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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-028176
Marks Bros. Jewelers, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-1433610
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
155 N. Wacker Dr., Ste. 500, Chicago, IL 60606
(Address of principal executive offices, including zip code)
(312) 782-6800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share, including
associated Preferred Stock Purchase Rights
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of April 15, 1997 was $94,767,768.50, based on the closing price
of $11.75 of the registrant's common stock on the Nasdaq Stock Market. This
calculation does not reflect a determination that persons are affiliates for any
other purposes.
Number of shares of Common Stock outstanding as of April 15, 1997: 10,064,443
Number of shares of Class B Common Stock outstanding as of
April 15, 1997: 101.298
Documents Incorporated by Reference:
Part II - Portions of the registrant's 1996 Annual Report, as indicated herein.
Part III - Portions of the registrant's definitive proxy statement to be
distributed in conjunction with registrant's annual stockholders' meeting to be
held in 1997 (the "Proxy Statement"), as indicated herein.
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PART I
All statements, trend analysis and other information contained in this
report relative to markets for the Company's products and trends in the
Company's operations or financial results, as well as other statements including
words such as "anticipate," "believe," "plan," "estimate," "expect," "intend"
and other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (1) the extent and results of the Company's store expansion
strategy; (2) the seasonality of the Company's business; (3) the Company's
leverage; (4) economic conditions, the retail sales environment and the
Company's ability to execute its business strategy and the related effects on
comparable store sales and other results; (5) the extent to which the Company is
able to retain and attract key personnel; (6) competition; (7) the availability
and cost of consumer credit; (8) relationships with suppliers; (9) fluctuations
in gem and gold prices; (10) regulation; and (11) the risk factors listed from
time to time in the Company's filings with the Securities and Exchange
Commission.
Item 1. Business
The Company
General. Marks Bros. Jewelers, Inc. (the "Company") is a leading, national
specialty retailer of fine jewelry (based on number of stores), operating 176
stores in 24 states as of April 24, 1997. Founded in 1895, the Company operates
stores in regional and super-regional shopping malls under the names Whitehall
Co. Jewellers(R) (129 stores), Lundstrom Jewelers(R) (42 stores) and Marks Bros.
Jewelers(TM) (5 stores). The Company offers at competitive prices an in-depth
selection of fine jewelry in the following key categories: diamond, gold,
precious and semi-precious jewelry. The Company's target customers are middle to
upper middle income women over 25 years old. Central to the Company's growth in
operating profits and its high store productivity are its small but flexible
store format, the absence of recourse credit risk, its strong sales culture and
its operating efficiencies at both the store and corporate levels.
The Company operates on a fiscal year ending January 31. The year ended
January 31, 1997 is referred to herein as fiscal 1996. From fiscal 1991 to
fiscal 1996, the Company's net sales grew at a compound annual rate of 15.2%
from $76.7 million to $155.5 million, while income from operations grew at a
compound annual rate of 28.6%, from $5.4 million to $19.0 million. The Company's
growth during this period is attributable to (i) new store openings, which
resulted in an increase in the number of stores from 111 to 164 stores, (ii)
higher store productivity, as average annual sales per store increased from
$699,000 to $990,000, and (iii) improved operating efficiencies resulting in an
increase in the Company's operating margin from 7.0% to 12.2%.
The Company believes it has significant opportunities to increase sales and
profitability through an increased number of planned store openings, the
implementation of several new sales and merchandising programs designed to
continue comparable store sales growth, and continued adherence to its strict
operating standards regarding performance of sales personnel, store
profitability and cost control.
Retailing Concepts. The Company's stores currently operate under the names
Whitehall Co. Jewellers(R) (129 stores), Lundstrom Jewelers(R) (42 stores) and
Marks Bros. Jewelers(TM) (5 stores). Each store concept is designed around an
open, brightly-lit and inviting layout which encourages browsing by mall
shoppers. The Company's multiple name format allows the Company to open
additional stores in malls where it already has profitable locations. Whitehall
Co. Jewellers is the Company's primary trademark and is positioned to be
somewhat more upscale than the average mall-based jewelry store. The Company
operates two stores in 34 malls and three stores in one mall. In most cases a
Lundstrom store is added to a mall only after the Company has operated a
successful Whitehall store in the same center. Generally, Lundstrom is
positioned slightly more upscale than Whitehall, with greater emphasis on more
expensive diamond and gold merchandise. The Company is testing a new concept
that will be closer to a "guild" jewelry retailer. This test store opened in May
1996 in a mall in
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which the Company already operates a Whitehall and a Lundstrom store. The
Company is continuing the evaluate the results of this test.
Industry
Total retail sales by jewelry stores in the United States in 1996 were
approximately $21.07 billion, and such sales grew between 1990 and 1996 at an
annual rate of approximately 5.6%, according to the U.S. Department of Commerce.
The jewelry market is generally divided into three segments: fine jewelry,
costume jewelry, and guild jewelry. The broad "fine" jewelry market segment
represents a majority of the jewelry market in terms of revenue, and it includes
jewelry made from precious metals and gemstones, as well as finer watches. Fine
jewelry is sold at a range of price points from middle to upper end, with the
upper end consisting of luxury items such as unique design jewelry items and
expensive time pieces. Except for a few designer label offerings, fine jewelry
is generally not marketed under brand names. Costume jewelry consists of jewelry
made of non-precious stones and rhinestones, as well as inexpensive watches. The
"guild" market represents a small percentage of the total market.
Jewelry is mainly distributed through jewelry stores (both independent
stores and chains), general merchandise and discount stores, department stores,
mail order and catalogs, apparel and accessories stores, and televised home
shopping networks. General merchandisers, discount stores, and apparel and
accessories stores generally sell costume jewelry and lower-priced "fine"
jewelry. Mail order and home shopping distributors generally offer costume
jewelry and fine jewelry at low to middle price points. Department stores
generally offer a wider assortment of merchandise including a selection of
costume, fine and some "guild" jewelry.
Jewelry stores, including independent stores and jewelry chains, represent
the largest distribution channel based on industry sales. Most jewelry stores
cater to the broad fine jewelry market offering a variety of items at a range of
price points. As of December 31, 1995, there were over 28,000 retail jewelry
stores nationwide accounting for almost one-half of all jewelry sales. The
retail jewelry industry is highly fragmented with no single chain accounting for
a significant percentage of the fine jewelry market.
The Company believes that the retail jewelry industry is consolidating due
to a variety of factors, including (i) bad debt exposure, which has impacted
jewelry stores that extend recourse credit to customers, (ii) overexpansion of
stores and the failure to close unprofitable stores, and (iii) financial risk of
high leverage. The Company believes that industry consolidation will continue as
independent jewelers find it increasingly difficult to achieve economies of
scale in merchandise purchasing and real estate site selection.
Operating Strategies
The Company believes that its success is attributable in large measure to
its business strategy which emphasizes adherence to the Company's strict
operating standards regarding real estate selection, credit policies,
performance of sales personnel, store profitability and cost control. The
principal elements of the Company's operating strategies are as follows:
Small, Flexible Store Format in Regional Malls. The Company believes
it has a competitive advantage in obtaining high traffic, "center court"
locations in desirable regional and super-regional malls due principally to
(i) its small average store size of approximately 800 square feet, which,
while considerably smaller than the average store size of most of the
Company's competitors, generates comparable sales volumes, (ii) its ability
to adapt its store design to various sizes and configurations, and (iii)
its high average sales per square foot (approximately $1,247 in fiscal
1996). Over two-thirds of the Company's stores are located in high traffic,
"center court" locations. The stores' small flexible format (which lowers
the Company's fixed occupancy costs) and high productivity are desirable to
mall owners. The stores' open, attractive design appeals to customers,
while facilitating foot traffic and enhancing sales opportunities for the
Company.
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Absence of Recourse Credit Risk. The Company operates based upon a "no
credit risk" policy. When purchasing on credit, customers must use their
personal credit cards, the Company's private label credit card (which is
available through a third party and is non-recourse to the Company), or
other non-recourse third party credit arrangements. The Company's strict
policy eliminates its credit risk associated with the customer's failure to
pay. This policy also distinguishes the Company from most of its
competitors, which not only bear such credit risk, but also rely on finance
income in addition to merchandise sales.
Motivated, Sales-Oriented Store Personnel. The primary responsibility
of store sales personnel is selling to customers. To assist them in their
selling efforts, store personnel are authorized to discount prices within
certain limits and to choose from a variety of return/exchange options to
offer the customer. Most non-sale activities are largely centralized. In
addition, the absence of internal credit operations reduces the need for
sales personnel to focus on many in-store credit activities. Compensation
and bonus programs reinforce sales and margin goals on a daily, weekly and
monthly basis. The Company continually seeks to enhance the selling skills
of its sales associates through recruitment of experienced sales personnel
and extensive, ongoing training programs.
Differentiated Merchandising. The Company offers an in-depth selection
of merchandise in several key categories of fine jewelry: diamond, gold,
precious and semi-precious jewelry. This "key category" focus is oriented
to the Company's target customer, the middle to upper middle income woman.
Unlike many of its competitors, the Company carries only a limited
selection of watches and virtually no costume jewelry or gift merchandise.
During the past four fiscal years the Company has increased its average
store inventory at an annual rate of approximately 14.4% in an effort to
expand the upper price points and add more depth to the merchandise mix.
Strict Operating Controls. The Company emphasizes high performance
standards, backed by strong incentive programs. Adherence to these
standards in the areas of store site selection, sales targets, store
profitability and cost control is fundamental to the Company's success. For
example, the Company reduced central overhead as a percentage of net sales
from 9.8% ($7.5 million) in fiscal 1991 to 5.1% ($8.0 million) in fiscal
1996. During this same period, the Company's net sales increased by over
103% and the number of its stores increased by 48%.
Growth Strategies
The Company believes that it has significant opportunities to increase
sales and profits through continued execution of its store expansion strategy
and continued comparable store sales gains. The key elements of the Company's
growth strategies are as follows:
Accelerated New Store Openings. The Company opened 35 stores in the last
two fiscal years, and plans to open 30 stores in calendar 1997. The Company
anticipates opening a similar number of stores in 1998. The following table
shows the Company's store expansion during the periods presented reflecting both
store openings and closings for the respective periods:
Year Ended January 31,
----------------------
Number of Stores: 1993 1994 1995 1996 1997
- ----------------- ---- ---- ---- ---- ----
Open at beginning
of period 111 113 122 131 146
Opened during period 4 11 11 15 20
Closed during period (2) (2) (2) -- (2)
--- --- --- --- ---
Open at end of period 113 122 131 146 164
=== === === === ===
Net increase 2 9 9 15 18
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To reduce the Company's risk associated with entering new malls, the
Company prefers to expand in established malls. In addition, the Company seeks
to open additional stores in its existing markets where the Company believes it
can obtain greater market penetration. The Company also seeks to identify new
geographic markets where it can cluster stores for ease of supervision and
increased name recognition. The Company entered the St. Louis and Phoenix
markets in fiscal 1994 and now has four stores in the Phoenix area and six
stores in the St. Louis area. The Company entered the San Diego market in fiscal
1997 with two stores and plans to open two additional stores in this market
later in fiscal 1997. The Company also plans to add Orange County, California as
a market in fiscal 1997 by opening two stores.
The Company seeks to open new stores in key locations in regional and
super-regional malls. The Company's national presence permits it to focus its
new store openings on desirable malls throughout the country and often to obtain
high traffic, "center court" locations in those malls to maximize exposure to
mall shoppers. The Company uses its multiple name format to open additional
stores in malls where it already has profitable locations. For example, the
Company operates two stores in 34 malls and three stores in one mall.
The Company continuously evaluates the performance of its stores and closes
certain stores from time to time that do not continue to meet its strategic
location profile or its performance requirements.
Merchandising
The Company believes that an important element of its success is a focused
merchandising strategy that reflects its upscale customer orientation and small
store format. The Company seeks to provide a deep assortment of items across a
broad range of price points in its key product categories: diamonds (such as
diamond jewelry, diamond solitaires and bridal), gold, and precious and
semi-precious jewelry. Unlike many of its competitors, the Company carries only
a limited selection of watches and virtually no costume jewelry or gift
merchandise.
Each store offers approximately 2,500 individual items, including
approximately 500 core jewelry items, which accounted for approximately 40% of
net sales in fiscal 1996. In addition, the Company has expanded its merchandise
assortment in higher price points. The Company's average price per merchandise
sale has increased from $229 in fiscal 1994 to $245 in fiscal 1995 and $255 in
fiscal 1996.
In recent years, the Company has increased the average number of items
available in its stores to broaden the appeal of its merchandise assortment and
expand its product breadth in selected product categories, particularly bridal
and other diamond jewelry. For example, store merchandise per store (including
consigned items) has grown at a compound annual rate of approximately 14.4% over
the past four fiscal years (as measured by the inventory and consigned items on
hand at fiscal year end). During fiscal 1996, the Company placed a significantly
expanded selection of higher priced merchandise, our Signature Collection, in
approximately 35 stores on a test basis. Based on the initial success of this
program, the Company plans to expand this program to a number of additional
stores during fiscal 1997.
The following table sets forth the Company's percentage of total
merchandise sales by category for the following periods:
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Year Ended January 31,
----------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
Diamonds 51.4% 54.0% 56.8% 57.6% 57.5%
Gold 25.5 26.6 25.0 25.2 25.4
Precious/Semi-Precious 16.8 15.0 15.1 14.6 14.8
Watches 3.0 2.7 2.4 2.1 2.1
Other 3.3 1.7 0.7 0.5 0.2
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
All stores carry the Company's core items. The Company also customizes the
merchandising of its stores based upon each store's sales volume, individual
market preferences and historical selling patterns. The Company continually
tests new items in its stores and monitors their sales performance to identify
additional sales opportunities.
Along with its broad product assortment, the Company also provides jewelry
repair services to its customers (sales from which represented approximately
four percent of fiscal 1996 net sales). Actual repair work is performed by
jewelers under independent contract. Approximately 90 of the Company's stores
have independent jewelers located in the store to provide on-site repair
services to the customer.
Pricing Strategy. For purposes of pricing, the Company classifies its
merchandise into several broad categories. Consistent with many fine jewelry
retailers, a substantial portion of the Company's sales are made at prices
discounted from listed reference prices. Company personnel are authorized to
discount most merchandise prices within certain limits.
Credit
The Company operates based upon a "no credit risk" policy. When purchasing
on credit, customers must use their personal credit cards (e.g., Visa,
MasterCard, American Express and others), the Company's private label credit
cards, which are available through a third party and are non-recourse to the
Company, or other non-recourse third party credit arrangements. Because the
Company's credit programs are non-recourse to the Company, the Company has no
customer credit risk for non-payment by the customer associated with the sale.
At the same time, the Company believes that its ability to offer credit through
its "private label" credit cards and other non-recourse arrangements is
attractive to many customers, including those who prefer not to have their
jewelry purchases count towards their credit limits on their personal third
party credit cards. The Company encourages sales on the Company's private label
credit card or other non-recourse third-party credit arrangements because
customer purchases on this type of credit tend to generate higher average sales.
In fiscal 1996, the Company's average credit sale was approximately $600, versus
approximately $100 for a purchase paid for with cash or by check. The Company
believes that its success in building its non-recourse credit sales has been a
significant factor in its improvement in comparable store sales.
The Company's credit strategy and its focus on a more upscale clientele are
interrelated. A substantial portion of the users of private label credit offered
by most jewelers tend to be customers with more limited financial resources or a
weaker credit history. In contrast, the Company's adherence to a "no credit
risk" policy limits the Company's sales to such individuals. Thus, the Company
has historically oriented its merchandising programs to appeal to a more
affluent, less credit-reliant consumer.
The Company has established its private label program through Bank One (and
other non-recourse credit purveyors), whereby customers may apply for instant
credit on merchandise purchases. Under these credit programs, the credit
purveyors have no recourse against the Company based on the customer's failure
to pay; recourse against the Company is restricted to those limited cases where
the receivable itself is defective (such as incorrectly completed documentation
or certain situations involving customer fraud). The Company's expense related
to these limited cases was approximately 0.5% of sales during fiscal 1996. The
Company's credit card discount expense for fiscal 1996 and fiscal 1995
represented 3.0% and 2.6%, respectively, of credit sales for those years. In
general, the Company's credit card discount expense is higher for its private
label
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programs than for personal credit cards, such as Visa and MasterCard. Pursuant
to the Company's relationship with Bank One, the bank provides credit to the
Company's customers using its own credit criteria and policies. The Company pays
a fee to Bank One based primarily upon the volume of credit so extended. The
Company has similar non-recourse arrangements with other credit purveyors, which
it uses in addition to the Bank One program to assist customers in financing
their purchases. In addition, the Company utilizes a check authorization company
which guarantees payments on transactions involving certain personal checks.
In late fiscal 1995 and during fiscal 1996 the Company experimented with a
"First Time Buyers" program through a non-recourse arrangement with Bank One.
Under this program, Bank One granted credit to young customers with little or no
credit history, for which the Company paid Bank One a significantly higher fee
than it pays under its standard program. Due to the costs and results of the
program, the Company and Bank One have discontinued the "First Time Buyers"
program as of December, 1996.
During recent periods there has been an increase in consumer credit
delinquencies generally, which has resulted in financial institutions
reexamining their pending practices and procedures. Consequently, the
availability or cost of third party credit offered by the Company could be
adversely affected.
Store Operations
Store Layout. Over two-thirds of the Company's stores are located in high
traffic, "center court" locations. Nearly all of the stores have an open
entrance rather than the more traditional single-doorway entrance. Stores are
brightly-lit and generally are designed to have display cases situated along the
lease line. By formatting the stores in this "customer-friendly" manner and
without a formal entryway, a casual mall shopper comes in very close contact
with the store's merchandise and personnel without the natural apprehension many
have upon "entering" a fine jewelry store.
Store Management. Each of the Company's stores is operated under the
direction of a store manager who is responsible for management of all
store-level operations, including sales and personnel matters. Most non-sales
related administrative functions are performed at the Company's corporate office
in Chicago. A significant portion of the compensation of store managers is based
on incentives which focus on sales productivity. The store managers are assisted
by a staff that usually includes an assistant manager and four to eight sales
associates, depending upon store operating hours and anticipated sales volume.
The Company has approximately 25 supervisors who concentrate their efforts on
store-focused sales strategies. Each supervisor is based in one store, but
spends most of his or her time visiting other stores. The Company's senior
officers spend a substantial percentage of their time visiting stores to
reinforce the close communication between senior executives and store personnel.
Operating Cost Controls. The Company's store operations are designed to
maintain low operating costs at the store level. The Company's small average
store size reduces fixed costs, and the lack of recourse credit eliminates the
need for most overhead expenses normally associated with credit operations. The
Company also seeks to reduce store-level operating costs through efficient sales
staff utilization. To assist store personnel in their selling efforts, many of
the administrative functions normally performed at the store level are performed
at the corporate level. Due to computerization, more efficient use of personnel,
and the elimination of certain non-essential functions, the Company reduced
central overhead as a percentage of net sales from 9.8% in fiscal 1991 ($7.5
million) to 5.1% in fiscal 1996 ($8.0 million). During that period, the
Company's sales increased by over 103% and the number of stores increased by
48%.
Store Employee Compensation. The Company seeks to hire experienced sales
personnel and motivate its store employees by linking a substantial percentage
of employee compensation to individual and store sales performance, as well as
by offering opportunities for promotion within the Company.
Employee Training. The Company believes that providing knowledgeable and
responsive customer service is critical to the Company's success and,
accordingly, has developed and implemented extensive
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employee training programs. In addition to training during the first weeks of
employment and continuous on-the-job training provided by management, the
Company has several training videos to supplement its written training materials
for sales associates. Store managers complete a manager training and development
program.
Advertising and Promotions
The Company uses in-store and point-of-sale promotional activities as the
main elements of its advertising strategy. The bulk of the Company's advertising
and promotional budget is dedicated to in-store signage, flyers, special
merchandise displays and targeted mailings. Frequent special promotions such as
diamond remount events, clearance sales, "Vice President's Day Events," and
similar promotions are designed to increase traffic through the Company's stores
and generate an urgency for customers to make purchases. These events vary from
year to year and among stores. Publicized events are an important part of the
Company's marketing efforts, and the Company generates a significant portion of
its revenues during such events. The Company plans to test certain direct mail
and media advertising programs in fiscal 1997.
The Company permits store personnel to choose from a variety of return or
exchange options to offer the customer, including a 90-day return policy or a
90-day exchange policy. The vast majority of the Company's sales in fiscal 1996
have been made on a 90-day exchange or similar basis, which the Company believes
has favorably affected net sales.
Purchasing
The Company does not manufacture its merchandise. The Company purchases
substantially all of its inventory, including loose gems, directly from prime
suppliers located in the United States and abroad. The Company utilizes
approximately 130 vendors, primarily in the United States, Israel, Italy and the
Far East, who supply various jewelry products under U.S. dollar-denominated
agreements. During fiscal 1996, the Company's largest and five largest suppliers
accounted for approximately 17% and 36%, respectively, of the merchandise
purchased by the Company. The Company also has certain subcontracting
arrangements with jewelry finishers to set loose diamonds and gemstones into
rings and other jewelry, using styles established by the Company. Management
believes that the relationships the Company has established with its suppliers
and subcontractors are good. The Company has not experienced any difficulty in
obtaining satisfactory sources of supply and believes that adequate alternative
sources of supply exist for substantially all types of merchandise sold in its
stores. However, the loss of one or more of its major suppliers, particularly at
certain critical times during the year could have a material adverse effect on
the Company.
The Company maintains a strict quality assurance program, with almost all
shipments from suppliers being counted or weighed and visually inspected upon
receipt at the Company's headquarters in Chicago, Illinois.
During fiscal 1996, the Company's average net monthly investment in
inventory (i.e., the total cost of inventory owned and paid for) was 65% of the
total cost of the Company's on-hand merchandise. The amount of consignment
merchandise has increased in recent years. For example, the average amount of
consignment merchandise per store has increased from $93,000 on January 31, 1994
to $106,000 on January 31, 1997. The Company is also generally granted favorable
exchange privileges which permit it to return or exchange certain unsold
merchandise for new products at any time. Those arrangements permit the Company
to structure its relationships with vendors to encourage their participation in,
and responsibility for, merchandise turnover and profitability. These
arrangements permit the Company to have more merchandise available for sale in
stores and reduce somewhat the Company's exposure to changes in fashion trends
and inventory obsolescence.
The Company and the jewelry industry in general are affected by
fluctuations in the prices of diamonds and gold and, to a lesser extent, other
precious and semi-precious metals and stones. During fiscal 1996,
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diamonds, gold, precious and semi-precious jewelry accounted for approximately
98% of the Company's net merchandise sales. The supply and price of diamonds in
the principal world markets are significantly influenced by a single entity, the
Central Selling Organization ("CSO"), a marketing arm of DeBeers Consolidated
Mines Ltd. of South Africa. The CSO has traditionally controlled the marketing
of a substantial majority of the world's supply of diamonds and sells rough
diamonds to worldwide diamond cutters from its London office in quantities and
at prices determined in its sole discretion. In fiscal 1996, the CSO announced
price increases for a number of the sizes and quality grades of diamonds. The
availability of diamonds to the CSO and the Company's suppliers is to some
extent dependent on the political situation in diamond producing countries, such
as South Africa, Botswana, Zaire, republics of the former Soviet Union and
Australia, and on continuation of the prevailing supply and marketing
arrangements for raw diamonds. Until alternate sources could be developed, any
sustained interruption in the supply of diamonds or any oversupply from the
producing countries could adversely affect the Company and the retail jewelry
industry as a whole. The Company has been increasing the amount of inventory
(especially higher pried items) carried in its stores. Higher priced jewelry
items tend to have a slower rate of turnover, thereby increasing the risks to
the Company associated with price fluctuations and changes in fashion trends.
Management Information Systems
The Company utilizes customized management information systems throughout
its business to facilitate the design and implementation of selling strategies
and as an integral part of its financial and other operational controls. The
Company's management information system utilizes an IBM AS400. The system
incorporates point-of-sale computers in its stores with a merchandise management
and purchase order management system and utilizes software specifically designed
for the jewelry industry, which the Company has customized extensively to meet
its needs. The information system has been upgraded to support the Company's
needs and further upgrading is necessary to support the Company's growth,
including upgrading required to make the information system year 2000 compliant.
