutive month period, the new Limitation Year must begin on a
date within the Limitation Year in which the amendment is made.
(d) "Maximum Permissible Amount" for a Limitation Year with respect to any
Participant shall be the lesser of:
(i) $45,000 [or, beginning April 1, 2008, and each April thereafter,
such other dollar limitation determined for the Limitation Year
by automatically adjusting the $45,000 limitation by the
cost-of-living adjustment factor prescribed by the Secretary of
the Treasury under Section 415(d) of the Code in such manner as
the Secretary shall prescribe]; or
(ii) 100% of the Participant's Annual Compensation for the Limitation
Year.
30
The compensation limit referred to in clause (ii) above shall not
apply to any contribution for medical benefits after separation from
service (within the meaning of Section 401(h) or 419(f)(2) of the
Code), which is otherwise treated as an Annual Addition.
(e) "Employer" means for purposes of this Article V, any Employer and any
Affiliated Company that adopts this Plan; provided, however, the
determination under Sections 414(b) and (c) of the Code shall be made
as if the phrase "more than 50 percent" were substituted for the
phrase "at least 80 percent" each place it is incorporated into
Section 414(b) and (c) of the Code.
(f) "Annual Compensation" means, notwithstanding Section 1.6, for the
purposes of this Article V, a Participant's earned income, wages,
salaries, fees for professional service and other amounts received
(without regard to whether an amount is paid in cash) for personal
services actually rendered in the course of employment with an
Employer maintaining the Plan to the extent that the amounts are
includable 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 Treas. Reg. ss.1.62-2(c)] and
excluding the following:
(i) Employer contributions to a plan of deferred compensation to the
extent contributions are not included in gross income of the
Employee for the taxable year in which contributed, or on behalf
of an Employee to a simplified employee pension plan to the
extent such contributions are deductible by the Employee, and any
distributions from a plan of deferred compensation whether or not
includable in the gross income of the Employee when distributed;
(ii) amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by an
Employee becomes freely transferable or is no longer subject to a
substantial risk of forfeiture;
31
(iii) amounts realized from the sale, exchange or other disposition of
stock acquired under a qualified stock option; and
(iv) 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 an annuity contract
under Section 403(b) of the Code (whether or not the
contributions are excludable from the gross income of the
Employee).
Annual Compensation for any Limitation Year is the Annual Compensation
actually paid or includible in gross income during such Limitation
Year. Annual Compensation shall include amounts contributed by an
Employer pursuant to a salary reduction agreement which are excludable
from the Participant's gross income under Sections 125, 402(e)(3),
402(h)(1)(B), 408(p)(2)(A)(i), 457 or 403(b) of the Code, and elective
amounts that are not includible in the gross income of the Participant
by reason of Section 132(f)(4) of the Code.
(g) "Related Plan" means any other defined contribution plan [as defined
in Section 415(k) of the Code] maintained by any Employer as defined
in Section 5.2(e).
Sec. 5.3 Excess Annual Additions. In the event that, notwithstanding
Section 5.4(a) hereof, the limitations with respect to Annual Additions
prescribed hereunder are exceeded with respect to any Participant for the
Limitation Year and such Excess Amount arises as a result of the allocation of
forfeitures, a reasonable error in estimating a Participant's Annual
Compensation [as defined in Section 5.2(f)] for the Year, a reasonable error in
determining the amount of Employer contributions and forfeitures that may be
allocated to the Participant's Individual Account under the limits of Section
415 of the Code, or as a result of other facts and circumstances as established
by the Commissioner of the Internal Revenue Service, the Excess Amount shall not
be deemed an Annual Addition in that Limitation Year, to the extent such Excess
Amount is treated in accordance with any of the following:
(a) the Excess Amount attributable to the portion of the Employer
contribution made pursuant to Section 3.1 which has been allocated to
32
a Participant under the Plan for a Year but which cannot be allocated
to his Individual Account because of the limitation imposed by this
Section, shall, subject to the limitations of Section 5.1(a), be
allocated and reallocated in the current Limitation Year to Individual
Accounts of the other Participants entitled to share in the Employer
contributions and forfeitures for that Year in accordance with Section
4.3. Any Excess Amount that cannot be allocated will be held
unallocated in a suspense account. All amounts in the suspense account
must be allocated and reallocated to the Participants' Individual
Accounts, subject to the limitations of Section 5.1(a), in succeeding
Limitation Years before any Employer contributions which constitute
Annual Additions may be made to the Plan; and
(b) in the event of termination of the Plan, the suspense account shall
revert to the Employer to the extent it may not then be allocated to
any Participant's Individual Account.
Sec. 5.4 Special Rules.
(a) Notwithstanding any other provision of this Article V, an Employer
shall not contribute any amount that would cause an allocation to the
suspense account as of the date the contribution is allocated. In the
event the making of any Employer contribution, or other contribution,
or any part thereof, would result in the limitations set forth in this
Article V being exceeded, the Administrator shall cause such
contributions not to be made. If the contribution is made prior to the
date as of which it is to be allocated, then such contribution shall
not exceed an amount that would cause an allocation to the suspense
account if the date of the contribution were an Allocation Date. The
Administrator shall cause the Recordkeeper to maintain records which
reflect the contributions to be allocated to the Individual Account of
each Participant in any Limitation Year. In the event that it is
determined prior to or within any Limitation Year that the foregoing
limitations would be exceeded if the full amount of contributions
otherwise allocable would be allocated, the Annual Additions to the
Plan for the remainder of the Limitation Year shall be adjusted by
33
reducing any Employer contributions, but only to the extent necessary
to satisfy the limitations.
(b) If the Annual Additions with respect to the Participant under other
Related Plans and welfare plans described in Section 5.1(b)(i) and
(ii) are less than the Maximum Permissible Amount and the Employer
contribution that otherwise would be contributed or allocated to the
Participant's Individual Account under the Plan would cause the Annual
Additions for the Limitation Year to exceed the limitation of Section
5.1(b), the amount contributed or allocated will be reduced so that
the Annual Additions under all such plans for the Limitation Year will
equal the Maximum Permissible Amount. If the Annual Additions with
respect to the Participant under the Related Plans and welfare plans
described in Section 5.1(b)(i) and (ii) in the aggregate are equal to
or greater than the Maximum Permissible Amount, no amount will be
contributed or allocated to the Participant's Individual Account under
the Plan for the Limitation Year unless the Annual Additions with
respect to the Participant under the Related Plans are sufficiently
reduced. If a Participant's Annual Additions under the Plan and all
Related Plans result in an Excess Amount, such Excess Amount shall be
deemed to consist of the amounts last allocated, except that Annual
Additions attributable to a welfare plan described in Section
5.1(b)(i) and (ii) will be deemed to have been allocated first
regardless of the actual allocation date.
(c) If an Excess Amount was allocated to a Participant on an allocation
date of a Related Plan, the Excess Amount attributed to the Plan will
be the product of:
(i) the total Excess Amount allocated as of such date [including any
amount which would have been allocated but for the limitations of
Section 5.1(b)],
multiplied by:
(ii) the ratio of:
(A) the amount allocated to the Participant as of such date
under the Plan,
divided by:
34
(B) the total amount allocated as of such date under the Plan
and all Related Plans [determined without regard to Section
5.1(b)].
(d) Prior to the determination of the Participant's actual Annual
Compensation for a Limitation Year, the Maximum Permissible Amount may
be determined on the basis of the Participant's estimated Annual
Compensation for such Limitation Year. Such estimated Annual
Compensation shall be determined on a reasonable basis and shall be
uniformly determined for all Participants similarly situated. Any
Employer contributions (including allocation of forfeitures) based on
estimated Annual Compensation shall be reduced by any Excess Amounts
carried over from prior Years.
(e) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for such Limitation
Year shall be determined on the basis of the Participant's actual
Annual Compensation for such Limitation Year.
ARTICLE VI
INDIVIDUAL ACCOUNTS
-------------------
Sec. 6.1 Participant Interest in Individual Accounts. Each Participant and
Former Participant shall have such right, title or interest in the balance of
his Individual Account as hereinafter provided. In no event shall his
nonforfeitable interest exceed the amount to the credit of his Individual
Account as the same may be adjusted from time to time.
Sec. 6.2 Periodic Statements to Participant. At least annually, the
Administrator shall advise each Participant, Former Participant and Beneficiary
for whom an Individual Account is held hereunder of the then fair market value
of such Individual Account.
35
ARTICLE VII
RETIREMENT
----------
Sec. 7.1 Normal Retirement. A Participant may retire from the employ of his
Employer and all Affiliated Companies on or after his Normal Retirement Date. A
Participant's Individual Account shall become nonforfeitable on his Normal
Retirement Date.
Sec. 7.2 Early Retirement. A Participant may retire from the employ of his
Employer and all Affiliated Companies on or after his Early Retirement Date.
Sec. 7.3 Other Retirement. A Participant's retirement will commence on the
Anniversary Date coinciding with or next following the date the Participant's
employment with his Employer and all Affiliated Companies terminates if he
retires under the provisions of any other qualified retirement plan of his
Employer.
Sec. 7.4 Benefits on Retirement. Upon the retirement of a Participant from
the employment of his Employer and all Affiliated Companies on or after his
Normal Retirement Date or his Early Retirement Date, his entire Individual
Account shall be held for his benefit. Said Participant shall receive payment
from his Individual Account in a single lump sum in accordance with Article XI
hereof as soon as administratively practicable after his Individual Account has
been credited and adjusted (as provided in Article IV) as of the Anniversary
Date concurrent with or next following his retirement. For Participants in the
Plan as of March 31, 1994, the Administrator shall direct the Trustee to begin
distribution prior to the time set forth in the preceding sentence if the
Participant directs the Administrator in writing.
Sec. 7.5 Commencement of Benefits. Notwithstanding any other provision of
the Plan to the contrary, a Participant or Former Participant shall begin
receiving distributions from the Plan, as provided in Article XI, by his
Required Beginning Date as defined in Section 11.4(d)(iii).
Sec. 7.6 Final Contribution After Distribution of Benefits. If a
Participant who has already received a distribution of his Individual Account
under this Article is entitled to an allocation of an Employer contribution
36
under Section 4.3 for the Year in which such distribution was made, such
contribution shall be paid to the Participant as soon as administratively
practicable following the completion of the allocations under Article IV for
such Year.
ARTICLE VIII
DEATH
-----
Sec. 8.1 Benefits on Death. Upon the death of a Participant who is employed
by an Employer or an Affiliated Company, his entire Individual Account shall be
held for the benefit of his Beneficiary. Upon the death of a Participant whose
employment with his Employer and all Affiliated Companies has terminated, his
nonforfeitable interest (determined under Section 10.2) in his Individual
Account which has not been distributed at the time of his death under Articles
VII-X shall be held for the benefit of his Beneficiary. His Beneficiary shall
receive payment from his Individual Account in a single lump sum in accordance
with Article XI hereof as soon as administratively practicable after the
allocations have been completed and his Individual Account has been credited and
adjusted (as provided in Article IV) as of the Anniversary Date concurrent with
or next following the date on which the Participant's death occurs. The
Administrator shall direct the Trustee to begin distribution prior to the time
set forth in the preceding sentence if the Beneficiary directs the Administrator
in writing.
Sec. 8.2 Final Contribution After Payment of Benefits. If the Individual
Account of a deceased Participant whose Beneficiary has already received a
distribution of the Participant's Individual Account under this Article is
entitled to an allocation of an Employer contribution under Section 4.3 for the
37
Year in which such distribution was made, such contribution shall be paid to the
Beneficiary as soon as administratively practicable following the completion of
the allocations under Article IV for such Year.
ARTICLE IX
DISABILITY
----------
Sec. 9.1 Benefits on Disability. In the event of termination of a
Participant's employment with his Employer and all Affiliated Companies due to
Disability, his entire Individual Account shall be held for his benefit. If the
balance of the Participant's Individual Account exceeds $5,000, the Participant
shall receive payment from his Individual Account in a single lump sum in
accordance with Article XI hereof as soon as administratively practicable after
the allocations have been completed and his Individual Account has been credited
and adjusted (as provided in Article IV) as of the Anniversary Date concurrent
with or next following the date his Normal Retirement Date or earlier death
occurs. The Administrator shall direct the Trustee to begin distribution prior
to the time set forth in the preceding sentence if the Participant directs the
Administrator in writing. If the balance of the Participant's Individual Account
does not exceed $5,000, the Participant's entire Individual Account shall be
distributed to him in a single lump sum as soon as administratively practicable
after the allocations have been completed and his Individual Account has been
credited and adjusted (as provided in Article IV) as of the Anniversary Date of
the Year in which the date of his Disability occurs. The Administrator shall
direct the Trustee to begin distribution prior to the time set forth in the
preceding sentence if the Participant directs the Administrator in writing.
Effective with respect to any distribution by reason of a Participant's
Disability on or after March 28, 2005, the dollar amount in this Section 9.1
shall automatically be reduced to $1,000.
Sec. 9.2 Final Contribution After Payment of Benefits. If a Participant who
has already received a distribution of his Individual Account under this Article
is entitled to an allocation of an Employer contribution under Section 4.3 for
the Year in which the distribution was made, such contribution shall be paid to
the Participant as soon as administratively practicable following the completion
of the allocations under Article IV for such Year.
38
ARTICLE X
TERMINATION BENEFITS
--------------------
Sec. 10.1 Termination of Employment Other than by Reason of Death,
Disability or Retirement. If the employment of a Participant with his Employer
and all Affiliated Companies terminates for any reason other than retirement
(whether normal or early), death or Disability, such Participant shall be
entitled to such benefits as are hereinafter provided in Section 10.2 at the
time specified in Section 10.3.
Sec. 10.2 Vested Interest. A Participant to whom the provisions of Section
10.2 are applicable shall be entitled (as a vested interest) to receive a
percentage of the then balance to his credit in his Individual Account
determined in accordance with the following schedule:
Years of Service (Vesting) Vested Interest
-------------------------- ---------------
Less than 5 0%
5 or more 100%
Notwithstanding the preceding provisions of this Section 10.2, any such
Participant who (i) has credit for less than five Years of Service (Vesting)
before April 1, 2007 and (ii) receives credit for an Hour of Service after March
31, 2007 shall be entitled (as a vested interest) to receive a percentage of the
then balance to his credit in his Individual Account determined in accordance
with the following schedule:
Years of Service (Vesting) Vested Interest
-------------------------- ---------------
Less than 3 0%
3 or more 100%
Sec. 10.3 Time of Distribution. If the employment of a Participant with his
Employer and all Affiliated Companies terminates for any reason other than
retirement (whether normal or early), death or Disability, and the value of the
vested portion of his Individual Account exceeds $5,000, then the Administrator
shall direct the Trustee, with such Participant's written consent, to distribute
to such Participant the portion of his Individual Account to which he is
entitled under Section 10.2 in a single lump sum in accordance with Article XI
39
hereof as soon as administratively practicable after his Individual Account has
been credited and adjusted (as provided in Article IV) as of the earlier of (i)
the Anniversary Date immediately following the date the Participant incurs a
One-Year Break in Service following his termination of employment, provided the
written consent of the Participant to such distribution is received by the
Administrator not later than 60 days after such Anniversary Date, or (ii) the
Anniversary Date following the date on which his Normal Retirement Date or
earlier death occurs, but not later than the time specified in Section 11.4. If
the Participant does not elect to receive the distribution when he is first
eligible under the preceding sentence, he may elect to receive the distribution
of his Individual Account in a single lump sum as soon as administratively
practicable after his Individual Account has been credited and adjusted (as
provided in Article IV) as of any subsequent Anniversary Date if he has provided
written consent to such distribution to the Administrator not later than 60 days
after such Anniversary Date. If, however, the vested balance of the terminated
Participant's Individual Account does not exceed $5,000, the vested balance of
the Participant's Individual Account shall be distributed to him in a single
lump sum as soon as administratively practicable after the allocations have been
completed and his Individual Account has been credited and adjusted (as provided
in Article IV) as of the Anniversary Date of the Year in which the Participant
incurs a One-Year Break in Service. Effective with respect to any distribution
by reason of a Participant's termination of employment on or after March 28,
2005, the dollar amount in this Section 10.3 shall automatically be reduced to
$1,000.
The balance to the credit of a terminated Participant in his Individual
Account which is not vested under the schedule in Section 10.2, if not
previously forfeited, shall be forfeited as of the earlier of (i) the date his
entire vested Individual Account balance has been distributed under Article XI
or (ii) the last day of the Year in which such Participant incurs a Five-Year
Break in Service. If the Participant is not entitled to any portion of his
Individual Account under Section 10.2, he shall be deemed to have received a
distribution and shall forfeit the balance of his Individual Account on the date
of his incurring a One-Year Break in Service. The forfeited amount under this
Section 10.3 shall remain in the Trust Fund and shall be applied as provided in
Section 10.5. If a Former Participant is reemployed by an Affiliated Company
without incurring a Five-Year Break in Service, the portion of his Individual
40
Account which was forfeited hereunder shall be restored to his Individual
Account in full. If currently unallocated forfeitures are not adequate to effect
the restoration, the Company or any Employer shall make such additional
contribution to the Plan as is necessary to restore the forfeited portion of his
Individual Account.
Sec. 10.4 Forfeiture and Return to Employment Prior to Complete
Distribution. After a Five-Year Break in Service, a Participant to whom this
Article X is applicable, other than a Participant described in Section 10.3,
shall forfeit that portion of the amount of his Individual Account to which he
is not entitled under Section 10.2 and the amount thus forfeited shall remain in
the Trust Fund and shall be applied as provided in Section 10.5. The amount
forfeited by a Participant hereunder shall be charged to his Individual Account
on the Anniversary Date as of which he shall incur a Five-Year Break in Service.
If the Participant returns to the employment of the Employer after a Five-Year
Break in Service, but before the full payment of his Individual Account,
allocations of Employer contributions under Section 4.3 after such Five-Year
Break in Service shall be allocated to a Parent Company Stock Account and Other
Investments Account established on behalf of such Participant which is separate
from the Parent Company Stock and Other Investments Account of such Participant
to which is allocated his account balance attributable to service prior to the
Five-Year Break in Service.
Sec. 10.5 Application of Forfeitures. The forfeitures occurring as provided
in Articles X and XI shall first be used to restore the account of a Former
Participant who has been located during that Year as provided in Section 11.9.
If additional forfeitures remain after full restorations under Section 11.9,
then remaining forfeitures shall be used to restore accounts of Former
Participants who are entitled to restorations for that Year under Section 10.3.
If additional forfeitures remain for a Year after application of the two
preceding sentences, the remaining forfeitures may be used to (i) make
corrective allocations and reduce corrective contributions on behalf of any
Participant or Former Participant for that Year, if any, pursuant to Section
15.11 and (ii) pay expenses of the Plan as provided in Section 15.8. If
additional forfeitures remain thereafter, the forfeitures shall be allocated as
provided in Section 4.3(c)(ii) among the appropriate Parent Company Stock
41
Accounts and Other Investments Accounts on the Anniversary Date of the Year in
which the forfeiture occurs.
ARTICLE XI
DISTRIBUTIONS AND WITHDRAWALS
-----------------------------
Sec. 11.1 Form of Payment. Except as provided in Section 11.4(c)(ii),
whenever a Participant, Former Participant or Beneficiary is entitled to or
required to receive benefits hereunder as provided in Articles VII to X,
inclusive, the Administrator shall direct the Trustee to pay such benefits in a
lump sum, provided that a life annuity may not be a part of a lump sum
distribution. Distribution of the amounts from a Participant's Individual
Account will be made entirely in whole shares of Parent Company Stock and the
value of any fractional share will be paid in cash. The distribution which a
Participant is entitled to receive from his Parent Company Stock Account shall
be equal to the number of shares of Parent Company Stock credited to his Parent
Company Stock Account as of the immediately preceding Allocation Date plus any
stock dividends to which he is entitled under Section 4.3(g). Any balance of his
Other Investments Account as of the immediately preceding Allocation Date, plus
cash or in-kind dividends to which the Participant is entitled under Section
4.3(g) shall be used to purchase for distribution to him the maximum number of
whole shares of Parent Company Stock at the fair market value per share as of
the date of purchase, and any unexpended balance will be distributed to him in
cash.
Sec. 11.2 Consent to Distribution. If the vested balance of the
Participant's or Former Participant's Individual Account exceeds $5,000 and any
part of the Individual Account could be distributed to the Participant or Former
Participant before the Participant or Former Participant attains (or would have
attained if not deceased) his Normal Retirement Date, the Participant or Former
Participant must consent in writing to any distribution of such Individual
Account. The consent of the Participant or Former Participant must be obtained
within the 90-day period prior to the date benefit payments are to commence. The
Administrator shall notify the Participant or Former Participant of (i) the
right to defer any distribution until his Required Beginning Date, and (ii)
effective for any such Notice provided after March 31, 2007, the consequences of
42
failing to defer such receipt. Such Notice shall be provided no less than 30
days and no more than 180 days before benefit payment is to commence and shall
include a general description of the material features, and an explanation of
the relative values of, the form of benefit available under Section 11.1 in a
manner that would satisfy the notice requirements of Section 417(a)(3) of the
Code and a description of his direct rollover rights under Section 11.11. Prior
to April 1, 2007, the 180-day limitation specified in the preceding sentence is
90 days. If the vested balance of the Participant's Individual Account does not
exceed $5,000, the Participant, Former Participant, or Beneficiary does not have
a right to delay the distribution, but shall be provided with a notice of his
direct rollover rights under Section 11.11. Such distribution may commence less
than 30 days after the Notice required under Treas. Reg. ss.1.411(a)-11(c) is
given, provided that (i) the Administrator clearly informs the Participant or
Former Participant that the Participant or Former 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 (ii) the Participant or Former Participant, after
receiving the Notice, affirmatively elects a distribution in writing to the
Administrator. The consent of the Participant or Former Participant is not
required to the extent that a distribution is required to satisfy either Section
401(a)(9) or Section 415 of the Code. Effective for distributions on or after
March 28, 2005, the dollar amount in this Section 11.2 shall automatically be
reduced to $1,000.
Sec. 11.3 Minority or Disability of Distributee. During the minority or
disability of a person entitled to receive benefits hereunder, the Administrator
may, in its sole discretion, direct payment by the Trustee of all or any portion
of such benefits due such person directly to him or to his spouse or a relative
or to any individual or institution having custody of such person. Neither an
Employer, the Committee, the Administrator, the Named Fiduciary nor the Trustee
shall be required to see to the application of any payments so made and the
receipt of the payee (including the endorsement of a check or checks) shall be
conclusive as to all interested parties. Any payment made pursuant to the power
herein conferred on the Administrator shall operate as a complete discharge of
all obligations of the Administrator and the Trustee, to the extent of the
distributions so made.
43
Sec. 11.4 Additional Requirements Relating to Benefit Payments and Death
Distributions. Notwithstanding any other provisions of the Plan, the following
provisions shall be applicable to the Plan for calendar years beginning with the
2003 calendar year:
(a) General Distribution Deadline. Distribution of benefits shall be made,
unless the Participant otherwise elects, not later than the 60th day
after the last day of the Year in which the latest of the following
events occurs:
(i) the Participant reaches the earlier of age 65 or his Normal
Retirement Date;
(ii) the tenth anniversary of the date on which the Participant
commenced participation in the Plan occurs, but not later than
the April 1 of the calendar year following the calendar year in
which the Participant attains age 70 1/2 if such Participant is a
Five-Percent Owner; or
(iii) the date the Participant's employment with his Employer and all
Affiliated Companies terminates, but in no event later than the
April 1 of the calendar year following the calendar year in which
the Participant attains age 70 1/2 if such Participant is a
Five-Percent Owner.
If a Participant is entitled to receive a distribution of all or a
portion of his Individual Account pursuant to Article VII, VIII, IX or
X, he may elect to defer the date of distribution of that amount, but
not beyond his Required Beginning Date. If the Participant fails to
consent to a distribution at a time when any part of the balance of
the Individual Account could be distributed prior to the Participant's
Normal Retirement Date, such failure shall be deemed to be an election
to defer the date of distribution of any benefit under this Section
11.4(a); provided that in no event shall he receive distribution of
the vested portion of his Individual Account later than his Required
Beginning Date.
(b) Required Compliance with Code and Treasury Regulations. All
distributions required under this Article XI shall be determined and
44
made in accordance with Section 401(a)(9) of the Code and the Treasury
regulations thereunder.
(c) Time and Manner of Distribution.
(i) Required Beginning Date and Election to Defer Distribution Date.
The Participant's entire Individual Account shall be distributed
to the Participant no later than the Participant's Required
Beginning Date. An election of a Participant to defer the
distribution date shall be made by submitting to the
Administrator a written statement signed by the Participant
describing the benefits and the date on which the Participant
requests that the distribution of his benefits be made; provided,
however, a Participant may not elect to defer receipt of benefits
beyond his Required Beginning Date.
(ii) Death of Participant Before Distribution to Him. If the
Participant dies before distribution to him of his entire
Individual Account under Section 11.1, the Participant's entire
Individual Account shall be distributed no later than as follows:
(A) If the Participant's surviving spouse is the Participant's
sole Designated Beneficiary, then, except as elected by the
surviving spouse as provided below, distribution to the
surviving spouse shall be made by December 31 of the
calendar year immediately following the calendar year in
which the Participant died, or by December 31 of the
calendar year in which the Participant would have attained
age 70 1/2, if later.
(B) If the Participant's surviving spouse is not the
Participant's sole Designated Beneficiary, then, except as
provided below, distribution to the Designated Beneficiary
shall be made by December 31 of the calendar year
immediately following the calendar year in which the
Participant died.
(C) If there is no Designated Beneficiary of the Participant as
of September 30 of the year following the year of the
Participant's death, the Participant's entire Individual
45
Account shall be distributed by December 31 of the calendar
year containing the fifth anniversary of the Participant's
death.
(D) If the Participant's surviving spouse is the Participant's
sole Designated Beneficiary and the surviving spouse dies
after the Participant but before distribution to the
surviving spouse has been made, this Section 11.4(c)(ii),
other than Section 11.4(c)(ii)(A), shall apply as if the
surviving spouse were the Participant.
If the Participant dies before distribution to him of his entire
Individual Account and there is a Designated Beneficiary, distribution
to the Designated Beneficiary is not required to be made by the date
specified above in this Section 11.4(c)(ii), but the Participant's
entire Individual Account shall be distributed to the Designated
Beneficiary by December 31 of the calendar year containing the fifth
anniversary of the Participant's death. If the Participant's surviving
spouse is the Participant's Designated Beneficiary, the surviving
spouse may elect to apply the distribution requirement of Section
11.4(c)(ii) without regard to the prior sentence. If the Participant's
surviving spouse is the Participant's sole Designated Beneficiary and
the surviving spouse dies after the Participant but before
distribution to either the Participant or the surviving spouse has
been made, this election shall apply as if the surviving spouse were
the Participant. For purposes of this Section 11.4(c)(ii), unless
Section 11.4(c)(ii)(D) applies, distributions are considered to be
made on the Participant's Required Beginning Date. If Section
11.4(c)(ii)(D) applies, distributions are considered to be made on the
date distributions are required to be made to the surviving spouse
under Section 11.4(c)(ii)(A).
(d) Definitions. For purposes of this Section 11.4, the following terms
shall have the meanings set forth below:
(i) "Designated Beneficiary" means the individual who is designated
as the Beneficiary under Section 1.7 and is the designated
46
beneficiary under Section 401(a)(9) of the Code and Treas. Reg.
ss.1.401(a)(9)-4, Q&A-1.
(ii) "Five-Percent Owner" means a Participant who is a five-percent
owner of the Company within the meaning of Section
416(i)(1)(B)(i) of the Code (determined in accordance with
Section 416 of the Code but without regard to whether the Plan is
top heavy) at any time during the Year ending with or within the
calendar year in which such owner attains age 70 1/2.
(iii) "Required Beginning Date" of a Participant means the date
determined as follows:
(A) if the Participant is not a Five-Percent Owner and has not
attained age 70 1/2 prior to April 1, 2002, his Required
Beginning Date is the April 1 of the calendar year following
the later of (1) the calendar year in which the Participant
attains age 70 1/2 or (2) the calendar year in which the
Participant retires; or
(B) if the Participant is a Five Percent-Owner, or if the
Participant has attained age 70 1/2 prior to April 1, 2002,
his Required Beginning Date is the April 1 of the calendar
year following the calendar year in which the Participant
attains age 70 1/2 even if he has not retired.
Sec. 11.5 Withdrawals. Except as provided in this Section, no amounts may
be withdrawn by a Participant from his Individual Account until the
Participant's employment with his Employer and all Affiliated Companies has
terminated. In the event of financial hardship, a Participant or Former
Participant may, with the consent of the Administrator, withdraw such portion of
his Individual Account as the Administrator may approve; provided, however, that
no amount in excess of the vested portion of his Individual Account may be
withdrawn from such Individual Account. A request for withdrawal under this
Section 11.5 shall be made in writing to the Administrator, and shall set forth
the particular circumstances constituting the financial hardship and the amount
requested to be withdrawn. The term "financial hardship" shall mean acute
47
financial necessity resulting from illness or death of members of the family,
education of children and casualty losses not covered by insurance. The
determination by the Administrator as to the existence of financial hardship and
the amount permitted to be withdrawn shall be conclusive but shall be made on a
consistent and nondiscriminatory basis. All amounts not actually withdrawn shall
remain credited to the Individual Account of the Participant or Former
Participant. For the purposes of allocating appreciation, depreciation, income,
expense, gain and loss of the Trust Fund, any withdrawals shall be subtracted
from the Individual Account balance as of the beginning of the Year in which the
withdrawal is made.
Sec. 11.6 Claims Procedure. The Administrator shall process all benefit
claims of Participants, Former Participants and Beneficiaries pursuant to the
claims procedure specified in the summary plan description for the Plan and
shall act in a manner which is consistent with regulations published from time
to time by the Department of Labor.
Sec. 11.7 Administrator's Duty to Trustee. The Administrator will notify
the Trustee at the appropriate time of all facts which may be necessary
hereunder for the proper allocation of increases, decreases, expenses, and
contributions for Participants, the proper payment or distribution of benefits,
or the proper performance of any other act required of the Trustee hereunder.
The Administrator will notify the Trustee of such facts as are needed by the
Trustee to perform its functions under the Plan and the Trust Agreement. The
Administrator will secure appropriate elections, directions, and designations
for Participants, Former Participants and Beneficiaries provided for in the
Plan.
Sec. 11.8 Duty to Keep Administrator Informed of Distributee's Current
Address. Each Participant, Former Participant and Beneficiary must file with the
Administrator from time to time in writing his mailing address and each change
of mailing address. Any communication, statement or Notice addressed to a
Participant, Former Participant or Beneficiary at his last mailing address filed
with the Administrator or if no address is filed with the Administrator then at
his last mailing address as shown on an Employer's records, will be binding on
the Participant or Former Participant, and his Beneficiaries, for all purposes
of the Plan. Neither the Administrator nor the Trustee shall be required to
48
search for or locate a Participant, Former Participant or Beneficiary.
Sec. 11.9 Failure to Claim Benefits. If the Administrator notifies the
Participant, Former Participant or Beneficiary by registered or certified mail
at his last known address that he is entitled to a distribution and also
notifies him of the provisions of this Section 11.9, and the Participant, Former
Participant or Beneficiary fails to claim his benefits under the Plan or make
his current address known to the Administrator within a reasonable period of
time after such notification, the Administrator shall use reasonable efforts to
locate the Participant, Former Participant or Beneficiary. If those reasonable
efforts are unsuccessful, the Administrator shall direct that all unpaid amounts
which would have been payable to such Participant, Former Participant or
Beneficiary will be forfeited and applied as provided in Section 10.5. In the
event that the Participant, Former Participant or Beneficiary is subsequently
located, the Participant's Parent Company Stock Account will be restored and
credited with the number of whole shares of Parent Company Stock and cash for
any fractional share that have an aggregate fair market value equal to the
aggregate value of his Individual Account as of the date his Individual Account
was forfeited. The shares of Parent Company Stock and cash credited to his
Parent Company Stock Account shall be distributed to the Participant, Former
Participant or Beneficiary, and the Employer shall contribute an amount to the
Plan which is equal to the amount distributed under the terms of this Section
11.9 to the extent that such amount cannot be reinstated through forfeitures
occurring during the Year of payment. Notwithstanding the preceding sentences,
if the Administrator is trying to locate a Participant, Former Participant or
Beneficiary in connection with a minimum required distribution under Section
11.4, and the Administrator determines that such Participant, Former Participant
or Beneficiary cannot be located, the Administrator shall establish an escrow
account outside of the Plan in the name of that Participant, Former Participant
or Beneficiary and direct the Trustee to distribute such amount to that account.
Sec. 11.10 Distribution Pursuant to Qualified Domestic Relations Orders.
The Administrator shall establish policies and procedures for reviewing domestic
relations orders relating to a Participant's or Former Participant's interest in
the Plan. The Administrator or its delegate shall determine whether any such
49
domestic relations order is a Qualified Domestic Relations Order.
Notwithstanding any other provision of the Plan to the contrary, if the
provisions of a Qualified Domestic Relations Order provide that distributions
shall be made to an Alternate Payee prior to the time that the Participant with
respect to whom the Alternate Payee's benefits are derived is entitled to a
distribution under the Plan, the Administrator shall direct the Trustee to
commence payments to the Alternate Payee as soon as administratively practicable
following the later of (i) the date the Participant attains (or would have
attained) the Earliest Retirement Age (as defined below) or (ii) the receipt of
such Qualified Domestic Relations Order by the Administrator. Until such time as
payment is made to an Alternate Payee pursuant to this Section 11.10, the
Administrator shall direct the Recordkeeper to identify the Alternate Payee's
interest in the Trust Fund and the Alternate Payee shall have no rights under
the Plan other than the rights of a Beneficiary and the right, if the
Participant or Former Participant is a Qualified Participant, of a Qualified
Participant pursuant to the provisions of Section 18.2. A distribution to an
Alternate Payee who is the former spouse of the Participant or Former
Participant shall be subject to the provisions of Section 11.11. For purposes of
this Section 11.10, Earliest Retirement Age shall mean the earlier of (i) the
date on which the Participant is entitled to a distribution under the Plan, or
(ii) the later of (A) the date the Participant attains age 50, or (B) the
earliest date on which the Participant could begin receiving benefits under the
Plan if his employment with his Employer and all Affiliated Companies had
terminated.
Sec. 11.11 Tax Withholding and Participant's Direct Rollover. Unless
provided otherwise in regulations promulgated by Secretary of the Treasury, to
the extent required under Section 3405 of the Code, if a Participant, Former
Participant or Beneficiary receives a distribution or withdrawal from the Plan
consisting of cash or assets other than Parent Company Stock with a combined
value (excluding the value of Parent Company Stock) in excess of $200 (the
"Non-Parent Company Stock Distribution"), the Trustee shall withhold the lesser
of (i) 100% of the Non-Parent Company Stock Distribution made to that
Participant, Former Participant or Beneficiary or (ii) 20% of the value of the
taxable portion of the entire distribution or withdrawal made to a Participant,
Former Participant or Beneficiary which constitutes an Eligible Rollover
Distribution (as defined below). Any amount withheld shall be deposited by the
50
Trustee with the Internal Revenue Service for the purpose of paying the
distributee's federal income tax liability associated with the distribution or
withdrawal. Notwithstanding the foregoing provisions, each Direct Rollover
Distributee (as defined below) shall be provided with a Notice described in
Section 11.2 and given the right to elect [pursuant to Section 401(a)(31) of the
Code and the applicable Treasury regulations promulgated thereunder] during the
period prescribed in Section 11.2 to rollover all or any portion of the taxable
amount of such person's distribution or withdrawal (subject to limitations and
restrictions, if any, adopted by the Administrator in accordance with applicable
Treasury regulations) directly to an Eligible Retirement Plan (as defined below)
and, to the extent a direct rollover is elected by any Direct Rollover
Distributee, the withholding requirements of this Section 11.11 shall not apply.
If permitted by the Code or applicable Treasury regulations, a direct rollover
as described in the preceding sentence may be accomplished by delivering a check
from the Plan to the Direct Rollover Distributee payable to the trustee or
custodian of the Eligible Retirement Plan. Each such direct rollover election
shall be in writing on a form prescribed by the Administrator for such purpose
and given to the Direct Rollover Distributee within a reasonable period of time
prior to the distribution or withdrawal.
For purposes of this Section 11.11, the following terms shall have the
following meanings:
(a) "Direct Rollover Distributee" shall mean a Participant, a Former
Participant, a spouse of a Participant or a Former Participant, and a
Participant's or Former Participant's former spouse who is the
Alternate Payee under a Qualified Domestic Relations Order. Effective
April 1, 2007, a Direct Rollover Distributee shall also include a
Participant's or Former Participant's non-spouse designated
Beneficiary who receives an otherwise qualifying distribution after
March 31, 2007 from a Participant's or Former Participant's Individual
Account, provided such distribution is directly rolled over to an
individual retirement account described in Section 408(a) of the Code
which is established as an inherited IRA in accordance with guidance
issued by the Department of Treasury or the Internal Revenue Service.
51
(b) "Eligible Retirement Plan" shall mean an individual retirement account
described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code (other than an
endowment contract), an annuity plan described in Section 403(a) of
the Code, an annuity contract described in Section 403(b) of the Code,
a qualified trust described in Sections 401(a) and 501(a) of the Code,
and an eligible plan under Section 457(b) of the Code which is
maintained by a state, a political subdivision of a state, or any
agency or instrumentality of a state or political subdivision of a
state, that will accept an Eligible Rollover Distribution, and, in the
case of an eligible plan under Section 457(b) of the Code, that agrees
to separately account for amounts transferred into such plan from the
Plan.
(c) "Eligible Rollover Distribution" shall mean any distribution of all or
a portion of a Participant's or Former Participant's Individual
Account to a Direct Rollover Distributee; provided, however, an
Eligible Rollover Distribution shall not mean any distribution of all
or a portion of a Participant's or Former Participant's Individual
Account (i) 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 Direct Rollover Distributee or the joint lives
(or joint life expectancies) of the Direct Rollover Distributee and
his designated Beneficiary, (ii) that is paid for a specified period
of ten years or more, (iii) that is a part of a series of
distributions during a calendar year to the extent that such
distributions are expected to total less than $200 or a total lump sum
distribution which is less than $200, as described in Q&A-11 of Treas.
Reg. ss.1.401(a)(31)-1, (iv) to the extent such distribution is
required by under Section 401(a)(9) of the Code as provided in Section
11.4, or (v) to the extent such distribution is not includable in
gross income (determined without regard to the exclusion for net
annualized appreciation with respect to employer securities).
52
ARTICLE XII
NOTICES
-------
Sec. 12.1 Notice. As soon as practicable after a Participant, Former
Participant or Beneficiary makes a request for payment, the Administrator shall
notify the Trustee of the following information and give such directions as are
necessary or advisable under the circumstances:
(a) name and address of the Participant, Former Participant or
Beneficiary,
(b) amount to be distributed, and
(c) any other information required by the Trustee for federal or state
income tax withholding and reporting purposes.
In addition to the information described above, for distributions and
withdrawals the Administrator shall notify the Recordkeeper and/or the Trustee,
if applicable, as to the identity, address and other pertinent information of
Eligible Retirement Plans as described in Section 11.11 to which the Direct
Rollover Distributee (as defined in Section 11.11)has elected to rollover
directly such distribution or withdrawal pursuant to Section 11.11.
Sec. 12.2 Modification of Notice. At any time and from time to time after
giving the Notice as provided for in Section 12.1, the Administrator may modify
such original Notice or any subsequent Notice by means of a further Notice or
notices to the Trustee but any action taken or payments made by the Trustee
pursuant to a prior Notice shall not be affected by a subsequent Notice.
Sec. 12.3 Reliance on Notice. Upon receipt of any Notice as provided in
this Article XII, the Recordkeeper and/or the Trustee, as applicable, shall
promptly take whatever action and make whatever payments are called for therein,
it being intended that the Recordkeeper and/or the Trustee, as applicable, may
rely on the information and directions in such Notice absolutely and without
question. However, the Recordkeeper and/or the Trustee, as applicable, may call
to the attention of the Administrator any error or oversight which the Trustee
believes to exist in any Notice.
53
ARTICLE XIII
AMENDMENT OR TERMINATION OF PLAN
--------------------------------
Sec. 13.1 Amendment or Termination by Company. At any time the Company
acting through its governing body may amend or modify the Plan in whole or in
part, retroactively or otherwise, or may terminate or partially terminate the
Plan, or discontinue or modify Employer contributions to the Plan, subject,
however, to the other provisions of this Article XIII. Such termination may be
made without consent being obtained from the Trustee, the Recordkeeper, any
Employer or Affiliated Company, the Administrator, the Committee, the
Participants or their Beneficiaries, the Employees or any other interested
person. Also the Plan shall be considered terminated if the Company ceases
business operations or if there is a complete discontinuance of Employer
contributions to the Plan.
Sec. 13.2 Effect of Amendment. No amendment or modification hereof by the
Company, unless made to secure the approval of the Commissioner of Internal
Revenue or other governmental bureau or agency, shall:
(a) operate retroactively to reduce or divest the then vested interest in
any Individual Account or to reduce or divest any benefit then payable
hereunder; or
(b) change the duties or responsibilities of the Trustee without the
written consent or approval of the Trustee.
Each such amendment shall be in writing signed by duly authorized officers of
the Company with such consents or approval, if any, as provided above and shall
become effective as designated in such amendment.
Sec. 13.3 Distribution on Termination or Discontinuance of Contributions.
Upon termination of the Plan or complete discontinuance of contributions to the
Plan, any amount of the Trust Fund previously unallocated, including any amounts
in a suspense account established under Article V, shall be allocated (unless
such allocation would violate Article V), and the Individual Accounts of all
Participants, Former Participants, and Beneficiaries shall thereupon be and
become fully vested and nonforfeitable to the extent then funded. The Trustee
shall deduct from the Trust Fund all unpaid charges and expenses including those
relating to said termination, except as the same may be paid by an Employer. The
54
Trustee shall then adjust the balance of all Individual Accounts on the basis of
the net value of the Trust Fund. Subject to the limitations on distributions
provided in this Section 13.3, the Administrator shall direct the Trustee to
distribute the amount to the credit of each Participant, Former Participant and
Beneficiary when all appropriate administrative procedures have been completed.
If any amount in a suspense account shall not be allocable because of the
provisions of Article V, such amount shall be returned to the Employer. Upon any
complete discontinuance of contributions by an Employer, the assets of the Trust
Fund shall be held and administered by the Trustee for the benefit of the
Participants employed by such Employer discontinuing contributions in the same
manner and with the same powers, rights, duties and privileges herein described
until the Trust Fund with respect to such Employer has been fully distributed.
Upon the partial termination of the Plan, the Individual Accounts of affected
Participants, Former Participants and Beneficiaries shall thereupon be and
become fully vested and nonforfeitable to the extent then funded and shall be
distributed to such Participants, Former Participants and Beneficiaries by the
Trustee when all appropriate administrative procedures have been completed. The
Administrator shall direct the Trustee to distribute each Participant's entire
Individual Account in a single lump sum distribution to him in accordance with
and subject to the consent requirements of Article XI, or to an Eligible
Retirement Plan as defined in Section 11.11 pursuant to the Participant's direct
rollover election described in Section 11.11, as soon as administratively
practicable after the later of (i) the termination date of the Plan or (ii) the
receipt following application of a favorable determination letter from the
Internal Revenue Service with respect to the termination of the Plan.
Sec. 13.4 Reversion of Contributions to Employer. Except as provided in
Section 3.3 and Section 13.3, under no circumstances or conditions shall the
Trust Fund or any portion thereof revert to any Employer or be used for or
diverted to the benefit of anyone other than Participants, Former Participants
and Beneficiaries, it being understood that the Trust Fund shall be for the
exclusive benefit of Participants, Former Participants and Beneficiaries.
Sec. 13.5 Amendment of Vesting Schedule. At any time that the vesting
schedule of the Plan is amended, or the Plan is amended in any way that directly
or indirectly affects the computation of the Participant's nonforfeitable
55
interest in his Individual Account, each Participant who has completed at least
three Years, whether or not consecutive, during each of which he has completed
not fewer than 1,000 Hours of Service, may elect to have his vested interest in
his Individual Account determined under the vesting schedule in effect prior to
such amendment. An election made under the preceding sentence may be made at any
time within 60 days after the later of the date:
(a) the amendment is adopted;
(b) the amendment becomes effective; or
(c) the Participant is issued written notice of the amendment by the
Administrator.
An election under this Section shall be made in a written instrument delivered
to the Administrator and once made, shall be irrevocable. For the purposes of
this Section, a Participant shall be considered to have completed the three
Years described in this Section if he shall have completed such Years prior to
the end of the period during which he could make an election hereunder.
Sec. 13.6 Merger or Consolidation of Plan. In the event of any merger or
consolidation of the Plan with, or transfer in whole or in part of the assets
and liabilities of the Trust Fund to, another trust fund held under any other
plan of deferred compensation maintained or to be established for the benefit of
all or some of the Participants in the Plan, the assets of the Trust Fund
applicable to such Participants shall be transferred to the other trust fund
only if:
(a) each Participant would (if either the Plan or the other plan had then
terminated) receive a benefit immediately after the merger,
consolidation, or transfer which is equal to or greater than the
benefit he would have been entitled to receive immediately before the
merger, consolidation, or transfer (if the Plan had then terminated);
and
(b) such other plan and trust fund are qualified under Section 401(a) of
the Code and exempt from tax under Section 501(a) of the Code.
56
Sec. 13.7 Withdrawal of Employer. If an Employer withdraws from
participation in the Plan or completely discontinues contributions to the Plan
without the immediate establishment of a new retirement plan, distribution of
benefits to affected Participants will be made at the time and in the manner
provided in Section 13.3. However, pursuant to rules applied by the
Administrator in a nondiscriminatory manner to all employees similarly situated
or if the withdrawal or discontinuance by an Employer is deemed to be a partial
termination of the Plan, the provisions of Section 13.3 hereof shall apply to an
Employer's withdrawal or discontinuance as if it were a part of the complete
termination of this Plan, but the participation of other Employers hereunder
shall not be affected nor shall the continuation of the Plan with respect to the
participation therein by other Employers be affected by such withdrawal or
discontinuance by an Employer. The assets attributable to the Participants
employed by the withdrawing or discontinuing Employer, may, in the
Administrator's discretion, be retained in and subject to the provisions of the
Plan or distributed in liquidation.
ARTICLE XIV
COMMITTEE
---------
Sec. 14.1 Committee Composition. The Company may appoint a Committee
consisting of any number of members as determined by the Company. The Company
may remove any member of the Committee at any time and a member may resign by
written notice to the Company. Any vacancy in the membership of the Committee
shall be filled by appointment of the governing body of the Company, but pending
the filling of any such vacancy the then members of the Committee may act
hereunder as though they alone constitute the full Committee.
Sec. 14.2 Committee Actions. Any and all acts and decisions of the
Committee shall be by at least a majority of the then members, or by a unanimous
written decision taken without a meeting, but the Committee may delegate to any
one or more of its members the authority to sign notices or other documents on
its behalf or to perform ministerial acts for it, in which event the Trustee and
any other person may accept such notice, document or act without question as
having been authorized by the Committee.
57
Sec. 14.3 Committee Procedure. The Committee may, but need not, call or
hold formal meetings and any decisions made or action taken pursuant to written
approval of a majority of the then members shall be sufficient. The Committee
shall maintain adequate records of its decisions which records shall be subject
to inspection by the Company, any Employer, any Participant, Former Participant
or Beneficiary, and any other person to the extent required by law, but only to
the extent that they apply to such person. Also the Committee may designate one
of its members as Chairman and one of its members as Secretary and may establish
policies and procedures governing it as long as the same are not inconsistent
with the terms of the Plan.
Sec. 14.4 Delegation to Committee and Company's Duty to Furnish
Information. The Committee shall perform the duties and may exercise the powers
and discretion given to it in the Plan and its decisions and actions may be
relied upon by all persons affected thereby. The Trustee and the Recordkeeper
may rely without question upon any notices, directions, or other documents
received from the Committee. The Company and each Employer shall furnish the
Committee with all data and information available to the Company which the
Committee may reasonably require in order to perform its duties. The Committee
may rely without question upon any such data or information furnished by the
Company and each Employer.
In addition to any other powers and responsibilities allocated to the
Committee pursuant to the terms of the Plan, the following powers and
responsibilities shall be exercised by the Committee:
(a) To direct the Trustee as to investments in Parent Company Stock.
(b) To administer the Plan as provided in Section 14.5.
(c) To establish and administer the Plan's claims procedure pursuant to
Section 11.6 in a uniform and nondiscriminatory manner and, if
appropriate in its sole discretion, to designate persons or entities
to be responsible for initial claims and requests for review of claims
decisions.
(d) To adopt such rules, forms and procedures as it shall deem necessary
for the efficient administration of the Plan in accordance with its
58
terms and the terms of any applicable law.
(e) Effective for Years beginning after March 31, 2007, to establish and
communicate the procedures to Qualified Participants to enable the
Plan to satisfy the requirement of Section 401(a)(28)(B)(ii)(I) of the
Code that each Qualified Participant be permitted during his Qualified
Election Period to direct the Trustee as to the eligible portion of
such Qualified Participant's Individual Account to be distributed to
him pursuant to Section 18.2.
(f) To prepare and submit to governmental agencies, Participants, Former
Participants and Beneficiaries such Plan descriptions, reports and
other documents, or summaries thereof, as may be required by
applicable law or necessary in the administration of the Plan.
(g) To remedy possible ambiguities, inconsistencies or omissions in
connection with its power to interpret the Plan; provided, however,
that all such actions and decisions shall be applied in a uniform
manner to all Employees similarly situated.
(h) To authorize disbursements from the Trust Fund, including refunds of
contributions permitted by the Plan (any instructions of the Committee
to the Trustee shall be evidenced in writing and signed by a member of
the Committee delegated with such authority by a majority of the
Committee).
(i) To appoint a Recordkeeper who shall perform, without discretionary
authority or control, administrative functions within the framework of
policies, interpretations, rules, practices and procedures adopted by
the Committee or the Administrator.
(j) To employ such advisors (including but not limited to attorneys,
independent public accountants and investment advisors) and such other
technical and clerical personnel as may be required in the Committee's
discretion for the proper administration of the Plan, and to pay the
reasonable expenses of such persons from the Trust Fund.
59
(k) To establish and to instruct the Trustee and any investment manager
with respect to asset administration objectives and policies
consistent with Plan requirements.
(l) To review from time to time, but at least as often as annually, the
investment performance of the Trustee and any insurance company or
investment manager acting with respect to any portion of the Trust
Fund. The Committee may engage the services of such person it deems
appropriate including, investment managers, to review investments held
by the Plan and the financial condition of insurance companies issuing
insurance contracts to the Plan.
(m) To supervise at least one audit of the Plan's assets for each Year and
review the Trustee's annual accounting.
(n) Effective April 1, 2007, to direct the Trustee with respect to voting
shares of Parent Company Stock in accordance with the provisions of
Section 17.6.
Sec. 14.5 Construction of Plan and Trustee's and Record-keeper's Reliance.
