-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Oh1ZqfI5aiPb/366Xyy42/BIMh4tTfxqEre19l7uqo/gAueFXIFnrnlpq8afpI1N 22GthvaeBgElTUWk4y8t1g== 0000950124-95-000743.txt : 19950615 0000950124-95-000743.hdr.sgml : 19950615 ACCESSION NUMBER: 0000950124-95-000743 CONFORMED SUBMISSION TYPE: S-2/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19950317 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COTTER & CO CENTRAL INDEX KEY: 0000025095 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE [5072] IRS NUMBER: 362099896 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-39477 FILM NUMBER: 95521550 BUSINESS ADDRESS: STREET 1: 2740 N CLYBOURN AVE CITY: CHICAGO STATE: IL ZIP: 60614 BUSINESS PHONE: 3129752700 MAIL ADDRESS: STREET 2: 2740 N CLYBOURN AVE CITY: CHICAGO STATE: IL ZIP: 60614 S-2/A 1 POST-EFFECTIVE AMEND. #4 TO S-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1995 REGISTRATION NO. 33-39477 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ POST-EFFECTIVE AMENDMENT NO. 4 to FORM S-2 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ------------------ COTTER & COMPANY (Exact name of Registrant as specified in its charter) Delaware 36-2099896 (State of Incorporation) (IRS Employer Identification No.)
2740 North Clybourn Avenue Chicago, Illinois 60614 (312) 975-2700 (address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) Kerry J. Kirby, Vice President and Chief Financial Officer Cotter & Company 2740 North Clybourn Avenue Chicago, Illinois 60614 (312) 975-2700 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: Daniel T. Burns, Vice President and Robert N. Sodikoff, Esq. Secretary Aronberg Goldgehn Davis & Garmisa Cotter & Company One IBM Plaza 2740 North Clybourn Avenue Suite 3000 Chicago, Illinois 60614 Chicago, Illinois 60611 (312) 975-2700 (312) 828-9600
------------------ Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Post-Effective Amendment to the Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ If the Registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box. / / - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 COTTER & COMPANY ------------------ CROSS REFERENCE SHEET
CAPTION IN ITEM IN FORM S-2 PROSPECTUS ------------------------------------------------- ------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus........... Forepart of Registration Statement and Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus....................................... Available Information; Reports to Securities Holders; Documents Incorporated by Reference 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges........................ Summary; The Company; Description of Common Stock 4. Use of Proceeds.................................. Use of Proceeds 5. Determination of Offering Price.................. Outside Front Cover Page of Prospectus and Plan of Distribution 6. Dilution......................................... Not Applicable 7. Selling Security Holders......................... Not Applicable 8. Plan of Distribution............................. Plan of Distribution 9. Description of Securities to be Registered....... Description of Common Stock 10. Interests of Named Experts and Counsel........... Not Applicable 11. Information with Respect to the Registrant....... Summary; The Company; Dividends; Se- lected Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Distribution of Patronage Dividends; Description of Common Stock; Index to Consolidated Financial Statements 12. Incorporation of Certain Information by Reference........................................ Documents Incorporated By Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities... Not Applicable
3 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED MARCH 17, 1995 PROSPECTUS COTTER & COMPANY 12,350 SHARES CLASS A COMMON STOCK, $100 PAR VALUE (IN UNITS OF TEN SHARES) THE COMMON STOCK OFFERED HEREUNDER IS OFFERED EXCLUSIVELY TO RETAILERS OF HARDWARE AND RELATED PRODUCTS, IN CONNECTION WITH BECOMING MEMBERS OF THE COMPANY. (SEE "PLAN OF DISTRIBUTION" HEREIN.) THE COMMON STOCK OFFERED HEREUNDER IS LIMITED AS TO TRANSFERABILITY BY ITS TERMS. THE COMPANY RETAINS AN AUTOMATIC LIEN AGAINST SUCH COMMON STOCK, AND DIVIDENDS ACCRUING THEREON, FOR ANY INDEBTEDNESS DUE THE COMPANY. (SEE "DESCRIPTION OF COMMON STOCK" HEREIN.) THERE IS NO EXISTING MARKET FOR THE COMMON STOCK OFFERED HEREUNDER AND THERE IS NO EXPECTATION THAT ANY MARKET WILL DEVELOP. ------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ---------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------- UNDERWRITING UNIT OF 10 SHARES OF PRICE TO DISCOUNTS AND PROCEEDS TO CLASS A COMMON STOCK PUBLIC COMMISSIONS COMPANY - ---------------------------------------------------------------------------------------------- Per Unit(1)........................ $1,000 See (2) Below $1,000(3) Total.............................. $1,235,000 See (2) Below $1,235,000(3) - ---------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------
(1) The shares will be offered only in units of 10 shares and no shareholder may purchase more than one such unit. (2) There will be no underwriters. The subject stock will be sold directly by the Company at par value. (3) There is no firm commitment for the sale of the securities offered hereunder; they will be sold from time to time by the Company. However, assuming the sale of all securities offered hereunder, and before deduction of approximately $50,000 for estimated expenses in connection with this offering, the total proceeds will be as shown above. ------------------ THE DATE OF THIS PROSPECTUS IS APRIL , 1995. 4 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports and other information with the Securities and Exchange Commission (the "Commission"). Such reports and other information filed by the Company with the Commission can be inspected and copied at the public reference facilities maintained by the Commission at its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549 as well as the Regional Offices of the Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such material can be obtained from the Public Reference Section of the Commission, Washington, D.C., 20549 at prescribed rates. REPORTS TO SECURITY HOLDERS Each year the Company distributes to its stockholder-Members an annual report containing consolidated financial statements reported upon by a firm of independent auditors. The Company may, from time to time, also furnish to its stockholder-Members interim reports, as determined by management. DOCUMENTS INCORPORATED BY REFERENCE The Company's Annual Report on Form 10-K for the year ended December 31, 1994 filed pursuant to Section 15(d) of the Exchange Act is incorporated herein by reference. The Company will provide without charge to each person to whom a Prospectus is delivered, upon written or oral request of such person, a copy of any and all of the documents incorporated by reference in the Registration Statement (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into the documents that the Registration Statement incorporates). Requests for such copies should be directed to Kerry J. Kirby, Vice President and Chief Financial Officer, Cotter & Company, 2740 North Clybourn Avenue, Chicago, IL 60614, (312) 975-2700. 2 5 SUMMARY This Summary is qualified in its entirety by the detailed information and the Company's consolidated financial statements (including the notes thereto) appearing elsewhere in this Prospectus and in the documents incorporated herein by reference. Cotter & Company (the "Company"), located at 2740 North Clybourn Avenue, Chicago, Illinois, 60614, telephone number (312) 975-2700, is a Member-owned wholesaler of hardware and related merchandise. It is the largest wholesaler of hardware and related merchandise in the United States. The Company also manufactures paint and paint applicators. For reporting purposes, the Company operates in a single industry as a Member-owned wholesaler cooperative. The Company's Class A Common Stock being offered hereby is offered exclusively to retailers of hardware and related merchandise, in connection with becoming Members of the Company. The Class A Common Stock (which is the sole voting stock) is offered only in ten (10) share units, and no party may acquire more than one unit; thus control of the Company is equally distributed among the stockholder-Members. Sales of Class A Common Stock are made for cash. Membership entitles a Member to use certain Company trademarks and trade names, including the federally registered collective membership trademark indicating membership in "True Value(R) Hardware Stores". Membership also entitles the Member to receive annual patronage dividends based upon the Member's purchases from the Company. In accordance with the Company's By-Laws and Retail Member Agreement (the "Agreement"), the annual patronage dividend is paid to Members out of the gross margins from operations and other patronage source income, after deduction for expenses, reserves and provisions authorized by the Board of Directors. The Class A Common Stock being offered hereby is limited as to transferability in that the Company has a ninety (90) day right of first refusal to repurchase, at book value, a Member's stock before such stock can otherwise be disposed of. Additionally, the Company retains an automatic lien on the Class A Common Stock, and dividends accruing thereon, for any indebtedness due the Company. The Company is obligated to repurchase a Member's Class A Common Stock and the Member is obligated to sell such stock, at book value, in accordance with the terms and conditions set forth in the Company's By-Laws upon termination of the Agreement. The Agreement may be terminated by either the Company or the Member upon sixty (60) days written notice. Termination by the Company requires approval by a two-thirds vote of the Board of Directors, except in the following circumstances where the Company has the right to immediately terminate the Agreement: the Member becomes insolvent, commits any act of bankruptcy, files a voluntary petition in bankruptcy, is adjudicated as bankrupt, or commits a breach of any obligation under the Agreement, which breach is not cured within ten (10) days after written notice to the Member by the Company. There is no existing market for the Class A Common Stock offered hereunder and there is no expectation that any market will develop. The Company intends to use the proceeds of this offering primarily for general working capital purposes, including the purchase of merchandise for resale to Members and the maintenance of adequate inventory levels. 3 6 THE COMPANY The Company was organized as a Delaware corporation in 1953. Upon its organization, it succeeded to the business of Cotter & Company, an Illinois corporation organized in 1948. The Company's principal executive offices are located at 2740 North Clybourn Avenue, Chicago, Illinois, 60614. Its telephone number is (312) 975-2700. The Company is a Member-owned wholesaler of hardware and related merchandise. It is the largest wholesaler of hardware and related merchandise in the United States. The Company also manufactures paint and paint applicators. The Company currently manufactures outdoor power equipment, heaters and hardware related products. In January 1995, the Company agreed to sell certain assets of this manufacturing division to a nationally recognized company and secured a favorable supply agreement from the purchaser. For reporting purposes, the Company operates in a single industry as a Member-owned wholesaler cooperative. The Company serves approximately 6,200 True Value(R) Hardware Stores throughout the United States. Primary concentrations of Members exist in California (approximately 8%), New York, Illinois and Texas (approximately 6% each), Pennsylvania (approximately 5%) and Michigan and Ohio (approximately 4% each). Also, the Company currently serves approximately 1,000 V&S(R) Variety Stores. The Company announced in January 1995 the sale of certain inventory of its domestic V&S(R) Variety division to a national wholesaler who has also agreed to supply the majority of the V&S(R) stores. USE OF PROCEEDS The proceeds to be received from this offering will be used by the Company primarily for general working capital purposes, including the purchase of merchandise for resale to Members and the maintenance of adequate inventory levels. Until used as provided herein, the net proceeds of the sale of the Class A Common Stock may be invested in short-term commercial paper, bank certificates of deposit, government securities, repurchase agreements, or other similar short-term investment. The Company will use its best efforts to sell the Class A Common Stock being offered hereunder and has no assurances that all such Class A Common Stock will be sold. As a result, the Company may not receive the entire amount of estimated proceeds from the sale of said Class A Common Stock. PLAN OF DISTRIBUTION The Company's Class A Common Stock being offered hereby is offered exclusively to retailers of hardware and related merchandise, in connection with becoming Members of the Company. Each independent retailer who applies to become a stockholder-Member must subscribe for ten (10) shares of the Company's Class A Common Stock, $100 par value, having a total purchase price of $1,000. All sales of the Class A Common Stock will be made for cash. Sales of Class A Common Stock are primarily made through the Company's registered securities agent(s) but only after the executive officers of the Company approve the admission of a new Member. Neither the Company's executive officers nor its agent(s) receive any special or separate compensation or commission in connection with the admission of new Members and concomitant sales of Class A Common Stock. Although the Company's retail support representatives frequently are the Company's initial contact with potential new Members, they do not, and are not empowered to, admit new Members to the Company. 4 7 DIVIDENDS Other than the payment of patronage dividends, including the redemption of some nonqualified written notices of allocation, the Company has not paid dividends on its Class A Common Stock or Class B Common Stock. The Board of Directors does not plan to pay dividends on either of said classes. See "Distribution of Patronage Dividends" and "Description of Common Stock". SELECTED FINANCIAL DATA
FOR THE YEARS ENDED ---------------------------------------------------------------------- DECEMBER 31, JANUARY 1, JANUARY 2, DECEMBER 28, DECEMBER 29, 1994 1994 1993 1991 1990 ------------ ---------- ------------ ------------ ------------ (IN THOUSANDS EXCEPT PER SHARE DATA) Revenues............................. $2,574,445 $2,420,727 $2,356,468 $2,139,887 $2,135,120 Net margins.......................... $ 60,318 $ 57,023 $ 60,629 $ 59,425 $ 54,847 Patronage dividends.................. $ 60,421 $ 54,440 $ 60,901 $ 60,339 $ 56,269 Total assets......................... $ 868,785 $ 803,528 $ 833,372 $ 763,109 $ 709,895 Long-term debt and obligations under capital leases..................... $ 75,756 $ 69,201 72,749 $ 13,335 $ 15,077 Promissory (subordinated) and instalment notes payable........... $ 199,099 $ 217,996 $ 235,695 $ 235,289 $ 215,452 Redeemable Class A Common Stock...... $ 6,370 $ 6,633 $ 6,857 $ 7,077 $ 7,362 Redeemable Class B Common Stock...... $ 116,663 $ 110,773 $ 108,982 $ 104,151 $ 101,398 Book value per share of Class A Common Stock and Class B Common Stock(a)........................... $ 103.57 $ 103.85 $ 101.42 $ 102.50 $ 103.38
- --------------- (a) The book value per share of the Company's Class A Common Stock and Class B Common Stock is the value, determined in accordance with generally accepted accounting principles, of such shares as shown by the respective year-end consolidated balance sheets of the Company, included elsewhere herein as reported on by the Company's independent auditors, after eliminating therefrom all value for goodwill, and other intangible assets and any retained earnings specifically appropriated by the Company's Board of Directors. 5 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993 In fiscal year 1994, the Company's revenues increased $153,718,000 from last year. Total revenues grew to $2,574,445,000, an increase of 6.4%. The improvement resulted from increased merchandise shipments to existing Members. Classes of merchandise with the strongest percentage increases in fiscal year 1994 were Lumber and Building Materials, up 11.9%; Farm and Garden Supplies, up 8.9%; Hardware Goods, up 7.3%; Appliances and Housewares, up 7.0%; and Variety and Related Goods, up 6.4%. The South Central region of the United States showed the largest growth at 9.4%. Other regions showing strong growth were the Southeast at 8.1%; the Northeast at 7.2%; and North Central at 7.1%. Consolidated gross margins increased by $5,410,000 or 2.5% but as a percentage of revenues decreased to 8.7% from 9.0% reflecting a change in the Company's sales mix from warehouse to direct shipments, combined with the new Pinpoint Pricing program and more promotionally oriented merchandising programs. Warehouse, general and administrative expenses remained comparable with the previous year but expressed as a percentage of revenues decreased to 5.2% from 5.5% due to the Company's continuing efforts to reduce operating costs. Interest paid to Members decreased by $1,564,000 or 6.4% primarily due to a lower average interest rate. Net margins were $60,318,000 for the year ended December 31, 1994 compared to $57,023,000 for the year ended January 1, 1994. The fiscal year 1993 net margins include a one-time gain on the sale of properties of $5,985,000 offset by the related income tax of $2,162,000. FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992 Revenues increased $64,259,000 or 2.7% compared to the previous year. The majority of this revenue gain resulted from increased direct shipment sales to Members. Contributing to the increased direct shipments were strong increases of 15.6% from Lumber and Building Materials and a 20.5% increase from the Company's manufacturing division, General Power Equipment Company. Another significant portion of the Company's revenue increase was due to Cotter Canada Hardware and Variety Cooperative, Inc. ("Cotter Canada"). With its growth in membership and its first full year of operations, Cotter Canada shipments to Canadian members increased by 36.4%. Consolidated gross margins increased $1,313,000 but as a percentage of revenue decreased to 9.0% from 9.2% reflecting the change in sales mix from warehouse to direct shipments. Warehouse, general and administrative expenses increased by $9,430,000 or 7.7% due to higher manufacturing and logistic costs, increases associated with a full year of operations at Cotter Canada and non-recurring expenses related to the decentralization of functions previously performed at the Company's National Headquarters. Interest paid to Members decreased $1,258,000 or 4.9% primarily due to a lower average interest rate. Other interest expense increased by $156,000 or 2.1% due to a long-term financing agreement entered into by the Company during the second quarter of fiscal year 1992 to finance the expansion of the Company's 6 9 distribution network and entry into Canada. This increase was partially offset by a decrease in short-term borrowings and the average rate of interest compared to the corresponding period last year. The gain on sale of properties owned of $5,985,000 and the corresponding increase in income tax expense of $2,193,000 resulted primarily from the disposition of a regional distribution center in Pomona, California and real estate located in Chicago, Illinois. Net margins were $57,023,000 for the year ended January 1, 1994 compared to $60,629,000 for the year ended January 2, 1993. LIQUIDITY AND CAPITAL RESOURCES Cash and cash equivalents in 1994 remained comparable to the previous year. Cash flows for the year ended December 31, 1994 of $88,663,000 were provided by operating activities through shipment of inventories to True Value(R) and V&S(R) Members, which were purchased or manufactured by the Company. Cash flows of $18,121,000 were used for investing activities and cash flows of $70,025,000 were used for financing activities. At the end of fiscal year 1994, inventories increased by $48,681,000, to support anticipated future orders of seasonal merchandise. Short-term borrowings decreased by $13,958,000, but accounts payable increased by $79,252,000 in support of the increased inventories for anticipated future orders of seasonal merchandise and favorable seasonal terms obtained from vendors. Since the favorable seasonal terms were passed on to the Company's Members, accounts and notes receivable increased by $18,078,000. At December 31, 1994, net working capital decreased to $221,054,000 from $225,206,000 at January 1, 1994. The current ratio decreased to 1.47 at December 31, 1994 compared to 1.57 at January 1, 1994. Short-term lines of credit available under informal agreements with lending banks, cancellable by either party under specific circumstances, amounted to $67,800,000 at December 31, 1994. Borrowings under these agreements were $9,329,000 at December 31, 1994 compared to $23,287,000 at January 1, 1994. The Company's capital is primarily derived from redeemable Class A Common Stock and retained earnings, together with Promissory (Subordinated) Notes and redeemable nonvoting Class B Common Stock issued in connection with the Company's annual patronage dividend. Funds derived from these capital resources are usually sufficient to satisfy long-term capital needs. Total capital expenditures, including those made under capital leases, were $21,427,000 in fiscal year 1994 compared to $13,382,000 in fiscal year 1993 and $30,398,000 in fiscal year 1992. These capital expenditures were principally related to additional equipment and technological improvements at the regional distribution centers and National Headquarters. Funding of capital expenditures in fiscal year 1995 is anticipated to come from operations and external sources, if necessary. The effects of all recent tax legislation have not had a material effect on the Company's financial position and results of operations. Effective January 3, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes". As permitted under the new rules, prior years' financial statements have not been restated. The cumulative effect of this adoption did not have a material effect on the consolidated financial statements. Additionally, the Company has reviewed the impact of all new accounting standards issued as of the filing date of this report, that will be adopted at a future date, and has determined that these will not have a material impact on the Company's results of operations or financial position. 7 10 BUSINESS The Company is a Member-owned wholesaler of hardware and related merchandise. It is the largest wholesaler of hardware and related merchandise in the United States. The Company also manufactures paint and paint applicators. The Company currently manufactures outdoor power equipment, heaters and hardware related products. In January 1995, the Company agreed to sell certain assets of this manufacturing division to a nationally recognized company and secured a favorable supply agreement from the purchaser. For reporting purposes, the Company operates in a single industry as a Member-owned wholesaler cooperative. Membership entitles a Member to use certain Company trademarks and trade names, including the federally registered collective membership trademark indicating membership in "True Value(R) Hardware Stores". The "True Value(R)" collective membership mark has a present expiration date of January 2, 2003. The Company serves approximately 6,200 True Value(R) Hardware Stores throughout the United States. Primary concentrations of Members exist in California (approximately 8%), New York, Illinois and Texas (approximately 6% each), Pennsylvania (approximately 5%) and Michigan and Ohio (approximately 4% each). Also, the Company currently serves approximately 1,000 V&S(R) Variety Stores. The Company announced in January 1995 the sale of certain inventory of its domestic V&S(R) Variety division to a national wholesaler who has also agreed to supply the majority of the V&S(R) stores. The Company's total sales of merchandise to its U.S. Members were divided among the following general classes of merchandise:
DECEMBER 31, JANUARY 1, JANUARY 2, 1994 1994 1993 ------------ ------------ ------------ Hardware Goods............................ 20.1% 20.0% 20.8% Electrical and Plumbing Supplies.......... 15.8% 16.3% 16.3% Painting and Cleaning Supplies............ 14.4% 14.9% 14.7% Variety and Related Goods................. 13.9% 13.9% 14.2% Lumber and Building Materials............. 12.9% 12.3% 10.8% Farm and Garden Supplies.................. 12.5% 12.3% 11.7% Appliances and Housewares................. 10.4% 10.3% 11.5%
The Company serves its Members by purchasing products in quantity lots and selling them to Members in smaller lots, passing along any savings to Members in the form of lower prices and/or patronage dividends. The Company holds conventions and meetings for its Members in order to keep them better informed as to industry trends and the availability of new merchandise. The Company also provides each of its Members with an illustrated price catalog showing the products available from the Company. The Company's sales to its Members are divided into three categories, as follows: (1) warehouse shipment sales (approximately 46% of total sales); (2) direct shipment sales (approximately 42% of total sales); and (3) relay sales (approximately 12% of total sales). Warehouse shipment sales are sales of products purchased, warehoused, and resold by the Company upon orders from the Members. Direct shipment sales are sales of products purchased by the Company but delivered directly to Members from manufacturers. Relay sales are sales of products purchased by the Company in response to the requests of several Members for a product which is not normally held in inventory and is not susceptible to direct shipment. Generally, the Company will give notice to all Members of its intention to purchase products for relay shipment and then purchases only so many of such products as the Members order. When the product shipment arrives at the Company, it is not warehoused; rather, the Company breaks up the shipment and "relays" the appropriate quantities to the Members who placed orders. The Company also manufactures paint and paint applicators. The principal raw materials used by the Company are chemicals. All raw materials are purchased from outside sources. The Company has been able 8 11 to obtain adequate sources of raw materials and other items used in production and no shortages of such materials which will materially impact operations are currently anticipated. The Company annually sponsors two "markets" (one in the Spring and one in the Fall). In fiscal year 1995, these markets will be held in St. Louis, Missouri. Members are invited to the markets and generally place substantial orders for delivery during the period prior to the next market. During such markets, new merchandise and seasonal merchandise for the coming season is displayed to attending Members. As of February 25, 1995 and February 26, 1994, the Company had a backlog of firm orders (including relay orders) of approximately $21,000,000 and $23,000,000, respectively. It is anticipated that the entire backlog existing at February 25, 1995 will be filled by April 30, 1995. The Company's backlog at any given time is made up of two principal components: (i) normal resupply orders and (ii) market orders for future delivery. Resupply orders are orders from Members for merchandise to keep inventories at normal levels. Generally, such orders are filled the day following receipt, except that relay orders for future delivery (which are in the nature of resupply orders) are not intended to be filled for several months. Market orders for future delivery are Member orders for new or seasonal merchandise given at the Company's two markets, for delivery during the several months subsequent to the markets. Thus, the Company will have a relatively high backlog at the end of each market which will diminish in subsequent months until the next market. The retail hardware industry is characterized by intense competition. Independent retail hardware businesses served by the Company continue to face intense competition from chain stores, discount stores, home centers, and warehouse operations. Increased operating expenses for the retail stores, including increased costs due to longer open-store hours and higher rental costs of retail space, have cut into operating margins and brought pressures for lower merchandise costs, to which the Company has been responsive through a retail oriented competitive pricing strategy on high turnover, price sensitive items (Pinpoint Pricing program). The Company competes with other Member-owned and non-member-owned wholesalers as a source of supply and merchandising support for independent retailers. Competitive factors considered by independent retailers in choosing a source of supply include pricing, servicing capabilities, promotional support and merchandise selection and quality. Increased operating expenses and decreased margins have resulted in the withdrawal from business of several non-member-owned wholesalers. During fiscal year 1992, the Company acquired through a Canadian subsidiary, a majority equity interest in Cotter Canada Hardware and Variety Cooperative, Inc., a Canadian wholesaler of hardware, variety and related merchandise. This cooperative serves 391 True Value(R) and V&S(R) Stores, all located in Canada. The cooperative has approximately 330 employees and generated less than 5% of the Company's consolidated revenue in fiscal year 1994. The Company operates several other subsidiaries, most of which are engaged in businesses providing additional services to the Company's Members. In the aggregate, these subsidiaries are not significant to the Company's results of operations. The Company employs approximately 4,200 persons in the United States on a full-time basis. Due to the widespread geographical distribution of the Company's operations, employee relations are governed by the practices prevailing in the particular area and are generally dealt with locally. Approximately 39% of the Company's hourly-wage employees are covered by collective bargaining agreements which are generally effective for periods of three or four years. In general, the Company considers its relationship with its employees to be good. 9 12 DISTRIBUTION OF PATRONAGE DIVIDENDS The Company operates on a cooperative basis with respect to business done with or for Members. All Members are entitled to receive patronage dividend distributions from the Company on the basis of gross margins of merchandise and/or services purchased by each Member. In accordance with the Company's By-Laws and Retail Member Agreement; the annual patronage dividend is paid to Members out of the gross margins from operations and other patronage source income, after deduction for expenses, reserves and provisions authorized by the Board of Directors. Patronage dividends are usually paid to Members within 60 days after the close of the Company's fiscal year; however, the Internal Revenue Code (the "Code") permits distribution of patronage dividends as late as the 15th day of the ninth month after the close of the Company's fiscal year, and the Company may elect to distribute the annual patronage dividend at a later time than usual in accordance with the provisions of the Code. The Company's By-Laws provide for the payment of year-end patronage dividends, after payment of at least 20% of such patronage dividends in cash, in qualified written notices of allocation including (i) Class B nonvoting Common Stock based on book value thereof, to a maximum of 2% of the Member's net purchases of merchandise from the Company for the year (except in unusual circumstances of individual hardships, in which case the Board of Directors reserves the right to make payments in cash), (ii) Promissory (Subordinated) Notes, or (iii) other property. The Company may also issue nonqualified written notices of allocation to its Members as part of its annual patronage dividend. In determining the form of the annual patronage dividend, a Member's required investment in Class B Common Stock of the Company had been limited by the Board of Directors to an amount in the aggregate not exceeding an amount (computed on the basis of par value thereof and to the nearest multiple of $100) equal to (i) two percent (2%) of a Member's net purchases of direct shipment sales from the Company and purchases of direct shipment sales of "Competitive Edge Program Lumber" materials computed separately at one percent (1%), (ii) four percent (4%) of a Member's net purchases of relay sales from the Company and (iii) eight percent (8%) of a Member's net warehouse purchases from the Company in the year of the highest total net purchases of the three preceding years. In 1995, the Board of Directors adopted a plan to continue to adequately capitalize the Company and to more equitably divide the responsibility for capitalizing the Company among its Members. As a result, it is anticipated that these percentages will be changed. In that each Member has equal voting power (voting rights being limited to Class A Common Stock), acquisition of Class B Common Stock as patronage dividends generally results in the larger-volume Members having greater Common Stock equity in the Company but a lesser proportionate voting power per dollar of Common Stock owned than smaller-volume Members. PAYMENT OF PATRONAGE DIVIDENDS IN ACCORDANCE WITH THE INTERNAL REVENUE CODE The Code specifically provides for the taxation of cooperatives (such as the Company) and their patrons (such as the Company's Members) so as to ensure that the business earnings of cooperatives are currently taxable either to the cooperatives or to the patrons. The shares of Class B Common Stock and the Promissory (Subordinated) Notes distributed by the Company to its Members as partial payment of the patronage dividend are "written notices of allocation" within the meaning of that phrase as used in the Code. In order that such written notices of allocation shall be deducted from earnings in determining taxable income of the Company, it is necessary that the Company pay 20% or more of the annual patronage dividend in cash and that the Members consent to having the allocations (at their stated dollar amount) treated as being constructively received by them and includable in their gross income. These conditions being met, the shares of Class B Common Stock and the Promissory (Subordinated) 10 13 Notes distributed in payment of patronage dividends become "qualified written notices of allocation" as that phrase is used in the Code. Section 1385(a) of the Code provides, in substance, that the amount of any patronage dividend which is paid in money or in qualified written notices of allocation shall be included in the gross income of the patron (Member) for the taxable year in which it receives such money or such qualified written notices of allocation. Thus, every year each Member may receive, as part of the Member's patronage dividend, non-cash "qualified written notices of allocation", which may include Class B Common Stock or Promissory (Subordinated) Notes, the stated dollar amount of which must be recognized as gross income for the taxable year in which received. The portion of the patronage dividend paid in cash (at least 20%) may be insufficient, depending on the tax bracket in each Member's case, to provide funds for the payment of income taxes for which the Member will be liable as a result of the receipt of the entire patronage dividend, including cash, Class B Common Stock and Promissory (Subordinated) Notes. In response to the provisions of the Code, the Company's By-Laws provide for the treatment of the shares of Class B Common Stock, Promissory (Subordinated) Notes and such other notices as the Board of Directors may determine, distributed in payment of patronage dividends as "qualified written notices of allocation." The By-Laws provide in effect: (i) for payment of patronage dividends partly in cash, partly in qualified written notices of allocation (including the Class B Common Stock and Promissory (Subordinated) Notes as described above), other property or in nonqualified written notices of allocation, and (ii) that membership in the organization (i.e. the status of being a Member of the Company) shall constitute consent by the Member to take the qualified written notices of allocation or other property into account in the Member's gross income as provided in Section 1385(a) of the Code. Under the provisions of the Code, persons who become or became Members of the Company or who retained their status as Members after adoption of the By-Laws providing that membership in the organization constitutes consent, and after receiving written notification and a copy of the By-Laws are deemed to have consented to the tax treatment of the cash and the qualified written notices of allocation in which the patronage dividends are paid, in accordance with Section 1385(a) of the Code. Written notification of the adoption of the By-Laws and its significance, and a copy of the By-Laws, were sent to each then existing Member and have been, and will continue to be, delivered to each party that became, or becomes a Member thereafter. Such consent is then effective except as to patronage occurring after the distributee ceases to be a Member of the organization or after the By-Laws of the organization cease to contain the provision with respect to the above described consent. Each year since 1978, the Company has paid its Members 30% of the annual patronage dividend in cash in respect to patronage (excluding nonqualified written notices of allocation) occurring in the preceding year. It is the judgment of management that the payment of 30% or more of patronage dividends in cash will not have a material adverse effect on the operations of the Company or its ability to maintain adequate working capital for the normal requirements of its business. However, the Company is obligated to distribute only 20% of the annual patronage dividend (excluding nonqualified written notices of allocation) in cash and it may distribute this lesser percentage in future years. In order to avoid the administrative inconvenience and expense of issuing separate certificates representing shares of Class B Common Stock and separate Promissory (Subordinated) Notes to each Member, the Company deposits a bulk certificate and a bulk Promissory (Subordinated) Note with Harris Trust and Savings Bank, Chicago, Illinois for safekeeping for and on behalf of its Members and sends a written notice to each Member of these deposits and the allocation thereof to such Member. Each Member is, and is shown on the books of the Company as, the registered owner of his allocation of Class B Common Stock and Promissory (Subordinated) Notes. Upon written request to the Company, a Member can obtain a certificate for all or any 11 14 portion of his Class B Common Stock and a Note or Notes for all or any portion of the amount allocated to his account. MANAGEMENT The directors and principal executive officers of the Company are as follows:
NAME (AGE) OFFICE -------------------------------------------------- ------------------------------------- Karen M. Agnew (52)............................... Vice President Daniel T. Burns (44).............................. Vice President and Secretary Danny R. Burton (48).............................. Vice President David W. Christmas (46)........................... Vice President William M. Claypool, III (72)..................... Director Samuel D. Costa, Jr. (53)......................... Director Daniel A. Cotter (60)............................. President, Chief Executive Officer and Director Leonard C. Farr (73).............................. Director William M. Halterman (47)......................... Director Robert F. Johnson (51)............................ Vice President Jerrald T. Kabelin (57)........................... Chairman of the Board and Director Kerry J. Kirby (48)............................... Vice President, Chief Financial Officer and Treasurer Robert J. Ladner (48)............................. Director Lewis W. Moore (82)............................... Director Kenneth W. Noble (37)............................. Director Steven J. Porter (42)............................. Executive Vice President and Chief Operating Officer Richard L. Schaefer (65).......................... Director John P. Semkus (48)............................... Vice President George V. Sheffer (42)............................ Director Dennis A. Swanson (55)............................ Director Robert G. Waters (74)............................. Director John M. West, Jr. (42)............................ Director Donald E. Yeager (52)............................. Director