The Company uses the management information system to track each individual
item of merchandise from receipt to ultimate sale or return to the vendor. As a
result, management can closely monitor inventory by location, sales, gross
margin, inventory levels and turnover statistics, reallocating inventory among
stores when beneficial. This system also enables management to review each
store's and each employee's productivity and performance. Based on the sales
data, the Company tailors each store's inventory composition and plans the
Company's purchasing requirements accordingly. The system enables the Company to
manage its inventory at the store level, including the automatic replenishment
of merchandise no less frequently than twice a week.
The system also automatically provides a daily reconciliation of each
store's transactions for prompt investigation of discrepancies. The
point-of-sale computers are polled nightly by the headquarters system and
updated data is available at the beginning of the following day for use by
central office and store supervisory personnel, and for transfer into the
Company's accounting, merchandising, and other management information systems.
The Company has implemented, through its point-of-sale system, the ability
to capture and retain selected customer data from each sale (name, address,
phone, birthday, anniversaries, historical purchases, etc.). The data is used by
Company store managers and sales associates in their efforts to contact
customers and anticipate and facilitate future add-on purchases by its
customers. For example, a husband who buys a diamond necklace for his wife's
birthday may receive a mailing approximately a year later suggesting a matching
set of diamond earrings. The Company believes that additional sales volume can
be achieved by utilizing such programming initiatives. The point of sale systems
also track required inspection dates for customers with diamond warranties.
Sales associates are prompted by the system to contact these customers to remind
them of the required in-store inspection.
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The Company's supervisors use laptop computers in the field to obtain
up-to-date financial information on their stores and down-load it on an
as-needed basis from the Company's central computer system. The information
available via laptop includes, among other items, store sales, gross profit,
personnel costs, and sales associates' productivity information.
Inventory Loss Prevention and Insurance. The Company undertakes substantial
efforts to safeguard its jewelry inventory from loss and theft, including the
use of security alarm systems and safes at each store and the taking of daily
inventory of higher value items. In addition, the Company's inventory management
and control system, which tracks each item in the Company's inventory, provides
a further check against loss or theft. During fiscal 1996, in-store inventory
shrinkage amounted to less than 1.0% of sales. The Company has a full-time
manager who directs the Company's loss prevention efforts. The Company maintains
insurance (subject to certain deductibles) covering the risk of loss of
merchandise in transit and at store premises (whether owned or on consignment)
in amounts that the Company believes are reasonable and adequate for the types
and amounts of merchandise carried by the Company.
Competition
The jewelry business is fragmented and highly competitive. The Company
competes with national and regional jewelry chains and local independently owned
jewelry stores, especially those that operate in malls, as well as with
department stores, catalog showrooms, discounters, direct mail suppliers and
televised home shopping networks. Certain of the Company's competitors are
substantially larger and have greater financial resources than the Company and
can take advantage of national advertising programs. The Company also believes
that it competes for consumers' discretionary spending dollars with retailers
that offer merchandise other than jewelry.
Management believes that the primary competitive factors affecting its
operations are store location and atmosphere, quality of sales personnel and
service, breadth and depth of merchandise offered, pricing, credit and
reputation. The Company emphasizes its merchandise selection, sales personnel,
store location and design and pricing in competing in its target market, which
is relatively less credit sensitive.
Trademarks
Whitehall Co. Jewellers(R) and Lundstrom Jewelers(R) are registered
trademarks in the United States. The Company has filed an application to
register Marks Bros. Jewelers(TM) as a trademark in the United States.
Employees
As of January 31, 1997, the Company had approximately 1,100 employees,
including approximately 1,000 store level employees. The Company usually hires a
limited number of temporary employees during each Christmas selling season. None
of the Company's employees are represented by a union. The Company believes that
its relations with its employees are good.
Regulation
The Company's operations are affected by numerous federal and state laws
that impose disclosure and other requirements upon the origination, servicing
and enforcement of credit accounts, and limitations on the maximum amount of
finance charges that may be charged by a credit provider. Although credit to the
Company's customers is provided by third parties without recourse to the Company
based upon a customer's failure to pay, any restrictive change in the regulation
of credit, including the imposition of, or changes in, interest rate ceilings,
could adversely affect the cost or availability of credit to the Company's
customers and, consequently, the Company's results of operations or financial
condition.
- 10 -
The Company's operations are also affected by federal and state laws
relating to marketing practices in the retail jewelry industry. In marketing to
its customers, the Company compares many of its prices to "reference prices."
The Company's literature indicates to customers that its reference price for an
item is either the manufacturer's suggested retail price or the Company's
determination of the non-discounted price at which comparable merchandise of
like grade or quality is advertised or offered for sale by competitive retailers
and is not the Company's current selling price or the price at which it formerly
sold such item. Although the Company believes that pricing comparisons are
common in the jewelry business and that the Company's practice is in compliance
with applicable laws relating to trade practices, there can be no assurance that
this position would be upheld.
Item 2. Properties
Properties
The Company operates 176 stores in 24 states. All of these stores are
leased and are located in regional or super-regional malls. The Company's
typical new store lease has a term of 10 years plus the first partial lease
year. Terms generally include a minimum base rent, a percentage rent based on
store sales and certain other occupancy charges. At January 31, 1997, the
average remaining life of the leases for the Company's stores is approximately
six years. While there can be no assurance, the Company expects to be generally
able to renew these leases as they expire.
The Company also leases approximately 16,700 square feet of office and
administrative space in Chicago, Illinois in an office building housing its
corporate headquarters, distribution functions and quality assurance operations.
This lease expires on May 13, 2002.
Item 3. Legal Proceedings
Legal Proceedings
The Company is involved in certain legal actions from time to time arising
in the ordinary course of business, but management believes that none of these
actions, either individually or in the aggregate, will have a material adverse
effect on the Company's results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
None.
- 11 -
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Incorporated herein by reference to section entitled "Related Stockholder
Matters and Market for the Company's Common Stock" in the Company's 1996 Annual
Report, which is included as Exhibit 13 to this Annual Report on Form 10-K.
Item 6. Selected Financial Data
Incorporated herein by reference to section entitled "Selected Historical
Financial and Operating Data" in the Company's 1996 Annual Report, which is
included as Exhibit 13 to this Annual Report on Form 10-K.
Item 7. Managements's Discussion and Analysis of Financial Condition and
Results of Operations
Incorporated herein by reference to section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Opertions" in
the Company's 1996 Annual Report, which is included as Exhibit 13 to this Annual
Report on Form 10-K.
Item 8. Financial Statements and Supplementary Data
Incorporated herein by reference to sections entitled "Statements of
Operations," "Balance Sheets," "Statements of Stockholders' Equity (Deficit),"
"Statements of Cash Flows" and "Notes to Financial Statements" in the Company's
1996 Annual Report, which is included as Exhibit 13 to this Annual Report on
Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
- 12 -
PART III
Item 10. Directors and Executive Officers of the Registrant
The information contained under the headings "Election of Directors" and
"Executive Officers" in the Proxy Statement (which Proxy Statement will be filed
with the Securities and Exchange Commission on or before May 10, 1997) is
incorporated herein by reference.
Item 11. Executive Compensation
Except for information referred to in Item 402(a)(8) of Regulation S-K, the
information contained under the headings "Election of Directors" and "Executive
Compensation and Other Information" in the Proxy Statement (which Proxy
Statement will be filed with the Securities and Exchange Commission on or before
May 10, 1997) is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement (which Proxy Statement
will be filed with the Securities and Exchange Commission on or before May 10,
1997) is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information contained under the heading "Certain Relationships and
Related Transactions" in the Proxy Statement (which Proxy Statement will be
filed with the Securities and Exchange Commission on or before May 10, 1997) is
incorporated herein by reference.
- 13 -
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a)(1) Financial Statements
The following financial statements are filed as part of this report:
Report of Independent Public Accountants.*
Balance Sheets of the Company as of January 31, 1997 and 1996.*
Statements of Operations of the Company for the years ended January
31, 1997, 1996 and 1995.*
Statements of Stockholders' Equity (Deficit) of the Company for the
years ended January 31, 1997, 1996 and 1995.*
Statements of Cash Flows of the Company for the years ended January
31, 1997, 1996 and 1995.*
Notes to Financial Statements.*
- ----------
* Incorporated herein by reference from the Company's 1996 Annual Report.
(a)(2) Financial Statement Schedules
Report of Independent Public Accountants on Financial
Statement Schedule Page 17
Schedule II - Valuation and Qualifying Accounts Page 18
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
(a)(3) Exhibits
The following Exhibits are filed herewith or incorporated herein:
Exhibit No. Description
----------- -----------
3.1 Restated Certificate of Incorporation of the Company (1)
3.2 Restated By-Laws of the Company (1)
4.1 Stockholders Rights Plan (2)
4.2 Certificate of Designations of series A Junior Participating
Preferred Stock (1)
- 14 -
4.3 Indenture governing the Notes dated as of April 15, 1996 between
the Company and Norwest Bank Minnesota, National Association, as
Trustee (2)
4.4 Form of Series C Notes (included in Exhibit 4.3 to this Form
10-K) (2)
4.5 Form of Series D Notes (included in Exhibit 4.3 to this Form
10-K) (2)
4.6 First Supplemental Indenture to Indenture (incorporated by
reference to Exhibit 4.4 of the Registration Statement on Form
S-1 (Commission File No. 333-0403))
10.1 Second Amended and Restated Registration Agreement (2)
10.2 Letter Agreements re: Incentive Stock Option dated September 28,
1995 between the Company and each of Hugh M. Patinkin, John R.
Desjardins and Matthew M. Patinkin, respectively (1) (3)
10.3 Letter Agreements re: Restricted Stock Awards dated September 28,
1995 between the Company and each of Hugh M. Patinkin, John R.
Desjardins and Matthew M. Patinkin (1) (3)
10.4 Letter Agreements re: Incentive Compensation dated September 28,
1995 between the Company and each of Hugh M. Patinkin, John R.
Desjardins and Matthew M. Patinkin (1) (3)
10.5 Company's 1995 Executive Incentive Stock Option Plan (1) (3)
10.6 Letter Agreement re: Incentive Stock Option between the Company
and Lynn D. Eisenheim (1) (3)
10.7 1996 Long-Term Incentive Plan (2) (3)
10.8 Amended and Restated Private Label Revolving Credit Plan
Agreement, dated May 31, 1996, between the Company and Bank One,
N.A. (2)
10.9 Lease dated May 14, 1992 between the Company and New York Life
Insurance Company relating to the Company's corporate
headquarters (1)
10.10 Revolving Credit, Term Loan and Gold Consignment Agreement, dated
as of May 3, 1996, among the Company, the Banks (as defined
therein), The First National Bank of Boston and Rhode Island
Hospital Trust National Bank, as Agent for the Banks, governing
the Bank Facility and the Gold Consignment Facility, as amended
by the First Amendment thereto, the Second Amendment thereto and
the Third Amendment thereto (4)
10.11 Executive Severance Agreements each dated May 7, 1996, between
the Company and each of Hugh M. Patinkin, John R. Desjardins,
Matthew M. Patinkin and Lynn D. Eisenheim (2) (3)
10.12 ESOP Restructuring Agreement, dated as of March 29, 1996, between
the Company and the Marks Bros. Jewelers, Inc. Employee Stock
Ownership Trust (2)
10.13 1997 Long-Term Incentive Plan (3)
- 15 -
10.14 Fourth Amendment to Revolving Credit, Term Loan and Gold
Consignment Agreement, dated as of March 14, 1997, among the
Company, the Banks (as defined therein), The First National Bank
of Boston and Rhode Island Hospital Trust National Bank, as Agent
for the Banks, governing the Bank Facility and the Gold
Consignment Facility
10.15 Amended and Restated Employee Stock Ownership Plan
11 Statement re: computation of per share earnings
13 1996 Annual Report
23 Consent of Coopers & Lybrand L.L.P.
24 Powers of Attorney (included on signature page)
27 Financial Data Schedule
- ----------
(1) Incorporated herein by reference to an exhibit with the same number as
filed with the Company's Registration Statement on Form S-1, as amended
(Registration No. 333-1794).
(2) Incorporated herein by reference to an exhibit with the same number as
filed with the Company's Registration Statement on Form S-1, as amended
(Registration No. 333-0403).
(3) Represents management contract or compensatory plan or arrangement.
(4) Incorporated herein by reference to an exhibit with the same number as
filed with the Company's Registration Statement on Form S-1, as amended
(Registration No. 333-13903).
(b) Reports on Form 8-K
None.
- 16 -
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Marks Bros. Jewelers, Inc.
Our report on the financial statements of Marks Bros. Jewelers, Inc. has been
incorporated by reference in this Form 10-K from page 28 of the 1996 Annual
Report of Marks Bros. Jewelers, Inc. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule which is included on page 18 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois,
March 17, 1997
- 17 -
MARKS BROS. JEWELERS, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Twelve months ended January 31, 1995, 1996 and 1997
(Dollars in thousands)
Column A Column B Column C Column D Column E
- ------------------------------------------ -------- --------------------------- -------- --------
Balance at Charged to Charged Balance at
Beginning Costs and to Other End
Description of Period Expenses Accounts Deduction of Period
----------- --------- -------- -------- --------- ---------
Twelve months ended 1/31/95:
allowance for doubtful accounts......... $ 519 $ 615 -- $ 629(1) $ 505
====== ====== ====== ======
Inventory allowance..................... 1,226 1,932 -- 1,594 1,564
====== ====== ====== ======
Twelve months ended 1/ 31/96:
Allowance for doubtful accounts......... $ 505 $ 918 -- $ 858(1) $ 565
====== ====== ====== ======
Inventory allowance..................... 1,564 2,045 -- 2,346 1,263
====== ====== ====== ======
Twelve months ended 1/31/97
Allowance for doubtful accounts......... $ 565 $1,037 -- $ 894(1) $ 708
====== ====== ====== ======
Inventory allowance..................... 1,263 2,662 -- 2,214 1,711
====== ====== ====== ======
Note:
(1) Uncollectible items written off, less recoveries of items previously
written off.
- 18 -
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, this Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 15, 1997 MARKS BROS. JEWELERS, INC.
By: /s/ John R. Desjardins
-----------------------------------
John R. Desjardins
Executive Vice President, Finance &
Administration,
Treasurer and Secretary
POWER OF ATTORNEY AND SIGNATURES
Each of the undersigned officers and directors of Marks Bros Jewelers, Inc.
hereby severally constitutes and appoints Hugh M. Patinkin and John R.
Desjardins, and each of them singly, our true and lawful attorneys, with full
power to them and each of them singly, to sign for us in our names in the
capacities indicated below, all amendments to this Annual Report on Form 10-K,
and generally to do all things in our names and on our behalf in such capacities
to enable Marks Bros. Jewelers, Inc. to comply with the provisions of the
Securities Exchange Act of 1934, as amended, and all requirements of the
Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement has been signed by the following persons on behalf of the
registrant and in the capacities indicated on this 15th day of April, 1997.
Name Capacity
---- --------
/s/ Hugh M. Patinkin Chairman, President and Chief Executive Officer
- --------------------------- (principal executive officer) and Director
Hugh M. Patinkin
/s/ John R. Desjardins Executive Vice President, Finance & Administration,
- --------------------------- Treasurer and Secretary (principal financial officer) and
John R. Desjardins Director
/s/ Matthew M. Patinkin Director
- ---------------------------
Matthew M. Patinkin
/s/ Rodney L. Goldstein Director
- ---------------------------
Rodney L. Goldstein
/s/ Norman J. Patinkin Director
- ---------------------------
Norman J. Patinkin
- 19 -
/s/ Jack A. Smith Director
- ---------------------------
Jack A. Smith
/s/ Daniel H. Levy Director
- ---------------------------
Daniel H. Levy
- 20 -
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
10.13 -- 1997 Long-Term Incentive Plan
10.14 -- Fourth Amendment to Revolving Credit, Term Loan and
Gold Consignment Agreement, dated as of March 14, 1997,
among the Company, the Banks (as defined therein), The
First National Bank of Boston and Rhode Island Hospital
Trust National Bank, as Agent for the Banks, governing
the Bank Facility and the Gold Consignment Facility
10.15 -- Amended and Restated Employee Stock Ownership Plan
11 -- Statement re: computation of per share earnings
13 -- 1996 Annual Report
23 -- Consent of Coopers & Lybrand L.L.P.
24 -- Powers of Attorney (included on signature page)
27 -- Financial Data Schedule
- 21 -
EXHIBIT 10.13
MARKS BROS. JEWELERS, INC.
1997 LONG-TERM INCENTIVE PLAN
I. INTRODUCTION
1.1 Purposes. The purposes of the 1997 Long-Term Incentive Plan (the "Plan") of
Marks Bros. Jewelers, Inc. (the "Company"), and its subsidiaries from time to
time (individually a "Subsidiary" and collectively the "Subsidiaries"), are (a)
to align the interests of the Company's stockholders and the recipients of
awards under this Plan by increasing the proprietary interest of such recipients
in the Company's growth and success, (b) to advance the interests of the Company
by attracting and retaining officers and other key employees, and well-qualified
persons who are not officers or employees of the Company ("non-employee
directors") for service as directors of the Company and (c) to motivate such
employees and non-employee directors to act in the long-term best interests of
the Company's stockholders. For purposes of this Plan, references to employment
by the Company shall also mean employment by a Subsidiary.
1.2 Certain Definitions.
"Affiliate" and "Associate" shall have the respective meanings ascribed to
such terms in Rule 12b-2, as in effect on the effective date of this Plan, under
the Exchange Act; provided, however, that no director or officer of the Company
shall be deemed an Affiliate or Associate of any other director or officer of
the Company solely as a result of his or her being a director or officer of the
Company.
"Agreement" shall mean the written agreement evidencing an award hereunder
between the Company and the recipient of such award.
"Beneficial Owner" (including the terms "Beneficially Own" and "Beneficial
Ownership"), when used with respect to any Person, shall be deemed to include
any securities which:
(a) such Person or any of such Person's Affiliates or Associates
beneficially owns, directly or indirectly (determined as provided in Rule 13d-3,
as in effect on the effective date of this Plan, under the Exchange Act);
(b) such Person or any of such Person's Affiliates or Associates, directly
or indirectly, has:
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time or upon the satisfaction of
any conditions, or both) pursuant to any written or oral agreement,
arrangement or understanding (other than customary agreements with and
among underwriters and selling group members with respect to a bona fide
public offering of securities), upon the exercise of any options, warrants,
rights or conversion or exchange privileges or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or to
Beneficially Own securities tendered pursuant to a tender or exchange offer
made by or on behalf of such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange; or
(ii) the right to vote pursuant to any written or oral agreement,
arrangement or understanding; provided, however, that a Person shall not be
deemed the Beneficial Owner of, or to Beneficially Own, any security
otherwise subject to this item (ii) if such agreement, arrangement or
understanding to vote (1) arises solely from a revocable proxy or consent
given to such Person or any of such Person's Affiliates or Associates in
response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the applicable rules and regulations
under the Exchange Act and (2) is not also then reportable by such Person
on Schedule 13D (or any comparable or successor report then in effect)
under the Exchange Act; or
(iii) the right to dispose of pursuant to any written or oral
agreement, arrangement or understanding (other than customary agreements
with and among underwriters and selling group members with respect to a
bona fide public offering of securities); or
(c) are beneficially owned, directly or indirectly, by any other Person
with which such Person or any of such Person's Affiliates or Associates has any
written or oral agreement, arrangement or understanding (other than customary
agreements with and among underwriters and selling group members with respect to
a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the proviso to item (ii)
of subparagraph (b) of the first paragraph of this definition) or disposing of
any securities of the Company.
Notwithstanding the first paragraph of this definition, no director or
officer of the Company shall be deemed to be the "Beneficial Owner" of, or to
"Beneficially Own," shares of Common Stock or other securities of the Company
beneficially owned by any other director or officer of the Company solely as a
result of his or her being a director or officer of the Company.
"Board" shall mean the Board of Directors of the Company.
"Bonus Stock" shall mean shares of Common Stock which are not subject to a
Restriction Period or Performance Measures.
"Bonus Stock Award" shall mean an award of Bonus Stock under this Plan.
"Cause" shall mean commission of a felony involving moral turpitude or any
material breach of any statutory or common law duty to the Company or a
Subsidiary involving wilful malfeasance.
"Change in Control" shall have the meaning set forth in Section 6.8(b).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Committee designated by the Board, consisting of
two or more members of the Board, each of whom shall be (a) a "Non-Employee
Director" within the meaning of Rule 16b-3 under the Exchange Act and (b) an
"outside director" within the meaning of Section 162(m) of the Code, subject to
any transition rules applicable to the definition of outside director.
"Common Stock" shall mean the common stock, $.001 par value, of the
Company.
"Company" has the meaning specified in Section 1.1.
"Directors Options" shall have the meaning set forth in Section 5.1.
"Disability" shall mean the inability for a continuous period of at least
six months of the holder of an award to perform substantially such holder's
duties and responsibilities, as determined solely by the Committee.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exempt Person" shall mean each of Hugh M. Patinkin, John R. Desjardins,
Matthew M. Patinkin and each Affiliate thereof.
"Fair Market Value" shall mean the average of the high and low transaction
prices of a share of Common Stock as reported in the National Association of
Securities Dealers Automated Quotation National Market System on the date as of
which such value is being determined, or, if the Common Stock is listed on a
national securities exchange, the average of the high and low transaction prices
of a share of Common Stock on the principal national stock exchange on which the
Common Stock is traded on the date as of which such value is being determined,
or, if there shall be no reported transactions for such date, on the next
preceding date for which transactions were reported; provided, however, that if
Fair Market Value for any date cannot be so determined, Fair Market Value shall
be determined by the Committee by whatever means or method as the Committee, in
the good faith exercise of its discretion, shall at such time deem appropriate.
"Free-Standing SAR" shall mean an SAR which is not issued in tandem with,
or by reference to, an option, which entitles the holder thereof to receive,
upon exercise, shares of Common Stock (which may be Restricted Stock), cash or a
combination thereof with an aggregate value equal to the excess of the Fair
Market Value of one share of Common Stock on the date of exercise over the base
price of such SAR, multiplied by the number of such SARs which are exercised.
"Incentive Stock Option" shall mean an option to purchase shares of Common
Stock that meets the requirements of Section 422 of the Code, or any successor
provision, which is intended by the Committee to constitute an Incentive Stock
Option.
"Incumbent Board" shall have the meaning set forth in Section 6.8(b)(ii)
hereof.
"Mature Shares" shall mean shares of Common Stock for which the holder
thereof has good title, free and clear of all liens and encumbrances and which
such holder either (a) has held for at least six months or (b) has purchased on
the open market.
"Non-Employee Director" shall mean any director of the Company who is not
an officer or employee of the Company or any Subsidiary (except in the
definition of Committee, in which case "Non-Employee Director" shall have the
meaning set forth in Rule 16b-3 under the Exchange Act).
"Non-Statutory Stock Option" shall mean a stock option which is not an
Incentive Stock Option.
"Performance Measures" shall mean the criteria and objectives, established
by the Committee, which shall be satisfied or met (a) as a condition to the
exercisability of all or a portion of an option or SAR or (b) during the
applicable Restriction Period or Performance Period as a condition to the
holder's receipt, in the case of a Restricted Stock Award, of the shares of
Common Stock subject to such award, or, in the case of a Performance Share
Award, of payment with respect to such award. Such criteria and objectives may
include one or more of the following: the attainment by a share of Common Stock
of a specified Fair Market Value for a specified period of time, earnings per
share, return to stockholders (including dividends), return on equity, earnings
of the Company, revenues, market share, cash flows or cost reduction goals, or
any combination of the foregoing. If the Committee desires that compensation
payable pursuant to any award subject to Performance Measures be "qualified
performance-based compensation" within the meaning of section 162(m) of the
Code, the Performance Measures shall be established by the Committee no later
than the end of the first quarter of the Performance Period or Restriction
Period, as applicable (or such other time designated by the Internal Revenue
Service).
"Performance Period" shall mean any period designated by the Committee
during which the Performance Measures applicable to a Performance Share Award
shall be measured.
"Performance Share" shall mean a right, contingent upon the attainment of
specified Performance Measures within a specified Performance Period, to receive
one share of Common Stock, which may be Restricted Stock, or in lieu thereof,
the Fair Market Value of such Performance Share in cash.
"Performance Share Award" shall mean an award of Performance Shares under
this Plan.
"Permanent and Total Disability" shall have the meaning set forth in
Section 22(e)(3) of the Code or any successor thereto.
"Person" shall mean any individual, firm, corporation, partnership or other
entity, and shall include any successor (by merger or otherwise) of any of the
forgoing.
