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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2002
Commission file number: 0-1375
FARMER BROS. CO.
California 95-0725980
State of Incorporation Federal ID Number
20333 South Normandie Avenue, Torrance, California
Registrant's address
(310) 787-5200
Registrant's telephone number
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on
which registered
Common stock, $1.00 par value OTC
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 [ ]
Number of shares of Common Stock, $1.00 par value, outstanding as of August
2, 2002: 1,926,414 and the aggregate market value of the common shares
held by non-affiliates of the Registrant was approximately $645 million.
PART I
Item 1. Business
General: Farmer Bros. Co. was incorporated in California in 1923. We
manufacture and distribute a product line that includes roasted coffee,
coffee related products (coffee filters, stir sticks and creamers), teas,
cocoa, spices, and soup and beverage bases to restaurants and other
institutional establishments that prepare food, including restaurants,
hotels, hospitals, convenience stores and fast food outlets. The product
line presently includes over 300 items. Roasted coffee products make up
54% of total sales. No single product other than coffee accounts for 10% or
more of revenue. Our products are sold directly from delivery trucks by sales
representatives who solicit, sell, and otherwise maintain our customer's
accounts.
Raw Materials and Supplies: Our primary raw material is green coffee.
Coffee purchasing, roasting and packaging takes place at our Torrance,
California plant, which is also the distribution hub for our branches.
Green coffee is an agricultural commodity. We purchase our green coffee
through domestic commodity brokers. Coffee is grown mainly outside the
United States and can be subject to volatile price fluctuations resulting from
supply concerns related to crop availability and related conditions such as
weather, political events and social instability in coffee producing
nations. Government actions and trade restrictions between our own and
foreign governments can also influence prices.
Green coffee prices are affected by the actions of producer organizations.
The most prominent of these are the Colombian Coffee Federation (CCF), the
Association of Coffee Producing Countries (ACPC) and the International
Coffee Organization (ICO). These organizations seek to increase green
coffee prices largely by attempting to restrict supplies, thereby limiting
the availability of green coffee to the coffee consuming nations. In recent
years the green coffee market has been influenced by additional production from
a variety of producers, notably Vietnam and Brazil. These additional supplies
have had the tendency to hold prices down.
Other raw materials used in the manufacture of allied products include a
wide variety of spices, including pepper, chilies, oregano & thyme, as well as
tea, dry cocoa, dehydrated milk products, salt and sugar. All of these
agricultural products can be subject to wide cost variation, but historically
no combination of these raw materials has had the material effect on our
operating results as has green coffee.
Trademarks & Patents: We own approximately 38 registered U.S. trademarks,
which are integral to customer identification of our products. It is not
possible to assess the impact of the loss of such identification.
Seasonality: We experience some seasonal influences. The winter months
are the best sales months. However, our product line and geographic
diversity provides some sales stability during the warmer months when
coffee consumption ordinarily decreases. Additionally, the summer months
usually experience an increase in sales to seasonal businesses located in
popular vacation areas.
Distribution: Our products are distributed by our selling divisions from
branches located in most large cities throughout the western United
States. We operate our own long haul trucking fleet to more effectively
control the supply of products to these warehouses and try to minimize our
inventory levels within each branch warehouse.
Customers: No customer represents a significant concentration of sales.
The loss of any one or more of our larger customer accounts would have no
material adverse effect on our operations. Customer contact and service
quality, which is integral to our sales effort, is often secondary to
product pricing for customers with their own distribution systems. Such
customers can be very price sensitive.
Competition: We face competition from many sources, including multi-
national manufacturers of retail products like Procter & Gamble and Sara
Lee Foods, grocery distributors like Sysco and U.S. Food Service and
regional coffee roasters like Boyd Coffee Co. and Lingle Bros. We may have
some competitive advantages due to our longevity, strong regional roots and
sales and service force. Our customer base is price sensitive and we are
often faced with price competition.
Working Capital: We finance our operations internally, and we believe that
working capital from internal sources will be adequate for the coming year.
Foreign Operations: We have no material revenues that result from foreign
operations.
Other: On June 30, 2002, we employed 1,113 employees; 470 are subject to
collective bargaining agreements. The effects of compliance with
government provisions regulating discharge of materials into the
environment have not had a material effect on our financial condition or
results of operations. The nature of our business does not provide for
maintenance of or reliance upon a sales backlog.
Item 2. Properties
Our largest and most significant facility is the roasting plant, warehouses
and administrative offices in Torrance, California. This facility is our
primary manufacturing facility and the distribution hub for our fleet.
We stage product in more than 100 small branch warehouses throughout our
service area. These warehouses taken together represent a vital part of
our business, but no individual warehouse is material to the group as a
whole, and most warehouses vary in size from 2,500-12,000 sq. feet. We
believe both the existing plant and the distribution warehouses will continue
to provide adequate capacity for the foreseeable future. A complete
list of facilities is found in Exhibit (99).
Item 3. Legal Proceedings
We are both defendant and plaintiff in various legal proceedings incidental
to our business which are ordinary and routine. It is our opinion that the
resolution of these lawsuits will not have a material impact on our financial
condition or results of operations.
Item 4 Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder
Matters
We have one class of common stock which is traded in the over the counter
market. The bid prices indicated below are as reported by NASDAQ and
represent prices between dealers, without including retail mark up, mark
down or commission, and do not necessarily represent actual trades.
2002 2001
High Low Dividend High Low Dividend
1st Quarter $259.50 $215.00 $0.85 $194.19 $165.00 $0.80
2nd Quarter $267.75 $192.00 $0.85 $211.00 $176.88 $0.80
3rd Quarter $304.00 $268.98 $0.85 $258.52 $188.00 $0.80
4th Quarter $370.99 $306.00 $0.85 $239.00 $205.00 $0.80
There were 2,667 holders of record on August 2, 2002.
Item 6. Selected Financial Data
(In thousands, except per share data)
2002 2001 2000 1999 1998
Net sales $205,857 $215,431 $218,688 $221,571 $240,092
Income from operations $38,210 $42,115 $48,965 $36,770 $40,955
Net income $30,569 $36,178 $37,576 $28,865 $33,400
Net income per share $16.54 $19.62 $20.22 $15.16 $17.34
Proforma net income (a) $36,488 $35,445 $27,327 $33,702
Proforma net income (a)
per share $19.79 $19.08 $14.36 $17.71
Total assets $417,524 $390,395 $353,467 $324,836 $307,012
Dividends per share $3.40 $3.20 $3.00 $2.80 $2.55
(a) Upon adoption of SFAS No. 133 on July 1, 2000, the Company reclassified
its investments held as "available for sale" to the "trading" category
which resulted in an entry to recognize the accumulated unrealized loss of
$3,894,000. The "proforma" amounts above summarize the effect on earnings
and earnings per share on prior years' results as if the change had been in
effect for those periods presented.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's Discussion and Analysis discusses the results of operations as
reflected in the Company's consolidated financial statements. The following
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of many factors.
The results of operations for the years ended June 30, 2002, 2001 and 2000 are
not necessarily indicative of the results that may be expected for any future
period. The following discussion should be read in combination with the
consolidated financial statements and the notes thereto included in Item 8 of
this report and with the "Risk Factors" described below.
Critical Accounting Policies
Management's discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to inventory valuation, including LIFO reserves, the allowance
for doubtful accounts, deferred tax assets, liabilities related to retirement
benefits, liabilities resulting from self-insurance of our worker's
compensation liabilities, and litigation. We base our estimates on historical
experience and other relevant factors that are believed to be reasonable under
the circumstances.
While we believe that the historical experience and other factors considered
provide a meaningful basis for the accounting policies applied in the
preparation of the consolidated financial statements, actual results may differ
from these estimates, which could require the Company to make adjustments to
these estimates in future periods.
Investments: Our investments consist of investment grade marketable debt
instruments issued by the US Government and major US and foreign corporations,
equity securities, primarily preferred stock, and various derivative
instruments, primarily exchange traded treasury futures and options, green
coffee forward contracts and commodity purchase agreements. All derivatives
not designated as accounting hedges are marked to market and changes are
recognized in current earnings. The fair value of derivative instruments is
based upon broker quotes where possible.
Allowance for Doubtful Accounts: We maintain an allowance for estimated
losses resulting from the inability of our customers to meet their obligations.
Our ability to maintain a relatively small reserve is directly related to our
ability to collect from our customers when our sales people regularly interact
with our customers in person. This method of operation has historically
provided us with a historically low bad debt experience.
Inventories: Inventories are valued at the lower of cost or market and the
costs of coffee and allied products are determined on the Last In, First Out
(LIFO) basis. Costs of coffee brewing equipment manufactured are accounted for
on the First In, First Out (FIFO) basis. We regularly evaluate these
inventories to determine that market conditions are correctly reflected in the
recorded carrying value.
Self-Insurance Retention: We are self-insured for California workers'
compensation insurance and utilize historical analysis to determine and record
the estimates of expected future expenses resulting from worker's compensation
claims. Additionally, we accrue for estimated losses not covered by insurance
for liability, auto, medical and fire up to the deductible amounts.
Retirement Plans: We have two defined benefit plans that provide retirement
benefits for the majority of our employees (the balance of our employees are
covered by union defined benefit plans). We obtain actuarial valuations for
both plans and at present we discount the pension obligations using 7.20%
discount rate and we estimate an 8% return on plan assets. Our retiree
medical plan is not funded and shares the same discount rate as the defined
benefit plans. We also project an initial medical trend rate of 11% ultimately
reducing to 5.5% in 6 years.
The performance of the stock market and other investments as well as the
overall health of the economy can have a material effect on pension investment
returns and these assumptions. A change in these assumptions could have an
effect on operating results.
Income Taxes: Deferred income taxes are determined based on the temporary
differences between the financial reporting and tax bases of assets and
liabilities, using enacted tax rates in effect for the year in which
differences are expected to reverse. We do not presently have a valuation
allowance for our deferred tax assets as we currently believe it is more likely
than not that we will realize our deferred tax assets.
Liquidity and Capital Resources
We have been able to maintain a strong working capital position, and
believe that both our short and long term cash requirements for the coming
year will be provided by internal sources. We have no major commitments
for capital expenditures at this time, but intend to begin a multi-year
upgrading of our internal management information system. Additionally we are
prepared to loan additional funds to the employee stock ownership plan (ESOP)
for purchase of up to 300,000 shares of Farmer Bros Co. common stock at a cost
not to exceed $50,000,000. At June 30, 2002 the ESOP loan balance was
$13,243,000.
(In thousands except ratio data)
2002 2001 2000
Current assets(a) $348,434 $318,879 $188,560
Current liabilities $16,259 $17,655 $16,966
Working capital $332,175 $301,224 $171,594
Capital Expenditures $5,039 $5,912 $14,130
(a) Upon adoption of SFAS No. 133 on July 1, 2000, the Company
reclassified its investments held as "available for sale" to the
"trading" category.
Results of Operations
Years ended June 30, 2002 and 2001
Fiscal 2002 was challenging for us. Although green coffee costs remained
relatively stable throughout the year, the events of September 11, 2001 are
still being felt. Recession related reductions in business and personal travel
and entertainment expenses combined with reduced activities outside the home
resulting from public concern about terrorist activities resulted in decreased
sales and profitability. As depicted in the "Change in Earnings per Share"
analysis below, our 2002 net sales declined 4.4%. Net sales decreased to
$205,857,000 in 2002 as compared to $215,431,000 in 2001.
Gross profit decreased to $138,093,000 in fiscal 2002, or 67% of sales,
compared to $141,400,000 in fiscal 2001, or 66% of sales. The world supply of
green coffee continues to be ample, and some producing countries have discussed
a variety of approaches to improve producer profitability, including production
decreases, decreased farm maintenance and farm worker layoffs. To date, none
of these approaches appear to have had a material effect on green coffee
prices.
Operating expenses, comprised of selling and general and administrative
expenses were $99,883,000 in 2002 as compared to $99,285,000 in 2001. A
$3,339,000 increase, or 28%, in employee benefits expenses in fiscal 2002,
including the costs of employee benefit plans and medical coverage, was
substantially offset by a decreases in payroll expenses, (1%), vehicle related
expenses (including maintenance, gas & oil), (6%), and coffee brewing equipment
costs, (36%).
Other income decreased 36% to $11,150,000 in 2002 as compared to $17,401,000 in
2001. The 2001 amount includes the accumulated unrealized loss of $3,894,000
resulting from the accounting change that year. Exclusive of the accounting
change, other income decreased 48% in 2002 from $21,295,000 in 2001. This
decrease is primarily the result of lower interest rates during 2002 as the
Federal Reserve Board has attempted to stimulate the economy. Our investments
continue to be in short term money market instruments: primarily investment
grade commercial paper, corporate notes and US treasury and agency debt. At
June 30, 2002 we held approximately $168,000,000 in US Treasury Bills.
Income before taxes decreased 21% to $49,360,000, or 24% of sales, for the year
ended June 30, 2002, as compared to $59,516,000, or 28% of sales, in the prior
fiscal year. Net income, before cumulative effect of accounting change, for
fiscal year 2002 was $30,569,000, or $16.54 per share, as compared to
$36,488,000, or $19.79 per share, in 2001.
Years ended June 30, 2001 and 2000
Fiscal 2001 presented us with a less volatile green coffee market than 2000.
World green coffee supplies, bolstered by new supply from Vietnam and Brazil
pressured green coffee prices. Green coffee prices at June 30, 2001 were
down about 34% from the beginning of 2001. The coffee crop in Brazil, the
world's largest coffee producer, weathered the 2001 frost season (during our
summer) and a good crop was harvested. As depicted in the "Change in Earnings
per Share" analysis below, our 2001 sales declined 1.5%. Net sales decreased
to $215,431,000 in 2001 as compared to $218,688,000 in 2000. The primary cause
of our sales decline was reduced coffee usage by our customers who attributed
this decrease to a variety of causes which, although not quantifiable, included
the increasing number of competing beverages (both hot & cold) and a decrease
in consumer spending.
Gross profit decreased to $141,400,000 in fiscal 2001, or 66% of sales,
compared to $141,719,000 in 2000, or 65% of sales. During fiscal 2001, green
coffee prices declined about 35% as compared to fiscal 2000 prices; however, as
described below gross profit was impacted by the change in accounting for
coffee contracts. During fiscal 2000, green coffee costs increased nearly 40%
in the first half of the year, decreasing to beginning of the year levels by
the first of June 2000. During the month of June 2000, green coffee costs
increased over 30% as the result of a weather threat to the Brazilian coffee
crop.
Operating expenses, composed of selling and general and administrative
expenses increased to $99,285,000 in 2001 from $92,754,000 in 2000. This
increase in 2001 was primarily the result of an increase of $2,181,000, or 32%,
in the cost of providing coffee brewing equipment to our customers and an
increase of $2,678,000, or 4.2%, in payroll & employee benefits expenses as
compared to fiscal 2000. This increase is primarily related to the cost of our
employee stock ownership plan.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities-An Amendment of FASB Statement
133." The adoption of Statement Nos. 133 and 138 on July 1, 2001 resulted
in a cumulative effect of an accounting change of $515,000 ($310,000 net of
taxes) being recognized in the Statement of Net Income. Upon adoption of
SFAS 133, securities were reclassified from the "available for sale" to the
"trading" category. This resulted in the recognition of the accumulated
unrealized loss of $3,894,000 in other income. All investments, consisting
of marketable debt and equity securities, interest rate futures or options
and money market instruments, are now held for trading purposes and are
stated at fair value. Gains and losses, both realized and unrealized, are
now included in other income and expense. Other income increased to
$17,401,000 in 2001 as compared to $12,254,000 in 2000 as the result of an
increase in trading securities and coffee contracts net of the reclassification
adjustment described above.
Income before taxes was $59,516,000 or 28% of sales in 2001, as compared to
$61,219,000 or 28% of sales in 2000. Net income for fiscal year 2001 was
$36,178,000, or $19.62 per share, as compared to $37,576,000, or $20.22 per
share, in 2000.
Change in Earnings Per Share
The following provides additional information regarding changes in
operating results.
2002 2001 2000
Net income per common share $16.54 $19.62 $20.22
Percentage change:
2002 to 2001 2001 to 2000
Net sales (4.4)% (1.5)%
Cost of goods sold (8.5)% (3.8)%
Gross profit (2.3)% (0.2)%
Operating expenses 0.6 % 7.0 %
Income from operations (9.3)% (14.0)%
Provisions for income taxes (18.4)% (2.6)%
Net income (15.5)% (3.7)%
A summary of the change in earnings per share, which highlights
factors discussed earlier, is as follows:
Per Share Earnings
2002 vs. 2001 2001 vs. 2000
Coffee: Prices $ 0.15 $ 0.32
Volume (3.71) (3.20)
Cost 2.25 2.09
Gross profit (1.31) (0.79)
Allied products: Gross profit (0.48) 0.62
Operating expenses (0.32) (3.54)
Other income (3.38) 2.79
Provision for income taxes 2.29 0.33
Accounting change 0.17 (0.17)
Change in weighted average
shares outstanding (0.05) 0.16
Net income $ (3.08) $(0.60)
Risk Factors
Certain statements contained in this Annual Report on Form 10-K regarding the
risks, circumstances and financial trends that may affect our future operating
results, financial position and cash flows may be forward-looking statements
within the meaning of federal securities laws. These statements are based on
management's current expectations, assumptions, estimates and observations
about our business and are subject to risks and uncertainties. As a result,
actual results could materially differ from the forward looking statements
contained herein. These forward looking statements can be identified by the
use of words like "expects," "plans," "believes," "intends," "will," "assumes"
and other words of similar meanings. These and other similar words can be
identified by the fact that they do not relate solely to historical or current
facts. While we believe our assumptions are reasonable, we caution that it is
impossible to predict the impact of such factors which could cause actual
results to differ materially from predicted results. We intend these forward-
looking statements to speak only at the time of this report and do not
undertake to update or revise these projections as more information becomes
available. For these statements, we claim the protection of the safe harbor
for forward-looking statements provided by the Private Securities Litigation
Reform Act of 1995.
Factors that could cause our actual results to materially differ from those
expressed or implied by any forward looking statements described herein
include:
Green coffee price volatility.
Our results of operations can vary dramatically with the volatility of the
green coffee market. Virtually all coffee is grown outside the United States.
Some of the producing countries have experienced a variety of problems,
including civil war in Peru and Indonesia, rebel insurgents in the Philippines
and the threat of economic collapse in Brazil. Green coffee can be one of the
most volatile of commodities. It is subject to all the factors that influence
the price of agricultural products including weather (especially drought and
frost), world supplies, the actions of our own and foreign governments
(including trade restrictions, farm subsidies & currency devaluations),
transportation issues (including port and trucker strikes domestically and in
the producing countries), and insect pests (cigarette beetle and broca).
Competition.
Our customer base has undergone a dramatic shift in the past decade. This is
the result of several factors, including competition from other coffee
companies and from other beverages. Other coffee companies include multi-
national firms with vast financial resources, a business model that is very
different and superior information technologies. Large restaurant chains and
other institutional buyers (representing hospitals, hotels, contract food
services, convalescent hospitals and other similar institutions) often prefer
the "price leader" and find insufficient value in the sales & service aspect of
our business. We believe some of our competitors are willing to accept smaller
profit margins from some customers because they do not have the distribution
and service organization we do. In addition, there are numerous beverages
competing for the same restaurant dollar. Soft drinks, bottled water, flavored
coffees & teas all have grown at the expense of a "standard" cup of coffee. We
believe the growth of coffee shops that roast their own coffee has also
contributed to the decrease in demand for the "standard" cup of coffee.
Sales & Distribution Network.
We believe our sales and distribution network to be one of the best in the
industry. It is also expensive to operate. Some of our competitors market
through wholesale grocers. Therefore they do not have to address certain
issues that we do, including gasoline and oil prices, the costs of purchasing,
maintaining and insuring a fleet of delivery vehicles, the costs of purchasing
or leasing and maintaining distribution warehouses throughout the country, or
the costs of hiring, training and paying benefits for our route sales
professionals. We find that competitors unencumbered with this overhead
sometimes choose to be very price competitive throughout our service area.
General economic and market conditions.
Our primary market is restaurants and other food service establishments. We
also provide coffee and related products to offices. We believe the success of
this business market segment is dependent upon personal and business
expenditures in restaurant locations. In a slow economy businesses and
individuals often scale back their discretionary spending on travel and
entertainment, including "eating out." A weaker economy may also cause
businesses to cut back on their travel and entertainment expenses, and even
reduce or eliminate office coffee benefits.
Self insurance.
We are self-insured for many risks. Although we carry insurance, our
deductibles require that we bear a substantial liability. The premiums
associated with our insurance have recently increased substantially. General
liability, fire, workers' compensation, director & officer, life, employee
medical, dental & vision and automobile present a large potential liability.
While we accrue for this liability based on historical experience, future
losses may exceed losses we have incurred in the past.
Risks from possible acquisitions and new business ventures.
The Company regularly evaluates opportunities that may enhance shareholder
value. There is no assurance that any such venture, should we decide to enter
into one, will accrue the projected returns. It is possible that such ventures
could result in losses or returns that would have a negative impact on
operating income.
Stock purchases and sales by major shareholders.
Approximately 52% of all outstanding shares are owned or controlled by Company
employees, officers and directors. The combined holdings of the 8 largest
institutions are approximately 24% of outstanding shares. Including the
holdings of a former director of approximately 10% of outstanding shares,
current and former management and institutions control approximately 83% of
shares. Future sales of Company stock could adversely and unpredictably affect
the price of our shares.
ESOP.
The Farmer Bros. Co. Employee Stock Ownership Plan was designed to help us
attract and retain employees. Additionally, we believe employee stock
ownership helps align the efforts of our employees with the interests of our
shareholders. To that end, the board of directors has approved loaning up to
$50,000,000 to acquire shares. As additional shares come available, we expect
that a substantial additional amount will be approved to finance that
acquisition of shares. This will deplete our working capital and increase
costs associated with the ESOP, especially future funding (i.e., requirement to
provide the ESOP with liquidity for shares tendered back to the ESOP by
departing employees). We expect that as the ESOP acquires additional shares,
the Company will take on a growing fixed cost which may have a material effect
on future earnings.
External factors: strikes, natural disasters, acts of war and other
difficulties.
Over half of our business is conducted in California, Oregon & Washington.
This area is prone to seismic activity and a major earthquake could have a
significant negative effect on our operations. Our major manufacturing
facility and distribution hub is in Los Angeles, and a serious interruption to
highway arteries, gas mains or electrical service could restrict our ability to
supply our branches with product.
Most of our customers are disbursed throughout the western United States, with
concentrations in major cities. We depend on our own route sales network for
reaching our customers. Any interruption of that distribution system could
have material negative consequences for us. Our major product, coffee, is
grown primarily in the tropics. Hurricanes, monsoons, tornados, severe winter
storms, drought and floods all have an affect on our customers and our sources
of supply.
Strikes against our suppliers or their transportation vendors could restrict
our ability to obtain our supply of green coffee and other supplies. Coffee is
shipped to us by sea from every producing country, and by rail from Mexico.
Any major interruption in that flow, for example, trucker strikes in Brazil,
railroad strikes in Mexico, coffee processors strikes in El Salvador, or
longshoremen strikes in U.S. ports, can reduce our ability to maintain our flow
of green coffee to our production facility and ultimately to our customers.
Coffee is perishable, and although its shelf life is lengthy compared to other
types of agricultural products, it does not allow for any significant stock-
piling.
Acts of war or terrorism.
Any action domestically or in a coffee producing country that interrupts the
supply of green coffee to our plant or restricts our delivery of finished
product to our warehouses and customers can have a material impact on our
operating results. Civil war in Columbia or Peru, or terrorist actions in the
Philippines or elsewhere, can have a material effect on our operations if we
are unable to receive or replace key coffee shipments. If suitable substitute
sources of supply can be located, they are often found at a much higher price.
ERP System Conversion.
Our internal management information system is several years old and in need of
updating. The Company has embarked on a two year program to update these
systems by converting to a single enterprise-wide software. We believe this
will be a challenging conversion. While our personnel and consultants are
working to make the conversion a success, it is possible that the conversion
cost, potential complications resulting from the conversion itself, and system
problems in our use of the new software could have a material impact on our
future operating results.
Staffing.
There is little depth of management in certain positions and a loss of one or
more of these key employees could have a material effect on our operations and
competitive position. We have union contracts relating to our employees
serving our California, Oregon, Washington and Nevada markets. Although we
believe union relations have been amicable in the past, there is no assurance
that this will continue in the future.
Hedging activities
The most important aspect of our operation is to secure a consistent supply
of coffee. Some proportion of green coffee price fluctuations can be
passed through to our customers, with some delay; but maintaining a steady
supply of green coffee is essential to keep inventory levels low and sufficient
stock to meet customer needs. We purchase our coffee through established
coffee brokers to help minimize the risk of default on coffee deliveries. To
help ensure future supplies, we purchase much of our coffee on forward
contracts for delivery as long as six months in the future. Sometimes these
contracts are fixed price contracts, where the price of the purchase is set
regardless of the change in price of green coffee between the contract and
delivery dates. At other times these contracts are variable price contracts
that allow the delivered price of contracted coffee to reflect the market price
of coffee at the delivery date.
Futures contracts not designated as hedges, and terminations of contracts
designated as hedges, are marked to market and changes are recognized in
current earnings. Open contracts at June 30, 2002 are addressed in the
following Item 7A.
In the event of non-performance by the counter parties, the Company could
be exposed to credit and supply risk. The Company monitors the financial
viability of the counter parties in an attempt to minimize this risk.
Item 7A. Qualitative and Quantitative Disclosures About Market Risk
We are exposed to market value risk arising from changes in interest rates
on our securities portfolio. Our portfolio of investment grade money
market instruments includes discount commercial paper, medium term notes,
federal agency issues and treasury securities. As of June 30, 2002 over
80% of these funds were invested in instruments with maturities shorter
than 180 days. This portfolio's interest rate risk is not hedged and its
average maturity is approximately 150 days. A 100 basis point move in the
general level of interest rates would result in a change in the market
value of the portfolio of approximately $2,400,000.
Our portfolio of preferred securities includes investments in derivatives
that provide a natural economic hedge of interest rate risk. We review the
interest rate sensitivity of these securities and (a) enter into "short
positions" in futures contracts on U.S. Treasury securities or (b) hold put
options on such futures contracts in order to reduce the impact of certain
interest rate changes on such preferred stocks. Specifically, we attempt
to manage the risk arising from changes in the general level of interest
rates. We do not transact in futures contracts or put options for
speculative purposes.
The following table demonstrates the impact of varying interest rate
changes based on the preferred stock holdings, futures and options
positions, and market yield and price relationships at June 30, 2002. This
table is predicated on an instantaneous change in the general level of
interest rates and assumes predictable relationships between the prices of
preferred securities holdings, the yields on U.S. Treasury securities and
related futures and options.
Interest Rate Changes
(In thousands)
Market Value at June 30, 2002 Change in Market
Preferred Futures and Total Value of Total
Securities Options Portfolio Portfolio
- -200 basis points "(b.p.")$56,169 $0 $56,169 $6,477
- -100 b.p. 53,071 6 53,077 3,385
Unchanged 48,873 819 49,692 0
+100 b.p. 44,693 4,679 49,372 (320)
+200 b.p. 40,735 8,257 48,992 (700)
The number and type of futures and options contracts entered into depends
on, among other items, the specific maturity and issuer redemption
provisions for each preferred security held, the slope of the Treasury
yield curve, the expected volatility of Treasury yields, and the costs of
using futures and/or options.
Commodity Price Changes
We are exposed to commodity price risk arising from changes in the market
price of green coffee. We price our inventory on the LIFO basis. In the
normal course of business we enter into commodity purchase agreements with
suppliers and we purchase exchange traded green coffee contracts. The
following table demonstrates the impact of changes in the price of green
coffee on inventory and green coffee contracts at June 30, 2002. It
assumes an immediate change in the price of green coffee, and the valuations of
coffee futures and relevant commodity purchase agreements at June 30, 2002.
Commodity Risk Disclosure
(In thousands)
Market Value of
Coffee Cost Coffee June 30, 2002 Change in Market Value
Change Inventory Futures & Options Total Derivatives Inventory
- -10% $12,448 $121 $12,569 $58 ($1,383)
unchanged 13,831 63 13,894 -
+10% 15,214 5 15,219 (58) $1,383
At June 30, 2002 the derivatives consisted mainly of commodity futures with
maturities shorter than three months.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of Farmer Bros. Co. and
Subsidiary
We have audited the accompanying consolidated balance sheets of Farmer
Bros. Co. and Subsidiary (the "Company") as of June 30, 2002 and 2001, and
the related consolidated statements of income, cash flows, and
shareholders' equity for the three years ended June 30, 2002. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Farmer
Bros. Co. and Subsidiary at June 30, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three
years in the period ended June 30, 2002, in conformity with accounting
principles generally accepted in the United States.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for derivative financial
instruments in 2001.
/s/Ernst & Young LLP
Long Beach, California
September 6, 2002
FARMER BROS. CO.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)
June 30,
2002 2001
ASSETS
Current assets:
Cash and cash equivalents $ 7,047 $ 29,001
Short term investments 285,540 234,179
Accounts and notes receivable, net 14,004 15,326
Inventories 37,361 35,780
Income tax receivable 2,553 2,991
Deferred income taxes 1,188 1,092
Prepaid expenses 741 510
Total current assets 348,434 318,879
Property, plant and equipment, net 38,572 39,094
Notes receivable 224 2,727
Other assets 27,622 26,432
Deferred income taxes 2,672 3,263
Total assets $417,524 $390,395
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,827 $ $5,153
Accrued payroll expenses 6,407 6,421
Other 5,025 6,081
Total current liabilities 16,259 17,655
Accrued postretirement benefits 22,726 20,800
Other long term liabilities 5,486 4,892
Total Liabilities 44,471 43,347
Commitments and contingencies - -
Shareholders' equity:
Common stock, $1.00 par value,
authorized 3,000,000 shares; issued
and outstanding 1,926,414 1,926 1,926
Additional paid-in capital 17,627 16,629
Retained earnings 365,725 341,434
Unearned ESOP shares (12,225) (12,941)
Total shareholders' equity 373,053 347,048
Total liabilities and
shareholders' equity $417,524 $390,395
The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
Years ended June 30,
2002 2001 2000
Net sales $205,857 $215,431 $218,688
Cost of goods sold 67,764 74,031 76,969
138,093 141,400 141,719
Selling expense 86,025 84,524 82,858
General and administrative expense 13,858 14,761 9,896
99,883 99,285 92,754
Income from operations 38,210 42,115 48,965
Other income:
Dividend income 3,198 3,039 2,741
Interest income 7,261 12,308 10,080
Other, net 691 2,054 (567)
11,150 17,401 12,254
Income before taxes 49,360 59,516 61,219
Income taxes 18,791 23,028 23,643
Income before cumulative effect
of accounting change $30,569 $36,488 $37,576
Cumulative effect of accounting
change (net of income taxes
of $205) - (310) -
Net income $30,569 $36,178 $37,576
Income per common share:
Before cumulative effect of
accounting change $16.54 $19.79 $20.22
Cumulative effect of
accounting change - ($0.17) -
Net income per common share $16.54 $19.62 $20.22
Pro forma assuming accounting changes
were retroactively applied
Net income $36,488 $35,445
Net income per common share $19.79 $19.08
Weighted average shares
outstanding 1,848,395 1,843,392 1,858,034
The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended June 30,
2002 2001 2000
Cash flows from operating activities:
Net income $30,569 $36,178 $37,576
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Cumulative effect of accounting change - 310 -
Depreciation 5,493 5,527 5,628
Deferred income taxes 495 1,736 2,505
(Gain) loss on sales of assets (239) (131) 686
ESOP compensation expense 2,529 1,398 489
Net (gain) loss on investments (51) (1,614) 1,502
Net unrealized loss on investments
reclassified as trading - 2,337 -
Change in assets and liabilities:
Short term investments (51,310) (23,976) -
Accounts and notes receivable 1,220 2,769 (335)
Inventories (1,581) 990 (3,095)
Income tax receivable 438 (1,651) (1,091)
Prepaid expenses and other assets (1,421) (2,130) (3,128)
Accounts payable (326) (768) 1,135
Accrued payroll and expenses and
other liabilities (1,070) 1,457 (87)
Accrued postretirement benefits 1,926 1,602 1,491
Other long term liabilities 594 702 690
Total adjustments (43,303) (11,442) 6,390
Net cash (used in) provided by operating activities (12,734) $24,736 $43,966
The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended June 30,
2002 2001 2000
Net cash (used in) provided by
operating activities $(12,734) $24,736 $43,966
Cash flows from investing activities:
Purchases of property, plant and equipment (5,039) (5,912) (14,130)
Proceeds from sales of property,
plant and equipment 307 207 700
Purchases of available for sale investments - - (278,083)
Proceeds from sales of available for
sale investments - - 268,337
Notes issued (35) (78) -
Notes repaid 2,640 831 843
Net cash used in investing activities $ (2,127) ($4,952) ($22,333)
Cash flows from financing activities:
Dividends paid (6,278) (5,897) (5,580)
Common stock repurchased - - (4,103)
Common stock issued - - 13,287
ESOP contributions (815) (390) (14,136)
Net cash used in financing activities (7,093) (6,287) (10,532)
Net (decrease) increase in cash
and cash equivalents (21,954) 13,497 11,101
Cash and cash equivalents at beginning of year 29,001 15,504 4,403
Cash and cash equivalents at end of year $ 7,047 $29,001 $15,504
The accompanying notes are an integral part of these financial statements.
FARMER BROS. CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Accumulated
(Dollars in thousands, except share data) Additional Unearned Other
Common Stock Paid-in Retained Esop Comprehensive
Shares Amount Capital Earnings Shares Income (Loss) Total
Balance at June 30,1999 1,870,754 $1,871 $3,164 $283,191 $0 ($515) $287,711
Comprehensive income
Net income 37,576 37,576
Other comprehensive income,
net of taxes - -
Change in unrealized gain on
available for sale securities (2,512) (2,512)
Reclassification adjustment
for realized gain 381 381
(2,131) (2,131)
Total comprehensive income 35,445
Dividends ($3.00 per share) (5,580) (5,580)
Common stock repurchased (25,715) (26) (43) (4,034) (4,103)
Common stock issued to ESOP 81,375 81 13,206 (13,287) 0
ESOP contributions (849) (849)
ESOP compensation expense 32 457 489
Balance at June 30,2000 1,926,414 $1,926 $16,359 $311,153 ($13,679) ($2,646) $313,113
Comprehensive income
Net income 36,178 36,178
Transition adjustment for SFAS No. 133 2,646 2,646
Total comprehensive income 2,646 2,646
Dividends ($3.20 per share) (5,897) (5,897)
ESOP contributions (390) (390)
ESOP compensation expense 270 1,128 1,398
Balance at June 30, 2001 1,926,414 $1,926 $16,629 $341,434 ($12,941) - $347,048
Comprehensive income
Net income 30,569 30,569
Total comprehensive income 30,569
Dividends ($3.40 per share) (6,278) (6,278)
ESOP contributions (815) (815)
ESOP compensation expense 998 1,531 2,529
Balance at June 30, 2002 1,926,414 $1,926 $17,627 $365,725 ($12,225) - $373,053
The accompanying notes are an integral part of these financial statements.