During the past five years, the principal occupation of each director of the Company, other than Daniel A. Cotter, was the operation of retail hardware stores. DESCRIPTION OF COMMON STOCK DIVIDEND RIGHTS. Dividends (other than patronage dividends) upon the Class A Common Stock (which is being registered herein) and Class B Common Stock, subject to the provisions of the Company's Certificate of Incorporation, may be declared out of gross margins of the Company, other than gross margins from operations with or for Members and other patronage source income, after deduction for expenses, reserves and provisions authorized by the Board of Directors. Dividends may be paid in cash, in property, or in shares of the common stock, subject to the provisions of the Certificate of Incorporation (See "Dividends"). VOTING RIGHTS. The Class A Common Stock, which is the sole voting stock, is offered only in ten (10) share units, and no party may acquire more than one unit; thus control of the Company is equally distributed 12 15 among all stockholder-Members. The holders of Class A Common Stock have the exclusive voting power upon all questions submitted to shareholders, being entitled to one vote per share, with the right of "cumulative voting" in the election of directors. Pursuant to the Certificate of Incorporation and By-Laws of the Company, the Board of Directors consists of directors who are elected for staggered three-year terms. LIQUIDATION RIGHTS. Upon dissolution, liquidation or winding up of the Company, voluntary or involuntary, the assets are to be divided among and distributed ratably to the holders of shares of Class A Common Stock and Class B Common Stock pro rata in accordance with their holdings and without preference as between the classes. PREEMPTIVE RIGHTS. Each shareholder has the right to purchase, and must purchase when he becomes a shareholder-Member, ten (10) shares of Class A Common Stock. No shares of Class A Common Stock shall be issued or sold except in such units and under such circumstances as will assure that every holder of Class A Common Stock shall own an identical number of said shares. No shares of Class B Common Stock shall be issued or sold except to parties who are, at the time of issuance, a holder of shares of Class A Common Stock. REDEMPTION PROVISIONS. The Retail Member Agreement (the "Agreement") may be terminated by either the Company or the Member on sixty (60) days' written notice. Termination by the Company requires approval by a two-thirds vote of the Board of Directors, except in the following circumstances where the Company has the right to immediately terminate the Agreement: the Member becomes insolvent, commits any act of bankruptcy, files a voluntary petition in bankruptcy, is adjudicated as bankrupt, or commits a breach of any obligation under the Agreement, which breach is not cured within ten (10) days after written notice to the Member by the Company. In the event the Agreement is terminated, the Company undertakes to purchase and the Member is required to sell all of his Class A Common Stock and Class B Common Stock at a price equal to the book value thereof. Payment for the Class A Common Stock will be in cash. Payment for the Class B Common Stock will be a note payable in five equal annual installments which bears interest at the same rate per annum as the Promissory (Subordinated) Notes most recently issued as part of the Company's annual patronage dividend. SHAREHOLDERS. As of February 25, 1995, there were 6,297 shareholders of Class A Common Stock and 6,244 shareholders of Class B Common Stock. OTHER RESTRICTIONS AND RIGHTS. (a) There are no conversion rights, sinking fund provisions, or liability to further calls or assessment by the Company in regard to the Class A Common Stock. (b) The Company is given an automatic lien to secure the payment of any indebtedness due the Company from any shareholder of record upon the Class A Common Stock and Class B Common Stock shares of such shareholder and upon any declared and unpaid dividends thereon. (c) There is no existing market for the Class A Common Stock being offered. Whenever any shareholder may desire to dispose in any manner, by sale, gift or otherwise, of all or any part of his shares of either class of common stock, and whenever any shareholder dies or suffers any other event giving rise to voluntary or involuntary transfer, by operation of law or otherwise, of all or part of his said shares, the Company is given the option, exercisable within ninety (90) days following the date upon which it receives written notice from the shareholder, his heirs, executors, personal representatives or other party in interest, as the case may be, of the intended disposition or of the death of the shareholder or other event giving rise to voluntary or involuntary transfer of the shares, to repurchase all shares referred to in the notice. The option price in the case of either class of Common Stock is the book value thereof as of the date of the most recently audited consolidated financial statements of the Company. Any disposition or attempted disposition or transfer, voluntary or involuntary, of Common Stock of the Company is null and void and confers no rights upon the transferee unless and until the Company has been given the required notice and has failed to exercise its option to 13 16 purchase within the specified time. The above restrictions do not apply, in the case of a pledge by a shareholder of any of his shares in a bona fide transaction as security for a debt, until the pledge or lienholder forecloses the pledge or lien. The above restrictions do not apply at all in the case of a Class B Common Stock disposition to a person who prior thereto is the owner of shares of Class A Common Stock of the Company. LEGAL MATTERS The legality of the issuance of the Class A Common Stock offered hereby will be passed upon for the Company by Messrs. Aronberg Goldgehn Davis & Garmisa, Suite 3000, One IBM Plaza, Chicago, Illinois 60611. 14 17 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS
PAGE(S) ----- Report of Independent Auditors....................................................... 16 Consolidated Balance Sheet at December 31, 1994 and January 1, 1994.................. 17-18 Consolidated Statement of Operations for each of the three years in the period ended December 31, 1994.................................................................. 19 Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 1994.................................................................. 20 Consolidated Statement of Capital Stock and Retained Earnings for each of the three years in the period ended December 31, 1994........................................ 21 Notes to Consolidated Financial Statements........................................... 22-30
15 18 REPORT OF INDEPENDENT AUDITORS To the Members and the Board of Directors Cotter & Company We have audited the accompanying consolidated balance sheets of Cotter & Company as of December 31, 1994 and January 1, 1994, and the related consolidated statements of operations, cash flows and capital stock and retained earnings for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 Cotter & Company at December 31, 1994 and January 1, 1994, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP Chicago, Illinois February 13, 1995 16 19 COTTER & COMPANY ------------------ CONSOLIDATED BALANCE SHEET ASSETS
DECEMBER 31, JANUARY 1, 1994 1994 ------------ ---------- (000'S OMITTED) Current assets: Cash and cash equivalents....................................... $ 1,831 $ 1,314 Accounts and notes receivable................................... 294,663 276,585 Inventories..................................................... 384,747 336,066 Prepaid expenses................................................ 7,861 6,969 -------- --------- Total current assets............................... 689,102 620,934 Properties owned, less accumulated depreciation................... 164,261 164,319 Properties under capital leases, less accumulated amortization.... 4,691 6,769 Other assets...................................................... 10,731 11,506 -------- --------- Total assets....................................... $868,785 $ 803,528 ======== =========
See Notes to Consolidated Financial Statements. 17 20 COTTER & COMPANY ------------------ CONSOLIDATED BALANCE SHEET LIABILITIES AND CAPITALIZATION
DECEMBER 31, JANUARY 1, 1994 1994 ------------ ---------- (000'S OMITTED) Current liabilities: Accounts payable................................................ $334,468 $ 255,216 Accrued expenses................................................ 45,304 38,926 Short-term borrowings........................................... 9,329 23,287 Current maturities of notes, long-term debt and lease obligations.................................................. 60,564 61,685 Patronage dividend payable in cash.............................. 18,383 16,614 ---------- ---------- Total current liabilities.......................... 468,048 395,728 Long-term debt.................................................... 72,163 63,977 Obligations under capital leases.................................. 3,593 5,224 Capitalization: Promissory (subordinated) and instalment notes.................. 199,099 217,996 Redeemable Class A common stock and partially paid subscriptions (Authorized 100,000 shares; issued and fully paid 63,350 and 65,880 shares)............................................... 6,370 6,633 Redeemable Class B nonvoting common stock and paid-in capital (Authorized 2,000,000 shares; issued and fully paid 1,047,756 and 1,019,640 shares; issuable as partial payment of patronage dividends, 104,275 and 75,780 shares).............. 116,663 110,773 Retained earnings............................................... 3,764 3,867 ---------- ---------- 325,896 339,269 Foreign currency translation adjustment......................... (915) (670) ---------- ---------- Total capitalization............................... 324,981 338,599 ---------- ---------- Total liabilities and capitalization............... $868,785 $ 803,528 ========== ==========
See Notes to Consolidated Financial Statements. 18 21 COTTER & COMPANY ------------------ CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED -------------------------------------------- DECEMBER 31, JANUARY 1, JANUARY 2, 1994 1994 1993 ------------ ---------- ---------- (000'S OMITTED) Revenues........................................... $2,574,445 $2,420,727 $2,356,468 ---------- ---------- ---------- Cost and expenses: Cost of revenues................................. 2,351,114 2,202,806 2,139,860 Warehouse, general and administrative............ 132,759 132,674 123,244 Interest paid to Members......................... 22,894 24,458 25,716 Other interest expense........................... 7,493 7,429 7,273 Gain on sale of properties owned................. (692) (5,985) -- Other income, net................................ (604) (260) (643) Income tax expense............................... 1,163 2,582 389 ---------- ---------- ---------- 2,514,127 2,363,704 2,295,839 ---------- ---------- ---------- Net margins........................................ $ 60,318 $ 57,023 $ 60,629 ========== ========== ==========
See Notes to Consolidated Financial Statements. 19 22 COTTER & COMPANY ------------------ CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED ---------------------------------------------- DECEMBER 31, JANUARY 1, JANUARY 2, 1994 1994 1993 ------------ ---------- ---------- (000'S OMITTED) Operating activities: Net margins......................................... $ 60,318 $ 57,023 $ 60,629 Adjustments to reconcile net margins to cash and cash equivalents from operating activities: Depreciation and amortization.................... 21,613 21,566 21,869 Provision for losses on accounts and notes receivable..................................... 4,233 4,057 4,447 Changes in operating assets and liabilities: Accounts and notes receivable.................... (33,112) (38,605) (29,798) Inventories...................................... (49,145) 183 (11,819) Accounts payable................................. 79,957 (45,070) 23,770 Accrued expenses................................. 6,022 (1,143) (6,221) Other adjustments, net........................... (1,223) (2,679) (3,035) ---------- ---------- ---------- Net cash and cash equivalents provided by (used for) operating activities... 88,663 (4,668) 59,842 ---------- ---------- ---------- Investing activities: Additions to properties owned....................... (21,427) (13,382) (17,871) Proceeds from sale of properties owned.............. 2,174 13,999 682 Changes in other assets............................. 1,132 (3,850) (2,076) ---------- ---------- ---------- Net cash and cash equivalents (used for) investing activities............ (18,121) (3,233) (19,265) ---------- ---------- ---------- Financing activities: Payment of annual patronage dividend................ (16,614) (18,570) (18,423) Payment of notes, long-term debt and lease obligations...................................... (39,632) (32,730) (18,776) Proceeds from long-term borrowings.................. -- -- 54,124 Increase (decrease) in short-term borrowings........ (13,851) 23,059 (20,975) Purchase of Class A common stock.................... (216) (470) (337) Proceeds from sale of Class A common stock.......... 288 323 352 ---------- ---------- ---------- Net cash and cash equivalents (used for) financing activities............ (70,025) (28,388) (4,035) ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents......................................... 517 (36,289) 36,542 ---------- ---------- ---------- Cash and cash equivalents at beginning of year........ 1,314 37,603 1,061 ---------- ---------- ---------- Cash and cash equivalents at end of year.............. $ 1,831 $ 1,314 $ 37,603 ========== ========== ==========
See Notes to Consolidated Financial Statements. 20 23 COTTER & COMPANY ------------------ CONSOLIDATED STATEMENT OF CAPITAL STOCK AND RETAINED EARNINGS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
COMMON STOCK, $100 PAR VALUE ------------------------------------ CLASS B FOREIGN CLASS A ------------ CURRENCY -------------------- ISSUED AND RETAINED TRANSLATION ISSUED SUBSCRIBED TO BE ISSUED EARNINGS ADJUSTMENT ------ ---------- ------------ -------- ----------- (000'S OMITTED) Balances at December 28, 1991.............. $7,016 $ 61 $104,151 $ 1,556 $ -- Net margins.............................. 60,629 Foreign currency translation adjustment............................ (932) Patronage dividend....................... 10,029 (60,901) Stock issued for paid-up subscriptions... 357 (357) Stock subscriptions...................... 345 Stock purchased and retired.............. (565) (5,198) ------ -------- --------- -------- -------- Balances at January 2, 1993................ 6,808 49 108,982 1,284 (932) Net margins.............................. 57,023 Foreign currency translation adjustment............................ 262 Patronage dividend....................... 7,686 (54,440) Stock issued for paid-up subscriptions... 312 (312) Stock subscriptions...................... 308 Stock purchased and retired.............. (532) (5,895) ------ -------- --------- -------- -------- Balances at January 1, 1994................ 6,588 45 110,773 3,867 (670) Net margins.............................. 60,318 Foreign currency translation adjustment............................ (245) Patronage dividend....................... 10,829 (60,421) Stock issued for paid-up subscriptions... 275 (275) Stock subscriptions...................... 265 Stock purchased and retired.............. (528) (4,939) ------ -------- --------- -------- -------- Balances at December 31, 1994.............. $6,335 $ 35 $116,663 $ 3,764 $(915) ====== ======== ========= ======== ========
- --------------- Subscribed Class A common stock amounts are net of unpaid amounts of $1,000 at December 31, 1994, $14,000 at January 1, 1994 and $27,000 at January 2, 1993 and December 28, 1991 (for 360, 590, 760 and 880 shares subscribed, respectively). See Notes to Consolidated Financial Statements. 21 24 COTTER & COMPANY ------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1--DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES Cotter & Company (the Company) is a Member-owned wholesaler of hardware and related merchandise. The Company also manufactures paint and paint applicators. The Company's goods and services are sold predominantly within the United States, primarily to retailers of hardware and related lines, each of whom has purchased ten shares of the Company's Class A common stock upon becoming a Member. The Company operates in a single industry as a Member-owned wholesaler cooperative. In accordance with the Company's By-laws, the annual patronage dividend is paid to Members out of gross margins from operations and other patronage source income, after deduction for expenses and provisions authorized by the Board of Directors. The significant accounting policies of the Company are summarized below. Consolidation. The consolidated financial statements include the accounts of the Company and all wholly-owned subsidiaries. The consolidated financial statements also include the accounts of Cotter Canada Hardware and Variety Cooperative, Inc., a Canadian Member-owned wholesaler of hardware, variety and related merchandise, in which the Company has a majority equity interest. Capitalization. The Company's capital (Capitalization) is derived from redeemable Class A voting common stock and retained earnings, together with promissory (subordinated) notes and redeemable Class B nonvoting common stock issued in connection with the Company's annual patronage dividend. The By-laws provide for partially meeting the Company's capital requirements by payment of the year-end patronage dividend, of which at least twenty percent must be paid in cash, and the balance in five-year promissory (subordinated) notes (from fiscal year 1985 through fiscal year 1993, the promissory (subordinated) notes were for a term of seven years) and redeemable $100 par value Class B common stock. Membership may be terminated without cause by either the Company or the Member upon sixty days' written notice. In the event membership is terminated, the Company undertakes to purchase, and the Member is required to sell to the Company, all of the Member's Class A common stock and Class B common stock at book value. Payment for the Class A common stock will be in cash. Payment for the Class B common stock will be a note payable in five equal annual instalments bearing interest at the same rate per annum as the promissory (subordinated) notes most recently issued as part of the Company's patronage dividend. Cash equivalents. The Company classifies its temporary investments in highly liquid debt instruments, with an original maturity of three months or less, as cash equivalents. Inventories. Inventories are stated at the lower of cost, determined on the "first-in, first-out" basis, or market. Properties. Properties are recorded at cost. Depreciation and amortization are computed by using the straight-line method over the following estimated useful lives: buildings and improvements--10 to 40 years; machinery and warehouse, office and computer equipment--5 to 10 years; transportation equipment--3 to 7 years; and leasehold improvements--the life of the lease without regard to options for renewal. Income Taxes. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," effective January 3, 1993. Under this standard, the liability method is used whereby deferred income taxes are recognized for the tax consequences of temporary differences by applying 22 25 COTTER & COMPANY ------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) enacted statutory rates applicable to future years to differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities adjusting for the impact of tax credit carryforwards. Retirement plans. The Company sponsors two noncontributory defined benefit retirement plans covering substantially all of its employees. Company contributions to union-sponsored defined contribution plans are based on collectively bargained rates times hours worked. The Company's policy is to fund annually all tax-qualified plans to the extent deductible for income tax purposes. Reporting year. The Company's reporting year-end is the Saturday closest to December 31. NOTE 2--INVENTORIES Inventories consisted of:
DECEMBER 31, 1994 JANUARY 1, 1994 ----------------- --------------- (000'S OMITTED) Manufacturing inventories: Raw materials........................... $ 12,986 $ 14,795 Work-in-process and finished goods...... 60,094 54,992 ------------- ----------- 73,080 69,787 Merchandise inventories................... 311,667 266,279 ------------- ----------- $ 384,747 $ 336,066 ============= ===========
NOTE 3--PROPERTIES Properties owned or leased under capital leases consisted of:
DECEMBER 31, 1994 JANUARY 1, 1994 -------------------- -------------------- OWNED LEASED OWNED LEASED -------- ------- -------- ------- (000'S OMITTED) Buildings and improvements.................... $168,311 $ -- $166,055 $ -- Machinery and warehouse equipment............. 79,953 -- 76,330 -- Office and computer equipment................. 62,868 -- 55,191 -- Transportation equipment...................... 22,757 14,556 18,778 15,337 -------- ------- -------- ------- 333,889 14,556 316,354 15,337 Less accumulated depreciation and amortization................................ 181,920 9,865 164,731 8,568 -------- ------- -------- ------- 151,969 4,691 151,623 6,769 Land.......................................... 12,292 -- 12,696 -- -------- ------- -------- ------- $164,261 $ 4,691 $164,319 $ 6,769 ======== ======= ======== =======
23 26 COTTER & COMPANY ------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 4--LONG-TERM DEBT AND BORROWING ARRANGEMENTS Long-term debt consisted of:
DECEMBER 31, 1994 JANUARY 1, 1994 ----------------- --------------- (000'S OMITTED) Senior note at 8.60%........................ $50,000 $50,000 Term loans: Canadian prime (8.00% and 5.50%, respectively).......................... 3,565 3,777 United States prime plus .5% (9.00%) and fixed (7.75%), respectively............ 6,200 6,200 Redeemable (subordinated) term notes: 7.00%..................................... 4,346 -- 7.37%..................................... 1,512 -- 7.61%..................................... 3,540 -- Industrial Revenue Bonds: 5.28% and 5.94%, respectively............. 4,000 4,000 8.25%..................................... -- 1,150 ------------ ----------- 73,163 65,127 Less amounts due within one year............ 1,000 1,150 ------------ ----------- $72,163 $63,977 ============= ===========
Principal payments for the 8.60% senior note are due in incrementally increasing amounts starting in 1995 through maturity in 2007. Under the senior note agreement, the Company is required to meet certain financial ratios and covenants. The two term loans are due in 1997 and 1999, respectively. The redeemable (subordinated) term notes were issued in exchange for promissory (subordinated) notes maturing on December 31, 1994 that were held by promissory note holders, who do not own the Company's Class A Common Stock. The notes are due in 1996, 1997 and 1998. On October 1, 1997, and every three-year period thereafter, the interest rate on the 5.28% industrial revenue bonds will be adjusted based on a bond index. These bonds may be redeemed at face value at either the option of the Company or the bondholders at each interest reset date through maturity in 2003. Total maturities of long-term debt for fiscal years 1995, 1996, 1997, 1998, 1999 and thereafter are $1,000,000, $6,346,000, $8,077,000, $7,540,000, $10,200,000 and $40,000,000, respectively. In addition, the Company has various short-term lines of credit available under informal agreements with lending banks, cancelable by either party under specific circumstances, which amount to $67,800,000 at December 31, 1994. Borrowings under these agreements were $9,329,000 at December 31, 1994. The Company pays commitment fees for these lines. The weighted average interest rate on short-term borrowings was 6.63% at December 31, 1994 and 3.48% at January 1, 1994. 24 27 COTTER & COMPANY ------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5--CAPITAL LEASES AND OTHER LEASE COMMITMENTS The Company rents buildings and warehouse, office, computer and transportation equipment under operating and capital leases. The following is a schedule of future minimum lease payments under capital and operating leases, together with the present value of the net minimum lease payments, as of December 31, 1994:
CAPITAL OPERATING ------- --------- (000'S OMITTED) Fiscal years 1995................................................. $ 1,887 $ 6,356 1996................................................. 1,538 4,812 1997................................................. 1,039 2,892 1998................................................. 751 1,830 1999................................................. 416 1,351 Thereafter........................................... -- 4,400 ------- ------- Net minimum lease payments............................. 5,631 $21,641 ======= Less amount representing interest...................... 298 ------- Present value of net minimum lease payments............ 5,333 Less amounts due within one year....................... 1,740 ------- $ 3,593 ======
Capitalized leases expire at various dates and generally provide for purchase options but not renewals. Purchase options provide for purchase prices at either fair market value or a stated value which is related to the lessor's book value at expiration of the lease term. Rent expense under operating leases was as follows:
DECEMBER 31, JANUARY 1, JANUARY 2, 1994 1994 1993 ------------ ---------- ---------- (000'S OMITTED) Minimum rent..................................... $8,487 $8,174 $7,253 Contingent rent.................................. 611 575 616 ---------- -------- -------- $9,098 $8,749 $7,869 ========== ======== ========
25 28 COTTER & COMPANY ------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 6--CAPITALIZATION Promissory (subordinated) and instalment notes consisted of:
DECEMBER 31, JANUARY 1, 1994 1994 ------------ ---------- (000'S OMITTED) Promissory (subordinated) notes-- Due currently............................................ $ 39 $ 51 Due on December 31, 1994--8.50%.......................... -- 26,173 Due on December 31, 1994--9.50%.......................... -- 30,321 Due on December 31, 1995--7.50%.......................... 20,744 21,324 Due on December 31, 1995--10.00%......................... 35,355 36,257 Due on December 31, 1996--9.50%.......................... 28,436 28,930 Due on December 31, 1996--6.00%.......................... 24,888 27,187 Due on December 31, 1997--10.00%......................... 17,579 18,138 Due on December 31, 1997--7.87%.......................... 16,793 -- Due on December 31, 1998--8.00%.......................... 28,512 29,266 Due on December 31, 1999--8.00%.......................... 27,030 27,827 Due on December 31, 1999--8.20% (to be issued)........... 27,909 -- Due on December 31, 2000--6.50% (issued 1994)............ 25,628 26,752 Instalment notes at interest rates of 6.50% to 10.00% with maturities through 1998............................. 4,010 4,062 ---------- ---------- 256,923 276,288 Less amounts due within one year........................... 57,824 58,292 ---------- ---------- $199,099 $ 217,996 ========== ==========
The promissory (subordinated) notes are issued principally in payment of the annual patronage dividend. Promissory notes are subordinated to indebtedness to banking institutions, trade creditors and other indebtedness of the Company as specified by its Board of Directors. Promissory (subordinated) notes to be issued relate to the patronage dividend which is distributed after the end of the year. Prior experience indicates that the maturities of a significant portion of the promissory (subordinated) notes due within one year are extended, for a three year period, at interest rates substantially equivalent to competitive market rates of comparable instruments. The Company anticipates that this practice will continue. Total maturities of promissory (subordinated) and instalment notes for fiscal years 1995, 1996, 1997, 1998, 1999 and thereafter are $57,824,000, $54,463,000, $35,197,000, $28,872,000, $54,939,000 and $25,628,000, respectively. NOTE 7--FAIR VALUE OF FINANCIAL INSTRUMENTS Due to the uncertainty of the ultimate maturities of the promissory (subordinated) notes, management believes it is impracticable to estimate their fair value. The carrying amounts of the Company's other financial 26 29 COTTER & COMPANY ------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) instruments approximate fair value. Fair value was estimated using discounted cash flow analyses, based on the Company's incremental borrowing rate for similar borrowings. NOTE 8--INCOME TAXES Effective January 3, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes" (See Note 1). As permitted under the new rules, prior years' financial statements have not been restated. The cumulative effect of adopting SFAS No. 109 as of January 3, 1993 was not material to the consolidated financial statements of the Company. At December 31, 1994, the Company has alternative minimum tax credit carryforwards of approximately $1,200,000 which do not expire. The carryforwards are available to offset future federal tax liabilities. Significant components of the Company's deferred tax assets and liabilities as of December 31, 1994 resulted primarily from alternative minimum tax credit carryforwards and temporary differences between income tax and financial reporting for depreciation, vacation pay and contributions to fund retirement plans. Significant components of the provision (benefit) for income taxes are as follows:
DEFERRED LIABILITY METHOD METHOD --------------------------- ---------- FOR THE YEARS ENDED ------------------------------------------ DECEMBER 31, JANUARY 1, JANUARY 2, 1994 1994 1993 ------------ ---------- ---------- (000'S OMITTED) Current: Federal........................................ $ 486 $ 343 $ 551 State.......................................... 462 22 152 Foreign........................................ 278 237 122 --------- -------- -------- Total current.................................. 1,226 602 825 --------- -------- -------- Deferred: Federal........................................ (147) 1,582 (497) State.......................................... (26) 317 (14) Foreign........................................ 110 81 75 --------- -------- -------- Total deferred................................. (63) 1,980 (436) --------- -------- -------- $1,163 $2,582 $ 389 ========= ======== ========
The Company operates as a nonexempt cooperative and is allowed a deduction in determining its taxable income for amounts paid as patronage dividend based on margins from business done with or for Members. 27 30 COTTER & COMPANY ------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The reconciliation of income tax expense to income tax computed at the U.S. federal statutory tax rate of 35% in fiscal year 1994 and 1993 and 34% in fiscal year 1992 is as follows:
DEFERRED LIABILITY METHOD METHOD -------------------------- ---------- FOR THE YEARS ENDED ---------------------------------------- DECEMBER 31, JANUARY 1, JANUARY 2, 1994 1994 1993 ------------ ---------- ---------- (000'S OMITTED) Tax at U.S. statutory rate.................... $ 21,518 $ 20,862 $ 20,746 Effects of: Patronage dividend.......................... (21,147) (19,054) (20,706) State income taxes, net of federal tax benefit.................................. 283 220 91 Other, net.................................. 509 554 258 -------- --------- --------- $ 1,163 $ 2,582 $ 389 ======== ========= =========
NOTE 9--CASH FLOW The Company's noncash financing and investing activities in fiscal year 1992 include acquisitions of transportation and warehouse equipment by entering into capital leases. In fiscal year 1992, ownership of a distribution center previously under capital lease was transferred to the Company. Also in fiscal year 1992, a wholly-owned subsidiary of the Company acquired certain assets, in part, by assuming debt. These transactions aggregate $12,527,000. In addition, the annual patronage dividend and promissory (subordinated) note renewals relating to noncash operating and financing activities are as follows:
FOR THE YEARS ENDED -------------------------------------------- DECEMBER 31, JANUARY 1, JANUARY 2, 1994 1994 1993 ------------ ---------- ---------- (000'S OMITTED) Patronage dividend payable in cash...................... $ 18,383 $ 16,614 $ 18,570 Promissory (subordinated) notes......................... 23,213 20,852 22,711 Class B nonvoting common stock.......................... 5,900 2,086 4,934 Instalment notes........................................ 3,058 2,939 2,485 Member indebtedness..................................... 9,867 11,949 12,201 -------- -------- -------- $ 60,421 $ 54,440 $ 60,901 ======== ======== ======== Note renewals........................................... $ 26,191 $ 27,187 $ 22,686 ======== ======== ========
Cash paid for interest during fiscal years 1994, 1993 and 1992 totalled $30,583,000, $32,056,000 and $31,638,000, respectively. Cash paid for income taxes during fiscal years 1994, 1993 and 1992 totalled $1,709,000, $1,387,000 and $1,771,000, respectively. 28 31 COTTER & COMPANY ------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 10--RETIREMENT PLANS The components of net pension cost for the Company administered pension plans consisted of:
FOR THE YEARS ENDED -------------------------------------------- DECEMBER 31, JANUARY 1, JANUARY 2, 1994 1994 1993 ------------ ---------- ---------- (000'S OMITTED) Income: Actual return (loss) on plan assets................... $ (1,543) $ 7,486 $ 2,856 Amortization of excess plan assets.................... 920 920 920 -------- -------- -------- (623) 8,406 3,776 -------- -------- -------- Expenses: Service cost-benefits earned during year.............. 4,765 4,556 3,633 Interest on projected benefit obligation.............. 6,736 6,266 5,738 Deferral of excess (deficiency) of actual over estimated return on plan assets.................... (8,815) 1,042 (3,060) -------- -------- -------- 2,686 11,864 6,311 -------- -------- -------- Net pension cost........................................ $ 3,309 $ 3,458 $ 2,535 ======== ======== ========
The discount rate and the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 8.5% and 4.5%, respectively, in fiscal year 1994; 7.5% and 4.5%, respectively, in fiscal year 1993; and 9.0% and 6.0%, respectively, in fiscal year 1992. These changes in actuarial assumptions did not have a material impact on net pension cost for fiscal year 1994 and the Company does not anticipate that these changes will have a material impact on net pension cost in future years. In fiscal years 1994, 1993 and 1992, the expected long-term rate of return on assets was 9.5%. Plan assets are composed primarily of corporate equity and debt securities. Benefits are based on years of service and the employee's compensation during the last ten years of employment, offset by a percentage of 29 32 COTTER & COMPANY ------------------ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Social Security retirement benefits. Trusteed net assets and actuarially computed benefit obligations for the Company administered pension plans are presented below:
DECEMBER 31, JANUARY 1, 1994 1994 ------------ ---------- (000'S OMITTED) Assets: Total plan assets at fair value................................... $ 80,046 $ 81,726 ======== ======== Obligations: Accumulated benefit obligations: Vested......................................................... $ 53,055 $ 55,605 Non-vested..................................................... 7,683 8,704 Effect of projected compensation increases........................ 19,924 24,110 -------- -------- Total projected benefit obligations............................... 80,662 88,419 -------- -------- Net excess assets (liabilities): Unrecognized: Unamortized excess assets at original date..................... 8,643 9,563 Net actuarial gain (loss)...................................... 565 (5,773) Prior service costs............................................ (5,313) (6,170) Recognized accrued pension cost................................... (4,511) (4,313) -------- -------- Total net excess assets (liabilities)............................. (616) (6,693) -------- -------- Total obligations and net excess assets (liabilities)............... $ 80,046 $ 81,726 ======== ========
The Company also participates in union-sponsored defined contribution plans. Pension costs related to these plans were $757,000, $702,000 and $556,000 for fiscal years 1994, 1993 and 1992, respectively. NOTE 11--SUBSEQUENT EVENTS On January 13, 1995, the Company announced the sale of certain inventory of its V&S(R) Variety division to a national wholesaler who has also agreed to supply the majority of the V&S(R) stores. Also, on January 31, 1995, the Company agreed to sell certain assets of its outdoor power equipment manufacturing division to a nationally recognized company and secured a favorable supply agreement for such equipment. These transactions should not have a material impact on the Company's results of operations or financial position. 30 33 - ------------------------------------------------------ - ------------------------------------------------------ THIS PROSPECTUS DOES NOT CONTAIN ALL THE INFORMATION SET FORTH IN THE REGISTRATION STATEMENT, AND THE EXHIBITS AND SCHEDULES RELATING THERETO, WHICH THE COMPANY HAS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WASHINGTON, D. C. UNDER THE SECURITIES ACT OF 1933 AND TO WHICH REFERENCE IS HEREBY MADE FOR FURTHER INFORMATION WITH RESPECT TO THE COMPANY AND THE SECURITIES OFFERED HEREBY. TABLE OF CONTENTS
ITEM PAGE - ---------------------------------------- --- Available Information................... 2 Reports to Security Holders............. 2 Documents Incorporated by Reference..... 2 Summary................................. 3 The Company............................. 4 Use of Proceeds......................... 4 Plan of Distribution.................... 4 Dividends............................... 5 Selected Financial Data................. 5 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 6 Business................................ 8 Distribution of Patronage Dividends..... 10 Management.............................. 12 Description of Common Stock............. 12 Legal Matters........................... 14 Index to Consolidated Financial Statements Covered by Report of Independent Auditors.................. 15
NO DEALER, SALESMAN, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ COTTER & COMPANY 12,350 SHARES CLASS A COMMON STOCK $100 PAR VALUE (IN UNITS OF 10 SHARES) ------------------ PROSPECTUS ------------------ DATED APRIL , 1995 - ------------------------------------------------------ - ------------------------------------------------------ 34 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following are the actual or estimated expenses in connection with the issuance and distribution of the Common Stock being registered: Registration Fee.................................................... $ -- Printing of Registration Statement and Prospectus................... 16,000 Accounting Fees and Expenses........................................ 9,000 Legal Fees.......................................................... 10,000 Fees and Expenses for Qualifying Securities under "Blue Sky" Laws of Various States.................................................... 15,000 ------- Total............................................................... $50,000 =======
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's certificate of incorporation, as amended, provides that the Company shall indemnify, in accordance with and to the full extent permitted by the Delaware General Corporation Law, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including, without limitation, an action by or in the right of the Company), by reason of the fact that such person is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another Company, partnership, joint venture, trust or other enterprise, against any liability or expense actually and reasonably incurred by such person in respect thereof. Such indemnification is not exclusive of any other right of such director, officer, or employee to indemnification provided by law or otherwise. Additionally, pursuant to Section 145(a)-(g) of the Delaware Corporation Law which empowers a corporation to indemnify its directors, officers, employees and agents, the Board of Directors of the Company on July 23, 1973 adopted a By-Law (Article XII, Indemnification of Directors, Officers and Employees--Exhibit 3-A to the Company's Form 10-K Annual Report for the year ended January 1, 1994 and incorporated herein by reference) providing for such indemnification. The following is a summary of the most significant provisions of said By-Law: As against third parties, the Company shall indemnify any director, officer, employee or agent for any expenses (including attorneys' fees, judgments, fines and amounts paid in settlement) actually and reasonably incurred in defending any threatened, pending or completed suit or proceeding, whether civil, criminal, administrative or investigative brought against such person by reason of the fact that he was or is a director, officer, employee or agent, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company, and with respect to any criminal action or proceeding if he had no reasonable cause to believe his conduct unlawful. In any action or suit by or in the right of the Company, the Company shall indemnify any director, officer, employee or agent who is or was a party or threatened to be made a party to such threatened, pending or completed action or suit, for expenses (including attorney's fees and amounts paid in settlement) reasonably and actually incurred in connection with the defense or settlement of such suit or action, if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company, except that no indemnification shall be made if such person has been adjudged to be liable for negligence or misconduct in the performance of his duty to the Company unless and only to the extent that the S-1 35 Court of Chancery of Delaware or the court where the suit was brought finds that in view of all the circumstances of the case, such person is entitled to indemnification. Any indemnification, unless ordered by a court, shall be made by the Company only as authorized in the specific case upon a determination that indemnification is proper in the circumstances because the party to be indemnified has met the applicable standard of conduct. Such determination shall be made by the Board of Directors by a majority vote of a quorum, consisting of directors who were not parties of such action, suit or proceeding, or if such a quorum is not obtainable, or even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or by the stockholders. Additionally, the shareholders of the Company have approved an amendment to the Certificate of Incorporation to eliminate personal liability of directors to the Company or its shareholders for monetary damages for breach of fiduciary duty of care. The amendment provides that a director of the Company shall not be liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the Delaware General Corporation Law as the same exists or may hereafter be amended. Insofar as indemnification for liabilities arising under the Securities Act of 1933 is concerned, see Item 17 "Undertakings" below. ITEM 16. EXHIBITS.