"Restricted Stock" shall mean shares of Common Stock which are subject to a
Restriction Period.
"Restricted Stock Award" shall mean an award of Restricted Stock under this
Plan.
"Restriction Period" shall mean any period designated by the Committee
during which the Common Stock subject to a Restricted Stock Award may not be
sold, transferred, assigned, pledged, hypothecated or otherwise encumbered or
disposed of, except as provided in this Plan or the Agreement relating to such
award.
"SAR" shall mean a stock appreciation right which may be a Free-Standing
SAR or a Tandem SAR.
"Stock Award" shall mean a Restricted Stock Award or a Bonus Stock Award.
"Tandem SAR" shall mean an SAR which is granted in tandem with, or by
reference to, an option (including a Non-Statutory Stock Option granted prior to
the date of grant of the SAR), which entitles the holder thereof to receive,
upon exercise of such SAR and surrender for cancellation of all or a portion of
such option, shares of Common Stock (which may be Restricted Stock), cash or a
combination thereof with an aggregate value equal to the excess of the Fair
Market Value of one share of Common Stock on the date of exercise over the base
price of such SAR, multiplied by the number of shares of Common Stock subject to
such option, or portion thereof, which is surrendered.
"Tax Date" shall have the meaning set forth in Section 6.5.
"Ten Percent Holder" shall have the meaning set forth in Section 2.1(a).
1.3 Administration. This Plan shall be administered by the Committee.
Subject to Section 6.1, any one or a combination of the following awards may be
made under this Plan to eligible persons: (a) options to purchase shares of
Common Stock in the form of Incentive Stock Options or Non-Statutory Stock
Options, (b) in the form of Tandem SARs or Free-Standing SARs, (c) Stock Awards
in the form of Restricted Stock or Bonus Stock and (d) Performance Shares. The
Committee shall, subject to the terms of this Plan, select eligible persons for
participation in this Plan and determine the form, amount and timing of each
award to such persons and, if applicable, the number of shares of Common Stock,
the number of SARs and the number of Performance Shares subject to such an
award, the exercise price or base price associated with the award, the time and
conditions of exercise or settlement of the award and all other terms and
conditions of the award, including, without limitation, the form of the
Agreement evidencing the award. The Committee shall, subject to the terms of
this Plan, interpret this Plan and the application thereof, establish rules and
regulations it deems necessary or desirable for the administration of this Plan
and may impose, incidental to the grant of an award, conditions with respect to
the award, such as limiting competitive employment or other activities. All such
interpretations, rules, regulations and conditions shall be conclusive and
binding on all parties.
The Committee may delegate some or all of its power and authority hereunder
to the Chief Executive Officer or other executive officer of the Company as the
Committee deems appropriate; provided, however, that the Committee may not
delegate its power and authority with regard to (a) the grant of an award under
this Plan to any person who is a "covered employee" within the meaning of
Section 162(m) of the Code or who, in the Committee's judgment, is likely to be
a covered employee at any time during the period an award hereunder to such
employee would be outstanding or (b) the selection for participation in this
Plan of
an officer or other person subject to Section 16 of the Exchange Act or
decisions concerning the timing, pricing or amount of an award to such an
officer or other person.
No member of the Board of Directors or Committee, and neither the Chief
Executive Officer nor any other executive officer to whom the Committee
delegates any of its power and authority hereunder, shall be liable for any act,
omission, interpretation, construction or determination made in connection with
this Plan in good faith, and the members of the Board of Directors and the
Committee and the President and Chief Executive Officer or other executive
officer shall be entitled to indemnification and reimbursement by the Company in
respect of any claim, loss, damage or expense (including attorneys' fees)
arising therefrom to the full extent permitted by law, except as otherwise may
be provided in the Company's Certificate of Incorporation and/or By-laws, as the
same may be amended or restated from time to time, and under any directors' and
officers' liability insurance that may be in effect from time to time.
A majority of the Committee shall constitute a quorum. The acts of the
Committee shall be either (a) acts of a majority of the members of the Committee
present at any meeting at which a quorum is present or (b) acts approved in
writing by a majority of the members of the Committee without a meeting.
Notwithstanding anything to the contrary herein, any grant of awards to a
Non-Employee Director (not including awards under Article V) shall require the
approval of the Board.
1.4 Eligibility. Participants in this Plan shall consist of such directors,
officers or other key employees of the Company and its Subsidiaries as the
Committee, in its sole discretion, may select from time to time. The Committee's
selection of a person to participate in this Plan at any time shall not require
the Committee to select such person to participate in this Plan at any other
time. Non-Employee Directors shall also be eligible to participate in this Plan
in accordance with Article V.
1.5 Shares Available. Subject to adjustment as provided in Sections 6.7 and
6.8, 400,000 shares of Common Stock shall be available under this Plan, reduced
by the sum of the aggregate number of shares of Common Stock (a) that are issued
upon the grant of a Stock Award and (b) which become subject to outstanding
options, including Directors' Options, outstanding Free-Standing SARs and
outstanding Performance Shares. To the extent that shares of Common Stock
subject to an outstanding option (other than in connection with the exercise of
a Tandem SAR), Free-Standing SAR or Performance Share are not issued or
delivered by reason of the expiration, termination, cancellation or forfeiture
of such award or by reason of the delivery or withholding of shares of Common
Stock to pay all or a portion of the exercise price of an award, if any, or to
satisfy all or a portion of the tax withholding obligations relating to an
award, then such shares of Common Stock shall again be available under this
Plan.
Shares of Common Stock to be delivered under this Plan shall be made
available from authorized and unissued shares of Common Stock, or authorized and
issued shares of Common Stock reacquired and held as treasury shares or
otherwise or a combination thereof.
To the extent required by Section 162(m) of the Code and the rules and
regulations thereunder, the maximum number of shares of Common Stock with
respect to which options or SARs, Stock Awards or Performance Share Awards, or a
combination thereof may be granted during any calendar year to any person shall
be 200,000 subject to adjustment as provided in Section 6.7.
II. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
2.1 Stock Options. The Committee may, in its discretion, grant options to
purchase shares of Common Stock to such eligible persons as may be selected by
the Committee. Each option, or portion thereof, that is not an Incentive Stock
Option, shall be a Non-Statutory Stock Option. Each Incentive Stock Option shall
be granted within ten years of the effective date of this Plan. To the extent
that the aggregate Fair Market Value (determined as of the date of grant) of
shares of Common Stock with respect to which options designated as Incentive
Stock Options are exercisable for the first time by a participant during any
calendar year (under this Plan or any other plan of the Company, or any parent
or Subsidiary) exceeds
the amount (currently $100,000) established by the Code, such options shall
constitute Non-Statutory Stock Options.
Options shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
this Plan, as the Committee shall deem advisable:
(a) Number of Shares and Purchase Price. To the extent required, the number
of shares of Common Stock subject to an option shall be determined by the
Committee. The purchase price per share of Common Stock purchasable upon
exercise of the option shall be determined by the Committee; provided, however,
that the purchase price per share of Common Stock purchasable upon exercise of
an Option shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the date of grant of such option; provided further, that if an
Incentive Stock Option shall be granted to any person who, at the time such
option is granted, owns capital stock possessing more than ten percent of the
total combined voting power of all classes of capital stock of the Company (or
of any parent or Subsidiary) (a "Ten Percent Holder"), the purchase price per
share of Common Stock shall be the price (currently 110% of Fair Market Value)
required by the Code in order to constitute an Incentive Stock Option.
(b) Option Period and Exercisability. The period during which an option may
be exercised shall be determined by the Committee; provided, however, that no
Incentive Stock Option shall be exercised later than ten years after its date of
grant; provided further, that if an Incentive Stock Option shall be granted to a
Ten Percent Holder, such option shall not be exercised later than five years
after its date of grant. The Committee may, in its discretion, establish
Performance Measures which shall be satisfied or met as a condition to the grant
of an option or to the exercisability of all or a portion of an option. The
Committee shall determine whether an option shall become exercisable in
cumulative or non-cumulative installments and in part or in full at any time. An
exercisable option, or portion thereof, may be exercised only with respect to
whole shares of Common Stock, except that if the remaining option then
exercisable is for less than a whole share, such remaining amount may be
exercised.
(c) Method of Exercise. An option may be exercised (i) by giving written
notice to the Company specifying the number of whole shares of Common Stock to
be purchased and accompanied by payment therefor in full (or arrangement made
for such payment to the Company's satisfaction) either (1) in cash, (2) by
delivery of Mature Shares having a Fair Market Value, determined as of the date
of exercise, equal to the aggregate purchase price payable by reason of such
exercise, (3) by authorizing the Company to withhold whole shares of Common
Stock which would otherwise be delivered upon exercise of the option having a
Fair Market Value, determined as of the date of exercise, equal to the aggregate
purchase price payable by reason of such exercise, (4) in cash by a
broker-dealer acceptable to the Company to whom the optionee has submitted an
irrevocable notice of exercise or (5) a combination of (1), (2) and (3), in each
case to the extent set forth in the Agreement relating to the option, (ii) if
applicable, by surrendering to the Company any Tandem SARs which are canceled by
reason of the exercise of the option and (iii) by executing such documents as
the Company may reasonably request. The Committee shall have sole discretion to
disapprove of an election pursuant to any of clauses (2)-(5). Any fraction of a
share of Common Stock which would be required to pay such purchase price shall
be disregarded and the remaining amount due shall be paid in cash by the
optionee. No certificate representing Common Stock shall be delivered until the
full purchase price therefor has been paid.
(d) Additional Options. The Committee shall have the authority to include
in any Agreement relating to an option a provision entitling the optionee to an
additional option in the event such optionee exercises the option represented by
such option agreement, in whole or in part, by delivering previously owned whole
shares of Common Stock in payment of the purchase price in accordance with this
Plan and such Agreement. Any such additional option shall be for a number of
shares of Common Stock equal to the number of delivered shares, shall have a
purchase price determined by the Committee in accordance with this Plan, shall
be exercisable on the terms and subject to the conditions set forth in the
Agreement relating to such additional option.
2.2 Stock Appreciation Rights. The Committee may, in its discretion, grant
SARs to such eligible persons as may be selected by the Committee. The Agreement
relating to an SAR shall specify whether the SAR is a Tandem SAR or a
Free-Standing SAR.
SARs shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
this Plan, as the Committee shall deem advisable:
(a) Number of SARs and Base Price. The number of SARs subject to an award
shall be determined by the Committee. Any Tandem SAR related to an Incentive
Stock Option shall be granted at the same time that such Incentive Stock Option
is granted. The base price of a Tandem SAR shall be the purchase price per share
of Common Stock of the related option. The base price of a Free-Standing SAR
shall be determined by the Committee; provided, however, that such base price
shall not be less than 100% of the Fair Market Value of a share of Common Stock
on the date of grant of such SAR.
(b) Exercise Period and Exercisability. The Agreement relating to an award
of SARs shall specify whether such award may be settled in shares of Common
Stock (including shares of Restricted Stock) or cash or a combination thereof.
The period for the exercise of an SAR shall be determined by the Committee;
provided, however, that no Tandem SAR shall be exercised later than the
expiration, cancellation, forfeiture or other termination of the related option.
The Committee may, in its discretion, establish Performance Measures which shall
be satisfied or met as a condition to the exercisability of an SAR. The
Committee shall determine whether an SAR may be exercised in cumulative or
non-cumulative installments and in part or in full at any time. An exercisable
SAR, or portion thereof, may be exercised, in the case of a Tandem SAR, only
with respect to whole shares of Common Stock and, in the case of a Free-Standing
SAR, only with respect to a whole number of SARs. If an SAR is exercised for
shares of Restricted Stock, a certificate or certificates representing such
Restricted Stock shall be issued in accordance with Section 3.2(c) and the
holder of such Restricted Stock shall have such rights of a stockholder of the
Company as determined pursuant to Section 3.2(d). Prior to the exercise of an
SAR for shares of Common Stock, including Restricted Stock, the holder of such
SAR shall have no rights as a stockholder of the Company with respect to the
shares of Common Stock subject to such SAR.
(c) Method of Exercise. A Tandem SAR may be exercised (i) by giving written
notice to the Company specifying the number of whole SARs which are being
exercised, (ii) by surrendering to the Company any options which are canceled by
reason of the exercise of the Tandem SAR and (iii) by executing such documents
as the Company may reasonably request. A Free-Standing SAR may be exercised (i)
by giving written notice to the Company specifying the whole number (or if the
remaining SAR then exercisable is for less then one whole share, such remaining
amount) of SARs which are being exercised and (ii) by executing such documents
as the Company may reasonably request.
2.3 Termination of Employment or Service with the Company.
(a) Disability. Subject to paragraph (f) below and Section 6.8, and unless
otherwise specified in the Agreement relating to an option or SAR, as the case
may be, if the employment or service with the Company of the holder of an option
or SAR terminates by reason of Disability, each option and SAR held by such
holder shall be exercisable only to the extent that such option or SAR, as the
case may be, is exercisable on the effective date of such holder's termination
of employment or service and may thereafter be exercised by such holder (or such
holder's legal representative or similar person) until and including the
earliest to occur of (i) the date which is three months (or such other period as
set forth in the Agreement relating to such option or SAR) after the effective
date of such holder's termination of employment or service and (ii) the
expiration date of the term of such option or SAR.
(b) Retirement. Subject to paragraph (f) below and Section 6.8, and unless
otherwise specified in the Agreement relating to an option or SAR, as the case
may be, if the employment or service with the Company of the holder of an option
or SAR terminates by reason of retirement on or after age 65 with the consent of
the Company, each option and SAR held by such holder shall be exercisable only
to the extent that such option or SAR, as the case may be, is exercisable on the
effective date of such holder's termination of
employment or service and may thereafter be exercised by such holder (or such
holder's legal representative or similar person) until and including the
earliest to occur of (i) the date which is six months (or such other period as
set forth in the Agreement relating to such option or SAR) after the effective
date of such holder's termination of employment or service and (ii) the
expiration date of the term of such option or SAR.
(c) Death. Subject to paragraph (f) below and Section 6.8, and unless
otherwise specified in the Agreement relating to an option or SAR, as the case
may be, if the employment or service with the Company of the holder of an option
or SAR terminates by reason of death, each option and SAR held by such holder
shall be exercisable only to the extent that such option or SAR, as the case may
be, is exercisable on the date of such holder's death, and may thereafter be
exercised by such holder's executor, administrator, legal representative,
beneficiary or similar person, as the case may be, until and including the
earliest to occur of (i) the date which is one year (or such other period as set
forth in the Agreement relating to such option or SAR) after the date of death
and (ii) the expiration date of the term of such option or SAR.
(d) Other Termination. If the employment or service with the Company of the
holder of an option or SAR is terminated by the Company for Cause, each option
and SAR held by such holder shall terminate automatically on the effective date
of such holder's termination of employment or service.
Subject to paragraph (f) below and Section 6.8, and unless specified in the
Agreement relating to an option or SAR, as the case may be, if the employment or
service with the Company of the holder of an option or SAR terminates for any
reason other than Disability, retirement on or after age 65 with the consent of
the Company, death or Cause, each option and SAR held by such holder shall be
exercisable only to the extent that such option or SAR is exercisable on the
effective date of such holder's termination of employment or service and may
thereafter be exercised by such holder (or such holder's legal representative or
similar person) until and including the earliest to occur of (i) the date which
is three months (or such other period as set forth in the Agreement relating to
such option or SAR) after the effective date of such holder's termination of
employment or service and (ii) the expiration date of the term of such option or
SAR.
(e) Death Following Termination of Employment or Service. Subject to
paragraph (f) below and Section 6.8, and unless otherwise specified in the
Agreement relating to an option or SAR, as the case may be, if the holder of an
option or SAR dies during the three-month period following termination of
employment or service by reason of Disability, or if the holder of an option or
SAR dies during the three-month period following termination of employment or
service by reason of retirement on or after age 65 with the consent of the
Company, or if the holder of an option or SAR dies during the three-month period
following termination of employment or service for any reason other than
Disability or retirement on or after age 65 with the consent of the Company (or,
in each case, such other period as set forth in the Agreement relating to such
option or SAR), each option and SAR held by such holder shall be fully
exercisable and may thereafter be exercised by the holder's executor,
administrator, legal representative, beneficiary or similar person, as the case
may be, until and including the earliest to occur of (i) the date which is one
year (or such other period as set forth in the Agreement relating to such option
or SAR) after the date of death and (ii) the expiration date of the term of such
option or SAR.
(f) Termination of Employment or Service - Incentive Stock Options. Subject
to Section 6.8 and unless otherwise specified in the Agreement relating to the
option, if the employment or service with the Company of a holder of an
incentive stock option terminates by reason of Permanent and Total Disability
(as defined in Section 22(e)(3) of the Code), each incentive stock option held
by such optionee shall be exercisable only to the extent that such option is
exercisable on the effective date of such optionee's termination of employment
or service by reason of Permanent and Total Disability, and may thereafter be
exercised by such optionee (or such optionee's legal representative or similar
person) until and including the earliest to occur of (i) the date which is three
months (or such other period no longer than one year as set forth in the
Agreement relating to such option) after the effective date of such optionee's
termination of employment or service by reason of Permanent and Total Disability
and (ii) the expiration date of the term of such option.
Subject to Section 6.8 and unless otherwise specified in the Agreement
relating to the option, if the employment or service with the Company of a
holder of an Incentive Stock Option terminates by reason
of death, each Incentive Stock Option held by such optionee shall be exercisable
only to the extent that such option is exercisable on the date of such
optionee's death and may thereafter be exercised by such optionee's executor,
administrator, legal representative, beneficiary or similar person until and
including the earliest to occur of (i) the date which is one year (or such
shorter period as set forth in the Agreement relating to such option)after the
date of death and (ii) the expiration date of the term of such option.
If the employment or service with the Company of the optionee of an
Incentive Stock Option is terminated by the Company for Cause, each Incentive
Stock Option held by such optionee shall terminate automatically on the
effective date of such optionee's termination of employment or service.
If the employment or service with the Company of a holder of an Incentive
Stock Option terminates for any reason other than Permanent and Total
Disability, death or Cause, each Incentive Stock Option held by such optionee
shall be exercisable only to the extent such option is exercisable on the
effective date of such optionee's termination of employment or service, and may
thereafter be exercised by such holder (or such holder's legal representative or
similar person) until and including the earliest to occur of (i) the date which
is three months after the effective date of such optionee's termination of
employment or service and (ii) the expiration date of the term of such option.
If the holder of an Incentive Stock Option dies during the three-month
period following termination of employment or service by reason of Permanent and
Total Disability (or such shorter period as set forth in the Agreement relating
to such option), or if the holder of an Incentive Stock Option dies during the
three-month period following termination of employment or service for any reason
other than Permanent and Total Disability, death or Cause, each Incentive Stock
Option held by such optionee shall be exercisable only to the extent such option
is exercisable on the date of the optionee's death and may thereafter be
exercised by the optionee's executor, administrator, legal representative,
beneficiary or similar person until and including the earliest to occur of (i)
the date which is one year (or such shorter period as set forth in the Agreement
relating to such option) after the date of death and (ii) the expiration date of
the term of such option.
III. STOCK AWARDS
3.1 Stock Awards. The Committee may, in its discretion, grant Stock Awards
to such eligible persons as may be selected by the Committee. Subject to
adjustment as provided in Sections 6.7 and 6.8 of this Plan, the aggregate
number of shares of Common Stock available under this Plan pursuant to all Stock
Awards shall not exceed 100,000 of the aggregate number of shares of Common
Stock available under this Plan. The Agreement relating to a Stock Award shall
specify whether the Stock Award is a Restricted Stock Award or Bonus Stock
Award.
3.2 Terms of Stock Awards. Stock Awards shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of this Plan, as the Committee shall deem advisable.
(a) Number of Shares and Other Terms. The number of shares of Common Stock
subject to a Restricted Stock Award or Bonus Stock Award and the Performance
Measures (if any) and Restriction Period applicable to a Restricted Stock Award
shall be determined by the Committee.
(b) Vesting and Forfeiture. The Agreement relating to a Restricted Stock
Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of this Plan, for the vesting of the
shares of Common Stock subject to such award (i) if specified Performance
Measures are satisfied or met during the specified Restriction Period or (ii) if
the holder of such award remains continuously in the employment or service of
the Company during the specified Restricted Period and for the forfeiture of the
shares of Common Stock subject to such award (x) if specified Performance
Measures are not satisfied or met during the specified Restriction Period or (y)
if the holder of such award does not remain continuously in the employment or
service of the Company during the specified Restriction Period.
Bonus Stock Awards shall not be subject to any Performance Measures or
Restriction Periods.
(c) Share Certificates. During the Restriction Period, a certificate or
certificates representing a Restricted Stock Award shall be registered in the
holder's name and may bear a legend, in addition to any legend which may be
required pursuant to Section 6.6, indicating that the ownership of the shares of
Common Stock represented by such certificate is subject to the restrictions,
terms and conditions of this Plan and the Agreement relating to the Restricted
Stock Award. All such certificates shall be deposited with the Company, together
with stock powers or other instruments of assignment (including a power of
attorney), each endorsed in blank with a guarantee of signature if deemed
necessary or appropriate, which would permit transfer to the Company of all or a
portion of the shares of Common Stock subject to the Restricted Stock Award in
the event such award is forfeited in whole or in part. Upon termination of any
applicable Restriction Period (and the satisfaction or attainment of applicable
Performance Measures), or upon the grant of a Bonus Stock Award, in each case
subject to the Company's right to require payment of any taxes in accordance
with Section 6.5, a certificate or certificates evidencing ownership of the
requisite number of shares of Common Stock shall be delivered to the holder of
such award.
(d) Rights with Respect to Restricted Stock Awards. Unless otherwise set
forth in the Agreement relating to a Restricted Stock Award, and subject to the
terms and conditions of a Restricted Stock Award, the holder of such award shall
have all rights as a stockholder of the Company, including, but not limited to,
voting rights, the right to receive dividends and the right to participate in
any capital adjustment applicable to all holders of Common Stock; provided,
however, that a distribution with respect to shares of Common Stock, other than
a distribution in cash, shall be deposited with the Company and shall be subject
to the same restrictions as the shares of Common Stock with respect to which
such distribution was made.
(e) Awards to Certain Executive Officers. Notwithstanding any other
provision of this Article III, and only to the extent necessary to ensure the
deductibility of the award to the Company, the Fair Market Value of the number
of shares of Common Stock subject to a Stock Award granted to a "covered
employee" within the meaning of Section 162(m) of the Code shall not exceed
$2,000,000 (i) at the time of grant in the case of a Stock Award granted upon
the attainment of Performance Measures or (ii) in the case of a Restricted Stock
Award with Performance measures which shall be satisfied or met as a condition
to the holder's receipt of the shares of Common Stock subject to such award, on
the earlier of (x) the date on which the Performance Measures are satisfied or
met and (y) the date the holder makes an election under Section 83(b) of the
Code.
3.3 Termination of Employment or Service. Subject to Section 6.8 and unless
otherwise set forth in the Agreement relating to a Restricted Stock Award, if
the employment or service with the Company of the holder of such award
terminates, the portion of such award which is subject to a Restriction Period
shall terminate as of the effective date of such holder's termination of
employment or service shall be forfeited and such portion shall be canceled by
the Company.
IV. PERFORMANCE SHARE AWARDS
4.1 Performance Share Awards. The Committee may, in its discretion, grant
Performance Share Awards to such eligible persons as may be selected by the
Committee.
4.2 Terms of Performance Share Awards. Performance Share Awards shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of this Plan, as the
Committee shall deem advisable.
(a) Number of Performance Shares and Performance Measures. The number of
Performance Shares subject to any award and the Performance Measures and
Performance Period applicable to such award shall be determined by the
Committee.
(b) Vesting and Forfeiture. The Agreement relating to a Performance Share
Award shall provide, in the manner determined by the Committee, in its
discretion, and subject to the provisions of this Plan, for the vesting of such
award, if specified Performance Measures are satisfied or met during the
specified Performance Period, and for the forfeiture of such award, if specified
Performance Measures are not satisfied or met during the specified Performance
Period.
(c) Settlement of Vested Performance Share Awards. The Agreement relating
to a Performance Share Award (i) shall specify whether such award may be settled
in shares of Common Stock (including shares of Restricted Stock) or cash or a
combination thereof and (ii) may specify whether the holder thereof shall be
entitled to receive, on a current or deferred basis, dividend equivalents, and,
if determined by the Committee, interest on any deferred dividend equivalents,
with respect to the number of shares of Common Stock subject to such award. If a
Performance Share Award is settled in shares of Restricted Stock, a certificate
or certificates representing such Restricted Stock shall be issued in accordance
with Section 3.2(c) and the holder of such Restricted Stock shall have such
rights of a stockholder of the Company as determined pursuant to Section 3.2(d).