Notes to Consolidated Financial Statements
Note 1 Summary of Significant Accounting Policies
Organization
The Company, which operates in one business segment, is in the business of
roasting, packaging, and distributing coffee and allied products through direct
sales to restaurants, hotels, hospitals, convenience stores and fast food
outlets. The Company's products are distributed by its selling divisions from
branch warehouses located in most large cities throughout the western United
States.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiary FBC Finance Company. All significant inter-company
balances and transactions have been eliminated.
Financial Statement Preparation
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of 90 days
or less when purchased to be cash equivalents. Fair values of cash equivalents
approximate cost due to the short period of time to maturity.
Investments
The Company's investments consist of marketable debt and equity securities,
money market instruments and various derivative instruments, primarily exchange
traded treasury futures and options, green coffee forward contracts and
commodity purchase agreements. All such instruments not designated as
accounting hedges are marked to market and changes are recognized in current
earnings. At June 30, 2002 no derivative instruments were designated as
accounting hedges. The fair value of derivative instruments is based upon
broker quotes. The cost of investments sold is determined on the specific
identification method. Dividend and interest income is accrued as earned.
Concentration of Credit Risk
At June 30, 2002, the financial instruments which potentially expose the
Company to concentrations of credit risk consist of cash in financial
institutions (which exceeds federally insured limits), cash equivalents
(principally commercial paper), short term investments, investments in the
preferred stocks of other companies and trade receivables. Cash equivalents
and short term investments are not concentrated by issuer, industry or
geographic area. Maturities are generally shorter than 180 days. Other
investments are in U.S. government securities. Investments in the preferred
stocks of other companies are limited to high quality issuers and are not
concentrated by geographic area or issuer. Concentration of credit risk with
respect to trade receivables for the Company is limited due to the large number
of customers comprising the Company's customer base and their dispersion across
many different geographic areas. The trade receivables are short-term, and all
probable bad debt losses have been appropriately considered in establishing the
allowance for doubtful accounts.
Inventories
Inventories are valued at the lower of cost or market. Costs of coffee and
allied products are determined on the Last In, First Out (LIFO) basis. Costs
of coffee brewing equipment manufactured are accounted for on the First In,
First Out (FIFO) basis.
Property, Plant and Equipment
Property, plant and equipment is carried at cost, less accumulated
depreciation. Depreciation of buildings and facilities is computed using the
straight-line method. All other assets are depreciated using the sum-of-the
years' digits and straight-line methods. The following useful lives are used:
Building and facilities 10 to 30 years
Machinery and equipment 3 to 5 years
Office furniture and equipment 5 years
When assets are sold or retired the asset and related depreciation allowance
are eliminated from the records and any gain or loss on disposal is included in
operations. Maintenance and repairs are charged to expense, and betterments
are capitalized.
Income Taxes
Deferred income taxes are determined based on the temporary differences between
the financial reporting and tax bases of assets and liabilities, using enacted
tax rates in effect for the year in which differences are expected to reverse.
Revenue Recognition
Sales and the cost of products sold are recorded at the time of delivery to the
customer.
Net Income Per Common Share
Basic earnings per share is computed by dividing the net income attributable to
common stockholders by the weighted average number of common shares outstanding
during the period, excluding unallocated shares held by the Company's
Employee Stock Ownership Plan (see Note 6). The Company has no dilutive shares
for any of the three fiscal years in the period ended June 30, 2002.
Accordingly, the consolidated financial statements present only basic net
income per share.
Long-Lived Assets
Long-lived assets held and used by the Company are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. For purposes of evaluating the
recoverability of long-lived assets, the Company evaluates the carrying value
of its property, plant and equipment on an ongoing basis and recognizes an
impairment when the estimated future undiscounted cash flows from operations
are less than the carrying value of the related long-lived assets.
Shipping and Handling Costs
The Company distributes its products directly to its customers and shipping
and handling costs are considered Company selling expenses.
Collective Bargaining Agreements
Certain Company employees are subject to collective bargaining agreements. The
duration of these agreements extend from 2005 to 2006.
Reclassifications
Certain reclassifications have been made to prior year balances to conform to
the current year presentation.
Recently Issued Accounting Standards
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," which supercedes SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." SFAS No. 144 addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of and
is effective for fiscal years beginning after December 15, 2001. SFAS retains
certain fundamental provisions of SFAS No. 121 including recognition and
measurement of the impairment of long-lived assets to be held and used and
measurement of long-lived assets to be disposed of by sale. The Company is
presently assessing the effect of adopting SFAS No. 144.
Note 2 Investments and Derivative Instruments
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended by
Statements 137 and 138. The Statement requires the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative is a
hedge, depending on the nature of the hedge, changes in the fair value of
derivatives are either offset against the change in fair value of assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value is immediately
recognized in earnings. The adoption of SFAS No. 133, resulted in a cumulative
effect of an accounting change of $515,000 ($310,000 net of taxes) being
recognized in the Statement of Net Income, and a corresponding credit in other
comprehensive income.
The Company purchases various derivative instruments as investments or to
create economic hedges of its interest rate risk and commodity price
risk. At June 30, 2002 derivative instruments are not designated as accounting
hedges as defined by SFAS No. 133. The fair value of derivative instruments is
based upon broker quotes. The Company records unrealized gains and losses on
trading securities and changes in the market value of certain coffee contracts
meeting the definition of derivatives in other income and expense.
Investments, consisting of marketable debt and equity securities and money
market instruments, are held for trading purposes and are stated at fair value.
Gains and losses, both realized and unrealized, are included in other income
and expense. On July 1, 2000 the company transferred all of its investments
classified as "available for sale" at June 30, 2000 into the "trading"
category. Accordingly, the Company recognized the accumulated unrealized loss
of $3,894,000 in the consolidated statement of income.
Investments at June 30, are as follows:
(In thousands)
2002 2001
Trading securities at fair value
Corporate debt $18,863 $85,427
U.S. Treasury Obligations 184,756 61,267
U.S. Agency Obligations 26,983 31,958
Preferred Stock 48,873 46,254
Other fixed income 5,181 8,011
Futures, options and other derivatives 884 1,262
$285,540 $234,179
Note 3 Allowance for Doubtful Accounts
June 30,
(In thousands) 2002 2001 2000
Balance at beginning of year $395 $420 $470
Additions 218 346 280
Deductions (268) (371) (330)
Balance at end of year $345 $395 $420
Note 4 Inventories
June 30, 2002
(In thousands) Processed Unprocessed Total
Coffee $ 3,438 $10,393 $13,831
Allied products 12,482 5,116 17,598
Coffee brewing equipment 2,528 3,404 5,932
$18,448 $18,913 $37,361
June 30, 2001
(In thousands) Processed Unprocessed Total
Coffee $4,120 $8,752 $12,872
Allied products 13,847 3,980 17,827
Coffee brewing equipment 2,201 2,880 5,081
$20,168 $15,612 $35,780
Current cost of coffee and allied products inventories is (less than) or
greater than the LIFO cost by approximately $(491,000) and $1,553,000 as of
June 2002 and 2001, respectively.
The change in the Company's green coffee and allied product inventories during
fiscal 2002, 2001, and 2000 resulted in LIFO decrements which had the effect of
increasing income before taxes those years by $207,000, 1,283,000, and
$277,000, respectively.
Note 5 Property, Plant and Equipment
(In thousands)
June 30,
2002 2001
Buildings and facilities $40,914 $39,858
Machinery and equipment 48,690 48,999
Office furniture and equipment 6,055 6,280
95,659 95,137
Accumulated depreciation (62,950) (61,880)
Land 5,863 5,837
$38,572 $39,094
Maintenance and repairs charged to expense for the years ended June 30, 2002,
2001, and 2000 were $11,202,000, $10,514,000, and $10,596,000, respectively.
Note 6 Employee Benefit Plans
The Company has a contributory defined benefit pension plan for all employees
not covered under a collective bargaining agreement (Farmer Bros. Co. Plan) and
a non-contributory defined benefit pension plan (Brewmatic Co. Plan) for
certain hourly employees covered under a collective bargaining agreement. The
Company's funding policy is to contribute annually at a rate that is intended
to fund benefits as a level percentage of salary (non-bargaining) and as a
level dollar cost per participant (bargaining) over the working lifetime of the
plan participants. Benefit payments are determined under a final payment
formula (non-bargaining) and flat benefit formula (bargaining).
The Company sponsors defined benefit postretirement medical and dental plans
that cover non-union employees and retirees, and certain union locals. The
plan is contributory and retirees contributions are fixed at a current level.
The plan is not funded.
(In thousands) Defined Accrued
Benefit Pensions Postretirement
Benefits
June 30, June 30,
2002 2001 2002 2001
Changes in benefit obligation
Benefit obligation at
the beginning of the year $48,909 $42,461 $22,951 18,908
Service cost 1,527 1,338 670 646
Interest cost 3,684 3,446 1,721 1,539
Plan participants' contributions 160 146 117 71
Amendments 285 (907)
Actuarial loss 3,153 4,163 651 2,633
Benefits paid (2,602) (2,645) (869)
(846)
Benefit obligation at
the end of the year $55,116 $48,909 $24,335 $22,951
Changes in plan assets
Fair value in plan assets at
the beginning of the year $79,259 $77,337 $ - $ -
Actual return on plan assets (1,285) 4,401 - -
Company contributions 21 20 752 775
Plan participants' contributions 160 146 117 71
Benefits paid (2,602) (2,645) (869) (846)
Fair value in plan assets at
the end of the year $75,553 $79,259 $ - $ -
Funded status of the Plan $20,437 $30,350 ($24,335)($22,951)
Unrecognized net asset (657) (1,314) - -
Unrecognized net gain 1,062 (11,062) 17 2,784
Unrecognized prior service cost (88) 1,016 1,592 (633)
Prepaid accrued benefit cost $20,754 $18,990 ($22,726)($20,800)
Weighted average assumptions as
of June 30:
Discount rate 7.20% 7.70% 7.20% 7.70%
Expected return on Plan assets 8.00% 8.00% - -
Rate of compensation increase 3.50% 3.50% - -
Initial medical rate trend 11.00% 12.00%
Ultimate medical trend rate 5.50% 5.50%
Number of years from initial to ultimate trend rate 6 7
Initial dental/vision trend rate 7.50% 8.00%
Ultimate dental/vision trend rate 5.50% 5.50%
Defined Accrued
Benefit Pensions Postretirement Benefits
June 30, June 30,
2002 2001 2000 2002 2001 2000
Components of net periodic
benefit costs
Service cost $ 1,527 $1,338 $1,617 $ 670 $646 $ 661
Interest cost 3,684 3,446 3,252 1,721 1,539 1,290
Expected return on
Plan assets (6,267) (6,121) (6,191) - - -
Actuarial gain - - - - - (68)
Unrecognized net
transition asset (657) (657) (657) - - -
Unrecognized net gain (268) (840) (757) (94) -
Unrecognized prior
service cost 239 239 239 286 286 286
Benefit cost (1,742) ($2,595) ($2,497) $2,677 $2,377 $2,169
The assumed health care cost trend rate has a significant effect on the amounts
reported. A one-percentage point change in the assumed health care cost trend
rate would have the following effects:
Other Information 2002 2001
1% Increase in Trend Rates
Effect on service + interest cost $ 90 $131
Effect on APBO 897 751
1% Decrease in Trend Rates
Effect on service + interest cost (95) (140)
Effect on APBO (963) (806)
At June 30, 2002 and 2001, the Farmer Bros. Co. Plan benefit obligation was
$52,088,000 and $46,369,000, respectively, and the prepaid benefit cost was
$19,080,000 and $17,415,000, respectively. At June 30, 2002 and 2001, the
Brewmatic Company Plan benefit obligation was $3,028,000 and $2,540,000,
respectively, and the prepaid benefit cost was $1,674,000 and $1,574,000,
respectively.
The Farmer Bros. Co. Plan owned 39,940 shares of the Company's common stock at
June 30, 2002, with a fair value of approximately $14,489,000. The Brewmatic
Co. Plan owned 2,400 shares of the Company's common stock at June 30, 2002,
with a fair value of approximately $871,000. The Company paid dividends of
$136,000 and $8,000 for the year ended June 30, 2002 to the Farmer Bros. Co.
Plan and the Brewmatic Co. Plan, respectively.
The Company contributes to two multi-employer defined benefit plans for certain
union employees. The contributions to these multi-employer pension plans were
approximately $2,183,000, $2,144,000, and $2,005,000 for 2002, 2001, and 2000
respectively. The Company also has defined contribution plans for eligible
union and non-union employees. No Company contributions have been made nor are
required to be made to either defined contribution plan.
"Other long term liabilities" represents deferred compensation payable to a
company officer. The deferred compensation plan provides for deferred
compensation awards to earn interest based upon the Company's average rate of
return on its investments. Total deferred compensation expense amounted to
$595,000, $701,000, and $690,000 for the years ended June 30, 2002, 2001, and
2000, respectively.
Employee Stock Ownership Plan
On January 1, 2000, the Company established the Farmer Bros. Co. Employee Stock
Ownership Plan (ESOP) to provide benefits to all employees. The Board of
Directors authorized a loan of up to $50,000,000 to the ESOP to purchase up to
300,000 shares of Farmer Bros. Co. common stock secured by the stock purchased.
The loan will be repaid from the Company's discretionary plan contributions
over a fifteen year term at a variable rate of interest, 3.30% at June 30,
2002.
For the year ended June 30, 2000 the Company loaned the ESOP $14,136,000, which
the ESOP used to purchase 86,575 shares of the Company's common stock. For the
year ended June 30, 2001 the Company loaned the ESOP an additional $389,880,
which the ESOP used to purchase 2,200 shares of the Company's common stock. For
the year ended June 30, 2002 the Company loaned the ESOP $815,040, which was
used by the ESOP to purchase 3,800 shares of the Company's common stock.
Shares purchased with loan proceeds are held by the plan trustee for allocation
among participants as the loan is repaid. The unencumbered shares are
allocated to participants using a compensation-based formula. Subject to
vesting requirements, allocated shares are owned by participants and shares are
held by the plan trustee until the participant retires.
The Company reports compensation expense equal to the fair market price of
shares committed to be released to employees in the period in which they are
committed. The cost of shares purchased by the ESOP which have not been
committed to be released or allocated to participants are shown as a contra-
equity account "Unearned ESOP Shares" and are excluded from earnings per share
calculations. During the fiscal years ended June 30, 2002 and June 30, 2001
the Company charged $1,531,000 and $1,136,000 respectively, to compensation
expense related to the ESOP. The difference between cost and fair market value
of committed to be released shares, which was $998,000 and $270,000 for the
years ended June 30, 2002 and June 30, 2001, respectively, is recorded as
additional paid in capital.
June 30,
2002 2001
Allocated shares 16,083 6,673
Committed to be released share 3,636 2,939
Unallocated shares 74,003 79,163
Total ESOP Shares 93,722 88,775
Fair value of ESOP shares $34,000,000 $20,685,000
Note 7 Income Taxes
The current and deferred components of the provision for income taxes consist
of the following:
June 30,
(In thousands) 2002 2001 2000
Current: Federal $15,367 $17,607 $18,249
State 2,929 3,685 2,889
$18,296 21,292 21,138
Deferred: Federal 434 1,451 1,174
State 61 285 1,334
495 1,736 2,505
$18,791 $23,028 $23,643
A reconciliation of the provision for income taxes to the statutory federal
income tax expense is as follows:
June 30,
2002 2001 2000
Statutory tax rate 35.0% 35.0% 35.0%
Income tax expense at statutory rate $17,276 $20,831 $21,427
State income tax (net federal tax benefit) 1,943 2,552 2,809
Dividend income exclusion (767) (731) (660)
Other (net) 339 376 67
$18,791 $23,028 $23,643
Income taxes paid $17,881 $24,879 $22,622
The primary components of temporary differences which give rise to the
Company's net deferred tax assets are as follows:
(In thousands) June 30,
2002 2001
Deferred tax assets:
Postretirement benefits $ 8,938 $ 8,239
Accrued liabilities 4,426 4,364
State taxes 791 941
$14,155 $13,544
Deferred tax liabilities:
Pension assets $(7,877) $(7,236)
Other (2,418) (1,953)
(10,295) (9,189)
Net deferred tax assets $ 3,860 $ 4,355
Note 8 Other Current Liabilities
(In thousands)
Other current liabilities consist of the following:
June 30,
2002 2001
Accrued workers' compensation liabilities $3,119 $3,316
Dividends payable 1,637 1,541
Other 269 1,224
$5,025 $6,081
Note 9 Commitments and Contingencies
The Company incurred rent expense of approximately $736,000, $698,000, and
$700,000 for the fiscal years ended June 30, 2002, 2001, and 2000,
respectively, and is obligated under leases for branch warehouses. Certain
leases contain renewal options.
Future minimum lease payments are as follows:
June 30, (In thousands)
2003 $ 615
2004 449
2005 203
2006 89
2007 51
$1,407
The Company is a party to various pending legal and administrative proceedings.
It is management's opinion that the outcome of such proceedings will not have a
material impact on the Company's financial position, results of operations, or
cash flows.
Note 10 Quarterly Financial Data (Unaudited)
(In thousands except per share data)
September 30, December 31, March 31, June 30,
2001 2001 2002 2002
Net sales $49,400 $54,755 $51,298 $50,404
Gross profit 32,569 37,337 34,786 33,401
Income from operations 9,286 11,891 9,843 7,190
Net income 7,763 9,733 6,406 6,667
Net income per common share $4.21 $5.27 $3.47 $3.60
September 30, December 31, March 31, June 30,
2000 2000 2001 2001
Net sales $52,015 $57,795 $54,814 $50,807
Gross profit 32,303 38,631 36,413 34,053
Income from operations 9,458 14,764 11,882 6,011
Income before cumulative
effect adjustment 7,911 11,807 9,793 6,977
Net income 7,601 11,807 9,793 6,977
Income per common share before
cumulative effect
adjustment $4.30 $6.40 $5.32 $3.78
Net income per common share $4.13 $6.40 $5.32 $3.78
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors
Name Age Served as a Director Principal Occupation
Continuously Since for the Last Five Years
Roy F. Farmer (1) 86 1951 Chairman and Chief Executive Officer
Roy E. Farmer (1) 50 1993 President and Chief Operating Officer
Guenter W. Berger 65 1980 Vice President - Production
Lewis A. Coffman 83 1983 Retired (formerly Vice President - Sales)
John M. Anglin(2) 55 1985 Partner in Law Firm of Anglin, Flewelling,
Rasmussen, Campbell & Trytten, LLP, Pasadena,
California since 2002; partner in Law Firm
of Walker, Wright, Tyler and Ward, LLP,
Los Angeles, California, previously.
John H. Merrell 58 2001 Partner in Accounting Firm of Hutchinson
and Bloodgood LLP, Glendale, California
(1) Roy F. Farmer is the father of Roy E. Farmer.
(2) Anglin, Flewelling, Rasmussen, Campbell & Trytten LLP provides legal
services to the Company.
Executive Officers
Name Age Position Last Five Years
Roy F. Farmer 86 Chairman and Chief Executive Officer.
Roy E. Farmer 50 President and Chief Operating Officer,
son of CEO, R. F. Farmer.
Guenter W. Berger 65 Vice President of Production.
Kenneth R. Carson 62 Vice President of Sales.
John E. Simmons 51 Secretary-Treasurer since 2001; Treasurer since 1985.
All officers are elected annually by the Board of Directors and serve at the
pleasure of the Board.
Item 11. Executive Compensation
Summary Compensation Table
Annual Other
Name and Principal Fiscal Compensation Annual All Other
Position Year Salary Bonus(2) Compensation
Compensation(1)
ROY F. FARMER 2002 $1,000,000 $450,000 $ - $138,815 (3)
Chairman and CEO 2001 $1,000,000 $450,000 $ - $117,482 (3)
2000 $1,000,000 $500,000 $ - $104,721 (3)
ROY E. FARMER 2002 $325,730 $300,000 $ - $425
President and COO 2001 $309,000 $300,000 $ - $383
2000 $302,933 $250,000 $ - $343
GUENTER W. BERGER 2002 $238,113 $100,000 $ - $630
Vice President, 2001 $224,149 $100,000 $ - $570
Production 2000 $221,561 $100,000 $ - $520
KENNETH R. CARSON 2002 $208,544 $75,000 $ - $384
Vice President, Sales 2001 $197,080 $75,000 $ - $356
2000 $194,805 $75,000 $ - $331
JOHN E. SIMMONS 2002 $188,584 $75,000 $ - $148
Treasurer 2001 $178,849 $75,000 $ - $181
2000 $175,114 $75,000 $ - $166
(1) Except as stated in footnote (3) the amount shown represents the dollar
value of the benefit to the executive officer for the years shown under the
Company's executive life insurance plan.
(2) Awarded under the Company's Incentive Compensation Plan. The awards for
fiscal 2002 were based primarily upon the Company's earnings achieved that
year. Roy F. Farmer's award has been deferred until death or retirement.
The awards to the other officers were paid currently (See "Compensation
Committee Report," infra.).
(3) The amount shown for Roy F. Farmer represents P.S. 58 costs of the two
split-dollar life insurance policies purchased pursuant to the prior
employment agreement with Mr. Farmer which expired in 1998 plus the
dollar value of the benefit to him under the Company's executive life
insurance plan.
Pension Plan Table
Annualized Pension Compensation
for Highest 60 Consecutive Months Credited Years of Service
in Last Ten Years of Employment 20 25 30 35
$100,000 $30,000 $37,500 $45,000 $ 52,500
125,000 37,500 46,875 56,250 65,625
150,000 45,000 56,250 67,500 76,750
170,000 52,500 65,625 78,750 91,875
200,000 60,000 75,000 90,000 105,000
250,000 60,000 75,000 90,000 105,000
The above table shows estimated annual benefits payable for the 2002 plan year
under the Company's retirement plan upon retirement at age 62 to persons at
various average compensation levels and years of credited service based on a
straight life annuity. The retirement plan is a contributory defined benefit
plan covering all non-union Company employees. The following figures assume
that employee contributions (2% of annual gross earnings) are made throughout
the employees' first five years of service and are not withdrawn. After five
years of participation in the plan, employees make no further contributions.
Benefits under a predecessor plan are included in the following figures.
Maximum annual combined benefits under both plans generally cannot exceed the
lesser of $200,000 or the average of the employee's highest three years of
compensation.
The earnings of executive officers by which benefits in part are
measured consist of the amounts reportable under "Annual Compensation" in the
Summary Compensation Table less certain allowance items (none in 2001).
Credited years of service through December 31, 2001 were as follows:
Guenter W. Berger - 37 years; Roy E. Farmer - 25 years; Kenneth R. Carson -
36 years; John E. Simmons - 20 years. After 37 years of credited service,
Roy F. Farmer began receiving maximum benefits during fiscal 1988.
The above straight life annuity amounts are not subject to deductions
for Social Security or other offsets. Other payment options, one of which is
integrated with Social Security benefits, are available.
Compensation of Directors
Each director who is not a Company employee is paid an annual retainer fee
of $10,000 and the additional sum of $1,000 for each board meeting and
committee meeting (if not held in conjunction with a board meeting). A
director also will receive reimbursement of travel expenses from outside the
greater Los Angeles area to attend a meeting.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee (the "Committee") is comprised of John M.
Anglin, a director, Lewis A. Coffman, a director and retired executive
officer of the Company, and John H. Merrell, a director.
Compensation Committee Report
The Compensation Committee, comprised of Messrs. Anglin, Coffman and
Merrell, met once in fiscal 2002. The Compensation Committee makes all
determinations with respect to executive compensation and administers the
Company's Incentive Compensation Plan.
Compensation Philosophy and Objectives
The Committee believes that once base salaries of executive officers
are established at competitive levels, increases should generally reflect
cost of living changes and that individual performance should be rewarded by
bonuses or other incentive compensation awards. The Committee believes that
most of the officers will be incentivized to a greater degree by such a
program.
Chief Executive Officer Compensation
In 1999 the Committee obtained a competitive compensation study
prepared by Ernst & Young LLP relating to Roy F. Farmer's compensation. The
study concluded that the total direct compensation paid to CEO's of companies
deemed comparable by Ernst & Young LLP was in the range of $669,700 to
$1,444,000. The term "total direct compensation", as used in the Ernst &
Young LLP study, does not include retirement benefits (including pension
plans, 401(k) plans, deferred compensation plans and supplemental retirement
plans or split-dollar life insurance programs) typically provided to CEO's of
successful companies. The Committee determined that the retirement benefits
provided to Mr. Farmer were well below those provided to CEO's of comparable
companies.
The Committee determined that Roy F. Farmer's salary for the fiscal
year ended June 30, 2002, excluding the award under the Company's Incentive
Compensation Plan (see below), be $1,000,000. This represents no change from
fiscal 2001.
Incentive Compensation Plan
The Company made awards under its Incentive Compensation Plan (the
"Plan") for fiscal 2002 to all executive officers. The Committee felt that
awards were justified in light of the Company's performance in 2002.
Under the provisions of the Plan, a percentage of the Company's annual
pre-tax income is made available for cash or deferred awards. The percentage
varies from three percent of pre-tax income over $14 million to six percent
of pre-tax income of $24 million or more. Amounts available for awards but
not awarded are carried forward. The pool available for awards for fiscal
2002 under the Incentive Compensation Plan was in excess of $15 million. Of
the available pool, the Committee awarded a total of $1 million of which
$450,000 was awarded to Roy F. Farmer, the Company's Chief Executive Officer,
and $550,000 in toto was awarded to the other executive officers.
The award to Roy F. Farmer is payable in five annual installments
commencing upon retirement. The unpaid balance of the award is payable upon
death. Under the terms of the Plan, the unpaid balance of deferred awards is
increased by a growth factor keyed to the Company's average return on
invested funds. Under Plan provisions, the unpaid portion of deferred awards
is forfeited in the event the recipient engages in activities competitive
with the Company or is guilty of malfeasance.
In making the award to Roy F. Farmer, the Committee was motivated
primarily by the earnings achieved by the Company in 2002 and Mr. Farmer's
substantial contribution to those earnings.
John M. Anglin
Lewis A. Coffman
John H. Merrell
Performance Graph
Comparison of Five-Year Cumulative Total Return*
Farmer Brothers Co., Russell 2000 Index And Value
Line Food Processing Index
(Performance Results Through 6/30/02)
1997 1998 1999 2000 2001 2002
Farmer Brothers Co. 100.00 191.78 164.68 144.78 189.44 298.02
Russell 2000 Index 100.00 116.13 117.14 132.38 129.50 116.87
Food Processing 100.00 134.95 129.38 134.32 163.58 201.16
Assumes $100 invested at the close of trading 6/30/97 in Farmer Brothers
Co. common stock, Russell 2000 Index and Food Processing Index.
*Cumulative total return assumes reinvestment of dividends.
Source: Value Line, Inc.
Factual material is obtained from sources believed to be reliable, but the
publisher is not responsible for any errors or omissions contained herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Beneficial Ownership Reporting Compliance
The following are all persons known to management who beneficially own
more than 5% of the Company's common stock:
Amount and Nature Percent
Name and Address of of Beneficial of
Beneficial Owner Ownership (1) Class
Roy F. Farmer 835,071 shares (2) 43.35%
c/o Farmer Bros. Co.
20333 South Normandie Ave.
Torrance, California 90502
Catherine E. Crowe 203,430 shares (3) 10.56%
c/o Farmer Bros. Co.
20333 South Normandie Ave.
Torrance, California 90502
Franklin Mutual Advisers, LLC 184,688 shares (4) 9.59%
51 John F. Kennedy Parkway
Short Hills, NJ 07078
Attn: Bradley Takahashi
(1) Sole voting and investment power unless indicated otherwise in following
footnotes.
(2) Includes 171,041 shares owned outright by Mr. Farmer and his wife as
trustees of a revocable living trust, 662,121 shares held by various trusts
of which Mr. Farmer is sole trustee for the benefit of family members, 1,849
shares owned by his wife and 60 shares beneficially owned by Mr. Farmer through
the Company's Employee Stock Ownership Plan ("ESOP"), rounded to the nearest
whole share.
(3) Excludes 9,900 shares held by trusts for Mrs. Crowe's benefit. Mr.
Farmer is sole trustee of said trusts and said shares are included in his
reported holdings.
(4) According to a Schedule 13D/A filed with the Securities and Exchange
Commission dated September 19, 2002 by Franklin Mutual Advisers, LLC
("Franklin"), Franklin on that date beneficially owned 184,688 shares
(9.59%). Franklin is reported to have sole voting and investment power over
these shares pursuant to certain Investment Advisory contracts with one or
more record shareholders, which advisory clients are the record owners of the
184,688 shares.
(b) The following sets forth the beneficial ownership of the common stock
of the Company by each director and nominee, each executive officer named in
the Summary Compensation Table, and all directors and executive officers as a
group:
Number of Shares and Nature
Name of Beneficial Ownership (1) Percent of Class
Roy F. Farmer (See "Item 12(a)," supra)
Guenter W. Berger 560(2) *
Lewis A. Coffman 15(3) *
Roy E. Farmer 38,271(4) 1.99%
John M. Anglin None -
Kenneth R. Carson 310(5) *
John E. Simmons 422(6) *
John H. Merrell None -
All directors and exec
officers as a group (8 persons) 992,228(7) 51.51%
* Less than 1%.
(1) Sole voting and investment power unless indicated otherwise in following
footnotes.
(2) Held in trust with voting and investment power shared by Mr. Berger and
his wife, includes 60 shares beneficially owned by Mr. Berger through the
Company's ESOP, rounded to the nearest whole share. Excludes other shares
owned by Company benefit plans over which Mr. Berger has shared voting
and/or investment power as a member of the plan committees. Mr. Berger
disclaims beneficial ownership of such benefit plan shares. See footnote (7)
below.
(3) Voting and investment power shared with spouse.
(4) Includes 4,000 shares owned outright by Mr. Farmer, 34,211 shares held
by various trusts of which Mr. Farmer is sole trustee and 60 shares
beneficially owned by Mr. Farmer through the Company's ESOP, rounded to the
nearest whole share. Excludes 21,218 shares held in a trust of which Roy F.
Farmer is sole trustee (reported under Roy F. Farmer's name in Item 12(a),
supra) and of which Roy E. Farmer is the beneficiary. Excludes other shares
owned by Company benefit plans over which Mr. Farmer has shared voting
and/or investment power as a member of the plan committees. Mr. Farmer
disclaims beneficial ownership of such benefit plan shares. See footnote (7)
below.
(5) Includes 60 shares beneficially owned by Mr. Carson through the
Company's ESOP, rounded to the nearest whole share. Excludes other shares
owned by Company benefit plans over which Mr. Carson has shared voting
and/or investment power as a member of the plan committees. Mr. Carson
disclaims beneficial ownership of such benefit plan shares. See footnote (7)
below.
(6) Voting and investment power shared with spouse, includes 60 shares
beneficially owned by Mr. Simmons through the Company's ESOP, rounded to the
nearest whole share. Excludes other shares owned by Company benefit plans
over which Mr. Simmons has shared voting and/or investment power as a member
of the plan committees. Mr. Simmons disclaims beneficial ownership of
such benefit plan shares. See footnote (7) below.
(7) Includes 77,639 unallocated shares held by the Company's ESOP and 39,940
shares held by the Farmer Bros Co. Plan (pension) over which officers,
as members of the plan committees, have direct or indirect voting and
investment power. Excludes 16,083 allocated shares held by the Company's
ESOP over which plan committee members have voting rights only if the
participants fail to vote.
Item 13. Certain Relationships and Related Transactions
Reference is made to the information set forth in Items 10 and 11 of
this Form 10-K Annual Report.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 10-K.
(a) List of Financial Statements and Financial Statement Schedules:
1. Financial Statements included in Item 8:
Consolidated Balance Sheets as of June 30, 2002 and 2001.
Consolidated Statements of Income for the Years Ended
June 30, 2002, 2001 and 2000.
Consolidated Statements of Cash Flows for the Years Ended
June 30, 2002, 2001 and 2000.
Consolidated Statements of Shareholders' Equity For the Years
Ended June 30, 2002, 2001, and 2000.
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules: Financial Statement Schedules
are omitted as they are not applicable, of the required information
is given in the consolidated financial statements of notes thereto.
(b) No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
(c) Exhibits
(3)(i) Amended and Restated Articles of Incorporation filed January 29, 2002.
(3)(ii) By-Laws: Registrant's bylaws as amended are incorporated by reference
to Registrant's report on Form 10-K/A filed February 15, 2002.
(10) Material contracts:
10.1 The Farmer Bros. Co. Pension Plan for Salaried Employees: filed
herewith.
10.2 The Farmer Bros. Co. Incentive Compensation Plan: filed herewith.
10.3 The Farmer Bros. Co. Employee Stock Ownership Plan: filed herewith.
(21) Subsidiaries of the Registrant:
Subsidiary information filed herewith.
(99) Additional Exhibits.
Property information filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FARMER BROS. CO.
By: /s/ Roy F. Farmer
Roy F. Farmer, Chief Executive Officer and Director
Date: September 25, 2002
By: /s/ John E. Simmons
John E. Simmons, Treasurer and Chief Financial and Accounting Officer
Date: September 25, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Roy E. Farmer
Roy E. Farmer, President and Director
Date: September 25, 2002
/s/ John M. Anglin
John M. Anglin, Director
Date: September 25, 2002
/s/ Guenter W. Berger
Guenter W. Berger, Vice President and Director
Date: September 25, 2002
CERTIFICATIONS
I, Roy F. Farmer, certify that:
1. I have reviewed this annual report on Form 10-K of Farmer Bros. Co.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
/s/ Roy F. Farmer
____________________________
Roy F. Farmer, Chief Executive Officer
Dated: September 25, 2002.