Any and all matters involving the Plan, including but not limited to any and all
disputes which may arise involving Participants, Former Participants, and
Beneficiaries and/or the Trustee or the Recordkeeper shall be referred to the
Committee. The Committee has the exclusive discretionary authority to construe
the terms of the Plan and the exclusive discretionary authority to determine
eligibility for all benefits hereunder. Any such determinations or
interpretations of the Plan adopted by the Committee shall be final and
conclusive and shall bind all parties. The Trustee and the Recordkeeper may rely
upon the decision of the Committee with respect to any question concerning the
meaning, interpretation, or application of any provision of the Plan. The
Committee's interpretations and determinations with respect to the Plan and the
Trust Agreement shall be based on such information as is reasonably available to
the Committee at the time a decision is made. In addition, in administering the
Plan, the Committee may rely conclusively upon an Affiliated Company's payroll
and personnel records maintained in the ordinary course of business.
Sec. 14.6 Committee Member's Abstention in Cases Involving Own Rights.
Notwithstanding any other provision of this Article XIV, no Committee member
60
shall vote or act upon any matter involving his own rights, benefits, or
participation in the Plan.
Sec. 14.7 Counsel to Committee. The Committee may engage agents to assist
it and may engage legal counsel who may be legal counsel for the Company. All
reasonable expenses incurred by the Committee may be paid from the Trust Fund.
Sec. 14.8 Indemnification of Employees and Directors. The Company hereby
indemnifies each member of the Committee and each employee, officer and director
of an Affiliated Company who are delegated responsibilities under or pursuant to
the Plan against any and all liabilities and expenses, including attorneys'
fees, actually and reasonably incurred by them in connection with any
threatened, pending or completed legal action or judicial or administrative
proceeding to which they may be a party, or may be threatened to be made a
party, by reason of membership on the Committee or other delegation of
responsibilities, except with regard to any matters as to which they shall be
adjudged in such action or proceeding to be liable for gross negligence or
willful misconduct in connection therewith. In addition, the Company may provide
appropriate insurance coverage for the members of the Committee or each such
other individual indemnified pursuant to this Section 14.8 who is not otherwise
appropriately insured.
Sec. 14.9 Action Taken in Good Faith. To the extent permitted by ERISA, the
members of the Committee and each employee, officer and director of an
Affiliated Company who are fiduciaries with respect to the Plan shall be
entitled to rely upon, and be fully protected with respect to any action taken
or suffered by them in good faith in reliance upon, all tables, valuations,
certificates, reports and opinions furnished by the Recordkeeper, the Trustee,
or any accountant, attorney, insurance company or investment manager acting at
any time hereunder.
ARTICLE XV
MISCELLANEOUS
-------------
Sec. 15.1 No Employment or Compensation Agreement. Nothing contained in the
Plan shall be construed as giving any person or entity any legal or equitable
right against the Company, any Employer, any Affiliated Company, their
stockholders or partners, officers or directors, the Named Fiduciary, the
61
Committee, the Administrator, the Trustee or the Recordkeeper, except as the
same shall be specifically provided in the Plan. The 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. Nor shall anything in the Plan give any Participant or other Employee
the right to be retained in the service of any 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 in the Plan. The employment of all persons by any Employer shall
remain subject to termination by that Employer to the same extent as if the Plan
had never been executed.
Sec. 15.2 Spendthrift Provision. Except (i) as provided by the terms of a
domestic relations order which is determined to be qualified under Section
414(p) of the Code, or (ii) as permitted pursuant to Section 401(a)(13) of the
Code and Section 206(d) of ERISA, no Participant, Former Participant, or
Beneficiary shall have the right to assign, alienate or transfer his interest
hereunder, nor shall his interest be subject to claims of his creditors or
others, it being understood that all provisions of the Plan shall be for the
exclusive benefit of those designated herein.
Sec. 15.3 Construction. It is the intention of each Employer that the Plan
be qualified under Section 401 of the Code and comply with the applicable
provisions of ERISA, and all provisions hereof should be construed to that
result.
Sec. 15.4 Titles. Titles of Articles and Sections hereof are for
convenience only and shall not be considered in construing the Plan.
Sec. 15.5 Texas Law Applicable. The Plan and each of its provisions shall
be construed and their validity determined by the laws of the State of Texas to
the extent not preempted by ERISA or other applicable federal law.
Sec. 15.6 Successors and Assigns. The Plan shall be binding upon the
successors and assigns of the Company and each Employer and the Trustee and upon
the heirs and personal representatives of those individuals who become
Participants hereunder.
62
Sec. 15.7 Allocation of Fiduciary Responsibility by Named Fiduciary. A
fiduciary with respect to the Plan, as described in Section 3(21) of ERISA,
shall only have those specific powers, duties, responsibilities and obligations
as are explicitly given such fiduciary under the terms of the Plan and the Trust
Agreement or allocated to such fiduciary pursuant to the procedures set forth
herein. The Named Fiduciary may, by written instrument, allocate some or all of
its responsibilities to another fiduciary, including the Trustee, or designate
another person to carry out some or all of its fiduciary responsibilities. Each
fiduciary to whom responsibilities are allocated by the Named Fiduciary will be
furnished a copy of the Plan and their acceptance of such responsibility will be
made by agreeing in writing to act in the capacity designated. It is intended
that each fiduciary shall be responsible only for the proper exercise of his own
powers, duties, responsibilities and obligations under the Plan and shall not be
responsible for any act or failure to act of another fiduciary. The Named
Fiduciary shall not be liable for an act or omission of any person (who is
allocated a fiduciary responsibility or who is designated to carry out such
responsibility) in carrying out a fiduciary responsibility except to the extent
that with respect to the allocation or designation, continuation thereof, or
implementation or establishment of the allocation or designation procedures the
Named Fiduciary (i) did not perform all of his duties and responsibilities and
exercise his powers hereunder with the care, skill, prudence, and diligence
under the circumstances then prevailing that a prudent man acting in like
capacity and familiar with such matters would use in the conduct of an
enterprise of like character and with like aims, (ii) knowingly participates in
or knowingly undertakes to conceal an act or omission of another fiduciary of
the Plan, with the knowledge that such act or omission is a breach of fiduciary
responsibility, (iii) did not make reasonable efforts under the circumstances to
remedy a breach of fiduciary responsibility of which the Named Fiduciary has
knowledge, or (iv) did not carry out its specific responsibilities, in
accordance with the standard set forth in (i) above, and as a result, it has
enabled another fiduciary of the Plan to commit a breach. Any person or group of
persons may serve in more than one fiduciary capacity with respect to the Plan.
Sec. 15.8 Expenses of Administration. Except to the extent paid by an
Employer or prohibited by ERISA, the Administrator shall cause the Trustee to
pay from the assets of the Plan, including from the unallocated forfeitures as
63
provided in Section 10.5, all expenses incurred in the administration of the
Plan, including expenses of the Committee, the Recordkeeper and the
Administrator, and expenses and compensation of the Trustee and the expenses of
counsel. The Employer shall pay all brokerage commissions, taxes and other costs
incident to the purchase and sale of securities.
Sec. 15.9 Plan Controls. The Trust Agreement is a part of the Plan. In case
of any inconsistency between the terms of the Plan and the Trust Agreement, the
provisions of the Plan shall control. In the event of any conflict between the
terms of the Plan and any summary thereof or other document relating thereto,
from whatever source, the terms of the Plan shall govern.
Sec. 15.10 Effect of Mistakes. In the event of a mistake or misstatement as
to the age or eligibility of any person, or the amount of any kind of
contributions, withdrawals or distributions made or to be made to a Participant,
or other person, the Administrator shall, to the extent it deems possible, make
such adjustment as will in its judgment afford to such person the credits,
distributions or other rights to which he is properly entitled under the Plan.
Sec. 15.11 Operation of the Plan; Permitted Corrections. The Company
intends to operate and administer the Plan as a tax-qualified retirement plan
under Section 401(a) of the Code. In the event that the Administrator determines
that the operation of the Plan or the form of the Plan, or both, fails to comply
in any respect with the applicable requirements of the Code, the Company may
take whatever action it deems necessary and appropriate under the circumstances
to comply with its intent to maintain the Plan as a tax-qualified retirement
plan, including corrections made pursuant to, or consistent with the purposes
of, the Employee Plans Compliance Resolution System, as set forth in Revenue
Procedure 2006-27 issued by the Internal Revenue Service, as the principles of
such Revenue Procedure may be modified or expanded from time to time, or any
other correction procedures available generally to the Company with respect to
the Plan. The Administrator also is permitted to take any action it deems
necessary and appropriate under the circumstances to make corrections under the
Voluntary Fiduciary Correction Program established by the Department of Labor
and/or to assist another Plan fiduciary in connection with its compliance
actions under such program.
64
ARTICLE XVI
ADOPTION BY AFFILIATED COMPANIES
--------------------------------
Sec. 16.1 Transfer of Employment to Another Employer. When an Employee's
employment with any Employer is terminated, but such Employee continues to be a
Participant by reason of continued employment by another Employer, the
Participant concerned shall not be considered to have changed Employers for
purposes of determining the Participant's eligibility, vesting rights,
participation, and Plan benefits. An Employee who was a Participant when so
transferred, and who is otherwise an eligible Employee, shall continue as a
Participant in the Plan as adopted by his new Employer (whether the Company or
another Employer) and shall continue without any requirement or re-enrollment
unless otherwise required by the Plan. In such event, all notices, elections,
designations, directions and the like theretofore made shall continue in effect.
All interests then credited to the Participant shall constitute interests
credited to the Participant under the Plan as adopted by his new Employer
(whether the Company or another Employer). Employer contributions shall, subject
to the terms and limitations of the Plan, continue to be made by the
Participant's new Employer (whether the Company or another Employer). Any
portion of his Individual Account which is forfeited shall be allocated to the
Individual Accounts of Participants who are Employees of the Employer which
originally made the contributions so forfeited.
Sec. 16.2 Contributions and Forfeitures. Each Participant shall have his
Individual Account credited with his share of his former Employer's
contributions and with his share of his new Employer's contributions. The Annual
Compensation received by such Participant from each Employer during the portion
of the Year employed by an Employer shall constitute the basis for his
allocation of that particular Employer's contribution. Forfeitures shall be
applied as provided in Section 10.5 only for the benefit of the Participants
employed by the Employer for whom the Participant works or last worked at the
time the forfeiture occurs.
Sec. 16.3 Transfers of Employment Between Affiliated Companies. If an
Employee of one Affiliated Company transfers to the employment of another
Affiliated Company and such Affiliated Company has a comparable plan and trust
agreement, the Trustee of each plan and trust shall make suitable arrangements
65
for the transfer of the assets held in his Individual Account from the Plan of
the former employer to the plan of the successor employer. The Employee will be
granted credit for Years of Service (Vesting) with the former employer and will
not be deemed to have terminated his employment. Annual Compensation from the
former employer will be considered to be Annual Compensation from the successor
employer.
If an Employee participating in the Plan transfers to the employment of an
Affiliated Company which does not have a comparable plan in force, he shall not
be deemed to have terminated employment with the Employer. The value of his
Individual Account will be held for his benefit until he terminates employment
with all Affiliated Companies, dies or retires in accordance with Article VII,
at which time the value of his Individual Account will be distributed to him or
his Beneficiary as provided elsewhere herein. No further Employer contributions
will be made on his behalf, but he will be granted credit for Years of Service
(Vesting) with the Affiliated Company. In the event that he is reemployed by an
Employer, he shall immediately become a Participant in the Plan.
Sec. 16.4 Action by Company. The Employers delegate to the Company the
authority to amend the Plan, remove the Trustee, Administrator and Recordkeeper
or a Committee member, appoint a new or additional Trustee or Committee member,
appoint a new Administrator or Recordkeeper, or take all other actions
concerning the Plan without joinder or approval of the other Employers.
Sec. 16.5 Termination of Employer's Status as Affiliated Company.
Termination of an Employer's status as an Affiliated Company other than by
merger or liquidation into the Company shall terminate the Plan and the Trust
Agreement as adopted by such Employer unless, and except to the extent that, the
governing body of the Company shall adopt a resolution consenting to the
continuance of the Plan and the Trust Agreement as adopted by the Employer,
specifying conditions therefor, such as amendments to the Plan and the Trust
Agreement as adopted by the Employer and the investment in, disposition or
distribution of Parent Company Stock, and the governing body of the Employer
shall consent to and adopt such conditions, investments and the like.
66
ARTICLE XVII
THE TRUSTEE
-----------
Sec. 17.1 Trust Fund. A Trust Fund has been created and will be maintained
for the purposes of the Plan, and the monies thereof will be invested in
accordance with the terms of the Plan and the Trust Agreement which forms a part
of the Plan. All Employer contributions will be paid into the Trust Fund, and
all benefits under the Plan will be paid from the Trust Fund.
Sec. 17.2 Trustee's Duties. Except as otherwise specifically provided in
the Trust Agreement, the Trustee's obligations, duties and responsibilities are
governed solely by the terms of the Trust Agreement, reference to which is
hereby made for all purposes.
Sec. 17.3 Benefits Only from Trust Fund. Any person having any claim under
the Plan will look solely to the assets of the Trust Fund for satisfaction. In
no event will any Employer or any of its officers, Employees, agents, members of
its governing body, the Trustee, any successor trustee, the Administrator, the
Recordkeeper or any member of the Committee, be liable in their individual
capacities to any person whomsoever, under the provisions of the Plan or the
Trust Agreement, absent a breach of fiduciary responsibility determined pursuant
to the applicable provisions of ERISA.
Sec. 17.4 Trust Fund Applicable Only to Payment of Benefits. The Trust Fund
will be used and applied only in accordance with the provisions of the Plan, to
provide the benefits thereof, except as provided in Section 15.8 regarding
payment of administrative expenses, and no part of the corpus or income of the
Trust Fund will be used for, or diverted to, purposes other than for the
exclusive benefit of the Participants and other persons thereunder entitled to
benefits.
Sec. 17.5 Texas Trust Code. Although it is intended that the foregoing
powers of the Trustee be applicable hereunder, it is also intended that all
provisions of the Texas Trust Code, and any amendments thereto, not inconsistent
with the above enumerated powers or other provisions of the Plan, shall be
applicable in the administration of the Trust Fund.
Sec. 17.6 Voting Rights. Effective April 1, 2007, at each annual or special
meeting of the stockholders of Capital Southwest Corporation or by actions taken
67
without a meeting, each Participant, Former Participant and Beneficiary shall be
entitled to direct the Trustee as to the manner in which the Parent Company
Stock which is entitled to vote and which is allocated to the Parent Company
Stock Account of such Participant, Former Participant or Beneficiary is to be
voted. If the Trustee does not timely receive voting directions from a
Participant, Former Participant or Beneficiary with respect to any shares of
Parent Company Stock allocated to that Participant's, Former Participant's or
Beneficiary's Parent Company Stock Account, the Trustee shall vote such shares
of Parent Company Stock or refrain from voting any or all such shares of Parent
Company Stock held in the Trust Fund in such manner as deemed, in the Trustee's
sole discretion, to be in the best interest of the Participants, Former
Participants and Beneficiaries. Prior to April 1, 2007, the Trustee was entitled
to vote or refrain from voting any and all shares of Parent Company Stock held
in the Trust Fund in such manner as deemed, in the Trustee's sole discretion, to
be in the best interest of the Participants, Former Participants and
Beneficiaries. The Administrator may from time to time direct the Trustee as to
the manner of voting such shares described in the preceding sentences, and the
Trustee shall follow such instructions and shall bear no responsibility for the
propriety of the decisions of the Administrator.
ARTICLE XVIII
INVESTMENTS
-----------
Sec. 18.1 Investment of Contributions and Trust Assets. All Employer
contributions in cash and any other cash received by the Trust Fund attributable
to Employer contributions under the Plan, including dividends, will first be
used to pay current obligations of the Trust Fund, and any excess will be used
either to pay other obligations of the Trust Fund, to buy Parent Company Stock
from holders of outstanding stock or newly issued or treasury stock or to make
other prudent investments; provided, however, that at all times the Trustee
shall attempt to invest 100% of the Trust Fund assets in Parent Company Stock
consistent with market availability or other conditions. Qualified Participants
may direct the Trustee as to the portion of their Individual Account to be
distributed as provided in Section 18.2. The Administrator may from time to time
68
direct the Trustee as to the extent of investment in Parent Company Stock and
the Trustee shall follow such instructions and shall bear no responsibility for
the propriety of the investment decision of the Administrator. All purchases of
Parent Company Stock shall be made at a price, or at prices, which in the
judgment of the Trustee do not exceed the fair market value of such shares of
Parent Company Stock, which may be above the quoted market price on a national
securities exchange or in the over-the-counter market. If no current obligations
of the Trust Fund are outstanding and unpaid and the Trustee determines that it
is in the best interest of the Trust Fund, the Trustee may invest funds of the
Trust Fund temporarily in securities issued or guaranteed by the United States
of America or any agency thereof, in certificates of deposit, or in short-term
commercial paper, or such funds may be held temporarily in cash.
Sec. 18.2 Diversification of Investments by Qualified Participants.
Effective for Years beginning after March 31, 2007, based on a
non-discriminatory policy and procedures adopted by the Committee, each
Qualified Participant may, subject to and in accordance with this Section 18.2,
elect within the 90-day period immediately after the close of each Year during
that Qualified Participant's Qualified Election Period to diversify the
investment of up to 25 percent of the total number of shares of Parent Company
Stock acquired by or contributed to the Plan that have ever been allocated to
such Qualified Participant's Parent Company Stock Account as of the last day of
each of the first five Years in his Qualified Election Period (reduced by the
number of shares of Parent Company Stock covered by his prior actual
diversification election or elections). In each case the resulting number of
shares of Parent Company Stock determined to be subject to a Qualified
Participant's diversification election for a Year during that Qualified
Participant's Qualified Election Period shall be rounded to the nearest whole
integer. In the case of the election year in which the last election can be made
by the Qualified Participant, the preceding sentence shall be applied by
substituting "50 percent" for "25 percent."
If a Qualified Participant timely elects to diversify the investment of the
eligible portion of his Parent Company Stock Account, the Administrator shall
direct the Trustee to distribute to the Participant no later than 180 days after
the close of the Year to which such diversification election applies from his
Parent Company Stock Account the number of shares of Parent Company Stock with
respect to which he is eligible to and actually elects to diversify the
investment of his Parent Company Stock Account. The Participant shall be
69
notified of his direct rollover rights under Section 11.11 with respect to the
shares of Parent Company Stock to be distributed to him pursuant to his
diversification election.
ARTICLE XIX
TOP HEAVY PROVISIONS
--------------------
Sec. 19.1 Minimum Allocation Requirements. Notwithstanding the provisions
of Section 4.3, for any Year in which the Plan is a Top Heavy Plan and no other
plan is maintained by an Employer or an Affiliated Company that provides the
minimum benefit applicable to top heavy plans within the meaning of Section
416(g) of the Code, the requirement for 1,000 Hours of Service shall not apply
and Employer contributions and forfeitures (excluding Employer contributions to
Social Security) which are allocated to any Participant who on the last day of
the Year is a Non-Key Employee who has satisfied the eligibility requirements of
Section 2.1, shall not be less than the lesser of (i) three percent of such
Participant's Annual Compensation [as defined in Section 5.2(f)] or (ii) the
largest percentage of Employer contributions, as a percentage of the amount of
the Annual Compensation [as defined in Section 5.2(f)] of Participants who are
Key Employees, but not in excess of the Compensation Limitation as defined in
Section 1.6 allocated to any such Participant who is a Key Employee for that
Year; provided, however, if the Employer maintains a defined benefit plan which
designates the Plan to satisfy Section 401 or 410 of the Code, (ii) above shall
not apply.
Sec. 19.2 Vesting Schedule. Notwithstanding the provisions of Section 10.2,
beginning with the first Year in which the Plan is a Top Heavy Plan, the
following provisions shall be applicable to Section 10.2:
(a) Except as provided in Section 19.2(b) below, each Participant shall be
entitled (as a vested interest) to receive the greater of the vested
interest calculated pursuant to Article X or a percentage of the then
combined balance to his credit in his Parent Company Stock Account and
70
Other Investments Account determined in accordance with the following
schedule:
Years of Service (Vesting) Vested Interest
-------------------------- ---------------
Less than 3 0%
3 or more 100%
(b) The schedule in Section 19.2(a) above shall not apply to the Individual
Account of any Participant who does not perform an Hour of Service after
the Determination Date on which the Plan first became a Top Heavy Plan; any
such Participant's vested interest in his Parent Company Stock Account and
Other Investments Account shall be determined by applying the schedule in
Section 10.2 of the Plan as applicable to the Plan prior to the
Determination Date on which the Plan first became a Top Heavy Plan. This
Section 19.2 shall not apply for any Year beginning after March 31, 2007.
Sec. 19.3 Definitions.
(a) "Determination Date" means for any Year the Anniversary Date of the
preceding Year, or in the case of the first Year of the Plan, the
Anniversary Date of that Year.
(b) "Key Employee" means for Years beginning after March 31, 2007, as of any
Determination Date, any Employee or former Employee (or Beneficiary of such
Employee) of an Employer who, at any time during the Year which includes
the Determination Date, is:
(i) an officer of any Employer having Annual Compensation [as defined in
Section 5.2(f)] greater than $145,000 [as adjusted under Section
416(i)(1) of the Code for Years beginning after March 31, 2008];
(ii) a more than five-percent owner of any Employer; or
(iii) a more than one percent owner of any Employer having Annual
Compensation [as defined in Section 5.2(f)] from all Employers of more
than $150,000.
71
For purposes of subsection (b)(i), no more than 50 Employees (or, if
lesser, the greater of three or ten percent of the Employees of all
Employers) shall be treated as officers. The constructive ownership rules
of Section 318 of the Code (or the principles of that section, in the case
of an unincorporated Employer) will apply to determine ownership in each
Employer.
(c) "Non-Key Employee" means any Employee who is not a Key Employee.
(d) "Permissive Aggregation Group" means the Required Aggregation Group plus
any other qualified plan or plans maintained by an Employer which, when
considered as a group with the Required Aggregation Group, would continue
to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
(e) "Required Aggregation Group" means (i) each qualified plan of an Employer
in which at least one Key Employee participates or participated at any time
during the determination period (regardless of whether the plan has
terminated), and (ii) any other qualified plan of an Employer which enables
a plan described in (i) to meet the requirements of Sections 401(a)(4) or
410 of the Code.
(f) "Top Heavy Plan" means the Plan (i) if the Plan is not part of a Required
Aggregation Group or a Permissive Aggregation Group and the Top Heavy Ratio
for the Plan as of the Determination Date exceeds 60 percent, (ii) if the
Plan is part of a Required Aggregation Group but not part of a Permissive
Aggregation Group and the Top Heavy Ratio for the group of plans exceeds 60
percent, or (iii) if the Plan is part of a Required Aggregation Group and
part of a Permissive Aggregation Group and the Top Heavy Ratio for the
Permissive Aggregation Group exceeds 60 percent.
(g) "Top Heavy Ratio" means"
(i) If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer has
not maintained any defined benefit plan which during the one-year
period (five-year period in determining whether the plan is top heavy
for Years beginning before January 1, 2002) ending on the
Determination Date(s) has or has had accrued benefits, the Top Heavy
72
Ratio for the Plan alone or for the Required Aggregation Group or
Permissive Aggregation Group, as appropriate, is a fraction, the
numerator of which is the sum of the account balances of all Key
Employees as of the Determination Date(s) (including any part of any
account balance distributed in the one-year period ending on the
Determination Date in the case of a distribution made for a reason
other than severance from employment, death or Disability and in
determining whether the Plan is a Top Heavy Plan for Years beginning
before January 1, 2002), and the denominator of which is the sum of
all account balances (including any part of any account balance
distributed in the one-year period ending on the Determination
Date(s)) (five-year period ending on the Determination Date in the
case of a distribution made for a reason other than severance from
employment, death or Disability and in determining whether the Plan is
a Top Heavy Plan for Years beginning before January 1, 2002), both
computed in accordance with Section 416 of the Code and the Treasury
regulations thereunder. Both the numerator and denominator of the Top
Heavy Ratio are increased to reflect any contribution not actually
made as of the Determination Date, but which is required to be taken
into account on that date under Section 416 of the Code and the
Treasury regulations thereunder.
(ii) If the Employer maintains one or more defined contribution plans
(including any simplified employee pension plan) and the Employer
maintains or has maintained one or more defined benefit plans which
during the one-year period (five-year period in determining whether
the Plan is a Top Heavy Plan for Years beginning before January 1,
2002) ending on the Determination Date(s) has or has had any accrued
benefits, the Top Heavy Ratio for any Required Aggregation Group or
Permissive Aggregation Group, as appropriate, is a fraction, the
numerator of which is the sum of account balances under the aggregated
defined contribution plan or plans for all Key Employees, determined
in accordance with subsection (g)(i) above, and the present value of
73
accrued benefits under the aggregated defined benefit plan or plans
for all Key Employees as of the Determination Date(s), and the
denominator of which is the sum of the account balances under the
aggregated defined contribution plan or plans for all participants,
determined in accordance with subsection (g)(i) above, and the present
value of accrued benefits under the defined benefit plan or plans for
all participants as of the Determination Date(s), all determined in
accordance with Section 416 of the Code and the Treasury regulations
thereunder. The accrued benefits under a defined benefit plan in both
the numerator and denominator of the Top Heavy Ratio are increased for
any distribution of an accrued benefit made in the one-year period
ending on the Determination Date (five-year period ending on the
determination date) in the case of a distribution made for a reason
other than severance from employment, death or Disability and in
determining whether the Plan is a Top Heavy Plan for Years beginning
before January 1, 2002).
(iii) For purposes of subsection (g)(i) and (ii) above the value of account
balances and the present value of accrued benefits will be determined
as of the most recent valuation date that falls within or ends with
the 12-month period ending on the Determination Date, except as
provided in Section 46 of the Code and the Treasury regulations
thereunder for the first and second plan years of a defined benefit
plan of a Participant (A) who is not a Key Employee but who was a Key
Employee in a prior year, or (B) who has not been credited with at
least one Hour of Service with any Employer maintaining the Plan at
any time during the one-year period (five-year period in determining
whether the Plan is a Top Heavy Plan for Years beginning before
January 1, 2002) ending on the Determination Date will be disregarded.
The calculation of the Top Heavy Ratio, and the extent to which
distributions, rollovers, and transfers are taken into account will be
made in accordance with Section 416 of the Code and the Treasury
regulations thereunder. Deductible employee contributions will not be
taken into account for purpose of computing the Top Heavy Ratio. When
74
aggregating plans the value of account balances and accrued benefits
will be calculated with reference to the Determination Dates that fall
within the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall
be determined under (A) the method, if any, that uniformly applies for
accrual purposes under all defined benefit plans maintained by the
Employer, or (B) if there is not such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Section 411(b)(1)(C) of the Code.
IN WITNESS WHEREOF, The RectorSeal Corporation, the Company, acting by and
through its duly authorized officers, has caused this revised and restated Plan
to be executed as of the day and year first above written.
THE RECTORSEAL CORPORATION
By
------------------------
Exhibit 10.2
RETIREMENT PLAN FOR EMPLOYEES OF
CAPITAL SOUTHWEST CORPORATION AND ITS AFFILIATES
As Amended and Restated Effective April 1, 2006
Capital Southwest Corporation
Dallas, Texas
TABLE OF CONTENTS
Section Page
DEFINITIONS: PARTICIPATION
1.1 - Definitions.........................................................1-1
1.2 - Participation......................................................1-21
1.3 - Leave of Absence and Termination of Service........................1-22
1.4 - Reemployment.......................................................1-25
1.5 - Transfer to or From Status as an Eligible Employee.................1-34
1.6 - Participation and Benefits for Former Leased Employees.............1-37
1.7 - Rights of Other Employers to Participate...........................1-38
1.8 - Service and Termination of Service.................................1-40
NORMAL AMOUNT AND PAYMENT OF RETIREMENT INCOME
2.1 - Normal Retirement and Retirement Income.............................2-1
2.2 - Early Retirement and Retirement Income..............................2-5
2.3 - Disability Retirement and Retirement Income.........................2-6
2.4 - Benefits Other Than on Retirement..................................2-11
SPECIAL PROVISIONS REGARDING PAYMENT OF BENEFITS
3.1 - Optional Forms of Retirement Income.................................3-1
3.2 - Lump-Sum Payment of Small Retirement Income.........................3-7
3.3 - Benefits Applicable to Participant Who Has Been
or Is Employed by Two or More Employers.............................3-8
3.4 - No Duplication of Benefits..........................................3-9
3.5 - Funding of Benefits Through Purchase of
Life Insurance Contract or Contracts................................3-9
GOVERNMENTAL REQUIREMENTS AFFECTING BENEFITS
4.1 - Special Provisions Regarding Amount and
Payment of Retirement Income........................................4-1
4.2 - Limitations on Benefits Required
by the Internal Revenue Service....................................4-20
4.3 - Benefits Nonforfeitable if Plan Is Terminated......................4-22
4.4 - Merger of Plan.....................................................4-23
4.5 - Termination of Plan and Distribution of Trust Fund.................4-23
4.6 - Special Provisions that Apply if Plan is Top-Heavy.................4-29
4.7 - Transfers..........................................................4-37
4.8 - Minimum Distribution Requirements..................................4-38
MISCELLANEOUS PROVISIONS REGARDING PARTICIPANTS
5.1 - Participants to Furnish Required Information........................5-1
5.2 - Beneficiaries.......................................................5-2
TABLE OF CONTENTS
(continued)
Section Page
5.3 - Contingent Beneficiaries............................................5-3
5.4 - Participants' Rights in Trust Fund..................................5-4
5.5 - Benefits Not Assignable.............................................5-4
5.6 - Benefits Payable to Minors and Incompetents.........................5-5
5.7 - Conditions of Employment Not Affected by Plan.......................5-6
5.8 - Notification of Mailing Address.....................................5-6
5.9 - Written Communications Required.....................................5-7
5.10 - Benefits Payable at Office of Trustee...............................5-7
5.11 - Appeal to Committee.................................................5-8
MISCELLANEOUS PROVISIONS REGARDING THE EMPLOYER
6.1 - Contributions.......................................................6-1
6.2 - Employer's Contributions Irrevocable................................6-1
6.3 - Forfeitures.........................................................6-2
6.4 - Amendment of Plan...................................................6-2
6.5 - Termination of Plan.................................................6-4
6.6 - Expenses of Administration..........................................6-5
6.7 - Formal Action by Employer...........................................6-5
ADMINISTRATION
7.1 - Administration by Committee.........................................7-1
7.2 - Officers of Committee; Service Providers............................7-2
7.3 - Action by Committee.................................................7-2
7.4 - Rules and Regulations of Committee..................................7-3
7.5 - Powers of Committee.................................................7-3
7.6 - Duties of Committee.................................................7-4
7.7 - Indemnification of Certain Fiduciaries..............................7-5
7.8 - Actuary.............................................................7-5
7.9 - Fiduciaries.........................................................7-6
7.10 - Applicable Law......................................................7-8
TRUST FUND
8.1 - Purpose of Trust Fund...............................................8-1
8.2 - Benefits Supported Only by Trust Fund...............................8-1
8.3 - Trust Fund Applicable Only to Payment of Benefits...................8-1
First Supplement
RETIREMENT PLAN FOR EMPLOYEES OF
CAPITAL SOUTHWEST CORPORATION AND ITS AFFILIATES
As Amended and Restated Effective April 1, 2006
INTRODUCTION
Capital Southwest Corporation adopted and established a retirement plan,
called the Capital Southwest Corporation Retirement Plan, for the benefit of its
eligible employees effective as of April 1, 1966. Effective as of April 1, 1972,
the Comprehensively Amended Retirement Plan for Employees of Capital Southwest
Corporation was adopted by Capital Southwest Corporation as an amendment and
restatement of the aforementioned retirement plan and, in conjunction therewith,
the Retirement Trust for Employees of Capital Southwest Corporation was adopted
as an amendment and restatement of the original trust agreement. Effective as of
January 1, 1974, Capital Southwest Corporation amended and restated the
aforementioned Comprehensively Amended Retirement Plan for Employees of Capital
Southwest Corporation in its entirety as set forth in an instrument known as the
Retirement Plan for Employees of Capital Southwest Corporation and, in
conjunction therewith, the aforementioned Retirement Trust for Employees of
Capital Southwest Corporation was amended and restated in its entirety as set
forth in a trust agreement of the same title. The said Retirement Plan for
Employees of Capital Southwest Corporation and Retirement Trust for Employees of
Capital Southwest Corporation were subsequently amended and restated in their
entirety effective as of April 1, 1976, as set forth in instruments of the same
titles. Capital Southwest Management Corporation was formed as a subsidiary of
Capital Southwest Corporation in December of 1986, and effective as of January
1, 1987, the employees of Capital Southwest Corporation were transferred to, and
-2-
became employees of, Capital Southwest Management Corporation which, as the
successor employer of such employees, continued the aforementioned retirement
plan on their behalf.
The Whitmore Manufacturing Company under date of July 14, 1961 entered into
a trust agreement whereby it established a retirement plan and trust for certain
of its employees, and under date of April 14, 1965 entered into another trust
agreement whereby it established a different retirement plan and trust for
certain of its other employees. The retirement plans set forth in such trust
agreements were known as The Whitmore Manufacturing Company Retirement Plan and
The Whitmore Manufacturing Company Hourly Rate Pension Plan, respectively.
Effective as of March 1, 1976, the trust agreements setting forth the provisions
of the aforementioned retirement plans were amended and restated, and such
amended and restated retirement plans were subsequently known as The Whitmore
Manufacturing Company Revised Retirement Plan and The Whitmore Manufacturing
Company Revised Hourly Rate Pension Plan, respectively. Effective as of March 1,
1980, the said The Whitmore Manufacturing Company Revised Retirement Plan and
The Whitmore Manufacturing Company Revised Hourly Rate Pension Plan were again
amended and restated, and were consolidated into a single plan and trust, known
as the Retirement Plan for Employees of The Whitmore Manufacturing Company and
the Retirement Trust for Employees of The Whitmore Manufacturing Company.
The Retirement Plan for Employees of The Rectorseal Corporation was adopted
by The RectorSeal Corporation effective as of April 1, 1976, as an amendment and
restatement of the retirement plan and trust which it had originally established
for the benefit of its eligible employees effective as of January 1, 1972. The
said Retirement Plan for Employees of The Rectorseal Corporation was
subsequently amended and restated in its entirety effective as of April 1, 1984,
as set forth in an instrument of the same title.
The Retirement Plan for Employees of Jet-Lube, Inc. was adopted by
Jet-Lube, Inc. effective as of April 1, 1976 as an amendment and restatement of
-3-
the retirement plan and trust which it had originally established for the
benefit of its eligible employees effective as of June 13, 1973. The said
Retirement Plan for Employees of Jet-Lube, Inc. was subsequently amended and
restated in its entirety effective as of April 1, 1984, as set forth in an
instrument of the same title.
The aforementioned Retirement Plan for Employees of Capital Southwest
Corporation and Retirement Trust for Employees of Capital Southwest Corporation,
Retirement Plan for Employees of The Whitmore Manufacturing Company and
Retirement Trust for Employees of The Whitmore Manufacturing Company, Retirement
Plan for Employees of The Rectorseal Corporation and Retirement Plan for
Employees of Jet-Lube, Inc. have subsequently been amended from time to time,
and said retirement plans and trust agreements were further amended and restated
in their entirety effective as of April 1, 1989 as set forth in an instrument
known as the Retirement Plan for Employees of Capital Southwest Corporation and
Its Affiliates, and in a trust agreement, titled Retirement Trust for Employees
of Capital Southwest Corporation and Its Affiliates. In conjunction with such
amendment and restatement, said retirement plans were consolidated and merged,
effective as of April 1, 1989, into a "single plan" within the meaning of
Section 414(l) of the Internal Revenue Code and regulations issued pursuant
thereto. Said retirement plan, as amended and restated effective as of April 1,
1989, contained special provisions for certain employees whose service commenced
prior to such date as set forth in a supplement thereto which was identified as
the "First Supplement to Retirement Plan for Employees of Capital Southwest
Corporation and Its Affiliates as Amended and Restated Effective April 1, 1989."
The said Retirement Plan for Employees of Capital Southwest Corporation and
Its Affiliates has subsequently been amended from time to time, and said
retirement plan is being further amended and is being restated in its entirety
effective as of April 1, 2006 set forth in this instrument.
-4-
The aforementioned First Supplement to Retirement Plan for Employees of
Capital Southwest Corporation and Its Affiliates as in effect on April 1, 1989
shall be attached to and made a part of the plan as amended and restated
effective April 1, 2006, and all references to the "plan" in said supplement
shall on and after April 1, 2006 refer to the plan as amended and restated
effective April 1, 2006 set forth herein and references in said supplement to
specified sections in the plan shall refer to the corresponding sections in the
amended and restated plan even though the corresponding section in the amended
and restated plan may not have the same section number that is specified in said
supplement.
Subject to receipt by the aforementioned Employers of a favorable ruling
that the qualified status of the Retirement Plan for Employees of Capital
Southwest Corporation and Its Affiliates and the Retirement Trust for Employees
of Capital Southwest Corporation and Its Affiliates under Sections 401(a) and
501(a) of the Internal Revenue Code is not adversely affected by such amendment
and restatement, each person who becomes a participant hereunder shall be
entitled upon his retirement or termination of service to such benefits as are
specified in the provisions which follow.
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SECTION 1
DEFINITIONS: PARTICIPATION
1.1 - DEFINITIONS
(A) The following terms as used herein shall have the meanings stated below
unless a different meaning is plainly required by the context:
(1) "Accrued Deferred Monthly Retirement Income Commencing at Normal
Retirement Date" shall mean the monthly retirement income, payable in
the manner described in Section 2.1(C) hereof commencing at the
Participant's Normal Retirement Date, which he has accrued as of a
given date and, with respect to any given date on or after April 1,
1998 and prior to April 1, 2007, shall be equal to the sum of:
(a) 1.25% of his Final Average Monthly Compensation at such given
date multiplied by his number of years of Credited Service at
such given date that are not in excess of 35 years;
plus
(b) 0.65% of that portion, if any, of his Final Average Monthly
Compensation at such given date that is in excess of the Monthly
Covered Compensation that applies to him at such given date
multiplied by his number of years of Credited Service at such
given date that are not in excess of 35 years;
provided, however, that the Accrued Deferred Monthly Retirement Income
Commencing at Normal Retirement Date which a Participant has accrued
as of a given date shall not exceed an amount that is actuarially
equivalent as of such given date to the maximum amount of retirement
income permitted under Section 415 of the Internal Revenue Code; and
provided further, however, that the provisions of Section 4.6 hereof
shall apply in determining the Accrued Deferred Monthly Retirement
Income Commencing at Normal Retirement Date of a Participant who has
accrued Vesting Service during any Plan Year that the Plan is
top-heavy.
Notwithstanding the foregoing provisions of this Section 1.1(A)(1),
the Accrued Deferred Monthly Retirement Income Commencing at Normal
Retirement Date of a Participant at any given date shall not be less
than the Accrued Deferred Monthly Retirement Income Commencing at
Normal Retirement Date which the Participant has
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accrued as of March 31, 1998, based upon the Participant's Credited
Service, Final Average Monthly Compensation, and Monthly Covered
Compensation (or, if applicable, the corresponding terms used to
compute his accrued benefit under the Superseded Plan) determined as
of the earlier of March 31, 1998, or the date of the Participant's
termination of service, under the provisions of the Plan and the First
Supplement then in effect.
Effective April 1, 2007, the Accrued Deferred Monthly Retirement
Income Commencing at Normal Retirement Date which a Participant has
accrued as of a given date on or after April 1, 2007, shall be equal
to the sum of:
(a) 1.20% of his Final Average Monthly Compensation at such given
date multiplied by his number of years of Credited Service at
such given date that are not in excess of 35 years;
plus
(b) 0.65% of that portion, if any, of his Final Average Monthly
Compensation at such given date that is in excess of the Monthly
Covered Compensation that applies to him at such given date
multiplied by his number of years of Credited Service at such
given date that are not in excess of 35 years.
Notwithstanding the foregoing provisions of this Section 1.1(A)(1),
the Accrued Deferred Monthly Retirement Income Commencing at Normal
Retirement Date of a Participant at any given date on or after April
1, 2007, shall not be less than the Accrued Deferred Monthly
Retirement Income Commencing at Normal Retirement Date which the
Participant has accrued as of March 31, 2007, based upon the
Participant's Credited Service, Final Average Monthly Compensation,
and Monthly Covered Compensation determined as of the earlier of March
31, 2007, or the date of the Participant's termination of service,
under the provisions of the Plan and the Supplements then in effect.
(2) "Annuity Starting Date" shall have the meaning assigned in Section
417(f) of the Internal Revenue Code and regulations issued with
respect thereto and shall be the first day of the first period for
which an amount is payable (not the actual date of payment) as an
annuity or any other form. Any auxiliary disability benefits shall be
disregarded in determining the Annuity Starting Date.
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Unless otherwise qualified by the context, the regularly scheduled
Annuity Starting Date of a Participant shall be:
(a) in the case of the benefit payable under Section 2.1 in the event
of his normal retirement, the first day of the month coincident
with or next following the date of his retirement or his Required
Beginning Date, whichever is earlier;
(b) in the case of the benefit payable under Section 2.2 in the event
of his early retirement, the first day of the month coincident
with or next following the date of his retirement;
(c) in the case of the benefit payable under Section 2.3 in the event
of his disability retirement, the date as of which his disability
retirement income payments are scheduled to start under Section
2.3(F);
(d) in the case of the benefit payable under Section 2.4(A) in the
event of termination of service with a vested benefit, the
Participant's Normal Retirement Date or, if applicable, the first
day of the month prior to his Normal Retirement Date that the
Participant has elected in accordance with the provisions of
Section 2.4(A) to start receiving the benefits to which he is
entitled under such section; and
(e) in the case of the benefit payable under Section 3.2 hereof, the
first day of the month coincident with or next following the date
of termination of the Participant's service; provided, however,
if payment is not made under Section 3.2 as of the first day of
the month coincident with or next following the date of
termination of his service but the Committee establishes, in
accordance with a uniform policy applied without discrimination,
a subsequent date as of which calculations shall be made to
determine if voluntary or involuntary cashouts shall be permitted
or required as of such subsequent date under the provisions of
Section 3.2, the Annuity Starting Date shall be such subsequent
date established by the Committee if payment is made under such
section as of such subsequent date;
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provided, however, if the Participant elects pursuant to the
provisions of Section 3.1 hereof to defer the commencement of the
benefit to which he is entitled to a date beyond the regularly
scheduled Annuity Starting Date described above, his Annuity
Starting Date shall be such later date of commencement specified
in his election.
(3) "Beneficiary" shall mean the person or persons or other entity on
whose behalf benefits may be payable under the Plan after a
Participant's death in accordance with the provisions hereof.
(4) "Break in Service" shall mean a period of severance of 12 consecutive
months or longer that immediately follows an employee's date of
termination of service and immediately precedes the date, if any, on
which he next performs an Hour of Service.
(5) "Committee" shall mean the Retirement Committee appointed from time to
time to administer the Plan pursuant to the provisions of Section 7.1
hereof.
(6) "Compensation" shall mean the sum of:
(a) the amounts actually paid to an employee by the Employer for
services rendered, as reported on the employee's Federal income
tax withholding statement (Form W-2 or its subsequent equivalent)
for the applicable calendar year, exclusive, however, of
reimbursements and other expense allowances, fringe benefits
(cash and noncash), including but not limited to automobile
allowances, taxable group life insurance and amounts that are
paid to the employee in cash in lieu of being contributed on his
behalf to a qualified defined contribution plan maintained by the
Employer, moving expenses, welfare benefits, and all other
extraordinary compensation; and
(b) the amounts, if any, that would have been includable in the
employee's Compensation under (a) above for such calendar year if
they had not been contributed on his behalf by the Employer
pursuant to a salary reduction agreement and had not been
excluded from his gross income under the provisions of Section
125 (cafeteria plans), Section 132(f)(4) (qualified
transportation fringes), or Section 402(e)(3) (cash or deferred
arrangements) of the Internal Revenue Code. Amounts under Section
125 include any amounts not available to a Participant in cash in
lieu of group health coverage because the Participant is unable
to certify that he has other health coverage; provided that such
an amount shall be treated as an amount under Section 125 only if
the Employer does not request or collect information regarding
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such Participant's other health coverage as part of the
enrollment process for the health plan.
Any provisions above to the contrary notwithstanding, the annual
Compensation of a Participant for any given calendar year or other
specified 12-consecutive-month period, which is taken into account with
respect to contributions to the Plan and to benefits accruing under the
Plan shall not exceed the maximum annual compensation that may be taken
into account under Section 401(a)(17) of the Internal Revenue Code and
regulations issued with respect thereto (the "IRC Section 401(a)(17) Annual
Compensation Limit").
The IRC Section 401(a)(17) Annual Compensation Limit with respect to any
given calendar year or other specified 12-consecutive-month period shall be
equal to $200,000 or such increased or decreased amount, as the case may
be, that applies as of the January 1 coincident with or immediately
preceding the beginning of such given calendar year or other specified
12-consecutive-month period, pursuant to the provisions of Section
401(a)(17) of the Internal Revenue Code, as amended and rules and
regulations issued with respect thereto. The $200,000 limit on annual
Compensation shall be adjusted for cost-of-living increases in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code.
Notwithstanding the foregoing, for purposes of determining benefit accruals
in a Plan Year beginning after December 31, 2001, Compensation for any
given calendar year or other specified 12-consecutive-month period
beginning before January 1, 2002 shall be limited to $200,000.
In the event that Compensation under the Plan is determined based on a
period of time that contains fewer than 12 calendar months, the IRC Section
401(a)(17) Annual Compensation Limit for that period of time shall be equal
to the IRC Section 401(a)(17) Annual Compensation Limit for the calendar
year during which such period of time begins multiplied by the fraction in
which the numerator is the number of full months in such period of time and
the denominator is 12.
Any provisions herein to the contrary notwithstanding, a Participant's
accrued benefit as of March 31, 1989 shall not be reduced due to the IRC
Section 401(a)(17) Annual Compensation Limit which was imposed under the
Superseded Plan effective as of April 1, 1989 on the amount of his
Compensation. In the event that the IRC Section 401(a)(17) Annual
Compensation Limit is reduced effective as of any date subsequent to
January 1, 1989, a Participant's accrued benefit immediately prior to the
date that such reduction becomes effective shall not be reduced due to the
reduction in such limit.
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(7) "Controlled Group Member" shall mean:
(a) the Employer;
(b) any corporation or association that is a member of a controlled
group of corporations (within the meaning of Section 1563(a) of
the Internal Revenue Code, determined without regard to Section
1563(a)(4) and Section 1563(e)(3)(C) of said Code, except that,
for the purposes of applying the limitations on benefits and
contributions that are required under Section 415 of the Internal
Revenue Code and are described in Section 4.1(A) hereof, such
meaning shall be determined by substituting the phrase "more than
50%" for the phrase "at least 80%" each place that it appears in
Section 1563(a)(1) of said Code) with respect to which the
Employer is a member;
(c) any trade or business (whether or not incorporated) that is under
common control with the Employer as determined in accordance with
Section 414(c) of the Internal Revenue Code and regulations
issued thereunder;
(d) any service or other organization that is a member of an
affiliated service group (within the meaning of Section 414(m) of
the Internal Revenue Code) with respect to which the Employer is
a member; and
(e) any other entity required to be aggregated with the Employer
pursuant to regulations under Section 414(o) of the Internal
Revenue Code.
(8) "Credited Service" shall mean the total period of an employee's
service with the Employer, computed in completed months, during the
period beginning on his Last Date of Commencement of Service and
ending on the date of his retirement or termination of service or,
where applicable, ending on such other date as is specified hereunder;
provided, however, that the following provisions shall apply with
respect to any period of such an employee's service that would be
included in his Credited Service in accordance with the provisions
above:
(a) any complete calendar month that the employee is absent from the
service of the Employer will be excluded from his Credited
Service unless he receives regular Compensation from the Employer
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for all or any portion of such calendar month and except as
otherwise provided below; and
(b) any absence due to the employee's engagement in military service
will, except as provided below, be included in his Credited
Service if such absence is covered by a leave of absence granted
by the Employer or is by reason of compulsory military service
and provided that such employee returns from such absence within
the period of time prescribed in Section 1.3 hereof; and
(c) any service that the employee accrued prior to April 1, 1976
while he was employed on a part-time basis or for a temporary job
will be excluded from his Credited Service;
and provided further, however, that the provisions of Section 1.4
hereof shall apply in the case of an employee who is reemployed with a
reinstatement of Credited Service accrued prior to his Last Date of
Commencement of Service and the provisions of Section 1.5 hereof shall
apply in the case of an employee who is transferred to or from his
status as an eligible Employee.
Any period of an employee's service prior to the Effective Date of the
Plan that was either included with or excluded from the service used
to determine his accrued retirement income under the Superseded Plan
for any reason specified under the terms of the Superseded Plan as in
effect on the day immediately preceding the Effective Date of the Plan
shall be included with or excluded from, as the case may be, his
Credited Service under the provisions of the Plan, except that any
such period of service shall not be excluded on or after April 1, 1988
from a Participant's Credited Service solely because of the fact that
it was accrued after his Normal Retirement Date.
(9) "Designated Nonparticipating Employer" shall mean:
(a) any Controlled Group Member that is not an Employer as defined
herein; and
(b) any other corporation, association, proprietorship, partnership
or other business organization that (i) is not an Employer as
defined herein and (ii) the Sponsoring Employer, by formal action
on its part in the manner described in Section 6.7 hereof,
designates on the basis of a uniform policy applied without
discrimination as a "Designated Nonparticipating Employer" for
the purposes of the Plan.
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(10) "Earliest Annuity Commencement Date" shall mean:
(a) the first day of the month coincident with or next following the
date of termination of the Participant's service if he has
satisfied the age and service requirements to be eligible for a
normal or early retirement benefit under the provisions hereof as
of such termination date; or
(b) the earliest date as of which the Participant could elect to
start receiving retirement income payments under the provisions
of Section 2.4(A) hereof if his service were terminated and he
had not satisfied the age and service requirements to be eligible
for a normal or early retirement benefit under the provisions
hereof as of such termination date.
(11) "Effective Date of the Plan" shall mean April 1, 2006 or such later
date as of which the Plan first became effective with respect to the
particular Employer concerned.
(12) "Eligibility Computation Period" shall mean the 12-consecutive-month
period that is used for the purpose of determining a year of service
for eligibility to participate in the Plan. Initially, the Eligibility
Computation Period shall be the 12-consecutive-month period beginning
on the Employee's Last Date of Commencement of Service and ending with
the first anniversary of his Last Date of Commencement of Service;
provided, however, if the Employee fails to complete 1,000 Hours of
Service during such initial Eligibility Computation Period, the
Eligibility Computation Period shall mean the Plan Year, and the first
of such Plan Year Eligibility Computation Periods shall be the Plan
Year that overlaps the first anniversary of the Employee's Last Date
of Commencement of Service.
