UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________.
Commission File Number 1-5725
QUANEX CORPORATION
------------------
(Exact name of registrant as specified in its charter)
DELAWARE 38-1872178
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 WEST LOOP SOUTH, SUITE 1500, HOUSTON, TEXAS 77027
------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (713) 961-4600
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT JANUARY 31, 2001
- --------------------------------------- -------------------------------
Common Stock, par value $0.50 per share 13,418,102
QUANEX CORPORATION
INDEX
PAGE NO.
Part I. Financial Information:
Item 1: Financial Statements
Consolidated Balance Sheets - January 31, 2001 and
October 31, 2000..................................... 1
Consolidated Statements of Income - Three Months
Ended January 31, 2001 and 2000.................... 2
Consolidated Statements of Cash Flow - Three months
Ended January 31, 2001 and 2000 ..................... 3
Notes to Consolidated Financial Statements.............. 4 - 8
Item 2: Management's Discussion and Analysis of Results of
Operations and Financial Condition .................. 9 - 14
Item 3: Quantitative and Qualitative Disclosure about Market
Risk ................................................ 15
Part II. Other Information
Item 1: Legal Proceedings....................................... 16
Item 5: Other Information....................................... 16
Item 6: Exhibits and Reports on Form 8-K........................ 16 - 17
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUANEX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
January 31, October 31,
2001 2000
----------- -----------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and equivalents ..................................... $ 18,879 $ 22,409
Accounts and notes receivable, net ....................... 94,579 98,465
Inventories .............................................. 103,625 101,274
Deferred income taxes .................................... 12,657 12,771
Prepaid expenses ......................................... 2,553 1,027
----------- -----------
Total current assets ............................. 232,293 235,946
Property, plant and equipment .............................. 698,771 681,992
Less accumulated depreciation and amortization ............. (354,409) (343,744)
----------- -----------
Property, plant and equipment, net ......................... 344,362 338,248
Goodwill, net .............................................. 61,316 47,539
Other assets ............................................... 26,083 24,126
----------- -----------
$ 664,054 $ 645,859
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ......................................... $ 68,910 $ 77,339
Accrued expenses ......................................... 41,751 50,189
Income taxes payable ..................................... 5,552 3,218
Other current liabilities ................................ 688 --
Current maturities of long-term debt ..................... 427 256
----------- -----------
Total current liabilities ........................ 117,328 131,002
Long-term debt ............................................. 222,492 191,657
Deferred pension credits ................................... 6,601 7,026
Deferred postretirement welfare benefits ................... 7,708 7,634
Deferred income taxes ...................................... 26,232 27,620
Other liabilities .......................................... 17,369 14,423
----------- -----------
Total liabilities ................................ 397,730 379,362
Stockholders' equity:
Preferred stock, no par value ............................ -- --
Common stock, $.50 par value ............................. 7,065 7,110
Additional paid-in capital ............................... 109,113 111,061
Retained earnings ........................................ 167,651 165,841
Unearned compensation .................................... (467) (467)
Accumulated other comprehensive income ................... (2,801) (301)
----------- -----------
280,561 283,244
Less: Common stock held by rabbi trust .............. (1,856) (3,349)
Less: Cost of shares of common stock in treasury .... (12,381) (13,398)
----------- -----------
Total stockholders' equity ....................... 266,324 266,497
----------- -----------
$ 664,054 $ 645,859
=========== ===========
1
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended
January 31,
--------------------------
2001 2000
----------- -----------
(Unaudited)
Net sales .................................................. $ 193,825 $ 199,294
Cost and expenses:
Cost of sales ............................................ 162,667 165,643
Selling, general and administrative expense .............. 11,728 13,282
Depreciation and amortization ............................ 11,236 12,162
----------- -----------
Operating income ........................................... 8,194 8,207
Other income (expense):
Interest expense ......................................... (3,968) (3,330)
Capitalized interest ..................................... 314 544
Other, net ............................................... 1,130 1,002
----------- -----------
Income before income taxes and extraordinary gain .......... 5,670 6,423
Income tax expense ......................................... (1,985) (2,248)
----------- -----------
Income before extraordinary gain ........................... 3,685 4,175
Extraordinary gain - early extinguishment of debt
(net of taxes) .......................................... 372 --
----------- -----------
Net income ................................................. $ 4,057 $ 4,175
=========== ===========
Earnings per common share:
Basic:
Income before extraordinary gain ..................... $ 0.27 $ 0.29
Extraordinary gain ................................... 0.03 --
----------- -----------
Total basic net earnings .......................... $ 0.30 $ 0.29
=========== ===========
Diluted:
Income before extraordinary gain ..................... $ 0.27 $ 0.29
Extraordinary gain ................................... 0.03 --
----------- -----------
Total diluted net earnings ........................ $ 0.30 $ 0.29
=========== ===========
Weighted average shares outstanding:
Basic ................................................... 13,424 14,172
=========== ===========
Diluted ................................................. 13,562 14,360
=========== ===========
Common stock dividends per share ........................... $ 0.16 $ 0.16
2
QUANEX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
Three Months Ended
January 31,
--------------------------
2001 2000
----------- -----------
(Unaudited)
Operating activities:
Net income ........................................................................ $ 4,057 $ 4,175
Adjustments to reconcile net income
to cash provided by operating activities:
Extraordinary gain on early extinguishment of debt (net of taxes of $201) .... (372) --
Depreciation and amortization ................................................ 11,362 12,300
Noncash income from derivative instruments ................................... (1,064) --
Deferred income taxes ........................................................ (41) 30
Deferred pension and postretirement benefits ................................. (351) 273
Changes in assets and liabilities net of effects from acquisitions and
dispositions:
Decrease in accounts and notes receivable .................................... 7,210 811
Decrease (increase) in inventory ............................................. 292 (6,103)
Increase (decrease) in accounts payable ...................................... (10,490) 4,150
Decrease in accrued expenses ................................................. (9,819) (9,642)
Other, net (including income tax refund) ..................................... 154 8,107
----------- -----------
Cash provided by operating activities ................................... 938 14,101
Investment activities:
Acquisition of Golden Aluminum, net of cash acquired .............................. -- (6,406)
Acquisition of Temroc Metals, Inc., net of cash acquired .......................... (17,922) --
Capital expenditures, net of retirements .......................................... (11,974) (14,458)
Other, net ........................................................................ (1,590) (892)
----------- -----------
Cash used by investment activities ...................................... (31,486) (21,756)
----------- -----------
Cash used by operating and investment activities ........................ (30,548) (7,655)
Financing activities:
Bank borrowings, net .............................................................. 33,000 9,169
Purchase of subordinated debentures ............................................... (3,942) --
Purchase of Quanex common stock ................................................... (364) (3,785)
Common dividends paid ............................................................. (2,167) (2,296)
Issuance of common stock, net ..................................................... 800 620
Other, net ........................................................................ (309) (24)
----------- -----------
Cash provided by financing activities ................................... 27,018 3,684
Effect of exchange rate changes on cash and equivalents ............................. -- 52
----------- -----------
Decrease in cash and equivalents .................................................... (3,530) (3,919)
Cash and equivalents at beginning of period ......................................... 22,409 25,874
----------- -----------
Cash and equivalents at end of period ............................................... $ 18,879 $ 21,955
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest .......................................... $ 4,557 $ 4,390
Cash paid during the period for income taxes ...................................... $ 787 $ --
Cash received during the period for income tax refunds ............................ $ (210) $ (7,007)
Supplemental disclosures of non-cash investing activity:
The Company acquired the assets of Golden Aluminum in the first quarter
of fiscal 2000. In conjunction with the acquisition, the following
transaction took place:
Purchase price of Golden Aluminum ................................................. $ 21,462
Cash paid in first fiscal quarter ................................................. (8,000)
-----------
Payable balance for acquisition as of January 31, 2000 ............................ $ 13,462
Golden Aluminum cash acquired ..................................................... $ 1,594
3
QUANEX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ACCOUNTING POLICIES
The interim consolidated financial statements of Quanex Corporation and
subsidiaries ("Quanex" or the "Company") are unaudited, but include all
adjustments which the Company deems necessary for a fair presentation of its
financial position and results of operations. All such adjustments are of a
normal recurring nature. Results of operations for interim periods are not
necessarily indicative of results to be expected for the full year. All
significant accounting policies conform to those previously set forth in the
Company's fiscal 2000 Annual Report on Form 10-K which is incorporated by
reference. Certain amounts for prior periods have been reclassified in the
accompanying consolidated financial statements to conform to 2001
classifications.
2. INVENTORIES
Inventories consist of the following: January 31, October 31,
2001 2000
----------- -----------
(In thousands)
Raw materials .................................. $ 25,781 $ 26,473
Finished goods and work in process ............. 70,750 67,981
----------- -----------
96,531 94,454
Other .......................................... 7,094 6,820
----------- -----------
$ 103,625 $ 101,274
=========== ===========
The values of inventories in the consolidated balance sheets are based on the
following accounting methods:
LIFO .............................................. $ 72,888 $ 69,028
FIFO .............................................. 30,737 32,246
----------- -----------
$ 103,625 $ 101,274
=========== ===========
With respect to inventories valued using the LIFO method, replacement cost
exceeded the LIFO value by approximately $10 million at January 31, 2001 and
October 31, 2000, respectively.
3. ACQUISITIONS
On November 30, 2000, Quanex completed the purchase of all of the capital stock
of Temroc Metals, Inc., ("Temroc"), a Minnesota corporation, for approximately
$22 million in cash. Temroc, as a surviving corporation, became a wholly owned
subsidiary of the Company. Goodwill associated with Temroc is approximately $14
million, based on preliminary purchase accounting.
Temroc is a leading aluminum extrusion and fabrication company based in
Hamel, Minnesota where it manufactures customized aluminum extrusions and
fabricated metal products for recreational vehicles, architectural products,
electronics and other markets. Temroc has become part of the Company's
Engineered Products Group and will continue to operate as a manufacturer of
aluminum extrusions and fabricated metal products.
To finance the acquisition, the Company borrowed against its existing $250
million unsecured revolving credit and term loan facility with a group of six
banks.
4
4. EARNINGS PER SHARE
The computational components of basic and diluted earnings per share are as
follows (shares and dollars in thousands except per share amounts):
For the Three Months Ended For the Three Months Ended
January 31, 2001 January 31, 2000
------------------------------------ ------------------------------------
Per- Per-
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
BASIC EPS
Income before extra. gain .......................... $ 3,685 13,424 $ 0.27 $ 4,175 14,172 $ 0.29
Extra. Gain - early debt ext ....................... 372 0.03 -- --
----------- ------ ----------- ------
Total basic net earnings ......................... $ 4,057 $ 0.30 $ 4,175 $ 0.29
EFFECT OF DILUTIVE SECURITIES
Effect of common stock equiv. arising from
stock options ................................... -- 11 -- 62
Effect of common stock held by rabbi trust ........ -- 127 -- 126
Effect of conversion of
subordinated debentures (1) ...................... -- -- -- --
DILUTED EPS
Income before extra. gain .......................... $ 3,685 13,562 $ 0.27 $ 4,175 14,360 $ 0.29
Extra. Gain - early debt ext ....................... 372 0.03 -- --
----------- ------ ----------- ------
Total basic net earnings ......................... $ 4,057 $ 0.30 $ 4,175 $ 0.29
(1) Conversion of the Company's 6.88% convertible subordinated debentures into
common stock is anti-dilutive for the periods presented and therefore not
included in the calculation of diluted earnings per share.
5. COMPREHENSIVE INCOME ($ IN THOUSANDS)
Total comprehensive income for the three months ended January 31, 2001 and 2000
is $1,557 and $4,038, respectively. Included in comprehensive income is net
income, the change in the cumulative foreign currency translation adjustment
balance (for fiscal 2000 only), the change in the adjustment for minimum pension
liability balance and the effective portion of the gains and losses on
derivative instruments designated as cash flow hedges.
6. LONG-TERM DEBT
Long-term debt consists of the following:
January 31, October 31,
(In thousands) 2001 2000
----------- -----------
Bank Agreement Revolver ................................... $ 143,000 $ 110,000
Convertible subordinated debentures ....................... 58,727 63,337
Temroc Industrial Development Revenue Bonds ............... 2,742 --
Industrial Revenue and Economic Development Bonds ......... 3,275 3,275
State of Alabama Industrial Development Bonds ............. 4,500 4,755
Scott County, Iowa Industrial Waste Recycling Revenue Bonds 2,800 2,800
Other ..................................................... 7,875 7,746
----------- -----------
$ 222,919 $ 191,913
Less maturities due within one year included in current
liabilities ............................................. 427 256
----------- -----------
$ 222,492 $ 191,657
=========== ===========
The Temroc Industrial Development Revenue Bonds were obtained as part of the
acquisition of Temroc Metals, Inc. These bonds are due in annual installments
through October 2012. Interest is payable semi-annually at fixed rates from 4.5%
to 5.6% depending on maturity (average rate of 5.1% over the term of the bonds).
These bonds are secured by a mortgage on Temroc's land and building.
5
8. INDUSTRY SEGMENT INFORMATION
Engineered Aluminum Engineered Corporate
Three Months Ended Steel Mill Sheet Products Piper and
January 31, 2001 Bars Products(3) (4) (5) Impact Other (1) Consolidated
---------- ----------- ---------- -------- --------- ------------
(In thousands)
Net Sales:
To unaffiliated companies .... $ 70,063 $ 74,950 $ 25,963 $ 22,849 $ -- $ 193,825
Intersegment (2) ............. 1,535 3,866 -- -- (5,401) --
---------- ----------- ---------- -------- --------- ------------
Total .......................... $ 71,598 $ 78,816 $ 25,963 $ 22,849 $ (5,401) $ 193,825
========== =========== ========== ======== ========= ============
Operating income (loss) ........ $ 7,335 $ 280 $ 1,933 $ 1,144 $ (2,498) $ 8,194
========== =========== ========== ======== ========= ============
Engineered Aluminum Corporate
Three Months Ended Steel Mill Sheet Engineered Piper And
January 31, 2000 Bars Products Products Impact(6) Other(1) Consolidated
---------- ----------- ---------- -------- --------- ------------
(In thousands)
Net Sales:
To unaffiliated companies .... $ 78,315 $ 75,762 $ 18,418 $ 26,799 $ -- $ 199,294
Intersegment (2) ............. 1,427 3,958 -- -- (5,385) --
---------- ----------- ---------- -------- --------- ------------
Total .......................... $ 79,742 $ 79,720 $ 18,418 $ 26,799 $ (5,385) $ 199,294
========== =========== ========== ======== ========= ============
Operating income (loss) ........ $ 11,835 $ 2,203 $ 1,847 $ (3,473) $ (4,205) $ 8,207
========== =========== ========== ======== ========= ============
(1) Included in "Corporate and Other" are intersegment eliminations and
corporate expenses.
(2) Intersegment sales are conducted on an arm's length basis.
(3) Fiscal 2001 results include Nichols Aluminum - Golden operations acquired
January 25, 2000.
(4) Fiscal 2001 results include Imperial Fabricated Products operations acquired
April 3, 2000.
(5) Fiscal 2001 results include Temroc operations acquired November 30, 2000.
(6) Fiscal 2000 results include Piper Europe operations, which was disposed of
in July 2000.
9. STOCK REPURCHASE PROGRAM - TREASURY STOCK
In December 1999, Quanex announced that its board of directors approved a
program to repurchase up to 2 million shares of the Company's common stock in
the open market or in privately negotiated transactions. During the three months
ended January 31, 2001, the Company repurchased 20,000 shares at a cost of $364
thousand. These shares were not canceled, but instead were treated as treasury
stock of the Company.
The cumulative cost of shares acquired as treasury shares, net of shares
reissued, is $12.4 million as of January 31, 2001 and is reflected as a
reduction of stockholders' equity in the balance sheet.
10. EXTRAORDINARY ITEM
During the period ended January 31, 2001, the Company accepted unsolicited block
offers to buy back $4.6 million principal amount of the 6.88% Convertible
Subordinated Debentures for $3.9 million in cash. An after tax extraordinary
gain of $372 thousand was recorded on this transaction. The principal amount of
the convertible subordinated debentures outstanding as of January 31, 2001 was
$58,727,300.
6
11. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
Effective November 1, 2000, the Company adopted SFAS No. 133, which requires the
Company to measure all derivatives at fair value and to recognize them in the
balance sheet as an asset or liability, depending on the Company's rights or
obligations under the applicable derivative contract. If certain conditions are
met, a derivative may be specifically designated as (a) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and the resulting designation.
METAL EXCHANGE FORWARD CONTRACTS
The Company routinely enters into metal exchange forward contracts to hedge
price risk of forecasted aluminum raw material purchases. The Company's risk
management policy as it relates to metal exchange forward contracts is to enter
into such contracts to hedge its exposure to price fluctuations of aluminum raw
material purchases that relate to the Company's backlog of aluminum sales orders
with committed prices as well as a certain level of forecasted aluminum sales
for which a sales price increase would lag a raw material cost increase. The
Company has designated the metal exchange forward contracts as cash flow hedges
of forecasted aluminum raw material purchases.
On November 1, 2000, the Company recorded a derivative liability of $372
thousand representing the fair value of these contracts as of that date. A
corresponding amount, net of taxes of $145 thousand, was recorded to other
comprehensive income.
As of January 31, 2001, open forward contracts have maturity dates
extending through October 2003. At January 31, 2001 these contracts covered
notional volumes of 23,699,669 pounds and had fair values of approximately $800
thousand (gain), which is recorded as a derivative asset in the financial
statements.
Gains and losses related to the forward contracts that are reported in
other comprehensive income will be reclassified into earnings in the periods in
which the related inventory is sold. As of January 31, 2001, losses of
approximately $274 thousand ($167 thousand net of taxes) are expected to be
reclassified from other comprehensive income into earnings over the next twelve
months. Gains and losses on these contracts, including amounts recorded related
to hedge ineffectiveness, are reflected in "Cost of Sales" in the income
statement. A net gain of $1.3 million was recognized in "Cost of sales" during
the period ending January 31, 2001 representing the amount of the hedges'
ineffectiveness.
INTEREST SWAP AGREEMENT
In fiscal 1996, the Company entered into interest rate swap agreements,
which effectively converted $100 million of its variable rate debt under the
Bank Agreement to fixed rate. The Company's risk management policy related to
these swap agreements is to hedge the exposure to interest rate movements on a
portion of its long-term debt. Under the swap agreements, payments are made
based on a fixed rate ($50 million at 7.025% and $50 million at 6.755%) and
received on a LIBOR based variable rate (5.60% at January 31, 2001).
Differentials to be paid or received under the agreements are recognized as
interest expense. The agreements mature in 2003. The Company has designated the
interest rate swap agreements as cash flow hedges of future interest payments on
its variable rate long-term debt.
On November 1, 2000, the Company recorded a derivative liability of $918
thousand, representing the fair value of the swaps as of that date. A
corresponding amount, net of income taxes of $358 thousand, was recorded to
other comprehensive income.
7
The fair value of the swaps as of January 31, 2001 was a loss of $4.0
million, which is recorded as a derivative liability. Gains and losses related
to the swap agreements will be reclassified into earnings in the periods in
which the related hedged interest payments are made. As of January 31, 2001,
losses of approximately $1.6 million ($971 thousand net of taxes) are expected
to be reclassified into earnings over the next twelve months. Gains and losses
on these agreements, including amounts recorded related to hedge
ineffectiveness, will be reflected in "other income and expense" in the income
statement. A net loss of $193 thousand was recorded in other income and expense
in the period ending January 31, 2001 representing the amount of the hedge's
ineffectiveness.
8
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
GENERAL
The discussion and analysis of Quanex Corporation and its subsidiaries' (the
"Company"'s) financial condition and results of operations should be read in
conjunction with the January 31, 2001 and October 31, 2000 Consolidated
Financial Statements of the Company and the accompanying notes.
PRIVATE SECURITIES LITIGATION REFORM ACT
Certain forward-looking information contained herein is being provided in
accordance with the provisions of the Private Securities Litigation Reform Act.
Such information is subject to certain assumptions and beliefs based on current
information known to the Company and is subject to factors that could produce
actual results materially different from those anticipated in the
forward-looking statements contained in this report. Such factors include
domestic and international economic activity, prevailing prices of steel and
aluminum scrap and other raw material costs, energy costs, interest rates,
construction delays, market conditions for the Company's customers, any material
changes in purchases by the Company's principal customers, environmental
regulations changes in estimates of costs for known environmental remediation
projects and situations, world-wide political stability and economic growth, the
Company's successful implementation of its internal operating plans, performance
issues with key customers, suppliers and subcontractors, and regulatory changes
and legal proceedings. Accordingly, there can be no assurance that the
forward-looking statements contained herein will occur or that objectives will
be achieved.
RESULTS OF OPERATIONS
OVERVIEW
Summary Information as % of Sales: (Dollars in millions)
THREE MONTHS ENDED JANUARY 31,
2001 2000
---------------- ----------------
Dollar % of Dollar % of
Amount Sales Amount Sales
------ ------ ------ ------
Net Sales ............................ $193.8 100% $199.3 100%
Cost of Sales ...................... 162.7 84 165.6 83
Sell., gen. and admin .............. 11.7 6 13.3 7
Deprec. and amort .................. 11.2 6 12.2 6
------ ------ ------ ------
Operating Income ..................... 8.2 4% 8.2 4%
Interest Expense ..................... (3.9) (2) (3.3) (1)
Capitalized Interest ................. .3 0 .5 0
Other, net ........................... 1.1 1 1.0 0
Income tax expense ................... (2.0) (1) (2.2) (1)
------ ------ ------ ------
Income from continuing operations .... $ 3.7 2% $ 4.2 2%
====== ======
During the period ended January 31, 2001, the Company experienced slower demand
for automotive, building and construction products. The first quarter of the
fiscal year is historically the Company's slowest due to the seasonal nature of
our markets, holiday shutdowns and fewer production days. This year's first
quarter was made more difficult due to the slow economy, particularly in the
manufacturing area, and a harsher winter than has been experienced in the last
few years. When compared to business activity this time last year, demand now is
certainly weaker across all product lines.
9
BUSINESS SEGMENTS
The following table sets forth selected operating data for the Company's
four business segments:
Three Months Ended
January 31,
------------------------
2001 2000
---------- ----------
(In thousands)
ENGINEERED STEEL BARS:
Net sales ....................................... $ 71,598 $ 79,742
Operating income ................................ 7,335 11,835
Deprec. and amort ............................... 5,235 4,926
Identifiable assets ............................. $ 263,335 $ 250,439
ALUMINUM MILL SHEET PRODUCTS:(1)
Net sales ....................................... $ 78,816 $ 79,720
Operating income ................................ 280 2,203
Deprec. and amort ............................... 3,589 3,341
Identifiable assets ............................. $ 229,331 $ 230,421
ENGINEERED PRODUCTS: (2) (3)
Net sales ....................................... $ 25,963 $ 18,418
Operating income ................................ 1,933 1,847
Deprec. and amort ............................... 1,222 773
Identifiable assets ............................. $ 88,600 $ 45,374
PIPER IMPACT: (4)
Net sales ....................................... $ 22,849 $ 26,799
Operating income (loss) ......................... 1,144 (3,473)
Deprec. and amort ............................... 1,050 3,071
Identifiable assets ............................. $ 52,420 $ 160,250
(1) Fiscal 2001 results include Nichols Aluminum - Golden operations acquired
January 25, 2000.
(2) Fiscal 2001 results include Imperial Fabricated Products operations
acquired April 3, 2000.
(3) Fiscal 2001 results include Temroc's operations acquired November 30, 2000.
(4) Fiscal 2000 results include Piper Europe operations which was disposed of
in July, 2000.
FISCAL QUARTER ENDED JANUARY 31, 2001 VS. 2000
NET SALES - Consolidated net sales for the three months ended January 31, 2001
were $193.8 million, representing a decrease of $5.5 million, or 3%, when
compared to consolidated net sales for the same period in 2000. All operating
segments, with the exception of the engineered products group, experienced
decreased net sales.
Net sales from the Company's engineered steel bar business for the three
months ended January 31, 2001, were $71.6 million representing a decrease of
$8.1 million, or 10%, when compared to the same period last year. This decrease
was principally due to lower sales volume resulting from weaker markets in the
transportation and capital goods industry. The business continued to experience
pricing pressures; however the overall average sales price showed some
improvement due to the increased volume of MACPLUS, a value added product, as
compared to the same period during the prior year.
Net sales from the Company's aluminum mill sheet products business for the
three months ended January 31, 2001, were $78.8 million, representing a decrease
of $0.9 million, or 1%, when compared to the same period last year. The quarter
ending January 31, 2001, included the results of Nichols Aluminum Golden which
was acquired January 25, 2000. The decrease in net sales was
10
largely due to lower sales volume. The decline in sales volume was a result of
more severe winter weather than was experienced in the prior year, as well as a
general economic slowdown which negatively affected the building and
construction markets.
Net sales from the Company's engineered products business for the three
months ended January 31, 2001, were $26.0 million, representing an increase of
$7.5 million, or 41%, when compared to the same period last year. The increase
was largely due to the contributions from Imperial Fabricated Products
("Imperial"), which was acquired in April 2000, and Temroc Metals, Inc.
("Temroc"), acquired November 30, 2000. Additionally, the group's net sales
benefited from the capital expansion project at AMSCO which was completed in
November 2000.
Net sales from the Company's Piper Impact business for the three months
ended January 31, 2001, were $22.8 million, representing a decrease of $4.0
million, or 15%, when compared to the same period last year. Net sales for the
period ending January 31, 2000 included sales from Piper Impact Europe which was
sold in July of 2000. Comparable net sales of Piper's operations excluding Piper
Europe improved 13% over the prior year as a result of increased sales volumes
of aluminum airbags as well as obtaining new business for recreational products.
OPERATING INCOME - Consolidated operating income for the three months ended
January 31, 2001 remained flat at $8.2 million when compared to the same period
last year. The lower operating income results at the Company's engineered steel
bar and aluminum mill sheet businesses were offset by improved operating results
at the engineered products and Piper Impact businesses as well as lower expenses
at corporate and other.
Operating income from the Company's engineered steel bar business for the
three months ended January 31, 2001, was $7.3 million, representing a decrease
of $4.5 million, or 38%, when compared to the same period last year. This
decrease was due largely to lower net sales resulting from the slowing demand in
the transportation and capital goods markets. The lower scrap prices helped
offset some of the impact of reduced volume. The business also experienced
increased utility costs as energy prices rose and higher outside processing
costs with the increased MACPLUS volume.
Operating income from the Company's aluminum mill sheet products business
for the three months ended January 31, 2001, was $0.3 million, representing a
decrease of $1.9 million, or 87%, when compared to the same period last year.
The decline resulted from lower sales volumes and higher energy costs.
Operating income from the Company's engineered products business for the
three months ended January 31, 2001, was $1.9 million, compared to $1.8 million
in the same period last year. The operating results of Imperial, acquired in
April of 2000 and Temroc, acquired November 30, 2000, contributed partly to the
improved operating income for the period ending January 31, 2001.
Operating income from the Company's Piper Impact business for the three
months ended January 31, 2001 was $1.1 million, compared to operating losses of
$3.5 million for the same prior year period. The prior year's results included
the operating loss of Piper Impact Europe which was sold in July of 2000.
Comparative operating income excluding Piper Europe improved 145% from the prior
year's results. This improvement is a result of increased volume and net sales
as well as lower costs resulting from the cellular manufacturing and cost
cutting efforts. Additionally, depreciation expense declined with the reduced
asset base, which resulted from the asset impairment charge recorded in the
fourth quarter of fiscal 2000.
In addition to the four operating segments mentioned above, operating
expenses for corporate and other, for the three months ended January 31, 2001,
11
were $2.5 million, compared to $4.2 million, for the same period last year.
Included in corporate and other are the corporate office expenses, impact of
LIFO valuation method of inventory accounting and intersegment eliminations as
well as an intercompany gain from derivative instruments. (See Note 2 to the
financial statements regarding LIFO valuation method of inventory accounting.)
Effective November 1, 2000, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities", which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. (See Note 11 to the financial
statements.) The impact of this statement on operating income in the period
ended January 31, 2001 was a gain of $1.3 million. An additional expense of $0.2
million was recorded in other income and expense.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES decreased by $1.6 million, or
12%, for the three months ended January 31, 2001, as compared to the same period
of last year. The decline largely resulted from the sale of Piper Impact Europe,
as well as cost cutting measures at the remaining Piper Impact facilities.
Corporate office expenses were also down compared to the prior year. These lower
costs were partially offset by the expenses at the newly acquired Imperial and
Temroc operations.
DEPRECIATION AND AMORTIZATION decreased by $0.9 million, or 8%, for the
three months ended January 31, 2001, as compared to the same period of last
year. The engineered steel bar, aluminum mill sheet products and engineered
products business all had increased depreciation due to recently completed
capital projects as well as the acquisitions of Nichols Aluminum Golden,
Imperial and Temroc. This increase was more than offset, however, by the
decreased depreciation at Piper Impact which resulted from the sale of Piper
Impact Europe as well as the asset impairment charge taken in the fourth quarter
of the prior fiscal year.
INTEREST EXPENSE increased by $638 thousand or 19% for the three months
ended January 31, 2001, as compared to the same fiscal period of 2000. The
increase was primarily due to the additional borrowings made during the period
to finance the acquisition of Temroc as well as the purchase of company stock
and subordinated debentures. (See Notes 3, 9 and 10 to the financial
statements.)
CAPITALIZED INTEREST decreased by $230 thousand for the three months ended
January 31, 2001, as compared to the same periods of 2000 due to the completion
of the Phase V expansion project at MACSTEEL(R) in December 2000.
OTHER, NET increased $128 thousand for the three months ended January 31,
2001, as compared to the same periods of 2000 primarily as a result of increased
investment income. This increase was partially offset by a charge recorded for
the interest rate swaps as a result of adopting SFAS No. 133. (See Note 11 for
further explanation.)
NET INCOME was $4.1 million for the three months ended January 31, 2001,
compared to $4.2 million for the same periods of 2000. In addition to the items
mentioned above, the three month period ended January 31, 2001 included an
extraordinary gain of $372 thousand on the purchase of subordinated debentures.
OUTLOOK
The Company's first quarter is historically its least profitable quarter of each
fiscal year due to the seasonal nature of its markets, holiday shutdowns and
fewer production days. However, the slow economy, particularly in the
manufacturing area, and a harsher winter than those experienced during the last
few years made the first quarter of fiscal 2001 more difficult. The Company
continues to experience slower demand in the automotive, capital goods, building
and construction markets. When compared with the business
12
activity this time last year, the Company's primary markets are expected to be
down significantly during the second quarter. Hence, the Company's operating
results for the second quarter of fiscal 2001 are expected to be well below
those reported for the same period last year.
While Piper Impact showed a significant improvement for the period ended
January 31, 2001 as compared to the same prior year period in volume, net sales
and costs, the aluminum air bag component business is expected to continue to
decline. Piper is developing new products that it hopes will replace this
business; however, the results are slow. In light of this expected decline, an
asset impairment charge was taken in the fourth quarter of fiscal 2000. The
Company is continuing to evaluate other strategic alternatives for this
business, including its possible sale.
Although, the Company is optimistic about the business returning to more
normal levels as the year progresses, the domestic and global market factors and
the slowing economy would affect demand and pricing for many of its products.
Continuing global pricing pressures in the Engineered Steel Bar business and the
impact of falling consumer confidence level on automotive, building and
construction markets will offer significant challenges to our operations in
maintaining sales levels and gross margins for the balance of the fiscal year
2001. Achieving earnings levels similar to those reported for the second half of
fiscal 2000 will depend on, among other things, whether the strength of the
economy improves together with the markets which the Company serves, successful
new product developments at Piper Impact and the Engineered Products businesses,
and whether the fiscal 2000 margin levels at the Aluminum Mill Sheet Products
business can be sustained.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are cash on hand, cash flow from
operations, and borrowings under its $250 million unsecured Revolving Credit and
Term Loan Agreement ("Bank Agreement"). At January 31, 2001, the Company had
$143 million borrowed under the Bank Agreement. This represents a $33 million
increase over October 31, 2000 borrowing levels. The borrowings were primarily
used to finance the acquisition of Temroc (see Note 3 to the financial
statements) and to repurchase $4.6 million principal amount of the Company's
subordinated debentures. There have been no significant changes to the terms of
the Company's debt structure during the three month period ended January 31,
2001. (See Note 6 to the financial statements for detail regarding the
outstanding borrowings under the Company's various facilities)
At January 31, 2001, the Company had commitments of approximately $29
million for the purchase or construction of capital assets. The Company plans to
fund these capital expenditures through cash flow from operations and, if
necessary, additional borrowings.
During the first three months of fiscal 2001, the Company accepted
unsolicited block offers to buy back $4.6 million principal amount of the 6.88%
Convertible Subordinated Debentures for $3.9 million in cash.
The Company believes that it has sufficient funds and adequate financial
sources available to meet its anticipated liquidity needs. The Company also
believes that cash flow from operations, cash balances and available borrowings
will be sufficient for the foreseeable future to finance anticipated working
capital requirements, capital expenditures, debt service requirements,
environmental expenditures and common stock dividends.
OPERATING ACTIVITIES
Cash provided by operating activities during the three months ended January
31, 2001 decreased by $13.2 million compared to the same three month period of
2000. The decrease was a result of the following items:
1) The period ended January 31, 2000 included a $7.0 million tax refund
resulting from overpayment of estimated taxes in fiscal 1999, compared to a $210
thousand refund received in the same period of 2001.
2) The period ended January 31, 2001 included higher working capital
requirements as compared to the same period of the prior year.
3) Despite the fact that net income was flat in the period ended January 31,
2001 as compared to the same prior year period, the current year's net income
included lower depreciation expense and $1.1 million of non-cash income from the
adoption of SFAS No. 133. (See Note 11 for further discussion of SFAS No. 133.)
13
INVESTMENT ACTIVITIES
Net cash used by investment activities during the three months ended
January 31, 2001 was $31.5 million compared to $21.8 million for the same period
of 2000. Fiscal 2001 cash used by investment activities included cash paid for
the acquisition of Temroc totaling $17.9 million, net of cash acquired. Fiscal
2000 cash used by investing activities included cash paid for the acquisition of
Nichols Aluminum Golden totaling $6.4 million, net of cash acquired. Capital
expenditures and other investment activities decreased $1.8 million in the three
month period ended January 31, 2001 as compared to the same period of 2000. The
Company estimates that fiscal 2001 capital expenditures will total approximately
$55 to 60 million.
FINANCING ACTIVITIES
Net cash provided by financing activities for the three months ended
January 31, 2001 was $27.0 million, compared to $3.7 million for the same prior
year period. The Company's net borrowings were $33.0 million during the first
three months of fiscal 2001, compared to $9.2 million during the same period
last year. During the three months ended January 31, 2001, the Company paid $3.9
million to purchase $4.6 million principal amount of subordinated debentures.
Also, during the three months ended January 31, 2001, the Company paid $364
thousand to repurchase 20,000 shares of it's own common stock; however, in the
same period last year, it paid $3.8 million to repurchase approximately 157,000
shares.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101. SAB No. 101 provides the staff's views in
applying Generally Accepted Accounting Principles ("GAAP") to revenue
recognition in financial statements. It does not change any of the existing
rules on revenue recognition. All registrants are expected to apply the
accounting and disclosures described in this bulletin. The staff, however, will
not object if registrants that have not applied this accounting do not restate
prior financial statements provided they report a change in accounting principle
in accordance with APB Opinion No. 20, Accounting Changes, no later than the
first fiscal quarter of the fiscal year beginning after December 15, 1999.
However, SAB No. 101B delays the implementation of SAB No. 101 until no later
than the fourth quarter of fiscal years beginning after December 15, 1999. The
Company will be analyzing SAB No. 101 to determine what, if any, impact or
additional disclosure requirements are necessary. Any such impact will be
addressed and reflected in the fourth fiscal quarter of the Company's year
ending October 31, 2001 in accordance with SAB No. 101B.