I, John E. Simmons, certify that:
1. I have reviewed this annual report on Form 10-K of Farmer Bros. Co.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
/s/ John E. Simmons
____________________________
John E. Simmons, Chief Financial Officer
Dated: September 25, 2002.
FARMER BROS. CO. INCENTIVE COMPENSATION PLAN 1. Purpose. The purpose of this Plan is to further the Company's profitability by providing an incentive and reward to key management employees of the Company who through industry, ability and exceptional service contribute materially to the success of the Company and by enhancing the Company's ability to attract and retain in its employ key personnel upon whose efforts the success of the Company is dependent. 2. Definitions. As used in this Plan, the following terms shall have the following meanings: (a) "Plan" means this Farmer Bros. Co. Incentive Compensation Plan, as it may be amended from time to time. (b) "Company means Farmer Bros. Co., a California corporation, and includes the Company's subsidiaries and divisions. (c) "Board of Directors" or "Board" means the Board of Directors of Farmer Bros. Co. (d) "Committee" means the Compensation Committee of the Board of Directors established pursuant to section 7 of the Plan. (e) "Fiscal Year" means the year selected by the Company for income taxation and financial reporting purposes. (f) "Employee" or "Eligible Employee" means any officer or other key management employee of the Company who is in the employ of the Company at the end of a Fiscal Year or whose employment by the Company is terminated prior to the end of a Fiscal Year by reason of death, disability or retirement. No member of the Committee shall be an Eligible Employee while serving on the Committee or for a period of one year thereafter. (g) "Participant" means an Eligible Employee to whom an award is made under this Plan. (h) "Current Award" means an award payable during the Fiscal Year in which the award is made pursuant to section 5 (a) of the Plan. (i) "Deferred Award" means an award payable during one or more Fiscal Years after the award is made pursuant to section 5(b) of the Plan. 3. Amount Subject to Awards. The amount available for awards under this Plan in any Fiscal Year shall be (a) the sum of the following percentages of the Company's adjusted net income for the preceding Fiscal Year: Adjusted Net Income Percent $14 million through $17,999,000 Three percent (3%) $18 million through $23,999,999 Four percent (4%) $24 million and up Six percent (6%) * * plus * * (b) the cumulative amount of funds which were available for awards in prior Fiscal Years which have not been awarded; plus (c) the amount of any Deferred Awards forfeited during the preceding Fiscal Year. As used in this section 3, the phrase "adjusted net income" means the consolidated net income of the Company determined in accordance with generally accepted accounting principles before provision for federal, state, local, or foreign taxes measured, in whole or in part, by the Company's income, except that all items of non-recurring or other extraordinary gain or loss shall be excluded, and any amounts charged against income for the Fiscal Year in question for awards made under this Plan during that or any prior Fiscal Year shall be added back to income. Adjusted net income shall be determined by the Company's independent public accountants whose determination in that regard shall be conclusive and binding. 4. Awards. Based on its evaluation of an Employee's performance, contribution to the Company, compensation, and other criteria it deems relevant, the Committee shall determine in its sole discretion the Employees to whom awards are to be made, the amount of the award to be made to each Participant, whether such award is to be in whole or in part a Current Award or Deferred Award, and, subject to the provisions of the Plan, the time and manner of payment of the award. At the time of making an award, the Committee shall deliver to the Participant a written notice of award stating the amount of the award and the time and manner of making payment. 5. Payment of Awards (a) Current Awards. Current Awards of $10,000 or less shall be paid within (60) days after the award is made. Current awards in excess of $10,000 shall be paid either in lump sum or in such installments, without interest, during the Fiscal Year in which the award is made as the Committee shall determine in its sole discretion. Current Awards become vested at the time the award is made and are not subject to forfeiture. (b) Deferred Awards. Deferred Awards shall be paid either in lump sum or in installments at such time or times as the Committee shall determine in its sold discretion. (i) Altering Time and Method of Payment. Notwithstanding anything to the contrary in the Plan, upon written notice to the Participant from time to time, the Committee in its sole discretion may alter the time and manner in which a Deferred Award shall be paid. Without limiting the Committee's authority under the preceding sentence, the Committee may cause a Deferred Award previously payable in installments to become payable in lump sum or in installments over a shorter or longer time and may cause a Deferred Award previously payable in a lump sum to be payable in lump sum at an earlier or later date or in installments. However, if the Participant has died or become disabled, the Committee shall not alter the manner or time of payment so as to defer further or reduce the amount of any payment to which the Participant or his heirs or devisees would have been entitled otherwise without the written consent of the Participant or his heirs or devisees, as the case may be. (ii) Adjustment of Amount of Deferred Award. As of the end of each Fiscal Year, the unpaid portion of a Deferred Award shall be increased by a percentage equal to the Company's average rate of return during said Fiscal Year on invested funds, or if none, the prime lending rate of Bank of America at Los Angeles, California, as of the last day of said Fiscal Year. If the Deferred Award is payable in installments, the amount of the increase shall be allocated proportionately among the installments remaining to be paid. (iii) Forfeiture of Deferred Awards. The right of a Participant to receive future payments of Deferred Awards shall be forfeited upon the termination of the Participant's employment by the Company for malfeasance or in the event the Participant shall enter into a business or employment which the Committee determines to be detrimentally competitive with the business of the Company. 6. Designation of Beneficiaries. Each Participant shall file with the Committee a written designation of the person or persons who shall be entitled to receive any amounts payable under this Plan after the Participant's death. The Participant may designate natural persons, charitable institutions, trusts, or the Participant's estate as beneficiaries. A Participant may name one or more contingent beneficiaries. Unless otherwise designated by a Participant, payments shall be divided equally among co- beneficiaries. A Participant may from time to time revoke or change a beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant's death, and in no event shall it be effective as of a date prior to such receipt. If no such beneficiary designation is in effect at the time of a Participant's death, or if no designated beneficiary survives the Participant, or if such designation conflicts with law, the payment of the amount, if any, payable under the Plan after his death shall be made to the Participant's estate. If the Committee is in doubt as to the right of any person to receive such amount, the Committee may retain such amount, without liability for any interest thereon, until the rights thereon are determined, or the Committee may pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan, the Company and the Committee therefor. 7. Administration. The Plan shall be administered by a Committee of the Board of Directors. The Committee shall have full power and authority to construe, interpret and administer the Plan. All decisions, actions or interpretations of the Committee shall be final, conclusive and binding upon all parties unless overruled by the Board of Directors. The Committee shall consist of two or more members, each of whom shall be appointed by, shall remain in office at the will of, and may be removed, with or with cause by the Board of Directors. Any member of the Committee may resign at any time. No member of the Committee shall be entitled to act on or decide any matter relating solely to himself or any of his rights or benefits under the Plan. No member of the Committee shall be entitled to receive an award under this Plan while serving on the Committee or within one year thereafter. The members of the Committee shall not receive any special compensation for serving in their capacities as members of the Committee. No bond or other security need be required of the Committee or any member thereof in any jurisdiction. The procedures for the proceedings of the Committee shall be established by resolution of the Board of Directors. No member of the Committee shall be personally liable by reason of any contract or other instrument executed by him or his behalf in his capacity as a member of the Committee nor for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other officer, employee or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated, to the fullest extent permissible under the California General Corporation Law. 8. Amendment or Termination. The Board of Directors reserves the right at any time to amend, suspend, or terminate the Plan in whole or in part and for any reason without the consent of any Participant or beneficiary; provided that no such action shall adversely affect the rights of Participants or beneficiaries with respect to Awards made prior to such action. Subject to the foregoing provision, any amendment, modification, suspension, or termination of any provisions of the Plan may be retroactively. 9. General Provisions. Nothing contained in the Plan shall give any Employee the right to be retained in the employ of the Company or affect the right of the Company to dismiss any Employee. The adoption of the Plan shall not create a right in any Employee to receive an award under the Plan. No award under the Plan shall be considered as compensation under any employee benefit plan of the Company except as otherwise determined by the Committee. If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, or is under any other disability, then any payment due him (unless a prior claim therefore has been made by a duly appointed legal representative), may, if the Committee so directs the Company, be paid to his spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Plan, the Company, and the Committee therefor. Except insofar as may otherwise be required by law, no amount payable at any time under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge, or encumbrance of any kind nor in any manner be subject to the debts or liabilities of any person and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void. If any person shall attempt to, or shall, alienate, sell, transfer, assign, pledge, attach, charge, or otherwise encumber any amount payable under the Plan, or any part thereof, or if by reason of his bankruptcy or other event happening at any such time such amount would be made subject to his debts or liabilities or would otherwise not be enjoyed by him, then the Committee, if it so elects, may director that such amount be withheld and that the same or any part thereof be paid or applied to or for the benefit of such person, his spouse, children or other dependents, or any of them, in such manner and proportion as the Committee may deem proper. The Participant shall have no right, title or interest whatsoever in or to any investments which the Company may make to aid it in meeting its obligations hereunder. Nothing contained in the Plan, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, joint venture or partnership between the Company and the Employee or any other person. To the extent that any person acquires a right to receive payments from the Company under this Plan, such right shall be no greater than the right of an unsecured general creditor of the Company. All payments to be made hereunder shall be paid in cash from the general funds of the Company and no special or separate fund shall be established and no segregation of assets shall be made to assure payments of such amounts. All Deferred Awards under the Plan constitute unfounded deferred compensation arrangements for a select group of key management personnel and all rights thereunder shall be governed by and construed in accordance with the laws of California. The Committee shall make such adjustments as it deems equitable in the even the Company changes its fiscal year. 10. Effective Date of the Plan. The effective date of the Plan is February 5, 1982. No awards under the Plan shall be made for the year ended June 30, 1981, but nothing contained herein shall be construed as preventing the Board from paying other cash bonuses during the year ending June 30, 1982 or in any subsequent year.
FARMER BROS. CO. RETIREMENT PLAN
Amendment and Restatement
Effective January 1, 2001
TABLE OF CONTENTS
Page
Article 1. Definitions 1
1.01 Accrued Pension 1
1.02 Accrued Pension Derived from Employer Contributions 1
1.03 Accrued Pension Derived from Participant Contributions 1
1.04 Accumulated Contributions 1
1.05 Actuarial Equivalent 2
1.06 Administrative Committee 2
1.07 Affiliated Employer 3
1.08 Alternate Accrued Pension Derived from Participant
Contributions 3
1.09 Annuity Starting Date 3
1.10 Beneficiary 3
1.11 Benefit Service 4
1.12 Board of Directors 6
1.13 Break in Service 6
1.14 Code 6
1.15 Company 6
1.16 Compensation 6
1.17 Determination Date 7
1.18 Disability or Disabled 7
1.19 Early Retirement Date 8
1.20 Effective Date 8
1.21 Eligible Employee 8
1.22 Employee 8
1.23 Employer 9
1.24 Enrollment Date 9
1.25 ERISA 9
1.26 Final Average Compensation 9
1.27 Highly Compensated Employee 10
1.28 Hour of Service 11
1.29 IRS Interest Rate 12
1.30 IRS Mortality Table 12
1.31 Investment Manager 12
1.32 Leased Employee 13
1.33 Leave of Absence 13
1.34 Maximum Compensation Limitation 13
1.35 Normal Retirement Age 14
1.36 Normal Retirement Date 14
1.37 Parental Leave 14
1.38 Participant 15
Article 1. Definitions (Continued)
1.39 Participant Contributions 15
1.40 Pension 15
1.41 Plan 15
1.42 Plan Year 15
1.43 Postponed Retirement Date 15
1.44 Qualified Domestic Relations Order 15
1.45 Qualified Joint and Survivor Annuity 16
1.46 Residual Accrued Pension Derived from Participant
Contributions 16
1.47 Retirement Date 16
1.48 Section 203(a)(3)(B) Service 16
1.49 Section 417 Interest Rate 16
1.50 Severance from Service Date 16
1.51 Spousal Consent 17
1.52 Spouse 17
1.53 Stability Period 17
1.54 Trust 17
1.55 Trustee 17
1.56 Year of Eligibility Service 17
1.57 Year of Vesting Service 18
1.58 Union Employee 18
Article 2. Eligibility and Participation 19
2.01 Eligibility 19
2.02 Participation 19
2.03 Reemployment of Former Employees and Former Participants 19
2.04 Transferred Participants 20
2.05 Termination of Participation 20
Article 3. Contributions 21
3.01 Participant Contributions 21
3.02 Suspension of Participation 21
3.03 In-Service Withdrawal of Accumulated Contributions 22
3.04 Employer Contributions 22
3.05 Plan-to-Plan Transfers / Rollover Contributions 22
3.06 Return of Contributions 22
3.07 Contributions during Period of Service in the Uniformed
Services of the United States 23
Article 4. Termination of Employment Prior to Retirement 25
4.01 Amount of Vested Interest 25
4.02 Distribution of Vested Interest 25
4.03 Repayment of Participant Contributions 28
Article 5. Eligibility for and Amount of Pension Benefits 29
5.01 Normal Retirement 29
5.02 Postponed Retirement 31
5.03 Early Retirement 34
5.04 Disability Retirement 34
5.05 Termination With Vesting 36
5.06 Adjustments to Pensions in Pay Status 36
5.07 Suspension of Benefits 37
5.08 Nonduplication of Benefits 39
Article 6. Restrictions on Benefits and Payments 40
6.01 Maximum Annual Benefit Limitation and Maximum Annual
Additions Limitation 40
6.02 Top-Heavy Provisions 41
6.03 Limitation Concerning Highly Compensated Employees or
Former Highly Compensated Employees 41
Article 7. Form of Payment of Pension Benefits 42
7.01 Normal Form of Payment 42
7.02 Automatic Form of Payment 42
7.03 Optional Forms of Payment 43
7.04 Election of Options 46
7.05 Method of Payment for Eligible Rollover Distributions 49
7.06 Commencement of Payments 50
Article 8. Death Benefits 54
8.01 Spouse's Pension 54
8.02 Children's Pension 56
8.03 Death Benefits Payable to Participant's Estate 57
8.04 Accumulated Contributions 58
Article 9. Administration of the Plan 59
9.01 Appointment of Administrative Committee 59
9.02 Duties of Administrative Committee 59
9.03 Meetings 59
9.04 Action of Majority 60
9.05 Compensation and Bonding 60
9.06 Establishment of Rules 60
9.07 Manner of Administering 60
9.08 Prudent Conduct 61
9.09 Service In More Than One Fiduciary Capacity 61
9.10 Limitation of Liability 61
9.11 Indemnification 61
9.12 Expenses of Administration 62
9.13 Claims and Review Procedures 62
Article 10. Management of Funds 65
10.01 The Trustee 65
10.02 Exclusive Benefit Rule 65
10.03 Appointment of Investment Manager 65
Article 11. Amendment, Merger and Termination 66
11.01 Amendment of the Plan 66
11.02 Merger or Consolidation 66
11.03 Additional Participating Employers 66
11.04 Termination of the Plan 67
Article 12. General Provisions 68
12.01 Nonalienation; Qualified Domestic Relations Orders 68
12.02 Conditions of Employment Not Affected by Plan 68
12.03 Facility of Payment 68
12.04 Information 69
12.05 (Reserved) 70
12.06 Proof of Death and Right of Beneficiary or Other Person 70
12.07 Failure to Locate Recipient 70
12.08 Action by the Board of Directors 70
12.09 Construction 71
Appendix A. Maximum Annual Benefit Limitation and Maximum Annual
Additions Limitation 72
A.01 Definitions 72
A.02 Adjustments to Maximum Annual Benefit Limitation 76
A.03 Maximum Annual Additions Limitation 79
A.04 Participant in a Defined Contribution Plan 80
A.05 Preservation of Current Accrued Pension 80
Appendix B. Top-Heavy Provisions 82
B.01 General Definitions 82
B.02 Top-Heavy Definition 84
B.03 Provisions Applicable When The Plan Is Top-Heavy 84
Appendix C. Limitation Concerning Highly Compensated Employees or
Former Highly Compensated Employees (Effective
January 1, 1994) 87
C.01 Restrictions 87
C.02 Limitation on Restrictions 87
Appendix D. Limitation Concerning Highly Compensated Employees or
Former Highly Compensated Employees (Effective January 1,
1989, Through December 31, 1993) 89
PREAMBLE TO
FARMER BROS. CO. RETIREMENT PLAN
The Farmer Bros. Co. Retirement Plan (the "Plan") was originally adopted,
effective July 1, 1964, by Farmer Bros. Co. for the benefit of its employees.
The Plan was subsequently amended on various occasions, and restated
effective January 1, 1982 (the "Prior Plan").
This document constitutes the terms of the Plan, as amended and restated
effective January 1, 1989, except as otherwise provided herein. This
document incorporates Amendment 1 through Amendment 6 to the Prior Plan. In
addition, it is intended that this document include all additional amendments
necessary for the Plan to remain qualified under Section 401(a) of the
Internal Revenue Code of 1986, as amended by the Tax Reform Act of 1986, the
Omnibus Budget Reconciliation Act of 1986, the Omnibus Budget Reconciliation
Act of 1987, the Technical and Miscellaneous Revenue Act of 1988, the Omnibus
Budget Reconciliation Act of 1989, the Unemployment Compensation Amendments
of 1992, and the Omnibus Budget Reconciliation Act of 1993.
Effective January 1, 2001, except as stated herein, the Plan is hereby
amended and restated in its entirety to comply with the following acts of
legislation known collectively as GUST:
General Agreement on Tariffs and Trade enacted in 1994 [also known as
the
Uruguay Round Agreements Act] (GATT)
Uniformed Services Employment and Reemployment Rights Act of 1994
(USERRA)
Small Business Job Protection Act of 1996 (SBJPA '96)
Taxpayer Relief Act of 1997 (TRA '97)
Article 1. Definitions
The following words and phrases, when used in the Plan with an initial
capital letter, shall have the following meanings, unless the context clearly
indicates otherwise:
1.01 "Accrued Pension" means, as of any Determination Date, the normal
retirement Pension, payable commencing on the Participant's Normal
Retirement Date, or immediately if the Participant has already attained
his Normal Retirement Age, computed under Section 5.01(b) on the basis
of the Participant's Final Average Compensation and Benefit Service to
the Determination Date.
1.02 "Accrued Pension Derived from Employer Contributions" means, as of any
Determination Date, the excess, if any, of a Participant's Accrued
Pension over his Accrued Pension Derived from Participant
Contributions.
1.03 "Accrued Pension Derived from Participant Contributions" means the
portion of a Participant's Accrued Pension payable at age 65, or
current age if later than age 65, funded with his Accumulated
Contributions. The Accrued Pension Derived from Participant
Contributions shall be equal to the Actuarial Equivalent of the
Participant's Accumulated Contributions, credited with interest,
compounded annually at the IRS Interest Rate (the Section 417 Interest
Rate prior to January 1, 2000) for the period beginning on the
Determination Date and ending on the later of the Participant's Normal
Retirement Age or Annuity Starting Date, expressed as an annual benefit
payable at age 65, or current age if later than age 65, in the form
described in Section 7.01.
1.04 "Accumulated Contributions" means, with respect to a Participant, his
Participant Contributions credited with interest, compounded annually
at the rate of:
(a) 3% per annum through December 31, 1975;
(b) 5% per annum for the period beginning January 1, 1976, and ending
December 31, 1987; and
(c) 120% of the Federal mid-term rate (as in effect under
Section 1274 of the Code for the first month of the applicable
Plan Year) for the period beginning January 1, 1988, and ending
on the Determination Date.
1.05 "Actuarial Equivalent" means the equivalent, payable in an alternate
form or at an alternate time, of a benefit payable in a normal form
under the Plan as described in Section 7.01. Such equivalent shall
generally be calculated based on a rate of interest of 6.5, utilizing
the 1971 Group Annuity Mortality Table for Males.
With respect to the calculation of lump sum payments in accordance with
Section 4.02(e), 7.02(b), 7.03(a)(iii) and 12.01(b), the interest rate
utilized prior to January 1, 2000 shall be the lesser of 6.5% or the
Section 417 Interest Rate.
Notwithstanding the above, for the purpose of determining lump sums on
and after January 1, 2000 and ending on the date this Plan is adopted,
Actuarial Equivalent shall be based on one of the following assumptions,
whichever produces the greater benefit:
(a) The IRS Interest Rate and the IRS Mortality Table.
(b) The 1971 Group Annuity Mortality Table for Males and an interest
rate equal to the lesser of (a) 6.5% or (b) the Section 417
Interest Rate.
For lump sum payments determined after the date this Plan is adopted,
Actuarial Equivalent shall be based on one of the following assumptions,
whichever produces the greater benefit:
(a) The IRS Interest Rate and the IRS Mortality Table.
(b) The 1971 Group Annuity Mortality Table for Males and an interest
rate equal to 6.5%.
1.06 "Administrative Committee" means the committee appointed pursuant to
Article 9.
1.07 "Affiliated Employer" means any company not participating in the Plan
which is a member of a controlled group of corporations (as defined in
Section 414(b) of the Code) with the Employer; any trade or business
under common control (as defined in Section 414(c) of the Code) with
the Employer; any organization (whether or not incorporated) which is a
member of an affiliated service group (as defined in Section 414(m) of
the Code) which includes the Employer; and any other entity required to
be aggregated with the Employer pursuant to regulations under
Section 414(o) of the Code. Notwithstanding the foregoing, for
purposes of Sections 1.30(b) and 6.01, the definitions in
Sections 414(b) and 414(c) of the Code shall be modified as provided in
Section 415(h) of the Code.
1.08 "Alternate Accrued Pension Derived from Participant Contributions" is
equal to the Participant's Accumulated Contributions divided by 10, or
an actuarially equivalent factor in the event the Participant's Annuity
Starting Date is later than his Normal Retirement Age. Notwithstanding
the foregoing, the Participant's Alternate Accrued Pension Derived from
Participant Contributions shall not exceed his Accrued Pension Derived
from Participant Contributions.
1.09 "Annuity Starting Date" means, with respect to a Participant, the
applicable of:
(a) The first day of the first period for which an amount is payable
as an annuity under the Plan, or
(b) Where the benefit is not payable in the form of an annuity, the
first day on which all events have occurred which entitle the
Participant to his benefit under the Plan.
1.10 "Beneficiary" means any person, persons or entity named by a
Participant by written designation filed with the Administrative
Committee to receive benefits payable in the event of the Participant's
death. However, if the Participant is married, his Spouse shall be
deemed to be the Beneficiary unless or until he elects another
Beneficiary by a written designation filed with the Administrative
Committee. Any such designation shall not be effective without Spousal
Consent. If no such designation is in effect at the time of death of
the Participant, or if no person, persons or entity so designated shall
survive the Participant, the Participant's estate shall be deemed to be
the Beneficiary.
1.11 "Benefit Service" means, with respect to any Participant, the period
beginning on the Participant's Enrollment Date and ending on his
Severance from Service Date, subject to the following:
(a) Prior to July 1, 1964, Benefit Service shall not be credited:
(i) Until the later of the date the Participant (A) attains
age 35, or (B) completes one Year of Eligibility Service;
(ii) For any period credited for retirement benefits under any
other pension plan to which the Employer contributes; and
(iii) Unless the Participant elects to become a participant as of
the date he is first eligible to do so.
(b) If the Participant is absent from the service of the Employer or
an Affiliated Employer because of service in the uniformed
services of the United States and if the Participant returns to
the service of the Employer or an Affiliated Employer, having
applied to return while his reemployment rights were protected by
law, and makes all Participant Contributions as required under
Plan Section 3.07, that absence shall be included in his Benefit
Service;
(c) If the Participant is on a Leave of Absence approved by the
Employer under rules uniformly applicable to all Employees
similarly situated, the Employer may authorize the inclusion in
his Benefit Service of any portion of that period of leave;
(d) Service during a period in which a Participant fails to make the
contributions required under Section 3.01 shall not count as
Benefit Service hereunder;
(e) Service with any other company which has been or may later be
acquired by the Employer or an Affiliated Employer shall count
only as required by law or as may be determined by the Company;
(f) With respect to the month that includes the Participant's
Enrollment Date, a Participant shall be credited with one full
month of Benefit Service if the Participant's Enrollment Date is
on or before the 15th day of the month; with respect to the month
that includes the Participant's Severance from Service Date, a
Participant shall be credited with one full month of Benefit
Service if the Participant's Severance from Service Date is on or
after the 15th day of the month; otherwise partial months of
Benefit Service shall be disregarded; and
(g) Service with the Employer or an Affiliated Employer on and after
July 1, 1964, while the Employee is a Union Employee shall count
provided that:
(i) The Employee is credited with an Hour of Service on or after
January 1, 1995, or is on an approved Leave of Absence as of
January 1, 1995;
(ii) The Employee makes Participant Contributions during the 60
months required by Section 3.01;
(iii) The Employee does not terminate his employment with the
Employer and all Affiliated Employers prior to the date the
Employee reaches his earliest Early Retirement Date; and
(iv) The Employee provides the Administrative Committee with the
information it deems necessary to determine the amount of any
pension payable to the Employee under the terms of a defined
benefit pension plan to which the Employer contributes,
directly or indirectly, to the extent that such pension is
based on a period of employment with the Employer for which
the Employee receives credit for Pension benefits under this
Section 1.11(g); and
(h) If the Participant incurs a Break in Service, and he is
subsequently rehired, the Participant's Benefit Service accrued
after reemployment shall be aggregated with his Benefit Service
accrued prior to the Break in Service only if (i) the Participant
was vested in his Accrued Pension Derived from Employer
Contributions, or (ii) (A) the Participant's consecutive one-year
Breaks in Service do not equal or exceed the greater of five
years or his Years of Vesting Service before the Break in
Service, and (B) the Participant is credited with at least one
Year of Vesting Service after his Break in Service. If the
Participant's Break in Service ended prior to January 1, 1985, or
if he had a Break in Service on December 31, 1984, and the number
of his consecutive one-year Breaks in Service as of that date
exceeded his Years of Vesting Service under the Plan provisions
then in effect, then his previously accrued Benefit Service shall
be excluded.
1.12 "Board of Directors" means the Board of Directors of the Company.
1.13 "Break in Service" means any Plan Year in which an Employee completes
less than 501 Hours of Service. A Break in Service shall not occur
during a layoff that is less than one year in duration, or an approved
Leave of Absence or a period of military service which is included in a
Participant's Benefit Service pursuant to Sections 1.11(b) and (c).
1.14 "Code" means the Internal Revenue Code of 1986, as it may be amended
from time to time.
1.15 "Company" means Farmer Bros. Co., and any successor by merger, purchase
or otherwise, with respect to its employees.
1.16 "Compensation" means wages as defined in Section 3401(a) of the Code
(for purposes of income tax withholding at the source), but determined
without regard to any rules under Section 3401(a) of the Code that
limit the remuneration included in wages based on the nature or
location of the employment or the services performed (e.g., the
exception for agricultural labor in Section 3401(a)(2)). However, for
purposes of the Plan, Compensation shall:
(a) Include any salary deferral reductions pursuant to Section 401(k)
of the Code or pursuant to a cafeteria plan as described in
Section 125 of the Code;
(b) Exclude any imputed income for auto allowances or company-paid
life insurance for the Participant (including amounts for which
the Employer or Affiliated Employer is required to furnish a
written statement pursuant to Section 6052 of the Code); and
(c) Not exceed the Maximum Compensation Limitation.
Prior to January 1, 1972, Compensation means the compensation paid to a
Participant by the Employer for services performed, but excluding
overtime pay, premium pay, commissions, bonuses, any benefits received
under the Employer's salary continuation plans, and travel expense and
other allowances.
1.17 "Determination Date" means the date as of which an Accrued Pension or
other benefit is calculated.
1.18 "Disability" or "Disabled" means the total and permanent incapacity, as
determined by the Administrative Committee based upon competent medical
advice, of the Employee to engage in any occupation or perform any work
for remuneration or profit by reason of any medically determinable
injury, disease or mental impairment. In determining whether or not a
Participant is and continues to be Disabled, the Administrative
Committee may at any reasonable time require the Participant to submit
to an examination by one or more physicians approved by the
Administrative Committee. If the Participant refuses to submit to such
examination, the Participant shall be deemed, for purposes of the Plan,
to have recovered from his Disability.
Notwithstanding the foregoing, an Employee shall not be considered
Disabled if the injury or disease (a) resulted from or consists of
habitual drunkenness or addiction to narcotics, (b) was contracted,
suffered or incurred while the Employee was engaged in, or resulted
from his having engaged in, a criminal enterprise, (c) was
intentionally self-inflicted, (d) arose while the Employee was absent
without leave or layoff, (e) arose out of service in the armed forces
of any country, or (f) arose as a result of or while engaged in his own
business or in working for an employer other than the Employer.
1.19 "Early Retirement Date" means the first day of the calendar month on or
immediately after the later of the date the Participant attains age 55
or completes five years of Benefit Service.
1.20 "Effective Date" means July 1, 1964.
1.21 "Eligible Employee" means an Employee other than:
(a) An Employee who is included in a unit of employees covered by a
collective bargaining agreement between employee representatives
and the Employer if there is evidence that retirement benefits
were the subject of good faith bargaining and the agreement does
not provide for such Employee's participation in the Plan,
(b) An Employee who is a nonresident alien and receives no United
States source income,
(c) A Leased Employee, and
(d) An Employee who is employed in a division, unit, facility or
class of Employees whom the Employer has determined in writing
not to be covered by the terms of the Plan.
1.22 "Employee" means an individual employed by the Employer who meets the
following requirements:
(a) the Employer withholds income tax on any portion of his or her
income and Social Security contributions are made for him or her
by the Employer, and
(b) such individual is determined by the Employer to be an Employee,
for purposes of the Employer's payroll records.
"Employee" does not include a "Leased Employee," as defined in Code
Section 414(n)(2). Only individuals who are paid as employees from an
Employer payroll and are treated by the Employer as Employees will be
considered Employees for purposes of the plan. Any individual who is
treated as an independent contractor by the Employer is not an
Employee. Also, an individual who renders services to the Employer
pursuant to an agreement between the Employer and a leasing
organization, temporary employment agency or any other organization is
not an Employee. Any individual who is retroactively or in any other
way held or found to be a "statutory" or "common law employee" of the
Employer will not be eligible to participate in the Plan for any period
he or she was not contemporaneously treated as an Employee by the
Employer and considered by the Employer to be an Employee under this
Section 1.22. In addition, such an individual will remain ineligible
for participation in the Plan unless the Plan is amended to
specifically render the individual eligible for Plan participation.
1.23 "Employer" means the Company, F.B.C. Finance Company, and any other
company participating in the Plan as provided in Section 11.03 with
respect to its employees.
1.24 "Enrollment Date" means the Effective Date and the first day of any pay
period thereafter as of which an Employee who has met the Plan's
eligibility requirements elects to commence participation in the Plan.
1.25 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.26 "Final Average Compensation" means the sixty (60) consecutive calendar
months of Benefit Service during which the Participant's average
monthly Compensation is the highest out of the one hundred twenty (120)
consecutive calendar months of Benefit Service immediately preceding
the Participant's date of termination, retirement or Disability. If
the Participant has less than sixty (60) consecutive months of Benefit
Service, his Final Average Compensation shall be equal to the monthly
average of his Compensation during the total calendar months of his
Benefit Service. Compensation earned during partial months of Benefit
Service shall be ignored.
For purposes of this Section 1.26, months of Benefit Service shall be
considered consecutive if separated by (a) a Break in Service, (b) a
period of layoff, (c) an unpaid leave of absence, (d) a period of
non-covered service, or (e) a period during which no Participant
Contributions are made.
1.27 "Highly Compensated Employee" means an Employee classified as a highly
compensated employee as determined under Section 414(q) of the Code and
any regulations issued thereunder. Notwithstanding the foregoing, for
each Plan Year the Administrative Committee may elect to determine the
status of Highly Compensated Employees under the simplified snapshot
method described in IRS Revenue Procedure 93-42.
Effective for Plan Years beginning January 1, 1997, "Highly Compensated
Employee" means an Employee who:
(a) was a five percent (5%) owner during the current Plan Year or the
preceding Plan Year; or
(b) during the preceding Plan Year,
(1) received Section 414(s) Compensation of more than $80,000
(or such larger amount as may be modified for cost-of-
living adjustments by the Commissioner of the IRS); and
(2) if the Employer so elects, was a member of the top twenty
percent (20%) of active Employees when ranked on the basis
of Section 414(s) Compensation during the preceding Plan
Year. Any election hereunder shall be made in accordance
with regulations issued under section 414(q)(1) of the
Code, as amended by section 1431(a) of the Small Business
Job Protection Act of 1996. For purposes of determining
the group with the highest twenty percent (20%) of Section
414(s) Compensation, employees described in Section
414(q)(8) of the Code and Q&A-9(b) of regulation section
1.414(q)-1T are excluded.
For purposes of determining Highly Compensated Employees, employers
aggregated with the Employer under section 414(b), (c), (m) or (o) are
treated as a single Employer.
1.28 "Hour of Service" means, for purposes of determining a Participant's
Benefit Service, each hour for which an Employee is paid or entitled to
payment for the performance of duties for the Employer or an Affiliated
Employer.
For purposes of determining an Employee's Vesting and Eligibility
Service, Hour of Service means, with respect to any applicable
computation period-
(a) Each hour for which the Employee is paid or entitled to payment
for the performance of duties for the Employer or an Affiliated
Employer,
(b) Each hour for which the Employee is paid or entitled to payment
by the Employer or an Affiliated Employer on account of a period
during which no duties are performed, whether or not the employ-
ment relationship has terminated, due to vacation, holiday,
illness, incapacity (including Disability), layoff, jury duty,
military duty or Leave of Absence, but not more than 501 hours
for any single continuous period,
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer or an
Affiliated Employer, excluding any hour credited under (a) or
(b), which shall be credited to the computation period or periods
to which the award, agreement or payment pertains, rather than to
the computation period in which the award, agreement or payment
is made, and
(d) Solely for purposes of determining whether the Employee has in-
curred a Break in Service under the Plan, each hour for which the
Employee would normally be credited under paragraph (a) or (b)
above during a period of Parental Leave but not more than 501
hours for any single continuous period. However, the number of
hours credited to the Employee under this paragraph (d) during
the computation period in which the Parental Leave began, when
added to the hours credited to the Employee under paragraphs (a)
through (c) above during that computation period, shall not
exceed 501. If the number of hours credited under this paragraph
(d) for the computation period in which the Parental Leave began
is zero, the provisions of this paragraph (d) shall apply as
though the Parental Leave began in the immediately following
computation period.