EXHIBIT NUMBER DESCRIPTION ----- ------------------------------------------------------------------------------- 4-A Article Fourth of the Certificate of Incorporation of the Company, setting forth the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions of the Class A Common Stock and Class B Common Stock of the Company. Article Twelfth of the Certificate of Incorporation of the Company, setting forth certain limitations on the rights of shareholders to bring an action against directors for breach of the duty of care. Incorporated by reference--Exhibit 3-A to the Company's Form 10-K Annual Report for the year ended January 1, 1994. 4-B Articles VI, VII, VIII, IX and XI of the By-Laws of the Company relating to: certain qualifications, limitations and restrictions on the Common Stock of the Company; the Member agreement between the Company and its shareholders; the payment of patronage dividends; dividends; qualifying shares; and valuation of Class B Common Stock of the Company issued as part of the annual patronage dividend. Incorporated by reference--Exhibit 3-B to the Company's Form 10-K Annual Report for the year ended January 1, 1994. 4-C Specimen certificate of Class A Common Stock. Incorporated by reference--Exhibit 4-A to Registration Statement on Form S-2 (No. 2-82836). 4-D Specimen certificate of Class B Common Stock. Incorporated by reference--Exhibit 4-B to Registration Statement on Form S-2 (No. 2-82836). 4-E Promissory (Subordinated) Note form effective for the year-ending December 31, 1986 and thereafter. Incorporated by reference--Exhibit 4-H to Registration Statement on Form S-2 (No. 33-20960). 4-F Instalment Note form. Incorporated by reference--Exhibit 4-F to Registration Statement on Form S-2 (No. 2-82836).
S-2 36
EXHIBIT NUMBER DESCRIPTION ----- ------------- 4-G Copy of Note Agreement with Prudential Insurance Company of America dated April 13, 1992 securing 8.60% Senior Notes in the principal sum of $50,000,000 with a maturity date of April 1, 2007. Incorporated by reference--Exhibit 4-J to Post-Effective Amendment No. 2 to Registration Statement on Form S-2 (No. 33-39477). 5 Opinion of Messrs. Aronberg Goldgehn Davis & Garmisa. 10-A Form of "Retail Member Agreement with Cotter & Company" between the Company and its Members that offer primarily hardware and related items. Incorporated by reference--Exhibit 10-C to Post-Effective Amendment No. 2 to Registration Statement on Form S-2 (No. 33-39477). 10-B Current form of "Subscription to Shares of Cotter & Company". Incorporated by reference--Exhibit 10-H to Registration Statement on Form S-2 (No. 2-82836). 10-C Cotter & Company Pension Plan (As Amended and Restated June 20, 1994 Effective As Of January 1, 1989). 10-D Cotter & Company Employees' Savings and Compensation Deferral Plan (As Amended and Restated Effective April 1, 1994). 10-E Supplemental Retirement Plan between Cotter & Company and selected executives of the Company dated December 30, 1988. Incorporated by reference--Exhibit 10-V to Post-Effective Amendment No. 1 to Registration Statement on Form S-2 (No. 33-20960). 10-F Amendment dated November 1, 1991 to Supplemental Retirement Plan between Cotter & Company and selected executives of the Company. Incorporated by reference--Exhibit 10-Q to Post-Effective Amendment No. 1 to Registration Statement on Form S-2 (No. 33-39477). 10-G Amendment dated December 15, 1994 to Supplemental Retirement Plan between Cotter & Company and selected executives of the Company. 10-H Annual Incentive Compensation Program and Long-Term Incentive Compensation Program between Cotter & Company and selected executives of the Company. Incorporated by reference--filed as Exhibits A and B to Exhibit 10-N to Registration Statement on Form S-2 (No. 33-39477). 10-I Cotter & Company Long-Term Incentive Compensation Program for Executive Management (Amended) dated November 7, 1994. 10-J Employment Agreement between Cotter & Company and Daniel A. Cotter dated October 15, 1984. Incorporated by reference--Exhibit 10-N to Post-Effective Amendment No. 2 to Registration Statement on Form S-2 (No. 2-82836). 10-K Amendment No. 1 to Employment Agreement between Cotter & Company and Daniel A. Cotter dated October 15, 1984 effective January 1, 1991. Incorporated by refer- ence--Exhibit 10-N to Registration Statement on Form S-2 (No. 33-39477). 23-A Consent of Aronberg Goldgehn Davis & Garmisa is included in Exhibit 5 to this Registration Statement. 23-B Consent of Independent Auditors (included on page S-6). 27 Financial Data Schedule.
S-3 37 ITEM 17. UNDERTAKINGS. The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any Prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the Prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions described in Item 15, or otherwise, the Company has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. S-4 38 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS AMENDMENT TO REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF ILLINOIS, ON THE 16TH DAY OF MARCH 1995. COTTER & COMPANY By: /s/ DANIEL A. COTTER Daniel A. Cotter President, Chief Executive Officer and Director PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE - --------------------------------------------- --------------------------- ------------------ /s/ DANIEL A. COTTER President, Chief Executive March 16, 1995 - --------------------------------------------- Officer and Director Daniel A. Cotter /s/ STEVEN J. PORTER Executive Vice President March 16, 1995 - --------------------------------------------- and Chief Operating Officer Steven J. Porter /s/ KERRY J. KIRBY Vice President, Treasurer and March 16, 1995 - --------------------------------------------- Chief Financial Officer Kerry J. Kirby /s/ JERRALD T. KABELIN Chairman of the Board March 16, 1995 - --------------------------------------------- and Director Jerrald T. Kabelin /s/ WILLIAM M. CLAYPOOL, III Director March 16, 1995 - --------------------------------------------- William M. Claypool, III /s/ SAMUEL D. COSTA, JR. Director March 16, 1995 - --------------------------------------------- Samuel D. Costa, Jr. /s/ LEONARD C. FARR Director March 16, 1995 - --------------------------------------------- Leonard C. Farr /s/ WILLIAM M. HALTERMAN Director March 16, 1995 - --------------------------------------------- William M. Halterman /s/ ROBERT J. LADNER Director March 16, 1995 - --------------------------------------------- Robert J. Ladner /s/ LEWIS W. MOORE Director March 16, 1995 - --------------------------------------------- Lewis W. Moore /s/ JEREMIAH J. O'CONNOR Director March 16, 1995 - --------------------------------------------- Jeremiah J. O'Connor /s/ RICHARD L. SCHAEFER Director March 16, 1995 - --------------------------------------------- Richard L. Schaefer /s/ GEORGE V. SHEFFER Director March 16, 1995 - --------------------------------------------- George V. Sheffer /s/ ROBERT G. WATERS Director March 16, 1995 - --------------------------------------------- Robert G. Waters /s/ JOHN M. WEST, JR. Director March 16, 1995 - --------------------------------------------- John M. West, Jr. /s/ DONALD E. YEAGER Director March 16, 1995 - --------------------------------------------- Donald E. Yeager
S-5 39 CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated February 13, 1995, in Post-Effective Amendment No. 4 to the Registration Statement (Form S-2 No. 33-39477) and related Prospectus of Cotter & Company for the registration of 12,350 shares of its Class A Common Stock. We also consent to the incorporation by reference therein our report with respect to the consolidated financial statements of Cotter & Company for each of the three years in the period ended December 31, 1994 included in the Annual Report (Form 10-K) of Cotter & Company for the year ended December 31, 1994, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Chicago, Illinois March 15, 1995 S-6 40 INDEX TO EXHIBITS FILED TO POST-EFFECTIVE AMENDMENT NO. 4 TO REGISTRATION STATEMENT ON FORM S-2 OF COTTER & COMPANY
EXHIBIT NUMBER EXHIBIT ------- --------- 5 Opinion of Messrs. Aronberg Goldgehn Davis & Garmisa. 10-C Cotter & Company Pension Plan (As Amended and Restated June 20, 1994 Effective As of January 1, 1989). 10-D Cotter & Company Employees' Savings and Compensation Deferral Plan (As Amended and Restated Effective April 1, 1994). 10-G Amendment dated December 15, 1994 to Supplemental Retirement Plan between Cotter & Company and selected executives of the Company. 10-I Cotter & Company Long-Term Incentive Compensation Program for Executive Management (Amended) dated November 7, 1994. 23-B Consent of Independent Auditors (included on page S-6). 27 Financial Data Schedule
Exhibits incorporated by reference are listed on Pages S-2 and S-3 of Post-Effective Amendment No. 4 to Registration Statement on Form S-2 of Cotter & Company. S-7 EX-5 2 OPINION 1 EXHIBIT 5 ARONBERG GOLDGEHN DAVIS & GARMISA ATTORNEYS & COUNSELORS ONE IBM PLAZA - SUITE 3000 CHICAGO, ILLINOIS 60611 TELEPHONE (312) 828-9600 FACSIMILE (312) 828-9635 March 16, 1995 Cotter & Company 2740 North Clybourn Avenue Chicago, Illinois 60614 Gentlemen: We refer to the Post Effective Amendment No. 4 to Registration Statement on Form S-2 (No. 33-39477) being filed by Cotter & Company, a Delaware corporation (hereinafter referred to as the "Company"), with the Securities and Exchange Commission under the Securities Act of 1933, as amended, pertaining to the registration of 12,350 shares of Class A Common Stock, $100 par value. The Class A Common Stock shall be issued and sold directly by the Company in 10 share units at the par value thereof, for an aggregate purchase price of $1,000 per unit. Sales shall be made to retailers of hardware and related merchandise, in connection with becoming members of the Company. Upon the basis of our examination, we are of the opinion that: 1. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. 2. The Company has an authorized capital consisting of 100,000 shares of Class A Common Stock, $100 par value and 2,000,000 shares of Class B Common Stock, $100 par value. As of February 25, 1995, there were 62,970 Class A Common shares issued and outstanding and 1,147,815 Class B Common shares issued and outstanding. All of said shares were legally issued, fully paid and non-assessable as of said date. 3. The proposed offering of 12,350 shares of Class A Common Stock, $100 par value, of the Company has been duly authorized and when sold as contemplated will be legally issued and fully paid and non-assessable. We hereby consent to the use of this opinion as an exhibit to the Registration Statement and the related Prospectus as counsel for the Company who have passed upon the legalities of the securities registered thereunder. Sincerely, ARONBERG GOLDGEHN DAVIS & GARMISA By: /s/ ROBERT N. SODIKOFF --------------------- Robert N. Sodikoff EX-10.C 3 PENSION PLAN 1 EXHIBIT 10(c) COTTER & COMPANY PENSION PLAN (As Amended and Restated Effective As Of January 1, 1989) McDermott, Will & Emery Chicago, Illinois 2 C E R T I F I C A T E I, Kerry J. Kirby, Secretary of COTTER & COMPANY, hereby certify that the attached is a full, true and complete copy of the COTTER & COMPANY PENSION PLAN, as in effect on the date hereof. Dated this 20th day of June, 1994 /s/ KERRY J. KIRBY ------------------------------- Secretary as Aforesaid (Corporate Seal) 3 COTTER & COMPANY PENSION PLAN (As Amended and Restated Effective As Of January 1, 1989) TABLE OF CONTENTS
PAGE ---- ARTICLE I 1 ESTABLISHMENT OF THE PLAN 1 Purpose 1 Superseded Plans 1 ARTICLE II 2 DEFINITIONS 2 ARTICLE III 12 PARTICIPATION 12 Eligibility -- Employees Who Were Participants on December 31, 1988 12 Eligibility -- Employees Who Were Not Participants on December 31, 1988 12 Reemployment of Participants 12 ARTICLE IV 13 ELIGIBILITY FOR RETIREMENT AND AMOUNT OF PENSIONS 13 Normal Retirement Date and Minimum Vesting Requirements 13 Accrual of Benefits 13 Termination or Retirement Prior to January 1, 1989 14 Normal Retirement Pension 14 Early Retirement Pension 15 Optional Early Retirement Pension 17 Disability Retirement Pension 19 Deferred Vested Retirement Pension 21 Optional Deferred Vested Retirement Pension 23 Survivor Benefit 24 Special Section 401(a)(17) Limits 25 ARTICLE V 27 PAYMENT OF RETIREMENT PENSIONS 27 Payment in the Form of Joint and Survivor Annuity 27 Election to Waive Joint and Survivor Annuity 27 Optional Forms of Payment 29 Designation of Beneficiary 29 Small Benefits Provision 30 One-Year Marriage Requirement 31
4 Method of Payment of Retirement Pensions 32 Minority, Disability, or Incompetency 33 Reemployment 33 Maximum Annual Benefit 35 Combined Limitation 38 Limitation on Termination Distributions 40 Other Distribution Restrictions 41 Written Explanation Regarding Rollovers 42 Distribution to Alternate Payees 43 ARTICLE VI 44 FUNDING 44 Employer Contributions 44 Qualification of Plan 44 Recovery of Contributions 44 Forfeitures 45 ARTICLE VII 46 THE COMMITTEE 46 Membership 46 Committee's General Powers, Rights and Duties 46 Manner of Action 47 Interested Committee Member 48 Resignation or Removal of Committee Members 48 Committee Expenses 49 Information Required by Committee 49 Uniform Rules 49 Review of Benefit Determinations 50 Committee's Decision Final 50 ARTICLE VIII 51 TRUST FUND AND TRUSTEE 51 Trust Fund 51 Trust Fund Applicable Only to Payment of Benefits 51 Trustee Capacity 51 Resignation and Removal of Trustee 52 Taxes, Expenses and Compensation of Trustee 52 ARTICLE IX 54 TOP-HEAVY RESTRICTIONS 54 General 54 Definitions 54 Top-Heavy Determination 57 Vesting 57 Minimum Accrual 58 Limitation on Compensation 58 Limitation on Benefits 59
5
PAGE ---- ARTICLE X 60 AMENDMENT AND TERMINATION OF THE PLAN 60 Amendment 60 Termination 60 Allocation of Assets upon Termination 61 Merger and Consolidation 63 ARTICLE XI 64 GENERAL PROVISIONS 64 Employment with Related Companies 64 Litigation by Participants 64 Absence of Guaranty 65 Leased Employees 65 Non-Assignability 66 No Enlargement of Employment Rights 66 Applicable Law 67 Uniform Administration 67 Text to Control 67 SUPPLEMENT A 1 MERGER OF NORTHERN WHOLESALE HARDWARE CO. RETIREMENT PLAN WITH AND INTO COTTER & COMPANY PENSION PLAN 1 SUPPLEMENT B 1 ACTUARIAL ASSUMPTIONS 1
6 COTTER & COMPANY PENSION PLAN (As Amended and Restated Effective As Of January 1, 1989) ARTICLE I ESTABLISHMENT OF THE PLAN Section 1.1. Purpose. This Plan was established effective as of January 1, 1958, for the purpose of providing retirement income ("pension" or "pension benefits") and certain other benefits to those employees of Cotter & Company, a Delaware corporation, who become eligible to participate in this Plan. The retirement income payable under this Plan is intended to supplement the benefits which may be afforded to the Participants under the Federal Social Security Act and similar legislation. Section 1.2. Superseded Plans. The provisions of this Plan, as adopted with an effective date of January 1, 1958, were amended and restated from time to time. This Plan, as now amended and restated in the form of this instrument, has been adopted effective as of January 1, 1989 and is hereinafter sometimes referred to as the "Plan" or "this Plan." The Plan is intended to be a continuation in an amended and restated form of the Plan as it existed on December 31, 1988, and, as set forth in this instrument, supersedes the Plan in effect as of that date as to all persons who retire or otherwise separate from service on or after January 1, 1989. 7 ARTICLE II DEFINITIONS The terms defined in this ARTICLE II (except as in this Plan otherwise expressly provided or unless the context otherwise requires) shall, for all purposes of this Plan, have the respective meanings specified in this ARTICLE II. 1. "Actuarial Equivalent" means an amount of equal value when computed on the basis of the actuarial assumptions set forth in Supplement B of the plan. Application of such assumptions to the computation of benefits under the Plan shall be made uniformly and consistently with respect to all Participants in similar circumstances. 2. "Administrator" for purposes of the Employee Retirement Income Security Act of 1974 as from time to time amended, means the Committee. 3. The term "Age" means the number of anniversaries of his birth which a person has attained. 4. "Annuity Starting Date" means the first day of the first period for which an amount of a retirement pension, payable under the Plan, is received as an annuity (whether by reason of retirement or by reason of disability). 5. "Average Compensation" means the average of the Compensation of an Employee during the five consecutive calendar years within the ten calendar years immediately preceding the date of such Employee's termination of employment which -2- 8 yield the highest average. For purposes of computing an Employee's Average Compensation, if the date of such Employee's termination of employment shall occur within (rather than at the end of) a Plan Year (a "terminal Plan Year"), such terminal Plan Year shall be included as one of the aforementioned ten calendar years, and the Employee shall be deemed to have received Compensation during such terminal Plan Year equal to the annual rate of his Compensation during the terminal Plan Year. 6. "Committee" means those individuals appointed by Cotter & Company to be the Administrator of the Plan. 7. A participant's "Compensation" for any Plan Year means the total cash compensation (including commissions, bonuses (other than sign-on bonuses), overtime pay, sick pay, vacation pay and holiday pay) paid to him by an Employer during that Plan Year for personal services rendered to an Employer as an Employee, plus any elective 401(k) income deferral contributions made by the Employee pursuant to the Cotter & Company Employees' Savings and Compensation Deferral Plan for that Plan Year, but excluding severance pay, moving or relocation allowances or bonuses, tuition reimbursements, auto or travel expense allowances or bonuses, or any other extraordinary remuneration. During the period of any Leave of Absence, an Employee shall be deemed to receive Compensation at the annual rate of Compensation actually received by him during such period, or, if no compensation is paid, the annual rate of -3- 9 Compensation immediately prior to the commencement of such Leave of Absence. For each Plan Year beginning on or after January 1, 1989, the Compensation taken into account for all purposes of the Plan shall not exceed $200,000 per Year, or such other amount as permitted pursuant to Section 401(a)(17) of the Internal Revenue Code for such Plan Year. For each Plan Year beginning on or after January 1, 1994, the Compensation taken into account for all purposes of the Plan (subject to Section 4.11 of the Plan) shall not exceed $150,000 per Year, or such other amount as permitted pursuant to Section 401(a)(17) of the Internal Revenue Code for such Plan Year. 8. The term "Covered Compensation" means an amount, automatically adjusted each Plan Year, equal to one-twelfth of the average of the Social Security Taxable Wage Base for the 35-year period ending in the year in which an Employee will attain Social Security retirement age (as defined in Section 415(b)(8) of the Internal Revenue Code). In determining Covered Compensation for a particular Plan Year, the Social Security Taxable Wage Base for any subsequent Plan Year will be deemed to be the same as the Social Security Taxable Wage Base as in effect at the beginning of the Plan Year for which such determination is being made. The term "Integration Level" means the lesser of (i) one-third of the Social Security Taxable Wage Base for the Plan Year or (ii) the Covered Compensation for a Participant who reaches Social Security retirement age for the calendar year in which the Plan Year begins. In -4- 10 the case of a calendar year in which no individual could attain the Social Security retirement age, then the Covered Compensation shall be the Covered Compensation of an individual attaining Social Security retirement age in the preceding calendar year. 9. The term "Disability Insurance Plan" shall mean any plan from time to time in force which provides for the payment of income benefits to Employees of an Employer by reason of disability resulting from accident or sickness. 10. "Employee" means a person in the employ of an Employer and who is not: (A) in a job classification covered by a collective bargaining agreement to which one of the following listed unions, or its successors, is a party: Local No. 135, Miscellaneous Warehousemen's Union, International Brotherhood of Teamsters; Local No. 598, General Warehousemen's Union, International Brotherhood of Teamsters; Local No. 206 Warehousemen's Union, International Brotherhood of Teamsters; Local No. 223, Drivers and Clerical Employees Union, International Brotherhood of Teamsters; Local No. 541, Building, Material, Excavating, Heavy Haulers, Drivers, Helpers and Warehouse Union; or (B) a truck driver covered by a collective bargaining agreement with Local No. 541, Building, Material, Excavating, Heavy Haulers, Drivers, Helpers and Warehouse Union; or (C) a participant, or eligible to become a participant, in any other retirement or pension plan (except the Cotter & Company Employees' Savings and Compensation Deferral Plan) intended to qualify under Section 401(a) of the Internal Revenue Code and which is established by an Employer or to which an Employer makes any contribution. -5- 11 A "Highly Compensated Employee" means an Employee who meets the definition of a highly compensated employee as defined under Section 414(q) of the Internal Revenue Code and the regulations thereunder. 11. "Employer" means Cotter & Company, a Delaware corporation ("Cotter"), Galaxy Travel Agency, Inc., an Illinois corporation, and any subsidiary or affiliated corporation of Cotter that adopts this Plan by resolution of its Board of Directors with the consent of Cotter. 12. "Employment Continuity" means the period commencing with the date on which an Employee first performs an hour of service for an Employer and ending on the first day of the twelve month period in which he incurs a One-Year Break in Service; provided, however, that if an Employee leaves the employ of an Employer other than pursuant to a Leave of Absence and does not return until after a One-Year Break in Service, his Employment Continuity upon return to employment by an Employer shall be determined on the basis of the date on which the Employee first performs an hour of service subsequent to his return to the employ of an Employer. A former employee who terminates employment and is reemployed by an Employer before incurring a One-Year Break in Service will not be deemed to have terminated employment with an Employer. An "Employment Year" means 365 days of Employment Continuity under this paragraph. 13. The term "Hour of Service" means: -6- 12 (A) each hour for which an Employee is directly or indirectly paid, or entitled to payment, by an Employer for the performance of the duties of his employment, which hours of service shall be credited to the Employee during the Employment Year or Plan Year in which the duties are performed; and (B) each hour up to a maximum of 501 hours for which an Employee is directly or indirectly paid or entitled to payment by an Employer for reasons other than the performance of the duties of his employment (such as vacation, sickness or disability), which hours of service shall be credited to the Employee during the Employment Year or Plan Year in which payment is made or amounts payable to the Employee become due; and (C) each hour for which back pay, irrespective of mitigation of damage, has been either awarded or agreed to by an Employer, which hours of service shall be credited to the Employee for the Employment Year or Plan Year to which the award or agreement pertains rather than the period in which the award, agreement or payment was made. Hours of Service will be computed under the Plan in accordance with the provisions of Section 2530.200b-2(b) and 2530.200b-2(c) of the U.S. Department of Labor regulations promulgated pursuant to the Employee Retirement Income Security Act of 1974. For purposes of this definition only, the term "Employee" shall be deemed to include any person who is in the employ of the Employer so that Employees may be credited under the Plan with hours of service for participation purposes for periods of employment during which they are not "Employees" as that term is defined in paragraph 10 of this Article II. 14. "Leave of Absence" means a temporary absence from active service with an Employer which may, in the discretion of -7- 13 the Employer, be granted to an Employee because of temporary incapacity or other good cause. If an Employee on a Leave of Absence does not return to employment with the Employer within the period authorized by the Employer, the Employee's employment shall be deemed to have terminated as of the first day following the period of the Leave of Absence. A Participant shall automatically be entitled to a Leave of Absence during any period of time for which he is eligible to receive a benefit under a Disability Insurance Plan (as that term is defined in paragraph 9 of this ARTICLE II). An Employee shall automatically be entitled to a Leave of Absence during any period of time he is in the Armed Forces of the United States provided that he returns to employment within the period within which his right to reemployment is protected by the Selective Service Act or any similar law applicable to him. 15. "Named Fiduciary" for purposes of the Employee Retirement Income Security Act of 1974 as from time to time amended, means the Committee appointed pursuant to the provisions of Article VII. 16. "One-Year Break in Service" for an Employee means a twelve month period commencing on the date of an Employee's termination of employment and on each anniversary thereof during which such Employee is not employed (i.e., does not complete an hour of service) with an Employer. In the case of a Maternity or Paternity Leave of Absence (as defined below), the twelve month periods beginning on the first day of such -8- 14 absence and on the first anniversary of such absence shall not constitute One-Year Breaks in Service. For purposes of this paragraph 16, "Maternity or Paternity Leave of Absence" means an absence from work by reason of the Employee's pregnancy, birth of the Employee's child, placement of a child with the Employee in connection with the adoption of such child, or an absence for the purpose of caring for such child for a period immediately following such birth or placement. 17. "Participant" means an Employee who has become a Participant in the Plan in the manner provided in ARTICLE III. A former Employee entitled to receive a Pension under the Plan continues to be a "Participant" until the date of his death. 18. "Plan" means the Plan as herein set forth and as it may from time to time be amended. 19. "Plan Year" means the twelve consecutive month period ending December 31. 20. "Qualified Joint and Survivor Annuity" means: (A) in the case of a 50% Qualified Joint and Survivor Annuity, an annuity for the life of the Participant with a survivor annuity for the life of his spouse which is one-half of the amount of the annuity payable during the joint lives of the Participant and his spouse, and which is the Actuarial Equivalent of a single annuity for the life of the Participant in the amount specified by the relevant provision of ARTICLE IV; and (B) in the case of a 100% Qualified Joint and Survivor Annuity, an annuity for the life of the Participant with a survivor annuity for the life of his spouse which is equal to the amount of the annuity payable during the joint lives of the Participant and -9- 15 his spouse, and which is the Actuarial Equivalent of a single annuity for the life of the Participant in the amount specified by the relevant provision of ARTICLE IV. 21. The term "Retirement" when applied to a Participant means the termination of the Participant's employment under circumstances which entitle him to receive a retirement pension under this Plan. 22. The term "Retirement Pension" in whatever form such retirement pension may be paid shall mean the benefit payable to a Participant or his beneficiary under this Plan as a consequence of the retirement of the Participant. 23. "Social Security Taxable Wage Base" means the contribution and benefit base determined under Section 230 of the Social Security Act, as amended, as at the beginning of the calendar year for which a determination of such base amount is made for purposes of a retirement or termination occurring during such calendar year. 24. "Trust" means the trust by means of which the Plan is funded as described in Article VIII hereof. 25. A "Vested Interest" means an interest to which an Employee has a nonforfeitable right. 26. A Participant shall be credited with a "Year of Service" (or fraction thereof) for each Plan Year (or fraction thereof) during his period of Employment Continuity; provided, however, that: -10- 16 (A) A Participant in the Plan as of December 31, 1988 shall be credited with Years of Service earned before December 31, 1988 in accordance with the provisions of the Plan then in effect; (B) If a former Participant with no Vested interest in the Plan again becomes a Participant in this Plan, his Years of Service (including any fractional Years calculated in days of Employment Continuity) prior to any One-Year Break in Service shall be taken into account only if the number of consecutive One-Year Breaks in Service is less than the greater of: (i) five, or (ii) the aggregate number of prior Years of Service, and then only if the former Participant has completed a Year of Service after such Break; (C) Years of Service prior to a One-Year Break in Service shall not be taken into account unless the Participant completes one Year of Service after such Break; and (D) A Participant who incurs a One-Year Break in Service will be credited with a partial Year of Service during the Plan Year he terminates employment for purposes of Article IV at the rate of one-three-hundred-sixty-fifth of a Year for each complete day of Employment Continuity. -11- 17 ARTICLE III PARTICIPATION Section 3.1. Eligibility -- Employees Who Were Participants on December 31, 1988. All Employees who were Participants in the Plan immediately prior to January 1, 1989, shall automatically be Participants in this Plan. Section 3.2. Eligibility -- Employees Who Were Not Participants on December 31, 1988. Each Employee not covered under Section 3.1 shall become a Participant in this Plan on the date the Employee has satisfied the following requirements: (A) The Employee attains age 21; and (B) The Employee first completes an Employment Year. Section 3.3. Reemployment of Participants. In the case of a Participant who is reemployed after a One-Year Break in Service without credit for any Years of Service completed prior to the Employee's break in service, his participation in the Plan shall be deemed to have terminated at the beginning of the break in service, and he shall again become a Participant on the date he completes an Employment Year with the Employer following the date of his reemployment; provided, however, that in the case of an Employee who is credited with Years of Service with respect to employment prior to his One-Year Break in Service in accordance with the provisions of paragraph 26 of ARTICLE II, such an Employee shall become a Participant on the date of his reemployment. -12- 18 ARTICLE IV ELIGIBILITY FOR RETIREMENT AND AMOUNT OF PENSIONS Section 4.1. Normal Retirement Date and Minimum Vesting Requirements. (A) The Normal Retirement Date for a Participant shall be the date on which he attains age 65. A Participant may continue in employment after his Normal Retirement Date. The Participant's right to his normal retirement benefit shall become fully vested and nonforfeitable at his Normal Retirement Date. (B) In the event that a Participant's employment is terminated for any reason prior to reaching his Normal Retirement Date, the Participant shall not be entitled to any pension benefit under this Plan unless he has completed five Years of Service; but a Participant who has at least five Years of service is fully vested with respect to his accrued benefit under the Plan. Section 4.2. Accrual of Benefits. The pension to which a Participant is entitled under this ARTICLE IV shall be computed on the basis of his number of Years of Service and his Average Compensation; provided, however, that a Participant shall not accrue benefits under this Plan with respect to any period of employment while a Participant, or eligible to become a Participant, in any plan described in subparagraph 10(C) of Article I. -13- 19 Section 4.3. Termination or Retirement Prior to January 1, 1989. Any pension benefit which a Participant who terminated his employment or retired prior to January 1, 1989, may be entitled to receive shall be governed by the provisions of the Plan as in effect on the date of his termination of employment or retirement. Any Participant who terminated employment or retired prior to January 1, 1989 and who is reemployed on or after January 1, 1989, shall have his benefits calculated in accordance with the Plan as in effect on the date of his subsequent retirement or termination of employment but the amount of any retirement benefit or termination benefit payable at such later date shall be actuarially reduced by the amount of any retirement or termination benefits paid previously under the Plan. Section 4.4. Normal Retirement Pension. (A) Any participant whose employment has terminated: (1) on or after January 1, 1989; and (2) on or after having reached his Normal Retirement Date; shall be entitled to receive a retirement pension which is hereinafter called the "Normal Retirement Pension." (B) The Normal Retirement Pension shall commence on the first day of the month next following the date on which the Participant's employment terminates, shall be calculated in the form of a single annuity for the life of the Participant, and shall be in an amount (per month) which is equal to the sum of: -14- 20 (1) the accrued benefit, if any, determined under the Plan as at December 31, 1988 under the terms and conditions of the Plan as then in effect multiplied by a fraction (not less than one), the numerator of which is the Participant's Average Compensation as at his retirement and the denominator of which is the Participant's Average Compensation as at December 31, 1988, where the Participant's Average Compensation in both numerator and denominator includes compensation specified under Section 401(a)(17) of the Internal Revenue Code as it was effective at each respective point in time, plus (2) the sum of (i) 1.05 percent of the Participant's Average Compensation not exceeding the Integration Level for such year and (ii) 1.50 percent of the Participant's Average Compensation in excess of the Integration Level for such year, multiplied by his Years of Service after December 31, 1988; provided that the Years of Service counted in this Section 4.4(B)(2) shall not exceed 30 years less the number of Years of Service credited to the benefit described in Section 4.4(B)(1). (C) The Normal Retirement Pension to which a Participant is entitled shall be paid in the form, and subject to the conditions, provided in ARTICLE V hereof. Section 4.5. Early Retirement Pension. (A) Any Participant whose employment has terminated: (1) on or after January 1, 1989, but not as a result of disability for which the Participant is eligible to receive a benefit under a Disability Insurance Plan, and not as a result of total and permanent disability (as defined in Section 4.7(C) hereof); and (2) after he has attained age 55 or completed 30 or more Years of Service but prior to his Normal Retirement Date; and -15- 21 (3) after completing five or more Years of service; shall be entitled to receive a retirement pension which is hereinafter called the "Early Retirement Pension." (B) The Early Retirement Pension shall, except as provided in Section 4.6, commence at the Participant's Normal Retirement Date, shall be calculated in the form of a single annuity for the life of the Participant, and shall be in an amount (per month) which is equal to the sum of: (1) the accrued benefit, if any, determined under the Plan as at December 31, 1988 under the terms and conditions of the Plan as then in effect multiplied by a fraction (not greater than one), the numerator of which is the Participant's Average Compensation as at his retirement and the denominator of which is the Participant's Average Compensation as at December 31, 1988, where the Participant's Average Compensation in both numerator and denominator includes compensation specified under Section 401(a)(17) of the Code as it was effective at each respective point in time, plus (2) the sum of (i) 1.05 percent of the Participant's Average Compensation not exceeding the Integration Level for such year and (ii) 1.50 percent of the Participant's Average Compensation in excess of the Integration Level for such year, multiplied by his Years of Service after December 31, 1988; provided that the Years of Service counted in this Section 4.5(B)(2) shall not exceed thirty years less the number of Years of Service credited to the benefit described in Section 4.5(B)(1). (C) The Early Retirement Pension to which a Participant is entitled shall be paid in the form, and subject to the conditions, provided in ARTICLE V hereof. -16- 22 Section 4.6. Optional Early Retirement Pension. (A) A Participant entitled to receive a Pension as provided in the preceding Section 4.5 may elect in lieu thereof to receive a reduced retirement pension which is hereinafter called the "Optional Early Retirement Pension," commencing as early as the first day of the month next following the date of termination of his employment. (1) Participants Retiring With Less Than 30 Years of Service: (a) Participants Who Retire Prior to January 1, 1994: For Participants who retire before January 1, 1994, with less than thirty Years of Service, the amount of the Optional Early Retirement Pension shall be the same as the Early Retirement Pension which he would have been entitled to receive under Section 4.5, but reduced by three-tenths of one percent for each month by which the Annuity Starting Date precedes the end of the month in which he would attain age 62. (b) Participants Who Retire On Or After January 1, 1994: For Participants who