Prior to the settlement of a Performance Share Award in shares of Common Stock,
including Restricted Stock, the holder of such award shall have no rights as a
stockholder of the Company with respect to the shares of Common Stock subject to
such award.
4.3 Termination of Employment or Service. Subject to Section 6.8 and unless
otherwise set forth in the Agreement relating to a Performance Share Award, if
the employment or service with the Company of the holder of such award
terminates, the portion of such award which is subject to a Performance Period
on the effective date of such holder's termination of employment or service
shall be forfeited and such portion shall be canceled by the Company.
V. PROVISIONS RELATING TO NON-EMPLOYEE DIRECTORS
5.1 Eligibility. Each Non-Employee Director shall be granted options to
purchase shares of Common Stock in accordance with this Article V (collectively
"Directors Options"). All options granted under this Article V shall constitute
Non-Statutory Stock Options.
5.2 Grants of Stock Options. Each Non-Employee Director shall be granted
Non- Statutory Stock Options as follows:
(a) Time of Grant. On the date on which a person is first elected or begins
to serve as a Non-Employee Director (other than by reason of termination of
employment) he or she shall be granted an option to purchase 10,000 shares of
Common Stock at a purchase price per share equal to the Fair Market Value of a
share of Common Stock on the date of grant of such option; provided, however,
that no such grant will be made to the extent an automatic option grant is being
or has been made to such Non-Employee Director as of or with respect to such
date pursuant to another incentive compensation plan of the Company.
(b) Option Period and Exercisability. Except as otherwise provided herein,
each option granted under this Article V shall not be exercisable during the
first year following its date of grant. Thereafter, such option may be
exercised: (i) on or after the first anniversary of its date of grant, for up to
one-third of the shares of Common Stock subject to such option on its date of
grant, (ii) on or after the second anniversary of its date of grant, for up to
an additional one-third (two-thirds on a cumulative basis) of the shares of
Common Stock subject to such option on its date of grant, and (iii) on or after
the third anniversary of its date of grant, for up to the remaining one-third
(all shares on a cumulative basis) of the shares of Common Stock subject to such
option on its date of grant. Each option granted under this Article V shall
expire ten years after its date of grant. An exercisable option, or portion
thereof, may be exercised in whole or in part only with respect to whole shares
of Common Stock. Options granted under this Article V shall be exercisable in
accordance with Section 2.1(c).
5.3 Termination of Directorship.
(a) Disability. Subject to Section 6.8, if the holder of an option granted
under this Article V ceases to be a director of the Company by reason of
Disability, each such option held by such holder shall be exercisable only to
the extent that such option is exercisable on the effective date of such
holder's ceasing to be a director and may thereafter be exercised by such holder
(or such holder's guardian, legal representative or similar person) until the
earliest to occur of the (i) date which is three months after the effective date
of such holder's ceasing to be a director and (ii) the expiration date of the
term of such option.
(b) Retirement. Subject to Section 6.8, if the holder of an option granted
under this Article V ceases to be a director of the Company on or after age 65,
each such option held by such holder shall be exercisable only to the extent
that such option is exercisable on the effective date of such holder's ceasing
to be a director and may thereafter be exercised by such holder (or such
holder's legal representative or similar person) until the earliest to occur of
the (i) date which is three months after the effective date of such holder's
ceasing to be a director and (ii) the expiration date of the term of such
option.
(c) Death. Subject to Section 6.8, if the holder of an option granted under
this Article V ceases to be a director of the Company by reason of death, each
such option held by such holder shall be fully exercisable and may thereafter be
exercised by such holder's executor, administrator, legal representative,
beneficiary or similar person, as the case may be, until the earliest to occur
of the (i) date which is one year after the date of death and (ii) the
expiration date of the term of such option.
(d) Other Termination. Subject to Section 6.8, if the holder of an option
granted under this Article V ceases to be a director of the Company for any
reason other than Disability, retirement on or after age 65 or death, each such
option held by such holder shall be exercisable only to the extent such option
is exercisable on the effective date of such holder's ceasing to be a director
and may thereafter be exercised by such holder (or such holder's legal
representative or similar person) until the earliest to occur of the (i) date
which is three months after the effective date of such holder's ceasing to be a
director and (ii) the expiration date of the term of such option.
(e) Death Following Termination of Directorship. Subject to Section 6.8, if
the holder of an option granted under this Article V dies during the three-month
period following such holder's ceasing to be a director of the Company by reason
of Disability, or if such a holder dies during the three-month period following
such holder's ceasing to be a director of the Company on or after age 65, or if
such a holder dies during the three-month period following such holder's ceasing
to be a director for any reason other than by reason of Disability or retirement
on or after age 65, each such option held by such holder shall be exercisable
only to the extent that such option is exercisable on the date of the holder's
death and may thereafter be exercised by the holder's executor, administrator,
legal representative, beneficiary or similar person, as the case may be, until
the earliest to occur of the (i) date one year after the date of death and (ii)
the expiration date of the term of such option.
5.4 Directors Options. Each Directors Option shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Committee shall
deem advisable:
(a) Option Period and Exercisability. Directors Options shall become
exercisable as provided in Section 5.2(b). If at any time prior to the time that
a Directors Option becomes exercisable, a Non-Employee Director shall no longer
be a member of the Board, such Directors Option shall become void and of no
further force or effect.
(b) Purchase Price. The purchase price for the shares of Common Stock
subject to any Directors Option shall be equal to 100% of the Fair Market Value
of a share of Common Stock on the date of grant of such Directors Option. Such
Directors Options shall be exercisable in accordance with Section 2.1(c).
(c) Restrictions on Transfer. Directors Options shall be subject to the
transfer restrictions and other provisions of Section 6.4.
(d) Expiration. Each Directors Option which has become exercisable pursuant
to Section 5.4(a), to the extent not theretofore exercised, shall expire on the
first to occur of (i) the date which is three months after the first date on
which the Non-Employee Director shall no longer be a member of the Board or the
Board of Directors of a Subsidiary and (ii) the tenth anniversary of the date of
grant of such option; provided, however, that if the Non-Employee Director shall
die within such three-month period following the date on which he shall have
ceased to serve as such a director, such option may be exercised at any time
within the one-year period following the date of death to the extent not
theretofore exercised (but in no event later than the tenth anniversary of the
date of grant).
VI. GENERAL
6.1 Effective Date and Term of Plan; Submission to Stockholders. This Plan
is effective immediately upon its approval by the Board. This Plan shall
terminate ten years after its effective date unless terminated earlier by the
Board. Termination of this Plan shall not affect the terms or conditions of any
award granted prior to termination. Awards hereunder may be made at any time
prior to the termination of this Plan, provided that no award may be made later
than ten years after the effective date of this Plan.
This Plan shall be submitted to the stockholders of the Company for
approval. Unless the Plan is approved by the affirmative vote of a majority of
the voting power of the shares of capital stock of the Company represented at a
meeting in which the Plan is considered for approval, no awards may be made
under the Plan to any director or officer of the Company; provided that (a)
awards with respect to not more than 25,000 shares of Common Stock in the
aggregate may be granted to directors or officers of the Company and (b) in
addition, awards may be made to a person not previously employed by the Company
as an inducement essential to such person's entering into an employment contract
with the Company.
6.2 Amendments. The Board may amend this Plan as it shall deem advisable,
subject to any requirement of stockholder approval required by applicable law,
rule or regulation including Section 162(m) of the Code; provided, however, that
no amendment shall be made without stockholder approval if such amendment would
(a) reduce the minimum purchase price in the case of an option or the base price
in the case of an SAR, (b) effect any change inconsistent with Section 422 of
the Code or (c) extend the term of this Plan. No amendment may impair the rights
of a holder of an outstanding award without the consent of such holder.
6.3 Agreement. Each award under this Plan shall be evidenced by an
Agreement setting forth the terms and conditions applicable to such award. No
award shall be valid until an Agreement is executed by the Company and the
recipient of such award and, upon execution by each party and delivery of the
Agreement to the Company, such award shall be effective as of the effective date
set forth in the Agreement.
6.4 Non-Transferability of Stock Options, SARs and Performance Shares. No
option, SAR or Performance Share shall be transferable other than (i) by will,
the laws of descent and distribution or pursuant to beneficiary designation
procedures approved by the Company or (ii) as otherwise set forth in the
Agreement relating to such award. Each option, SAR or Performance Share may be
exercised or settled during the participant's lifetime only by the holder or the
holder's legal representative or similar person. Except as permitted by the
second preceding sentence, no option, SAR or Performance Share may be sold,
transferred, assigned, pledged, hypothecated, encumbered or otherwise disposed
of (whether by operation of law or otherwise) or be subject to execution,
attachment or similar process. Upon any attempt to so sell, transfer, assign,
pledge, hypothecate, encumber or otherwise dispose of any option, SAR or
Performance Share, such award and all rights thereunder shall immediately become
null and void.
6.5 Tax Withholding. The Company shall have the right to require, prior to
the issuance or delivery of any shares of Common Stock or the payment of any
cash pursuant to an award made hereunder, payment by the holder of such award of
any Federal, state, local or other taxes which may be required to be
withheld or paid in connection with such award. An Agreement may provide that
(i) the Company shall withhold whole shares of Common Stock which would
otherwise be delivered to a holder, having an aggregate Fair Market Value
determined as of the date the obligation to withhold or pay taxes arises in
connection with an award (the "Tax Date"), or withhold an amount of cash which
would otherwise be payable to a holder, in the amount necessary to satisfy any
such obligation or (ii) the holder may satisfy any such obligation by any of the
following means: (1) a cash payment to the Company, (2) delivery to the Company
of Mature Shares having an aggregate Fair Market Value, determined as of the Tax
Date, equal to the amount necessary to satisfy any such obligation, (3)
authorizing the Company to withhold whole shares of Common Stock which would
otherwise be delivered having an aggregate Fair Market Value, determined as of
the Tax Date, or withhold an amount of cash which would otherwise be payable to
a holder, equal to the amount necessary to satisfy any such obligation, (4) in
the case of the exercise of an option, a cash payment by a broker-dealer
acceptable to the Company to whom the optionee has submitted an irrevocable
notice of exercise or (5) any combination of (1), (2) and (3), in each case to
the extent set forth in the Agreement relating to the award; provided, however,
that the Committee shall have sole discretion to disapprove of an election
pursuant to any of clauses (2)-(5). An Agreement may provide for shares of
Common Stock to be delivered or withheld having an aggregate Fair Market Value
in excess of the minimum amount required to be withheld. Any fraction of a share
of Common Stock which would be required to satisfy such an obligation shall be
disregarded and the remaining amount due shall be paid in cash by the holder.
6.6 Restrictions on Shares. Each award made hereunder shall be subject to
the requirement that if at any time the Company determines that the listing,
registration or qualification of the shares of Common Stock subject to such
award upon any securities exchange or under any law, or the consent or approval
of any governmental body, or the taking of any other action is necessary or
desirable as a condition of, or in connection with, the delivery of shares
thereunder, such shares shall not be delivered unless such listing,
registration, qualification, consent, approval or other action shall have been
effected or obtained, free of any conditions not acceptable to the Company. The
Company may require that certificates evidencing shares of Common Stock
delivered pursuant to any award made hereunder bear a legend indicating that the
sale, transfer or other disposition thereof by the holder is prohibited except
in compliance with the Securities Act of 1933, as amended, and the rules and
regulations thereunder.
6.7 Adjustment. Except as provided in Section 6.8, in the event of any
stock split, stock dividend, recapitalization, reorganization, merger,
consolidation, combination, exchange of shares, liquidation, spin-off or other
similar change in capitalization or event, or any distribution to holders of
Common Stock other than a regular cash dividend, the number and class of
securities available under this Plan, the number and class of securities subject
to each outstanding option and the purchase price per security, the number of
securities subject to each option to be granted to Non-Employee Directors
pursuant to Article V, the terms of each outstanding SAR, the number and class
of securities subject to each outstanding Stock Award, and the terms of each
outstanding Performance Share shall be appropriately adjusted by the Committee,
such adjustments to be made in the case of outstanding options and SARs without
an increase in the aggregate purchase price or base price. The decision of the
Committee regarding any such adjustment shall be final, binding and conclusive.
If any such adjustment would result in a fractional security being (a) available
under this Plan, such fractional security shall be disregarded, or (b) subject
to an award under this Plan, the Company shall pay the holder of such award, in
connection with the first vesting, exercise or settlement of such award, in
whole or in part, occurring after such adjustment, an amount in cash determined
by multiplying (i) the fraction of such security (rounded to the nearest
hundredth) by (ii) the excess, if any, of (1) the Fair Market Value on the
vesting, exercise or settlement date over (2) the exercise or base price, if
any, of such award.
6.8 Change in Control.
(a) (i) Notwithstanding any provision in this Plan or any Agreement,
in the event of a Change in Control pursuant to Section (b)(iii) or (iv)
below, (1) all outstanding options and SARS shall immediately become
exercisable in full, (2) the Restriction Period applicable to any
outstanding Restricted Stock Award shall lapse, (3) the Performance Period
applicable to any outstanding Performance Share shall lapse and (4) the
Performance Measures applicable to any outstanding
Restricted Stock Award (if any) and to any outstanding Performance Share
shall be deemed to be satisfied at the maximum level. If, in connection
with such Change in Control, holders of Common Stock receive solely shares
of common stock that are registered under Section 12 of the Exchange Act,
there shall be substituted for each share of Common Stock available under
this Plan, whether or not then subject to an outstanding award, the number
and class of shares into which each outstanding share of Common Stock shall
be converted pursuant to such Change in Control. If, in connection with
such Change in Control, holders of Common Stock receive solely cash and
shares of common stock that are registered under Section 12 of the Exchange
Act, each outstanding award shall be surrendered to and canceled by the
Company, and the holder shall receive, within ten days of the occurrence of
such Change in Control, a proportionate amount of cash in the manner
provided in Section (a)(ii) below, and there shall be substituted for the
award surrendered a similar award reflecting a proportionate number of the
class of shares into which each outstanding share of Common Stock shall be
converted to such Change in Control. In the event of any such substitution,
the proportion of cash and common stock, the purchase price per share in
the case of an option and the base price in the case of an SAR, and any
other terms of outstanding awards shall be appropriately adjusted by the
Committee, such adjustments to be made in the case of outstanding options
and SARs without an increase in the aggregate purchase price or base price;
provided, that the proportion of cash and common stock substituted for
outstanding awards shall reflect the approximate proportion of cash and
common stock received by holders of Common Stock in such Change in Control.
If, in connection with a Change in Control, holders of Common Stock receive
any portion of the consideration in a form other than cash or shares of
common stock that are registered under Section 12 of the Exchange Act, each
share of Common Stock available under this Plan, whether or not then
subject to an outstanding award, shall be substituted or surrendered for
such proportion of common stock, cash or other consideration as shall be
determined by the Committee pursuant to Section 6.7.
(ii) Notwithstanding any provision in this Plan or any Agreement, in
the event of a Change in Control pursuant to Section (b)(i) or (ii) below,
or in the event of a Change in Control pursuant to Section (b)(iii) or (iv)
below in connection with which the holders of Common Stock receive cash,
each outstanding award shall be surrendered to the Company by the holder
thereof, and each such award shall immediately be canceled by the Company,
and the holder shall receive, within ten days of the occurrence of a Change
in Control pursuant to Section (b)(i) or (ii) below or within ten days of
the approval of the stockholders of the Company contemplated by Section
(b)(iii) or (iv) below, a cash payment from the Company in an amount equal
to (1) in the case of an option, the number of shares of Common Stock then
subject to such option, multiplied by the excess, if any, of the greater of
(A) the highest per share price offered to stockholders of the Company in
any transaction whereby the Change in Control takes place or (B) the Fair
Market Value of a share of Common Stock on the date of occurrence of the
Change in Control, over the purchase price per share of Common Stock
subject to the option; (2) in the case of a Free-Standing SAR, the number
of shares of Common Stock then subject to such SAR, multiplied by the
excess, if any, of the greater of (A) the highest per share price offered
to stockholders of the Company in any transaction whereby the Change in
Control takes place or (B) the Fair Market Value of a share of Common Stock
on the date of occurrence of the Change in Control, over the base price of
the SAR; and (3) in the case of a Restricted Stock Award or Performance
Share Award, the number of shares of Common Stock or the number of
Performance Shares, as the case may be, then subject to such award,
multiplied by the greater of (A) the highest per share price offered to
stockholders of the Company in any transaction whereby the Change in
Control takes place or (B) the Fair Market Value of a share of Common Stock
on the date of occurrence of the Change in Control. In the event of a
Change in Control, each Tandem SAR shall be surrendered by the holder
thereof and shall be canceled simultaneously with the cancellation of the
related option. Except as may be provided in an agreement relating to an
award, the Company may, but is not required to, cooperate with any person
who is subject to Section 16 of the Exchange Act to assure that any cash
payment in accordance with the foregoing to such person is made in
compliance with Section 16 and the rules and regulations thereunder.
(b) "Change in Control" shall mean:
(i) the acquisition by any individual, entity or group (a "Person"),
including any "person" within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act, of Beneficial Ownership of 25% or more of either (1)
the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (2) the combined voting power of the
then outstanding securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
excluding, however, the following: (A) any acquisition directly from the
Company (excluding any acquisition resulting from the exercise of an
exercise, conversion or exchange privilege unless the security being so
exercised, converted or exchanged was acquired directly from the Company),
(B) any acquisition by the Company, (C) any acquisition by an employee
benefit plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company, (D) any acquisition by an Exempt
Person or (E) any acquisition by any corporation pursuant to a transaction
which complies with clauses (1), (2) and (3) of subsection (iii) of this
Section 6.8(b); provided further, that for purposes of clause (2), if any
Person (other than an Exempt Person, the Company or any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company) shall become the Beneficial Owner of
50% or more of the Outstanding Company Common Stock or 50% or more of the
Outstanding Company Voting Securities by reason of an acquisition by the
Company, and such Person shall, after such acquisition by the Company,
become the Beneficial Owner of any additional shares of the Outstanding
Company Common Stock or any additional Outstanding Company Voting
Securities and such Beneficial Ownership is publicly announced, such
additional Beneficial Ownership shall constitute a Change in Control;
(ii) individuals who, as of the effective date hereof, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided that any individual
who becomes a director of the Company subsequent to the effective date
hereof whose election, or nomination for election by the Company's
stockholders, was approved by the vote of at least a majority of the
directors then comprising the Incumbent Board shall be deemed a member of
the Incumbent Board; and provided further, that any individual who was
initially elected as a director of the Company as a result of an actual or
threatened election contest, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act, or any other actual or
threatened solicitation of proxies or consents by or on behalf of any
Person other than the Board shall not be deemed a member of the Incumbent
Board;
(iii) approval by the stockholders of the Company of a reorganization,
merger or consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Corporate Transaction");
excluding, however, a Corporate Transaction pursuant to which (1) all or
substantially all of the individuals or entities who are the Beneficial
Owners, respectively, of the Outstanding Company Common Stock and the
Outstanding Company Voting Securities immediately prior to such Corporate
Transaction will Beneficially Own, directly or indirectly, more than 50%
of, respectively, the outstanding shares of common stock, and the combined
voting power of the outstanding securities of such corporation entitled to
vote generally in the election of directors, as the case may be, of the
corporation resulting from such Corporate Transaction (including, without
limitation, a corporation which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly
or indirectly) in substantially the same proportions relative to each other
as their Beneficial Ownership, immediately prior to such Corporate
Transaction, of the Outstanding Company Common Stock and the Outstanding
Company Voting Securities, as the case may be, (2) no Person (other than an
Exempt Person; the Company; any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation controlled by the
Company; the corporation resulting from such Corporate Transaction; and any
Person which Beneficially Owned, immediately prior to such Corporate
Transaction, directly or indirectly, 50% or more of the Outstanding Company
Common Stock or the Outstanding Company Voting Securities, as the case may
be) will Beneficially Own, directly or indirectly, 50% or more of,
respectively, the outstanding shares of common stock of the corporation
resulting from such Corporate Transaction or the combined voting power of
the outstanding securities of such corporation entitled to vote generally
in the election of directors and (3)
individuals who were members of the Incumbent Board will constitute at
least a majority of the members of the board of directors of the
corporation resulting from such Corporate Transaction; or
(iv) approval by the stockholders of the Company of a plan of complete
liquidation or dissolution of the Company.
Notwithstanding anything to the contrary herein, no Change of Control shall
be deemed to have taken place as a result of the issuance of shares of Common
Stock by the Company or the sale of shares of Common Stock by its stockholders
in connection with the Company's initial public offering.
6.9 No Right of Participation or Employment/Service. No person shall have
any right to participate in this Plan. Neither this Plan nor any award made
hereunder shall confer upon any person any right to continued employment or
service by the Company, any Subsidiary or any affiliate of the Company or affect
in any manner the right of the Company, any Subsidiary or any affiliate of the
Company to terminate the employment or service of any person at any time without
liability hereunder.
6.10 Rights as Stockholder. No person shall have any right as a stockholder
of the Company with respect to any shares of Common Stock or other equity
security of the Company which is subject to an award hereunder unless and until
such person becomes a stockholder of record with respect to such shares of
Common Stock or equity security.
6.11 Governing Law. This Plan, each award hereunder and the related
Agreement, and all determinations made and actions taken pursuant thereto, to
the extent not otherwise governed by the Code or the laws of the United States,
shall be governed by the laws of the State of Delaware and construed in
accordance therewith without giving effect to principles of conflicts of laws.
EXHIBIT 10.14
FOURTH AMENDMENT TO CREDIT AGREEMENT
FOURTH AMENDMENT TO REVOLVING CREDIT, TERM LOAN AND GOLD CONSIGNMENT
AGREEMENT dated as of March 14, 1997 (this "Amendment"), by and among (a) MARKS
BROS. JEWELERS, INC. (the "Borrower"), a Delaware corporation having its
principal place of business at 155 North Wacker Drive, Suite 500, Chicago,
Illinois 60606; (b) the lending institutions (the "Banks") set forth on the
signature pages hereto; and (c) THE FIRST NATIONAL BANK OF BOSTON, a national
banking association and RHODE ISLAND HOSPITAL TRUST NATIONAL BANK as agents for
themselves and the other Banks (in such capacity, the "Agents"), amending
certain provisions of the Revolving Credit, Term Loan and Gold Consignment
Agreement dated as of May 3, 1996 (as amended and in effect prior to the date
hereof, the "Credit Agreement"), by and among the Borrower, the Banks and the
Agents. Terms not otherwise defined herein which are defined in the Credit
Agreement shall have the respective meanings herein assigned to such terms in
the Credit Agreement.
WHEREAS, the Borrower has requested that the Agents and the Banks agree to
amend the terms of the Credit Agreement in several respects all as hereinafter
more fully set forth; and
WHEREAS, the Agents and the Banks are willing to amend the terms of the
Credit Agreement in such respects upon the terms and subject to the conditions
contained herein;
NOW, THEREFORE, in consideration of the mutual agreements contained in the
Credit Agreement, and herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ss.1. Amendment of ss.1.1 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment, ss.1.1
of the Credit Agreement is hereby amended as follows:
(a) by amending the definitions of "Commitment", "Consignment Limit",
"Consolidated Total Funded Debt", "Consolidated Total Interest Expense",
"Dollar Borrowing Base", and "Total Revolver Commitment" to read in their
respective entireties as follows:
"Commitment. With respect to each Dollar Bank, the amount set
forth on Part 1 of Schedule 1 hereto as the amount of such Dollar
Bank's commitment to make Revolving Credit Loans to, and to
participate in the issuance, extension and renewal of Letters of
Credit for the account of, the Borrower, as the same may be reduced
from time to time; or if such commitment is terminated pursuant to the
provisions hereof, zero."
"Consignment Limit. Either (a) 50,000 troy ounces of Precious
Metal (the "Consignment Ounce Cap") or (b) Consigned Precious Metal
having a Fair Market Value equal to $20,000,000.00 minus the aggregate
outstanding amount of Gold Loans (after giving effect to all amounts
requested) (the "Consignment Dollar Cap")."