No hours shall be credited on account of any period during which the
Employee performs no duties and receives payment solely for the purpose
of complying with unemployment compensation, workers' compensation or
disability insurance laws. Hours of Service are also not required to
be credited for a payment which solely reimburses an Employee for
medical or medically related expenses incurred by the Employee. The
Hours of Service credited shall be determined as required by Title 29
of the Code of Federal Regulations, Section 2530.200b-2(b) and (c).
1.29 "IRS Interest Rate" means the annual rate of interest on 30-year
Treasury Securities as specified by the Commissioner for the November
(the look-back month) preceding the Stability Period.
1.30 "IRS Mortality Table" means the mortality table prescribed by the
Secretary of the Treasury under Code Section 417(e)(3)(A)(ii)(I) as in
effect on the first day of the applicable Stability Period.
1.31 "Investment Manager" means the person (or organization), if any, to
whom the Company has, pursuant to Section 10.03, delegated the
responsibility and authority to manage, acquire or dispose of all or a
designated portion of the assets of the Plan. The Investment Manager
shall be (a) registered in good standing as an investment adviser under
the Investment Advisers Act of 1940 (the "Act"), (b) a bank, as defined
in the Act, or (c) an insurance company qualified to perform investment
management services under the laws of more than one state of the United
States. In addition, the Investment Manager shall acknowledge in
writing that it is a fiduciary with respect to the management,
acquisition and control of all or the designated portion of the assets
of the Plan.
1.32 "Leased Employee" means any person (other than a person described in
Section 414(n)(5) of the Code) who is not otherwise an Employee of the
Employer or an Affiliated Employer and who provides services to the
Employer or an Affiliated Employer (the "Recipient") if:
(a) Such services are provided pursuant to an agreement between the
Recipient and a "leasing organization";
(b) Such person has performed such services for the Recipient (or the
Recipient and the Employer or an Affiliated Employer) on a
substantially full-time basis for a period of at least one year;
and
(c) Effective for Plan Years beginning after December 31, 1996, such
services are performed under the primary direction and control of
the Employer.
1.33 "Leave of Absence" means an absence authorized by the Employer under
its standard personnel practices as applied in a uniform and non-
discriminatory manner to all persons similarly situated.
1.34 "Maximum Compensation Limitation" means, effective on or after January
1, 1989, and before January 1, 1994, $200,000 per year. As of January
1 of each calendar year on and after January 1, 1990, and before
January 1, 1994, the Maximum Compensation Limitation as determined by
the Commissioner of Internal Revenue for the calendar year shall become
effective as the Maximum Compensation Limitation taken into account for
Plan purposes for the Plan Year beginning within that calendar year in
lieu of the $200,000 limitation set forth above.
Commencing January 1, 1994, the Maximum Compensation Limitation means
$150,000 per year. If for any calendar year after 1994, the cost-of-
living adjustment described in the following sentence is equal to or
greater than $10,000, then the Maximum Compensation Limitation (as
previously adjusted hereunder) for any Plan Year beginning in any
subsequent calendar year shall be increased by the amount of such cost-
of-living adjustment, rounded to the next lowest multiple of $10,000.
The cost-of-living adjustment shall equal the excess of (i) $150,000
increased by the adjustment made under Section 415(d) of the Code for
the calendar year, except that the base period for purposes of
Section 415(d)(1)(A) of the Code shall be the calendar quarter
beginning October 1, 1993, over (ii) the Maximum Compensation
Limitation in effect for the Plan Year beginning in the calendar year.
Prior to Plan Years beginning on January 1, 1997, in determining a
Participant's compensation for purposes of the Maximum Compensation
Limitation, if any individual is a member of the family of a 5-percent
owner or of a Highly Compensated Employee who is in the group
consisting of the 10 individuals paid the greatest compensation during
the year, then (i) such individual shall not be considered as a
separate employee and (ii) any compensation paid to such individual
(and any applicable benefit on behalf of such individual) shall be
treated as if it were paid to (or on behalf of) the 5-percent owner or
Highly Compensated Employee; provided, however, that for purposes of
this Section 1.34, the term "family" shall include only the
Participant's Spouse and any lineal descendants of the Participant who
have not attained age 19 before the close of the year. If, as a result
of the application of the foregoing family aggregation rules, the
Maximum Compensation Limitation is exceeded, then the limit shall be
prorated among the affected individuals in proportion to each such
individual's compensation as determined prior to the application of the
Maximum Compensation Limitation. After December 31, 1996, the family
aggregation rules are repealed.
1.35 "Normal Retirement Age" means the date the Participant attains age 65.
1.36 "Normal Retirement Date" means the first day of the calendar month on
or immediately after an Employee's Normal Retirement Age.
1.37 "Parental Leave" means a period in which the Employee is absent from
work immediately following his or her active employment due to (a) the
Employee's pregnancy, (b) the birth of the Employee's child, (c) the
placement of a child with the Employee in connection with the adoption
of that child by the Employee, or (d) the Employee's caring for that
child for a period beginning immediately following the birth or
placement of such child. Such a leave shall be subject to verification
by the Administrative Committee.
1.38 "Participant" means any person included for participation in the Plan
as provided in Article 2 and who continues to be entitled to benefits
under the Plan.
1.39 "Participant Contributions" means the mandatory contributions paid by
Participants pursuant to Section 3.01.
1.40 "Pension" means a Participant's benefit under the Plan, generally
payable in the form of an annuity.
1.41 "Plan" means the Farmer Bros. Co. Retirement Plan as set forth in this
document, or as amended from time to time.
1.42 "Plan Year" means the 12-month period beginning on any January 1.
1.43 "Postponed Retirement Date" means the first day of the calendar month
on or immediately after the date that a Participant terminates his
employment with the Employer or an Affiliated Employer after his Normal
Retirement Date.
1.44 "Qualified Domestic Relations Order" means a judgment, decree, or order
issued by a court of competent jurisdiction which:
(a) Creates for, or assigns to, a Spouse, former Spouse, child or
other dependent of a Participant the right to receive all or a
portion of the Participant's benefits under the Plan for the
purpose of providing child support, alimony payments or marital
property rights to that Spouse, former Spouse, child or
dependent;
(b) Is made pursuant to a State domestic relations law;
(c) Does not require the Plan to provide any type of benefit, or any
option, not otherwise provided under the Plan; and
(d) Otherwise meets the requirements of Section 206(d) of ERISA as
determined by the Administrative Committee.
1.45 "Qualified Joint and Survivor Annuity" means an annuity described in
Section 7.02(a).
1.46 "Residual Accrued Pension Derived from Participant Contributions" is
equal to the excess, if any, of the Participant's Accrued Pension
Derived from Participant Contributions over the Participant's Alternate
Accrued Pension Derived from Participant Contributions.
1.47 "Retirement Date" means a Participant's Early, Normal or Postponed
Retirement Date, whichever is applicable.
1.48 "Section 203(a)(3)(B) Service" means the employment of an Employee by
the Employer or an Affiliated Employer during a calendar month,
subsequent to the time the payment of the Participant's Pension
commenced or would have commenced if the Employee had not remained in
or returned to employment during such month, if the Employee is
credited with at least 40 Hours of Service during such calendar month.
1.49 "Section 417 Interest Rate" means the interest rate or rates that would
be used by the Pension Benefit Guaranty Corporation for purposes of
determining the present value of a lump sum distribution upon
termination of an insufficient trusteed single-employer plan as of the
first day of the Plan Year in which the determination is made.
1.50 "Severance from Service Date" means the earlier of:
(a) The date an Employee quits, retires, is discharged or dies, or
(b) The first anniversary of the date on which an Employee is first
absent from service from the Employer or an Affiliated Employer,
with or without pay, for any reason (other than resignation,
retirement, discharge or death), such as vacation, sickness,
Disability, layoff or Leave of Absence.
1.51 "Spousal Consent" means written consent given by a Participant's Spouse
to an election made by the Participant of a specified form of benefit
or a designation by the Participant of a specified Beneficiary other
than the Spouse. That consent shall be duly witnessed by a Plan
representative or notary public and shall acknowledge the effect on the
Spouse of the Participant's election. The requirement for spousal
consent may be waived by the Administrative Committee if it is
established to its satisfaction that there is no spouse, or that the
Spouse cannot be located, or because of such other circumstances as may
be established by applicable law. Spousal Consent shall be applicable
only to the particular Spouse who provides such consent.
1.52 "Spouse" means the person legally married to the Participant.
1.53 "Stability Period" means the calendar year in which the Annuity
Starting Date occurs for the distribution.
1.54 "Trust" means the fund established by the Company to hold and invest
the assets of the Plan.
1.55 "Trustee" means the bank, trust company or individuals selected by the
Company to take custody of the assets of the Plan.
1.56 "Year of Eligibility Service" means, with respect to an Employee, the
12-month period beginning on the first date as of which the Employee is
credited with an Hour of Service, or any Plan Year beginning after that
date, in which the Employee first completes at least 1,000 Hours of
Service.
1.57 "Year of Vesting Service" means, with respect to an Employee, any Plan
Year in which the Employee completes at least 1,000 Hours of Service.
If the Employee incurs a Break in Service, and he is subsequently
rehired, the Employee's Years of Vesting Service accrued after
reemployment shall be aggregated with his Years of Vesting Service
accrued prior to the Break in Service only if (i) the Employee was
vested in his Accrued Pension Derived from Employer Contributions, or
(ii) (A) the Employee's consecutive one-year Breaks in Service do not
equal or exceed the greater of five years or his Years of Vesting
Service before the Break in Service, and (B) the Employee is credited
with at least one Year of Vesting Service after his Break in Service.
If the Employee's Break in Service ended prior to January 1, 1985, or
if he had a Break in Service on December 31, 1984, and the number of
his consecutive one-year Breaks in Service as of that date exceeded his
Years of Vesting Service under the Plan provisions then in effect, then
his previously accrued Years of Vesting Service shall be excluded.
If an Employee returns to employment after a period of service in the
uniformed services of the United States within the time stipulated
under Section 414(u) of the Code, he/she shall be credited for Years of
Vesting Service during such period.
1.58 'Union Employee' means an Employee who is not eligible to participate
in
the Plan solely because he is a member of a unit of employees covered by
a collective bargaining agreement between employee representatives and
the Employer or Affiliated Employer and there is evidence that retirement
benefits were the subject of good faith bargaining and the agreement does
not provide for such Employee's participation in the Plan.
Article 2. Eligibility and Participation
2.01 Eligibility
(a) Each Employee who is a Participant in the Plan on
December 31, 1988, shall continue to be a Participant in the Plan
as of January 1, 1989. Former Employees who retired, died or
terminated prior to January 1, 1989, shall continue to receive or
be entitled to receive such benefits as they may have accrued
pursuant to the terms of the Plan in effect on December 31, 1988.
(b) Each other Employee shall be eligible to become a Participant in
the Plan provided that he is an Eligible Employee and:
(i) The Employee has completed one Year of Eligibility Service;
or
(ii) The Employee was a participant under, and transferred from,
another plan maintained by the Employer.
2.02 Participation
An Employee who is eligible to become a Plan Participant in accordance
with Section 2.01 shall become a Participant as of the first Enrollment
Date after the date he files with the Employer, within the time period
established by the Administrative Committee, an enrollment form as
prescribed by the Administrative Committee which shall authorize the
Employer to deduct from his Compensation the Participant Contributions
required under Section 3.01.
2.03 Reemployment of Former Employees and Former Participants
(a) Any person reemployed by the Employer as an Eligible Employee who
was previously a Participant or who was previously eligible to
become a Participant, shall be immediately eligible to become a
Participant in the Plan upon the filing of an enrollment form in
accordance with Section 2.02.
(b) Each other person reemployed by the Employer as an Eligible
Employee shall be eligible to become a Participant in the Plan
upon satisfying the requirements of Section 2.01(b) and the
filing of an enrollment form in accordance with Section 2.02.
2.04 Transferred Participants
A Participant who remains in the employ of the Employer or an
Affiliated Employer, but ceases to be an Eligible Employee, shall
continue to be a Participant in the Plan, but shall not be eligible to
make Participant Contributions or otherwise accrue benefits under the
Plan while his employment status is other than as an Eligible Employee.
2.05 Termination of Participation
An Eligible Employee's participation in the Plan shall terminate on the
date he terminates employment with the Employer and all Affiliated
Employers unless the Participant is entitled to benefits under the
Plan, in which event his participation shall terminate when those
benefits are distributed to him.
Article 3. Contributions
3.01 Participant Contributions
Each Employee who meets the eligibility requirements for Plan
participation described in Article 2, and who completes an enrollment
form as described in Section 2.02, shall:
(a) Prior to April 1, 1995, contribute to the Plan, by payroll
deduction, 2% of his Compensation for all periods that he is an
active Plan Participant inclusive of a period of active Plan
participation after he has reached Normal Retirement Age; and
(b) On and after April 1, 1995, contribute to the Plan, by payroll
deduction, 2% of his Compensation for all periods that he is an
active Plan Participant inclusive of a period of active Plan
participation after he has reached Normal Retirement Age; provided,
however, that such Participant Contributions shall not be required
(or permitted):
(i) With respect to a Participant who is an Employee as of
January 1, 1995, or who is on an approved Leave of Absence as
of January 1, 1995, after the Participant has been credited
with 60 months of Benefit Service (before Section 1.11(g) is
applied); and
(ii) With respect to a Participant who is not an Employee as of
January 1, 1995, and who is not on an approved Leave of
Absence as of January 1, 1995, after the Participant has been
credited with 60 months of Benefit Service after January 1,
1995 (before Section 1.11(g) is applied).
3.02 Suspension of Participation
(a) Participation in the Plan by each Eligible Employee is voluntary.
A Participant may suspend his participation as of the end of any
pay period. To suspend participation the Participant must file a
written notice with the Administrative Committee within the time
period established by the Administrative Committee. A
Participant who has suspended participation may resume
participation on the first day of any pay period which is at
least twelve calendar months after the effective date of his last
suspension of participation.
(b) In no event shall a Participant be permitted to make up
contributions he could have made during a period of suspension.
3.03 In-Service Withdrawal of Accumulated Contributions
On and after January 1, 1985, a Participant shall not be permitted to
withdraw his Participant Contributions while he is employed by the
Employer.
3.04 Employer Contributions
The Employer shall make the contributions that, in addition to the
contributions made by Participants employed by the Employer, are
necessary to maintain the Plan on a sound actuarial basis and to meet
the minimum funding standards prescribed by law. Any forfeitures shall
be used to reduce the contributions otherwise payable by the Employer.
3.05 Plan-to-Plan Transfers / Rollover Contributions
A Participant shall not be permitted to transfer to the Trust any
portion of his distribution from any other qualified plan, nonqualified
plan, or individual retirement annuity or account.
3.06 Return of Contributions
Except as provided below, at no time shall any contributions (or
portions thereof) revert to the Employer prior to discharge of all
liabilities under the Plan -
(a) The Employer's contributions to the Plan are conditioned upon
Section 404 of the Code. If all or part of the Employer's deduc-
tions under Section 404 of the Code for contributions to the Plan
are disallowed by the Internal Revenue Service, the portion of
the contributions to which that disallowance applies shall be
returned to the Employer without interest but reduced by any
investment loss attributable to those contributions. The return
shall be made within one year after the disallowance of the
deduction.
(b) The Employer may recover, without interest, the amount of its
contributions to the Plan made on account of a mistake of fact,
reduced by any investment loss attributable to those
contributions, if recovery is made within one year after the date
of those contributions.
3.07 Contributions during Period of Service in the Uniformed Services of the
United States
(a) Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to
qualified service in the uniformed services of the United States
will be provided in accordance with Section 414(u) of the Code.
Without regard to any limitations on contributions set forth in
this Article 3, a Participant who is reemployed on or after
August 1, 1990 and is credited with benefit service under the
provisions of Section 1.11 because of a period of service in the
uniformed services of the United States, may elect to contribute
to the Plan the Participant Contributions that could have been
contributed to the Plan in accordance with the provisions of the
Plan had he or she remained continuously employed by the Employer
throughout such period of absence ("make-up contributions"). The
amount of make-up contributions shall be determined on the basis
of the Participant's Compensation in effect immediately prior to
the period of absence, and the terms of the Plan at such time.
Any contribution to the Plan described in this paragraph shall be
made during the applicable repayment period. The repayment
period shall equal three (3) times the period of absence, but not
longer than five (5) years and shall begin on the latest of: (i)
the Participant's date of reemployment, (ii) October 13, 1996, or
(iii) the date the Employer notifies the Employee of his or her
rights under this Section. Credited interest on make-up
contributions is made in accordance with Section 1.04.
(b) Participant Contributions under this Section 3.07 are considered
"Annual Additions," as defined in Section 415(c)(2) of the Code,
and shall be limited in accordance with the provisions of Section
6.01 and Appendix A with respect to the Plan Year or Plan Years
to which such contributions relate rather than the Plan Year in
which payment is made.
Article 4. Termination of Employment Prior to Retirement
4.01 Amount of Vested Interest
(a) A Participant shall at all times be fully vested in his Accrued
Pension Derived from Participant Contributions and Residual
Accrued Pension Derived from Participant Contributions, whichever
is applicable.
(b) A Participant shall become fully vested in his Accrued Pension
Derived from Employer Contributions on the date he (i) attains
his Normal Retirement Age provided that the Participant is
employed by an Employer or Affiliated Employer on that date, or
(ii) completes 5 years of Vesting Service.
4.02 Distribution of Vested Interest
(a) If, on his Severance from Service Date, the Participant has no
vested interest in his Accrued Pension, the Participant shall be
deemed to have received a cash lump sum of $0 (equal to the
present value of his vested Accrued Pension as of such
termination date) and such Accrued Pension shall be forfeited as
of his Severance from Service Date.
(b) If, on his Severance from Service Date, the Participant has a
vested interest only in his Accrued Pension Derived from
Participant Contributions (i.e., he has no vested interest in his
Accrued Pension Derived from Employer Contributions), the
Participant may elect:
(i) To receive a lump sum distribution of his Accumulated
Contributions, with Spousal Consent if the present value of
his vested Accrued Pension exceeds $5,000 (prior to August
5, 1997 this amount was $3,500), in which event he will
forfeit his Accrued Pension Derived from Employer
Contributions; however, if he later again becomes a
Participant, he may repay such Accumulated Contributions in
accordance with the repayment provisions contained in
Section 4.03 in order to restore his prior Accrued Pension;
(ii) To receive his Accrued Pension Derived from Participant
Contributions in the form of an immediate annuity,
commencing as of the first day of the month immediately
following the Participant's Severance from Service Date;
the annuity shall be the Actuarial Equivalent (determined
without regard to the early retirement factors described in
Section 5.03(b)) of the Participant's Accrued Pension
Derived from Participant Contributions and shall be payable
only as a Qualified Joint and Survivor Annuity; or
(iii) To receive his Accrued Pension Derived from Participant
Contributions commencing as of his Retirement Date.
(c) If, on his Severance from Service Date, the Participant has a
vested interest only in his Accrued Pension Derived from Employer
Contributions (i.e., he has no Accumulated Contributions), he
will receive a deferred Pension based on such interest commencing
as of his Retirement Date.
(d) If, on his Severance from Service Date, the Participant has a
vested interest in his Accrued Pension Derived from Participant
Contributions and his Accrued Pension Derived from Employer
Contributions, he may elect:
(i) To receive his entire Accrued Pension commencing as of his
Retirement Date;
(ii) Prior to the date that he commences to receive the Pension
described in Section 4.02(d)(i), to receive a lump sum
distribution of his Accumulated Contributions, with Spousal
Consent if the present value of his Accrued Pension exceeds
$5,000 (prior to August 5, 1997 this amount was $3,500); if
he later again becomes a Participant, he may repay such
Accumulated Contributions in accordance with the repayment
provisions contained in Section 4.03 in order to restore
his prior Accrued Pension; in the event the Participant
does not repay his Accumulated Contributions, the Pension
payable to the Participant as of his Retirement Date shall
be the sum of his (A) Accrued Pension Derived from Employer
Contributions and (B) Residual Accrued Pension Derived from
Participant Contributions; or
(iii) Prior to the date that he commences to receive the Pension
described in Section 4.02(d)(i), to receive his Accrued
Pension Derived from Participant Contributions in the form
of an immediate annuity; the annuity shall be the Actuarial
Equivalent (determined without regard to the early
retirement factors described in Section 5.03(b) unless the
Participant has attained age 55) of the Participant's
Accrued Pension Derived from Participant Contributions and
shall be payable only as a Qualified Joint and Survivor
Annuity; in the event the Participant elects to receive his
Accrued Pension Derived from Participant Contributions as
an immediate annuity, the additional Pension payable to the
Participant as of his Retirement Date shall be the sum of
his (A) Accrued Pension Derived from Employer Contributions
and (B) Residual Accrued Pension Derived from Participant
Contributions.
(e) In any case, an immediate lump sum payment, which is the
Actuarial Equivalent of the Participant's vested Accrued Pension,
shall be made in lieu of all benefits if the value of the lump
sum payment is $5,000 (prior to August 5, 1997 this amount was
$3,500) or less. The lump sum payment may be made at any time on
or after the date the Participant terminates employment.
However, if a lump sum payment is to be made after a Parti-
cipant's Annuity Starting Date, the Participant must consent in
writing to such form of distribution and, if he is married,
Spousal Consent must also be obtained. If a Participant, who has
a vested interest only in his Accrued Pension Derived from
Participant Contributions (i.e., he has no vested interest in his
Accrued Pension Derived from Employer Contributions), receives a
lump sum distribution in accordance with this subparagraph (e)
and later again becomes a participant, he may repay his
Accumulated Contributions in accordance with the repayment
provisions contained in Section 4.03 in order to restore his
prior Accrued Pension.
4.03 Repayment of Participant Contributions
A Participant who has received a prior distribution of his Accumulated
Contributions shall have forfeited his Accrued Pension Derived from
Participant Contributions to the extent of such distribution, and may
have forfeited the related Accrued Pension Derived from Employer
Contributions. A Participant may restore such benefits by repaying the
amount of the prior distribution of Accumulated Contributions, plus
interest at the rates described in Section 1.04 from the date of the
prior distribution to the date of repayment. Such repayment must be
made:
(a) In the case of an in-service withdrawal as described in
Section 3.03, within 5 years of the date of withdrawal, or
(b) In the case of a withdrawal after a Severance from Service Date
as described in Section 4.02, before the earlier of (i) 5 years
after the Participant is reemployed by the Employer or an
Affiliated Employer following the withdrawal, or (ii) the date
the Participant incurs 5 consecutive one-year Breaks in Service
after the withdrawal.
Article 5. Eligibility for and Amount of Pension Benefits
5.01 Normal Retirement
(a) The right of a Participant to his normal retirement Pension shall
be nonforfeitable as of the date he attains his Normal Retirement
Age provided that the Participant is employed by an Employer or
Affiliated Employer on that date. A Participant who has attained
Normal Retirement Age may retire and commence to receive a normal
retirement Pension, upon providing written notification to the
Administrative Committee, beginning as of his Normal Retirement
Date, or he may postpone his retirement Pension in which event
the provisions of Section 5.02 shall be applicable.
(b) Subject to Section 5.01(g), the normal retirement Pension payable
upon retirement on a Participant's Normal Retirement Date shall
be a monthly benefit payable for life, equal to (i) plus, where
applicable (ii), as follows:
(i) One and one-half percent (1.5%) of the Participant's Final
Average Compensation multiplied by his Benefit Service
accrued after December 31, 1978.
(ii) For a Participant who participated in the Plan prior to
January 1, 1979, the greater of:
(A) The Participant's accrued monthly benefit as of
December 31, 1978, determined in accordance with the
terms of the Plan in effect on that date; or
(B) One and one-half percent (1.5%) of the Participant's
Final Average Compensation multiplied by his Benefit
Service accrued prior to January 1, 1979.
(c) Notwithstanding Section 5.01(b), with respect to a Participant who
is credited with an Hour of Service on or after January 1, 1995, or
who is on an approved Leave of Absence as of January 1, 1995, the
Participant's monthly normal retirement Pension shall not be less
than the sum of:
(i) $60.00 multiplied by the Participant's Benefit Service not in
excess of 20 years; and
(ii) $80.00 multiplied by the Participant's Benefit Service in
excess of 20 years.
(d) Notwithstanding Section 5.01(b), a Participant's normal
retirement Pension shall never be less than his Accrued Pension
Derived from Participant Contributions calculated as of his
Normal Retirement Age.
(e) Notwithstanding Section 5.01(b), a Participant's normal
retirement Pension shall not be less than the sum of:
(i) His OBRA 1993 Accrued Pension; and
(ii) His Accrued Pension determined as of his Normal Retirement
Date using Benefit Service and Compensation earned on and
after January 1, 1994. For purposes of this subparagraph
(ii), the Participant's Compensation in each of the
relevant years shall not exceed the Maximum Compensation
Limitation (as adjusted in accordance with Section 1.34) in
effect for each of the relevant years on and after January
1, 1994.
(f) The following definitions apply to the terms used in this
Section 5.01:
(i) "OBRA 1988 Accrued Pension" means the Participant's Accrued
Pension determined as if the Participant terminated
employment on December 31, 1988 (or date of termination, if
earlier).
(ii) "OBRA 1993 Accrued Pension" means the greater of:
(A) The Participant's Accrued Pension, determined using
all Benefit Service and Compensation earned prior to
January 1, 1994. For purposes of this subparagraph
(A), the Participant's Compensation in each of the
relevant years shall not exceed the $200,000 Maximum
Compensation Limitation (as adjusted in accordance
with Section 1.34) in effect prior to January 1,
1994; or
(B) The sum of (i) the Participant's OBRA 1988 Accrued
Pension, and (ii) the Participant's Accrued Pension,
determined using Years of Service and Compensation
earned after December 31, 1988, and prior to January
1, 1994. For purposes of this subparagraph (B)(ii),
the Participant's Compensation in each of the
relevant years shall not exceed the $200,000 Maximum
Compensation Limitation (as adjusted in accordance
with Section 1.34) in effect prior to
January 1, 1994.
(g) Upon a Retirement Date, a Participant may elect to receive an
immediate lump sum distribution of his Accumulated Contributions.
In such event, the benefits payable to the Participant pursuant
to this Section 5.01 shall be the sum of his (i) Accrued Pension
Derived from Employer Contributions and (ii) Residual Accrued
Pension Derived from Participant Contributions.
5.02 Postponed Retirement
(a) If a Participant retires on a Postponed Retirement Date or
otherwise postpones his retirement Pension, he shall commence to
receive a late retirement Pension as of the earlier of (i) the
first day of the calendar month after his actual Retirement Date;
(ii) the date that he is required to commence receiving payment
of his benefit in accordance with Section 7.06(b); or (iii) the
first day of the calendar month after the calendar month in which
the Participant is no longer employed in Section 203(a)(3)(B)
Service.
(b) A late retirement Pension that commences after the Participant
elects a Postponed Retirement Date shall, subject to the
provisions of Section 7.02, be equal to:
(i) With respect to any Participant who during any month after
his Normal Retirement Date is not employed in
Section 203(a)(3)(B) Service, the Accrued Pension accrued
by the Participant as of his Normal Retirement Date
determined in accordance with Section 5.01(b) above, plus,
for each Plan Year ending after the Participant's Normal
Retirement Date through the Participant's Postponed
Retirement Date, the greater of:
(A) The additional Accrued Pension accrued by the
Participant for each such Plan Year determined in
accordance with Section 5.01(b) based on the
Participant's Compensation and Benefit Service earned
in such Plan Year, or
(B) The actuarial increase in the Accrued Pension accrued
by the Participant as of the end of the Plan Year
preceding the Plan Year in question to take into
account the nonpayment of such benefits.
(ii) With respect to all other Participants, the greater of:
(A) The Accrued Pension accrued by the Participant
determined in accordance with Section 5.01(b) based
on the Participant's Final Average Compensation and
Benefit Service as of his Postponed Retirement Date,
or
(B) The Participant's Accrued Pension as of his Normal
Retirement Date determined in accordance with
Section 5.01(b), actuarially increased to take into
account the nonpayment of such benefits.
(c) If a Participant's Pension commences in accordance with the
requirements of Section 7.06(b), but before the Participant
elects a Postponed Retirement Date, the following provisions
shall apply:
(i) The Pension payable to the Participant as of the date
required by Section 7.06(b) shall be calculated in
accordance with Section 5.02(b) above through the date the
Pension will commence in accordance with Section 7.06(b),
rather than through the Participant's Postponed Retirement
Date; and
(ii) The amount of Pension to which a Participant is entitled
under the Plan shall be recalculated annually in accordance
with Section 5.02(b) above, during the period that the
Participant is still employed by the Employer or an
Affiliated Employer, as of the end of each Plan Year with
the amount of the Pension being paid adjusted as of the
first day of the following Plan Year. Any additional
accrual during a Plan Year shall be reduced, however, by
the Actuarial Equivalent of the employer-derived portion of
any payments during the Plan Year to the Participant during
any month in which the Participant is employed in
Section 203(a)(3)(B) Service; provided, however, that such
reduction shall not exceed 25% of the amount of the Pension
due the Participant before application of the reduction
provided for in this sentence.
(d) A Participant who continues employment past his Normal Retirement
Date shall be given such notice with respect to the suspension of
his retirement benefit payments as is required by applicable
Department of Labor Regulations.
5.03 Early Retirement
(a) A Participant who has not reached his Normal Retirement Date but
who, prior to his termination of employment with the Employer and
all Affiliated Employers, has reached an Early Retirement Date may
elect to retire on an Early Retirement Date and commence to receive
an early retirement Pension as of the first day of the calendar
month after he submits to the Administrative Committee a written
application for retirement benefits.
(b) Unless the Participant otherwise elects, the early retirement
Pension shall be a deferred Pension beginning on the
Participant's Normal Retirement Date and, subject to the
provisions of Section 7.02, shall be equal to his Accrued
Pension. However, the Participant may elect to receive an early
retirement Pension beginning on the first day of any calendar
month on or after his Early Retirement Date but before his Normal
Retirement Date. The Participant's early retirement Pension shall
be equal to the Participant's Accrued Pension reduced by one-third
of one percent for each full calendar month by which the date the
Participant's actual Early Retirement Date precedes the
Participant's Normal Retirement Date; provided, however, that if
the Participant is credited with an Hour of Service on or after
January 1, 1995, or the Participant is on an approved Leave of
Absence as of January 1, 1995, and the sum of Participant's age and
Benefit Service as of his actual Early Retirement Date equals at
least 82, the Participant's early retirement Pension shall be equal
to the Participant's Accrued Pension reduced by one-third of one
percent for each full calendar month, if any, by which the date the
Participant's actual Early Retirement Date precedes the date that
the Participant will attain age 62.
5.04 Disability Retirement
(a) If a Participant ceases to be employed by the Employer while an
Employee on account of Disability, and he has not reached his
Normal Retirement Date, but (i) has attained age 45, (ii) has
completed 10 years of Benefit Service, and (iii) is eligible for
and continuously receiving disability insurance benefits under
the Social Security Act, the Participant shall upon such
termination of employment be eligible to receive a disability
retirement Pension beginning on the first day of the calendar
month immediately after the Administrative Committee receives
written application for the disability retirement Pension made by
or for the Participant.
(b) Subject to the provisions of Section 7.02, the disability
retirement Pension shall be equal to the Participant's Accrued
Pension determined in accordance with Section 5.03(b) as if the
Participant had elected to retire as of the date disability
benefits commence, but it shall only be payable subject to
continuance of his Disability as provided in Section 5.04(c).
(c) As a condition of his continuing to receive a disability
retirement Pension, a Participant who has not reached his Normal
Retirement Date may be required by the Administrative Committee
to provide satisfactory proof of his continued receipt of
disability insurance benefits under the Social Security Act. If
the Participant refuses to provide that proof, his disability
retirement Pension shall cease until he no longer refuses to
provide that proof. If his refusal continues for a year, all
rights to the disability retirement Pension shall cease and the
election of an optional benefit if one has been elected shall no
longer be effective. If the Administrative Committee finds that
the Participant has stopped receiving those disability insurance
benefits, his disability retirement Pension shall cease. In that
case, if the Participant is not restored to service with the
Employer or an Affiliated Employer, he shall be entitled to
(1) retire on an early retirement Pension as of the first day of
the calendar month immediately after his disability retirement
Pension ceases, if as of the date his disability retirement
Pension ceases, he has attained the required age for early
retirement, or (b) to receive a vested Pension payable in
accordance with Section 5.05. In either case, the Pension shall
be equal to the Participant's Accrued Pension determined in
accordance with Section 5.03(b) as if the Participant had elected
to retire as of the date disability benefits commenced.
5.05 Termination With Vesting
(a) In accordance with Section 4.01, a Participant shall be 100
percent vested in, and have a nonforfeitable right to, his
Accrued Pension on the date he (i) attains his Normal Retirement
Age provided that the Participant is employed by an Employer or
Affiliated Employer on that date, or (ii) completes 5 years of
Vesting Service. If the Participant's employment with the
Employer is subsequently terminated for reasons other than
retirement or death, he shall be eligible for a deferred vested
Pension to commence, as of a date described in Section 5.05(b)
below, after the Participant has provided written notification to
the Administrative Committee of his intention to commence
receiving his Pension benefits.
(b) The deferred vested Pension shall generally commence to be paid
as of the Participant's Normal Retirement Date and, subject to
the provisions of Section 7.02, shall be equal to his Accrued
Pension. However, if the Participant has completed five Years of
Vesting Service on the date of his termination, the Participant
may elect to have his vested Pension commence as of the first day
of any calendar month after he attains age 55 and before his
Normal Retirement Date. In that case, the Participant's Pension
shall be equal to the Participant's vested Pension otherwise
payable at his Normal Retirement Date reduced by one-third of one
percent for each full calendar month by which the date the
Participant's actual Retirement Date precedes the Participant's
Normal Retirement Date..
5.06 Adjustments to Pensions in Pay Status
(a) Effective September 1, 1980, the Pension payable to a Participant
who is receiving a monthly annuity on that date shall be
increased by 3% for each complete year of retirement, measured
from the date benefits became payable and ending on September 1,
1980.
(b) Effective January 1, 1986, the Pension payable to a Participant
who is receiving a monthly annuity on that date shall be
increased by the lesser of:
(i) 10%; or
(ii) 2% multiplied by the excess, if any, of 1986 over the year
benefits first became payable.
(c) Effective January 1, 1990, the Pension payable to a Participant
who is receiving a monthly annuity on that date shall be
increased 10%.