14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Effective November 1, 2000, the Company adopted SFAS No. 133, which requires the
Company to measure all derivatives at fair value and to recognize them in the
balance sheet as an asset or liability, depending on the Company's rights or
obligations under the applicable derivative contract. The Company utilizes
certain "derivative instruments" to manage its exposure to market risk. Prior to
the adoption of SFAS No. 133, these derivative instruments were not recorded in
the financial statements until their settlement. (See Note 11 for further
discussion.)
The following discussion of the Company and its subsidiaries' exposure to
various market risks contains "forward looking statements" that involve risks
and uncertainties. These projected results have been prepared utilizing certain
assumptions considered reasonable in light of information currently available to
the Company. Nevertheless, because of the inherent unpredictability of interest
rates and metal commodity prices as well as other factors, actual results could
differ materially from those projected in such forward looking information.
The Company holds certain floating-rate obligations. The exposure of these
obligations to increases in short-term interest rates is limited by interest
rate swap agreements entered into by the Company. These swap agreements
effectively fix the interest rate on most of the Company's variable rate debt,
thus limiting the potential impact that increasing interest rates would have on
earnings. At October 31, 2000 (prior to the adoption of SFAS No. 133) the
unrealized losses related to the interest rate swap agreements were $918
thousand. As of January 31, 2001, a liability of $4.0 million related to the
interest rate swap agreements was recorded in the financial statements. If the
floating rates were to change by 10% from January 31, 2001 levels, the fair
market value of these swaps would change by approximately $1.1 million. It
should be noted that any change in value of these contracts, real or
hypothetical, would be significantly offset by an inverse change in the value of
the underlying hedged item.
The Company uses futures contracts to hedge a portion of its exposure to
price fluctuations of aluminum. The exposure is related to the Company's backlog
of aluminum sales orders with committed prices as well as future aluminum sales
for which a sales price increase would lag a raw material cost increase. Hedging
gains and losses are included in "Cost of sales" in the income statement. Prior
to the adoption of SFAS No. 133, gains and losses related to open contracts were
unrealized and not reflected in the consolidated statements of income. At
October 31, 2000, the Company had open futures contracts with unrealized losses
of $372 thousand. As of January 31, 2001, (after the adoption of SFAS No. 133)
the Company had open futures contracts with fair values of approximately $800
thousand which was recorded as a derivative asset. At October 31, 2000 and
January 31, 2001, these contracts covered a notional volume of 25,738,940 and
23,699,669 pounds of aluminum, respectively. A hypothetical 10% change from the
January 31, 2001 average London Metal Exchange ("LME") ingot price of $.730 per
pound would increase or decrease the unrealized pretax gains/losses related to
these contracts by approximately $1.7 million. However, it should be noted that
any change in the value of these contracts, real or hypothetical, would be
substantially offset by an inverse change in the cost of purchased aluminum
scrap.
Other than the items mentioned above, there were no other material
quantitative or qualitative changes during the first three months of fiscal 2001
in the Company's market risk sensitive instruments.
15
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
On or about August 2, 1999, the United States District Court for the Southern
District of Texas entered a consent decree resolving the federal government's
allegations that the Company and Vision Metals, Inc. had violated water
discharge requirements at the Company's former tube plant in Rosenberg, Texas.
The consent decree required the Company to pay in three installments an
aggregate civil penalty of $466,421 plus interest. Pursuant to the purchase
agreement by which Vision Metals acquired the Rosenberg facility and assumed
certain environmental liabilities, Vision Metals acknowledged its responsibility
for the penalty and made the first two payments, which totaled $310,946 plus
interest. Because Vision Metals filed a bankruptcy petition on or about November
13, 2000, it was necessary for the Company to make the final scheduled payment
of $155,475 plus interest on February 28, 2001. The Company's obligations under
the consent decree terminated upon payment of the total penalty.
ITEM 5 - OTHER INFORMATION
On February 22, 2001 the Company announced that Raymond A. Jean was named
president and chief executive officer. Mr. Jean was also elected to the board of
directors.
Prior to joining Quanex, Mr. Jean was corporate vice president and a member
of the board of directors for Amsted Industries, a diversified, privately held
manufacturer of railroad, vehicular, building, and general industrial products.
He will remain a member of the board of directors for Amsted Industries.
Prior to joining Amsted Industries, through its acquisition of Varlen
Corporation in August 1999, Mr. Jean had served as president and CEO of this
NASDAQ-traded company, a leading manufacturer of engineered components for
transportation markets.
Mr. Jean, 58, holds a B. S. in engineering physics from the University of
Maine and a M. B. A. from the University of Chicago.
Mr. Jean replaces Vernon E. Oechsle who previously announced his intent to
retire. Mr. Oechsle will continue as chairman of the board for a brief
transition period.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
Exhibit 10.1 Amendment and Restatement of Quanex Corporation Employee
Savings Plan dated December 28, 2000, effective January 1,
1998.
Exhibit 10.2 First Amendment to Quanex Corporation Employee Savings Plan,
effective January 1, 2001.
Exhibit 10.3 Amended and Restated Piper Impact 401(k) Plan dated effective
January 1, 1998.
Exhibit 10.4 First Amendment to Piper Impact 401(k) Plan dated effective
January 1, 1999.
Exhibit 10.5 Second Amendment to Piper Impact 401(k) Plan dated effective
January 1, 2001.
As permitted by Item 601(b)(4)(iii)(A) of Regulation S-K, the Registrant has not
filed with this Quarterly Report on Form 10-Q certain instruments defining the
rights of holders of long-term debt of the Registrant and its subsidiaries
because the total amount of securities authorized under any of such
16
instruments does not exceed 10% of the total assets of the Registrants and its
subsidiaries on a consolidated basis. The Registrant agrees to furnish a copy of
any such agreements to the Securities and Exchange Commission upon request.
b) Reports on Form 8-K
A report on Form 8-K was filed by the Company on December 8, 2000 regarding the
acquisition of Temroc Metals, Inc. On November 30, 2000, pursuant to an
Acquisition Agreement and Plan of Merger ("Agreement") dated October 23, 2000,
between Quanex Corporation ("Parent" or "Company"), Quanex Five, Inc., a
Delaware corporation and wholly owned subsidiary of Parent ("Sub"), and Temroc
Metals, Inc., a Minnesota corporation ("Temroc"), the Company completed the
merger between Sub and Temroc, whereby Temroc, as a surviving corporation,
became a wholly owned subsidiary of the Company.
17
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
QUANEX CORPORATION
/s/ Viren M. Parikh
---------------------------------------
Viren M. Parikh
Date: March 9, 2001 Controller (Chief Accounting Officer)
/s/ Terry M. Murphy
---------------------------------------
Terry M. Murphy
Vice President - Finance and Chief
Date: March 9, 2001 Financial Officer
18
Index to Exhibits
Exhibit
Number Description of Exhibits
------- -----------------------
Exhibit 10.1 Amendment and Restatement of Quanex Corporation Employee
Savings Plan dated December 28, 2000, effective January 1,
1998.
Exhibit 10.2 First Amendment to Quanex Corporation Employee Savings Plan,
effective January 1, 2001.
Exhibit 10.3 Amended and Restated Piper Impact 401(k) Plan dated effective
January 1, 1998.
Exhibit 10.4 First Amendment to Piper Impact 401(k) Plan dated effective
January 1, 1999.
Exhibit 10.5 Second Amendment to Piper Impact 401(k) Plan dated effective
January 1, 2001.
19
EXHIBIT 10.1
QUANEX CORPORATION
EMPLOYEE SAVINGS PLAN
AMENDMENT AND RESTATEMENT
EFFECTIVE JANUARY 1, 1998
QUANEX CORPORATION EMPLOYEE SAVINGS PLAN
THIS AGREEMENT adopted by Quanex Corporation, a Delaware corporation (the
"Sponsor"),
WITNESSETH:
WHEREAS, effective April 1, 1986, the Sponsor established Quanex
Corporation Employee Savings Plan (the "Plan").
WHEREAS, the Plan is intended to be a profit sharing plan;
WHEREAS, the Sponsor desires to amend and restate the Plan;
NOW, THEREFORE, the Plan is hereby amended and restated in its entirety as
set forth below.
TABLE OF CONTENTS
SECTION
ARTICLE I - DEFINITIONS
Account.............................................................1.01
Active Service......................................................1.02
Affiliated Employer.................................................1.03
Annual Compensation.................................................1.04
Annuity Starting Date...............................................1.05
Beneficiary or Beneficiaries........................................1.06
Board...............................................................1.07
Code................................................................1.08
Committee...........................................................1.09
Considered Compensation.............................................1.10
Contribution........................................................1.11
Direct Rollover.....................................................1.12
Disability..........................................................1.13
Distributee.........................................................1.14
Eligible Retirement Plan............................................1.15
Eligible Rollover Distribution......................................1.16
Employee............................................................1.17
Employer or Employers...............................................1.18
Entry Date..........................................................1.19
ERISA...............................................................1.20
Five Percent Owner..................................................1.21
Highly Compensated Employee.........................................1.22
Hour of Service.....................................................1.23
Leased Employee.....................................................1.24
Maternity or Paternity Absence......................................1.25
Nonforfeitable Interest.............................................1.26
Non-Highly Compensated Employee.....................................1.27
Participant.........................................................1.28
Period of Service...................................................1.29
Period of Severance.................................................1.30
Plan................................................................1.31
Plan Year...........................................................1.32
Qualified Domestic Relations Order..................................1.33
Regulation..........................................................1.34
Required Beginning Date.............................................1.35
Retirement Age......................................................1.36
Rollover Contribution...............................................1.37
Separation From Service.............................................1.38
Severance From Service Date.........................................1.39
Servers Service.....................................................1.40
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Sponsor.............................................................1.41
Sponsor Stock.......................................................1.42
Spouse..............................................................1.43
Trust...............................................................1.44
Trustee.............................................................1.45
Valuation Date......................................................1.46
ARTICLE II - ELIGIBILITY
Eligibility Requirements............................................2.01
Early Participation for Rollover Purposes...........................2.02
Eligibility Upon Reemployment.......................................2.03
Cessation of Participation..........................................2.04
Recommencement of Participation.....................................2.05
ARTICLE III - CONTRIBUTIONS
Salary Deferral Contributions.......................................3.01
After-Tax Contributions.............................................3.02
Matching Contributions..............................................3.03
Supplemental Contributions..........................................3.04
Rollover Contributions and Plan-to-Plan Transfers...................3.05
QNECS - Extraordinary Employer Contributions........................3.06
Restoration Contributions...........................................3.07
Nondeductible Contributions Not Required............................3.08
Form of Payment of Contributions....................................3.09
Deadline for Payment of Employer Contributions......................3.10
Return of Contributions for Mistake,
Disqualification or Disallowance of Deduction...................3.11
ARTICLE IV - ALLOCATION AND VALUATION OF ACCOUNTS
Information Statements from Employer................................4.01
Allocation of Salary Deferral Contributions.........................4.02
Allocation of After-Tax Contributions...............................4.03
Allocation of Matching Contributions................................4.04
Allocation of Supplemental Contributions............................4.05
Allocation of QNECs.................................................4.06
Allocation of Forfeitures...........................................4.07
Valuation of Accounts...............................................4.08
No Rights Unless Otherwise Prescribed...............................4.09
ARTICLE V - BENEFITS
Retirement Benefit..................................................5.01
Death Benefit.......................................................5.02
Distribution Method.................................................5.03
Immediate Payment of Small Amount Upon Separation From Service......5.04
Direct Rollover Option..............................................5.05
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Distribution Upon Disposition of Assets or a Subsidiary.............5.06
Time of Distribution................................................5.07
Consent to Distribution.............................................5.08
Information Provided to Participants................................5.09
Designation of Beneficiary..........................................5.10
Distributions to Disabled Persons...................................5.11
Distributions Pursuant to Qualified Domestic Relations Orders.......5.12
Claims Procedure....................................................5.13
ARTICLE VI - IN-SERVICE DISTRIBUTIONS
In-Service Financial Hardship Distributions.........................6.01
In-Service Distributions of After-Tax Contributions,
Matching Contributions and Supplemental Contributions...........6.02
Method of Payment...................................................6.03
In-Service Distributions for Certain Former Participants............6.04
ARTICLE VII - VESTING
ARTICLE VIII - FORFEITURES AND RESTORATIONS
Forfeiture on Termination of Participation..........................8.01
Restoration of Forfeited Amounts....................................8.02
Forfeitures by Lost Participants or Beneficiaries...................8.03
ARTICLE IX - ACTIVE SERVICE
General.............................................................9.01
Disregard of Certain Service........................................9.02
Certain Brief Absences Counted as Active Service....................9.03
Service Credit Required by Law......................................9.04
Special Maternity or Paternity Absence Rules........................9.05
Employment Records Conclusive.......................................9.06
ARTICLE X -- INVESTMENT ELECTIONS
Investment Funds Established.......................................10.01
Election Procedures Established....................................10.02
ARTICLE XI - ADOPTION OF PLAN BY OTHER EMPLOYERS
Adoption Procedure.................................................11.01
No Joint Venture Implied...........................................11.02
All Trust Assets Available to Pay All Benefits.....................11.03
Qualification a Condition Precedent to Adoption and Continued
Participation..................................................11.04
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ARTICLE XII - AMENDMENT AND TERMINATION
Right to Amend and Limitations Thereon.............................12.01
Mandatory Amendments...............................................12.02
Withdrawal of Employer.............................................12.03
Termination of Plan................................................12.04
Partial or Complete Termination or Complete Discontinuance of
Contributions..................................................12.05
ARTICLE XIII- MISCELLANEOUS
Plan Not an Employment Contract....................................13.01
Benefits Provided Solely From Trust................................13.02
Assignments Prohibited.............................................13.03
Requirements Upon Merger or Consolidation of Plans.................13.04
Gender of Words Used...............................................13.05
Severability.......................................................13.06
Reemployed Veterans................................................13.07
Limitations on Legal Actions.......................................13.08
Governing Law......................................................13.09
APPENDIX A - LIMITATIONS ON CONTRIBUTIONS
APPENDIX B - TOP-HEAVY REQUIREMENTS
APPENDIX C - ADMINISTRATION OF THE PLAN
APPENDIX D - FUNDING
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ARTICLE I
DEFINITIONS
The words and phrases defined in this Article shall have the meaning set
out in the definition unless the context in which the word or phrase appears
reasonably requires a broader, narrower or different meaning.
1.01 "ACCOUNT" means all ledger accounts pertaining to a Participant which
are maintained by the Committee to reflect the Participant's interest in the
Trust. The Committee shall establish the following Accounts and any additional
Accounts that the Committee considers necessary to reflect the entire interest
of the Participant in the Trust. Each of the Accounts listed below and any
additional Accounts established by the Committee shall reflect the Contributions
or amounts transferred to the Trust, if any, and the appreciation or
depreciation of the assets in the Trust and the income earned or loss incurred
on the assets in the Trust attributable to the Contributions and/or other
amounts transferred to the Account.
(a) Salary Deferral Contribution Account - the Participant's
before-tax contributions, if any, made pursuant to Section 3.01.
(b) After-Tax Contribution Account - the Participant's after-tax
contributions, if any, made pursuant to Section 3.02.
(c) Matching Contribution Account - the Employer's matching
contributions, if any, made pursuant to Section 3.03.
(d) Supplemental Contribution Account - the Employer's
contributions, if any, made pursuant to Section 3.04.
(e) QNEC Account - the Employer's contributions, known as "qualified
nonelective employer contributions", made as a means of passing the actual
deferral percentage test of section 401(k) of the Code.
(f) Rollover Account - funds transferred from another qualified plan
or individual retirement account for the benefit of a Participant.
1.02 "ACTIVE SERVICE" means the Periods of Service which are counted for
eligibility and vesting purposes as calculated under Article IX.
1.03 "AFFILIATED EMPLOYER" means the Employer and any employer which is a
member of the same controlled group of corporations within the meaning of
section 414(b) of the Code or which is a trade or business (whether or not
incorporated) which is under common control (within the meaning of section
414(c) of the Code), which is a member of an affiliated service group (within
the meaning of section 414(m) of the Code) with the Employer, or which is
required to be aggregated with the Employer under section 414(o) of the Code.
For purposes of the limitation on allocations contained in Appendix A, the
definition of Affiliated Employer is modified by substituting the phrase "more
than 50 percent" in place of the phrase "at least 80 percent" each place the
latter phrase appears in section 1563(a)(1) of the Code.
I-1
1.04 "ANNUAL COMPENSATION" means the Employee's wages from the Affiliated
Employers as defined in section 3401(a) of the Code for purposes of federal
income tax withholding at the source (but determined without regard to any rules
that limit the remuneration included in wages based on the nature or location of
the employment or the services performed) modified by including elective
contributions under a cafeteria plan described in section 125 of the Code and
elective contributions to any plan qualified under section 401(k), 408(k), or
403(b) of the Code. Except for purposes of Section A.4.1 of Appendix A of the
Plan, Annual Compensation in excess of $150,000.00 (as adjusted by the Secretary
of Treasury) shall be disregarded. If the Plan Year is ever less than 12 months,
the $150,000.00 limitation (as adjusted by the Secretary of Treasury) will be
prorated by multiplying the limitation by a fraction, the numerator of which is
the number of months in the Plan Year, and the denominator of which is 12.
1.05 "ANNUITY STARTING DATE" means the first day of the first period for
which an amount is payable as an annuity, or in the case of a benefit payable in
the form of a lump sum, the date on which the Trustee disburses the lump sum.
1.06 "BENEFICIARY" OR "BENEFICIARIES" means the person or persons, or the
trust or trusts created for the benefit of a natural person or persons or the
Participant's or former Participant's estate, designated by the Participant or
former Participant to receive the benefits payable under the Plan upon his
death.
1.07 "BOARD" or "BOARD OF DIRECTORS" means the board of directors of the
Sponsor.
1.08 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
1.09 "COMMITTEE" means the committee appointed by the Sponsor to
administer the Plan.
1.10 "CONSIDERED COMPENSATION" means Annual Compensation paid to a
Participant by an Affiliated Employer for a Plan Year, REDUCED by all of the
following items (even if includable in gross income): all reimbursements or
other expense allowances (such as the payment of moving expenses or automobile
mileage reimbursements), cash and noncash fringe benefits (such as the use of an
automobile owned by the Employer, club memberships, tax gross-ups, attendance
and safety awards, fitness reimbursements, housing allowances, financial
planning benefits and Beneflex dollars), deferred compensation (such as amounts
realized upon the exercise of a nonqualified stock option or upon the premature
disposition of an incentive stock option, pay for accrued vacation upon
Separation From Service, amounts realized when restricted property or other
property held by a Participant either becomes freely transferable or no longer
subject to a substantial risk of forfeiture under section 83 of the Code), and
welfare benefits (such as severance pay). An Employee's Considered Compensation
paid to him during any period in which he is not eligible to participate in the
Plan under Article II shall be disregarded. Considered Compensation in excess of
$150,000.00 as adjusted by the Secretary of Treasury for increases in the cost
of living in accordance with section 401(a)(17)(B) of the Code shall be
disregarded. If the Plan Year is ever less than 12 months, the $150,000.00
limitation (as adjusted by the Secretary of Treasury) will be prorated by
multiplying the limitation by a
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fraction, the numerator of which is the number of months in the Plan Year, and
the denominator of which is 12.
1.11 "CONTRIBUTION" means the total amount of contributions made under the
terms of the Plan. Each specific type of Contribution shall be designated by the
type of contribution made as follows:
(a) Salary Deferral Contribution - a before-tax contribution made by
the Employer pursuant to the Employee's salary deferral agreement.
(b) After-Tax Contribution - an after-tax contribution made by the
Employee.
(c) Matching Contribution - a contribution made by the Employer
pursuant to Section 3.03.
(d) Supplemental Contribution - a contribution made by the Employer
pursuant to Section 3.04.
(e) QNEC - an extraordinary contribution, known as a "qualified
nonelective employer contribution", made by the Employer as a means of
passing the actual deferral percentage test of section 401(k) of the Code
or the actual contribution percentage test of section 401(m) of the Code.
(f) Rollover Contribution - a contribution made by a Participant
which consists of any part of an eligible rollover distribution (as
defined in section 402 of the Code) from a qualified employee trust
described in section 401(a) of the Code.
1.12 "DIRECT ROLLOVER" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
1.13 "DISABILITY" means a mental or physical disability which, in the
opinion of a physician selected by the Committee, shall prevent the Participant
from earning a reasonable livelihood with any Affiliated Employer and which can
be expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than 12 months and which: (a) was not
contracted, suffered or incurred while the Participant was engaged in, or did
not result from having engaged in, a felonious criminal enterprise; (b) did not
result from alcoholism or addiction to narcotics; and (c) did not result from an
injury incurred while a member of the Armed Forces of the United States for
which the Participant receives a military pension.
1.14 "DISTRIBUTEE" means an Employee or former Employee. In addition, the
Employee's or former Employee's surviving Spouse and the Employee's or former
Employee's Spouse or former Spouse who is the alternate payee under a Qualified
Domestic Relations Order, are Distributees with regard to the interest of the
Spouse or former Spouse.
1.15 "ELIGIBLE RETIREMENT PLAN" means an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code, an annuity plan described in section
403(a) of the Code, or a qualified trust described in
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section 401(a) of the Code, that accepts the Distributee's Eligible Rollover
Distribution. However, in the case of an Eligible Rollover Distribution to the
surviving Spouse, an Eligible Retirement Plan is an individual retirement
account or individual retirement annuity.
1.16 "ELIGIBLE ROLLOVER DISTRIBUTION" as defined in section 402 of the
Code means any distribution of all or any portion of the balance to the credit
of the Distributee, except that an Eligible Rollover Distribution does not
include: (a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's Beneficiary, or for a specified period
of ten years or more; (b) any distribution to the extent the distribution is
required under section 401(a)(9) of the Code; (c) the portion of any
distribution that is not includable in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to employer
securities); and, effective for distributions after December 31, 1998, (d) any
financial hardship distribution described in section 401(k)(2) of the Code from
a Participant's Salary Deferral Contribution Account or from the Participant's
QNEC Account (to the extent that QNECs were treated as Section 401(k)
Contributions under Appendix A).
1.17 "EMPLOYEE" means, except as otherwise specified in this Section, all
common law employees of an Affiliated Employer and all Leased Employees.
1.18 "EMPLOYER" OR "EMPLOYERS" means the Sponsor and any other business
organization that adopts the Plan.
1.19 "ENTRY DATE" means the first day of each calendar quarter, January 1,
April 1, July 1, and October 1.
1.20 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.21 "FIVE PERCENT OWNER" means an Employee who is a five percent owner as
defined in section 416(i) of the Code.
1.22 "HIGHLY COMPENSATED EMPLOYEE" means an Employee or an Affiliated
Employer who, during the Plan Year or the preceding Plan Year, (a) was at any
time a Five Percent Owner at any time during the Plan Year or the preceding Plan
Year or (b) had Annual Compensation from the Affiliated Employers in excess of
$80,000.00 (as adjusted from time to time by the Secretary of the Treasury) for
the preceding Plan Year.
1.23 "HOUR OF SERVICE" means each hour that an Employee is paid or
entitled to payment by an Affiliated Employer for the performance of duties.
1.24 "LEASED EMPLOYEE" means any person who (a) is not a common law
employee of an Affiliated Employer, (b) pursuant to an agreement between an
Affiliated Employer and any other person, has performed services for an
Affiliated Employer (or for an Affiliated Employer and related persons
determined in accordance with section 414(n)(6) of the Code) on a substantially
full-time basis for a period of at least one year and (c) performs the services
under primary direction and control of the recipient.
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1.25 "MATERNITY OR PATERNITY ABSENCE" means a period in which an Employee
is absent from work (a) by reason of the pregnancy of the Employee, (b) by
reason of the birth of a child of the Employee, (c) by reason of the placement
of a child with the Employee in connection with the adoption of the child by the
Employee, or (d) for purposes of caring for such child for a period immediately
following such birth or placement for adoption.
1.26 "NONFORFEITABLE INTEREST" means a Participant's nonforfeitable
interest in amounts credited to his Account determined in accordance with
Article VII.
1.27 "NON-HIGHLY COMPENSATED EMPLOYEE" means an Employee who is not a
Highly Compensated Employee.
1.28 "PARTICIPANT" means an Employee who is eligible to participate in the
Plan under the provisions of Article II.
1.29 "PERIOD OF SERVICE" means a period of employment with an Affiliated
Employer which commences on the later of (1) April 1, 1986 or (2) the day on
which an Employee performs his initial Hour of Service or performs his initial
Hour of Service after he Severs Service, whichever is applicable, and ends on
the date the Employee subsequently Severs Service.
1.30 "PERIOD OF SEVERANCE" means the period of time commencing on the
Employee's Severance From Service Date and ending on the date the Employee
subsequently performs an Hour of Service.
1.31 "PLAN" means the Quanex Corporation Employee Savings Plan, as amended
from time to time.
1.32 "PLAN YEAR" means the calendar year.
1.33 "QUALIFIED DOMESTIC RELATIONS ORDER" means a qualified domestic
relations order as defined in section 414(p) of the Code.
1.34 "REGULATION" means the Department of Treasury regulation specified,
as it may be changed from time to time.
1.35 "REQUIRED BEGINNING DATE" means:
(a) effective January 1, 2001, in the case of an individual who is
not a Five Percent Owner in the Plan Year that ends in the calendar year
in which he attains age 70 1/2, the Required Beginning Date is April 1 of
tHe calendar year following the later of (1) the calendar year in which
the individual attains age 70 1/2, or (2) the calendar year in which tHe
individual incurs a Separation From Service;
(b) in the case of an individual who is a Five Percent Owner in the
Plan Year that ends in the calendar year in which he attains age 70 1/2,
tHe Required Beginning Date is April 1 of the calendar year following the
calendar year in which he attains age 70 1/2.;
I-5
(c) notwithstanding subsection(a), in the case of an individual who
attained age 70 1/2 prior to January 1, 2001, the Required Beginning DaTe
is April 1 of the calendar year following the calendar year in which the
individual attained age 70 1/2.
1.36 "RETIREMENT AGE" means age 65.
1.37 "ROLLOVER CONTRIBUTION" means the amount contributed by a Participant
of the Plan which consists of any part of an Eligible Rollover Distribution from
a qualified employee trust described in section 401(a) of the Code.
1.38 "SEPARATION FROM SERVICE" means an individual's termination of
employment with an Affiliated Employer WITHOUT commencing or continuing
employment with (a) any other Affiliated Employer or (b) any other entity under
circumstances where, under Regulations and Internal Revenue Service rulings, the
individual is not deemed to have incurred a Separation From Service within the
meaning of Section 401(k)(2) of the Code.
1.39 "SEVERANCE FROM SERVICE DATE" means the earlier of the date of the
Employee's Separation From Service, or the first anniversary of the date on
which the Employee is absent from service (with or without pay) for any reason
other than his Separation From Service or a Maternity or Paternity Absence, such
as vacation, holiday, sickness, or leave of absence. The Severance From Service
Date of an Employee who is absent beyond the first anniversary of his first day
of absence by reason of a Maternity or Paternity Absence is the second
anniversary of the first day of the absence.
1.40 "SEVERS SERVICE" means the occurrence of a Participant's Severance
From Service Date.
1.41 "SPONSOR" means Quanex Corporation, a Delaware corporation.
1.42 "SPONSOR STOCK" means the common stock of the Sponsor or such other
publicly-traded stock of an Affiliated Employer as meets the requirements of
section 407(d)(5) of ERISA with respect to the Plan.
1.43 "SPOUSE" means the person to whom the Participant or former
Participant is married under applicable local law. In addition, to the extent
provided in a Qualified Domestic Relations Order, a surviving former spouse of a
Participant or former Participant will be treated as the Spouse of the
Participant or former Participant, and to the same extent any current spouse of
the Participant or former Participant will not be treated as a Spouse of the
Participant or former Participant.
1.44 "TRUST" means the trust estate created to fund the Plan.
1.45 "TRUSTEE" means collectively one or more persons or corporations with
trust powers which have been appointed by the initial Sponsor and have accepted
the duties of Trustee and any successor appointed by the Sponsor.
1.46 "VALUATION DATE" means each business day of the Plan Year.
I-6
ARTICLE II
ELIGIBILITY
2.01 ELIGIBILITY REQUIREMENTS. Each Employee who is employed by an
Employer shall be eligible to participate in the Plan beginning on the Entry
Date that occurs with or next follows the date on which the Employee completes
three months of Active Service. However, an Employee who is included in a unit
of Employees covered by a collective bargaining agreement between the Employees'
representative and the Employer shall be excluded, even if he has met the
requirements for eligibility, if there has been good faith bargaining between
the Employer and the Employees' representative pertaining to retirement benefits
and the agreement does not require the Employer to include such Employees in the
Plan. In addition, a Leased Employee shall not be eligible to participate in the
Plan unless the Plan's qualified status is dependent upon coverage of the Leased
Employee. An Employee who is compensated on an hourly rated basis for services
rendered at the Sponsor's MacSteel-Arkansas Division is not eligible to
participate in the Plan. An Employee who is employed by the Sponsor at one of
the Sponsor's Nichols divisions or the Sponsor's Fabricated Products division is
not eligible to participate in the Plan. An Employee who is a nonresident alien
(within the meaning of section 7701(b) of the Code) and receives no earned
income (within the meaning of section 911(d)(2) of the Code) from any Affiliated
Employer that constitutes income from sources within the United States (within
the meaning of section 861(a)(3) of the Code) is not eligible to participate in
the Plan. An Employee who is a nonresident alien (within the meaning of section
7701(b) of the Code) and who does receive earned income (within the meaning of
section 911(d)(2) of the Code) from any Affiliated Employer that constitutes
income from sources within the United States (within the meaning of section
861(a)(3) of the Code) all of which is exempt from United States income tax
under an applicable tax convention is not eligible to participate in the Plan.
During any period in which an individual is classified by an Employer as an
independent contractor with respect to such Employer, the individual is not
eligible to participate in the Plan (even if he is subsequently reclassified by
the Internal Revenue Service as a common law employee of the Employer and the
Employer acquiesces to the reclassification). Finally, an Employee who is
employed outside the United States is not eligible to participate in the Plan
unless the Committee elects to permit him to participate in the Plan.
2.02 EARLY PARTICIPATION FOR ROLLOVER PURPOSES. An Employee who satisfies
the eligibility requirements specified in Section 2.01 other than the service
requirement shall be eligible to make Rollover Contributions to the Plan on the
Entry Date next following (not coincident with) the date on which he completes
an Hour of Service.
2.03 ELIGIBILITY UPON REEMPLOYMENT. If an Employee incurs a Separation
From Service prior to the date he initially begins participating in the Plan, he
shall be eligible to begin participation in the Plan on the later of the date he
would have become a Participant if he did not incur a Separation From Service or
the date on which he performs an Hour of Service after he incurs a Separation
From Service. Subject to Section 2.04, once an Employee becomes a Participant,
his eligibility to participate in the Plan shall continue until he Severs
Service.
2.04 CESSATION OF PARTICIPATION. An individual who has become a
Participant will cease to be a Participant on the earliest of the date on which
he (a) Severs Service, (b) is
II-1
transferred from the employ of an Employer to the employ of an Affiliated
Employer that has not adopted the Plan, (c) becomes included in a unit of
employees covered by a collective bargaining agreement that does not require
coverage of those employees under the Plan, (d) becomes a Leased Employee, or
(e) becomes included in another classification of Employees who, under the terms
of the Plan, are not eligible to participate. Under these circumstances, the
Participant's Account becomes frozen; he cannot contribute to the Plan or share
in the allocation of any Contributions for the frozen period. However, his
Accounts shall continue to share in any Plan income allocable to his Accounts
during the frozen period of time.
2.05 RECOMMENCEMENT OF PARTICIPATION. A former Participant will again
become a Participant on the day on which he again becomes included in a
classification of Employees that, under the terms of the Plan, is eligible to
participate.
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ARTICLE III
CONTRIBUTIONS
3.01 SALARY DEFERRAL CONTRIBUTIONS. Each Employer shall make a Salary
Deferral Contribution in an amount equal to the amount by which the Considered
Compensation of its Employees who are Participants was reduced on a pre-tax
basis pursuant to salary deferral agreements. Any such salary deferral agreement
shall be an agreement in a form satisfactory to the Committee to prospectively
receive Considered Compensation from the Employer in a reduced amount and to
have the Employer contribute an amount equal to the amount of the reduction to
the Trust on account of the Participant. Any such salary deferral agreement
shall be revocable in accordance with its terms, provided that no revocation
shall be retroactive or permit payment to the Participant of the amount required
to be contributed to the Trust. A Participant's right to benefits attributable
to Salary Deferral Contributions made to the Plan on his behalf shall be
nonforfeitable.
The maximum amount a Participant may elect to reduce his Considered
Compensation under his salary deferral agreement and have contributed to the
Plan on a pre-tax basis shall be determined by the Committee, in its sole
discretion from time to time. The election to have Salary Deferral Contributions
made, the ability to change the rate of Salary Deferral Contributions, the right
to suspend Salary Deferral Contributions, and the manner of commencing new
Salary Deferral Contributions shall be permitted under any uniform method
determined by the Committee from time to time.
3.02 AFTER-TAX CONTRIBUTIONS. To the extent permitted by the Committee,
each Participant may make voluntary after-tax contributions to the Plan through
payroll deductions or in a lump sum in cash. A Participant's right to benefits
attributable to After-Tax Contributions made to the Plan on his behalf shall be
nonforfeitable.
The maximum amount a Participant may elect to contribute to the Plan on an
after-tax basis shall be determined by the Committee from time to time. The
election to have After-Tax Contributions made, the ability to change the rate of
After-Tax Contributions, the right to suspend After-Tax Contributions, and the
manner of commencing new After-Tax Contributions shall be permitted under any
uniform method determined by the Committee from time to time.
3.03 MATCHING CONTRIBUTIONS. Each Employer will make a Matching
Contribution on behalf of each of its Employees who is a Participant in an
amount equal to 50 percent of the first five percent of such Participant's
Considered Compensation contributed to the Plan pursuant to such Participant's
Salary Deferral Contributions and After-Tax Contributions for the Plan Year.
3.04 SUPPLEMENTAL CONTRIBUTIONS. Each Employer may contribute for a Plan
Year a Supplemental Contribution to be allocated among Participants in such
amount, if any, as shall be determined by the Employer. The rate of the
Supplemental Contribution need not be uniform among all divisions of the
Employer.
3.05 ROLLOVER CONTRIBUTIONS AND PLAN-TO-PLAN TRANSFERS. The Committee may
permit Rollover Contributions by Participants and/or direct transfers to or from
another qualified
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plan on behalf of Participants from time to time. If Rollover Contributions
and/or direct transfers to or from another qualified plan are permitted, the
opportunity to make those contributions and/or direct transfers must be made
available to Participants on a nondiscriminatory basis. For this purpose only,
all Employees who are included in a classification of Employees who are eligible
to participate in the Plan shall be considered to be Participants of the Plan
even though they may not have met the Active Service requirements for
eligibility. However, they shall not be entitled to elect to have Salary
Deferral Contributions made or to share in Employer Contributions or forfeitures
unless and until they have met the requirements for eligibility, contributions
and allocations. A Rollover Contribution shall not be accepted unless it is
directly rolled over to the Plan in a rollover described in section 401(a)(31)
of the Code. A Participant shall not be permitted to make a Rollover
Contribution if the property he intends to contribute is for any reason
unacceptable to the Trustee. A Participant's right to benefits attributable to
his Rollover Contributions made to the Plan shall be nonforfeitable.
3.06 QNECS - EXTRAORDINARY EMPLOYER CONTRIBUTIONS. Any Employer may make a
QNEC in such amount, if any, as shall be determined by it. A Participant's right
to benefits attributable to QNECs made to the Plan on his behalf shall be
nonforfeitable. In no event will QNECs be distributed before Salary Deferral
Contributions may be distributed from the Plan.
3.07 RESTORATION CONTRIBUTIONS. The Employer shall, for each Plan Year,
make a restoration contribution in an amount equal to the sum of (a) such
amount, if any, as shall be necessary to fully restore all Matching Contribution
Accounts and Supplemental Contribution Accounts required to be restored pursuant
to the provisions of Section 8.02 after the application of all forfeitures
available for such restoration; plus (b) an amount equal in value to the value
of forfeited benefits required to be restored under Section 8.03, after the
application of all forfeitures available for such restoration.