"Consolidated Total Funded Debt. With respect to any fiscal
period, an amount equal to the daily average aggregate principal
amount outstanding during such period in respect of all Indebtedness
of the Borrower and its Subsidiaries pursuant to any agreement or
instrument to which the Borrower or any of its Subsidiaries is a party
relating to the borrowing of money or the obtaining of credit
(including, without limitation, Obligations
under this Credit Agreement and all Indebtedness in respect of the
Senior Subordinated Notes) or in respect of Capitalized Leases."
"Consolidated Total Interest Expense. For any period, the
aggregate amount of interest required to be paid or accrued by the
Borrower and its Subsidiaries during such period on all Indebtedness
of the Borrower and its Subsidiaries outstanding during all or any
part of such period, whether such interest was or is required to be
reflected as an item of expense or capitalized, including payments
consisting of interest in respect of Capitalized Leases and including
commitment fees, agency fees, facility fees, Consignment Fees, balance
deficiency fees and similar fees or expenses in connection with the
borrowing of money, but excluding any prepayment penalties incurred in
connection with any redemption of Senior Subordinated Notes with the
net cash proceeds from any public offering to the extent such
redemption is permitted hereby."
"Dollar Borrowing Base. At the relevant time of reference
thereto, an amount determined by the Dollar Agent by reference to the
most recent Borrowing Base Report delivered to the Banks and the
Agents pursuant to ss.11.4(f), which is equal to (a) 55% of the result
of (i) the net book value (determined on an average cost basis at
lower of cost or market) of Eligible Inventory minus (ii) an amount
equal to 111% of the sum of (A) the Fair Market Value of Consigned
Precious Metal outstanding plus (B) the amount of Gold Loans
outstanding minus (iii) the Inventory Shrink Reserve plus (b) 75% of
Eligible Accounts Receivable minus (c) at all times during any Low
Availability Period, the amount of any Landlord Lien Reserve."
"Total Revolver Commitment. The sum of the Commitments of the
Dollar Banks, as in effect from time to time."
(b) by inserting the following new definitions "Commitment Fee Rate"
and "Low Availability Period" therein in proper alphabetical order:
"Commitment Fee Rate. At all times from the Closing Date through
the first Performance Adjustment Date, one half of one percent (1/2%)
per annum, and thereafter, the percentage determined by reference to
the provisions of ss.8.21."
"Low Availability Period. All times during which the excess of
(a) the lesser of (i) the Total Revolver Commitment and (ii) the
Dollar Borrowing Base (for purposes of this definition only, without
making any deduction pursuant to this clause (c) of the definition of
Dollar Borrowing Base) over (b) the Outstanding Dollar Facility
Amounts, shall be less than $7,500,000."
ss.2. Amendment of ss.2.2 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment, ss.2.2
of the Credit Agreement is hereby amended to read in its entirety as follows:
"2.2. Commitment Fee. The Borrower agrees to pay to the Dollar Agent
for the accounts of the Dollar Banks in accordance with their respective
Commitment Percentages a commitment fee calculated at the Commitment Fee
Rate per annum on the average daily amount during each calendar month or
portion thereof from the Closing Date to the Maturity Date by which the
Total Revolver Commitment minus the sum of the Maximum Drawing Amount and
all Unpaid Reimbursement Obligations exceeds the outstanding amount of
Revolving Credit Loans during such calendar month. The commitment fee shall
be payable monthly in arrears on the first day of each calendar month for
the immediately preceding calendar month commencing on the first such date
following the date hereof, with a final payment on the Maturity Date or any
earlier date on which the Commitments shall terminate."
ss.3. Amendment of ss.2.3 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment, ss.2.3
of the Credit Agreement is hereby amended to read in its entirety as follows:
"2.3. Reduction of Total Revolver Commitment. The Borrower shall have
the right at any time and from time to time upon five (5) Business Days
prior written notice to the Dollar Agent to reduce by $1,000,000.00 or an
integral multiple thereof or terminate entirely the Total Revolver
Commitment, whereupon the Commitments of the Dollar Banks shall be reduced
pro rata in accordance with their respective Commitment Percentages of the
amount specified in such notice or, as the case may be, terminated.
Promptly after receiving any notice of the Borrower delivered pursuant to
this ss.2.3, the Dollar Agent will notify the Dollar Banks of the substance
thereof. Upon the effective date of any such reduction or termination, the
Borrower shall pay to the Dollar Agent for the respective accounts of the
Dollar Banks the full amount of any commitment fee then accrued on the
amount of the reduction. No reduction or termination of the Commitments may
be reinstated."
ss.4. Amendment of ss.7.1 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment, ss.7.1
of the Credit Agreement is hereby amended to read in its entirety as follows:
"7.1. Commitment Fee. The Borrower agrees to pay to the Gold Agent,
for the accounts of the Gold Banks in accordance with their respective Gold
Commitment Percentages, a commitment fee calculated at the Commitment Fee
Rate per annum on the average daily amount during each calendar month or
portion thereof from the Closing Date to the Maturity Date by which the
Dollar amount of the Total Gold Commitment exceeds the sum of the Fair
Market Value of Consigned Precious Metal plus the aggregate outstanding
amount of Gold Loans during such calendar month. The commitment fee shall
be payable monthly in arrears on the first day of each calendar month for
the immediately preceding calendar month commencing on the first such date
following the date hereof, with a final payment on the Maturity Date or any
earlier date on which the Gold Commitments shall terminate."
ss.5. Amendment of ss.8.21 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.8.21 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"8.21. Performance Adjustments. Based upon, and following receipt by
the Banks of (a) beginning with the Borrower's financial statements as
hereafter described for the fiscal quarter of the Borrower ending January
31, 1997, (i) with respect to the first three fiscal quarters of each
fiscal year, the Borrower's quarterly unaudited consolidated financial
statements pursuant to ss.11.4(b) and (ii) with respect to the last fiscal
quarter of each fiscal year, the Borrowers' annual audited consolidated
financial statements pursuant to ss.11.4(a), and (b) a certificate of the
chief financial officer of the Borrower setting forth calculations of the
financial information set forth below, (the Borrower also hereby agreeing
to provide to the Agents, simultaneously with the delivery of such
certificate, telephonic notice of any Performance Adjustments based upon
such calculations), the Base Rate Applicable Margin, the Eurodollar
Applicable Margin and the Commitment Fee Rate shall be subject to possible
adjustment in accordance with the provisions of this paragraph (each such
adjustment, a "Performance Adjustment"). Performance Adjustments shall be
effective (the date of the effectiveness of any Performance Adjustment, a
"Performance Adjustment Date") with respect to adjustments to the Base Rate
Applicable Margin, the Eurodollar Applicable Margin and the Commitment Fee
Rate, three (3) Business Days following receipt by the Agents of (y) (i)
with respect to the first three fiscal quarters of each fiscal year, the
Borrower's quarterly unaudited consolidated financial statements pursuant
to ss.11.4(b) and (ii) with respect to the last fiscal quarter of each
fiscal year, the Borrower's annual audited consolidated financial
statements pursuant to ss.11.4(a), and (z) a certificate of the chief
financial officer of the Borrower setting forth calculations of the
financial information set forth below (the Borrowers also hereby agreeing
to provide to the Agents, simultaneously with the delivery of such
certificate, telephonic notice of any Performance Adjustments based upon
such calculations). The Eurodollar Applicable Margin, the Base Rate
Applicable Margin
and the Commitment Fee Rate with respect to any period following any
Performance Adjustment Date until the next succeeding Performance
Adjustment Date shall be as set forth in the table below on the line
furthest down in such table with respect to which the Borrower's ratio of
(A) Consolidated Total Funded Debt for the fiscal quarter most recently
ended prior to such possible Performance Adjustment Date to (B)
Consolidated EBITDA for the period of four consecutive fiscal quarters most
recently ended prior to such possible Performance Adjustment Date, shall be
less than the ratio set forth on such line in such table:
Ratio of Total Base Rate
Funded Debt to Eurodollar Applicable Commitment
EBITDA Applicable Margin Margin Fee Rate
------ ----------------- ------ --------
greater than
or equal to 2.250% 0.250% 0.500%
3.00:1.00
less than
3.00:1.00 but 2.000% 0% 0.500%
greater than or
equal to 2.75:1.00
less than
2.75:1.00 but 1.625% 0% 0.375%
greater than or
equal to 2.50:1.00
less than
2.50:1.00 but 1.500% 0% 0.375
greater than or
equal to 2.25:1.00
less than
2.25:1.00 but 1.375% 0% 0.250%
greater than or
equal to 2.00:1.00
less than
2.00:1.00 1.250% 0% 0.250%"
ss.6. Amendment of ss.10.19 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.10.19 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"10.19. Subsidiaries, etc. Except as set forth on Schedule 10.19
hereto, the Borrower has no Subsidiaries. Except as set forth on Schedule
10.19 hereto, neither the Borrower nor any Subsidiary of the Borrower is
engaged in any joint venture or partnership with any other Person."
ss.7. Amendment of ss.11.4(f) of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.11.4(f) of the Credit Agreement is hereby amended to read in its entirety as
follows:
"(f) (i) within ten (10) Business Days after the end of each calendar
month or at such earlier time as the Agents may reasonably request and, in
addition, within two (2) Business Days after the end of each week at all
times during any Low Availability Period, (A) a Borrowing Base Report
setting forth the Borrowing Base and the Dollar Borrowing Base as at the
end of such calendar month (or, as applicable, week) or other date so
requested by the Agents, and (B) a Consigned Precious Metal Report setting
forth (1) the amount of Consigned Precious Metal and Borrower's Precious
Metal as of the end of such calendar month (or, as applicable, week) or
other date so requested by the Agents, and (2) a calculation of the
Consignment Advance Rate Percentage multiplied by the Fair Market Value of
the sum of (y) Borrower's Precious Metal plus (z) Consigned Precious Metal
as of the end of such calendar month (or, as applicable, week) or other
date so requested by the Agents, with each such Borrowing Base Report and
Consigned Precious Metal Report to be accompanied by a certification by the
Vice President of Finance or the principal financial or accounting officer
of the Borrower that the information contained therein is true and accurate
in all respects, and (ii) within ten (10) Business Days after the end of
each calendar month or at such earlier time as the Agents may reasonably
request, a Monthly Inventory Report, in each case together with supporting
schedules and documentation;"
ss.8. Amendment of ss.11.16 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.11.16 of the Credit Agreement is hereby amended by replacing the phrase
"twenty-five percent (25%)" contained therein with the phrase "twenty percent
(20%)".
ss.9. New ss.11.18 to the Credit Agreement. Subject to the satisfaction of
the conditions set forth in section 19 of this Amendment, the following new
ss.11.18 is hereby added to the Credit Agreement immediately following ss.11.17
thereof:
"11.18. New Subsidiaries. The Borrower shall, immediately upon any
Investment in a new Subsidiary permitted by ss.12.3(f) hereof, pledge to
the Collateral Agent, for the benefit of the Banks and the Agents, the
capital stock of each new Subsidiary in which the Borrower invests pursuant
to a stock pledge agreement in form and substance satisfactory to the
Agents and the Banks, and such new Subsidiary shall grant to the Collateral
Agent a perfected first priority security interest (subject only to
Permitted Liens entitled to priority under applicable law) in all of its
personal property assets (with such exceptions are as acceptable to the
Majority Banks) pursuant to an instrument of adherence to the Security
Agreement in form and substance satisfactory to the Agents and the Banks.
In addition, the Borrower shall immediately upon such Investment, revise
Schedule 10.19 hereto to reflect the acquisition of each new Subsidiary.
Each new Subsidiary in which the Borrower invests shall, immediately upon
such Investment, execute and deliver to the Collateral Agent, for the
benefit of the Banks and the Agents, a guaranty of the payment and
performance of all of the Obligations, in form and substance satisfactory
to the Agents and the Banks, together with acceptable security documents
including without limitation, the aforementioned instrument of adherence to
the Security Agreement, legal opinions, and other documents and instruments
necessary to demonstrate the due authorization, execution and delivery by
such new Subsidiary of such guaranty and such security documents and to
perfect the Collateral Agent's security interest in all of such new
Subsidiary's assets, including (a) the resolutions of the Board of
Directors or equivalent body of such new Subsidiary and the charter and
by-laws (or the equivalent thereof) of such new Subsidiary, certified by an
officer of such new Subsidiary, (b) a good standing certificate of such new
Subsidiary in its jurisdiction of incorporation, (c) a certificate of the
Secretary or an Assistant Secretary of such new Subsidiary certifying the
names and true signatures of the officers of such new Subsidiary authorized
to sign such guaranty and such security documents, (d) UCC-1 financing
statements, and (e) such other documents as the Collateral Agent may
reasonably request. Upon delivery of the aforementioned documents, such new
Subsidiary shall become a guarantor of the Obligations hereunder and,
except as otherwise agreed to by the Majority Banks, shall comply with and
be bound by all of the terms and conditions of the Loan Documents as a
Subsidiary of the Borrower thereunder, and the Borrower shall cause such
new Subsidiary to take all actions which it would have been required to
make or take had it been a Subsidiary of the Borrower on the Closing Date,
including making all representations and warranties as a guarantor under
each of the Loan Documents."
ss.10. Amendment of ss.12.3 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.12.3 of the Credit Agreement is hereby amended by adding the following new
ss.12.3(f) thereto immediately following ss.12.3(e):
"(f) Investments by the Borrower in the assets of any other Person or
in all of the stock of any other Person, provided that (i) the maximum
aggregate amount of all such Investments made during any fiscal year shall
not exceed the lesser of (A) $10,000,000, and (B) 10% of Consolidated
Tangible Net Worth immediately prior to giving effect to any such
Investment (the Borrower agreeing to deliver to the Agents a calculation of
Consolidated Tangible Net Worth demonstrating satisfaction with the
foregoing limitation prior to making any such Investment) plus the net cash
proceeds received by the Borrower in any year from public offerings of the
Borrower's stock, (ii) after giving effect to any such proposed Investment,
in the case of any stock acquisition, the Borrower shall own 100% of the
issued and outstanding capital stock of such other Person, (iii)
immediately before each such proposed Investment and after giving effect
thereto, there shall be no Default or Event of Default, (iv) any Investment
which results in a change in control of the Person in which the Investment
is made shall have been approved by the Board of Directors of such Person
prior to the making of such Investment, and (v) the Borrower shall have
complied in all respects with ss.11.18 hereof."
ss.11. Amendment of ss.12.5.1 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.12.5.1 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"12.5.1. Mergers and Acquisitions. The Borrower will not, and will not
permit any of its Subsidiaries to, become a party to any merger or
consolidation except the merger or consolidation of one or more of the
Subsidiaries of the Borrower with and into the Borrower, or the merger or
consolidation of two or more Subsidiaries of the Borrower. The Borrower
will not, and will not permit any of its Subsidiaries to, agree to or
effect any asset acquisition or stock acquisition except (a) the
acquisition of assets in the ordinary course of business consistent with
past practices or (b) asset or stock acquisitions to the extent Investments
in respect thereof are permitted under ss.12.3(f) hereof, provided that
concurrently with any such stock acquisition, the Borrower shall also
comply with ss.11.18 hereof."
ss.12. Amendment of ss.12.8 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.12.8 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"12.8 Indentures. The Borrower will not amend, supplement or otherwise
modify the terms of the Indentures or any of the Senior Subordinated Notes
or prepay, redeem, cause the defeasance of or repurchase any of the Senior
Subordinated Notes; provided, however, (a) the Borrower may amend or modify
the Senior Subordinated Notes or refinance, refund or replace the Senior
Subordinated Notes with new notes (any such amended, modified or new notes
resulting from any such amendment, modification, refinancing, refunding or
replacement being herein referred to as the "New Notes") so long as (i)
such New Notes are on substantially identical terms as the Senior
Subordinated Notes (including without limitation, terms relating to
subordination and covenants), provided that such New Notes may have a
longer maturity, lower interest rates, less restrictive covenants, slower
sinking fund payments and lower prepayment premiums and (ii) the Agents
shall have reviewed such New Notes prior to their issuance, (b) the
Borrower may redeem those Senior Subordinated Notes constituting the 15.00%
Series D Senior Subordinated Notes due 2004 at a redemption price not to
exceed $8,960,000 plus the amount of interest accrued thereon, (c) the
Borrower may repurchase a portion of those Senior Subordinated Notes
constituting the 12.15% Series C Senior Subordinated Notes due 2004 at a
repurchase price (including any prepayment premiums payable thereon) not to
exceed an amount, up to $5,000,000, equal to the aggregate amount of net
cash proceeds, if any, to the Borrower in excess of $20,000,000 (exclusive
of any amounts received by any stockholders of the Borrower) in connection
with its planned public offering of its common stock to be consummated on
or prior to December 31, 1996, and (d) the Borrower may redeem Senior
Subordinated Notes during any fiscal year solely to the extent of (i) the
aggregate amount of net cash proceeds received by the Borrower during such
fiscal year in connection with any other public offering of its Common
Stock entered into after March 15, 1997 minus (ii) the amount of any such
net cash proceeds from any such public offerings which are used by the
Borrower during such fiscal year to make Capital Expenditures and/or
Investments as permitted by ss.ss.13.2 and 12.3, respectively, hereof. The
Borrower will not pay any interest in cash on the Senior Subordinated Notes
in excess of fifteen percent (15%) per annum in the aggregate with any
interest in excess of fifteen percent (15%) per annum to be payable only in
Senior Subordinated Notes."
ss.13. Deletion of ss.12.13 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.12.13 of the Credit Agreement is hereby deleted in its entirety.
ss.14. Amendment of ss.13.1 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.13.1 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"13.1. Total Funded Debt to EBITDA. The Borrower will not permit the
ratio of Consolidated Total Funded Debt for any fiscal quarter ending at
any time to Consolidated EBITDA for any the period of four consecutive
fiscal quarters also ending at such time to exceed 3.5 to 1."
ss.15. Amendment of ss.13.2 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.13.2 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"13.2. Capital Expenditures. The Borrower will not make, or permit any
Subsidiary of the Borrower to make, Capital Expenditures during any fiscal
year set forth in the table below that exceed, in the aggregate, the amount
set forth opposite such fiscal year in such table; provided, however, (a)
if during any such fiscal year set forth below the amount of Capital
Expenditures permitted for that fiscal year is not so utilized, a portion
of such unutilized amount not to exceed $1,500,000 may be utilized in the
next succeeding fiscal year set forth below but not in any subsequent
fiscal year; provided further, that in no event shall the amount carried
forward from any prior fiscal years ever exceed $1,500,000 for any such
fiscal year set forth below and (b) in addition to the amounts set forth
below, the Borrower may make additional Capital Expenditures during any
fiscal year (including the amount of any Investments permitted by ss.12.3
which constitute Capital Expenditures and which are made with the net cash
proceeds of any public offerings) solely to the extent of (i) the aggregate
amount of net cash proceeds received by the Borrower during such fiscal
year in connection with any public offering of its Common Stock minus (ii)
the amount of any such net cash proceeds from any such public offerings
which are used by the Borrower during such fiscal year to redeem
Subordinated Notes and to make Investments not constituting Capital
Expenditures as permitted by ss.ss.12.8 and 12.3, respectively, hereof:
Fiscal Year Amount
----------- -----
2/1/97 - 1/31/98 $12,500,000
2/1/98 - 1/31/99 $15,000,000
2/1/99 - 1/31/00 $18,000,000
2/1/00 - 1/31/01 $18,000,000
2/1/01 - Maturity Date $4,500,000"
ss.16. Amendment of ss.13.4 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.13.4 of the Credit Agreement is hereby amended to read in its entirety as
follows:
"13.4. Fixed Charge Coverage Ratio. The Borrower will not permit, for
any period of four consecutive fiscal quarters, the ratio of (a) the sum of
(i) Consolidated EBITDA for such period plus (ii) Consolidated Minimum
Store Rent for such period to (b) the sum of (i) Consolidated Minimum Store
Rent for such period plus (ii) Consolidated Cash Interest Expense for such
period, to be less than 1.7 to 1."
ss.17. Amendment of ss.16.1 of the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
ss.16.1 of the Credit Agreement is hereby amended by (a) replacing the dollar
amount "$750,000" appearing in ss.16.1(i) with the dollar amount "$1,500,000",
(b) replacing the dollar amount "$750,000" appearing in ss.16.1(k) with the
dollar amount "$1,500,000", and (c) replacing the dollar amount "$500,000"
appearing in ss.16.1(o) with the dollar amount "$1,500,000".
ss.18.Concerning Schedule 1 to the Credit Agreement. Subject to the
satisfaction of the conditions set forth in section 19 of this Amendment,
Schedule 1 to the Credit Agreement is hereby deleted in its entirety and
replaced with Schedule 1 attached hereto.
ss.19. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the delivery by (or on behalf of) the Borrower of the
following, in form and substance satisfactory to the Agents and the Banks:
(a) this Amendment signed by each of the Borrower, the Banks and the
Agents;
(b) a new Gold Note for RIHT, signed by the Borrower, in substantially
in the form of Exhibit H to the Credit Agreement, and in the maximum amount
of RIHT's Gold Commitment as set forth on Schedule 1 hereto;
(c) a certificate of the Secretary or Assistant Secretary of the
Borrower certifying as to (a) the Certificate of Incorporation or other
incorporation documents of the Borrower as in effect on such date of
certification, (b) the by-laws of the Borrower as in effect on such date,
(c) the corporate resolutions of the Borrower approving this Amendment and
the other documents and instruments required to be delivered hereunder by
the Borrower, and (d) the names, titles, incumbency, and true specimen
signatures of the officers of the Borrower authorized to sign this
Amendment and the other documents and instruments required to be delivered
hereunder by the Borrower;
(d) a certificate, as of a recent date, from the Secretary of State of
Delaware as to the legal existence and corporate good standing of the
Borrower;
(e) a favorable opinion of counsel to the Borrower in form and
substance satisfactory to the Agents and the Banks;
(f) the Borrower shall have paid to the Agents, for the respective
accounts of the Banks, an amendment fee as set forth on Schedule 2 hereto;
and
(g) any other document or instrument the Agents and the Banks may
reasonably request.
ss.20. Representations and Warranties; No Default; Authorization. The
Borrower hereby represents and warrants to the Banks and the Agents as follows:
(a) Each of the representations and warranties made by it in the
Credit Agreement was true as of the date as of which it was made and is
true as and at the date of this Amendment (except to the extent of changes
resulting from transactions contemplated or permitted by the Credit
Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that in the aggregate are not materially
adverse, and to the extent that such representations and warranties relate
expressly to an earlier date), and, after the execution of this Amendment,
no Default or Event of Default has occurred and is continuing as of the
date of this Amendment; and
(b) This Amendment has been duly authorized, executed and delivered by
the Borrower and is in full force and effect, and the agreements and
obligations of the Borrower contained herein and in the Credit Agreement
respectively constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their
respective terms, except as enforceability is limited by bankruptcy,
insolvency, reorganization, moratorium or other laws relating to or
affecting generally the enforcement of creditors' rights and except to the
extent that availability of the remedy of specific performance or
injunctive relief is subject to the discretion of the court before which
any proceeding therefor may be brought.
ss.21. Certain Transitional Arrangements. Effective as of the date hereof,
each Bank shall make such dispositions and arrangements with each other Bank
with respect to the then outstanding Revolving Credit Loans, Gold Loans and
Purchases and Consignments (the "Adjustment") as shall result in the amount of
Revolving Credit Loans, Gold Loans and Purchases and Consignments owed to each
Bank being equal to the product of such Bank's Commitment Percentage or, as the
case may be, Gold Commitment Percentage, in each case as set forth on Schedule 1
hereto, multiplied by the aggregate Revolving Credit Loans, Gold Loans or, as
the case may be, Purchases and Consignments, outstanding on the date hereof (the
"Adjusted Amount"). The Borrower hereby agrees that each Bank's Adjusted Amount
shall be Revolving Credit Loans, Gold Loans or, as the case may be, Purchases
and Consignments, owed by the Company to such Bank as if such Bank had initially
made Revolving Credit Loans, Gold Loans or, as the case may be, Purchases and
Consignments, to the Company in the amount of the Adjusted Amount. Upon the
occurrence of the Adjustment, the Agents shall appropriately adjust its records
to reflect each Bank's Adjusted Amount.
ss.22. Ratification, etc. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto are
hereby ratified and confirmed in all respects. All references in the Credit
Agreement or any related agreement or instrument to the Credit Agreement shall
hereafter refer to the Credit Agreement as amended hereby.
ss.23. No Implied Waiver. Except as expressly provided herein, nothing
contained herein shall constitute a waiver of, impair or otherwise affect any
Obligations, or any right of any of the Agents or the Banks consequent thereon.
ss.24. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
ss.25. Governing Law. THIS AMENDMENT SHALL FOR ALL PURPOSES BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
(WITHOUT REFERENCE TO CONFLICTS OF LAW).