5.07 Suspension of Benefits
(a) During any month in which a Participant who is receiving a
Pension is employed in Section 203(a)(3)(B) Service as an
Eligible Employee, the following provisions shall apply provided
that the Participant is delivered a notice that complies with
Department of Labor Regulations Section 2530.203-3:
(i) The Participant's Pension shall cease and any election of
an optional benefit in effect shall be void.
(ii) Any Years of Vesting Service and Benefit Service to which
the Participant was entitled when he retired or terminated
service shall be restored to him.
(iii) Upon later retirement, termination, or failure to be
employed in Section 203(a)(3)(B) Service, the Participant's
Pension shall be calculated in accordance with the
following:
(A) If his reemployment occurred prior to his Normal
Retirement Date, his Pension shall be calculated
under the benefit formula in effect upon his latest
Retirement Date, based on his Compensation and
Benefit Service before and after the period when he
was not in the service of the Employer, reduced by
the Actuarial Equivalent of the benefits, if any, he
received before his return to service with the
Employer; or
(B) If his reemployment occurred on or after his Normal
Retirement Date, his Pension shall be equal to the
benefit he was receiving as of his rehire date plus
any additional benefits he accrued on account of his
Compensation and Benefit Service after such rehire
date. Any additional accrual during a Plan Year
shall be reduced, however, by the Actuarial
Equivalent of the employer-derived portion of any
payments during the Plan Year to the Participant
during any month in which the Participant is employed
in Section 203(a)(3)(B) Service; provided, however,
that such reduction shall not exceed 25% of the
amount of the Pension due the Participant before
application of the reduction provided for in this
sentence.
(iv) The portion of the Participant's Pension upon later
retirement payable with respect to Benefit Service rendered
before his previous retirement or termination of service
shall never be less than the amount of his previous Pension
modified to reflect any option in effect on his later
retirement.
(b) The Administrative Committee shall establish procedures
consistent with Department of Labor Regulations Section 2530.203-
3 regarding the suspension of benefits under this Section 5.07
including but not limited to procedures for resumption of
benefits, offsetting benefit payments and notice regarding
suspension of benefits.
5.08 Nonduplication of Benefits
Any Pension payable under the Plan shall be reduced by any pension paid
to a Participant under the terms of any other defined benefit pension
plan to which the Employer contributes, directly or indirectly, other
than by payment of taxes, to the extent that such pension is based on a
period of employment with the Employer for which a Participant receives
credit for Pension benefits under this Plan.
Article 6. Restrictions on Benefits and Payments
6.01 Maximum Annual Benefit Limitation and Maximum Annual Additions
Limitation
(a) Subject to the adjustments described in Appendix A, the annual
Accrued Pension Derived from Employer Contributions payable to a
Participant under the Plan, when added to any pension
attributable to contributions of the Employer or an Affiliated
Employer provided to the Participant under any other qualified
defined benefit plan, shall not exceed the lesser of:
(i) $90,000 (adjusted in accordance with Appendix A); or
(ii) The Participant's average annual "Section 415 Compensation"
(as defined in Appendix A) during three consecutive
calendar years of his participation in the Plan affording
the highest such average, or during all of the years in
which he was a Participant in the Plan if less than three
years.
(b) In accordance with the provisions of Appendix A attached hereto,
a Participant's Participant Contributions for any Plan Year, when
added to the Participant's "Annual Additions" (as defined in
Appendix A) for that Plan Year under any other qualified plan of
the Employer or an Affiliated Employer, shall not exceed an
amount which is equal to the lesser of (i) 25% of his
"Section 415 Compensation" (as defined in Appendix A) for that
Plan Year or (ii) the greater of $30,000 or one-quarter of the
dollar limitation in effect under Section 415(b)(1)(A) of the
Code.
6.02 Top-Heavy Provisions
Notwithstanding anything else contained herein, for any Plan Year for
which this Plan is "top-heavy", as defined in Section B.02 of
Appendix B attached hereto, this Plan will be subject to the provisions
of Appendix B.
6.03 Limitation Concerning Highly Compensated Employees or Former Highly
Compensated Employees
(a) Beginning January 1, 1994, the provisions of Appendix C shall
apply (i) in the event the Plan is terminated, to any Participant
who is a Highly Compensated Employee or former Highly Compensated
Employee of the Employer or an Affiliated Employer, and (ii) in
any other event, to any Participant who is one of the 25 highest
compensated employees or former highest compensated employees of
the Employer or Affiliated Employer with the greatest
compensation in any Plan Year.
(b) For the period beginning January 1, 1989, and ending December 31,
1993, the provisions of Appendix D shall apply to any Participant
who is one of the 25 highest paid Employees of the Employer on
any "Commencement Date" and whose anticipated annual Pension
provided under the Plan at Normal Retirement Date exceeds $1,500.
"Commencement Date", for purposes of this Section 6.03(b), shall
mean the Effective Date of the Plan or the effective date of any
amendment to the Plan which increases the benefits.
Article 7. Form of Payment of Pension Benefits
7.01 Normal Form of Payment
The normal form of payment payable under the Plan shall be a monthly
benefit payable for the life of the Participant.
7.02 Automatic Form of Payment
(a) Except as provided in Section 7.02(b), the automatic form of
payment payable under the Plan shall be a Qualified Joint and
Survivor Annuity, which is described in (i) and (ii) below:
(i) If the Participant is not married on his Annuity Starting
Date, the Qualified Joint and Survivor Annuity shall be equal
to the normal form of payment described in Section 7.01;
provided, however, that if the Participant is credited with
an Hour of Service on or after January 1, 1995, or the
Participant is on an approved Leave of Absence as of January
1, 1995, the Qualified Joint and Survivor Annuity shall be
equal to the Five Year Certain and Life Annuity described in
Section 7.03(a)(ii), but no actuarial adjustment shall be
made to account for the five year certain period.
(ii) If the Participant is married on his Annuity Starting Date,
the Qualified Joint and Survivor Annuity shall be equal to
the Actuarial Equivalent of the normal form of payment, which
provides (A) for a reduced benefit payable to the Participant
during his life, and (B) after the Participant's death, a
benefit at the rate of 75% of the benefit paid to the
Participant, payable during the life of and to the
Participant's Spouse; provided, however, that if the
Participant is credited with an Hour of Service on or after
January 1, 1995, or the Participant is on an approved Leave
of Absence as of January 1, 1995, the Qualified Joint and
Survivor Annuity shall be equal to the 75% Joint and Survivor
Annuity described in Section 7.03(a)(i), but no actuarial
adjustment shall be made to account for the five year certain
period.
(b) In any case, an immediate lump sum payment, which is the
Actuarial Equivalent of the Participant's vested Accrued Pension,
shall be made in lieu of all benefits if the value of the lump
sum payment does not exceed $5,000 ($3,500 prior to August 5,
1997). The lump sum payment may be made at any time on or after
the date the Participant terminates employment. However, if a
lump sum payment is to be made after a Participant's Annuity
Starting Date, the Participant must consent in writing to such
form of distribution and, if he is married, Spousal Consent must
also be obtained. If a Participant, who has a vested interest
only in his Accrued Pension Derived from Participant
Contributions (i.e., he has no vested interest in his Accrued
Pension Derived from Employer Contributions), receives a lump sum
distribution in accordance with this subparagraph (b) and later
again becomes a participant, he may repay his Accumulated
Contributions in accordance with the repayment provisions
contained in Section 4.03 in order to restore his prior Accrued
Pension.
7.03 Optional Forms of Payment
(a) A Participant who is credited with an Hour of Service on or after
January 1, 1995, or who is on an approved Leave of Absence as of
January 1, 1995, may, subject to the provisions of Section 7.04,
elect to convert the automatic form of the Pension otherwise
payable to him (other than a disability retirement Pension) into
one of the following optional forms of benefit:
(i) Joint and Survivor Option -- a reduced Pension payable to the
Participant during his life and, after his death, payable to
his designated Beneficiary for the remainder of her life, in
an amount equal to 50%, 75% or 100% (according to the
election of the Participant) of the Pension the Participant
was receiving; provided, however, that if the Participant's
Beneficiary dies before the Participant, the Participant
shall receive, commencing on the first day of the month after
the Beneficiary dies, the benefit he would have received as
of his Annuity Starting Date if he had elected the normal
form of benefit described in Section 7.01(a) (referred to as
the "Pop-Up Feature"); provided further that such Joint and
Survivor Annuity shall be payable for a minimum of 60 months.
If both the Participant and the Participant's Beneficiary die
during the first 60 months of payment, a lump sum payment
equal to the Actuarial Equivalent of the remaining payments
shall be paid to the estate of the Participant unless the
Participant's Beneficiary dies after the Participant, in
which case, the lump sum payment shall be paid to the
Beneficiary's estate. This Option shall not be available to
a Participant whose Beneficiary is more than 30 years younger
than the Participant, unless the Beneficiary is the
Participant's Spouse.
(ii) Five Year Certain and Life Option -- a Pension payable to the
Participant during his life; provided, however, that such
annuity shall be payable for a minimum of 60 months. If the
Participant dies during the first 60 months of payment, the
Pension shall be payable for the balance of the 60 months to
the Beneficiary designated by the Participant when he elected
the option, or the Beneficiary may elect to receive a lump
sum payment equal to the Actuarial Equivalent of the
remaining payments. If both the Participant and the
Participant's Beneficiary die during the first 60 months of
payment, a lump sum payment equal to the Actuarial Equivalent
of the remaining payments shall be paid to the estate of the
Participant unless the Participant's Beneficiary dies after
the Participant, in which case, the lump sum payment shall be
paid to the Beneficiary's estate.
(iii) Ten Year Certain and Life Option -- a Pension payable to the
Participant during his life; provided, however, that such
annuity shall be payable for a minimum of 120 months. If the
Participant dies during the first 120 months of payment, the
Pension shall be payable for the balance of the 120 months to
the Beneficiary designated by the Participant when he elected
the option, or the Beneficiary may elect to receive a lump
sum payment equal to the Actuarial Equivalent of the
remaining payments. If both the Participant and the
Participant's Beneficiary die during the first 120 months of
payment, a lump sum payment equal to the Actuarial Equivalent
of the remaining payments shall be paid to the estate of the
Participant unless the Participant's Beneficiary dies after
the Participant, in which case, the lump sum payment shall be
paid to the Beneficiary's estate.
(iv) Level Income Option -- an increased Pension payable to the
Participant before commencement of Social Security benefits
and a correspondingly reduced Pension after commencement of
Social Security benefits such that the total income (from the
adjusted Pension payable pursuant to the Plan and the Social
Security benefit to which the Participant is entitled) shall
be as level as practicable both before and after commencement
of Social Security benefits. Such Level Income Annuity shall
be payable for a minimum of 60 months. If the Participant
dies during the first 60 months of payment, the Pension (the
amount of which is determined as if the Participant had lived
for the 60 months) shall be payable for the balance of the 60
months to the Beneficiary designated by the Participant when
he elected the option, or the Beneficiary may elect to
receive a lump sum payment equal to the Actuarial Equivalent
of the remaining payments. If both the Participant and the
Participant's Beneficiary die during the first 60 months of
payment, a lump sum payment equal to the Actuarial Equivalent
of the remaining payments shall be paid to the estate of the
Participant unless the Participant's Beneficiary dies after
the Participant, in which case, the lump sum payment shall be
paid to the Beneficiary's estate. Effective January 1, 1995,
this Option shall not be available to a Participant who
retires on or after the date that the Participant attains age
62.
(b) Except as otherwise provided in this Section 7.03(b), the benefit
payable under options (i) through (iv) above shall be the Actuarial
Equivalent of the normal form of payment described in Section 7.01.
With respect to the Joint and Survivor Option, the Actuarial Equi-
valent shall be based on the percentage of the benefit to be
continued to the surviving Beneficiary and the ages of both the
Participant and his designated Beneficiary, but no actuarial
adjustment shall be made to account for the Pop-Up Feature and the
five year certain period. With respect to the Five Year Certain
and Life Option, the Actuarial Equivalent shall be based on the age
of the Participant, but no actuarial adjustment shall be made to
account for the five year certain period. With respect to the Ten
Year Certain and Life Option, the Actuarial Equivalent shall be
based on the age of the Participant and an actuarial adjustment
shall be made to account for the ten year certain period. With
respect to the Level Income Option, the Actuarial Equivalent shall
be based on the age of the Participant and an estimate of the
Social Security benefit that will be payable to the Participant
assuming that the Participant will commence receiving Social
Security Benefits on the date the Participant attains age 65, but
no actuarial adjustment shall be made to account for the five year
certain period.
(c) A Participant who is not credited with an Hour of Service on or
after January 1, 1995, and who is not on an approved Leave of
Absence as of January 1, 1995, may, subject to the provisions of
Section 7.04, elect to convert the automatic form of the Pension
otherwise payable to him (other than a disability retirement
Pension) into one of the optional forms of benefit available in
accordance with the terms of the Plan in effect on December 31,
1994.
7.04 Election of Options
(a) A married Participant's election of any option shall be effective
only if the Administrative Committee receives Spousal Consent to
the election unless:
(i) The option is the Actuarial Equivalent of the Qualified
Joint and Survivor Annuity; and
(ii) The option provides for monthly payments to the Partici-
pant's Spouse for life after the Participant's death in an
amount equal to at least 50% but not more than 100% of the
monthly amount payable to the Participant under the option.
(b) The Administrative Committee shall furnish to each Participant,
no less than 30 days and no more than 90 days before his Annuity
Starting Date, a written explanation in nontechnical language of
the terms and conditions of the benefit payable to the
Participant in the automatic and optional forms described in
Sections 7.02(a) and 7.03. Such explanation shall include a
general description of the eligibility conditions for, and the
material features and relative values of, the automatic and
optional forms of benefit under the Plan, any rights the
Participant may have to defer commencement of his benefit, the
requirement for Spousal Consent as provided in Section 7.04(a),
and the right of the Participant to make and to revoke elections
under Section 7.03. An election under Section 7.03 shall be made
on a form provided by the Administrative Committee, and may be
made only during the 90-day period ending on the Participant's
Annuity Starting Date, but not prior to the date the Participant
receives the written explanation described in this
Section 7.04(b).
(c) An election of an option under Section 7.03 may be revoked on a
form provided by the Administrative Committee, and subsequent
elections and revocations may be made at any time and from time
to time during the 90-day election period. An election of an
optional benefit shall be effective on the Participant's Annuity
Starting Date. A revocation of any election shall be effective
when the completed form is filed with the Administrative
Committee. If a Participant who has elected an optional benefit
dies before the date the election of the option becomes
effective, the election shall be revoked except as provided in
Section 8.01. If the Beneficiary designated under an option dies
before the date the election of the option becomes effective, the
election shall be revoked.
(d) Notwithstanding the foregoing subsections, if a Participant, who
has been given the written explanation described in Section
7.04(b) (referred to as the "Written Explanation"), affirmatively
elects a form of distribution and, where applicable, the
Participant's spouse consents to such form of distribution the
Participant's Annuity Starting Date may be less than thirty (30)
days after the Written Explanation is given to the Participant
provided that:
(i) The Company notifies the Participant that he has the right
to a period of at least thirty (30) days after receipt of
the Written Explanation to consider whether ot not to elect
a distribution;
(ii) The Company notifies the Participant that he has the right
to revoke his election to commence receiving his
distribution during the period ending seven (7) days after
the Participant receives the Written Explanation, or , if
later, the Participant's Annuity Starting Date;
(iii) The Participant's Annuity Starting Date is after the date
the Written Explanation is provided to the Participant;
provided, however, that the Participant's Annuity Starting
Date may be before the Participant makes an affirmative
election to commence distribution and before the expiration
of the period described in Section 7.04(d)(ii); and
(iv) The actual distribution of benefits to the Participant does
not commence before the expiration of the period described
in Section 7.04(d)(ii).
7.05 Method of Payment for Eligible Rollover Distributions
(a) Notwithstanding any provision of the Plan to the contrary,
effective January 1, 1993, if a Distributee is entitled to
receive an Eligible Rollover Distribution which exceeds $200, the
Distributee may elect, at the time and in the manner prescribed
by the Administrative Committee, and in accordance with this
Section 7.05, to have his Eligible Rollover Distribution paid in
accordance with one of the following methods:
(i) All of the Eligible Rollover distribution shall be paid
directly to the Distributee;
(ii) All of the Eligible Rollover Distribution shall be paid as
a Direct Rollover to the Eligible Retirement Plan
designated by the Distributee; or
(iii) The portion of the Eligible Rollover Distribution
designated by the Participant, which portion shall be at
least $500, shall be paid as a Direct Rollover to the
Eligible Retirement Plan designated by the Distributee and
the balance of the Eligible Rollover Distribution shall be
paid directly to the Distributee.
(b) No less than 30 days and no more than 90 days prior to the
Distributee's Annuity Starting Date, the Administrative Committee
shall provide the Distributee with an election form and a notice
that satisfies the requirements of Section 1.411(a)-11(c) of the
Income Tax Regulations and Section 402(f) of the Code. In the
event the Distributee does not return the signed election form by
his Annuity Starting Date, he shall be deemed to have elected the
method of payment described in Section 7.05(a)(i).
(c) Notwithstanding the provisions of Section 7.05(b) above,
distributions paid in accordance with Section 7.05(a) may
commence less than 30 days after the material described in
Section 7.05(b) is given to the Distributee provided that:
(i) If the Distributee is the Participant, the Actuarial
Equivalent of the Participant's vested Accrued Pension does
not exceed $5,000 ($3,500 prior to August 5, 1997);
(ii) If the Distributee is the Participant's Spouse, the
Actuarial Equivalent of the Spouse's Pension does not
exceed $5,000 ($3,500 prior to August 5, 1997);
(iii) The Distributee is notified that he has the right to a
period of at least 30 days after receipt of the material to
consider whether or not to elect a distribution; and
(iv) After receipt of such notification, he affirmatively elects
to receive a distribution.
(d) The following definitions apply to the terms used in this
Section 7.05:
(i) "Eligible Rollover Distribution" 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 designated beneficiary, or for a
specified period of ten years or more;
(B) Any distribution to the extent such distribution is
required under Section 401(a)(9) of the Code;
(C) The portion of any distribution that is not
includible in gross income (determined without regard
to the exclusion for net unrealized appreciation with
respect to employer securities); and
(D) Any other type of distribution that the Internal
Revenue Service announces (pursuant to regulation,
notice or otherwise) is not an Eligible Rollover
Distribution pursuant to Section 402(c) of the Code.
(ii) "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.
(iii) "Distributee" includes an Employee or former Employee. In
addition, the Employee's or former Employee's surviving
Spouse and the Employee's or former Employee's Spouse or
former Spouse who is the "alternate payee," as defined in
Section 414(p)(8) of the Code, pursuant to a Qualified
Domestic Relations Order are Distributees with regard to
the interest of the Spouse or former Spouse.
(iv) "Direct Rollover" means a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
7.06 Commencement of Payments
(a) Except as otherwise provided in this Article 7, payment of a
Participant's Pension shall begin as soon as administratively
practicable following the latest of (i) the date the Participant
attains age 65, (ii) the fifth anniversary of the date on which
he became a Participant, or (iii) the date the Participant
terminates service with the Employer (but not more than 60 days
after the close of the Plan Year in which the latest of (i), (ii)
or (iii) occurs).
(b) Notwithstanding the foregoing, distributions to a Participant
shall be required by the April 1 following the calendar year in
which he/she attains age seventy and one-half (70.5) or retires,
except that a distribution to a Participant who owns five percent
(5%) or more of the outstanding stock of the Employer (or stock
possessing more than five percent (5%) of the total combined
voting power of all Employer stock, a ("5% owner") must commence
by the April 1 of the calendar year in which he or she attains
age seventy and one-half (70.5).
In the event a Participant's benefit commences under this
subsection while the Participant is in active service, such
required beginning date shall be the Participant's Annuity
Starting Date for purposes of this Article 6, and the Participant
shall receive a late retirement benefit commencing on or before
his required beginning date in an amount determined as if he had
retired on his required beginning date. As of each succeeding
January 1 prior to the Participant's actual late retirement date
and as of his actual late retirement date, the Participant's
benefit shall be recomputed to reflect additional accruals. The
Participant's recomputed benefit shall then be reduced by the
Actuarial Equivalent value of the total payments of his late
retirement benefits, which were paid prior to each such
recomputation, to arrive at the Participant's late retirement
benefit; provided that no such reduction shall reduce the
Participant's late retirement benefit below the amount of any late
retirement benefit payable to the Participant prior to the
recomputation of his benefit.
(c) In the event a Participant remains in service after the end of
the calendar year in which he attains age 70.5, and payment of
the Participant's benefit is not required to commence under
Section 7.06(c) above, then the benefit upon his late retirement
shall be equal to the greater of:
(i) His Accrued Benefit as of his actual retirement date; or
(ii) His Accrued Benefit as of the April 1st that next follows
the Plan Year in which he attains age 70.5 recomputed in
accordance with regulations issued by the Secretary of the
Treasury as of the first day of each subsequent Plan Year
(and as of his actual retirement date), less the Actuarial
Equivalent of any distribution he has received, if any,
subsequent to the aforementioned April 1st.
(d) Notwithstanding any provision of this Plan to the contrary, all
Plan distributions shall conform to the regulations issued under
Section 401(a)(9) of the Code, including the incidental death
benefit provisions of Section 401(a)(9)(G) of the Code. Further,
such regulations shall override any Plan provision that is
inconsistent with Section 401(a)(9) of the Code.
With respect to distributions made under this subsection for
calendar years beginning on or after January 1, 2001, the Plan
will apply the minimum distribution requirements of section
401(a)(9) of the Internal Revenue Code in accordance with the
regulations under section 401(a)(9) that were proposed on January
17, 2001, notwithstanding any provision of the Plan to the
contrary. This amendment shall continue in effect until the end
of the last calendar year beginning before the effective date of
final regulations under section 401(a)(9) or such other date as
may be specified in guidance published by the Internal Revenue
Service.
Notwithstanding the foregoing, Participants who attained age 70.5 prior
to January 1, 1997 shall continue to receive minimum distributions in
accordance with the terms of the Plan in effect at that time.
Article 8. Death Benefits
8.01 Spouse's Pension
(a) If a married Participant, who is credited with an Hour of Service
on or after January 1, 1995, or who is on an approved Leave of
Absence as of January 1, 1995, dies prior to his Annuity Starting
Date and while in the active service of the Employer or an
Affiliated Employer after having met the requirements for any
vested Pension, a Pension shall be payable to his surviving Spouse
for life in accordance with the following:
(i) If the Participant dies after a date on which he could have
retired pursuant to Section 5.01, 5.02 or 5.03, whichever is
applicable, the Spouse's Pension shall be an amount payable
as if the Participant had retired and elected the 100% Joint
and Survivor Annuity described in Section 7.03(a)(i) on the
day before his death. Payment of the Spouse's Pension shall
commence on the first day of the calendar month following the
Participant's date of death, unless the Spouse makes a
written election to defer commencement to a later date, which
date shall not be later than the date the Participant would
have attained age 65.
(ii) If the Participant dies before a date on which he could have
retired, the Spouse's Pension shall be an amount payable as
if the following events had occurred: (A) the Participant
separated from service on the date of his death or, if
earlier, the date of his actual separation from service, (B)
the Participant survived to the earliest date he could have
retired, (C) the Participant retired and elected an immediate
payment of the 100% Joint and Survivor Annuity described in
Section 7.03(a)(i), and (D) the Participant died on the day
after the earliest date he could have retired. Payment of
the Spouse's Pension shall commence on the first day of the
calendar month following the earliest date the Participant
could have retired, unless the Spouse makes a written
election to defer commencement to a later date, which date
shall not be later than the date the Participant would have
attained age 65.
(b) If a married Participant, who is credited with an Hour of Service
on or after January 1, 1995, or who is on an approved Leave of
Absence as of January 1, 1995, dies prior to his Annuity Starting
Date and after having terminated from the Employer or an Affiliated
Employer after having become entitled to a vested Pension, a
Pension shall be payable to his surviving Spouse for life in
accordance with the following:
(i) If the Participant dies after a date on which he could have
retired pursuant to Section 5.01, 5.02 or 5.03, whichever is
applicable, the Spouse's Pension shall be an amount payable
as if the Participant had retired and elected the 75% Joint
and Survivor Annuity described in Section 7.03(a)(i) on the
day before his death. Payment of the Spouse's Pension shall
commence on the first day of the calendar month following the
Participant's date of death, unless the Spouse makes a
written election to defer commencement to a later date, which
date shall not be later than the date the Participant would
have attained age 65.
(ii) If the Participant dies before a date on which he could have
retired, the Spouse's Pension shall be an amount payable as
if the following events had occurred: (A) the Participant
separated from service on the date of his death or, if
earlier, the date of his actual separation from service, (B)
the Participant survived to the earliest date he could have
retired, (C) the Participant retired and elected an immediate
payment of the 75% Joint and Survivor Annuity described in
Section 7.03(a)(i), and (D) the Participant died on the day
after the earliest date he could have retired. Payment of
the Spouse's Pension shall commence on the first day of the
calendar month following the earliest date the Participant
could have retired, unless the Spouse makes a written
election to defer commencement to a later date, which date
shall not be later than the date the Participant would have
attained age 65.
(c) If a married Participant, who is not credited with an Hour of
Service on or after January 1, 1995, and who is not on an approved
Leave of Absence as of January 1, 1995, dies prior to his Annuity
Starting Date and after having become entitled to a vested Pension,
a Pension shall be payable to his surviving Spouse for life in
accordance with the terms of the Plan in effect on December 31,
1994.
(d) In any case, an immediate lump sum payment, which is equal to the
Actuarial Equivalent of the Spouse's Pension shall be made in lieu
of the Spouse's Pension if the value of the lump sum payment is
equal to or less than $5,000 (prior to August 5, 1997 this amount
was $3,500). The lump sum payment may be made at any time on or
after the date the Participant dies. However, if a lump sum
payment is to be made after payment of the Spouse's Pension is to
commence, the Spouse must consent in writing to such form of
distribution.
8.02 Children's Pension
(a) If a Participant, who is credited with an Hour of Service on or
after January 1, 1995, or who is on an approved Leave of Absence as
of January 1, 1995, dies prior to his Annuity Starting Date after
having met the requirements for any vested Pension, and the
Participant is not survived by a Spouse, but is survived by a child
or children who are under the age of 23, a Pension shall be payable
to such surviving child or children in equal shares. The total
amount of the Pension payable to the surviving child or children
shall be equal to the following:
(i) If the Participant dies after a date on which he could have
retired pursuant to Section 5.01, 5.02 or 5.03, whichever is
applicable, the Pension payable as if the Participant had
retired on the day before his death.
(ii) If the Participant dies before a date on which he could have
retired, the Actuarial Equivalent of the Pension payable as
if the following events had occurred: (A) the Participant
separated from service on the date of his death or, if
earlier, the date of his actual separation from service, and
(B) the Participant retired on the earliest date he could
have retired.
Such benefit shall be payable until each such child attains age 23;
provided, however, that such annuity shall be payable for a minimum
of 60 months.
(b) If a Participant's surviving Spouse dies after benefits have
commenced pursuant to Section 8.01, and the Surviving Spouse is
survived by a child or children of the Participant who are under
the age of 23, a Pension equal to the benefit received by the
surviving Spouse pursuant to Section 8.01 prior to her death shall
be payable to such surviving child or children in equal shares
until each one attains age 23; provided, however, that if the
Participant is credited with an Hour of Service on or after January
1, 1995, or the Participant is on an approved Leave of Absence as
of January 1, 1995, such annuity shall be payable for a minimum of
60 months (including the payments to the Spouse).
(c) In any case, an immediate lump sum payment, which is equal to the
Actuarial Equivalent of the Pension payable to the surviving child
or children shall be made in lieu of such Pension if the value of
the lump sum payment is equal to or less than $5,000 (prior to
August 5, 1997 this amount was $3,500). The lump sum payment may
be made at any time on or after the date the Participant or Spouse
dies, whichever is applicable.
8.03 Death Benefit Payable to Participant's Estate
If a Participant, who is credited with an Hour of Service on or
after January 1, 1995, or who is on an approved Leave of Absence as
of January 1, 1995, dies prior to his Annuity Starting Date after
having met the requirements for any vested Pension, and the
Participant is not survived by a Spouse or children under the age
of 23, a single lump sum payment shall be immediately payable to
his estate in an amount equal to the Actuarial Equivalent of the
following:
(a) If the Participant dies after a date on which he could have
retired pursuant to Section 5.01, 5.02 or 5.03, whichever is
applicable, the Pension payable as if the Participant had
retired on the day before his death and elected the Five Year
Certain and Life Annuity described in Section 7.03(a)(ii).
(b) If the Participant dies before a date on which he could have
retired, the Pension payable as if the following events had
occurred: (A) the Participant separated from service on the
date of his death or, if earlier, the date of his actual
separation from service, (B) the Participant survived to the
earliest date he could have retired, (C) the Participant
retired and elected an immediate payment of the Five Year
Certain and Life Annuity described in Section 7.03(a)(ii),
and (D) the Participant died on the day after the earliest
date he could have retired.
8.04 Accumulated Contributions
In the event that a Participant's Accumulated Contributions exceed the
aggregate benefits paid under the Plan to the Participant and each of
the Participant's Beneficiaries as of the date that such payments cease
under the terms of the Plan (or if no payments are otherwise payable
under the terms of the Plan), an immediate lump sum distribution of
such excess shall be payable in the following order of priority: (a) to
the Participant's surviving child or children in equal shares, (b) the
estate of the last to die of the surviving children, (c) to the
Participant's Beneficiary, (d) the estate of the Participant's
Beneficiary, or (e) the estate of the Participant.
Article 9. Administration of the Plan
9.01 Appointment of Administrative Committee
The general administration of the Plan and the responsibility for
carrying out the provisions of the Plan shall be placed in the
Administrative Committee appointed by the President of the Company to
serve at the pleasure of the President. The Administrative Committee
shall be composed of at least 3 members. Any person appointed a member
of the Administrative Committee shall signify his acceptance by filing
written acceptance with the President of the Company. Any member of
the Administrative Committee may resign by delivering his written
resignation to the President of the Company.
9.02 Duties of Administrative Committee
The members of the Administrative Committee (i) shall elect a
chairperson from their number and a secretary who may be, but need not
be, one of the members of the Administrative Committee; (ii) may
appoint from their number such subcommittees with such powers as they
shall determine; (iii) may authorize one or more of their number or any
agent to execute or deliver any instrument or make any payment on their
behalf; (iv) may retain counsel, employ agents and provide for such
clerical, accounting, actuarial and consulting services as they may
require in carrying out the provisions of the Plan; and (v) may
allocate among themselves or delegate to other persons all or such
portion of their duties under the Plan, other than those granted to the
Trustee under the trust instrument adopted for use in implementing the
Plan, as they, in their sole discretion, shall decide.
9.03 Meetings
The Administrative Committee shall hold meetings upon such notice, at
such place or places, and at such time or times as the members of the
Administrative Committee may from time to time determine.
9.04 Action of Majority
Any act which the Plan authorizes or requires of the Administrative
Committee shall be done by a majority of its members. The action of
that majority expressed from time to time by a vote at a meeting or in
writing without a meeting shall constitute the action of the
Administrative Committee and shall have the same effect for all
purposes as if assented to by all members of the Administrative
Committee at the time in office.
9.05 Compensation and Bonding
No member of the Administrative Committee shall receive any
compensation from the Plan for his services as such. The Company shall
purchase such bonds as may be required under ERISA.
9.06 Establishment of Rules
Subject to the limitations of the Plan, the Administrative Committee
shall prescribe such forms, make such rules, regulations,
interpretations and computations, and shall take such other action to
administer the Plan, as it may deem appropriate. In administering the
Plan, the Administrative Committee shall act in a uniform and
nondiscriminatory manner and in full accordance with any and all laws
applicable to the Plan.
9.07 Manner of Administering
The Administrative Committee shall have the sole and complete
discretion to interpret and administer the terms of the Plan and to
determine eligibility for benefits and the amount of any such benefits
pursuant to the terms of the Plan, and in so doing the Administrative
Committee may correct defects, supply omissions and reconcile
inconsistencies to the extent necessary to effectuate the Plan, and
such actions shall be binding and conclusive on all persons.
9.08 Prudent Conduct
The members of the Administrative Committee shall use that degree of
care, skill, prudence and diligence that a prudent person acting in a
like capacity and familiar with such matters would use in a similar
situation.
9.09 Service In More Than One Fiduciary Capacity
Any individual, entity or group of persons may serve in more than one
fiduciary capacity with respect to the Plan and/or the funds of the
Plan.
9.10 Limitation of Liability
The Employer, the members of the Board of Directors, the members of the
Administrative Committee, and any officer, employee or agent of the
Employer shall not incur any liability individually or on behalf of any
other individuals or on behalf of the Employer for any act, or failure
to act, made in good faith in relation to the Plan or the funds of the
Plan. However, this limitation shall not act to relieve any such
individual or the Employer from a responsibility or liability for any
fiduciary responsibility, obligation or duty under Part 4, Title I of
ERISA.
9.11 Indemnification
The members of the Administrative Committee, members of the Board of
Directors, officers, employees and agents of the Employer shall be
indemnified against any and all liabilities arising by reason of any
act, or failure to act, in relation to the Plan or the funds of the
Plan, including, without limitation, expenses reasonably incurred in
the defense of any claim relating to the Plan or the funds of the Plan,
and amounts paid in any compromise or settlement relating to the Plan
or the funds of the Plan, except for willful and intentional actions or
failures to act. The foregoing indemnification shall be from the funds
of the Plan to the extent of those funds and to the extent permitted
under applicable law; otherwise from the assets of the Employer.
9.12 Expenses of Administration
All expenses that arise in connection with the administration of the
Plan, including but not limited to the compensation of the Trustee,
administrative expenses and proper charges and disbursements of the
Trustee and compensation and other expenses and charges of any enrolled
actuary, counsel, accountant, specialist, or other person who has been
retained by the Administrative Committee in connection with the
administration thereof, shall be paid from the Trust to the extent not
paid by the Employer.
9.13 Claims and Review Procedures
(a) Applications for benefits and inquiries concerning the Plan (or
concerning present or future rights to benefits under the Plan)
shall be submitted to the Administrative Committee in writing.
An application for benefits shall be submitted on the prescribed
form and shall be signed by the applicant.