3.08 NONDEDUCTIBLE CONTRIBUTIONS NOT REQUIRED. Notwithstanding any other
provision of the Plan, no Employer shall be required to make any contribution
that would be a "nondeductible contribution" within the meaning of section 4972
of the Code.
3.09 FORM OF PAYMENT OF CONTRIBUTIONS. Contributions may be paid to the
Trustee either in cash or in qualifying employer securities (as such term is
defined in section 407(d) of ERISA) or any combination thereof, provided that
payment may not be made in any form constituting a prohibited transaction under
section 4975 of the Code or section 406 of ERISA.
3.10 DEADLINE FOR PAYMENT OF CONTRIBUTIONS. Salary Deferral Contributions
and After-Tax Contributions shall be paid to the Trustee in installments. The
installment for each payroll period shall be paid as soon as administratively
feasible. The Matching Contributions, Supplemental Contributions and QNECs for a
Plan Year shall be paid to the Trustee in one or more installments, as the
Employer may from time to time determine; provided, however, that such
contributions may not be paid later than the time prescribed by law (including
extensions thereof) for filing the Employer's income tax return for its taxable
year ending with or within such Plan Year.
3.11 RETURN OF CONTRIBUTIONS FOR MISTAKE, DISQUALIFICATION OR DISALLOWANCE
OF DEDUCTION. Subject to the limitations of section 415 of the Code, the assets
of the Trust shall not
III-2
revert to any Employer or be used for any purpose other than the exclusive
benefit of Participants, former Participants and their Beneficiaries and the
reasonable expenses of administering the Plan except:
(a) any Employer Contribution made because of a mistake of fact may
be repaid to the Employer within one year after the payment of the
Contribution; and
(b) all Employer Contributions are conditioned upon their
deductibility under section 404 of the Code; therefore, to the extent the
deduction is disallowed, the Contributions may be repaid to the Employer
within one year after the disallowance.
The Employer has the exclusive right to determine if a Contribution or any
part of it is to be repaid or is to remain as a part of the Trust except that
the amount to be repaid is limited, if the Contribution is made by mistake of
fact or if the deduction for the Contribution is disallowed, to the excess of
the amount contributed over the amount that would have been contributed had
there been no mistake or over the amount disallowed. Earnings which are
attributable to any excess contribution cannot be repaid. Losses attributable to
an excess contribution must reduce the amount that may be repaid. All repayments
of Contributions made due to a mistake of fact or with respect to which a
deduction is disallowed are limited so that the balance in a Participant's or
former Participant's Account cannot be reduced to less than the balance that
would have been in the Participant's or former Participant's Account had the
mistaken amount or the amount disallowed never been contributed.
III-3
ARTICLE IV
ALLOCATION AND VALUATION OF ACCOUNTS
4.01 INFORMATION STATEMENTS FROM EMPLOYER. Upon request by the Committee,
the Employer shall provide the Committee with a schedule setting forth the
amount of its Salary Deferral Contribution, Supplemental Contribution, QNEC, and
restoration contribution; the names of its Participants, the number of years of
Active Service of each of its Participants, the amount of Considered
Compensation and Annual Compensation paid to each Participant, and the amount of
Considered Compensation and Annual Compensation paid to all its Participants.
Such schedules shall be conclusive evidence of such facts.
4.02 ALLOCATION OF SALARY DEFERRAL CONTRIBUTIONS. The Committee or its
designee shall allocate the Salary Deferral Contribution among the Participants
by allocating to each Participant the amount by which his Considered
Compensation was reduced pursuant to a salary deferral agreement (as described
in Section 3.01) and shall credit each such Participant's share to his Salary
Deferral Contribution Account.
4.03 ALLOCATION OF AFTER-TAX CONTRIBUTIONS. The Committee or its designee
shall allocate After-Tax Contributions made by a Participant in the amount of
such After-Tax Contributions and shall credit such After-Tax Contributions to
the Participants After-Tax Contribution Account.
4.04 ALLOCATION OF MATCHING CONTRIBUTIONS. The Committee or its designee
shall separately allocate the Matching Contribution made by an Employer among
the Employer's Participants in the proportion which the matched Salary Deferral
Contributions and matched After-Tax Contributions of each such Participant bears
to the total matched Salary Deferral Contributions and matched After-Tax
Contributions of all such Participants. Each Participant's proportionate share
shall be credited to his Matching Contribution Account.
4.05 ALLOCATION OF SUPPLEMENTAL CONTRIBUTIONS. For each Plan Year, the
Committee or its designee shall allocate the Supplemental Contribution made by
an Employer among the Participants who are employed by the Employer during the
Plan Year, based upon each such Participant's Considered Compensation paid by
the Employer as compared to the Considered Compensation for all such
Participants employed by the Employer and eligible for the allocation.
4.06 ALLOCATION OF QNECS. The Committee or its designee shall separately
allocate the QNEC among the Non-Highly Compensated Employees who are
Participants based upon each such Participant's Considered Compensation as
compared to the Considered Compensation of all such Participants.
4.07 ALLOCATION OF FORFEITURES. At the time a forfeiture occurs pursuant
to Article VIII, the amount forfeited will first be used to reinstate any
Account required to be reinstated under Article VIII, and any remaining amount
will be applied to the payment of Matching Contributions or Supplemental
Contributions.
4.08 VALUATION OF ACCOUNTS. A Participant's or former Participant's
Accounts shall be valued by the Trustee at fair market value on each Valuation
Date. The earnings and losses
IV-1
attributable to any asset in the Trust will be allocated solely to the Account
of the Participant or former Participant on whose behalf the investment in the
asset was made. In determining the fair market value of the Participants' or
former Participant's Accounts, the Trustee shall utilize such sources of
information as it may deem reliable including, but not limited to, stock market
quotations, statistical evaluation services, newspapers of general circulation,
financial publications, advice from investment counselors or brokerage firms, or
any combination of sources which in the opinion of the Trustee will provide the
price such assets were last traded at on a registered stock exchange; provided,
however, that with respect to regulated investment company shares, the Trustee
shall rely exclusively on information provided to it by the investment adviser
to such funds.
4.09 NO RIGHTS UNLESS OTHERWISE PRESCRIBED. No allocations, adjustments,
credits, or transfers shall ever vest in any Participant or former Participant
any right, title, or interest in the Trust except at the times and upon the
terms and conditions set forth in the Plan.
IV-2
ARTICLE V
BENEFITS
5.01 RETIREMENT BENEFIT. Upon his Separation From Service, a Participant
or former Participant is entitled to receive his Nonforfeitable Interest in his
Account balances.
5.02 DEATH BENEFIT. If a Participant or former Participant dies, the death
benefit payable to his Beneficiary shall be the Participant's Nonforfeitable
Interest in 100 percent of the remaining amount of his Account balances.
5.03 DISTRIBUTION METHOD. Any distribution under the Plan shall be made in
the form of a cash lump sum.
5.04 IMMEDIATE PAYMENT OF SMALL AMOUNT UPON SEPARATION FROM SERVICE. Each
Participant or former Participant whose Nonforfeitable Interest in his Account
balance at the time of a distribution to him on account of his Separation From
Service is, in the aggregate, less than or equal to $5,000.00, shall be paid in
the form of an immediate single sum cash payment and/or as a Direct Rollover, as
elected by him under section 5.05. However, if a Distributee who is subject to
this Section 5.04 does not furnish instructions in accordance with Plan
procedures to directly roll over his Plan benefit within 45 days after he has
been given direct rollover forms, he will be deemed to have elected to receive
an immediate lump sum cash distribution of his entire Plan benefit. If a
Participant's or former Participant's Nonforfeitable Interest in his Account
balance payable upon his Separation From Service is zero (because he has no
Nonforfeitable Interest in his Account balance), he will be deemed to receive an
immediate distribution of his entire Nonforfeitable Interest in his Account
balance.
5.05 DIRECT ROLLOVER OPTION. To the extent required under Regulations, a
Distributee has the right to direct that any portion of his Eligible Rollover
Distribution will be directly paid to an Eligible Retirement Plan specified by
him that will accept the Eligible Rollover Distribution.
5.06 DISTRIBUTION UPON DISPOSITION OF ASSETS OR A SUBSIDIARY. A
Participant or former Participant who is employed by an Employer that is a
corporation is entitled to receive a lump sum cash distribution of his
Nonforfeitable Interest in his Account balance in the event of the sale or other
disposition by the Employer of at least 85 percent of all of the assets used by
the Employer in a trade or business of the Employer to an unrelated corporation
if (a) the Employer continues to maintain the Plan after the disposition and (b)
in connection with the disposition the Participant or former Participant is
transferred to the employ of the corporation acquiring the assets
A Participant or former Participant is entitled to receive a lump sum cash
distribution of his Nonforfeitable Interest in his Account balance in the event
of the sale or other disposition by the Sponsor of its interest in a subsidiary
(within the meaning of Section 409(d)(3) of the Code) to an unrelated entity or
individual if (a) the Sponsor continues to maintain the Plan after the
disposition and (b) in connection with the disposition the Participant continues
employment with the subsidiary.
V-1
The selling Employer is treated as continuing to maintain the Plan after
the disposition only if the purchaser does not maintain the Plan after the
disposition. A purchaser is considered to maintain the Plan if it adopts the
Plan, becomes an employer whose employees accrue benefits under the Plan, or if
the Plan is merged or consolidated with, or any assets or liabilities are
transferred from the Plan to, a plan maintained by the purchaser in a
transaction that is subject to Section 414(1)(1) of the Code. An unrelated
corporation, entity or individual is one that is not required to be aggregated
with the selling Employer under Section 414(b), (c), (m), or (o) of the Code
after the sale or other disposition.
If a Participant's Nonforfeitable Interest in his Account balance is
$5,000.00 or less on the date of the disposition, the Committee will direct the
Trustee to pay to the Participant, a lump sum cash distribution of his
Nonforfeitable Interest in his Account balance as soon as administratively
practicable following the disposition and any Internal Revenue Service approval
of the distribution that the Committee deems advisable to obtain.
If a Participant's Nonforfeitable Interest in his Account balance is more
than $5,000.00 on the date of the disposition, he may elect (1) to receive a
lump sum cash distribution of his Nonforfeitable Interest in his Account balance
as soon as administratively practicable following the disposition and receipt of
any Internal Revenue Service approval of the distribution that the Committee
deems advisable to obtain, or (2) he may elect to defer receipt of his
Nonforfeitable Interests in his Account balance until the first day of the month
coincident with or next following the date that he attains Retirement Age. In
the manner and at the time required under Regulations, the Committee will
provide the Participant with a notice of his right to defer receipt of his
Account balance described in Section 5.09.
However, no distribution shall be made to a Participant under this Section
5.06 after the end of the second calendar year following the calendar year in
which the disposition occurred. In addition, no distribution shall be made under
this Section unless it is a lump sum distribution within the meaning of section
402(e)(4)(D) of the Code, without regard to subclauses (I), (II), (III), and
(IV) of clause (i) thereof.
5.07 TIME OF DISTRIBUTION. Notwithstanding any other provision of the
Plan, any benefit payable under the Plan shall be distributed in compliance with
the following provisions:
(a) DISTRIBUTION DEADLINES FOR PARTICIPANTS OR FORMER PARTICIPANTS
WHO ARE 70 1/2 OR OLDER. If a Participant or former Participant attains 70
1/2, the Participant or former Participant must elect to receive the
distribution required under section 401(a)(9) of the Code in one lump sum
which must be paid by his Required Beginning Date.
(b) DISTRIBUTION DEADLINE FOR DEATH BENEFITS. If a Participant or
former Participant dies before the distribution of his Plan benefit has
commenced, his entire interest shall be distributed within five years
after his death.
(c) LIMITATIONS ON DEATH BENEFITS. Benefits payable under the Plan
shall not be provided in any form that would cause a Participant's death
benefit to be more than incidental. Any distribution required to satisfy
the incidental benefit requirement shall be considered a required
distribution for purposes of section 401(a)(9) of the Code.
V-2
(d) COMPLIANCE WITH SECTION 401(A)(9). All distributions under the
Plan will be made in accordance with the requirements of section 401(a)(9)
of the Code and all Regulations promulgated thereunder. The provisions of
the Plan reflecting section 401(a)(9) of the Code override any
distribution options in the Plan inconsistent with such Section.
(e) COMPLIANCE WITH SECTION 401(A)(14). Unless the Participant or
former Participant otherwise elects, the payment of benefits under the
Plan to the Participant or former Participant will begin not later than
the 60th day after the close of the Plan Year in which occurs the latest
of (a) the date on which the Participant or former Participant attains the
later of age 62 or Retirement Age, (b) the tenth anniversary of the year
in which the Participant or former Participant commenced participation in
the Plan, or (c) the Participant's or former Participant's Separation From
Service.
5.08 CONSENT TO DISTRIBUTION. Notwithstanding any other provision of the
Plan, no benefit shall be distributed or commence to be distributed to a
Participant or former Participant prior to his attainment of the later of age 62
or Retirement Age without his consent, unless the benefit is payable immediately
under Section 5.04. Any such consent shall be valid only if given not more than
90 days prior to the Participant's or former Participant's Annuity Starting Date
and after his receipt of the notice regarding benefits described in Section
5.09(a).
5.09 INFORMATION PROVIDED TO PARTICIPANTS. Information regarding the form
of benefits available under the Plan shall be provided to Participants or former
Participants in accordance with the following provisions:
(a) GENERAL INFORMATION. The Sponsor shall provide each Participant
or former Participant with a written general explanation of the
Participant's or former Participant's right, if any, to defer receipt of
the distribution.
(b) TIME FOR GIVING NOTICE. The written general explanation or
description regarding any optional forms of benefit available under the
Plan shall be provided to a Participant or former Participant no less than
30 days and no more than 90 days before his Annuity Starting Date unless
he legally waives this requirement.
5.10 DESIGNATION OF BENEFICIARY. Each Participant and former Participant
has the right to designate and to revoke the designation of his Beneficiary or
Beneficiaries. Each designation or revocation must be evidenced by a written
document in the form required by the Committee, signed by the Participant or
former Participant and filed with the Committee. If no designation is on file at
the time of a Participant's or former Participant's death or if the Committee
determines that the designation is ineffective, the designated Beneficiary shall
be the Participant's or former Participant's Spouse, if living, or if not, the
executor, administrator or other personal representative of the Participant's or
former Participant's estate. If a Participant or former Participant is
considered to be married under local law, his designation of any Beneficiary,
other than his Spouse, shall not be valid unless the Spouse acknowledges in
writing that the Spouse understands the effect of the Participant's or former
Participant's beneficiary designation and consents to it. The consent must be to
a specific Beneficiary. The written acknowledgement and consent must be filed
with the Committee, signed by the Spouse and at
V-3
least two witnesses, one of whom must be a member of the Committee or a notary
public. However, if the Spouse cannot be located or there exist other
circumstances as described in sections 401(a)(11) and 417(a)(2) of the Code, the
requirement of the Participant's or former Participant's Spouse's
acknowledgement and consent may be waived. If a Beneficiary other than the
Participant's or former Participant's Spouse is named, the designation shall
become invalid if the Participant or former Participant is later determined to
be married under local law, the Participant's or former Participant's missing
Spouse is located or the circumstances which resulted in the waiver of the
requirement of obtaining the consent of his Spouse no longer exist.
5.11 DISTRIBUTIONS TO DISABLED PERSONS. If the Committee determines that
any person to whom a payment is due is unable to care for his affairs because of
physical or mental disability, it shall have the authority to cause the payments
to be made to the Spouse, brother, sister or other person the Committee
determines to have incurred, or to be expected to incur, expenses for that
person unless a prior claim is made by a qualified guardian or other legal
representative. The Committee and the Trustee shall not be responsible to
oversee the application of those payments. Payments made pursuant to this power
shall be a complete discharge of all liability under the Plan and the Trust and
the obligations of the Employer, the Trustee, the Trust and the Committee.
5.12 DISTRIBUTIONS PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDERS. The
Committee will instruct the Trustee to pay benefits in accordance with the terms
of any order that has been determined, in accordance with Plan procedures, to be
a Qualified Domestic Relations Order. A Qualified Domestic Relations Order may
require the payment of an immediate cash lump sum to an alternate payee even if
the Participant or former Participant is not then entitled to receive an
immediate payment of Plan benefits.
5.13 CLAIMS PROCEDURE. When a benefit is due, the Participant, former
Participant or Beneficiary should submit his claim to the person or office
designated by the Committee to receive claims. Under normal circumstances, a
final decision shall be made as to a claim within 90 days after receipt of the
claim. If the Committee notifies the claimant in writing during the initial
90-day period, it may extend the period up to 180 days after the initial receipt
of the claim. The written notice must contain the circumstances necessitating
the extension and the anticipated date for the final decision. If a claim is
denied during the claims period, the Committee must notify the claimant in
writing. The denial must include the specific reasons for it, the Plan
provisions upon which the denial is based, and the claims review procedure. If
no action is taken during the claims period, the claim is treated as if it were
denied on the last day of the claims period.
If a Participant's, former Participant's or Beneficiary's claim is denied
and he wants a review, he must apply to the Committee in writing. That
application may include any comment or argument the claimant wants to make. The
claimant may either represent himself or appoint a representative, either of
whom has the right to inspect all documents pertaining to the claim and its
denial. The Committee may schedule any meeting with the claimant or his
representative that it finds necessary or appropriate to complete its review.
The request for review must be filed within 60 days after the denial. If
it is not, the denial becomes final. If a timely request is made, the Committee
must make its decision, under
V-4
normal circumstances, within 60 days of the receipt of the request for review.
However, if the Committee notifies the claimant prior to the expiration of the
initial review period, it may extend the period of review up to 120 days
following the initial receipt of the request for a review. All decisions of the
Committee must be in writing and must include the specific reasons for their
action and the Plan provisions on which their decision is based. If a decision
is not given to the claimant within the review period, the claim is treated as
if it were denied on the last day of the review period.
V-5
ARTICLE VI
IN-SERVICE DISTRIBUTIONS
6.01 IN-SERVICE FINANCIAL HARDSHIP DISTRIBUTIONS.
(a) GENERAL. Prior to his Separation From Service, a Participant is
entitled to receive a distribution from his Salary Deferral Contribution
Account (except for income that was not credited to his Salary Deferral
Account as of December 31, 1988), his Rollover Account, his After-Tax
Contribution Account, his Nonforfeitable Interest in his Matching
Contribution Account and his Nonforfeitable Interest in his Supplemental
Contribution Account in the event of an immediate and heavy financial need
incurred by the Participant and the Committee's determination that the
withdrawal is necessary to alleviate that hardship.
(b) PERMITTED REASONS FOR FINANCIAL HARDSHIP DISTRIBUTIONS. A
distribution shall be made on account of financial hardship only if the
distribution is for: (i) expenses for medical care described in section
213(d) of the Code previously incurred by the Participant, the
Participant's Spouse, or any dependents of the Participant (as defined in
section 152 of the Code) or necessary for these persons to obtain medical
care described in section 213(d) of the Code, (ii) costs directly related
to the purchase (excluding mortgage payments) of a principal residence for
the Participant, (iii) payment of tuition and related educational fees for
the next 12 months of post-secondary education for the Participant, his
Spouse, children, or dependents (as defined in section 152 of the Code),
(iv) payments necessary to prevent the eviction of the Participant from
his principal residence or foreclosure on the mortgage of the
Participant's principal residence, or (v) any other event added to this
list by the Commissioner of Internal Revenue.
(c) AMOUNT. A distribution to satisfy an immediate and heavy
financial need shall not be made in excess of the amount of the immediate
and heavy financial need of the Participant and the Participant must have
obtained all distributions, other than hardship distributions, and all
nontaxable (at the time of the loan) loans currently available under all
plans maintained by the Employer. The amount of a Participant's immediate
and heavy financial need includes any amounts necessary to pay any
federal, state or local income taxes or penalties reasonably anticipated
to result from the financial hardship distribution.
(d) SUSPENSION OF PARTICIPATION IN CERTAIN BENEFIT PROGRAMS. The
Participant's hardship distribution shall terminate his right to have the
Employer make any Salary Deferral Contributions on his behalf until the
next time Salary Deferral Contributions are permitted after the lapse of
12 months following the hardship distribution and his timely filing of a
written request to resume his Salary Deferral Contributions. In addition,
for 12 months after he receives a hardship distribution from the Plan, the
Participant is prohibited from making elective contributions and employee
contributions to or under all other qualified and nonqualified plans of
deferred compensation maintained by the Employer, including stock option
plans, stock purchase plans and Code section 401(k) cash or deferred
arrangements that are part of cafeteria
VI-1
plans described in section 125 of the Code. However, the Participant is
not prohibited from making contributions to a health or welfare benefit
plan, including one that is part of a cafeteria plan within the meaning of
section 125 of the Code.
(e) RESUMPTION OF SALARY DEFERRAL CONTRIBUTIONS. When the
Participant resumes Salary Deferral Contributions, he cannot have the
Employer make any Salary Deferral Contributions in excess of the limit in
section 402(g) of the Code for that taxable year reduced by the amount of
Salary Deferral Contributions made by the Employer on the Participant's
behalf during the taxable year of the Participant in which he received the
hardship distribution.
(f) ORDER OF DISTRIBUTIONS. Financial hardship distributions will be
made in the following order: First withdrawals will be made from the
Participant's After-Tax Contribution Account, then from his Rollover
Contribution Account, then from his Matching Contribution Account, then
from his Supplemental Contribution Account and finally, from his Salary
Deferral Contribution Account. A Participant shall not be entitled to
receive a financial hardship distribution of any amount credited to his
QNEC Account.
6.02 IN-SERVICE DISTRIBUTION OF AFTER-TAX CONTRIBUTIONS, MATCHING
CONTRIBUTIONS AND SUPPLEMENTAL CONTRIBUTIONS. Each Participant shall be entitled
to withdraw a portion or all of his After-Tax Contribution Account and his
Nonforfeitable Interest in his Matching Contribution Account and his
Supplemental Contribution Account. However, the minimum amount of the
distribution permitted under this Section 6.02 shall be the lesser of $1,000.00
or the total amount which could otherwise be distributed under this Section
6.02. Also, a Participant may make a withdrawal of a portion of his
Nonforfeitable Interest in his Matching Contribution Account and his
Supplemental Contribution Account only if the Participant has been a Participant
in this Plan for five or more years or the amounts withdrawn from the Matching
Contribution Account and his Supplement Contribution Account have been credited
to his Account for a minimum of two years. A Participant may not make another
distribution request under this Section 6.02 until such Participant has made
After-Tax Contributions and/or Salary Deferral Contributions for a period of
twelve months or more after receiving his most recent distribution pursuant to
this Section 6.02.
6.03 METHOD OF PAYMENT. Any distribution made pursuant to this Article VI
will be paid in the form of a cash lump sum.
6.04 IN-SERVICE DISTRIBUTIONS FOR CERTAIN FORMER PARTICIPANTS. Former
Participants who are described in Section 5.06 shall be entitled to receive
distributions pursuant to this Article VI under the same terms and conditions as
are applicable to Participants.
VI-2
ARTICLE VII
VESTING
A Participant or former Participant has a fully nonforfeitable interest in
his entire Account balance when he (a) incurs a Disability on or prior to the
date of his Separation From Service, (b) attains his Normal Retirement Age on or
prior to the date of his Separation From Service, or (c) incurs a Separation
From Service due to death. A Participant or former Participant shall at all
times have a fully nonforfeitable interest in amounts credited to his Salary
Deferral Contribution Account, QNEC Account, Rollover Account and After-Tax
Contribution Account. A Participant or former Participant shall have a
nonforfeitable interest in the following percentage of amounts credited to his
Matching Contribution Account and his Supplemental Contribution Account:
Years of Active Service Completed by the
Participant or Former Participant Vested Percentage
- ---------------------------------------- -----------------
Less than one................................................. 0
One but less than two......................................... 20
Two but less than three....................................... 40
Three but less than four...................................... 60
Four but less than five....................................... 80
Five or more.................................................. 100
Subject to the possible application of Section B.2.3 of Appendix B or
Section 11.05, except as specified above, a Participant or former Participant
has no vested interest in his Account balance and shall not be entitled to any
benefits under the Plan upon or following his Separation From Service.
VII-1
ARTICLE VIII
FORFEITURES AND RESTORATIONS
8.01 FORFEITURE ON TERMINATION OF PARTICIPATION.
(a) If as a result of his Separation From Service a Participant or
former Participant receives (or is deemed to receive under Section 5.04),
a distribution of his entire Nonforfeitable Interest in the Plan not later
than the end of the second Plan Year following the Plan Year in which his
Separation From Service occurs, the remaining nonvested portion of his
Account balance will be immediately forfeited upon the distribution.
(b) If, not later than the end of the second Plan Year following the
Plan Year in which his Separation From Service occurs, a Participant or
former Participant receives a distribution of less than the full amount of
his entire Nonforfeitable Interest in his Account balance as a result of
his Separation From Service pursuant to his voluntary election to receive
such distribution, the remaining nonvested portion of his Account balance
will be forfeited immediately upon the distribution.
(c) If a Participant or former Participant neither receives nor is
deemed to receive a distribution as a result of his Separation From
Service, the nonvested portion of his Account balance will be permanently
forfeited (with no right of reinstatement under Section 8.02) on the LATER
of the date of his Separation From Service or the date on which he has
incurred a Period of Severance of five consecutive years.
8.02 RESTORATION OF FORFEITED AMOUNTS. If a Participant or former
Participant who forfeited any portion of his Account balance pursuant to the
provisions of Section 8.01 subsequently performs an Hour of Service, then the
following provisions shall apply:
(a) REPAYMENT REQUIREMENT. The Participant's Account balance
(unadjusted for gains or losses subsequent to the forfeiture) shall be
restored if he repays to the Trustee the full amount of any distribution
with respect to which the forfeiture arose prior to the EARLIER of (1) the
date on which he incurs a Period of Severance of five years commencing
after his distribution, or (2) the fifth anniversary of the first date on
which the Participant subsequently performs his first Hour of Service
after his Separation From Service. A Participant who is deemed to have
received a distribution under Section 5.04 (because he had no
Nonforfeitable Interest in his Account balance) will be deemed to have
repaid his Account balance upon his reemployment if he is reemployed
before the earlier of the dates specified in clauses (1) and (2) in the
preceding sentence.
(b) AMOUNT RESTORED. The amount to be restored under the preceding
provisions of this Section 8.02 shall be the dollar value of the Account
balance, both the amount distributed and the amount forfeited. The
Participant's Account balance shall be restored as soon as
administratively practicable after the later of the date the Participant
first performs an Hour of Service after his Separation From Service or the
date on which any required repayment is completed.
VIII-1
(c) NO OTHER BASIS FOR RESTORATION. Except as otherwise provided
above, a Participant's Account balance shall not be restored after it has
been forfeited pursuant to Section 8.01.
8.03 FORFEITURES BY LOST PARTICIPANTS OR BENEFICIARIES. If a person who is
entitled to a distribution cannot be located during a reasonable search after
the Committee has initially attempted making payment, his Account balance shall
be forfeited. However, if at any time prior to the termination of the Plan and
the complete distribution of the Trust assets, the missing former Participant or
Beneficiary files a claim with the Committee for the forfeited Account balance,
that Account balance shall be reinstated (without adjustment for trust income or
losses during the period of forfeiture) effective as of the date of the receipt
of the claim.
VIII-2
ARTICLE IX
ACTIVE SERVICE
9.01 GENERAL. For purposes of determining an Employee's eligibility to
participate in the Plan and his nonforfeitable interest in his Account balance,
the Employee shall receive credit for Active Service commencing on the later of
(1) April 1, 1986 or (2) the date he first performs an Hour of Service and
ending on his Severance From Service Date. If an Employee Severs Service, he
shall recommence earning Active Service when he again performs an Hour of
Service. If an Employee performs an Hour of Service within twelve months after
his Severance From Service Date, the intervening Period of Severance shall be
counted as Active Service. When determining an Employee's Active Service, all
Periods of Service, whether or not completed consecutively, shall be aggregated
on a per-day basis. In aggregating Active Service, thirty days shall be counted
as one month and 365 days shall be counted as one year of Active Service.
9.02 DISREGARD OF CERTAIN SERVICE. If an Employee incurs a Separation From
Service at a time when he does not have a Nonforfeitable Interest in a portion
of his Matching Contribution Account balance or his Supplemental Contribution
Account balance and his Period of Severance continues for a continuous period of
five years or more, the Period of Service completed by the Employee before the
Period of Severance shall not be taken into account as Active Service, if his
Period of Severance equals or exceeds his Period of Service, whether or not
consecutive, completed before the Period of Severance.
9.03 CERTAIN BRIEF ABSENCES COUNTED AS ACTIVE SERVICE. If an Employee
performs an Hour of Service within 365 days after he Severs Service, the
intervening Period of Severance shall be counted as a Period of Service.
9.04 SERVICE CREDIT REQUIRED BY LAW. An Employee will be granted credit
for Active Service for time he is not actively performing services for an
Affiliated Employer the extent required under federal law.
9.05 SPECIAL MATERNITY OR PATERNITY ABSENCE RULES. Except as specified
below, the period of time between (a) the first anniversary of the first day of
a Maternity or Paternity Absence of an Employee and (b) the second anniversary
of the first day of the absence shall not be counted as a Period of Severance or
as Active Service. However, if the Employee returns to active employment with an
Affiliated Employer prior to the expiration of twelve months following the
earlier of (1) the date of his Separation From Service or (2) the second
anniversary of the first day of his Maternity or Paternity Absence, he shall be
granted Active Service for the entire period of his Maternity or Paternity
Absence.
9.06 EMPLOYMENT RECORDS CONCLUSIVE. The employment records of the Employer
shall be conclusive for all determinations of Active Service.
IX-1
ARTICLE X
INVESTMENT ELECTIONS
10.01 INVESTMENT FUNDS ESTABLISHED. It is contemplated that the assets of
the Plan shall be invested in such categories of assets as may be determined
from time to time by the Committee and announced and made available on an equal
basis to all Participants and former Participants. In accordance with procedures
established by the Committee, each Participant and former Participant may
designate the percentage of his Account to be invested in each investment fund
available under the Plan. Up to one hundred percent of the Trust assets may be
invested in Sponsor Stock.
10.02 ELECTION PROCEDURES ESTABLISHED. The Committee shall, from time to
time, establish rules to be applied in a nondiscriminatory manner as to all
matters relating to the administration of the investment of funds including, but
not limited to, the following:
(a) the percentage of a Participant's or former Participant's
Account as it exists, from time to time, that may be transferred from one
fund to another and the limitations based on amounts, percentages, time,
or frequency, if any, on such transfers;
(b) the percentage of a Participant's future contributions, when
allocated to his Account, that may be invested in any one or more funds
and the limitations based upon amounts, percentages, time, or frequency,
if any, on such investments in various funds;
(c) the procedures for making investment elections and changing
existing investment elections;
(d) the period of notice required for making investment elections
and changing existing investment elections;
(e) the handling of income and change of value in funds when funds
are in the process of being transferred between investment funds and to
investment funds; and
(f) all other matters necessary to permit the orderly operation of
investment funds within the Plan.
When the Committee changes any previous applicable rule, it shall state the
effective time of the change and the procedures for complying with any such
change. Any change shall remain effective until such date as stated in the
change, or if none is stated, then until revoked or changed in a like manner.
X-1
ARTICLE XI
ADOPTION OF PLAN BY OTHER EMPLOYERS
11.01 ADOPTION PROCEDURE. Any business organization may, with the approval
of the Board, adopt the Plan by:
(a) a certified resolution or consent of the board of directors of
the adopting Employer or an executed adoption instrument (approved by the
board of directors of the adopting Employer) agreeing to be bound as an
Employer by all the terms, conditions and limitations of the Plan except
those, if any, specifically described in the adoption instrument; and
(b) providing all information required by the Committee and the
Trustee.
11.02 NO JOINT VENTURE IMPLIED. The document which evidences the adoption
of the Plan by an Employer shall become a part of the Plan. However, neither the
adoption of the Plan and the Trust by an Employer nor any act performed by it in
relation to the Plan and the Trust shall ever create a joint venture or
partnership relation between it and any other Employer.
11.03 ALL TRUST ASSETS AVAILABLE TO PAY ALL BENEFITS. The Accounts of
Participants employed by the Employers that adopt the Plan shall be commingled
for investment purposes. All assets in the Trust shall be available to pay
benefits to all Participants employed by any Employer.
11.04 QUALIFICATION A CONDITION PRECEDENT TO ADOPTION AND CONTINUED
PARTICIPATION. The adoption of the Plan and the Trust by a business organization
is contingent upon and subject to the express condition precedent that the
initial adoption meets all statutory and regulatory requirements for
qualification of the Plan and the exemption of the Trust that are applicable to
it and that the Plan and Trust continue in operation to maintain their qualified
and exempt status. In the event the adoption fails to initially qualify, the
adoption shall fail retroactively for failure to meet the condition precedent
and the portion of the Trust assets applicable to the adoption shall be
immediately returned to the adopting business organization and the adoption
shall be void ab initio. In the event the adoption as to a given business
organization later becomes disqualified and loses its exemption for any reason,
the adoption shall fail retroactively for failure to meet the condition
precedent and the portion of the Trust assets allocable to the adoption by that
business organization shall be immediately spun off, retroactively as of the
last date for which the Plan qualified, to a separate trust for its sole benefit
and an identical but separate Plan shall be created, retroactively effective as
of the last date the Plan as adopted by that business organization qualified,
for the benefit of the Participants covered by that adoption.
XI-1
ARTICLE XII
AMENDMENT AND TERMINATION
12.01 RIGHT TO AMEND AND LIMITATIONS THEREON. The Sponsor has the sole
right to amend the Plan. An amendment may be made by a certified resolution or
consent of the Board, or by an instrument in writing executed by the appropriate
officer of the Sponsor. The amendment must describe the nature of the amendment
and its effective date. No amendment shall:
(a) vest in an Employer any interest in the Trust;
(b) cause or permit the Trust assets to be diverted to any purpose
other than the exclusive benefit of the present, former or future
Participants and their Beneficiaries except under the circumstances
described in Section 3.11;
(c) decrease the Account of any Participant or former Participant,
or eliminate an optional form of payment in violation of section 411(d)(6)
of the Code; or
(d) change the vesting schedule to one which would result in a
Participant's or former Participant's Nonforfeitable Interest in his
Account balance (determined as of the later of the date of the adoption of
the amendment or of the effective date of the amendment) of any
Participant or former Participant being less than his Nonforfeitable
Interest computed under the Plan without regard to the amendment. If the
Plan's vesting schedule is amended or if the Plan is deemed amended by an
automatic change to or from a top-heavy vesting schedule, each Participant
or former Participant who has at least three years of Active Service as of
the date of the amendment or change shall have his nonforfeitable
percentage computed under the Plan without regard to the amendment or the
change if that results in a higher Nonforfeitable Interest in his Account
balance.
Each Employer shall be deemed to have adopted any amendment made by the
Sponsor unless the Employer notifies the Committee of its rejection in writing
within 30 days after it receives a copy of the amendment. A rejection shall
constitute a withdrawal from the Plan by that Employer unless the Sponsor
acquiesces in the rejection.
12.02 MANDATORY AMENDMENTS. The Contributions of each Employer to the Plan
are intended to be:
(a) deductible under the applicable provisions of the Code;
(b) except as otherwise prescribed by applicable law, exempt from
the Federal Social Security Act;
(c) except as otherwise prescribed by applicable law, exempt from
with- holding under the Code; and
(d) excludable from any Employee's regular rate of pay, as that term
is defined under the Fair Labor Standards Act of 1938, as amended.
XII-1
The Sponsor shall make any amendment necessary to carry out this
intention, and it may be made retroactively.
12.03 WITHDRAWAL OF EMPLOYER. An Employer may withdraw from the Plan and
the Trust if the Sponsor does not acquiesce in its rejection of an amendment or
by giving written notice of its intent to withdraw to the Committee. The
Committee shall then determine the portion of the Trust assets that is
attributable to the Participants employed by the withdrawing Employer and shall
notify the Trustee to segregate and transfer those assets to the successor
trustee when it receives a designation of the successor from the withdrawing
Employer.