(13) "Employee" shall mean any person on the payroll of the Employer whose
wages from the Employer are subject to withholding for the purposes of
Federal income taxes and for the purposes of the Federal Insurance
Contributions Act; provided, however, that such term shall not
include:
(a) any such person who is employed at any division or branch of any
Employer that is formed or acquired by or merged into the
Employer after the Effective Date of the Plan unless the
Employer, by formal action on its part in the manner described in
Section 6.7 hereof, provides that such persons who are employed
at such division or branch shall, subject to the provisions of
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(b), (c) and (d) below, be eligible for participation in the Plan
in accordance with the provisions hereof;
(b) any such person who is a participant and is accruing benefits (or
who, upon his satisfaction of any age and service requirements
specified thereunder as a condition of participation, will be
eligible to become a participant and accrue benefits) under any
other qualified defined benefit pension plan maintained by the
Employer or to which the Employer makes contributions on his
behalf based upon his employment with the Employer;
(c) any such person who is included in a unit of persons employed by
the Employer who are covered by an agreement which the Secretary
of Labor finds to be a collective bargaining agreement between
employee representatives and the Employer if retirement benefits
were the subject of good faith bargaining between such employee
representatives and the Employer and such persons are not
required by that agreement to be covered in the Plan;
(d) any individual who by contract is not classified by the Employer
as a common law employee of the Employer, even if such individual
is included on the Employer's payroll for Federal income tax
withholding purposes or whether such person is later classified
as an employee by the Internal Revenue Service, the Department of
Labor, a court, an administrative agency, or an Employer;
(e) the Director of Business Development of Cargo Chemical
Corporation;
(f) any such person who is a nonresident alien and who receives no
earned income (within the meaning of Section 911(b) of the
Internal Revenue Code) from the Employer which constitutes income
from sources within the United States (within the meaning of
Section 861(a)(3) of the Internal Revenue Code); or
(g) any such person who is treated by an Employer at the time of his
performance of services for such Employer as either a leased
employee (within the meaning of Section 414(n) of the Internal
Revenue Code) or an independent contractor for Federal income tax
purposes.
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A person in the employment of the Employer shall be deemed for the
purposes of the Plan to be included in a unit of persons employed by
the Employer who are covered by an agreement which the Secretary of
Labor finds to be a collective bargaining agreement between employee
representatives and the Employer as long as he is permanently assigned
to a job or job classification covered by the terms of such a
collective bargaining agreement. In the event any such collective
bargaining agreement expires or is terminated, it shall be deemed that
such collective bargaining agreement continues to cover all persons in
the employment of the Employer who are permanently assigned to jobs or
job classifications covered thereby, in accordance with the provisions
thereof, during the period of time subsequent to the expiration or
termination thereof, but in no case to exceed 12 months, provided that
negotiations commence and ensue between the parties to such expired or
terminated agreement for the purpose of entering into a new or
modified collective bargaining agreement to replace the expired or
terminated agreement. In the event of the complete cessation of
negotiations without the adoption of a new or modified collective
bargaining agreement prior to the lapse of a 12-month period of time
from the date of the expiration or termination of such collective
bargaining agreement, then such expired or terminated agreement shall
for the purposes of the Plan be deemed to cease covering the persons
in the employment of the Employer who are permanently assigned to jobs
or job classifications covered thereby as of the date of such
cessation and not before.
(14) "Employer" shall mean, collectively or distributively as the context
may indicate, the Sponsoring Employer and any other corporations,
associations, joint ventures, proprietorships, partnerships or other
business organizations that have adopted and are participating in the
Plan in accordance with the provisions of Section 1.7 hereof.
(15) "Final Average Monthly Compensation" shall mean the Participant's
average monthly rate of Compensation from the Employer for the five
successive calendar years, out of the 10 completed calendar years
immediately preceding the first day of the month coincident with or
next following the date on which his service terminates for any reason
(or, where applicable, immediately preceding such other date as is
specified hereunder), that give the highest average monthly rate of
Compensation for the Participant. If a Participant completes fewer
than five successive calendar years of employment with the Employer
preceding such date, his actual number of calendar years of employment
shall be substituted for such five-calendar-year period for the
purpose of determining his Final Average Monthly Compensation.
1-11
The Participant's average monthly rate of Compensation will be
determined by dividing the total Compensation received by him during
such five-calendar-year period (or such lesser period described above)
by the number of months for which he received Compensation from the
Employer in such five-calendar-year period (or such lesser period
described above). The number of months for which he received
Compensation from the Employer may be computed, to the extent he was
paid on other than a monthly basis, by determining the number of pay
periods ending within such five-calendar-year period (or such lesser
period described above) for which he received Compensation from the
Employer and converting such pay periods into months by dividing the
number thereof, if weekly, by 4-1/3, if biweekly, by 2-1/6, and, if
semi-monthly, by 2.
In computing Final Average Monthly Compensation for a Participant who
has returned to the active service of the Employer following a full
calendar year or calendar years during which he did not receive any
regular Compensation from the Employer because of a leave of absence
granted by the Employer or because of his reemployment with a
reinstatement of his prior Vesting Service and Credited Service as
described in Section 1.4 hereof, such full calendar year or calendar
years during which he did not receive any regular Compensation from
the Employer shall be ignored or excluded in determining the 10
completed calendar years and the five successive calendar years (or
such lesser period described above) to be used in determining the
Participant's Final Average Monthly Compensation at a subsequent date.
Anything above to the contrary notwithstanding, if a Participant's
service is terminated for any reason and he has not received any
Compensation during any preceding calendar years, his "Final Average
Monthly Compensation" shall mean his average monthly rate of
Compensation received from the Employer during the calendar year in
which his service was terminated. Such average monthly rate of
Compensation will be determined in accordance with the procedure
described above, based upon the total Compensation that he received
and the number of months for which he received Compensation from the
Employer during such calendar year.
Notwithstanding any provision of this Section 1.1(A)(15) to the
contrary, for purposes of determining a Participant's average monthly
rate of Compensation on or after April 1, 1998 and prior to April 1,
2007, the Participant's Compensation for a calendar year shall not
include the portion of any bonus or aggregated bonuses paid in such
calendar year which exceeds (a) 40% of the Participant's total base
1-12
pay in the calendar year, for years prior to 2003, and (b) 25% of the
Participant's total base pay in the calendar year, for years after
2002. Provided, however, that the Participant's retirement benefits
under the Plan on and after January 1, 2003 shall not be less than the
Accrued Deferred Monthly Retirement Income Commencing at Normal
Retirement Date that the Participant has accrued as of December 31,
2002 using 'Final Average Monthly Compensation' determined as of such
date without regard to clause (b) of the preceding sentence.
Notwithstanding any provision of this Section 1.1(A)(15) to the
contrary, for purposes of determining a Participant's average monthly
rate of Compensation on or after April 1, 2007, the Participant's
Compensation for a calendar year shall not include the portion of any
bonus, aggregated bonuses, or sales commissions paid in such calendar
year which exceeds 25% of the Participant's total base pay in the
calendar year, for years after 2006. Provided, however, that the
Participant's benefits under the Plan on and after April 1, 2007 shall
not be less than the Accrued Deferred Monthly Retirement Income
Commencing at Normal Retirement Date that the Participant has accrued
as of March 31, 2007 using "Final Average Monthly Compensation"
determined as of such date.
(16) "Highly Compensated Employee" shall mean any "highly compensated
active employee" or "highly compensated former employee."
(a) A "highly compensated active employee" includes any employee who
performs service for an Employer or Controlled Group Member
during the determination year and who, during the look-back year,
received compensation from the Employer or Controlled Group
Member in excess of $80,000 (as adjusted pursuant to Section
415(d) of the Internal Revenue Code) and was a member of the
top-paid group for such year. The term "highly compensated active
employee" also includes an employee who is a "5-percent owner"
(within the meaning of Section 414(q) of the Internal Revenue
Code) any time during the look-back year or the determination
year. An employee is in the "top-paid group" for a year if such
employee is in the group consisting of the top 20% of the
employees of all Controlled Group Members when ranked on the
basis of compensation paid during such year.
The "determination year" shall be the Plan Year and the "look-back
year" shall be the twelve-month period immediately preceding the
determination year. The calendar year which begins with or within the
look-back year shall be treated as the look-back year for purposes of
1-13
determining whether an employee is a highly compensated employee on
account of the employee's compensation for a look-back year under
Section 414(q)(1)(B) of the Internal Revenue Code.
(b) A "highly compensated former employee" includes any employee who
separated from service (or was deemed to have separated) prior to
the determination year, performs no service for the Employer or a
Controlled Group Member during the determination year, and was a
highly compensated active employee for either the separation year
or any determination year ending on or after the employee's 55th
birthday.
(c) The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of
employees in the top-paid group and the compensation that is
considered, shall be made in accordance with Section 414(q) of
the Internal Revenue Code and regulations thereunder. The method
of determination set forth above in this Section shall apply to
all plans (both retirement and nonretirement) of the Employer for
which the definition of "highly compensated employee" is
applicable.
(17) "Hour of Service" shall mean each hour for which an employee is
directly or indirectly paid, or is entitled to payment, by the
Employer (including any predecessor business of an Employer conducted
as a corporation, partnership or proprietorship) for (a) the
performance of duties or (b) reasons other than the performance of
duties, including but not limited to vacation, holidays, sickness,
disability, paid layoff and similar paid periods of nonworking time.
Such Hours of Service shall be credited to the employee for the period
in which such duties were performed or in which occurred the period
during which no duties were performed. An Hour of Service also
includes each hour, not credited above, for which backpay,
irrespective of mitigation of damages, has been either awarded or
agreed to by the Employer. These Hours of Service shall be credited to
the employee for the period to which the award or agreement pertains.
The number of Hours of Service to be credited to an employee for any
period shall be governed by Sections 2530.200b-2(b) and 2530.200b-2(c)
of Part 2530 of Subchapter C of Chapter XXV of Title 29 of the Code of
Federal Regulations (Department of Labor regulations relating to
minimum standards for employee pension benefit plans).
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(18) "Initial Vesting Date" shall mean the earlier to occur of the
following dates:
(a) the date on which the Participant has completed five years of
Vesting Service;
or
(b) the date on which the Participant attains his Normal Retirement
Age;
provided, however, that the provisions of Section 4.6 hereof shall
apply in determining the Initial Vesting Date of a Participant who has
accrued Vesting Service during any Plan Year that the Plan is
top-heavy; and provided further that the Initial Vesting Date of a
Participant shall not be earlier than the Effective Date of the Plan.
(19) "Internal Revenue Code" shall mean the Internal Revenue Code of 1986,
as amended from time to time.
(20) "IRC 414(l) Single Plan" shall mean a "single plan" within the meaning
of Section 414(l) of the Internal Revenue Code and regulations issued
pursuant thereto.
(21) "Last Date of Commencement of Service" shall mean:
(a) if the employee's service has not been previously terminated in
accordance with the provisions hereof, the date on which he first
performs an Hour of Service; or
(b) if the employee's service has been previously terminated in
accordance with the provisions hereof, the first day following
his last termination of service on which he performs an Hour of
Service;
provided, however, that the provisions of Section 1.4(A) hereof shall
apply in determining the Last Date of Commencement of Service of any
employee whose service is terminated and who is reemployed on or after
the Effective Date of the Plan and prior to his incurring a Break in
Service.
An Employer may at the time of its initial adoption of the Plan
provide, with respect to all or any specified classification of its
employees, that the Last Date of Commencement of Service for purposes
of determining the Credited Service and Vesting Service of such
1-15
employees shall not be earlier than a specified date, which is later
than the otherwise applicable date described above but is not later
than the date as of which the Plan first became effective with respect
to such Employer, and may provide that such specified date will be
different for the purposes of determining the eligibility to
participate in the Plan, the Credited Service and the Vesting Service
of such employees; provided, however, that the date established to
determine the Vesting Service of such employees shall not be later
than the date as of which such Employer became a Controlled Group
Member of any other Employer maintaining the Plan or Superseded Plan
or, if later, the date as of which the Plan or Superseded Plan first
became effective with respect to such other Employer.
The Last Date of Commencement of Service of an employee by a
predecessor or acquired business shall not be earlier than the date of
such merger or acquisition unless the Employer provides that a
uniformly applied earlier date or dates will be used for the purposes
of the Plan.
(22) "Monthly Covered Compensation" shall be equal to one-twelfth of the
"covered compensation," within the meaning of Section 401(l)(5)(E) of
the Internal Revenue Code and regulations and rulings issued pursuant
thereto, that applies to the Participant during any specified Plan
Year based upon his year of birth. The amount of Monthly Covered
Compensation shall be automatically adjusted each Plan Year; provided,
however, that any changes in the amount of "covered compensation" that
become effective after the first day of the Plan Year during which the
date of the Participant's retirement or termination of service occurs
shall be ignored.
(23) "Normal Retirement Age" shall mean the older of:
(a) age 65 years; or
(b) the Participant's age on the fifth anniversary of the date of
commencement of his Vesting Service.
(24) "Normal Retirement Date" shall have the meaning assigned in Section
2.1 hereof.
(25) "Participant" shall mean:
(a) any active Employee who has satisfied the requirements of Section
1.2 hereof;
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(b) any former Employee who has satisfied the requirements of Section
1.2 hereof, whose service has not been terminated but who has
subsequently been transferred from his status as an eligible
Employee as described in Section 1.5 hereof; and
(c) any retired or terminated Employee who has vested rights to
benefits under the provisions of the Plan.
(26) "Plan" shall mean the Retirement Plan for Employees of Capital
Southwest Corporation and Its Affiliates, as amended and restated
effective as of April 1, 2006, as set forth in this document and as it
may hereafter be amended from time to time.
(27) "Plan Year" shall mean the calendar, policy or fiscal year on which
the records of the Plan are kept as reported from time to time by the
plan administrator to the Internal Revenue Service. The Plan Year,
unless subsequently changed in accordance with rules or regulations
issued by the Internal Revenue Service or Department of Labor, shall
be the 12-month period beginning April 1 of each calendar year.
(28) "Post Payment Recalculation Date" shall have the meaning assigned in
Section 2.1(D) hereof.
(29) "Qualified Joint and Survivor Annuity" means an annuity that (a) is
payable for the life of the Participant with a survivor annuity
payable for the life of his spouse which is not less than 50% and is
not greater than 100% of the amount of the annuity which is payable
during the joint lives of the Participant and his spouse and (b) is
the actuarial equivalent of the monthly retirement income payable to
the Participant for life under the provisions of the Plan.
(30) "Qualified Joint and 50% Survivor Annuity Option" shall have the
meaning assigned in Section 3.1 hereof.
(31) "Qualified Preretirement Survivor Annuity" shall mean the minimum
death benefit, if any, described in Section 4.1(D) hereof that may be
payable to the spouse of a Participant who dies prior to his Annuity
Starting Date.
(32) "Required Beginning Date" shall have the meaning assigned in Section
401(a)(9) of the Internal Revenue Code and shall mean the later of:
(a) April 1 of the calendar year that next follows the calendar year
in which the Participant attains or will attain the age of 70 1/2
years; or
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(b) April 1 of the calendar year that next follows the calendar year
in which he retires or his service is terminated;
provided, however, that the Required Beginning Date of any Participant
who is a 5-percent owner (within the meaning of Section 416 of the
Internal Revenue Code) with respect to the Plan Year ending in the
calendar year in which the Participant attains age 70 1/2 shall not be
later than April 1 of the calendar year that next follows the calendar
year in which he attains or will attain the age of 70 1/2 years.
For purposes of this Section 1.1(A)(32), a Participant is treated as a
5-percent owner after December 31, 1996, if such Participant is a
5-percent owner, as defined in Section 416 of the Internal Revenue
Code, with respect to the Plan Year ending in the calendar year in
which the Participant attains age 70 1/2.
(33) "Sponsoring Employer" shall mean Capital Southwest Corporation, a
Texas corporation, and its successor or successors.
(34) "Superseded Plan" shall mean, collectively or distributively, as the
context may indicate, the qualified retirement plan, if any, that was
maintained by an Employer for its eligible employees prior to the
Effective Date of the Plan and that the Plan represents an amendment
and restatement thereof. References to the Superseded Plan as of any
given date shall refer to the provisions as set forth under the terms
of the applicable document describing such qualified retirement plan
as amended and in effect on such given date prior to the Effective
Date of the Plan.
(35) "Supplement" shall mean any supplement that is attached to and made a
part of the Plan and that describes provisions of the Plan that apply
only to employees of an Employer or Employers specified in such
Supplement. The term "Supplement" shall specifically include, but not
be limited to, the First Supplement to Retirement Plan for Employees
of Capital Southwest Corporation and Its Affiliates, as amended and
restated effective April 1, 1989, which was attached to the Superseded
Plan and shall be attached to the Plan as of April 1, 2006.
(36) "Trust" and "Trust Fund" shall mean the trust fund established
pursuant to the terms of the Trust Agreement.
(37) "Trust Agreement" shall mean the Retirement Trust for Employees of
Capital Southwest Corporation and Its Affiliates, as amended and
restated effective as of April 1, 1989, as set forth in the trust
agreement of that title, and as such trust agreement may be amended
from time to time.
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(38) "Trustee" shall mean the corporate trustee or trustees or the
individual trustee or trustees, as the case may be, appointed from
time to time pursuant to the provisions of the Trust Agreement to
administer the Trust Fund maintained for the purposes of the Plan.
(39) "Vested Percentage" shall mean the percentage specified in Section
2.4(A)(1) hereof in which the Participant has a nonforfeitable right
to his accrued benefit attributable to Employer contributions, based
upon his number of years of Vesting Service and his age as of the date
that such percentage is being determined; provided, however, that the
Vested Percentage of a Participant who has accrued Vesting Service
during any Plan Year that the Plan is top-heavy shall be subject to
the provisions of Section 4.6 hereof.
(40) "Vesting Service" shall mean the total period of elapsed time,
computed in years and days, during the period beginning on the
employee's Last Date of Commencement of Service, and ending on his
date of retirement or termination of service, or, where applicable,
ending on such other date as is specified hereunder; provided,
however, that:
(a) the first 12 months of any continuous absence during such period
will be included in the employee's Vesting Service but the
portion, if any, of such absence that is in excess of 12 months
will be excluded from his Vesting Service, except that any period
of such absence that is included in his Credited Service will
also be included in his Vesting Service;
(b) the provisions of Section 1.3 hereof shall apply in the case of
an employee who has a maternity or paternity absence, the
provisions of Section 1.4 hereof shall apply in the case of an
employee who is reemployed with a reinstatement of Vesting
Service accrued prior to his Last Date of Commencement of
Service, the provisions of Section 1.5 hereof shall apply in the
case of an employee who is transferred to or from his status as
an eligible Employee and the provisions of Section 1.6 hereof
shall apply in the case of an employee who has previously been
employed as a leased employee;
and
(c) with respect to any Participant in the Plan whose Last Date of
Commencement of Service is prior to the Effective Date of the
Plan and who was a participant in the Superseded Plan as in
effect on the day immediately preceding the Effective Date of the
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Plan, the Vesting Service that he has accrued under the Plan as
of the Effective Date of the Plan shall not be less than the
service that he had accrued for the purposes of determining his
nonforfeitable right as of such date to the portion of his
accrued benefit attributable to employer contributions under the
terms of the Superseded Plan as in effect on the day immediately
preceding the Effective Date of the Plan.
(B) The terms "actuarially equivalent," "equivalent actuarial value,"
"actuarial equivalent" and similar terms as used herein mean equality in value
of the aggregate amounts expected to be received under different forms of
payment based upon the same mortality and interest rate assumptions, which shall
be determined as follows.
(1) Unless specifically provided otherwise under the provisions
hereof, the mortality and interest rate assumptions used in
computing benefits payable on behalf of a Participant upon his
retirement or termination of employment and upon the exercise of
optional forms of retirement income under the Plan shall be as
follows:
(a) the mortality assumptions shall be based upon the "Unisex
Pension Mortality Table Projected to 1984" (UP-1984
Mortality Table); and
(b) the interest rate assumption shall be 6%;
provided, however, that for the purposes of determining the
maximum retirement income permitted under the provisions of
Section 415 of the Internal Revenue Code, the mortality and
interest rate assumptions used to determine actuarial equivalence
for early retirement shall be the assumptions that would produce
the early retirement adjustment factors that apply under the
provisions hereof in the event of early retirement.
(2) Any provisions of Subsection (1) above to the contrary
notwithstanding, if payment is in a form of distribution which is
subject to Section 417(e)(3) of the Internal Revenue Code, which
shall include lump-sum distributions and other forms of
distribution that provide payments in the form of a decreasing
annuity or that provide payments that may be for a period less
than the life of the recipient, (an "IRC Section 417(e)(3) form
of distribution") the amount of any such IRC Section 417(e)(3)
form of distribution to a Participant shall be equal to the
actuarial equivalent of the Participant's "accrued benefit"
(within the meaning of Section 411(a)(7) of the Internal Revenue
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Code and regulations issued with respect thereto) commencing at
his Normal Retirement Age or the date of termination of his
service, whichever is later, determined using:
(a) the "applicable mortality table" prescribed by the Secretary
of Treasury pursuant to Section 417(e)(3) of the Internal
Revenue Code (which as of April 1, 2006, is based upon a
fixed blend of 50% of the unloaded male mortality rates and
50% of the unloaded female mortality rates underlying the
mortality rates in the 1994 Group Annuity Reserving Table,
projected to 2002); and
(b) the annual rate of interest on 30-year Treasury securities
for the second full calendar month immediately preceding the
first day of the Plan Year during which the Annuity Starting
Date occurs.
(3) For the purposes of Subsection (2) above, a joint and survivor
annuity form of payment which may decrease upon the death of the
Participant or his joint pensioner shall be deemed to be a
non-decreasing annuity.
(C) The term "single-sum value" as used herein shall mean the actuarially
computed present value, as of a given date, of the retirement income payments
for which it is determined based upon the interest and mortality assumptions
specified in the provisions of the Plan. Unless specifically provided otherwise
under the provisions hereof, the single-sum value as of a given date of a
Participant's accrued benefit that is scheduled to commence at a later date
shall be discounted for both interest and mortality from such scheduled
commencement date to such given date.
(D)The terms "herein", "hereof", "hereunder" and similar terms refer to
this document, including the Trust Agreement of which this document is a part,
unless otherwise qualified by the context.
(E)The pronouns "he", "him" and "his" used in the Plan shall also refer to
similar pronouns of the feminine gender unless otherwise qualified by the
context.
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1.2 - PARTICIPATION
(A) Continuation of Participation of Superseded Plan Participants: Each
person who was a participant in the Superseded Plan, if any, of the Employer as
of the day immediately preceding the Effective Date of the Plan will become a
Participant in the Plan on the Effective Date of the Plan; provided, however,
that any such Participant who had retired or whose service had been terminated
prior to the Effective Date of the Plan and who is not an active employee of an
Employer or in the employment of a Designated Nonparticipating Employer or on a
leave of absence granted by an Employer or Designated Nonparticipating Employer
as of the Effective Date of the Plan shall be entitled on and after the
Effective Date of the Plan to only those benefits, if any, to which he is
entitled on and after the Effective Date of the Plan under the provisions of the
Superseded Plan, and he and his Beneficiaries shall not be entitled to any
additional benefits under the Plan as set forth herein unless he reenters the
service of an Employer and becomes an Employee after the Effective Date of the
Plan or unless the Plan is amended on or after the Effective Date of the Plan
specifically to provide otherwise; provided, however, that if the benefits that
are payable on behalf of any such Participant under the provisions of the
Superseded Plan require modification to permit benefits to be paid to specified
individuals other than the Participant in order to comply with any qualified
domestic relations order under Section 414(p) of the Internal Revenue Code, or
to comply with any other provisions of said Code, the terms and benefits of the
Superseded Plan will be considered to have been modified with respect to the
Participant affected to the extent necessary to comply with such provisions of
said Code.
(B) Participation of Other Employees: Each Employee who does not become a
Participant in accordance with the provisions of Section 1.2(A) above and who is
in the service of the Employer on or after the Effective Date of the Plan will
become a Participant in the Plan on the latest to occur of the following dates:
(1) the date on which he attains the age of 21 years;
(2) the date that immediately follows the first Eligibility
Computation Period (as defined below) during which he completes
at least 1,000 Hours of Service;
or
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(3) the Effective Date of the Plan;
provided, however, that any such Employee whose service has not been terminated
but who is absent from the active service of the Employer on such date that he
is first eligible to become a Participant in the Plan as described above will
become a Participant hereunder as of the date of his return to active service
with the Employer.
(C) Participation Following Reemployment: The above provisions of this
Section 1.2 describe the date on which an eligible Employee will initially
become a Participant in the Plan. In the event that an Employee's service is
terminated and he subsequently reenters the service of the Employer, the date on
or after the date of his reentry as of which he will become a Participant in the
Plan is subject to the provisions of Section 1.4 hereof.
1.3 - LEAVE OF ABSENCE AND TERMINATION OF SERVICE
Any absence from the active service of the Employer by reason of an
approved absence granted by the Employer because of accident, illness, layoff
with the right of recall, or for any other reason on the basis of a uniform
policy applied by the Employer without discrimination, will be considered a
leave of absence for the purposes of the Plan and will not terminate an
employee's service provided he returns to the active service of the Employer at
or prior to the expiration of his leave or, if not specified therein, within the
period of time which accords with the Employer's policy with respect to
permitted absences.
Absence from the active service of the Employer because of engagement in
military service will not terminate the service of an employee and will be
treated under the Plan as a leave of absence granted by the Employer if (1) he
is entitled under the Uniformed Services Employment and Reemployment Rights Act
of 1994 ("USERRA") to reemployment by the Employer upon his discharge from
active duty, and (2) he returns to the active service of the Employer within the
period of time during which he has reemployment rights under USERRA. The
following special provisions, which are intended to comply with Section 414(u)
of the Internal Revenue Code, shall apply to an employee of an Employer who
1-23
returns to active service in accordance with the reemployment provisions of
USERRA following a period of qualifying military service (as determined under
USERRA):
(A) Each period of qualifying military service served by an employee
shall, upon such reemployment, be counted toward determining the
employee's service with the Employer for all purposes of the
Plan, including determining the amount of a Participant's Accrued
Deferred Monthly Retirement Income Commencing at Normal
Retirement Date and the Vested Percentage in his Accrued Deferred
Monthly Retirement Income Commencing at Normal Retirement Date.
(B) For all purposes under the Plan, a Participant shall be treated
as having received Compensation from the Employer based on the
rate of Compensation the Participant would have received during
the period of qualifying military service, or if that rate is not
reasonably certain, on the basis of the Participant's average
rate of Compensation during the 12-month period immediately
preceding such period.
(C) With respect to any Employer contribution made in accordance with
the foregoing provisions of this paragraph:
(i) such contribution shall not be subject to any otherwise
applicable limitation under Sections 404(a) or 415 of the
Internal Revenue Code, and shall not be taken in account in
applying such limitations to other Participant or Employer
contributions under the Plan or any other plan, with respect
to the year in which such contribution is made, and such
contribution shall be subject to these limitations only with
respect to the year to which such contribution relates and
only in accordance with regulations prescribed by the
Internal Revenue Service; and
(ii) the Plan shall not be treated as failing to meet the
requirements of Sections 401(a)(4), 401(a)(26), 410(b), or
416 of the Internal Revenue Code by reason of such
contribution.
If the employee does not return to the active service of the Employer at or
prior to the expiration of his leave of absence as above defined, his service
will be considered terminated as of the earliest to occur of (i) the date on
which his leave of absence expired, (ii) the first anniversary of the date on
which his leave of absence began or (iii) the date of his resignation, quit,
discharge or death; provided, however, that if any such employee, who was a
participant in the Plan or Superseded Plan on the date on which his leave began,
1-24
is prevented from his timely return to the active service of the Employer
because of his total and permanent disability or because of his death, he shall
be treated as though he returned to active service immediately preceding his
total and permanent disability or his death, except that:
(1) if he becomes totally and permanently disabled prior to his
Normal Retirement Date while he is on a leave of absence due to
military service, Section 2.4(A) hereof shall be used, in lieu of
Section 2.3, to determine the benefit (which shall be determined
as though his Initial Vesting Date has occurred prior to the date
of termination of his service and assuming that his Vested
Percentage is 100%), if any, that is payable on his behalf, but
such benefit will be payable only if a benefit would have been
payable on his behalf under the provisions of Section 2.3 hereof
if he had been in the service of the Employer on the date of his
total and permanent disability; or
(2) if his death occurs while he is on a leave of absence due to
military service, Subsection (b) of Section 2.4(B)(1) shall not
apply in determining the amount of the death benefit, if any,
that is payable on his behalf.
If an employee has an absence from the service of the Employer which begins
on or after April 1, 1985 and is due to the pregnancy of the employee, the birth
of a child of the employee or the placement of a child with the employee in
connection with the adoption of such child by such employee or is for the
purpose of caring for such child for a period beginning immediately following
such birth or placement (hereinafter referred to in this paragraph as a
"maternity or paternity absence"), the rights of such employee under the Plan
shall not be less favorable to the employee than those rights that he would have
had if he had been granted a one-year leave of absence beginning on the date on
which his maternity or paternity absence began. If the length of such maternity
or paternity absence extends beyond the first anniversary of the date on which
such absence began and the service of such employee is terminated during such
maternity or paternity absence, the date of termination of service of such
employee for purposes of determining his accrued Vesting Service shall be deemed
to be the first anniversary of the date on which such absence began and the
rights of such employee under Section 1.4 hereof to resume participation in the
1-25
Plan and to a reinstatement of his previous Credited Service and Vesting Service
upon his reemployment shall not be less favorable to the employee than those
corresponding rights that he would have under such section if the date of
termination of his service had been the second anniversary of the date on which
his maternity or paternity absence began and if the length of such employee's
Break in Service were based on that termination date.
In the event that an employee's service with the Employer is interrupted
because of any absence from the active service of the Employer which is not
deemed a leave of absence as defined above, his service will be considered
terminated as of the date of his retirement, quit, discharge, resignation or
death or, if earlier, as of the first anniversary of the date of such
interruption for any other reason.
Transfers of an employee's service among the Employers and Designated
Nonparticipating Employers shall not be deemed interruptions of his service and
shall not constitute a termination of service for the purposes of the Plan.
1.4 - REEMPLOYMENT
(A) Reemployment Prior to Incurring a Break in Service: If any employee,
whose service is terminated on or after the Effective Date of the Plan, reenters
the active service of the Employer and performs an Hour of Service within the
12-month period immediately following the date of termination of his service, he
shall not incur a Break in Service, and his Last Date of Commencement of Service
shall be determined as though his service had not previously been terminated. On
and after such reentry, any such employee shall be treated under the Plan as
though he had been on an unpaid leave of absence granted by the Employer during
the period between such date that his service was previously terminated and such
date of reentry. However, if any such employee was entitled to a benefit under
Section 2.1, 2.2, 2.3 or 2.4(A) hereof prior to his reentry, his rights under
the Plan on and after his date of reentry shall be determined under Section
1.4(B), 1.4(C), 1.4(D) or 1.4(E) below, whichever is applicable, except that his
1-26
reinstated Vesting Service shall not be less than that determined under the
above provisions of this Section 1.4(A).
(B) Reemployment of Vested Terminated Participant Prior to Commencement of
Payments: If a Participant's service is terminated on or after his Initial
Vesting Date for a reason other than his normal retirement, early retirement or
disability retirement as described in Sections 2.1, 2.2 and 2.3 hereof,
respectively, and he subsequently reenters the active service of the Employer
prior to his Annuity Starting Date, he will become a Participant upon the date
of such reentry and will be entitled to a reinstatement of the Vesting Service
and Credited Service that he had accrued on the date of termination of his
service in lieu of the benefits to which he was entitled under the Plan prior to
his reentry; provided, however, that such Participant's Accrued Deferred Monthly
Retirement Income Commencing at Normal Retirement Date (or his accrued monthly
normal retirement income, if applicable) determined as of any given date after
the date of his reentry shall be reduced on an actuarially equivalent basis, if
applicable, to take into account any death benefit coverage that was in effect
under Section 2.4(A) hereof after the date of termination of his service and
prior to the date of his reentry; and provided further, however, that the
benefit payable to such Participant upon his subsequent retirement or
termination of service shall not be less than the benefit that he would have
been entitled to receive under the provisions of Section 2.4(A) hereof if he had
not reentered the service of the Employer.
(C) Reemployment of Retired or Vested Terminated Participant After
Commencement of Payments:
(1) If a Participant, whose service is terminated on or after the Effective
Date of the Plan and who has received a portion but not all of the retirement
income to which he is entitled under the provisions of Section 2.1, 2.2 or
2.4(A)(1) hereof, subsequently reenters the active service of the Employer on or
after his Annuity Starting Date, he shall become a Participant upon the date of
such reentry and the following provisions shall apply.
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(a) If the date of his reentry is prior to his Required
Beginning Date, subject to the provisions of Sections
1.4(C)(2) and 2.1(D) hereof, no retirement income payments
shall be made during the period of such reemployment. Upon
the subsequent retirement or termination of service of such
a Participant, his benefit under the Plan shall be
determined in the same manner as that of a vested terminated
Participant whose retirement income payments have not
commenced and who subsequently reenters the service of the
Employer as described in Section 1.4(B) above, except that
the benefit payable under the Plan to or on behalf of such
Participant upon his subsequent retirement or termination of
service shall be reduced on an actuarially equivalent basis
by an amount equal to the sum of the retirement income and
other benefit payments that he received under the provisions
of Section 2.1, 2.2, 2.4(A) or 3.1 hereof, whichever is
applicable, prior to such reentry into the service of the
Employer; provided, however, that the amount of such monthly
retirement income that is payable to him upon his subsequent
retirement or termination of service shall not be less than
the actuarial equivalent of a monthly retirement income
payable to him at that time as a straight life annuity in an
amount equal to the amount of the monthly retirement income
that was payable to him as a straight life annuity
immediately prior to his reentry. (If the retirement income
payable to the Participant immediately prior to his reentry
was not payable as a straight life annuity, the amount that
was payable to him as a straight life annuity immediately
prior to his reentry shall be determined by converting the
income that was payable to him immediately prior to his
reentry to its actuarial equivalent payable as a straight
life annuity). If any such Participant reenters the active
service of the Employer on or after his Normal Retirement
Date, the monthly retirement income payable on behalf of
such Participant in accordance with the provisions of
Section 2.1 upon his subsequent retirement shall not be less
than the amount that can be provided on an actuarially
equivalent basis by the single-sum value required, as of
such date of reentry, to provide the retirement income that
otherwise would have been payable on his behalf after such
date of reentry, accumulated with interest from such date of
reentry to the date of his subsequent retirement or
termination of service.
(b) If the date of his reentry is on or after his Required
Beginning Date, he shall continue to receive the benefits to
which he is entitled on and after such date, and any future
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benefits that he accrues after his Required Beginning Date
shall be determined in accordance with the provisions of
Section 411(b)(1)(H) of the Internal Revenue Code and
regulations issued with respect thereto in a manner similar
to that described in Section 2.1(D) hereof.
(2) In lieu of having his retirement income payments discontinued and his
benefit payable upon his subsequent retirement or termination determined in
accordance with the provisions of Section 1.4(C)(1) above, any such Participant,
whose Vested Percentage at the date of his retirement or termination of service
was 100%, who is receiving retirement income payments under the Plan and who
reenters the active service of the Employer on less than a full-time basis, may
upon such reentry elect in writing filed with the Committee to continue to
receive his retirement income payments after his reemployment in the same manner
as though he had not reentered the service of the Employer. Any such Participant
whose retirement income payments are continued in accordance with the provisions
above shall be treated as if he then first entered the service of the Employer
except that:
(a) upon the date after his reentry that he satisfies the
requirements to become a Participant in the Plan, he shall
become a Participant, retroactively, as of the date of his
reentry; provided, however, if either (i) the date of his
reentry is during the Plan Year in which the date of his
retirement or termination of service occurred and he is
credited with at least 501 Hours of Service during such Plan
Year or (ii) the date of his reentry is during the Plan Year
next following the Plan Year in which the date of his
retirement or termination of service occurred and he is
credited with at least 501 Hours of Service during both the
Plan Year in which the date of his retirement or termination
of service occurred and the next following Plan Year, he
shall, upon the date of his reentry or upon such later date
that such Hours of Service requirement has been satisfied,
become a Participant, retroactively if applicable, as of the
date of his reentry;
(b) upon his becoming a Participant, he shall be entitled to a
reinstatement of the Vesting Service that he had accrued as
of the date of his previous retirement or termination of
service; and
1-29
(c) he shall not accrue any additional Credited Service during
any "reemployment benefit accrual computation period" that
he is credited with less than 1,000 Hours of Service. The
"reemployment benefit accrual computation period" of any
such Participant shall mean the 12-month period beginning on
the date of his reentry and on each anniversary of such
date.
The benefit which any such Participant accrues after the date of his reentry
(including any disability retirement or death benefit payable on his behalf),
which is payable to such Participant or his Beneficiary upon his subsequent
retirement or termination of service, shall be limited to the amount that can be
provided by the actuarial equivalent of the monthly retirement income, if any,
that he accrues subsequent to such date of reentry based upon his Credited
Service and Final Average Monthly Compensation determined in the same manner as
though he then first entered the service of the Employer on the date on or after
his reentry that he commences to accrue additional Credited Service; provided,
however, that such income that such a Participant accrues subsequent to his date
of reentry shall not cause the actuarial equivalent of the total income payable
on behalf of the Participant under the Plan to exceed the amount that would have
been payable if he had not elected to continue to receive his retirement income
after his reemployment and if the Credited Service that he accrues after his
reentry were restricted as provided under (c) above. The retirement income that
is continued during the period of reemployment of any such Participant who is
reemployed on less than a full-time basis shall be discontinued if the
Participant is employed on a full-time basis at any time after his reentry. If
the retirement income of any such Participant is subsequently discontinued, his
benefit under the Plan shall be determined under this Section 1.4(C) (and not
under Section 1.4(A) above) as though his service had been terminated on the
date that his retirement income was discontinued and as though he had reentered
the service of the Employer immediately thereafter.
1-30
(D) Reemployment After Disability Retirement: If a Participant, who has
retired on or after the Effective Date of the Plan under the provisions of
Section 2.3 and who has not prior to his reentry received the full actuarially
equivalent value of the disability retirement income to which he was entitled
under Section 2.3 hereof, recovers from disability and reenters the active
service of the Employer within one year after the date of his recovery from
disability by accepting reemployment offered by the Employer within 30 days
after such offer, his service will be deemed to have been continuous and he will
be treated under the Plan in the same manner as though he had received
Compensation, at the rate he was receiving at the time of his disability, during
the period that he was considered totally and permanently disabled as provided
herein.
(E) Reemployment After Full Settlement: If a Participant's service has been
terminated on or after the Effective Date of the Plan for any reason and he was
entitled, upon such termination, to a monthly retirement income under the
provisions of Section 2.1, 2.2, 2.3 or 2.4(A)(1) hereof and he reenters the
active service of the Employer after the full actuarially equivalent value of
such retirement income has been paid on his behalf, he shall become a
Participant on the date of his reentry and shall be entitled to a reinstatement
of the Vesting Service and Credited Service that he had accrued as of such
previous date of termination, but the benefit payable under the Plan to or on
behalf of such Participant upon his subsequent retirement or termination of
service shall be reduced by the actuarial equivalent of such retirement income
that has been previously paid on his behalf (where the amount of such
actuarially equivalent reduction shall be determined using the same mortality
and interest assumptions that were used to calculate such benefit previously
paid on his behalf).
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(F) Reemployment of Other Employees: Any other former employee who is not
included under the provisions of Section 1.4(A), 1.4(B), 1.4(C), 1.4(D) or
1.4(E) above and who subsequently reenters the active service of the Employer
following his termination of service will be treated as though he then first
entered the service of the Employer; provided, however, that:
(1) with respect to any such employee in the service of the Employer on or
after the Effective Date of the Plan whose service is or was
terminated on or after April 1, 1976 and who incurred a Break in
Service prior to the date of his reentry, the following special
provisions shall apply:
(a) if such employee had completed five or more years of Vesting
Service as of the date of termination of his service or if the
number of years and days included in his Break in Service is less
than either five years or the number of years and days of his
Vesting Service that he had accrued as of the date of termination
of his service, such employee shall be entitled, upon the date as
of which he becomes a Participant in the Plan, to a reinstatement
of the Credited Service and Vesting Service that he had accrued
as of such previous date of termination of service;
(b) if such employee was a Participant in the Plan or Superseded Plan
as of the date of termination of his service and he is entitled
to a reinstatement of his previous Credited Service and Vesting
Service under (a) above, he shall become a Participant in the
Plan as of the date of his reentry or the Effective Date of the
Plan, whichever is later; and
(c) if such employee was not a Participant in the Plan as of the date
of termination of his service but he is entitled to a
reinstatement of his previous Credited Service and Vesting
Service under (a) above or if such employee (regardless of
whether or not he was a Participant in the Plan as of the date of
termination of his service) reenters the service of the Employer
prior to the elapse of five full Plan Years following the date of
termination of his service, the date on which he will be eligible
to become a Participant in the Plan following his date of reentry
shall not be later than the date on which he would have been
eligible to become a Participant if he had been on a leave of
absence during the period between the date of his previous
termination of service and the date of his reentry; and
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(2) with respect to any such employee whose service was terminated prior
to the Effective Date of the Plan (while the Superseded Plan was in
effect with respect to the Employer by which he was employed at the
date of termination of his service) and who had reentered the active
service of the Employer prior to the Effective Date of the Plan or who
reenters the active service of the Employer on or after the Effective
Date of the Plan, his rights under the Plan with respect to the period
of his service prior to such date of reentry into the service of the
Employer shall be determined under the applicable provisions of the
Superseded Plan as in effect on the date of his prior termination of
service; provided, however, if any such employee, whose service was
terminated prior to April 1, 1985 and whose next succeeding date of
reentry into the service of the Employer is on or after the Effective
Date of the Plan, would have been entitled under the provisions of the
Superseded Plan to a reinstatement of the service used to determine
his nonforfeitable right to benefits if he had reentered the service
of the Employer on April 1, 1985, the rights upon such reentry of any
such employee shall not be less favorable to the employee than the
corresponding rights of an employee whose service is terminated on or
after the Effective Date of the Plan as described above.
(G) Reemployment of Employee Who Does Not Qualify as an "Employee": The
rights of any terminated employee of the Employer who was not an Employee as
defined herein on the date of termination of his service and who is reemployed
in a status in which he qualifies as an Employee as defined herein shall be
determined in accordance with the provisions of the Plan as though he had been
an Employee as defined herein on the date of termination of his service. The
rights of any terminated employee of an Employer who is reemployed by the
Employer in a status in which he does not qualify as an Employee as defined
herein shall be determined in accordance with the provisions of the Plan as
though he had been reemployed by the Employer as an Employee as defined herein
and had immediately thereafter been transferred from his status as an Employee
as defined herein. A Participant shall not accrue any benefits under the Plan or
Superseded Plan solely because of the assumption that he was an Employee as
defined herein on the date of termination of his service or the date of his
reemployment, as the case may be.
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(H) Employment of Terminated Employee of Designated Nonparticipating
Employer by an Employer and Employment of Terminated Employee of Employer by
Designated Nonparticipating Employer: The rights of any terminated employee of a
Designated Nonparticipating Employer who was not an Employee as defined herein
on the date of termination of his service and who is subsequently employed by an
Employer in a status in which he qualifies as an Employee as defined herein
shall be determined in accordance with the provisions of the Plan as though he
had been an Employee as defined herein on the date of termination of his
service. The rights of any terminated Employee of an Employer who is
subsequently employed by a Designated Nonparticipating Employer shall be
determined in accordance with the provisions of the Plan as though he had been
reemployed by the Employer as an Employee as defined herein and had immediately
thereafter been transferred to such Designated Nonparticipating Employer. A
Participant shall not accrue any benefits under the Plan or Superseded Plan
solely because of the assumption that he was an Employee as defined herein on
the date of termination of his service or the date of his employment, as the
case may be, with a Designated Nonparticipating Employer.
(I) Employment with Former Employer or Former Designated Nonparticipating
Employer: In determining the rights under the Plan of any employee who was
previously employed (either before, on or after the Effective Date of the Plan)
by an employer, which was formerly an Employer participating in the Plan or
Superseded Plan or was formerly a Designated Nonparticipating Employer but which
is not currently an Employer or Designated Nonparticipating Employer, the period
of such employee's employment with such employer while it was an Employer or
Designated Nonparticipating Employer, as the case may be, shall be recognized in
determining the Vesting Service of such employee in the same manner as though
such employment during such period had been with a current Employer or
Designated Nonparticipating Employer, but any period of employment with such
1-34
employer after the date that it ceased to be an Employer or Designated
Nonparticipating Employer shall not be recognized and his service shall be
deemed to have been terminated during such period that such employer is not an
Employer or Designated Nonparticipating Employer.
1.5 - TRANSFER TO OR FROM STATUS AS AN ELIGIBLE EMPLOYEE
An employee will be deemed to be transferred from his status as an eligible
Employee in the event that he remains in the service of the Employer but has a
change in his employee status so that he no longer qualifies as an Employee as
defined herein or in the event that he is transferred to and becomes an employee
of a Designated Nonparticipating Employer. Conversely, an employee of an
Employer who is not an Employee as defined herein will be deemed to be
transferred to the status of an eligible Employee in the event that he remains
in the service of the Employers but has a change in his employee status so that
he becomes an Employee as defined herein, and an employee of a Designated
Nonparticipating Employer will be deemed to be transferred to the status of an
eligible Employee in the event that he is transferred to an Employer from such
Designated Nonparticipating Employer and becomes an Employee as defined herein.
The service of such a person described above shall not be considered to be
interrupted by reason of any such transfer, and service with the Designated
Nonparticipating Employer or with the Employer while not qualified as an
Employee as defined herein shall be terminated in the same manner as service
with the Employer while qualified as an Employee as defined herein is
terminated. Any provisions of Section 2.1, 2.2, 2.3 or 2.4 hereof to the
contrary notwithstanding, the benefits of any such Participant who has been
transferred to or from the status as an eligible Employee on or after the date
that the Plan or Superseded Plan first became effective with respect to his
Employer shall be determined in accordance with the following provisions of this
Section 1.5.
(A) Eligibility for Benefits: In determining the eligibility of such an
employee to whom the provisions of this Section 1.5 are applicable for
participation in the Plan and in determining his eligibility for the
benefits provided under the Plan, his Vesting Service and Hours of
Service shall be determined in the same manner as though his service
with the Designated Nonparticipating Employers and with the Employers
while not qualified as an Employee as defined herein had been accrued
1-35
with the Employers while qualified as an Employee as defined herein.
Any such employee who is transferred to the status of an Employee as
defined herein shall become a Participant in the Plan on the date that
he becomes an Employee as defined herein if he has otherwise satisfied
the requirements to become a Participant in the Plan as described in
Section 1.2 hereof prior to such date that he becomes an Employee as
defined herein.
(B) Computation of Benefits: A Participant to whom the provisions of this
Section 1.5 are applicable shall be entitled upon his retirement or
termination of service (or his Beneficiary shall be entitled in the
event his service is terminated by reason of his death), if he meets
all requirements necessary to qualify for a benefit under the
provisions of Section 2.1, 2.2, 2.3 or 2.4 hereof or under the
provisions of any applicable section of any Supplement hereto that
specifically applies to the Participant, as the case may be, to a
benefit payable in accordance with the provisions of Section 2.1, 2.2,
2.3 or 2.4 hereof or in accordance with the provisions of any
applicable section of any Supplement hereto that specifically applies
to the Participant, whichever section is applicable, but the amount of
the monthly retirement income that is payable on his behalf under the
Plan shall, subject to the provisions of Section 1.5(C) below, be
computed using only the Credited Service that he accrued with the
Employers while qualified as an Employee as defined herein.
(C) Special Provisions Applicable to Benefits: The monthly income computed
under this Section 1.5 shall be subject to the following:
(1) there shall be no duplication of service in computing benefits
under the Plan and under any other qualified defined benefit
pension or annuity plan to which any Employer or Designated
Nonparticipating Employer makes contributions on behalf of its
employees who are not Employees as defined herein, and, if
service accrued while qualified as an Employee as defined herein
is used in determining the accrued benefit of the Participant
under any such other qualified defined benefit pension or annuity
plan, then the portion of the benefit payable under the Plan
based on such duplicated service shall be reduced (but not so as
to produce a negative amount) by the actuarially equivalent
amount of the benefit payable under such other qualified defined
benefit pension or annuity plan based on such duplicated service;
(2) all compensation that a Participant, who is an Employee as
defined herein on the date of his retirement or termination of
service, received from the Designated Nonparticipating Employers
and from the Employers while not qualified as an Employee as
defined herein shall be treated in determining his Final Average
Monthly Compensation in the same manner as though such
compensation had been received from the Employer while qualified
as an Employee as defined herein;
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(3) all compensation that a Participant, who is not an Employee as
defined herein on the date of his retirement or termination of
service, received after the date on which he last qualified as an
Employee as defined herein from the Designated Nonparticipating
Employers and from the Employers while not qualified as an
Employee as defined herein shall be ignored or excluded in
determining his Final Average Monthly Compensation and the period
during which he received such compensation shall be ignored or
excluded in determining the 10 completed calendar years and the
five successive calendar years that are used in determining his
Final Average Monthly Compensation;
(4) in the case of a Participant who has been transferred to the
status of an Employee as defined herein, who has a nonforfeitable
right to an accrued benefit under any other pension or annuity
plan to which an Employer or Designated Nonparticipating Employer
has made contributions on his behalf and whose combined service
used in the computation of his accrued benefits under the Plan
and such other pension or annuity plan or plans exceeds 35 years,
the amount of the monthly retirement income that is payable under
the Plan on his behalf shall not be greater than an amount equal
to the excess, if any, of:
(a) the monthly retirement income that would have been payable
on behalf of such Participant under the provisions of the
Applicable Section of the Plan or Supplement if the service
used to compute his accrued benefit under such qualified
pension or annuity plan or plans were included with the
Credited Service that he accrued with the Employers while
qualified as an Employee as defined herein;
over
(b) the actuarial equivalent of the accrued benefit to which
such Participant has a nonforfeitable right under such
qualified pension or annuity plan or plans;
(5) the Participant's employee status at the date of termination of
his service due to disability shall be deemed to have continued
without change in determining the monthly retirement income that
may become payable on his behalf under the provisions of Section
2.3 hereof; and
(6) the benefit determined under Section 2.4(B)(1)(b) hereof shall
apply only if the Participant is an Employee as defined herein on
the date of his death and in that event:
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(a) the benefit under Section 2.4(B)(1)(b)(i) shall be reduced
by the actuarial equivalent of the benefit payable on behalf
of such Participant under each other qualified pension or
annuity plan, if any, to which an Employer or Designated
Nonparticipating Employer has made contributions on his
behalf; and
(b) the limitation equal to 100 times the Participant's monthly
normal retirement income, described in Section
2.4(B)(1)(b)(ii), shall include the anticipated monthly
retirement income based on his service accrued prior to his
death to which such Participant would be entitled at his
Normal Retirement Date or the date of his death, whichever
is later, under each other qualified pension or annuity
plan, if any, to which an Employer or Designated
Nonparticipating Employer has made contributions on his
behalf.
(D) Payments From One Trust Fund: In lieu of the payment of retirement
income or other benefits to such a Participant from the trust fund of
more than one qualified defined benefit pension plan of the Designated
Nonparticipating Employers and the Employers, the administrators of
the pension plans may, by mutual agreement, provide for payment of the
entire monthly income or other benefit from one trust fund with
appropriate reimbursement to the trustee of the trust fund from which
the benefits are to be paid by transfer of funds equal to the
single-sum value of the benefits payable under the other plan (or
plans) to the trust fund from which benefits actually will be paid.