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as a
sealed instrument as of the date first above written.
MARKS BROS. JEWELERS, INC.
By: /s/ John R. Desjardins
---------------------------------
Name: John R. Desjardins
Title: Executive Vice President, Finance
& Administration, Treasurer and
Secretary
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By: /s/ Ellen Heath
---------------------------------
Name: Ellen Heath
Title: Director
RHODE ISLAND HOSPITAL TRUST
NATIONAL BANK, individually and
as Agent
By: /s/ Denis D. Hamboyan
---------------------------------
Name: Denis D. Hamboyan
Title: Senior Vice President
LASALLE NATIONAL BANK
By: /s/ Samir Desai
---------------------------------
Name: Samir Desai
Title: Assistant Vice President
ABN AMRO BANK, N.V.
By: /s/ Jeffrey Sarfaty
---------------------------------
Name: Jeffrey Sarfaty
Title: Vice President
SCHEDULE 1
----------
Part 1 - Dollar Banks - Commitments and Commitment Percentages
- -------------------------------------------------------------- ------------------------------ ------------------------------------
Commitment
Dollar Banks Commitment Percentage
- -------------------------------------------------------------- ------------------------------ ------------------------------------
The First National Bank of Boston
Domestic Lending Office:
100 Federal Street
Boston, MA 02110
Telefax Number: (617) 434-2309 $17,500,000.00 43.75%
Attention: Ellen Heath, Director
Eurodollar Lending Office:
100 Federal Street
Boston, MA 02110
Telefax Number: (617) 434-2309
Attention: Ellen Heath, Director
- -------------------------------------------------------------- ------------------------------ ------------------------------------
LaSalle National Bank
Domestic Lending Office
135 South LaSalle Street
Chicago, IL 60603
Telefax Number: (312) 904-6225 $22,500,000.00 56.25%
Attention: Vanja St. Clar, Vice President
Eurodollar Lending Office:
135 South LaSalle Street
Chicago, IL 60603
Telefax Number: (312) 904-6225
Attention: Vanja St. Clar, Vice President
- -------------------------------------------------------------- ------------------------------ ------------------------------------
SCHEDULE 1
Part 2 - Gold Banks - Gold Commitments and Gold Commitment Percentages
- -------------------------------------------------------------- ------------------------------ ------------------------------------
Gold Commitment
Gold Banks Gold Commitment Percentage
- -------------------------------------------------------------- ------------------------------ ------------------------------------
Rhode Island Hospital Trust National Bank
Domestic Lending Office:
One Hospital Trust Plaza, R-W09-01
Providence, Rhode Island 02903 $12,500,000.00 62.50%
Telefax Number: (401) 278-7329
Attention: Denis D. Hamboyan, Senior Vice President
Eurodollar Lending Office:
One Hospital Trust Plaza, R-W09-01
Providence, Rhode Island 02903
Telefax Number: (401) 278-7329
Attention: Denis D. Hamboyan, Senior Vice President
- -------------------------------------------------------------- ------------------------------ ------------------------------------
- -------------------------------------------------------------- ------------------------------ ------------------------------------
ABN AMRO Bank, N.V.
Domestic Lending Office:
335 Madison Avenue
New York, NY 10017
Telefax Number: (212) 644-6905 $7,500,000.00 37.50%
Attention: Jeffrey Sarfaty, Vice President
Eurodollar Lending Office:
335 Madison Avenue
New York, NY 10017
Telefax Number: (212) 644-6905
Attention: Jeffrey Sarfaty, Vice President
- -------------------------------------------------------------- ------------------------------ ------------------------------------
Schedule 2
----------
Amendment Fee
The Borrower shall pay to the Agents an amendment fee in the amount of
$100,000, such amendment fee to be for the accounts of the Banks in accordance
with the respective portions of the Total Commitment.
EXHIBIT 10.15
MARKS BROS. JEWELERS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(As Amended and Restated
Effective as of February 1, 1997)
TABLE OF CONTENTS
-----------------
SECTION PAGE
- ------- ----
1 General........................................................ 1
History, Purpose and Effective Date....................... 1
Employers and Related Companies........................... 1
Plan Administration, Trust Agreement...................... 2
Plan Year................................................. 2
Applicable Laws........................................... 2
Gender and Number......................................... 2
Notices................................................... 2
Evidence.................................................. 2
Action by Employer........................................ 2
No Reversion to Employers................................. 2
Plan Supplements.......................................... 3
Defined Terms............................................. 3
2 Participation in Plan.......................................... 3
Eligibility for Participation............................. 3
Restricted Participation.................................. 3
Participation Not Guarantee of Employment................. 3
Leased Employees.......................................... 4
Inactive Participation.................................... 4
3 Service........................................................ 5
Year of Service........................................... 5
Hour of Service........................................... 5
One-Year Break in Service................................. 6
4 No Participant Contributions................................... 6
- i -
SECTION PAGE
- ------- ----
5 Employer Contributions......................................... 6
Employer Contributions.................................... 6
Limits on Employer Contributions.......................... 7
Payment of Employer Contributions......................... 7
6 Investment in Company Stock.................................... 7
Investment in Company Stock............................... 7
Use Dividends............................................. 8
Valuation................................................. 8
7 Plan Accounting................................................ 8
Participant Accounts...................................... 8
Adjustment of Participants' Accounts...................... 8
Allocation and Crediting of Earnings
and Losses.............................................. 9
Allocation and Crediting of Employer
Contributions and Forfeitures........................... 9
Stock Dividends, Splits and Other
Capital Reorganizations................................. 10
Compensation.............................................. 10
Statement of Plan Interest................................ 12
8 Limitations.................................................... 12
Restricted Participants................................... 12
Limitations Applicable to Restricted
Participants............................................ 12
Exception for Lineal Descendants.......................... 13
Section 415 Limitation on Allocations
to Participant Accounts................................. 13
Annual Additions.......................................... 13
Excess Annual Additions................................... 14
- ii -
SECTION PAGE
- ------- ----
Limitations Applicable to Highly Compensated
Employees............................................... 14
Combined Plan Limitation.................................. 15
9 Vesting and Termination Dates.................................. 16
Determination of Vested Interest.......................... 16
Accelerated Vesting....................................... l6
Termination Dates......................................... l7
10 Distributions.................................................. 17
Distributions to Participants After
Termination of Employment............................... 17
Distributions to Beneficiaries............................ 19
Form of Distributions..................................... 19
Limits on Commencement and Duration
of Distributions....................................... 19
Beneficiary Designations.................................. 20
Forfeitures and Restorations of
Unvested Accounts....................................... 21
Application of Forfeitures................................ 22
Cash Dividends on Company Stock........................... 22
Withdrawals by Qualified Participants..................... 23
Facility of Payment....................................... 23
Interests Not Transferable................................ 23
Absence of Guaranty....................................... 24
Missing Participants or Beneficiaries..................... 24
11 Voting and Other Shareholder Rights............................ 24
12 Rights and Restrictions With Respect To
Company Stock................................................. 24
- iii -
SECTION PAGE
- ------- ----
Put Option................................................ 24
Legends................................................... 26
13 The Committee.................................................. 27
Membership................................................ 27
Rights, Powers and Duties................................. 27
Application of Rules...................................... 28
Remuneration and Expenses................................. 28
Indemnification of the Committee.......................... 28
Exercise of Committee's Duties............................ 28
Information to be Furnished to Committee.................. 29
Resignation or Removal of Committee Member................ 29
Appointment of Successor Committee Members................ 29
14 Amendment and Termination...................................... 29
Amendment................................................. 29
Termination............................................... 29
Merger and Consolidation of the Plan,
Transfer of Plan Assets................................. 30
Distribution on Termination and Partial
Termination............................................. 30
Notice of Amendment, Termination or
Partial Termination..................................... 30
Appendix A - Defined Terms
Supplement A - Top-Heavy Provisions
- iv -
MARKS BROS. JEWELERS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(As Amended and Restated
Effective as of February 1, 1997)
SECTION
1
General
1.1 History, Purpose and Effective Date. Effective as of February 1, 1988,
Marks Bros. Jewelers, Inc., a Delaware corporation (the "Company"), established
the Marks Bros. Jewelers, Inc. Employee Stock Ownership Plan (the "Plan") to
promote the mutual interests of the Company, its shareholders, its eligible
employees and the eligible employees of any Related Company (as defined in
subsection 1.2) which adopts the Plan, (i) by providing such employees with an
opportunity to acquire equity interests in the Company, (ii) by causing the Plan
to be a long-term investor in stock of the Company, and (iii) by providing the
Company and the eligible employees with the tax benefits and other benefits
provided under applicable laws to employee stock ownership plans, including use
of the Plan as a technique of corporate finance and as a vehicle for the
transfer of ownership of stock of the Company. The following provisions
constitute an amendment, restatement and continuation of the Plan as in effect
on February 1, 1996, the "Effective Date" of the Plan as set forth herein. The
Plan is intended to qualify as a stock bonus plan under section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and to constitute an
employee stock ownership plan under section 4975(e)(7) of the Code, and shall be
invested primarily in shares of the Company's common and preferred stock which
qualify as "employer securities" under section 409(1) of the Code ("Company
Stock"); provided, howevever, that (i) the assets of the Plan may be invested in
cash or cash equivalents, as required for administrative and other allowable
purposes; and (ii) the proceeds of the sale of a number of shares of the
Company's common stock in a secondary public offering of such common stock need
not be invested in Company Stock and shall be invested in accordance with the
provisions of the Trust Agreement (as defined in subsection 1.3) and the
investment policy established with respect to the Plan by the Committee (as
described in subsection 13.1).
1.2 Employers and Related Companies. The Company and each corporation which
is a Related Company and which, with the consent of the Company, adopts the Plan
are referred to below collectively as the "Employers" and individually as an
"Employer", The term "Related Company" means any corporation, trade or business
during any period during which it is, along with the Company, a member of a
controlled group of corporations or a controlled group of trades or businesses,
as described in sections 414(b) and 414(c), respectively, of the Code.
1.3 Plan Administration, Trust Agreement. The authority to control and
manage the operation and administration of the Plan is vested in a Committee as
described in subsection 13.1. The Company shall have the rights, duties and
obligations of an "administrator" as that term is defined in section 3(16)(A) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and of
a "plan administrator" as that term is defined in section 414(g) of the Code.
All contributions made under the Plan will be held, managed and controlled by
one or more trustees (the "Trustees") acting under a Trust (the "Trust") which
forms a part of the Plan. The terms of the Trust are set forth in a Trust
Agreement (the "Trust Agreement") known as Marks Bros. Jewelers, Inc. Employee
Stock Ownership Trust.
1.4 Plan Year. The term "Plan Year" means the twelve- consecutive-month
period ending each January 31.
1.5 Applicable Laws. The Plan shall be construed and administered according
to the laws of the State of Illinois to the extent that such laws are not
preempted by the laws of the United States of America.
1.6 Gender and Number. Where the context admits, words in any gender shall
include each other gender, words in the singular shall include the plural, and
the plural shall include the singular.
1.7 Notices. Any notice or document required to be filed with the Committee
under the Plan will be properly filed if delivered or mailed by registered mail,
postage prepaid, to the Committee, in care-of the Company at its principal
executive offices. Any notice required under the Plan may be waived by the
person entitled to notice.
1.8 Evidence. Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers to be pertinent and reliable, and signed, made or presented by the
proper party or parties.
1.9 Action by Employer. Any action required or permitted to be taken by an
Employer under the Plan shall be by resolution of its Board of Directors, or by
a person or persons authorized by its Board of Directors.
1.10 No Reversion to Employers. No part of the corpus or income of the
Trust shall revert to any Employer or be used for, or diverted to, purposes
other than for the exclusive benefit of Participants and other persons entitled
to benefits under the Plan, except as specifically provided in the Trust
Agreement.
1.11 Plan Supplements. The provisions of the Plan as applied to any
Employer or any group of employees of any Employer may, with the consent of the
Company, be modified or supplemented from time to time by the adoption of one or
more
- 2 -
Supplements. Each Supplement shall form a part of the Plan as of the
Supplement's effective date. In the event of any inconsistency between a
Supplement and the Plan document, the terms of the Supplement shall govern.
1.12 Defined Terms. Terms used frequently with the same meaning are
indicated by initial capital letters, and are defined throughout the Plan.
Appendix A contains an alphabetical listing of such terms and the subsections in
which they are defined.
SECTION 2
Participation in Plan
2.1 Eligibility for Participation. Subject to the provisions of subsection
2.2 and the conditions and limitations of the Plan, each individual who was a
Participant in the Plan immediately prior to February 1, 1996 will continue as
such on and after that date, and each other employee of an Employer will become
a Participant in the Plan on the six (6) month anniversary of his first day of
employment with an Employer; provided, however, that an employee who is a member
of a unit of employees covered by a collective bargaining agreement between
employee representatives and an Employer shall not be eligible to participate if
retirement benefits were the subject of good faith bargaining between his
Employer and such representatives, unless the Plan has been extended to the
collective bargaining unit under a currently effective collective bargaining
agreement. Effective as of February 1, 1996, no individual may become a
Participant in the Plan.
2.2 Restricted Participation. If the Plan acquires Company Stock in a
transaction to which Code section 1042 (dealing with nonrecognition of gain b y
the seller) or Code section 2057 (dealing with estate tax deductions for sales
to employee stock ownership plans) applies, Restricted Participants (as defined
in subsection 8.1) shall have their rights to receive allocations of Company
Stock limited in accordance with the provisions of subsection 8.2.
2.3 Participation Not Guarantee of Employment. Participation in the Plan
does not constitute a guarantee or contract of employment, and will not give any
employee the right to be retained in the employ of any Employer or Related
Company nor any right or claim to any benefit under the Plan unless such right
or claim has specifically accrued under the terms of the Plan.
2.4 Leased Employees. If, pursuant to one or more agreements between an
Employer or Related Company and one or more leasing organizations (within the
meaning of section 414(n) of the Code), a person provides services to the
Employer or Related Company, in a capacity other than as an employee, on a
substantially full-time basis for a period of
- 3 -
at least one year, and such services are of a type historically performed by
employees in the business field of the Employer or Related Company, such person
shall be a "Leased Employee." Leased Employees shall not be eligible to
participate in this Plan or in any other plan maintained by an Employer or a
Related Company which is qualified under section 401(a) of the Code, but, to the
extent required by section 414(n) of the Code and applicable Treasury
regulations, such person shall be treated as if the services performed by him in
such capacity including service performed during such initial one-year period)
were performed by him as an employee of a Related Company which has not adopted
the Plan; provided, however, that no such service shall be credited:
(a) for any period during which less than 20% of the workforce of the
Employers and the Related Companies consists of Leased Employees and
the Leased Employee is a participant in a money purchase pension plan
maintained by the leasing organization which (i) provided for a
nonintegrated employer contribution of at least 10 percent of
compensation, (ii) provides for full and immediate vesting, and (iii)
covers all employees of the leasing organization (beginning with the
date they become employees), other than those employees excluded under
section 414(n)(5) of the Code; or
(b) for any other period unless the Leased Employee provides satisfactory
evidence to the Employer or Related Company that he meets all of the
conditions of this subsection 2.4 and applicable law required for
treatment as a Leased Employee.
2.5 Inactive Participation. Subject to the terms and conditions of the
Plan, when distribution of the benefits to which a Participant is entitled under
the Plan is deferred beyond, or cannot be made until after, his Termination Date
and during any period that a Participant does not meet the eligibility
requirements of subsection 2.1, the Participant or, in the event of the
Participant's death, his Beneficiary (as defined in subsection 10.5), will be
considered and treated as an "Inactive Participant." An Inactive Participant
shall be treated as a Participant for all purposes of the plan, except that
(a) he will not share in the allocation of Employer Contributions and
Forfeitures provided under subsection 7.4, except for Plan Years in
which he meets the requirements of an "Eligible Participant" under
subsection 7.4, and
(b) the Beneficiary of a deceased Participant cannot designate a
Beneficiary under subsection 10.5.
- 4 -
SECTION 3
Service
3.1 Year of Service. The term "Year of Service" means, with respect to any
employee or Participant, any Plan Year during which he completes at least 1,000
Hours of Service (as defined in subsection 3.2), subject to the following:
(a) An employee or Participant's number of Years of Service for the period
ended January 31, 1988 shall be equal to the number, including
fractional portions thereof, of his Years of Service, if any, as
determined as of that date for vesting purposes under the terms of
Marks Bros. Jewelers, Inc. Profit Sharing Plan.
(b) For purposes of determining the nonforfeitable percentage of a
Participant's benefit under the Plan accrued prior to the date on
which he incurs his fifth consecutive One-Year Break in Service (as
defined in subsection 3.3), a Participant's number of Years of Service
accrued after such date shall be disregarded.
3.2 Hour of Service. The term "Hour of Service" means, with respect to any
employee or Participant, each hour for which he is paid or entitled to payment
for the performance of duties for an Employer or a Related Company or for which
back pay, irrespective of mitigation of damages, has been awarded to the
employee or Participant or agreed to by an Employer or a Related Company,
subject to the following:
(a) An employee or Participant shall be credited with 8 Hours of Service
per day (to a maximum of 40 Hours of Service per week) for any period
during which he performs no duties for an Employer or a Related
Company (irrespective of whether the employment relationship has
terminated) by reason of a vacation, holiday,. illness, incapacity
(including disability), layoff, jury duty, military duty or leave of
absence but for which he indirectly or indirectly paid or entitled to
payment by an Employer or Related Company. Payments considered for
purposes of the foregoing shall include payments unrelated to the
length of the period during which no duties are performed but shall
not include payments made solely as reimbursement for medically
related expenses or solely for the purpose of complying with
applicable worker's compensation, unemployment compensation or
disability insurance laws.
(b) Solely for purposes of determining whether he has incurred a One-Year
Break in Service, an employee or Participant shall be credited, to the
extent not credited in accordance with the foregoing provisions
- 5 -
of this subsection 3.2, with 8 Hours of Service per day (to a maximum
of 40 Hours of Service per week) that he is absent from active
employment with an Employer or a Related Company (i) by reason of a
leave of absence approved and granted by the Employer or the Related
Company in accordance with rules uniformly applied by it or (ii) by
reason of the employee's or Participant's pregnancy, the birth of the
employee's or Participant/s child, the adoption of a child or
placement of a child for adoption and, in each case, the care of such
child immediately after its birth or placement; provided, however,
that in no event shall more than 501 Hours of Service be credited
under this clause (ii). Hours of Service credited in accordance with
clause (ii) above shall be credited for the Plan Year during which the
absence begins to the extent that such crediting would prevent the
employee or Participant from incurring a One Year Break in Service
and, in each other case, shall be credited in the immediately
following Plan Year.
3.3 One-Year Break in Service. The term "One-Year Break in Service" means,
with respect to any employee or Participant, any Plan Year during which he is
credited with less than 501 Hours of Service.
SECTION 4
No Participant Contributions
Participants are not required or permitted to make contributions under the
Plan.
SECTION 5
Employer Contributions
5.1 Employer Contributions. Subject to the conditions and limitations of
the Plan, for each Plan Year, the Company shall contribute to the Trustees as an
"Employer Contribution", in cash or Company Stock, or any combination thereof,
such amount, if any, as the Company shall determine. Each other Employer shall
contribute to the Trustees an amount equal to the product of X multiplied by the
aggregate amount of Compensation (as defined in subsection 7.6) paid by that
Employer to the Eligible Participants (as defined in paragraph 7.4(c)) for that
Plan Year. For purposes of the preceding sentence, "X" shall mean a fraction,
the numerator of which is the amount contributed by the Company to the Trustee
for that Plan Year as an Employer Contribution, and the denominator of which is
the aggregate amount of Compensation paid by the Company to the Eligible
Participants for that Plan Year. Notwithstanding the foregoing provisions of
this subsection 5.1, no contributions shall be required of Employers other
- 6 -
than the Company on account of the Company making cash contributions to the
Trustees, to the extent that the Company designates to the Trustees that such
cash contributions are to be applied to pay expenses of the Plan and Trust.
Notwithstanding the foregoing, the Plan is frozen effective as of February 1,
1996, and no further contributions will be made to the Plan on or after such
date.
5.2 Limits on Employer Contributions. In no event will any Employer's
contribution under the Plan for any Plan Year exceed the lesser of:
(a) the maximum amount deductible by that Employer under section 404 of
the Code for that year; or
(b) the maximum amount that can be allocated to Participants' Accounts in
accordance with the limitations of Section 8.
5.3 Payment of Employer Contributions. Employer Contributions for any Plan
Year shall be paid to the Trustees, without interest, no later than the time
prescribed by law, including extensions thereof, for filing the Employer's
federal income tax returns for the Employer's tax year ending with or within the
Plan Year, and, if made within that period, shall be treated as having been made
on the last day of the Plan Year for all Plan purposes.
SECTION 6
Investment in Company Stock
6.1 Investment in Company Stock. All Employer Contributions and all
earnings thereon shall be invested primarily in Company Stock; provided,
however, that (i) such Employer Contributions may be invested in cash or cash
equivalents in such reasonable amounts as may be necessary from time to time for
administration of the Trust, and (ii) the proceeds of the sale of a number of
shares of the Company's common stock in a secondary public offering of such
common stock need not be invested in Company Stock and shall be invested in
accordance with the provisions of the Trust Agreement and the investment policy
established with respect to the Plan by the Committee.
6.2 Use of Dividends. Cash dividends received on shares of Company Stock
shall, at the direction of the Committee, either be distributed to Participants
and Beneficiaries (to the extent attributable to shares of Company Stock
allocated to their Accounts) no later than 90 days after the close of the Plan
Year in which such dividend was paid or be reinvested in shares of Company
Stock. Pending use in accordance with the foregoing provisions of this
subsection 6.3, cash dividends may be retained in cash or cash equivalents.
- 7 -
6.3 Valuation. For all purposes of the Plan, valuations of Company stock
shall be made no less frequently than the last day of each Plan Year and the
date of each such valuation shall be a "Valuation Date." For all purposes of the
Plan, the "Fair Market Value" of a share of Company Stock as of any date means
the fair market value of a share of Company stock as determined as of the date
on which such a determinate is necessary.
SECTION 7
Plan Accounting
7.1 Participant Accounts. The Committee shall maintain or cause to be
maintained an "Account" in the name of each Participant which will reflect his
interest under the Plan. Each Participant's Account shall be adjusted as
provided in the following provisions of this Section 7. All accounting with
respect to shares of Company Stock, including all adjustments and allocations
under this Section 7, shall be in whole and fractional shares of such stock, in
accordance with such procedures and methods as are adopted from time to time by
the Committee.
7.2 Adjustment of Participants' Accounts. As of the last day of each Plan
Year the Committee shall:
(a) First, charge to the Account of each Participant all distributions and
payments made to him, or on his account, that have not been charged
previously;
(b) Next, adjust each Participant's Account for dividends, shares of
Company Stock, and earnings and losses, if any, that are to be
allocated or credited as of that date in accordance with the
provisions of subsection 7.3; and
(c) Finally, allocate and credit to each Participant's Account his
portion, if any, of Employer Contributions and Forfeitures (as defined
in subsection 10.6) that are to be allocated and credited as of that
date in accordance with the provisions of subsection 7.4.
7.3 Allocation and Crediting of Earnings and Losses. Participants' Accounts
shall be adjusted for earnings and losses as follows:
(a) As of the last day of each Plan Year, each Participant's Account shall
be adjusted to reflect any appreciation or depreciation in the Fair
Market Value of shares of Company Stock allocated to his Account.
(b) As of the last day of each Plan Year, each Participant's Account shall
be credited with any
- 8 -
cash dividends or in-kind dividends (or shares of Company Stock
acquired on account of the reinvestment of such dividends) paid to the
Trustees since the last day of the preceding Plan Year with respect to
shares of Company Stock credited to the Participant's Account (other
than dividends which have been distributed.
(c) If, pending investment in shares of Company Stock, cash contributions
by the Employers are invested in cash equivalents, earnings, if any,
accrued thereon prior to the last day of the Plan Year for which the
contributions are made shall be allocated and credited to the Accounts
of all Participants as of the same date and on the same basis as such
Employer Contributions are allocated under the provisions of
subsection 7.4.
(d) All other earnings or losses, if any, of the Trust assets shall be
allocated to Participants' Accounts as of the last day of each Plan
Year pro rata, according to their Account balances as determined as of
the last day of the immediately preceding Plan Year after adjustment
in accordance with paragraph 7.3 (a) to reflect distributions and
payments.