A withdrawal shall not terminate the Plan and the Trust with respect to
the withdrawing Employer, if the Employer either appoints a successor trustee
and reaffirms the Plan and the Trust as its new and separate plan and trust
intended to qualify under section 401(a) of the Code, or establishes another
plan and trust intended to qualify under section 401(a) of the Code.
The determination of the Committee, in its sole discretion, of the portion
of the Trust assets that is attributable to the Participants employed by the
withdrawing Employer shall be final and binding upon all parties; and, the
Trustee's transfer of those assets to the designated successor Trustee shall
relieve the Trustee of any further obligation, liability or duty to the
withdrawing Employer, the Participants employed by that Employer and their
Beneficiaries, and the successor trustee.
12.04 TERMINATION OF PLAN. The Sponsor may terminate the Plan and the
Trust with respect to all Employers by executing and delivering to the Committee
and the Trustee, a notice of termination, specifying the date of termination.
12.05 PARTIAL OR COMPLETE TERMINATION OR COMPLETE DISCONTINUANCE OF
CONTRIBUTIONS. Without regard to any other provision of the Plan, if there is a
partial or total termination of the Plan or there is a complete discontinuance
of the Employer's Contributions, each of the affected Participants shall
immediately have a fully Nonforfeitable Interest in his Account as of the end of
the last Plan Year for which a substantial Employer Contribution was made and in
any amounts later allocated to his Account. If the Employer then resumes making
substantial Contributions at any time, the appropriate vesting schedule shall
again apply to all amounts allocated to each affected Participant's Account
beginning with the Plan Year for which they were resumed.
XII-2
ARTICLE XIII
MISCELLANEOUS
13.01 PLAN NOT AN EMPLOYMENT CONTRACT. The maintenance of the Plan and the
Trust is not a contract between any Employer and its Employees which gives any
Employee the right to be retained in its employment. Likewise, it is not
intended to interfere with the rights of any Employer to discharge any Employee
at any time or to interfere with the Employee's right to terminate his
employment at any time.
13.02 BENEFITS PROVIDED SOLELY FROM TRUST. All benefits payable under the
Plan shall be paid or provided for solely from the Trust. No Employer assumes
any liability or responsibility to pay any benefit provided by the Plan.
13.03 ASSIGNMENTS PROHIBITED. No principal or income payable or to become
payable from the Trust Fund shall be subject to anticipation or assignment by a
Participant, former Participant or Beneficiary to attachment by, interference
with, or control of any creditor of a Participant, former Participant or
Beneficiary; or to being taken or reached by any legal or equitable process in
satisfaction of any debt or liability of a Participant, former Participant, or
Beneficiary prior to its actual receipt by the Participant, former Participant
or Beneficiary. Any attempted conveyance, transfer, assignment, mortgage,
pledge, or encumbrance of any Trust assets, any part of it, or any interest in
it by a Participant, former Participant or Beneficiary prior to distribution
shall be void, whether that conveyance, transfer, assignment, mortgage, pledge,
or encumbrance is intended to take place or become effective before or after any
distribution of Trust assets or the termination of the Trust itself. The Trustee
shall never under any circumstances be required to recognize any conveyance,
transfer, assignment, mortgage, pledge or encumbrance by a Participant , former
Participant, or Beneficiary of the Trust, any part of it, or any interest in it,
or to pay any money or thing of value to any creditor or assignee of a
Participant, former Participant or Beneficiary for any cause whatsoever. These
prohibitions against the alienation of a Participant's Account shall not apply
to a Qualified Domestic Relations Order or to a voluntary revocable assignment
of benefits not in excess of ten percent of the amount of any payment from the
Plan if such assignment complies with Regulations issued under Section
401(a)(13) of the Code. Further, these prohibitions shall not apply to any
offset of a Participant's or former Participant's benefits provided under a Plan
against an amount that the Participant or former Participant is ordered or
required to pay to the Plan if--(a) the order or requirement to pay arises--(1)
under a judgment of conviction for a crime involving the Plan, (2) under a civil
judgment (including a consent order or decree) entered by a court in an action
brought in connection with an alleged violation of part 4 of subtitle B of title
I of ERISA, or (3) pursuant to a settlement agreement between the Secretary of
Labor and the Participant or former Participant in connection with a violation
(or alleged violation) of part 4 of subtitle B of ERISA by a fiduciary or any
other person, and (b) the judgment, order, decree, or settlement agreement
expressly provides for the offset of all or part of the amount ordered or
required to be paid to the Plan against the Participant's or former
Participant's benefits provided under the Plan.
13.04 REQUIREMENTS UPON MERGER OR CONSOLIDATION OF PLANS. The Plan shall
not merge or consolidate with or transfer any assets or liabilities to any other
plan unless each Participant would receive a benefit immediately after the
merger, consolidation, or transfer
XIII-1
which is equal to or greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation, or transfer (if the Plan
had then terminated).
13.05 GENDER OF WORDS USED. If the context requires it, words of one
gender when used in the Plan shall include the other gender, and words used in
the singular or plural shall include the other.
13.06 SEVERABILITY. Each provision of this Agreement may be severed. If
any provision is determined to be invalid or unenforceable, that determination
shall not affect the validity or enforceability of any other provision.
13.07 REEMPLOYED VETERANS. The requirements of the Uniformed Services
Employment and Reemployment Rights Act of 1994 will be complied with in the
operation of the Plan in the manner permitted under section 414(u) of the Code.
13.08 LIMITATIONS ON LEGAL ACTIONS. No person may bring an action
pertaining to the Plan or Trust until he has exhausted his administrative claims
and appeal remedies identified in section 5.13. Further, no person may bring an
action pertaining to a claim for benefits under the Plan or the Trust following
90 days after the Committee's final denial of his claim for benefits.
13.09 GOVERNING LAW. The provisions of the Plan shall be construed,
administered, and governed under the laws of the United States unless the
specific matter in question is governed by state law in which event the laws of
the State of Texas shall apply.
XIII-2
IN WITNESS WHEREOF, Quanex Corporation has caused this Agreement to be
executed this 28th day of December, 2000, in multiple counterparts, each of
which shall be deemed to be an original, to be effective the 1st day of January,
1998, except for those provisions which have an earlier effective date provided
by law, or as otherwise provided under applicable provisions of the Plan.
QUANEX CORPORATION
By PAUL GIDDENS
Title VICE PRESIDENT OF HUMAN RESOURCES
APPENDIX A
LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS
PART A.1 DEFINITIONS
DEFINITIONS. As used herein the following words and phrases have the
meaning attributed to them below:
A.1.1 "ACTUAL CONTRIBUTION RATIO" shall mean the ratio of Section 401(m)
Contributions actually paid into the Trust on behalf of an Employee for a Plan
Year to the Employee's Annual Compensation for the same Plan Year. For this
purpose, Annual Compensation for any portion of the Plan Year in which the
Employee was not an eligible Employee (as defined in Section A.2.4) will not be
taken into account.
A.1.2 "ACTUAL DEFERRAL PERCENTAGE" means, for a specified group of
Employees for a Plan Year, the average of the ratios (calculated separately for
each Employee in the group) of the amount of Section 401(k) Contributions
actually paid into the Trust on behalf of the Employee for the Plan Year to the
Employee's Annual Compensation for the Plan Year.
A.1.3 "ACTUAL DEFERRAL RATIO" means the ratio of Section 401(k)
Contributions actually paid into the Trust on behalf of an Employee for a Plan
Year to the Employee's Annual Compensation for the same Plan Year. For this
purpose, Annual Compensation for any portion of the Plan Year in which the
Employee was not an eligible Employee (as defined in Section A.2.3) will not be
taken into account.
A.1.4 "ANNUAL ADDITIONS" means the sum of the following amounts credited
on behalf of a Participant for the Limitation Year: (a) Employer contributions,
(b) Employee contributions and (c) forfeitures. Excess 401(k) Contributions for
a Plan Year are treated as Annual Additions for that Plan Year even if they are
corrected through distribution. Excess Deferrals that are timely distributed as
set forth in Section A.3.1 will not be treated as Annual Additions.
A.1.5 "CONTRIBUTION PERCENTAGE" shall mean, for a specified group of
Employees for a Plan Year, the average of the ratios (calculated separately for
each Employee in the group) of the amount of Section 401(m) Contributions
actually paid into the Trust on behalf of the Employee for the Plan Year to the
Employee's Annual Compensation for the Plan Year.
A.1.6 "EXCESS AGGREGATE 401(M) CONTRIBUTIONS" means, with respect to any
Plan Year, the excess of (a) the aggregate amount of Section 401(m)
Contributions actually paid into the Trust on behalf of Highly Compensated
Employees for the Plan Year over (b) the maximum amount of those contributions
permitted under the limitations set out in the first sentence of Section A.2.4.
A.1.7 "EXCESS AMOUNT" shall mean the excess of the Annual Additions
credited to the Participant's Account for the Limitation Year over the Maximum
Permissible Amount.
A.1.8 "EXCESS 401(K) CONTRIBUTIONS" means, with respect to any Plan Year,
the excess of (a) the aggregate amount of Section 401(k) Contributions actually
paid to the Trustee on behalf of Highly Compensated Employees for the Plan Year
over (b) the maximum amount of those contributions permitted under the
limitations set out in the first sentence of Section A.2.3.
A.1.9 "LIMITATION YEAR" shall mean the Plan Year. All qualified plans
maintained by any Affiliated Employer must use the same Limitation Year. If the
Limitation Year is amended to a different 12-consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year in which the
amendment is made.
A-1
A.1.10 "MAXIMUM PERMISSIBLE AMOUNT" shall mean the lesser of (a) the
dollar limitation in effect under section 415(c)(1)(A) of the Code for the
Limitation Year, or (b) 25 percent of the Participant's Annual Compensation for
the Limitation Year. The Annual Compensation limitation referred to in clause
(b) of the immediately preceding sentence shall not apply to any contribution
for medical benefits (within the meaning of section 401(h) or section
419(A)(f)(2) of the Code) that is otherwise treated as an Annual Addition under
section 415(L)(1) or section 419(A)(d)(2) of the Code. If a short Limitation
Year is created because of an amendment changing the Limitation Year to a
different 12-consecutive month period, the Maximum Permissible Amount shall not
exceed the dollar limitation in effect under section 415(c)(1)(A) of the Code
multiplied by a fraction, the numerator of which is the number of months in the
short Limitation Year, and the denominator of which is 12.
A.1.11 "SECTION 401(K) CONTRIBUTIONS" means the sum of Salary Deferral
Contributions made on behalf of the Participant during the Plan Year, and QNECs
that the Employer elects to have treated as section 401(k) Contributions
pursuant to section 401(k)(3)(d)(ii) of the Code.
A.1.12 "SECTION 401(M) CONTRIBUTIONS" shall mean the sum of Employer
Matching Contributions and After-Tax Contributions made on behalf of the
Participant during the Plan Year and other amounts that the Employer elects to
have treated as Section 401(m) Contributions pursuant to section 401(m)(3)(B) of
the Code. However, Employer Matching Contributions and Salary Deferral
Contributions that the Employer could otherwise elect to have treated as Section
401(m) Contributions are not Section 401(m) Contributions to the extent that
they are used to enable the Plan to satisfy the minimum contribution
requirements of section 416 of the Code.
PART A.2 LIMITATIONS ON CONTRIBUTIONS
A.2.1 LIMITATIONS BASED UPON DEDUCTIBILITY AND THE MAXIMUM ALLOCATION
PERMITTED TO A PARTICIPANT'S ACCOUNT. Notwithstanding any other provision of the
Plan, no Employer shall make any contribution that would be a nondeductible
contribution within the meaning of section 4972 of the Code or that would cause
the limitation on allocations to each Participant's Account under section 415 of
the Code and Section A.4.1 to be exceeded.
A.2.2 DOLLAR LIMITATION UPON SALARY DEFERRAL CONTRIBUTIONS. The maximum
Salary Deferral Contribution that a Participant may elect to have made on his
behalf during the Participant's taxable year may not, when added to the amounts
deferred under other plans or arrangements described in sections 401(k), 408(k)
and 403(b) of the Code, exceed $7,000 (as adjusted by the Secretary of
Treasury). For purposes of applying the requirements of Section A.2.3, Excess
Deferrals shall not be disregarded merely because they are Excess Deferrals or
because they are distributed in accordance with this Section. However, Excess
Deferrals made to the Plan on behalf of Non-Highly Compensated Employees are not
to be taken into account under Section A.2.3.
A.2.3 LIMITATION BASED UPON ACTUAL DEFERRAL PERCENTAGE. The Actual
Deferral Percentage for eligible Highly Compensated Employees for any Plan Year
must bear a relationship to the Actual Deferral Percentage for all other
eligible Employees for the PRECEDING Plan Year which meets either of the
following tests:
(a) the Actual Deferral Percentage of the eligible Highly
Compensated Employees is not more than the Actual Deferral Percentage of
all other eligible Employees multiplied by 1.25; or
(b) the excess of the Actual Deferral Percentage of the eligible
Highly Compensated Employees over that of all other eligible Employees is
not more than two percentage points, and the Actual Deferral Percentage of
the eligible Highly Compensated Employees is not more than the Actual
Deferral Percentage of all other eligible Employees multiplied by two.
For purposes of this test an eligible Employee is an Employee who is
directly or indirectly eligible to make Salary Deferral Contributions for all or
part of the Plan Year. A person who is suspended from making Salary Deferral
Contributions because he has made a withdrawal is an eligible Employee. If no
Salary Deferral Contributions are made for an eligible Employee, the Actual
Deferral Ratio that shall be included for him in
A-2
determining the Actual Deferral Percentage is zero. If the Plan and any other
plan or plans which include cash or deferred arrangements are considered as one
plan for purposes of section 401(a)(4) or 410(b) of the Code, the cash or
deferred arrangements included in the Plan and the other plans shall be treated
as one plan for purposes of this Section. If any Participant who is a Highly
Compensated Employee is a participant in any other cash or deferred arrangements
of the Employer, when determining the deferral percentage of such Participant,
all such cash or deferred arrangements are treated as one plan for these dates.
Notwithstanding the foregoing, an individual who is not a Highly
Compensated Employee will not be treated as an eligible Employee for purposes of
this Section A.2.3 if the Sponsor elects to apply section 401(b)(4)(B) of the
Code in determining whether the Plan meets the requirements of section 401(k)(3)
of the Code.
A Salary Deferral Contribution will be taken into account under the Actual
Deferral Percentage test of section 401(k) of the Code and this Section for a
Plan Year only if it relates to Considered Compensation that either would have
been received by the Employee in the Plan Year (but for the deferral election)
or is attributable to services performed by the Employee in the Plan Year and
would have been received by the Employee within 2 1/2 months after the close of
the Plan Year (but for the deferral election). In addition, a Section 401(k)
Contribution will be taken into account under the Actual Deferral Percentage
test of section 401(k) of the Code and this Section for a Plan Year only if it
is allocated to an Employee as of a date within that Plan Year. For this purpose
a Section 401(k) Contribution is considered allocated as of a date within a Plan
Year if the allocation is not contingent on participation or performance of
services after such date and the Section 401(k) Contribution is actually paid to
the Trust no later than 12 months after the Plan Year to which the Section
401(k) Contribution relates.
Failure to correct Excess 401(k) Contributions by the close of the Plan
Year following the Plan Year for which they were made will cause the Plan's cash
or deferred arrangement to be disqualified for the Plan Year for which the
Excess 401(k) Contributions were made and for all subsequent years during which
they remain in the Trust. Also, the Employer will be liable for a ten percent
excise tax on the amount of Excess 401(k) Contributions unless they are
corrected within 2 1/2 months after the close of the Plan Year for whiCh they
were made.
A.2.4 LIMITATION BASED UPON CONTRIBUTION PERCENTAGE. The Contribution
Percentage for eligible Highly Compensated Employees for any Plan Year must not
exceed the greater of the following:
(a) the Contribution Percentage for all other eligible Employees for
the preceding Plan Year multiplied by 1.25; or
(b) the lesser of the Contribution Percentage for all other eligible
Employees for the preceding Plan Year multiplied by two, or the
Contribution Percentage for all other eligible Employees for the preceding
Plan Year plus two percentage points.
For purposes of this test an eligible Employee is an Employee who is
directly or indirectly eligible to receive an allocation of Employer Matching
Contributions for all or part of the Plan Year. Except as provided below, an
Employee who would be eligible to receive an allocation of Employer Matching
Contributions but for his election not to participate is an eligible Employee.
An Employee who would be eligible to receive an allocation of Matching Employer
Contributions but for the limitations on his Annual Additions imposed by section
415 of the Code is an eligible Employee.
Notwithstanding the foregoing, an individual who is not a Highly
Compensated Employee will not be treated as an eligible Employee for purposes of
this Section A.2.4 if the Sponsor elects to apply section 401(b)(4)(B) of the
Code in determining whether the Plan meets the requirements of section 401(m)(2)
of the Code.
If no Section 401(m) Contributions are made on behalf of an eligible
Employee the Actual Contribution Ratio that shall be included for him in
determining the Contribution Percentage is zero. If the Plan and any other plan
or plans to which Section 401(m) Contributions are made are considered as one
plan for purposes of section 401(a)(4) or 410(b) of the Code, the Plan and those
plans are to be treated as one. The Actual Contribution Ratio of a Highly
Compensated Employee who is eligible to participate in more than one plan of an
Affiliated employer to which employee or matching contributions are made is
calculated by treating all the plans in which the
A-3
Employee is eligible to participate as one plan. However, plans that are not
permitted to be aggregated under Regulation section 1.410(m)-1(b)(3)(ii) are not
aggregated for this purpose.
An Employer Matching Contribution will be taken into account under this
Section for a Plan Year only if (1) it is allocated to the Employee's Account as
of a date within the Plan Year, (2) it is paid to the Trust no later than the
end of the 12-month period beginning after the close of the Plan Year, and (3)
it is made on behalf of an Employee on account of his Salary Deferral
Contributions for the Plan Year.
At the election of the Employer, a Participant's Salary Deferral
Contributions, and QNECs made on behalf of the Participant during the Plan Year
shall be treated as Section 401(m) Contributions that are Employer Matching
Contributions provided that the conditions set forth in Regulation section
1.401(m)-1(b)(5) are satisfied. Salary Deferral Contributions may not be treated
as Employer Matching Contributions for purposes of the contribution percentage
test set forth in this Section unless such contributions, including those taken
into account for purposes of the test set forth in this Section, satisfy the
actual deferral percentage test set forth in Section A.2.3. Moreover, Salary
Deferral Contributions and QNECs may not be taken into account for purposes of
the test set forth in this Section to the extent that such contributions are
taken into account in determining whether any other contributions satisfy the
actual deferral percentage test set forth in Section A.2.3. Finally, Salary
Deferral Contributions and QNECs may be taken into account for purposes of the
test set forth in this Section only if they are allocated to the Employee's
Account as of a date within the Plan Year being tested within the meaning of
Regulation section 1.401(k)-1(b)(4).
Failure to correct Excess Aggregate 401(m) Contributions by the close of
the Plan Year following the Plan Year for which they were made will cause the
Plan to fail to be qualified for the Plan Year for which the Excess Aggregate
401(m) Contributions were made and for all subsequent years during which they
remain in the Trust. Also, the Employer will be liable for a ten percent excise
tax on the amount of Excess Aggregate 401(m) Contributions unless they are
corrected within 2 1/2 months after the close of the Plan YeAr for which they
were made.
A.2.5 ALTERNATIVE LIMITATION BASED UPON ACTUAL DEFERRAL PERCENTAGE AND
CONTRIBUTION PERCENTAGE. If the second alternative permitted in Sections A.2.3
and A.2.4 is used for both the actual deferral percentage test and the
contribution percentage test the following additional limitation on Salary
Deferral Contributions shall apply. The Actual Deferral Percentage plus the
Contribution Percentage of the eligible Highly Compensated Employees cannot
exceed the greater of (a) or (b), where
(a) is the sum of:
(i) 1.25 times the greater of the Actual Deferral Percentage
or the Contribution Percentage of the eligible Non-Highly
Compensated Employees for the preceding Plan Year, and
(ii) the lesser of (x) two percentage points plus the lesser
of the Actual Deferral Percentage or the Contribution Percentage of
the eligible Non-Highly Compensated Employees for the preceding Plan
Year or (y) two times the lesser of the Actual Deferral Percentage
or the Contribution Percentage of the group of eligible Non-Highly
Compensated Employees for the preceding Plan Year; and
(b) is the sum of:
(i) 1.25 times the lesser of the Actual Deferral Percentage or
the Contribution Percentage of the eligible Non-Highly Compensated
Employees for the preceding Plan Year, and
(ii) the lesser of (x) two percentage points plus the greater
of the Actual Deferral Percentage or the Contribution Percentage of
the eligible Non-Highly Compensated Employees for the preceding Plan
Year or (y) two times the greater of the Actual Deferral Percentage
or the Contribution Percentage of the group of eligible Non-Highly
Compensated Employees for the preceding Plan Year.
A-4
PART A.3 CORRECTION PROCEDURES FOR ERRONEOUS CONTRIBUTIONS
A.3.1 EXCESS DEFERRAL FAIL SAFE PROVISION. As soon as practical after the
close of each Plan Year, the Committee shall determine if there would be any
Excess Deferrals. If there would be an Excess Deferral by a Participant, the
Excess Deferral as adjusted by any earnings or losses, will be distributed to
the Participant no later than April 15 following the Participant's taxable year
in which the Excess Deferral was made. The income allocable to the Excess
Deferrals for the taxable year of the Participant shall be determined by
multiplying the income for the taxable year of the Participant allocable to
Salary Deferral Contributions by a fraction. The numerator of the fraction is
the amount of the Excess Deferrals made on behalf of the Participant for the
taxable year. The denominator of the fraction is the Participant's total Salary
Deferral Account balance as of the beginning of the taxable year plus the
Participant's Salary Deferral Contributions for the taxable year.
A.3.2 ACTUAL DEFERRAL PERCENTAGE FAIL SAFE PROVISION. As soon as
practicable after the close of each Plan Year, the Committee shall determine
whether the Actual Deferral Percentage for the Highly Compensated Employees
would exceed the limitation set forth in Section A.2.3. If the limitation would
be exceeded for a Plan Year, before the close of the following Plan Year (a) the
amount of Excess 401(k) Contributions for that Plan Year (and any income
allocable to those contributions as calculated in the specific manner required
by Section A.3.5) shall be distributed or (b) the Employer may make a Qualified
Nonelective Employer Contribution which it elects to have treated as a Section
401(k) Contribution.
The amount of Excess 401(k) Contributions to be distributed shall be
determined in the following manner:
First, the Plan will determine how much the Actual Deferral Ratio of the
Highly Compensated Employee with the highest Actual Deferral Ratio would have to
be reduced to satisfy the Actual Deferral Percentage Test or cause such Actual
Deferral Ratio to equal the Actual Deferral Ratio of the Highly Compensated
Employee with the next highest Actual Deferral Ratio. If a lesser reduction
would enable the Plan to satisfy the Actual Deferral Percentage Test, only this
lesser reduction may be made. Second, this process is repeated until the Actual
Deferral Percentage Test is satisfied. The amount of Excess 401(k) Contributions
is equal to the sum of these hypothetical reductions multiplied, in each case,
by the Highly Compensated Employee's Annual Compensation.
Then, the total amount of Excess 401(k) Contributions shall be distributed
on the basis of the respective amounts attributable to each Highly Compensated
Employee. The Highly Compensated Employees subject to the actual distribution
are determined using the "dollar leveling method." The Salary Deferral
Contributions of the Highly Compensated Employee with the greatest dollar amount
of Salary Deferral Contributions and other contributions treated as Section
401(k) Contributions for the Plan Year are reduced by the amount required to
cause that Highly Compensated Employee's Salary Deferral Contributions to equal
the dollar amount of the Salary Deferral Contributions and other contributions
treated as Section 401(k) Contributions for the Plan Year of the Highly
Compensated Employee with the next highest dollar amount. This amount is then
distributed to the Highly Compensated Employee with the highest dollar amount.
However, if a lesser reduction, when added to the total dollar amount already
distributed under this Section A.3.2, would equal the total Excess 401(k)
Contributions, the lesser reduction amount shall be distributed. This process
shall be continued until the amount of the Excess 401(k) Contributions have been
distributed. Recharacterized Excess 401(k) Contributions will first be
determined using the ratio leveling method, then the dollar leveling method.
QNECs will be treated as Section 401(k) Contributions only if: (a) the
conditions described in Regulation section 1.401(k)-1(b)(5) are satisfied and
(b) they are allocated to Participants' Accounts as of a date within that Plan
Year and are actually paid to the Trust no later than the end of the 12-month
period immediately following the Plan Year to which the contributions relate. If
the Employer makes a QNEC that it elects to have treated as a Section 401(k)
Contribution, the Contribution will be in an amount necessary to satisfy the
Actual Deferral Percentage test and will be allocated first to those Non-Highly
Compensated Employees who had the lowest Actual Deferral Ratio. The Excess
401(k) Contributions of Highly Compensated Employees will not be recharacterized
to the extent that the recharacterized amounts would exceed the Contribution
Percentage as determined prior to applying the Contribution Percentage
limitations.
A-5
Any distributions of the Excess 401(k) Contributions for any Plan Year are
to be made to Highly Compensated Employees on the basis of the amount of
contributions by, or on behalf of, each Highly Compensated Employee. The amount
of Excess 401(k) Contributions to be distributed for any Plan Year must be
reduced by any excess Salary Deferral Contributions previously distributed for
the taxable year ending in the same Plan Year.
A.3.3 CONTRIBUTION PERCENTAGE FAIL SAFE PROVISION. If the limitation set
forth in Section A.2.4 would be exceeded for any Plan Year any one or more of
the following corrective action shall be taken before the close of the following
Plan Year as determined by the Committee in its sole discretion: (a) the amount
of the Excess Aggregate 401(m) Contributions for that Plan Year (and any income
allocable to those Contributions as calculated in the manner set forth in
Section A.3.5) shall be either distributed, or forfeited to the extent they are
not vested or (b) the Employer may make a QNEC which it elects to have treated
as a Section 401(m) Contribution. Forfeitures of Excess Aggregate 401(m)
Contributions shall be allocated to Participants who are Non-Highly Compensated
Employees as if such Contributions were additional Employer Matching
Contributions for the Plan Year.
The amount of Excess Aggregate 401(m) Contributions to be distributed
shall be determined in the following manner:
First, the Plan will determine how much the Actual Contribution Ratio of
the Highly Compensated Employee with the highest Actual Contribution Ratio would
have to be reduced to satisfy the Actual Contribution Percentage Test or cause
such Actual Contribution Ratio to equal the Actual Contribution Ratio of the
Highly Compensated Employee with the next highest Actual Contribution Ratio. If
a lesser reduction would enable the Plan to satisfy the Actual Contribution
Percentage Test, only this lesser reduction may be made. Second, this process is
repeated until the Actual Contribution Test is satisfied. The amount of Excess
Aggregate 401(m) Contributions is equal to the sum of these hypothetical
reductions multiplied, in each case, by the Highly Compensated Employee's Annual
Compensation.
Then, the total amount of Excess Aggregate 401(m) Contributions shall be
distributed on the basis of the respective amounts attributable to each Highly
Compensated Employee. The Highly Compensated Employees subject to the actual
distribution are determined using the "dollar leveling method." The After-Tax
Contributions and Matching Contributions of the Highly Compensated Employee with
the greatest dollar amount of After-Tax Contributions and Matching Contributions
and other contributions treated as matching contributions for the Plan Year are
reduced by the amount required to cause that Highly Compensated Employee's
After-Tax Contributions and Matching Contributions and other contributions
treated as Section 401(m) Contributions for the Plan Year to equal the dollar
amount of the After-Tax Contributions and Matching Contributions and other
contributions treated as Section 401(m) Contributions for the Plan Year of the
Highly Compensated Employee with the next highest dollar amount. This amount is
then distributed to the Highly Compensated Employee with the highest dollar
amount. However, if a lesser reduction, when added to the total dollar amount
already distributed under this Section A.3.3, would equal the total Excess
Aggregate 401(m) Contributions, the lesser reduction amount shall be
distributed. This process shall be continued until the amount of the Excess
Aggregate 401(m) Contributions have been distributed.
The corrective actions take under this Section A.3.3 must satisfy the
requirements of section 401(a)(4) of the Code. After correction, each level of
Employer Matching Contributions must be currently and effectively available to a
group of employees that satisfies the minimum coverage requirements of section
410(b) of the Code. A method under which employee contributions are distributed
to highly compensated employees to the extent necessary to meet the requirements
of section 401(m)(2) while matching contributions attributable to such employee
contributions remain allocated to the employee's account will not meet the
requirement of section 401(a)(4).
A.3.4 ALTERNATIVE LIMITATION FAIL SAFE. As soon as practicable after the
close of each Plan Year, the Committee shall determine whether the alternative
limitation would be exceeded. If the limitation would be exceeded for any Plan
Year, before the close of the following Plan Year the Actual Deferral Percentage
or Contribution Percentage of the eligible Highly Compensated Employees, or a
combination of both, shall be reduced by distributions made in the manner
described in the Regulations. These distributions shall be in addition to and
not in lieu of distributions required for Excess 401(k) Contributions and Excess
Aggregate 401(m) Contributions.
A-6
A.3.5 INCOME ALLOCABLE TO EXCESS 401(K) CONTRIBUTIONS AND EXCESS AGGREGATE
401(M) CONTRIBUTIONS. The income allocable to Excess 401(k) Contributions for
the Plan Year shall be determined by multiplying the income for the Plan Year
allocable to Section 401(k) Contributions by a fraction. The numerator of the
fraction shall be the amount of Excess 401(k) Contributions made on behalf of
the Participant for the Plan Year. The denominator of the fraction shall be the
Participant's total Account balance attributable to Section 401(k) Contributions
as of the beginning of the Plan Year plus the Participant's Section 401(k)
Contributions for the Plan Year. The income allocable to Excess Aggregate 401(m)
Contributions for a Plan Year shall be determined by multiplying the income for
the Plan Year allocable to Section 401(m) Contributions by a fraction. The
numerator of the fraction shall be the amount of Excess Aggregate 401(m)
Contributions made on behalf of the Participant for the Plan Year. The
denominator of the fraction shall be the Participant's total Account balance
attributable to Section 401(m) Contributions as of the beginning of the Plan
Year plus the Participant's Section 401(m) Contributions for the Plan Year.
PART A.4 LIMITATION ON ALLOCATIONS
A.4.1 BASIC LIMITATION ON ALLOCATIONS. The Annual Additions which may be
credited to a Participant's Accounts under the Plan for any Limitation Year will
not exceed the Maximum Permissible Amount reduced by the Annual Additions
credited to a Participant's Account for the same Limitation Year under any other
qualified defined contribution plans maintained by any Affiliated Employer. If
the Annual Additions with respect to the Participant under such other qualified
defined contribution plans are less than the Maximum Permissible Amount and the
Employer Contribution that would otherwise be contributed or allocated to the
Participant's Accounts under the Plan would cause the Annual Additions for the
Limitation Year to exceed this limitation, the amount contributed or allocated
under the Plan will be reduced so that the Annual Additions under all qualified
defined contribution plans maintained by any Affiliated Employer for the
Limitation Year will equal the Maximum Permissible Amount. If the Annual
Additions with respect to the Participant under such other qualified defined
contribution plans maintained by any Affiliated Employer in the aggregate are
equal to or greater than the Maximum Permissible Amount, no amount will be
contributed or allocated to the Participant's Account under the Plan for the
Limitation Year.
A.4.2 ESTIMATION OF MAXIMUM PERMISSIBLE AMOUNT. Prior to determining the
Participant's actual Annual Compensation for the Limitation Year, the Employer
may determine the Maximum Permissible Amount on the basis of a reasonable
estimation of the Participant's Annual Compensation for such Limitation Year,
uniformly determined for all Participants similarly situated. As soon as is
administratively feasible after the end of the Limitation Year, the Maximum
Permissible Amount for the Limitation Year shall be determined on the basis of
the Participant's actual Annual Compensation for such Limitation Year.
A.4.3 ATTRIBUTION OF EXCESS AMOUNTS. If a Participant's Annual Additions
under the Plan and all other qualified defined contribution plans maintained by
any Affiliated Employer result in an Excess Amount, the total Excess Amount
shall be attributed to the Plan.
A.4.4 TREATMENT OF EXCESS AMOUNTS. If an Excess Amount attributed to the
Plan is held or contributed as a result of or because of (i) the allocation of
forfeitures, (ii) reasonable error in estimating a Participant's Considered
Compensation, (iii) reasonable error in calculating the maximum Salary Deferral
Contribution that may be made with respect to a Participant under section 415 of
the Code or (iv) any other facts and circumstances which the Commissioner of
Internal Revenue finds to be justified, the Excess Amount shall be reduced as
follows:
(a) First, the Excess Amount shall be reduced to the extent
necessary by distributing to the Participant all Salary Deferral
Contributions together with their earnings. These distributed amounts are
disregarded for purposes of the testing and limitations contained in this
Appendix A.
(b) Second, if the Participant is still employed by the Employer at
the end of the Limitation Year, then such Excess Amounts shall not be
distributed to the Participant, but shall be reallocated to a suspense
account and shall be reapplied to reduce future Employer Contributions
(including any allocation of forfeitures) under the Plan for such
Participant in the next Limitation Year, and for each succeeding
Limitation Year, if necessary.
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(c) If, after application of paragraph (b) of this Section, an
Excess Amount still exists, and the Participant is not still employed by
the Employer at the end of the Limitation Year, then such Excess Amounts
in the Participant's Accounts shall not be distributed to the Participant,
but shall be reallocated to a suspense account and shall be reapplied to
reduce future Employer Contributions (including allocation of any
forfeitures), for all remaining Participants in the next Limitation Year
and each succeeding Limitation Year if necessary.
(d) If a suspense account is in existence at any time during the
Limitation Year pursuant to this Section, it will not participate in the
allocation of the Trust Fund's investment gains and losses. If a suspense
account is in existence at any time during a particular Limitation Year,
all amounts in the suspense account must be allocated and reallocated to
Participants' Accounts before any Employer Contribution may be made to the
Plan for that Limitation Year. Excess Amounts may not be distributed to
Participants or former Participants. If the Plan is terminated while a
suspense account described in this Section is in existence, the amount in
such suspense account shall revert to the Employer(s) to which it is
attributable.
A-8
APPENDIX B
TOP-HEAVY REQUIREMENTS
PART B.1 DEFINITIONS
DEFINITIONS. As used herein, the following words and phrases have the
meaning attributed to them below:
B.1.1 "AGGREGATE ACCOUNTS" means the total of all Account balances derived
from Employer Contributions and Rollover Contributions.
B.1.2 "AGGREGATION GROUP" means (a) each plan of the Employer or any
Affiliated Employer in which a Key Employee is a Participant and (b) each other
plan of the Employer or any Affiliated Employer which enables any plan in (a) to
meet the requirements of either section 401(a)(4) or 410 of the Code. Any
Employer may treat a plan not required to be included in the Aggregation Group
as being a part of the group if the group would continue to meet the
requirements of section 401(a)(4) and 410 of the Code with that plan being taken
into account.
B.1.3 "DETERMINATION DATE" means for a given Plan Year the last day of the
preceding Plan Year or in the case of the first Plan Year the last day of that
Plan Year.