retire on or after January 1, 1994, with less than thirty Years of Service, the amount of the Optional Early Retirement Pension shall be the same as the Early Retirement Pension which he would have been entitled to receive under Section 4.5, but reduced by three-tenths of one percent for each of the first 60 months, and further reduced by five-tenths of one percent for each additional month (in excess of 60 months), by which the Annuity Starting Date precedes the end of the month in which the Participant attains age 62. However, for a Participant who retires subject to this Section 4.6(A)(1)(b), in no event shall the benefit be less than the December 31, 1993 benefit he would have been entitled to under Section 4.6(A)(1)(a), as if he had retired prior to January 1, 1994. -17- 23 (2) Participants Retiring With Thirty or More Years of Service: (a) Participants Retiring Prior to January 1, 1994: Notwithstanding the foregoing provisions of this Section 4.6, a Participant entitled to receive a Pension as provided in the preceding Section 4.5 whose employment terminates prior to January 1, 1994, but after the Participant has completed 30 or more Years of Service shall be entitled to receive an Optional Early Retirement Pension calculated as the sum of the following: (i) The amount determined under Section 4.5(B)(1), plus (ii) The amount determined under Section 4.5(B)(2), reduced by three-tenths of one percent for each month (not exceeding 84 months) by which the Annuity Starting Date precedes the end of the month in which the Participant attains age 62; and, if such Annuity Starting Date commences prior to age 55, multiplied by the factor specified in Supplement B applicable to the age (and months) on which such Annuity Starting Date commences prior to age 55. (b) Participants Retiring On or After January 1, 1994: Notwithstanding the foregoing provisions of this Section 4.6, a Participant entitled to receive a Pension as provided in the preceding Section 4.5 whose employment terminates after January 1, 1994, and after the Participant has completed 30 or more Years of Service shall be entitled to receive an Optional Early Retirement Pension calculated as the sum of the following: (i) The amount determined under Section 4.5(B)(1), plus -18- 24 (ii) The amount determined under Section 4.5(B)(2), reduced by three-tenths of one percent for the first 60 months, and further reduced by five-tenths of one percent for each additional month (up to a maximum of 84 total months), by which the Annuity Starting Date precedes the end of the month in which the Participant attains age 62; and, if such Annuity Starting Date commences prior to age 55, multiplied by the factor specified in Supplement B applicable to the age (and months) on which such Annuity Starting Date commences prior to age 55. (B) The Optional Early Retirement Pension to which a Participant is entitled shall be paid in the form, and subject to the conditions, provided in ARTICLE V hereof. Section 4.7. Disability Retirement Pension. (A) Any Participant who: (1) terminates employment on or after January 1, 1989, as a result of total and permanent disability after completing five or more Years of Service; and (2) is not eligible to receive a benefit under a Disability Insurance Plan (as defined in Section 1.9); shall be entitled to receive a retirement pension which is hereinafter called the "Disability Retirement Pension" if his period of total and permanent disability extends for six months or more. (B) The Disability Retirement Pension shall commence on the first day of the month next following the date the -19- 25 Participant has been totally and permanently disabled for six months. The amount of the Disability Retirement Pension shall be the same as the Optional Early Retirement Pension to which such Participant would have been entitled under the provisions of Section 4.6 had he qualified for such optional Early Retirement Pension. The Disability Retirement Pension to which a Participant is entitled shall be paid in the form, and subject to the conditions, provided in ARTICLE V hereof. (C) A Participant shall be deemed to be "totally and permanently disabled" if and when it is determined by the Committee that he suffers from a mental or physical condition which prevents him from engaging in any occupation or employment for which he is reasonably qualified by training, education and experience. (D) The determination of total and permanent disability shall be made by the Committee on the basis of a medical examination by a physician or physicians designated by the Committee. (E) No Participant shall be deemed to be totally and permanently disabled for purposes of this Plan if his physical or mental condition is the result of: (1) intentional self-inflicted injury or attempted suicide; (2) injury suffered while engaged in a felonious or criminal act or enterprise; or (3) service in the Armed Forces of the United States which entitles him to a veteran's disability pension. -20- 26 (F) Payment of a Disability Retirement Pension shall terminate on the first day of the month next following the date on which the Participant ceases to be totally and permanently disabled, but only if such date occurs prior to the Participant's 65th birthday. A Participant shall be deemed to be no longer totally and permanently disabled if and when it is determined by the Committee that: (1) he is able to perform work which is both substantial and gainful and within his capability, realistically judged by his education, training and experience; or (2) he has actually engaged in such work for a period of three months or longer, except for such work as the Committee determines to be solely for purposes of treatment or rehabilitation; or (3) he has been offered reemployment by the Employer in such work and has refused such offer; or (4) he has refused to undergo a medical examination requested by the Committee (provided that the Committee shall not require a medical examination more than twice in any calendar year). (G) A Participant who reaches his Normal Retirement Date while on a Leave of Absence for any period during which he is eligible to receive a benefit under a Disability Insurance Plan shall be entitled to receive a Normal Retirement Pension in accordance with the provisions of Section 4.4 hereof. Section 4.8. Deferred Vested Retirement Pension. (A) Any Participant whose employment has terminated: (1) on or after January 1, 1989; -21- 27 (2) prior to his Normal Retirement Date; and (3) after completing five or more Years of Service; and who is not then entitled to receive any other retirement pension under this Plan, shall be entitled, upon making written application therefor in accordance with the provisions of Section 4.8(D), to a retirement pension which is hereinafter called the "Deferred Vested Retirement Pension." (B) The Deferred Vested Retirement Pension shall commence on the first day of the month coincident with or next following the Participant's Normal Retirement Date. The amount (per month) of the Deferred Vested Retirement Pension calculated in the form of a single annuity for the life of the Participant, shall be equal to the sum of: (1) the accrued benefit, if any, determined under the Plan as at December 31, 1988 under the terms and conditions of the Plan as then in effect multiplied by a fraction (not less than one), the numerator of which is the Participant's Average Compensation as at his retirement and the denominator of which is the Participant's Average Compensation as at December 31, 1988, where the Participant's Average Compensation in both numerator and denominator includes compensation specified under Section 401(a)(17) of the Code as it was in effect at each respective point in time, plus (2) the sum of (i) 1.05 percent of the Participant's Average Compensation not exceeding the Integration Level for such year and (ii) 1.50 percent of the Participant's Average Compensation in excess of the Integration Level for such year, multiplied by his Years of Service after December 31, 1988; provided that the Years of Service counted in -22- 28 this Section 4.8(B)(2) shall not exceed thirty years less the number of Years of Service credited to the benefit described in Section 4.8(B)(1). (C) The Deferred Vested Retirement Pension to which a Participant is entitled shall be paid in the form, and subject to the conditions, provided in ARTICLE V hereof. (D) Application for a Deferred Vested Retirement Pension shall be made in writing on such forms as the Committee shall prescribe from time to time and must be filed with the Committee not earlier than ninety days prior to the date on which the Participant attains age 65. Section 4.9. Optional Deferred Vested Retirement Pension. (A) A Participant entitled to receive a Pension as provided in the preceding Section 4.8 may elect in lieu thereof to receive a reduced retirement pension which is hereinafter called the "Optional Deferred Vested Retirement Pension," commencing as early as the first day of the month next following the date on which he attains age 55, or any month thereafter. The amount of the Optional Deferred Vested Retirement Pension shall be the same as the Deferred Vested Retirement Pension which he would have been entitled to receive under Section 4.8, but reduced by three-tenths of one percent for each of the first 60 months and by six-tenths of one percent for each additional month by which the Annuity Starting Date precedes his Normal Retirement Date. -23- 29 (B) Application for an Optional Deferred Vested Retirement Pension shall be made in writing on such forms as the Committee shall prescribe from time to time and must be filed with the Committee not earlier than ninety days prior to the Annuity Starting Date. (C) The Optional Deferred Vested Retirement Pension to which a Participant is entitled shall be paid in the form, and subject to the condition, provided in ARTICLE V hereof. Section 4.10. Survivor Benefit. (A) In the case of a vested Participant who dies before his Annuity Starting Date and who has a surviving spouse, a Survivor Benefit shall be provided to the surviving spouse, in accordance with the following provisions. The Survivor Benefit shall be the amount which would be payable as the survivor portion of a 50% Qualified Joint and Survivor Annuity (or the actuarial equivalent thereof) if: (i) in the case of a Participant who dies on or after attaining age 55, such Participant had retired with an immediate 50% Qualified Joint and Survivor Annuity on the date before the Participant's date of death, or (ii) in the case of a Participant who dies before attaining age 55, such Participant had: (a) separated from service on the day of his death, (b) survived to age 55, -24- 30 (c) retired with an immediate 50% Qualified Joint and Survivor Annuity at age 55, and (d) died on the day after the day on which said Participant attained age 55. (B) The Survivor Benefit shall be paid beginning no earlier than the month in which the Participant would have attained age 55. (C) The Survivor Benefit shall be subject to the one-year marriage requirement described in Section 5.6 of ARTICLE V hereof. (D) The term "vested Participant" means any Participant who has a nonforfeitable right to any portion of his accrued benefits derived from Employer contributions. Section 4.11. Special Section 401(a)(17) Limits. Notwithstanding any other provisions of the Plan, the accrued benefit calculated under Sections 4.4, 4.5, 4.6, 4.7, 4.8 and 4.9 of the Plan for each "Section 401(a)(17) Employee" (as defined below) under this Plan will be the sum of: (1) the Employee's accrued benefit as of December 31, 1993, frozen in accordance with Section 1.401(a)(4)-13 of the Income Tax Regulations, multiplied by a fraction (not less than one), the numerator of which is the Participant's Average Compensation as at his retirement and the denominator of which is the Participant's Average Compensation as at December 31, 1993, where the Participant's Average Compensation in both numerator and denominator includes compensation as specified under Section 401(a)(17) of the Code as it was effective at each respective point in time, and -25- 31 (2) the Employee's accrued benefit determined under the benefit formula applicable for the Plan Year beginning January 1, 1994, as applied to the Employee's Years of Service credited to the Employee for Plan Years beginning on or after January 1, 1994, for purposes of benefit accruals. A "Section 401(a)(17) Employee" means an Employee whose current accrued benefit as of a date on or after January 1, 1994, is based on compensation for a year beginning prior to January 1, 1994, that exceeded $150,000. -26- 32 ARTICLE V PAYMENT OF RETIREMENT PENSIONS Section 5.1. Payment in the Form of Joint and Survivor Annuity. Subject to the provisions of Sections 5.2 and 5.6, if a Participant has a spouse at the time such Participant becomes entitled under the Plan to receive a Normal Retirement Pension, Early Retirement Pension, Optional Early Retirement Pension, Disability Retirement Pension, Deferred Vested Retirement Pension or Optional Deferred Vested Retirement Pension, such pension benefit shall, from the Annuity Starting Date, be paid in the form of a 50% Qualified Joint and Survivor Annuity, which is the Actuarial Equivalent of the value of a single annuity for the life of the Participant. The Participant may elect, without having to comply with the provisions of Section 5.2 below, to receive his pension benefit in the form of a 100% Qualified Joint and Survivor Annuity, which is the Actuarial Equivalent of the value of a single annuity for the life of the Participant. A Participant who has no spouse and who is entitled to receive a pension under the Plan shall have it paid to him in the form of a single annuity for the life of the Participant, unless he otherwise elects an optional form in writing pursuant to Sections 5.2 and 5.3 below. Section 5.2. Election to Waive Joint and Survivor Annuity. (A) A Participant shall have the right, by written notice in accordance with the procedures outlined in this -27- 33 Section, to waive the 50% Qualified Joint and Survivor Annuity and receive his pension benefit as a single annuity for the life of the Participant or in an optional form indicated in Section 5.3 below. Any election to waive the 50% Qualified Joint and Survivor Annuity must be made by the Participant in writing during the election period (described in (B) below) and be consented to by the Participant's spouse. Such spouse's consent must be in writing and must acknowledge the effect of such election and be witnessed by a Plan representative or a notary public. Such consent shall not be required if it is established to the satisfaction of the Committee that the required consent cannot be obtained because there is no spouse, the spouse cannot be located, or because of other circumstances that may be prescribed by Treasury regulations. The Participant may revoke this election in writing without the consent of the spouse at any time during the election period. Any new election must comply with the requirements of this paragraph. A former spouse's waiver shall not be binding on a new spouse. (B) The election period to waive the joint and survivor annuity shall be the 90-day period ending on the Annuity Starting Date. (C) With regard to the election, the Committee shall provide the Participant within a reasonable period of time before the Annuity Starting Date (and consistent with Treasury regulations), a written explanation in nontechnical terms of: -28- 34 (1) the terms and conditions of the 50% Qualified Joint and Survivor Annuity, and (2) the Participant's right to make an election to waive the 50% Qualified Joint and Survivor Annuity, and (3) the right of the Participant's spouse to consent to any election to waive the 50% Qualified Joint and Survivor Annuity, and (4) the right of the Participant to revoke such election, and the effect of such revocation. Section 5.3. Optional Forms of Payment. In the event a Participant duly elects pursuant to Section 5.2 above to waive the 50% Qualified Joint and Survivor-Annuity, or if such Participant is not married, the Participant shall have the right to elect an amount which is the Actuarial Equivalent of the value of a single annuity for the life of the Participant in the amount specified by the relevant provisions of ARTICLE IV, in the following method: A monthly pension payable in equal installments for the life of the Participant; provided, however, that in the event the Participant dies within the ten-year period following his Annuity Starting Date, monthly payments equal to those payable during the life of the Participant shall be made to the Beneficiary or spouse of the deceased Participant designated to receive such payments for the remainder of said ten-year period. Section 5.4. Designation of Beneficiary. (A) Any Beneficiary of a Participant's pension benefits payable under the terms of this Plan shall be the -29- 35 Participant's spouse; provided, however, that the Participant may designate a Beneficiary other than his spouse for any benefits payable on account of the death of a Participant if: (i) the spouse has waived the right to be the Participant's Beneficiary in accordance with the waiver procedure outlined in Section 5.2(A) above, (ii) the Participant has no spouse, or (iii) the spouse cannot be located. (B) Such designation shall be made in the form prescribed by and delivered to the Committee. The Participant shall have the right to change or revoke any such designation from time to time by filing a new designation or notice of revocation with the Committee; provided, however, that if the Participant is a married person, the Participant's spouse shall be required to consent to any designation (or the consent of the spouse expressly permits designations by the Participant without any requirement of further consent by the spouse) which designates a Beneficiary other than the spouse. (C) The term, "Beneficiary," or "Beneficiaries," as used in this Plan refers to the person or persons to whom the deceased Participant's interest becomes distributable, as provided in the Plan. Section 5.5. Small Benefits Provision. (A) If the present value of a Participant's Retirement Pension, Deferred Vested Retirement Pension or Survivor Annuity, as the case may be, does not exceed $3,500, the -30- 36 Participant may request a lump sum distribution of such Retirement Pension or Deferred Vested Retirement Pension and his surviving spouse may request a lump sum distribution of such Survivor Annuity. However, no such lump sum distribution may be made after the Annuity Starting Date, unless the Participant and his spouse (or his surviving spouse) consent in writing to such distribution. Payment of any lump sum shall be in full satisfaction of all rights of the Participant or his Beneficiary under the Plan. (B) Notwithstanding any contrary provision of this ARTICLE V, for purposes of determining the present value of a Participant's vested accrued benefits when benefits are payable as a lump sum, the interest rate assumption used for calculating the lump sum amount shall not exceed the interest rate or rates in use by the Pension Benefit Guaranty Corporation as of the first day of the Plan Year in which a distribution occurs for purposes of determining the present value of the Participant's benefits under the Plan if the Plan had terminated on that date (as described in Supplement B to the Plan). Section 5.6. One-Year Marriage Requirement. (A) Notwithstanding any contrary provision hereof, the Plan shall not provide a 50% Qualified Joint and Survivor Annuity, a 100% Qualified Joint and survivor Annuity, or a Survivor Benefit unless the Participant and his spouse have -31- 37 been married throughout the one (1) year period ending on the earlier of: (1) the Participant's Annuity Starting Date, or (2) the date of the Participant's death. (B) For purposes of Section (A) above, if: (1) a Participant marries within one (1) year before his Annuity Starting Date, and (2) the Participant and his spouse in such marriage have been married for at least a one (1) year period ending on or before the date of the Participant's death, then the Participant and his spouse shall be treated as having been married throughout the one (1) year period ending on the Participant's Annuity Starting Date. (C) For purposes of this Plan, the term "spouse" shall in general mean the individual to whom the Participant is married as of the relevant date in question, or the individual designated as the Participant's spouse in a "qualified domestic relations order," as defined in Section 11.5 of ARTICLE XI. Section 5.7. Method of Payment of Retirement Pensions. Retirement payments shall be paid monthly and, in the case of a single life annuity (as distinguished from a joint and survivor), the last payment shall be made as of the first day of the month in which the death of the Participant occurs. In the case of a joint and survivor annuity, the last payment shall be made as of the first day of the month in which the -32- 38 death of the Participant or his spouse (whichever is the later to die) occurs. Section 5.8. Minority, Disability, or Incompetency. If any amount becomes payable under this Plan to a minor or to a person under legal disability or to a person not adjudicated incompetent but who, by reason of illness or mental or physical disability, is in the opinion of the Committee unable properly to manage his affairs, then such amount shall be paid by the Trustee in such of the following ways as the Committee may deem best: (A) To the legally appointed guardian or conservator of such minor or other person; (B) To some relative or friend of such minor or other person; without responsibility of the Committee or the Trustee to see to the application of such payments. Section 5.9. Reemployment. (A) If a Participant either continues in employment after his Normal Retirement Date or is reemployed by the Employer after his Normal Retirement Date, the Participant's status as an Employee shall be deemed to have terminated for the purposes of qualifying for a Normal Retirement pension with respect to any calendar month including or following his Normal Retirement Date during which the Participant receives payment from the Employer for any hours of service performed on fewer than eight (8) or more days (or separate work shifts) in such month. -33- 39 (B) Subject to the provisions of Paragraph (A) of this Section 5.9, if a Participant receiving a retirement pension shall be reemployed by the Employer for any period of time, his retirement pension shall be suspended beginning with the first payment due on or after the date of such reemployment; provided, however, that the amount of a Participant's Normal Retirement Pension which shall be suspended in accordance with this subsection (B) shall not exceed a Participant's "suspendible amount." The retirement pension payable upon subsequent retirement to such reemployed Participant shall be determined in accordance with the provisions of the Plan (but not less than the retirement pension to which he was entitled immediately prior to his reemployment) as in effect at that date, reduced by the actuarial equivalent of the retirement pension payments previously received by him before his Normal Retirement Date. Notwithstanding the foregoing, any Normal Retirement Pension to which a reemployed Participant shall subsequently become entitled shall not be reduced in accordance with the foregoing sentence. A Participant's "suspendible amount" is an amount per month equal to the monthly pension payment. -34- 40 Section 5.10. Maximum Annual Benefit. (A) Notwithstanding any other provisions of the Plan, in no event shall a Participant with at least ten (10) years of participation hereunder whose benefits begin at the Participant's Social Security Retirement Age receive an Annual Retirement Benefit exceeding the lesser of: (i) 100% of the Participant's Average Annual Compensation; or (ii) Ninety Thousand Dollars ($90,000). (B) A Participant's "Social Security Retirement Age" shall mean the age used as the retirement age for the Participant under Section 216(1) of the Social Security Act, except that such section shall be applied without regard to the age increase factor, and as if the early retirement age under Section 216(1)(2) of such Act were sixty-two (62). "Annual Retirement Benefit" shall mean a benefit payable annually in the form of a straight life annuity (with no ancillary benefits), excluding any benefits attributable to Employee contributions or rollover Contributions, or the assets transferred from a qualified plan that was not maintained by the Corporation. Where a Participant's retirement benefit is payable in another form, or if the Employees contribute to the Plan or make rollover contributions (as defined in Sections 402(a)(5), 403(a)(4), 408(d)(3) and 409(b)(3)(C) of the Internal Revenue Code), then the limitations described in subparagraph (A) above shall be adjusted in accordance with regulations prescribed by -35- 41 the Secretary of the Treasury pursuant to Section 415(b)(2)(B) of the Code. For purposes of this paragraph, any ancillary benefits which are not directly related to retirement income benefits shall not be taken into account; and that portion of any joint and survivor annuity which constitutes a qualified joint and survivor annuity (as defined in Section 401(a)(11)(G)(iii) of the Code) shall not be taken into account. (C) Notwithstanding the foregoing limitations (except as otherwise provided by subsection (D)(vi) hereof), if the Participant herein has not at any time participated in a defined contribution plan maintained by the Employer, there shall be no limitation on the annual benefit of a Participant herein if the total annual retirement benefits payable to the Participant by all defined benefit plans of the Employer do not exceed ten thousand ($10,000) dollars. (D) All the limitations of this Section 5.11 shall be subject to the following adjustments where applicable: (i) The Ninety Thousand Dollar ($90,000) limitation stated above shall be increased to the maximum amount permitted under regulations promulgated by the Secretary of the Treasury pursuant to Section 415(d) of the Internal Revenue Code. Any adjustments will be effective as of January 1 of the calendar year and will be applicable to the limitation year coincident with or ending within that calendar year. (ii) Where a Participant's benefits commence before the Participant's Social Security Retirement Age, the Ninety Thousand Dollar ($90,000) limitation, as adjusted -36- 42 under the provisions of (i) above, shall be further adjusted to the actuarial equivalent of an annual benefit of $90,000 beginning at the Social Security Retirement Age. The adjustment provided for in the preceding sentence shall be made in such manner as the Secretary of the Treasury may prescribe that is consistent with the reduction for old age insurance benefits commencing before the Social Security Retirement Age under the Social Security Act. (iii) Where a Participant begins to receive his benefits after the Participant's Social Security Retirement Age, the Ninety Thousand Dollar ($90,000) limitation, as adjusted under the provisions of (i) above, shall be increased to the actuarial equivalent of an annual benefit of $90,000 beginning at the Social Security Retirement Age. (iv) Where benefits are to be adjusted pursuant to paragraphs (ii) and (iii) above, the adjustment shall be computed using an interest rate of not less than the greater of: (a) five percent (5%), or (b) the rate of interest used in determining Actuarial Equivalence (as described in paragraph B-1 of Supplement B). (v) Where a Participant retires with less than ten (10) years of participation hereunder, the Ninety Thousand Dollar ($90,000) limitation, as adjusted under the provisions of (i) above, shall be reduced by a fraction the numerator of which is the Participant's number of years (or parts thereof) of participation in the Plan, and the denominator of which is ten (10). In no event, however, shall this limitation be reduced to an amount less than one-tenth (1/10) of the applicable limitation determined without regard to this subsection (D)(v). (vi) Where a Participant retires with less than ten (10) Years of Service, the -37- 43 limitations described in Section 415(b)(1)(B) and 415(b)(4) of the Internal Revenue Code shall be adjusted by multiplying such amounts by a fraction, the numerator of which is the Participant's number of Years of Service (or part thereof), and the denominator of which is ten (10). In no event, however, shall this limitation be reduced to an amount less than one-tenth (1/10) of the applicable limitation determined without regard to this subsection (D)(vi). Section 5.11. Combined Limitation. (A) Notwithstanding any other provision of this Plan, and as required by the Code, if any Participant is, or was, covered under a defined benefit plan and a defined contribution plan maintained by the Employer, the sum of the Participant's defined benefit plan fraction and defined contribution plan fraction may not exceed 1.0 in any Plan Year. (B) The defined benefit plan fraction is a fraction, the numerator of which is the sum of the Participant's projected annual benefits under all defined benefit plans (whether or not terminated) maintained by the Employer and the denominator of which is the lesser of (i) 1.25 times the dollar limitation of Section 415(b)(1)(A) of the Code in effect for the Plan Year or (ii) 1.4 times the Participant's average compensation for the three (3) consecutive years that produces the highest average. "Projected annual benefit" means the annual benefit to which the Participant would be entitled under the terms of the Plan, if the Participant continued employment until normal retirement age (or actual age, if later) and the Participant's -38- 44 Compensation for the Plan Year and all other relevant factors used to determine such benefit remained constant until normal retirement age (or actual age, if later). (C) The defined contribution plan fraction is a fraction, the numerator of which is the sum of the annual additions to the Participant's account under all defined contribution plans maintained by the Employer (whether or not terminated) for the current and all prior Plan Years, and the denominator of which is the sum of the lesser of the following amounts determined for such year and for each prior year of service with the Employer: (i) 1.25 times the dollar limitation in effect under Section 415(c)(1)(A) of the Code for such year, or (ii) 1.4 times the amount which may be taken into account under Section 415(c)(1)(B) of the Code. (D) If the sum of the defined benefit plan fraction and the defined contribution plan fraction shall exceed 1.0 in any Plan Year for any Participant in this Plan, the Employer shall adjust the numerator of the defined contribution plan fraction as set forth in the Cotter & Company Employees' Savings and Compensation Deferral Plan so that the sum of both fractions shall not exceed 1.0. In the event the adjustment of the defined contribution fraction shall be insufficient to reduce the sum of both fractions to 1.0 or less, then the rate of benefit accrual under the Plan will be reduced as necessary to do so. -39- 45 Section 5.12. Limitation on Termination Distributions. In the event the Plan is terminated, the benefit of any highly compensated Participant (or former Participant) as defined in Section 414(q) of the Code shall be limited to a benefit which is nondiscriminatory under Section 401(a)(4) of the Code. Notwithstanding any provisions of the Plan to the contrary, the annual benefit payable to any highly compensated Participant (or former Participant) who is in the top 25 highly compensated Employees (or former Employees) as defined in Section 414(q) of the Code with the greatest Compensation for the current or any prior Plan Year will be limited to the amount that would be paid as a life annuity that is actuarially equivalent to the accrued benefit and any other benefits which such individual is entitled to receive under the Plan and any payments that are considered a Social Security supplement; provided that, the foregoing limitations shall not apply to such highly compensated Employee (or former Employee) if (i) after payment of all the benefits payable to such Participant (or former Participant) under the Plan, the value of plan assets equals or exceeds 110 percent of the value of current liabilities (as defined in Section 412(1)(7) of the Code and modified by Section 1.401(a)(4)-5(b)(3)(iv) of the Income Tax Regulations) determined as of the same date, (ii) the value of the benefits payable to such Participant (or former Participant) is less than one (1) percent of the value of current liabilities before the date of distribution or (iii) the value -40- 46 of the benefits payable to such Participant (or former Participant) is determined under Section 5.5 of the Plan. Section 5.13. Other Distribution Restrictions. Notwithstanding any contrary provisions of this Plan: (A) The entire interest in the Plan of any Participant shall be distributed to him over a period not extending beyond the life expectancy of such Participant, or the life expectancies of such Participant and a designated beneficiary, commencing not later than April 1 of the calendar year following the taxable year in which the Participant attains age 70-1/2. (B) If a Participant dies before distribution of his interest in the Plan has commenced, any benefits payable to a Beneficiary on account of the Participant's death shall be distributed within five years after his death unless: (i) any portion of the Participant's interest is payable to (or for the benefit of) a designated beneficiary, (ii) such portion is distributed over a period not extending beyond the life expectancy of the beneficiary, and (iii) such distribution begins not later than one (1) year after the date of the Participant's death or such later date as may be prescribed by regulation. If the designated beneficiary referred to in clause (B)(i) above is the surviving spouse of the Participant, the date such distribution must commence shall be no later than the date on which the Participant would have attained age 70-1/2. (C) If a Participant dies after distribution of his interest in the Plan has commenced, but before his entire interest has been distributed to him, the remaining portion of his interest shall be distributed to his designated beneficiary at least as rapidly as the method of distribution used for the Participant. (D) Notwithstanding any contrary provisions of this Plan, the foregoing provisions -41- 47 of subparagraphs (A) through (B) of this Section 5.13 shall apply to any distribution hereunder, and all distributions hereunder shall be made in accordance with the regulations under Section 401(a)(9) of the Internal Revenue Code, including Section 1.401(a)(9)-2. Any distribution required under the "incidental death benefit requirements" of Section 401(a) of the Internal Revenue Code shall be treated as a distribution required by the foregoing provisions of subparagraphs (A) through (B) of this Section 5.13. Life expectancy and joint and last survivor expectancy shall be computed using the return multiples of Treasury Regulation Section 1.72-9. Section 5.14. Written Explanation Regarding Rollovers. In the event a Participant, beneficiary or spouse is entitled to receive a lump sum distribution under Section 5.5, the Committee shall provide to the recipient a written explanation of the provisions under which such distribution will not be subject to tax if transferred to an eligible retirement plan within 60 days after the date on which the recipient received the distribution, and, if applicable, the provisions regarding capital gains treatment and ten-year income averaging for lump sum distributions. For purposes of this section, the term "eligible retirement plan" shall have the same meaning as ascribed to that term by Section 402(c)(8)(B) of the Internal Revenue Code. If payment of a Participant's benefits constitutes an eligible rollover distribution under Section 402(c)(4) of the Internal Revenue Code, then the Participant may elect to have such distribution paid directly to an eligible retirement plan. Each election by a Participant under this Section 5.14 -42- 48 shall be made at such time and in such manner as the Committee shall determine, and shall be effective only in accordance with such rules as shall be established from time to time by the Committee. Section 5.15. Distribution to Alternate Payees. The Committee may direct that benefits be distributed to an alternate payee on the earliest date specified in a qualified domestic relations order (as defined in Section 11.5), without regard to whether such distribution is made or commences prior to the Participant's earliest retirement age (as defined in Section 414(p)(4)(B) of the Internal Revenue Code) or the earliest date that the Participant could commence receiving benefits under the Plan. -43- 49 ARTICLE VI FUNDING Section 6.1. Employer Contributions. It is the intention of this Plan that the Employer shall make contributions during each year to the Trust in such amounts, computed at the rate of interest and on the basis of the mortality and other tables then in use by the Committee, as an enrolled actuary selected by the Committee shall determine to be necessary to provide the benefits specified in the Plan under the funding method then in effect, which contributions shall not be less than the minimum contributions required by the Employee Retirement Income Security Act of 1974. Contributions by Participants are neither required nor permitted. Section 6.2. Qualification of Plan. All contributions made by an Employer shall be deemed to be conditioned on qualification of the Plan under Section 401 of the Internal Revenue Code of 1986 (the "Code") and upon the deductibility of the contributions under Section 404 of the Code. Section 6.3. Recovery of Contributions. Except as otherwise provided in this ARTICLE VI, the assets of the Plan shall never inure to the benefit of any Employer and shall be held for the exclusive purpose of providing benefits under the Plan and defraying reasonable expenses of the Plan. Notwithstanding the foregoing: -44- 50 (A) If a contribution under the Plan is conditioned on initial qualification of the Plan under Section 401(a) of the Code, and the Plan receives an adverse determination with respect to its initial