(b) In the event that an application for benefits is denied in whole
or in part, the Administrative Committee shall notify the
applicant in writing of the denial and of the right to review of
the denial. The written notice shall set forth, in a manner
calculated to be understood by the applicant, specific reasons
for the denial, specific references to the provisions of the Plan
on which the denial is based, a description of any information or
material necessary for the applicant to perfect the application,
an explanation of why the material is necessary, and an
explanation of the review procedure under the Plan. The written
notice shall be given to the applicant within a reasonable period
of time (not more than 90 days) after the Administrative
Committee receives the application, unless special circumstances
require further time for processing and the applicant is advised
of the extension. In no event shall the notice be given more
than 180 days after the Administrative Committee receives the
application.
(c) An applicant whose application for benefits was denied in whole
or part, or the applicant's duly authorized representative, may
appeal the denial by submitting to the Administrative Committee a
request for a review of the application within 60 days after
receiving written notice of the denial from the Administrative
Committee. The Administrative Committee shall give the applicant
or his representative an opportunity to review pertinent
materials, other than legally privileged documents, in preparing
the request for a review. The request for a review shall be in
writing and addressed to the Administrative Committee. The
request for a review shall set forth all of the grounds on which
it is based, all facts in support of the request and any other
matters that the applicant deems pertinent. The Administrative
Committee may require the applicant to submit such additional
facts, documents or other materials as it may deem necessary or
appropriate in making its review.
(d) The Administrative Committee shall act on each request for a
review within 60 days after receipt, unless special circumstances
require further time for processing and the applicant is advised
of the extension. In no event shall the decision on review be
rendered more than 120 days after the Administrative Committee
receives the request for a review. The Administrative Committee
shall give prompt written notice of its decision to the
applicant. In the event that the Administrative Committee
confirms the denial of the application for benefits in whole or
in part, the notice shall set forth, in a manner calculated to be
understood by the applicant, the specific reasons for the
decision and specific references to the provisions of the Plan on
which the decision is based.
(e) No legal action for benefits under the Plan shall be brought
unless and until the claimant (i) has submitted a written
application for benefits in accordance with paragraph (a), (ii)
has been notified by the Administrative Committee that the
application is denied, (iii) has filed a written request for a
review of the application in accordance with paragraph (c) and
(iv) has been notified in writing that the Administrative
Committee has affirmed the denial of the application; provided,
however, that legal action may be brought after the
Administrative Committee has failed to take any action on the
claim within the time prescribed by paragraphs (b) and (d) above.
Article 10. Management of Funds
10.01 The Trustee
All the funds of the Plan shall be held in the Trust by a Trustee
appointed from time to time by the Company under a trust instrument
adopted, or as amended, by the Company for use in providing the
benefits of the Plan and paying its expenses not paid directly by an
Employer. No Employer shall have any liability for the payment of
benefits under the Plan nor for the administration of the Trust held by
the Trustee.
10.02 Exclusive Benefit Rule
Except as otherwise provided in the Plan, no part of the corpus or
income of the funds of the Plan shall be used for, or diverted to,
purposes other than for the exclusive benefit of Participants and other
persons entitled to benefits under the Plan, and paying Plan expenses
not otherwise paid by the Employer, before the satisfaction of all
liabilities with respect to them. No person shall have any interest in
or right to any part of the earnings of the Trust, or any right in, or
to, any part of the assets held under the Plan, except as and to the
extent expressly provided in the Plan.
10.03 Appointment of Investment Manager
The Company, in its sole discretion, shall determine the investment
policy for the Plan. However, the Company may, in its sole discretion,
appoint one or more Investment Managers to manage the assets of the
Plan (including the power to acquire and dispose of all or part of such
assets) as the Company shall designate. In that event, the authority
over and responsibility for the management of the assets so designated
shall be the sole responsibility of that Investment Manager.
Article 11. Amendment, Merger and Termination
11.01 Amendment of the Plan
The Company, by action of its Board of Directors, may at any time and
from time to time, and retroactively if deemed necessary or
appropriate, amend in whole or in part any or all of the provisions of
the Plan. However, no amendment shall make it possible for any part of
the funds of the Plan to be used for, or diverted to, purposes other
than for the exclusive benefit of persons entitled to benefits under
the Plan, before the satisfaction of all liabilities with respect to
them. No amendment shall be made which has the effect of decreasing
the Accrued Pension of any Participant or of reducing the
nonforfeitable percentage of the Accrued Pension of a Participant below
the nonforfeitable percentage computed under the Plan as in effect on
the date on which the amendment is adopted or, if later, the date on
which the amendment becomes effective. No amendment shall be made
which affects the rights, duties or responsibilities of the Trustee
unless the Trustee provides written consent to such amendment.
11.02 Merger or Consolidation
The Company may, in its sole discretion, merge this Plan with another
qualified plan, subject to any applicable legal requirements. However,
the Plan may not be merged or consolidated with, and its assets or
liabilities may not be transferred to, any other plan unless each
person entitled to benefits under the Plan would, if the resulting plan
were 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.
11.03 Additional Participating Employers
(a) If any company is now or becomes a subsidiary or associated
company of an Employer, the Company may include the employees of
that company as participants in the Plan upon appropriate action
by that company necessary to adopt the Plan. In that event, or
if any persons become Employees of an Employer as the result of
merger or consolidation or as the result of acquisition of all or
part of the assets or business of another company, the Company
shall determine to what extent, if any, credit and benefits shall
be granted for previous service with the subsidiary, associated
or other company, but subject to the continued qualification of
the trust for the Plan as tax-exempt under the Code.
(b) Any subsidiary or associated company may terminate its
participation in the Plan upon appropriate action by it. In that
event, the Company may, in its sole discretion (i) retain all or
a portion of the Participants in the employ of that associated
company as terminated participants in the Plan or (ii) direct
that the Trustee segregate the funds of the Plan held on account
of all or a portion of the Participants in the employ of that
associated company, and direct that the segregated assets be spun
off into a separate plan to be administered by the associated
company.
11.04 Termination of the Plan
The Company, by action of its Board of Directors, may terminate the
Plan for any reason at any time. In case of termination of the Plan,
the rights of Participants to their Accrued Pensions as of the date of
the termination, to the extent then funded or protected by law, if
greater, shall be nonforfeitable. The funds of the Plan shall be used
for the exclusive benefit of persons entitled to benefits under the
Plan as of the date of termination, except as provided in Section 3.06.
However, any funds not required to satisfy all liabilities of the Plan
for benefits because of erroneous actuarial computation shall be
returned to the Company. The Administrative Committee shall determine
on the basis of actuarial valuation the share of the funds of the Plan
allocable to each person entitled to benefits under the Plan in
accordance with Section 4044 of ERISA, or corresponding provision of
any applicable law in effect at the time. In the event of a partial
termination of the Plan, the provisions of this Section 11.04 shall be
applicable to the Participants affected by that partial termination.
Article 12. General Provisions
12.01 Nonalienation; Qualified Domestic Relations Orders
(a) Except as required by any applicable law, no benefit under the
Plan shall in any manner be anticipated, assigned or alienated,
and any attempt to do so shall be void. However, payment shall
be made in accordance with the provisions of any Qualified
Domestic Relations Order.
(b) An immediate lump sum payment, which is the Actuarial Equivalent
of the series of payments provided for in a Qualified Domestic
Relations Order, shall be made in lieu of the series of payments
if the value of the lump sum payment is $3,500 or less.
12.02 Conditions of Employment Not Affected by Plan
The establishment of the Plan shall not confer any legal rights upon
any Employee or other person for a continuation of employment, nor
shall it interfere with the right of the Employer (which right is
hereby reserved) to discharge any Employee and to treat him without
regard to the effect which that treatment might have upon him as a
Participant or potential Participant of the Plan.
12.03 Facility of Payment
(a) If the Administrative Committee finds that a Participant or other
person entitled to a benefit is unable to care for his affairs
because of illness or accident, the Administrative Committee may
direct that any benefit due him, unless a claim has been made for
the benefit by a duly appointed legal representative, be paid to
his Spouse, a child, a parent or other blood relative, or to a
person with whom he resides. Any payment so made shall be a
complete discharge of the liabilities of the Plan for that
benefit.
(b) If the Administrative Committee finds that a Participant or other
person entitled to a benefit is a minor, the Administrative
Committee may direct that any benefit due him, unless a claim has
been made for the benefit by a duly appointed legal
representative, be paid in the following order of preference: (i)
to the minor's custodial parent(s); (ii) if no custodial parent
of the minor is then living, to a custodian selected by the
Administrative Committee to hold the funds for the minor under
the Uniform Transfers or Gifts to Minors Act in effect in the
jurisdiction in which the minor resides; (iii) if the
Administrative Committee decides not to select a custodian
pursuant to subparagraph (ii), to the duly appointed and
currently acting guardian of the estate of the minor; or (iv) if
no guardian of the estate of the minor is duly appointed or
currently acting within 60 days of the date the amount becomes
payable, to the court having jurisdiction over the estate of the
minor.
12.04 Information
(a) Each Participant, Beneficiary or other person entitled to a
benefit, before any benefit shall be payable to him or on his
account under the Plan, shall file with the Administrative
Committee the information that it shall require to establish his
rights and benefits under the Plan.
(b) If a Participant in his application for retirement income, or in
response to any request by the Employer or Administrative
Committee for information, makes any statement which is erroneous
or omits any material fact or fails before receiving his first
payment to correct any information that he previously incorrectly
furnished to the Employer or the Administrative Committee for its
records, the amount of his Pension shall be adjusted on the basis
of the current facts, and the amount of any overpayment or
underpayment made to the Participant shall be deducted from, or
added to, his next succeeding payments as the Administrative
Committee shall direct.
12.05 (Reserved)
12.06 Proof of Death and Right of Beneficiary or Other Person
The Administrative Committee may require and rely upon such proof of
death and such evidence of the right of any Beneficiary or other person
to receive the value of the Plan benefits of a deceased Participant as
the Administrative Committee may deem proper, and its determination of
death and of the right of that Beneficiary or other person to receive
payment shall be conclusive.
12.07 Failure to Locate Recipient
In the event that the Administrative Committee is unable to locate a
Participant or Beneficiary who is entitled to payment under the Plan
within 7 years from the date such payment was to have been made, the
amount to which such Participant or Beneficiary was entitled shall be
declared a forfeiture and shall be used to reduce future Employer
contributions to the Plan. If the Participant or Beneficiary is later
located, the benefit which was previously forfeited hereunder shall be
restored by means of an additional Employer contribution to the Plan,
if necessary.
12.08 Action by the Board of Directors
Any action required or permitted to be taken by the Board of Directors
under the Plan shall be by resolution adopted by the Board of Directors
at a meeting held either in person or by telephone or other electronic
means, or by unanimous written consent in lieu of a meeting. The Board
of Directors may, in its discretion, appoint the Executive Committee or
another Committee to take those actions on its behalf which are the
responsibility of the Board of Directors in accordance with the terms
of the Plan.
12.09 Construction
(a) The Plan shall be construed, regulated and administered pursuant
to the laws of the State of California, except where ERISA
controls.
(b) If any provision of this instrument is held by a court of
competent jurisdiction to be invalid or unenforceable, the
remaining provisions hereof shall continue to be fully effective.
(c) The use of the masculine pronoun in this Plan shall include the
feminine pronoun wherever appropriate, and vice versa.
(d) The use of the singular form of a word in this Plan shall include
the plural form wherever appropriate, and vice versa.
(e) The titles and headings of the Articles and Sections in this Plan
are for convenience only. In the case of ambiguity or
inconsistency, the text rather than the titles or headings shall
control.
Execution of the Plan
The Farmer Bros. Co. Retirement Plan is hereby executed this 27th day of
February, 2002.
/s/ John E. Simmons
__________________________________________
(Signature)
Treasurer
__________________________________________
(Title)
Appendix A. Maximum Annual Benefit Limitation and Maximum Annual Additions
Limitation
Section 6.01 of the Plan shall be construed in accordance with this Appendix
A. Unless the context clearly requires otherwise, words and phrases used in
this Appendix A shall have the same meanings that are assigned to them under
the Plan.
The Plan Year shall be considered a "limitation year" for purposes of this
Appendix A and Section 415 of the Code.
A.01 Definitions
The following words and phrases, when used in this Appendix A with an initial
capital letter, shall have the following meanings, unless the context clearly
indicates otherwise:
"Annual Additions" on behalf of a Participant under the Plan or any
other qualified plan maintained by the Employer or an Affiliated
Employer for the Plan Year shall not include transfers to the Plan from
any other qualified plan but shall include:
(a) The total contributions made on behalf of the Participant by the
Employer and all Affiliated Employers under any qualified Defined
Contribution Plan,
(b) With respect to limitation years beginning before 1987, the
lesser of the part of the Participant's contributions in excess
of 6% of his Section 415 Compensation or one-half of his total
contributions to any qualified Defined Contribution Plan
maintained by the Employer or an Affiliated Employer,
(c) With respect to Limitation Years beginning after 1986, all of the
Participant's contributions to any qualified Defined Contribution
Plan maintained by the Employer or an Affiliated Employer,
(d) Forfeitures, if applicable, that have been allocated on behalf of
the Participant under any qualified Defined Contribution Plan
maintained by the Employer or an Affiliated Employer,
(e) Voluntary or mandatory contributions made by the Participant
under this Plan or another qualified Defined Benefit Plan
maintained by the Employer or an Affiliated Employer, and
(f) Contributions made on behalf of the Participant to an "individual
medical benefit account" under a pension or annuity plan main-
tained by the Employer or an Affiliated Employer, as described,
and to the extent required, under Section 415(l) of the Code.
"Defined Benefit Plan" means any qualified pension plan which is not a
Defined Contribution Plan; however, in the case of a Defined Benefit
Plan which provides a benefit which is based partly on the balance of
the separate account of a participant, that plan shall be treated as a
Defined Contribution Plan to the extent benefits are based on the
separate account of a participant and as a Defined Benefit Plan with
respect to the remaining portion of the benefits under the plan.
"Defined Benefit Plan Fraction" for any limitation year is a fraction -
(a) The numerator of which is the projected annual benefit of the
Participant (determined as of the close of the limitation year)
under all Defined Benefit Plans maintained by the Employer or an
Affiliated Employer; and
(b) The denominator of which is the lesser of (i) or (ii) below:
(i) The product of 1.25 multiplied by the defined benefit plan
dollar limitation under Section 415(b)(1)(A) of the Code
(automatically adjusted each year as described in
Section A.02(d)) in effect for such limitation year; or
(ii) The product of 1.4 multiplied by an amount that is 100% of
the Participant's average Section 415 Compensation for the
three consecutive years in which his Section 415
Compensation was the highest.
"Defined Contribution Plan" means any qualified pension plan which
provides for an individual account for each participant and for
benefits based solely upon the amount contributed to the participant's
account, and any income, expenses, gains and losses, and any
forfeitures of accounts of other participants which may be allocated to
that participant's accounts, subject to the limitations described in
the definition of "Defined Benefit Plan" above.
"Defined Contribution Plan Fraction" for any limitation year is a
fraction --
(a) The numerator of which is the sum of the Annual Additions made by
the Employer or an Affiliated Employer on behalf of the
Participant for such limitation year and all prior limitation
years; and
(b) The denominator of which is the sum of the lesser of (i) or (ii)
below determined for such limitation year and for each prior year
of service with the Employer or an Affiliated Employer:
(i) The product of 1.25 multiplied by the defined contribution
plan dollar limitation under Section 415(c)(1)(A) of the
Code (automatically adjusted every year as described in
Section A.02(d)); or
(ii) The product of 1.4 multiplied by an amount equal to 25% of
the Participant's Section 415 Compensation for such year.
At the direction of the Administrative Committee, the
portion of the denominator of that fraction with respect to
limitation years ending before 1983 shall be computed as
the denominator for the limitation year ending in 1982, as
determined under the law as then in effect, multiplied by a
fraction the numerator of which is the lesser of:
(A) $51,875; or
(B) 1.4 multiplied by 25% of the Participant's
Section 415 Compensation for the limitation year
ending in 1981;
and the denominator of which is the lesser of:
(A) $41,500; or
(B) 25% of the Participant's Section 415 Compensation for
that limitation year.
"Section 415 Compensation" means wages, salaries, fees for professional
services, and other amounts received (without regard to whether or not
an amount is paid in cash) for personal services actually rendered in
the course of employment with the Employer or an Affiliated Employer to
the extent that the amounts are includible in gross income (including,
but not limited to, commissions paid salespersons, compensation for
services on the basis of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe benefits, reimbursements, and
expense allowances), and excluding:
(a) Contributions made by the Employer or an Affiliated Employer on
behalf of the Participant to the Plan or any other plan of
deferred compensation maintained by the Employer or an Affiliated
Employer;
(b) Amounts realized from the exercise of a non-qualified stock
option;
(c) Amounts realized when restricted stock is no longer subject to
substantial risk of forfeiture;
(d) Amounts realized from the disposition of stock acquired under a
qualified stock option; and
(e) Other amounts that receive special tax benefits.
Effective January 1, 1998, Section 415 Compensation also includes any
pre-tax contributions pursuant to a salary reduction agreement and
which is not includible in the gross income of the Employee under
Sections 125, 401(k), 402(g)(3), 402(h)(1)(B) or 403(b) of the Code.
On or after January 1, 2001, Code Section 132(f) transportation
benefits are also included in determining Section 415 Compensation.
"Social Security Retirement Age" means age 65 with respect to a Parti-
cipant who was born before January 1, 1938; age 66 with respect to a
Participant who was born after December 31, 1937, and before January 1,
1955; and age 67 with respect to a Participant who was born after
December 31, 1954.
A.02 Adjustments to Maximum Annual Benefit Limitation
(a) The maximum annual benefit limitation described in
Section 6.01(a) shall be subject to the following adjustments:
(i) Less than 10 Years of Participation. If the Participant
has not been a Participant in the Plan for at least 10
years, the maximum annual benefit limitation in Sec-
tion 6.01(a)(i) shall be multiplied by the ratio that the
number of years of his participation in the Plan bears
to 10.
(ii) Less than 10 Years of Vesting Service. If the Participant
has not completed 10 Years of Vesting Service, the maximum
annual benefit limitation in Section 6.01(a)(ii) shall be
multiplied by the ratio that the number of his Years of
Vesting Service bears to 10.
(iii) Payment Before Age 62. If the benefit begins before the
Participant attains age 62, the maximum annual benefit
limitation in Section 6.01(a)(i) shall be equal to the
lesser of the Actuarial Equivalent of the maximum annual
benefit limitation at age 62 (as determined in accordance
with Section A.02(a)(iv) below) calculated using the
following:
(i) The early retirement factors prescribed in the Plan
(or in the absence of prescribed factors, the
mortality table and interest rate prescribed in the
definition of Actuarial Equivalent); or
(ii) The IRS Mortality Table and an interest rate equal to
5%. Notwithstanding the foregoing, the mortality
decrement shall be applied only on a post-retirement
basis where the Plan benefits are not subject to
forfeiture upon the Participant's death prior to his
Annuity Starting Date.
(iv) Payment After Age 62 And Before Social Security Retirement
Age. If the benefit begins before the Participant's Social
Security Retirement Age but on or after the date he attains
age 62, the maximum annual benefit limitation in
Section 6.01(a)(i) shall be reduced by 5/9 of one percent
for each of the first 36 months plus 5/12 of one percent
for each additional month by which the Participant is
younger than the Social Security Retirement Age at the date
his benefit begins.
(v) Payment After Social Security Retirement Age. If the
benefit begins after the Participant's Social Security
Retirement Age, the maximum annual benefit limitation in
Section 6.01(a)(i) shall be equal to the lesser of the
Actuarial Equivalent of the maximum annual benefit
limitation at the Participant's Social Security Retirement
Age calculated using:
(i) The deferred retirement factors prescribed in the
Plan (or in the absence of prescribed factors, the
mortality table and interest rate prescribed in the
definition of Actuarial Equivalent); or
(ii) The IRS Mortality Table and an interest rate equal to
5%. Notwithstanding the foregoing, the mortality
decrement shall be applied only on a post-retirement
basis where the Plan benefits are not subject to
forfeiture upon the Participant's death prior to his
Annuity Starting Date.
(b) The limitations in Section 6.01 shall not apply to any
Participant who has not at any time participated in any Defined
Contribution Plan maintained by the Employer or an Affiliated
Employer if the Participant's total annual retirement benefit
payable under the Plan and all other Defined Benefit Plans
maintained by the Employer or an Affiliated Employer does not
exceed $10,000.
(c) A Participant's benefit shall be subject to the following
adjustments before the application of the maximum annual benefit
limitation in Section 6.01(a) and, as so modified, shall be
subject to such limitation:
(i) If the Participant's benefit is payable as a joint and
survivor annuity with his Spouse as the Beneficiary, the
modification of the benefit for that form of payment shall
be made before the application of the maximum limitation in
Section 6.01(a) and, as so modified, shall be subject to
the limitation.
(ii) If the Participant's benefit is payable in a form that is
neither described in Section A.01(c)(i) nor a straight life
annuity, the Participant's benefit shall be converted to a
straight life benefit before the application of the maximum
benefit limitation in Section 6.01(a)(i) and, as so
modified, shall be subject to such limitation. For
purposes of the subsection, the straight life benefit shall
be equal to the greater of the Actuarial Equivalent of the
benefit otherwise payable to the Participant' calculated
using:
(A) The optional benefit factors prescribed in the Plan
(or in the absence of prescribed factors, the
mortality table and interest rate prescribed in the
definition of Actuarial Equivalent); or
(B) The IRS Mortality Table and an interest rate equal to
5%, or, if the form of benefit is subject to Section
417(e)(3) of the Code, an interest rate equal to the
IRS Interest Rate.
(d) As of January 1 of each calendar year commencing on or after
January 1, 1988, the dollar limitation as determined by the
Commissioner of the Internal Revenue Service for that calendar
year shall become effective as the maximum annual benefit
limitation in Section 6.01(a)(i) during the limitation year
ending within that calendar year.
A.03 Maximum Annual Additions Limitation
If a Participant's Annual Additions for any Plan Year would otherwise
exceed the maximum Annual Additions limitation set for in
Section 6.01(b), the excess Annual Additions for such Plan Year shall
be reduced by reducing the contributions made on behalf of the
Participant to the Defined Contribution Plans maintained by the
Employer or an Affiliated Employer during such Plan Year in the manner
and priority set forth in such plans.
A.04 Participant in a Defined Contribution Plan
This Section is repealed for Plan Years beginning January 1, 2000 and
thereafter.
(a) If a Participant under this Plan has at any time participated in
a Defined Contribution Plan maintained by the Employer or an
Affiliated Employer, and if Annual Additions have been made on
behalf of the Participant under such Defined Contribution Plan,
the sum of the Participant's Defined Benefit Plan Fraction and
Defined Contribution Plan Fraction shall not exceed 1.0.
(b) In the event the sum of a Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction exceeds 1.0, his
benefits under, and contributions to, all plans shall be
accomplished by first reducing the benefits otherwise payable to
the Participant under this Plan or any other Defined Benefit Plan
in which the Participant participates (in such priority as shall
be determined by the Administrative Committee for this Plan and
the administrators of such other plans), and second by reducing
the contributions made on behalf of the Participant to Defined
Contribution Plans in which the Participant participates in the
manner and priority set forth in such plans. The necessary
reductions may, however, be made in a different manner and
priority pursuant to the agreement of the Administrative
Committee for this Plan and the administrators of all other plans
in which the Participant participates.
A.05 Preservation of Current Accrued Pension
Notwithstanding anything to the contrary contained in this Appendix A,
a Participant's annual benefit payable under the Plan, prior to any
reduction required by operation of Section A.04, shall in no event be
less than:
(a) The benefit that the Participant had accrued under the Plan as of
the end of the Plan Year beginning in 1982, with no changes in
the terms and conditions of the Plan on or after July 1, 1982,
taken into account in determining that benefit; or
(b) The benefit that the Participant had accrued under the Plan as of
the end of the Plan Year beginning in 1986, with no changes in
the terms and conditions of the Plan after May 5, 1986, taken
into account in determining that benefit.
Appendix B. Top-Heavy Provisions
Section 6.02 of the Plan shall be construed in accordance with this Appendix
B. Unless the context clearly requires otherwise, words and phrases used in
this Appendix B shall have the same meanings that are assigned to them under
the Plan.
B.01 General Definitions
The following words and phrases, when used in this Appendix B with an initial
capital letter, shall have the following meanings, unless the context clearly
indicates otherwise:
"Applicable Determination Date" means the last day of the later of the
first Plan Year or the preceding Plan Year (where two or more plans are
aggregated and they do not have the same Plan Year, the Applicable
Determination Date for each plan shall be such date for each plan which
falls within the same calendar year).
"Applicable Valuation Date" means the valuation date coincident with or
immediately preceding the last day of the first Plan Year or the
preceding Plan Year, whichever is applicable.
"Average Remuneration" means the average annual Remuneration of a
Participant for the five consecutive years of Benefit Service after
December 31, 1983, during which he receives the greatest aggregate
Remuneration from the Employer or an Affiliated Employer, excluding any
Remuneration for service after the last Plan Year with respect to which
the Plan is top-heavy.
"Key Employee" means an Employee who is in a category of Employees
determined in accordance with the provisions of Sections 416(i)(1) and
(5) of the Code and any regulations thereunder, and where applicable,
on the basis of the Employee's Remuneration from the Employer or an
Affiliated Employer.
"Non-Key Employee" means any Employee who is not a Key Employee.
"Permissive Aggregation Group" means each qualified plan in the
Required Aggregation Group and any other qualified plan(s) of the
Employer or an Affiliated Employer in which all Participants are Non-
Key Employees if the resulting aggregation group continues to meet the
requirements of Sections 401(a)(4) and 410 of the Code.
"Remuneration" means "Section 415 Compensation" (as defined in Appendix
A), except that Remuneration for purposes of this Appendix B shall not
exceed the Maximum Compensation Limitation for any Plan Year.
"Required Aggregation Group" means any other qualified plan(s) of the
Employer or an Affiliated Employer in which there are Participants who
are Key Employees or which enable(s) the Plan to meet the requirements
of Sections 401(a)(4) and 410 of the Code.
"Top-Heavy Ratio" means the ratio of (a) the present value of the
Accrued Pensions under the Plan for Key Employees to (b) the present
value of the Accrued Pensions under the Plan for all Key Employees and
Non-Key Employees. The Top-Heavy Ratio shall be determined as of the
Applicable Valuation Date in accordance with Sections 416(g)(3) and (4)
of the Code utilizing the Plan's actuarial funding assumptions. For
purposes of determining the Top-Heavy Ratio:
(a) The present value of Accrued Pensions under the Plan shall be
combined with the present value of accrued pensions or account
balances under each other qualified plan in the Required
Aggregation Group and, in the discretion of the Administrative
Committee, may be combined with the present value of accrued
pensions or account balances under any other qualified plan in
the Permissive Aggregation Group;
(b) The present value of accrued pensions or account balances of all
Non-Key Employees who were Key Employees during any prior Plan
Year shall not be taken into account;
(c) Distributions made during the five-year period ending on the
Applicable Determination Date shall be taken into account; and
(d) The present value of accrued pensions or account balances of
Participants who have not performed services for the Employer or
an Affiliated Employer during the five-year period ending on the
Applicable Determination Date shall not be taken into account.
B.02 Top-Heavy Definition
The Plan shall be "top-heavy" with respect to any Plan Year if, as of
the Applicable Determination Date, the Top-Heavy Ratio exceeds 60%.
B.03 Provisions Applicable When The Plan Is Top-Heavy
(a) The following provisions shall be applicable to Participants for
any Plan Year with respect to which the Plan is top-heavy:
(i) The Accrued Pension of a Participant who is a Non-Key Em-
ployee shall not be less than 2% of his Average
Remuneration multiplied by the number of years of his
Benefit Service, not in excess of 10, during the Plan Years
after 1983 for which the Plan is top-heavy. That minimum
benefit shall be payable at a Participant's Normal
Retirement Date. If payments commence at a time other than
the Participant's Normal Retirement Date, the minimum
Accrued Pension shall be the Actuarial Equivalent of that
minimum benefit.
(ii) A Participant shall vest in his Accrued Pension Derived
from Employer Contributions in accordance with the
following schedule in lieu of the provisions of
Section 4.01(b):
Years of Vesting Service
Vesting Percentage
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 or more 100%
However, in no event shall the Participant's vested
percentage in his Accrued Pension Derived from Employer
Contributions determined under this Section B.03(a)(ii) be
less than the Participant's vested percentage determined
under Section 4.01(b).
(iii) The 1.25 multiplier in the definitions of "Defined Benefit
Plan Fraction" and "Defined Contribution Plan Fraction" in
Section A.01 of Appendix A shall be reduced to 1.0, and the
$51,875 dollar amount in the definition of "Defined
Contribution Plan Fraction" in Section A.01 of Appendix A
shall be reduced to $41,500.
(b) If the Plan is top-heavy with respect to a Plan Year and ceases
to be top-heavy for a subsequent Plan Year, the following
provisions shall be applicable:
(i) The Accrued Pension in any such subsequent Plan Year shall
not be less than the minimum Accrued Pension provided in
Section B.03(a)(i) computed as of the end of the most
recent Plan Year for which the Plan was top-heavy.
(ii) If a Participant has completed three Years of Vesting
Service on or before the last day of the most recent Plan
Year for which the Plan was top-heavy, the vesting schedule
set forth in Section B.03(a)(ii) shall continue to be
applicable.
(iii) If a Participant has completed at least two, but less than
three, Years of Vesting Service on or before the last day
of the most recent Plan Year for which the Plan was top-
heavy, the vesting provisions of Section 4.01(b) shall
again be applicable; provided however, that in no event
shall the vested percentage of a Participant's Accrued
Pension Derived from Employer Contributions be less than
the percentage determined under Section B.03(a)(ii) as of
the last day of the most recent Plan Year for which the
Plan was top-heavy.
Appendix C. Limitation Concerning Highly Compensated Employees or Former
Highly Compensated Employees (Effective January 1, 1994)
Beginning January 1, 1994, the provisions of this Appendix C shall apply (a)
in the event the Plan is terminated, to any Participant who is a Highly
Compensated Employee or former Highly Compensated Employee of the Employer or
an Affiliated Employer, and (b) in any other event, to any Participant who is
one of the 25 highest compensated employees or former highest compensated
employees of the Employer or Affiliated Employer with the greatest
compensation in any Plan Year.
C.01 Restrictions
The amount of the annual payments to any one of the Participants to
whom this Appendix C applies shall not be greater than the sum of:
(a) An amount equal to the payments that would be made on behalf of
the Participant under a single life annuity that is the Actuarial
Equivalent of the sum of the Participant's Accrued Pension and
other benefits under the Plan (other than a social security
supplement), and
(b) The amount of the payments the Participant is entitled to
receive, if any, under a social security supplement.
C.02 Limitation on Restrictions
(a) If, after payment of benefits to any one of the Participants to
whom this Appendix C applies, the value of Plan assets equals or
exceeds 110% of the value of current liabilities (as that term is
defined in Section 412(l)(7) of the Code) of the Plan, the
provisions of Section C.01 shall not be applicable to the payment
of benefits to such Participant.
(b) If the value of the Accrued Pension and other benefits of any one
of the Participants to whom this Appendix C applies is less than
1% of the value of current liabilities (as that term is defined
in Section 412(l)(7) of the Code) of the Plan, the provisions of
Section C.01 shall not be applicable to the payment of benefits
to such Participant.
(c) If the Actuarial Equivalent of the Accrued Pension and other
benefits of any one of the Participants to whom this Appendix C
applies does not exceed $5,000 ($3,500 prior to August 5, 1997),
the provisions of Section C.01 shall not be applicable to the
payment of benefits to such Participant.
(d) To the extent permitted by law, if any Participant to whom this
Appendix C applies elects to receive a lump sum payment in lieu
of his benefit and the provisions of Section C.01 are not met
with respect to such Participant, the Participant shall be
entitled to receive his benefit in full provided he (i) agrees to
repay to the Plan any portion of the lump sum payment which would
be restricted by operation of the provisions of Section C.01 and
(ii) provides adequate security to guarantee that repayment in
accordance with rules established by the Internal Revenue
Service.
(e) In the event the Plan is terminated, the restrictions of this
Appendix C shall not be applicable if the benefits payable to any
Highly Compensated Employee and any former Highly Compensated
Employee are limited to a benefit that is nondiscriminatory under
Section 401(a)(4) of the Code.
(f) If it is subsequently determined by statute, court decision
acquiesced in by the Commissioner of Internal Revenue, or ruling
by the Commissioner of Internal Revenue, that the provisions of
this Appendix C are no longer necessary to qualify the Plan under
the Code, this Appendix C shall be ineffective without the
necessity of further amendment to the Plan.
Appendix D. Limitation Concerning Highly Compensated Employees or Former
Highly Compensated Employees (Effective January 1, 1989, Through
December 31, 1993
For the period beginning January 1, 1989, and ending December 31, 1993,
the provisions of this Appendix D shall apply to any Participant who is
one of the 25 highest paid Employees of the Employer on any
Commencement Date and whose anticipated annual Pension provided under
the Plan at Normal Retirement Date exceeds $1,500. "Commencement Date"
means the Effective Date of the Plan or the effective date of any
amendment to the Plan which increases the benefits.
(a) If the Plan is terminated during the first 10 years after a
Commencement Date, the amount of the Pension provided under the
Plan for any one of the Participants to whom this Appendix D
applies shall not be greater than the amount of Pension that can
be provided by the largest of the following amounts:
(i) The Employer's contributions (or funds attributable to
those contributions) which would have been applied to
provide the Pension if the Plan as in effect on the date
before that Commencement Date had been continued without
change;
(ii) $20,000;
(iii) The sum of (A) the Employer's contributions (or funds
attributable to those contributions) which would have been
applied to provide benefits for the Employee if the Plan
had been terminated on the day before that Commencement
Date, plus (b) an amount computed by multiplying the
smaller of $10,000 or 20 percent of the average annual
remuneration of that Employee during the last five years of
service, by the number of years since that Commencement
Date; or
(iv) The present value of the maximum benefit guaranteed by the
Pension Benefit Guaranty Corporation (PBGC), as described
in Section 4022(b)(3)(B) of ERISA, determined on the basis
of the actuarial assumptions promulgated by the PBGC
applicable as of the date of termination of the Plan or the
date Pension payments commence, whichever is earlier.
(b) Any excess reserves arising by application of the provisions of
paragraph (a) above shall be used and applied as provided in the
Plan for the benefit of the other persons entitled to benefits
under the Plan. However, if sufficient funds are available to
provide in full for the Pensions accrued for all other persons
entitled to benefits under the Plan to the date of termination of
the Plan, those excess reserves shall first be used and applied
to provide the accrued Pensions of the Participants whose
Pensions have been restricted by operation of the provisions of
this Appendix D.