1.6 - PARTICIPATION AND BENEFITS FOR FORMER LEASED EMPLOYEES
A Leased Employee of an Employer or Designated Nonparticipating Employer
shall not be deemed for any purposes of the Plan to be an employee of such
Employer or Designated Nonparticipating Employer. However, in the event that any
former Leased Employee qualifies as an Employee as defined herein on or after
the Effective Date of the Plan, unless the Plan is otherwise excluded by
applicable regulations from the requirements of Section 414(n) of the Internal
Revenue Code, the total period that he provided services to the Employer or
Designated Nonparticipating Employer as a Leased Employee shall be treated under
the Plan in determining his nonforfeitable right to his accrued benefits and his
eligibility to become a Participant in the Plan in the manner described in
Section 1.5(A) hereof as though he had been an employee of a Designated
Nonparticipating Employer during such period of service (but such service shall
not be included in the service that is used to calculate any benefits that he
accrues under the Plan). A "Leased Employee" as defined under Section 414(n) of
1-38
the Internal Revenue Code is 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 Internal Revenue
Code Section 414(n)(6)) on a substantially full-time basis for a period of at
least 1 year, and such services are performed under the recipient's primary
direction or control.
1.7 - RIGHTS OF OTHER EMPLOYERS TO PARTICIPATE
Capital Southwest Corporation, Capital Southwest Management Corporation,
Jet-Lube, Inc., The RectorSeal Corporation, The Whitmore Manufacturing Company,
Smoke Guard, Inc. and Blue Magic, Inc. are participating Employers in the Plan.
Any other corporation, association, joint venture, proprietorship, partnership
or other business organization may, in the future, adopt the Plan on behalf of
all or certain of its Employees by formal action on its part in the manner
described in Section 6.7 hereof provided that the Sponsoring Employer, by formal
action on its part in the manner described in Section 6.7 hereof, and the
Committee both approve such participation.
The administrative powers and control of the Sponsoring Employer, as
provided in the Plan, shall not be deemed diminished under the Plan by reason of
the participation of any other Employers in the Plan, and such administrative
powers and control specifically granted herein to the Sponsoring Employer with
respect to the appointment of the Committee, amendment of the Plan and other
matters shall apply only with respect to the Sponsoring Employer.
The Plan is an IRC 414(l) Single Plan with respect to all Employers unless
the Sponsoring Employer, by formal action on its part in the manner described in
Section 6.7 hereof, specifically provides that the Plan shall be a separate IRC
414(l) Single Plan with respect to any Employer or to any division of any
Employer or with respect to any group of Employers and/or divisions. In the
event that the Plan does not represent one IRC 414(l) Single Plan with respect
to all divisions of any Employer, the division or divisions with respect to
which the Plan represents a separate IRC 414(l) Single Plan shall be considered
1-39
for the purposes of this section and treated under the Plan as one Employer and
its other division or divisions shall be considered for the purposes of this
section and treated under the Plan as a separate Employer or, if applicable, as
separate Employers.
The contributions of any Employer that is a member of a group of Employers
with respect to which the Plan represents an IRC 414(l) Single Plan shall be
available to provide benefits on behalf of any Participants who are employees of
any other Employers that are members of such group but shall not be available to
provide benefits on behalf of any Participants who are employees of any
Employers that are not members of such group. The contributions of any Employer
with respect to which the Plan represents an IRC 414(l) Single Plan for only
that Employer shall be available to provide benefits on behalf of Participants
who are its employees but shall not be available to provide benefits on behalf
of Participants who are employees of any other Employers.
Any Employer may withdraw from the Plan at any time by formal action on its
part, in the manner described in Section 6.7 hereof, specifying its
determination to withdraw. Any such withdrawing Employer shall furnish the
Committee and the Trustee with evidence of the formal action of its
determination to withdraw. Any such withdrawal may be accompanied by such
modifications to the Plan as such Employer shall deem proper to continue a
retirement plan for its Employees separate and distinct from the retirement plan
herein set forth. Withdrawal from the Plan by any Employer shall not affect the
continued operation of the Plan with respect to the other Employers; provided,
however, in the event of the withdrawal of an Employer that is a member of a
group of Employers with respect to which the Plan represents an IRC 414(l)
Single Plan and in the event that provision is made for the continuation of a
retirement plan for its Employees separate and distinct from the retirement plan
herein set forth, the share, if any, of the assets of the Trust Fund allocable
to such group of Employers that is transferred on behalf of such withdrawing
1-40
Employer to such other retirement plan shall, subject to the provisions of
Section 414(l) of the Internal Revenue Code and regulations issued pursuant
thereto, be equal to the assets, if any, that would have been allocated on
behalf of the employees of such withdrawing Employer under the provisions of
Section 4.5 hereof if such withdrawing Employer had terminated its participation
in the Plan on the date of such withdrawal; provided, however, that the
Sponsoring Employer, by formal action on its part in the manner described in
Section 6.7 hereof, may, in its absolute discretion, direct that an additional
amount of assets be transferred on behalf of such withdrawing Employer to such
other retirement plan provided that the transfer of such additional amount of
assets would not lower the amount of the distributions that would be made on
behalf of the Participants who are employees of the other Employers that are
members of such group of Employers with respect to which the Plan represents an
IRC 414(l) Single Plan if the Plan were terminated as of the effective date of
such transfer with respect to all of the Employers that are members of such
group of Employers.
The Sponsoring Employer, by formal action on its part in the manner
described in Section 6.7 hereof, may in its absolute discretion terminate any
Employer's participation in the Plan at any time, and the provisions of the Plan
shall be applied with respect to such Employer in the same manner as though it
had voluntarily withdrawn as a participating Employer.
1.8 - SERVICE AND TERMINATION OF SERVICE
For purposes of the Plan, an Employee or Participant shall be considered to
be in the service of the Employer and shall not be considered to have incurred a
termination of his service until the date of his early, normal or disability
retirement, death, resignation, discharge or other termination of his employment
with an Employer, notwithstanding any payment or agreement to pay severance pay
in connection with the termination of his employment.
2-1
SECTION 2
NORMAL AMOUNT AND PAYMENT OF RETIREMENT INCOME
2.1 - NORMAL RETIREMENT AND RETIREMENT INCOME
Normal retirement under the Plan is retirement from the service of the
Employer on or after the date that the Participant attains his Normal Retirement
Age. No provision of this section or the Plan shall require the retirement of a
Participant upon his attainment of his Normal Retirement Age. In the event of
normal retirement, payment of retirement income will be governed, subject to the
provisions of Section 4 hereof, by the following provisions of this Section 2.1.
(A) Normal Retirement Date: The Normal Retirement Date of each Participant
will be the first day of the month coincident with or next following the date on
which he attains his Normal Retirement Age. Any Participant who retires after
attaining his Normal Retirement Age but prior to his Normal Retirement Date and
who is surviving on his Normal Retirement Date shall be considered for the
purposes of the Plan to have retired on his Normal Retirement Date
(B) Amount of Retirement Income: The monthly retirement income payable in
the manner described in Section 2.1(C) hereof to a Participant who retires on
and after April 1, 1998, bur prior to April 1, 2007, and on or after his Normal
Retirement Date shall be an amount equal to the sum of:
(1) 1.25% of his Final Average Monthly Compensation multiplied by his
number of years of Credited Service that are not in excess of 35
years;
plus
(2) 0.65% of that portion, if any, of his Final Average Monthly
Compensation that is in excess of the Monthly Covered
Compensation that applies to him multiplied by his number of
years of Credited Service that are not in excess of 35 years.
Notwithstanding the foregoing provisions of this Section 2.1(B), the
monthly retirement income of a Participant who retires on or after April 1,
1998, and on or after his Normal Retirement Date shall not be less than the
2-2
monthly retirement income which the Participant has accrued as of March 31,
1998, based upon the Participant's Credited Service, Final Average Monthly
Compensation, and Monthly Covered Compensation (or, if applicable, the
corresponding terms used to compute his accrued benefit under the Superseded
Plan) determined as of March 31, 1998, under the provisions of the Plan and the
First Supplement then in effect, adjusted on an actuarially equivalent basis, if
applicable, to his Annuity Starting Date in accordance with the above provisions
of this Section 2.1(B).
Effective as of April 1, 2007, the monthly retirement income payable to a
Participant who retires on and after April 1, 2007, and on or after his Normal
Retirement Date shall be an amount equal to the sum of:
(1) 1.20% of his Final Average Monthly Compensation multiplied by his
number of years of Credited Service that are not in excess of 35
years;
plus
(2) 0.65% of that portion, if any, of his Final Average Monthly
Compensation that is in excess of the Monthly Covered
Compensation that applies to him multiplied by his number of
years of Credited Service that are not in excess of 35 years.
Notwithstanding the foregoing provisions of this Section 2.1(B), the
monthly retirement income of a Participant who retires on or after April 1,
2007, and on or after his Normal Retirement Date shall not be less than the
monthly retirement income which the Participant has accrued as of March 31,
2007, based upon the Participant's Credited Service, Final Average Monthly
Compensation and Monthly Covered Compensation determined as of March 31, 2007,
under the provisions of the Plan and Supplements then in effect.
The monthly amount of retirement income payable to a Participant who
retires after his Normal Retirement Date, however, shall not be less than that
amount that can be provided on an actuarially equivalent basis by the sum of (i)
the single-sum value as of his Normal Retirement Date of the normal monthly
retirement income that would have been payable to him under the provisions of
the Plan or Superseded Plan, whichever is applicable, as in effect on his Normal
Retirement Date if he had retired on his Normal Retirement Date, based upon his
2-3
Credited Service, Final Average Monthly Compensation and Monthly Covered
Compensation (or, if applicable, the corresponding terms used to compute his
accrued benefit under the Superseded Plan) determined as though he had actually
retired on his Normal Retirement Date, and (ii) the amount of interest on such
single-sum value in (i) above, where the interest shall be compounded annually
from the Participant's Normal Retirement Date to his Annuity Starting Date. All
computations to determine such minimum monthly retirement income payable to or
on behalf of such a Participant shall be on the basis of the interest and
mortality assumptions that were being used as of his Normal Retirement Date to
determine actuarially equivalent non-decreasing annuities.
(C) Payment of Retirement Income: The monthly retirement income payable in
the event of normal retirement will be payable on the first day of each month.
The first payment will be made on the Participant's Normal Retirement Date, or,
if the Participant retires after his Normal Retirement Date, the first payment
will be made on the first day of the month coincident with or next following the
date of his actual retirement. The last payment will be the payment due
immediately preceding the retired Participant's death.
Where a Participant's monthly retirement income commences after April 1
following the calendar year in which such Participant attains age 70 1/2, the
accrued benefit of such Participant shall be actuarially increased in accordance
with regulations or other official pronouncements of the Internal Revenue
Service to take into account the period beginning on April 1 following the
calendar year in which the Participant attains age 70 1/2 and ending on the date
on which benefits under the Plan commence after retirement in an amount
sufficient to satisfy Section 401(a)(9) of the Internal Revenue Code.
(D) Special Provisions Applicable to Participants Who Receive Retirement
Income Payments While Continuing in Employment of Employer After Required
Beginning Date: Any of the above provisions of this Section 2.1 to the contrary
notwithstanding, but subject to the provisions of Sections 4.1 and 4.8 hereof, a
Participant who continues in the employment of the Employer beyond his Required
2-4
Beginning Date shall begin receiving monthly retirement income payments
commencing as of his Required Beginning Date.
The monthly retirement income payments of a Participant who continues in
the employment of the Employer beyond his Required Beginning Date and begins
receiving monthly retirement income payments commencing as of his Required
Beginning Date shall be determined in the same manner as though the Participant
had actually retired on his Required Beginning Date and shall be paid in the
form specified in Section 2.1(C) above. The retirement income payable to such a
Participant shall thereafter be subject to adjustment as of the first day of
each calendar year which begins after his Required Beginning Date and prior to
the date of his actual retirement and shall be subject to adjustment as of the
first day of the month coincident with or next following the date of his actual
retirement (each such adjustment day is herein referred to as a "Post Payment
Recalculation Date") to reflect the additional accruals, if any, that such
Participant is entitled to receive because of his employment after his Required
Beginning Date. The additional retirement income, if any, payable to any such
Participant on and after an applicable Post Payment Recalculation Date shall be
determined in accordance with the provisions of Section 411(b)(1)(H) of the
Internal Revenue Code and regulations issued with respect thereto, and the
actuarial equivalent of the retirement income payments that the Participant has
received under the provisions of this Section 2.1 on and after his Required
Beginning Date and prior to the applicable Post Payment Recalculation Date shall
be used as an offset in the determination of such additional income, but such
offset shall not result in the retirement income payable to the Participant
being reduced below the amount that was payable on his behalf immediately prior
to such Post Payment Recalculation Date. The additional amount of monthly
retirement income, if any, that a Participant accrues after his Required
Beginning Date shall be converted to an actuarially equivalent amount of monthly
retirement income that is payable in the same manner and form as the monthly
retirement income that is payable on his behalf immediately prior to the
applicable Post Payment Recalculation Date, and such additional actuarially
2-5
equivalent income shall be payable to the Participant commencing as of the
applicable Post Payment Recalculation Date. Upon the actual retirement of such a
Participant, the Participant's remaining retirement income shall continue to be
paid, commencing as of the first day of the month coincident with or next
following the date of his actual retirement, in the manner specified in Section
2.1(C) above, except that the Participant shall be entitled to elect another
form of payment in accordance with Section 3.1.
2.2 - EARLY RETIREMENT AND RETIREMENT INCOME
Early retirement under the Plan is retirement from the service of the
Employer prior to the Participant's Normal Retirement Date and on or after the
date as of which he has both attained the age of 55 years and completed 10 years
of Vesting Service. In order to retire under the provisions of this section, the
written consent of the Participant to the commencement of his retirement income
payments in accordance with the provisions of this Section 2.2 must be filed
with the Committee within 90 days of the date as of which his retirement income
payments are to commence. In the event of early retirement, payment of
retirement income will be governed, subject to the provisions of Section 4
hereof, by the following provisions of this Section 2.2.
(A) Early Retirement Date: The Early Retirement Date will be the first day
of the month coincident with or next following the date a Participant retires
from the service of the Employer under the provisions of this Section 2.2 prior
to his Normal Retirement Date.
(B) Amount of Retirement Income: The monthly amount of retirement income
payable in the manner described in Section 2.2(C) hereof to a Participant who
retires prior to his Normal Retirement Date under the provisions of this Section
2.2 shall be equal to the product of:
(1) the Accrued Deferred Monthly Retirement Income Commencing at
Normal Retirement Date which the Participant has accrued as of
his Early Retirement Date;
multiplied by
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(2) the early retirement reduction factor specified in the schedule
below, based upon the number of years and full months by which
the Participant's Early Retirement Date precedes his Normal
Retirement Date:
Early Retirement Reduction Factors By Years and Months
By Which Early Retirement Date Precedes Normal Retirement Date
Months
Years 0 1 2 3 4 5 6 7 8 9 10 11
- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
0 1.000 0.994 0.989 0.983 0.978 0.972 0.967 0.961 0.956 0.950 0.944 0.939
1 0.933 0.928 0.922 0.917 0.911 0.906 0.900 0.894 0.889 0.883 0.878 0.872
2 0.867 0.861 0.856 0.850 0.844 0.839 0.833 0.828 0.822 0.817 0.811 0.806
3 0.800 0.794 0.789 0.783 0.778 0.772 0.767 0.761 0.756 0.750 0.744 0.739
4 0.733 0.728 0.722 0.717 0.711 0.706 0.700 0.694 0.689 0.683 0.678 0.672
5 0.667 0.664 0.661 0.658 0.656 0.653 0.650 0.647 0.644 0.642 0.639 0.636
6 0.633 0.631 0.628 0.625 0.622 0.619 0.617 0.614 0.611 0.608 0.606 0.603
7 0.600 0.597 0.594 0.592 0.589 0.586 0.583 0.581 0.578 0.575 0.572 0.569
8 0.567 0.564 0.561 0.558 0.556 0.553 0.550 0.547 0.544 0.542 0.539 0.536
9 0.533 0.531 0.528 0.525 0.522 0.519 0.517 0.514 0.511 0.508 0.506 0.503
10 0.500
(C) Payment of Retirement Income: The retirement income payable in the
event of early retirement will be payable on the first day of the month. The
first payment will be made on the Participant's Early Retirement Date and the
last payment will be the payment due immediately preceding the retired
Participant's death.
2.3 - DISABILITY RETIREMENT AND RETIREMENT INCOME
A Participant may retire from the service of the Employer under the Plan
if:
(1) his service is terminated prior to his Normal Retirement Date and
on or after the Effective Date of the Plan by reason of his
becoming totally and permanently disabled as defined in Section
2.3(A) below; and
(2) he applies for a disability retirement benefit under the Plan, or
under any other formal plan of the Employer which provides
specific disability benefits, within six months after the date of
termination of his service due to disability; provided, however,
that such six-month period for application may be extended by the
Committee when, in its sole discretion, reasonable cause exists
for so doing.
Such retirement from the service of the Employer shall herein be referred to as
disability retirement. In the event of disability retirement, uniformly and
consistently applied rules shall be used with respect to all Participants in
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similar circumstances and payment of retirement income will be governed, subject
to the provisions of Section 4 hereof, by the following provisions of this
Section 2.3.
(A) Total and Permanent Disability: A Participant shall be considered
totally and permanently disabled for the purposes of the Plan if, in the opinion
of the Committee, he is disabled, due to sickness or injury, from a cause other
than specified in Section 2.3(B) hereof, and, as a result of such disability, he
is eligible for and is receiving (after any specified waiting period) either (a)
disability benefits under the Social Security Act or (b) payments (other than
workers' compensation payments or medical or hospitalization payments) payable
directly or indirectly by the Employer or its insurer as a result of the
Participant's sickness or injury under any long-term disability program
maintained by the Employer.
(B) Nonadmissible Causes of Disability: A Participant will not be entitled
to receive any disability retirement income if, in the opinion of the Committee,
the disability is a result of:
(1) excessive and habitual use by the Participant of drugs,
intoxicants or narcotics;
(2) injury or disease sustained by the Participant while willfully
and illegally participating in fights, riots, civil insurrections
or while committing a felony;
(3) injury or disease sustained by the Participant while serving in
any armed forces;
(4) injury or disease sustained by the Participant which was
diagnosed or discovered subsequent to the date his employment was
terminated;
(5) injury or disease sustained by the Participant while working for
anyone other than the Employer and arising out of such
employment; or
(6) injury or disease sustained by the Participant as a result of an
act of war, whether or not such act arises from a formally
declared state of war.
(C) Proof of Disability: The Participant, in order to be eligible for the
benefits provided under this Section 2.3, shall furnish satisfactory proof
(which may be in the form of evidence satisfactory to the Committee that the
Participant is receiving disability benefits under the Social Security Act or
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under any long-term disability program maintained by the Employer) that he has
become totally and permanently disabled as provided herein. Every six months
after the date of termination of the Participant's service due to disability, or
more frequently, the Committee may similarly require proof of the continued
disability of the Participant.
(D) Disability Retirement Income Commencement Date: The Disability
Retirement Income Commencement Date of a Participant who retires under the
provisions of this Section 2.3 will be his Normal Retirement Date; provided,
however, if the Participant receives payments (other than workers' compensation
payments or medical or hospitalization payments) after his Normal Retirement
Date that are payable directly or indirectly by the Employer or its insurer as a
result of the Participant's sickness or injury under any long-term disability
program maintained by the Employer, the Disability Retirement Income
Commencement Date of such Participant will be the first day of the month
coincident with or next following (a) the date as of which such payments under
such long-term disability program maintained by the Employer are discontinued or
(b) his Required Beginning Date, whichever is earlier.
(E) Disability Retirement Income: The monthly amount of retirement income
payable in the manner described in Section 2.3(F) hereof to a Participant who
retires from the service of the Employer under the provisions of this Section
2.3 due to total and permanent disability and who attains his Normal Retirement
Date without recovering from his total and permanent disability shall be equal
to the anticipated monthly retirement income to which the Participant would have
been entitled on his Disability Retirement Income Commencement Date in
accordance with the provisions of Section 2.1(B) hereof if:
(1) his employment had not been terminated but had continued
uninterrupted from the date of termination of his service due to
disability to his Disability Retirement Income Commencement Date;
(2) his last regular rate of monthly Compensation prior to the date
of termination of his service due to disability had continued
without change to his Disability Retirement Income Commencement
Date;
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(3) the amount of the Monthly Covered Compensation that applies at
his Disability Retirement Income Commencement Date were the same
as the corresponding amount determined as of the date of
termination of his service due to disability; and
(4) the provisions of the Plan as in effect on the date of
termination of his service due to disability had continued
without change until his Disability Retirement Income
Commencement Date.
(F) Payment of Disability Retirement Income: The monthly retirement income
to which a Participant is entitled in the event of his disability retirement
will be payable on the first day of each month. The first payment will be made
on the Participant's Disability Retirement Income Commencement Date, provided
that he attains his Normal Retirement Date without recovering from his total and
permanent disability and provided that application has been made in writing by
the Participant or his authorized representative for disability retirement under
the provisions of this Section 2.3. The last payment will be the payment due
immediately preceding the date of his death.
(G) Benefit Payable in the Event of Death of Disabled Participant Prior to
Disability Retirement Income Commencement Date: In the event that a Participant
dies after he has been determined to be totally and permanently disabled by the
Committee and prior to his Disability Retirement Income Commencement Date, and
prior to his recovery from his total and permanent disability if he has not
attained his Normal Retirement Age as of the date of his death, his Beneficiary
will receive, in lieu of all other benefits payable on behalf of the Participant
under the Plan, the death benefit, determined and payable in the manner
described in Section 2.4(B) hereof, which would have been payable on behalf of
the Participant under the provisions of Section 2.4(B) if:
(1) his employment had not been terminated but had continued
uninterrupted from the date of termination of his service due to
disability until the date of his death;
(2) his last regular monthly rate of Compensation prior to the date
of termination of his service due to disability had continued
without change to the date of his death;
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(3) the amount of the Monthly Covered Compensation that applies at
the date of his death were the same as the amount determined as
of the date of termination of his service due to disability; and
(4) the provisions of the Plan as in effect on the date of
termination of his service due to disability had continued
without change to the date of his death.
(H) Recovery from Disability: If the Committee finds that any Participant
who is entitled to receive a disability retirement income under the provisions
of this Section 2.3 commencing at his Disability Retirement Income Commencement
Date has, at any time prior to his Normal Retirement Date, recovered from his
total and permanent disability, such Participant and his Beneficiary shall not
be entitled to any benefits under this Section 2.3 unless he reenters the
service of the Employer and his service is subsequently terminated by reason of
his total and permanent disability in accordance with the provisions hereof. A
Participant shall be deemed to have recovered from his total and permanent
disability for the purposes of the Plan if the disability benefits, if any,
which he is receiving under the Social Security Act and the payments, if any,
which he is receiving under the Employer's long-term disability program are
discontinued. However, any such Participant who recovers from his total and
permanent disability shall accrue Vesting Service during the period that he is
considered by the Committee to have been totally and permanently disabled as
provided herein, and, if the date of his recovery from his total and permanent
disability is on or after his Initial Vesting Date and he does not reenter the
service of the Employer, he shall be entitled to the vested retirement income
determined and payable in accordance with the provisions of Section 2.4(A)
hereof, computed as though his service had been terminated on the date of his
recovery from his total and permanent disability but based upon his Credited
Service, Final Average Monthly Compensation and Monthly Covered Compensation
determined as of the date of termination of his service due to disability.
(I) Election of Vested Benefit on Termination of Service in Lieu of
Disability Retirement: A Participant whose service is terminated on or after his
Initial Vesting Date by reason of his total and permanent disability may elect,
in writing filed with the Committee prior to his Normal Retirement Date, to
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receive the benefits provided under Section 2.4(A) hereof in lieu of the
disability retirement benefits provided under this Section 2.3. The benefits
payable hereunder to or on behalf of any such Participant who makes such an
election shall be determined as though the Participant's service had not been
terminated by reason of total and permanent disability. The Committee shall
require the consent of the Participant's spouse, if any, before any election
under this Section 2.3(I) will become effective.
2.4 - BENEFITS OTHER THAN ON RETIREMENT
(A) Benefit on Termination of Service and on Death After Termination of
Service:
(1) In the event that a Participant's service is terminated prior to his
Normal Retirement Date and on or after his Initial Vesting Date for any reason
other than his death, early retirement as described in Section 2.2 hereof or
disability retirement as described in Section 2.3 hereof, he will be entitled to
a monthly retirement income, payable in the manner described in Section
2.4(A)(2) hereof, equal to:
(a) an amount equal to either:
(i) if the Participant has not both attained the age of 55
years and completed 10 years of Vesting Service as of
the date of termination of his service, the Accrued
Deferred Monthly Retirement Income Commencing at Normal
Retirement Date that he has accrued to the date of
termination of his service;
or
(ii) if the Participant has both attained the age of 55
years and completed 10 years of Vesting Service as of
the date of termination of his service, the monthly
retirement income, payable in the manner described in
Section 2.4(A)(2) hereof commencing at his Normal
Retirement Date, if he shall then be living, which is
the actuarial equivalent (ignoring the actuarial cost
of any death benefit coverage provided between the date
of termination of his service and his Normal Retirement
Date) of the monthly early retirement income that would
have been payable on his behalf in accordance with the
provisions of Section 2.2 hereof if he had retired
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under the provisions of that section on the date of
termination of his service;
multiplied by
(b) his Vested Percentage, which shall be equal to the percentage
specified in the schedule below, based upon his number of years
(ignoring fractions) of Vesting Service as of the date of
termination of his service:
Years of Vested
Vesting Service Percentage
--------------- ----------
Less than 5 0%
5 or more 100%;
provided, however, that the Vested Percentage of any Participant
who has attained his Normal Retirement Age as of the date of
termination of his service shall be 100%;
with the resulting product multiplied by
(c) a factor, which is based upon the period, if any, that the death
benefit coverage described in Section 2.4(A)(3) below has been in
effect after the date of termination of his service and prior to
his Annuity Starting Date, that will reduce the product of (a)
and (b), if applicable, to reflect the cost, determined on an
actuarially equivalent basis, of providing such death benefit
coverage during such period;
with the resulting product multiplied by
(d) a factor that will convert, if applicable, the amount of monthly
retirement income that is payable to the Participant in the
manner described in Section 2.4(A)(2) hereof commencing at his
Normal Retirement Date to an actuarially equivalent amount of
monthly retirement income that is payable to the Participant in
the manner described in Section 2.4(A)(2) hereof commencing on
his Annuity Starting Date.
All actuarial computations to determine the monthly retirement income payable to
or on behalf of such a terminated Participant (including any computations to
determine the monthly retirement income payable on his behalf under Section
2.4(A)(3) or 3.1 hereof) shall be on the basis of the interest and mortality
assumptions that are being used as of the date of termination of his service to
determine actuarially equivalent non-decreasing annuities.
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(2) The retirement income payable under Section 2.4(A)(1) above will be
payable on the first day of each month. The first payment will be made, if the
Participant shall then be living, as of:
(a) if he does not elect an earlier commencement date pursuant to the
provisions of (b) below, his Normal Retirement Date;
or
(b) if he had completed at least 10 years of Vesting Service as of
the date of termination of his service and he so elects in
writing filed with the Committee at least 30 but not more than 90
days prior to the effective date thereof (or if the Participant
waives the 30-day notice period with any required spousal
consent, then more than 7 days but not more than 90 days prior to
the effective date thereof), the first day of any month, which is
prior to his Normal Retirement Date and is on or after the date
on which he attained the age of 55 years, that he specifies in
his written election filed with the Committee.
The last payment will be the payment due immediately preceding his death.
(3) In the event that the terminated Participant dies prior to his Annuity
Starting Date (without his having waived, in accordance with the provisions of
Section 2.4(A)(4) below, the benefit provided under this Section 2.4(A)(3) and
without his having received, prior to his death, the actuarially equivalent
value of the benefit provided on his behalf under Section 2.4(A)(1) above), his
Beneficiary will receive, subject to the provisions of Section 4.1(D) hereof
regarding the Qualified Preretirement Survivor Annuity, the monthly retirement
income, beginning on the first day of the month coincident with or next
following the date of the terminated Participant's death, which can be provided
on an actuarially equivalent basis by the single-sum value of the benefit
determined in accordance with Section 2.4(A)(1) above to which the terminated
Participant was entitled as of the date of termination of his service,
accumulated with interest from such date to the date of his death. The monthly
retirement income payments under this Section 2.4(A)(3) shall, subject to the
provisions of Section 2.4(B)(4) hereof, be payable for the life of the
Beneficiary designated or selected under Section 5.2 hereof to receive such
benefit, and, in the event of such Beneficiary's death within a period of 10
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years after the Participant's death, the same monthly amount that was payable to
the Beneficiary shall be payable for the remainder of such 10-year period in the
manner and subject to the provisions of Section 5.3 hereof; provided, however,
in lieu of payment of such benefit in the form of monthly income described
above, the single-sum value of such benefit may be paid on an actuarially
equivalent basis to the Participant's designated Beneficiary in such other
manner and form permitted under Section 2.4(B) hereof and commencing on such
other date permitted under Section 2.4(B) hereof as the Participant may elect in
writing filed with the Committee or, in the event that a specific election has
not been made by the Participant and filed with the Committee prior to his
death, as the Beneficiary may elect in writing filed with the Committee.
(4) A terminated Participant may, with the consent of his spouse, if any,
elect in writing filed with the Committee at any time (and any number of times)
prior to his Annuity Starting Date, to waive prospectively the death benefit
provided under Section 2.4(A)(3) above and, in lieu thereof, an increased
retirement income, which reflects on an actuarially equivalent basis the period
that the death benefit coverage under Section 2.4(A)(3) is waived, will be
payable to the Participant under the provisions of Section 2.4(A)(1) if he shall
be living on his Annuity Starting Date. Within one year after the date of
termination of service of a Participant who is entitled to a benefit under the
provisions of this Section 2.4(A), or as soon thereafter as is administratively
practicable, the Committee shall furnish the Participant with written
notification informing him of his right to waive the death benefit provided
under Section 2.4(A)(3) above and the consequences of such a waiver. Any
Participant who has waived the death benefit provided under Section 2.4(A)(3)
may subsequently revoke such waiver at any time (and any number of times) prior
to his Annuity Starting Date by filing written notice of such revocation with
the Committee prior to the date on which such revocation is to become effective.
Any Participant who has waived the death benefit provided under Section
2.4(A)(3) and who subsequently marries or remarries after such waiver and prior
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to his Annuity Starting Date shall automatically be deemed to have revoked his
prior waiver of such death benefit effective as of the first anniversary of the
date of such marriage or remarriage unless his spouse (following such marriage
or remarriage) consents to the waiver of such death benefit.
(5) Any Participant, who is entitled to a benefit under the provisions of
Section 2.4(A)(1) above and who is married on his Annuity Starting Date or who
is married on the date of his death and on whose behalf a benefit is payable
under Section 2.4(A)(3) above, shall be assumed for the purposes of this Section
2.4(A) to have been married for the total period of time beginning on the date
of termination of his service and ending on his Annuity Starting Date or the
date of his death, whichever is earlier, except for such portions, if any, of
such period of time for which evidence is furnished to the Committee which, in
the opinion of the Committee, satisfactorily proves that the Participant was not
married.
(6) The provisions of Sections 3.1 and 4 hereof are applicable to the
benefits provided under this Section 2.4(A).
(7) Except as specifically provided otherwise in any Supplement hereto and
except as provided in Section 2.3 with respect to disability retirement and
unless specifically provided otherwise in the Plan, the Participant whose
service is terminated prior to his Initial Vesting Date shall not be entitled to
any benefit under the Plan whatever, and the value of such Participant's accrued
benefit shall be forfeited as of the date of termination of his service and used
to reduce Employer contributions.
(B) Benefit Payable in Event of Death While in Service:
(1) If the service of a Participant is terminated by reason of his death on
and after April 1, 1998, but prior to April 1, 2007, and on and after his
Initial Vesting Date and prior to his Required Beginning Date, there shall be
payable to the Participant's designated Beneficiary the monthly retirement
income, beginning on the first day of the month coincident with or next
following the date of the Participant's death, that can be provided on an
actuarially equivalent basis by the greater of:
(a) an amount equal to:
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(i) if the Participant's service is terminated by reason of his
death prior to his Normal Retirement Date, the single-sum
value, determined as of the date of his death, of the
Accrued Deferred Monthly Retirement Income Commencing at
Normal Retirement Date that the Participant has accrued to
the date of his death;
or
(ii) if the Participant's service is terminated by reason of his
death on or after his Normal Retirement Date, the single-sum
value, determined immediately prior to the Participant's
death, of the monthly retirement income that the Participant
would have been entitled to receive under the provisions of
Section 2.1(B) hereof if he had retired from the service of
the Employer on the date of his death;
or
(b) an amount equal to the smaller of:
(i) either:
(aa) 24 times the Participant's Final Average Monthly
Compensation at the date of his death if he had not
completed 10 years of Vesting Service as of the date of
his death;
or
(bb) 36 times the Participant's Final Average Monthly
Compensation at the date of his death if he had
completed 10 years of Vesting Service as of the date of
his death;
or
(ii) 100 times the monthly retirement income to which the
Participant would have been entitled on his Normal
Retirement Date in accordance with the provisions of Section
2.1(B) hereof if he had remained in the service of the
Employer, with no change in his last regular monthly rate of
Compensation, until his Normal Retirement Date and based
upon the Monthly Covered Compensation that applies to him as
of the date of his death instead of as of his Normal
Retirement Date or, if his Normal Retirement Date was on or
2-17
prior to the date of his death, 100 times the monthly
retirement income that the Participant would have been
entitled to receive under the provisions of Section 2.1(B)
hereof if he had retired from the service of the Employer on
the date of his death.
If the service of a Participant is terminated by reason of his death on and
after April 1, 2007 and on and after his Initial Vesting Date and prior to his
Required Beginning Date, there shall be payable to the Participant's designated
Beneficiary the monthly retirement income, beginning on the first day of the
month coincident with or next following the date of the Participant's death,
that can be provided on an actuarially equivalent basis by the greater of:
(a) an amount equal to:
(i) if the Participant's service is terminated by reason of his
death prior to his Normal Retirement Date, the single-sum
value, determined as of the date of his death, of the
Accrued Deferred Monthly Retirement Income Commencing at
Normal Retirement Date that the Participant has accrued to
the date of his death;
or
(ii) if the Participant's service is terminated by reason of his
death on or after his Normal Retirement Date, the single-sum
value, determined immediately prior to the Participant's
death, of the monthly retirement income that the Participant
would have been entitled to receive under the provisions of
Section 2.1(B) hereof if he had retired from the service of
the Employer on the date of his death;
or
(b) an amount equal to the smaller of:
(i) 24 times the Participant's Final Average Monthly
Compensation at the date of his death;
or
(ii) 100 times the monthly retirement income to which the
Participant would have been entitled on his Normal
Retirement Date in accordance with the provisions of Section
2-18
2.1(B) hereof if he had remained in the service of the
Employer, with no change in his last regular monthly rate of
Compensation, until his Normal Retirement Date and based
upon the Monthly Covered Compensation that applies to him as
of the date of his death instead of as of his Normal
Retirement Date or, if his Normal Retirement Date was on or
prior to the date of his death, 100 times the monthly
retirement income that the Participant would have been
entitled to receive under the provisions of Section 2.1(B)
hereof if he had retired from the service of the Employer on
the date of his death;
provided, however, that the provisions of Section 4.1(D) hereof relating to the
Qualified Preretirement Survivor Annuity shall apply with respect to a married
Participant whose service is terminated by reason of his death on or after his
Initial Vesting Date and whose designated Beneficiary is not his spouse.
(2) Except as provided in Section 2.4(B)(3) below and subject to the
provisions of Section 2.4(B)(4) below, the monthly retirement income payments
under this Section 2.4(B) shall be payable for the life of the Beneficiary
designated or selected under Section 5.2 hereof to receive such benefit, and, in
the event of such Beneficiary's death within a period of 10 years after the
Participant's death, the same monthly amount that was payable to the Beneficiary
shall be payable for the remainder of such 10-year period in the manner and
subject to the provisions of Section 5.3 hereof.
(3) A Participant may elect, or, in the event that a specific election has
not been made by the Participant and filed with the Committee prior to his
death, his designated Beneficiary may elect, in writing filed with the
Committee, that, in lieu of payment of the benefit provided under this Section
2.4(B) (or, if applicable, under Section 2.3(G) or 2.4(A)(3) hereof) in the
manner described above, such benefit will be paid on an actuarially equivalent
basis to the designated Beneficiary commencing on the first day of any month
that is on or after the date of the Participant's death and is on or prior to
the Participant's Required Beginning Date and is payable in accordance with one
of the options described below:
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Option A: A monthly retirement income in equal
amounts that is payable to the
Beneficiary for his lifetime.
Option B: A retirement income in equal amounts
that is payable for a period certain of
five or 10 years whichever is specified
by the Participant or his Beneficiary,
as the case may be, in his written
election filed with the Committee. In
the event of the Beneficiary's death
prior to the expiration of such
specified period certain, the same
amount shall be payable for the
remainder of the specified period
certain in the manner and subject to the
provisions of Section 5.3 hereof.
Option C: A combination of Option A and Option B.
Provided, however, that payment of any such benefit shall be subject to the
provisions of Section 2.4(B)(4) below.
(4) Any form of payment applicable to the death benefit provided under this
Section 2.4(B) (or, if applicable, under Section 2.3(G) or 2.4(A)(3) hereof),
which has been designated by a Participant prior to January 1, 1984 under the
terms of the Superseded Plan and which satisfies the transitional rule in
Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 (P.L.
97-248), will continue in effect on and after the Effective Date of the Plan
with respect to the death benefits provided under this Section 2.4(B) (or, if
applicable, under Section 2.3(G) or 2.4(A)(3) hereof) unless such designated
form of payment has been or is subsequently revoked or changed (a change of
Beneficiaries under the designation will not be considered to be a revocation or
change of such form of payment so long as the change in Beneficiaries does not
alter, directly or indirectly, the period over which distributions are to be
made under such form of payment); provided, however, if a Participant, whose
death occurs on or after his Initial Vesting Date, had been married to his
spouse throughout the one-year period immediately preceding his death and he had
designated a person other than his spouse as his Beneficiary and such spouse has
not consented to such other person being designated, the provisions of Section
4.1(D) hereof shall apply with respect to payments due his surviving spouse, if
any.
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In the event that the Beneficiary to receive the death benefit payable
under Section 2.3(G), 2.4(A)(3) or 2.4(B) hereof on behalf of a Participant
whose death occurs prior to his Normal Retirement Date is his surviving spouse,
the retirement income payable to such surviving spouse under Section 2.3(G),
2.4(A)(3) or 2.4(B) hereof shall be deferred and be payable on an actuarially
equivalent basis to such surviving spouse commencing on the Participant's Normal
Retirement Date, if such surviving spouse is then living, unless (i) the
surviving spouse consents or elects in writing to receive such benefit
commencing as of a date that is prior to the Participant's Normal Retirement
Date and is on or after the date of the Participant's death, (ii) the date of
death of the Participant is prior to his Initial Vesting Date, (iii) the
Participant had not been married to his surviving spouse throughout the one-year
period immediately preceding his death or (iv) a lump-sum payment is payable to
his surviving spouse under the provisions of Section 3.2 hereof.
(5) If the service of a Participant is terminated by reason of his death on
or after his Initial Vesting Date and on or after his Required Beginning Date,
there shall be payable to the Participant's designated Beneficiary the monthly
retirement income, payable in the manner described in Section 2.4(B)(2) or
2.4(B)(3) above beginning on the first day of the month coincident with or next
following the date of the Participant's death, that can be provided on an
actuarially equivalent basis by an amount equal to the excess, if any, of:
(a) the amount described in Section 2.4(B)(1)(a) or Section
2.4(B)(1)(b), whichever is applicable;
over
(b) the sum of:
(i) the single-sum value, determined as of the Participant's
Required Beginning Date, of the retirement income that was
payable on his behalf commencing on his Required Beginning
Date, accumulated with interest from his Required Beginning
Date until the date of his death;
plus
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(ii) the sum of the single-sum values, determined as of each
applicable Post Payment Recalculation Date occurring after
the Participant's Required Beginning Date, of the additional
retirement income, if any, payable to such Participant
commencing on such applicable Post Payment Recalculation
Date, accumulated with interest from the applicable Post
Payment Recalculation Date to the date of his death.
Additional retirement income payments may be payable after the Participant's
death to his joint pensioner or other Beneficiary, depending upon the form of
payment of the retirement income that the Participant was receiving immediately
prior to his death and taking into account the increase, if any, that would have
applied under the provisions of Section 2.1(D) hereof to the amount of
retirement income payable to the Participant commencing as of the first day of
the month coincident with or next following the date of the Participant's death
if the Participant had retired immediately prior to his death and had survived
to such day.
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SECTION 3
SPECIAL PROVISIONS REGARDING PAYMENT OF BENEFITS
3.1 - OPTIONAL FORMS OF RETIREMENT INCOME
In lieu of the amount and form of retirement income commencing on the
Participant's regularly scheduled Annuity Starting Date which is payable,
subject to the provisions of Section 4.1 hereof, in the event of his normal
retirement, early retirement, disability retirement or termination of service,
as determined and specified in Section 2.1, 2.2, 2.3 or 2.4(A) hereof, whichever
is applicable, such Participant may, subject to the requirements of this
section, elect, in writing filed with the Committee, to receive a retirement
income or benefit of equivalent actuarial value which is payable in accordance
with one of the options described below commencing on his regularly scheduled
Annuity Starting Date or commencing on such later date, which shall not be later
than his Required Beginning Date, as the Participant may specify in his written
election filed with the Committee.
Option 1: A retirement income of modified monthly amount that
is payable in equal monthly amounts to the
Participant for his lifetime, and, in the event that
the Participant predeceases a joint pensioner
designated by him, a percentage, which is not less
than 50% nor greater than 100% and is specified by
the Participant in his written election filed with
the Committee, of such modified monthly amount will
be payable after the death of the Participant to
such designated joint pensioner for the lifetime of
such joint pensioner. This option is referred to
herein as the "Qualified Joint and 50% Survivor
Annuity Option" when the spouse of the Participant
is the designated joint pensioner and the specified
percentage is 50%.
Option 2: A retirement income of modified monthly amount that
is payable in equal monthly amounts to the
Participant during the joint lifetime of the
Participant and a joint pensioner designated by him,
and, following the death of either of them, a
percentage, which is not less than 50% nor greater
than 100% and is specified by the Participant in his
written election filed with the Committee, of such
modified monthly amount will be payable to the
survivor for the lifetime of the survivor.
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Option 3: A retirement income that is payable in equal monthly
amounts to the Participant for his lifetime or in
the manner described under Option 1 or Option 2,
whichever is elected by the Participant, with the
added provision that payments will be made for the
remainder of a period certain, specified by the
Participant in his written election filed with the
Committee, in the event of the death of the
Participant and, if applicable, his Beneficiary or
joint pensioner prior to the expiration of such
specified period certain.
The amount of retirement income determined under any of the above optional
forms of payment must satisfy the requirements of Section 4.8 hereof and Section
401(l) and/or Section 401(a)(4) of the Internal Revenue Code. Any provisions
hereof to the contrary notwithstanding, any optional form of payment which would
otherwise be permitted under the provisions of this Section 3.1 shall not be
available to a Participant if:
(1) the amount of retirement income payable under such option does not
satisfy the required distribution and incidental benefit requirements
of Section 4.8 hereof; or
(2) the amount of retirement income payable under such option would result
in the amount of retirement income payable on behalf of such
Participant under the Plan being increased by a percentage that would
cause the disparity in the rate of employer-derived benefits under the
Plan to exceed the maximum disparity permitted under Section 401(l) of
the Internal Revenue Code and rulings and regulations issued with
respect thereto; provided, however, that the restriction of this
Subparagraph (2) shall not apply if there is no disparity within the
meaning of Section 401(l) of said Code included in the calculation of
the Participant's accrued benefit or if it has been determined that
the accrued benefits under the Plan satisfy the general test for
nondiscrimination in amount of benefits (or any acceptable alternative
test that may be available) under Section 401(a)(4) of the Internal
Revenue Code and rulings and regulations issued with respect thereto.
A Participant who is not permitted to elect an optional form of payment
otherwise permitted under the provisions of this Section 3.1 because of the
incidental benefit requirements of Section 4.8 hereof and/or the permitted
disparity requirements of said Section 401(l) of the Internal Revenue Code may
elect in accordance with the provisions above to receive an actuarially
equivalent form of payment which is similar in form to the non-permissible
option but which is modified by increasing or decreasing, as the case may be,
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the period certain for which payments will be made and/or the percentage of
income payable to the survivor, but not to exceed 100%, so that the requirements
of Section 4.8 hereof and/or Section 401(l) of the Internal Revenue Code are
satisfied.
Any optional form of payment designated by a Participant prior to January
1, 1984, which satisfies the transitional rule in Section 242(b)(2) of the Tax
Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248), will continue in
effect on and after the Effective Date of the Plan unless such optional form of
payment has been or is subsequently revoked or changed (a change of
Beneficiaries under the designation will not be considered to be a revocation or
change of such optional form of payment so long as the change in Beneficiaries
does not alter, directly or indirectly, the period over which distributions are
to be made under such form of payment); provided, however, that the provisions
of Section 4.1(C) hereof shall apply if the Participant has a spouse at the date
on which his initial payment under such optional form is due and his spouse does
not consent to such optional form of payment. Subject to the preceding sentence
but notwithstanding any other provision of this Section 3.1 to the contrary, any
option elected under this Section 3.1 must provide that the entire interest of
the Participant will be expected to be distributed to the Participant and his
Beneficiaries and joint pensioners, in a manner that satisfies the restrictions
of Section 4.8 of the Plan, over one or a combination of the following periods:
(a) the life of the Participant;
(b) the lives of the Participant and his designated Beneficiary or joint
pensioner;
(c) a period certain not extending beyond the life expectancy of the
Participant;
or
(d) a period certain not extending beyond the joint life and last survivor
expectancy of the Participant and his designated Beneficiary or joint
pensioner.
Any amount that is payable to the child of a Participant under an optional form
of payment hereunder shall be treated for the purposes of satisfying the
requirements of this paragraph as if it had been payable to the surviving spouse
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of the Participant if such amount that is payable to the child will become
payable to such surviving spouse upon such child's reaching majority (or upon
the occurrence of such other designated event permitted under regulations issued
with respect to Section 401(a)(9) of the Internal Revenue Code).
If a Participant's retirement income benefits have commenced in either the
form and amount specified in Section 2 hereof or under an optional form elected
under the provisions of this Section 3.1, upon his written request to the
Committee at least 30 but not more than 90 days prior to the effective date
thereof (or if the Participant waives the 30-day notice period with any required
spousal consent, then more than 7 days but not more than 90 days prior to the
effective date thereof), he may elect to discontinue receiving his retirement
income under such form and amount of payment and, in lieu thereof, to receive on
and after such effective date a retirement income or benefit of equivalent
actuarial value that is payable to him for life or is payable in accordance with
one of the options provided above; provided, however, that (a) only one such
change may be made by any Participant after his retirement income payments have
commenced (b) a change after the Annuity Starting Date will not be permitted if
the retirement income or benefit payments are being made under the terms of an
annuity contract purchased on behalf of the Participant from an insurance
company. A Participant who elects to change his form of payment after his
Annuity Starting Date must submit to the Committee such evidence of his good
health as the Committee requires and, if the Participant is receiving payments
in a form in which a joint pensioner is involved, such evidence of the good
health of his joint pensioner as the Committee requires; and any such change
will not be permitted if, in the opinion of the Committee, such Participant or,
if applicable, such joint pensioner is not in good health. The consent of the
Participant's spouse (which shall include, if applicable, his former spouse to
whom he was married on his Annuity Starting Date), if any, shall be required
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before any such change in a form of payment that involves such spouse may become
effective, including any change that represents a change in a form of payment
that was previously consented to by such spouse, unless, to the extent permitted
by law, the previous consent acknowledged that the Participant may change the
form of payment without the further consent of said spouse.
The Participant upon electing any option of this section will designate the
joint pensioner or Beneficiary to receive the benefit, if any, payable under the
Plan in the event of his death and will have the power to change such
designation from time to time, subject to the provisions of this section. Any
such designation will name a joint pensioner or one or more primary
Beneficiaries where applicable. Any change in a joint pensioner after the
Participant's retirement income payments have commenced will be considered and
treated under the Plan in the same manner as, and will be subject to the same
restrictions that apply to, a change in the form of payment. The consent of the
Participant's spouse (which shall include, if applicable, his former spouse to
whom he was married on his Annuity Starting Date), if any, shall be required
before any such change in a Beneficiary or joint pensioner, under an option in
which such spouse is not the primary Beneficiary or joint pensioner, may become
effective, unless, to the extent permitted by law, such spouse has previously
consented to and acknowledged that the Participant may change Beneficiaries or
joint pensioners without the further consent of said spouse. A Participant who
wants to change any designated joint pensioner after his retirement income
payments have started must submit to the Committee such evidence of the good
health of any joint pensioner that is being removed as the Committee requires,
and any such change shall be denied if, in the opinion of the Committee, such
joint pensioner is not in good health. The amount of retirement income payable
to the Participant upon the designation of a new joint pensioner shall be
actuarially redetermined, taking into account the age of the former joint
pensioner, the new joint pensioner and the Participant. Each such designation
will be made in writing on a form prepared by the Committee. In the event that
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no designated Beneficiary survives the Participant, such benefits as are payable
in the event of the death of the Participant subsequent to his retirement shall
be paid as provided in Section 5.2 hereof.
Retirement income payments will be made under the option elected in
accordance with the provisions of this section and will be subject to the
following limitations:
(A) If a Participant's service is terminated by reason of his death
prior to his Annuity Starting Date, no benefit will be payable
under the option to any person, but a benefit may be payable on
his behalf in accordance with the provisions of Section 2.4(B)
hereof.
(B) If a terminated Participant dies after the date of termination of
his service and prior to his Annuity Starting Date, no benefit
will be payable under the option to any person, but a benefit may
be payable on his behalf under the provisions of Section
2.4(A)(3) hereof.
(C) In the case of a Participant who is married and who elects an
option under which the commencement of payment of his retirement
income is deferred beyond his regularly scheduled Annuity
Starting Date, the option elected by such Participant must
provide that a monthly lifetime income equal to or greater than a
qualified preretirement survivor annuity (within the meaning of
Section 417(c) of the Internal Revenue Code) will be payable to
his surviving spouse in the event of his death after such
regularly scheduled Annuity Starting Date and prior to his
elected Annuity Starting Date unless his spouse consents to the
option not providing such an income.
(D) If the designated Beneficiary or joint pensioner dies before the
Participant's Annuity Starting Date, the option elected will be
cancelled automatically and the retirement income payable to the
Participant will be paid in the applicable form described in
Section 2 hereof unless a new election is made in accordance with
the provisions of this section or unless a new Beneficiary or
joint pensioner is designated by the Participant prior to the
date that his retirement income commences under the Plan.
(E) If the Participant and, if applicable, his joint pensioner and
his designated Beneficiary all die after the Participant's
Annuity Starting Date but before the full payment has been
effected under any option providing for payments for a period
certain and if the commuted value of the remaining payments is
equal to or less than the maximum amount that is permissible as
an involuntary cash-out of accrued benefits under Sections
411(a)(11) and 417(e) of the Internal Revenue Code and
regulations issued with respect thereto, the commuted value of
the remaining payments shall, subject to the provisions of
Section 3.2 hereof, be paid in a lump sum in accordance with the
provisions of Section 5.3 hereof.