qualification, the Trustee shall, upon written request of the Employer, return to the Employer the amount of such contribution (increased by earnings attributable thereto and reduced by losses attributable thereto) within one calendar year after the date that qualification of the Plan is denied, provided that the application for the determination is made by the time prescribed by law for filing the Employer's return for the taxable year in which the Plan is adopted, or such later date as the Secretary of the Treasury may prescribe; (B) Any contribution which is disallowed as a deduction under Section 404 of the Code, shall upon written request of the Employer be returned to the Employer within one year after the date the deduction is disallowed; (C) If a contribution or any portion thereof is made by the Employer by a mistake of fact, the Trustee shall, upon written request of the Employer, return the contribution or such portion to the Employer within one year after the date of payment to the Trustee; and (D) Earnings attributable to amounts to be returned to the Company pursuant to subsection (B) or (C) above shall not be returned, and losses attributable to amounts to be returned pursuant to subsection (B) or (C) shall reduce the amount to be so returned. Section 6.4. Forfeitures. Any forfeitures of benefits or benefits which are suspended under Plan shall be used to reduce the cost of the Plan rather than to increase benefits thereunder. -45- 51 ARTICLE VII THE COMMITTEE Section 7.1. Membership. A Committee consisting of three or more persons (who may but need not be employees of the employers) shall be appointed by Cotter. The Secretary of Cotter shall certify to the trustee under the Trust from time to time the appointment to (and termination of) office of each member of the Committee and the person who is selected as secretary of the Committee. Section 7.2. Committee's General Powers, Rights and Duties. Except as otherwise specifically provided and in addition to the powers, rights and duties specifically given to the Committee elsewhere in the Plan and the Trust agreement, the Committee shall have the following discretionary powers, rights and duties: (A) To select a secretary, if it believes it advisable, who may but need not be a Committee member. (B) To determine all questions arising under the Plan, including the power to determine the rights or eligibility of Employees or Participants and any other persons to benefits under the Plan, and the amount of their benefits under the Plan, and to remedy ambiguities, inconsistencies or omissions. (C) To adopt such rules or procedures and regulations as in its opinion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan and Trust agreement. -46- 52 (D) To enforce the Plan in accordance with the terms of the Plan and the Trust agreement and the rules and regulations adopted by the Committee. (E) To direct the trustee as respects payments or distributions from the Trust fund in accordance with the provisions of the Plan. (F) To furnish the Employers with such information as may be required by them for tax or other purposes in connection with the Plan. (G) To employ agents, attorneys, accountants or other persons (who also may be employed by the Employers) and to allocate or delegate to them such powers, rights and duties as the Committee may consider necessary or advisable to properly carry out administration of the Plan, provided that such allocation or delegation and the acceptance thereof by such agents, attorneys, accountants or other persons, shall be in writing. Section 7.3. Manner of Action. During a period in which two or more Committee members are acting, the following provisions apply where the context admits: (A) A Committee member by writing may delegate any or all of his rights, powers, duties and discretions to any other member, with the consent of the latter. (B) The Committee members may act by meeting or by writing signed without meeting, and may sign any document by signing one document or concurrent documents. (C) An action or a decision of a majority of the members of the Committee as to a matter shall be as effective as if taken or made by all members of the Committee. (D) If, because of the number qualified to act, there is an even division of opinion among the Committee members as to a matter, a -47- 53 disinterested party selected by the Committee shall decide the matter and his decision shall control. (E) Except as otherwise provided by law, no member of the Committee shall be liable or responsible for an act or omission of the other Committee members in which the former has not concurred. (F) The certificate of the secretary of the Committee or of a majority of the Committee members that the Committee has taken or authorized any action shall be conclusive in favor of any person relying on the certificate. Section 7.4. Interested Committee Member. If a member of the Committee is also a Participant in the Plan, he may not decide or determine any matter or question concerning distributions of any kind to be made to him or the nature or mode of settlement of his benefits unless such decision or determination could be made by him under the Plan if he were not serving on the Committee. Section 7.5. Resignation or Removal of Committee Members. A member of the Committee may be removed by Cotter at any time by 10 days' prior written notice to him and the other members of the Committee. A member of the Committee may resign at any time by giving 10 days' prior written notice to Cotter and the other members of the Committee. Cotter may fill any vacancy in the membership of the Committee; provided, however, that if a vacancy reduces the membership of the Committee to less than three, such vacancy shall be filled as soon as -48- 54 practicable. Cotter shall give prompt written notice thereof to the other members of the Committee. Until any such vacancy is filled, the remaining members may exercise all of the powers, rights and duties conferred on the Committee. Section 7.6. Committee Expenses. All costs, charges and expenses reasonably incurred by the Committee will be paid by the employers in such proportions Cotter may direct. No compensation will be paid to a Committee member as such. Section 7.7. Information Required by Committee. Each person entitled to benefits under the Plan shall furnish the Committee with such documents, evidence, data or information as the Committee considers necessary or desirable for the purpose of administering the Plan. The employers shall furnish the Committee with such data and information as the Committee may deem necessary or desirable in order to administer the Plan. The records of the Employers as to an Employee's or Participant's period of employment, termination of employment and the reason therefor, leave of absence, reemployment, and compensation will be conclusive on all persons unless determined to the Committee's satisfaction to be incorrect. Section 7.8. Uniform Rules. The Committee shall administer the Plan on a reasonable and nondiscriminatory basis and shall apply uniform rules to all persons similarly situated. -49- 55 Section 7.9. Review of Benefit Determinations. The Committee will provide notice in writing to any Participant or beneficiary whose claim for benefits under the Plan is denied and the Committee shall afford such Participant or beneficiary a full and fair review of its decision if so requested. Section 7.10. Committee's Decision Final. Subject to applicable law, any interpretation of the provisions of the Plan and any decisions on any matter within the discretion of the Committee made 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. -50- 56 ARTICLE VIII TRUST FUND AND TRUSTEE Section 8.1. Trust Fund. The Employers have heretofore established a fund, herein referred to as the "trust fund" or the "Pension Fund," which comprises all of the assets of the Plan and into which future contributions to finance this Plan shall be made. The Pension Fund shall be used to pay benefits as provided in this Plan pursuant to authorization by the Committee; and such benefits shall be payable only from the Pension Fund. Section 8.2. Trust Fund Applicable Only to Payment of Benefits. The trust fund will be used and applied only in accordance with the provisions of the Plan and the Trust Agreement entered into by the Employers and the Trustee to provide the benefits thereof, and no part of the corpus or income of the trust fund will be used for, or diverted to, purposes other than for the exclusive benefit of Participants under the Plan and other persons thereunder entitled to benefits except to the extent provided in Sections 6.3 and 10.3 or to pay reasonable expenses in the administration of the Plan. Section 8.3. Trustee Capacity. The Trustee of the Pension Fund may be a bank, trust company or other corporation possessing trust powers under applicable state and Federal law, or one or more individuals or any combination thereof. When -51- 57 there are two or more Trustees, they are authorized to allocate specific responsibilities, obligations or duties among themselves by their written agreement. An executed copy of such written agreement is to be delivered to and retained by the Committee. In the event of more than one Trustee, any action shall be taken at the direction of a majority of such Trustees. Section 8.4. Resignation and Removal of Trustee. Any Trustee may resign at any time by delivering to the Board of Directors of Cotter (the "Board of Directors") a written notice of resignation, which notice may be waived by the Board of Directors, to take effect at a date specified therein, which shall not be less than thirty (30) days after the delivery thereof. The Trustee may be removed by the Board of Directors with or without cause, by tendering to the Trustee a written notice of removal to take effect at a date specified therein. Upon such removal or resignation of a Trustee, the Board of Directors shall either appoint a successor Trustee who shall have the same powers and duties as those conferred upon the resigning or discharged Trustee, or, if more than one Trustee is acting, determine that a successor shall not be appointed and the number of Trustees shall be reduced by one. Section 8.5. Taxes, Expenses and Compensation of Trustee. The Trustee shall deduct from and charge against the Trust any taxes paid by it which may be imposed upon the Trust, or the income thereof, or which the Trustee is required to pay -52- 58 with respect to the interest of any Participant or Beneficiary therein. The Employers may pay the Trustee's reasonable expenses in administering the Plan and a reasonable compensation for its services as Trustee hereunder, at a rate to be agreed upon from time to time; provided, however, that no full-time Employee shall receive any compensation for acting as Trustee hereunder. -53- 59 ARTICLE IX TOP-HEAVY RESTRICTIONS Section 9.1. General. For any Plan Year with respect to which the Plan is a "top-heavy plan," and for all subsequent Plan Years, the provisions of this ARTICLE IX shall apply notwithstanding any contrary provisions of the Plan. Section 9.2. Definitions. (A) For purposes of this ARTICLE IX, the Plan will be a "top-heavy plan" with respect to any Plan Year if the aggregate of the present value of accrued benefits of "key employees" under the Plan exceeds sixty percent (60%) of the aggregate of the present value of accrued benefits of all employees under the Plan as of the relevant "determination date." The actuarial assumptions specified in Paragraph 1 of ARTICLE II of the Plan shall be applied to all benefits provided by the Plan in order to determine the present value of accrued benefits under the Plan. (B) "Affiliated Company" means (i) a member of a controlled group of corporations of which the Employer is a member, or (ii) an unincorporated trade or business which is under common control with the Employer, or (iii) a member of an affiliated service group of which the Employer is a member, as defined in Section 414(b), 414(c), and 414(m) of the Code, respectively. For purposes hereof, a "controlled group of corporations" shall mean a controlled group of corporations as -54- 60 defined in Section 1563(a) of the Code, determined without reference to Section 1563(a)(4) and (e)(3)(C) of the Code, except that, with respect to the maximum limitations on Plan benefits set forth in Article IV of the Plan, the phrase "more than fifty (50%) percent" shall be substituted for the phrase "eighty (80%) percent" wherever such phrase appears in Section 1563(a)(1) of the Code. (C) "Key employee," for purposes of this ARTICLE IX, shall have the same meaning as ascribed to that term by Section 416(i) of the Code and the regulations promulgated pursuant thereto. Generally, this term shall include any employee or former employee (and his beneficiaries) who, at any time during the Plan Year or any of the preceding four (4) Plan Years, is: (1) an officer of the Employer having Section 415 Compensation greater than 50 percent of the dollar limitation in effect under Code Section 415(b)(1)(A) for the calendar year in which the Plan Year ends (including only the greater of three or ten percent of the total Employees of the Employer but not exceeding 50); (2) one of the ten employees who owns (or is considered as owning within the meaning of Code Section 318) both more than a 1/2 percent interest and the largest interests in the Employer and who has Section 415 Compensation in excess of the limitation in effect under Section 415(c)(1)(A) of the Code for the calendar year in which the Plan Year ends; (3) a "five percent owner" of the Employer; or -55- 61 (4) a "one percent owner" of the Employer having Section 415 Compensation of more than $150,000. (D) For purposes of this Section 9.2: (1) "five percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than five percent (5%) of the outstanding stock of the Employer or stock possessing more than five percent (5%) of the total combined voting power of all stock of the Employer; (2) "one percent owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than one percent (1%) of the outstanding stock of the Employer or stock possessing more than one percent (1%) of the total combined voting power of all stock of the Employer; and (3) "Section 415 Compensation" means annual compensation as defined by Treasury Regulation Section 1.415-2(d). (E) The term "determination date" means, with respect to any Plan Year, the last day of the preceding Plan Year. (F) "Required Aggregation Group" means each plan of the Employer or an Affiliated Company in which a key employee is a Participant, and each such plan of the Employer or an Affiliated Company which enables any plan of the Employer or an Affiliated Company in which a key employee is a Participant to meet the nondiscrimination and participation requirements of Sections 401(a)(4) and 410 of the Code, respectively. (G) "Permissive Aggregation Group" means all plans of an Employer or an Affiliated Company included in the Required -56- 62 Aggregation Group and any other plan or plans, of an Employer or an Affiliated Company, designated by the Employer as a part of the group but only if such plans, when considered as a group, would continue to satisfy the nondiscrimination and participation requirements of Sections 401(a)(4) and 410 of the Code, respectively. Section 9.3. Top-Heavy Determination. (A) The determination of whether the Plan is a top-heavy plan with respect to any Plan Year, and the computation of the top-heavy ratio, shall be made in accordance with the provisions of Section 416(g) of the Code and the regulations promulgated pursuant thereto. All qualified plans that are, along with this Plan, members of either a Required Aggregation Group or a Permissive Aggregation Group shall be aggregated with the Plan in testing whether the Plan is top-heavy. (B) The present value of an employee's accrued benefit as of any determination date shall be determined as if the employee terminated service as of the valuation date used for computing plan costs for minimum funding purposes which is the most recent valuation date within a twelve-month period ending on the determination date in question. Section 9.4. Vesting. Commencing with the first Plan Year with respect to which the Plan is a top-heavy plan, a Participant's accrued benefit shall vest at the rate not less than the rate specified in the following schedule: -57- 63
If His Completed Years of The Vested Percentage of His Service in the Plan Are Accrued Benefit Shall Be ------------------------- ---------------------------- Less than 2 years 00% 2 years but less than 3 years 20% 3 years but less than 4 years 40% 4 years but less than 5 years 60% 5 or more years 100%
Section 9.5. Minimum Accrual. Commencing with the first Plan Year with respect to which the Plan is a top-heavy plan, Participants shall accrue benefits which shall not be less than the "Minimum Accrual." The Minimum Accrual, expressed as a single life annuity commencing at the Participant's Normal Retirement Date, is the product of the Participant's average compensation for the five consecutive years when the Participant had the highest aggregate compensation from the Employer and the lesser of (A) two percent (2%) for each Year of Service completed when the Plan is a top-heavy plan, or (B) twenty percent (20%). All benefits accrued under the Plan, whether or not attributable to years for which the Plan is a top-heavy plan, shall be used to satisfy the minimum accrual required by this Section 9.5. Section 9.6. Limitation on Compensation. Commencing with the first Plan Year with respect to which the Plan is a top-heavy plan, the annual Compensation of a Participant taken into account for purposes of the benefit provisions of ARTICLE III hereof shall not in any Plan Year exceed the limitation -58- 64 prescribed by Section 416(d) of the Code ($200,000), as such limitation shall be adjusted annually by regulation. Section 9.7. Limitation on Benefits. Commencing with the first Plan Year with respect to which the Plan is a top-heavy plan, Section 5.12 of ARTICLE V shall be read by substituting the number "1.00" for the number "1.25" whenever it appears therein; provided, however, that such substitution shall not reduce any benefit accrued under the Plan prior to the Plan Year in which this provision becomes applicable. Notwithstanding the foregoing, the above paragraph shall not apply in any Plan Year in which the Plan is not "super top-heavy" and in which non-key employees receive an "extra minimum benefit." For purposes of this Section: (1) the Plan will be "super top-heavy" with respect to any Plan Year if the aggregate of the present value of accrued benefits of key employees under the Plan exceeds ninety percent (90%) of the aggregate of the present value of accrued benefits of all Employees under the plan as of the relevant determination date; and (2) the "extra minimum benefit" is one percentage point so that Section 9.5 hereof will be read by substituting "three percent (3%)" for "two percent (2%)" and "thirty percent (30%)" for "twenty percent (20%)" whenever they appear therein. -59- 65 ARTICLE X AMENDMENT AND TERMINATION OF THE PLAN Section 10.1. Amendment. Cotter, by action of its Board of Directors, shall have the right at any time to amend the Plan in any respect, except that no such amendment shall have the effect of reducing any accrued benefit (as defined in Section 411(d)(6) of the Internal Revenue Code) earned prior thereto or, except as otherwise provided in Section 6.3, make it possible for any portion of the assets of the Plan to be diverted to purposes other than for the exclusive benefit of Participants or their beneficiaries at any time prior to the satisfaction of all liabilities under the Plan with respect to such Participants and their beneficiaries. Section 10.2. Termination. This Plan is adopted in the expectation that it will be continued indefinitely but the continuance of this Plan and the payment of any contribution hereunder is not assumed as a contractual obligation. Cotter, as authorized by its Board of Directors, reserves the right to terminate this Plan at any time. In the event of a termination or partial termination of this Plan, the rights of all affected Participants to the benefits accrued to the date of such termination or partial termination, to the extent funded as of such date, shall become immediately and fully vested. -60- 66 Section 10.3. Allocation of Assets upon Termination. After a notice by the Committee to the Pension Benefit Guaranty Corporation that the Plan is to be terminated has been made in accordance with Section 4041 of ERISA without receiving a notice of noncompliance pursuant to the provisions of that Section, or said corporation has notified the Committee that the Plan should be terminated and has applied for and been granted a decree by the United States District Court for the Northern District of Illinois, Eastern Division, adjudicating that the Plan must be terminated, the Committee, or trustee appointed by said court pursuant to said corporation's application, shall allocate the assets of the Plan in accordance with Section 4044 of ERISA for the purposes set forth below and in the order set forth below, to the extent the assets are available to provide benefits to Participants and beneficiaries. The Committee or trustee shall make the allocation referred to above as follows: FIRST, equally among the following two subcategories: (i) benefits to Participants who began receiving benefits at least three years prior to termination (at the lowest pay level in that period and at the lowest benefit level under the Plan during the five years prior to termination) and (ii) benefits which would have been received for at least three years prior to termination had the Participant then retired (and had his benefits commenced then, at the lowest benefit level under the Plan during the five years prior to termination). -61- 67 SECOND, to all other benefits (if any) of individuals under the Plan guaranteed under the termination insurance provisions of ERISA. THIRD, to all other nonforfeitable benefits under the Plan. FOURTH, to all other benefits under the Plan. The term "benefits" in this Section 10.3 shall be deemed to include Survivor Benefits payable under the provisions of Section 4.10. If the assets available for allocation under the first and second priority category are insufficient to satisfy in full the benefits of all individuals, the assets shall be allocated pro rata among such individuals on the basis of the present value (as of the termination date) of their respective benefits. Any residual assets of the Plan remaining after distribution in accordance with this Section as aforesaid shall be distributed to the Employer provided: (A) all liabilities of the Plan to Participants and their beneficiaries have been satisfied; and (B) the distribution does not contravene any provisions of law. The certification of the Committee as to the persons to be provided for in any group, the amounts allocated and any other material facts shall be conclusive and binding upon the Trustee, the Employers and all persons interested in the Trust. -62- 68 Section 10.4. Merger and Consolidation. If this Plan is merged or consolidated with, or its liabilities transferred to any other retirement plan, a Participant hereunder shall (if the Plan then terminates) receive a benefit immediately after the merger, consolidation, or transfer which is at least equal to the benefit he would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated). -63- 69 ARTICLE XI GENERAL PROVISIONS Section 11.1. Employment with Related Companies. A period of any Employee's employment with a controlled group member which is not an Employer will be considered a period of employment for purposes of determining Employment Years and Years of Service but no employee of a controlled group member shall be eligible to participate in the Plan unless such controlled group member becomes an Employer under the Plan and no period of such Employee's employment with such controlled group member shall be included in Years of Service for purposes of calculating the amount of a Participant's benefits under the Plan. A "controlled group member" means any corporation or other trade or business which is under common control with an Employer within the meaning of Sections 414(b), 414(c) and 414(m) of the Code. Section 11.2. Litigation by Participants. If a legal action begun against the Employers, the Committee or the Trustee by or on behalf of any person results adversely to that person or if a legal action arises because of conflicting claims to a Participant's or other person's benefits, the cost to the Trustee, the Employer or the Committee of defending the action will be charged to the extent permitted by law to the sums, if any, which were involved in the action or were payable to the person concerned. -64- 70 Section 11.3. Absence of Guaranty. Neither the Committee nor the Employer in any way guarantees the trust fund from loss or depreciation. The liability of the Trustee or the Committee to make any payment under the Plan will be limited to the assets held by the Trustee which are available for that purpose. Section 11.4. Leased Employees. A leased employee (as defined below) shall not be eligible to participate in the Plan. A leased employee means any person who is not an employee of an employer but who has provided services to an Employer of the type which have historically (within the business field of the Employers) been provided by Employees on a substantially full-time basis for a period of at least one year pursuant to an agreement between an Employer and a leasing organization. The period during which a leased employee performs services for an Employer shall be taken into account for purposes of determining Employment Years under paragraph 12 of Article II and for purposes of determining Years of Service under paragraph 25 of Article II of the Plan unless (i) such leased employee is a participant in a money purchase pension plan maintained by the leasing organization which provides a nonintegrated employer contribution rate of at least ten percent (10%) of compensation, immediate participation for all employees and full and immediate vesting and (ii) leased employees do not constitute more than twenty percent (20%) of -65- 71 the employer's nonhighly compensated work force. No such period of employment shall be included in Years of Service for purposes of calculating the amount of a Participant's benefits under the Plan. Section 11.5. Non-Assignability. Pension benefits may not be assigned or hypothecated, and to the extent permitted by law no such income shall be subject to legal process or attachment for the payment of any claim against any person entitled to receive the same; provided, however, that this Section 11.5 shall not apply to a "qualified domestic relations order" as defined in Section 414(p) of the Internal Revenue Code of 1954, and those other domestic relation orders permitted to be so treated by the Committee under the provisions of the Retirement Equity Act of 1984. The Committee shall establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified order. Furthermore, to the extent provided in a "qualified domestic relations order," a former spouse of a Participant shall be treated as the spouse or surviving spouse for all purposes under the Plan. Section 11.6. No Enlargement of Employment Rights. An Employer's rights to discipline or discharge Employees shall not be affected by any of the provisions of the Plan. -66- 72 Section 11.7. Applicable Law. This Plan shall be construed and enforced in accordance with the laws of the State of Illinois and all provisions of the Plan shall be administered in accordance with the laws of said state, to the extent such state laws are not preempted by the Employee Retirement Income Security Act of 1974, as amended. Section 11.8. Uniform Administration. Whenever, in the administration of the Plan, any action by the Board of Directors of Cotter & Company, the Committee, or any Employer is required with respect to eligibility or classification of Employees, contributions or benefits or any other matters under this Plan, such action shall be uniform in nature as applied to all persons similarly situated and no such action shall be taken which will discriminate in favor of Employees who are officers, shareholders, persons whose principal duties consist in supervising the work of other Employees, or highly compensated Employees. Section 11.9. Text to Control. The headings of ARTICLES and Sections hereof are included solely for convenience of reference and if there by any conflict between such headings and the text of this Plan, the text shall control. IN WITNESS WHEREOF, Cotter & Company has caused the foregoing Plan to be executed and its corporate seal to be -67- 73 affixed and attested this 20th day of June, 1994. COTTER & COMPANY By: /s/ DANIEL A. COTTER ------------------------- President ATTEST: /s/ KERRY J. KIRBY - --------------------------- Secretary -68- 74 SUPPLEMENT A MERGER OF NORTHERN WHOLESALE HARDWARE CO. RETIREMENT PLAN WITH AND INTO COTTER & COMPANY PENSION PLAN A-1. Merger. Effective as of January 1, 1990, the Northern Wholesale Hardware Co. Retirement Plan ("Northern Plan") was amended, continued and merged with the Plan. A-2. Participation. On January 1, 1990, each former participant in the Northern Plan (a "Northern Participant") became a Participant in the Plan and will have benefits determined and paid in accordance with this Plan. A-3. Preservation of Accrued Benefit. Notwithstanding any provisions of the Plan to the contrary, in no event shall a Northern Participant's accrued benefit under the Plan as in effect on January 1, 1990 be less than the accrued benefit earned by such Northern Participant under the Northern Plan as at December 31, 1989. A-4. Years of Service. Each Northern Participant will be credited with the Years of Service before January 1, 1990 which such Northern Participant had earned under the Northern Plan as in effect on December 31, 1989 for participation, vesting and accrued benefit purposes. A-5. Records. The Committee shall maintain such records as it deems necessary and desirable to demonstrate the amount of each Northern Participant's benefits and Years of Service under paragraphs A-3 and A-4 above pursuant to IRS regulations. A-6. Effective Date. The effective date of this Supplement A is January 1, 1990. A-1 75 SUPPLEMENT B ACTUARIAL ASSUMPTIONS B-1. Lump Sum Distributions: For purposes of determining "Actuarial Equivalent" lump sum distributions under the Plan (as described in Sections 5.5 and 5.10), the following actuarial assumptions are used: a. Rate of Interest: The rates in use by the Pension Benefit Guarantee Corporation as of the first day of the Plan Year in which a distribution occurs. b. Mortality: The mortality table in use by the Pension Benefit Guarantee Corporation for healthy males, deferred to age 65, set back one year. B-2. Type of Annuity: For purposes of determining "Actuarial Equivalent" benefits under the Plan, the following factors shall be used in determining benefits which are actuarially equivalent to the normal single annuity for the life of the Participant form of benefit provided under the Plan: a. 50 Percent Qualified Joint and Survivor Annuity. Ninety percent, plus (or minus) four-tenths of one percent for each full year that the Participant is younger (or older) than the Participant's spouse. b. 100 Percent Qualified Joint and Survivor Annuity. Eighty-one percent, plus (or minus) seven-tenths of one percent for each full year that the Participant is younger (or older) than the Participant's spouse. c. Life and 10 Year Certain Annuity. Ninety-Four percent. B-3. Early Retirement Benefits: For purposes of determining Early Retirement Benefits payable before age 55 under Section 4.6 of the Plan, B-1 76 the attached factors shall apply to the reduced benefit payable at age 55: B-2 77 REDUCTION FACTORS TO APPLY TO AGE 55 BENEFITS FOR RETIREMENT BENEFITS BEGINNING BEFORE AGE 55
MONTHS AGE 0 1 2 3 4 5 6 7 8 40 0.2507 0.2526 0.2545 0.2564 0.2583 0.2601 0.2620 0.2639 0.2658 41 0.2733 0.2754 0.2774 0.2795 0.2816 0.2836 0.2857 0.2878 0.2898 42 0.2981 0.3004 0.3027 0.3049 0.3072 0.3095 0.3117 0.3140 0.3163 43 0.3254 0.3279 0.3304 0.3329 0.3354 0.3379 0.3404 0.3429 0.3454 44 0.3554 0.3581 0.3609 0.3637 0.3664 0.3692 0.3719 0.3747 0.3774 45 0.3885 0.3915 0.3946 0.3976 0.4006 0.4037 0.4067 0.4096 0.4128 46 0.4250 0.4284 0.4317 0.4351 0.4384 0.4418 0.4452 0.4485 0.4519 47 0.4653 0.4691 0.4728 0.4765 0.4802 0.4840 0.4877 0.4914 0.4951 48 0.5100 0.5141 0.5183 0.5224 0.5265 0.5306 0.5348 0.5389 0.5430 49 0.5595 0.5641 0.5687 0.5733 0.5778 0.5824 0.5870 0.5916 0.5962 50 0.6145 0.6196 0.6247 0.6298 0.6349 0.6400 0.6451 0.6501 0.6552 51 0.6756 0.6813 0.6870 0.6926 0.6983 0.7040 0.7097 0.7153 0.7210 52 0.7437 0.7501 0.7564 0.7627 0.7691 0.7754 0.7817 0.7881 0.7944 53 0.8197 0.8268 0.8339 0.8410 0.8481 0.8552 0.8622 0.8693 0.8764 54 0.9047 0.9127 0.9206 0.9286 0.9365 0.9444 0.9524 0.9603 0.9682 55 1.0000 MONTHS AGE 9 10 11 40 0.2677 0.2695 0.2714 41 0.2919 0.2940 0.2960 42 0.3186 0.3208 0.3231 43 0.3479 0.3504 0.3529 44 0.3802 0.3830 0.3857 45 0.4159 0.4189 0.4219 46 0.4553 0.4586 0.4620 47 0.4988 0.5026 0.5063 48 0.5471 0.5513 0.5554 49 0.6008 0.6053 0.6099 50 0.6603 0.6654 0.6705 51 0.7267 0.7324 0.7380 52 0.8007 0.8071 0.8134 53 0.8835 0.8906 0.8977 54 0.9762 0.9641 0.9921 55
Interest Rate -- 8.0% Mortality Table -- UP - 1984 B-3 EX-10.D 4 EMPLOYEE SAV. & COMP. DEF. PLAN 1 EXHIBIT 10(d) COTTER & COMPANY EMPLOYEES' SAVINGS AND COMPENSATION DEFERRAL PLAN (As Amended and Restated Effective April 1, 1994) McDermott, Will & Emery Chicago, Illinois 2 C E R T I F I C A T E I, Kerry J. Kirby, Secretary of COTTER & COMPANY, hereby certify that the attached is a full, true and complete copy of the COTTER & COMPANY EMPLOYEES' SAVINGS AND COMPENSATION DEFERRAL PLAN, as in effect on the date hereof. Dated this 20th day of June, 1994 /s/ KERRY J. KIRBY ----------------------------- Secretary as Aforesaid (Corporate Seal) 3 TABLE OF CONTENTS
PAGE ---- SECTION 1 1 Introduction 1 Purpose 1 Effective Date, Plan Year 1 Employers 2 Plan Administration 2 Trustee, Trust Agreement, Trust Fund 2 Examination of Plan Documents 2 Notices 3 Gender and Number 3 SECTION 2 4 Eligibility and Participation 4 Eligibility 4 Continuity of Employment 5 Leave of Absence 7 Reemployed Former Participant 8 SECTION 3 9 Income Deferral Contributions 9 Income Deferral Contributions 9 Compensation and Adjusted Compensation 10 Limitations on Income Deferrals for Highly Compensated 11 Highly Compensated Participants 14 SECTION 4 16 Participant Contributions 16 SECTION 5 17 Employer Contributions 17 Matching Employer Contributions 17 Limitations on Employer Contributions 17 Limitations on Matching Employer Contributions 18 Verification of Employer Contributions 21 No Interest in Employers 21 SECTION 6 23 Period of Participation 23 Termination Date 23 Restricted Participation 24 SECTION 7 26 Accounting 26 Separate Accounts 26 Accounting Dates 27
-i- 4
PAGE ---- Employer Contributions Considered Made on Last Day of Plan Year 27 Adjustment of Participants' Accounts 28 Allocation of Matching Employer Contributions and Forfeitures 29 Statement of Accounts 29 Contribution Limitations 30 Investment Funds 32 Transition Rules 35 SECTION 8 36 Payment of Account Balances 36 Retirement, Disability or Death 36 Resignation or Dismissal 36 Forfeitures 37 Manner of Distribution 38 Commencement of Distributions 40 Designation of Beneficiary 41 Missing Participants or Beneficiaries 42 Facility of Payment 44 Direct Transfer of Eligible Rollover Distributions 44 Distribution to Alternate Payees 45 SECTION 9 46 Loans and Withdrawals 46 Loans to Participants 46 Withdrawal of Participant Contributions 48 Withdrawal of Income Deferral Contributions 48 Withdrawals After Age 59-1/2 50 SECTION 10 51 Prior Plan Accounts 51 SECTION 11 52 The Committee 52 Membership 52 Committee's General Powers, Rights and Duties 52 Manner of Action 53 Interested Committee Member 54 Resignation or Removal of Committee Members 54 Committee Expenses 55 Information Required by Committee 55 Uniform Rules 55 Review of Benefit Determinations 55 Committee's Decision Final 56
-ii- 5
PAGE ---- SECTION 12 57 General Provisions 57 Additional Employers 57 Action by Employers 57 Waiver of Notice 57 Controlling Law 57 Employment Rights 57 Litigation by Participants 58 Interests Not Transferable 58 Absence of Guaranty 58 Evidence 59 Leased Employees 59 SECTION 13 60 Amendment and Termination 60 Amendment 60 Termination 60 Reorganizations 61 Vesting and Distribution on Termination 61 Notice of Amendment or Termination 62 Plan Merger, Consolidation, Etc 62 SECTION 14 63 Top-Heavy Rules 63 Purpose and Effect 63 Top-Heavy Plan 63 Key Employee 64 Aggregated Plans 65 Minimum Contributions 65 Minimum Vesting 66 No Duplication of Benefits 66 Adjustment of Combined Benefit Limitations 67 SUPPLEMENT A 1