B.1.4 "KEY EMPLOYEE" means an Employee or former or deceased Employee or
Beneficiary of an Employee who at any time during the Plan Year or any of the
four preceding Plan Years is (a) an officer of an Employer or any Affiliated
Employer having Annual Compensation greater than 50 percent of the annual
addition limitation of section 415(b)(1)(A) of the Code for the Plan Year, (b)
one of the ten employees having Annual Compensation from an Employer or any
Affiliated Employer of greater than 100 percent of the annual addition
limitation of section 415(c)(1)(A) of the Code for the Plan Year and owning or
considered as owning (within the meaning of section 318 of the Code) the largest
interest in an Employer or any Affiliated Employer, treated separately, (c) a
Five Percent Owner of an Employer or any Affiliated Employer, treated
separately, or (d) a one percent owner of an Employer or any Affiliated
Employer, treated separately, having Annual Compensation from an Employer or any
Affiliated Employer of more than $150,000.00. For this purpose no more than 50
employees or, if lesser, the greater of three employees or ten percent of the
employees shall be treated as officers. Section 416(i) of the Code shall be used
to determine percentage of ownership. For the purpose of the test set out in (b)
above, if two or more employees have the same interest in an Employer, the
employee with the greater Annual Compensation from the Employer shall be treated
as having the larger interest.
B.1.5 "NON-KEY EMPLOYEE" means any Employee who is not a Key Employee.
B.1.6 "TOP-HEAVY PLAN" means any plan which has been determined to be
top-heavy under the test described in Appendix B of the Plan.
PART B.2 APPLICATION
B.2.1 APPLICATION. The requirements described in this Appendix B shall
apply to each Plan Year that the Plan is determined to be a Top-Heavy Plan.
B.2.2 TOP-HEAVY TEST. If on the Determination Date the Aggregate Accounts
of Key Employees in the Plan exceed 60 percent of the Aggregate Accounts of all
Employees in the Plan, the Plan shall be a Top-Heavy Plan for that Plan Year. In
addition, if the Plan is required to be included in an Aggregation Group and
that group is a top-heavy group, the Plan shall be treated as a Top-Heavy Plan.
An Aggregation Group is a top-heavy group if on the Determination Date the sum
of (a) the present value of the cumulative accrued benefits for Key Employees
under all defined benefit plans in the Aggregation Group which contains the
Plan, plus (b) the total of all of the accounts of Key Employees under all
defined contribution plans included in the Aggregation Group (which contains the
Plan) is more than 60 percent of a similar sum determined for all employees
covered in the Aggregation Group which contains the Plan.
B-1
In applying the above tests, the following rules shall apply:
(a) in determining the present value of the accumulated accrued
benefits for any Employee or the amount in the account of any Employee,
the value or amount shall be increased by all distributions made to or for
the benefit of the Employee under the Plan during the five-year period
ending on the Determination Date;
(b) all rollover contributions made after December 31, 1983 by the
Employee to the Plan shall not be considered by the Plan for either test;
(c) if an Employee is a Non-Key Employee under the plan for the Plan
Year but was a Key Employee under the plan for another prior Plan Year,
his Account shall not be considered; and
(d) benefits shall not be taken into account in determining the
top-heavy ratio for any Employee who has not performed services for the
Employer during the last five-year period ending upon the Determination
Date.
B.2.3 VESTING RESTRICTIONS IF PLAN BECOMES TOP-HEAVY. If a Participant has
at least one Hour of Service during a Plan Year when the Plan is a Top-Heavy
Plan, he shall either vest under each of the normal vesting provisions of the
Plan or under the following vesting schedule, whichever is more favorable:
Percentage of Amount Invested
In Accounts Containing
Completed Years of Active Service Employer Contributions
- --------------------------------- -----------------------------
Less than two years..............................................0
Two years but less than three years.............................20
Three years but less than four years............................40
Four years but less than five years.............................60
Five years but less than six years..............................80
Six years or more..............................................100
If the Plan ceases to be a Top-Heavy Plan, this requirement shall no longer
apply. After that date, the normal vesting provisions of the Plan shall be
applicable to all subsequent Contributions by the Employer.
B.2.4 MINIMUM CONTRIBUTIONS IF PLAN BECOMES TOP-HEAVY. If the Plan is a
Top-Heavy Plan and the normal allocation of the Employer Contribution and
forfeitures is less than three percent of any Non-Key Employee Participant's
Annual Compensation, the Committee, without regard to the normal allocation
procedures, shall allocate the Employer Contribution and the forfeitures among
the Participants who are in the employ of the Employer at the end of the Plan
Year in proportion to each Participant's Annual Compensation as compared to the
total Annual Compensation of all Participants for that Plan Year until each
Non-Key Employee Participant has had an amount equal to the lesser of (i) the
highest rate of Contribution applicable to any Key Employee, or (ii) three
percent of his Annual Compensation allocated to his Account. At that time, any
more Employer Contributions or forfeitures shall be allocated under the normal
allocation procedures described earlier in the Plan. Salary Deferral
Contributions made on behalf of Key Employees are included in determining the
highest rate of Employer Contributions. Salary Deferral Contributions made on
behalf of Non-Key Employees are not included for that purpose. Amounts that may
be treated as Section 401(k) Contributions made on behalf of Non-Key Employees
may not be included in determining the minimum contribution required under this
Section to the extent that they are treated as Section 401(k) Contributions for
purposes of the Actual Deferral Percentage test.
In applying this restriction, the following rules shall apply:
(a) Each Employee who is eligible for Participantship (without
regard to whether he has made mandatory contributions, if any are
required, or whether his compensation is less than a stated amount) shall
be entitled to receive an allocation under this Section; and
B-2
(b) All defined contribution plans required to be included in the
Aggregation Group shall be treated as one plan for purposes of meeting the
three percent maximum; this required aggregation shall not apply if the
Plan is also required to be included in an Aggregation Group which
includes a defined benefit plan and the Plan enables that defined benefit
plan to meet the requirements of sections 401(a)(4) or 410 of the Code.
B.2.5 DISREGARD OF GOVERNMENT PROGRAMS. If the Plan is a Top-Heavy Plan,
it must meet the vesting and benefit requirements described in this Article
without taking into account contributions or benefits under Chapter 2 of the
Code (relating to the tax on self-employment income), Chapter 21 of the Code
(relating to the Federal Insurance Contributions Act), Title II of the Social
Security Act, or any other Federal or State law.
B.2.6 RESTRICTIONS IF PLAN BECOMES SUPER TOP-HEAVY. For Plan Years
beginning before January 1, 2000, the Plan is a super Top-Heavy Plan if as of
the Determination Date the Plan would continue to meet the test specified in
Section 1.032 of this Appendix B for being a Top-Heavy Plan, if 90 percent were
substituted for 60 percent. In any Plan Year that the Plan is a super Top-Heavy
plan the limitations in section 415 of the Code and Appendix A of the Plan shall
be applied by substituting the number "1.00" for the number "1.25" wherever it
appears therein. Such substitution shall not cause a reduction in any accrued
benefit attributable to contributions for a Plan Year prior to the Plan Year in
which the Plan is a super Top-Heavy Plan.
B-3
APPENDIX C
ADMINISTRATION OF THE PLAN
C.1 APPOINTMENT, TERM, RESIGNATION, AND REMOVAL. The Board shall appoint a
Committee of not less than two persons, the members of which shall serve until
their resignation, death, or removal. The Sponsor shall notify the Trustee in
writing of its composition from time to time. Any member of the Committee may
resign at any time by giving written notice of such resignation to the Sponsor.
Any member of the Committee may be removed by the Board, with or without cause.
Vacancies in the Committee arising by resignation, death, removal, or otherwise
shall be filled by such persons as may be appointed by the Board.
C.2 POWERS. The Committee shall have exclusive responsibility for the
administration of the Plan, according to the terms and provisions of this
document, and shall have all powers necessary to accomplish such purposes,
including, but not by way of limitation, the right, power, and authority:
(a) to make rules and regulations for the administration of the Plan
which are not inconsistent with the terms and provisions thereof, provided
such rules and regulations are evidenced in writing;
(b) to construe all terms, provisions, conditions, and limitations
of the Plan; and its construction thereof made in good faith and without
discrimination in favor of or against any Participant or former
Participant shall be final and conclusive on all parties at interest;
(c) to correct any defect, supply any omission, or reconcile any
inconsistency which may appear in the Plan in such manner and to such
extent as it shall deem expedient to carry the Plan into effect for the
greatest benefit of all parties at interest, and its judgment in such
matters shall be final and conclusive as to all parties at interest;
(d) to select, employ, and compensate from time to time such
consultants, actuaries, accountants, attorneys, and other agents and
employees as the Committee may deem necessary or advisable for the proper
and efficient administration of the Plan, and any agent, firm, or employee
so selected by the Committee may be a disqualified person, but only if the
requirements of section 4975(d) of the Code have been met;
(e) to resolve all questions relating to the eligibility of
Employees to become Participants, and to determine the period of Active
Service and the amount of Considered Compensation upon which the benefits
of each Participant shall be calculated;
(f) to resolve all controversies relating to the administration of
the Plan, including but not limited to (1) differences of opinion arising
between the Employer and a Participant or former Participant, and (2) any
questions it deems advisable to determine in order to promote the uniform
and nondiscriminatory administration of the Plan for the benefit of all
parties at interest;
(g) to direct and instruct or to appoint an investment manager or
managers which would have the power to direct and instruct the Trustee in
all matters relating to the preservation, investment, reinvestment,
management, and disposition of the Trust assets; provided, however, that
the Committee shall have no authority that would prevent the Trustee from
being an "agent independent of the issuer," as that term is defined in
Rule 10b-18 promulgated under the Securities Exchange Act of 1934, at any
time that the Trustee's failure to maintain such status would result in
the Sponsor or any other person engaging in a "manipulative or deceptive
device or contrivance" under the provisions of Rule 10b-6 of such Act;
(h) to direct and instruct the Trustee in all matters relating to
the payment of Plan benefits and to determine a Participant's or former
Participant's entitlement to a benefit should he appeal a denial of his
claim for a benefit or any portion thereof; and
C-1
(i) to delegate such of its clerical and recordation duties under
the Plan as it may deem necessary or advisable for the proper and
efficient administration of the Plan.
C.3 ORGANIZATION. The Committee shall select from among its members a
chairman, who shall preside at all of its meetings, and shall select a
secretary, without regard as to whether that person is a member of the
Committee, who shall keep all records, documents, and data pertaining to its
supervision of the administration of the Plan.
C.4 QUORUM AND MAJORITY ACTION. A majority of the members of the Committee
shall constitute a quorum for the transaction of business, and the vote of a
majority of the members present at any meeting will decide any question brought
before that meeting. In addition, the Committee may decide any question by a
vote, taken without a meeting, of a majority of its members.
C.5 SIGNATURES. The chairman, the secretary, and any one or more of the
members of the Committee to which the Committee has delegated the power, shall
each, severally, have the power to execute any document on behalf of the
Committee, and to execute any certificate or other written evidence of the
action of the Committee. The Trustee, after being notified of any such
delegation of power in writing, shall thereafter accept and may rely upon any
document executed by such member or members as representing the action of the
Committee until the Committee files with the Trustee a written revocation of
that delegation of power.
C.6 DISQUALIFICATION OF COMMITTEE MEMBERS. A member of the Committee who
is also a Participant of the Plan shall not vote or act upon any matter relating
solely to himself.
C.7 DISCLOSURE TO PARTICIPANTS. The Committee shall make available to each
Participant, former Participant, and Beneficiary for his examination such
records, documents, and other data as are required under ERISA, but only at
reasonable times during business hours. No Participant, former Participant, or
Beneficiary shall have the right to examine any data or records reflecting the
compensation paid to any other Participant, former Participant, or Beneficiary,
and the Committee shall not be required to make any data or records available
other than those required by ERISA.
C.8 STANDARD OF PERFORMANCE. The Committee and each of its members shall
use 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 conducting his business as the administrator of the Plan;
shall, when exercising its power to direct investments, diversify the
investments of the Plan so as to minimize the risk of large losses, unless under
the circumstances it is clearly prudent not to do so; and shall otherwise act in
accordance with the provisions of the Plan and ERISA.
C.9 LIABILITY OF ADMINISTRATIVE COMMITTEE AND LIABILITY INSURANCE. No
member of the Committee shall be liable for any act or omission of any other
member of the Committee, the Trustee, any investment manager, or any Participant
or former Participant who directs the investment of his Account or other agent
appointed by the Committee except to the extent required by the terms of ERISA,
and any other applicable state or federal law, which liability cannot be waived.
No Participant of the Committee shall be liable for any act or omission on his
own part except to the extent required by the terms of ERISA, and any other
applicable state or federal law, which liability cannot be waived. In this
connection, each provision hereof is severable and if any provision is found to
be void as against public policy, it shall not affect the validity of any other
provision hereof.
Further, it is specifically provided that the Trustee may, at the
direction of the Committee, purchase out of the Trust assets insurance for the
members of the Committee and any other fiduciaries appointed by the Committee,
and for the Trust itself to cover liability or losses occurring by reason of the
act or omission of any one or more of the members of the Committee or any other
fiduciary appointed by them under the Plan, provided such insurance permits
recourse by the insurer against the members of the Committee or the other
fiduciaries concerned in the case of a breach of a fiduciary obligation by one
or more members of the Committee or other fiduciary covered thereby.
C-2
C.10 BONDING. No member of the Committee shall be required to give bond
for the performance of his duties hereunder unless required by a law which
cannot be waived.
C.11 COMPENSATION. The Committee shall serve without compensation for
their services, but shall be reimbursed by the Employers for all expenses
properly and actually incurred in the performance of their duties under the Plan
unless the Employers elect to have such expenses paid out of the Trust assets.
C.12 PERSONS SERVING IN DUAL FIDUCIARY ROLES. Any person, group of
persons, corporations, firm, or other entity may serve in more than one
fiduciary capacity with respect to the Plan, including the ability to serve both
as a successor trustee and as a member of the Committee.
C.13 ADMINISTRATOR. For all purposes of ERISA, the administrator of the
Plan within the meaning of ERISA shall be the Sponsor. The Sponsor shall have
final responsibility for compliance with all reporting and disclosure
requirements imposed with respect to the Plan under any federal or state law, or
any regulations promulgated thereunder.
C.14 NAMED FIDUCIARY. The members of the Committee shall be the "named
fiduciary" for purposes of section 402(a)(1) of ERISA, and as such shall have
the authority to control and manage the operation and administration of the
Plan, except to the extent such authority and control is allocated or delegated
to other parties pursuant to the terms of the Plan.
C.15 STANDARD OF JUDICIAL REVIEW OF COMMITTEE ACTIONS. The Committee has
full and absolute discretion in the exercise of each and every aspect of its
authority under the Plan, including without limitation, the authority to
determine any person's right to benefits under the Plan, the correct amount and
form of any such benefits; the authority to decide any appeal; the authority to
review and correct the actions of any prior administrative committee; and all of
the rights, powers, and authorities specified in this Appendix and elsewhere in
the Plan. Notwithstanding any provision of law or any explicit or implicit
provision of this document or, any action taken, or ruling or decision made, by
the Committee in the exercise of any of its powers and authorities under the
Plan will be final and conclusive as to all parties other than the Sponsor or
Trustee, including without limitation all Participants, former Participants and
Beneficiaries, regardless of whether the Committee or one or more members
thereof may have an actual or potential conflict of interest with respect to the
subject matter of such action, ruling, or decision. No such final action,
ruling, or decision of the Committee will be subject to de novo review in any
judicial proceeding; and no such final action, ruling, or decision of the
Committee may be set aside unless it is held to have been arbitrary and
capricious by a final judgment of a court having jurisdiction with respect to
the issue.
C.16 INDEMNIFICATION OF COMMITTEE BY THE SPONSOR. The Sponsor shall
indemnify and hold harmless the Committee, the Committee members, and any
persons to whom the Committee has allocated or delegated its responsibilities in
accordance with the provisions hereof, as well as any other fiduciary who is
also an officer, director, or Employee of an Employer, and hold each of them
harmless from and against all claims, loss, damages, expense, and liability
arising from their responsibilities in connection with the administration of the
Plan which is not otherwise paid or reimbursed by insurance, unless the same
shall result from their own willful misconduct.
C-3
APPENDIX D
FUNDING
D.1 BENEFITS PROVIDED SOLELY BY TRUST. All benefits payable under the Plan
shall be paid or provided for solely from the Trust, and the Employer assumes no
liability or responsibility therefor.
D.2 FUNDING OF PLAN. The Plan shall be funded by one or more separate
Trusts. If more than one Trust is used, each Trust shall be designated by the
name of the Plan followed by a number assigned by the Committee at the time the
Trust is established.
D.3 INCORPORATION OF TRUST. Each Trust is a part of the Plan. All rights
or benefits which accrue to a person under the Plan shall be subject also to the
terms of the agreements creating the Trust or Trusts and any amendments to them
which are not in direct conflict with the Plan.
D.4 AUTHORITY OF TRUSTEE. Each Trustee shall have full title and legal
ownership of the assets in the separate Trust which, from time to time, is in
his separate possession. No other Trustee shall have joint title to or joint
legal ownership of any asset in one of the other Trusts held by another Trustee.
Each Trustee shall be governed separately by the trust agreement entered into
between the Employer and that Trustee and the terms of the Plan without regard
to any other agreement entered into between any other Trustee and the Employer
as a part of the Plan.
D.5 ALLOCATION OF RESPONSIBILITY. To the fullest extent permitted under
section 405 of ERISA, the agreements entered into between the Employer and each
of the Trustees shall be interpreted to allocate to each Trustee its specific
responsibilities, obligations and duties so as to relieve all other Trustees
from liability either through the agreement, Plan or ERISA, for any act of any
other Trustee which results in a loss to the Plan because of his act or failure
to act.
D.6 TRUSTEE'S FEES AND EXPENSES. The Trustee shall receive for its
services as Trustee hereunder the compensation which from time to time may be
agreed upon by the Sponsor and the Trustee. All of such compensation, together
with the expenses incurred by the Trustee in connection with the administration
of this Trust, including fees for legal services rendered to the Trustee, all
other charges and disbursements of the Trustee, and all other expenses of the
Plan shall be charged to and deducted from the Trust Fund, unless the Sponsor
elects in writing to have any part or all of such compensation, expenses,
charges, and disbursements paid directly by the Sponsor. The Trustee shall
deduct from and charge against the Trust assets any and all taxes paid by it
which may be levied or assessed upon or in respect of the Trust hereunder or the
income thereof, and shall equitably allocate the same among the several
Participants and former Participants.
D-1
EXHIBIT 10.2
FIRST AMENDMENT TO THE
QUANEX CORPORATION EMPLOYEE SAVINGS PLAN
THIS AGREEMENT by Quanex Corporation (the "Sponsor"),
W I T N E S S E T H:
WHEREAS, the Sponsor maintains a qualified plan entitled "Quanex
Corporation Employee Savings Plan" (the "Plan"); and
WHEREAS, the Sponsor retained the right in Section 9.1 of the Plan to
amend the Plan from time to time;
NOW, THEREFORE, the Sponsor agrees that Section 2.01 of the Plan is hereby
completely amended and restated, effective as of January 1, 2001, to provide as
follows:
2.01 ELIGIBILITY REQUIREMENTS. Each Employee who is employed by an
Employer shall be eligible to participate in the Plan beginning on the
Entry Date that occurs with or next follows the date on which the Employee
completes three months of Active Service. However, an Employee who is
included in a unit of Employees covered by a collective bargaining
agreement between the Employees' representative and the Employer shall be
excluded, even if he has met the requirements for eligibility, if there
has been good faith bargaining between the Employer and the Employees'
representative pertaining to retirement benefits and the agreement does
not require the Employer to include such Employees in the Plan. In
addition, a Leased Employee shall not be eligible to participate in the
Plan unless the Plan's qualified status is dependent upon coverage of the
Leased Employee. An Employee who is compensated on an hourly rated basis
for services rendered at the Sponsor's MacSteel-Arkansas Division is not
eligible to participate in the Plan. An Employee who is employed by the
Sponsor at one of the Sponsor's Nichols divisions, the Sponsor's
Fabricated Products division or the Sponsor's Piper Impact division is not
eligible to participate in the Plan. An Employee who is a nonresident
alien (within the meaning of section 7701(b) of the Code) and receives no
earned income (within the meaning of section 911(d)(2) of the Code) from
any Affiliated Employer that constitutes income from sources within the
United States (within the meaning of section 861(a)(3) of the Code) is not
eligible to participate in the Plan. An Employee who is a nonresident
alien (within the meaning of section 7701(b) of the Code) and who does
receive earned income (within the meaning of section 911(d)(2) of the
Code) from any Affiliated Employer that constitutes income from sources
within the United States (within the meaning of section 861(a)(3) of the
Code) all of which is exempt from United States income tax under an
applicable tax convention is not eligible to participate in the Plan.
During any period in which an individual is classified by an Employer as
an independent contractor with respect to such Employer, the individual is
not eligible to participate in the Plan (even if he is subsequently
reclassified by the Internal Revenue Service as a common law employee of
the Employer and the Employer acquiesces to the reclassification).
Finally, an Employee who is employed outside the United States is not
eligible to participate in the Plan unless the Committee elects to permit
him to participate in the Plan.
IN WITNESS WHEREOF, the Sponsor has executed this Agreement effective as
of the 1st day of January, 2001.
QUANEX CORPORATION
By PAUL GIDDENS
Title VICE PRESIDENT - HR
EXHIBIT 10.3
PIPER IMPACT
401(K) PLAN
TABLE OF CONTENTS
SECTION
ARTICLE I - DEFINITIONS
Account.............................................................1.01
Active Service......................................................1.02
Affiliated Employer.................................................1.03
Annual Compensation.................................................1.04
Annuity Starting Date...............................................1.05
Beneficiary" or "Beneficiaries......................................1.06
Board of Directors..................................................1.07
Code ..............................................................1.08
Committee...........................................................1.09
Considered Compensation.............................................1.10
Contribution........................................................1.11
Direct Rollover.....................................................1.12
Disability..........................................................1.13
Distributee.........................................................1.14
Eligible Retirement Plan............................................1.15
Eligible Rollover Distribution......................................1.16
Employee............................................................1.17
Employer or Employers...............................................1.18
ERISA ..............................................................1.19
Excess Deferral.....................................................1.20
Five Percent Owner..................................................1.21
Highly Compensated Employee.........................................1.22
Hour of Service.....................................................1.23
Leased Employee.....................................................1.24
Matched Salary Deferral Contribution................................1.25
Member..............................................................1.26
Non-Highly Compensated Employee.....................................1.27
Period of Service...................................................1.28
Period of Severance.................................................1.29
Plan ..............................................................1.30
Plan Year...........................................................1.31
Qualified Domestic Relations Order..................................1.32
QJSA ..............................................................1.33
QPSA ..............................................................1.34
Regulation..........................................................1.35
Required Beginning Date.............................................1.36
Retirement Age......................................................1.37
Rollover Contribution...............................................1.38
Separation From Service.............................................1.39
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Service.............................................................1.40
Severs Service......................................................1.41
Sponsor.............................................................1.42
Sponsor Stock.......................................................1.43
Spouse..............................................................1.44
Transferred.........................................................1.45
Trust ..............................................................1.46
Trustee.............................................................1.47
Trust Fund..........................................................1.48
Valuation Date......................................................1.49
ARTICLE II - ACTIVE SERVICE
When Active Service Begins..........................................2.01
Aggregation of Service..............................................2.02
Periods of Service of Less Than One Year............................2.03
Service Prior to Severance..........................................2.04
Periods of Severance Due to Child Birth or Adoption.................2.05
Transfers...........................................................2.06
Employment Records Conclusive.......................................2.07
Service Credit Required under Federal Law...........................2.08
Special Transitional Rule...........................................2.09
Credit for Service With Piper Impact, Inc. a Tennessee
Corporation...................................................2.10
ARTICLE III - ELIGIBILITY
Eligibility Requirements............................................3.01
Eligibility Upon Reemployment.......................................3.02
Cessation of Participation..........................................3.03
Recommencement of Participation.....................................3.04
ARTICLE IV - CONTRIBUTIONS
Salary Deferral Contributions.......................................4.01
Employer Matching Contributions.....................................4.02
Supplemental Contributions..........................................4.03
Rollover Contributions and Plan-to-Plan Transfers...................4.04
Qualified Nonelective Employer Contributions........................4.05
Restoration Contributions...........................................4.06
Nondeductible Contributions Not Required............................4.07
Form of Payment of Contributions....................................4.08
Deadline for Payment of Employer Contributions......................4.09
Return of Contributions for Mistake, Disqualification or
Disallowance of Deduction.....................................4.10
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ARTICLE V - ALLOCATION AND VALUATION OF ACCOUNTS
Information Statements from Employer................................5.01
Allocation of Salary Deferral Contribution..........................5.02
Allocation of Matching Employer Contribution........................5.03
Allocation of Supplemental Contribution.............................5.04
Allocation of Qualified Nonelective Employer Contribution...........5.05
Allocation of Dividends on Sponsor Stock............................5.06
Sponsor Stock Splits................................................5.07
Valuation of Accounts...............................................5.08
Allocation of Forfeitures...........................................5.09
Restoration of Forfeited Amounts....................................5.10
No Vesting Unless Otherwise Prescribed..............................5.11
ARTICLE VI - BENEFITS
Valuation of Accounts for Withdrawals and Distributions.............6.01
Death Benefit.......................................................6.02
Retirement Benefit..................................................6.03
Disability Benefit..................................................6.04
Severance Benefit...................................................6.05
Distributions Pursuant to Qualified Domestic Relations Orders.......6.06
Financial Hardship Distributions....................................6.07
Age 591/2Distributions..............................................6.08
Loans ..............................................................6.09
Forfeiture by Lost Members or Beneficiaries.........................6.10
Forfeiture on Termination of Participation..........................6.11
Claims Procedure....................................................6.12
Normal Form of Distributions........................................6.13
Direct Rollover Option..............................................6.14
Choice of Distribution Methods......................................6.15
Single Sum Payments of Small Amounts Upon Separation From Service...6.16
Consent to Distributions Upon Separation From Service...............6.17
Qualified Joint and Survivor Annuity Requirements...................6.18
Qualified Preretirement Survivor Annuity Requirements...............6.19
Information Provided to Members.....................................6.20
Optional Forms of Distributions.....................................6.21
Time of Distributions...............................................6.22
Designation of Beneficiary..........................................6.23
Distributions to Disabled Persons...................................6.24
ARTICLE VII - ADMINISTRATION OF THE PLAN
Appointment, Term of Service & Removal..............................7.01
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Powers..............................................................7.02
Organization........................................................7.03
Quorum and Majority Action..........................................7.04
Signatures..........................................................7.05
Disqualification of Committee Member................................7.06
Disclosure to Members...............................................7.07
Liability of Committee and Liability Insurance......................7.08
Exemption from Bond.................................................7.09
Compensation........................................................7.10
Persons Serving in Dual Fiduciary Roles.............................7.11
Administrator.......................................................7.12
ARTICLE VIII - TRUST FUND AND CONTRIBUTIONS
Funding of Plan.....................................................8.01
Incorporation of Trust..............................................8.02
Authority of Trustee................................................8.03
Allocation of Responsibility........................................8.04
ARTICLE IX - ADOPTION OF PLAN BY OTHER EMPLOYERS
Adoption Procedure..................................................9.01
No Joint Venture Implied............................................9.02
All Trust Assets Available to Pay All Benefits......................9.03
Qualification a Condition Precedent to Adoption and Continued
Participation.................................................9.04
ARTICLE X - AMENDMENT AND TERMINATION
Right to Amend and Limitations Thereon.............................10.01
Mandatory Amendments...............................................10.02
Withdrawal of Employer.............................................10.03
Termination of Plan................................................10.04
Partial or Complete Termination or Complete Discontinuance of
Contributions................................................10.05
Continuance Permitted Upon Sale or Transfer of Assets..............10.06
ARTICLE XI - MISCELLANEOUS
Plan Not an Employment Contract....................................11.01
Benefits Provided Solely From Trust................................11.02
Assignments Prohibited.............................................11.03
Requirements Upon Merger or Consideration of Plans.................11.04
Gender of Words Used...............................................11.05
Severability.......................................................11.06
Reemployed Veterans................................................11.08
Governing Law......................................................11.09
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APPENDIX A - LIMITATIONS ON CONTRIBUTIONS
APPENDIX B - TOP-HEAVY REQUIREMENTS
APPENDIX C - OPTIONAL FORMS OF DISTRIBUTIONS
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PIPER IMPACT
401(K) PLAN
THIS AGREEMENT adopted by Piper Impact, Inc., a Delaware corporation (the
"Sponsor"),
W I T N E S S E T H:
WHEREAS, effective January 1, 1995, Piper Impact, Inc., a Tennessee
corporation (the "Prior Employer") established the Piper Impact 401(k) Plan (the
"Plan") which is intended to be a profit sharing plan that satisfies the
requirements of sections 401(a) and 401(k) of the Internal Revenue Code of 1986,
as amended; and
WHEREAS, effective as of March 29, 1996, the Sponsor purchased
substantially all of the assets of the Prior Employer;
WHEREAS, on August 9, 1996, the Sponsor assumed sponsorship of the Plan
and the Prior Employer terminated its participation in the Plan; and
WHEREAS, the Sponsor desires to amend and restate the Plan;
NOW, THEREFORE, the Plan is hereby amended and restated in its entirety as
set forth below.
ARTICLE I
DEFINITIONS
The words and phrases defined in this Article shall have the meaning set
out in the definition unless the context in which the word or phrase appears
reasonably requires a broader, narrower or different meaning.
1.01 "ACCOUNT" means all ledger accounts pertaining to a Member which are
maintained by the Committee to reflect the Member's interest in the Trust Fund.
The Committee shall establish the following Accounts and any additional Accounts
that the Committee considers necessary to reflect the entire interest of the
Member in the Trust Fund. Each of the Accounts listed below and any additional
Accounts established by the Committee shall reflect the Contributions or amounts
transferred to the Trust Fund, if any, and the appreciation or depreciation of
the assets in the Trust Fund and the income earned or loss incurred on the
assets in the Trust Fund attributable to the Contributions and/or other amounts
transferred to the Account.
(a) Salary Deferral Contribution Account -- the Member's before-tax
contributions.
(b) Matching Employer Contribution Account -- the Employer's
matching contributions.
(c) Supplemental Contribution Account -- the Employer's
discretionary contributions, if any, made pursuant to Section 4.03.
(d) Qualified Nonelective Employer Contribution Account -- the
Employer's contributions made as a means of passing the actual deferral
percentage test of section 401(k) of the Code or the actual contribution
percentage test of section 401(m) of the Code.
(e) Rollover Account -- funds transferred from another qualified
plan or individual retirement account for the benefit of a Member.
1.02 "ACTIVE SERVICE" means the Periods of Service which are counted for
either eligibility or vesting purposes as calculated under Article II.
1.03 "AFFILIATED EMPLOYER" means the Employer and any employer which is a
member of the same controlled group of corporations within the meaning of
section 414(b) of the Code or which is a trade or business (whether or not
incorporated) which is under common control (within the meaning of section
414(c) of the Code), which is a member of an affiliated service group (within
the meaning of section 414(m) of the Code) with the Employer, or which is
required to be aggregated with the Employer under section 414(o) of the Code.
For purposes of the limitation on allocations contained in Appendix A, the
definition of Affiliated Employer is modified by substituting the phrase "more
than 50 percent" in place of the phrase "at least 80 percent" each place the
latter phrase appears in section 1563(a)(1) of the Code.
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1.04 "ANNUAL COMPENSATION" means the Employee's wages from the Affiliated
Employers as defined in section 3401(a) of the Code for purposes of federal
income tax withholding at the source (but determined without regard to any rules
that limit the remuneration included in wages based on the nature or location of
the employment or the services performed) modified by including elective
contributions under a cafeteria plan described in section 125 of the Code and
elective contributions to any plan qualified under section 401(k), 408(k), or
403(b) of the Code. However, for purposes of Appendix A of the Plan, effective
for Limitation Years beginning before January 1, 1998, "Annual Compensation"
does not include any salary deferral contributions to plan qualified under
section 401(k) of the Code or any amount that is deferred at the election of the
Employee and is not includable in the gross income of the Employee by reason of
section 125 of the Code. Except for purposes of Section 1.1 of Appendix A of the
Plan, Annual Compensation in excess of $150,000.00 (as adjusted by the Secretary
of Treasury) shall be disregarded. If the Plan Year is ever less than twelve
months, the $150,000.00 limitation (as adjusted by the Secretary of Treasury)
will be prorated by multiplying the limitation by a fraction, the numerator of
which is the number of months in the Plan Year, and the denominator of which is
12.
1.05 "ANNUITY STARTING DATE" means the first day of the first period for
which an amount is payable as an annuity, or in the case of a benefit payable in
the form of a lump sum, the date on which the Trustee disburses the lump sum.
1.06 "BENEFICIARY" OR "BENEFICIARIES" means the person or persons, or the
trust or trusts created for the benefit of a natural person or persons or the
Member's or former Member's estate, designated by the Member or former Member to
receive the benefits payable under the Plan upon his death.
1.07 "BOARD OF DIRECTORS" means the board of directors, the executive
committee or other body given management responsibility for the Sponsor.
1.08 "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
1.09 "COMMITTEE" means the committee appointed by the Sponsor to
administer the Plan.
1.10 "CONSIDERED COMPENSATION" means as to each Employee, that Employee's
Annual Compensation modified by including elective contributions under a
cafeteria plan described in section 125 of the Code and elective contributions
to any plan qualified under section 401(k), 408(k) or 403(b) of the Code, and
modified further by excluding the following items (even if includable in gross
income), reimbursements or other expense allowances, fringe benefits (cash and
noncash), moving expenses, deferred compensation, overtime wages, and welfare
benefits. Considered Compensation in excess of $150,000.00 (as adjusted by the
Secretary of Treasury) shall be disregarded. If the Plan Year is ever less than
twelve months, the $150,000.00 limitation (as adjusted by the Secretary of
Treasury) will be prorated by multiplying the limitation by a fraction, the
numerator of which is the number of months in the Plan Year, and the denominator
of which is 12.
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1.11 "CONTRIBUTION" means the total amount of contributions made under the
terms of the Plan. Each specific type of Contribution shall be designated by the
type of contribution made as follows:
(a) Salary Deferral Contribution -- contributions made by the
Employer under the Employee's salary deferral agreement.
(b) Matching Employer Contribution -- matching contributions made by
the Employer.
(c) Supplemental Contribution -- contributions made by the Employer
on discretionary basis pursuant to Section 4.03.
(d) Qualified Nonelective Employer Contribution -- contributions
made by the Employer as a means of passing the actual deferral percentage
test of section 401(k) of the code or the actual contribution percentage
test of section 401(m) of the Code.
(e) Rollover Contribution - contributions made by a Member which
consist of any part of an eligible rollover distribution (as defined in
section 402 of the Code) from a qualified employee trust described in
section 401(a) of the Code.
1.12 "DIRECT ROLLOVER" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
1.13 "DISABILITY" means a mental or physical disability which, in the
opinion of a physician selected by the Committee, shall prevent the Member from
earning a reasonable livelihood with any Affiliated Employer and which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months and which: (a) was not contracted,
suffered or incurred while the Member was engaged in, or did not result from
having engaged in, a felonious criminal enterprise; (b) did not result from
alcoholism or addiction to narcotics; and (c) did not result from an injury
incurred while a member of the Armed Forces of the United States for which the
Member receives a military pension.
1.14 "DISTRIBUTEE" means an Employee or former Employee. In addition, the
Employee's or former Employee's surviving Spouse and the Employee's or former
Employee's Spouse or former Spouse who is the alternate payee under a Qualified
Domestic Relations Order, are Distributees with regard to the interest of the
Spouse or former Spouse.
1.15 "ELIGIBLE RETIREMENT PLAN" means an individual retirement account
described in section 408(a) of the Code, an individual retirement annuity
described in section 408(b) of the Code, an annuity plan described in section
403(a) of the Code, or a qualified trust described in section 401(a) of the
Code, that accepts the Distributee's Eligible Rollover Distribution. However, in
the case of an Eligible Rollover Distribution to the surviving Spouse, an
Eligible Retirement Plan is an individual retirement account or individual
retirement annuity.
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1.16 "ELIGIBLE ROLLOVER DISTRIBUTION" as defined in section 402 of the
Code means any distribution of all or any portion of the balance to the credit
of the Distributee, except that an Eligible Rollover Distribution does not
include: (a) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's Beneficiary, or for a specified period
of ten years or more; (b) any distribution to the extent the distribution is
required under section 401(a)(9) of the Code; and (c) the portion of any
distribution that is not includable in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to employer
securities).