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(F) If the Participant dies after his Annuity Starting Date, payment
of his remaining interest, if any, shall be distributed, to the
extent required by Section 401(a)(9) of the Internal Revenue Code
and regulations issued thereunder, at least as rapidly as
provided under the method of payment in effect prior to his
death.
3.2 - LUMP-SUM PAYMENT OF SMALL RETIREMENT INCOME
Notwithstanding any provision of the Plan to the contrary, if the
single-sum value of the retirement income or other benefit payable on behalf of
any Participant hereunder whose retirement income or other benefit payments have
not commenced does not exceed $5,000, the following provisions shall apply. A
distribution under this Section 3.2 will not be permitted after the Annuity
Starting Date and will not be permitted in the case of a Participant who is
entitled to disability retirement income payments. For the purposes of the Plan,
a payment shall not be considered to occur after the Annuity Starting Date
merely because actual payment is reasonably delayed for calculation of the
benefit amount if all payments due are actually made. Once a determination has
been made by the Committee as to whether or not a lump-sum payment may be
payable as of the date of termination of the Participant's service under the
provisions of this Section 3.2, calculations shall not be required as of any
subsequent date to determine whether or not a lump-sum amount is payable under
this Section 3.2; provided, however, that the Committee shall have the right
(but shall be under no obligation) to establish, on a nondiscriminatory and
uniformly applied basis, subsequent dates as of which calculations shall be made
to determine whether or not (due to changes in the actuarial assumptions used to
compute lump-sum distributions or due to a change in the maximum permissible
involuntary cash-out amount) lump-sum amounts are payable under this Section 3.2
as of any such subsequent date on behalf of those Participants whose service had
been terminated prior to such date but whose retirement income or other benefit
payments have not commenced.
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(A) Involuntary Cash-Out: If the single-sum value of the benefit payable to
the Participant does not exceed $1,000, or if the benefit is payable to a
Beneficiary and the single-sum value does not exceed $5,000, the actuarial
equivalent of such benefit shall be paid in a lump sum.
(B) Voluntary Cash-Out: If the single-sum value of the benefit payable to
the Participant is greater than $1,000 but does not exceed $5,000, the
Participant may elect to receive the actuarial equivalent (determined using the
interest and mortality assumptions that are being used as of the Annuity
Starting Date to determine actuarially equivalent lump-sum distributions) of
such benefit in a lump-sum distribution. Such election must be in writing and
must be filed with the Committee within 90 days after the date as of which the
Committee informs him in writing of the actuarially equivalent value of such
benefits. Payment of the elected benefit must be made or commence within 90 days
after such election.
(C) Lump-Sum Cash-Out of Zero Vested Accrued Benefits: For the purposes of
the Plan, if the present value of the vested accrued benefit that is payable on
behalf of any Participant whose service is or has been terminated (either
before, on or after the Effective Date of the Plan) is zero, the Participant
shall be deemed to have received a distribution of such vested accrued benefit
as of the date of termination of his service.
3.3 - BENEFITS APPLICABLE TO PARTICIPANT WHO HAS BEEN OR IS EMPLOYED BY TWO OR
MORE EMPLOYERS
In the event that a Participant's service is terminated for any reason and
such Participant has been or is employed by any two or more Employers, his
retirement or termination benefit, if any, shall be computed by applying the
benefit formulas as if all the Employers were a single Employer; provided,
however, if the Plan does not represent an IRC 414(l) Single Plan with respect
to all such Employers, there shall be a proper allocation (taking into account
the Credited Service and Compensation applicable to each Employer or group of
Employers with respect to which the Plan represents an IRC 414(l) Single Plan)
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of the costs of the resulting benefits among the Employers (with respect to
which the Plan does not represent an IRC 414(l) Single Plan) by which such
Participant has been or is employed.
3.4 - NO DUPLICATION OF BENEFITS
Unless the context clearly provides otherwise, there shall be no
duplication of benefits under the Plan or under any Supplement hereto, and the
benefits payable under any section of the Plan to or on behalf of a Participant
shall be inclusive of the benefits, if any, concurrently payable to or on behalf
of the same Participant under all other sections of the Plan and under any
Supplement hereto.
3.5 - FUNDING OF BENEFITS THROUGH PURCHASE OF LIFE INSURANCE CONTRACT OR
CONTRACTS
In lieu of paying benefits from the Trust Fund to a Participant or his
Beneficiary, upon direction of the Committee with specific prior authorization
in writing from the Employer, the Trustee shall enter into a contract or
contracts, or an agreement or agreements, with one or more legal reserve life
insurance companies for the purchase, with funds in the Trust, of a retirement
annuity or other form of life insurance contract which, as far as possible,
provides benefits equal to (or actuarially equivalent to) those provided in the
Plan for such Participant or Beneficiary, but provides no optional form of
retirement income or benefit which would not be permitted under Section 3.1
hereof, whereupon such contract shall thereafter govern the payment of the
amount of benefit, if any, represented by such contract, which is payable under
the Plan upon the Participant's retirement or termination of service, and the
liability of the Trust Fund and of the Plan will cease and terminate with
respect to such benefits that are purchased and for which the premiums are duly
paid.
Any policy or contract issued under this section shall be subject to the
provisions hereof pertaining to the Qualified Joint and 50% Survivor Annuity
Option and to the Qualified Preretirement Survivor Annuity.
3-10
Any policy or contract issued under this section prior to the termination
of the Plan or prior to the distribution of the policy or contract to a
Participant or Beneficiary hereunder shall provide that the Trustee shall retain
all rights of ownership at all times except the right, unless such policy or
contract provides otherwise, to designate the Beneficiary to receive any
benefits payable upon the death of the Participant and shall further provide
that all dividends or experience rating credits shall be paid to the Trustee and
applied to reduce future Employer contributions to the Plan.
Any annuity contract distributed by the Trustee to a Participant or
Beneficiary hereunder shall contain a provision to the effect that the contract
may not be sold, assigned, discounted or pledged as collateral for a loan or as
security for the performance of an obligation or for any other purpose, to any
person other than the issuer thereof.
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SECTION 4
GOVERNMENTAL REQUIREMENTS AFFECTING BENEFITS
4.1 - SPECIAL PROVISIONS REGARDING AMOUNT AND PAYMENT OF RETIREMENT INCOME
The amount and payment of retirement income determined under Sections 2.1,
2.2, 2.3 and 2.4 hereof shall be subject to the following provisions of this
Section 4.1.
(A) Limitations Imposed by Section 415 of Internal Revenue Code:
(1) Maximum Amount of Retirement Income: Any provisions herein to the
contrary notwithstanding, in no event shall the monthly retirement income that
is payable on or after the first day of the limitation year beginning in 1987 to
a Participant hereunder exceed the maximum amount of retirement income for
defined benefit plans as specified in Section 415 of the Internal Revenue Code
and regulations and rulings issued pursuant thereto; provided, however, that:
(a) the maximum amount of retirement income applicable to a
Participant who was a participant in the Superseded Plan, if
any, before the limitation year beginning in 1983 and whose
Credited Service includes service that was accrued prior to
such limitation year, shall not be less than his current
accrued benefit within the meaning of Section 235(g)(4) of
the Tax Equity and Fiscal Responsibility Act of 1982;
and
(b) such maximum amount of retirement income applicable to a
Participant who was a participant in the Superseded Plan, if
any, before the limitation year beginning in 1987 and whose
Credited Service includes service that was accrued prior to
such limitation year, shall not be less than his current
accrued benefit within the meaning of Section 1106(i)(3)(B)
of the Tax Reform Act of 1986.
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In determining the maximum monthly retirement income payable on behalf of any
Participant, all defined benefit plans (whether or not terminated) of the
Controlled Group Members are to be treated as one defined benefit plan. The
proportion of the maximum monthly retirement income applicable to all such
defined benefit plans of the Controlled Group Members shall be determined on a
pro rata basis depending upon the actuarially equivalent amount of retirement
income otherwise accrued under each such defined benefit plan.
Under Section 415 of the Internal Revenue Code, the amount of a Participant's
"annual benefit" (as such term is defined in Section 415), payable in the form
of a straight life annuity, for any limitation year that is produced by the
amount of such Participant's monthly retirement income shall not exceed the
lesser of:
(c) $160,000 (as adjusted for cost-of-living increases under
Section 415(d) of the Internal Revenue Code), or
(d) 100% of the Participant's average IRC 415 Compensation for
his highest three consecutive years of service or the actual
number of consecutive years if less than three.
(2) Actuarial Assumptions and Related Adjustments: For purposes of
determining the actuarially equivalent maximum amount of retirement income
permitted under this Section 4.1(A) with respect to any Participant, the
interest and mortality tables specified below shall control.
(a) For purposes of this Section 4.1(A)(2), the "Plan Mortality
Table" is the mortality table determined under Section
1.1(B)(1)(a) without regard to this section. The "Plan
Interest Rate" is the rate of interest determined under
Section 1.1(B)(1)(b) without regard to this section. The
"Applicable Mortality Table" is the mortality table
specified by the Secretary of Treasury pursuant to Section
415(b)(2)(E) of the Internal Revenue Code (which, as of
April 1, 2006, is based upon a fixed blend of 50% of the
unloaded male mortality rates and 50% of the unloaded female
mortality rates underlying the mortality rates in the 1994
Group Annuity Reserving Table, projected to 2002). The
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"Applicable Interest Rate" is the annual rate of interest on
30-year Treasury securities as determined by the Internal
Revenue Service for the second full calendar month
immediately preceding the first day of the Plan Year during
which the Annuity Starting Date occurs.
(b) For the purposes of determining whether any benefit payable
under the Plan in any form which is not subject to Section
417(e)(3) of the Internal Revenue Code exceeds the maximum
retirement income under Section 4.1(A), such benefit shall
be converted to an actuarially equivalent straight life
annuity beginning at the same age. The interest rate and
mortality table used in such calculation shall be either (i)
the Plan Interest Rate and the Plan Mortality Table or (ii)
5% and the Applicable Mortality Table, whichever yields the
greater amount.
(c) For the purposes of determining whether any benefit payable
under the Plan in any form which is subject to Section
417(e)(3) of the Internal Revenue Code, (which shall include
lump-sum distributions and other forms of distribution that
provide payments in the form of a decreasing annuity or that
provide payments for a period less than the life of the
recipient) exceeds the maximum retirement income under
Section 4.1(A), such benefit shall be converted to an
actuarially equivalent straight life annuity beginning at
the same age. The interest rate and mortality table used in
such calculation shall be either (i) the Plan Interest Rate
and the Plan Mortality Table or (ii) the Applicable Interest
Rate and the Applicable Mortality Table, whichever yields
the greater amount.
(d) If the benefit of a Participant begins after the Participant
attains age 65, the defined benefit dollar limitation
applicable to the Participant at the later age shall be the
annual benefit payable in the form of a straight life
annuity beginning at the later age that is actuarially
equivalent to the defined benefit dollar limitation
applicable to the Participant at age 65 (adjusted under (f)
below, if required). The actuarial equivalent of the defined
benefit dollar limitation applicable at an age after age 65
shall be determined as the lesser of (i) the actuarial
equivalent (at such age) of the defined benefit dollar
limitation computed using the Plan Interest Rate and the
Plan Mortality Table, and (ii) the actuarial equivalent (at
such age) of the defined benefit dollar limitation computed
using a 5 percent interest rate assumption and the
Applicable Mortality Table. For these purposes, mortality
between age 65 and the age at which benefits commence shall
be ignored.
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(e) If the benefit of a Participant begins prior to age 62, the
defined benefit dollar limitation applicable to the
Participant at such earlier age shall be an annual benefit
payable in the form of a straight life annuity beginning at
the earlier age that is the actuarial equivalent of the
defined benefit dollar limitation applicable to the
Participant at age 62 (adjusted under (f) below, if
required). The defined benefit dollar limitation applicable
at an age prior to age 62 is determined as the lesser of (i)
the actuarial equivalent (at such age) of the defined
benefit dollar limitation computed using the Plan Interest
Rate and the Plan Mortality Table, and (ii) the actuarial
equivalent (at such age) of the defined benefit dollar
limitation computed using a 5 percent interest rate and the
Applicable Mortality Table. Any decrease in the defined
benefit dollar limitation determined in accordance with this
paragraph (e) shall not reflect a mortality decrement if
benefits are not forfeited upon the death of the
Participant. If any benefits are forfeited upon death, the
full mortality decrement shall be taken into account.
(f) If the Participant has less than ten years of participation
in the Plan, the maximum dollar limitation under Section
415(b)(1)(A) of the Internal Revenue Code otherwise
applicable to the Participant shall be multiplied by a
fraction the numerator of which is the number of years (or
part thereof) of participation in the Plan, and the
denominator of which is ten. In the case of a Participant
who has less than ten years of service with the Controlled
Group Members, the percentage of compensation limitation
under Section 415(b)(1)(B) of the Internal Revenue Code
shall be multiplied by a fraction the numerator of which is
the number of the Participant's years (or part thereof) of
service with the Controlled Group Members, and the
denominator of which is ten.
(3) Cost-of-Living Adjustments: In the event that the maximum amount of
retirement income permitted under Section 415 of the Internal Revenue Code is
increased after the date of commencement of a Participant's retirement income
due to any cost-of-living adjustment announced by the Internal Revenue Service
pursuant to the provisions of Section 415(d) of the Internal Revenue Code, the
amount of monthly retirement income payable under the Plan to a Participant
whose retirement income is restricted due to the provisions of such section of
the Internal Revenue Code shall be increased, effective as of January 1st of the
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calendar year for which such increase becomes effective or, if applicable, as of
such other date as the Secretary of the Treasury or his delegate may prescribe
as the date on which such increase shall become effective, to reflect the
increase in the amount of retirement income that may be payable under the Plan
as a result of such cost-of-living adjustment; provided, however, if the
Employer maintains a plan for the purpose of restoring benefits that certain
Participants may not receive under the Plan due to the limitations on
contributions and benefits imposed by Section 415 of the Internal Revenue Code
and/or due to the limitations imposed on Compensation under Section 401(a)(17)
of said Code and if the Participant or his Beneficiary receives or has received
a benefit or benefits under such restoration plan and a portion of such benefit
or benefits would be duplicated by the cost-of-living adjustment provided under
this paragraph, then such cost-of-living adjustment that would represent a
duplication of benefits shall not apply to the Participant or Beneficiary unless
the value of the benefit payable from the restoration plan that would cause such
duplication of benefits under this Plan is returned to the Employer by the
Participant or Beneficiary within 60 days of the effective date of such
cost-of-living adjustment or the date that such cost-of-living adjustment is
announced by the Internal Revenue Service, whichever date is later; and provided
further, however, that such 60-day period may be extended by the Committee if,
in its opinion, reasonable cause exists for such an extension.
(4) IRC Section 415 Definitions: Following are certain terms that are used
herein for the purposes of the limitations under Section 415 of the Internal
Revenue Code and that shall have the meanings assigned to them in Section 415 of
said Code and regulations and rulings issued with respect thereto:
(a) The term "defined benefit plan" shall have the meaning
assigned in Section 414(j) of the Internal Revenue Code.
(b) The term "IRC 415 Compensation" shall include (i) 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
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course of employment with the Employer to the extent that
the amounts are includable 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, reimbursements and expense allowances), (ii)
earned income (as described in Section 401(c)(2) of the
Internal Revenue Code and the regulations thereunder), (iii)
amounts described in Sections 104(a)(3), 105(a) and 105(h)
of the Internal Revenue Code, but only to the extent that
these amounts are includable in the gross income of the
Participant, (iv) amounts paid or reimbursed by the Employer
for moving expenses incurred by the Participant, but only to
the extent that these amounts are not deductible by the
Participant under Section 217 of the Internal Revenue Code,
(v) the value of a non-qualified stock option granted to the
Participant by the Employer, but only to the extent that the
value of the stock option is includable in the gross income
of the Participant for the taxable year in which granted,
(vi) the amount includable in the gross income of the
Participant upon making the election described in Section
83(b) of the Internal Revenue Code and (vii) any amounts
received by the Participant pursuant to an unfunded
non-qualified plan in the year such amounts are includable
in the gross income of the Participant. The amounts
described in (i) and (ii) above shall include foreign earned
income as defined in Section 911(b) of the Internal Revenue
Code, whether or not excludable from gross income under
Section 911 of said Code. The term "IRC 415 Compensation"
shall also include (i) any elective deferral as defined in
Section 402(g)(3) of the Internal Revenue Code, and (ii) any
amount which is contributed or deferred by the Employer at
the election of the Employee and which is not includible in
the gross income of the Employee by reason of Section 125,
Section 132(f)(4), or Section 457 of the Internal Revenue
Code. Such compensation shall exclude (1) contributions by
the Employer to a plan of deferred compensation which are
not included in the Participant's gross income for the
taxable year in which contributed (except as provided above
in this subsection (b)), (2) contributions by the Employer
under a simplified employee pension plan to the extent such
contributions are deductible by the Participant, (3) any
distribution from a plan of deferred compensation, (4)
amounts realized from the exercise of a non-qualified stock
option, (5) amounts realized when restricted stock (or
property) held by the Participant either becomes freely
transferable or is no longer subject to a substantial risk
of forfeiture, (6) amounts realized from the sale, exchange
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or other disposition of stock acquired under a qualified
stock option, (7) other amounts which received special tax
benefits and (8) contributions made by the Employer (whether
or not under a salary reduction agreement) towards the
purchase of an annuity described in Section 403(b) of the
Internal Revenue Code (whether or not the amounts are
actually excludable from the gross income of the
Participant). Amounts under Section 125 include any amounts
not available to a Participant in cash in lieu of group
health coverage because the Participant is unable to certify
that he has other health coverage; provided that such an
amount shall be treated as an amount under Section 125 only
if the Employer does not request or collect information
regarding such Participant's other health coverage as part
of the enrollment process for the health plan.
(c) The term "limitation year" is the 12-month period which is
used for application of the limitations under Section 415 of
the Internal Revenue Code and, unless a different 12-month
period has been elected by the Employer in accordance with
rules or regulations issued by the Internal Revenue Service
or the Department of Labor, shall be the calendar year.
(B) Minimum Benefits on Normal or Early Retirement: Any provisions of
Section 2.1 or 2.2 hereof to the contrary notwithstanding, in the event of the
normal retirement or early retirement of a Participant in accordance with the
provisions of Section 2.1 or 2.2 hereof, his monthly retirement income
determined in accordance with the provisions of Section 2.1(B) or 2.2(B) hereof,
whichever is applicable, shall not be less than the monthly retirement income,
if any, determined in accordance with the provisions of Section 2.1(B) or 2.2(B)
hereof that such Participant would have received as of any earlier date of
retirement if he had retired under the provisions of Section 2.1 or 2.2 at any
time prior to his actual date of retirement.
(C) Requirement With Respect to Form of Payment: The Committee shall
provide each Participant, during the period beginning 90 days before his Annuity
Starting Date and ending 30 days before his Annuity Starting Date (or as soon
after the expiration of such period as is administratively practicable), a
written notification of his optional forms of payment. Such written notification
shall set forth an explanation of:
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(1) if the Participant is married:
(a) the terms and conditions of the Qualified Joint and 50%
Survivor Annuity form of payment;
(b) the Participant's right to elect, and the effect of
electing, to waive the Qualified Joint and 50% Survivor
Annuity form of payment;
(c) the rights of the Participant's spouse; and
(d) the right to revoke, and the effect of revoking, an election
to waive the Qualified Joint and 50% Survivor Annuity form
of payment;
(2) the eligibility conditions and material features of the optional forms
of payment available under the Plan;
(3) the financial effect of electing each optional form of payment;
(4) in the event the notification described herein is required and is
provided to the Participant after his Annuity Starting Date, the
Participant's right to elect a retroactive Annuity Starting Date;
(5) the relative values of the optional forms of payment available under
the Plan; and
(6) such other information as may be required under applicable
regulations.
The written notification described above shall not be required if the single-sum
value of the Participant's retirement income is less than or equal to $5,000.
In the event the written notification described above is required and is
provided to the Participant after the Participant's Annuity Starting Date, the
Participant's Annuity Starting Date shall be deemed to be his "retroactive
Annuity Starting Date," and the provisions of Section 4.1(J) shall apply.
Any provisions of Section 2.1, 2.2, 2.3, 2.4(A) or 3.1 hereof to the
contrary notwithstanding, if a Participant does not elect, in writing filed with
the Committee during the election period described below, to receive the
retirement income payable on his behalf on and after his Annuity Starting Date
either (i) under the form of payment that is specified in Section 2.1(C),
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2.2(C), 2.3(F) or 2.4(A)(2), whichever is applicable, or (ii) under an optional
form of payment described in and subject to the provisions of Section 3.1
hereof, such Participant shall be deemed to have elected, and the retirement
income payable on and after his Annuity Starting Date shall automatically be
paid in accordance with the provisions of, either:
(1) if he does not have a spouse at his Annuity Starting Date, the form of
payment that is specified in Section 2.1(C), 2.2(C), 2.3(F) or
2.4(A)(2), whichever is applicable; or
(2) if he has a spouse at his Annuity Starting Date, the Qualified Joint
and 50% Survivor Annuity Option.
Any Participant may make an election under this section at any time (and any
number of times) prior to the commencement of his retirement income or other
benefit payments and during the period beginning on the date which is 90 days
prior to his Annuity Starting Date and ending on the latest to occur of (i) his
Annuity Starting Date, (ii) the date which is 90 days after the date on which he
was provided with the general written explanation described above or (iii) the
date which is 90 days after the date on which he was provided with any specific
detailed information concerning the payment of his retirement income that is
required to be furnished due to the request of the Participant. If any such
Participant does not file his election with the Committee prior to the
expiration of the election period described above, the commencement of his
retirement income will be delayed until the end of such election period, but he
will be entitled to a retroactive payment with respect to those retirement
income payments which were delayed. If any Participant has elected a form of
payment other than the automatic form provided above and his retirement income
or other benefit payments have not commenced, he may subsequently revoke such
election, in writing filed with the Committee within the election period
described above, in order to receive his retirement income payable in accordance
with the automatic form provided above. Any provisions of Section 3.1 hereof to
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the contrary notwithstanding, if any Participant is not provided with the
written notification described in the first sentence of this section at least 30
days before his Annuity Starting Date but is provided in the written
notification a period of at least 30 days in which to make his election under
this section, he may waive such notice period (with any applicable spousal
consent) and file his election with the Committee, and his retirement income or
other benefit may commence within 30 days after the date on which he was
provided with such written notification, but more than 7 days after such date.
Any provisions herein to the contrary notwithstanding, the written consent of
the Participant's spouse during the applicable election period shall be required
in order for the Participant to receive his retirement income in a form other
than that provided under a Qualified Joint and Survivor Annuity.
(D) Qualified Preretirement Survivor Annuity: If a deceased Participant,
whose death occurs on or after his Initial Vesting Date and prior to his Annuity
Starting Date, had been married to his spouse throughout the one-year period
immediately preceding his death and he had designated a person other than his
spouse as his Beneficiary and such spouse has not validly consented to such
other person being designated as the Beneficiary, the Participant shall be
deemed to have:
(1) revoked his prior designation of Beneficiary;
(2) designated such spouse as his Beneficiary to receive a portion of the
death benefit payable on his behalf under Section 2.3(G), 2.4(A)(3) or
2.4(B), whichever is applicable;
(3) specified that the portion of the benefit provided under Section
2.3(G), 2.4(A)(3) or 2.4(B) that is payable to his surviving spouse
will be payable as an actuarially equivalent monthly income payable on
the first day of each month with the first payment being due (only if
said spouse is then living) on the Participant's Normal Retirement
Date or the first day of the month coincident with or next following
the date of the Participant's death, whichever is later, and with the
last payment being the payment due immediately preceding such spouse's
death;
(4) specified that the portion of the benefit provided under Section
2.3(G), 2.4(A)(3) or 2.4(B) that is payable to the surviving spouse
shall have an actuarially equivalent single-sum value, determined as
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of the date of his death, equal to the single-sum value, determined as
of the date of his death, of the monthly retirement income that would
be payable to his surviving spouse, commencing on the Participant's
Earliest Annuity Commencement Date, under the Qualified Joint and 50%
Survivor Annuity Option if:
(a) the Participant's service had been terminated on the date of his
death for a reason other than disability retirement or death (or,
if the Participant is a vested terminated Participant entitled to
a benefit under Section 2.4(A) hereof, he had survived to the
Earliest Annuity Commencement Date);
(b) the Participant had (for the purposes of determining the amount
of such monthly retirement income commencing at his Earliest
Annuity Commencement Date) waived the death benefit coverage
under Section 2.4(A)(3) hereof, if applicable, during the period
beginning on the date of his death and ending on his Earliest
Annuity Commencement Date; and
(c) the Participant had died immediately after such commencement of
payments (one-half of the initial payment which would have been
due the Participant on his Earliest Annuity Commencement Date
shall be included in the determination of such single-sum value);
and
(5) designated such other person (or persons) that was named as his
Beneficiary under such revoked designation as the Beneficiary to
receive the remaining portion of such benefit payable on his behalf
under and in accordance with the provisions of Section 2.3(G),
2.4(A)(3) or 2.4(B) hereof.
In lieu of the payment of such benefit to the surviving spouse of a Participant
in the form of the monthly income described in Section 4.1(D)(3) above
commencing at the Participant's Normal Retirement Date, such benefit may be paid
on an actuarially equivalent basis to the Participant's spouse in such other
manner and form permitted under Section 2.4(B) hereof and commencing on such
other date permitted under Section 2.4(B) hereof as the surviving spouse may
elect in writing filed with the Committee. For the purposes of Sections
4.1(D)(3) and 4.1(D)(4) above, the Earliest Annuity Commencement Date of a
deceased disabled Participant on whose behalf a death benefit is payable under
Section 2.3(G) hereof and the monthly retirement income that would be payable to
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his surviving spouse, commencing on his Earliest Annuity Commencement Date,
under the Qualified Joint and 50% Survivor Annuity Option, shall be determined
as though such Participant had recovered from his total and permanent disability
and had reentered the service of the Employer immediately prior to his death.
Except to the extent that it is otherwise permissible under the provisions
of Section 417 (or any other applicable section) of the Internal Revenue Code or
regulations or rulings issued pursuant thereto for such a spouse to elect to
waive his right to the qualified preretirement survivor annuity, the consent of
the Participant's spouse to another person being designated as the Beneficiary
of the Participant shall be valid for the purposes of this Section 4.1(D) only
if such consent satisfies the requirements of Section 4.1(E) hereof and the
Participant was given a written explanation of the Qualified Preretirement
Survivor Annuity (containing the information described in the paragraph below)
prior to obtaining such consent; provided, further, in the event that the
Participant's death occurs on or after the beginning of the Plan Year in which
he attained the age of 35 years, such consent in order to be valid must have
been given on or after the beginning of the Plan Year in which the Participant
attained the age of 35 years or after his separation from service.
The Committee shall provide each Employee, who is a Participant in the
Plan, within the one-year period immediately following (a) the beginning of the
Plan Year in which he will attain the age of 32 years or (b) the date on which
he becomes a Participant in the Plan, whichever is later, or, if his service is
terminated on or after his Initial Vesting Date and prior to his attaining the
age of 32 years, within the one-year period immediately following the date of
termination of his service, or as soon thereafter as is administratively
practicable, with written notification of (i) the terms and conditions upon
which the Qualified Preretirement Survivor Annuity described above will be
payable to his surviving spouse, (ii) the Participant's right to designate at
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any time prior to his death a person other than his spouse as his Beneficiary
and the effect that such a designation will have on the Qualified Preretirement
Survivor Annuity, (iii) the rights of the Participant's spouse in the event that
the spouse does not consent to such designation and (iv) the right of the
Participant to change his Beneficiary designation in accordance with the
provisions of Section 5.2 hereof at any time prior to his death and the effect
that such a change will have upon the Qualified Preretirement Survivor Annuity.
If the Beneficiary of a Participant is his spouse but the Participant
elects, pursuant to the provisions of Section 2.4(A)(3) or 2.4(B) hereof,
whichever is applicable, an actuarially equivalent form of payment of the
benefit provided under such applicable section that does not provide for monthly
payments during the lifetime of his spouse in an amount at least as great as the
minimum qualified preretirement survivor annuity required under Section 417 of
the Internal Revenue Code, the Committee shall inform such Participant that such
election will constitute an election not to receive a benefit which has the
effect of a qualified preretirement survivor annuity provided under a qualified
joint and survivor annuity as described in Section 417 of the Internal Revenue
Code, and the consent of the Participant's spouse shall be required in order for
such an election to become effective.
There shall be no duplication between the benefits provided under Sections
2.3(G), 2.4(A)(3) and 2.4(B) and under the Qualified Preretirement Survivor
Annuity described in this Section 4.1(D), but the benefits under each shall be
inclusive of the benefits under the other.
(E) Spousal Consent Requirement and Waiver: Any provisions herein to the
contrary notwithstanding, if the consent of the spouse of the Participant is
required for any reason under the provisions hereof, such consent in order to be
effective must be in writing and witnessed by a Plan representative or a notary
public. In the event that such consent is with respect to the election of a form
of payment other than a Qualified Joint and Survivor Annuity or the designation
of a person other than the spouse as the Participant's Beneficiary, such consent
4-14
must acknowledge the specific form of payment that has been elected or the
person who has been designated as Beneficiary, as the case may be, and must
acknowledge the effect of such consent. Any of the above to the contrary
notwithstanding, such spousal consent for any reason hereunder shall, unless
otherwise required by the Committee or by applicable law, be waived for the
purposes of the Plan if:
(1) the spouse has previously consented to such specified action in
accordance with the provisions above and such previous consent
(a) permits changes with respect to such specified action without
any requirement of further consent by such spouse and (b)
acknowledges the effect of such consent by the spouse;
or
(2) it is established to the satisfaction of the Committee that such
consent may not be obtained because there is no spouse, because
the spouse cannot be located or because of such other
circumstances as the Secretary of the Treasury or his delegate
may prescribe by regulations as reasons for waiving the spousal
consent requirement.
Once spousal consent, which satisfies the requirements of this section, has been
given, such consent may not be revoked by the spouse without the consent of the
Participant.
(F) Latest Date of Commencement of Payments: Except to the extent otherwise
permissible under rules or regulations issued by the Internal Revenue Service,
distribution of the accrued benefit to which a Participant has a nonforfeitable
interest must commence on a date not later than the earlier to occur of:
(1) his Required Beginning Date;
or
(2) the later of:
(a) the date that is no later than the 60th day after the close
of the Plan Year during which (i) his service is terminated
for any reason, (ii) he attains the age of 65 years or (iii)
the tenth anniversary of the date on which he initially
commenced participation in the Plan or Superseded Plan,
whichever is latest, occurs; or
4-15
(b) the date that the Participant elects in accordance with the
provisions of Section 3.1 hereof as the date of commencement
of his retirement income;
provided, however, if an election of a form of payment has been made by a
Participant prior to January 1, 1984 that provides for the commencement of his
benefit at a date later than the date applicable under (1) or (2) above and such
election both (i) satisfies the transitional rule in Section 242(b)(2) of the
Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248) and (ii) has not
been subsequently revoked or changed (a change of Beneficiaries under the
designation will not be considered to be a revocation or change of such form of
payment so long as the change in Beneficiaries does not alter, directly or
indirectly, the period over which distributions are to be made under such form
of payment), distribution of the Participant's accrued benefit shall not be
required to commence prior to the date of commencement specified in such
election.
(G) No Benefit Reduction Due to Post Termination Social Security Changes:
Benefits under the Plan shall not be decreased by reason of any increase in the
benefit levels payable under Title II of the Social Security Act or by reason of
any increase in the wage base under such Title II, if such increase takes place
after September 2, 1974 or (if later) the earlier of the date of first receipt
of such benefits or the date of the Participant's separation from service, as
the case may be.
(H) Minimum Preserved Benefit Due to Certain Amendments: In the event that
the Plan or Superseded Plan has been or is amended effective as of a date on or
after July 30, 1984 to eliminate or reduce a retirement-type subsidy or an early
retirement benefit or to change the actuarial assumptions used to determine
actuarially equivalent benefits payable thereunder, the monthly retirement
income or other benefit, if any, payable under the provisions of Section 2.1,
2.2, 2.3 or 2.4 (and Section 3.1 if an optional form of payment is applicable)
to a Participant, who was a participant in the Plan or Superseded Plan as of the
4-16
day immediately preceding the date that the elimination, reduction or change
becomes effective or the date of adoption of such amendment, whichever is later,
(herein referred to as the "Preservation Date") and who retires or whose service
is terminated after the Preservation Date, shall be at least equal to the
corresponding amount of the monthly retirement income or other benefit, if any,
payable to him under the provisions of such applicable section of the Plan (or,
if applicable, the section of the Superseded Plan that corresponds to such
applicable section of the Plan) as in effect on the Preservation Date computed
using his Credited Service, Final Average Monthly Compensation and Monthly
Covered Compensation (or, if applicable, the corresponding terms used to compute
his accrued benefit under the Superseded Plan) determined as of the Preservation
Date under the provisions of the Plan (or, if applicable, the Superseded Plan)
as in effect on such date and using, if applicable, the mortality table and
interest rate assumptions that applied under the provisions of the Plan (or, if
applicable, the Superseded Plan) as in effect on the Preservation Date to
compute actuarially equivalent benefits payable to a Participant who retired or
whose service was terminated on the Preservation Date; provided, however, such
preservation shall not be required if, under regulations or other official
pronouncements of the Internal Revenue Service, such reduction or elimination or
such change in assumptions (without the preservation described above in this
subsection) may be made without violating the anticutback rules of Section
411(d)(6) of the Internal Revenue Code.
(I) Direct Rollover Options for Eligible Rollover Distributions:
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. The following
definitions apply to this section:
4-17
(1) Eligible rollover distribution: An eligible rollover distribution is
any distribution of all or any portion of the balance to the credit of
the distributee, except that an eligible rollover distribution does
not include:
(a) 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 10 years or more; and
(b) any distribution to the extent such distribution is required
under Section 401(a)(9) of the Internal Revenue Code.
(2) Eligible retirement plan: An eligible retirement plan is an individual
retirement account described in Section 408(a) of the Internal Revenue
Code, an individual retirement annuity described in Section 408(b) of
said Code, an annuity plan described in Section 403(a) or 403(b) of
said Code, an eligible governmental plan described in Section 457(b)
of said Code, or a qualified trust described in Section 401(a) of said
Code, that accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution that
includes after-tax employee contributions, an eligible retirement plan
is an individual retirement account or annuity described in Section
408(a) or (b) of the Internal Revenue Code, or a qualified defined
contribution plan described in Section 401(a) or 403(a) of said Code
that agrees to account separately for amounts so transferred,
including separately accounting for the portion of such distribution
which is includible in gross income and the portion of such
distribution which is not so includible. The definition of eligible
retirement plan shall also apply in the case of a distribution to a
surviving spouse, or to a spouse or former spouse who is the alternate
payee under a qualified domestic relation order, as defined in Section
414(p) of said Code.
(3) Distributee: 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 Section 414(p) of the Internal Revenue Code, are distributees with
regard to the interest of the spouse or former spouse.
(4) Direct rollover: A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
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Any options set forth in this section shall automatically become inoperative and
of no effect upon a ruling by the Treasury Department that the options set forth
herein are no longer required.
(J) Provisions Concerning Retroactive Annuity Starting Dates:
Notwithstanding any provision hereof to the contrary, in the event that the
written notification described in Section 4.1(C) is required and is provided to
the Participant after the Participant's Annuity Starting Date, the Participant's
Annuity Starting Date shall be deemed to be his "retroactive Annuity Starting
Date" and payment of the Participant's retirement income under Section 2.1, 2.2,
2.3, 2.4(A) or 3.1 hereof shall be made or commence in accordance with Section
417(a) of the Internal Revenue Code, and regulations and rulings issued pursuant
thereto, and the following provisions of this Section 4.1(J).
(1) Notification requirement: In the event of a retroactive Annuity
Starting Date, the written notification to the Participant required by Section
4.1(C) shall set forth the information described in Section 4.1(C) both as of
his retroactive Annuity Starting Date and as of a date which is not more than 90
days after the date on which such written notification is provided to the
Participant.
(2) Election of retroactive Annuity Starting Date: In the event of a
retroactive Annuity Starting Date, the Participant's retirement income shall be
determined and payable as of a date which is not more than 90 days after the
date on which the written notification required by Section 4.1(C) is provided to
the Participant, unless the Participant elects to have such retirement income
determined and payable as of such retroactive Annuity Starting Date. The
Participant may make such election on the appropriate form provided by the
Committee and filed with the Committee within the election period described in
Section 4.1(C).
4-19
(3) Spousal consent requirement: In the event that (a) a Participant
elects to receive his retirement income under Section 2.1, 2.2, 2.3, 2.4(A), or
3.1 hereof determined as of a retroactive Annuity Starting Date, and (b) under
the form of payment elected by such Participant, the benefit payable to the
Participant's spouse upon the Participant's death would be less than the benefit
payable to such surviving spouse after the Participant's death if the
Participant had elected to receive a Qualified Joint and 50% Survivor Annuity
determined and payable as of the date on which his retirement income payments
actually commence, then the Participant's spouse must consent in writing to the
Participant's election of such retroactive Annuity Starting Date. Such spousal
consent requirement shall be satisfied if the Participant's spouse consents in
the manner provided in Section 4.1(C) to the Participant's election to receive
his retirement income in a form other than that provided under a Qualified Joint
and Survivor Annuity.
(4) Make-up payments with interest: In the event that a Participant
elects (with spousal consent, if applicable) to receive his retirement income
under Section 2.1, 2.2, 2.3, 2.4(A), or 3.1 hereof determined as of a
retroactive Annuity Starting Date, the Participant shall receive a make-up
payment to reflect any missed payment or payments for the period from the
retroactive Annuity Starting Date to the date of the actual make-up payment,
with an appropriate adjustment for interest from the date the missed payment or
payments would have been made (including, if applicable, a payment of the
single-sum value of the Participant's retirement income) to the date of the
actual make-up payment.
(5) Future payment amount: If the Participant elects (with spousal
consent, if applicable) to receive his retirement income determined as of a
retroactive Annuity Starting Date and the Participant receives his retirement
income in a form other than a single-sum payment, the retirement income payments
that commence after he has received the notification required by Section 4.1(C),
other than any required make-up payment, shall be in an amount that is equal to
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the amount that would have been paid to the Participant had payments actually
commenced on his retroactive Annuity Starting Date.
(6) Section 415 compliance: Except in the case where payment of the
Participant's retirement income (other than a form of payment that is subject to
Section 417(e) of the Internal Revenue Code, including lump-sum distributions
and other forms of distribution that provide payments in the form of a
decreasing annuity or for a period less than the life of the recipient)
commences no more than 12 months after the retroactive Annuity Starting Date,
payment of the Participant's retirement income, including any interest
adjustments, shall satisfy the requirements of Section 415 of the Internal
Revenue Code if the date retirement income payments actually commence is
substituted for the retroactive Annuity Starting Date for all purposes,
including for purposes of determining the applicable interest rate and the
applicable mortality table described in Section 4.1(A)(2) hereof.
(7) Section 417(e) compliance: If the retirement income received by the
Participant is in a form of payment that would have been subject to Section
417(e) of the Internal Revenue Code if payment had commenced as of the
retroactive Annuity Starting Date, then the amount of payment as of the actual
commencement date shall be no less than the amount of payment produced by
applying the applicable interest rate and the applicable mortality table
(described in Section 4.1(A)(2) hereof), determined as of the date payment
actually commences, to the annuity form that was used to determine the amount of
retirement income as of the Participant's retroactive Annuity Starting Date.
4.2 - LIMITATIONS ON BENEFITS REQUIRED BY THE INTERNAL REVENUE SERVICE
(A) Limitation in the Event of Plan Termination: In the event that the Plan
is terminated, the benefit of any Participant who is a Highly Compensated
Employee shall be limited to a benefit that is nondiscriminatory under Section
401(a)(4) of the Internal Revenue Code and regulations issued with respect
thereto.
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(B) Limitation on Annual Payments:
(1) The provisions of this Section 4.2(B) shall apply during each Plan
Year to those Participants who during such Plan Year (a) are Highly Compensated
Employees and (b) are among the 25 nonexcludable employees and former employees
of the Controlled Group Members with the largest amount of compensation in the
current or any prior year and whose annual payments under the Plan must be
restricted due to the provisions of Section 401(a)(4) of the Internal Revenue
Code and regulations issued with respect thereto.
(2) To the extent required by Section 401(a)(4) of the Internal Revenue
Code and regulations issued with respect thereto, the annual benefit payable
under the Plan to any such Participant to whom the provisions of this Section
4.2(B) are applicable shall not exceed an amount equal to the payments that
would be made on his behalf under a single life annuity that is the actuarial
equivalent of the sum of his accrued benefit and his other benefits under the
Plan; provided, however, that such restriction shall not apply if:
(a) after payment of the "benefits" (as defined below) to the
Participants to whom the provisions of this Section 4.2(B) are
applicable, the remaining value of Plan assets equals or exceeds
110% of the value of current liabilities within the meaning of
Section 412(l)(7) of the Internal Revenue Code and regulations
issued with respect thereto;
(b) the value of the "benefits" (as defined below) for such
Participant is less than 1% of the value of current liabilities
within the meaning of Section 412(l)(7) of the Internal Revenue
Code and regulations issued with respect thereto;
(c) the value of the Participant's benefit does not exceed the
maximum amount that is permissible as an involuntary cash-out of
accrued benefits under Sections 411(a)(11) and 417(e) of the
Internal Revenue Code and regulations issued with respect
thereto;
(d) an agreement, which is expressly permitted under Section
401(a)(4) of the Internal Revenue Code or regulations or rulings
issued with respect thereto, is entered into with the Trustee,
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adequately secured in conformity with the requirements of said
Code section, regulations or rulings, which provides for the
repayment, if applicable and to the extent required under said
Code section, regulations or rulings, to the Trust Fund of any
part of the distribution which is restricted under the provisions
of said Code section, regulations or rulings;
or
(e) in the event of the termination of the Plan, there are sufficient
assets to satisfy all benefit liabilities of the Plan to
Participants and their Beneficiaries.
(3) For the purposes of this Section 4.2(B), the term "benefit" shall
have the meaning assigned in Treasury Regulation Section 1.401(a)(4)-5(b) and
shall include loans in excess of the amounts set forth in Section 72(p)(2)(A) of
the Internal Revenue Code, any periodic income, any withdrawal values payable to
a living employee, and any death benefits not provided for by insurance on the
employee's life.
4.3 - BENEFITS NONFORFEITABLE IF PLAN IS TERMINATED
In the event of the termination or partial termination of the Plan, the
rights of each affected Participant in the Plan to benefits accrued to such date
of termination, to the extent then funded, shall be nonforfeitable, where such
benefits shall be determined and distributed as provided in Section 4.5 hereof;
provided, however, if the participation in the Plan is terminated with respect
to one or more but not all Employers that are members of a group of Employers
with respect to which the Plan represents an IRC 414(l) Single Plan, the Plan
shall not be considered to have been terminated for the purposes of this Section
4.3 (although a partial termination of the Plan may result because of such
termination of participation). Unless specifically required otherwise by law or
by rules or regulations of the Internal Revenue Service, the nonforfeitable
rights granted to Participants under the provisions of this section shall not
apply with respect to (i) any benefits (or portions thereof) that have been
cashed out, whether voluntarily or involuntarily, under the provisions hereof
and that have not been reinstated (by repayment or by the reinstatement of
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Credited Service accrued prior to the date of such cash-out) in accordance with
the provisions hereof prior to the date of the termination or partial
termination of the Plan or (ii) any nonvested benefits that are deemed cashed
out and forfeited at the date of termination of service of a terminated or
retired Participant whose service was terminated prior to the date of
termination or partial termination of the Plan.
4.4 - MERGER OF PLAN
In the case of the merger or consolidation of the Plan with, or the
transfer of assets or liabilities to, another qualified retirement plan, each
Participant must be entitled to receive a benefit, upon termination of such
other retirement plan after such merger, consolidation or transfer, which is at
least equal to the benefit which he would have been entitled to receive
immediately before the merger, consolidation or transfer if the Plan had been
terminated at that time.
4.5 - TERMINATION OF PLAN AND DISTRIBUTION OF TRUST FUND
Upon termination of the Plan in accordance with the provisions hereof, the
share of the assets of the Trust Fund available for distribution to the affected
Participants and Beneficiaries shall be allocated and distributed in accordance
with the following procedure.
(A) The Committee shall determine the date of distribution and the share in
the value of the assets of the Trust Fund that is attributable to each Employer
or group of Employers with respect to which the Plan represents an IRC 414(l)
Single Plan.
(B) The distribution of the asset value will, subject to the provisions of
Section 417(e)(1) of the Internal Revenue Code, be provided by the purchase of
insured annuities from a company or companies selected by the Committee for each
class of Participants and other persons entitled to benefits under the Plan, as
specified in (C) below. Any annuities purchased pursuant to the provisions of
this Section 4.5 will be subject to the provisions hereof pertaining to the
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Qualified Joint and 50% Survivor Annuity Option and to the Qualified
Preretirement Survivor Annuity.
(C) The Committee shall determine the asset value available for
distribution on behalf of each Employer or group of Employers with respect to
which the Plan represents an IRC 414(l) Single Plan after taking into account
the expenses of such distribution. After having determined such asset value
available for distribution to each such Employer or group of Employers, as the
case may be, and subject to the applicable provisions of any Supplement hereto
pertaining to the distribution of assets upon the termination of the Plan, the
Committee shall allocate such asset value (allocated to the particular Employer
or group of Employers) as of the date of termination of the Plan in the manner
set forth below to determine the amount, if any, to which each affected
Participant or Beneficiary is entitled. Such allocation shall be made using the
methods and actuarial assumptions that are being used as of the date of
termination of the Plan by the Pension Benefit Guaranty Corporation in
determining the value of plan benefits under terminating non-multiemployer
pension plans covered by Title IV of the Employee Retirement Income Security Act
of 1974, as amended, or, at the option of the Committee, using such other
methods and actuarial assumptions that are mutually acceptable to the Committee,
the Pension Benefit Guaranty Corporation and the Internal Revenue Service. In
cases where an annuity is purchased to provide any given retirement income, the
single premium payable for such annuity shall be deemed for the purposes of the
allocations described below to be the single-sum or present value of, or the
amount otherwise required to provide, the amount of retirement income
represented by such annuity.
(1) Allocation shall first be made with respect to each active,
retired or terminated Participant and to each Beneficiary of a
deceased Participant in an amount equal to the present value of
the portion, if any, of such individual's accrued benefit which
is derived from the Participant's employee contributions to the
Plan which were not mandatory employee contributions; provided,
however, that if the asset value is less than the aggregate of
such amounts, such amounts shall be reduced pro rata among such
individuals so that the aggregate of such reduced amounts will be
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equal to the asset value; and provided further, however, that the
benefits on which the allocations specified below are based shall
exclude any portion thereof attributable to the Participant's
contributions to the Plan which were not mandatory.
(2) If there is any asset value remaining after the allocation under
(1) above, allocation shall next be made with respect to each
active, retired or terminated Participant and to each Beneficiary
of a deceased Participant in an amount equal to the present value
of the portion, if any, of such individual's accrued benefit
which is derived from the Participant's mandatory employee
contributions to the Plan; provided, however, that if such
remaining asset value is less than the aggregate of the amounts
thus allocated hereunder, such latter amounts shall be reduced
pro rata among such individuals so that the aggregate of such
reduced amounts will be equal to the remaining asset value.
(3) If there is any asset value remaining after the allocations under
(1) and (2) above, allocations shall next be made with respect
to:
(a) each retired or terminated Participant whose retirement
income payments commenced at least three years prior to the
date of termination of the Plan in an amount equal to the
excess, if any, of (i) the amount required to provide (after
the date of termination of the Plan) the smallest amount of
income payable to such Participant during such three-year
period immediately preceding the date of termination of the
Plan, based upon the provisions of the Plan as in effect
during the five-year period immediately preceding the date
of termination of the Plan that would result in the least
amount of income being payable to such Participant over (ii)
the amount of his allocation, if any, under (2) above;
(b) each person receiving a retirement income on such date of
termination on account of a deceased Participant or retired
or terminated (but since deceased) Participant whose
retirement income payments commenced, either to such person
or to such retired or terminated (but since deceased)
Participant, at least three years prior to the date of
termination of the Plan in an amount equal to the excess, if
any, of (i) the amount required to provide (after the date
of termination of the Plan) the smallest amount of income
payable to such person during such three-year period
immediately preceding the date of termination of the Plan,
based upon the provisions of the Plan as in effect during
the five-year period immediately preceding the date of
termination of the Plan that would result in the least
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amount of income being payable to such person over (ii) the
amount of his allocation, if any, under (2) above; and
(c) each other active, retired or terminated Participant who, at
least three years prior to the date of termination of the
Plan either had become eligible for normal retirement but
had not yet retired or had satisfied the applicable age and
service requirements to be eligible for an early retirement
benefit, or the Beneficiary of any such eligible Participant
whose service was terminated by reason of his death during
such three-year period, in an amount equal to the excess, if
any, of (i) the amount required to provide (after the date
of termination of the Plan) the monthly retirement income
that would have been payable on behalf of such Participant
if he had retired three years prior to the date of
termination of the Plan, based upon the provisions of the
Plan as in effect during the five-year period immediately
preceding the date of termination of the Plan which would
result in the least amount of income being payable to such
Participant or Beneficiary over (ii) the amount of his
allocation, if any, under (2) above;
provided, however, that if such remaining asset value is less than the
aggregate of the amounts thus allocated hereunder, such latter amounts
shall be reduced pro rata among such individuals so that the aggregate
of such reduced amounts will be equal to the remaining asset value.
(4) If there is any asset value remaining after the allocations under (1),
(2) and (3) above, allocation shall next be made with respect to each
active, retired or terminated Participant and to each Beneficiary
under the Plan in an amount equal to the excess, if any, of (a) the
amount required to provide that portion of the single-sum value of the
Accrued Deferred Monthly Retirement Income Commencing at Normal
Retirement Date that he had accrued as of the date of termination of
the Plan or, if applicable, that he was receiving as of the date of
termination of the Plan, which is not in excess of the actuarially
equivalent single-sum value of the benefit guaranteed on his behalf
under the termination insurance provisions of the Employee Retirement
Income Security Act of 1974 determined without regard to Sections
4022(b)(5) and 4022(b)(6) of said Act, over (b) the aggregate of the
allocations, if any, made on his behalf under (2) and (3) above;
provided, however, that if such remaining asset value is less than the
aggregate of the amounts thus allocated hereunder, such latter amounts
shall be reduced pro rata among such individuals so that the aggregate
of such reduced amounts will be equal to the remaining asset value.
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(5) If there is any asset value remaining after the allocations under (1),
(2), (3) and (4) above, allocation shall next be made with respect to
each retired or terminated Participant receiving a retirement income
hereunder on such date, each person receiving a retirement income on
such date on account of a deceased Participant or a retired or
terminated (but since deceased) Participant and each Participant who
has, by such date, become eligible for normal retirement but has not
yet retired, in an amount equal to the excess, if any, of (a) the
amount required to provide the retirement income that such Participant
or other person is receiving or is entitled to receive under the Plan
over (b) the aggregate of the allocations made on behalf of such
Participant or other person under (2), (3) and (4) above; provided,
however, that if such remaining asset value is less than the aggregate
of the amounts thus allocated hereunder, such latter amounts shall be
reduced pro rata among such individuals so that the aggregate of such
reduced amounts will be equal to the remaining asset value.