-iii- 6 COTTER & COMPANY EMPLOYEES' SAVINGS AND COMPENSATION DEFERRAL PLAN (As Amended and Restated Effective April 1, 1994) SECTION 1 Introduction 1.1. Purpose. COTTER & COMPANY EMPLOYEES' SAVINGS AND COMPENSATION DEFERRAL PLAN (the "plan") is maintained by COTTER & COMPANY (the "company") for eligible employees of the company and the eligible employees of any other United States subsidiary of the company which adopts the plan, with the consent of the company. The purpose of the plan is to provide for the accumulation of funds from both employer and elective income deferral contributions in order to provide retirement income to participants when they retire from the employ of the employers, thereby providing for their future financial security. The plan is designed as a qualified profit sharing plan under the provisions of Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). 1.2. Effective Date, Plan Year. The plan was originally established effective January 1, 1976, and was last amended and restated effective January 1, 1989. The "effective date" of the plan as set forth below is April 1, 1994. A "plan year" means each calendar year. -1- 7 1.3. Employers. The company and any United States subsidiary of the company which adopts the plan and trust with the consent of the company are sometimes referred to hereinafter collectively as the "employers" and individually as an "employer." 1.4. Plan Administration. The plan will be administered by a committee (the "committee") appointed by the company, as described in Section 11. Participants will be notified of the identity of the committee members and of any change in the membership of such committee. 1.5. Trustee, Trust Agreement, Trust Fund. Funds contributed by the employers and participants under the plan will be held and invested in a trust fund, until distributed, by a trustee (the "trustee") appointed by the company. The trustee will act under a trust agreement between the employers and the trustee. Participants will be notified of the identity of the trustee, and of any change in trustee. 1.6. Examination of Plan Documents. Copies of the plan and trust agreement, and any amendments thereto, will be made available at the principal office of each employer where they may be examined by any participant or beneficiary entitled to receive benefits under the plan. The provisions of and benefits under the plan are subject to the terms and provisions of the trust agreement. -2- 8 1.7. Notices. Any notice or document required to be given to or filed with the committee shall be considered as given or filed if delivered or mailed by registered mail, postage prepaid, addressed as follows: Retirement Committee Cotter & Company 2740 North Clybourn Avenue Chicago, Illinois 60614 Attention: Mr. D. T. Burns 1.8. Gender and Number. Words in the masculine gender shall include the feminine and neuter genders and, where the context admits, the plural shall include the singular, and the singular shall include the plural. -3- 9 SECTION 2 Eligibility and Participation 2.1. Eligibility. Subject to the conditions and limitations of the plan, each employee of an employer who was an active participant in the plan immediately prior to the effective date will continue to participate in this plan on and after the effective date. Each other employee of an employer will become eligible to participate in the plan on the date he meets both of the following requirements: (a) He is a member of a group of employees to whom the plan has been and continues to be extended by his employer, either unilaterally or through collective bargaining as described in Supplement A of the plan. (b) He has completed one year of continuous employment (as defined in subsection 2.2). Each employee will be notified of the date on which he is eligible to become a participant in the plan and will be furnished with a summary plan description in accordance with governmental rules and regulations. An employee who would be eligible to participate in the plan except for the requirements of subparagraph 2.1(a) will be eligible to become a participant on the date he satisfies the conditions for participation under such subparagraph and will be eligible to make income deferral contributions (as defined in subsection 3.1) on the first payment date (i.e., a date on which regular salary or compensation payments are made to employees of an employer) coincident with or next following the date he satisfies such conditions. -4- 10 2.2. Continuity of Employment. In determining an employee's or participant's continuity of employment, the following rules shall apply: (a) An employee's or participant's continuous employment will be computed in terms of full and fractional years of continuous employment, with fractional years computed in completed days of employment, commencing on the date an employee is first employed by an employer (i.e., the date he first completes an hour of service) or, if he has incurred a one-year break in employment (as defined in subparagraph (g) below), the date of his reemployment (i.e., the date he first completes an hour of service upon reemployment). (b) A leave of absence (as defined in subsection 2.3) will not interrupt continuity of employment for purposes of the plan. (c) A period of concurrent employment with two or more employers will be considered as employment with one employer during that period and, to the extent provided by the company in a written agreement, an employee's employment with any predecessor to an employer will be considered as employment with that employer. (d) The termination of any employee's employment with one employer will not interrupt the continuity of his employment or participation if, concurrently with or immediately after such termination, he is employed by one or more other employers. (e) If a former employee of the employers is reemployed by an employer before he has incurred a one-year break in employment (as defined in subparagraph (g) below), his employment with the employers will not be deemed to have terminated. (f) A period of employment with a controlled group member which is not an employer will be considered a period of employment with an employer for purposes of determining -5- 11 years and days of continuous employment. A "controlled group member" means any corporation or other trade or business which is under common control with an employer within the meaning of Sections 414(b), 414(c) and 414(m) of the Code. (g) In determining continuous employment for an employee or participant who incurs a one-year break in employment and is reemployed by an employer or controlled group member, continuous employment (both before and after such one-year break in employment) will be taken into account for plan purposes upon his reemployment, except as follows: If a former employee of the employers who is not vested with respect to any portion of his deferral account or employer account is reemployed by an employer or controlled group member after he has incurred five consecutive one-year breaks in employment, his period of continuous employment with the employers or controlled group members prior to such five consecutive one-year breaks in employment shall be disregarded for purposes of determining the vested portion of his employer contribution upon his reemployment if the consecutive number of his one-year breaks in service equal or exceed his years of continuous employment. In no event shall a period of continuous employment after an employee has incurred five consecutive one-year breaks in employment be taken into account in determining the vested portion of his employer account attributable to employment prior to such five-year break in service. A "one-year break in employment" will be deemed to have occurred for each 12-month period commencing on the date of an employee's termination of employment, and on each anniversary thereof, during which such employee is not employed by an employer or controlled group member. In the case of a maternity or paternity absence (as defined -6- 12 below), the 12-month period beginning on the first day of such absence and the first anniversary thereof shall not constitute one-year breaks in service. A "maternity or paternity absence" means an employee's absence from work because of the pregnancy of the employee or birth of a child of the employee, the placement of a child with the employee in connection with adoption, or for purposes of caring for the child immediately following such birth or placement. An "hour of service" means each hour for which an employee is directly or indirectly paid, or entitled to payment, by an employer for the performance of duties, determined in accordance with Department of Labor Reg. Sec. 2530.200b-2. A "year of continuous employment" means 365 days of continuous employment under this subsection. 2.3. Leave of Absence. A leave of absence will not interrupt continuity of employment or participation in the plan. A "leave of absence" for plan purposes means a leave of absence required by law or granted by an employer on account of service in military or governmental branches described in any applicable statute granting reemployment rights to employees who entered such branches, or any other military or governmental branch designated by the employers, and also means any other absence from active employment with an employer under conditions which are not treated by the employer as a termination of employment including, but not limited to, vacations, holidays, maternity, illness, incapacity or jury duty. Leaves of absence will be governed by rules uniformly applied to all -7- 13 employees similarly situated. If an employee or participant does not return to work with an employer or controlled group member on or before termination of a leave of absence, he will be considered to have resigned on the date his last leave ended unless his employment actually terminated prior to the expiration of such leave. 2.4. Reemployed Former Participant. If a former participant in the plan who has completed the requirements of subparagraph 2.1(b) is reemployed by an employer after incurring a one-year break in employment, he will again become a participant in the plan on the date he meets the requirements of subparagraphs 2.1(a) and (b) and will be eligible to make income deferral contributions under subsection 3.1 on the first payment date coincident with or next following the date he again becomes a participant, or as soon as administratively feasible thereafter. -8- 14 SECTION 3 Income Deferral Contributions 3.1. Income Deferral Contributions. Subject to the limitations of the plan, by writing filed with the committee, a participant may defer payment of a percentage (in increments of one percent) of his compensation ("income deferral contributions"), not exceeding ten percent (10%) thereof, by electing to have such percentage withheld from his compensation and contributed to the plan on his behalf by his employer. No participant may elect to make income deferral contributions for any calendar year in excess of $9,240 (or such other amount as determined for the applicable year pursuant to Section 402(g)(5) of the Code). If income deferral contributions in excess of the amount specified in the preceding sentence are contributed on behalf of any participant for any calendar year, such "excess deferrals" shall be distributed to that participant in accordance with subsection 3.3. The amounts withheld from a participant's compensation pursuant to the participant's election shall be contributed to the plan by the participant's employer and credited to his deferral account as soon as practicable after being withheld but, in any event, not later than 30 days following the end of the pay period for which such contributions are made. A participant may elect to change the rate of his deferrals by filing a new election in accordance with procedures determined by the committee. A participant may -9- 15 elect to suspend contributions at any time during a plan year. Any participant who suspends making contributions may again resume making contributions on the next payment date in accordance with procedures established by the committee. Each election under this subsection shall be made at such time and in accordance with such rules as the committee shall determine, pursuant to one of the following methods: (i) in writing, by filing a written election form specified by the committee, (ii) by telephone (to the extent permitted by law), through a telephone system designated by the committee for this purpose, or (iii) by any other method (to the extent permitted by law) designated by the committee for this purpose. 3.2. Compensation and Adjusted Compensation. A participant's "compensation" for any plan year means the total cash compensation (including commissions, bonuses (other than sign-on bonuses), overtime pay, sick pay, vacation pay and holiday pay) paid to him by the employers during that plan year for services rendered to the employers as an employee and the amount of any income deferral contributions made for such year under subsection 3.1., but excluding severance pay, moving or relocation allowances or bonuses, tuition reimbursements, auto or travel expense allowances or bonuses, any other extraordinary remuneration paid during the period such participant is an active participant making contributions to the plan, and, effective January 1, 1994, excluding compensation in excess of -10- 16 $150,000 (or such other amount as permitted in regulations issued by the Secretary of the Treasury pursuant to Section 401(a)(17) of the Code). 3.3. Limitations on Income Deferrals for Highly Compensated. In no event shall the actual deferral percentage (as defined below) of the highly compensated participants (as defined in subsection 3.4) for any plan year exceed the greater of: (a) the actual deferral percentage of all other participants for such plan year multiplied by 1.25; or (b) the actual deferral percentage of all other participants for such plan year multiplied by 2.00; provided that the actual deferral percentage of the highly compensated participants does not exceed that of all other participants by more than 2 percentage points. The "actual deferral percentage" of a group of participants for a plan year means the average of the ratios (determined separately for each participant in such group) of A to B where A equals the income deferral contributions credited to each such participant's deferral account for each plan year and B equals the participant's "compensation" for such plan year. For purposes of this subsection, the term "compensation" shall mean compensation as defined in Section 415(c)(3) of the Code, including income deferral contributions and elective contributions made pursuant to Section 125 of the Code. The committee shall determine from time to time based on the income deferral -11- 17 elections then on file with the committee whether the foregoing limitations will be satisfied and, to the extent necessary to insure compliance with such limitation, shall reduce, on an individual-by-individual basis, for each highly compensated participant who is exceeding such deferral percentage the applicable percentage of income deferral contributions to be withheld for such highly compensated participant beginning with the highly compensated participant with the highest deferral percentage first and then reducing the applicable percentage for each subsequent highly compensated participant until such excess contributions are eliminated. In addition, if at any time a portion of the income deferrals withheld from a highly compensated participant's compensation cannot be credited to his deferral account because the limitations described above would be applicable, such amounts will not be considered contributions under subsection 3.1 and the amount of such excess contributions (and any income allocable to such contributions) will be distributed to such highly compensated participant no later than two and one-half (2-1/2) months after the close of the plan year for which such excess contribution was made. Similarly, if a portion of the income deferrals withheld from a participant's compensation cannot be credited to his deferral account because the limitation described in subsection 3.1 would be applicable, such excess deferrals will not be considered contributions under subsection 3.1 and the amount of such excess deferrals (and any income allocable to -12- 18 such deferrals) will be distributed to such participant no later than two and one-half (2-1/2) months after the close of the plan year for which such excess deferrals were made. For purposes of determining the amount of any income for a plan year attributable to any excess deferrals or any excess contributions by a highly compensated participant to be returned to such participant, such amount may be determined either (a) under any reasonable and nondiscriminatory method used by the plan for allocating income to participants accounts, or (b) under the following formula: (i) first, the value of his deferral account as of the beginning of the plan year and as of the last day of the plan year shall be determined. (ii) next, the gain or loss on such deferral account shall be determined after first reducing the difference between the balance of the account as at the end of the year and the balance as at the beginning of the year by income deferral contributions made for such year. (iii) finally, the amount calculated under paragraph (ii) shall be multiplied by a fraction the numerator of which is the excess income deferral contributions made by the participant for such year and the denominator of which is such participant's deferral account as of the last day of such year, reduced by the amount of any gain for such year and increased by the amount of any loss for such year. The actual deferral percentage of a highly compensated participant to whom the family attribution rules described in subsection 3.4 apply shall be the actual deferral ratio obtained by -13- 19 aggregating the income deferral contributions and compensation of all family members who are participants. Any excess income deferral contributions attributable to family members will be allocated to each such family member in the ratio of such family member's contribution to the total contribution by all family members. For purposes of this subsection, certain former employees (as determined under Section 414(q)(9) of the Code) shall be treated as employees for purposes of determining highly compensated participants. 3.4. Highly Compensated Participants. For purposes of subsections 3.3 and 5.3 of the plan, a "highly compensated participant" means any participant who, during the current or immediately preceding plan year: (a) was a 5 percent owner of an employer or controlled group member; (b) received annual compensation from an employer and/or controlled group member of more than $99,000 (or such other amount as determined under Section 414(q)(1) for a plan year); (c) received annual compensation from an employer and/or controlled group member of more than $66,000 (or such other amount as determined under Section 414(q)(1) for a plan year) and was in the top-paid 20% of the employees (excluding those employees excludable under Section 414(q)(8) of the Code); or (d) was an officer of an employer and/or control led group member receiving annual compensation greater than 50% of the limitation in effect under Section 415(b)(1)(A) of the Internal Revenue Code; provided, that for purposes of this subparagraph (d), -14- 20 no more than 50 employees (excluding those employees excludable under Section 414(q)(8) of the Code) of the employer (or if lesser, the greater of 3 employees or 10 percent of such employees) shall be treated as officers. A participant who is not a highly compensated participant under (b), (c) or (d) above for the immediately preceding year will not be considered a highly compensated participant for the current plan year under (b), (c) or (d) unless such participant is included within the group of the 100 highest paid employees of the employer and controlled group members for such current year. If any participant is a family member of a highly compensated participant who is either a 5 percent owner or one of the ten most highly compensated participants with respect to any plan year, that participant shall not be treated as a separate participant for purposes of this subsection and such individual's compensation will be treated as if paid to such highly compensated participant; provided that, a "family member" of a highly compensated participant means such participant's spouse, lineal ascendants or descendants and the spouses of such lineal ascendants or descendants. For purposes of this subsection, "compensation" shall be defined as provided in subsection 3.3 of the plan. -15- 21 SECTION 4 Participant Contributions Effective as of July 1, 1992, no further participant contributions (after-tax contributions made by participants) were permitted to be made under the plan. Participant contributions made prior to July 1, 1992, were subject to the limitations described in subsections 5.3 and 7.7 of the plan, and were aggregated with matching employer contributions for purposes of calculating those limitations, substituting the phrase "matching employer contributions and participant contributions" for the phrase "matching employer contributions" where appropriate. -16- 22 SECTION 5 Employer Contributions 5.1. Matching Employer Contributions. Subject to the limitations of the plan, for any plan year each employer may contribute to the trustee as the "matching employer contribution" such amount as the employer may determine and direct. Such contribution may, but need not, be made for a participant in an amount equal to seventy-five percent (75%) of the first six percent (6%) of income deferral contributions made on behalf of the participant under subsection 3.1 for such period, reduced by any forfeitures to be credited to such participant's employer account for the last payroll period as provided under subsection 7.5. Each employer's total matching employer contribution under the plan for any plan year shall be due on the last day of that plan year and, if not paid by the end of that year, shall be payable to the trustee as soon as practicable thereafter, without interest, but no later than the time prescribed by law for filing the employer's federal income tax return for such year, including extensions thereof. Matching employer contributions may, but need not, be contributed to the trustee by an employer on a monthly basis. 5.2. Limitations on Employer Contributions. Each employer's contributions for or during a plan year under subsection 5.1 shall be made from net income (i.e., its net profits before any federal and state taxes on income) for that -17- 23 plan year, or its accumulated profits (i.e., its net profits after any federal and state taxes on income which have been accumulated and retained in the business), or both, as determined under generally accepted accounting principles and practices. Each employer's contributions for a plan year are conditioned on their deductibility under Section 404 of the Code in that year, shall comply with the contribution limitations set forth in subsection 7.7 and the allocation limitations contained in subsections 3.3 and 5.3, and, unless an employer specifies otherwise, shall not exceed an amount equal to the maximum amount deductible on account thereof by the employer for its fiscal year for purposes of federal taxes on income. 5.3 Limitations on Matching Employer Contributions. In no event shall the contribution percentage (as defined below) of the highly compensated participants (as defined in subsection 3.4) for any plan year exceed the greater of: (a) the contribution percentage of all other participants for such plan year multiplied by 1.25; or (b) the contribution percentage of all other participants for such plan year multiplied by 2.00; provided that the contribution percentage of the highly compensated participants does not exceed that of all other participants by more than 2 percentage points. The "contribution percentage" of a group of participants for a plan year means the average of the ratios (determined sepa- -18- 24 rately for each participant in such group) of A to B where A equals the matching employer contributions under subsection 5.1, if any, credited to such participant's accounts for such plan year and B equals the participant's compensation (as defined in subsection 3.3) for such plan year. The committee shall determine from time to time based on such participant's matching employer contributions whether the foregoing limitations will be satisfied and, to the extent necessary to ensure compliance with such limitation, shall reduce, on an individual-by-individual basis, for each highly compensated participant who is exceeding such contribution percentage, the matching employer contributions to be contributed for such highly compensated participants, beginning with the highly compensated participant with the highest matching employer contributions first and then reducing the applicable percentage for each subsequent highly compensated participant until such contribution percentage satisfies the foregoing test. Effective January 1, 1987, if, because of the foregoing limitations, a portion of the matching employer contributions made on behalf of a highly compensated participant may not be credited to his account for a plan year, such portion and the income thereon (the "excess aggregate contributions"), shall not be considered vested in accordance with subsection 8.2 and shall be treated as a forfeiture in accordance with the provisions of subsection 8.3. The determination of any excess aggregate contributions under this subsection shall be made after determining any -19- 25 excess income deferral contributions under subsection 3.3. Income on such excess aggregate contributions shall be calculated in the same manner as provided in subsection 3.3 except that such calculations shall be made using the participant's employer account balance, matching employer contributions made on his behalf, and the excess aggregate contributions made for such plan year. In the event that both the actual deferral percentage and the contribution percentage do not satisfy the requirements of subparagraphs 3.3(a) and 5.3(a) above, the following additional limitation shall apply to employer matching contributions of highly compensated participants under the plan: After the appropriate tests under subparagraphs 3.3(a) or (b) above and subparagraphs 5.3(a) or (b) have been made and any excess income deferral contributions have been returned to the participant and any excess employer matching contributions have been forfeited or distributed to the participant, the "Aggregate Limit" test will be applied. The "Aggregate Limit" means the greater of: (1) the sum of: (i) 125 percent of the greater of the actual deferral percentage or the contribution percentage for participants who are not highly compensated participants; and (ii) the lesser of (A) the actual deferral percentage or the contribution percentage, whichever is smaller, for participants who are not highly compensated participants plus two (2) percentage points or -20- 26 (B) 200 percent of the actual deferral percentage or contribution percentage, whichever is smaller, for participants who are not highly compensated participants; or (2) the sum of: (i) 125 percent of the lesser of the actual deferral percentage or the contribution percentage for participants who are not highly compensated participants; and (ii) the lesser of (A) the actual deferral percentage or the contribution percentage, whichever is greater, for participants who are not highly compensated participants plus two (2) percentage points, or (B) 200 percent of the actual deferral percentage or contribution percentage, whichever is greater, for participants who are not highly compensated participants. If the sum of the actual deferral percentage and the contribution percentage for the highly compensated participants exceeds the Aggregate Limit, employer matching contributions will be further reduced until the Aggregate Limit test is satisfied. 5.4. Verification of Employer Contributions. A certificate of an independent certified public accountant selected by the employer shall be conclusive on all persons as to the amount of an employer's contributions under the plan for any plan year. 5.5. No Interest in Employers. The employers shall have no right, title or interest in the trust fund, nor will -21- 27 any part of the trust fund at any time revert or be repaid to an employer, unless: (a) the Internal Revenue Service determines that the plan does not meet the requirements of Section 401(a) of the Internal Revenue Code of 1986, in which event contributions made to the plan by such employer conditioned upon such qualification shall be returned to the employer within one year after the date notice of such determination is issued to the employer; or (b) a contribution is made by such employer by mistake of fact and such contribution is returned to the employer within one year after payment to the trustee; or (c) a contribution is disallowed as an expense for federal income tax purposes and such contribution (to the extent disallowed) is returned to the employer within one year after the disallowance of the deduction. The amount of any contribution that may be returned to an employer pursuant to subparagraph (b) or (c) above shall be reduced by any portion thereof previously distributed from the trust fund and by any losses of the trust fund allocable thereto and in no event may the return of such contribution cause any participant's account balances to be less than the amount of such balances had the contribution not been made under the plan. -22- 28 SECTION 6 Period of Participation 6.1. Termination Date. A participant's "termination date" will be the date on which his employment with the employers is terminated because of the first to occur of the following: (a) Normal or Late Retirement. The date of the participant's retirement on or after attaining age 65 years (his "normal retirement age"). A participant's right to all account balances shall be nonforfeitable on and after his normal retirement age. (b) Early Retirement. The date of the participant's retirement on or after attaining age 55 years but before attaining age 65 years if the participant has completed three years of continuous employment. (c) Disability. The date the participant terminates employment with all of the employers at any age because of disability (physical or mental). A participant will be considered disabled for purposes of this subparagraph if, on account of a disability, he is entitled to receive disability benefits under the Social Security Act or is entitled to receive disability benefits under the Cotter & Company Long Term Disability Plan. A participant will be considered to have terminated employment with all of the employers for purposes of this subparagraph if he is no longer on the payroll of (and performing services for) any of the employers. (d) Death. The date of the participant's death. (e) Resignation or Dismissal. The date the participant resigns or is dismissed from the employ of all of the employers before attaining early or normal retirement and -23- 29 for a reason other than disability or death. If a participant is transferred from employment with an employer to employment with a controlled group member which is not an employer, his termination date will not be considered to have occurred until his employment with all employers and controlled group members has terminated but his participation in the plan will be restricted as provided in subsection 6.2. 6.2. Restricted Participation. If (i) payment of all of a participant's account balances is not made prior to the accounting date next following his termination date, or (ii) a participant transfers to a controlled group member which is not an employer, or (iii) a participant transfers to a group or class of employees who are not eligible to participate in the plan pursuant to the requirements of subparagraph 2.1(a), the participant or his beneficiary will be treated as a participant for all purposes of the plan, except as follows: (a) The participant may not make income deferral contributions and will not share in employer matching contributions and forfeitures (as defined in subsection 8.3) under Section 5 after his termination date, or during any period described in (i), (ii) or (iii) above, except as provided in subsection 7.5. (b) The beneficiary of a deceased participant cannot designate a beneficiary under subsection 8.6. If such participant subsequently again satisfies the requirements for participation in the plan, he will become an active -24- 30 participant in the plan on the date he satisfies the requirements of subparagraphs 2.1(a) and (b) and will be eligible to make income deferral contributions on that date, or as soon as administratively feasible after that date. -25- 31 SECTION 7 Accounting 7.1. Separate Accounts. The committee will maintain the following accounts in the name of each participant: (a) Deferral Account. If a participant elects to make income deferral contributions under subsection 3.1 of the plan, this account will reflect such contributions and the income, losses, appreciation and depreciation attributable thereto. (b) Savings Account. This account will reflect participant contributions made prior to July 1, 1992, and the income, losses, appreciation and depreciation attributable thereto. Such account will consist of two sub-accounts--one to reflect contributions made prior to January 1, 1987 (and the income, losses, appreciation and depreciation thereon) and the other to reflect contributions made after December 31, 1986 and before July 1, 1992 (and the income, losses, appreciation and depreciation thereon). (c) Employer Account. If a participant has elected to make income deferral contributions under the plan, this account will reflect the matching employer contributions made on behalf of the participant under subsection 5.1 of the plan and certain forfeitures arising under the plan, and the income, losses, appreciation and depreciation attributable thereto. Such account will consist of two sub-accounts--one to reflect matching employer contributions made prior to July 1, 1992 and certain forfeitures arising under the plan, and the income, losses, appreciation and depreciation attributable thereto (known as the "Employer Account 1"), and the other to reflect matching employer contributions made on or after July 1, 1992 and certain forfeitures arising under the plan, and the income, losses, appreciation and deprecia- -26- 32 tion attributable thereto (known as the "Employer Account 2"). (d) Rollover Account. If a participant has elected to roll over or transfer amounts from another qualified plan as provided in Section 10, this account will reflect such amounts and the income, losses, appreciation and depreciation attributable thereto. The committee also may maintain such other accounts (including accounts reflecting amounts invested in any particular investment fund) in the names of participants or otherwise as it considers advisable. Unless the context indicates otherwise, references in the plan to a participant's "accounts" means all accounts maintained in his name under the plan. 7.2. Accounting Dates. A "regular accounting date" is the last day of each month, and any other date designated by the committee in its discretion. A "special accounting date" is any date designated as such by the committee and a special accounting date occurring under subsection 13.4. The term "accounting date" includes both a regular accounting date and a special accounting date. 7.3. Employer Contributions Considered Made on Last Day of Plan Year. For purposes of this Section 7, each employer's contributions for any plan year under subsection 5.1 will be considered to have been made on the last day of that year, regardless of when paid to the trustee. -27- 33 7.4. Adjustment of Participants' Accounts. As of each accounting date, the committee shall adjust the participants' accounts in the investment funds as follows: charge (or credit) to the proper accounts all withdrawals, distributions, loans or transfers made since the last preceding accounting date that have not been charged (or credited) previously, credit each participant's account with its pro rata share of any increase, or charge the account with its pro rata share of any decrease, in the value of the "adjusted net worth," as defined below, of the investment fund as of that date that has not been credited or charged previously, credit participants' income deferral contributions, if any, that are to be credited to the proper accounts as of that date in accordance with subsection 3.1 that have not been credited previously, and credit matching employer contributions and forfeitures, if any, that are to be credited as of that date in accordance with subsection 7.5 that have not been credited previously. The "adjusted net worth" of an investment fund as at any accounting date means the then net worth of that fund (that is, the fair market value of the fund, less its liabilities other than liabilities to persons entitled to benefits under the plan) as reported to or determined by the trustee, less an amount equal to the sum of the portions of the income deferral contributions and matching employer contributions paid to the trustee which are invested in that fund and which have not been credited to the accounts of participants as of a prior -28- 34 accounting date. Each participant's accounts will reflect the amounts invested in each investment fund or funds established under the plan. 7.5. Allocation of Matching Employer Contributions and Forfeitures. Subject to subsection 7.7, each employer's matching employer contribution under subsection 5.1 of the plan will be allocated and credited to the employer accounts of participants in accordance with subsection 5.1. Contributions made in accordance with subsection 5.1 during the plan year to which they relate shall be allocated and credited to participants' accounts as soon as practicable after the end of the month in which such contributions are made, but not later than the time for filing the employer's federal income tax return for such year (including extensions thereof). Contributions made in accordance with subsection 5.1 that are made after the plan year to which they relate shall be allocated and credited to participants' accounts no later than the time for filing the employer's federal income tax return for such year (including extensions thereof). Forfeitures which are used to reduce an employer's matching contribution will be allocated and credited to the employer accounts of participants as of the end of the plan year to which they relate. 7.6. Statement of Accounts. Each participant will be furnished with a statement reflecting the condition of his accounts in the trust fund as of the last day of each plan year -29- 35 or more frequently, if so provided by the committee. No participant, except one authorized by the committee, shall have the right to inspect the records reflecting the accounts of any other participant. 