1.17 "EMPLOYEE" means, except as otherwise specified in this Section, all
common law employees of an Affiliated Employer and all Leased Employees.
1.18 "EMPLOYER" OR "EMPLOYERS" means the Sponsor and any other business
organization which has adopted this Plan.
1.19 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.20 "EXCESS DEFERRAL" means that part, if any, of the Salary Deferral
Contribution of a Member for his taxable year which, when added to the amounts
he deferred under other plans or arrangements described in sections 401(k),
408(k) and 403(b) of the Code, exceeds the deferral dollar limitation permitted
by section 402(g) of the Code.
1.21 "FIVE PERCENT OWNER" means an Employee who is a five percent owner as
defined in section 416(i) of the Code.
1.22 "HIGHLY COMPENSATED EMPLOYEE" means an Employee of an Employer or an
Affiliated Employer who, during the Plan Year or the preceding Plan Year, (a)
was at any time a Five Percent Owner at any time during the Plan Year or the
preceding Plan Year or (b) had Annual Compensation from the Affiliated Employers
in excess of $80,000.00 (as adjusted from time to time by the Secretary of the
Treasury) for the preceding Plan Year.
1.23 "HOUR OF SERVICE" means each hour for which an Employee is paid or
entitled to payment for the performance of duties for an Affiliated Employer.
1.24 "LEASED EMPLOYEE" means any person who (a) is not a common law
employee of an Affiliated Employer, (b) pursuant to an agreement between an
Affiliated Employer and any other person, has performed services for an
Affiliated Employer (or for an Affiliated Employer and related persons
determined in accordance with section 414(n)(6) of the Code) on a substantially
full-time basis for a period of at least one year and (c) performs the services
under primary direction and control of the recipient.
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1.25 "MATCHED SALARY DEFERRAL CONTRIBUTION" means that portion of the
Salary Deferral Contribution attributable to each Member that does not exceed
six percent of the Member's Considered Compensation earned while the Employee
was a Member.
1.26 "MEMBER" means the person or persons employed by an Employer during
the Plan Year and eligible to participate in the Plan.
1.27 "NON-HIGHLY COMPENSATED EMPLOYEE" means an Employee of the Employer
who is not a Highly Compensated Employee.
1.28 "PERIOD OF SERVICE" means a period of employment with an Affiliated
Employer which commences on the day on which an Employee performs his initial
Hour of Service or performs his initial Hour of Service upon returning to the
employ of an Affiliated Employer, whichever is applicable, and ends on the date
the Employee Severs Service.
1.29 "PERIOD OF SEVERANCE" means the period of time commencing on the date
an Employee Severs Service and ending on the date the Employee again performs an
Hour of Service.
1.30 "PLAN" means the Plan, including all subsequent amendments.
1.31 "PLAN YEAR" means the calendar year, the fiscal year of the Plan.
1.32 "QUALIFIED DOMESTIC RELATIONS ORDER" means a qualified domestic
relations order as defined in section 414(p) of the Code.
1.33 "QJSA" means a qualified joint and survivor annuity which is
purchased with the Member's or former Member's Account balance as of the date of
distribution to provide equal monthly payments for the life of the Member or
former Member, and after his death, monthly payments for the life of his
surviving Spouse in a monthly amount equal to one-half the amount of the monthly
payment made while he was alive.
1.34 "QPSA" means a qualified preretirement survivor annuity which is
purchased with the Member's Account balance as of the date of distribution that
will provide equal monthly payments for the life of the surviving Spouse.
1.35 "REGULATION" means the Department of Treasury regulation specified,
as it may be changed from time to time.
1.36 "REQUIRED BEGINNING DATE" means:
(a) in the case of an individual who is not a Five Percent Owner in
the Plan Year that ends in the calendar year in which he attains age 70
1/2, the Required Beginning Date is April 1 of the calendar year following
the later of (i) the calendar year in which the individual attains age 70
1/2, or (ii) the calendar year in which the individual Severs Service; and
I-5
(b) in the case of an individual who is a Five Percent Owner in the
Plan Year that ends in the calendar year in which he attains age 70 1/2,
the Required Beginning Date is April 1 of the calendar year in which he
attains age 70 1/2.
1.37 "RETIREMENT AGE" means the later of time a Member attains age 65 or
the fifth anniversary of the date he commenced participation in the Plan. Once a
Member has attained his Retirement Age he shall have a 100 percent
nonforfeitable interest in his Account balance at all times.
1.38 "ROLLOVER CONTRIBUTION" means the amount contributed by a Member of
the Plan which consists of any part of an eligible rollover distribution (as
defined in section 402 of the Code) from a qualified employee trust described in
section 401(a) of the Code.
1.39 "SEPARATION FROM SERVICE" means an individual's termination of
employment with an Affiliated Employer without commencing or continuing
employment with any other Affiliated Employer.
1.40 "SERVICE" means the period or periods that a person is paid or is
entitled to payment for performance of duties with an Affiliated Employer.
1.41 "SEVERS SERVICE" means the earlier of the following events: (a) the
Employee's quitting, retiring, dying or being discharged, (b) the completion of
a period of 365 continuous days in which the Employee remains absent from
Service (with or without pay) for any reason other than quitting, retiring,
dying or being discharged, such as vacation, holiday, sickness, disability,
leave of absence, layoff or any other absence or (c) the second anniversary of
the commencement of a continuous period of absence occasioned by the reason of
the pregnancy of the Employee, the birth of a child of the Employee, the
placement of a child with the Employee in connection with the adoption of the
child by the Employee or the caring for the child for a period commencing
immediately after the child's birth or placement.
1.42 "SPONSOR" means Piper Impact, Inc., a Delaware corporation.
1.43 "SPONSOR STOCK" means the common stock of Quanex Corporation, a
Delaware corporation, the parent of the Sponsor.
1.44 "SPOUSE" means the person to whom the Member or former Member is
married under applicable local law. In addition, to the extent provided in a
Qualified Domestic Relations Order, a surviving former spouse of a Member or
former Member will be treated as the Spouse of the Member or former Member, and
to the same extent any current spouse of the Member or former Member will not be
treated as a Spouse of the Member or former Member.
1.45 "TRANSFERRED" means, when used with respect to an Employee, the
termination of employment with one Employer and the contemporaneous commencement
of employment with another Employer.
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1.46 "TRUST" means the one or more trust estates created to fund the Plan.
1.47 "TRUSTEE" means collectively one or more persons or corporations with
trust powers which have been appointed by the initial Sponsor and have accepted
the duties of Trustee and any successor appointed by the Sponsor.
1.48 "TRUST FUND" means all of the trust estates established under the
terms of the Plan to fund the Plan, whether held to fund a particular group of
Accounts or held to fund all of the Accounts of Members, collectively.
1.49 "VALUATION DATE" means each business day of the Plan Year.
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ARTICLE II
ACTIVE SERVICE
2.01 WHEN ACTIVE SERVICE BEGINS. For purposes of eligibility and vesting,
Active Service begins when an Employee first performs an Hour of Service for an
Affiliated Employer. Once an Employee has begun Active Service for purposes of
eligibility or vesting and Severs Service he shall recommence Active Service for
those purposes when he again performs an Hour of Service for an Affiliated
Employer.
2.02 AGGREGATION OF SERVICE. When determining an Employee's Active
Service, all Periods of Service, whether or not completed consecutively, shall
be aggregated on a per day basis. For purposes of eligibility and vesting, only
full years of Active Service shall be counted. In aggregating Active Service, 30
days shall be counted as one month and 12 months shall be counted as one year.
No fractional years shall be counted for purposes of eligibility or vesting.
2.03 PERIODS OF SERVICE OF LESS THAN ONE YEAR. If an Employee performs an
Hour of Service within 12 months after he Severs Service, the intervening Period
of Severance shall be counted as a Period of Service.
2.04 SERVICE PRIOR TO SEVERANCE. If an Employee Severs Service at a time
when he does not have any vested right to amounts credited to his Matching
Employer Contribution Account or his Supplemental Contribution Account and the
Period of Severance continues for a continuous period of five years or more, the
Period of Service completed by the Employee before the Period of Severance shall
not be taken into account if his Period of Severance equals or exceeds his
Period of Service, whether or not consecutive, completed before the Period of
Severance.
2.05 PERIODS OF SEVERANCE DUE TO CHILD BIRTH OR ADOPTION. If the period of
time between the first anniversary of the first day of an absence from Service
by reason of the pregnancy of the Employee, the birth of a child of the
Employee, the placement of a child with the Employee in connection with the
adoption of the child by the Employee or for purposes of caring for the child
for a period beginning immediately following the birth or placement and the
second anniversary of the first day of the absence occurs during or after the
first Plan Year beginning after December 31, 1984, it shall neither be counted
as a Period of Service nor of Severance.
2.06 TRANSFERS. If an Employee of one Employer is Transferred to the
service of another Employer, his Active Service shall not be interrupted and he
shall continue to be in Active Service for purposes of eligibility, vesting and
allocation of Contributions and/or forfeitures. If an Employee is transferred to
the service of an Affiliated Employer that has not adopted the Plan he will not
Sever Service; however, even though he shall continue to be in Active Service
for eligibility and vesting purposes he shall not receive any allocation of
Contributions or forfeitures.
2.07 EMPLOYMENT RECORDS CONCLUSIVE. The employment records of the Employer
shall be conclusive for all determinations of Active Service.
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2.08 SERVICE CREDIT REQUIRED UNDER FEDERAL LAW. An Employee shall be
credited with such additional years of Active Service as are required under any
applicable law of the United States.
2.09 SPECIAL TRANSITIONAL RULE. Any person who was an Employee before
March 1, 1997, will have all or a portion of his Active Service figured under
the provisions of the Plan in effect before March 1, 1997, if that method of
calculating service is more beneficial for the Employee than the method
otherwise set out in this Article II.
2.10 CREDIT FOR SERVICE WITH PIPER IMPACT, INC. A TENNESSEE CORPORATION.
For purposes of determining an Employee's Active Service for eligibility to
participate and vesting, his service with Piper Impact, Inc., a Tennessee
corporation will be counted as Active Service under the Plan.
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ARTICLE III
ELIGIBILITY
3.01 ELIGIBILITY REQUIREMENTS. Effective April 1, 1997, each Employee
shall be eligible to participate in the Plan beginning on the entry date which
occurs with or next follows the date on which the Employee completes three
months of Active Service. However, all Employees who are included in a unit of
Employees covered by a collective bargaining agreement between the Employees'
representative and the Employer shall be excluded, even if they have met the
requirements for eligibility, if there has been good faith bargaining between
the Employer and the Employees' representative pertaining to retirement benefits
and the agreement does not require the Employer to include such Employees in the
Plan. In addition, a Leased Employee shall not be eligible to participate in the
Plan unless the Plan's qualified status is dependent upon coverage of the Leased
Employee. An Employee who is a nonresident alien (within the meaning of section
7701(b) of the Code) and receives no earned income (within the meaning of
section 911(d)(2) of the Code) from any Affiliated Employer that constitutes
income from sources within the United States (within the meaning of section
861(a)(3) of the Code) is not eligible to participate in the Plan. An Employee
who is a nonresident alien (within the meaning of section 7701(b) of the Code)
and who does receive earned income (within the meaning of section 911(d)(2) of
the Code) from any Affiliated Employer that constitutes income from sources
within the United States (within the meaning of section 861(a)(3) of the Code)
all of which is exempt from United States income tax under an applicable tax
convention is not eligible to participate in the Plan. An Employee who is
expatriated to the United States from another country is not eligible to
participate in the Plan for so long as he continues to accrue deferred
compensation or retirement benefits under any agreement or program to which an
Affiliated Employer other than an Employer is a party. Finally, an Employee who
is employed outside the United States is not eligible to participate in the Plan
unless the Committee elects to permit him to participate in the Plan. The Plan's
entry dates will be January 1, April 1, July 1 and October 1 of each Plan Year.
3.02 ELIGIBILITY UPON REEMPLOYMENT. If an Employee Severs Service with the
Employer prior to the date he initially begins participating in the Plan, he
shall be eligible to begin participation in this Plan on the later of the date
he would have become a Member if he did not Sever Service or the date on which
he performs an Hour of Service after he Severs Service. Subject to Section 3.03,
once an Employee becomes a Member, his eligibility to participate in the Plan
shall continue until he Severs Service.
3.03 CESSATION OF PARTICIPATION. An individual who has become a Member
will cease to be a Member on the earliest of the date on which he (a) Severs
Service, (b) is transferred from the employ of an Employer to the employ of an
Affiliated Employer that has not adopted the Plan, (c) becomes included in a
unit of employees covered by a collective bargaining agreement that does not
require coverage of those employees under the Plan, (d) becomes a Leased
Employee, or (e) becomes included in another classification of Employees who,
under the terms of the Plan, are not eligible to participate. Under these
circumstances, the Member's Account becomes frozen; he cannot contribute to the
Plan or share in the allocation of any Employer Contributions or forfeitures for
the
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frozen period. However, his Accounts shall continue to share in any Plan income
allocable to his Accounts during the frozen period of time.
3.04 RECOMMENCEMENT OF PARTICIPATION. A former Member will again become a
Member on the day on which he again becomes included in a classification of
Employees who, under the terms of the Plan, are eligible to participate.
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ARTICLE IV
CONTRIBUTIONS
4.01 SALARY DEFERRAL CONTRIBUTIONS. The Employer shall make a Salary
Deferral Contribution in an amount equal to the amount by which its Members'
Considered Compensation was reduced as a result of salary deferral agreements.
Any such salary deferral agreement shall be an agreement in a form satisfactory
to the Committee to prospectively receive Considered Compensation from the
Employer in a reduced amount and to have the Employer contribute an amount equal
to the amount of the reduction to the Trust Fund on account of the Member. Any
such salary deferral agreement shall be revocable in accordance with its terms,
provided that no revocation shall be retroactive or permit payment to the Member
of the amount required to be contributed to the Trust Fund. A Member shall be
entitled to prospectively modify his salary deferral agreement at least once a
year. A Member's right to benefits derived from Salary Deferral Contributions
made to the Plan on his behalf shall be nonforfeitable. The election to have
Salary Deferral Contributions made, the ability to change the rate of Salary
Deferral Contributions, the right to suspend Salary Deferral Contributions, and
the manner of commencing new Salary Deferral Contributions shall be permitted
under any uniform method determined by the Committee from time to time.
4.02 EMPLOYER MATCHING CONTRIBUTIONS. The Employer shall make an Employer
Matching Contribution in an amount equal to 25 percent of the Matched Salary
Deferral Contributions for all Members.
4.03 SUPPLEMENTAL CONTRIBUTIONS. The Employer may contribute for any Plan
Year a Supplemental Contribution in such amount, if any, as shall be determined
by the Employer.
4.04 ROLLOVER CONTRIBUTIONS AND PLAN-TO-PLAN TRANSFERS. The Committee may
permit Rollover Contributions by Members and/or direct transfers to or from
another qualified plan on behalf of Members from time to time. If Rollover
Contributions and/or direct transfers to or from another qualified plan are
permitted, the opportunity to make those contributions and/or direct transfers
must be made available to Members on a nondiscriminatory basis. For this purpose
only, all Employees who are included in a classification of Employees who are
eligible to participate in the Plan shall be considered to be Members of the
Plan even though they may not have met the Active Service requirements for
eligibility. However, they shall not be entitled to elect to have Salary
Deferral Contributions made or to share in Employer Contributions or forfeitures
unless and until they have met the requirements for eligibility, contributions
and allocations. A Rollover Contribution shall not be accepted unless it is
directly rolled over to the Plan in a rollover described in section 401(a)(31)
of the Code. A Member shall not be permitted to make a Rollover Contribution if
the property he intends to contribute is for any reason unacceptable to the
Trustee. A Rollover Contribution Account shall be established for any Employee
who makes a Rollover Contribution.
4.05 QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTIONS. The Employer may make a
Qualified Nonelective Employer Contribution in such amount, if any, as shall be
determined by the
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Employer. A Member's right to benefits derived from Qualified Nonelective
Employer Contributions made to the Plan on his behalf shall be nonforfeitable.
In no event will Qualified Nonelective Employer Contributions be distributed
before Salary Deferral Contributions may be distributed
4.06 RESTORATION CONTRIBUTIONS. The Employer shall, for each Plan Year,
make a restoration contribution in an amount equal to the sum of (a) such
amount, if any, as shall be necessary to fully restore all Matching Employer
Contribution Accounts and Supplemental Contribution Accounts required to be
restored pursuant to the provisions of Section 5.10, after application of all
forfeitures and any appreciation in the value of the Trust Fund available for
such restoration; plus (b) an amount equal in value to the value of forfeited
benefits described in and payable under Section 6.09.
4.07 NONDEDUCTIBLE CONTRIBUTIONS NOT REQUIRED. Notwithstanding any other
provision of the Plan, no Employer shall be required to make any contribution
that would be a "nondeductible contribution" within the meaning of section 4972
of the Code.
4.08 FORM OF PAYMENT OF CONTRIBUTIONS. Contributions may be paid to the
Trustee either in cash or in qualifying employer securities (as such term is
defined in Section 407(d) of ERISA) or any combination thereof, provided that
payment may not be made in any form constituting a prohibited transaction under
section 4975 of the Code or Section 406 of ERISA.
4.09 DEADLINE FOR PAYMENT OF EMPLOYER CONTRIBUTIONS. Salary Deferral
Contributions shall be paid to the Trustee in installments. The installment for
each payroll period shall be paid as soon as administratively feasible, and
shall be in an amount equal to the amount by which all Members' Considered
Compensation was reduced pursuant to salary deferral agreements for such period.
The Matching Employer Contributions, Supplemental Contributions and Qualified
Nonelective Employer Contributions for a Plan Year shall be paid to the Trustee
in one or more installments, as the Employer may from time to time determine;
provided, however, that such contributions may not be paid later than the time
prescribed by law (including extensions thereof) for filing the Employer's
income tax return for its taxable year ending with or within such Plan Year.
4.10 RETURN OF CONTRIBUTIONS FOR MISTAKE, DISQUALIFICATION OR DISALLOWANCE
OF DEDUCTION. Subject to the limitations of section 415 of the Code, the assets
of the Trust shall not revert to any Employer or be used for any purpose other
than the exclusive benefit of the Members and their Beneficiaries and the
reasonable expenses of administering the Plan except:
(a) any Contribution made because of a mistake of fact may be repaid
to the Employer within one year after the payment of the Contribution;
(b) all Contributions are conditioned upon the Plan's initial
qualification under section 401 of the Code and may be repaid to the
Employer within one year after the date of denial of the initial
qualification of the Plan; and
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(c) all Employer Contributions are conditioned upon their
deductibility under section 404 of the Code; therefore, to the extent the
deduction is disallowed, the Contributions may be repaid to the Employer
within one year after the disallowance.
The Employer has the exclusive right to determine if a Contribution or any
part of it is to be repaid or is to remain as a part of the Trust Fund except
that the amount to be repaid is limited, if the Contribution is made by mistake
of fact or if the deduction for the Contribution is disallowed, to the excess of
the amount contributed over the amount that would have been contributed had
there been no mistake or over the amount disallowed. Earnings which are
attributable to any excess contribution cannot be repaid. Losses attributable to
an excess contribution must reduce the amount that may be repaid. All repayments
of Contributions made due to a mistake of fact or with respect to which a
deduction is disallowed are limited so that the balance in a Member's Account
cannot be reduced to less than the balance that would have been in the Member's
Account had the mistaken amount or the amount disallowed never been contributed.
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ARTICLE V
ALLOCATION AND VALUATION OF ACCOUNTS
5.01 INFORMATION STATEMENTS FROM EMPLOYER. As soon as practical after the
last day of each calendar quarter, the Employer shall provide the Committee with
a schedule setting forth the amount of its Salary Deferral Contribution,
Employer Matching Contribution, Supplemental Employer Contribution, Qualified
Nonelective Employer Contribution, and restoration contribution; the names of
its Members, the number of years of Active Service of each of its Members, the
amount of Considered Compensation paid to each Member, and the amount of
Considered Compensation paid to all its Members. Such schedules shall be
conclusive evidence of such facts.
5.02 ALLOCATION OF SALARY DEFERRAL CONTRIBUTION. The Committee shall
allocate the Employer's Salary Deferral Contribution among the Employer's
Members by allocating to each such Member the amount by which his Considered
Compensation was reduced pursuant to a salary deferral agreement (as described
in Section 4.1) and shall credit each such Member's share to the Member's Salary
Deferral Contribution Account.
5.03 ALLOCATION OF MATCHING EMPLOYER CONTRIBUTION. The Committee shall
separately allocate the Employer Matching Contribution among the Employer's
Members in the proportion which the Matched Salary Deferral Contributions of
each such Member bears to the total Matched Salary Deferral Contributions of all
such Members. Each Member's proportionate share shall be credited to his
Matching Employer Contribution Account.
5.04 ALLOCATION OF SUPPLEMENTAL CONTRIBUTION. The Committee shall allocate
the Supplemental Contribution among the Employer's Members in the proportion
that the Considered Compensation of each Member for the Plan Year bears to the
total Considered Compensation of all Members for the Plan Year. Each Member's
proportionate share shall be credited to his Supplemental Contribution Account.
5.05 ALLOCATION OF QUALIFIED NONELECTIVE EMPLOYER CONTRIBUTION. The
Committee shall separately allocate the Qualified Nonelective Employer
Contribution among the Non-Highly Compensated Employees who are Members based
upon each such Member's Considered Compensation as compared to the Considered
Compensation of all such Members.
5.06 ALLOCATION OF DIVIDENDS ON SPONSOR STOCK. Cash and Sponsor Stock
dividends paid with respect to Sponsor Stock shall be allocated among the
Members and former Members with Account balances in proportion to the number of
shares of Sponsor Stock (of the class with respect to which the dividend is
paid) allocated to Member's or former Member's Account as of the record date for
the dividend.
5.07 SPONSOR STOCK SPLITS. If the shares of Company Stock are subdivided,
the additional shares acquired by the Trustee upon the subdivision will be
allocated among the Members and former Members with Account balances in
proportion to the number of shares of Sponsor Stock (of
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the class with respect to which the subdivision is made) allocated to the
Member's or former Member's Account as of the record date for the subdivision.
5.08 VALUATION OF ACCOUNTS. A Member's or former Member's Accounts shall
be valued at fair market value on each Valuation Date. The earnings and losses
attributable to any asset in the Trust Fund will be allocated solely to the
Account of the Member or former Member on whose behalf the investment in the
asset was made. In determining the fair market value of the Members' or former
Member's Accounts, the Trustee shall utilize such sources of information as it
may deem reliable including, but not limited to, stock market quotations,
statistical evaluation services, newspapers of general circulation, financial
publications, advice from investment counselors or brokerage firms, or any
combination of sources which in the opinion of the Trustee will provide the
price such assets were last traded at on a registered stock exchange; provided,
however, that with respect to regulated investment company shares, the Trustee
shall rely exclusively on information provided to it by the investment adviser
to such funds.
5.09 ALLOCATION OF FORFEITURES. At the time a forfeiture occurs, the
amount forfeited will first be used to reinstate any Account required to be
reinstated under Section 5.10, and any remaining amount will be applied to the
payment of Matching Employer Contributions or Supplemental Contributions.
5.10 RESTORATION OF FORFEITED AMOUNTS. If a Member or former Member who
forfeited any portion of his Matching Employer Contribution Account or his
Supplemental Contribution Account pursuant to the provisions of Section 6.10
resumes employment covered under the Plan, then the following provisions shall
apply:
(a) REPAYMENT REQUIREMENT. The Member's Employer Matching
Contribution Account and Supplemental Contribution Account shall be
restored if he repays to the Trustee the full amount of any distribution
from the Employer Matching Contribution Account and Supplemental
Contribution Account with respect to which the forfeiture arose. Such
repayment must be made prior to the earlier of (a) the date on which he
incurs a Period of Severance of five years, or (b) the fifth anniversary
of the first date on which the Member is subsequently re-employed by the
Employer.
(b) MEMBERS WITH NO VESTED INTEREST. If a Member or former Member
who forfeited any portion of his Employer Matching Contribution Account
pursuant to the provisions of Section 6.10 received no distribution from
his Employer Matching Contribution Account or his Supplemental
Contribution Account as a result of his termination of participation in
the Plan (because his vested percentage was zero), that Account will be
restored if, and only if, he resumes employment covered under the Plan
prior to incurring a Period of Severance of five years.
(c) AMOUNT RESTORED. The amount to be restored under the preceding
provisions of this Section shall be the dollar value of the amount in the
Member's Employer Matching Contribution Account and Supplemental
Contribution Account, both the amount distributed and the amount
forfeited, unadjusted by any subsequent gains or losses. The Member's
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Employer Matching Contribution Account or his Supplemental Contribution
Account balance shall be restored as soon as administratively practicable
after the later of the date the Member resumes employment covered under
the Plan or the date on which any required repayment is completed. No
distribution shall be made to a Member from his Employer Matching
Contribution Account or his Supplemental Contribution Account as a result
of a prior Separation From Service after the restoration of such Account
has been effectuated.
(d) NO OTHER BASIS FOR RESTORATION. Except as otherwise provided
above, a Member's Employer Matching Contribution Account and Supplemental
Contribution Account shall not be restored upon resumption of employment
covered by the Plan. Any portion of the Trust Fund attributable to Years
of Service prior to resumption of employment by a Member whose Employer
Matching Contribution Account and Supplemental Contribution Account has
not been restored shall be held and distributed in accordance with
applicable provisions of the Plan and elections made thereunder. A
separate Employer Matching Contribution Account and Supplemental
Contribution Account shall be established and maintained for Employer
Matching Contributions and Supplemental Contributions allocable to such a
Member after his resumption of employment covered by the Plan.
5.11 NO VESTING UNLESS OTHERWISE PRESCRIBED. No allocations, adjustments,
credits, or transfers shall ever vest in any Member or former Member any right,
title, or interest in the Trust Fund except at the times and upon the terms and
conditions herein set forth.
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ARTICLE VI
BENEFITS
6.01 VALUATION OF ACCOUNTS FOR WITHDRAWALS AND DISTRIBUTIONS. For the
purpose of making a distribution or withdrawal, a Member's Accounts shall be his
Accounts as valued as of the Valuation Date which is coincident with or next
follows the event which caused the distribution or withdrawal, adjusted for
Contributions, distributions and withdrawals, if any, made between the Valuation
Date and that event.
6.02 DEATH BENEFIT. Subject to Sections 6.18 and 6.19 and Appendix C, if a
Member or former Member dies, the death benefit payable to his Beneficiary shall
be 100 percent of the remaining amount in all of his Accounts as of the day he
dies.
6.03 RETIREMENT BENEFIT. An Employee may retire on the first day of any
month after he attains his Retirement Age. If a Member retires, he is entitled
to receive 100 percent of all of his Accounts as of the day he retires.
6.04 DISABILITY BENEFIT. Upon an Employee's Separation From Service due to
a Disability, he is entitled to receive 100 percent of all of his Accounts as of
the day he terminated because of his Disability.
6.05 SEVERANCE BENEFIT. Upon an Employee's Separation From Service for any
reason other than death, retirement after attaining Retirement Age or
disability, he is entitled to receive (a) 100 percent of all of his Accounts,
except his Matching Employer Contribution Account and Supplemental Contribution
Account, and (b) that percentage of his Matching Employer Contribution Account
and Supplemental Contribution Account, if any, as shown in the vesting schedule
below, as of the date of his Separation From Service.
Percentage of Amount Invested
In Accounts Containing
Completed Years of Active Service Employer Contributions
- --------------------------------- ----------------------
Less than two years............................... 0%
Two years but less than three years............... 20%
Three years but less than four years.............. 40%
Four years but less than five years............... 60%
Five years but less than six years................ 80%
Six years or more.................................100%
Prior to a Member's Separation From Service, he will have a nonforfeitable
interest in the portion of the Matching Employer Contributions and Supplemental
Contributions specified in the above vesting schedule.
VI-1
6.06 DISTRIBUTIONS PURSUANT TO QUALIFIED DOMESTIC RELATIONS ORDERS. The
Committee will instruct the Trustee to pay benefits in accordance with the terms
of any order that has been determined, in accordance with Plan procedures, to be
a Qualified Domestic Relations Order. A Qualified Domestic Relations Order may
require the payment of an immediate cash lump sum to an alternate payee even if
the Member or former Member is not then entitled to receive an immediate payment
of Plan benefits.
6.07 FINANCIAL HARDSHIP DISTRIBUTIONS.
(a) GENERAL. Prior to his Separation From Service, a Member is
entitled to receive a distribution from his Salary Deferral Contribution
Account, his Rollover Account, his vested interests in his Matching
Employer Contribution Account and his Supplemental Contribution Account in
the event of an immediate and heavy financial need incurred by the Member
and the Committee's determination that the withdrawal is necessary to
alleviate that hardship.
(b) PERMITTED REASONS FOR FINANCIAL HARDSHIP WITHDRAWALS. A
distribution shall be made on account of financial hardship only if the
distribution is for: (i) Expenses for medical care described in section
213(d) of the Code previously incurred by the Member, the Member's Spouse,
or any dependents of the Member (as defined in section 152 of the Code) or
necessary for these persons to obtain medical care described in section
213(d) of the Code, (ii) costs directly related to the purchase (excluding
mortgage payments) of a principal residence for the Member, (iii) payment
of tuition and related educational fees for the next 12 months of
post-secondary education for the Member, his Spouse, children, or
dependents (as defined in section 152 of the Code), (iv) payments
necessary to prevent the eviction of the Member from his principal
residence or foreclosure on the mortgage of the Member's principal
residence, or (v) any other event added to this list by the Commissioner
of Internal Revenue.
(c) AMOUNT. A distribution to satisfy an immediate and heavy
financial need shall not be made in excess of the amount of the immediate
and heavy financial need of the Member and the Member must have obtained
all distributions, other than hardship distributions, and all nontaxable
(at the time of the loan) loans currently available under all plans
maintained by the Employer. The amount of a Member's immediate and heavy
financial need includes any amounts necessary to pay any federal, state or
local income taxes or penalties reasonably anticipated to result from the
financial hardship distribution.
(d) SUSPENSION OF PARTICIPATION IN CERTAIN BENEFIT PROGRAMS. The
Member's hardship distribution shall terminate his right to have the
Employer make any Salary Deferral Contributions on his behalf until the
next time Salary Deferral Contributions are permitted after the lapse of
12 months following the hardship distribution and his timely filing of a
written request to resume his Salary Deferral Contributions. In addition,
for 12 months after he receives a hardship distribution from the Plan, the
Member is prohibited from making elective contributions and employee
contributions to all other qualified and nonqualified plans of deferred
compensation maintained by the Employer, including stock option plans,
VI-2
stock purchase plans and Code section 401(k) cash or deferred arrangements
that are part of cafeteria plans described in section 125 of the Code.
However, the Member is not prohibited from making contributions to a
health or welfare benefit plan, including one that is part of a cafeteria
plan within the meaning of section 125 of the Code.
(e) RESUMPTION OF SALARY DEFERRAL CONTRIBUTIONS. When the Member
resumes Salary Deferral Contributions, he cannot have the Employer make
any Salary Deferral Contributions in excess of the limit in section 402(g)
of the Code for that taxable year reduced by the amount of Salary Deferral
Contributions made by the Employer on the Member's behalf during the
taxable year of the Member in which he received the hardship distribution.
(f) ORDER OF WITHDRAWALS. Financial hardship distributions will be
made in the following order: First withdrawals will be made from the
Member's Rollover Account, then from his Matching Employer Contribution
Account, then from his Supplemental Contribution Account, and finally,
from his Salary Deferral Contribution Account. A Member shall not be
entitled to receive a financial hardship distribution of any amount
credited to his Qualified Nonelective Employer Contribution Account, or of
any income that is allocable or credited to his Member's Salary Deferral
Contribution Account.
(g) METHOD OF PAYMENT. Distributions pursuant to this Section 6.07
will normally be paid in lump sums. However, the QJSA requirements of
Section 6.13 will apply to any distributions made under this Section 6.07
on or after the date as of which an Employer elects to treat the Plan and
the Quanex Corporation Salaried Employees' Pension Plan as one plan for
purposes of section 410(b) of the Code.
6.08 AGE 59 1/2 DISTRIBUTIONS. Prior to his Separation From Service, a
Member may withdraw part or all of his vested Account balance on or after the
date that he attains age 59 1/2 . Distributions pursuant to this Section 6.08
will normally be paid in lump sums. However, the QJSA requirements of Section
6.13 will apply to any distributions made under this Section 6.08 on or after
the date as of which an Employer elects to treat the Plan and the Quanex
Corporation Salaried Employees Pension Plan as one plan for purposes of section
410(b) of the Code.
6.09 LOANS. The Committee may direct the Trustees to make loans to Members
(and Beneficiaries who are "parties in interest" within the meaning of ERISA)
who have a vested interest in the Plan. The Loan Committee established by the
Committee will be responsible for administering the Plan loan program. All loans
will comply with the following requirements:
(a) All loans will be made solely from the Member's or Beneficiary's
Account.
(b) Loans will be available on a nondiscriminatory basis to all
Beneficiaries who are "parties in interest" within the meaning of ERISA,
and to all Members.
(c) Loans will not be made for less than $1,000.00.
VI-3
(d) The maximum amount of a loan may not exceed the lesser of (A)
$50,000.00 reduced by the person's highest outstanding loan balance from
the Plan during the preceding one-year period, or (B) one-half of the
present value of the person's vested Account balance under the Plan
determined as of the date on which the loan is approved by the Loan
Committee.
(e) Any loan from the Plan will be evidenced by a note or notes
(signed by the person applying for the loan) having such maturity, bearing
such rate of interest, and containing such other terms as the Loan
Committee will require by uniform and nondiscriminatory rules consistent
with this Section and proper lending practices.
(f) All loans will bear a reasonable rate of interest which will be
established by the Loan Committee. In determining the proper rate of
interest to be charged, at the time any loan is made or renewed, the Loan
Committee will contact at least two of the largest banks in the geographic
location in which the Member or Beneficiary resides to determine what
interest rate the banks would charge for a similar loan taking into
account the collateral offered.
(g) Each loan will be fully secured by a pledge of the borrowing
person's vested Account balance. No more than 50 percent of the person's
vested Account balance (determined immediately after the origination of
the loan) will be considered as security for any loan.
(h) The term of the loan will not be less than 18 months. Generally,
the term of the loan will not be more than five years. The Loan Committee
may agree to a longer term (but not more than seven years) only if such
term is otherwise reasonable and the proceeds of the loan are to be used
to acquire a dwelling which will be used within a reasonable time
(determined at the time the loan is made) as the principal residence of
the borrowing person.
(i) The loan agreement will require level amortization over the term
of the loan. A Member's loan agreement will also require that loan
repayments be made through payroll deductions.
(j) If a person fails to make a required payment within 30 days of
the due date set forth in the loan agreement, the loan will be in default.
(k) If a Member has an outstanding loan from the Plan at the time of
his Separation From Service, the outstanding loan principal balance and
any accrued but unpaid interest will become immediately due in full. The
Member will have the right to immediately pay the Trustee that amount. If
the Member fails to repay the loan, the Trustee will foreclose on the loan
and the Member will be deemed to have received a Plan distribution of the
amount foreclosed upon. The Trustee will not foreclose upon a Member's
Salary Deferral Contributions Account or Qualified Nonelective Employer
Contributions Account until the Member's Separation From Service.
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(l) If a Beneficiary defaults on his loan, the Trustee will
foreclose on the loan and the Beneficiary will be deemed to have received
a Plan distribution of the amount foreclosed upon.
(m) No person shall be entitled to apply for a new Plan loan until
at least 90 days have transpired since he fully repaid his last loan from
the Plan.
(n) No amount that is pledged as collateral for a Plan loan to a
Participant will be available for withdrawal before he has fully repaid
his loan.
(o) All interest payments made pursuant to the terms of the loan
agreement will be credited to the borrowing person's Account and will not
be considered as general earnings of the Trust Fund to be allocated to
other Members.