(6) If there is any asset value remaining after the allocations under (1),
(2), (3), (4) and (5) above, allocation shall next be made with
respect to:
(a) each Participant in the service of the Employer on the date of
termination of the Plan whose Initial Vesting Date is on or prior
to such date and who is not entitled to an allocation under (5)
above, in an amount equal to the excess, if any, of (i) the
amount required to provide the actuarially equivalent single-sum
value of the vested retirement income that he would have been
entitled to receive under the provisions of Section 2.4(A)(1)
hereof if his service had been terminated on the date of
termination of the Plan over (ii) the aggregate of the
allocations made on behalf of such Participant under (2), (3) and
(4) above;
(b) each disabled Participant then entitled to a benefit under the
provisions of Section 2.3 hereof, who has not, by such date,
reached his Disability Retirement Income Commencement Date, in an
amount equal to the excess, if any, of (i) the amount required to
provide the actuarially equivalent single-sum value of the vested
retirement income that he would have been entitled to receive
under the provisions of Section 2.1, 2.2 or 2.4(A)(1) hereof,
whichever would be applicable, if he had recovered from his total
and permanent disability, reentered the service of the Employer
on the date of termination of the Plan and his service had been
terminated immediately after his reentry over (ii) the aggregate
of the allocations made on behalf of such Participant under (2),
(3) and (4) above; and
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(c) each terminated Participant then entitled to a benefit under the
provisions of Section 2.4(A)(1) hereof, whose monthly income
payments have not commenced by such date, in an amount equal to
the excess, if any, of (i) the amount required to provide the
actuarially equivalent single-sum value of the vested deferred
retirement income to which he is entitled under Section 2.4(A)(1)
hereof over (ii) the aggregate of the allocations made on behalf
of such Participant under (2), (3) and (4) above;
provided, however, that if such remaining asset value is less than the
aggregate of the amounts thus allocated hereunder, such latter amounts
shall be reduced pro rata among such individuals so that the aggregate
of such reduced amounts will be equal to the remaining asset value.
(7) If there is any asset value remaining after the allocations under (1),
(2), (3), (4), (5) and (6) above, allocation shall lastly be made with
respect to each Participant in the service of the Employer on the date
of termination of the Plan who is not entitled to an allocation under
(5) above, in an amount equal to the excess, if any, of (a) the amount
required to provide the actuarially equivalent single-sum value of the
Accrued Deferred Monthly Retirement Income Commencing at Normal
Retirement Date that he had accrued as of the date of termination of
the Plan (assuming his Vested Percentage is 100%) over (b) the
aggregate of the allocations made on behalf of such Participant under
(2), (3), (4) and (6) above; provided, however, that if such remaining
asset value is less than the aggregate of the amounts thus allocated
hereunder, such latter amounts shall be reduced pro rata among such
individuals so that the aggregate of such reduced amounts will be
equal to such remaining asset value.
(8) In the event that there is asset value remaining after the full
allocations specified in (1), (2), (3), (4), (5), (6) and (7) above,
such residual assets shall be distributed to the Employer, except
that, in the case of a group of Employers with respect to which the
Plan represents an IRC 414(l) Single Plan, such residual assets shall
remain in the Trust Fund if the Plan is not being terminated with
respect to all of such Employers.
(D) The order of priorities for, and the amounts and methods of, the
distributions set forth in (C) above and the rights of Participants and their
Beneficiaries to benefits under the Plan shall be subject (i) to the
distribution rules set forth in the Plan, (ii) to the limitations provided by
Section 4.2 of the Plan, (iii) to any changes, including the recapture of any
4-29
prior distributions to Participants, as may be ordered by the Pension Benefit
Guaranty Corporation and (iv) to any changes required by the Internal Revenue
Service as a condition for issuing a favorable determination letter stating that
the distribution of assets will not adversely affect the continued qualified
status of the Plan under Section 401(a) of the Internal Revenue Code.
(E) As soon as practicable after both (a) the date that the assets may be
distributed under the rules and regulations of the Pension Benefit Guaranty
Corporation and (b) the date that a favorable determination letter is received
from the Internal Revenue Service stating that in its opinion the method of
distribution will not adversely affect the continued qualified status of the
Plan under Section 401(a) of the Internal Revenue Code, the Committee shall
direct the Trustee to distribute the assets to the affected parties in
accordance with such method.
4.6 - SPECIAL PROVISIONS THAT APPLY IF PLAN IS TOP-HEAVY
The provisions of this Section 4.6 shall apply if the Plan is a "top-heavy
plan" within the meaning of Section 416(g) of the Internal Revenue Code with
respect to any Plan Year beginning after December 31, 1983. Unless a different
meaning is plainly required by the context, the term "Plan" as used in this
Section 4.6 shall include the Retirement Plan for Employees of Capital Southwest
Corporation and Its Affiliates as in effect during the Plan Years beginning
after December 31, 1983 and before the Effective Date of the Plan.
(A) Determination of Plan Years in Which Plan Is Top-Heavy: The Plan shall
be top-heavy with respect to an applicable Plan Year if:
(1) either:
(a) any Participant, former Participant or Beneficiary in the
Plan is a "key employee" within the meanings of Sections
416(i)(1) and 416(i)(5) of the Internal Revenue Code
(hereinafter referred to in this Section 4.6 as
"Key-Employees"); or
(b) the Plan is required to be combined with any other plan,
which is included in the Aggregation Group (as defined
below) and which has a participant who is a Key Employee, in
order to enable such other plan to meet the requirements of
4-30
Section 401(a)(4) or Section 410 of the Internal Revenue
Code;
and
(2) the ratio (determined in accordance with Section 416 of the
Internal Revenue Code) as of the last day of the preceding Plan
Year or, in the case of the first Plan Year, the last day of such
first Plan Year (such day, whether applicable to the first Plan
Year or to subsequent Plan Years, is hereinafter referred to in
this Section 4.6 as the "Determination Date") of:
(a) the sum of (i) the present value of the cumulative accrued
benefits for all Key Employees under all defined benefit
plans included in the Aggregation Group plus (ii) the
aggregate of the individual accounts of all Key Employees
under all defined contribution plans included in such
Aggregation Group;
to
(b) a similar sum determined for all Participants, former
Participants and Beneficiaries under all defined benefit
plans and defined contribution plans included in such
Aggregation Group, but excluding any such Participant or
former Participant (or his Beneficiary) who was a Key
Employee for any prior Plan Year but who is not currently a
Key Employee and also excluding, for Plan Years beginning
after December 31, 1984, any Participant or former
Participant (or his Beneficiary) who has not at any time
during the one-year period ending on the Determination Date,
or during the five-year period ending on the Determination
Date with respect to Plan Years beginning prior to January
1, 2002, performed services for any employer maintaining a
plan included in the Aggregation Group;
is greater than 60%.
For the purposes of this Section 4.6, the Aggregation Group shall mean the
Plan plus all other defined benefit plans and defined contribution plans
(including any such plans that terminated during the five-year period ending on
the Determination Date), if any, maintained by the Controlled Group Members;
provided, however, that any defined benefit plan or defined contribution plan of
any Controlled Group Member that (i) does not have any participant who is a Key
Employee and (ii) is not required to be combined with any other plan, which is
4-31
included in the Aggregation Group and which has a participant who is a Key
Employee, in order to enable such other plan to meet the requirements of Section
401(a)(4) or Section 410 of the Internal Revenue Code, shall be included in the
Aggregation Group only if such defined benefit plan or defined contribution
plan, together with the other plans that are included in the Aggregation Group,
as a combined group satisfy the requirements of Sections 401(a)(4) and 410 of
the Internal Revenue Code. In determining Key Employees under the Plan, the
compensation taken into account shall be "IRC 415 Compensation" as defined above
in Section 4.1(A).
The present value of an accrued benefit under the Plan shall, for the
purposes of this Section 4.6, be determined as of the most recent valuation date
that (i) is used for the Plan Year for computing Plan costs for minimum funding
purposes (regardless of whether a valuation is actually performed for that year)
and (ii) is within the 12-month period ending on the applicable Determination
Date (such valuation date is herein referred to in this Section 4.6 as the
"Valuation Date"). The present value of accrued benefits under the Plan and
under each other defined benefit plan included in the aggregation group shall be
computed using 5% interest and the mortality table used for such Plan Year for
computing Plan costs for minimum funding purposes.
The present value of the cumulative accrued benefits under the other
defined benefit plans included in the Aggregation Group and the aggregate of the
individual accounts under the defined contribution plans included in such
Aggregation Group shall be determined separately for each such plan in
accordance with Section 416 of the Internal Revenue Code and regulations issued
with respect thereto as of the "determination date" that is applicable to each
such separate plan and that falls within the same calendar year that the
Determination Date applicable to the Plan falls.
4-32
Unless required otherwise under Section 416 of the Internal Revenue Code
and regulations issued thereunder, a Participant's (or Beneficiary's) accrued
benefit under the Plan shall be equal to the sum of:
(a) an amount equal to either:
(i) if his service has not been terminated and he has not
reached his Normal Retirement Date as of the Valuation Date,
the Accrued Deferred Monthly Retirement Income Commencing at
Normal Retirement Date that he has accrued as of the
Valuation Date;
(ii) if his service has not been terminated and he has reached
his Normal Retirement Date as of the Valuation Date, the
monthly retirement income to which he would have been
entitled under the normal retirement provisions of the Plan
if he had retired on the Valuation Date;
or
(iii) if his service has been terminated as of the Valuation
Date, the amount of retirement income or other benefit that
is payable on his behalf under the Plan on and after the
Valuation Date;
plus
(b) the aggregate distributions made on his behalf during the
one-year period ending on the Determination Date (five-year
period ending on the Determination Date, with respect to any
distribution made for any reason other than death, disability, or
separation from service);
provided, however, that his estimated accrued benefit between the Valuation Date
and Determination Date applicable to the first Plan Year shall be included as
part of his accrued benefit with respect to the first Plan Year only. Any
provisions hereof to the contrary notwithstanding and solely for the purpose of
determining if the Plan is top-heavy with respect to an applicable Plan Year
beginning after December 31, 1986, the accrued benefit of any employee who is
not a Key Employee shall be determined under the method which is used for
accrual purposes for all defined benefit plans included in the Aggregation Group
or, if a single method is not used for all such defined benefit plans, the
accrued benefit of such employee shall be determined as though it accrued not
4-33
more rapidly than the slowest accrual rate permitted under the fractional
accrual rule of Section 411(b)(1)(C) of the Internal Revenue Code.
(B) Minimum Vesting Provisions if Plan Becomes Top-Heavy: Any other
provision of the Plan to the contrary notwithstanding, the Initial Vesting Date
of a Participant in the Plan, who has accrued an Hour of Service during any Plan
Year that is subsequent to the last Plan Year that the Plan was not top-heavy,
for the purpose of determining his eligibility for the benefit provided under
Section 2.4(A) hereof during any Plan Year that is subsequent to the last Plan
Year that the Plan was not top-heavy, shall not be later than (i) the date as of
which he completes two years of Vesting Service or (ii) the first day of the
Plan Year immediately following the last Plan Year that the Plan was not
top-heavy, whichever is later, but the Vested Percentage of the Participant for
the purposes of Section 2.4(A)(1) shall be 100% with respect to the portion of
his Accrued Deferred Monthly Retirement Income Commencing at Normal Retirement
Date that is attributable to his own contributions, if any, and shall not be
less than the percentage specified in the schedule below, based upon the
Participant's number of years (ignoring fractions) of Vesting Service as of the
date of termination of his service, with respect to the portion of his Accrued
Deferred Monthly Retirement Income Commencing at Normal Retirement Date that is
attributable to employer contributions:
Years of Vested
Vesting Service Percentage
--------------- ----------
Less than 2 0%
2 20%
3 40%
4 60%
5 or more 100%
In the event that the Plan ceases to be top-heavy with respect to any subsequent
Plan Year, the following provisions will apply with respect to the minimum
4-34
benefits to which such a Participant is entitled under Section 2.4(A) hereof
during such subsequent Plan Years that the Plan is not top-heavy:
(1) if the Participant had not completed at least two years of
Vesting Service as of the last day of the last Plan Year during
which the Plan was top-heavy, his nonforfeitable right to the
benefits to which he is entitled under Section 2.4(A) hereof
shall be determined as though the Plan had never been top-heavy;
(2) if the Participant had completed at least two but had not
completed at least three years of Vesting Service as of the last
day of the last Plan Year during which the Plan was top-heavy, he
shall be eligible for a minimum benefit payable under Section
2.4(A) hereof; such minimum benefit provided under Section
2.4(A)(1) shall be based upon (a) 100% of the portion of his
Accrued Deferred Monthly Retirement Income Commencing at Normal
Retirement Date that he has accrued as of the date of termination
of his service that is attributable to his own contributions, if
any, plus (b) the product of (i) the portion of the Accrued
Deferred Monthly Retirement Income Commencing at Normal
Retirement Date that he had accrued as of the date of termination
of his service that is attributable to employer contributions
multiplied by (ii) his Vested Percentage determined as of the
last day of the last Plan Year during which the Plan was
top-heavy;
(3) if the Participant had completed at least three years of Vesting
Service as of the last day of the last Plan Year during which the
Plan was top-heavy, he shall be eligible for the benefit provided
under Section 2.4(A) hereof, but the Participant's Vested
Percentage shall be determined in the same manner as though the
Plan had remained top-heavy; and
(4) the Accrued Deferred Monthly Retirement Income Commencing at
Normal Retirement Date that a Participant, whose Vesting Service
includes service that was accrued on or prior to the last day of
the last Plan Year that the Plan was top-heavy, has accrued as of
any given date shall not be less than the actuarial equivalent of
(a) the benefit provided on his behalf under Section 4.6(C)(1)
below as of such given date plus (b) the benefit provided on his
behalf under Section 4.6(C)(2)(a) below as of the last day of the
last Plan Year during which the Plan was top-heavy less (c) the
amount of the benefit provided on his behalf under Section
4.6(C)(2)(b) below as of such given date.
(C) Minimum Benefit If Plan Becomes Top-Heavy: In the event that the
service of a Participant, who is not a Key Employee, is terminated on or after
his Initial Vesting Date for any reason, the retirement income payable to the
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Participant under the provisions of Section 2.1, 2.2, 2.3 or 2.4(A) hereof or,
if the service of the Participant is terminated by reason of his death, the
retirement income which he has accrued as of the date of his death that is used
to determine the benefit payable on his behalf under the provisions of Section
2.4(B) hereof, whichever is applicable, shall not be less than that amount of
retirement income which is actuarially equivalent (based upon the interest and
mortality assumptions that are being used under the Plan as of the date of his
retirement or termination of service to determine actuarially equivalent
non-decreasing annuities) to an amount equal to:
(1) 100% of the portion of his Accrued Deferred Monthly Retirement
Income Commencing at Normal Retirement Date that he has accrued
as of the date of his retirement or termination of service that
is attributable to his own contributions, if any;
plus
(2) the excess, if any, of:
(a) a monthly retirement income payable to the Participant for
life (with no ancillary benefits) commencing at his Normal
Retirement Date in an amount equal to (i) 2% of his "IRC 416
Final Average Monthly Compensation" multiplied by (ii) his
number of years of Vesting Service, not in excess of 10
years, that were accrued during those Plan Years in which
the Plan was top-heavy, with the resulting product of (i)
and (ii) multiplied by (iii) his Vested Percentage at the
date of his retirement or termination of service; provided,
however, if the Participant retires after his Normal
Retirement Date, the amount of the monthly retirement income
determined under this Subparagraph (a) shall not be less
than the actuarial equivalent of the monthly retirement
income determined in accordance with this subparagraph that
would have been payable to the Participant if he had retired
on his Normal Retirement Date;
over
(b) the monthly retirement income payable to the Participant for
life (with no ancillary benefits) commencing at his Normal
Retirement Date in an amount equal to the sum of:
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(i) such amount of income, if any, that he has a
nonforfeitable right to receive and that is
attributable to employer contributions and is payable
to the Participant under the other defined benefit
plans, if any, which are included in the Aggregation
Group;
plus
(ii) such amount of income that can be provided on an
actuarially equivalent basis (based upon the interest
and mortality assumptions that are being used under the
Plan as of the date of his retirement or termination of
service to determine actuarially equivalent
non-decreasing annuities) by the amounts, if any, that
he has a nonforfeitable right to receive and that are
attributable to employer contributions and forfeitures
that are credited to his account under the defined
contribution plans, if any, included in the Aggregation
Group;
provided, however, if the Aggregation Group includes one or more defined
contribution plans and if, with respect to each Plan Year that the Plan is
top-heavy, the Participant has received an allocation of employer contributions
and forfeitures to his account under such defined contribution plan or plans
which is equal to or greater than 5% of the IRC 415 Compensation that he
received during such Plan Year from the employers maintaining plans included in
the Aggregation Group, the minimum benefit described above in this Section
4.6(C) shall not apply to such Participant. For purposes of Section 4.6(C)(2)(a)
above, a Participant's service with a Controlled Group Member which occurs
during a Plan Year in which the Plan does not benefit (within the meaning of
Section 410(b) of the Internal Revenue Code) any Key Employee or former Key
Employee shall be ignored or excluded in determining such Participant's Vesting
Service.
For the purposes of this Section 4.6(C), subject to the limitations of
Section 401(a)(17) of the Internal Revenue Code, a Participant's "IRC 416 Final
Average Monthly Compensation" shall be equal to his average monthly rate of IRC
415 Compensation for the five consecutive calendar years, which are prior to the
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January 1st immediately following (i) the date of the Participant's retirement
or termination of service or (ii) the close of the last Plan Year in which the
Plan is top-heavy, whichever is earlier, during which he received the highest
aggregate IRC 415 Compensation. Such average monthly rate will be determined by
dividing the total of such IRC 415 Compensation that he received during such
five-consecutive-calendar year period from the employers maintaining plans
included in the Aggregation Group by the product equal to 12 times the number of
years of Vesting Service which he accrued during such five-calendar-year period.
In the event that the Participant does not receive both IRC 415 Compensation and
Vesting Service during a calendar year or calendar years, such calendar year or
calendar years during which he did not receive both IRC 415 Compensation and
Vesting Service shall be ignored and excluded in determining the five
consecutive calendar years during which he received the highest aggregate IRC
415 Compensation.
4.7 TRANSFERS
Notwithstanding any provision in this Plan to the contrary, assets held by
the Trust may be transferred between the Trust and any other trust which is
exempt from tax under Section 501(a) of the Internal Revenue Code and which is
used in connection with a plan that complies with the qualification requirements
of Section 401(a) of the Internal Revenue Code, provided that proper notice is
given to the Internal Revenue Service as may be required. The Committee shall
determine whether to allow any such transfer and shall inform the Trustee of the
determination made by the Committee regarding any such transfer and direct the
Trustee accordingly. If any assets are transferred from the Trust on behalf of
Participants pursuant to a direction described in this section, the assets
transferred shall be determined based upon the requirements of Section 414(l) of
the Internal Revenue Code and the accrued benefits of those Participants under
the Plan shall be reduced to zero. In the event of a transfer received by the
Trust, the Committee shall take all necessary steps to ensure that any optional
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form of benefit applicable to the assets subject to such a transfer remain
applicable to the transferred assets after the transfer pursuant to the
requirements of Section 411(d)(6) of the Internal Revenue Code and Section
1.411(d)-4 of the Treasury Regulations. Any transfer made pursuant to the
provisions of this section shall be made in a manner consistent with the
requirements of Sections 401(a)(12) and 414(l) of the Internal Revenue Code,
Section 208 of the Employee Retirement Income Security Act of 1974, as amended,
and the regulations thereunder. Any transfer of assets or liabilities will, for
purposes of Section 414(l) of the Internal Revenue Code, be considered as a
combination of separate mergers and spinoffs using the rules of Section
1.414(l)-1 of the Treasury Regulations.
4.8 - MINIMUM DISTRIBUTION REQUIREMENTS
(A) General Rules:
(1) Effective Date: The provisions of this Section 4.8 will apply for
purposes of determining required minimum distributions for calendar years
beginning with the 2006 calendar year.
(2) Precedence: The requirements of this Section 4.8 will take precedence
over any inconsistent provisions of the Plan.
(3) Requirements of Treasury Regulations Incorporated: All distributions
required under this Section 4.8 will be determined and made in accordance with
Sections 1.401(a)(9)-1 through 1.401(a)(9)-9 of the Treasury regulations under
Section 401(a)(9) of the Internal Revenue Code.
(4) TEFRA Section 242(b)(2) Elections: Notwithstanding the other provisions
of this Section 4.8, other than Section 4.8(A)(3) above, distributions may be
made under a designation made before January 1, 1984, in accordance with Section
242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA) and the
provisions of the Plan that relate to Section 242(b)(2) of TEFRA.
(B) Time and Manner of Distribution:
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(1) Required Beginning Date: The Participant's entire interest will be
distributed, or begin to be distributed, to the Participant no later than the
Participant's Required Beginning Date.
(2) Death of Participant Before Distributions Begin: If the Participant
dies before distributions begin, the Participant's entire interest will be
distributed, or begin to be distributed, no later than as follows:
(a) If the Participant's surviving spouse is the Participant's sole
designated Beneficiary, then distributions to the surviving spouse will
begin by December 31 of the calendar year immediately following the
calendar year in which the Participant died, or by December 31 of the
calendar year in which the Participant would have attained age 70 1/2, if
later.
(b) If the Participant's surviving spouse is not the Participant's
sole designated Beneficiary as of September 30 of the year following the
year of the Participant's death, then distributions to the designated
Beneficiary will begin by December 31 of the calendar year immediately
following the calendar year in which the Participant died.
(c) If there is no designated Beneficiary as of September 30 of the
year following the year of the Participant's death, the Participant's
entire interest will be distributed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death.
(d) If the Participant's surviving spouse is the Participant's sole
designated Beneficiary as of September 30 of the year following the year of
the Participant's death, and the surviving spouse dies after the
Participant but before distributions to the surviving spouse begin, this
Section 4.8(B)(2), other than Section 4.8(B)(2)(a), will apply as if the
surviving spouse were the Participant.
For purposes of this Section 4.8(B)(2) and Section 4.8(E), distributions are
considered to begin on the Participant's Required Beginning Date (or, if Section
4.8(B)(2)(d) applies, the date distributions are required to begin to the
surviving spouse under Section 4.8(B)(2)(a)). If annuity payments irrevocably
commence to the Participant before the Participant's Required Beginning Date (or
to the Participant's surviving spouse before the date distributions are required
to begin to the surviving spouse under Section 4.8(B)(2)(a)), the date
distributions are considered to begin is the date distributions actually
commence. Any amount payable to the surviving child of the Participant in
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accordance with the requirements of Q&A-15 of Section 1.401(a)(9)-6 of the
Treasury regulations shall be treated for purposes of this Section 4.8 as if it
had been paid to such Participant's surviving spouse to the extent such amount
that is payable to the child will become payable to the Participant's surviving
spouse upon such child reaching majority (or upon the occurrence of such other
event specified in Q&A-15 of Section 1.401(a)(9)-6 of the Treasury regulations
or otherwise specified in IRS guidance under Section 401(a)(9) of the Internal
Revenue Code.)
(3) Form of Distribution: Unless the Participant's interest is distributed
in the form of an annuity purchased from an insurance company or in a single sum
on or before the Required Beginning Date, as of the first distribution calendar
year distributions will be made in accordance with Sections 4.8(C), (D), and (E)
hereof. If the Participant's interest is distributed in the form of an annuity
purchased from an insurance company, distributions thereunder will be made in
accordance with the requirements of Section 401(a)(9) of the Internal Revenue
Code and the Treasury regulations. Any part of the Participant's interest which
is in the form of an individual account described in Section 414(k) of the
Internal Revenue Code will be distributed in a manner satisfying the
requirements of Section 401(a)(9) of the Internal Revenue Code and the Treasury
regulations that apply to individual accounts.
(4) Change in Annuity Payment Period: Once payments have commenced over a
period, the period may only be changed in accordance with Q&A-13 of Section
1.401(a)(9)-6 of the Treasury regulations under the following circumstances, or
as may be expressly permitted in other IRS guidance under Section 401(a)(9) of
the Internal Revenue Code, if permitted under applicable provisions of the Plan:
(a) at the time the Participant retires or in connection with
termination of the Plan;
(b) where distribution prior to the change is being made in the form
of a period-certain-only annuity without life contingencies; or
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(c) where the annuity payments after the change are paid under a
Qualified Joint and Survivor Annuity over the joint lives of the
Participant and a designated beneficiary, the Participant's spouse is the
sole designated beneficiary, and the change occurs in connection with the
Participant becoming married to such spouse.
(C) Determination of Amount to be Distributed Each Year:
(1) General Annuity Requirements: If the Participant's interest is paid in
the form of annuity distributions under the Plan, payments under the annuity
will satisfy the following requirements:
(a) the annuity distributions will be paid in periodic payments made
at intervals not longer than one year;
(b) the distribution period will be over a life (or lives) or over a
period certain not longer than the period described in Section 4.8(D) or
(E) below;
(c) once payments have begun over a period certain, the period certain
will not be changed even if the period certain is shorter than the maximum
permitted; and
(d) payments will either be nonincreasing or increase only as follows:
(i) by an annual percentage increase that does not exceed
the annual percentage increase in an eligible cost-of-living
index, as defined in Q&A-14(b) of Section 1.401(a)(9)-6 of the
Treasury regulations, for a 12-month period ending in the year
during which the increase occurs or the prior year, that is based
on prices of all items and issued by the Bureau of Labor
Statistics;
(ii) by a percentage increase that occurs at specified
times, such as at specified ages, and does not exceed the
cumulative total of annual percentage increases in an eligible
cost-of-living index as defined in clause (i) above since the
annuity starting date or, if later, the date of the most recent
percentage increase, provided that in cases providing such a
cumulative increase an actuarial increase may not be provided to
reflect the fact that increases were not provided in the interim
years;
(iii) to the extent of the reduction in the amount of the
Participant's payments to provide for a survivor benefit upon
death, but only if the Beneficiary whose life was being used to
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determine the distribution period described in Section 4.8(D)
dies or is no longer the Participant's Beneficiary pursuant to a
qualified domestic relations order within the meaning of Section
414(p) of the Internal Revenue Code;
(iv) to pay increased benefits that result from a Plan
amendment;
(v) to allow a beneficiary to convert the survivor portion
of a joint and survivor annuity into a single-sum distribution
upon the employee's death; or
(vi) to the extent increases are permitted in accordance
with paragraph (c) or (d) of Q&A-14 of Section 1.401(a)(9)-6 of
the Treasury regulations.
(2) Amount Required to be Distributed by Required Beginning Date: The
amount that must be distributed on or before the Participant's Required
Beginning Date (or, if the Participant dies before distributions begin, the date
distributions are required to begin under Section 4.8(B)(2)(a) or (b)) is the
payment that is required for one payment interval. The second payment need not
be made until the end of the next payment interval even if that payment interval
ends in the next calendar year. Payment intervals are the periods for which
payments are received, e.g., bi-monthly, monthly, semi-annually, or annually.
All of the Participant's benefit accruals as of the last day of the first
distribution calendar year will be included in the calculation of the amount of
the annuity payments for payment intervals ending on or after the Participant's
Required Beginning Date.
(3) Additional Accruals After First Distribution Calendar Year: Any
additional benefits accruing to the Participant in a calendar year after the
first distribution calendar year will be distributed beginning with the first
payment interval ending in the calendar year immediately following the calendar
year in which such amount accrues.
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(D) Requirements for Annuity Distributions That Commence During
Participant's Lifetime:
(1) Joint Life Annuities Where the Beneficiary Is Not the Participant's
Spouse: If the Participant's interest is being distributed in the form of a
joint and survivor annuity for the joint lives of the Participant and a
nonspouse Beneficiary, annuity payments to be made on or after the Participant's
Required Beginning Date to the designated Beneficiary after the Participant's
death shall not at any time exceed the applicable percentage of the annuity
payment for such period that would have been payable to the Participant using
the table set forth in Q&A-2 of Section 1.401(a)(9)-6 of the Treasury
regulations. If the form of distribution combines a joint and survivor annuity
for the joint lives of the Participant and a nonspouse Beneficiary and a period
certain annuity, the requirement in the preceding sentence will apply to annuity
payments to be made to the designated Beneficiary after the expiration of the
period certain.
(2) Period Certain Annuities: Unless the Participant's spouse is the sole
designated Beneficiary and the form of distribution is a period certain and no
life annuity, the period certain for an annuity distribution commencing during
the Participant's lifetime shall not exceed the applicable distribution period
for the Participant under the Uniform Lifetime Table set forth in Section
1.401(a)(9)-9 of the Treasury regulations for the calendar year that contains
the Annuity Starting Date. If the Annuity Starting Date precedes the year in
which the Participant reaches age 70, the applicable distribution period for the
Participant is the distribution period for age 70 under the Uniform Lifetime
Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations plus the
excess of 70 over the age of the Participant as of the Participant's birthday in
the year that contains the Annuity Starting Date. If the Participant's spouse is
the Participant's sole designated Beneficiary and the form of distribution is a
period certain and no life annuity, the period certain may not exceed the longer
of the Participant's applicable distribution period, as determined under this
Section 4.8(D)(2), or the joint life and last survivor expectancy of the
Participant and the Participant's spouse as determined under the Joint and Last
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Survivor Table set forth in Section 1.401(a)(9)-9 of the Treasury regulations,
using the Participant's and spouse's attained ages as of the Participant's and
spouse's birthdays in the calendar year that contains the Annuity Starting Date.
(E) Requirements for Minimum Distributions Where Participant Dies
Before Date Distributions Begin:
(1) Participant Survived by Designated Beneficiary: If the Participant dies
before the date distribution of his or her interest begins and there is a
designated Beneficiary, the Participant's entire interest will be distributed,
beginning no later than the time described in Section 4.8(B)(2), over the life
of the designated Beneficiary or over a period certain not exceeding:
(a) unless the Annuity Starting Date is before the first
distribution calendar year, the life expectancy of the designated
Beneficiary determined using the Beneficiary's age as of the
Beneficiary's birthday in the calendar year immediately following the
calendar year of the Participant's death; or
(b) if the Annuity Starting Date is before the first distribution
calendar year, the life expectancy of the designated Beneficiary
determined using the Beneficiary's age as of the Beneficiary's
birthday in the calendar year that contains the Annuity Starting Date.
(2) No Designated Beneficiary: If the Participant dies before the date
distributions begin and there is no designated Beneficiary as of September 30 of
the year following the year of the Participant's death, distribution of the
Participant's entire interest will be completed by December 31 of the calendar
year containing the fifth anniversary of the Participant's death.
(3) Death of Surviving Spouse Before Distributions to Surviving Spouse
Begin: If the Participant dies before the date distribution of his or her
interest begins, the Participant's surviving spouse is the Participant's sole
designated Beneficiary, and the surviving spouse dies before distributions to
the surviving spouse begin, this Section 4.8(E) will apply as if the surviving
spouse were the Participant, except that the time by which distributions must
begin will be determined without regard to Section 4.8(B)(2)(a).
(F) Definitions:
(1) Designated Beneficiary: The individual who is designated as the
Beneficiary under Section 5.2 or 5.3 of the Plan and is the designated
beneficiary under Section 401(a)(9) of the Internal Revenue Code and Section
1.401(a)(9)-4, Q&A-1, of the Treasury regulations.
(2) Distribution calendar year: A calendar year for which a minimum
distribution is required. For distributions beginning before the Participant's
death, the first distribution calendar year is the calendar year immediately
preceding the calendar year which contains the Participant's Required Beginning
Date. For distributions beginning after the Participant's death, the first
distribution calendar year is the calendar year in which distributions are
required to begin pursuant to Section 4.8(B)(2).
(3) Life expectancy: Life expectancy as computed by use of the Single Life
Table in Section 1.401(a)(9)-9 of the Treasury regulations.
(4) Required Beginning Date: The date specified in Section 1.1(A) of the
Plan.
5-1
SECTION 5
MISCELLANEOUS PROVISIONS REGARDING PARTICIPANTS
5.1 - PARTICIPANTS TO FURNISH REQUIRED INFORMATION
Each Participant, his spouse and his Beneficiaries and joint pensioners
will furnish to the Committee such information as the Committee considers
necessary or desirable for purposes of administering the Plan, and the
provisions of the Plan respecting any payments thereunder are conditional upon
the Participant's, Beneficiary's or joint pensioner's furnishing promptly such
true, full and complete information as the Committee may request.
Each Participant will submit proof of his age and marital status and proof
of the age and continued life of each Beneficiary and joint pensioner designated
or selected by him to the Committee at such time as required by the Committee.
The Committee will, if such proof of age, marital status or continued life is
not submitted as required, use as conclusive evidence thereof, such information
as is deemed by it to be reliable, regardless of the source of such information.
Any adjustment required by reason of lack of proof or the misstatement of the
age of persons entitled to benefits hereunder, by the Participant or otherwise,
will be in such manner as the Committee deems equitable.
Any notice or information which, according to the terms of the Plan or the
rules of the Committee, must be filed with the Committee, shall be deemed so
filed at the time that it is actually received by the Committee.
The Employer, the Committee, and any person or persons involved in the
administration of the Plan shall be entitled to rely upon any certification,
statement, or representation made or evidence furnished by an employee,
Participant, Beneficiary or joint pensioner with respect to his age or other
facts required to be determined under any of the provisions of the Plan and
shall not be liable on account of the payment of any monies or the doing of any
act or failure to act in reliance thereon. Any such certification, statement,
representation or evidence, upon being duly made or furnished, shall be
5-2
conclusively binding upon the person furnishing same; but it shall not be
binding upon the Employer, the Committee, or any other person or persons
involved in the administration of the Plan, and nothing herein contained shall
be construed to prevent any of such parties from contesting any such
certification, statement, representation or evidence or to relieve the Employee,
Participant, Beneficiary or joint pensioner from the duty of submitting
satisfactory proof of any such fact.
Any Participant, Beneficiary, joint pensioner or other person who receives
an incorrect payment from the Trust Fund (whether an erroneous benefit amount, a
payment made after a Participant's death or other reason) shall be responsible
to notify the Committee or the Trustee of such receipt of incorrect payment and
to promptly return such payment to the Trustee.
5.2 - BENEFICIARIES
Subject to the provisions of the following paragraphs of this section, each
Participant may, on a form provided for that purpose, signed and filed with the
Committee, designate a Beneficiary to receive the benefit, if any, which may be
payable to his Beneficiary under the Plan in the event of his death, and each
designation may be revoked by such Participant by signing and filing with the
Committee a new designation of Beneficiary form.
If a deceased Participant, who has been married to his spouse throughout
the one-year period immediately preceding his death, has designated a person
other than his spouse as his Beneficiary and such spouse has not validly
consented in accordance with the provisions of Sections 4.1(D) and 4.1(E) hereof
to such other person being designated as the Beneficiary, the provisions of
Section 4.1(D) hereof, relating to the Qualified Preretirement Survivor Annuity
payable to his surviving spouse, will apply in the event of his death on or
after his Initial Vesting Date, and the Participant will automatically be deemed
5-3
to have changed his designation of Beneficiary to the extent necessary to comply
with the provisions of Section 4.1(D).
If a deceased Participant who had a spouse at the date of his death failed
to designate a Beneficiary in accordance with the provisions of this section, he
shall be deemed to have designated his spouse as his Beneficiary. If a deceased
Participant who had no spouse at the date of his death failed to designate a
Beneficiary in accordance with the provisions of this section, or if such a
deceased Participant had previously designated a Beneficiary but no designated
Beneficiary is surviving at the date of his death, the death benefit, if any,
that may be payable under the Plan with respect to such deceased Participant
shall be paid to the estate of such deceased Participant. In any of such cases,
if the commuted value of the remaining monthly income payments is equal to or
less than the maximum amount that is permissible as an involuntary cash-out of
accrued benefits under Sections 411(a)(11) and 417(e) of the Internal Revenue
Code and regulations issued with respect thereto, the commuted value of the
remaining payments shall, subject to the provisions of Section 3.2 hereof, be
paid in a lump sum. Any payment made to any person pursuant to the provisions of
this Section 5.2 shall operate as a complete discharge of all obligations under
the Plan with respect to such deceased Participant and shall not be subject to
review by anyone but shall be final, binding and conclusive on all persons ever
interested hereunder.
5.3 - CONTINGENT BENEFICIARIES
In the event of the death of a Beneficiary who survives the Participant and
who, at the Beneficiary's death, is receiving benefits pursuant to the
provisions of the Plan within any certain period specified under the Plan with
respect to which death benefits are payable under the Plan after the
Participant's death, the same amount of monthly retirement income that the
Beneficiary was receiving shall be payable for the remainder of such specified
certain period to a person designated by the Participant (in the manner provided
in Section 5.2) to receive the remaining death benefits, if any, payable in the
event of such contingency or, if no person was so named, then to a person
designated by the Beneficiary (in the manner provided in Section 5.2) of the
deceased Participant to receive the remaining death benefits, if any, payable in
the event of such contingency; provided, however, that if no person so
5-4
designated is living upon the occurrence of such contingency, or if there has
been no such designation, then the remaining death benefits, if any, shall be
payable for the remainder of such specified certain period to the estate of such
deceased Beneficiary, or the Committee may elect to have a court of applicable
jurisdiction determine to whom a payment or payments shall be paid. In any of
such cases, if the commuted value of the monthly income payments due for the
remainder of the specified certain period is equal to or less than the maximum
amount that is permissible as an involuntary cash-out of accrued benefits under
Sections 411(a)(11) and 417(e) of the Internal Revenue Code and regulations
issued with respect thereto, the commuted value of the remaining payments shall,
subject to the provisions of Section 3.2 hereof, be paid in a lump sum. Any
payments made to any person pursuant to the provisions of this Section 5.3 shall
operate as a complete discharge of all obligations under the Plan with respect
to such deceased Beneficiary and shall not be subject to review by anyone but
shall be final, binding and conclusive on all persons ever interested hereunder.
5.4 - PARTICIPANTS' RIGHTS IN TRUST FUND
No Participant or other person shall have any interest in or any right in,
to or under the Trust Fund, or any part of the assets held thereunder, except as
to the extent expressly provided in the Plan.
5.5 - BENEFITS NOT ASSIGNABLE
Except to the extent required to comply with a qualified domestic relations
order as described in Sections 401(a)(13) and 414(p) of the Internal Revenue
Code, no benefits, rights or accounts shall exist under the Plan which are
subject in any manner to voluntary or involuntary anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the
5-5
same shall be null and void; nor shall any such benefit, right or account under
the Plan be in any manner liable for or subject to the debts, contracts,
liabilities, engagements, torts or other obligations of the person entitled to
such benefit, right or account; nor shall any benefit, right or account under
the Plan constitute an asset in case of the bankruptcy, receivership or divorce
of any person entitled to a benefit under the Plan; and any such benefit, right
or account under the Plan shall be payable only directly to the Participant or
Beneficiary, as the case may be. Where a qualified domestic relations order has
been received by the Committee, the terms and benefits of the Plan will be
considered to have been modified with respect to the Participant affected to the
extent that such order requires benefits to be paid to specified individuals
other than the Participant.
5.6 - BENEFITS PAYABLE TO MINORS AND INCOMPETENTS
Whenever any person entitled to payments under the Plan shall be a minor or
under other legal disability or in the sole judgment of the Committee shall
otherwise be unable to apply such payments to his own best interest and
advantage (as in the case of illness, whether mental or physical, or where the
person not under legal disability is unable to preserve his estate for his own
best interest), the Committee may in the exercise of its discretion direct all
or any portion of such payments to be made in any one or more of the following
ways unless claim shall have been made therefor by an existing and duly
appointed guardian, tutor, conservator, committee or other duly appointed legal
representative, in which event payment shall be made to such representative:
(A) directly to such person unless such person shall be an infant or shall
have been legally adjudicated incompetent at the time of the payment;
(B) to the spouse, child, parent or other blood relative to be expended on
behalf of the person entitled or on behalf of those dependents as to
whom the person entitled has the duty of support; or
(C) to a recognized charity or governmental institution to be expended for
the benefit of the person entitled or for the benefit of those
dependents as to whom the person entitled has the duty of support.
5-6
The decision of the Committee will, in each case, be final and binding upon
all persons, and the Committee shall not be obliged to see to the proper
application or expenditure of any payments so made. Any payment made pursuant to
the power herein conferred upon the Committee shall operate as a complete
discharge of the obligations of the Trustee and of the Committee.
5.7 - CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN
The establishment and maintenance of the Plan will not be construed as
conferring any legal rights upon any Participant to the continuation of his
employment with the Employer, nor will the Plan interfere with the right of the
Employer to discipline, lay off or discharge any Participant. The adoption and
maintenance of the Plan shall not be deemed to constitute a contract between the
Employer and any employee or to be a consideration for, inducement to, or
condition of employment of any person.
5.8 - NOTIFICATION OF MAILING ADDRESS
Each Participant and other person entitled to benefits hereunder shall file
with the Committee from time to time, in writing, his post office address and
each change of post office address, and any check representing payment hereunder
and any communication addressed to a Participant, a former Participant, a
Beneficiary or a pensioner hereunder at his last address filed with the
Committee (or, if no such address has been filed, then at his last address as
indicated on the records of the Employer) shall be binding on such person for
all purposes of the Plan, and neither the Committee nor the Trustee shall be
obliged to search for or ascertain the location of any such person.
If the Committee, for any reason, is in doubt as to whether retirement
income payments are being received by the person entitled thereto, it may, by
registered mail addressed to such person and to such person's designated
Beneficiary, if any, at their address last known to the Committee, notify such
person and his Beneficiary that all unmailed and future retirement income
payments shall be henceforth withheld until the Committee is provided with
5-7
evidence of such person's continued life and his proper mailing address or with
evidence of such person's death. In the event that (i) such notification is
mailed to such person and his designated Beneficiary, (ii) the Committee is not
furnished with evidence of such person's continued life and proper mailing
address or with evidence of his death within three years of the date such
notification was mailed and (iii) the Committee is unable to find any person to
whom payment is due under the provisions of the Plan within three years of the
date such notification was mailed, all retirement income and other benefit
payments due shall be forfeited at the end of such three-year period following
the date such notification was mailed; provided, however, if claim for any
forfeited benefit is subsequently made by any such person to whom payment is due
under the Plan, such forfeited benefits due such person shall be reinstated.
Notwithstanding any provision of the Plan to the contrary, in the event
that the Plan is terminated, the benefits of any missing participants shall be
transferred to the Pension Benefit Guaranty Corporation in accordance with
Section 4050 of the Employee Retirement Income Security Act of 1974, as amended.
5.9 - WRITTEN COMMUNICATIONS REQUIRED
Any notice, request, instruction, or other communication to be given or
made hereunder shall be in writing and may be delivered to the addressee
personally, may be delivered to the addressee by a commercial delivery service
at the last address for notice shown on the Committee's records, or may be
deposited in the United States mail fully postpaid and properly addressed to
such addressee at the last address for notice shown on the Committee's records.
5.10 - BENEFITS PAYABLE AT OFFICE OF TRUSTEE
All benefits hereunder, and installments thereof, shall be payable at the
office of the Trustee.
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5.11 - APPEAL TO COMMITTEE
A Participant or Beneficiary who feels he is being denied any benefit or
right provided under the Plan must file a written claim with the Committee. All
such claims shall be submitted on a form provided by the Committee which shall
be signed by the claimant and shall be considered filed on the date the claim is
received by the Committee.
The Committee shall establish claims procedures in compliance with
applicable law, and such claims procedures shall be set forth in the summary
plan description for the Plan.
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SECTION 6
MISCELLANEOUS PROVISIONS REGARDING THE EMPLOYER
6.1 - CONTRIBUTIONS
No contributions shall be required of or permitted to be made by any
Participant. The Employer intends, but does not guarantee, to make annual
contributions in amounts at least equal to the amounts, if any, required to meet
the minimum funding requirements of Section 412 of the Internal Revenue Code, as
specified in the actuary's valuation reports for the applicable periods of time.
Subject to applicable provisions of law, neither the Employer nor any of its
officers, agents or employees, nor any member of its board of directors, nor any
partner or sole proprietor, guarantees, in any manner the payment of benefits
under the Plan.
6.2 - EMPLOYER'S CONTRIBUTIONS IRREVOCABLE
The Employer shall have no right, title or interest in the Trust Fund or in
any part thereof, and no contributions made thereto shall revert to the Employer
except such part of the Trust Fund, if any, that remains therein after the
satisfaction of all liabilities to persons entitled to benefits under the Plan
and except as provided in the following paragraph.
All contributions to the Plan are made subject to the qualification of the
Plan under Section 401 of the Internal Revenue Code and to their deductibility
under Section 404 of said Code. In the event that (1) the Plan represents a
newly established retirement plan (and not an amendment of an existing
retirement plan) with respect to an Employer, (2) an application for the
determination of the qualification of the Plan is made by the time prescribed by
law for filing the Employer's return for the taxable year in which the Plan was
adopted by such Employer, or by such later date as the Secretary of Treasury may
prescribe, and (3) such qualification of the Plan is denied, the total
contributions of the Employer, adjusted for any earnings or losses of the Trust
Fund attributable thereto, shall be returned to the Employer within one year of
the date of denial of qualification. In the event that a contribution either is
6-2
made by a good faith mistake of fact or is disallowed as a tax deductible
expense under Section 404 of the Internal Revenue Code, the excess of the amount
contributed over either the amount that would have been contributed if there had
not been such a mistake or the amount that is allowed as a tax deductible
expense, as the case may be, with such excess reduced by the net losses, if any,
of the Trust Fund attributable thereto (but without any increase due to the net
earnings, if any, of the Trust Fund attributable thereto), shall be returned to
the Employer within one year of the date of the mistaken payment or the
disallowance of the deduction, as the case may be.
6.3 - FORFEITURES
Forfeitures shall not be used to increase the benefits that any Participant
would otherwise receive under the Plan at any time prior to the termination of
the Plan but shall be anticipated in determining the costs under the Plan.
6.4 - AMENDMENT OF PLAN
The Plan may be amended from time to time in any respect whatever by formal
action on the part of the Sponsoring Employer in the manner described in Section
6.7 hereof specifying such amendment, subject only to the following limitations:
(A) Under no condition shall such amendment result in or permit the return
or repayment to any Employer of any property held or acquired by the
Trustee hereunder or the proceeds thereof or result in or permit the
distribution of any such property for the benefit of anyone other than
the Participants and their Beneficiaries or joint pensioners, except
to the extent provided in Section 6.2 hereof with respect to
contributions that are returnable to the Employer because they are
made by a mistake of fact or are disallowed as a tax deductible
expense under Section 404 of the Internal Revenue Code or because the
Plan is denied qualification under Section 401(a) of said Code and
except to the extent provided by Section 4.5 and Section 6.6 hereof
with respect to termination of the Plan and expenses of
administration, respectively.
(B) Under no condition shall such amendment change the duties or
responsibilities of the Trustee hereunder without its written consent.
(C) No amendment shall be effective to the extent it eliminates or reduces
any Plan benefits or rights that are protected under Section 411(d)(6)
of the Internal Revenue Code unless such protected benefits or rights
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are preserved with respect to benefits accrued to the date of such
amendment or unless such reduction or elimination is otherwise
permitted by the Internal Revenue Service.
Except to the extent permissible to comply with any laws or regulations of
the United States or of any state to qualify this as a tax-exempt plan and
trust, no amendment may be made that would result in a slower rate of vesting
under the Plan for any Participant who has completed at least three years of
Vesting Service as of the effective date of such amendment or, if later, as of
the date such amendment is adopted, unless such amendment provides that each
such Participant may elect, during the period described below, to retain the
rate of vesting in effect under the Plan prior to such amendment in lieu of the
new rate of vesting. The period during which the election described in the
preceding sentence may be made shall begin no later than the date the Plan
amendment is adopted and shall end no earlier than 60 days after (i) the date
the amendment is adopted, (ii) the effective date of such amendment or (iii) the
date the Participant is notified in writing of the amendment by the Committee,
whichever is the latest date to occur.
Subject to the foregoing limitations, any amendment may be made
retroactively which, in the judgment of the Committee, is necessary or advisable
provided that such retroactive amendment does not deprive a Participant, without
his consent, of a right to receive benefits hereunder which have already vested
and matured in such Participant, except such modification or amendment as shall
be necessary to comply with any laws or regulations of the United States or of
any state to qualify this as a tax-exempt plan and trust.
The participation in the Plan of Employers other than the Sponsoring
Employer shall not limit the power of the Sponsoring Employer under the
foregoing provisions, and all amendments by the Sponsoring Employer to the Plan
shall be binding upon all other Employers. The Sponsoring Employer, on behalf of
an Employer, may modify the provisions of the Plan as it pertains only to such
Employer's Employees by the adoption, by formal action on its part in the manner
6-4
described in Section 6.7 hereof, of a Supplement to the Plan specifying such
modifications that shall pertain only to such Employer's Employees. Any such
Supplement to the Plan shall not affect the continued operation of the Plan with
respect to any other Employers.
6.5 - TERMINATION OF PLAN
The Plan may be terminated by the Sponsoring Employer at any time by formal
action, in the manner described in Section 6.7 hereof, specifying (a) that the
Plan is being terminated and (b) the date as of which the termination is to be
effective. In the event the Plan is to be terminated, the Sponsoring Employer
shall notify the Committee and the Trustee of such termination.
The Plan or participation in the Plan may be terminated in the manner
described above with respect to one or more, but less than all, of the Employers
theretofore parties hereto and the Plan continued for the remaining Employer or
Employers. The Plan or participation in the Plan shall automatically terminate
as to a particular Employer only upon dissolution of such Employer or upon its
liquidation, merger or consolidation without provisions being made by its
successor, if any, for the continuation of the Plan.
In the event of the liquidation, dissolution, merger or consolidation of
the Employer under such circumstances that there shall be a successor person,
firm or corporation continuing and carrying on all or a substantial part of its
business, such successor may be substituted for the Employer under the terms of
the Plan by formal action on the part of such successor in the manner described
in Section 6.7 hereof specifying its election to continue the Plan.
Any provisions herein to the contrary notwithstanding, in the event of
termination of the Plan the following will apply:
(a) a disability retirement benefit shall not be payable on behalf of any
Participant whose service is terminated on or after the date of
termination of the Plan by reason of his total and permanent
disability; and
6-5
(b) the death benefits provided under Sections 2.3(G), 2.4(A)(3) and
2.4(B) hereof (or under any Supplements hereto) shall not be payable
on behalf of any Participant whose death occurs on or after the date
of termination of the Plan; provided, however, if the death of the
Participant occurs after the date of termination of the Plan and prior
to (i) the date as of which an annuity is purchased on his behalf to
provide the benefit to which he is entitled as a result of the
termination of the Plan or (ii) the date as of which distribution is
made on his behalf in some other manner as a result of the termination
of the Plan, as the case may be, the amount required to provide the
distribution to which he is entitled as a result of termination of the
Plan shall, subject to the provisions hereof relating to the Qualified
Preretirement Survivor Annuity, be used to provide a benefit to his
Beneficiary; and provided further, however, the minimum qualified
preretirement survivor annuity required under Section 417 of the
Internal Revenue Code shall be provided on behalf of any such
Participant who is married and whose death occurs prior to his Annuity
Starting Date and on or after the date on which an annuity has been
purchased to provide the benefit to which he is entitled as a result
of termination of the Plan.