7.4 Allocation and Crediting of Employer Contributions and Forfeitures.
Subject to the provisions of paragraph 7.3(b) and Section a, allocation of
Employer Contributions and Forfeitures shall be made in accordance with the
following provisions of this subsection 7.4.
(a) As of the last day of each Plan Year, all Employer Contributions for
that Plan Year and any Forfeitures arising under the Plan during that
year that are to be allocated pursuant to subsection 10.7 shall be
allocated among the Accounts of Eligible Participants in accordance
with the following provisions:
(i) In the case of Employer Contributions made in the form of shares
of Company Stock, Employer Contributions made in cash and used to
acquire shares of Company Stock and any shares of Company Stock
forfeited during that year, each Participant's Account shall be
credited with the number of shares of Company Stock equal to the
product of:
(A) the number of such shares contributed, acquired or forfeited
MULTIPLIED BY
(B) the Participant's Allocation Fraction.
- 9 -
(ii) In the case of all other Employer Contributions and any
Forfeitures not consisting of Company Stock, each Participant's
Account shall be credited with an amount equal to the product of:
(A) such Employer Contributions and Forfeitures
MULTIPLIED BY
(B) the Participant's Allocation Fraction.
(b) An Eligible Participant's "Allocation Fraction" for any Plan Year
means a fraction, the numerator of which is the Eligible Participant's
Compensation for such Plan Year, and the denominator of which is the
aggregate Compensation for all Eligible Participants for such Plan
Year.
(c) The term "Eligible Participant" for any Plan Year means any
Participant employed by the Employers during that year who is credited
with 1,000 or more Hours of Service for that Plan Year.
7.5 Stock Dividends, Splits and Other Capital Reorganizations. Any stock
received by the Trustees as a stock split or dividend or as a result of a
reorganization or other recapitalization of the Company shall be allocated as of
the date such stock is receivable by the Trustees in the same manner as the
Company Stock to which it is attributable is then allocated.
7.6 Compensation. A Participant's "Compensation" for any Plan Year means:
(i) the Participant's wages and any other compensation payments for such
Plan Year required to be reported for him on any Form W-2 issued by an
Employer or Related Company pursuant to sections 6041(d) and
6051(a)(3) of the Code, determined without regard to any rules that
limit remuneration included in wages based on the nature or location
of the employment or the services performed,
(ii) plus all elective contributions made on the Participant's behalf for
the Plan Year by an Employer or Related Company that are not
includible in gross income under sections 125, 402(a)(8), 402(h) and
403(b),
(iii) reduced by any reimbursement or other expense allowances, fringe
benefits (cash and noncash), moving expenses, deferred compensation
and welfare benefits;
- 10 -
up to a maximum limit of $200,000 or such larger amount as may be permitted for
any Plan Year under section 401(a)(17) of the Code, taking into account any
proration of such amount required under applicable Treasury regulations on
account of family member aggregation or a short Plan Year.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan Years
beginning on or after January 1, 1994, the annual compensation of each Employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000 as
adjusted by the Commissioner for increases in the cost of living in accordance
with section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under section 401(a)(17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first Plan Year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
7.7 Statement of Plan Interest. As soon as practicable after the close of
each Plan Year, the Committee shall provide each Participant with a statement
reflecting the value of his interest in the Plan.
SECTION 8
Limitations
8.1 Restricted Participants. If the Plan acquires shares of Company Stock
in a transaction described in subsection 2.2, such shares shall be "Restricted
Shares" and a Participant shall be a "Restricted Participant" with respect to
such Restricted Shares if the Participant is:
(a) a selling shareholder who makes a nonrecognition election under
section 1042(a) of the Code;
- 11 -
(b) the decedent, if the executor of the decedent's estate makes a
qualified sale to the Plan under section 2057 of the Code;
(c) an individual who is related to a person described in paragraph (a) or
(b) above within the meaning of section 267(b) of the Code, including
the spouse, brothers and sisters (whether by whole or half blood),
ancestors and lineal descendants of any such person; and
(d) a person who, at any time during the one-year period ending on the
date of sale, or on the date such Restricted Shares are allocated
under the Plan, owns (after application of the constructive ownership
rules of section 318(a) of the Code but without regard to the
exception in paragraph (2)(B)(i) thereof) more than 25 percent of (i)
any class of outstanding stock of the Company or of any Related
Company or of any entity which would be a Related Company if such
relationship were determined under the 50 percent control test
described in section 409(1)(4) of the Code or (ii) the total value of
any class of outstanding stock of any such corporation.
8.2 Limitations Applicable to Restricted Participants. Except as provided
in subsection 8.3, no Restricted Shares or assets attributable to (or allocable
in lieu of) Restricted Shares may accrue (or be allocated directly or indirectly
under any plan of an Employer or Related Company which is qualified under
section 401(a) of the Code) during the Nonallocation Period (as defined below)
for the benefit of any Participant who is a Restricted Participant with respect
to such shares. The term "Nonallocation Period" means the period beginning on
the date of the sale of the Restricted Shares to the Plan and ending on the
later of the tenth anniversary of such date or the date of the Plan allocation
of any assets attributable to the final payment of any acquisition indebtedness
incurred in connection with such sale.
8.3 Exception for Lineal Descendants. The restrictions of subsection 8.2
shall not apply to a lineal descendant of a person described in paragraph (a) of
subsection 8.1 to the extent that the aggregate amount allocated to all such
lineal descendants does not exceed 5 percent of the Restricted Shares held by
the Plan which are attributable to a sale to the Plan by any brother or sister
(whether by the whole or half blood), spouse, ancestor, or lineal descendant of
such descendant in a transaction to which section 1042 of the Code applies. If
the allocations which would otherwise be made to any such lineal descendants
during any Plan Year would cause such 5 percent limit to be exceeded, such
excess shall be avoided by proportionately reducing the allocation to each such
descendant.
8.4 Section 415 Limitation on Allocations to Participant Accounts.
Notwithstanding any other provision of the Plan,
- 12 -
allocations to Participant Accounts shall be subject to the provisions of
section 415 of the Code. Consistent with the limitations set forth in such
section, a Participant's Annual Additions (as defined in subsection 8.5) for any
Plan Year shall not exceed an amount equal to the lesser of:
(a) 25 percent of the Section 415 Compensation (as defined below) paid to
the Participant in that Plan Year; or
(b) $30,000 (or, if greater, 1/4 of the dollar limitation in effect under
section 415(b)(1)(A) of the Code.
A Participant's "Section 415 Compensation" for any Plan Year means his total
compensation (as described in Treas. Reg. ss.1.4152(d)(1)) paid during that year
for services rendered to the Employers or to any Related Company or Section 415
Affiliate (as defined below), exclusive of deferred compensation and other
amounts which receive special tax treatment (as described in Treas. Reg. ss.
1.415-2(d)(2)). "Section 415 Affiliate" means any entity that would be a Related
Company if the ownership test of sections 414(b) and (c) of the Code were "more
than 50 percent" rather than "at least 80 percent".
8.5 Annual Additions. A Participant's "Annual Additions" for any Plan Year
means the sum of (i) the amount of all Employer Contributions allocated to his
Account during that year and (ii) the amount of Forfeitures allocated to his
Account during that year. The term Annual Additions shall also include employer
contributions allocated for a Plan Year to any individual medical account (as
defined in section 415(1) of the Code) of a Participant under a defined benefit
plan and any amount allocated for a Plan Year to the separate account of a
Participant for payment of post-retirement medical benefits under a funded
welfare benefit plan (as described in section 419A(d) (2) of the Code), which
was maintained by an Employer or a Related Company or a Section 415 Affiliate.
Plan earnings shall not constitute Annual Additions.
8.6 Excess Annual Additions. In the event that a Participant's Annual
Additions for any Plan Year would otherwise exceed the limitations imposed by
the provisions of subsection 8.4, the amount of the Employer Contributions which
would otherwise be allocated to his Account for that year shall be reduced to
the extent necessary to comply with such limitation. and shall be allocated and
reallocated to the Accounts of all remaining Participants in accordance with the
provisions of subsection 7.4. If, as a result of the allocation of Forfeitures,
a reasonable error in estimating a Participant's compensation or such other
mitigating circumstances as the Commissioner of Internal Revenue shall
prescribe, the allocations and reallocations pursuant to the foregoing
provisions of this subsection would cause the limitations of Code section 415 to
be exceeded with respect to
- 13 -
all Participants for the Plan Year, then any remaining excess amounts shall be
held unallocated in a "Section 415 Suspense Account." All amounts in the Section
415 Suspense Account must be allocated and reallocated to Participants' Accounts
in the next Plan Year (subject to the limitations of Code section 415) before
any Employer Contributions which would constitute Annual Additions may be made
for that Plan Year.
8.7 Limitations Applicable to Highly Compensated Employees. In no event
shall more than one-third of the Employer Contributions for any Plan Year be
allocated to Highly Compensated Employees. A "Highly Compensated Employee" for
any Plan Year shall mean any employee or Participant who, during that Plan Year
or the preceding Plan Year:
(a) was at any time a 5 percent owner of an Employer or Related Company;
(b) received Compensation that was in excess of $75,000 (indexed for
cost-of-living adjustments under section 415(d) of the Code);
(c) received Compensation that was in excess of $50,000 (indexed for
cost-of-living adjustments under section 415(d) of the Code), and was
in the top-paid group of employees (as described below) for such year;
(d) was at any time an officer and received Compensation greater than 50
percent of the amount in effect under section 415(b) (l)(A) of the
Code for such year, provided that the officers taken into account
under this paragraph (d) shall be limited to 50, or if less, the
greater of 3 or 10% of the employees of all the Employers and Related
Companies;
provided, however, that an employee in category (b), (c) or (d) above for the
current Plan Year who does not fall within at least one such category for the
preceding Plan Year shall not be considered a Highly Compensated Employee for
the current Plan Year unless he is also among the 100 most highly-paid employees
of all the Employers and Related Companies for such current year. An employee
shall be considered to be in the "top-paid group" of employees for any Plan Year
if such employee is in the group consisting of the top 20 percent of the active
employees of all the Employers and Related companies when ranked on the basis of
Compensation paid during such Plan Year. In determining the total number of
active employees in a Plan Year, the following provisions shall apply:
(i) the term "employee" shall include a Leased Employee, other than a
Leased Employee who is covered by a safe-harbor plan described in
section 414(n) (5) of the Code; and
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(ii) the following employees shall be disregarded: employees who
normally work less than 17-1/2 hours per week; employees who
normally work less than 6 months during any year and non-resident
aliens with no U.S. source income.
If, after application of the provisions of subsections 8.1 through 8.6, the
limitation provided under the first sentence of this subsection 8.7 would be
exceeded, Employer Contributions allocated to each Highly Compensated Employee
shall be proportionately reduced to the extent necessary to eliminate such
excess and, subject to the provisions of this Section 8, the amount of such
reduction shall be allocated and reallocated to all remaining Participants in
accordance with the provisions of subsection 7.4.
8.8 Combined Plan Limitation. If a Participant participates or has
participated in any qualified defined benefit plan maintained by an Employer,
then for any Plan Year the sum of the defined benefit plan fraction (as defined
in section 415(e) (2) of the Code) and the defined contribution plan fraction
(as defined in section 415(e)(3, of the Code) for such Participant shall not
exceed 1.0 (his "combined fraction"). If his combined fraction exceeds 1.0, then
his defined benefit plan faction shall be reduced by limiting his annual
benefits payable from the defined benefit plan to the extent necessary to reduce
his combined fraction to 1.0.
SECTION 9
Vesting and Termination Dates
9.1 Determination of Vested Interest.
(a) The interest of a Participant in his Account shall become fully vested
and nonforfeitable in accordance with the following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 1 0%
2 but less than 2 20%
3 but less than 3 40%
4 but less than 5 60%
5 or more 100%
(b) Each Participant employed on or after February 1, 1993 shall be vested
in his Account in accordance with the following schedule:
Years of Service Vested Percentage
---------------- -----------------
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Less than 1 0%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 or more 100
(c) Notwithstanding any other provision of this Section 9, effective as of
February 1, 1996, each Participant shall have a 100%, fully vested,
nonforfeitable interest in his entire Account.
9.2 Accelerated Vesting. Notwithstanding the foregoing provisions of this
Section 9, a Participant shall have a fully vested, nonforfeitable interest in
his entire Account when he attains his Normal Retirement Age (as defined in
paragraph 9.3(a)), dies or becomes permanently disabled (as described in
paragraph 9.3(b)) while employed by an Employer or a Related Company. In
addition, in the event of the Plan's termination (in accordance with subsection
14.2) or partial termination (as determined under applicable law and
regulations), each affected Participant shall be fully vested in his Account.
9.3 Termination Dates. A Participant's "Termination Date" will be the date
on which his employment with the Employers and the Related Companies is
terminated because of the first to occur of the following events:
(a) Normal or Late Retirement. The Participant retires or is retired from
the employ of the Employers and the Related Companies on or after the
date on which he attains his "Normal Retirement Age" of 65 years.
(b) Disability Retirement. The Participant is retired from the employ of
the Employers and the Related Companies at any age because of
permanent disability. A Participant will be considered permanently
disabled for purposes of the Plan if, on account of physical or mental
disability, he no longer is capable of performing the duties assigned
to him by his Employer and, in the opinion of a physician selected or
approved by the Company, such disability is likely to be permanent and
continuous during the remainder of the Participant's lifetime.
(c) Death. The Participant's death.
(d) Resignation or Dismissal. The Participant resigns or is dismissed from
the employ of the Employers and the Related Companies before
retirement in accordance with paragraph (a) or (b) next above.
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SECTION 10
Distributions
10.1 Distributions to Participants After Termination of Employment. Subject
to the provisions of subsections 10.2 and 10.4, (i) a Participant may elect to
commence distribution of the vested portion of his Account at his Normal
Retirement Age and (ii) if a Termination Date occurs with respect to a
Participant for a reason other than his death, the vested portion of his Account
shall be distributed (or shall begin to be distributed) to the Participant in
accordance with the following provisions of this subsection 10.1:
(a) Unless the Participant elects to commence his benefit payments at an
earlier date as permitted in accordance with the provisions of
paragraph (b) next below, the Participant's vested Account balance
shall commence to be distributed to him as soon as practicable after
the last day of the Plan Year in which the Participant attains his
Normal Retirement Age or, if later, in which occurs such Termination
Date.
(b) A Participant who has incurred a Termination Date under paragraph
9.3(a) or 9.3(b) may elect to have payment of his vested benefits
commence as soon as practicable after the last day of the Plan Year in
which the Participant retires, and a Participant who incurs a
Termination Date under paragraph 9.3(d) may elect to have payment of
his vested Account balance commence as soon as practicable after the
last day of the fifth Plan Year following the Plan Year in which the
Participant's Termination Date occurs (regardless of whether such
Participant returns to the employ of an Employer or Related Company
prior to that date); provided, however, that the provisions of this
paragraph (b) shall not apply to any shares of Company Stock acquired
with the proceeds of an ESOP Loan until the close of the Plan Year in
which such loan is repaid in full, and provided further that in no
event shall the actual commencement of payments under this paragraph
(b) occur later than one year after the end of the applicable Plan
Year.
(c) Distribution of a Participant' 9 vested Account balance shall be by
one of the following methods chosen by the Participant:
(i) by payment in a lump sum; or
(ii) by payment in a series of substantially equal annual or more
frequent installments for a period not exceeding five years.
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After December 31, 1992, a Participant who is entitled to a
distribution may elect, at the time and in the manner prescribed
by the Committee, to have the Trustees directly transfer any
portion of an "eligible rollover distribution" to an "eligible
retirement plan" specified by the Participant (as those terms are
defined in Section 401(a)(31) of the Code); provided, that any
such transfer shall be through a method of transfer that the
Trustees deem reasonable and shall in any event be made in
accordance with Section 401(a)(31) of the Code and the
regulations thereunder.
(d) Distributions to be made to any Participant as of the last day of
any Plan Year shall commence to be made after all adjustments to
the Participant's Account have been made as required Section 7.
10.2 Distributions to Beneficiaries. Subject to the provisions of
subsection 10.4, the following rules shall apply if a Participant dies while any
vested portion of his Account balance remains undistributed:
(a) If the Participant dies before benefit payments to him have
commenced, the vested balance of his Account shall be distributed
as soon as practicable after the last day of the Plan Year in
which his death occurs to his Beneficiary, by one of the methods
provided in paragraph 10.1(c). A Participant may direct how his
benefits are to be paid to his Beneficiary; provided, however,
that if the deceased Participant did not file a direction with
the Committee, the Committee shall determine the method of
distributing the Participant's benefits to his Beneficiary. In no
event shall the actual commencement of payments under this
paragraph (a) occur later than one year after the end of the Plan
Year of the Participant's death.
(b) If a Participant dies after benefit payments to him have
commenced, the vested balance, if any, of his Account shall
continue to be distributed to his Beneficiary in accordance with
the method of distribution selected by the Participant.
10.3 Form of Distributions. All distributions under the Plan shall be made
solely in whole and fractional shares of Company Stock; provided, however, that
the portion of a Participant's Account that is not invested in Company Stock at
the time of distribution shall be distributed in cash, unless such Participant
elects to receive such distribution in the form of shares of Company Stock.
10.4 Limits on Commencement and Duration of Distributions. The following
distribution rules shall be applied in accordance with sections 401(a) (9) and
401(a)(14) of the Code and applicable regulations thereunder, including
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the minimum distribution incidental benefit requirement of Treas. Reg. ss. Reg.
1.401(a)(9)-2, and shall supersede any other provision of the Plan to the
contrary:
(a) In no event shall distributions to a Participant commence later than
60 days after the close of the Plan Year in which occurs the latest of
the Participant's attainment of age 65, the 10th anniversary of the
year in which the Participant began participating in the Plan, or the
Participant's Termination Date; provided however, that if the amount
of the payment required to commence on such date cannot be ascertained
by such date, payment retroactive to such date shall be made no later
than 60 days after the date on which the distribution amount can be
ascertained.
(b) Notwithstanding any other provision herein to the contrary,
distribution of a Participant's Account shall commence by lump sum
payment of his entire Account balance on or before his Required
Beginning Date (defined below) and each December 31 thereafter. A
Participant's "Required Beginning Date" shall mean April 1 of the
calendar year following the calendar year in which he attains age
70-1/2.
(c) Distribution of a Participant's Account balance shall not be made over
a period extending beyond the life expectancy of such Participant or
the joint life expectancy of such Participant and his Beneficiary.
(d) If a Participant dies after distribution of his vested interest in the
Plan has begun, the remaining portion of such vested interest, if any,
shall be distributed to his Beneficiary at least as rapidly as under
the method of distribution used prior to the Participant's death.
(e) If a Participant dies before distribution of his vested interest in
the Plan has begun, distribution of such vested interest to his
Beneficiary shall be completed by December 31 of the calendar year in
which the fifth anniversary of the Participant's death occurs.
(f) If the Participant's spouse is his Beneficiary and such spouse dies
before the distribution to such spouse begins, paragraph (e) shall be
applied as if the surviving spouse were the Participant.
(g) For purposes of this subsection 10.4, the life expectancy of a
Participant or a Beneficiary will be determined in accordance with
Tables V and VI of Treas. Reg. ss. 1.72-9, and will not be
recalculated.
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10.5 Beneficiary Designations. Each Participant, from time to time by
signing a form furnished by the Committee, may designate any legal or natural
person or persons (who may be designated contingently or successively) to whom
his benefits are to be paid if he dies before he receives all of his benefits;
provided, however, that if a Participant is legally married on the date of his
death, designation of a Beneficiary other than his spouse shall be effective
only if:
(a) the Participant's spouse acknowledges the effect of that designation
and consents to it in a writing which is filed with the Committee in
such form as it may require, is witnessed by either a Notary Public or
a Plan representative appointed or approved by the Committee, and is
effective only with respect to such consenting spouse; or
(b) it is established to the satisfaction of a Plan representative
appointed or approved by the Committee that the consent required under
paragraph (a) next above cannot 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 may prescribe in
regulations.
A Beneficiary designation form will be effective only when the signed form is
filed with the Committee while the Participant is alive and will cancel all
Beneficiary designation forms filed earlier. Except as otherwise specifically
provided in this Section 10, if a deceased Participant failed to designate a
beneficiary as provided above, or if the designated beneficiary of a deceased
Participant dies before him or before complete payment of the Participant's
vested benefits, his vested benefits shall be paid to the Participant's
surviving spouse or, if there is no surviving spouse, to the legal
representative or representatives of the estate of the last to die of the
Participant and his Beneficiary. The term "Beneficiary" as used in the Plan
means the person or persons to whom a deceased Participant's benefits are
payable under this subsection.
10.6 Forfeitures and Restorations of Unvested Accounts. If a Termination
Date occurs with respect to a Participant who is not fully vested in his Account
(as determined under Section 9), the following rules shall apply:
(a) The unvested portion of his Account shall be forfeited as of the
earlier of the date as of which the vested portion of his Account is
distributed to him or the date the Participant incurs five consecutive
One-Year Breaks in Service. The amount so forfeited is referred to
herein as a "Forfeiture".
(b) If a Forfeiture occurs due to the distribution of the vested portion
of the Participant's Account, and the Participant is reemployed by an
Employer or a
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Related Company before he incurs five consecutive One-Year Breaks in
Service, the amount of the Forfeiture (determined on the basis of the
Fair Market Value of the shares of Company Stock forfeited and the
value of all other assets in his Account on the date of Forfeiture,
without adjustment for appreciation or depreciation or for earnings
and losses after the Forfeiture occurred) shall be restored as soon as
practicable after his reemployment.
(c) If a Forfeiture occurs due to the distribution of the vested portion
of the Participant's Account, and the Participant is reemployed by an
Employer or Related Company after he incurs five consecutive One-Year
Breaks in Service, such reemployment shall have no effect on the
Forfeiture under paragraph (a) above.
(d) The restoration referred to in paragraph (b) above shall be made first
from current Forfeitures, if any, under the Plan and then, if
necessary, from a special Employer Contribution to the Plan.
(e) A restoration pursuant to paragraph (b) above shall not be considered
an Annual Addition for purposes of subsection 8.5.
(f) If a Participant who is reemployed by an Employer or Related Company
prior to incurring five consecutive One-Year Breaks in Service
received a distribution of the vested portion of his Account, the
amount restored under paragraph (b) above shall be maintained in a
separate subaccount within the Participant's Account and his vested
interest in such subaccount shall be determined by adding the amount
of the prior distribution to the subaccount balance before applying
the vesting provisions set forth in Section 9 and then subtracting the
amount of the prior distribution from the amount derived after
application of such vesting provisions.
10.7 Application of Forfeitures. Any Forfeitures arising during a Plan Year
shall first be used to restore any prior Forfeitures as required by subsection
10.6 and then, on the last day of such Plan Year, the Forfeitures remaining
shall be allocated to the Accounts of Eligible Participants in accordance with
the provisions of subsection 7.4. If during any Plan Year dividends are paid or
payable on any forfeited shares of Company Stock prior to the time such
forfeited shares are applied to restore prior Forfeitures, the amount of such
dividends shall become part of the pool of Forfeitures available for restoration
or allocation during the remainder of such Plan Year.
10.8 Cash Dividends on Company Stock. Cash dividend shares of Company Stock
allocated to a Participant's Account
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will be distributed to the Participant if directed by the Committee in
accordance with the provisions of subsection 6.3.
10.9 Withdrawals by Qualified Participants. Notwith standing any other
provision of the Plan, during the 90-day period following the last day of each
Plan Year in a Participant's Qualified Election Period (as defined below), the
Participant may, by writing filed with the Committee in such form as it may
require, elect to withdraw:
(a) a portion of his Account balance not exceeding 25 percent (50 percent
with respect to the Participant's election following the last Plan
Year in his Qualified Election Period) of the sum of:
(i) his Account balance at the end of the immediately preceding Plan
Year; and
(ii) prior withdrawals during his Qualified Election Period;
REDUCED BY
(b) the aggregate amount of prior withdrawals made in accordance with this
subsection.
Any amount required to be distributed pursuant to a withdrawal election made
during any Plan Year in accordance with this subsection shall be distributed no
later than the 180th day of that Plan Year. A Participant's "Qualified Election
Period" means the six-Plan-Year period beginning with the first Plan Year in
which he has both completed ten years of participation in the Plan and has
attained at least age 55 years. The provisions of this subsection 10.9 shall not
apply to any Participant to the extent the value of the Company Stock allocated
to his Account (determined as of the first day on which the Participant would
otherwise be entitled to make a withdrawal election under this subsection) is
$500 or less.