- 54 -
11/25/99
FARMER BROS. CO.
EMPLOYEE STOCK OWNERSHIP PLAN
Effective January 1, 2000
TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS 1
ARTICLE 2. MEMBERSHIP 9
2.01 Membership 9
2.02 Reemployment of Former Eligible Employees and Former
Members 9
2.03 Transferred Members 9
2.04 Termination of Membership 9
ARTICLE 3. CONTRIBUTIONS 10
3.01 Employer Contributions 10
3.02 Member Contributions 11
3.03 Maximum Annual Additions 12
3.04 Return of Contributions 14
ARTICLE 4. VALUATION OF THE ACCOUNTS 15
4.01 Investment of the Trust Fund 15
4.02 Valuation of the Trust Fund 15
4.03 Right to Change Procedures 15
4.04 Statement of Account 16
4.05 Plan Expenses 16
ARTICLE 5. ACQUISITION OF COMPANY STOCK WITH PROCEEDS OF AN EXEMPT
LOAN 17
5.01 Purchase of Company Stock 17
5.02 Exempt Loan 17
5.03 Suspense Account; Dividends on Unallocated Stock 18
5.04 Dividends on Allocated Shares 19
ARTICLE 6. VESTED PORTION OF ACCOUNTS 21
6.01 Vesting Schedule 21
6.02 Disposition of Forfeitures 21
ARTICLE 7. DISTRIBUTION AND TRANSFERS OF ACCOUNT 22
7.01 Eligibility 22
7.02 Time of Distribution 22
7.03 Form and Manner of Distribution 23
7.04 Diversification of Account 25
7.05 Age 70.5 Required Distribution 26
7.06 Small Benefits 27
7.07 Status of Account Pending Distribution 28
7.08 Proof of Death and Right of Beneficiary or Other Person 28
7.09 Distribution Limitation 28
7.10 Direct Rollover of Certain Distributions 28
7.11 Waiver of Notice Period 30
ARTICLE 8. VOTING 31
8.01 Voting Company Stock 31
8.02 Shareholder Communication 33
ARTICLE 9. ADMINISTRATION OF PLAN 34
9.01 Appointment of Committee 34
9.02 Duties of Committee 34
9.03 Individual Account 35
9.04 Meetings 35
9.05 Action of Majority 35
9.06 Compensation and Bonding 35
9.07 Establishment of Rules 35
9.08 Prudent Conduct 36
9.09 Service in More Than One Fiduciary Capacity 36
9.10 Limitation of Liability 36
9.11 Indemnification 37
9.12 Named Fiduciary 37
9.13 Claims Procedure 37
9.14 Committee's Decision Final 39
ARTICLE 10. MANAGEMENT OF FUNDS 40
10.01 Trust Agreement 40
10.02 Exclusive Benefit Rule 40
ARTICLE 11. GENERAL PROVISIONS 41
11.01 Nonalienation 41
11.02 Conditions of Employment Not Affected by Plan 42
11.03 Facility of Payment 42
11.04 Erroneous Allocation 42
11.05 Information 43
11.06 Top-Heavy Provisions 43
11.07 Prevention of Escheat 46
11.08 Written Elections 47
11.09 Construction 47
ARTICLE 12. AMENDMENT, MERGER AND TERMINATION 48
12.01 Amendment of Plan 48
12.02 Merger, Consolidation or Transfer 48
12.03 Additional Participating Employers 49
12.04 Termination of Plan 50
FARMER BROS. CO.
EMPLOYEE STOCK OWNERSHIP PLAN
ARTICLE 1. DEFINITIONS
1.01 "Account" means the Account established for a Member pursuant to
Section 9.03 into which shall be credited the contributions made on a
Member's behalf, Company Stock released from the Suspense Account for
the Member, and earnings on those contributions and that Company
Stock.
1.02 "Affiliate" means any company which is a member of a controlled group
of corporations (as defined in Section 414(b) of the Code) which also
includes as a member the Company; any trade, or business under common
control (as defined in Section 414(c) of the Code) with the Company;
any organization (whether or not incorporated) which is a member of
an affiliated service group (as defined in Section 414(m) of the
Code) which includes the Company; and any other entity required to be
aggregated with the Company pursuant to regulations under
Section 414(o) of the Code. Notwithstanding the foregoing, for
purposes of Sections 1.27 and 3.03, the definitions in
Sections 414(b) and (c) of the Code shall be modified by substituting
the phrase "more than 50 percent" for the phrase "at least
80 percent" each place it appears in Section 1563(a)(1) of the Code.
1.03 "Annual Dollar Limit" means $150,000, as adjusted from time to time
for cost of living in accordance with Section 401(a)(17)(B) of the
Code.
1.04 "Annuity Starting Date" means the first day of the first period for
which an amount is paid following a Member's retirement or other
termination of employment.
1.05 "Beneficiary" means any person, persons or entity designated by a
Member to receive any benefits payable in the event of the Member's
death. However, a married Member's spouse shall be the Member's
Beneficiary unless or until he or she elects another Beneficiary with
Spousal Consent. If no Beneficiary designation is in effect at the
Member's death, or if no person, persons or entity so designated
survives the Member, the Member's surviving spouse, if any, shall be
deemed to be the Beneficiary; otherwise the Beneficiary shall be the
personal representative of the estate of the Member.
1.06 "Board of Directors" means the Board of Directors of the Company or
any authorized committee thereof.
1.07 "Break in Service" means an event affecting forfeitures, which shall
occur when an Employee is credited with less than 500 Hours of
Service in any Plan Year. However, if an employee is absent from work
immediately following his or her active employment, irrespective of
whether the employee's employment is terminated, because of the
employee's pregnancy, the birth of the employee's child, the
placement of a child with the employee in connection with the
adoption of that child by the employee or for purposes of caring for
that child for a period beginning immediately following that birth or
placement, a Break in Service shall occur only if the Member does not
return to work within one (1) year of the date he or she began his or
her leave from active employment for the above-stated reasons. A
Break in Service shall not occur during an approved leave of absence
or during a period of military service that is included in the
Employee's Vesting Service pursuant to Section 1.33.
1.08 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
1.09 "Committee" means the persons named by the Board of Directors to
administer and supervise the Plan as provided in Article 9.
1.10 "Company" means Farmer Bros. Co..
1.11 "Company Stock" means the shares of common stock of the Company or
shares of preferred or preference stock of the Company that are
convertible into such common stock provided that, in either event,
such stock is an "employer security" within the meaning of
Section 409(l) of the Code.
1.12 "Compensation" means wages as defined under Section 3401(a) of the
Code (for purposes of income tax withholding at the source), but
determined without regard to any rules under Section 3401(a) of the
Code that limit the remuneration included in wages based on the
nature or location of the employment or the services performed.
However, notwithstanding the foregoing, for purposes of this Plan,
Compensation shall: (a) include any salary deferral reductions
pursuant to Section 401(k) of the Code or pursuant to a cafeteria
plan as defined in Section 125 of the Code; (b) any imputed income
for automobile allowance or company-paid life insurance for the
Member (including amounts for which the Employer or Affiliated
Employer is required to furnish a written statement pursuant to
Section 6052 of the Code); (c) not exceed the maximum statutory
Annual Dollar Limit.
1.13 "Disability" means total and permanent physical or mental disability,
as determined under the Company's long-term disability program as in
effect from time to time.
1.14 "Effective Date" means January 1, 2000.
1.15 "Eligible Employee" means an employee regularly employed by an
Employer who receives stated compensation other than a pension,
severance pay, retainer, or fee under contract; however, the term
"Eligible Employee" excludes (a) any person who is included in a unit
of employees covered by a collective bargaining agreement which does
not provide for his or her membership in the Plan, (b) any non-
resident alien with no US-source income. In addition, any person
classified as an independent contractor or consultant by the Employer
shall, during such period, be excluded from the definition of
Eligible Employee, regardless of such person's reclassification for
such period by the Internal Revenue Service for tax withholding
purposes. The term "employee" as used in this Plan means any
individual who is employed by the Employer or an Affiliate as a
common law employee of the Employer or Affiliate, regardless of
whether the individual is an "Eligible Employee," and any Leased
Employee.
1.16 "Employee" means an individual employed by an Employer or an
Affiliate, or a Leased Employee.
1.17 "Employer" means the Company or any successor by merger, purchase or
otherwise, with respect to its employees; or any other company
participating in the Plan as provided in Section 12.03, with respect
to its employees.
1.18 "Employer Contributions" means all amounts contributed pursuant to
Section 3.01 of the Plan.
1.19 "Employment Commencement Date" means the first day of employment of
an Employee by an Employer and the first day of reemployment of an
Employee by an Employer following such Employee's Break in Service.
1.20 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.21 "Financed Shares" means shares of Company Stock, whether allocated or
unallocated, which have been purchased by means of an Exempt Loan.
1.22 "Hour of Service" means, with respect to any applicable computation
period,
(a) each hour for which the employee is paid or entitled to payment
for the performance of duties for the Employer or an Affiliate;
(b) each hour for which the employee is paid or entitled to payment
by the Employer or an Affiliate on account of a period during
which no duties are performed, whether or not the employment
relationship has terminated, due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military
duty or leave of absence, but not more than 501 hours for any
single continuous period; and
(c) each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer or an
Affiliate, excluding any hour credited under (a) or (b), which
shall be credited to the computation period or periods to which
the award, agreement or payment pertains rather than to the
computation period in which the award, agreement or payment is
made.
No hours shall be credited on account of any period during which the
employee performs no duties and receives payment solely for the
purpose of complying with unemployment compensation, workers'
compensation or disability insurance laws. The Hours of Service
credited shall be determined as required by Title 29 of the Code of
Federal Regulations, Sections 2530.200b-2(b) and (c).
Notwithstanding the forgoing, solely to the extent required by law,
an employee who is absent from employment because of an authorized
leave of absence under the Family and Medical Leave Act of 1993 shall
receive credit for Hours of Service during such absence.
1.23 "Leased Employee" means any person performing services for the
Employer or an Affiliate as a leased employee as defined in
Section 414(n) of the Code. In the case of any person who is a
Leased Employee before or after a period of service as an Eligible
Employee, the entire period during which he or she has performed
services as a Leased Employee shall be counted as service as an
Eligible Employee for all purposes of the Plan, except that he or she
shall not, by reason of that status, become a Member of the Plan.
1.24 "Member" means any person included in the membership of the Plan as
provided in Article 2.
1.25 "Plan" means the Farmer Bros. Co. Employee Stock Ownership Plan, as
set forth in this document or as amended from time to time.
1.26 "Plan Year" means the 12-month period beginning on any January 1.
1.27 "Retirement" means termination of employment from an Employer and all
Affiliates after the earlier of (a) attainment of age 65 or (b)
attainment of age 55 and completion of ten (10) years of Vesting
Service.
1.28 "Severance Date" means the earlier of (a) the date an Employee quits,
retires, is discharged or dies, or (b) the last day of an authorized
leave of absence, or if later, the first anniversary of the date on
which an Employee is first absent from service, with or without pay,
for any reason such as vacation, sickness, disability, layoff or
leave of absence.
1.29 "Suspense Account" means the account comprised of unallocated shares
of Company Stock maintained in accordance with Section 5.03.
1.30 "Spousal Consent" means the written consent of a Member's spouse to
the Member's designation of a specified Beneficiary. The spouse's
consent shall be witnessed by a Plan representative or notary public.
The consent of the spouse shall also acknowledge the effect on him
or her of the Member's election. The requirement for spousal consent
may be waived by the Committee if it believes there is no spouse,
that the spouse cannot be located, that a legal separation has
occurred, or because of such other circumstances as may be
established by applicable law.
1.31 "Trust" or "Trust Fund" means the fund established by the Board of
Directors as part of the Plan into which contributions are to be made
and from which benefits are to be paid in accordance with the terms
of the Plan.
1.32 "Trustee" means the trustee or trustees holding the funds of the Plan
as provided in Article 10.
1.33 "Valuation Date" means the last business day of each calendar
quarter.
1.34 "Vesting Service" means the summation of the Years of Service an
Employee has been credited since the Employee's hire date. An
Employee shall earn (1) Year of Service for each Plan Year during
which he/she is credited with at least one thousand (1,000) Hours of
Service.
Notwithstanding the forgoing, the following apply for purposes of
crediting vesting within this section:
(a) If an Employee is absent from the service of the Employer or
any Affiliate because of service in the Armed Forces of the
United States and he or she returns to service with the
Employer, or an Affiliate, having applied to return while his
or her reemployment rights were protected by law, the absence
shall be included in his or her Vesting Service;
(b) If an Employee's employment terminates after he or she has
vested in his or her Account pursuant to Section 6.01 and he or
she is reemployed, his or her Vesting Service after
reemployment shall be aggregated with his or her previous
period or periods of Vesting Service;
(c) If an Employee terminates service before he or she has vested
in his or her Account pursuant to Section 6.01 and he or she is
reemployed after he or she has incurred a Break in Service, his
or her Vesting Service after reemployment shall be aggregated
with his or her previous period or periods of Vesting Service
(other than Vesting Service not required to be aggregated
pursuant to this paragraph (c) by reason of a prior termination
of employment) if the date of such reemployment is prior to the
date as of which such Employee had incurred five (5)
consecutive Breaks in Service.
ARTICLE 2. MEMBERSHIP
2.01 Membership
Each Eligible Employee shall become a Member on the Plan's Effective
Date as long as he or she is at least age eighteen (18). Each other
Eligible Employee shall be eligible to become a Member on the first
day of the Plan Year coinciding with or immediately following the
date he or she has attained his or her 18th birthday, provided he or
she is an Eligible Employee.
2.02 Reemployment of Former Eligible Employees and Former Members
Any person reemployed by the Employer as an Eligible Employee, who
was previously a Member or who was previously eligible to become a
Member, shall become a Member immediately upon reemployment. Any
person reemployed by the Employer as an Eligible Employee, who was
not previously eligible to become a Member, shall become a Member
upon completing the eligibility requirements described in
Section 2.01.
2.03 Transferred Members
Notwithstanding any provision of the Plan to the contrary, a Member
who remains in the employ of the Employer or an Affiliate but ceases
to be an Eligible Employee shall continue to be a Member of the Plan
but shall only be eligible to receive allocations of Employer
Contributions with respect to Compensation.
2.04 Termination of Membership
A Member's membership shall terminate on his or her Severance Date
unless he or she is entitled to benefits under the Plan, in which
event his or her membership shall terminate when those benefits are
distributed to him or her in full.
ARTICLE 3. CONTRIBUTIONS
3.01 Employer Contributions
(a) The Employer may make Employer Contributions to the Plan on account
of any Plan Year, in Company Stock or cash, in the manner and amount
to be determined by the Board of Directors. Employer Contributions
shall be made on behalf of each Member who (i) is an Eligible
Employee on the last day of the Plan Year and who completed at least
1,000 Hours of Service during such Plan Year; and (ii) is an Eligible
Employee who terminated employment during such Plan Year by reason of
death, Disability, or Retirement. At the time of determining an
Employer Contribution for a Plan Year, the Board of Directors may
specify a target percentage of Compensation with respect to
allocations for such Plan Year. In no event, however, shall the
Employer Contributions for any Plan Year exceed the maximum amount
deductible from the Employer's income for that Plan Year under
Section 404(a)(3)(A) of the Code or any statute of similar import.
The Employer Contributions shall be paid to the Fund no later than
the time (including extensions) prescribed by law for the filing of
the Employer's federal income tax return for the year for which the
contributions are made.
(b) Except as provided in Section 5.04, shares of Company Stock released
from the Suspense Account for that Plan Year and any Employer
Contributions for that Plan Year not used to repay an Exempt Loan
shall be allocated as of the last Valuation Date (or such earlier
Valuation Date as the Committee shall determine) in the Plan Year to
the Accounts of Members on behalf of whom contributions were made for
that Plan Year pursuant to paragraph (a), in the ratio that the
Compensation each such Member bears to the total Compensation of all
such Members for the Plan Year, subject to the limitations described
in Section 3.03. In no event shall more than one-third of the
Employer Contributions to the Plan be allocated to Members who are
highly compensated employees as defined in Section 414(q) of the
Code.
(c) Notwithstanding paragraphs (a) and (b) above, each Employer may make
an additional Employer Contribution to the Plan, in Company Stock or
cash, at a time and in an amount determined by the Board of
Directors. Such contribution, or shares of Company Stock released
from the Suspense Account by reason of the use of such contribution
to repay an Exempt Loan, shall be allocated to the Accounts of
Members who were entitled to an allocation under paragraph (b) for
the preceding Plan Year and who terminated employment during the
period beginning with the first day of the Plan Year in which such
additional contribution is made and ending on a date specified by the
Board of Directors at the time of determining the additional
contribution, to such Members who have not terminated service in an
amount which, when added to the initial allocation for the preceding
Plan Year, results in a total allocation for such Plan Year equal to
the target percentage of each such Member's Compensation for the
preceding Plan Year which had been specified by the Board of
Directors when determining the Employer Contribution under paragraph
(a). Any allocation of an additional contribution made pursuant to
this paragraph (c) shall be made as of the last Valuation Date in the
Plan Year preceding the Plan Year in which such contribution is made
unless otherwise specified by the Board of Directors, shall be
subject to the limitation of Section 3.02, and shall comply with the
last sentence of paragraph (b).
3.02 Member Contributions
No Member shall be required or permitted to make any contributions
under this Plan.
3.03 Maximum Annual Additions
(a) The annual addition to a Member's Account for any Plan Year, which
shall be considered the "limitation year" for purposes of Section 415
of the Code, when added to the Member's annual addition for that Plan
Year under any other qualified defined contribution plan of the
Employer or an Affiliate, shall not exceed an amount which is equal
to the lesser of (i) 25 percent of his or her aggregate remuneration
for that Plan Year or (ii) $30,000, as adjusted pursuant to
Section 415(d) of the Code.
(b) For purposes of this Section, the "annual addition" to a Member's
Account under this Plan or any other qualified defined contribution
plan (including a deemed qualified defined contribution plan under a
qualified defined benefit plan) maintained by the Employer or an
Affiliate shall be the sum of:
(i) the total contributions made on the Member's behalf by the
Employer and all Affiliates,
(ii) all Member contributions, exclusive of any rollover
contributions, and
(iii) forfeitures,
(iv) amounts described in Sections 415(l)(1) and 419A(d)(2)
allocated to the Member;
(c) For purposes of this Section, the term "remuneration" with respect to
any Member shall mean the wages, salaries and other amounts paid in
respect of such Member by the Employer or an Affiliate for personal
services actually rendered, and shall include amounts contributed by
the Employer pursuant to a salary reduction agreement which are not
includible in the gross income of the employee under Section 125,
402(g) or 457 of the Code, but shall exclude deferred compensation,
stock options and other distributions which receive special tax
benefits under the Code.
(d) In the event that the Committee determines that the allocation of a
contribution would cause the restriction imposed by paragraph (a) to
be exceeded, allocations shall be reduced in the following order, but
only to the extent necessary to satisfy such restrictions:
(i) first, the annual additions under any other qualified defined
contribution plan maintained by an Employer or an Affiliate;
(ii) second, the annual additions under this Plan.
(e) If the annual addition to a Member's Account for any Plan Year, prior
to the application of the limitation set forth in paragraph (a)
above, exceeds that limitation due to a reasonable error in
estimating a Member's annual compensation or in determining the
amount of Employer Contributions that may be made with respect to a
Member under Section 415 of the Code, or as the result of the
allocation of forfeitures, the amount of contributions credited to
the Member's Account in that Plan Year shall be adjusted to the
extent necessary to satisfy that limitation in accordance with the
following order of priority:
(i) first, the annual additions under any other qualified defined
contribution plan maintained by an Employer or an Affiliate;
(ii) second, the annual additions under this Plan.
If it becomes necessary to make an adjustment in annual additions to
a Member's Account under this Plan, either because of the limitations
as applied to this Plan alone or as applied to this Plan in
combination with another plan, the excess annual addition under this
Plan with respect to the affected Member shall be reallocated
proportionately in the same manner as Employer Contributions are
allocated to the Accounts of other Members until the annual addition
to the Account of each Member reaches the limits of Section 415 of
the Code. If such limits are reached and there are remaining excess
Employer Contributions, such contributions shall be placed in an
unallocated Suspense Account and allocated in subsequent years before
any Employer Contributions are made.
3.04 Return of Contributions
(a) If all or part of the Employer's deductions for contributions to the
Plan are disallowed by the Internal Revenue Service, the portion of
the contributions to which that disallowance applies shall be
returned to the Employer without interest but reduced by any
investment loss attributable to those contributions, provided that
the contribution is returned within one year after the disallowance
of deduction. For this purpose, all contributions made by the
Employer are expressly declared to be conditioned upon their
deductibility under Section 404 of the Code.
(b) The Employer may recover without interest the amount of its
contributions to the Plan made on account of a mistake of fact,
reduced by any investment loss attributable to those contributions,
if recovery is made within one year after the date of those
contributions.
ARTICLE 4. VALUATION OF THE ACCOUNTS
4.01 Investment of the Trust Fund
(a) Except to the extent used to repay an Exempt Loan, Employer
Contributions to the Plan shall be invested in shares of Company
Stock. Consistent with the Plan's status as an employee stock
ownership plan under Section 4975(e)(7) of the Code, the Trustee may
keep such amounts of cash, securities or other property as it, in its
sole discretion, shall deem necessary or advisable as part of the
Trust Fund, all within the limitations specified in the trust
agreement.
(b) Dividends, interest, and other distributions received on the assets
held by the Trustee in respect to the Trust Fund shall be reinvested
in the Trust Fund, except as otherwise may be provided in Article 5
with respect to dividends on Company Stock.
4.02 Valuation of the Trust Fund
The Trustee shall value the Trust Fund at least annually. On each
Valuation Date there shall be allocated to the Account of each Member
his or her proportionate share of the increase or decrease in the
fair market value of his or her Account in the Trust Fund. Whenever
an event requires a determination of the value of the Member's
Account, the value shall be computed as of the Valuation Date
coincident with or immediately following the date of determination,
subject to the provisions of Section 4.03.
4.03 Right to Change Procedures
The Committee reserves the right to change from time to time the
procedures used in valuing the Account or crediting (or debiting) the
Account if it determines, after due deliberation and upon the advice
of counsel and/or the current recordkeeper, that such an action is
justified in that it results in a more accurate reflection of the
fair market value of assets. In the event of a conflict between the
provisions of this Article and such new administrative procedures,
those new administrative procedures shall prevail.
4.04 Statement of Account
At least once a year, each Member shall be furnished with a statement
setting forth the value of his or her Account and the Vested Portion
of his or her Account.
4.05 Plan Expenses
To the extent the Company does not choose to pay for them, all
routine Plan administrative expenses for such services as account
recordkeeping, required audits and governmental filings shall be paid
by the Plan.
ARTICLE 5. ACQUISITION OF COMPANY STOCK WITH
PROCEEDS OF AN EXEMPT LOAN
5.01 Purchase of Company Stock
(a) The Plan is an employee stock ownership plan (an "ESOP"), which is
designed to invest primarily in qualified employer securities. The
Board of Directors, in its discretion, may direct the Trustee to
acquire Company Stock with the proceeds of an Exempt Loan.
(b) Company Stock acquired by the Trustee hereunder may be purchased on
an established securities market, from the Company or from any other
person or entity. However, Company Stock acquired from a
"disqualified person," as defined in Section 4975(e)(2) of the Code,
may not be purchased at a price in excess of "adequate
consideration," as defined in Section 3(18) of ERISA.
5.02 Exempt Loan
An Exempt Loan shall be used primarily for the benefit of Members and
their Beneficiaries, shall be for a specific term, shall bear a
reasonable rate of interest, and shall not be payable on demand,
except in the event of default. In the event of default, the value
of Plan assets transferred in satisfaction of the Exempt Loan shall
not exceed the amount of default. An Exempt Loan may be secured by a
collateral pledge of the Company Stock acquired with the proceeds of
such loan, contributions (other than contributions of Company Stock)
that are made under the ESOP to meet its obligations under the Exempt
Loan and earnings attributable to such collateral and the investment
of such contributions, but no other assets of the Trust may be
pledged as collateral for the Exempt Loan and no lender shall have
recourse against any assets of the Trust, except to the extent
permitted under Reg. 54.4975-7(b)(5). Any pledge of Company Stock
shall provide for the release of shares so pledged on a pro rata
basis as principal and interest on the Exempt Loan are repaid by the
Trustee; provided however, that an alternative method of releasing
such stock from encumbrance may be utilized if permitted by
applicable regulations under Section 4975 of the Code and the
Committee adopts such method. Such stock shall be allocated as
provided in Section 3.01(b).
5.03 Suspense Account; Dividends on Unallocated Stock
(a) Company Stock acquired with the proceeds of an Exempt Loan shall be
held in the Suspense Account and shall be allocated to the Members'
Accounts based on the release of Company Stock from the Suspense
Account. During the term of the Exempt Loan, a number of shares of
Company Stock shall be released per Plan Year equal to the number of
shares in the Suspense Account multiplied by a fraction, the
numerator of which shall be the amount of principal and interest paid
by the Trustee on the Exempt Loan for the Plan Year, and the
denominator of which shall be the sum of the numerator and the
aggregate principal and interest to be paid by the Trustee on the
Exempt Loan for all future Plan Years; provided however, that an
alternative method of releasing such stock from encumbrance may be
utilized if permitted by applicable regulations under Section 4975 of
the Code and the Committee adopts such method. For this purpose, the
number of future years under the Exempt Loan must be definitely
ascertainable and must be determined without taking into account any
possible extensions or renewal periods. If the interest rate under
the Exempt Loan is variable, the interest to be paid in future years
shall be computed by using the interest rate applicable as of the end
of the calendar year. Shares may also be released from the Suspense
Account more frequently than annually, provided in such event that
the total number of shares of Company Stock released during a Plan
Year shall not be less than the number of shares that would have been
released from the Suspense Account during such Plan Year if such
release had occurred on an annual basis.
(b) Any cash dividends received by the Trustee on shares of Company Stock
held in the Suspense Account shall be applied to the payment of any
outstanding obligations of the Trust under any Exempt Loan (and shall
be invested in an interest bearing or other fixed income investment
pending such payment) unless in the sole discretion of the Committee,
the Trustee is directed to use such dividends to buy additional
shares of Company Stock. Any shares of Company Stock released from
the Suspense Account due to application of such dividends to the
repayment of an Exempt Loan or purchased using such dividends shall
be allocated to Members' Accounts on the basis set forth in
Section 3.01(b).
5.04 Dividends on Allocated Shares
Unless, in the sole discretion of the Committee, the Trustee is
directed that dividends that are payable with respect to Company
Stock that is allocated to a Member's Account may be (a) accumulated
in the Member's Account and used to buy additional Company Stock, (b)
paid directly to the Member in cash (to the extent such direct
payment may be effectuated), or (c) paid to the Trust and distributed
by the Trustee in cash to the Member not later than 90 days after the
close of the Plan Year in which paid to the Trust, then such
dividends shall be applied to the payment of outstanding obligations
of the Trust under any Exempt Loan; provided however, that this
provision shall only be effective if Company Stock with a fair market
value not less than the amount of dividends so applied is allocated
to the Member's Account for the Plan Year in which the dividends were
paid to the Trust. The excess, if any, of the fair market value of
Company Stock released from the Suspense Account by reason of the
application of dividends described in this Section 5.04 over the fair
market value of Company Stock allocated to a Member's Account
pursuant to the proviso in the immediately preceding sentence shall
be allocated among Members' Accounts on the basis set forth in
Section 3.01(b).
ARTICLE 6. VESTED PORTION OF ACCOUNTS
6.01 Vesting Schedule
(a) A Member shall be vested in, and have a nonforfeitable right to, his
or her Account upon completion of five years of Vesting Service
(b) Notwithstanding the foregoing, a Member shall be 100 percent vested
in, and have a nonforfeitable right to, his or her Account upon
death, Disability, or the later of the attainment of his or her 55th
birthday or the tenth anniversary of the date he or she becomes a
Member.
6.02 Disposition of Forfeitures
Upon termination of employment of a Member who was not vested in his
or her Account, his or her Account shall be forfeited. The Member
shall be deemed to have received a distribution of the zero vested
benefit upon his or her termination of employment. If the former
Member is reemployed by the Employer or an Affiliate before incurring
a period of Break in Service of five years, his or her Account shall
be restored. The Committee shall direct the Trustee to apply any
amounts forfeited pursuant to this Section to (a) restore amounts
previously forfeited by the Member but required to be reinstated upon
resumption of employment, (b) reduce Employer contributions, or (c)
reallocate to Members in the same manner as contributions under
Section 3.01(b). If forfeitures arising during any Plan Year are
insufficient to restore forfeited amounts to the Accounts of Members
pursuant to this Section 6.02, the Employer shall contribute the
balance required for that purpose.
ARTICLE 7. DISTRIBUTION AND TRANSFERS OF ACCOUNT
7.01 Eligibility
(a) Upon a Member's termination of employment, the vested portion of his
or her Account, as determined under Article 6, shall be distributed
as provided in this Article.
(b) An eligible Member may, in accordance with Section 7.04, request a
transfer or distribution, whichever is applicable, from his or her
Account, whether or not he or she has terminated employment.
7.02 Time of Distribution
(a) Except as otherwise provided in this Article, distribution of the
vested portion of a Member's Account shall commence as soon as
administratively practicable, but no more than ninety (90) days,
following the later of (i) the last day of the Plan Year in which a
Member incurs a Break in Service or (ii) the Member's 65th birthday
(but not more than ninety (90) days after the close of the Plan Year
in which the later of (b)(i) or (b)(ii) occurs).
(b) A Member whose employment is terminated for any reason shall be
entitled, upon written request, in accordance with procedures
established by the Committee, to receive distribution of the entire
vested interest in the Member's Account in accordance with either
this Section 7.02 or Section 7.06. If the value of the vested
portion of a Member's Account exceeds $5,000 and he or she does not
consent in writing within 60 days (or such other period prescribed
by the Committee) of his or her Severance Date to an immediate
distribution to be made as soon thereafter as administratively
practicable, distribution of the vested interest in the Member's
Account shall be made as soon as practicable following the Valuation
Date coincident with or immediately following the earliest of:
(i) receipt of the Committee at least sixty (60) days (or such
other period prescribed by the Committee) prior to such
Valuation Date of the Member's written request for payment;
(ii) the Member's attainment of age 65; or
(iii) the Member's death.
In the event an allocation of Employer Contributions and/or
forfeitures is made to the Member's Account pursuant to Article 3 or
Article 6 following the date on which a distribution is made
hereunder, distribution of such contributions and/or forfeitures
shall be made to the Member or Beneficiary in a single sum as soon as
practicable following the date on which such allocation is made.
(c) In the case of the death of a Member before the distribution of his
or her Accounts, the Vested Portion of his or her Accounts shall be
distributed to the Member's Beneficiary as soon as administratively
practicable following the Valuation Date coincident with or next
following the Member's date of death.
(d) The amount of a distribution made pursuant to this Section 7.02 shall
be determined as of the applicable Valuation Date preceding the
actual date of payment.
7.03 Form and Manner of Distribution
(a) Distributions shall be paid in a single sum consisting of shares of
Company Stock or cash, at the election of the Member or his or her
Beneficiary. Unless the Member or Beneficiary elects to receive the
distribution in Company Stock, such distribution shall be paid
entirely in cash. If the distribution is made in Company Stock, any
unpaid dividends which may be due and any balance in the Account
representing fractional shares will be paid in cash. If the
distribution is to be made in cash, the Trustee will, as soon as
practicable after the Valuation Date following its receipt of notice
of such distribution, sell the shares held in the Member's Account.
Such Member or Beneficiary shall thereafter receive, entirely in
cash, the proceeds of such sale, plus an additional cash amount
representing fractional shares and any dividends that may be due.
(b) Shares of Company Stock distributed to Members pursuant to
Section 7.03(a) that at the time of such distribution are not readily
tradable on an established market shall be subject to a put option
which shall permit the Member to sell such stock to the Company at
any time during two option periods at the fair market value of such
shares (as of the most recent Valuation Date). The first period
shall be for at least 60 days beginning on the date of distribution.
The second period shall be for at least 60 days beginning on the
first Valuation Date in the calendar year following the year in which
the distribution was made. The Company or the Committee may direct
the Trustee to purchase shares tendered to the Company under a put
option. Payment for any shares of stock sold under a put option
shall be made in a lump sum or in substantially equal annual
installments over a period not exceeding five years, with interest
payable at a reasonable rate (as determined by the Committee).
Except as may be permitted under applicable law or regulations, the
rights of a distributee of Company Stock under this Section 7.02(b)
shall survive the repayment of any relevant Exempt Loan, the
termination of the Plan, and any amendment of the Plan.
(c) Notwithstanding the preceding and at the discretion of the Committee,
any portion of a Member's vested Account which consists of financed
shares shall not be distributed until any outstanding Exempt Loan has
been completely repaid.
7.04 Diversification of Account
(a) Each eligible Member (including each former Employee of an Employer)
may make an annual election to transfer his or her Account to a plan
designated for such purpose by the Committee. The election to effect
such transfer shall be granted with respect to a period of six Plan
Years ("Election Period") commencing with the Plan Year in which
occurs the later of the Member's attainment of age 55 or the Member's
completion of ten years of participation in the Plan. For each Plan
Year within the Member's Election Period a Member may elect, within
90 days of the close of such Plan Year, to transfer all or a portion
of his or her Account which is subject to this Section 7.04
("Diversification Amount"). The amount in the Account subject to
this Section 7.04 shall be the excess of (i) over (ii) as follows:
(i) 25% of the sum of (A) the balance of the Member's Account,
determined as of the close of such Plan Year, and (B) the
distributions received by and transfers made as result of his
or her prior elections (provided that "50%" shall be
substituted for "25%" for his or her final election within the
Election Period), minus
(ii) the distribution received by and transfers made by the Member
pursuant to his or her prior elections.
(b) Notwithstanding section 7.04(a) above, the Committee may allow
Members the following diversification options in lieu of transfer to
another plan:
(i) Transfer the Diversification Amount to an individual retirement
account (IRA);
(ii) Reallocate, at the discretion of the Member, the
Diversification Amount among at least three (3) alternate
investment options as chosen by the Committee for this purpose;
or
(iii) Distribute the Diversification Amount in a single lump sum
payment directly to the Member.
(c) If a Member elects to receive or have transferred an amount described
in paragraph (a) or (b) above, such distribution or transfer shall be
made within 90 days after the close of the applicable annual Election
Period.