7.7. Contribution Limitations. Notwithstanding any provisions in the plan to the contrary, for plan years beginning January 1, 1987, the following limitations shall apply to each participant in the plan: (a) If such participant is not an active participant in any other defined contribution or defined benefit plan (as defined in Section 415(k) of the Internal Revenue Code of 1986) maintained by an employer or a controlled group member which is not an employer, the maximum "annual additions" (as defined below) to such participant's accounts for any plan year shall not exceed the lesser of $30,000 (or, if greater, 1/4 of the dollar limitation in effect under Section 415(b)(1)(A) of the Code for the calendar year which begins with or within that plan year) or 25 percent of the participant's compensation for the plan year. A participant's "annual additions" shall mean the sum of (i) employer contributions to be allocated and credited to his employer account for the year, (ii) any forfeitures to be allocated and credited to his employer account for the year, (iii) any income deferral contributions credited to his deferral account for the year, and (iv) participant contributions credited to his savings account for such year (subject to Section 4). For purposes of this subsection, "compensation" means compensation as defined for purposes of Section 415 of the Internal Revenue Code. (b) If such participant is an active participant in any other defined contribution plan maintained by an employer or a controlled group member which is not an employer, the -30- 36 maximum "annual additions" provided in subparagraph (a) above shall apply to this plan and all such other defined contribution plans as if all such plans were one plan. (c) If such participant is an active participant in any other defined benefit plan maintained by an employer or a controlled group member which is not an employer, the limitation provided in subparagraph (a) or (b) above, whichever is applicable, shall apply, and, in addition, the following additional limitation shall be applicable. If such participant's "defined contribution fraction" (as described below) when added to his "defined benefit fraction," determined under such other defined benefit plan as of the end of each plan year, exceeds 1.0 as calculated under Section 415(e) of the Code, the annual additions under this plan, the annual additions under such other defined contribution plan, or the annual benefit expected to be paid under the defined benefit plan shall be adjusted, in the sole discretion of the plan administrators under the plans, so that the defined contribution fraction when added to the defined benefit fraction will not exceed 1.0. A participant's defined contribution fraction as of the end of any plan year shall consist of a numerator which is the sum of the annual additions to such participant's accounts for all years, computed under subparagraph (a) or (b) above, whichever is applicable, and the denominator of which is the sum of the adjusted limitations for each year of such participant's service with the employers or controlled group members. For purposes of this subparagraph the "adjusted limitation" for a year shall mean the lesser of: (i) $30,000 (or, if greater, 1/4 of the dollar limitation in effect under Section 415(b)(1)(A) of the Code for the calendar year which begins with or within that plan year) multiplied by 125 percent and, (ii) 25 percent of such participant's compensation for such year multiplied by 140 percent. -31- 37 If, as a result of the limitations provided above, any contributions cannot be credited to a participant's deferral account, the committee, after consulting with the participant, may in its sole discretion: (a) Reduce any future income deferral contributions to be made by the participant for such plan year. (b) Return to the participant any income deferral contributions which, because of the limitations contained in this subsection, cannot be credited to his accounts for the year, along with any interest or earnings allocable thereto. Any employer matching contributions which cannot be credited to a participant's accounts because of the foregoing limitations will be used to reduce employer matching contributions for the next plan year (and succeeding plan years in order of time). 7.8. Investment Funds. The trust fund shall consist of such investment fund(s) as the committee shall determine from time to time. Pending investment, reinvestment or distribution as provided in the plan, the trustee may temporarily retain the assets of any one or more of the investment funds in cash, commercial paper, short-term obligations or undivided interests or participations in common or collective short-term investment funds. Any investment fund may be partially or totally invested in any common or commingled trust fund, in any group annuity, deposit administration or separate account contract issued by a legal reserve life insurance company which is invested generally in property of the kind specified for the -32- 38 investment fund, in mutual funds, or in any other property so specified by the committee. The committee, in its discretion, may direct the trustee to establish investment funds or terminate investment funds as it shall from time to time consider appropriate and in the best interest of participants. The funds established hereunder may be referred to collectively as the "investment funds" and individually as an "investment fund." Investment funds will be described in materials provided under the summary plan description for this plan or in investment materials supplementing the summary plan description. Each participant may elect to have a percentage (in increments of 1%) or all of his income deferral contributions and matching employer contributions invested in one or more investment funds determined by the committee from time to time. A participant may change a percentage designation made by him with respect to the investment of his accounts and such change of designation will apply to any amounts credited to such accounts on and after the date that such change is implemented by the trustee. If no new election is in effect with respect to a participant, such participant's income deferral contributions and matching employer contributions will be invested according to the most recent election made by such participant. Notwithstanding the foregoing, for the period beginning July 2, 1992 and ending December 31, 1993, each election was effective on the January 1 or July 1 (after all adjustments as of the next preceding accounting date were made) immediately following -33- 39 the date such election was filed. Subject to any restrictions on the transfer from or to a particular investment fund which may be established by the committee, each participant may elect to transfer amounts credited to his account under one investment fund to his account under any other investment fund, in increments of 1% of such participant's account balances. Such transfers (the number and freqency of which shall be established from time to time by the committee) will occur as of any accounting date or as soon as practicable thereafter provided that the participant makes his transfer election according to procedures established by the committee for this purpose. Subject to such rules and restrictions as the committee may establish, any election described in this subsection shall be made pursuant to one of the following methods as determined by the committee in its sole discretion: (i) in writing, by filing a written election form specified by the committee, (ii) by telephone (to the extent permitted by law), through a telephone system designated by the committee for this purpose, or (iii) by any other method (to the extent permitted by law) designated by the committee. If the committee in its discretion determines that elections under this subsection shall be made in a manner other than in writing, any participant who makes an election pursuant to such method shall receive written confirmation of such election; further, any such election and confirmation will be the equivalent of a writing for all purposes. -34- 40 7.9. Transition Rules. Notwithstanding any plan provisions to the contrary, the following transition rules shall apply with respect to plan investments and accounting: (a) The subaccounts of any participant invested in the Equity Fund and the Balanced Fund offered under the plan immediately prior to April 1, 1994 (and commonly referred to as the Twentieth Century Fund and the Strong Total Return Fund) will be transferred effective as of such date to the Fidelity Magellan Fund, and the subaccounts of any participant invested in the Interest Income Fund will be maintained in such fund, but such fund will be merged with and renamed the Fidelity Managed Income Portfolio (Blended with Existing GICs). (b) The accounting provisions of the plan in effect prior to April 1, 1994, including procedures for participant investment elections and any other plan provisions affected thereby, shall continue to apply for any reasonable period of time after January 1, 1994 as the committee may consider necessary and desirable for transition purposes until the committee fully implements the provisions of the plan as of April 1, 1994. -35- 41 SECTION 8 Payment of Account Balances 8.1. Retirement, Disability or Death. If a participant's employment with all of the employers and controlled group members is terminated because of retirement or disability under subparagraph 6.1(a), (b) or (c), or if a participant dies while in the employ of an employer, the balances in all of his accounts as at the accounting date coincident with or next following his termination date (after all adjustments required under the plan as of that date have been made) shall be nonforfeitable and shall be distributable to him or, in the event of his death, to his beneficiary, under subsection 8.4. 8.2. Resignation or Dismissal. If a participant resigns or is dismissed from the employ of all of the employers before retirement or disability under subparagraph 6.1(a), (b) or (c), the balances in his deferral account and savings account as at the accounting date coincident with or next following his termination date (after all adjustments required under the plan as of that date have been made) shall be nonforfeitable and shall be distributable to him under subsection 8.4. The balance in his employer account as at the accounting date coincident with or next following his termination date (after all adjustments required under the plan as of that date have been made) shall be reduced to an amount computed in accordance with the following schedule: -36- 42 (a) All matching employer contributions made prior to July 1, 1992 and allocated to Employer Account 1 are 100% vested. (b) All matching employer contributions made on or after July 1, 1992 and allocated to Employer Account 2 are vested in accordance with the following schedule:
Years of continuous employment under Vested Percentage of subsection 2.2 employer account ------------------- -------------------- Less than 1 0% 1 to 2 20% 2 to 3 40% 3 to 4 60% 4 to 5 80% 5 or more 100%
The resulting balance in his employer account shall be distributable to the participant under subsection 8.4. 8.3. Forfeitures. As of the accounting date coincident with the end of the plan year in which distribution of a participant's benefits occurs (or in which the participant incurs five consecutive one-year breaks in service, if earlier), the amount by which the participant's employer account is reduced under subsection 8.2 shall be treated as a "forfeiture." Prior to that date, all of a participant's accounts shall be subject to adjustment under subsection 7.1. A forfeiture will be used to reduce the employer's contribution otherwise required under subsection 5.1 and shall be credited to the employer accounts of other participants in accordance with that subsection. If a participant has received a distribution of his benefits and is reemployed by an employer or -37- 43 controlled group member before he incurs five consecutive one-year breaks in employment, any forfeiture attributable to such participant shall be recredited to such participant's employer account on the accounting date coincident with or next following the date of such participant's reemployment if such participant repays to the trustee within five years of his date of reemployment the total amount of his distribution from his employer account. 8.4. Manner of Distribution. After each participant's termination date, and subject to the conditions set forth below and in subsections 8.5 and 8.9, distribution of the net credit balance in the participant's accounts will be made to or for the benefit of the participant or, in the case of his death, to or for the benefit of his beneficiary, in the following method: (a) By payment in a lump sum; or (b) In the case of a participant (or beneficiary) with an account balance on January 1, 1989, by payment in a series of quarterly installments over a period of fifteen years (or, if less, the life expectancy of the participant and his designated beneficiary; provided that, if such beneficiary is not the participant's spouse and is more than ten years younger than the participant, the installments shall be paid over a period not exceeding the joint life expectancy of the participant and a beneficiary ten years younger than the participant). The participant may elect the method of distributing his benefits to him. The life expectancy of a participant, his spouse -38- 44 or his designated beneficiary shall be determined by use of the expected return multiples contained in the regulations issued under Section 72 of the Internal Revenue Code. Life expectancies shall not be recalculated. If a participant dies after his required commencement date (as defined in subsection 8.5), the remaining portion of his benefits will be distributed over a period not exceeding the period over which payments were being made to the participant. If a participant dies before his required commencement date, his benefits will be distributed over a period not exceeding the greatest of: (i) Five years from the death of the participant; (ii) In the case of payments to a designated beneficiary other than the participant's spouse, the life expectancy of such beneficiary, provided payments begin within one year of the participant's death; or (iii) In the case of payments to the participant's spouse, the life expectancy of such spouse, provided payments begin by the date the participant would have attained age 70-1/2. Any participant who elected by filing a written designation with the committee prior to January 1, 1984 to have distribution of his account balances made in accordance with the terms and provisions of the plan as in effect immediately before January 1, 1984 will have distributions made in accordance with such election. All distributions under the plan shall comply with the requirements of Section 401(a)(9) of the Code and the regulations thereunder. -39- 45 8.5. Commencement of Distributions. Except as provided in the following sentence, payment of a participant's benefits will be made (or installment payments will commence) within a reasonable time after his termination date, but not later than 60 days after (a) the end of the plan year in which his termination date occurs, or (b) such later date on which the amount of the payment can be ascertained by the committee. For purposes of this subsection, if the value of a participant's nonforfeitable account balance is zero, the participant shall be deemed to have received a distribution of such nonforfeitable account balance. Notwithstanding the foregoing, no distribution will be made to a participant without the participant's written consent prior to the participant's normal retirement date (as defined in subparagraph 6.1(a)) if the nonforfeitable balance in his accounts at his termination date (after any required adjustments) exceeds or ever has exceeded $3,500. If a participant does not consent to a distribution at the time of his termination of employment, his benefits shall continue to be held under the plan until his normal retirement date. Distribution of a participant's benefits shall be made by April 1 of the calendar year next following the calendar year in which the participant attains age 70-1/2 (his "required beginning date") unless such participant's election under subsection 8.4 prior to January 1, 1984 is in effect. -40- 46 8.6. Designation of Beneficiary. Each participant from time to time, by signing a form furnished by the committee, may designate any person or persons (who may be designated concurrently, contingently or successively) to whom his benefits are to be paid if he dies before he receives all of his benefits. A beneficiary designation form will be effective only when the form is filed with the committee while the participant is alive and will cancel all beneficiary designation forms previously filed with the committee. Notwithstanding the foregoing, if a participant is legally married at his death, his spouse will be the sole beneficiary for any benefits payable under the plan upon the participant's death unless such spouse consents to another designated beneficiary (or the consent of the spouse expressly permits any designations or changed designations by the participant without any requirement of further consent by the spouse). Such a consent will be effective only if it acknowledges the specific beneficiary and the effect of the beneficiary designation and is witnessed by a plan representative or a notary public. If a participant designates someone other than (or in addition to) his spouse as his primary beneficiary, and his spouse does not (or cannot) consent and is living at his death, the participant's beneficiary designation shall be ineffective, and his benefits shall be distributed to his spouse. If a deceased participant failed to designate a beneficiary as provided above, or if the designated beneficiary dies before the participant or before com- -41- 47 plete payment of the participant's benefits, the committee, in its discretion, may direct the trustee to pay the participant's benefits as follows: (a) To or for the benefit of any one or more of his relatives by blood, adoption or marriage and in such proportions as the committee determines; or (b) To the legal representative or representatives of the estate of the last to die of the participant and his designated beneficiary. The term "designated beneficiary" as used in the plan means the person or persons (including a trustee or other legal representative acting in a fiduciary capacity) designated by a participant as his beneficiary in the last effective beneficiary designation form filed with the committee under this subsection and to whom a deceased participant's benefits are payable under the plan. The term "beneficiary" as used in the plan means the natural or legal person or persons to whom a deceased participant's benefits are payable under this subsection. The term "spouse" as used in this subsection means the spouse to whom the participant was married at the earlier of the date of his death or the date payment of his benefits commenced, and who is living at the date of the participant's death. 8.7. Missing Participants or Beneficiaries. Each participant and each designated beneficiary must file with the committee from time to time in writing his post office address and each change of post office address. Any communication, -42- 48 statement or notice addressed to a participant or beneficiary at his last post office address filed with the committee, or if no address is filed with the committee then, in the case of a participant, at his last post office address as shown on the employer's records, will be binding on the participant and his beneficiary for all purposes of the plan. Neither the employers nor the committee will be required to search for or locate a participant or beneficiary. If the committee notifies a participant or beneficiary that he is entitled to a payment and also notifies him of the provisions of this subsection, and the participant or beneficiary fails to claim his benefits or make his whereabouts known to the committee within three years after the notification, the benefits of the participant or beneficiary will be disposed of, to the extent permitted by applicable law, as follows: (a) If the whereabouts of the participant then is unknown to the committee but the whereabouts of the participant's spouse then is known to the committee, payment will be made to the spouse; (b) If the whereabouts of the participant and his spouse, if any, then is unknown to the committee but the whereabouts of the participant's designated beneficiary then is known to the committee, payment will be made to the designated beneficiary; (c) If the whereabouts of the participant, his spouse and the participant's designated beneficiary then is unknown to the committee but the whereabouts of one or more relatives by blood, adoption or marriage of the participant is known to the committee, the committee may direct the trustee to pay the participant's benefits -43- 49 to one or more of such relatives and in such proportions as the committee decides; or (d) If the whereabouts of such relatives and the participant's designated beneficiary then is unknown to the committee, the benefits of such participant or beneficiary will be disposed of in an equitable manner permitted by law under rules adopted by the committee. 8.8. Facility of Payment. When a person entitled to benefits under the plan is under legal disability, or in the committee's opinion, is in any way incapacitated so as to be unable to manage his financial affairs, the committee may direct the trustee to pay the benefits to such person's legal representative, or to a relative or friend of such person for such person's benefits, or the committee may direct the application of such benefits for the benefit of such person. Any payment made in accordance with the preceding sentence shall be a full and complete discharge of any liability for such payment under the plan. 8.9. Direct Transfer of Eligible Rollover Distributions. Effective as of January 1, 1993, if payment of benefits to an "eligible distributee" (i.e., a participant, a participant's surviving spouse, or the spouse or former spouse of the participant who is an alternate payee under a qualified domestic relations order (as defined in Section 414(p) of the Internal Revenue Code)) constitutes an eligible rollover distribution under Section 402(c)(4) of the Internal Revenue Code, -44- 50 then the eligible distributee may elect to have such distribution paid directly to an eligible retirement plan described in Section 402(c)(8)(B) of the Internal Revenue Code (except that, in the case of an eligible rollover distribution to a participant's surviving spouse, the definition of an "eligible retirement plan" is limited to an individual retirement account or individual retirement annuity). Each election by an eligible distributee under this subsection 8.9 shall be made at such time and in such manner as the committee shall determine, and shall be effective only in accordance with such rules as shall be established from time to time by the committee. 8.10. Distribution to Alternate Payees. The committee may direct the trustee to distribute benefits to an alternate payee on the earliest date specified in a qualified domestic relations order, without regard to whether such distribution is made or commences prior to the participant's earliest retirement age (as defined in Section 414(p)(4)(B) of the Internal Revenue Code) or the earliest date that the participant could commence receiving benefits under the plan. -45- 51 SECTION 9 Loans and Withdrawals 9.1 Loans to Participants. While it is the primary purpose of the plan to accumulate funds for participants when they retire, it is recognized that under some circumstances it is in the best interests of participants to permit loans to be made to them. Accordingly, the trustee, pursuant to such rules as the committee may from time to time establish and upon application by a participant supported by such evidence as the committee may request, may make a loan to a participant subject to the following: (a) Subject to the provisions of this subsection, each participant may borrow from his accounts by notifying the trustee according to such procedures as the committee may determine from time to time. Effective October 19, 1989, the minimum amount which can be borrowed for any loan will be $1,000. Each participant must agree to have such loan repaid through payroll deduction in equal semi-monthly or weekly installments, as established by the committee. The committee may charge a loan processing fee in such amount as the committee determines. Except for special rules in effect for participants in the plan prior to July 1, 1990, if a participant has a loan outstanding, such participant may borrow additional amounts from the plan only if the prior loan is repaid in full. Partial prepayment of principal will not be permitted, but after the first three months of a loan period the entire unpaid balance of a loan and the accrued interest thereon may be repaid. (b) The principal amount of any loan made to a participant, when added to the outstanding -46- 52 balance of all other loans made to the participant from all qualified plans maintained by the employers, shall not exceed the lesser of: (i) $50,000, reduced by the excess, if any, of the highest outstanding balance during the one-year period ending immediately preceding the date of the loan over the outstanding balance on the date of the loan; or (ii) 50 percent of the amount to which the participant would be entitled under all such plans if he were to terminate his employment with the employers on the date the loan is made. (c) Each loan must be evidenced by a written note in a form approved by the committee, shall bear interest at a reasonable rate specified by the committee, shall provide for repayment of principal and interest by regular payroll deduction (but, in any event, not less frequently than quarterly) and shall be secured by the participant's account balances. (d) Each loan shall specify a repayment period which shall not be more than 60 months for general purposes and not more than 180 months for loans used to acquire any dwelling unit which within a reasonable time is to be used (determined at the time the loan is made) as the principal residence of the participant. Amounts borrowed by the participant will be charged to the accounts of the participant in the following order: first, his deferral account, next, his employer account, next, his rollover account, and finally, his savings account. Amounts charged to each participant's account shall be charged to the investment fund subaccounts on a pro rata basis. Amounts repaid by the participant will be recredited to the participant's accounts in the following order: first, his savings account, next, his rollover account, next, his employer account, and finally, his deferral account. Amounts recredited to each participant's account shall be credited to the investment fund subaccounts in the same proportion as the amounts allocated -47- 53 to each investment fund subaccount of the participant on the date the loan amounts are recredited. (e) If, on a participant's termination date, any loan or portion of a loan made to him under the plan, together with the accrued interest thereon, remains unpaid, the entire amount of the unpaid loan and accrued interest shall be due and payable by the participant; provided that, if such amount is not repaid, an amount equal to such loan or any part thereof, together with the accrued interest thereon, shall be charged to the participant's accounts after all other adjustments required under the plan, but before any distribution pursuant to subsection 8.4. (f) Any loan made under the plan on or before December 31, 1986 shall be governed by the terms and conditions of the plan as in effect on the date of such loan. This subparagraph shall not apply to any loans renegotiated, extended, revised or renewed after December 31, 1986. 9.2. Withdrawal of Participant Contributions. A participant may elect to withdraw any portion of his savings account, but not less than the lesser of (i) $500.00 or (ii) his entire savings account balance. Each election by a participant under this subsection shall be made at such time and in such manner as the committee shall determine. 9.3. Withdrawal of Income Deferral Contributions. With the consent of the committee, a participant may elect to withdraw any income deferral contributions made by such participant necessary because of a "hardship" (as defined below) causing an immediate and heavy financial need on the partici- -48- 54 pant. For purposes of this subsection a hardship shall include: (a) Medical expenses incurred (or not yet incurred but necessary to obtain such medical care) by the participant, the participant's spouse or the participant's dependents (as defined in Section 152 of the Internal Revenue Code) which are not reimbursed by insurance; (b) Purchase of a principal residence for the participant, excluding mortgage payments; (c) Payment of tuition and related educational fees for the next twelve months of post-secondary education for the participant or the participant's spouse, children or dependents; or (d) The need to prevent the eviction of the participant from his principal residence or foreclosure under the mortgage on the participant's principal residence. A withdrawal will be considered necessary to satisfy an immediate and heavy financial need only if (i) the distribution does not exceed the amount necessary for the immediate and heavy financial need of the participant (which amount may include amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the withdrawal); (ii) the participant has received all other available distributions and loans under this plan or any other qualified retirement plan maintained by the employers; (iii) the participant may not make income deferral contributions to the plan for the twelve-month period after receipt of the hardship distribution; and (iv) the participant may not make income deferral contributions for the calendar year -49- 55 following the calendar year in which such hardship withdrawal is made in excess of the maximum permissible income deferral contributions which can be made for such year reduced by the amount of income deferral contributions withdrawn by the participant in the prior calendar year. Each such election shall be in writing, shall be filed with the committee at such time and in such manner as the committee shall determine and shall be effective in accordance with such rules as the committee may establish from time to time. 9.4. Withdrawals After Age 59-1/2. A participant who has attained age 59-1/2 may elect to withdraw any portion or all of his account balances while continuing to be employed by the employers. Each election by a participant under this subsection shall be made at such time and in such manner as the committee shall determine. -50- 56 SECTION 10 Prior Plan Accounts Subject to such rules and requirements as the committee may establish, a participant may direct the trustee to receive a rollover amount (as described in Section 402(a)(5) or Section 408(d)(3) of the Code) or the direct transfer of an eligible rollover distribution (as described in Section 402(c)(4) of the Code) attributable to such participant's participation in any other qualified pension or profit sharing plan under Section 401(a) of the Code. Any such rollover amount or direct transfer of an eligible rollover distribution shall be credited to a separate account in the participant's name and will be subject to all provisions of the plan affecting participants' accounts, except that no income deferral contributions, employer contributions or forfeitures will be credited to such account. -51- 57 SECTION 11 The Committee 11.1. Membership. A committee consisting of three or more persons (who may but need not be employees of the employers) shall be appointed by the company. 11.2. Committee's General Powers, Rights and Duties. Except as otherwise specifically provided and in addition to the powers, rights and duties specifically given to the committee elsewhere in the plan and the trust agreement, the committee shall have the following discretionary powers, rights and duties: (a) To select a secretary, if it believes it advisable, who may but need not be a committee member. (b) To determine all questions arising under the plan, including the power to construe disputed, doubtful or uncertain terms, to determine the rights or eligibility of employees or participants and any other persons to benefits under the plan, and the amount of their benefits under the plan, to interpret and apply the plan provisions, and to remedy ambiguities, inconsistencies or omissions. (c) To adopt such rules or procedures and regulations as in its opinion may be necessary for the proper and efficient administration of the plan and as are consistent with the plan and trust agreement. (d) To enforce the plan in accordance with the terms of the plan and the trust agreement and the rules and regulations adopted by the committee. -52- 58 (e) To direct the trustee as respects payments or distributions from the trust fund in accordance with the provisions of the plan. (f) To furnish the employers with such information as may be required by them for tax or other purposes in connection with the plan. (g) To employ agents, attorneys, accountants or other persons (who also may be employed by the employers) and to allocate or delegate to them such powers, rights and duties as the committee may consider necessary or advisable to properly carry out administration of the plan, provided that such allocation or delegation and the acceptance thereof by such agents, attorneys, accountants or other persons, shall be in writing. 11.3. Manner of Action. During a period in which two or more committee members are acting, the following provisions apply where the context admits: (a) A committee member by writing may delegate any or all of his rights, powers, duties and discretions to any other member, with the consent of the latter. (b) The committee members may act by meeting or by writing signed without meeting, and may sign any document by signing one document or concurrent documents. (c) An action or a decision of a majority of the members of the committee as to a matter shall be as effective as if taken or made by all members of the committee. (d) If, because of the number qualified to act, there is an even division of opinion among the committee members as to a matter, a disinterested party selected by the committee shall decide the matter and his decision shall control. -53- 59 (e) Except as otherwise provided by law, no member of the committee shall be liable or responsible for an act or omission of the other committee members in which the former has not concurred. (f) The certificate of the secretary of the committee or of a majority of the committee members that the committee has taken or authorized any action shall be conclusive in favor of any person relying on the certificate. 11.4. Interested Committee Member. If a member of the committee is also a participant in the plan, he may not decide or determine any matter or question concerning distributions of any kind to be made to him or the nature or mode of settlement of his benefits unless such decision or determination could be made by him under the plan if he were not serving on the committee. 11.5. Resignation or Removal of Committee Members. A member of the committee may be removed by the company at any time by 10 days' prior written notice to him and the other members of the committee. A member of the committee may resign at any time by giving 10 days' prior written notice to the company and the other members of the committee. The company may fill any vacancy in the membership of the committee; provided, however, that if a vacancy reduces the membership of the committee to less than three, such vacancy shall be filled as soon as practicable. The company shall give prompt written notice thereof to the other members of the committee. Until any such -54- 60 vacancy is filled, the remaining members may exercise all of the powers, rights and duties conferred on the committee. 11.6. Committee Expenses. All costs, charges and expenses reasonably incurred by the committee will be paid by the employers in such proportions as the company may direct. No compensation will be paid to a committee member as such. 11.7. Information Required by Committee. Each person entitled to benefits under the plan shall furnish the committee with such documents, evidence, data or information as the committee considers necessary or desirable for the purpose of administering the plan. The employers shall furnish the committee with such data and information as the committee may deem necessary or desirable in order to administer the plan. The records of the employers as to an employee's or participant's period of employment, termination of employment and the reason therefor, leave of absence, reemployment, compensation and adjusted compensation will be conclusive on all persons unless determined to the committee's satisfaction to be incorrect. 11.8. Uniform Rules. The committee shall administer the plan on a reasonable and nondiscriminatory basis and shall apply uniform rules to all persons similarly situated. 11.9. Review of Benefit Determinations. The committee will provide notice in writing to any participant or -55- 61 beneficiary whose claim for benefits under the plan is denied and the committee shall afford such participant or beneficiary a full and fair review of its decision if so requested. 11.10. Committee's Decision Final. Subject to applicable law, any interpretation of the provisions of the plan and any decisions on any matter within the discretion of the committee made 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. -56- 62 SECTION 12 General Provisions 12.1. Additional Employers. Any United States subsidiary of the company may adopt the plan and become a party to the trust agreement by: (a) Filing with the company, the committee and the trustee a written instrument to that effect; and (b) Filing with the committee and the trustee a certified copy of a resolution of the company's Board of Directors consenting to such action. 12.2. Action by Employers. Any action required or permitted to be taken by an employer under the plan shall be by resolution of its Board of Directors, by resolution of a duly authorized committee of its Board of Directors, or by a person or persons authorized by resolution of its Board of Directors or such committee. 12.3. Waiver of Notice. Any notice required under the plan may be waived by the person entitled to such notice. 