6.6 - EXPENSES OF ADMINISTRATION
The Employer may pay all expenses incurred in the establishment and
administration of the Plan, including expenses and fees of the Trustee, but it
shall not be obligated to do so, and any such expenses not so paid by the
Employer shall be paid from the Trust Fund. The Trustee, upon direction from the
Committee, shall reimburse the Employer for expenses properly and actually paid
by the Employer on behalf of the Plan.
6.7 - FORMAL ACTION BY EMPLOYER
Any formal action herein permitted or required to be taken by an Employer
shall be:
(a) if and when a partnership, by written instrument executed by one or
more of its general partners or by written instrument executed by a
person or group of persons who has been authorized by written
instrument executed by one or more general partners as having
authority to take such action;
(b) if and when a proprietorship, by written instrument executed by the
proprietor or by written instrument executed by a person or group of
persons who has been authorized by written instrument executed by the
proprietor as having authority to take such action;
6-6
(c) if and when a corporation, by resolution of its board of directors or
other governing board, or by written instrument executed by a person
or group of persons who has been authorized by resolution of its board
of directors or other governing board as having authority to take such
action; or
(d) if and when a joint venture, by formal action on the part of the joint
venturers in the manner described above.
7-1
SECTION 7
ADMINISTRATION
7.1 - ADMINISTRATION BY COMMITTEE
The Plan will be administered by the Retirement Committee appointed by the
Sponsoring Employer by formal action on its part in the manner described in
Section 6.7 hereof. Such Committee will consist of (a) a chairman and at least
two additional members or (b) a single individual. Each member may, but need
not, be a director, proprietor, partner, officer or employee of any Employer,
and each such member shall be appointed by the Sponsoring Employer to serve
until his successor shall be appointed in like manner. Any member of the
Committee may resign by delivering his written resignation to the Sponsoring
Employer and to the other members, if any, of the Committee. The Sponsoring
Employer by formal action on its part in the manner described in Section 6.7
hereof may remove any member of the Committee by so notifying the member and
other Committee members, if any, in writing. Vacancies on the Committee shall be
filled by formal action on the part of the Sponsoring Employer in the manner
described in Section 6.7 hereof.
The Committee, in its discretion, may delegate all or any part of its
responsibilities of administering the provisions of the Plan with respect to any
Employer or group of Employers to an administrative committee which will be
appointed by such Employer or group of Employers by formal action on its or
their part in the manner described in Section 6.7 hereof. In such event,
references to the "Committee" in any provisions hereof which apply with respect
to such delegated responsibilities shall refer to such administrative committee
instead of the Retirement Committee
7-2
..
7.2 - OFFICERS AND EMPLOYEES OF COMMITTEE
The Committee may appoint a secretary who may, but need not, be a member of
the Committee and may employ such agents, clerical and other services, legal
counsel, accountants and actuaries as may be required for the purpose of
administering the Plan. Any person or firm so employed may be a person or firm
then, theretofore or thereafter serving the Employer in any capacity. The
Committee and any individual member of the Committee and any agent thereof shall
be fully protected when relying in good faith upon the advice of the following
professional consultants or advisors employed by the Employer or the Committee:
any attorney insofar as legal matters are concerned, any certified public
accountant insofar as accounting matters are concerned and any enrolled actuary
insofar as actuarial matters are concerned.
7.3 - ACTION BY COMMITTEE
A majority of the members of the Committee shall constitute a quorum
for the transaction of business and shall have full power to act hereunder. The
Committee may act either at a meeting at which a quorum is present or by a
writing subscribed by at least a majority of the members of the Committee then
serving. Any written memorandum signed by the secretary or any member of the
Committee who has been authorized to act on behalf of the Committee shall have
the same force and effect as a formal resolution adopted in open meeting.
Minutes of all meetings of the Committee and a record of any action taken by the
Committee shall be kept in written form by the secretary appointed by the
Committee or, if no secretary has been appointed by the Committee, by an
individual member of the Committee. The Committee shall give to the Trustee any
order, direction, consent or advice required under the terms of the Trust
Agreement, and the Trustee shall be entitled to rely on any instrument delivered
to it and signed by the secretary or any authorized member of the Committee as
evidencing the action of the Committee.
7-3
A member of the Committee may not vote or decide upon any matter relating
solely to himself or vote in any case in which his individual right or claim to
any benefit under the Plan is particularly involved. If, in any case in which
any Committee member is so disqualified to act, the remaining members cannot
agree or if there is only one individual member of the Committee, the Sponsoring
Employer, by formal action on its part in the manner described in Section 6.7
hereof, will appoint a temporary substitute member to exercise all of the powers
of a qualified member concerning the matter in which the disqualified member is
not qualified to act.
7.4 - RULES AND REGULATIONS OF COMMITTEE
The Committee shall have the authority to make such rules and regulations
and to take such action as may be necessary to carry out the provisions of the
Plan and will, subject to the provisions of the Plan, decide any questions
arising in the administration, interpretation and application of the Plan, which
decisions shall be conclusive and binding on all parties. The Committee may
allocate or delegate any part of its authority and duties as it deems expedient.
7.5 - POWERS OF COMMITTEE
In order to effectuate the purposes of the Plan, the Committee shall have
the full power and authority to construe and interpret any and all provisions of
the Plan, to reconcile any inconsistencies and resolve any ambiguities in the
terms of the Plan and to make equitable adjustments for any mistakes or errors
made in the administration of the Plan, and all such actions or determinations
made by the Committee in good faith shall not be subject to review by anyone.
The Committee shall have the power to appoint, in its discretion, one or more
Investment Managers to manage, including the power to acquire or dispose of, all
or any portion of the assets of the Plan and Trust Fund. The Committee shall
also have the power to serve as paying agent for the Trust Fund, if it so
desires, or to appoint, in its discretion, a paying agent or agents to disburse
the benefits payable from the Trust Fund and to authorize and direct the Trustee
7-4
to make distribution to the Committee as paying agent or to such other paying
agent as the Committee shall direct in writing.
7.6 - DUTIES OF COMMITTEE
The Committee shall, as a part of its general duty to supervise and
administer the Plan:
(A) determine all facts and maintain records with respect to any
Employee's age, amount of Compensation, length of service, Hours of
Service, Vesting Service, Credited Service and date of initial
coverage under the Plan, and by application of the facts so determined
and any other facts deemed material, determine the amount, if any, of
benefit payable under the Plan on behalf of a Participant;
(B) establish, carry out and periodically review a funding policy and
method consistent with the objectives of the Plan and the applicable
lawful requirements of Title I of the Employee Retirement Income
Security Act of 1974; provided, however, that any decisions pertaining
to the amount and timing of contributions by the Employer to the Trust
Fund are delegated to the Employer;
(C) give the Trustee specific directions in writing with respect to:
(1) the making of distribution payments, giving the names of the
payees, the amounts to be paid and the time or times when
payments shall be made; and
(2) the making of any other payments which the Trustee is not by the
terms of the Trust Agreement authorized to make without a
direction in writing of the Committee;
(D) furnish the Trustee with such information (including information
relative to the liquidity needs of the Plan) as is deemed necessary
for the Trustee to carry out the purposes of the Trust Agreement;
(E) comply with all applicable lawful reporting and disclosure
requirements of the Employee Retirement Income Security Act of 1974;
(F) comply (or transfer responsibility for compliance to the Trustee) with
all applicable Federal income tax withholding requirements for
distribution payments imposed by the Tax Equity and Fiscal
Responsibility Act of 1982;
7-5
(G) engage on behalf of all Plan Participants an independent qualified
public accountant to examine the financial statements and other
records of the Plan for the purposes of an annual audit and opinion as
to whether the financial statements and schedules in the annual report
of the Plan are presented fairly in conformity with generally accepted
accounting principles, unless such audit is waived by the Secretary of
Labor or his delegate or unless such audit is otherwise not required;
and
(H) engage on behalf of all Plan Participants an enrolled actuary to
prepare required actuarial statements, unless this requirement is
waived by the Secretary of Labor or his delegate or unless such
actuarial statements are otherwise not required.
The foregoing list of express duties is not intended to be either complete
or conclusive, and the Committee shall, in addition, exercise such other powers
and perform such other duties as it may deem necessary, desirable, advisable or
proper for the supervision and administration of the Plan.
7.7 - INDEMNIFICATION OF CERTAIN FIDUCIARIES
To the extent not covered by insurance or if there is a failure to provide
full insurance coverage for any reason and to the extent permissible under
corporate by-laws and other applicable laws and regulations, the Employers agree
to hold harmless and indemnify the members of the Committee against any and all
claims and causes of action by or on behalf of any and all parties whomsoever,
and all losses therefrom, including, without limitation, costs of defense and
attorneys' fees, based upon or arising out of any act or omission relating to or
in connection with the Plan and Trust Agreement other than losses resulting from
any such person's fraud or willful misconduct.
7.8 - ACTUARY
The actuary will do such technical and advisory work as the Committee or
the Employer may request, including analysis of the experience of the Plan from
time to time, the preparation of actuarial tables for the making of computations
thereunder, and the submission of actuarial reports to the Sponsoring Employer
or the Committee, which reports shall contain an actuarial valuation showing the
financial condition of the Plan, a statement of the contributions to be made by
7-6
the Employers and such other information as may be required by the Committee.
The actuary shall be appointed by the Committee with the approval of the
Sponsoring Employer to serve as long as it is agreeable to the Committee, the
Sponsoring Employer and the actuary.
7.9 - FIDUCIARIES
The Trustee is the named fiduciary hereunder with respect to the powers,
duties and responsibilities of investment of the Trust Fund; the board of
directors of the Sponsoring Employer is the named fiduciary with respect to the
powers, duties and the responsibilities of (a) appointing the members of the
Committee in the manner set out in Section 7.1 hereof, (b) appointing the
Trustee or Trustees in the manner set out in the Trust Agreement, (c) amending
and terminating the Plan and Trust in accordance with the provisions of the Plan
and Trust Agreement and (d) reviewing annually the annual report of the Trustee
and the activities of the Trustee, any Investment Manager and the Committee
relating to the Plan in order to determine whether any replacement of those
persons is necessary; and the Committee is the plan administrator and is the
named fiduciary hereunder with respect to the other powers, duties and
responsibilities of the administration of the Plan; provided, however, that
certain powers, duties and responsibilities of each of said named fiduciaries
are specifically delegated to others under the provisions of the Plan and Trust
Agreement, and other powers, duties and responsibilities of any fiduciaries may
be delegated by written agreement to others to the extent permitted under the
provisions of the Plan and Trust Agreement.
The powers and duties of each fiduciary hereunder, whether or not a named
fiduciary, shall be limited to those specifically delegated to each of them
under the terms of the Plan and Trust Agreement. It is intended that the
provisions of the Plan and Trust Agreement allocate to each fiduciary the
individual responsibilities for the prudent execution of the functions assigned
to each fiduciary. None of the allocated responsibilities or any other
responsibilities shall be shared by two or more fiduciaries unless such sharing
7-7
shall be provided by a specific provision in the Plan or the Trust Agreement. If
any of the enumerated responsibilities of a fiduciary are specifically waived by
the Secretary of Labor, then such enumerated responsibilities shall also be
deemed to be waived for the purposes of the Plan and Trust Agreement. Whenever
one fiduciary is required by the Plan or the Trust Agreement to follow the
directions of another fiduciary, the two fiduciaries shall not be deemed to have
been assigned a share of any responsibility, but the responsibility of the
fiduciary giving the directions shall be deemed to be his sole responsibility
and the responsibility of the fiduciary receiving those directions shall be to
follow same insofar as such instructions on their face are proper under
applicable law. Any fiduciary may employ one or more persons to render advice
with respect to any responsibility such fiduciary has under the Plan or Trust
Agreement.
Each fiduciary may, but need not, be a director, proprietor, partner,
officer or employee of the Employer. Nothing in the Plan shall be construed to
prohibit any fiduciary from:
(a) serving in more than one fiduciary capacity with respect to the
Plan and Trust Agreement;
(b) receiving any benefit to which he may be entitled as a
Participant or Beneficiary in the Plan, so long as the benefit is
computed and paid on a basis that is consistent with the terms of
the Plan as applied to all other Participants and Beneficiaries;
or
(c) receiving any reasonable compensation for services rendered, or
for the reimbursement of expenses properly and actually incurred
in the performance of his duties with respect to the Plan, except
that no person so serving who already receives full-time pay from
an Employer shall receive compensation from the Plan, except for
reimbursement of expenses properly and actually incurred.
Each fiduciary shall be bonded as required by applicable law or statute of
the United States, or of any state having appropriate jurisdiction, unless such
7-8
bond may under such law or statute be waived by the parties to the Trust
Agreement. The Employer shall pay the cost of bonding any fiduciary who is an
employee of the Employer.
7.10 - APPLICABLE LAW
The Plan will, unless superseded by federal law, be construed and enforced
according to the laws of the State of Texas, and all provisions of the Plan
will, unless superseded by federal law, be administered according to the laws of
the said state.
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SECTION 8
TRUST FUND
8.1 - PURPOSE OF TRUST FUND
The Trust Fund has been created and will be maintained for the purposes of
the Plan, and the moneys thereof will be invested in accordance with the terms
of the agreement and declaration of trust which forms a part of the Plan. All
contributions will be paid into the Trust Fund, and all benefits under the Plan
will be paid from the Trust Fund, except to the extent provided by Section 3.5
hereof.
8.2 - BENEFITS SUPPORTED ONLY BY TRUST FUND
Subject to applicable provisions of law, any person having any claim under
the Plan will look solely to the assets of the Trust Fund for satisfaction.
8.3 - TRUST FUND APPLICABLE ONLY TO PAYMENT OF BENEFITS
The Trust Fund will be used and applied only in accordance with the
provisions of the Plan, to provide the benefits thereof, and no part of the
corpus or income of the Trust Fund will be used for, or diverted to, purposes
other than for the exclusive benefit of Participants and other persons
thereunder entitled to benefits, except to the extent provided in Section 6.2
hereof with respect to contributions that are returnable to the Employer because
they are made by a mistake of fact or are disallowed as a tax deductible expense
under Section 404 of the Internal Revenue Code or because the Plan is denied
qualification under Section 401(a) of said Code and except to the extent
provided in Section 4.5 and Section 6.6 hereof with respect to termination of
the Plan and expenses of administration, respectively.
9-1
IN WITNESS WHEREOF, CAPITAL SOUTHWEST CORPORATION, CAPITAL SOUTHWEST
MANAGEMENT CORPORATION, JET-LUBE, INC., THE RECTORSEAL CORPORATION, THE WHITMORE
MANUFACTURING COMPANY, SMOKE GUARD, INC. and BLUE MAGIC, INC. have caused this
instrument to be executed by their duly authorized officers on this _____ day of
_________________, 20____, effective as of April 1, 2006.
CAPITAL SOUTHWEST CORPORATION
By
Title:
CAPITAL SOUTHWEST MANAGEMENT CORPORATION
By
Title:
JET LUBE, INC.
By
Title:
THE RECTORSEAL CORPORATION
By
Title:
9-2
THE WHITMORE MANUFACTURING COMPANY
By
Title:
SMOKE GUARD, INC.
By
Title:
BLUE MAGIC, INC.
By
Title:
Exhibit 13.1
Twelve Largest Investments - March 31, 2007
================================================================================
Heelys, Inc. $195,664,000
- --------------------------------------------------------------------------------
Heelys, Inc., Carrollton, Texas, manufacturers and markets specialty
stealth skate footwear, equipment and apparel under the brand name Heelys. The
company manufactures its products in China and Korea and distributes them
through domestic and international sporting goods chains, department and
lifestyle stores and specialty footwear retailers.
During the year ended December 31, 2006, Heelys reported net income of
$29,174,000 ($1.16 per share) on net sales of $188,208,000, compared with net
income of $4,347,000 ($0.17 per share) on net sales of $43,950,000 in the
previous year. The March 30, 2007 closing Nasdaq market price of Heely's common
stock was $29.34 per share.
At March 31, 2007, the $102,490 investment in Heelys by Capital Southwest's
subsidiary was valued at $195,664,000 ($21.00 per share), consisting of
9,317,310 restricted shares of common stock, representing a fully-diluted equity
interest of 31.8%.
================================================================================
The RectorSeal Corporation $98,000,000
- --------------------------------------------------------------------------------
The RectorSeal Corporation, Houston, Texas, with facilities in Texas, New
York and Idaho, manufactures specialty chemical products including pipe thread
sealants, firestop sealants, plastic cements and other formulations for
plumbing, HVAC, electrical and industrial applications. The company also makes
special tools for plumbers and systems for containing smoke from building fires.
RectorSeal's subsidiary, Jet-Lube, Inc., with plants in Texas, England and
Canada, produces anti-seize compounds, specialty lubricants and other products
used in industrial and oil field applications. Another subsidiary produces and
sells automotive chemical products. RectorSeal also owns a 20% equity interest
in The Whitmore Manufacturing Company (described on page 9).
During the year ended March 31, 2007, RectorSeal earned $10,381,000 on
revenues of $103,922,000, compared with earnings of $8,655,000 on revenues of
$95,060,000 in the previous year. RectorSeal's earnings do not reflect its 20%
equity in The Whitmore Manufacturing Company.
At March 31, 2007, Capital Southwest owned 100% of RectorSeal's common
stock having a cost of $52,600 and a value of $98,000,000.
================================================================================
Palm Harbor Homes, Inc. $70,696,000
- --------------------------------------------------------------------------------
Palm Harbor Homes, Dallas, Texas, is an integrated manufacturer and
retailer of manufactured and modular housing produced in 14 plants and sold in
27 states by 107 company-owned retail stores and builder locations and
approximately 350 independent dealers, builders and developers. The company
provides financing through its 80% owned subsidiary, CountryPlace Mortgage, and
sells insurance through its subsidiary, Standard Casualty. Palm Harbor's
traditional manufactured homes and its upscale modular homes are designed to
meet the need for attractive, affordable housing.
During the year ended March 30, 2007, Palm Harbor reported a net loss of
$11,565,000 ($0.51 per share) on net sales of $661,247,000, compared with net
income of $11,114,000 ($0.49 per share) on net sales of $710,635,000 in the
previous year. The March 30, 2007 closing Nasdaq market price of Palm Harbor's
common stock was $14.34 per share.
At March 31, 2007, the $10,931,955 investment in Palm Harbor by Capital
Southwest and its subsidiary was valued at $70,696,000 ($9.00 per share),
consisting of 7,855,121 restricted shares of common stock, representing a
fully-diluted equity interest of 30.5%.
================================================================================
Encore Wire Corporation $69,475,000
- --------------------------------------------------------------------------------
Encore Wire Corporation, McKinney, Texas, manufactures a broad line of
copper electrical building wire and cable including non-metallic sheathed,
underground feeder and THHN wire and cable and also armored cable for
residential, commercial and industrial construction. Encore's products are sold
through large-volume distributors and building materials retailers.
1
For the year ended December 31, 2006, Encore reported net income of
$115,133,000 ($4.86 per share) on net sales of $1,249,330,000, compared with net
income of $50,079,000 ($2.13 per share) on net sales of $758,089,000 in the
previous year. The March 30, 2007 closing Nasdaq bid price of Encore's common
stock was $25.29 per share.
At March 31, 2007, the $5,800,000 investment in 4,086,750 shares of
Encore's restricted common stock by Capital Southwest and its subsidiary was
valued at $69,475,000 ($17.00 per share), representing a fully-diluted equity
interest of 16.9%.
================================================================================
Alamo Group Inc. $47,962,000
- --------------------------------------------------------------------------------
Alamo Group Inc., Sequin, Texas, is a leading designer, manufacturer and
distributor of heavy-duty, tractor and truck mounted mowing and other vegetation
maintenance equipment, mobile excavators, street-sweeping and snow removal
equipment and replacement parts. Founded in 1969, Alamo Group operates 16
manufacturing facilities and serves governmental, industrial and agricultural
markets in North America, Europe, and Australia.
For the year ended December 31, 2006, Alamo reported net income of
$11,488,000 ($1.16 per share) on net sales of $456,494,000, compared with net
income of $11,291,000 ($1.14 per share) on net sales of $368,110,000 in the
previous year. The March 30, 2007 closing NYSE market price of Alamo's common
stock was $23.21 per share.
At March 31, 2007, the $2,065,047 investment in Alamo by Capital Southwest
and its subsidiary was valued at $47,962,000 ($17.00 per share), consisting of
2,821,300 restricted shares of common stock, representing a fully-diluted equity
interest of 26.2%.
================================================================================
Media Recovery, Inc. $45,000,000
- --------------------------------------------------------------------------------
Media Recovery, Inc., Dallas, Texas, provides datacenter supplies and
services to corporate customers through its direct sales force. Its Shockwatch
division manufactures monitoring devices used to detect mishandled shipments and
devices for monitoring material handling equipment. Media Recovery's subsidiary,
The Damage Prevention Company, Denver, Colorado, manufactures dunnage products
used to prevent damage in trucking, rail and export container shipments.
During the year ended September 30, 2006, Media Recovery reported net
income of $5,164,000 on net sales of $137,040,000, compared with net income of
$5,028,000 on net sales of $142,574,000 in the previous year.
At March 31, 2007, the $5,415,000 investment in Media Recovery by Capital
Southwest and its subsidiary was valued at $45,000,000, consisting of 800,000
shares of Series A convertible preferred stock and 4,000,000 shares of common
stock, representing a fully-diluted equity interest of 96.5%.
================================================================================
Lifemark Group $40,000,000
- --------------------------------------------------------------------------------
Lifemark Group, Hayward, California, owns and operates cemeteries,
mausoleums and mortuaries. Lifemark's operations, all of which are in
California, include a major cemetery and funeral home in San Mateo, a mausoleum
and an adjacent mortuary in Oakland and cemeteries, mausoleums and mortuaries in
Hayward and Sacramento. The company also owns a funeral home in San Bruno. Its
funeral and cemetery trusts enable Lifemark's clients to make pre-need
arrangements. The company's assets also include excess real estate holdings.
For the fiscal year ended March 31, 2007, Lifemark reported earnings of
$2,239,000 on revenues of $28,727,000, compared with earnings of $2,457,000 on
revenues of $27,178,000 in the previous year.
At March 31, 2007, Capital Southwest owned 100% of Lifemark Group's common
stock, which had a cost of $4,510,400 and was valued at $40,000,000.
================================================================================
The Whitmore Manufacturing Company $26,000,000
- --------------------------------------------------------------------------------
The Whitmore Manufacturing Company, Rockwall, Texas, manufactures specialty
lubricants for heavy equipment used in surface mining, railroads and other
industries, and produces water-based coatings for the automotive and primary
metals industries. Whitmore's Air Sentry division manufactures fluid
contamination control devices. The company's assets also include several
commercial real estate tracts.
During the year ended March 31, 2007, Whitmore reported net income of
$2,848,000 on net sales of $20,863,000, compared with net income of $1,776,000
on net sales of $18,010,000 in the previous year. The company is owned 80% by
Capital Southwest and 20% by Capital Southwest's subsidiary, The RectorSeal
Corporation (described on page 8).
2
At March 31, 2007, the direct investment in 80% of Whitmore by Capital
Southwest was valued at $26,000,000 and had a cost of $1,600,000.
================================================================================
Hologic, Inc. $18,228,380
- --------------------------------------------------------------------------------
Hologic, Inc., Bedford, Massachusetts, is a leading developer, manufacturer
and supplier of bone densitometers, mammography and breast biopsy devices,
direct-to-digital x-ray systems and other x-ray based imaging systems. These
products are generally targeted to address women's healthcare and general
radiographic applications.
For the year ended September 30, 2006, Hologic reported net income of
$27,423,000 ($0.56 per share) on net sales of $462,680,000, compared with net
income of $28,256,000 ($0.63 per share) on net sales of $287,684,000 in the
previous year. The March 30, 2007 closing Nasdaq bid price of Hologic's common
stock was $57.61 per share.
At March 31, 2007, Capital Southwest and its subsidiary owned 316,410
unrestricted shares of common stock, having a cost of $220,000 and a market
value of $18,228,380 ($57.61 per share).
================================================================================
Texas Capital Bancshares, Inc. $10,013,465
- --------------------------------------------------------------------------------
Texas Capital Bancshares, Inc. of Dallas, Texas, formed in 1998, has total
assets of approximately $3.7 billion. With branch banks in Austin, Dallas, Fort
Worth, Houston, Plano and San Antonio, Texas Capital Bancshares conducts its
business through its subsidiary, Texas Capital Bank, N.A., which targets middle
market commercial and wealthy private client customers in Texas. In 2006, Texas
Capital Bancshares sponsored the formation of BankCap Partners Fund I, a $109
million partnership organized to finance and launch other regional banks similar
to Texas Capital Bancshares.
For the year ended December 31, 2006, Texas Capital reported net income of
$28,924,000 ($1.09 per share), compared with net income of $27,192,000 ($1.02
per share) in the previous year. The March 30, 2007 closing Nasdaq bid price of
Texas Capital's common stock was $20.45 per share.
At March 31, 2007, Capital Southwest owned 489,656 unrestricted shares of
common stock, having a cost of $3,550,006 and a market value of $10,013,465
($20.45 per share).
================================================================================
PETsMART, Inc. $9,885,000
- --------------------------------------------------------------------------------
PETsMART, Inc., Phoenix, Arizona, is the largest specialty retailer of
services and solutions for the lifetime needs of pets. The company operates more
than 928 pet superstores in the United States and Canada, many of which offer
pet grooming services, operate PETsHOTELS and house veterinary clinics. It is
also a direct marketer of pet products through its e-commerce site and its pet
and equine catalog businesses.
For the year ended January 28, 2007, PETsMART, Inc. reported net income of
$185,069,000 ($1.33 per share) on net sales of $4.234 billion, compared with net
income of $182,490,000 ($1.25 per share) on net sales of $3.760 billion in the
previous year. The March 30, 2007 closing Nasdaq bid price of PETsMART's common
stock was $32.95 per share.
At March 31, 2007, Capital Southwest and its subsidiary owned 300,000
unrestricted shares of common stock, having a cost of $1,318,771 and a market
value of $9,885,000 ($32.95 per share).
================================================================================
Extreme International, Inc. $7,273,000
- --------------------------------------------------------------------------------
Extreme International, Inc., Sugar Land, Texas, owns Bill Young
Productions, Texas Video and Post, and Extreme Communications, which produce
radio and television commercials and corporate communications videos.
During the year ended September 30, 2006, Extreme reported net income of
$1,202,723 on net sales of $10,342,478, compared with net income of $817,121 on
net sales of $8,688,545 in the previous year.
At March 31, 2007, Capital Southwest and its subsidiary owned 39,359.18
shares of Series C convertible preferred stock, 3,750 shares of 8% Series A
convertible preferred stock and warrants to purchase 13,035 shares of common
stock at $25 per share, having a cost of $3,000,000 and a market value of
$7,273,000, representing a fully-diluted equity interest of 53.3%.
3
Portfolio of Investments - March 31, 2007
Company Equity (a) Investment (b) Cost Value (c)
- ------------------------------------------------------------------------------------------------------------------------------------
+AT&T, INC. <1% ++20,770 shares common stock
San Antonio, Texas (acquired 3-9-99) $ 12 $ 818,961
Global leader in local, long distance,
Internet and transaction- based voice
and data services.
- ------------------------------------------------------------------------------------------------------------------------------------
+ALAMO GROUP INC. 26.2% 2,821,300 shares common stock
Seguin, Texas (acquired 4-1-73 thru 10-4-99) 2,065,047 47,962.000
Tractor-mounted mowing and mobile excavation
equipment for governmental, industrial and
agricultural markets; street-sweeping
equipment for municipalities.
- ------------------------------------------------------------------------------------------------------------------------------------
ALL COMPONENTS, INC. 57.0% 10% subordinated note due 2008
Addison, Texas (acquired 10-28-03 thru 10-3-05) 3,000,000 3,000,000
Electronics contract manufacturing; distribution 150,000 shares Series A convertible
and production of memory and other components for preferred stock, convertible
computer manufacturers, retailers and value-added into 600,000 shares of common
resellers. stock at $0.25 per share
(acquired 9-16-94) 150,000 1,000,000
----------- ------------
3,150,000 4,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
+ALLTEL CORPORATION <1% ++8,880 shares common stock
Little Rock, Arkansas (acquired 7-1-98) 88,699 550,560
Owner and operator of the nation's
largest wireless network.
- ------------------------------------------------------------------------------------------------------------------------------------
BALCO, INC. 88.5% 445,000 shares common stock and
Wichita, Kansas 60,920 shares Class B non-voting
Specialty architectural products used common stock (acquired 10-25-83
in the construction and remodeling of and 5-30-02) 624,920 2,500,000
commercial and institutional buildings
- ------------------------------------------------------------------------------------------------------------------------------------
BOXX TECHNOLOGIES, INC. 15.2% 3,125,354 shares Series B
Austin, Texas convertible preferred stock,
Workstations for computer graphics convertible into 3,125,354
imaging and design. shares of common stock at
$0.50 per share (acquired
8-20-99 thru 8-8-01) 1,500,000 300,000
- ------------------------------------------------------------------------------------------------------------------------------------
CMI HOLDING COMPANY, INC. 18.2% 10% convertible subordinated
Richardson, Texas notes, convertible into
Owns Chase Medical, which develops 720,350 shares of common
and sells devices used in cardiac stock at $1.32 per share,
surgery to relieve congestive heart due 2007 (acquired 4-16-04
failure; develops and supports cardiac thru 12-17-04) 750,000 750,000
imaging systems. 2,327,658 shares Series A
convertible preferred stock,
convertible into 2,327,658
shares of common stock at
$1.72 per share (acquired
8-21-02 and 6-4-03) 4,000,000 2,000,000
Warrants to purchase 109,012
shares of common stock at
$1.72 per share, expiring
2012 (acquired 4-16-04) -- --
----------- ------------
4,750,000 2,750,000
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
4
Company Equity (a) Investment (b) Cost Value (c)
- ------------------------------------------------------------------------------------------------------------------------------------
+COMCAST CORPORATION <1% ++64,656 shares common
Philadelphia, Pennsylvania stock (acquired 11-18-02) $ 21 $ 1,675,884
Leading provider of cable, entertainment and
communications products and services.
- ------------------------------------------------------------------------------------------------------------------------------------
DENNIS TOOL COMPANY 67.4% 20,725 shares 5%
Houston, Texas convertible preferred
Polycrystalline diamond compacts (PDCs) stock, convertible into
used in oil field drill bits and in 20,725 shares of common
mining and industrial applications. stock at $48.25 per share
(acquired 8-10-98 ) 999,981 999,981
140,137 shares common stock
(acquired 3-7-94
and 8-10-98) 2,329,963 2
----------- ------------
3,329,944 999,983
- ------------------------------------------------------------------------------------------------------------------------------------
+DISCOVERY HOLDING COMPANY <1% ++70,501 shares Series A
Englewood, Colorado common stock (acquired
Provider of creative content, media 7-21-05) 20,262 1,347,274
management and network services worldwide.
- ------------------------------------------------------------------------------------------------------------------------------------
+EMBARK CORPORATION <1% ++4,500 shares common
Overland Park, Kansas stock (acquired 5-17-06) 46,532 253,575
Local exchange carrier that provides
voice and data services, including
high-speed Internet.
- ------------------------------------------------------------------------------------------------------------------------------------
+ENCORE WIRE CORPORATION 16.9% 4,086,750 shares common stock
McKinney, Texas (acquired 7-16-92 thru
Electric wire and cable for residential 10-7-98) 5,800,000 69,475,000
and commercial use.
- ------------------------------------------------------------------------------------------------------------------------------------
EXTREME INTERNATIONAL, INC. 53.3% 39,359.18 shares Series C
Sugar Land, Texas convertible preferred stock,
Owns Bill Young Productions, Texas Video convertible into 157,436.72
and Post, and Extreme Communications, which shares of common stock at
produce radio and television commercials and $25.00 per share (acquired
corporate communications videos. 9-30-03) 2,625,000 6,449,000
3,750 shares 8% Series A
convertible preferred stock,
convertible into 15,000 shares
of common stock at $25.00
per share (acquired 9-30-03) 375,000 614,000
Warrants to purchase 13,035 shares
of common stock at $25.00 per
share, expiring 2008 (acquired
8-11-98 thru 9-30-03) -- 210,000
----------- ------------
3,000,000 7,273,000
- ------------------------------------------------------------------------------------------------------------------------------------
+FMC CORPORATION <1% ++6,430 shares common stock
Philadelphia, Pennsylvania (acquired 6-6-86) 66,726 485,015
Chemicals for agricultural, industrial and
consumer markets.
- ------------------------------------------------------------------------------------------------------------------------------------
+FMC TECHNOLOGIES, INC. <1% ++11,057 shares common stock
Houston, Texas (acquired 1-2-02) 57,051 771,336
Equipment and systems for the energy, food
processing and air transportation industries.
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
5
Company Equity (a) Investment (b) Cost Value (c)
- ------------------------------------------------------------------------------------------------------------------------------------
+HEELYS, INC. 31.8% 9,317,310 shares common $ 102,490 $ 195,664,000
Carrollton, Texas stock (acquire 5-26-00)
Heelys stealth skate shoes, equipment
and apparel sold through sporting
goods chains, department stores and
footwear retailers
- ------------------------------------------------------------------------------------------------------------------------------------
HIC-STAR CORPORATION 34.9% 10% subordinated note due
Dallas,Texas 2007 (acquired 10-19-04
Holding company previously engaged in and 1-13-05) 352,646 --
mortgage banking operations, which have 12% subordinated notes due
now been sold. 2008 (acquired 3-25-05
thru 2-27-06) 717,523 354,738
12% demand note (acquired 12-15-06) 4,500 4,500
Warrants to purchase 463,162
shares of Series A common
stock at $1.00 per share,
expiring 2014 (acquired
3-31-04 thru 1-13-05) -- --
----------- ------------
1,074,669 359,238
- ------------------------------------------------------------------------------------------------------------------------------------
+HOLOGIC, INC. <1% ++316,410 shares common stock
Bedford, Massachusetts (acquired 8-27-99) 220,000 18,228,380
Medical instruments including bone
densitometers, mammography devices and digital
radiography systems.
- ------------------------------------------------------------------------------------------------------------------------------------
+KIMBERLY-CLARK CORPORATION <1% ++77,180 shares common stock
Dallas, Texas (acquired 12-18-97) 2,358,518 5,286,058
Manufacturer of tissue, personal care and
health care products.
- ------------------------------------------------------------------------------------------------------------------------------------
+LIBERTY GLOBAL, INC. <1% ++42,463 shares Series A common
Englewood, Colorado stock (acquired 6-15-05) 106,553 1,397,033
Owns interests in broadband, distribution ++42,463 shares Series C common
and content companies. stock (acquired 9-6-05) 100,870 1,299,368
----------- ------------
207,423 2,696,401
- ------------------------------------------------------------------------------------------------------------------------------------
+LIBERTY MEDIA CORPORATION <1% ++35,250 shares Liberty Capital
Englewood, Colorado Series A common stock
Holding company owning interests in electronic (acquired 5-9-06) 51,829 3,897,593
retailing, media, communications and entertainment ++176,252 share Liberty Interactive
businesses. Series A common stock
(acquired 5-9-06) 66,424 4,196,560
----------- ------------
118,253 8,094,153
- ------------------------------------------------------------------------------------------------------------------------------------
LIFEMARK GROUP 100.0% 1,449,026 shares common stock
Hayward, California (acquired 7-16-69) 4,510,400 40,000,000
Cemeteries, mausoleums and mortuaries located
in northern California.
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
6
Company Equity (a) Investment (b) Cost Value (c)
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA RECOVERY, INC. 96.5% 800,000 shares Series A
Dallas, Texas convertible preferred stock,
Computer datacenter and office automation supplies convertible into 800,000
and accessories; impact, tilt monitoring and shares of common stock at
temperature sensing devices to detect mishandled $1.00 per share (acquired
shipments; dunnage for protecting shipments. 11-4-97) $ 800,000 $ 7,500,000
4,000,000 shares common stock
(acquired 11-4-97) 4,615,000 37,500,000
----------- ------------
5,415,000 45,000,000
- ------------------------------------------------------------------------------------------------------------------------------------
PALLETONE, INC. 8.8% 12.3% senior subordinated notes
Bartow, Florida due 2012 (acquired 9-25-06) 1,553,150 2,000,000
Manufacturer fo wooden pallets and 150,000 shares common stock
pressure-treated lumber. (acquired 10-18-01) 150,000 1,714,000
Warrant to purchase 15,294 shares
of common stock at $1.00 per
share, expiring 2011 (acquired
2-17-06) 45,746 159,000
----------- ------------
1,748,896 3,873,000
- ------------------------------------------------------------------------------------------------------------------------------------
+PALM HARBOR HOMES, INC. 30.5% 7,855,121 shares common stock
Dallas, Texas (acquired 1-3-85 thru 7-31-95) 10,931,955 70,696,000
Integrated manufacturing, retailing, financing
and insuring of manufactured housing and modular
homes.
- ------------------------------------------------------------------------------------------------------------------------------------
+PETSMART, INC. <1% ++300,000 shares common stock
Phoenix, Arizona (acquired 6-1-95) 1,318,771 9,885,000
Retail chain of more than 928 stores selling pet
foods, supplies and services.
- ------------------------------------------------------------------------------------------------------------------------------------
THE RECTORSEAL CORPORATION 100.0% 27,907 shares common stock
Houston, Texas (acquired 1-5-73 and
Specialty chemicals for plumbing, HVAC, 3-31-73) 52,600 98,000,000
electrical, construction, industrial,
oil field and automotive applications;
smoke containment systems for building
fires; owns 20% of The Whitmore Manufacturing
Company.
- ------------------------------------------------------------------------------------------------------------------------------------
+SPRINT NEXTEL CORPORATION <1% ++90,000 shares common stock
Reston, Virginai (acquired 6-20-84) 457,113 1,706,400
Diversified telecommunications company.
- ------------------------------------------------------------------------------------------------------------------------------------
TCI HOLDINGS, INC. - 21 shares 12% Series C
Denver, Colorado cumulative compounding preferred
Cable television systems and microwave stock (acquired 1-30-90) -- 677,250
relay systems.
- ------------------------------------------------------------------------------------------------------------------------------------
+TEXAS CAPITAL BANCSHARES, INC. 1.6% ++489,656 shares common stock
Dallas, Texas (acquired 5-1-00) 3,550,006 10,013,465
Regional bank holding company with banking
operations in six Texas cities.
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
7
Company Equity (a) Investment (b) Cost Value (c)
- ------------------------------------------------------------------------------------------------------------------------------------
VIA HOLDINGS, INC. 28.2% 9,118 shares Series B preferred
Sparks, Nevada stock (acquired 9-19-05) $ 4,559,000 $ 2
Designer, manufacturer and distributor of
high-quality office seating.
- ------------------------------------------------------------------------------------------------------------------------------------
WELLOGIX, INC. 19.3% 4,478,673 shares Series A-1
Houston, Texas convertible participating
Developer and supporter of software preferred stock, convertible
used by the oil and gas industry to control into 4,478,673 shares of common
drilling and maintenance expenses. stock at $1.1164 per share
(acquired 8-19-05 thru 9-15-06) 5,000,000 2
- ------------------------------------------------------------------------------------------------------------------------------------
THE WHITMORE MANUFACTURING COMPANY 80.0% 80 shares common stock
Rockwall, Texas (acquired 8-31-79) 1,600,000 26,000,000
Specialized mining, railroad and industrial
lubricants; coatings for automobiles and primary
metals; fluid contamination control devices.
- ------------------------------------------------------------------------------------------------------------------------------------
+WINDSTREAM CORPORATION <1% ++9,181 shares common stock
Little Rock, Arkansas (acquired 7-17-06) 19,656 134,869
Provider of voice, broadband and
entertainment services.
- ------------------------------------------------------------------------------------------------------------------------------------
MISCELLANEOUS - BankCap Partners Fund, L.P.
-6.0% limited partnership
interest (acquired 7-14-06
and 1/8-07) 565,619 595,619
- Diamond State Ventures, L.P.
- 1.9% limited partnership
interest (acquired 10-12-99
thru 8-26-05) 146,000 146,000
- First Capital Group of Texas III,
L.P. - 3.3% limited partnership
interest (acquired 12-26-00 thru
8-12-05) 964,604 964,604
100.0% Humac Company - 1,041,000 shares
common stock (acquired 1-31-75
and 12-31-75) -- 172,000
- PharmaFab, Inc. - contingent
payment agreement (acquired
2-15-07) 2 2
- STARTech Seed Fund I - 12.1%
limited partnership interest
(acquired 4-17-98 thru 1-5-00) 178,066 1
- STARTech Seed Fund II - 3.2%
limited partnership interest
(acquired 4-28-00 thru 2-23-05) 950,000 1
- Sterling Group Partners I, L.P.
- 1.7% limited partnership
interest (acquired 4-20-01 thru
1-24-05) 1,064,042 1,800,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS $71,642,297 $681,155,033
=========== ============
- ------------------------------------------------------------------------------------------------------------------------------------
+Publicly-owned company ++Unrestricted securities as defined in Note (b)
8
Notes to Portfolio of Investments
(a) The percentages in the "Equity" column express the potential equity
interests held by Capital Southwest Corporation and Capital Southwest Venture
Corporation (together, the "Company") in each issuer. Each percentage represents
the amount of the issuer's common stock the Company owns or can acquire as a
percentage of the issuer's total outstanding common shares, plus shares reserved
for all warrants, convertible securities and employee stock options. The symbol
"<1%" indicates that the Company holds a potential equity interest of less than
one percent.
(b) Unrestricted securities (indicated by ++) are freely marketable securities
having readily available market quotations. All other securities are restricted
securities which are subject to one or more restrictions on resale and are not
freely marketable. At March 31, 2007, restricted securities represented
approximately 90.9% of the value of the consolidated investment portfolio.
(c) Under the valuation policy of the Company, unrestricted securities are
valued at the closing sale price for listed securities and at the lower of the
closing bid price or the last sale price for Nasdaq securities on the valuation
date. Restricted securities, including securities of publicly-owned companies
which are subject to restrictions on resale, are valued at fair value as
determined by the Board of Directors. Fair value is considered to be the amount
which the Company may reasonably expect to receive for portfolio securities if
such securities were sold on the valuation date. Valuations as of any particular
date, however, are not necessarily indicative of amounts which may ultimately be
realized as a result of future sales or other dispositions of securities.
Among the factors considered by the Board of Directors in determining the
fair value of restricted securities are the financial condition and operating
results of the issuer, the long-term potential of the business of the issuer,
the market for and recent sales prices of the issuer's securities, the values of
similar securities issued by companies in similar businesses, the proportion of
the issuer's securities owned by the Company, the nature and duration of resale
restrictions and the nature of any rights enabling the Company to require the
issuer to register restricted securities under applicable securities laws. In
determining the fair value of restricted securities, the Board of Directors
considers the inherent value of such securities without regard to the
restrictive feature and adjusts for any diminution in value resulting from
restrictions on resale.
(d) Agreements between certain issuers and the Company provide that the issuers
will bear substantially all costs in connection with the disposition of common
stocks, including those costs involved in registration under the Securities Act
of 1933 but excluding underwriting discounts and commissions. These agreements
cover common stocks owned at March 31, 2007 and common stocks which may be
acquired thereafter through exercise of warrants and conversion of debentures
and preferred stocks. They apply to restricted securities of all issuers in the
investment portfolio of the Company except securities of the following issuers,
which are not obligated to bear registration costs: Humac Company, Lifemark
Group and The Whitmore Manufacturing Company.
(e) The descriptions of the companies and ownership percentages shown in the
portfolio of investments were obtained from published reports and other sources
believed to be reliable, are supplemental and are not covered by the report of
independent registered public accounting firm. Acquisition dates indicated are
the dates specific securities were acquired, which may differ from the original
investment dates. Certain securities were received in exchange for or upon
conversion or exercise of other securities previously acquired.
9
Portfolio Changes During the Year
New Investments and Additions to Previous Investments
Amount
------
BankCap Partners Fund I, L.P.............................. $595,619
Hic-Star Corporation...................................... 4,500
PalletOne, Inc............................................ 203,150
---------
$803,269
========
Dispositions
Amount
Cost Received
---- --------
Cenveo, Inc. ........................... $ 712,318 $ 9,597,254
Diamond State Ventures, L.P............. 64,000 64,000
Exopack, Inc............................ - 230,035
Heelys, Inc............................. 17,510 31,087,659
Hic-Star Corporation.................... 6,529,167 -
PharmaFab, Inc.......................... 9,499,998 -
StarTech Seed Fund II................... 50,000 50,000
Sterling Group Partners I, L.P.......... - 601,081
Texas Shredder, Inc..................... - 1,289,959
---------- -------------
$16,872,993 $42,919,988
=========== ==============
Repayments Received..................... $884,935
========
10
Capital Southwest Corporation and Subsidiaries
Consolidated Statements of Financial Condition
March 31
Assets 2007 2006
------------ ------------
Investments at market or fair value
Companies more than 25% owned
(Cost: 2007 - $28,632,356,
2006 - $23,114,866)................... $526,993,983 $298,481,983
Companies 5% to 25% owned
(Cost: 2007 - $18,798,896,
2006 - $18,595,746)................... 76,398,002 92,070,852
Companies less than 5% owned
(Cost: 2007 - $24,211,045,
2006 - $46,886,344)................... 7,763,048 159,875,248
-------------- -------------
Total investments
(Cost: 2007 - $71,642,297,
2006 - $88,596,956)................... 681,155,033 550,428,083
Cash and cash equivalents.................. 38,844,203 11,503,866
Receivables................................ 337,892 135,887
Other assets............................... 9,170,185 7,300,297
------------- -------------
Totals.................................. $729,507,313 $569,368,133
============ ============
March 31
Liabilities and Shareholders' Equity 2007 2006
------------ ------------
Note payable to bank....................... $ - $ 8,000,000
Other liabilities.......................... 1,457,847 1,697,086
Income taxes payable....................... 231,274 982,653
Deferred income taxes...................... 213,474,680 162,070,285
------------ -------------
Total liabilities ..... 215,163,801 172,750,024
------------ -------------
Shareholders' equity
Common stock, $1 par value: authorized,
5,000,000 shares; issued, 4,323,416
shares at March 31, 2007 and 4,297,616
shares at March 31, 2006.............. 4,323,416 4,297,616
Additional capital...................... 11,221,601 8,109,797
Undistributed net investment
income................................ 5,655,020 3,744,830
Undistributed net realized gain on
investments........................... 102,766,040 86,432,040
Unrealized appreciation of investments -
net of deferred income taxes.......... 397,410,737 301,067,128
Treasury stock - at cost
(437,365 shares)...................... (7,033,302) (7,033,302)
-------------- ---------------
Net assets at market or fair value, equivalent
to $132.36 per share at March 31, 2007 on
the 3,886,051 shares outstanding and
$102.74 per share at March 31, 2006 on the
3,860,251 shares outstanding.......... 514,343,512 396,618,109
------------- -------------
Totals.................................. $729,507,313 $569,368,133
============ ============
See Notes to Consolidated Financial Statements
11
Capital Southwest Corporation and Subsidiaries
Consolidated Statements of Operations
Years Ended March 31
--------------------------------------------
2007 2006 2005
------------ ------------ -------------
Investment income:
Interest.....................................................................$ 2,308,660 $ 505,536 $ 437,753
Dividends.................................................................... 3,954,875 3,485,430 3,778,190
Management and directors' fees............................................... 708,900 848,070 637,000
-------------- ------------- -------------
6,972,435 4,839,036 4,852,943
-------------- ------------- -------------
Operating expenses:
Salaries..................................................................... 1,356,062 1,211,584 1,132,510
Net pension benefit.......................................................... (144,945) (116,747) (254,872)
Other operating expenses..................................................... 1,014,255 859,702 1,068,313
-------------- ------------- -------------
2,225,372 1,954,539 1,945,951
-------------- ------------- -------------
Income before interest expense and income taxes................................. 4,747,063 2,884,497 2,906,992
Interest expense................................................................ 460,399 436,021 420,351
-------------- ------------- -------------
Income before income taxes...................................................... 4,286,664 2,448,476 2,486,641
Income tax expense.............................................................. 53,324 59,220 80,693
-------------- ------------- -------------
Net investment income ..........................................................$ 4,233,340 $ 2,389,256 $ 2,405,948
============== ============= =============
Proceeds from disposition of investments........................................$ 42,919,988 $ 30,802,552 $ 4,565,232
Cost of investments sold........................................................ 16,872,993 10,523,986 14,677,252
-------------- ------------- -------------
Realized gain (loss) on investments before income taxes......................... 26,046,995 20,278,566 (10,112,020)
Income tax expense (benefit) ................................................... 9,712,995 7,162,692 (4,046,206)
-------------- ------------- -------------
Net realized gain (loss) on investments......................................... 16,334,000 13,115,874 (6,065,814)
-------------- ------------- -------------
Increase in unrealized appreciation of investments before income taxes.......... 147,681,609 124,355,303 27,809,654
Increase in deferred income taxes on appreciation of investments................ 51,338,000 43,670,000 9,925,000
-------------- ------------- -------------
Net increase in unrealized appreciation of investments.......................... 96,343,609 80,685,303 17,884,654
-------------- ------------- -------------
Net realized and unrealized gain on investments.................................$ 112,677,609 $ 93,801,177 $ 11,818,840
============ ============ ============
Increase in net assets from operations..........................................$ 116,910,949 $ 96,190,433 $ 14,224,788
============ ============ ============
See Notes to Consolidated Financial Statements
12
Capital Southwest Corporation and Subsidiaries
Consolidated Statements of Changes in Net Assets
Years Ended March 31
---------------------------------------------
2007 2006 2005
-------------- -------------- --------------
Operations:
Net investment income................................................. $ 4,233,340 $ 2,389,256 $ 2,405,948
Net realized gain (loss) on investments............................... 16,334,000 13,115,874 (6,065,814)
Net increase in unrealized appreciation of investments................ 96,343,609 80,685,303 17,884,654
-------------- -------------- --------------
Increase in net assets from operations................................ 116,910,949 96,190,433 14,224,788
Distributions from:
Undistributed net investment income................................... (2,323,150) (2,314,231) (2,314,231)
Capital share transactions:
Exercise of employee stock options.................................... 1,794,850 208,000 -
Adjustment to initially apply FASB No. 158, net of tax 1,173,751 - -
Stock option expense.................................................. 169,003 - -
-------------- -------------- --------------
Increase in net assets............................................... 117,725,403 94,084,202 11,910,557
Net assets, beginning of year........................................... 396,618,109 302,533,907 290,623,350
-------------- -------------- --------------
Net assets, end of year ................................................ $514,343,512 $396,618,109 $302,533,907
============ ============= =============
See Notes to Consolidated Financial Statements
13
Capital Southwest Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31
-----------------------------------------------
2007 2006 2005
------------- ------------- -------------
Cash flows from operating activities
Increase in net assets from operations......................... $ 116,910,949 $ 96,190,433 $ 14,224,788
Adjustments to reconcile increase in net assets from operations
to net cash provided by operating activities:
Proceeds from disposition of investments.................. 42,919,988 30,802,552 4,510,652
Purchases of securities................................... (803,269) (15,054,741) (2,280,690)
Maturities of securities.................................. 884,935 480,197 394,269
Depreciation and amortization............................. 16,808 16,136 17,597
Net pension benefit....................................... (144,945) (116,747) (254,872)
Realized (gain) loss on investments before income taxes... (26,046,995) (20,278,566) 10,112,020
Deferred taxes on realized (gain) loss on investments..... (1,367,704) 2,335,031 (4,046,206)
Net increase in unrealized appreciation of investments.... (96,343,609) (80,685,303) (17,884,654)
Stock option expense...................................... 169,003 -- --
(Increase) decrease in receivables........................ (202,005) 514 (59,924)
Increase in other assets.................................. (39,982) (3,226) (10,477)
Increase (decrease) in other liabilities.................. 8,934 (67,245) 121,196
Decrease in accrued pension cost.......................... (144,171) (154,673) (164,129)
Deferred income taxes..................................... 50,700 40,800 88,800
------------- ------------- -------------
Net cash provided by operating activities...................... 35,868,637 13,505,162 4,768,370
------------- ------------- -------------
Cash flows from financing activities
Decrease in note payable to bank............................... (8,000,000) -- (7,500,000)
Decrease in note payable to portfolio company.................. -- (5,000,000) --
Distributions from undistributed net investment income......... (2,323,150) (2,314,231) (2,314,231)
Proceeds from exercise of employee stock options............... 1,794,850 208,000 --
------------- ------------- -------------
Net cash used in financing activities.......................... (8,528,300) (7,106,231) (9,814,231)
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents........... 27,340,337 6,398,931 (5,045,861)
Cash and cash equivalents at beginning of year................. 11,503,866 5,104,935 10,150,796
------------- ------------- -------------
Cash and cash equivalents at end of year....................... $ 38,844,203 $ 11,503,866 $ 5,104,935
============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year for: Interest........................ $ 460,399 $ 436,920 $ 420,446
Income taxes.................... $ 11,100,699 $ 4,846,081 $ --
See Notes to Consolidated Financial Statements
14
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Capital Southwest Corporation ("CSC") is a business development company
subject to regulation under the Investment Company Act of 1940. Capital
Southwest Venture Corporation ("CSVC"), a wholly-owned subsidiary of CSC, is a
Federal licensee under the Small Business Investment Act of 1958. Capital
Southwest Management Corporation ("CSMC"), a wholly-owned subsidiary of CSC, is
the management company for CSC and CSVC. The following is a summary of
significant accounting policies followed in the preparation of the consolidated
financial statements of CSC, CSVC and CSMC (together, the "Company"):
Principles of Consolidation. The consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States of America for investment companies. Under rules and regulations
applicable to investment companies, we are precluded from consolidating any
entity other than another investment company. An exception to this general
principle occurs if the investment company has an investment in an operating
company that provides services to the investment company. Our consolidated
financial statements include our management company, CSMC.