7.05 Age 70.5 Required Distribution
(a) Notwithstanding any provision of the Plan to the contrary, if a
Member is a 5-percent owner (as defined in Section 416(i) of the
Code), distribution of the Member's Account shall begin no later than
the April 1 following the calendar year in which he or she attains
age 70.5. No minimum distribution payments will be made to a Member
under the provisions of Section 401(a)(9) of the Code, if the Member
is not a 5-percent owner as defined above. However, if a Member who
is not a 5-percent owner (as defined in Section 416(i) of the Code)
attains age 70.5 prior to January 1, 2000 and remains in service
after the April 1 following the calendar year in which he or she or
she attains age 70.5, he or she may elect to have the provisions of
paragraph (b) apply as if the Member was a 5-percent owner. Such
election shall be made in accordance with such administrative
procedures as the Committee shall prescribe.
(b) In the event a Member is required to begin receiving payments while
in service under the provisions of paragraph (a) above, the Member
may elect to receive payments while in service in accordance with
option (i) or (ii), as follows:
(i) A Member may receive one lump sum payment on or before the
Member's required beginning date equal to his or her entire
Account balance and annual lump sum payments thereafter of
amounts accrued during each calendar year; or
(ii) A Member may receive annual payments of the minimum amount
necessary to satisfy the minimum distribution requirements of
Section 401(a)(9) of the Code. Such minimum amount will be
determined on the basis of the joint life expectancy of the
Member and his or her Beneficiary. Such life expectancy will
be recalculated once each year; however, the life expectancy of
the Beneficiary will not be recalculated if the Beneficiary is
not the Member's spouse.
An election under this Section shall be made by a Member by giving
written notice to the Committee within the 90 day period prior to his
or her required beginning date. The commencement of payments under
this Section shall not constitute an Annuity Starting Date for
purposes of Sections 72, 401(a)(11) and 417 of the Code. Upon the
Member's subsequent termination of employment, payment of the
Member's Account shall be made in accordance with the provisions of
Section 7.02. In the event a Member fails to make an election under
this Section, payment shall be made in accordance with clause (ii)
above.
7.06 Small Benefits
Notwithstanding any provision of the Plan to the contrary, a lump sum
payment shall be made in lieu of all vested benefits if the value of
the Vested Portion of the Member's Account as of his or her
termination of employment amounts to $5,000 or less. The lump sum
payment shall automatically be made as soon as administratively
practicable following the Member's termination of employment but not
later than ninety (90) days after the Plan Year end in which he or
she incurs a Break in Service.
7.07 Status of Account Pending Distribution
Until completely distributed under Section 7.03 or 7.05, the Account
of a Member who is entitled to a distribution shall continue to be
invested as part of the funds of the Plan.
7.08 Proof of Death and Right of Beneficiary or Other Person
The Committee may require and rely upon such proof of death and such
evidence of the right of any Beneficiary or other person to receive
the value of the Account of a deceased Member as the Committee may
deem proper and its determination of the right of that Beneficiary or
other person to receive payment shall be conclusive.
7.09 Distribution Limitation
Notwithstanding any other provision of this Article 7, all
distributions from this Plan shall conform to the regulations issued
under Section 401(a)(9) of the Code, including the incidental death
benefit provisions of Section 401(a)(9)(G) of the Code. Further,
such regulations shall override any Plan provision that is
inconsistent with Section 401(a)(9) of the Code.
7.10 Direct Rollover of Certain Distributions
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section, a
distributee may elect, at the time and in the manner prescribed by
the Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified
by the distributee in a direct rollover. The following definitions
apply to the terms used in this Section:
(a) "Eligible rollover distribution" 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
any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of ten years or more, any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code,
and the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for
net unrealized appreciation with respect to employer
securities);
(b) "Eligible retirement plan" means an individual retirement
account described in 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;
(c) "Distributee" means an employee or former employee. In
addition, the employee's or former employee's surviving spouse
and the employee's or former employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations
order as defined in Section 414(p) of the Code, are
distributees with regard to the interest of the spouse or
former spouse; and
(d) "Direct rollover" means a payment by the Plan to the eligible
retirement plan specified by the distributee.
7.11 Waiver of Notice Period
Except as provided in the following sentence, if the value of the
vested portion of a Member's Account exceeds $5,000, an election by
the Member to receive a distribution prior to age 65 shall not be
valid unless the written election is made (a) after the Member has
received the notice required under Section 1.411(a)-11(c) of the
Income Tax Regulations and (b) within a reasonable time before the
effective date of the commencement of the distribution as prescribed
by said regulations. If such distribution is one to which
Sections 401(a)(11) and 417 of the Code do not apply, such
distribution may commence less than 30 days after the notice required
under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:
(i) the Committee clearly informs the Member that he or she has a
right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution
option), and
(ii) the Member, after receiving the notice under Sections 411 and
417, affirmatively elects a distribution.
ARTICLE 8. VOTING
8.01 Voting Company Stock
(a) Notwithstanding any other provision of this Plan to the contrary, if
any, but subject to the provisions of this Article, the Trustee shall
have no discretion or authority to vote Company Stock held in the
trust by the Trustee on any matter presented for a vote by the
stockholders of the Company except in accordance with timely
directions received by the Trustee from Members who have Company
Stock allocated to their Accounts under the Plan. Each Member who
has allocated Company Stock shall, as the named fiduciary for this
purpose, direct the Trustee with respect to the vote of the Company
Stock allocated to the Member's Account and the Trustee shall follow
the directions of those Members who provide timely instructions to
the Trustee.
(b) With respect to Company Stock held in the Trust by the Trustee but
not allocated to the Accounts of Members the Trustee, subject to
Section 9.02, shall have no authority or discretion to vote such
Company Stock on any matter presented for a vote by the stockholders
of the Company, except in accordance with timely directions received
by the Trustee from the Committee. In addition, with respect to
Company Stock allocated to the Accounts of Members for which no
instructions are received, the Trustee shall vote any such Company
Stock in accordance with timely direction received by the Trustee
from the Committee upon a demonstration of prior notice having been
made to the Members to the effect that any allocated Company Stock
for which no instructions are given by the Members shall be voted by
the Committee.
(c) In the event a court of competent jurisdiction shall issue any order
or any opinion to the Plan, the Company or the Trustee, which shall,
in the opinion of counsel to the Company or the Trustee, invalidate
under ERISA, in all circumstances or in any particular circumstances,
any provision or provisions of this Section 8.01 regarding the manner
in which Company Stock held in the Trust shall be voted or cause any
such provisions or provision to conflict with ERISA, then, upon
notice thereof to the Company or the Trustee, as the case may be,
such invalid or conflicting provisions of this Section 8.01 shall be
given no further force or effect. In such circumstances the Trustee
shall nevertheless have no discretion to vote allocated shares of
Company Stock held in the Trust unless required under such order or
opinion but shall follow instructions received from Members and not
invalidated.
(d) In the event that any option, right, warrant, or similar property
derived from or attributable to the ownership of the Company Stock
allocated to Members shall be granted, distributed, or otherwise
issued which is and shall become exercisable, each Member (or
Beneficiary) shall be entitled to direct the Trustee, in writing, to
sell, exercise, distribute, or retain any such option, right,
warrant, or similar property. The securities acquired by the Trustee
upon such exercise shall be held in a special account or accounts.
For all Plan purposes, all options, rights, warrants, or similar
property described in this paragraph (d) of Section 8.01 hereof,
shall be treated as income added to the appropriate Accounts of
Members (or Beneficiaries). If, within a reasonable period of time
after the form soliciting direction from a Member (or Beneficiary),
has been sent, no written directions shall have been received by the
Trustee from such Member (or Beneficiary), the Trustee shall, in its
sole discretion, sell, exercise, or retain and keep unproductive of
income such option, right, warrant, or similar property for which no
response has been received from such Member (or Beneficiary) and also
for options, rights, warrants, or similar property derived from, or
attributable to, the ownership of Company Stock not yet allocated to
any Member's (or Beneficiary's) Account.
(e) The Trustee shall, in accordance with timely directions received by
the Trustee from the Committee in its sole discretion, sell,
exercise, or retain and keep unproductive of income such option,
right, warrant, or similar property attributable to unallocated
Company Stock held in the Suspense Account.
8.02 Shareholder Communication
Notwithstanding anything to the contrary in this Article 8, the
Company shall make any and all communications or distributions
required under the Shareholder Communications Act of 1985 and any
rules thereunder.
ARTICLE 9. ADMINISTRATION OF PLAN
9.01 Appointment of Committee
The general administration of the Plan, including without limitation,
voting rights described in Article 8, and the responsibility for
carrying out the provisions of the Plan shall be placed in a
Committee of not less than three persons appointed from time to time
by the Board of Directors to serve at the pleasure of the Board of
Directors. Any person who is appointed a member of the Committee
shall signify his or her acceptance by filing written acceptance with
the Board of Directors and the Secretary of the Committee. Any
member of the Committee may resign by delivering his or her written
resignation to the Board of Directors and the Secretary of the
Committee.
9.02 Duties of Committee
The Committee shall elect a chairman from their number and a
secretary who may be but need not be one of the members of the
Committee; may appoint from their number such subcommittees with such
powers as they shall determine; may authorize one or more of their
number or any agent to execute or deliver any instrument or make any
payment on their behalf; may retain counsel, employ agents and
provide for such clerical, accounting, and consulting services as
they may require in carrying out the provisions of the Plan; may
instruct the Trustee to vote unallocated shares held in the Suspense
Account at the Committee's discretion; and may allocate among
themselves or delegate to other persons all or such portion of their
duties under the Plan, other than those granted to the Trustee under
the trust agreement adopted for use in implementing the Plan, as
they, in their sole discretion, shall decide. The Board of
Directors, in its sole and absolute discretion, may delegate any or
all of the duties of the Committee to the Trustee as it may determine
from time to time, upon the Trustee's acceptance of such duties.
9.03 Individual Account
The Committee shall maintain, or cause to be maintained, records
showing the individual balances in each Member's Account. However,
maintenance of those records and Accounts shall not require any
segregation of the funds of the Plan.
9.04 Meetings
The Committee shall hold meetings upon such notice, at such place or
places, and at such time or times as it may from time to time
determine.
9.05 Action of Majority
Any act which the Plan authorizes or requires the Committee to do may
be done by a majority of its members. The action of that majority
expressed from time to time by a vote at a meeting or in writing
without a meeting shall constitute the action of the Committee and
shall have the same effect for all purposes as if assented to by all
members of the Committee at the time in office.
9.06 Compensation and Bonding
No member of the Committee shall receive any compensation from the
Plan for his or her services as such. Except as may otherwise be
required by law, no bond or other security need be required of any
member in that capacity in any jurisdiction.
9.07 Establishment of Rules
Subject to the limitations of the Plan, the Committee from time to
time shall establish rules for the administration of the Plan and the
transaction of its business. The Committee shall have discretionary
authority to construe and interpret the Plan (including, but not
limited to, determination of an individual's eligibility for Plan
participation, the right and amount of any benefit payable under the
Plan and the date on which any individual ceases to be a Member).
The determination of the Committee as to the interpretation of the
Plan or any disputed question shall be conclusive and final to the
extent permitted by applicable law.
9.08 Prudent Conduct
The Committee shall use that degree of care, skill, prudence and
diligence that a prudent man acting in a like capacity and familiar
with such matters would use in his conduct of a similar situation.
9.09 Service in More Than One Fiduciary Capacity
Any individual, entity or group of persons may serve in more than one
fiduciary capacity with respect to the Plan and/or the funds of the
Plan.
9.10 Limitation of Liability
The Employer, the Board of Directors, the directors of an Employer,
the Committee, and any officer, employee or agent of the Employer
shall not incur any liability individually or on behalf of any other
individuals or on behalf of the Employer for any act or failure to
act, made in good faith in relation to the Plan or the funds of the
Plan. However, this limitation shall not act to relieve any such
individual or the Employer from a responsibility or liability for any
fiduciary responsibility, obligation or duty under Part 4, Title I of
ERISA.
9.11 Indemnification
The Committee, the Board of Directors, and the officers, employees
and agents of the Employer shall be indemnified against any and all
liabilities arising by reason of any act, or failure to act, in
relation to the Plan or the funds of the Plan, including, without
limitation, expenses reasonably incurred in the defense of any claim
relating to the Plan or the funds of the Plan, and amounts paid in
any compromise or settlement relating to the Plan or the funds of the
Plan, except for actions or failures to act made in bad faith. The
foregoing indemnification shall be from the funds of the Plan to the
extent of those funds and to the extent permitted under applicable
law; otherwise from the assets of the Employer.
9.12 Named Fiduciary
For purposes of ERISA, the Committee shall be the named fiduciary of
the Plan except or until otherwise determined by the Board of
Directors.
9.13 Claims Procedure
The claims procedure hereunder shall be as provided herein:
(a) Claim. A Member or Beneficiary or other person who believes that
he or she is being denied a benefit to which he or she
(b) is entitled (hereinafter referred to as "Claimant") may file a
written request for such benefit with the Committee setting forth
his claim.
(b) Response to Claim. The Committee shall respond within ninety
(90) days of receipt of the claim. However, upon written
notification to the Claimant, the response period may be
extended for an additional ninety (90) days for reasonable
cause. If the claim is denied in whole or in part, the
Claimant shall be provided with a written opinion using
nontechnical language setting forth:
(i) The specific reason or reasons for the denial;
(ii) The specific references to pertinent Plan provisions on
which the denial is based;
(iii) A description of any additional material or information
necessary for the Claimant to perfect the claim and an
explanation of why such material or such information is
necessary;
(iv) Appropriate information as to the steps to be taken if
the Claimant wishes to submit the claim for review; and
(v) The time limits for requesting a review.
(c) Request for Review. Within sixty (60) days after the receipt
by the Claimant of the written opinion described above, the
Claimant may request in writing that the Committee review the
determination.
The Claimant or his duly authorized representative may review
the pertinent documents and submit issues and comments in
writing for consideration by the Committee. If the Claimant
does not request a review of the determination within such
sixty (60) day period, he shall be barred from challenging the
determination.
(d) Review and Decision. The Committee shall review the
determination within sixty (60) days after receipt of a
Claimant's request for review; provided, however, that for
reasonable cause such period may be extended to no more than
one hundred twenty (120) days. After considering all materials
presented by the Claimant, the Committee will render a written
opinion, written in a manner calculated to be understood by the
Claimant setting forth the specific reasons for the decision
and containing specific references to the pertinent Plan
provisions on which the decision is based.
9.14 Committee's Decision Final
Subject to applicable law, any interpretation of the provisions of
the Plan and any decision on any matter within the discretion of the
Committee made by the Committee in good faith shall be binding on all
persons. A misstatement or other mistake of fact shall be corrected
when it becomes known and the Committee shall make such adjustment on
account thereof as it considers equitable and practicable.
ARTICLE 10. MANAGEMENT OF FUNDS
10.01 Trust Agreement
All the funds of the Plan shall be held by a Trustee appointed from
time to time by the Board of Directors under a trust agreement
adopted, or as amended, by the Board of Directors for use in
providing the benefits of the Plan and paying its expenses not paid
directly by the Employer. The Employer shall have no liability for
the payment of benefits under the Plan nor for the administration of
the funds paid over to the Trustee.
10.02 Exclusive Benefit Rule
Except as otherwise provided in the Plan, no part of the corpus or
income of the funds of the Plan shall be used for, or diverted to,
purposes other than for the exclusive benefit of Members and other
persons entitled to benefits under the Plan and paying the expenses
of the Plan not paid directly by the Employer. No person shall have
any interest in, or right to, any part of the earnings of the funds
of the Plan, or any right in, or to, any part of the assets held
under the Plan, except as and to the extent expressly provided in the
Plan.
ARTICLE 11. GENERAL PROVISIONS
11.01 Nonalienation
(a) Except as required by any applicable law or by paragraph (c), no
benefit under the Plan shall in any manner be anticipated, assigned
or alienated, and any attempt to do so shall be void. However,
payment shall be made in accordance with the provisions of any
judgment, decree, or order which:
(i) creates for, or assigns to, a spouse, former spouse, child or
other dependent of a Member the right to receive all or a
portion of the Member's benefits under the Plan for the purpose
of providing child support, alimony payments or marital
property rights to that spouse, child or dependent,
(ii) is made pursuant to a State domestic relations law,
(iii) does not require the Plan to provide any type of benefit, or
any option, not otherwise provided under the Plan, and
(iv) otherwise meets the requirements of Section 206(d) of ERISA, as
amended, as a "qualified domestic relations order", as
determined by the Committee.
(b) Notwithstanding anything herein to the contrary, if the amount
payable to the alternate payee under the qualified domestic relations
order is less than $5,000, such amount shall be paid in one lump sum
as soon as practicable following the qualification of the order. If
the amount exceeds $5,000, it may be paid as soon as practicable
following the qualification of the order if the qualified domestic
relations order so provides and the alternate payee consents thereto;
otherwise it may not be payable before the earlier of (i) the
Member's termination of employment or (ii) the Member's attainment of
age 50.
(c) A Member's benefit under the Plan shall be offset or reduced by the
amount the Member is required to pay to the Plan under the
circumstances set forth in Section 401(a)(13)(C) of the Code.
11.02 Conditions of Employment Not Affected by Plan
The establishment of the Plan shall not confer any legal rights upon
any Eligible Employee or other person for a continuation of
employment, nor shall it interfere with the rights of the Employer to
discharge any Eligible Employee and to treat him or her without
regard to the effect which that treatment might have upon him or her
as a Member or potential Member of the Plan.
11.03 Facility of Payment
If the Committee shall find that a Member or other person entitled to
a benefit is unable to care for his or her affairs because of illness
or accident or because he or she is a minor, the Committee may direct
that any benefit due him or her, unless claim shall have been made
for the benefit by a duly appointed legal representative, be paid to
his or her spouse, a child, a parent or other blood relative, or to a
person with whom he or she resides. Any payment so made shall be a
complete discharge of the liabilities of the Plan for that benefit.
11.04 Erroneous Allocation
Notwithstanding any provision of the Plan to the contrary, if a
Member's Account is credited with an erroneous amount due to a
mistake in fact or law, the Committee shall adjust such Account in
such equitable manner as it deems appropriate to correct the
erroneous allocation.
11.05 Information
Each Member, Beneficiary or other person entitled to a benefit,
before any benefit shall be payable to him or her or on his or her
account under the Plan, shall file with the Committee the information
that it shall require to establish his or her rights and benefits
under the Plan.
11.06 Top-Heavy Provisions
(a) The following definitions apply to the terms used in this Section:
(i) "applicable determination date" means the last day of the
preceding Plan Year;
(ii) "top-heavy ratio" means the ratio of (A) the value of the
aggregate of the Account under the Plan for key employees to
(B) the value of the aggregate of the Account under the Plan
for all key employees and non-key employees;
(iii) "key employee" means an employee who is in a category of
employees determined in accordance with the provisions of
Sections 416(i)(1) and (5) of the Code and any regulations
thereunder, and where applicable, on the basis of the
Employee's Statutory Compensation from the Employer or an
Affiliate;
(iv) "non-key employee" means any Employee who is not a key
employee;
(v) "applicable Valuation Date" means the Valuation Date coincident
with or immediately preceding the last day of the preceding
Plan Year;
(vi) "required aggregation group" means any other qualified plan(s)
of the Employer or an Affiliate in which there are members who
are key employees or which enable(s) the Plan to meet the
requirements of Section 401(a)(4) or 410 of the Code; and
(vii) "permissive aggregation group" means each plan in the required
aggregation group and any other qualified plan(s) of the
Employer or an Affiliate in which all members are non-key
employees, if the resulting aggregation group continues to meet
the requirements of Sections 401(a)(4) and 410 of the Code.
(b) For purposes of this Section, the Plan shall be "top-heavy" with
respect to any Plan Year if as of the applicable determination date
the top-heavy ratio exceeds 60 percent. The top-heavy ratio shall be
determined as of the applicable Valuation Date in accordance with
Sections 416(g)(3) and (4) of the Code and Article 5 of this Plan,
and shall take into account any contributions made after the
applicable Valuation Date but before the last day of the Plan Year in
which the applicable Valuation Date occurs. For purposes of
determining whether the Plan is top-heavy, the account balances under
the Plan will be combined with the account balances or the present
value of accrued benefits under each other plan in the required
aggregation group, and in the Employer's discretion, may be combined
with the account balances or the present value of accrued benefits
under any other qualified plan in the permissive aggregation group.
Distributions made with respect to a Member under the Plan during the
five-year period ending on the applicable determination date shall be
taken into account for purposes of determining the top-heavy ratio;
distributions under plans that terminated within such five-year
period shall also be taken into account, if any such plan contained
key employees and therefore would have been part of the required
aggregation group.
(c) The following provisions shall be applicable to Members for any Plan
Year with respect to which the Plan is top-heavy:
(i) In lieu of the vesting requirements specified in Section 6.01,
a Member shall be vested in, and have a nonforfeitable right
to, his or her Account in accordance with the following
schedule:
Nonforfeitable
Years of Vesting Service Percentage
less than 2 years 0%
2 years 20
3 years 40
4 years 60
5 or more years 100
provided that in no event shall the vested portion of his or
her Account be less than the vested portion determined under
Section 6.01.
(ii) An additional Employer contribution shall be allocated on
behalf of each Member (and each Eligible Employee eligible to
become a Member) who is a non-key employee, and who has not
separated from service as of the last day of the Plan Year, to
the extent that the contributions made on his or her behalf
under Section 3.01 for the Plan Year would otherwise be less
than 3 percent of his or her remuneration. However, if the
greatest percentage of remuneration contributed on behalf of a
key employee under Section 3.01 for the Plan Year would be less
than 3 percent, that lesser percentage shall be substituted for
"3 percent" in the preceding sentence. Notwithstanding the
foregoing provisions of this subparagraph (ii), no minimum
contribution shall be made under this Plan with respect to a
Member (or an Employee eligible to become a Member) if the
required minimum benefit under Section 416(c)(1) of the Code is
provided to him or her by any other qualified pension plan of
the Employer or an Affiliate. For the purposes of this
subparagraph (ii), remuneration has the same meaning as set
forth in Section 3.03(c).
(d) If the Plan is top-heavy with respect to a Plan Year and ceases to be
top-heavy for a subsequent Plan Year, the following provisions shall
be applicable:
(i) If a Member has completed at least three years of Vesting
Service on or before the last day of the most recent Plan Year
for which the Plan was top-heavy, the vesting schedule set
forth in paragraph (b)(i) shall continue to be applicable.
(ii) If a Member has completed at least two, but less than three,
years of Vesting Service on or before the last day of the most
recent Plan Year for which the Plan was top-heavy, the vesting
provisions of Section 6.01 shall again be applicable; provided,
however, that in no event shall the vested percentage of a
Member's Account be less than the percentage determined under
paragraph (b)(i) above as of the last day of the most recent
Plan Year for which the Plan was top-heavy.
11.07 Prevention of Escheat
If the Committee cannot ascertain the whereabouts of any person to
whom a payment is due under the Plan, the Committee may, no earlier
than three years from the date such payment is due, mail a notice of
such due and owing payment to the last known address of such person,
as shown on the records of the Committee or the Employer. If such
person has not made written claim therefor within three months of the
date of the mailing, the Committee may, if it so elects and upon
receiving advice from counsel to the Plan, direct that such payment
and all remaining payments otherwise due such person be canceled on
the records of the Plan and the amount thereof applied to reduce the
contributions of the Employer. Upon such cancellation, the Plan and
the Trust shall have no further liability therefor except that, in
the event such person or his or her beneficiary later notifies the
Committee of his or her whereabouts and requests the payment or
payments due to him or her under the Plan, the amount so applied
shall be paid to him or her in accordance with the provisions of the
Plan.
11.08 Written Elections
Any elections, notifications or designations made by a Member
pursuant to the provisions of the Plan shall be made in writing and
filed with the Committee in a time and manner determined by the
Committee under rules uniformly applicable to all employees similarly
situated. The Committee reserves the right to change from time to
time the time and manner for making notifications, elections or
designations by Members under the Plan if it determines after due
deliberation that such action is justified in that it improves the
administration of the Plan. In the event of a conflict between the
provisions for making an election, notification or designation set
forth in the Plan and such new administrative procedures, those new
administrative procedures shall prevail.
11.09 Construction
(a) The Plan shall be construed, regulated and administered under ERISA
and the laws of the State of California, except where ERISA controls.
(b) The titles and headings of the Articles and Sections in this Plan are
for convenience only. In the case of ambiguity or inconsistency, the
text rather than the titles or headings shall control.
ARTICLE 12. AMENDMENT, MERGER AND TERMINATION
12.01 Amendment of Plan
The Board of Directors reserves the right at any time and from time
to time, and retroactively if deemed necessary or appropriate, to
amend in whole or in part any or all of the provisions of the Plan.
The Committee may amend the Plan, provided such amendments would not
significantly increase the cost of the Plan, change the level of
benefits provided under the Plan or modify the underlying policy
reflected by the Plan and provided, further, that notwithstanding the
above, the Committee may adopt any amendment necessary to maintain
the Plan's qualified status under the applicable provisions of the
Code. However, no amendment shall make it possible for any part of
the funds of the Plan to be used for, or diverted to, purposes other
than for the exclusive benefit of persons entitled to benefits under
the Plan. No amendment shall be made which has the effect of
decreasing the balance of the Account of any Member or of reducing
the nonforfeitable percentage of the balance of the Account of a
Member below the nonforfeitable percentage computed under the Plan as
in effect on the date on which the amendment is adopted, or if later,
the date on which the amendment becomes effective. Any action to
amend the Plan by the Board of Directors shall be taken in such
manner as may be permitted under the by-laws of the Company, and any
action to amend the Plan by the Committee shall be taken at a meeting
held in person or by telephone or other electronic means or by
unanimous written consent in lieu of a meeting.
12.02 Merger, Consolidation or Transfer
The Plan may not be merged or consolidated with, and its assets or
liabilities may not be transferred to, any other plan unless each
person entitled to benefits under the Plan would, if the resulting
plan were then terminated, receive a benefit immediately after the
merger, consolidation, or transfer which is equal to or greater than
the benefit he or she would have been entitled to receive immediately
before the merger, consolidation, or transfer if the Plan had then
terminated.
12.03 Additional Participating Employers
(a) If any company is or becomes an Affiliate, the Board of Directors may
include the employees of that Affiliate in the membership of the Plan
upon appropriate action by that Affiliate necessary to adopt the Plan
unless the Board of Directors or its delegate provides otherwise. In
that event, or if any persons become Eligible Employees of an
Employer as the result of merger or consolidation or as the result of
acquisition of all or part of the assets or business of another
company, the Board of Directors shall determine to what extent, if
any, previous service with the Affiliate shall be recognized under
the Plan, but subject to the continued qualification of the trust for
the Plan as tax-exempt under the Code.
(b) Any Affiliate may terminate its participation in the Plan upon
appropriate action by it. In that event the funds of the Plan held
on account of Members in the employ of that Affiliate, and any unpaid
balances of the Account of all Members who have separated from the
employ of that Affiliate, shall be determined by the Committee.
Those funds shall be distributed as provided in Section 12.04 if the
Plan should be terminated, or shall be segregated by the Trustee as a
separate trust, pursuant to certification to the Trustee by the
Committee, continuing the Plan as a separate plan for the employees
of that Affiliate under which the board of directors of that
Affiliate shall succeed to all the powers and duties of the Board of
Directors, including the appointment of the members of the Committee.
12.04 Termination of Plan
The Board of Directors, by action taken at a meeting held in person
or by telephone or other electronic means, or by unanimous written
consent in lieu of a meeting, may terminate the Plan or completely
discontinue contributions under the Plan for any reason at any time.
In case of termination or partial termination of the Plan, or
complete discontinuance of Employer contributions to the Plan, the
rights of affected Members to their Account under the Plan as of the
date of the termination or discontinuance shall be nonforfeitable.
In the event of the Plan's termination, the total amount in each
Member's Account shall be distributed to him or her if permitted by
law or continued in trust for his or her benefit, as the Committee
shall direct.
Farmer Bros Co. Subsidiaries: FBC Finance Co., a California corporation. 20333 S. Normandie Avenue Torrance, CA 90502
Farmer Bros Co. Offices Warehouses and Plants: The Corporation, Farmer Bros. Co., headquartered in Torrance, California, roasts and packages coffee, processes spices and other restaurant supplies at that location, and manufactures a complete line of coffee-brewing equipment at its Brewmatic Division plant in Los Angeles. The Corporation's primary business is conducted through its internal divisions: Restaurant and Institutional Sales Division, Brewmatic Division, Spice Products Division and Custom Coffee Plan Division; and one subsidiary, FBC Finance Company. Executive Offices: Farmer Bros. Co. 20333 South Normandie Avenue, Torrance, California Restaurant and Institutional Sales Division 20401 South Normandie Avenue, Torrance, California Brewmatic Company Division 20333 South Normandie Avenue, Torrance, California Spice Products Company Division 20333 South Normandie Avenue, Torrance, California Custom Coffee Plan Division 20333 South Normandie Avenue, Torrance, California FBC Finance Co. 20333 South Normandie Avenue, Torrance, California RESTAURANT AND INSTITUTIONAL SALES BRANCHES Arizona FLAGSTAFF 2385 N. Walgreen Street Lake Havasu 1880 Commander Dr., Suite C PHOENIX 1060 W. Alameda Dr. Tempe TUCSON 3818 South Evans Blvd. YUMA 3320 E. Gila Ridge Rd. Arkansas FAYETTEVILLE 3901-D Kelly Springdale LITTLE ROCK 7630 Hardin Drive North Little Rock California BAKERSFIELD 1135 W. Columbus BISHOP 324 E. Clarke Street Castroville 11460 Commercial Parkway CHICO 252 East Avenue, Suite F EUREKA 1825 3rd Street FRESNO 4576 N. Bendel LANCASTER 42138 7th Street West OAKLAND 9844 Kitty Lane Emeryville PALM SPRINGS 72205 Corporate Way Thousand Palms REDDING 5601 Cedar Rd. - E Resident Branch RIVERSIDE 12101 Madera Way SACRAMENTO 2450 Boatman Ave. SAN DIEGO7855 Ostrow St., B SAN GABRIEL 859 Meridian St. Duarte SAN JOSE 1462 Seareel Pl. SAN LUIS OBISPO 3415 Miguelito Ct. SANTA Ana 3921 W. Segerstrom Ave. SANTA ROSA 470 E. Todd Rd. STOCKTON 4243 Arch Road TORRANCE 20401 S. Normandie Ave. VALLEY 9373 Remick Ave. Arleta VENTURA 1350 Stellar Dr. Oxnard VICTORVILLE 17190 Yuma ST. Victorville Colorado COLORADO SPRINGS 337 Manitou Ave. Manitou Springs DENVER 5595 Joliet Street FORT COLLINS 4500 Innovation Drive GRAND JUNCTION 2848 Chipeta Ave., #B Idaho BOISE 1625 South Curtis IDAHO FALLS 805 S. Saturn Ave. TWIN FALLS 445 5th Ave. W Resident Branch Illinois CHICAGO 31W280 Diehl Rd., Unit 103 Naperville MOLINE 2950 38th Avenue SPRINGFIELD 3430 C Constitution Dr. Indiana EVANSVILLE 1905 N. Kentucky Ave. INDIANAPOLIS 1123 Country Club Rd. Iowa DES MOINES 1662 N.E. 55th Ave. OMAHA 3217 Nebraska Ave. Council Bluffs Kansas WICHITA 2355 S. Edwards, Suite B Minnesota DULUTH 4314 Enterprise Cr. MINNEAPOLIS 3074 84th Lane N E Blaine Missouri COLUMBIA 4881 B I-70 Drive SW KANSAS CITY 9 N.E. Skyline Dr. Lee's Summit SPRINGFIELD 450 M S. Union ST. LOUIS 12832 Pennridge Dr. Montana BILLINGS 2625 Enterprise Ave. GREAT FALLS 2600 16th St. N.E. Black Eagle MISSOULA 2751 Charlo St. Nebraska NORTH PLATTE 601 Sioux Meadow Nevada ELKO 460 S. A Street LAS VEGAS 3417 Losee Rd. CARSON CITY 3880 Technology Way New Mexico ALBUQUERQUE 5911 Office Blvd. FARMINGTON 1414 Schofield Lane Resident Branch ROSWELL 710 East College North Dakota BISMARCK 3800 Commerce Drive, Suite C FARGO 710 38th St. N.W. Unit C Oklahoma OKLAHOMA CITY 4611 S.W. 20th St. TULSA 804 S. 8th St. Broken Arrow Oregon BEND 20409 N. W. Cady Way Resident Branch EUGENE 2545-F Prairie Rd. MEDFORD 777 East Vilas Rd. Central Point PORTLAND 7515 N.E. 33rd Dr. SALEM 3790-G Silverton Rd. NE South Dakota RAPID CITY 2030 Creek Dr. SIOUX FALLS 2405 W. 5th St. Tennessee MEMPHIS 5753 E. Shelby Dr., Ste 1 NASHVILLE 1330 Foster Ave. Texas AMARILLO 1415 S. Johnson St. AUSTIN 2004 Lamar Dr. Round Rock CORPUS CHRISTI 3909 Wow Road DALLAS/FT. WORTH 744 Avenue H East Arlington EL PASO 1325 Don Haskins Dr. HOUSTON 6638 Rupley Circle LUBBOCK 1608 D No. University Resident Branch McALLEN 1312 E. Laurel ODESSA 2017 W. 7th SAN ANTONIO 4930 Center Park WICHITA FALLS 1404 Beverly Drive Utah SALT LAKE CITY 2230 So. 2000 West Washington SEATTLE 8660 Willows Rd. Redmond SPOKANE E. 10915 Montgomery Dr. TACOMA 9412 Front Street Lakewood YAKIMA 2301 S. 18th Street Union Gap Wisconsin GREEN BAY 1227 S. Maple Ave. LA CROSSE 1232 Clinton St. MADISON 1017 Jonathan Dr. MILWAUKEE W. 182 S8335-A Racine Ave. Muskego Wyoming CASPER 2170 N. Old Salt Creek Hwy. Custom Coffee Plan BRANCHES: California North Hollywood 7419 Bellaire Ave. San Diego 7855-A Ostrow St. San Leandro 3041 Teagarden Torrance 20333 S. Normandie Ave. Colorado Denver 5595 Joliet Street, #B Texas Arlington 722 Avenue H East Houston 11519 South Petropark Drive