12.4. Controlling Law. Except to the extent superseded by laws of the United States, the laws of Illinois shall be controlling in all matters relating to the plan. 12.5. Employment Rights. The plan does not constitute a contract of employment, and participation in the plan will not give any employee the right to be retained in the -57- 63 employ of an employer, nor any right or claim to any benefit under the plan, unless such right or claim has specifically accrued under the terms of the plan. 12.6. Litigation by Participants. If a legal action begun against the trustee, an employer or the committee or any member thereof by or on behalf of any person results adversely to that person, or if a legal action arises because of conflicting claims to a participant's or other person's benefits, the cost to the trustee, the employers or the committee or any member thereof of defending the action will be charged to the extent permitted by law to the sums, if any, which were involved in the action or were payable to the person concerned. 12.7. Interests Not Transferable. The interests of persons entitled to benefits under the plan are not subject to their debts or other obligations and, except as may be required by the tax withholding provisions of the Internal Revenue Code or any state's income tax act, may not be voluntarily or involuntarily sold, transferred, alienated, assigned or encumbered, except as otherwise provided in Section 401(a)(13) of the Code. 12.8. Absence of Guaranty. Neither the committee nor the employers in any way guarantee the trust fund from loss or depreciation. The liability of the trustee or the committee to make any payment under the plan will be limited to the -58- 64 assets held by the trustee which are available for that purpose. 12.9. Evidence. Evidence required of anyone under the plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties. 12.10. Leased Employees. A leased employee (as defined below) shall not be eligible to participate in the plan. A leased employee means any person who is not an employee of an employer but who has provided services to an employer of the type which have historically (within the business field of the employers) been provided by employees on a substantially full-time basis for a period of at least one year pursuant to an agreement between an employer and a leasing organization. The period during which a leased employee performs services for an employer shall be taken into account for purposes of subsection 2.2 of the plan unless (i) such leased employee is a participant in a money purchase pension plan maintained by the leasing organization which provides a nonintegrated employer contribution rate of at least ten percent (10%) of compensation, immediate participation for all employees and full and immediate vesting and (ii) leased employees do not constitute more than twenty percent (20%) of the employer's nonhighly compensated work force. -59- 65 SECTION 13 Amendment and Termination 13.1. Amendment. While the employers expect and intend to continue the plan, the company reserves the right to amend the plan from time to time, except as follows: (a) The duties and liabilities of the committee cannot be changed substantially without its consent; (b) No amendment shall reduce the accrued benefit (as defined in Section 411(d)(6) of the Code) the participant would be entitled to receive if he had resigned from the employ of all the employers on the date of the amendment; and (c) Except as provided in subsection 5.5, under no condition shall an amendment result in the return or repayment to any employer of any part of the trust fund or the income from it or result in the distribution of the trust fund for the benefit of anyone other than persons entitled to benefits under the plan. 13.2. Termination. The plan will terminate as to all employers (i) on any date specified by the company if thirty days' advance written notice of the termination is given to the committee, the trustee and the other employers or (ii) on the date that contributions by all employers are completely discontinued under the plan. A partial termination of the plan may occur as to an individual employer or as to a group or class of employees on any date so specified by the company or as required by law. -60- 66 13.3. Reorganizations. No plan termination will occur solely as a result of the judicially declared bankruptcy or insolvency of an employer, or the dissolution, merger, consolidation or reorganization of an employer, or the sale by that employer of all or substantially all of its assets, or the termination or complete discontinuance of contributions by any one employer. However, arrangements may be made with the consent of the company whereby the plan will be continued by any successor to that employer or any purchaser of all or substantially all of its assets, in which case the successor or purchaser will be substituted for that employer under the plan and the trust agreement; provided that, if an employer is merged, dissolved, or in any other way organized into, or consolidated with, any other employer, the plan as applied to the former employer will automatically continue in effect without a termination thereof. 13.4. Vesting and Distribution on Termination. On termination or partial termination of the plan, the date of termination will be a "special accounting date" and, after all adjustments then required have been made, each affected participant's benefits will be nonforfeitable. If, on termination of the plan, the participant remains an employee of an employer, the amount of his benefits shall be retained in the trust fund until his termination of employment with all of the employers and then shall be paid to him in accordance with the -61- 67 provisions of subsection 8.4. In the event that the participant's employment with all of the employers is terminated coincident with the termination of the plan, his benefits shall be paid to him in a lump sum, subject to the provisions of subsection 8.4. 13.5. Notice of Amendment or Termination. Participants will be notified of an amendment or termination of the plan within a reasonable time. 13.6. Plan Merger, Consolidation, Etc. In the case of any merger or consolidation of this plan with, or the transfer of assets or liabilities of this plan to, any other plan, each participant's benefits if such plan terminated immediately after such merger, consolidation or transfer shall be equal to or greater than the benefits he would have been entitled to receive if this plan had terminated immediately before the merger, consolidation or transfer. -62- 68 SECTION 14 Top-Heavy Rules 14.1. Purpose and Effect. The purpose of this Section is to comply with the requirements of Section 416 of the Code. The provisions of this Section shall be effective for each plan year in which the plan is a "top-heavy plan" within the meaning of Section 416(g) of the Code. 14.2. Top-Heavy Plan. In general, the plan will be top-heavy plan for any plan year if, as of the last day of the preceding plan year (the "determination date"), the sum of the amounts in (a), (b) and (c) below for key employees (defined below and in Section 416(i)(1) of the Code) exceeds 60 percent of the sum of such amounts for all employees who are covered by a defined contribution plan or defined benefit plan which is aggregated in accordance with subsection 14.4 below: (a) The aggregate account balances of participants under this plan. (b) The aggregate account balances of participants under any other defined contribution plan included in subsection 14.4. (c) The present value of cumulative accrued benefits of participants calculated under any defined benefit plan included in subsection 14.4. In determining the account balances of participants under this plan (i) such participant's account balances shall be increased by the aggregate distributions, if any, made with respect to -63- 69 the participant during the 5-year period ending on the determination date (including distributions under a terminated plan which, if it had not been terminated, would have been included in subsection 14.4), (ii) the account balances of a participant who was previously a key employee, but who is no longer a key employee, shall be disregarded, (iii) the accounts of a beneficiary of a participant shall be considered accounts of the participant and (iv) the account balances of a participant who has not performed any services for an employer during the 5-year period ending on the determination date shall be disregarded. 14.3. Key Employee. In general, a "key employee" is an employee who, at any time during the plan year ending on the determination date or during any of the four preceding plan years, is: (a) an officer of an employer or a controlled group member whose compensation (as defined in Section 414(q)(7) of the Code) exceeds fifty percent (50%) of the dollar limitation specified in Section 415(b)(1)(A) of the Code for a plan year (including only the greater of three or ten percent of the total employees of the employer and controlled group members but not exceeding 50); (b) one of the ten employees owning the largest interests in an employer and all other controlled group members whose compensation (as defined in Section 414(q)(7) of the Code) exceeds the dollar limitation specified in Section 415(c)(1)(A) of the Code; -64- 70 (c) a 5 percent owner of an employer or controlled group member; or (d) a 1 percent owner of an employer or controlled group member receiving annual compensation from the employer and all other controlled group members of more than $150,000. A "key employee" for purposes of any other plan included in subsection 14.4 means a key employee as determined in accordance with such plan. 14.4. Aggregated Plans. Each other defined contribution plan and defined benefit plan maintained by an employer or controlled group member which covers a "key employee" as a participant or which is maintained by such employer or controlled group member in order for a plan covering a key employee to be qualified shall be aggregated in determining whether this plan is top-heavy. In addition, any other defined contribution or defined benefit plan of an employer or controlled group member may be included if all such plans which are included when aggregated will not discriminate in favor of officers, shareholders or highly compensated employees. 14.5. Minimum Contributions. For any plan year in which the plan is a top-heavy plan, the employer contribution and forfeitures, if any, credited to each participant who is not a key employee shall not be less than three percent (3%) of such participant's compensation (within the meaning of Section 415 of the Internal Revenue Code) for that year. In no event, -65- 71 however, shall the employer contribution and forfeitures credited in any year to a participant who is not a key employee (expressed as a percentage of such participant's compensation) exceed the maximum employer contribution and forfeitures credited in that year to a key employee (expressed as a percentage of such key employee's compensation up to $200,000 or such greater amount as may be determined by the Commissioner of Internal Revenue for that plan year). Income deferral contributions and employer matching contributions made on behalf of non-key employees shall not be taken into account for purposes of determining the minimum employer contribution requirements of this subsection. 14.7. Minimum Vesting. In any plan year in which the plan is a top-heavy plan, a participant's vested percentage in his employer account shall not be less than the percentage determined under the following table:
Years of Continuous Employment Vested Percentage ------------------- ----------------- Less than 2 0 2 20% 3 40 4 60 5 100
14.8. No Duplication of Benefits. If a participant is covered by another plan maintained by an employer or controlled group member, appropriate modification may be made in the plan in accordance with regulations issued by the Internal -66- 72 Revenue Service to prevent inappropriate duplication of minimum contributions or benefits under Section 416 of the Code. 14.9. Adjustment of Combined Benefit Limitations. For any plan year in which the plan is a top-heavy plan, the determination of the defined contribution plan fraction and defined benefit plan fraction under subparagraph 7.7(c) of the plan shall be adjusted in accordance with the provisions of Section 416(h) of the Code. -67- 73 SUPPLEMENT A Participating Groups
Non-Union Non-Union Non-Union Non-Union Location Salaried Office Warehouse Drivers Mechanics -------- -------- ------ --------- ------- --------- Allentown Yes Yes Yes N/A N/A Atlanta Yes No No N/A N/A Baltimore Brush Yes Yes Yes N/A N/A Cary Insurance Yes Yes N/A N/A N/A Chicago Yes Yes N/A N/A N/A Cleveland Yes No No N/A N/A Corsicana Yes Yes Yes Yes N/A Denver Yes Yes Yes Yes Yes General Paint/ Yes Yes Yes N/A N/A Blackhawk General Paint/Cary Yes Yes Yes N/A N/A General Power Yes Yes Yes N/A N/A Harvard Consolidation Yes Yes Yes N/A N/A Harvard Distribution Yes No No N/A N/A Harvard Garage Yes Yes N/A N/A Yes Henderson Yes Yes Yes Yes Yes Indianapolis Yes Yes Yes N/A N/A Kingman Yes Yes Yes Yes N/A Kansas City Yes No No N/A N/A Manchester Yes No No N/A N/A Mankato Yes Yes Yes Yes N/A Ocala Yes Yes Yes N/A N/A Portland Yes Yes Yes N/A N/A Woodland Yes Yes Yes Yes N/A
A-1 EX-10.G 5 SUPP. RETIREMENT PLAN 1 EXHIBIT 10-G SUPPLEMENTAL RETIREMENT PLAN AMENDED DECEMBER 15, 1994 SECTION 1. ESTABLISHMENT AND PURPOSE 1.1 ESTABLISHMENT OF THE PLAN. Cotter & Company (the "Company") has heretofore established an unfunded supplemental retirement plan, which is known as the "COTTER & COMPANY SUPPLEMENTAL RETIREMENT PLAN" (the "Plan"). This Amendment restates and changes certain provisions of the Plan. 1.2 PURPOSE. The purpose of this Plan is to supplement the benefits from the Company's Qualified Retirement Plan for selected executives of the Company and its subsidiaries. SECTION 2. DEFINITIONS 2.1 DEFINITIONS. Whenever used in this Plan, it is intended that the following terms have the meanings set forth below: (A) "ACTUARIAL EQUIVALENT" means the term as defined in the Qualified Retirement Plan. (B) "ADMINISTRATOR" means an individual or committee appointed by the Chief Executive Officer and so identified to Participants. (C) "COMPANY" means Cotter & Company, a Delaware corporation. (D) "BOARD" means the Board of Directors of the Company. (E) "CHIEF EXECUTIVE OFFICER" means the Chief Executive Officer of the Company. (F) "FINAL AVERAGE MONTHLY COMPENSATION" means the highest monthly average of the sum of Participant's base salary, and any bonus earned (including any reduction therein related to a Participant-elected deferral of such base salary, or bonus, to a later payment date, but excluding the payment of any such deferred base salary or bonus in the year received) for five (5) consecutive calendar years in the ten (10) calendar years of continuous employment immediately preceding the date on which occurs the earliest of the Participant's retirement, total and permanent disability, or death. (G) "NORMAL RETIREMENT DATE" means the date on which a Participant has both attained age 62 and completed at least ten (10) Years of Service. 2 (H) "OFFICER" means an employee holding one or more of the following positions: President, Vice President, Treasurer, or Secretary. (I) "PARTICIPANT" means an Officer or a management employee of the Company or any subsidiary thereof who has been nominated by the Chief Executive Officer and approved for participation in the Plan, as provided in Section 3.1 hereof. (J) "PRIMARY SOCIAL SECURITY BENEFIT" means the estimated monthly primary old-age Social Security insurance benefit determined as a straight life annuity, to which the Participant is or would be entitled at his Normal Retirement Date or at his retirement if later, based on the provisions of the Social Security Act in effect on the date of retirement, before any offsets for earned income. For purposes of estimating the Primary Social Security Benefit, it shall be assumed that the Participant has no wages covered by Social Security after retirement or disability. (K) "PRIOR EMPLOYMENT (AND FULL-TIME MILITARY SERVICE) RETIREMENT BENEFITS" means any retirement benefits from previous employers of the Participant (including previous full-time U.S. Military Service) funded by other than the Participant's contributions which the Participant has received or will be eligible to receive at any future time. Any such benefits shall be reported to the Administrator in a form satisfactory to the Administrator. The amount of such benefits shall be determined on an actuarially equivalent basis as a life only annuity, payable monthly, commencing at the date of retirement. (L) "QUALIFIED RETIREMENT PLAN" means any retirement plan which is maintained by the Company and/or any subsidiary thereof and which is a qualified plan under Section 401(a) of the Internal Revenue Code, excluding the Cotter & Company Employee Savings and Compensation Deferral Plan. The amount of the benefits payable from such Qualified Retirement Plan (including without limitation, any lump sum distribution of such benefits) shall be determined on an actuarially equivalent basis as a life only annuity, payable monthly, commencing at the date of retirement. For purposes of subsection 4.4, the Company's long-term disability plan also will be considered to be a Qualified Retirement Plan. (M) "SERVICE" shall have the same meaning in this Plan as "Years of Service" in the Qualified Retirement Plan under which the Participant is covered. 3 (N) "SURVIVING SPOUSE" means the spouse to whom a deceased Participant has been lawfully married: (1) for a period of at least one year ending on the date of the Participant's death; or, (2) where such death occurs after benefit payments have commenced under the Plan, as of the commencement date of those payments to the Participant. 2.2 GENDER AND NUMBER. Except when otherwise indicated by the context, any masculine term used herein shall include the feminine, and the singular shall include the plural. SECTION 3. PARTICIPATION 3.1 SELECTION OF PARTICIPANTS. The Chief Executive Officer, in his discretion, shall select persons to be Participants in the Plan from among those Officers and management employees of the Company and its subsidiaries who are Participants in a Qualified Retirement Plan. SECTION 4. RETIREMENT BENEFITS 4.1 NORMAL RETIREMENT BENEFIT. (A) ELIGIBILITY. A Participant shall be eligible to receive a normal retirement benefit under the provisions of this Plan upon termination of Service on or after his Normal Retirement Date. (B) AMOUNT. An amount which is equal to three (3) percent of the Participant's Final Average Monthly Compensation, for each Year of Service up to and including twenty (20) years; reduced by: the sum of the monthly amounts that the Participant is eligible to receive from the Qualified Retirement Plan and from his Prior Employment (and Full-Time Military Service) Retirement Benefits and the monthly amount of Primary Social Security Benefit to which the Participant is entitled, whether or not received. For purposes of computing the "monthly amounts" referenced above, the Participant's various benefits shall be determined on the basis of a Participant's life only. If the participant is legally married, this benefit, also determined on the basis of the participant's life only, shall be converted on an actuarially equivalent basis into monthly amounts payable in the form of a fifty (50) percent Joint and Survivor Annuity for the joint lives of the Participant and the Participant's spouse, commencing at the date of retirement. Similar actuarially equivalent conversions will be made if the Participant elects an alternative form of benefit payment provided under Section 6 hereof. 4 (C) COMMENCEMENT AND DURATION. Payment of monthly normal retirement benefits provided under this Plan shall commence as of the first day of the calendar month beginning on or after the date the Participant's Service terminates pursuant to this Subsection 4.1 and shall continue to be paid as of the first day of each month for the remainder of the Participant's life, and if such amount is to be paid in the form of a Joint and Survivor Annuity under Subsection 4.1(b), fifty (50) percent of such Participant's reduced monthly amount shall be payable to such Participant's Surviving Spouse for the remainder of such Spouse's life. 4.2 EARLY RETIREMENT BENEFITS. (A) ELIGIBILITY. A Participant shall be eligible to receive an early retirement benefit under the provisions of this Plan upon termination of his Service prior to his Normal Retirement Date but on or after his attaining age fifty-five (55) and completing at least ten (10) Years of Service. (B) AMOUNT. Upon termination of the Participant's Service, pursuant to (A) above, the Participant shall be entitled to receive a monthly early retirement benefit. Such benefit shall be computed in the same manner as a normal retirement benefit under Subsection 4.1(B), based on the Participant's Final Average Monthly Compensation and Years of Service as of the date his Service terminates and reduced by three-tenths of one percent for the first 60 months and further reduced by five-tenths of one percent for each additional month (up to a maximum of 24 months) by which the date benefit payments commence prior to his Normal Retirement Date. In no event will the benefit payable under this subsection be less than the benefit determined under this subsection as of December 31, 1993 under the terms of the Plan as then in effect." (C) COMMENCEMENT AND DURATION. Payment of monthly early retirement benefits provided under this Plan shall commence as of the first day of the calendar month beginning on or after the date the Participant's Service terminates pursuant to this Subsection 4.2 and shall continue to be paid as of the first day of each month for the remainder of the Participant's life, and if such amount is to be paid in the form of a Joint and Survivor Annuity under Subsection 4.2(b), fifty (50) percent of such Participant's reduced monthly amount shall be payable to such Participant's Surviving Spouse for the remainder of such Spouse's life. 5 4.3 DISABILITY RETIREMENT BENEFIT. (A) ELIGIBILITY. A Participant shall be eligible to receive a disability retirement benefit under the provisions of this Plan if a total and permanent physical or mental incapacity deprives the Participant of the ability to perform his duties as an executive of the Company, provided the Participant has completed at least fifteen (15) Years of Service. Determination of a disability shall be at the Chief Executive Officer's sole discretion, based on a review of medical documents and evaluations which he deems appropriate. (B) AMOUNT. Upon termination of the Participant's Service pursuant to (A) above, the Participant shall be entitled to receive a monthly disability retirement benefit. Such benefit shall be computed in the same manner as a normal retirement benefit under Subsection 4.1(B), but reduced by the sum of the benefits payable under the Company's long-term disability plan and the benefits payable under subsection 4.4 below. (C) COMMENCEMENT AND DURATION. Payment of monthly disability retirement benefits provided under this Plan shall commence as of the first date of the Participant's eligibility to receive benefits as determined in 4.3(a) and shall continue to be paid as of the first day of each month for the remainder of the Participant's life, unless earlier terminated due to the Participant's failure to continue to be eligible for benefits under the terms of this Plan. 4.4 DISABILITY INCOME BENEFIT. (A) ELIGIBILITY. A Participant shall be eligible to receive a disability income benefit under the provisions of this Plan if the Participant is eligible to receive monthly long-term disability benefits under the Company's long-term disability plan. (B) AMOUNT. The Participant shall be entitled to receive a monthly disability income benefit equal to fifty (50) percent of the Participant's Base Compensation, reduced by the sum of the amount of the monthly disability income benefit payable under the Company's long-term disability plan and the amount of any offsets to such disability income benefit amounts provided under the long-term disability plan. "Base Compensation" means base compensation as defined in the Company's long-term disability plan, as amended from time to time, except that for purposes of this Plan, such base compensation shall not be subject to any earnings limitation contained in such long-term disability plan. 6 (C) COMMENCEMENT AND DURATION. Payment of monthly disability income benefits under this Plan shall commence as of the first date of the Participant's eligibility to receive benefits as determined in 4.4(a) and shall continue to be paid as of the first day of each month thereafter unless and until long-term disability benefits are discontinued under the terms of the Company's long-term disability plan. 4.5 FORFEITURE OF BENEFITS BECAUSE OF COMPETITION. Notwithstanding any provisions in this Section to the contrary, any Plan retirement benefits which are otherwise due or payable to a Participant under this Section 4 will be forfeited and discontinued if such Participant upon or after retirement enters into, or becomes associated with, any business, as a shareholder, employee, director, pro-prietor, consultant, partner or joint venturer, which is in direct competition with the business of the Company and its subsidiaries, unless such relationship is disclosed to, and approved by, the Chief Executive Officer of the Company. SECTION 5. DEATH BENEFIT 5.1 PAYMENTS TO SURVIVING SPOUSE. (A) ELIGIBILITY. A Surviving Spouse shall be eligible to receive a monthly death benefit under the provisions of this Plan, upon the death, prior to the commencement of payments of benefits, of a Participant eligible to receive a retirement benefit under any of Subsections 4.1, 4.2, or 4.3 hereof. (B) AMOUNT. The monthly death benefit payable to an eligible Surviving Spouse shall be equal to fifty (50) percent of the Participant's benefit under the fifty (50) percent Joint and Survivor Annuity which the deceased Participant would have been eligible to receive if he had a termination of Service by normal, early or disability retirement the day prior to his death. In the event a Participant who has not attained age fifty-five (55) dies while in active employment, the Surviving Spouse's death benefit shall be determined by assuming the Participant would have been eligible for an early retirement benefit under Subsection 4.2 if he had a termination of Service on the day immediately prior to his death, regardless of his age. (C) COMMENCEMENT AND DURATION. Payment of monthly death benefits provided under this Plan shall commence as of the first day of the calendar month beginning no earlier than the month in which the Participant would have attained age fifty-five (55) and shall continue to be paid monthly thereafter as of the first day of each month for the remainder of the Surviving Spouse's life. 7 SECTION 6. OPTIONAL PAYMENT METHOD 6.1 MARRIED PARTICIPANT'S PAYMENT FORM ELECTION. A married Participant who is eligible to receive any retirement benefits provided under Section 4 hereof may, prior to terminating Service, elect to have those benefits paid in the alternative form of a joint and survivor annuity which will continue monthly payments for life to his spouse equal to one hundred (100) percent of the actuarially reduced monthly amount paid to him during his lifetime. A married Participant's benefit may, pursuant to election, revert to the form of a benefit based on the Participant's life only, provided that the Participant's spouse consents to such election. The benefits payable to the Participant and his spouse under these alternative forms shall be actuarially equivalent to the value of the benefits that would have otherwise been payable to him under Section 4 hereof. A Participant's election under this Section 6 must be filed in writing with the Administrator at least thirty (30) days prior to the date his monthly benefit payments are to commence under Section 4. SECTION 7. FINANCING OF BENEFITS 7.1 CONTRACTUAL OBLIGATION. Subject to the provisions of Section 8.4 hereof, it is intended that the Company is under a contractual obligation to make the payments under this Plan while it is in effect. No benefits under this Plan shall be financed through a trust fund or insurance contracts or otherwise. Benefits shall be paid out of the general funds of the Company. 7.2 UNSECURED GENERAL CREDITOR. Neither the Participant nor the Surviving Spouse shall have any interest whatsoever in any specific asset of the Company and its subsidiaries on account of any benefits provided under this Plan. The Participant's (or Surviving Spouse's) right to receive benefit payments under this Plan shall be no greater than the right of any unsecured general creditor of the Company and its subsidiaries. SECTION 8. MUTUAL AGREEMENTS 8.1 NO VESTING. There shall be no vesting of any amount under this Plan and no obligations shall be owing or payable by the Company and its subsidiaries under this Plan, except as provided in Section 4 and 5, or Section 6 hereof, as applicable. 8.2 NO GUARANTEE. Nothing herein shall be construed as conferring upon the Participant any greater rights to employment by the Company and its subsidiaries than he would otherwise have. 8.3 LIABILITY. Neither the Company and any subsidiary thereof nor any shareholder, director, Officer or other employee of the Company or any other person shall be liable for any act or failure to act under the Plan, except for gross negligence or fraud. 8 8.4 AMENDMENT OR TERMINATION OF THE PLAN. The Company, by action of the Management Development and Compensation Committee, with the approval of the Board, reserves the right to amend, modify, terminate, or discontinue the Plan at any time; and such action shall be final, binding, and conclusive as to all parties, including any Participant, any Surviving Spouse thereof and all other Company or subsidiary employees and persons; provided, however, that any such Board action to terminate or discontinue the Plan or to change the monthly payment amount or the time and manner of payment thereof as then provided in the Plan shall not be effective and operative with respect to any participant or Surviving Spouse who has already commenced receipt of benefit payments under Sections 4, 5, or 6 hereof, as applicable, on the date of such Board action or with respect to any spouse to whom benefits under Section 6 hereof, as applicable, would be payable due to the subsequent death of any such Participant then receiving benefit payments. 8.5 ASSIGNMENT OF RIGHTS. In no event shall the Company make any payment under this Plan to any assignee or creditor of the Participant or his Surviving Spouse. Prior to the time of a payment hereunder, the Participant or Surviving Spouse shall have no rights by way of anticipation or otherwise to assign or otherwise dispose of any interest under this Plan. 8.6 APPLICABLE LAW. This Plan is intended to constitute a plan which is unfunded and is maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees and that except to the extent that ERISA applies to such plan, the laws of Illinois will apply. The plan shall be binding upon and inure to the benefit of the Participant and the Company and any successor company of the Company by way of merger, reorganization, acquisition, or sale by the Company of substantially all of its assets. 8.7 WITHHOLDING OF TAXES. The Company may withhold from any monthly retirement benefit such sum as the Company may reasonably estimate is necessary to cover any taxes for which the Company may be liable and which may be assessed with regard to such monthly retirement benefit payment. Upon discharge or settlement of such tax liability, the Company shall distribute the balance of any monthly retirement benefit withheld, if any, to the Participant from whom the amount was withheld. If such Participant is deceased such amount shall be distributed to the beneficiary of the Participant from who it was withheld. 8.8 OVERPAYMENT. If any monthly retirement payment shall be determined by the Company to have been excessive or improper and the Participant or his Surviving Spouse shall fail, upon Company request, to make repayment to the Company of such overpayment, the Company shall deduct the amount of such overpayment from future monthly retirement payments. 9 8.9 FACILITY OF PAYMENT. Whenever a Participant or a Surviving Spouse entitled to a monthly retirement benefit hereunder shall be determined to be under a legal disability or otherwise incapacitated in any way as so to be unable to manage his financial affairs, the following shall apply: The Company may direct that all or any portion of the monthly retirement payments to be made to such Participant or Surviving Spouse shall be made to such person's spouse, legal guardian or any other person, in any manner that the Company considers advisable. The decision of the Company shall, in each case, be final and binding upon all persons, and any payment made pursuant to this provision shall operate as a complete discharge of the obligations of the Company under the Plan. 8.10 ACTION CONCLUSIVE. Any action or decision on eligibility for and payment of Plan benefits made by the Chief Executive Officer or the Administrator, pursuant to the provisions of this Plan will be final, binding and conclusive on the Participant, his or her spouse, or his or her beneficiary. /s/ JOHN F. MOYNIHAN /s/ DANIEL T. BURNS - -------------------- ------------------- Signature Signature Assistant Secretary Vice President, General Counsel - -------------------- ------------------------------- Title Title December 30, 1994 December 30, 1994 - -------------------- ------------------- Date Date EX-10.I 6 COMP. PROGRAM FOR EXEC. MGMT. 1 EXHIBIT 10-I COTTER & COMPANY LONG-TERM INCENTIVE COMPENSATION PROGRAM FOR EXECUTIVE MANAGEMENT (AMENDED) 1. PURPOSE: To attract, motivate, and retain Officers with the talents and commitment essential to the long-term success of the Company. 2. EMPLOYEES ELIGIBLE FOR THIS COMPENSATION PROGRAM: Certain Officers and other selected employees of the Company who are in a position to contribute substantially to the long-term success of the Company (Participants). The following officers of the Company shall participate: (a) President and Chief Executive Officer (CEO); (b) Vice Presidents; Additional Participants may be recommended by the President and shall become Participants upon approval by the Board of Directors. 3. LONG-TERM INCENTIVE COMPENSATION: (a) The Management Development and Compensation Committee (Committee) of the Board of Directors and CEO shall determine the performance measure, or measures, to be used in earning payments (Incentive Compensation) for all Participants in this Program. If more than one performance measure is used, each measure shall be allocated a percentage which together shall total one hundred percent. Each complete period under this Program shall be three calendar years (Program Period). (b) The Committee and the CEO shall determine threshold, target, and maximum performance levels for each performance measure, for each Participant. Incentive Compensation shall be paid to each Participant for the performance levels achieved for each measure. (c) The Committee shall have the authority to adjust the performance measure(s) as necessary to reflect the impact of extraordinary occurrences which were not anticipated when the performance measure(s) were determined by the Committee and the CEO. (d) Incentive Compensation shall be paid during the first calendar quarter of the next succeeding calendar year after the financial results for a Program Period have been determined. 4. ELIGIBILITY FOR PAYMENT OF INCENTIVE COMPENSATION: (a) Participants will be eligible to receive a payment for all or part of a Program Period if the Participant: (i) was employed by the Company at the beginning of the Program Period, and is employed, including on an approved leave of absence, on the last day of such Program Period, or on the day the present Program is terminated or amended; (ii) becomes permanently disabled during such Program Period; (iii) retires during such Program Period after attaining age 55 and completing 10 years of employment with the Company, or after attaining age 65; (iv) dies during a Program Period; or (v) terminates employment with the Company after the completion of two calendar years in any Program Period for any reason other than voluntary resignation or the theft of cash or property from the Company. 2 If a Participant was not employed by the Company for the entire Program Period and the performance measure has been achieved for the part worked, then the amount of Incentive Compensation to be paid to the Participant (or the Participant's designated beneficiary or estate) under this Section 4 shall be the amount which is the Participant's annual salary at that time, exclusive of any other incentive plans, multiplied by the percentage that is the number of complete calendar years actually worked in the Program Period divided by three years, multiplied by the Participant's applicable performance level percentages for the completed calendar year(s). 5. ADMINISTRATION OF PROGRAM: (a) The Committee and CEO shall be responsible for the administration of this Program, and shall: (i) determine all conditions of eligibility, performance measures and levels, and payments of Incentive Compensation for each Program Period. (ii) submit to the Board of Directors, for information and review, a report of the Incentive Compensation to be paid in accordance with the provisions of this Program. (iii) amend, modify, suspend or terminate this Program, at any time it deems such action to be in the best interests of the Company. (b) The judgment of the CEO and Committee in making any determination hereunder, shall be conclusive and binding upon all Participants, other employees of the Company, and their heirs, executors, personal representatives and assigns. 6. EMPLOYMENT STATUS: This Program shall not be a guarantee of present or future employment, the nature, character or duties of any job, or the present salary, of any Participant. /s/ DANIEL A. COTTER / 11/7/94 /s/ JERRALD T. KABELIN / 11/7/94 - ------------------------------------ -------------------------------- Daniel A. Cotter Date Jerrald T. Kabelin Date President and Chief Executive Officer Chairman of the Board EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1994 JAN-02-1994 DEC-31-1994 1,831 0 294,663 0 384,747 689,102 360,737 191,785 868,785 468,048 75,756 123,033 0 0 201,948 868,785 2,574,445 2,574,445 2,351,114 2,351,114 131,463 0 30,387 61,481 1,163 60,318 0 0 0 60,318 0 0
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