Cash and Cash Equivalents. All temporary cash investments having a maturity
of three months or less when purchased are considered to be cash equivalents.
Investments. Investments are stated at market or fair value determined by
the Board of Directors as described in the Notes to Portfolio of Investments and
Note 2 below. The average cost method is used in determining cost of investments
sold. Investments are recorded on a trade date basis. Dividends are recognized
on the ex-dividend date and interest income is accrued daily.
Segment Information. The Company operates and manages its business in a
singular segment. As an investment company, the Company invests in portfolio
companies in various industries and geographic areas as presented in the
portfolio of investments.
Use of Estimates. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.
Federal Income Taxes. CSC and CSVC intend to comply with the requirements
of the Internal Revenue Code necessary to qualify as regulated investment
companies. By meeting these requirements, they will not be subject to corporate
federal income taxes on ordinary income distributed to shareholders. Therefore,
CSC and CSVC made no provision for federal income taxes on net investment income
in their financial statements. The Company's policy is to retain and pay the 35%
corporate tax on realized long-term capital gains. Therefore, CSC and CSVC
provide in their financial statements for taxes on such gain. See page 39 for
more detail.
Stock-Based Compensation. In December 2004, the Financial Accounting
Standards Board (FASB) issued SFAS No. 123 (revised 2004), Share-Based Payment
(SFAS 123R), which revised SFAS 123. SFAS 123R also supersedes APB 25 and amends
SFAS No. 95, Statement of Cash Flows. SFAS 123R eliminates the alternative to
account for employee stock options under APB 25 and requires the fair value of
all share-based payments to employees, including the fair value of grants of
employee stock options, be recognized in the income statement, generally over
the vesting period.
In March 2005, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 107, which provides additional implementation
guidance for SFAS 123R. Among other things, SAB 107 provides guidance on
share-based payment valuations, income statement classification and
presentation, capitalization of costs and related income tax accounting.
Effective April 1, 2006, the Company adopted SFAS 123R using the modified
prospective transition method. The Company recognizes compensation cost over the
straight-line method for all share-based payments granted on or after that date
and for all awards granted to employees prior to April 1, 2006 that remain
unvested on that date. The fair value of stock
15
options are determined on the date of grant using the Black-Scholes pricing
model and are expensed over the vesting period of the related stock options.
Accordingly, for the year ended March 31, 2007, the Company recognized
compensation expense of $169,003.
The following table illustrates the effect on net asset value and net asset
value per share for the years ended March 31, 2006 and 2005 if the Company had
applied the fair value recognition provisions to stock-based compensation for
options.
Years Ended March 31
2006 2005
------------- ------------
Net asset value, as reported $396,618,109 $302,533,907
Deduct: Total fair value computed
stock-based compensation 150,936 160,764
------------- -------------
Pro forma net asset value $396,467,173 $302,373,143
============= =============
Net asset value per share:
Basic - as reported $102.74 $78.44
======= ======
Basic - pro forma $102.71 $78.39
======= ======
Diluted - as reported $102.49 $78.38
======= ======
Diluted- pro forma $102.45 $78.34
======= ======
As of March 31, 2007, the total remaining unrecognized compensation cost
related to non-vested stock options was $1,171,452 which will be amortized over
the weighted-average service period of approximately 7.53 years.
Defined Pension Benefits and Other Postretirement Plans
Effective March 31, 2007, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 158, Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements Nos. 87,
88, 106 and 132R (SFAS 158). SFAS 158 is required to be adopted on a prospective
basis and prior year financial statements and related disclosures are not
permitted to be restated. SFAS 158 requires an employer that sponsors one or
more postretirement defined benefit plan(s) to:
o Recognize the funded status of postretirement defined benefit plans -
measured as the difference between the fair value of plan assets and
the benefit obligations - in its balance sheet.
o Recognize changes in the funded status of postretirement defined
benefit plans in shareholder's equity in the year in which the changes
occur.
o Measure postretirement defined benefit plan assets and obligations as
of the date of the employer's fiscal year-end. The Company presently
uses March 31 as the measurement date for all of its postretirement
defined benefit plans.
Recent Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 48 (FIN48), which clarifies the accounting for uncertainty in
income taxes recognized in an entity's financial statements in accordance with
FASB Statement 109, "Accounting for Income Taxes". FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 is effective for our Company April 1, 2007. The Company has
evaluated the positions in the tax returns it has filed and does not believe
that FIN 48 will have a material impact on the Company's financial statements.
The State of Texas recently passed House Bill 3 (HB3), which revises the
existing franchise tax system to create a new tax on virtually all Texas
businesses. Starting in the fiscal year 2007, HB3 changes the franchise tax
base, lowers the tax rate and extends coverage to active businesses receiving
state law liability protection. The Company has been subject to an immaterial
amount of Texas franchise taxes and expects the future effect of HB3 to also be
immaterial.
In September 2006, the FASB issued Statement of Financial Accounting
Standard No. 157, "Fair Value Measurements" (SFAS 157). The standard defines
fair value, outlines a framework for measuring fair value, and details the
required disclosures about fair value measurements. The standard is effective
16
for years beginning after November 15, 2007, therefore the Company will adopt
SFAS 157 effective April 1, 2008. The Company is evaluating the impact of SFAS
157.
In September 2006, the SEC issued Staff Accounting Bulletin No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" (SAB 108). SAB 108 clarifies
the SEC staff's beliefs regarding the process of quantifying financial statement
misstatements and is effective for fiscal years ending after November 15, 2006.
The Company applied SAB 108 during the year and was not required to record an
adjustment as a result of the application of SAB 108.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" (SFAS 159). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value and establishes presentation and disclosure requirements designed
to facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. SFAS 159 is effective
for our Company beginning April 1, 2008. The impact, if any, from the adoption
of SFAS 159 has not been determined.
2. Valuation of Investments
The consolidated financial statements as of March 31, 2007 and 2006 include
restricted securities valued at $619,207,702 (90.9% of the value of the
consolidated investment portfolio) and $485,924,522 (88.3% of the value of the
consolidated investment portfolio), respectively, whose values have been
determined by the Board of Directors in the absence of readily ascertainable
market values. Because of the inherent uncertainty of valuation, these values
may differ significantly from the values that would have been used had a ready
market for the securities existed, and the differences could be material.
Unrestricted securities are valued at the closing sale price for listed
securities and at the lower of the closing bid price or the last sale price for
Nasdaq securities on the valuation date.
3. Income Taxes
For the tax years ended December 31, 2006, 2005 and 2004, CSC and CSVC
qualified to be taxed as regulated investment companies ("RICs") under
applicable provisions of the Internal Revenue Code. As RICs, CSC and CSVC must
distribute at least 90% of their taxable net investment income (investment
company taxable income) and may either distribute or retain their taxable net
realized gain on investments (capital gains). Both CSC and CSVC intend to meet
the applicable qualifications to be taxed as RICs in future years; however,
either company's ability to meet certain portfolio diversification requirements
of RICs in future years may not be controllable by such company.
For the year ended December 31, 2006, CSC and CSVC had net investment
income for book and tax purposes of $2,323,150 and $394,124, respectively, all
of which has been distributed. During 2006, CSC and CSVC had a net capital gain
for book purposes of $31,932,775 and $28,697,723, respectively, and a net
capital gain for tax purposes of $31,659,140 and $28,697,723, respectively.
The aggregate cost of investments for federal income tax purposes as of
March 31, 2007 was $75,147,983. Such investments had unrealized appreciation of
$626,445,188 and unrealized depreciation of $16,932,452 for book purposes, or
net unrealized appreciation of $609,512,736. They had unrealized appreciation of
$623,584,608 and unrealized depreciation of $17,577,558 for tax purposes, or net
unrealized appreciation of $606,007,050 at March 31, 2007. The difference
between book basis and tax basis net unrealized appreciation is attributable
primarily to interest income that was accrued for tax purposes, but not for book
purposes.
CSC and CSVC may not qualify or elect to be taxed as RICs in future years.
Therefore, consolidated deferred Federal income taxes of $212,102,000 and
$160,764,000 have been provided on net unrealized appreciation of investments of
$609,512,736 and $461,831,127 at March 31, 2007 and 2006, respectively. Such
appreciation is not included in taxable income until realized. Deferred income
taxes on net unrealized appreciation of investments have been provided at the
then currently effective maximum Federal corporate tax rate on capital gains of
35% at March 31, 2007 and 2006.
4. Note Payable
The note payable to bank at March 31, 2007 and 2006 was from an unsecured
revolving line of credit of $25,000,000 of which $0 and $8,000,000 had been
drawn at March 31, 2007 and 2006, respectively. The revolving line of credit
bears interest at the bank's base rate less .50% or LIBOR plus 1.25% and matures
on August 31, 2007. The average interest rates during the years ended March 31,
2007 and 2006 were 6.46% and 5.05% respectively.
17
5. Employee Stock Option Plan
On July 19, 1999, shareholders approved the 1999 Stock Option Plan
("Plan"), which provided for the granting of stock options to employees and
officers of the Company and authorized the issuance of common stock upon
exercise of such options for up to 140,000 shares. All options are granted at or
above market price, generally expire ten years from the date of grant and are
generally exercisable on or after the first anniversary of the date of grant in
five to ten annual installments.
At March 31, 2007, there were 58,500 shares available for grant under the
Plan. The per share weighted-average fair value of the stock options granted on
May 15, 2006 was $31.276 per option using the Black-Scholes pricing model with
the following assumptions: expected dividend yield of 0.64%, risk-free interest
rate of 5.08%, expected volatility of 21.1%, and expected life of 7 years. The
per share weighted-average fair value of the stock options granted on July 17,
2006 was $33.045 per option using the Black-Scholes pricing model with the
following assumptions: expected dividend yield of 0.61%, risk-free interest rate
of 5.04%, expected volatility of 21.2%, and expected life of 7 years.
The following summarizes activity in the stock option plans for the years
ended March 31, 2007, 2006 and 2005:
Number Weighted Average
of shares Exercise Price
------- --------
Balance at April 1, 2004 54,500 $70.004
Granted 7,500 76.000
Exercised - -
Canceled (13,500) 79.870
------- --------
Balance at March 31, 2005 48,500 68.186
Granted - -
Exercised (3,200) 65.000
Canceled - -
------- --------
Balance at March 31, 2006 45,300 68.411
Granted 57,500 94.136
Exercised (25,800) 69.568
Canceled (24,500) 89.482
-------- --------
Balance at March 31, 2007 52,500 $86.184
====== =======
At March 31, 2007, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $65.00 to $98.44 and 7.78
years, respectively. The total intrinsic value of options exercised during the
year ended March 31, 2007 was $571,565, with the exercise prices ranging from
$65.00 to $77.00 per share. New shares were issued for the $1,794,850 cash
received from option exercises for the year ended March 31, 2007.
At March 31, 2007, 2006 and 2005, the number of options exercisable was
8,515, 29,500 and 25,650, respectively and the weighted-average exercise price
of those options was $69.15, $69.01 and $68.98, respectively.
6. Employee Stock Ownership Plan
The Company and one of its wholly-owned portfolio companies sponsor a
qualified employee stock ownership plan ("ESOP") in which certain employees
participate. Contributions to the plan, which are invested in Company stock, are
made at the discretion of the Board of Directors. A participant's interest in
contributions to the ESOP fully vests after five years of active service.
Effective April 1, 2007, the vesting period will be three years. During the
three years ended March 31, 2007, the Company made contributions to the ESOP,
which were charged against net investment income, of $84,488 in 2007, $99,167 in
2006 and $93,588 in 2005.
7. Retirement Plans
The Company sponsors a qualified defined benefit pension plan which covers
its employees and employees of certain of its wholly-owned portfolio companies.
The following information about the plan represents amounts and information
related to the Company's participation in the plan and is presented as though
the Company sponsored a single-employer plan. Benefits are based on years of
service and an average of the highest five consecutive years of compensation
during the last ten years of employment. The funding policy of the plan is to
contribute annual amounts that are currently deductible for tax reporting
purposes. No contribution was made to the plan during the three years ended
March 31, 2007.
The following tables set forth the qualified plan's benefit obligations and
fair value of plan assets at March 31, 2007, 2006 and 2005:
18
Years Ended March 31
--------------------
2007 2006 2005
----------- ----------- -----------
Change in benefit obligation
Benefit obligation at beginning
of year................... $ 4,004,017 $ 3,833,411 $ 3,799,113
Service cost.................... 103,342 95,590 92,434
Interest cost................... 230,711 223,374 214,076
Actuarial loss.................. 68,854 228,122 94,812
Benefits paid................... (386,982) (376,480) (367,024)
Plan change..................... (54,842) - -
----------- ------------ -----------
Benefit obligation at end of year $ 3,965,100 $ 4,004,017 $ 3,833,411
=========== ============ ===========
Change in plan assets
Fair value of plan assets at beginning
of year.................... $11,640,693 $ 9,326,254 $10,030,763
Actual return on plan assets..... 1,719,581 2,690,919 (337,485)
Benefits paid.................... (386,982) (376,480) (367,024)
----------- ------------ -----------
Fair value of plan assets at end of
year........................ $12,973,292 $11,640,693 $ 9,326,254
=========== =========== ===========
The following table sets forth the qualified plan's funded status and
amounts recognized in the Company's consolidated statements of financial
condition:
March 31
--------
2007 2006
---------- ----------
Actuarial present value of benefit obligations:
Accumulated benefit obligation......... $(3,435,396) $(3,475,899)
=========== ===========
Projected benefit obligation for service
rendered todate......................... $(3,965,100) $(4,004,017)
Plan assets at fair value*................ 12,973,292 11,640,693
---------- ----------
Funded status............................. 9,008,192 7,636,676
Unrecognized net (gain)loss from past experience
different from that assumed and effects of
changes in assumptions............... (1,761,054) (670,478)
Unrecognized prior service costs............ 132,904 195,281
Additional asset, FAS 158................... 1,628,150 -
---------- ----------
Prepaid pension cost included in other assets $ 9,008,192 $ 7,161,479
=========== ===========
- -------------
*Primarily equities and bonds including approximately 25,000 shares of common
stock of the Company.
Components of net pension benefit related to the qualified plan include the
following:
Years Ended March 31
--------------------
2007 2006 2005
--------- ---------- ----------
Service cost - benefits earned during
the year.................... $103,342 $ 95,590 $ 92,434
Interest cost on projected benefit
obligation.................. 230,711 223,374 214,076
Expected return on assets........ (580,104) (551,026) (564,627)
Net amortization................. 27,487 38,897 (66,280)
----------- ----------- -----------
Net pension benefit from qualified plan $(218,564) $(193,165) $(324,397)
========= ========= =========
The Company also sponsors an unfunded Retirement Restoration Plan, which is
a nonqualified plan that provides for the payment, upon retirement, of the
difference between the maximum annual payment permissible under the qualified
retirement plan pursuant to Federal limitations and the amount which would
otherwise have been payable under the qualified plan.
19
The following table sets forth the Retirement Restoration Plan's benefit
obligations at March 31, 2007, 2006 and 2005:
Years Ended March 31
--------------------
2007 2006 2005
Change in benefit obligation
Benefit obligation at beginning
of year.................... $1,280,542 $1,302,368 $1,414,091
Service cost..................... 20,245 19,094 10,380
Interest cost.................... 68,937 72,886 74,711
Actuarial (gain) loss........... (36,529) 40,867 (32,685)
Benefits paid.................... (144,170) (154,673) (164,129)
Plan change...................... (10,134) - -
---------- ---------- ----------
Benefit obligation at end of year $1,178,891 $1,280,542 $1,302,368
========== ========== ==========
The following table sets forth the status of the Retirement Restoration Plan
and the amounts recognized in the consolidated statements of financial
condition:
March 31
--------
2007 2006
----------- ------------
Projected benefit obligation................. $(1,178,891) $(1,280,542)
Unrecognized net loss from past ex-
perience different from that assumed
and effects of changes in assumptions 56,523 93,049
Unrecognized prior service costs............. (234,144) (239,573)
Additional asset, FAS 158.................... 177,621 -
Accrued pension cost included in ----------- ------------
other liabilities....................... $(1,178,891) $(1,427,066)
=========== ============
The Retirement Restoration Plan expenses recognized during the years ended
March 31, 2007, 2006 and 2005 of $73,619, $76,417 and $69,528, respectively, are
offset against the net pension benefit from the qualified plan.
The following assumptions were used in estimating the actuarial present
value of the projected benefit obligations:
Years Ended March 31
--------------------
2007 2006 2005
--------- ---------- ----------
Discount rate...................... 6.0% 5.75% 5.75%
Rate of compensation increases..... 5.0% 5.0% 5.0%
The following assumptions were used in estimating the net periodic
(income)/expense:
Years Ended March 31
--------------------
2007 2006 2005
--------- ---------- ----------
Discount rate...................... 5.75% 5.75% 5.75%
Expected return on plan assets..... 6.0% 6.0% 6.0%
Rate of compensation increases..... 5.0% 5.0% 5.0%
The expected rate of return on assets assumption was determined based on
the anticipated performance of the various asset classes in the plan's portfolio
and the allocation of assets to each class. The anticipated asset class return
is developed using historical and predicted asset return performance,
considering the investments underlying each asset class and expected investment
performance based on forecasts of inflation, interest rates and market indices
for fixed income and equity securities.
The Company's pension plan asset allocations are as follows:
Percentage of plan assets
at March 31
-----------
Asset Category 2007 2006
- -------------- ---------- ----------
Equity securities........................... 79.1% 83.6%
Debt securities............................. 11.4% 12.9%
Cash ....................................... 9.5% 3.5%
-------- --------
100.0% 100.0%
======== ========
20
The Company's pension plan is administered by a board-appointed committee
that has fiduciary responsibility for the plan's management. The trustee of the
plan is JPMorgan Asset Management. Currently, approximately 18% of the assets
are selected and managed by the trustee and the remainder of the assets are
managed by the committee, invested mostly in equity securities, including the
Company's stock.
Following are the expected benefit payments for the next five years and in
the aggregate for the years 2013-2017:
Years Ended March 31
--------------------
2013-
(In Thousands) 2008 2009 2010 2011 2012 2017
---- ---- ---- ---- ---- ----
$357 $337 $316 $294 $281 $1,136
Incremental effect of applying FASB Statement No. 158 on individual line
items in the Statement of Financial Condition:
March 31, 2007
--------------
Before Application After application
Of Statement 158 Adjustments of Statement 158
---------------- ----------- ----------------
Other assets................... $ 7,542,035 $1,628,150 $ 9,170,185
Other liabilities.............. 1,635,468 (177,621) 1,457,847
Deferred income taxes.......... 212,842,660 632,020 213,474,680
Additional capital............. 10,047,850 1,173,751 11,221,601
Net assets at market or fair value 513,169,761 1,173,751 514,343,512
8. Commitments
The Company has agreed, subject to certain conditions, to invest up to
$9,891,281 in three portfolio companies.
The Company leases office space under an operating lease which requires
base annual rentals of approximately $80,000 through February, 2008. For the
three years ended March 31, total rental expense charged to investment income
was $79,979 in 2007, $76,877 in 2006 and $75,248 in 2005.
9. Sources of Income
Income was derived from the following sources:
Investment Income Realized Gain
(Loss) on
Years Ended Investments
March 31 Other Before Income
2007 Interest Dividends Income Taxes
- ---- -------------------------------------------------
Companies more than
25% owned........ $ - $3,449,558 $659,500 $31,070,149
Companies 5% to 25%
owned............ 125,733 171,578 20,000 -
Companies less than
5% owned......... 938,761 333,739 29,400 (5,023,154)
Other sources,
including temporary
investments...... 1,244,166 - - -
------------------------------------------------
$2,308,660 $3,954,875 $708,900 $26,046,995
================================================
2006
- ----
Companies more than
25% owned........ $ - $2,926,964 $642,500 $ -
Companies 5% to 25%
owned............ (55,236) 188,233 10,000 -
Companies less than
5% owned......... 302,622 370,233 195,570 20,278,566
Other sources,
including temporary
investments...... 258,150 - - -
----------------------------------------------
$505,536 $3,485,430 $848,070 $20,278,566
==============================================
21
2005
- ----
Companies more than
25% owned........ $ - $3,361,345 $637,000 $ -
Companies 5% to 25
owned............ 55,236 80,858 - (12,097,124)
Companies less than
5% owned......... 346,396 335,987 - 1,985,104
Other sources,
including temporary
investments...... 36,121 - - -
------------------------------------------------
$437,753 $3,778,190 $637,000 $(10,112,020)
================================================
Selected Per Share Data and Ratios
Years Ended March
-------------------------------------------------------
Per Share Data 2007 2006 2005 2004 2003
-------------------------------------------------------
Investment income.............................................. $ 1.79 $ 1.25 $ 1.26 $ 1.22 $ 1.06
Operating expenses............................................. (.57) (.51) (.51) (.39) (.30)
Interest expense............................................... (.12) (.11) (.11) (.14) (.12)
Income taxes................................................... (.01) (.01) (.02) (.02) (.04)
-------------------------------------------------------
Net investment income.......................................... 1.09 .62 .62 .67 .60
Distributions from undistributed net investment income......... (.60) (.60) (.60) (.60) (.60)
Net realized gain (loss) on investments........................ 4.20 3.40 (1.57) 2.13 .35
Net increase (decrease) in unrealized appreciation of
investments after deferred taxes............................... 24.80 20.90 4.64 19.37 (11.85)
Exercise of employee stock options*............................ (.21) (.02) -- (.14) --
Stock option expense........................................... .04 -- -- -- --
Adjustment to initially apply FASB No. 158, net of tax......... .30 -- -- -- --
-------------------------------------------------------
Increase (decrease) in net asset value......................... 29.62 24.30 3.09 21.43 (11.50)
Net asset value
Beginning of year............................................ 102.74 78.44 75.35 53.92 65.42
-------------------------------------------------------
End of year.................................................. $ 132.36 $ 102.74 $ 78.44 $ 75.35 $ 53.92
=======================================================
Increase (decrease) in deferred taxes on
unrealized appreciation ..................................... $ 12.93 $ 11.29 $ 2.57 $ 10.09 $ (6.35)
Deferred taxes on unrealized appreciation:
Beginning of year............................................ 41.65 30.36 27.79 17.70 24.05
-------------------------------------------------------
End of year.................................................. $ 54.58 $ 41.65 $ 30.36 $ 27.79 $ 17.70
=======================================================
Ratios and Supplemental Data
Ratio of operating expenses to average net assets.............. .50% .58% .67% .63% .52%
Ratio of operating expenses to average net assets plus average
deferred taxes on unrealized appreciation ................... .36% .42% .49% .47% .39%
Ratio of net investment income to average net assets........... .96% .71% .83% 1.09% 1.04%
Portfolio turnover rate........................................ 0.13% 2.36% .56% 3.74% 1.53%
Net asset value total return................................... 32.41% 33.69% 4.90% 41.16% (16.75)%
Shares outstanding at end of period (000s omitted).......... 3,886 3,860 3,857 3,857 3,829
- ------------
* Net decrease is due to the exercise of employee stock options at prices less
than beginning of period net asset value.
22
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Rules
13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's
internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States.
Because of its inherent limitations, internal controls over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to risk that controls
may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The Company has assessed the effectiveness of its internal control over
financial reporting as of March 31, 2007. In making this assessment, it used the
criteria described in "Internal Control-Integrated Framework" issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based
on this assessment, management believes that, as of March 31, 2007, the
Company's internal control over financial reporting was effective.
Grant Thornton LLP has issued its attestation report on management's
assessment and on the effectiveness of the Company's internal control over
financial reporting. That report appears on the next page.
Date: May 25, 2007
/s/ William R. Thomas
William R. Thomas
President & Chairman of the Board
/s/ Susan K. Hodgson
Susan K. Hodgson
Secretary-Treasurer
(chief financial/accounting officer)
23
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Capital Southwest Corporation
We have audited management's assessment, included in Management's Report on
Internal Control Over Financial Reporting, that Capital Southwest Corporation
and subsidiaries (the "Company") maintained effective internal control over
financial reporting as of March 31, 2007, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission ("COSO"). The Company's management is
responsible for maintaining effective internal control over financial reporting
and for its assessment of the effectiveness of internal control over financial
reporting. Our responsibility is to express an opinion on management's
assessment and an opinion on the effectiveness of the Company's internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinions.
A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that Capital Southwest Corporation
and subsidiaries maintained effective internal control over financial reporting
as of March 31, 2007, is fairly stated, in all material respects, based on
criteria established in Internal Control-Integrated Framework issued by COSO.
Also, in our opinion, Capital Southwest Corporation and subsidiaries maintained,
in all material respects, effective internal control over financial reporting as
of March 31, 2007, based on criteria established in Internal Control-Integrated
Framework issued by COSO.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated statements
of financial condition of Capital Southwest Corporation and subsidiaries as of
March 31, 2007 and 2006, including the portfolio of investments as of March 31,
2007, and the related consolidated statements of operations, changes in net
assets, cash flows, and the selected per share data and ratios for each of the
three years in the period ended March 31, 2007, and our report dated May 25,
2007 expressed an unqualified opinion on those financial statements and per
share data and ratios.
/s/Grant Thornton LLP
Dallas, Texas
May 25, 2007
24
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Capital Southwest Corporation
We have audited the accompanying consolidated statements of financial
condition of Capital Southwest Corporation (a Texas Corporation) and
subsidiaries (the "Company") as of March 31, 2007 and 2006, including the
portfolio of investments as of March 31, 2007, and the related consolidated
statements of operations, changes in net assets, cash flows, and the selected
per share data and ratios for each of the three years in the period ended March
31, 2007. These financial statements and per share data and ratios are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and per share data and ratios based on our
audits. The selected per share data and ratios for the year ended March 31,
2004, were audited by other independent certified public accountants whose
report dated May 12, 2004, expressed an unqualified opinion. The selected per
share data and ratios for the year ended March 31, 2003, were audited by other
independent certified public accountants whose report dated April 25, 2003,
expressed an unqualified opinion.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included verification by examination of
securities held by the custodian as of March 31, 2007 and 2006, and confirmation
of securities not held by the custodian by correspondence with others. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements and the selected per
share data and ratios referred to above present fairly, in all material
respects, the consolidated financial position of Capital Southwest Corporation
and subsidiaries as of March 31, 2007 and 2006, and the consolidated results of
operations, changes in net assets, cash flows, and the selected per share data
and ratios for each of the three years in the period ended March 31, 2007, in
conformity with accounting principles generally accepted in the United States of
America.
As described in Note 5 to the consolidated financial statements, the
Company adopted the provisions of Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment, effective April 1, 2006. As described in Note 7 to the consolidated
financial statements, the Company also adopted the provisions of FASB Statement
of Financial Accounting Standards No. 158, Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans: An Amendment of FASB Statements
No. 87, 88, 106, and 132(R), effective March 31, 2007.
We have also audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of
Company's internal control over financial reporting as of March 31, 2007, based
on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated May 25, 2007, expressed an unqualified opinion on management's assessment
that the Company's internal control over financial reporting as of March 31,
2007, was effective and an unqualified opinion on the effectiveness of the
Company's internal control over financial reporting as of March 31, 2007.
/S/GRANT THORNTON LLP
Dallas, Texas
May 25, 2007
25
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
The composite measure of the Company's financial performance in the
Consolidated Statements of Operations is captioned "Increase in net assets from
operations" and consists of three elements. The first is "Net investment
income", which is the difference between the Company's income from interest,
dividends and fees and its combined operating and interest expenses, net of
applicable income taxes. The second element is "Net realized gain (loss) on
investments", which is the difference between the proceeds received from
disposition of portfolio securities and their stated cost, net of applicable
income tax expense or benefit. The third element is the "Net increase in
unrealized appreciation of investments", which is the net change in the market
or fair value of the Company's investment portfolio, compared with stated cost,
net of an increase in deferred income taxes which would become payable if the
unrealized appreciation were realized through the sale or other disposition of
the investment portfolio. It should be noted that the "Net realized gain (loss)
on investments" and "Net increase in unrealized appreciation of investments" are
directly related in that when an appreciated portfolio security is sold to
realize a gain, a corresponding decrease in net unrealized appreciation occurs
by transferring the gain associated with the transaction from being "unrealized"
to being "realized." Conversely, when a loss is realized on a depreciated
portfolio security, an increase in net unrealized appreciation occurs.
Net Investment Income
The Company's principal objective is to achieve capital appreciation.
Therefore, a significant portion of the investment portfolio is structured to
maximize the potential return from equity participation and provides minimal
current yield in the form of interest or dividends. The Company also earns
interest income from the short-term investment of cash funds, and the annual
amount of such income varies based upon the average level of funds invested
during the year and fluctuations in short-term interest rates. During the three
years ended March 31, the Company had interest income from temporary cash
investments of $1,187,676 in 2007, $257,374 in 2006 and $35,048 in 2005. The
Company also receives management fees primarily from its wholly-owned portfolio
companies which aggregated $626,400 in 2007, $792,570 in 2006 and $597,000 in
2005. During the three years ended March 31, 2007, the Company recorded dividend
income from the following sources:
Years Ended March 31
--------------------
2007 2006 2005
---------- --------- ----------
Alamo Group Inc. ................... $ 677,112 $ 677,112 $ 677,112
Balco, Inc.......................... - 252,960 252,960
Dennis Tool Company................. 62,499 49,999 25,000
Kimberly-Clark Corporation.......... 154,360 142,011 127,347
Lifemark Group...................... 600,000 600,000 600,000
PalletOne, Inc...................... 89,842 179,685 80,858
The RectorSeal Corporation.......... 1,869,947 1,106,893 960,000
Sprint Nextel Corporation........... 9,000 18,000 45,000
TCI Holdings, Inc................... 81,270 81,270 81,270
The Whitmore Manufacturing Company.. 240,000 240,000 846,273
Other............................... 170,845 137,500 82,370
------------------------------------
$3,954,875 $3,485,430 $3,778,190
====================================
Total operating expenses, excluding interest expense, increased by $270,833
or 13.9% during the year ended March 31, 2007. Due to the nature of its
business, the majority of the Company's operating expenses are related to
employee and director compensation, office expenses, legal and accounting fees
and the net pension benefit.
Net Realized Gain (Loss) on Investments
Net realized gain on investments was $16,334,000 (after income tax expense
of $9,712,995) during the year ended March 31, 2007, compared with a gain of
$13,115,874 (after income tax expense of $7,162,692) during 2006 and a loss of
$6,065,814 (after income tax benefit of $4,046,206) during 2005. Management does
not attempt to maintain a comparable level of realized gains from year to year,
but instead attempts to maximize total investment portfolio appreciation. This
strategy often dictates the long-term holding of portfolio securities in pursuit
of increased values and increased unrealized appreciation, but may at opportune
times dictate realizing gains or losses through the disposition of certain
portfolio investments.
Net Increase in Unrealized Appreciation of Investments
For the three years ended March 31, the Company recorded an increase in
unrealized appreciation of investments before income taxes of $147,681,609,
$124,355,303 and $27,809,654 in 2007, 2006 and 2005, respectively. As explained
in the first paragraph of this discussion and analysis, the realization of gains
26
or losses results in a corresponding decrease or increase in unrealized
appreciation of investments. Set forth in the following table are the
significant increases and decreases in unrealized appreciation (before the
related change in deferred income taxes and excluding the effect of gains or
losses realized during the year) by portfolio company for securities held at the
end of each year.
Years Ended March 31
2007 2006 2005
----------- ----------- -----------
Alamo Group Inc. .............. $ 2,821,000 $ (5,642,000) $19,749,000
Encore Wire Corporation....... (12,260,000) 49,041,000 (27,245,000)
Heelys, Inc.................... 170,040,908 27,000,000 1,400,000
Hologic, Inc................... 715,086 12,472,883 1,836,760
Media Recovery, Inc............ 3,000,000 15,744,000 9,256,000
Palm Harbor Homes, Inc......... (27,493,000) 27,493,000 (15,710,000)
The RectorSeal Corporation..... 10,500,000 15,000,000 12,500,000
On December 8, 2006, the Company realized a significant gain on the sale of
a small fraction of its Heelys investment, and during the year ended March 31,
2007, the value of our remaining Heelys stock increased from the March 31, 2006
value by $170,040,908. This was attributable to the increases in Heelys sales
and earnings during 2006 and the market interest in the initial public offering
of Heelys common stock on December 8, 2006. The offering totaled 7,393,750
shares at $21.00 per share. A total of 4,268,750 shares were sold by selling
stockholders including 1,591,790 shares sold by our Company.
Offsetting part of the major increase in Heelys' value during the year
ended March 31, 2007 was a decrease of $27,493,000 in the value of the
restricted stock of Palm Harbor Homes, Inc., which experienced an earnings
decline in the face of unfavorable industry conditions.
A description of the investments listed above and other material components
of the investment portfolio is included elsewhere in this report under the
caption "Portfolio of Investments - March 31, 2007."
Deferred Taxes on Unrealized Appreciation of Investments
The Company provides for deferred Federal income taxes on net unrealized
appreciation of investments. Such taxes would become payable at such time as
unrealized appreciation is realized through the sale or other disposition of
those components of the investment portfolio which would result in taxable
transactions. At March 31, 2007 consolidated deferred Federal income taxes of
$212,102,000 were provided on net unrealized appreciation of investments of
$609,512,736 compared with deferred taxes of $160,764,000 on net unrealized
appreciation of $461,831,127 at March 31, 2006. Deferred income taxes at March
31, 2007 and 2006 were provided at the then currently effective maximum Federal
corporate tax rate on capital gains of 35%.
Portfolio Investments
During the year ended March 31, 2007, the Company invested $803,269 in
various portfolio securities listed elsewhere in this report under the caption
"Portfolio Changes During the Year," which also lists dispositions of portfolio
securities. During the 2006 and 2005 fiscal years, the Company invested a total
of $15,054,741 and $2,280,690, respectively.
Financial Liquidity and Capital Resources
At March 31, 2007, the Company had cash and cash equivalents of
approximately $38.8 million. Pursuant to Small Business Administration (SBA)
regulations, cash and cash equivalents of $3.1 million held by CSVC may not be
transferred or advanced to CSC without the consent of the SBA. Under current SBA
regulations and subject to SBA's approval of its credit application, CSVC would
be entitled to borrow up to $16.4 million. The Company also has an unsecured
$25.0 million revolving line of credit from a commercial bank, of which $25.0
million was available at March 31, 2007. With the exception of a capital gain
distribution made in the form of a distribution of the stock of a portfolio
company in the fiscal year ended March 31, 1996, the Company has elected to
retain all gains realized during the past 39 years. Retention of future gains is
viewed as an important source of funds to sustain the Company's investment
activity. Approximately $61.9 million of the Company's investment portfolio is
represented by unrestricted publicly-traded securities and represent a source of
liquidity.
Funds to be used by the Company for operating or investment purposes may be
transferred in the form of dividends, management fees or loans from Lifemark
Group, The RectorSeal Corporation and The Whitmore Manufacturing Company,
wholly-owned portfolio companies of the Company, to the extent of their
available cash reserves and borrowing capacities.
Management believes that the Company's cash and cash equivalents and cash
available from other sources described above are adequate to meet its expected
27
requirements. Consistent with the long-term strategy of the Company, the
disposition of investments from time to time may also be an important source of
funds for future investment activities.
Contractual Obligations
As shown below, the Company had the following contractual obligations as of
March 31, 2007. For further information see Note 4 and Note 8 of the
Consolidated Financial Statements.
Payments Due By Period ($ in Thousands)
---------------------------------------
Less than 1-3 3-5 More Than
Contractual Obligations Total 1 Year Years Years 5 Years
- ----------------------------------------------------------------------
Long-term debt obligations $ -- -- $ -- -- --
Capital lease obligations -- -- -- -- --
Operating lease obligations 80 -- 80 -- --
Purchase obligations -- -- -- -- --
Other long-term liabilities
reflected on the Company's
balance sheet under GAAP -- -- -- -- --
-------------------------------------------
Total $ 80 -- $ 80 -- --
-------------------------------------------
Critical Accounting Policies
Valuation of Investments
In accordance with the Investment Company Act of 1940, investments in
unrestricted securities (freely marketable securities having readily available
market quotations) are valued at market and investments in restricted securities
(securities subject to one or more resale restrictions) are valued at fair value
determined in good faith by the Company's Board of Directors. Under the
valuation policy of the Company, unrestricted securities are valued at the
closing sale price for listed securities and at the lower of the closing bid
price or the last sale price for Nasdaq securities on the valuation date.
Restricted securities, including securities of publicly-owned companies which
are subject to restrictions on resale, are valued at fair value, which is
considered to be the amount the Company may reasonably expect to receive if such
securities were sold on the valuation date. Valuations as of any particular
date, however, are not necessarily indicative of amounts which may ultimately be
realized as a result of future sales or other dispositions of securities.
Among the factors considered by the Board of Directors in determining the
fair value of restricted securities are the financial condition and operating
results of the issuer, the long-term potential of the business of the issuer,
the market for and recent sales prices of the issuer's securities, the values of
similar securities issued by companies in similar businesses, the proportion of
the issuer's securities owned by the Company, the nature and duration of resale
restrictions and the nature of any rights enabling the Company to require the
issuer to register restricted securities under applicable securities laws.
Deferred Income Taxes
In future years, the Company may not qualify or elect to be taxed as a
regulated investment company ("RIC") under applicable provisions of the Internal
Revenue Code. Therefore, deferred Federal income taxes have been provided on net
unrealized appreciation of investments at the then currently effective corporate
tax rate on capital gains.
Impact of Inflation
The Company does not believe that its business is materially affected by
inflation, other than the impact which inflation may have on the securities
markets, the valuations of business enterprises and the relationship of such
valuations to underlying earnings, all of which will influence the value of the
Company's investments.
Risks
Pursuant to Section 64(b)(1) of the Investment Company Act of 1940, a
business development company is required to describe the risk factors involved
in an investment in the securities of such company due to the nature of the
company's investment portfolio. Accordingly the Company states that:
The Company's objective is to achieve capital appreciation through
investments in businesses believed to have favorable growth potential. Such
businesses are often undercapitalized small companies which lack management
depth and have not yet attained profitability. The Company's venture investments
often include securities which do not yield interest or dividends and are
subject to legal or contractual restrictions on resale, which restrictions
adversely affect the liquidity and marketability of such securities.
28
Because of the speculative nature of the Company's investments and the lack
of any market for the securities initially purchased by the Company, there is a
significantly greater risk of loss than is the case with traditional investment
securities. The high-risk, long-term nature of the Company's venture investment
activities may prevent shareholders of the Company from achieving price
appreciation and dividend distributions.
Selected Consolidated Financial Data
(all figures in thousands except per share data)
1997 1998 1999 2000 2001 2002 2003 2004
- -------------------------------------------------------------------------------------------------------------------
Financial Position (as of March 31)
Investments at cost.......... $ 59,908 $ 61,154 $ 73,580 $ 85,002 $ 87,602 $ 82,194 $ 91,462 $ 97,283
Unrealized appreciation...... 233,383 340,132 276,698 238,627 228,316 265,287 195,598 309,666
-------- --------- --------- --------- --------- --------- --------- ---------
Investments at market or
fair value................ 293,291 401,286 350,278 323,629 315,918 347,481 287,060 406,949
Total assets................. 310,760 522,324 360,786 392,586 322,668 357,183 298,490 423,979
Notes payable *.............. 5,000 5,000 5,000 10,000 16,000 14,000 23,000 20,500
Deferred taxes on
unrealized appreciation... 81,313 118,674 96,473 83,151 79,310 92,107 67,790 107,169
Net assets................... 218,972 296,023 256,232 236,876 226,609 250,491 206,467 290,623
Shares outstanding........... 3,767 3,788 3,815 3,815 3,815 3,829 3,829 3,857
- --------------------------------------------------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income........ $ 2,574 $ 2,726 $ 1,762 $ 1,663 $ 1,723 $ 2,042 $ 2,299 $ 2,587
Net realized gain (loss) on
investments............... 6,806 6,485 995 6,020 (3,231) (538) 1,346 8,192
Net increase (decrease) in
unrealized appreciation
before distributions...... 22,804 69,388 (41,233) (24,750) (6,470) 24,174 (45,372) 74,689
-------- --------- --------- --------- --------- --------- --------- ---------
Increase (decrease) in net
assets from operations
before distributions...... 32,184 78,599 (38,476) (17,067) (7,978) 25,678 (41,727) 85,468
Cash dividends paid.......... (2,260) (2,268) (2,280) (2,289) (2,289) (2,295) (2,297) (2,309)
Employee stock options
exercised................. - 720 965 - - 499 - 997
Stock option expense......... - - - - - - - -
Adjustment to initially apply FASB
Statement No. 158, net of tax - - - - - - - -
-----------------------------------------------------------------------------------
Increase (decrease) in net assets 29,924 77,051 (39,791) (19,356) ( 10,267) 23,882 (44,024) 84,156
- --------------------------------------------------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
unrealized appreciation... $ 21.59 $ 31.33 $ 25.29 $ 21.80 $ 20.79 $ 24.05 $ 17.70 $ 27.79
Net assets................... 58.13 78.15 67.16 62.09 59.40 65.42 53.92 75.35
Closing market price......... 67.875 94.00 73.00 54.75 65.00 68.75 48.15 75.47
Cash dividends paid.......... .60 .60 .60 .60 .60 .60 .60 .60
o Excludes quarter-end borrowing which is repaid on the first business day after
year end.
29
Selected Consolidated Financial Data
(all figures in thousands except per share data)
2005 2006 2007
------------------------------
Financial Position (as of March 31)
Investments at cost.......... $ 84,546 $ 88,597 $ 71,642
Unrealized appreciation...... 337,476 461,831 609,513
--------- --------- ---------
Investments at market or
fair value................ 422,022 550,428 681,155
Total assets................. 434,384 569,368 729,507
Notes payable *.............. 13,000 8,000 -
Deferred taxes on
unrealized appreciation... 117,094 160,764 212,102
Net assets................... 302,534 396,618 514,344
Shares outstanding........... 3,857 3,860 3,886
- -------------------------------------------------------------------------
Changes in Net Assets (years ended March 31)
Net investment income........ $ 2,406 $ 2,389 $ 4,233
Net realized gain (loss) on
investments............... (6,066) 13,116 16,334
Net increase (decrease) in
unrealized appreciation
before distributions...... 17,885 80,685 96,344
--------- --------- ---------
Increase (decrease) in net
assets from operations
before distributions...... 14,225 96,190 116,911
Cash dividends paid.......... (2,314) (2,314) (2,323)
Employee stock options
exercised................. - 208 1,795
Stock option expense......... - - 169
Adjustment to initially apply FASB
Statement No. 158, net of tax - - 1,173
------------------------------
Increase (decrease) in net assets 11,911 94,084 117,725
- -------------------------------------------------------------------------
Per Share Data (as of March 31)
Deferred taxes on
unrealized appreciation... $ 30.36 $ 41.65 $ 54.58
Net assets................... 78.44 102.74 132.36
Closing market price......... 79.10 95.50 153.67
Cash dividends paid.......... .60 .60 .60
o Excludes quarter-end borrowing which is repaid on the first business day after
year end.
30
Shareholder Information
Stock Transfer Agent
American Stock Transfer & Trust Company, 59 Maiden Lane, New York, NY 10038
(telephone 800-937-5449) serves as transfer agent for the Company's common
stock. Certificates to be transferred should be mailed directly to the transfer
agent, preferably by registered mail.
Shareholders
The Company had approximately 700 record holders of its common stock at
March 31, 2007. This total does not include an estimated 4,000 shareholders with
shares held under beneficial ownership in nominee name or within clearinghouse
positions of brokerage firms or banks.
Market Prices
The Company's common stock trades on The Nasdaq Global Market under the
symbol CSWC. The following high and low selling prices for the shares during
each quarter of the last two fiscal years were taken from quotations provided to
the Company by Nasdaq:
Quarter Ended High Low
- ------------------------------------------------------------------------
June 30, 2005.................................... $89.68 $74.98
September 30, 2005............................... 95.18 81.84
December 31, 2005................................ 92.71 82.10
March 31, 2006................................... 99.01 89.24
Quarter Ended High Low
- -------------------------------------------------------------------------
June 30, 2006.................................... $104.45 $ 90.65
September 30, 2006............................... 121.00 96.47
December 31, 2006............................... 154.36 115.33
March 31, 2007................................... 155.99 122.05
Dividends
The payment dates and amounts of cash dividends per share since April 1, 2005
are as follows:
Payment Date Cash Dividend
- -----------------------------------------------------------------------
May 31, 2005.............................................. $0.20
November 30, 2005......................................... 0.40
May 31, 2006.............................................. 0.20
November 30, 2006......................................... 0.40
May 31, 2007.............................................. 0.20
The amounts and timing of cash dividend payments have generally been
dictated by requirements of the Internal Revenue Code regarding the distribution
of taxable net investment income (ordinary income) of regulated investment
companies. Instead of distributing realized long-term capital gains to
shareholders, the Company has ordinarily elected to retain such gains to fund
future investments.
Automatic Dividend Reinvestment and Optional Cash Contribution Plan
As a service to its shareholders, the Company offers an Automatic Dividend
Reinvestment and Optional Cash Contribution Plan for shareholders of record who
own a minimum of 25 shares. The Company pays all costs of administration of the
Plan except brokerage transaction fees. Upon request, shareholders may obtain
information on the Plan from the Company, 12900 Preston Road, Suite 700, Dallas,
Texas 75230. Telephone (972) 233-8242. Questions and answers about the Plan are
on the next page.
Annual Meeting
The Annual Meeting of Shareholders of Capital Southwest Corporation will be
held on Monday, July 16, 2007, at 10:00 a.m. in the North Dallas Bank Tower
Meeting Room (second floor), 12900 Preston Road, Dallas, Texas.
31
Exhibit 21.1
CAPITAL SOUTHWEST CORPORATION
List of Subsidiaries
Name of Subsidiary State of Incorporation
Balco, Inc. Delaware
Humac Company Texas
Media Recovery, Inc. Nevada
The RectorSeal Corporation Delaware
Lifemark Group (formerly Skylawn Corporation) Nevada
The Whitmore Manufacturing Company Delaware
EXHIBIT 23.1
Consent of Registered Independent Public Accounting Firm
We have issued our reports dated May 25, 2007, accompanying the consolidated
financial statements and management's assessment of the effectiveness of
internal control over financial reporting included in the Annual Report of
Capital Southwest Corporation and subsidiaries on Form 10-K for the year ended
March 31, 2007 which are incorporated by reference in the March 31, 2007 Annual
Report on Form 10-K of this Registration Statement. We consent to the
incorporation by reference of the aforementioned reports in the Registration
Statement of Capital Southwest Corporation and subsidiaries on Form S-8 (File
No. 33-43881).
/s/ GRANT THORNTON LLP
May 25, 2007
Dallas, Texas
Exhibit 31.1
CERTIFICATIONS
I, William R. Thomas, President and Chairman of the Board of Capital Southwest
Corporation, certify that:
1. I have reviewed this annual report on Form 10-K of Capital Southwest
Corporation (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: May 25, 2007 By: /s/ William R. Thomas
------------ ----------------------------
William R. Thomas, President
and Chairman of the Board
Exhibit 31.2
CERTIFICATIONS
I, Susan K. Hodgson, Secretary-Treasurer of Capital Southwest Corporation,
certify that:
1. I have reviewed this annual report on Form 10-K of Capital Southwest
Corporation (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: May 25, 2007 By: /s/ Susan K. Hodgson
------------ -------------------------------------
Susan K. Hodgson, Secretary-Treasurer
Exhibit 32.1
Certification of President and Chairman of the Board
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
I, William R. Thomas, President and Chairman of the Board of Capital
Southwest Corporation, certify that, to my knowledge:
1. the Form 10-K, filed with the Securities and Exchange Commission on May
25, 2007 ("accompanied report") fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the accompanied report fairly presents, in
all material respects, the consolidated financial condition and results of
operations of Capital Southwest Corporation.
Date: May 25, 2007 By: /s/ William R. Thomas
------------ ----------------------------
William R. Thomas, President
and Chairman of the Board
Exhibit 32.2
Certification of Secretary-Treasurer
Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code
I, Susan K. Hodgson, Secretary-Treasurer of Capital Southwest Corporation,
certify that, to my knowledge:
1. the Form 10-K, filed with the Securities and Exchange Commission on May
25, 2007 ("accompanied report") fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the accompanied report fairly presents, in
all material respects, the consolidated financial condition and results of
operations of Capital Southwest Corporation.
Date: May 25, 2007 /s/ Susan K. Hodgson
------------ -------------------------------------
Susan K. Hodgson, Secretary-Treasurer