10.10 Facility of Payment. If the Committee, in its sole discretion,
determines that a Participant or other person entitled to benefits under the
Plan is under a legal disability or is in any way incapacitated so as to be
unable to manage his financial affairs, the Committee may, until claim is made
by a conservator or other person legally charged with the care of his person or
of his estate, direct the Trustees to make payment to a relative or friend of
such person for his benefit. Thereafter, any benefits under the Plan to which
such Participant or other person is entitled shall be paid to such conservator
or other person legally charged with the care of his person or his estate.
10.11 Interests Not Transferable. The interests of Participants and other
persons entitled to benefits under the Plan are not subject to the claims of
their creditors and may not be voluntarily or involuntarily assigned, alienated
or encumbered, except in the case of certain qualified domestic
- 22 -
relations orders which relate to the provision of child support, alimony
payments or marital rights of a spouse, child or other dependent of a
Participant and which meet such other requirements as may be imposed by section
414(p) of the Code or regulations issued thereunder.
10.12 Absence of Guaranty. None of the Trustees, the Employers or the
Committee in any way guarantee the assets of the Trust from loss or
depreciation. Neither the Employers nor the Committee guarantees any payment to
any person. The liability of the Trustees to make any payment is limited to the
available assets of the Trust.
10.13 Missing Participants or Beneficiaries. Each Participant and each
Beneficiary must file with the Committee from time to time in writing his post
office address and each change of post office address. Any communication,
statement or notice addressed to a Participant or Beneficiary at his last post
office address filed with the Committee, or if no address is filed with the
Committee then, in the case of a Participant, at his last post office address as
shown on the Employers' records, will be binding on the Participant and his
Beneficiary for all purposes of the Plan. None of the Employers, the Committee
or the Trustees will be required to search for or locate a Participant or
Beneficiary.
SECTION 11
Voting and Other Shareholder Rights
Voting and other shareholder rights with respect to shares of Company Stock
shall be exercised by the Trustees in accordance with the provisions of Article
III of the Trust.
SECTION 12
Rights and Restrictions With Respect To Company Stock
12.1 Put Option. Each recipient of shares of Company Stock distributed from
the Trust shall have the option to put the shares to the Company if they are not
readily tradable on an established market (within the meaning of section
409(h)(1)(B) of the Code), subject to the following:
(a) Such put option may be exercised during the 60-day period immediately
following the date of distribution of such shares from the Trust and,
if the put option is not exercised within such period, the put option
will temporarily lapse. The put option may again be exercised during a
second 60-day period in the following Plan Year, as provided in
regulations promulgated by the Secretary of the Treasury of the United
States; provided, however, that in the absence of such regulations,
such period shall be determined by the Committee and
- 23 -
communicated in advance to the persons entitled to exercise the put
option. If for any reason the exercise price cannot be ascertained, or
such determination is delayed, the second put option period shall not
terminate until 60 days after the date on which the price for the
shares can be ascertained and communicated to the persons entitled to
exercise the put option. The period during which a put option may be
exercised shall be extended by the amount of time during which the
Company is unable to honor the put by reason of applicable Federal or
state law. If not exercised, the put option shall permanently
terminate at the end of the second 60-day period.
(b) A put option shall be exercisable by giving written notice to the
Company of the election to exercise. The Company may permit the
Trustees, acting on behalf of the Plan, to purchase any shares of
Company Stock tendered to the Company under the put option.
(c) The price at which a put option is exercisable with respect to any
shares of Company Stock shall be the Fair Market Value of each share
of Company Stock determined as of the Valuation Date (as defined in
Subsection 6.5) immediately preceding the first day of the 60-day
period during which the put option may be exercised (provided, that if
an option period is left open beyond a succeeding Valuation Date
because of a delay in the determination of the exercise price, as
provided in Section 12.1(a), such shares shall be valued as of the
preceding Valuation Date), multiplied by the number of shares to be
sold under the put option, with appropriate adjustments to reflect
intervening stock dividends, stock splits, stock redemptions, or
similar changes to the number of outstanding shares.
(d) Payment of the purchase price shall commence no later than 30 days
after the date on which the put option is exercised and shall be paid
in a lump sum; provided, however, that, in the case of a total
distribution of a Participant's interest under the Plan, in the
discretion of the Company or of the Trustees, as the case may be,
payment may be made in substantially equal annual or more frequent
installments over a period not exceeding 5 years. If payment is made
in installments, such payment shall be adequately secured and shall
bear interest at the prime rate of interest in effect at the First
National Bank of Chicago on the date the put option is exercised.
(e) The put option shall not be assignable by any recipient other than to
the recipient's donees or to
- 24 -
a person to whom the Company Stock passes by reason of the death of
the recipient.
(f) Payment under the put option must not be restricted by the terms of
any loan or other arrangement, including the terms of the Company's
articles of incorporation, unless so required by applicable state law.
If it is known at the time an ESOP Loan is made that Federal or state
law will be violated by the Company honoring a put option with respect
to the shares of Company Stock acquired with the proceeds of such
loan, the put option shall permit the shares to be put to a third
party that has substantial net worth at the time the loan is made and
whose net worth is reasonably expected to remain substantial.
(g) The Committee will notify each recipient of Company Stock who is
eligible to exercise a put option in accordance with this subsection
12.1 of the Fair Market Value of each share of Company Stock as soon
as practicable following its determination. The Committee will send
all notices required under this subsection to the last known address
of such recipient, and it will be the duty of those persons to inform
the Committee of any changes in address.
(h) The Trustees, acting on behalf of the Plan, may offer to purchase any
shares of Company Stock not sold pursuant to the foregoing put option
from any Participant or Beneficiary at any time in the future, at the
shares' then Fair Market Value.
The provisions of this subsection 12.1 shall continue to be applicable to
distributions of Company Stock even if the Plan ceases to be an employee stock
ownership plan under section 4975(e)(7) of the Code. As of the date of this
amendment and restatement, the Company Stock held by the Plan is readily
tradeable on an established market (within the meaning of section 409(h)(1)(B)
of the Code), and such Company Stock is not, therefore, subject to the put
option set forth in this Section 12.1.
12.2 Legends. The Company shall have the right to place a legend on
certificates representing shares of Company Stock which are distributed under
the Plan to reflect all restrictions to which the shares are subject under the
terms of the Plan and applicable state and federal law.
SECTION 13
The Committee
13.1 Membership. The "Committee" referred to in subsection 1.3 shall
consist of one or more members appointed
- 25 -
by the Board of Directors of the Company. The members of the Committee shall be
the "named fiduciaries" (as described in section 402 of ERISA) under the Plan.
In controlling and aging the operation and administration of the Plan, the
Committee shall act by the concurrence of a majority of its then members by
meeting or by writing without a meeting. The Committee may authorize any one of
its members to execute any document, instrument or direction on its behalf. A
written statement by a majority of the Committee members or by an authorized
Committee member shall be conclusive in favor of any person (including the
Trustees) acting in reliance thereon.
13.2 Rights, Powers and Duties. The Committee shall have such authority as
may be necessary to discharge its responsibilities under the Plan and Trust,
including the following discretionary authority, powers, rights and duties:
(a) to adopt such rules of procedure and regulations as, in its opinion,
may be necessary for the proper and efficient administration of the
Plan and as are consistent with the provisions of the Plan;
(b) to enforce the Plan in accordance with its terms and with such rules
and regulations as may be adopted by the Committee;
(c) to determine conclusively all questions arising under the Plan,
including questions relating to the eligibility, benefits and other
Plan rights of Participants and other persons entitled to benefits
under the Plan and to remedy any ambiguities, inconsistencies or
omissions of whatever kind;
(d) to maintain and keep adequate records concerning the Plan and
concerning its proceedings and acts in such form and detail as the
Committee may decide;
(e) to direct all payments of benefits under the Plan;
(f) to furnish the Employers with such information with respect to the
Plan as may be required by them for tax or other purposes;
(g) to employ agents, attorneys, accountants or other persons (who also
may be employed by or represent the Employers or the Trustees) for
such purposes as the Committee considers necessary or desirable to
discharge its duties;
(h) to delegate to employees of the Employers and the agents or counsel
employed by the Committee such powers as the Committee considers
desirable; and
(i) to establish a claims procedure in accordance with section 503 of
ERISA.
- 26 -
13.3 Application of Rules. In operating and administering the Plan, the
Committee shall uniformly apply all rules of procedure and regulations adopted
by it to persons similarly situated.
13.4 Remuneration and Expenses. No remuneration shall be paid to any
Committee member as such. However, the reasonable expenses (including the fees
and expenses of persons employed by it in accordance with paragraph 13.2(g)) of
a Committee member incurred in the performance of a Committee function shall be
reimbursed by the Company.
13.5 Indemnification of the Committee. To the maximum extent permitted by
law, the Committee and the individual members thereof and any employees to whom
the Committee has delegated responsibility in accordance with paragraph 13.2(h)
shall be indemnified by the Employers against any and all liabilities, losses,
costs and expenses (including legal fees and expenses) of whatsoever kind and
nature which may be imposed on, incurred by or asserted against the Committee,
its members or such employees by reason of the performance of a Committee
function if the Committee, such members or employees did not act dishonestly or
in willful violation of the law or regulation under which such liability, loss,
cost or expense arises.
13.6 Exercise of Committee's Duties. Notwithstanding any other provisions
of the Plan, the Committee shall discharge its duties hereunder solely in the
interests of the Participants in the Plan and other persons entitled to benefits
thereunder, and:
(a) for the exclusive purpose of providing benefits to Participants and
other persons entitled to benefits thereunder; and
(b) with the care, skill, prudence and diligence under the circumstances
then prevailing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise
of a like character and with like aims.
13.7 Information to be Furnished to Committee. The Employers and Related
Companies shall furnish the Committee such data and information as may be
required for it to discharge its duties. The records of the Employers and
Related Companies as to an employee's or Participant's period of employment,
termination of employment and the reasons therefor, leave of absence,
reemployment and Compensation will be conclusive on all persons unless
determined to be incorrect. Participants and other persons entitled to benefits
under the Plan must furnish to the Committee such evidence, data or information
as it considers desirable to carry out the Plan.
13.8 Resignation or Removal of Committee Member. A Committee member may
resign at any time by giving fifteen days' advance written notice to the
Company, the Trustees and
- 27 -
the other Committee members. The Board of Directors of the Company may remove a
Committee member by giving written notice to him, the Trustees and the other
Committee members.
13.9 Appointment of Successor Committee Members. The Company's Board of
Directors may appoint additional Committee members and may fill any vacancy in
the membership of the Committee and shall give prompt written notice thereof to
the other Committee members, the other Employers and the Trustees. While there
is a vacancy in the membership of the Committee, the remaining Committee members
shall have the same powers as the full Committee until the vacancy is filled.
SECTION 14
Amendment and Termination
14.1 Amendment. While the Company expects to continue the Plan, it must
necessarily reserve and reserves the right, subject to the provisions of Article
V of the Trust Agreement, to amend the Plan from time to time, except that no
amendment will reduce a Participant's interest in the Plan to less than an
amount equal to the amount he would have been entitled to receive if he had
resigned from the employ of the Employers and the Related Companies on the day
of the amendment and no amendment will eliminate an optional form of benefit
with respect to a Participant or Beneficiary except as otherwise permitted by
law.
14.2 Termination. The Plan will terminate as to all of the Employers on any
day specified by the Company if advance written notice of the termination is
given to the other Employers. Employees of any Employer shall cease active
participation in the Plan and will be treated as Inactive Participants in
accordance with subsection 2.5 on the first to occur of the following:
(a) the date on which that Employer, by appropriate action communicated in
writing to the Company, ceases to be a contributing sponsor of the
Plan;
(b) the date that Employer is judicially declared bankrupt or insolvent;
or
(c) the dissolution, merger, consolidation or reorganization of that
Employer, or the sale by that Employer of all or substantially all of
its assets, except that, subject to the provisions of subsection 14.3,
with the consent of the Company, in any such event arrangements may be
made whereby the Plan will be continued by any successor to that
Employer or any purchaser of all or substantially all of that
Employer's assets, in which case the successor or purchaser will be
substituted for the Employer under the Plan.
- 28 -
14.3 Merger and Consolidation of the Plan, Transfer of Plan Assets. The
Committee in its discretion may direct the Trustees to transfer all or a portion
of the assets of this Plan to another defined contribution plan of the Employers
or Related Companies which is qualified under section 401(a) of the Code or, in
the event of the sale of stock of an Employer or all or a portion of the assets
of an Employer, to a qualified plan of an employer which is not a Related
Company. In the case of any merger or consolidation with, or transfer of assets
and liabilities to, any other plan, provisions shall be made so that each
affected Participant in the Plan on the date thereof (if the Plan, as applied to
the Participant, then terminated) would 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 prior to the merger,
consolidation or transfer if the Plan, as applied to him, had then terminated.
14.4 Distribution on Termination and Partial Termination. Upon termination
or partial termination of the Plan, all benefits under the Plan shall continue
to be paid in accordance with the provisions of Section 10 as such section may
be amended from time to time.
14.5 Notice of Amendment, Termination or Partial Termination. Affected
Participants will be notified of an amendment, termination or partial
termination of the Plan as required by law.
IN WITNESS WHEREOF, the Company has executed this Plan as of the day and
year first above written.
MARKS BROS. JEWELERS, INC.
By:__________________________
Title:______________________________
- 29 -
APPENDIX A
Defined Terms
7.1 - Account
7.4 - Allocation Fraction
8.5 - Annual Additions
10.5 - Beneficiary
1.1 - Code
13.1 - Committee
1.1 - Company
1.1 - Company Stock
7.6 - Compensation
1.1 - Effective Date
7.4 - Eligible Participant
1.2 - Employer
5.1 - Employer Contribution
1.3 - ERISA
6.3 - Fair Market Value
10.6 - Forfeiture
8.7 - Highly Compensated Employee
3.2 - Hour of Service
2.5 - Inactive Participant
8.2 - Nonallocation Period
9.3 - Normal Retirement Age
3.3 - One-Year Break in Service
1.1 - Plan
1.4 - Plan Year
10.9 - Qualified Election Period
1.2 - Related Company
10.4 - Required Beginning Date
8.1 - Restricted Participant
8.1 - Restricted Shares
8.4 - Section 415 Affiliate
8.4 - Section 415 Compensation
8.6 - Section 415 Suspense Account
9.3 - Termination Date
1.3 - Trust
1.3 - Trust Agreement
1.3 - Trustees
6.3 - Valuation Date
3.1 - Year of Service
- 30 -
SUPPLEMENT A
TO MARKS BROS. JEWELERS, INC.
EMPLOYEE STOCK OWNERSHIP PLAN
(Top-Heavy Provisions)
Application A-1. This Supplement A to Marks Bros. Jewelers, Inc.
Employee Stock Ownership Plan (the "Plan") shall be
applicable on and after the date on which the Plan becomes
Top- Heavy (as described in subsection A-5).
Effective Date A-2. The Effective Date of this Supplement A is February 1,
1988.
Definitions A-3. Unless the context clearly implies or indicates the
contrary, a word, term or phrase used or defined in the Plan
is similarly used or defined for purposes of this Supplement
A.
Affected A-4. For purposes of this Supplement A, the term
Participant "Affected Participant" means each Participant who is
employed by an Employer or a Related Company during any Plan
Year for which the Plan is Top-Heavy; provided, however,
that the term "Affected Participant" shall not include any
Participant who is covered by a collective bargaining
agreement if retirement benefits were the subject of good
faith bargaining between his Employer and his collective
bargaining representative.
Top-Heavy A-5. The Plan shall be "Top-Heavy" for any Plan Year if, as
of the Determination Date for that year (as described in
paragraph (a) next below), the present value of the benefits
attributable to Key Employees (as defined in subsection A-6)
under all Aggregation Plans (as defined in subsection A-9)
exceeds 60% of the present value of all benefits under such
plans. The foregoing determination shall be made in
accordance with the provisions of section 416 of the
A-1
Code. Subject to the preceding sentence:
(a) The Determination Date with respect to any plan for
purposes of determining Top-Heavy status for any plan
year of that plan shall be the last day of the
preceding plan year or, in the case of the first plan
year of that plan, the last day of that year. The
present value of benefits as of any Determination Date
shall be determined as of the accounting date or
valuation date coincident with or next preceding the
Determination Date. If the plan years of all
Aggregation Plans do not coincide, the Top-Heavy status
of the Plan on any Determination Date shall be
determined by aggregating the present value of Plan
benefits on that date with the present value of the
benefits under each other Aggregation Plan determined
as of the Determination Date of such other Aggregation
Plan which occurs in the same calendar year as the
Plan's Determination Date.
(b) Benefits under any plan as of any Determination Date
shall include the amount of any distributions from that
plan made during the plan year which includes the
Determination Date or during any of the preceding four
plan years, but shall not include any amounts
attributable to employee contributions which are
deductible under section 219 of the Code, any amounts
attributable to employee-initiated rollovers or
transfers made after December 31, 1983 from a plan
maintained by an unrelated employer, or, in the case of
a defined contribution plan, any amounts attributable
to contributions made after the Determination Date
unless such contributions are required by section 412
of the Code or are made for the plan's first plan year.
(c) Benefits attributable to a participant shall include
benefits paid or payable to a beneficiary of the
participant, but shall not include benefits paid or
payable to any participant who has not performed
A-2
services for an Employer or Related Company during any
of the five plan years ending on the applicable
Determination Date; provided however, that if a
participant performs no services for five years and
then performs services, the benefits attributable to
such participant shall be included.
(d) The accrued benefit of any participant who is a Non-Key
Employee with respect to a plan but who was a Key
Employee with respect to such plan for any prior plan
year shall not be taken into account.
(e) The accrued benefit of a Non-Key Employee shall be
determined under the method which is used for accrual
purposes for all plans of the Employer and Related
Companies; or, if there is not such method, as if the
benefit accrued not more rapidly than the slowest
accrual rate permitted under section 411(b)(1)(C) of
the Code.
(f) The present value of benefits under all defined benefit
plans shall be determined on the basis of a 6% per
annum interest factor and the 1984 Unisex Pension
Mortality Table, with a one-year setback.
Key Employee A-6. The term "Key Employee" means an employee or deceased
employee (or beneficiary of such deceased employee) who is a
Key Employee within the meaning ascribed to that term by
section 416(i) of the Code. Subject to the preceding
sentence, the term Key Employee includes any participant in
such plan (or beneficiary of such a participant) who at any
time during the plan year which includes the Determination
Date or during any of the four preceding plan years was:
(a) an officer of any Employer or Related Company with
Section 415 Compensation for that year in excess of 50
percent of the amount in effect under section Related
Company
A-3
during any of the five plan years ending on the
applicable Determination Date; provided however, that
if a participant performs no services for five years
and then performs services, the benefits attributable
to such participant shall be included.
(d) The accrued benefit of any participant who is a Non-Key
Employee with respect to a plan but who was a Key
Employee with respect to such plan for any prior plan
year shall not be taken into account.
(e) The accrued benefit of a Non-Key Employee shall be
determined under the method which is used for accrual
purposes for all plans of the Employer and Related
Companies; or, if there is not such method, as if the
benefit accrued not more rapidly than the slowest
accrual rate permitted under section 411(b)(1)(C) of
the Code.
(f) The present value of benefits under all defined benefit
plans shall be determined on the basis of a 6% per
annum interest factor and the 1984 Unisex Pension
Mortality Table, with a one-year setback.
Key Employee A-6. The term "Key Employee" means an employee or deceased
employee (or beneficiary of such deceased employee) who is a
Key Employee within the meaning ascribed to that term by
section 416(i) of the Code. Subject to the preceding
sentence, the term Key Employee includes any participant in
such plan (or beneficiary of such a participant) who at any
time during the plan year which includes the Determination
Date or during any of the four preceding plan years was:
(a) an officer of any Employer or Related Company with
Section 415 Compensation for that year in excess of 50
percent of the amount in effect under section
415(b)(1)(A) of the Code for the calendar year in which
that year
A-4
ends; provided, however, that the maximum number of
employees who shall be considered Key Employees under
this paragraph (a) shall be the lesser of 50 or 10% of
the total number of employees of the Employers and the
Related Companies disregarding excludable employees
under Code section 414(q)(8);
(b) one of the 10 employees owning the largest interests in
any Employer or any Related Company (disregarding any
ownership interest which is less than 1/2 of one
percent), excluding any employee for any plan year
whose Compensation for that year did not exceed the
applicable amount in effect under section 415(c)(1)(A)
of the Code for the calendar year in which that year
ends;
(c) a 5% owner of any Employer or of any Related Company or
(d) a 1% owner of any Employer or any Related Company
having Compensation in excess of $150,000.
Compensation A.7. The term "Compensation" for purposes of this Supplement
A generally means compensation within the meaning of section
415(c)(3) of the Code for that year, not exceeding $200,000
or such larger amount as may be permitted for any year under
Code section 401(a)(17). However, for Plan Years beginning
on or after January 1, 1989, solely for purposes of
determining who is a Key Employee, the term "Compensation"
means compensation as defined in Code section 414(q)(7).
Non-Key Employee A-8. The term "Non-Key Employee" means any employee (or
beneficiary of a deceased employee) who is not a Key
Employee.
Aggregation Plan A-9. The term "Aggregation Plan" means Plan the Plan and
each other retirement plan (including any terminated plan)
maintained by an Employer or Related Company which qualified
under section 401(a) of the Code and which:
(a) during the plan year which includes the
A-5
applicable Determination Date, or during any of the
preceding four plan years, includes a Key Employee as a
participant;
(b) during the plan year which includes the applicable
Determination Date or, during any of the preceding four
plan years, enables the Plan or any plan in which a Key
Employee participates to meet the requirements of
sections 401(a)(4) or 410 of the Code; or
(c) at the election of the Employer, would meet the
requirements of sections 401(a)(4) and 410 if it were
considered together with he Plan and all other plans
described in paragraphs (a) and (b) next above.
Required A-10. The term "Required Aggregation Plan" means a plan
Aggregation described in either paragraph (a) or (b) of subsection A-9.
Plan
Permissive A-11. The term "Permissive Aggregation Plan" means a plan
Aggregation described in paragraph (c) of subsection A-9.
Plan
Vesting A-12. For any Plan Year during which the Plan is Top-Heavy,
the Account balances of any Affected Participant who has
completed at least 3 Years of Service shall be 100% vested.
If the Plan ceases to be Top-Heavy for any Plan Year, the
provisions of this subsection A-8 shall continue to apply to
(i) the portion of an Affected Participant's Account balance
which was accrued and vested prior to such Plan Year
(adjusted for subsequent earnings and losses) and (ii) in
the case of an Affected Participant who had completed at
least 3 Years of Service, the portion of his Account and
balance which accrues thereafter.
Minimum A-13. For any Plan Year during which the Plan is
Contribution Top-Heavy, the minimum amount of Employer contributions and
Forfeitures allocated to the Accounts of each Affected
Participant who is employed by an Employer or Related
Company on the last day of that year (whether or not he has
completed 1,000 Hours of Service during that year),
A-6
who is not a Key Employee and who is not entitled to a
minimum benefit for that year under any defined benefit
Aggregation Plan which is Top-Heavy shall, when expressed as
a percentage of the Affected Participant's Compensation be
equal to the lesser of:
(a) 3%; or
(b) the percentage at which Employer contributions and
Forfeitures are allocated to the Accounts of the Key
Employee for whom such percentage (when expressed as a
percentage of Section 415 Compensation not in excess of
$200,000) is greatest.
For purposes of the preceding sentence, compensation earned
while a member of a group of employees to whom the Plan has
not been extended shall be disregarded. Paragraph (b) next
above shall not be applicable for any Plan Year if the Plan
enables a defined benefit plan described in paragraph A-9(a)
or A-9(b) to meet the requirements of sections 401(a)(4) or
410 for that year. Employer contributions for any Plan Year
during which the Plan is Top-Heavy shall be allocated first
to non-Key Employees until the requirements of this
subsection A-13 have been met and, to the extent necessary
to comply with the provisions of this subsection A-13,
additional contributions shall be required of the Employers.
Aggregate A-14. For any Plan Year during which the Plan is Top-Heavy,
Benefit Limit paragraph (2)(B) and (3)(B) of Section 415(e) of the Code
shall be applied by substituting "1.0" for "1.25."
A-7