(p) The Spouse of a Member must consent to any loan from the Plan
that is made, extended or renewed after the date on which an Employer
elects to treat the Plan and the Quanex Corporation Salaried Employees'
Pension Plan as one plan for purposes of section 410(b) of the Code. The
Spouse's consent must (1) be in writing, (2) consent to the loan, (3)
acknowledge the effect of the Spouse's consent to the Member's borrowing
from the Plan, and (4) be witnessed by a notary public or a Plan
representative.
6.10 FORFEITURE BY LOST MEMBERS OR BENEFICIARIES. If a person who is
entitled to a distribution cannot be located during a reasonable search after
the Trustee has initially attempted making payment, that person's Account shall
be forfeited. However, if at any time prior to the termination of the Plan and
the complete distribution of the Trust Fund, the former Member or Beneficiary
files a claim with the Committee for the forfeited benefit, that benefit shall
be reinstated (without adjustment for trust income or losses during the
forfeited period) effective as of the date of the receipt of the claim. As soon
as appropriate following the Employer's Contribution of the reinstated amount,
it shall be paid to the former Member or Beneficiary in a single sum.
6.11 FORFEITURE ON TERMINATION OF PARTICIPATION. If as a result of his
Separation From Service a former Member receives, not later than the end of the
second Plan Year following the Plan Year in which his Separation From Service
occurs, a distribution of his entire vested interest in his Account, the
nonvested amount in his Account is immediately forfeited. A former Member who
receives no distribution upon his Separation From Service because he has no
vested interest shall be treated as if he received a distribution of his entire
vested interest and that interest was less than $5,000.00.
If a former Member who has a vested interest in his Account receives no
distribution or a distribution of less than the full amount of his entire vested
interest as a result of his Separation From Service, the nonvested amount in his
Account is immediately forfeited following five consecutive one-year Periods of
Severance.
6.12 CLAIMS PROCEDURE. When a benefit is due, the Member or Beneficiary
should submit his claim to the person or office designated by the Committee to
receive claims. Under normal
VI-5
circumstances, a final decision shall be made as to a claim within 90 days after
receipt of the claim. If the Committee notifies the claimant in writing during
the initial 90-day period, it may extend the period up to 180 days after the
initial receipt of the claim. The written notice must contain the circumstances
necessitating the extension and the anticipated date for the final decision. If
a claim is denied during the claims period, the Committee must notify the
claimant in writing. The denial must include the specific reasons for it, the
Plan provisions upon which the denial is based, and the claims review procedure.
If no action is taken during the claims period, the claim is treated as if it
were denied on the last day of the claims period.
If a Member's or Beneficiary's claim is denied and he wants a review, he
must apply to the Committee in writing. That application may include any comment
or argument the claimant wants to make. The claimant may either represent
himself or appoint a representative, either of whom has the right to inspect all
documents pertaining to the claim and its denial. The Committee may schedule any
meeting with the claimant or his representative that it finds necessary or
appropriate to complete its review.
The request for review must be filed within 90 days after the denial. If
it is not, the denial becomes final. If a timely request is made, the Committee
must make its decision, under normal circumstances, within 60 days of the
receipt of the request for review. However, if the Committee notifies the
claimant prior to the expiration of the initial review period, it may extend the
period of review up to 120 days following the initial receipt of the request for
a review. All decisions of the Committee must be in writing and must include the
specific reasons for their action and the Plan provisions on which their
decision is based. If a decision is not given to the claimant within the review
period, the claim is treated as if it were denied on the last day of the review
period.
6.13 NORMAL FORM OF DISTRIBUTIONS. The normal form of distributions under
the Plan is a cash lump sum payment.
6.14 DIRECT ROLLOVER OPTION. To the extent required under Regulations, a
Distributee has the right to direct that any portion of his Eligible Rollover
Distribution will be directly paid to an Eligible Retirement Plan specified by
him that will accept the Eligible Rollover Distribution.
6.15 CHOICE OF DISTRIBUTION METHODS. Each Member or former Member shall
have the right to elect the method of distribution applicable to him. An
election of an option available under this Article shall be made within the
90-day period that ends on the Member's or former Member's Annuity Starting
Date, and may be rescinded or changed by a Member or former Member at any time
prior to the distribution. An election, change, or rescission of an option must
be made by executing and properly filing the form or forms approved by the
Committee. Proof of age and other information may be required by the Committee.
6.16 SINGLE SUM PAYMENT OF SMALL AMOUNTS UPON SEPARATION FROM SERVICE.
Notwithstanding any other provision of the Plan, each Member or former Member
(a) who does not die before the Annuity Starting Date and (b) whose vested
Account balance at the time of a distribution to him on account of his
Separation From Service is less than or equal to $5,000.00, shall be paid in the
form of a single sum payment. A surviving Spouse or other Beneficiary of a
VI-6
Member or former Member whose Account balance is less than or equal to $5,000.00
shall be paid in the form of a single sum payment. For this purpose, if the
value of a Member's or former Member's Account balance determined at the time of
any prior payment to him exceeded $5,000.00, then the benefit to be distributed
at any subsequent time shall be deemed to exceed that amount.
6.17 CONSENT TO DISTRIBUTIONS UPON SEPARATION FROM SERVICE.
Notwithstanding any other provision of the Plan, no benefit shall be distributed
or commence to be distributed to a Member or former Member prior to his
attainment of the later of age 62 or Retirement Age without his consent, unless
the benefit is payable in a single sum under Section 6.16. Any such consent
shall be valid only if given not more than 90 days prior to the Member's or
former Member's Annuity Starting Date and after his receipt of the notice
regarding benefits described in Section 6.21(a).
6.18 QUALIFIED JOINT AND SURVIVOR ANNUITY REQUIREMENTS. On and after the
date on which an Employer elects to treat the Plan and the Quanex Corporation
Salaried Employees' Pension Plan as one plan for purposes of section 410(b) of
the Code, this Section 6.18 will apply. Except for small benefits payable under
Section 6.16, each Member or former Member who (a) is married on his Annuity
Starting Date and (b) does not die before his Annuity Starting Date will be paid
in the form of a QJSA, unless he and his Spouse make a valid election to waive
this form of payment. Except for small benefits payable under Section 6.16, each
other Member who does not die before the Annuity Starting Date, will be paid in
the form of a life only annuity unless he makes a valid election to waive this
form of payment. A Member's waiver of the QJSA form of payment will not be
effective unless the waiver (1) designates a specific nonspouse Beneficiary who
will receive Plan benefits and (2) specifies the particular optional form of
benefits selected instead of the QJSA. Also, a Member's or former Member's
waiver of the QJSA will not be effective unless his Spouse signs either a
specific or a general consent to his waiver. A specific spousal consent must (1)
be in writing, (2) consent to the waiver of the QJSA, (3) consent to the
specific nonspouse Beneficiary designated by the Member or former Member to
receive Plan benefits, (4) consent to the particular optional form of benefit
selected by the Member or former Member, (5) acknowledge the effect of the
Spouse's consent to the Member's or former Member's waiver of the QJSA, and (6)
be witnessed by a notary public or a Plan representative. A general spousal
consent must (1) be in writing, (2) consent to the Member's or former Member's
waiver of the QJSA, (3) specify that the Member or former Member can change the
Beneficiary designated by him to receive Plan benefits, without any requirement
of further consent by the Spouse, (4) specify that the Member or former Member
can change the optional form of benefit elected by the Member or former Member,
without any requirement of further consent by the Spouse, (5) acknowledge that
the Spouse has the right to limit consent to a specific Beneficiary and a
specific optional form of benefit, and that the Spouse voluntarily elects to
relinquish both of those rights, (6) acknowledge the effect of the Spouse's
consent to the Member's or former Member's waiver of the QJSA, and (7) be
witnessed by a notary public or a Plan representative. However, a Member's or
former Member's election to waive the QJSA shall be effective if it is
established to the satisfaction of the Committee that spousal consent to his
waiver may not be obtained because (1) there is no Spouse, (2) the Spouse cannot
be located, or (3) there exist such other circumstances which obviate the
necessity of obtaining the spousal consent. Any consent by the Member's or
former Member's Spouse (or establishment that the consent of the Member's or
former Member's Spouse may not be obtained) shall be effective only with respect
to such Spouse.
VI-7
6.19 QUALIFIED PRERETIREMENT SURVIVOR ANNUITY REQUIREMENTS.
(a) GENERAL RULES. On and after the date on which an Employee elects
to treat the Plan and the Quanex Corporation Salaried Employees' Pension
Plan as one plan for purposes of section 410(b) of the Code, this Section
6.19 will apply. Except for small benefits payable under Section 6.12, the
death benefit of a Member or former Member who (1) is married on the date
of his death and (2) dies before his Annuity Starting Date will be paid in
the form of a QPSA, unless he and his Spouse make a valid election to
waive this form of payment. Subject to Section 6.21, the surviving Spouse
of such a Member or former Member may elect to have payments commence to
her as soon as administratively practicable, or at any later date selected
by her.
(b) WAIVERS. Any valid election to waive the QPSA must be made in
writing by the Member or former Member and consented to by the Member's or
former Member's Spouse. Any spousal consent to the waiver must: (1) be
witnessed by a member of the Committee, the Trustee, or a notary public,
and (2) consent to the specific nonspouse Beneficiary or Beneficiaries
selected by the Member or former Member (or permit future changes in
designations by the Member provided that general consent requirements
similar to those described in Section 6.18 are satisfied). However, if the
Member or former Member establishes to the satisfaction of the Committee
or the Trustee that the spouse's written consent cannot be obtained
because there is no Spouse or the Spouse cannot be located, a waiver
signed only by the Member or former Member will be considered a valid
election. The consent to a waiver is valid only with respect to the Spouse
who signs it; therefore, if the Member or former Member remarries after
executing a waiver, the Member's or former Member's new Spouse must
execute a new consent. The Member or former Member may revoke a prior
waiver without his Spouse's consent at any time before benefit payments
begin. Except as specified below, an election to waive the QPSA will be
valid only if it is made after the first day of the Plan Year in which the
Member or former Member attains age 35 and before the Member's or former
Member's death.
(c) PRE-AGE 35 WAIVERS. A Member or former Member may waive the
QPSA, with spousal consent, before the first day of the Plan Year in which
he attains age 35 if the Sponsor provides him a written explanation of the
QPSA (that meets the requirements of Section 6.20) within the period
beginning one year before he Severs Service and ending one year after he
Severs Service. However, any such waiver will expire and become invalid
beginning on the first day of the Plan Year in which the Member or former
Member attains age 35.
6.20 INFORMATION PROVIDED TO MEMBERS. Information regarding the form of
benefits available under the Plan shall be provided to Members or former Members
in accordance with the following provisions:
(a) GENERAL INFORMATION. Except as otherwise provided in paragraph
(c), the Sponsor shall provide each Member or former Member with a written
general explanation
VI-8
or description of (1) the eligibility conditions and other material
features of the optional forms of benefit available under the Plan, (2)
the relative values of the optional forms of benefit available under the
Plan, and (3) the Member's or former Member's right, if any, to defer
receipt of the distribution.
(b) TIME FOR GIVING NOTICE. The written general explanation or
description regarding any optional forms of benefit available under the
Plan shall be provided to a Member or former Member no less than 30 days
and no more than 90 days before his Annuity Starting Date unless he
legally waives this requirement.
(c) EXCEPTION FOR MEMBERS WITH SMALL BENEFIT AMOUNTS.
Notwithstanding the preceding provisions of this Section, no information
regarding any optional forms of benefit otherwise available under the Plan
shall be provided to the Member or former Member if his benefit is payable
in a single sum under Section 6.16.
(d) QJSA NOTICE. This paragraph applies on and after the date on
which an Employer elects to treat the Plan and the Quanex Corporation
Salaried Employees' Pension Plan as one plan for purposes of section
410(b) of the Code. No less than 30 days (seven days if the Member or
former Member legally waives the 30-day notice requirement) and no more
than 90 days before the Annuity Starting Date of a Member or former Member
who is subject to Section 6.18, the Sponsor shall provide him a written
notice explaining the terms and conditions of each retirement option, and
in particular (1) the automatic QJSA or life annuity, (2) the Member's or
former Member's right to make, and the effect of, a waiver of the
automatic QJSA, (3) the right of the Member's or former Member's Spouse to
consent or not to consent to such a waiver, (4) the right to make, and the
effect of, a revocation of a previous waiver or election, (5) the
eligibility conditions and other material features of the optional forms
of benefit, (6) the relative values of the optional forms of benefit, and
(7) the Member's or former Member's right to request a written explanation
of the financial effect upon a Member's or former Member's annuity of
electing to waive the QJSA or life annuity.
(e) QPSA NOTICE. This paragraph applies on and after the date on
which an Employer elects to treat the Plan and the Quanex Corporation
Salaried Employees' Pension Plan as one plan for purposes of section
410(b) of the Code. The Sponsor will provide each Member or former Member
who is subject to Section 6.19 a written explanation of: (a) the terms and
conditions of the QPSA, (b) the Member's or former Member's right to waive
the QPSA and the effect of the waiver, (c) the rights of the Member's or
former Member's Spouse, and (d) the right to revoke a prior waiver and the
effect of the revocation. This written explanation will be provided within
the latest of the period (a) beginning on the first day of the Plan Year
in which the Member or former Member attains age 32 and ending with the
close of the Plan Year preceding the Plan Year in which the Member or
former Member attains age 35, (b) ending one year after the individual
becomes a Member, or (c) ending one year after the QPSA rules first become
effective with respect to the Member or former Member.
VI-9
6.21 OPTIONAL FORMS OF DISTRIBUTION. On and after the date on which an
Employer elects to treat the Plan and the Quanex Corporation Salaried Employees'
Pension Plan as one plan for purposes of section 410(b) of the Code, all of the
optional forms of payment available under the Quanex Corporation Salaried
Employees' Pension Plan (as discussed more fully in Appendix C hereto) will be
available under the Plan.
6.22 TIME OF DISTRIBUTIONS. Notwithstanding any other provision of the
Plan, all benefits payable under the Plan shall be distributed, or commence to
be distributed, in compliance with the following provisions:
(a) DISTRIBUTION DEADLINES FOR MEMBERS OR FORMER MEMBERS WHO ARE 70
1/2 OR OLDER. If a Member or former Member attains 70 1/2, the Member or
former Member must elect to receive the distribution required under
section 401(a)(9) of the Code in one lump sum or in installments which
must commence by his Required Beginning Date. If installments are elected,
each installment paid must be equal to or greater than the minimum
required distribution under section 401(a)(9) of the Code.
(b) DISTRIBUTION DEADLINE FOR DEATH BENEFITS. If a Member or former
Member dies before the distribution of his Plan benefit has commenced, his
entire interest shall be distributed within five years after his death. If
a Member or former Member dies after the distribution of his Plan benefit
has commenced, the remaining portion of his interest in the Plan, if any,
will be distributed at least as rapidly as under the installment method of
distribution selected by him.
(c) LIMITATIONS ON DEATH BENEFITS. Benefits payable under the Plan
shall not be provided in any form that would cause a Member's death
benefit to be more than incidental. Any distribution required to satisfy
the incidental benefit requirement shall be considered a required
distribution for purposes of section 401(a)(9) of the Code.
(d) COMPLIANCE WITH SECTION 401(A)(9). All distributions under the
Plan will be made in accordance with the requirements of section 401(a)(9)
of the Code and all Regulations promulgated thereunder. The provisions of
the Plan reflecting section 401(a)(9) of the Code override any
distribution options in the Plan inconsistent with such Section.
(e) COMPLIANCE WITH SECTION 401(A)(14). Unless the Member or former
Member otherwise elects, the payment of benefits under the Plan to the
Member or former Member will begin not later than the 60th day after the
close of the Plan Year in which occurs the latest of (a) the date on which
the Member or former Member attains the later of age 62 or Retirement Age,
(b) the tenth anniversary of the year in which the Member or former Member
commenced participation in the Plan, or (c) the Member's or former
Member's Separation From Service.
6.23 DESIGNATION OF BENEFICIARY. Each Member has the right to designate
and to revoke the designation of his Beneficiary or Beneficiaries. Each
designation or revocation must be evidenced by a written document in the form
required by the Committee, signed by the Member and
VI-10
filed with the Committee. If no designation is on file at the time of a Member's
death or if the Committee determines that the designation is ineffective, the
designated Beneficiary shall be the Member's Spouse, if living, or if not, the
executor, administrator or other personal representative of the Member's estate.
If a Member is considered to be married under local law, the Member's
designation of any Beneficiary, other than the Member's Spouse, shall not be
valid unless the spouse acknowledges in writing that she understands the effect
of the Member's beneficiary designation and consents to it. The consent must be
to a specific Beneficiary. The written acknowledgement and consent must be filed
with the Committee, signed by the Spouse and at least two witnesses, one of whom
must be a member of the Committee or a notary public. However, if the Spouse
cannot be located or there exist other circumstances as described in sections
401(a)(11) and 417(a)(2) of the Code, the requirement of the Member's Spouse's
acknowledgement and consent may be waived. If a Beneficiary other than the
Member's Spouse is named, the designation shall become invalid if the Member is
later determined to be married under local law, the Member's missing Spouse is
located or the circumstances which resulted in the waiver of the requirement of
obtaining the consent of the Member's Spouse no longer exist.
6.24 DISTRIBUTIONS TO DISABLED PERSONS. If the Committee determines that
any person to whom a payment is due is unable to care for his affairs because of
physical or mental disability, it shall have the authority to cause the payments
to be made to the Spouse, brother, sister or other person the Committee
determines to have incurred, or to be expected to incur, expenses for that
person unless a prior claim is made by a qualified guardian or other legal
representative. The Committee and the Trustee shall not be responsible to
oversee the application of those payments. Payments made pursuant to this power
shall be a complete discharge of all liability under the Plan and Trust and the
obligations of the Employer, the Trustee, the Trust Fund and the Committee.
VI-11
ARTICLE VII
ADMINISTRATION OF THE PLAN
7.01 APPOINTMENT, TERM OF SERVICE & REMOVAL. The Board of Directors shall
appoint a Committee to administer the Plan. The members shall serve until their
resignation, death or removal. Any member may resign at any time by mailing a
written resignation to the Board of Directors. Any member may be removed by the
Board of Directors, with or without cause. Vacancies may be filled by the Board
of Directors from time to time.
7.02 POWERS. The Committee is a fiduciary. It has the exclusive
responsibility for the general administration of the Plan and Trust, and has all
powers necessary to accomplish that purpose, including but not limited to the
following rights, powers, and authorities:
(a) to make rules for administering the Plan and Trust so long as
they are not inconsistent with the terms of the Plan;
(b) to construe all provisions of the Plan and Trust;
(c) to correct any defect, supply any omission, or reconcile any
inconsistency which may appear in the Plan or Trust;
(d) to select, employ, and compensate at any time any consultants,
actuaries, accountants, attorneys, and other agents and employees the
Committee believes necessary or advisable for the proper administration of
the Plan and Trust; any firm or person selected may be a disqualified
person, but only if the requirements of section 4975(d) of the Code have
been met;
(e) to determine all questions relating to eligibility, Active
Service, Compensation, allocations and all other matters relating to
benefits or Members' entitlement to benefits;
(f) to determine all controversies relating to the administration of
the Plan and Trust, including but not limited to any differences of
opinion arising between an Employer and the Trustee or a Member, or any
combination of them and any questions it believes advisable for the proper
administration of the Plan and Trust;
(g) to direct or to appoint an investment manager or managers who
can direct the Trustee in all matters relating to the investment,
reinvestment and management of the Trust Fund;
(h) to direct the Trustee in all matters relating to the payment of
Plan benefits; and
VII-1
(i) to delegate any clerical or recordation duties of the Committee
as the Committee believes is advisable to properly administer the Plan and
Trust.
The actions of the Committee in exercising all of the rights, powers, and
authorities set out in this Section and all other Sections of the Plan, when
performed in good faith and in its sole judgment, shall be final, conclusive and
binding on all parties.
7.03 ORGANIZATION. The Committee may select, from among its members, a
chairman, and may select a secretary. The secretary need not be a member of the
Committee. The secretary shall keep all records, documents and data pertaining
to its administration of the Plan and Trust.
7.04 QUORUM AND MAJORITY ACTION. A majority of the Committee constitutes a
quorum for the transaction of business. The vote of a majority of the members
present at any meeting shall decide any question brought before that meeting. In
addition, the Committee may decide any question by a vote, taken without a
meeting, of a majority of its members.
7.05 SIGNATURES. The chairman, the secretary and any one or more of the
members of the Committee to which the Committee has delegated the power shall
each, severally, have the power to execute any document on behalf of the
Committee, and to execute any certificate or other written evidence of the
action of the Committee. The Trustee, after it is notified of any delegation of
power in writing, shall accept and may rely upon any document executed by the
appropriate member or members as representing the action of the Committee until
the Committee files a written revocation of that delegation of power with the
Trustee.
7.06 DISQUALIFICATION OF COMMITTEE MEMBER. A member of the Committee who
is also a Member of the Plan shall not vote or act upon any matter relating
solely to himself.
7.07 DISCLOSURE TO MEMBERS. The Committee shall make available to each
Member and Beneficiary for his examination those records, documents and other
data required under ERISA, but only at reasonable times during business hours.
No Member or Beneficiary has the right to examine any data or records reflecting
the compensation paid to any other Member or Beneficiary. The Committee is not
required to make any other data or records available other than those required
by ERISA.
7.08 LIABILITY OF COMMITTEE AND LIABILITY INSURANCE. No member of the
Committee shall be liable for any act or omission of any other member of the
Committee, the Trustee, any investment manager appointed by the Committee or any
other agent appointed by the Committee unless required by the terms of ERISA or
another applicable state or federal law under which liability cannot be waived.
No member of the Committee shall be liable for any act or omission of his own
unless required by ERISA or another applicable state or federal law under which
liability cannot be waived.
If the Committee directs the Trustee to do so, it may purchase out of the
Trust Fund insurance for the members of the Committee, for any other fiduciaries
appointed by the Committee and for the Trust Fund itself to cover liability or
losses occurring because of the act or omission of any one or
VII-2
more of the members of the Committee or any other fiduciary appointed under the
Plan. But, that insurance must permit recourse by the insurer against the
members of the Committee or the other fiduciaries concerned if the loss is
caused by breach of a fiduciary obligation by one or more members of the
Committee or other fiduciary.
7.09 EXEMPTION FROM BOND. No member of the Committee is required to give
bond for the performance of his duties unless required by a law which cannot be
waived.
7.10 COMPENSATION. The Committee shall serve without compensation but
shall be reimbursed by the Trust Fund for all expenses properly incurred in the
performance of its duties unless the Employer elects to pay those expenses.
7.11 PERSONS SERVING IN DUAL FIDUCIARY ROLES. Any person, group of
persons, corporations, firm or other entity, may serve in more than one
fiduciary capacity with respect to the Plan, including serving as both Trustee
and as a member of the Committee.
7.12 ADMINISTRATOR. For all purposes of ERISA, the administrator of the
Plan is the Sponsor. The administrator has the final responsibility for
compliance with all reporting and disclosure requirements imposed under all
applicable federal or state laws and regulations.
VII-3
ARTICLE VIII
TRUST FUND AND CONTRIBUTIONS
8.01 FUNDING OF PLAN. The Plan shall be funded by one or more separate
Trusts. If more than one Trust is used, each Trust shall be designated by the
name of the Plan followed by a number assigned by the Committee at the time the
Trust is established.
8.02 INCORPORATION OF TRUST. Each Trust is a part of the Plan. All rights
or benefits which accrue to a person under the Plan shall be subject also to the
terms of the agreements creating the Trust or Trusts and any amendments to them
which are not in direct conflict with the Plan.
8.03 AUTHORITY OF TRUSTEE. Each Trustee shall have full title and legal
ownership of the assets in the separate Trust which, from time to time, is in
his separate possession. No other Trustee shall have joint title to or joint
legal ownership of any asset in one of the other Trusts held by another Trustee.
Each Trustee shall be governed separately by the trust agreement entered into
between the Employer and that Trustee and the terms of the Plan without regard
to any other agreement entered into between any other Trustee and the Employer
as a part of the Plan.
8.04 ALLOCATION OF RESPONSIBILITY. To the fullest extent permitted under
Section 405 of ERISA, the agreements entered into between the Employer and each
of the Trustees shall be interpreted to allocate to each Trustee its specific
responsibilities, obligations and duties so as to relieve all other Trustees
from liability either through the agreement, the Plan or ERISA, for any act of
any other Trustee which results in a loss to the Plan because of his act or
failure to act.
VIII-1
ARTICLE IX
ADOPTION OF PLAN BY OTHER EMPLOYERS
9.01 ADOPTION PROCEDURE. Any business organization may, with the approval
of the Board of Directors, adopt the Plan by:
(a) a certified resolution or consent of the board of directors of
the adopting Employer or an executed adoption instrument (approved by the
board of directors of the adopting Employer) agreeing to be bound as an
Employer by all the terms, conditions and limitations of the Plan except
those, if any, specifically described in the adoption instrument; and
(b) providing all information required by the Committee and the
Trustee.
9.02 NO JOINT VENTURE IMPLIED. The document which evidences the adoption
of the Plan by an Employer shall become a part of the Plan. However, neither the
adoption of the Plan and its related Trust Fund by an Employer nor any act
performed by it in relation to the Plan and its related Trust Fund shall ever
create a joint venture or partnership relation between it and any other
Employer.
9.03 ALL TRUST ASSETS AVAILABLE TO PAY ALL BENEFITS. The Accounts of
Members employed by the Employers which adopt the Plan shall be commingled for
investment purposes. All assets in the Trust Fund shall be available to pay
benefits to all Members employed by any Employer.
9.04 QUALIFICATION A CONDITION PRECEDENT TO ADOPTION AND CONTINUED
PARTICIPATION. The adoption of the Plan and the Trust or Trusts used to fund the
Plan by a business organization is contingent upon and subject to the express
condition precedent that the initial adoption meets all statutory and regulatory
requirements for qualification of the Plan and the exemption of the Trust or
Trusts and that the Plan and the Trust or Trusts that are applicable to it
continue in operation to maintain their qualified and exempt status. In the
event the adoption fails to initially qualify, the adoption shall fail
retroactively for failure to meet the condition precedent and the portion of the
Trust Fund applicable to the adoption shall be immediately returned to the
adopting business organization and the adoption shall be void ab initio. In the
event the adoption as to a given business organization later becomes
disqualified and loses its exemption for any reason, the adoption shall fail
retroactively for failure to meet the condition precedent and the portion of the
Trust Fund allocable to the adoption by that business organization shall be
immediately spun off, retroactively as of the last date for which the Plan
qualified, to a separate Trust for its sole benefit and an identical but
separate Plan shall be created, retroactively effective as of the last date the
Plan as adopted by that business organization qualified, for the benefit of the
Members covered by that adoption.
IX-1
ARTICLE X
AMENDMENT AND TERMINATION
10.01 RIGHT TO AMEND AND LIMITATIONS THEREON. The Sponsor has the sole
right to amend the Plan. An amendment may be made by a certified resolution or
consent of the Board of Directors, or by an instrument in writing executed by
the appropriate officer of the Sponsor. The amendment must describe the nature
of the amendment and its effective date. No amendment shall:
(a) vest in an Employer any interest in the Trust Fund;
(b) cause or permit the Trust Fund to be diverted to any purpose
other than the exclusive benefit of the present or future Members and
their Beneficiaries except under the circumstances described in Section
4.10;
(c) decrease the Account of any Employee, or eliminate an optional
form of payment in violation of section 411(d)(6) of the Code;
(d) increase substantially the duties or liabilities of the Trustee
without its written consent; or
(e) change the vesting schedule to one which would result in the
nonforfeitable percentage of a Member's Account (determined as of the
later of the date of the adoption of the amendment or of the effective
date of the amendment) of any Member being less than the nonforfeitable
percentage computed under the Plan without regard to the amendment. If the
Plan's vesting schedule is amended, if the Plan is amended in any other
way that affects the computation of the Member's nonforfeitable
percentage, or if the Plan is deemed amended by an automatic change to or
from a Top-Heavy vesting schedule, each Member with at least three years
of Active Service as of the date of the amendment or change shall have his
nonforfeitable percentage computed under the Plan without regard to the
amendment or the change if that results in a higher nonforfeitable
percentage.
Each Employer shall be deemed to have adopted any amendment made by the
Sponsor unless the Employer notifies the Committee of its rejection in writing
within 30 days after it receives a copy of the amendment. A rejection shall
constitute a withdrawal from the Plan by that Employer unless the Sponsor
acquiesces in the rejection.
10.02 MANDATORY AMENDMENTS. The Contributions of each Employer to the Plan
are intended to be:
(a) deductible under the applicable provisions of the Code;
(b) except as otherwise prescribed by applicable law, exempt from
the Federal Social Security Act;
X-1
(c) except as otherwise prescribed by applicable law, exempt from
withholding under the Code; and
(d) excludable from any Employee's regular rate of pay, as that term
is defined under the Fair Labor Standards Act of 1938, as amended.
The Sponsor shall make any amendment necessary to carry out this
intention, and it may be made retroactively.
10.03 WITHDRAWAL OF EMPLOYER. An Employer may withdraw from the Plan and
its related Trust Fund if the Sponsor does not acquiesce in its rejection of an
amendment or by giving written notice of its intent to withdraw to the
Committee. The Committee shall then determine the portion of the Trust Fund that
is attributable to the Members employed by the withdrawing Employer and shall
notify the Trustee to segregate and transfer those assets to the successor
Trustee or Trustees when it receives a designation of the successor from the
withdrawing Employer.
A withdrawal shall not terminate the Plan and its related Trust Fund with
respect to the withdrawing Employer, if the Employer either appoints a successor
Trustee or Trustees and reaffirms the Plan and its related Trust Fund as its new
and separate plan and trust intended to qualify under section 401(a) of the
Code, or establishes another plan and trust intended to qualify under section
401(a) of the Code.
The determination of the Committee, in its sole discretion, of the portion
of the Trust Fund that is attributable to the Members employed by the
withdrawing Employer shall be final and binding upon all parties; and, the
Trustee's transfer of those assets to the designated successor Trustee shall
relieve the Trustee of any further obligation, liability or duty to the
withdrawing Employer, the Members employed by that Employer and their
Beneficiaries, and the successor Trustee or Trustees.
10.04 TERMINATION OF PLAN. The Sponsor may terminate the Plan and its
related Trust Fund with respect to all Employers by executing and delivering to
the Committee and the Trustee, a notice of termination, specifying the date of
termination.
10.05 PARTIAL OR COMPLETE TERMINATION OR COMPLETE DISCONTINUANCE OF
CONTRIBUTIONS. Without regard to any other provision of the Plan, if there is a
partial or total termination of the Plan or there is a complete discontinuance
of the Employer's Contributions, each of the affected Members shall immediately
become 100 percent vested in his Account as of the end of the last Plan Year for
which a substantial Employer Contribution was made and in any amounts later
allocated to his Account. If the Employer then resumes making substantial
Contributions at any time, the appropriate vesting schedule shall again apply to
all amounts allocated to each affected Member's Account beginning with the Plan
Year for which they were resumed.
10.06 CONTINUANCE PERMITTED UPON SALE OR TRANSFER OF ASSETS. An Employer's
participation in the Plan and its related Trust Fund shall not automatically
terminate if it consolidates
X-2
or merges and is not the surviving corporation, sells substantially all of its
assets, is a party to a reorganization and its Employees and substantially all
of its assets are transferred to another entity, liquidates, or dissolves, if
there is a successor organization. Instead, the successor may assume and
continue the Plan and its related Trust Fund by executing a direction, entering
into a contractual commitment or adopting a resolution providing for the
continuance of the Plan and its related Trust Fund. Only upon the successor's
rejection of the Plan and its related Trust Fund or its failure to respond to
the Employer's, the Sponsor's or the Trustee's request that it affirm its
assumption of the Plan within 90 days of the request shall the Plan
automatically terminate. In that event, the appropriate portion of the Trust
Fund shall be distributed exclusively to the Members or their Beneficiaries as
soon as possible. If there is a disposition to an unrelated entity of
substantially all of the assets used by the Employer in a trade or business or a
disposition by the Employer of its interest in a subsidiary, the Employer may
make a lump sum distribution from the Plan if it continues the Plan after the
disposition; but the distribution can only be made for those Members who
continue employment with the acquiring entity.
X-3
ARTICLE XI
MISCELLANEOUS
11.01 PLAN NOT AN EMPLOYMENT CONTRACT. The adoption and maintenance of the
Plan and its related Trust Fund is not a contract between any Employer and its
Employees which gives any Employee the right to be retained in its employment.
Likewise, it is not intended to interfere with the rights of any Employer to
discharge any Employee at any time or to interfere with the Employee's right to
terminate his employment at any time.
11.02 BENEFITS PROVIDED SOLELY FROM TRUST. All benefits payable under the
Plan shall be paid or provided for solely from the Trust Fund. No Employer
assumes any liability or responsibility to pay any benefit provided by the Plan.
11.03 ASSIGNMENTS PROHIBITED. No principal or income payable or to become
payable from the Trust Fund shall be subject: to anticipation or assignment by a
Member or by a Beneficiary to attachment by, interference with, or control of
any creditor of a Member or Beneficiary, or to being taken or reached by any
legal or equitable process in satisfaction of any debt or liability of a Member
or Beneficiary prior to its actual receipt by the Member or Beneficiary. Any
attempted conveyance, transfer, assignment, mortgage, pledge, or encumbrance of
the Trust Fund, any part of it, or any interest in it by a Member or Beneficiary
prior to distribution shall be void, whether that conveyance, transfer,
assignment, mortgage, pledge, or encumbrance is intended to take place or become
effective before or after any distribution of Trust assets or the termination of
this Trust Fund itself. The Trustee shall never under any circumstances be
required to recognize any conveyance, transfer, assignment, mortgage, pledge or
encumbrance by a Member or Beneficiary of the Trust Fund, any part of it, or any
interest in it, or to pay any money or thing of value to any creditor or
assignee of a Member or Beneficiary for any cause whatsoever. These prohibitions
against the alienation of a Member's Account shall not apply to Qualified
Domestic Relations Orders.
11.04 REQUIREMENTS UPON MERGER OR CONSIDERATION OF PLANS. The Plan shall
not merge or consolidate with or transfer any assets or liabilities to any other
plan unless each Member would (if the Plan then terminated) receive a benefit
immediately after the merger, consolidation, or transfer which is equal to or
greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation, or transfer (if the Plan had then terminated).
11.05 GENDER OF WORDS USED. If the context requires it, words of one
gender when used in the Plan shall include the other gender, and words used in
the singular or plural shall include the other.
11.06 SEVERABILITY. Each provision of this Agreement may be severed. If
any provision is determined to be invalid or unenforceable, that determination
shall not affect the validity or enforceability of any other provision.
XI-1
11.07 REEMPLOYED VETERANS. The requirements of the Uniformed Services
Employment and Reemployment Rights Act of 1994 will be complied with in the
operation of the Plan in the manner permitted under section 414(u) of the Code.
11.08 GOVERNING LAW. The provisions of the Plan shall be construed,
administered, and governed under the laws of the State of Texas and, to the
extent applicable, by the laws of the United States.
XI-2
IN WITNESS WHEREOF, Piper Impact, Inc. has caused this Agreement to be
executed this 13th day of July 1998, in multiple counterparts, each of which
shall be deemed to be an original, to be effective the 1st day of January 1998,
except for those provisions which have an earlier effective date provided by
law, or as otherwise provided under applicable provisions of the Plan.
PIPER IMPACT, INC.
By WAYNE M. ROSE
VICE PRESIDENT AND CFO
--------------------------------------------
Title
XI-3
APPENDIX A
LIMITATIONS ON CONTRIBUTIONS
PART A. DEFINITIONS
DEFINITIONS. As used herein the following words and phrases have the
meaning attributed to them below:
(a) "ACTUAL CONTRIBUTION RATIO" means the ratio of Section 401(m)
Contributions actually paid into the Trust on behalf of an Employee for a
Plan Year to the Employee's Annual Compensation for the same Plan Year.
For this purpose, effective for Plan Years starting on or after January 1,
1998, Annual Compensation for any portion of the Plan Year in which the
Employee was not an eligible Employee (as defined in Section 2.1 of
Appendix A) will not be taken into account.
(b) "ACTUAL DEFERRAL PERCENTAGE" means, for a specified group of
Employees for a Plan Year, the average of the ratios (calculated
separately for each Employee in the group) of the amount of Section 401(k)
Contributions actually paid into the Trust on behalf of the Employee for
the Plan Year to the Employee's Annual Compensation for the Plan Year.
(c) "ACTUAL DEFERRAL RATIO" means the ratio of Section 401(k)
Contributions actually paid into the Trust on behalf of an Employee for a
Plan Year to the Employee's Annual Compensation for the same Plan Year.
For this purpose, effective for Plan Years starting on or after January 1,
1998, Annual Compensation for any portion of the Plan Year in which the
Employee was not an eligible Employee (as defined in Section 2.1 of
Appendix A) will not be taken into account.
(d) "ANNUAL ADDITIONS" means the sum of the following amounts
credited on behalf of a Member for the Limitation Year: (a) Employer
contributions, (b) Employee contributions and (c) forfeitures. Excess
401(k) Contributions for a Plan Year are treated as Annual Additions for
that Plan Year even if they are corrected through distribution. Excess
Deferrals that are timely distributed as set forth in Section 3.2 of
Appendix A will not be treated as Annual Additions.
(e) "CONTRIBUTION PERCENTAGE" means, for a specified group of
Employees for a Plan Year, the average of the ratios (calculated
separately for each Employee in the group) of the amount of Section 401(m)
Contributions actually paid into the Trust on behalf of the Employee for
the Plan Year to the Employee's Annual Compensation for the Plan Year.
(f) "EXCESS 401(K) CONTRIBUTIONS" means, with respect to any Plan
Year, the excess of (a) the aggregate amount of Section 401(k)
Contributions actually paid to the Trustee on behalf of Highly Compensated
Employees for the Plan Year over (b) the maximum amount of those
contributions permitted under the limitations set out in the first
sentence of Section 2.1 of Appendix A.
(g) "EXCESS AGGREGATE 401(M) CONTRIBUTIONS" means, with respect to
any Plan Year, the excess of (a) the aggregate amount of Section 401(m)
Contributions actually paid to the Trustee on behalf of Highly Compensated
Employees for the Plan Year over (b) the maximum amount of those
contributions permitted under the limitations set out in the first
sentence of Section 2.2 of Appendix A.
(h) "LIMITATION YEAR" means the calendar year.
(i) "SECTION 401(K) CONTRIBUTIONS" means the sum of Salary Deferral
Contributions made on behalf of the Member during the Plan Year, Matching
Contributions (to the extent that the Matching contributions are not used
to enable the Plan to satisfy the minimum contribution requirements of
section 416 of the Code) and Qualified Nonelective Employer Contributions
that the Employer elects to have treated as section 401(k) Contributions
pursuant to section 401(k)(3)(d)(ii) of the Code.
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(j) "SECTION 401(M) CONTRIBUTIONS" means the sum of Matching
Contributions and After-Tax Contributions made on behalf of the Member
during the Plan Year and other amounts that the Employer elects to have
treated as Section 401(m) Contributions pursuant to section 401(m)(3)(B)
of the Code. However, Matching Contributions and Salary Deferral
Contributions that the Employer could otherwise elect to have treated as
Section 401(m) Contributions are not Section 401(m) Contributions to the
extent that they are used to enable the Plan to satisfy the minimum
contribution requirements of section 416 of the Code.
PART B. SUMMARY OF SECTIONS 415 AND 402(G) LIMITATIONS
1.1 SECTION 415 LIMITATION ON TOTAL ALLOCATIONS. The Annual Additions that
may be credited to an individual Member's Accounts under this Plan and any other
qualified defined contribution plan maintained by an Affiliated Employer for a
Limitation Year shall not exceed the lesser of (a) $30,000.00 (as adjusted by
the Secretary of Treasury), or (b) 25 percent of the Member's Annual
Compensation for the Limitation Year. If the Limitation Year is ever less than
12 months, the $30,000.00 limitation (as adjusted by the Secretary of Treasury)
will be prorated by multiplying the limitation by a fraction, the numerator of
which is the number of months in the Limitation Year, and the denominator of
which is 12. The Plan will be operated in compliance with section 415 of the
Code and its Regulations, the terms of which are incorporated in this Plan.
1.2 DOLLAR LIMITATION ON SALARY DEFERRAL CONTRIBUTIONS. The maximum Salary
Deferral Contribution that a Member may elect to have made on his behalf during
the Member's taxable year may not, when added to the amounts deferred on a
pre-tax basis under other plans or arrangements described in sections 401(k),
408(k), 403(b) and 408(p) of the Code exceed $7,000.00 (as adjusted by the
Secretary of Treasury). For purposes of applying the requirements of Section 2.1
of Appendix A and Appendix B, Excess Deferrals shall not be disregarded merely
because they are Excess Deferrals or because they are distributed in accordance
with Section 3.2 of Appendix A. However, Excess Deferrals made to the Plan on
behalf of Non-Highly Compensated Employees will not be taken into account under
Section 2.1 of Appendix A.
PART C. SUMMARY OF SECTIONS 401(K) AND 401(M) LIMITATIONS
2.1 LIMITATION BASED UPON ACTUAL DEFERRAL PERCENTAGE. The Actual Deferral
Percentage for Highly Compensated Employees for any Plan Year must bear a
relationship to the Actual Deferral Percentage for all other eligible Employees
for the SAME Plan Year which meets either of the following tests:
(a) the Actual Deferral Percentage of the Highly Compensated
Employees is not more than the Actual Deferral Percentage of all other
eligible Employees multiplied by 1.25; or
(b) the excess of the Actual Deferral Percentage of the Highly
Compensated Employees over that of all other eligible Employees is not
more than two percentage points, and the Actual Deferral Percentage of the
Highly Compensated Employees is not more than the Actual Deferral
Percentage of all other eligible Employees multiplied by two.
For purposes of this test, an eligible Employee is an Employee who is
directly or indirectly eligible to make Salary Deferral Contributions for all or
part of the Plan Year. A person who is suspended from making Salary Deferral
Contributions because he has made a withdrawal is an eligible Employee. If no
Salary Deferral Contributions are made for an eligible Employee, the Actual
Deferral Ratio that shall be included for him in determining the Actual Deferral
Percentage is zero. If this Plan and any other plan or plans which include cash
or deferred arrangements are considered as one plan for purposes of section
401(a)(4) or 410(b) of the Code, the cash or deferred arrangements included in
this Plan and the other plans shall be treated as one plan for these tests. If
any Highly Compensated Employee is a Member of this Plan and any other cash or
deferred arrangements of the Employer, when determining the deferral percentage
of the Employee, all of the cash or deferred arrangements are treated as one. A
Salary Deferral Contribution will be taken into account under the Actual
Deferral Percentage test of Code section 401(k) and this Section for a Plan Year
only if it relates to Annual Compensation that either would have been received
by the Employee in the Plan Year (but for the deferral election) or is
attributable to services performed by the employee in the Plan Year and would
have been received by the Employee within 2 1/2 months after the close of the
Plan Year (but for the deferral election). In addition,
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a Section 401(k) Contribution will be taken into account under the Actual
Deferral Percentage test of Code section 401(k) and this Section for a Plan Year
only if it is allocated to an Employee as of a date within that Plan Year. For
this purpose, a Section 401(k) Contribution is considered allocated as of a date
within a Plan Year if the allocation is not contingent on participation or
performance of services after that date and the Section 401(k) Contribution is
actually paid to the Trustee no later than 12 months after the Plan Year to
which the Section 401(k) Contribution relates. Failure to correct Excess 401(k)
Contributions by the close of the Plan Year following the Plan Year for which
they were made will cause the Plan's cash or deferred arrangement to be
disqualified for the Plan Year for which the Excess 401(k) Contributions were
made and for all subsequent years during which they remain in the Plan Fund.
Also, the Employer will be liable for a ten percent excise tax on the amount of
Excess 401(k) Contributions unless they are corrected within 2 1/2 months after
the close of the Plan Year for which they were made.
2.2 LIMITATION BASED UPON CONTRIBUTION PERCENTAGE. The Contribution
Percentage for eligible Highly Compensated Employees for any Plan Year must not
exceed the greater of the following:
(c) the Contribution Percentage for all other eligible Employees for
the SAME Plan Year multiplied by 1.25; or
(d) the lesser of the Contribution Percentage for all other eligible
Employees for the preceding Plan Year multiplied by two, or the
Contribution Percentage for all other eligible Employees for the preceding
Plan Year plus two percentage points.
For purposes of this test, an eligible Employee is an Employee who is
directly or indirectly eligible to make After-Tax Contributions or to receive an
allocation of Matching Contributions under the Plan for all or part of the Plan
Year. A person who is suspended from making After-Tax Contributions because he
has made a withdrawal, a person who would be eligible to receive an allocation
of Matching Contributions but for his election not to participate and a person
who would be eligible to receive an allocation of Matching Contributions but for
the limitation on his Annual Additions imposed by section 415 of the Code are
all eligible Employees. If no Section 401(m) Contributions are made on behalf of
an eligible Employee, the Actual Contribution Ratio that shall be included for
him in determining the Contribution Percentage is zero. If this Plan and any
other plan or plans to which Section 401(m) Contributions are made are
considered as one plan for purposes of section 401(a)(4) or 410(b) of the Code,
this Plan and those plans are to be treated as one. The Actual Contribution
Ratio of a Highly Compensated Employee who is eligible to participate in more
than one plan of an Affiliated Employer to which employee or matching
contributions are made is calculated by treating all the plans in which the
Employee is eligible to participate as one plan. However, plans that are not
permitted to be aggregated under Regulation section 1.410(m)-1(b)(3)(ii) are not
aggregated for this purpose. A Matching Contribution will be taken into account
under this Section 2.2 of Appendix A for a Plan Year only if (a) it is allocated
to the Employee's Account as of a date within the Plan Year, (b) it is paid to
the Trustee no later than the end of the 12-month period beginning after the
close of the Plan Year, and (c) it is made on behalf of an Employee on account
of his Salary Deferral Contributions for the Plan Year. At the election of the
Employer, a Member's Salary Deferral Contributions and Qualified Nonelective
Employer Contributions made on behalf of the Member during the Plan Year shall
be treated as Section 401(m) Contributions that are Matching Contributions
provided that the conditions set forth in Regulation section 1.401(m)-1(b)(5)
are satisfied. Salary Deferral Contributions may not be treated as Matching
Contributions for purposes of the Contribution Percentage test unless the
contributions, including those taken into account for purposes of the test,
satisfy the Actual Deferral Percentage test set forth in Section 2.1 of Appendix
A. Salary Deferral Contributions and Qualified Nonelective Employer
Contributions may not be taken into account for purposes of the test to the
extent that those contributions are taken into account in determining whether
any other contributions satisfy the Actual Deferral Percentage test set forth in
Section 2.1 of Appendix A. Finally, Salary Deferral Contributions and Qualified
Nonelective Employer Contributions may be taken into account for purposes of the
test only if they are allocated to the Employee's Account as of a date within
the Plan Year being tested within the meaning of Regulation section
1.401(k)-1(b)(4). Failure to correct Excess Aggregate 401(m) Contributions by
the close of the Plan Year following the Plan Year for which they were made will
cause the Plan to fail to be qualified for the Plan Year for which the Excess
Aggregate 401(m) Contributions were made and for all subsequent years during
which they remain in the Plan Fund. Also, the Employer will be liable for a ten
percent excise tax on the amount of Excess Aggregate 401(m) Contributions unless
they are corrected within 2 1/2 months after the close of the Plan Year for
which they were made.
-3-
2.3 ALTERNATIVE LIMITATION BASED UPON ACTUAL DEFERRAL PERCENTAGE AND
CONTRIBUTION PERCENTAGE. If the second alternative permitted in Sections 2.1 and
2.2 of Appendix A is used for both the Actual Deferral Percentage test and the
Contribution Percentage test, the following additional limitation on Salary
Deferral Contributions shall apply. The Actual Deferral Percentage plus the
Contribution Percentage of the eligible Highly Compensated Employees cannot
exceed the greater of (a) or (b), where:
(a) is the sum of:
(i) 1.25 times the greater of the Actual Deferral Percentage
or the Contribution Percentage of the eligible Non-Highly
Compensated Employees for the preceding Plan Year, and
(ii) the lesser of (x) two percentage points plus the lesser
of the Actual Deferral Percentage or the Contribution Percentage of
the eligible Non-Highly Compensated Employees for the preceding Plan
Year or (y) two times the lesser of the Actual Deferral Percentage
or the Contribution Percentage of the group of eligible Non-Highly
Compensated Employees for the preceding Plan Year, and
(b) is the sum of:
(i) 1.25 times the lesser of the Actual Deferral Percentage or
the Contribution Percentage of the eligible Non-Highly Compensated
Employees for the preceding Plan Year, and
(ii) the lesser of (x) two percentage points plus the greater
of the Actual Deferral Percentage or the Contribution Percentage of
the eligible Non-Highly Compensated Employees for the preceding Plan
Year or (y) two times the greater of the Actual Deferral Percentage
or the Contribution Percentage of the group of eligible Non-Highly
Compensated Employees for the preceding Plan Year.
PART D. CORRECTION PROCEDURES FOR ERRONEOUS CONTRIBUTIONS
3.1 CORRECTION OF EXCESS ANNUAL ADDITIONS. If Annual Additions are made in
excess of the limitations contained in Section 1.1 of Appendix A, to the maximum
extent permitted by law, those excess Annual Additions shall be attributed to
the Plan. If an excess Annual Addition attributed to the Plan is held or
contributed as a result of the allocation of forfeitures, reasonable error in
estimating a Member's Annual Compensation, reasonable error in calculating the
maximum Salary Deferral Contribution that may be made for a Member under section
415 of the Code or because of other facts and circumstances which the
Commissioner of Internal Revenue finds to be justified, the excess Annual
Addition shall be corrected as follows:
(a) first, the excess Annual Addition shall be reduced to the extent
necessary by distributing to the Member all Employee After-Tax
Contributions and then Salary Deferral Contributions together with their
earnings. These distributed amounts are disregarded for purposes of the
testing and limitations contained in this Appendix A;
(b) second, if the Member is still employed by the Employer at the
end of the Plan Year, any remaining excess funds shall be placed in an
unallocated suspense account to be applied to reduce future Employer
Contributions for that Member for as many Plan Years as are necessary to
exhaust the suspense account in keeping with the amounts which would
otherwise be allocated to that Member's Account; and
(c) third, if the Member is not employed by the Employer at the end
of the Plan Year, the remaining excess funds shall be placed in an
unallocated suspense account to reduce future Employer Contributions for
all remaining Members for as many Plan Years as are necessary to exhaust
the suspense account.
-4-
(d) If the Plan terminates prior to the exhaustion of the suspense
account, the remaining amount shall revert to the Employer.
3.2 EXCESS DEFERRAL FAIL SAFE. As soon as practical after the close of
each Plan Year, the Committee shall determine if there would be any Excess
Deferrals. If there would be an Excess Deferral by a Member, the Excess Deferral
as adjusted by any earnings or losses, will be distributed to the Member no
later than April 15 following the Member's taxable year in which the Excess
Deferral was made. The income allocable to the Excess Deferrals for the taxable
year of the Member shall be determined by multiplying the income for the taxable
year of the Member allocable to Salary Deferral Contributions by a fraction. The
numerator of the fraction is the amount of the Excess Deferrals made on behalf
of the Member for the taxable year. The denominator of the fraction is the
Member's total Salary Deferral Account balance as of the beginning of the
taxable year plus the Member's Salary Deferral Contributions for the taxable
year.
3.3 ACTUAL DEFERRAL PERCENTAGE FAIL SAFE. As soon as practicable after the
close of each Plan Year, the Committee shall determine whether the Actual
Deferral Percentage for the Highly Compensated Employees would exceed the
limitation set forth in Section 2.1 of Appendix A. If the limitation would be
exceeded for a Plan Year, before the close of the following Plan Year (a) the
amount of Excess 401(k) Contributions for that Plan Year (and any income
allocable to those Contributions as calculated in the specific manner required
by Section 3.6 of Appendix A) shall be distributed, or (b) to the extent
provided in Regulations, and permitted by the Committee, the Employee may elect
to treat the amount of the Excess 401(k) Contributions as an amount distributed
to the Employee and then contributed by the Employee to the Plan as an Employee
After-Tax Contribution, provided the recharacterized amounts shall remain
subject to the same rules and restrictions to which the Salary Deferral
Contributions are subjected, or (c) the Employer may make a Qualified
Nonelective Employer Contribution which it elects to have treated as a Section
401(k) Contribution. The amount of Excess 401(k) Contributions to be distributed
shall be that amount of the Salary Deferral Contributions by or on behalf of
those Highly Compensated Employees with the largest Salary Deferral
Contributions as is equal to the Excess 401(k) Contributions, taken ratably from
each Account, based solely on those Salary Deferral Contributions for the Plan
Year. This initial distribution shall not reduce those Accounts affected below
the next highest level of Salary Deferral Contributions. If any further
reduction is necessary, the same process is to be repeated at the next highest
level of Salary Deferral Contributions by or on behalf of the Highly Compensated
Employees, and if necessary repeated in successively lower levels of Salary
Deferral Contributions until the cash or deferred arrangement satisfies the
Actual Deferral Percentage test. Qualified Nonelective Employer Contributions
shall be treated as Section 401(k) Contributions only if: (a) the conditions
described in Regulation section 1.401(k)- 1(b)(5) are satisfied and (b) they are
allocated to Members' Accounts as of a date within that Plan Year and are
actually paid to the Trustee no later than the end of the 12-month period
immediately following the Plan Year to which the contributions relate. If the
Employer makes a Qualified Nonelective Employer Contribution that it elects to
have treated as a Section 401(k) Contribution, the Contribution will be in an
amount necessary to satisfy the Actual Deferral Percentage test and will be
allocated first to those Non-Highly Compensated Employees who had the lowest
Actual Deferral Ratios. The Excess 401(k) Contributions of Highly Compensated
Employees will not be recharacterized to the extent that the recharacterized
amounts would exceed the Contribution Percentage as determined prior to applying
the Contribution Percentage limitations. Excess 401(k) Contributions may not be
recharacterized after 2 1/2 months after the close of the Plan Year to which the
recharacterization relates. The amount of recharacterized Excess 401(k)
Contributions, in combination with After-Tax Contributions actually made by the
Member, may not exceed the maximum amount of After-Tax Contributions (determined
without regard to Section 2.2 of Appendix A) that the Member could have made
under the provisions of the Plan in effect on the first day of the Plan Year in
the absence of recharacterization. Any distributions of the Excess 401(k)
Contributions for any Plan Year are to be made to Highly Compensated Employees
on the basis of the amount of contributions by or on behalf of each Highly
Compensated Employee. The amount of Excess 401(k) Contributions to be
distributed or recharacterized for any Plan Year must be reduced by any excess
Salary Deferral Contributions previously distributed for the taxable year ending
in the same Plan Year.
3.4 CONTRIBUTION PERCENTAGE FAIL SAFE. If the limitation set forth in
Section 2.1 or 2.2 of Appendix A would be exceeded for any Plan Year, before the
close of the following Plan Year any one or more of the following corrective
actions shall be taken, as determined by the Committee in its sole discretion:
(a) the amount of the Excess Aggregate 401(m) Contributions for that Plan Year
(and any income allocable to those Contributions as calculated in the specific
manner required by Section 3.6 of Appendix A) shall be distributed, or (b) the
Employer may make a Qualified
-5-
Nonelective Employer Contribution which it elects to have treated as a Section
401(m) Contribution. Any distributions of the Excess Aggregate 401(m)
Contributions for any Plan Year are to be made to Highly Compensated Employees
on the basis of the amount of Section 401(m) Contributions made to the Plan by
or on their behalf determined under the leveling procedure described in Section
3.3 of Appendix A.
3.5 ALTERNATIVE LIMITATION FAIL SAFE. As soon as practicable after the
close of each Plan Year, the Committee shall determine whether the alternative
limitation would be exceeded. If the limitation would be exceeded for any Plan
Year, before the close of the following Plan Year the Actual Deferral Percentage
or Contribution Percentage of the eligible Highly Compensated Employees, or a
combination of both, shall be reduced by distributions made in the manner
described in the Regulations. These distributions shall be in addition to and
not in lieu of distributions required for Excess 401(k) Contributions and Excess
Aggregate 401(m) Contributions.
3.6 INCOME ALLOCABLE TO EXCESS 401(K) AND EXCESS AGGREGATE 401(M)
CONTRIBUTIONS. The income allocable to Excess 401(k) Contributions for any
Member for the Plan Year shall be determined by multiplying the income for the
Plan Year allocable to Section 401(k) Contributions by a fraction. The numerator
of the fraction is the amount of Excess 401(k) Contributions made on behalf of
the Member for the Plan Year. The denominator of the fraction is the Member's
total Account balance attributable to Section 401(k) Contributions as of the
beginning of the Plan Year plus the Member's Section 401(k) Contributions for
the Plan Year. The income allocable to Excess Aggregate 401(m) Contributions for
a Plan Year shall be determined by multiplying the income for the Plan Year
allocable to Section 401(m) Contributions by a fraction. The numerator of the
fraction is the amount of Excess Aggregate 401(m) Contributions made on behalf
of the Member for the Plan Year. The denominator of the fraction is the Member's
total Account balance attributable to Section 401(m) Contributions as of the
beginning of the Plan Year plus the Member's Section 401(m) Contributions for
the Plan Year.
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APPENDIX B
TOP-HEAVY REQUIREMENTS
DEFINITIONS. As used herein, the following words and phrases have the
meaning attributed to them below:
(a) "AGGREGATE ACCOUNTS" means the total of all Account balances derived
from Employer Contributions and Rollover Contributions.
(b) "AGGREGATION GROUP" means (a) each plan of the Employer or any
Affiliated Employer in which a Key Employee is a Member and (b) each other plan
of the Employer or any Affiliated Employer which enables any plan in (a) to meet
the requirements of either section 401(a)(4) or 410 of the Code. Any Employer
may treat a plan not required to be included in the Aggregation Group as being a
part of the group if the group would continue to meet the requirements of
section 401(a)(4) and 410 of the Code with that plan being taken into account.
(c) "DETERMINATION DATE" means for a given Plan Year the last day of the
preceding Plan Year or in the case of the first Plan Year the last day of that
Plan Year.
(d) "KEY EMPLOYEE" means an Employee or former or deceased Employee or
Beneficiary of an Employee who at any time during the Plan Year or any of the
four preceding Plan Years is (a) an officer of an Employer or any Affiliated
Employer having Annual Compensation greater than 50 percent of the annual
addition limitation of section 415(b)(1)(A) of the Code for the Plan Year, (b)
one of the ten employees having Annual Compensation from an Employer or any
Affiliated Employer of greater than 100 percent of the annual addition
limitation of Section 415(c)(1)(A) of the Code for the Plan Year and owning or
considered as owning (within the meaning of Section 318 of the Code) the largest
interest in an Employer or any Affiliated Employer, treated separately, (c) a
Five Percent Owner of an Employer or any Affiliated Employer, treated
separately, or (d) a one percent owner of an Employer or any Affiliated
Employer, treated separately, having Annual Compensation from an Employer or any
Affiliated Employer of more than $150,000.00. For this purpose no more than 50
employees or, if lesser, the greater of three employees or ten percent of the
employees shall be treated as officers. Section 416(i) of the Code shall be used
to determine percentage of ownership. For the purpose of the test set out in (b)
above, if two or more employees have the same interest in an Employer, the
employee with the greater Annual Compensation from the Employer shall be treated
as having the larger interest.
(e) "NON-KEY EMPLOYEE" means any Employee who is not a Key Employee.
(f) "TOP-HEAVY PLAN" means any plan which has been determined to be
top-heavy under the test described in Appendix B of the Plan.
1.1 APPLICATION. The requirements described in this Appendix B shall apply
to each Plan Year that the Plan is determined to be a Top-Heavy Plan .
1.2 TOP-HEAVY TEST. If on the Determination Date the Aggregate Accounts of
Key Employees in the Plan exceed 60 percent of the Aggregate Accounts of all
Employees in the Plan, the Plan shall be a Top-Heavy Plan for that Plan Year. In
addition, if the Plan is required to be included in an Aggregation Group and
that group is a top-heavy group, this Plan shall be treated as a Top-Heavy Plan.
An Aggregation Group is a top-heavy group if on the Determination Date the sum
of (a) the present value of the cumulative accrued benefits for Key Employees
under all defined benefit plans in the Aggregation Group which contains the
Plan, plus (b) the total of all of the accounts of Key Employees under all
defined contribution plans included in the Aggregation Group (which contains the
Plan) is more than 60 percent of a similar sum determined for all employees
covered in the Aggregation Group which contains the Plan.
In applying the above tests, the following rules shall apply:
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(a) in determining the present value of the accumulated accrued benefits
for any Employee or the amount in the account of any Employee, the value or
amount shall be increased by all distributions made to or for the benefit of the
Employee under the Plan during the five-year period ending on the Determination
Date;
(b) all rollover contributions made after December 31, 1983 by the
Employee to the Plan shall not be considered by the Plan for either test;
(c) if an Employee is a Non-Key Employee under the plan for the Plan Year
but was a Key Employee under the plan for another prior Plan Year, his Account
shall not be considered; and
(d) benefits shall not be taken into account in determining the top-heavy
ratio for any Employee who has not performed services for the Employer during
the last five-year period ending upon the Determination Date.
1.3 VESTING RESTRICTIONS IF PLAN BECOMES TOP-HEAVY. If a Member has at
least one Hour of Service during a Plan Year when the Plan is a Top-Heavy Plan,
he shall either vest under each of the normal vesting provisions of the Plan or
under the following vesting schedule, whichever is more favorable:
Percentage of Amount Invested
In Accounts Containing
Completed Years of Active Service Employer Contributions
--------------------------------- ----------------------
Less than two years................................... 0%
Two years but less than three years................... 20%
Three years but less than four years.................. 40%
Four years but less than five years................... 60%
Five years but less than six years.................... 80%
Six years or more..................................... 100%
If the Plan ceases to be a Top-Heavy Plan, this requirement shall no longer
apply. After that date, the normal vesting provisions of the Plan shall be
applicable to all subsequent Contributions by the Employer.
1.4 MINIMUM CONTRIBUTIONS IF PLAN BECOMES TOP-HEAVY. If the Plan is a
Top-Heavy Plan and the normal allocation of the Employer Contribution and
forfeitures is less than three percent of any Non-Key Employee Member's Annual
Compensation, the Committee, without regard to the normal allocation procedures,
shall allocate the Employer Contribution and the forfeitures among the Members
who are in the employ of the Employer at the end of the Plan Year in proportion
to each Member's Annual Compensation as compared to the total Annual
Compensation of all Members for that Plan Year until each Non-Key Employee
Member has had an amount equal to the lesser of (i) the highest rate of
Contribution applicable to any Key Employee, or (ii) three percent of his Annual
Compensation allocated to his Account. At that time, any more Employer
Contributions or forfeitures shall be allocated under the normal allocation
procedures described earlier in the Plan. Salary Deferral Contributions made on
behalf of Key Employees are included in determining the highest rate of Employer
Contributions. Salary Deferral Contributions made on behalf of Non-Key Employees
are not included for that purpose. Amounts that may be treated as Section 401(k)
Contributions made on behalf of Non-Key Employees may not be included in
determining the minimum contribution required under this Section to the extent
that they are treated as Section 401(k) Contributions for purposes of the Actual
Deferral Percentage test.
In applying this restriction, the following rules shall apply:
(a) Each Employee who is eligible for membership (without regard to
whether he has made mandatory contributions, if any are required, or whether his
compensation is less than a stated amount) shall be entitled to receive an
allocation under this Section; and
(b) All defined contribution plans required to be included in the
Aggregation Group shall be treated as one plan for purposes of meeting the three
percent maximum; this required aggregation shall not apply if the Plan is also
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required to be included in an Aggregation Group which includes a defined benefit
plan and the Plan enables that defined benefit plan to meet the requirements of
sections 401(a)(4) or 410 of the Code.
1.5 COVERAGE UNDER MULTIPLE TOP-HEAVY PLANS. If the Plan is a Top-Heavy
Plan, it must meet the vesting and benefit requirements described in this
Article without taking into account contributions or benefits under Chapter 2 of
the Code (relating to tax on self-employment income), Chapter 21 of the Code
(relating to Federal Insurance Contributions Act), Title II of the Social
Security Act or any other federal or state law.
If a Non-Key Employee is covered by both a Top-Heavy defined contribution
plan and a defined benefit plan, he shall receive the defined benefit minimum,
offset by the benefits provided under the defined contribution plan.
1.6 RESTRICTIONS IF PLAN BECOMES SUPER TOP-HEAVY. If the Plan is
determined to be a Top-Heavy Plan, the number "1.00" must be substituted for the
number "1.25" when applying the limitations of section 415 of the Code to the
Plan, unless the Plan would not be a Top-Heavy Plan if "90%" were substituted
for "60%" and the Employer Contribution for the Plan Year for each Non-Key
Employee, who is a Member, is not less than four percent of the Member's Annual
Compensation.
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APPENDIX C
OPTIONAL FORMS OF DISTRIBUTION
Subject to Sections 6.16, 6.18 and 6.19 of the Plan, the optional forms of
distributions set forth below shall be available on and after the date on which
an Employer elects to treat the Plan and the Quanex Corporation Salaried
Employees' Pension Plan as one plan for purposes of section 410(b) of the Code:
1. OPTION A. A pension under which the Member or former Member shall
receive equal monthly payments for his lifetime.
2. OPTION B. A last survivor pension under which the Member or former
Member shall receive 85 percent of the monthly pension benefit
otherwise payable under Option A, and upon the death of the Member
or former Member, the Beneficiary shall receive1/2of the monthly
pension benefit paid to the Member or former Member prior to this
death, provided however, that if the Beneficiary is younger than the
Member or former Member, the 85 percent factor shall be reduced by
one percent for each full year's difference in the age of the Member
or former Member and the Beneficiary, and if the Beneficiary is
older than the Member or former Member, the 85 percent factor shall
be increased by one percent for each full years difference in the
age of the Member or former Member and the Beneficiary (up to a
maximum of 100 percent).
3. OPTION C. A last survivor pension under which the Member or former
Member shall receive 70 percent of the monthly pension benefit
otherwise payable under Option A, and upon the death of the Member
or former Member, the Beneficiary shall receive a monthly pension
benefit equal to that paid to the Member or former Member.
4. OPTION D. A reduced monthly pension payable to the Member or former
Member during his lifetime, provided that, if the Member or former
Member dies prior to his receipt of an amount equal to 120 monthly
payments, the then-present value of the remainder of such 120
monthly payments shall be payable to his Beneficiary in a lump sum.
If the former Member dies prior to his receipt of all of such 120
payments without having designated a Beneficiary, of if the
Beneficiary predeceases the former Member, the then-present value of
any remaining payments shall be paid in a lump sum to the former
Member's estate. If the designated Beneficiary dies after the former
Member and before all of such 120 monthly payments have been made,
the then-present value of the unpaid balance of such payments shall
be paid in a lump sum to the Beneficiary's estate.
5. LIMITATIONS ON OPTIONS B, C AND D.
(a) Options A, B and C will not be available to any member if the
reduced pension is less than $10 per month.
(b) Except as otherwise provided elsewhere in the Plan, any
election shall be automatically revoked if either the Member
or former Member or Beneficiary dies before the Member's or
former Member's Annuity Starting Date.
(c) Where the Beneficiary is a person other than the Member's or
former Member's Spouse, the Beneficiary under either Option B
or Option C must be of such age and sex that the amount
payable to the Member or former Member will exceed 50 percent
of the amount that would otherwise be payable if the Member or
former Member had elected a life annuity for his life.
No pension can exceed the life of the Member or former Member or the
life of the Member or former Member and his designated Beneficiary,
or in the case of a period certain, the life expectancy of the
Member or former Member or the life expectancy of the Member or
former Member and his designated Beneficiary.
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EXHIBIT 10.4
FIRST AMENDMENT TO
THE PIPER IMPACT 401(K) PLAN
THIS AGREEMENT by Piper Impact, Inc., a Delaware corporation, (the
"Sponsor"),
WITNESSETH:
WHEREAS, on July 13, 1998, the Sponsor executed the amendment and
restatement of the plan agreement known as the "Piper Impact 401(k) Plan" (the
"Plan"); and
WHEREAS, the Sponsor retained the right in Section 10.01 of the Plan to
amend the Plan from time to time; and
WHEREAS, the directors of the Sponsor have approved resolutions to amend
the Plan;
NOW, THEREFORE, the Sponsor agrees as follows:
(1) Effective January 1, 1999, Section 4.03 of the Plan is amended in its
entirety to provide as follows:
4.03 SUPPLEMENTAL CONTRIBUTIONS. The Employer may contribute
for any Plan Year a Supplemental Contribution for its Employees who
are on its payroll for its Utah plant in such amount, if any, as
shall be determined by the Employer. The Employer may contribute for
any Plan Year a Supplemental Contribution for its Employees who are
on its payroll for its Mississippi plant in such amount, if any, as
shall be determined by its Employer. The amount of Supplemental
Contribution made on behalf of Employees on the Employer's payroll
for its Utah and Mississippi plants need not be uniform.
(2) Effective January 1, 1999, Section 5.04 of the Plan is amended in its
entirety to provide as follows:
5.04 ALLOCATION OF SUPPLEMENTAL CONTRIBUTION. The Committee
shall allocate the Supplemental Contribution for its Employees who
are on its payroll for its Utah plant among the Employer's Members
who are on its payroll for its Utah plant in the proportion that the
Considered Compensation of each such Member bears to the total
Considered Compensation of all such Members for the Plan Year. The
Committee shall allocate the Supplemental Contribution for its
Employees who are on its payroll for its Mississippi plant among the
Employer's Members who are on its payroll for its Mississippi plant
in the proportion that the Considered Compensation of each such
Member bears to the total Considered Compensation of all such
Members for the Plan Year.
IN WITNESS WHEREOF, the Sponsor has caused this Agreement to be executed
this 7th day of December, 1998.
PIPER IMPACT, INC.
By VERNON E. OECHSLE
Title: PRESIDENT AND CEO
EXHIBIT 10.5
SECOND AMENDMENT TO
THE PIPER IMPACT 401(K) PLAN
THIS AGREEMENT by Piper Impact, Inc., a Delaware corporation, (the
"Sponsor"),
WITNESSETH:
WHEREAS, on July 13, 1998, the Sponsor executed the amendment and
restatement of the plan agreement known as the "Piper Impact 401(k) Plan" (the
"Plan"); and
WHEREAS, the Sponsor retained the right in Section 10.01 of the Plan to
amend the Plan from time to time; and
WHEREAS, the directors of the Sponsor have approved resolutions to amend
the Plan;
NOW, THEREFORE, effective January 1, 2001, Section 3.1 of the Plan is
amended in its entirety to provide as follows:
3.1 ELIGIBILITY REQUIREMENTS. Each Employee of an Employer shall be
eligible to participate in this Plan beginning on the entry date which
occurs with or next follows the date on which the Employee completes three
months of Active Service and attains the age of 21. However, all Employees
who are included in a unit of Employees covered by a collective bargaining
agreement between the Employees' representative and the Employer shall be
excluded, even if they have met the requirements for eligibility, if there
has been good faith bargaining between the Employer and the Employees'
representative pertaining to retirement benefits and the agreement does
not require the Employer to include such Employees in this Plan. In
addition, a Leased Employee shall not be eligible to participate in the
Plan unless the Plan's qualified status is dependent upon coverage of the
Leased Employee. Employees of Quanex Corporation who are not working at
its Piper Impact division are not eligible to participate in the Plan. The
Plan's entry dates will be January 1, April 1, July 1 and October 1 of
each Plan Year.
IN WITNESS WHEREOF, the Sponsor has caused this Agreement to be executed
effective as of the 1ST day of January, 2001.
PIPER IMPACT, INC.
By TERRY M. MURPHY
Title: VP FINANCE AND CFO